delinquencies Archives - The Automatic Earth

Today’s the day UK Chancellor Hammond will present his budget, which will go a long way towards the country’s Brexit plans. So let’s have a few articles that make you wonder why you would want to belong to a club that includes these people.

This first one makes me think: if this is the best piece I read all day, I’m good.

• UK Water Firms Admit Using Divining Rods To Find Leaks And Pipes (G.)

Ten of the 12 water companies in the UK have admitted they are still using the practice of water dowsing despite the lack of scientific evidence for its effectiveness. The disclosure has prompted calls for the regulator to stop companies passing the cost of a discredited medieval practice on to their customers. Ofwat said any firm failing to meet its commitments to customers faced a financial penalty. Dowsers, or water witchers, claim that their divining rods cross over when the presence of water is detected below ground. It is regarded as a pseudoscience, after numerous studies showed it was no better than chance at finding water. Some water companies, however, insisted the practice could be as effective as modern methods.

The discovery that firms were still using water diviners was made by the science blogger Sally Le Page, after her parents reported seeing an engineer from Severn Trent “walking around holding two bent tent pegs to locate a pipe” near their home in Stratford-upon-Avon. Le Page asked Severn Trent why it was still using divining rods to find pipes when there was no evidence that it worked. Replying on Twitter, the company said: “We’ve found that some of the older methods are just as effective than the new ones, but we do use drones as well, and now satellites.” Le Page then asked the other 11 water companies whether they were using water dowsing. Only one, Wessex Water, said it did not use divining rods, and one, Northern Ireland Water had yet to reply. The other nine confirmed the practice was still used in some form in their areas.

The second one defies all belief. What else is appropriate but utter silence?

• UK MPs Vote ‘That Animals Cannot Feel Pain Or Emotions’ (Ind.)

MPs have voted to reject the inclusion of animal sentience – the admission that animals feel emotion and pain – into the EU Withdrawal Bill. The move has been criticised by animal rights activists, who say the vote undermines environment secretary Michael Gove’s pledge to prioritise animal rights during Brexit. The majority of animal welfare legislation comes from the EU. The UK Government is tasked with adopting EU laws directly after March 2019 but has dismissed animal sentience. The Government said during the debate before the vote that this clause is covered by the Animal Welfare Act 2006. The RSPCA disputed the Government’s claim. “It’s shocking that MPs have given the thumbs down to incorporating animal sentience into post-Brexit UK law,” RSPCA head of public affairs David Bowles told Farming UK.

“In addition, 500 reusable or so-called “keep cups” were purchased in 2013, but only four of these have been sold in the last three years.”

• UK Environment Department Using 1,400 Disposable Coffee Cups A Day (G.)

More than 2.5m disposable cups have been purchased by the UK’s environment department for use in its restaurants and cafes over the past five years – equivalent to nearly 1,400 a day. The Liberal Democrats’ environment spokesman, Tim Farron, said the revelation, obtained through a freedom of information request, showed Michael Gove “needs to get his own house in order” in light of his public pledges to tackle the growing scourge of plastic pollution. The Lib Dems revealed that 516,000 disposable cups had been purchased by the Department for Environment, Food and Rural Affