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A flurry of Fed speakers, including the Fed chair, will keep markets busy Wednesday. There are also mortgage applications at 7 a.m. EDT, durable goods data at 8:30 a.m. EDT and oil inventory data at 10:30 a.m. EDT. OPEC, meanwhile, is meeting in Algeria and could continue to create volatility in oil prices after headlines from there triggered a near 3% plunge Tuesday. Fed Chair Janet Yellen appears before the House Financial Services Committee at 10 a.m. on supervision and regulation. The Fed chair was personally criticized in the presidential debate Monday night by GOP candidate Donald Trump, who said the Fed’s decision to keep rates low was political and that it’s creating a bubble in the stock market.

“It has to worry the markets that potentially you could have a president getting into a nasty dispute with the chairman of the Fed in early 2017. That’s something the market would not like to see. I think the Fed has not done a very good job communicating. It’s a cacophony of confusing comments. There’s reason to criticize the Fed, but the personal attack on Yellen is unprecedented,” said Greg Valliere, chief global strategist at Horizon Investments. Traders are watching to see if Yellen is in the political hot seat on banking regulation and supervision when she appears before the committee.

One side of US deflation is falling wages…

• “Negative Growth” of Real Wages is Normal for Much of the Workforce (WS)

The chart below shows the%age change of real wages (left, y-axis) as these men aged (horizontal, x-axis). As young adults, their wages soared by up to 10% a year. Then the rate of growth fell off sharply. When the men in this cohort turned 40 in the 1990s, wage growth disappeared. By around the year 2000, the real wage peak in the US, when the oldest men in this cohort turned 50, wages had begun to decline for most of them. By the time these men were in the mid-50s, their wages across the board were heading south – and for many of them, rapidly. Hence this colorful, drooping spaghetti:

This “negative real wage growth” – devastating as it may be for those experiencing it – is nothing special, according to the New York Fed. And it crushes not just white men, but everyone: “Real wages tend to rise early in a worker’s career, flatten out mid-career, and then decline as the worker approaches retirement. This inverted U-shape pattern is a well-established feature in the labor economics literature.” The report explained it further: “Labor economists explain the rapid real wage growth early in a worker’s career as a combination of on-the-job learning and better matching of workers to jobs. A large portion is due to job matching as workers change jobs in search of a position that better utilizes their skills. As workers age, the decline in the pace of their real wage growth reflects a diminished incentive to invest in new skills (because their remaining work life is shorter) and fewer job changes (because they have found a good job match).”

The report divides life for its purposes into three phases, terms of wage growth: • Fast growth, up to age 40, • Flat growth, ages 41-54, • “Negative growth,” age 55 and older. Now there’s another problem mucking up the overall and ever-elusive real-wage growth miracle everyone has been counting on: demographics. The US population is aging. There are more people aged 40 and over in the workforce, and their incomes are now flat or declining. The portion of the population in the first phase when wages are growing fast has plunged from close to 60% in the 1980s to the mid-40% range currently. And the portion of workers with wages in the “negative growth” phase has ballooned. Given the demographics, real wage declines among workers over 50 will continue to hammer the national averages.

…and when wages are falling, so must prices.

• Grocery Prices Are Plunging (BBG)

Call it the Great Grocery-Store Giveaway of 2016. In Austin, Texas, Randalls slashed prices for boneless beef ribs by 40%, to $3.99 a pound. Not to be outdone, the H-E-B grocer down the street charged $1 a pound less. Not long ago, Albertsons advertised a deal you don’t normally see on your finer cuts of meat: “buy 1 get 1 free” specials on “USDA Choice Petite Sirloin Steak.” And what does $1 buy these days? In North Bergen, New Jersey, you could pick up a dozen eggs at Wal-Mart. OK, the price was actually $1.14. A mile away, check out Aldi, the German supermarket discounter, which can actually break the buck – 12 eggs for 99 cents. A year ago, you would have paid, on average, three times that price.

In a startling development, almost unheard of outside a recession, food prices have fallen for nine straight months in the U.S. It’s the longest streak of food deflation since 1960 – with the exception of 2009, when the financial crisis was winding down. Analysts credit low oil and grain prices, as well as cutthroat competition from discounters. Consumers are winning out; grocery chains, not so much. Their margins and, in some cases, their stock prices, are taking a hit. Eggs and beef have have grown especially inexpensive, and it isn’t only an American phenomenon: In England, Aldi recently offered its prized 8-ounce wagyu steaks from New Zealand for about $6.50 – a little more than the price of a pint of beer. “The severity of what we’re seeing is completely unprecedented,” said Scott Mushkin at Wolfe Research, who has studied grocery prices around the country for more than ten years. “We’ve never seen deflation this sharp.”

“The can has been kicked down the road for years. Now negative interest rates appear to have inadvertently crushed the can.”

• EU Banking Mayhem, One Bank at a Time, then All at Once (WS)

Here are the 29 banks in the ESTX Banks Index of Eurozone banks (so Swiss and UK banks, for example are not included). It shows the percentage drop from their 52-week high. But for some of these banks, particularly for Italian and Portuguese banks, that 52-week high was just about last year’s 52-week low, so relentless has their decline been over the years. Some of them had already been reduced to penny stocks years ago, and for them, in euro terms, the biggest losses occurred back then. So these mayhem banks, color coded by country:

If a bank stock plunges from €0.04 to €0.01 over the 52-week period, such as Banco Comercial Português in Portugal, it has been toast for longer than 52 weeks, and the percentage plunge is essentially meaningless because shares were worthless to begin with. The shares of five of these banks trade under €1. Another 8 banks trade under €3. These 29 banks form a big part of the European financial system. It includes some of the world’s largest banks, such as Deutsche Bank, Societe Generale, and BNP Paribas. It includes a slew of other “systemically important financial institutions,” such as Unicredit, ING, and Santander. They’re troubled at the same time. The can has been kicked down the road for years. Now negative interest rates appear to have inadvertently crushed the can.

Deutsche won’t go alone. Just like saving only Deutsche is far from enough. The dominoes suppart each other.

• Deutsche Bank Troubles Cast Long Shadow Over European Banking (BBG)

The turmoil swirling around Deutsche Bank has brought simmering concerns about the health of Europe’s banks back to a boil. Germany’s largest lender extended losses to a record low this week, dragging down European financial stocks, after the U.S. Department of Justice requested $14 billion to settle claims tied to fraudulent mortgage-backed securities. While the bank said it won’t pay anywhere close to that amount, the dust-up fueled doubts over its capital levels and refocused investors on the industry’s faults. “One word – Deutsche,” David Moss at BMO Global Asset Management in London, said when asked to sum up the recent slump in European banks. “That’s the biggest thing – it’s reignited the risk around regulation, fines and litigation.”

Dismissing concern about the bank’s finances, Chief Executive Officer John Cryan told Bild in an interview published late Tuesday that capital “is currently not an issue,” and accepting government support is “out of the question for us.” Deutsche Bank has tumbled almost 20% this month, while Royal Bank of Scotland – which also faces a looming Justice Department fine – fell 13%, and Italy’s UniCredit slumped 12%. The Bloomberg Europe 500 Banks and Financial Services Index has declined 4.2% in September, making it the worst month since June, when Britain’s vote to exit the European Union roiled markets and sent bank shares plunging.

[..] European banks are grappling with tougher regulatory requirements, sputtering economic growth and negative interest rates, which squeeze lending margins and crimp investment returns. In Italy, where banks are burdened with some €360 billion of soured loans, UniCredit is working on a plan to boost capital that may include asset sales and a stock offering, according to people familiar with the matter. In Germany, Commerzbank scaled back its full-year profit goals and may announce thousands of job cuts this week,

They already have.

• IMF Warns Central Banks Could Lose Deflation Fight (AFP)

The IMF warned Tuesday that central banks are struggling to beat back deflationary forces and that governments need to spend to help them succeed. In a new assessment of global economic conditions, the IMF said many countries worldwide are battling disinflation – low and slowing inflation – due to weak global economic growth.If central banks around the world cannot halt this stall, and if companies and people increasingly believe they can’t halt it, their economies risk sinking into a deflationary spiral – where prices generally start to fall and companies and consumers hold back spending and investment, stalling the economy. In this case, “countries can’t afford to be complacent,” the Fund warned. The report said deflationary pressures in many countries are coming from abroad, in the form of sinking prices of both commodities and manufactured goods.

“The breadth of the decline in inflation across countries and the fact that it is stronger in the tradable goods sectors underscore the global nature of disinflationary forces,” the IMF said. Weak inflation challenges central banks’ ability to use monetary policy to stimulate demand, the IMF notes, because interest rates are likely to already be very low, giving them little room to cut further. That has been the case with top central banks including the Fed, the ECB and the BOJ, with the latter two already having taken some interest rates negative. “Eventually, ‘persistent’ disinflation can lead to costly deflationary cycles – as we have seen in Japan – where weak demand and deflation reinforce each other, and end up increasing debt burdens and hindering economic activity and job creation.”

How to politicize the Fed?!

• A Legal Barrier to Higher US Interest Rates (WSJ)

Defending the Fed’s recent decision to put off raising interest rates again, Fed Chair Janet Yellen told reporters last week that she and other Fed governors wanted “to see some continued progress” before taking that step. Politics, she insisted, had nothing to do with it. What Ms. Yellen didn’t say is that the Fed couldn’t raise its rates without breaking the law. Since when are Fed rate increases illegal? Since the 2007-08 subprime meltdown and financial disaster, actually. Until then the Fed could set any target it liked for the federal-funds rate—the interest rate banks pay for overnight loans of cash reserves. To keep the fed-funds rate from rising above target, the Fed pumped more reserves into the banking system. To keep it from dropping below, it took reserves away.

But after Lehman Brothers failed in 2008, the Fed’s efforts to keep the fed-funds rate from dropping below its target proved futile. To set a floor on how far the rate could go, the Fed started paying interest on banks’ reserve balances with the Fed, taking advantage of the 2006 Financial Services Regulatory Relief Act giving it permission to do so. Alas, it didn’t work. Government-sponsored enterprises Fannie Mae, Freddie Mac and the Federal Home Loan Banks, which also kept deposit balances at the Fed but weren’t eligible for interest on reserves (IOR), started making overnight loans to banks at rates below the IOR rate. In effect, this turned what the Fed hoped would be a floor on the fed-funds rate into a ceiling. To raise rates now, the Fed increases the rate on reserves.

So what’s to keep the Fed from raising rates this way again? The 2006 Financial Services Regulatory Relief Act is what. For that law only allows the central bank to pay interest on reserves “at a rate or rates not to exceed the general level of short-term interest rates.” The rub is that the Fed’s IOR rate of 50 basis points (0.5%) already exceeds the closest comparable market rates: those on shorter-term Treasury bills. At the start of this month, the four-week T-bill rate was just 26 basis points; since then it has slid even lower, all the way down to 10 basis points. Judging by these numbers, the Fed is already flouting the law. Another hike would mean flouting it all the more flagrantly. Lawmakers will be duty-bound to object. The law can only be stretched so far. Unless “general short-term rates” rise markedly, Congress can be expected to question the legality of any Fed rate increase. If it comes to that, Ms. Yellen will find it very hard to dissemble her way out of it.

2016 will be known as the good old days.

• Global Container Volume on Track for Worst Year Since 2009 (WSJ)

Global container volumes are on track for zero growth this year, which would mark the sector’s worst performance since the 2009 economic crisis and a sure catalyst for further bankruptcies and possible acquisitions in the beleaguered shipping industry, shipping executives said. Freight rates, the predominant source of income for shipping companies, fell 20% in the benchmark Asia to Europe trade route this week compared with last week to $767 per container. Rates have mostly stayed well below $1,000 since the start of the year and operators say anything below $1,400 is unsustainable. They aren’t expected to turn around soon.

China’s Golden Week holiday starts at the beginning of October, marking the slow season for operators as many Chinese factories cut production levels after an output frenzy in the summer months when western importers stack up products for the year-end holidays. “The industry faces its worst year since the Lehman Brothers collapse,” said Jonathan Roach, an analyst at London based Braemar ACM. “Demand is around zero and any moves to increase freight rates will likely fail.” Hanjin, South Korea’s biggest operator and the world’s seventh largest in terms of capacity, filed for bankruptcy protection last month and is under court order to sell its own ships and returning chartered ships to their owners. Container operators, which move everything from clothes and shoes to electronics and furniture, are burdened by 30% more capacity in the water than demand.

And they’ll keep their jobs?

• Wells Fargo Executives Forfeit Millions, CEO To Forgo Salary (G.)

Wells Fargo executives will forfeit millions of dollars in the wake of revelations that the bank’s sales quotas led to the creation of more than 2m unauthorized accounts. The bank’s chief executive John Stumpf will forgo his salary for the coming months as independent directors launch a new investigation into Wells Fargo’s retail banking and sales practices. Last year, Stumpf made about $19.3m. Stumpf will also forfeit unvested equity awards worth about $41m. Carrie Tolstedt, who oversaw the retail banking at Wells Fargo while the unauthorized accounts were opened, was slated to receive as much as $124.6m after retiring this summer, according to Fortune. The bank said on Tuesday that she would not receive an undisclosed severance and would forfeit about $19m in unvested awards.

Less than three weeks ago, Wells Fargo announced that it had agreed to pay $185m in penalties after an audit found that its employees opened as many as 1.5m deposit accounts and 565,000 credit card accounts without customers’ consent. The accounts were opened by the bank’s staff in hopes of meeting their monthly sales quota and earning their incentive bonuses. Wells Fargo workers have tried to draw attention to the “unreasonable” quotas before – some even staged a protest in front of the bank’s headquarters last year. When Stumpf testified in front of the US Senate last week, he drew ire from US lawmakers. Many of them called for the bank to recoup pay from Stumpf and Tolstedt and hold them accountable.

The EU has made Greek recovery impossible. Spending power has been murdered, and a whole generation of younger people is 50-60% long-term unemployed. It makes no difference what anyone forecasts.

• Worries Grow Over Greek Economic Forecast (WSJ)

Greece’s economic recovery is proving elusive, challenging the forecasts of the country’s government and foreign creditors still counting on growth reviving this year. The IMF said last week that the economy is stagnating, in the first admission from creditors that Greece’s recovery is off track again. Growth will only restart next year, the head of the IMF’s team in Greece said on a conference call with reporters, without offering details. Of particular concern is that exports, which are supposed to lead Greece out of trouble, are on a slow downward trajectory, hampered by capital controls, taxes and a lack of credit. “There is no chance we will see a rebound unless we see some bold political decisions that would introduce a more stable business environment,” said Dimitris Tsakonitis, general manager at mining company Grecian Magnesite.

The bailout agreement between Greece and its German-led creditors assumes rapid growth from late 2016 onward, including an official forecast of 2.7% growth in 2017. Private-sector economists believe next year’s growth could be closer to 0.6%. Weaker growth would undermine the budget, likely leading to fresh arguments with lenders about extra austerity measures. Greece is still grappling with the measures it has already agreed to. Late on Tuesday the country’s parliament approved pension overhauls and other policy changes that have been delayed for months, holding up bailout funding.

Good to note. Berlin buys back its water, and forces Athens to sell it. “It’s not any more a democracy or equality in the EU. It’s a kind of business..”

No society should ever agree to sell its basic needs to foreigners. Leaders who do that anyway should be fired.

• Germany’s Hypocrisy Over Greece Water Privatisation (G.)

Greek activists are warning that the privatisation of state water companies would be a backward step for the country. Under the terms of the bailout agreement approved by the Greek parliament today, Greece has pledged to support an existing programme of privatisation, which includes large chunks of the water utilities of Greece’s two largest cities – Athens and Thessaloniki. There is ongoing debate about water privatisation and the role of business. Across Europe a wave of austerity-driven privatisation proposals has led to protests in Ireland, Italy, Greece and Spain. At the same time, some of northern Europe’s largest cities, including Paris and Berlin, are buying back utilities they sold just last decade.

President of the Thessaloniki water company trade union George Argovtopoulos said a move to a for-profit model would raise prices for consumers and degrade services. “It’s not any more a democracy or equality in the EU. It’s a kind of business,” he said, adding that austerity measures that require water privatisation smacked of a “do as I say, but not as I do” approach from Germany. “We know that in Berlin, just two years ago they remunicipalised the water there, although they paid just under €600m to Veolia [to buy back its stake]. It’s clear that the model of privatisation of water has failed all around the world,” he said. The German finance ministry refused to comment ahead of a Eurogroup meeting in Brussels on Friday where the third bailout deal looked set to be signed.

[..] Austerity-led changes to water supply have been fiercely resisted across Europe’s most indebted countries. In Dublin this year, huge protests erupted over plans to directly charge water users who previously paid for water through their taxes. This was seen as a first step towards selling off Ireland’s water supply. A water privatisation push by former Italian prime minister Silvio Berlusconi was crushed by a 95% referendum vote in 2011. A similar referendum in Thessaloniki last year delivered a 98% vote against. A 2014 report by the Transnational Institute’s Satoko Kishimoto found that across the world 180 cities had bought back (or remunicipalised) their water supply. She said this was a response to almost universally higher water prices and the loss of control over a fundamental resource.

Another author claiming that “..the scientific consensus within and outside of China is that GMOs are safe..”

• China Wants GMOs. The Chinese People Don’t. (BBG)

The latest food safety scandal in China might be its most damaging. Earlier this week, a former doctoral student at one of the country’s national testing centers for genetically modified organisms went public with allegations of scientific fraud, including claims that records were doctored extensively, that unqualified personnel were employed under illegal contracts and – most seriously – that authorities refused to take action when his concerns were aired privately. On Wednesday, China’s Ministry of Agriculture responded to a social media storm by suspending operations at the center. That might take care of the current scandal, but the Chinese public’s hostility toward GMOs won’t go away so easily.

Those concerns have only grown over the past decade as the government has increased its support of GMOs, including approval of the state-owned ChinaChem Group’s $43 billion takeover offer for the Swiss seed giant Syngenta. These efforts have galvanized a very public opposition that transcends China’s typical political fault lines, and created one of the government’s most intractable headaches. Feeding China’s huge population has never been easy. But over the last three decades, the challenges have become considerably greater as urbanization devoured farmland, and pollution made even more of it unusable. Today, the government is faced with the task of feeding 21% of the world’s population with 9% of its arable land. Its reliance on foreign goods has made China the world leader in imports since 2011.

Officials now fear the country could become dependent on foreigners for its food supply and the government remains committed to maintaining self-sufficiency in rice, wheat, and other key grains. As a result, the political pressure to increase yields is considerable. In fact, this pressure is centuries-old. Domesticated rice first appeared in the Yangtze River Valley at least 8,000 years ago, and Chinese farmers and scientists have been innovating ever since. In 1992, China became the first country to introduce a GMO crop into commercial production, when it sowed a virus-resistant tobacco plant on 100 acres. Since then, the government has issued safety certificates for a wide range of GMO crops, ranging from chili peppers to petunias. Yet, so far at least, only cotton has gone into wide cultivation. Other GMOs – especially rice, a staple of the Chinese diet – are still awaiting approval to be domestically cultivated.

The blessings of plastic.

• Single Clothes Wash May Release 700,000 Microplastic Fibres (G.)

Each cycle of a washing machine could release more than 700,000 microscopic plastic fibres into the environment, according to a study. A team at Plymouth University in the UK spent 12 months analysing what happened when a number of synthetic materials were washed at different temperatures in domestic washing machines, using different combinations of detergents, to quantify the microfibres shed. They found that acrylic was the worst offender, releasing nearly 730,000 tiny synthetic particles per wash, five times more than polyester-cotton blend fabric, and nearly 1.5 times as many as polyester. “Different types of fabrics can have very different levels of emissions,” said Richard Thompson, professor of marine biology at Plymouth University, who conducted the investigation with a PhD student, Imogen Napper.

“We need to understand why is it that some types of [fabric] are releasing substantially more fibres [ than others].” These microfibres track through domestic wastewater into sewage treatment plants where some of the tiny plastic fragments are captured as part of sewage sludge. The rest pass through into rivers and eventually, oceans. A paper published in 2011 found that microfibres made up 85% of human-made debris on shorelines around the world. The impact of microplastic pollution is not fully understood but studies have suggested that it has the potential to poison the food chain, build up in animals’ digestive tracts, reduce the ability of some organisms to absorb energy from foods in the normal way and even to change the behaviour of crabs.

Debt Rattle November 22 2015

Nov 222015

November 22, 2015 Posted by Raúl Ilargi Meijer at 10:38 am Finance Tagged with: care homes, container, default, electricity, leverage, loans, oil, Saudi, trees 2 Responses »

Marjory Collins “Italian girls watching US Army parade on Mott Street, New York” 1942

• Will $4.6 Trillion Leveraged Loan Market Cause Next Financial Crisis? (Cohan)

• Asia-Europe Container Freight Rates Drop 70% in 3 Weeks (Reuters)

• Nightmare of Mario Draghi’s Crowded Trade (FT)

• The Long, Cold Winter Ahead (Tenebrarum)

• Oil Companies Brace For Big Wave Of Debt Defaults (CNBC)

• Eurozone Agrees Greece Can Get Next Loan Tranche, Cash For Bank Recap (Reuters)

• Half Of UK Care Homes To Close If £2.9 Billion Gap Is Not Plugged (Guardian)

• Report Urges UK Government To Act Now To Avoid Energy Crisis (EAEM)

• How Did a UK Power Plant Get 25 Times the Market Price? (Bloomberg)

• State Of Emergency In Crimea After Electricity Pylons ‘Blown Up’ (Reuters)

• Brazil Dam Toxic Mud Reaches Atlantic Ocean (BBC)

• Deforestation Threatens Majority of Amazon Tree Species (PSMag)

• Saudi Arabia, an ISIS That Has Made It (NY Times)

• The Saudi Connection to Terror (Daniel Lazare)

• Terrorism Links Trigger Greater Scrutiny For Greece (Kath.)

• Chaos In Greek Islands Over Three-Tier Refugee Registration System (Guardian)

One of many factors that could be the trigger.

• Will $4.6 Trillion Leveraged Loan Market Cause Next Financial Crisis? (Cohan)

Financial crises take about a decade to be born. Having lived through four of them, I see the raw materials for a fifth one — flowing from the collapse of so-called leveraged loans — debt piled on top of companies with weak credit ratings. Before examining the latest news on leveraged loans, let’s take a quick tour down the memory lane of financial crises I’ve lived through. My first one was in 1982 — that’s when banks lent too much money to oil and gas developers in Oklahoma and Texas as well as local real estate developers. At the suggestion of McKinsey, money-center banks like Chemical Bank thought it would be a great idea to buy a piece of those loans. It’s all described nicely in a wonderful book — Belly Up. Too bad the price of oil and gas tumbled, leaving lenders in the lurch and causing a spike in bank failures that gave me the chance to spend a balmy summer in Washington helping the FDIC develop a system to manage the liquidation of those failed banks.

By 1989, it was time for another banking crisis — this one was pinned to too much lending to commercial real estate developers in New England and junk-bond-backed loans for what used to be known as leveraged buyouts. The government shut down Bank of New England and was threatening my employer, Bank of Boston, with the same. I worked on a government-mandated strategic plan intended to save the bank from a similar fate. Next up — the dot-com bust — which introduced me to the idea that not all bubbles are bad if you can get in when they’re forming and exit before they burst. I invested in six dot-coms and had a mixed record — the three winners offset the three wipe outs.

Finally, there is the latest and greatest — the so-called Great Recession of 2008. I am now getting to the end of Ben Bernanke’s The Courage To Act. It brings back all the memories — from my first story on subprime mortgages back in December 2006 in which I recommended selling short shares of subprime lender, NovaStar Financial when they traded at $106 apiece. (NovaStar changed its name to Novation in 2012 and you can pick up a share for 17 cents.) The key causes of the crisis that Bernanke describes as the worst in history were weak subprime regulation, liar loans, global securitization, too little capital, limited transparency, skewed banker and ratings agency incentives, and lame risk management. What does this little financial crisis tour have to do with leveraged loans? I have often cited the Mark Twain’s expression that history does not repeat itself, but sometimes it rhymes.

I think leveraged loans rhyme with junk bonds and subprime mortgages. Banks make leveraged loans “to companies that have junk credit ratings in the hope of quickly selling the debt to investors, including mutual funds, hedge funds and entities called collateralized loan obligations,” according to the New York Times. Why the rhyme? As in the late 1980s, leveraged loans are made to companies with bad credit ratings; like subprime mortgages they are being packaged into securities that supposedly give investors a diversified portfolio; and like the early 1980s crisis, there is excess debt on the books of energy and mining companies.

World trade comes to a crawl.

• Asia-Europe Container Freight Rates Drop 70% in 3 Weeks (Reuters)

Shipping freight rates for transporting containers from ports in Asia to Northern Europe plunged by 27.9% to $295 per 20-foot container (TEU) in the week ending on Friday, one source with access to data from the Shanghai Containerized Freight Index told Reuters. The drop came after spot freight rates on the world’s busiest route dropped 39.3% last week, and the current rates are widely seen as loss-making levels for container shipping companies. The spot freight rates for transporting containers, carrying anything from flat-screen TVs to sportswear from Asia to Northern Europe, has fallen 70% in three weeks.

In the week to Friday, container freight rates fell 22.5% from Asia to ports in the Mediterranean, dropped 8.6% to ports on the U.S. West Coast and were down 8.0% to ports on the U.S. East Coast. Maersk Line, the global market leader with more than 600 container vessels and part of Danish oil and shipping group A.P. Moller-Maersk, earlier in November reported a 61% drop in net profit in the third quarter. The Danish shipping company controls around one fifth of all transported containers from Asia to Europe.

He leaves nothing for others to buy.

• Nightmare of Mario Draghi’s Crowded Trade (FT)

Investors are putting too much faith in Mario Draghi. The ECB president is largely responsible for one of the most overcrowded trades in markets — and there is a risk it could all go horribly wrong. In the past month, every investor I have spoken to has told me they are overweight European equities, citing the quantitative easing policy of Mr Draghi and the ECB as one of the main reasons. But is Mr Draghi creating a potential nightmare scenario for investors? The European equity trade makes sense for a variety of reasons. The eurozone economy is recovering, albeit sluggishly, earnings are growing, valuations are relatively attractive and, most important of all, the ECB is buying billions of euros of bonds to underpin the market.

Indeed, European equities have rallied sharply since the start of September when Mr Draghi first hinted he was prepared to launch a second round of QE, expected in December. Investors reason that it is unwise to fight a central bank. It makes sense to be fully invested in risk assets such as equities when a central bank is actively easing, as looser monetary policy encourages corporations to borrow at cheap rates. This is certainly true. Euro-denominated investment grade corporate debt issuance has surged to a record high so far this year. This corporate borrowing often translates into higher profits as the money is invested for growth, which in turn boosts the share price. With the US Federal Reserve expected to diverge from the ECB and tighten policy next month, it makes European stocks even more appealing, particularly given that US valuations are stretched.

With the ECB easing and the Fed tightening, the euro is likely to remain weak. A cheaper euro should lift demand for exports. This is helpful to Germany, the region’s biggest economy, which relies on exports for growth. However, when a trade becomes this crowded, there are risks. Upside is limited because the good news is largely priced in. More significantly, if the market reverses, it can be difficult to exit as everyone wants to sell at the same time. Investors only have to look back to the summer for a reminder of the dangers. Worries about the Chinese economy wiped out all the equity gains from Mr Draghi’s first round of QE, which was launched in March, in a matter of days. European equities plunged about 10% in August.

“..somewhere between collapsing oil prices, dollar strength, and consumer lethargy the economy’s narrative has drifted off plot. The theme has transitioned from one of renewed growth and recovery to one of recurring sickness and stagnation.”

• The Long, Cold Winter Ahead (Tenebrarum)

Cold winds of deflation gust across the autumn economic landscape. Global trade languishes and commodities rust away like abandoned scrap metal with a visible dusting of frost. The economic optimism that embellished markets heading into 2015 have cooled as the year moves through its final stretch. If you recall, the popular storyline since late last year has been that the U.S. economy is moderately improving while the world’s other major economies – Japan, China, and Europe – are rolling over. The U.S. economy would power through. Moreover, stock prices had achieved a permanently high plateau. But somewhere between collapsing oil prices, dollar strength, and consumer lethargy the economy’s narrative has drifted off plot. The theme has transitioned from one of renewed growth and recovery to one of recurring sickness and stagnation.

Mass malinvestments in U.S. shale oil, Brazilian mines, and Chinese factories and real estate must be reckoned with. Price adjustments, bankruptcies, and debt restructuring must be painfully worked through like a strawberry picker hunkered over a seemingly endless furrow row of over ripening fruits. Sore backs, burnt necks, and tender fingers are what the over-all economy has in front of it. The U.S. economy is not immune to the global disorder after all. More evidence is revealed each week that the unexpected is happening. Instead of economic strength and robust growth, economic fundamentals are breaking down. Manufacturing is slowing. Consumer spending is soft. For additional edification, let’s turn to Dr. Copper…

Dr. Copper – the metal with a PhD in economics – is always the first to know which way the economy will go. Copper’s broad use in industry and many different sectors of the economy, ranging from infrastructure to housing and consumer electronics, makes it a good early indicator of economic activity. When copper prices rise, economic activity soon increases. When copper prices fall the economy often then stagnates. Thus, here’s the latest from Dr. Copper and his industrial metals cohorts… As Bloomberg reported earlier this week: “Copper plunged to the lowest intraday price since May 2009 on concern Chinese demand is slowing and as the dollar traded near its strongest level in more than a decade. Lead touched the lowest since 2010, while all industrial metals retreated.”

No doubt, marking price levels last seen during the depths of the Great Recession would not be happening if the economy was strengthening. If demand was robust industrial metals prices would be going up. Instead, they continue their slide into the void of worldwide non-activity. Stocks may soon follow…The last time copper prices were this low, in May 2009, stocks were also much lower. Yet, today, they’re at extremely lofty prices. The Dow Jones Industrial Average is currently over 17,500. Back then, the Dow was less than half that…it ranged in the low 8,000s. In other words, stocks are still up while the economy is slowing down. Perhaps the economy is taking a brief pause before roaring back to life. Most likely it’s hunkering down for the long, cold winter ahead.

Financialization, namely massive amounts of leverage, has made the disconnect between the stock market and the economy extend wider and longer than ever before. Maybe another speculative melt up is ahead. Who knows? Maybe DOW 20,000 or 30,000 is in the cards. With enough monetary deception anything’s possible. But, nonetheless, gravity still exists. Stocks cannot go up for ever. After a six year bull market, accompanied by a lackluster recovery, stocks could return to prior levels that were in line with present commodity prices. Remember, just a few years ago, Dow 8,000 matched up with current copper prices. Soon it likely will again.

Remember how lower oil prices would be a boon for the economy?

• Oil Companies Brace For Big Wave Of Debt Defaults (CNBC)

Low oil prices are leaving many oil and gas companies with difficult debt loads, causing them to default at an extraordinary rate. On top of that, rating firm Moody’s forecasts the default rate will increase. “The energy sector remains the most troubled, accounting for almost a quarter of the 79 defaults so far this year,” said Sharon Ou, Moody’s Credit Policy Research senior credit officer. The strain on the oil patch comes after years of borrowing heavily at the start of the domestic energy renaissance. At the time, oil was hovering around $100 a barrel. But now, with West Texas Intermediate crude oil slightly above $40 a barrel, these companies are seeing their revenue dry up — and remain saddled with debt.

Marc Lasry, the chief executive of distressed investing specialist Avenue Capital Group, said these energy companies boosted their borrowings to between $250 billion and $300 billion, compared with the $100 billion at the start of this year. The energy boom of the past decade was fueled by a wave of credit from U.S. banks that now say they expect more delinquencies and charge-offs from energy companies this year. Federal Reserve officials earlier in November noted an increase in weakness among credits related to oil and gas exploration, production, and energy services following the decline in energy prices since mid-2014. Among the major banks raising red flags about the health of the loans are Wells Fargo, Bank of America and JPMorgan Chase.

Some banks are renegotiating their credit lines to gas and oil companies, while others are cutting credit lines to oil and gas firms and are requiring more collateral to protect against the surge of defaults. Of the 31 companies that have disclosed information on loan resets so far, banks have cut credit lines of 10 firms by just over $1.1 billion, Reuters reported. Some energy companies are aggressively looking to take matters into their own hands to alleviate the debt pressure. Some are selling assets, others are cutting spending, some are issuing new shares, and others are hedging their oil production at a certain price. Some, however, can’t escape the grip of debt, falling victim to low oil prices and filing for bankruptcy.

There is a government in Greece only to lend legitimacy to Brussels.

• Eurozone Agrees Greece Can Get Next Loan Tranche, Cash For Bank Recap (Reuters)

Greece has done all the reforms in the a first package of measures agreed with euro zone creditors, which paves the way for Athens to get the next tranche of loans, the head of euro zone finance ministers Jeroen Dijsselbloem said on Saturday. Greece is getting very cheap loans form the euro zone bailout fund ESM under its third bailout agreement in exchange for putting its public finances in order and reforming the economy to make it more efficient and competitive. Euro zone deputy finance ministers (EWG) reviewed on Saturday the progress made by Athens in the reforms.

“On the basis of a final compliance notice… the EWG agreed that the Greek authorities have now completed the first set of milestones and the financial sector measures that are essential for a successful recapitalization process,” Dijsselbloem said. “The agreement paves the way for the formal approval by the ESM Board of Directors on Monday 23 November of disbursing the €2 billion sub-tranche linked to the first set of milestones,” he said. He said that it will also allow the ESM to make case by case decisions to transfer money to Greece for the recapitalization of the Greek banking sector. The ESM already has €10 billion earmarked for this purpose and the capital needs of Greek banks from the euro zone are estimated at between six and nine billion, one euro zone official said on Friday.

This is happening all across the western world. We better make up our minds, fast, about what kind of society we want.

• Half Of UK Care Homes To Close If £2.9 Billion Gap Is Not Plugged (Guardian)

Up to half of Britain’s care homes will close and the NHS will be overwhelmed by frail, elderly people unless the chancellor, George Osborne, acts to prevent the “devastating financial collapse” facing social care, an alliance of charities, local councils and carers has warned. In a joint letter, 15 social care and older people’s groups urge Osborne to use his spending review on Wednesday to plug a funding gap that they say will hit £2.9bn by 2020. They warn that social care in England, already suffering from cuts imposed under the coalition, will be close to collapse unless money is found to rebuild support for the 883,000 older and disabled people who depend on personal care services in their homes.

Osborne has already decided to use his overview of public finances to give town halls the power to raise council tax by up to 2% to fund social care, in a move that could raise up to £2bn for the hard-pressed sector. However, the signatories of the letter, such as Age UK and the Alzheimer’s Society, want him to commit more central government funding to social care. The looming £2.9bn gap “can no longer be ignored”, the letter says. “Up to 50% of the care home market will become financially unviable and care homes will start to close their doors,” it adds. “74% of domiciliary home-care providers who work with local councils have said that they will have to reduce the amount of publicly funded care they provide. If no action is taken, it is estimated that this would affect half of all of the people and their families who rely on these vital services.”

Osborne’s endorsement of a hypothecated local tax to boost social care comes after intense lobbying behind the scenes and public warnings from bodies such as the King’s Fund health thinktank. “Social care in England has been in retreat for a long time. But the fact that the industry is now losing its appeal, both as a business and as a form of employment, marks a new and dangerous phase in its decline,” said Caroline Abrahams, Age UK’s charity director. She urged Osborne to use the spending review “to bring stability to a worryingly fragile situation”. Jeremy Hughes, chief executive of the Alzheimer’s Society, another signatory, said: “Since 2010, £4.6bn of cuts have already resulted in an estimated 500,000 older and disabled people being denied access to care. If the government blazes ahead with 25%-40% cuts to local authority budgets, more people with dementia will be severely affected.”

I count on them to fail spectacularly.

• Report Urges UK Government To Act Now To Avoid Energy Crisis (EAEM)

Britain is on the verge of an energy crisis, with demand set to outstrip supply for the first time in early 2016, according to a new report by a leading energy analyst. In the report The Great Green Hangover, published by the Centre for Policy Studies, author Tony Lodge says that electricity demand is set to outstrip dispatchable supply for the first time from early 2016. Due to widespread plant closures, on-tap energy capacity has been in decline – and now for the first time will be lower than the forecasted demand. Lodge argues that decades of energy policy mismanagement have overseen the shutdown of energy plants vital to Britain’s long-term energy security.

The average dispatchable capacity remaining by the end of March 2016 is calculated to be 52,360MW, whereas National Grid’s 2015/2016 Winter Outlook demand forecast is 54,200MW. The report also raises concerns over the continued affordability of energy costs. Over the last ten years electricity bills have risen by 131% in real terms, easily outstripping any other household essential. High energy prices also burden British industry, jeopardising manufacturing in particular as businesses consider closure or overseas relocation due to unaffordable production costs. Though operating efficiently, they nevertheless consume large quantities of energy, which can account for between 20 and 70% of their production costs.

Author Tony Lodge comments: “Britain has lost over 15,400MW (20%) of its dispatchable electricity generating capacity in the last five years as baseload power plants have closed with no equivalent replacement. This month National Grid used emergency measures for the first time to call on industry to reduce its power usage in order to avoid shortages. “High UK Carbon Price Support should be abandoned before it forces the premature closure of more baseload power plants and thus threatens energy security and affordability,” he added. Lodge says the Government should prioritise energy security alongside its environmental commitments and legislate to deliver targets to maintain security of energy supply, diversity and affordability.

I can see Britain’s future from here.

• How Did a UK Power Plant Get 25 Times the Market Price? (Bloomberg)

On the afternoon of Nov. 4, a U.K. power station began to shut down one of its gas-fired units and the network manager was told it wouldn’t be available. Within an hour, the operator ramped it up again after the grid called for increased reserves and the power station got paid a handsome premium for doing so. The facility at the Severn power plant in Wales, operated by Macquarie Group Ltd., was running near full throttle at 396 megawatts. It didn’t report any operational problems, a requirement of European regulations, that would have prevented it supplying the market. Nonetheless, it began to decrease output from 3 p.m. When the network manager requested additional generation capacity for two hours from 4:30 p.m., Severn responded.

The reward for providing extra power was a payout 25 times the market price for that time in the day, according to calculations by Bloomberg based on exchange and grid data. The episode raises questions about how U.K. power plants operate as National Grid Plc, the company responsible for ensuring supply meets demand, grapples with a thinner buffer of surplus generating capacity. That margin will be about 5% this winter, down from as much as 16% four years ago, according to data from the London-based company. “This is a market, and it might be argued that price spikes are a necessary condition for its long-term viability, and therefore that it’s not unreasonable for individual generators to exploit scarcities,” said John Rhys, a senior research fellow at the Oxford Energy Institute. “If we really are in a period of very tight capacity, then I’m afraid that’s what having a market means and it’s going to happen.”

Curious that this didn’t happen earlier.

• State Of Emergency In Crimea After Electricity Pylons ‘Blown Up’ (Reuters)

A state of emergency has been declared in Crimea after pylons carrying electricity from Ukraine were blown up cutting off power to almost two million people, media and the Russian government said on Sunday. The Russian Energy Ministry didn’t say what had caused the outages, but Russian media reported that two pylons in the Kherson region of Ukraine north of Crimea had been blown up by Ukrainian nationalists. The attack, if by Ukrainian nationalists opposed to Russia’s annexation of Crimea from Ukraine last year, is likely to further increase tensions between Russia and Ukraine. Russia’s Energy Ministry said in a statement that two power lines bringing power from Ukraine to Crimea had been affected, as a result of which 1,896,000 people had been left without power.

The ministry said that a state of emergency had been declared in Crimea. It also said that emergency supplies had been turned on for critical needs and 13 mobile gas turbine generators were being prepared. Ilya Kiva, a senior officer in the Ukrainian police who was at the scene, also said on his Facebook page that the pylons had been blown up, without giving further details. On Saturday, the pylons were the scene of violent clashes between activists from the Right Sector nationalist movement and paramilitary police, Ukrainian media reported. The pylons had already been damaged by the activists on Friday before they were blown up on Saturday night, according to these reports.

“..compromised for a minimum of a 100 years..”

• Brazil Dam Toxic Mud Reaches Atlantic Ocean (BBC)

A wave of toxic mud travelling down the Rio Doce river in Brazil from a collapsed dam has reached the Atlantic Ocean, amid concerns it will cause severe pollution. The waste has travelled more than 500km (310 miles) since the dam at an iron mine collapsed two weeks ago. Samarco, the mine owner, has tried to protect plants and animals by building barriers along the banks of the river. Workers have dredged the river mouth to help the mud flow out to sea fast. The contaminated mud, tested by the water management authorities, was found to contain toxic substances like mercury, arsenic, chromium and manganese at levels exceeding human consumption levels. Samarco has insisted the sludge is harmless.

In an interview with the BBC, Andres Ruchi, director of the Marine Biology school in Santa Cruz in Espirito Santo state, said that mud could have a devastating impact on marine life when it reaches the sea. He said the area of sea near the mouth of the Rio Doce is a feeding ground and a breeding location for many species of marine life including the threatened leatherback turtle, dolphins and whales. “The flow of nutrients in the whole food chain in a third of the south-eastern region of Brazil and half of the Southern Atlantic will be compromised for a minimum of a 100 years,” he said. The magazine Chemistry World quotes Aloysio da Silva Ferrao Filho, a researcher at the respected Oswaldo Cruz Foundation, as saying that the impact has been severe in the river itself. “The biodiversity of the river is completely lost, several species including endemic ones must be extinct.”

Compromised forever.

• Deforestation Threatens Majority of Amazon Tree Species (PSMag)

It’s been estimated that the Amazon rainforest and surrounding areas are—or once were—home to upwards of 11,000 different tree species. It’s also been estimated that those forests have shrunk by about 12%, and that human meddling could double or triple that number by 2050. Now, researchers report, the loss of forest cover could threaten the existence of more than half the tree species in the Amazon. The Amazon basin hosts perhaps the greatest biodiversity on Earth—so much so that researchers know relatively little about many of the region’s native species. “While we know quite a bit about Amazonian deforestation, we know little about the effects on the Amazonian [tree] species,” says lead author Hans ter Steege at Naturalis Biodiversity Center in Leiden, the Netherlands.

“We’ve never had a good idea about how many species are threatened in the Amazon, and now with this study we have an estimate,” adds study co-author Nigel Pitman, a senior conservation ecologist at the Field Museum in Chicago, Illinois. To get a picture of the health of forests in the Amazon basin and the Guiana Shield north of Brazil, a team of 160 botanists, ecologists, and taxonomists from 97 institutions went out into the field and, well, started counting. The team ultimately mapped 4,953 “relatively common” tree species at 1,485 sites throughout the region. Using a standard model of biodiversity, the researchers inferred the existence of another 10,000 species, which they assumed were largely hidden in the densest Amazonian forests, but rare enough that even a careful accounting could have missed them.

Hans ter Steege and his colleagues next compared species maps with maps of deforested and protected areas, then computed how many trees of each species could be lost under two different chain of events: a business-as-usual scenario, in which deforestation continues more or less as it has been for decades, and 40% of the Amazon’s trees would be gone by 2050; and a less severe scenario, in which governments step up protections, and deforestation tops out at 20%. Under the business-as-usual scenario, 51% of the Amazon’s common tree species’ populations and 43% of rare tree species’ populations would decline by 30% or more, qualifying them for inclusion on the International Union for Conservation of Nature’s “Red List” of threatened species.

Even under the less severe scenario in which forest governance improves, 16% of common species and 25% of rare species qualify for the Red List. Those losses would likely affect iconic tree species including Brazil nut, cacao, and açai palm, which play central roles in the regional economy. What’s more, Amazonian forests help trap a vast amount of carbon, which, if unleashed through deforestation, could exacerbate an already warming climate. “We want to make sure the Amazon keeps the carbon sink,” ter Steege says. “This is important.”

Russia has far fewer qualms about confronting The House of Saud.

• Saudi Arabia, an ISIS That Has Made It (NY Times)

Black Daesh, white Daesh. The former slits throats, kills, stones, cuts off hands, destroys humanity’s common heritage and despises archaeology, women and non-Muslims. The latter is better dressed and neater but does the same things. The Islamic State; Saudi Arabia. In its struggle against terrorism, the West wages war on one, but shakes hands with the other. This is a mechanism of denial, and denial has a price: preserving the famous strategic alliance with Saudi Arabia at the risk of forgetting that the kingdom also relies on an alliance with a religious clergy that produces, legitimizes, spreads, preaches and defends Wahhabism, the ultra-puritanical form of Islam that Daesh feeds on. Wahhabism, a messianic radicalism that arose in the 18th century, hopes to restore a fantasized caliphate centered on a desert, a sacred book, and two holy sites, Mecca and Medina.

Born in massacre and blood, it manifests itself in a surreal relationship with women, a prohibition against non-Muslims treading on sacred territory, and ferocious religious laws. That translates into an obsessive hatred of imagery and representation and therefore art, but also of the body, nakedness and freedom. Saudi Arabia is a Daesh that has made it. The West’s denial regarding Saudi Arabia is striking: It salutes the theocracy as its ally but pretends not to notice that it is the world’s chief ideological sponsor of Islamist culture. The younger generations of radicals in the so-called Arab world were not born jihadists. They were suckled in the bosom of Fatwa Valley, a kind of Islamist Vatican with a vast industry that produces theologians, religious laws, books, and aggressive editorial policies and media campaigns.

One might counter: Isn’t Saudi Arabia itself a possible target of Daesh? Yes, but to focus on that would be to overlook the strength of the ties between the reigning family and the clergy that accounts for its stability — and also, increasingly, for its precariousness. The Saudi royals are caught in a perfect trap: Weakened by succession laws that encourage turnover, they cling to ancestral ties between king and preacher. The Saudi clergy produces Islamism, which both threatens the country and gives legitimacy to the regime. One has to live in the Muslim world to understand the immense transformative influence of religious television channels on society by accessing its weak links: households, women, rural areas. Islamist culture is widespread in many countries — Algeria, Morocco, Tunisia, Libya, Egypt, Mali, Mauritania.

There are thousands of Islamist newspapers and clergies that impose a unitary vision of the world, tradition and clothing on the public space, on the wording of the government’s laws and on the rituals of a society they deem to be contaminated. It is worth reading certain Islamist newspapers to see their reactions to the attacks in Paris. The West is cast as a land of “infidels.” The attacks were the result of the onslaught against Islam. Muslims and Arabs have become the enemies of the secular and the Jews. The Palestinian question is invoked along with the rape of Iraq and the memory of colonial trauma, and packaged into a messianic discourse meant to seduce the masses. Such talk spreads in the social spaces below, while up above, political leaders send their condolences to France and denounce a crime against humanity. This totally schizophrenic situation parallels the West’s denial regarding Saudi Arabia.

“The more one side gains political control in the name of Islam, the more vulnerable it becomes to accusations from the other side that its claim to power is less than legitimate.”

• The Saudi Connection to Terror (Daniel Lazare)

[..] the proceeds from a hundred-odd oil trucks doesn’t explain how ISIS pays its bills. Nor does the speculation about ISIS’s antiquity sales. So if Islamic State does not get the bulk of its funds from such sources, where does the money come from? The politically inconvenient answer is from the outside, i.e., from other parts of the Middle East where the oil fields are not marginal as they are in northern Syria and Iraq, but, rather, rich and productive; where refineries are state of the art, and where oil travels via pipeline instead of in trucks. It is also a market in which corruption is massive, financial controls are lax, and ideological sympathies for both ISIS and Al Qaeda run strong. This means the Arab Gulf states of Kuwait, Qatar, the United Arab Emirates, and Saudi Arabia, countries with massive reserves of wealth despite a 50% plunge in oil prices.

The Gulf states are politically autocratic, militantly Sunni, and, moreover, are caught in a painful ideological bind. Worldwide, Sunnis outnumber Shi‘ites by at least four to one. But among the eight nations ringing the Persian Gulf, the situation is reversed, with Shi‘ites outnumbering Sunnis by nearly two to one. The more theocratic the world grows – and theocracy is a trend not only in the Muslim world, but in India, Israel and even the U.S. if certain Republicans get their way – the more sectarianism intensifies. At its most basic, the Sunni-Shi‘ite conflict is a war of succession among followers of Muhammad, who died in the Seventh Century. The more one side gains political control in the name of Islam, consequently, the more vulnerable it becomes to accusations from the other side that its claim to power is less than legitimate.

The Saudi royal family, which styles itself as the “custodian of the two holy mosques” of Mecca and Medina, is especially sensitive to such accusations, if only because its political position seems to be growing more and more precarious. This is why it has thrown itself into an anti-Shi‘ite crusade from Yemen to Bahrain to Syria. While the U.S., Britain and France condemn Bashar al-Assad as a dictator, that’s not why Sunni rebels are now fighting to overthrow him. They are doing so instead because, as an Alawite, a form of Shi‘ism, he belongs to a branch of Islam that the petro-sheiks in Riyadh regard as a challenge to their very existence. Civil war is rarely a moderating force, and as the struggle against Assad has intensified, power among the rebels has shifted to the most militant Sunni forces, up to and including Al Qaeda and its even more aggressive rival, ISIS.

In other words, the Islamic State is not homegrown and self-reliant, but a product and beneficiary of larger forces, essentially a proxy, paramilitary army of Gulf state sheiks. Evidence of broad regional support is abundant even if news outlets like The New York Times have done their best to ignore it.

Are they making it up as they go along? Something fishy: “It later emerged that the passport was fake and that four other people, including a dead Syrian soldier, shared the same details.” Look, if there are four people with identical -fake- passports, how do they know the perpetrator was the one who passed through Greece, and not one of the other three?

• Terrorism Links Trigger Greater Scrutiny For Greece (Kath.)

Greece is under growing pressure to monitor its borders and properly register the thousands of refugees and migrants who arrive each week after it emerged that at least two of the Paris suicide bombers passed through the country on their way to France. The European Union has already started taking measures in the wake of the deadly terrorist attacks in Paris. EU interior ministers agreed on Friday to tighten checks on points of entry to the 26-country Schengen area, which includes Greece. French Interior Minister Bernard Cazeneuve said the European Commission would present plans to introduce “obligatory checks at all external borders for all travelers,” including EU citizens, by the year’s end. Previously, only non-EU nationals had their details checked against a database for terrorism and crime when they enter the Schengen area.

Earlier, Cazeneuve revealed that a second suicide bomber at the Stade de France in Paris had entered the EU via Greece. A total of three jihadists blew themselves up at the stadium. One had already been identified as having arrived on Leros with a larger group of migrants. He was carrying a Syrian passport in the name of Ahmad Almohammad. It later emerged that the passport was fake and that four other people, including a dead Syrian soldier, shared the same details. It is thought a second bomber arrived with him on Leros, while unconfirmed sources suggest that the third Stade de France bomber also followed the same route. There has been no official reaction from the government to these revelations but Greek authorities have handed all the information from the registered arrivals to Europol.

Athens, however, has not confirmed that the alleged leader of the terrorist cell that carried out the fatal attacks in Paris, Abdelhamid Abaaoud, had been in Greece in January. In fact, the citizens’ protection minister issued a statement on Friday asking Cazeneuve to retract comments in which he suggested the Belgian national, who was killed in a police raid last week, had passed through Athens. Greek authorities mounted a search for Abaaoud in Athens after his mobile phone was allegedly traced to the Greek capital but the device was eventually found in the possession of an Algerian man who was extradited to Belgium due to alleged links with a terrorist cell there.

Nevertheless, this adds to the pressure on Greece to ensure proper checks are being carried out. Authorities made multiple arrests last week in connection to the alleged forging of documents for migrants. Also, the police picked up 50 migrants that were allowed to board ferries in Lesvos and Chios without having registered with authorities there.

It’s hard not to think now and again that the EU deliberately screws this up. Couldn’t do a better job at it if they tried.

• Chaos In Greek Islands Over Three-Tier Refugee Registration System (Guardian)

The EU’s refugee registration system on the Greek islands has created a three-tier system that favours certain nationalities over others, encourages some ethnic groups to lie about their backgrounds to secure preferential treatment, and has led to a situation Human Rights Watch calls absolute chaos. The dynamic will increase fears over the security threat posed by the hundreds of thousands of migrants arriving in Europe amid a backlash against refugees after the Paris attacks. The passport of a Syrian refugee who passed through Greece was found on or near the body of a dead suicide bomber. It will also amplify calls to scale up resettlement schemes from the Middle East, which will help Europe to improve screening of refugees and give them an incentive not to take the boat to Greece.

Syrian families arriving on the island of Lesbos, where nearly 400,000 asylum seekers have landed so far in 2015, are separated from other nationalities and given expedited treatment that allows them to leave the island for mainland Europe within 24 hours. Syrian males, Yemenis and Somalis are registered in a separate and slower camp but still receive preferential treatment and are usually able to continue their journey within a day. But a third category of asylum seekers – including many from war-torn countries such as Iraq and Afghanistan – are being processed in another camp where there are roughly half as many passport-scanners. The result is a chaotic parallel registration process that can last up to a week, and which has left many non-Syrians sleeping outside in the cold of winter for several nights, while they wait to be registered.

The Guardian found families living in dire, unsanitary conditions in an olive grove surrounding the main registration centre. They said they were receiving just one significant meal a day, and had resorted to burning trees to keep warm at night. Even once they are finally processed, Afghans only receive one month’s leave to remain in Greece, while Syrians are given six months. The island’s mayor told the Guardian that the three-track process is to prevent fighting between different ethnic groups and nationalities. But the director of one of the three camps admitted that non-Syrians are given lower priority because officials assume that they do not have as strong a claim for asylum. “In the [lowest-priority] camp, there are the Iraqis, Afghans, Pakistanis who are mostly migrants, economic migrants,” said Spyros Kourtis. By contrast, he said that the better-equipped centre was for “people who come from countries with a refugee profile”.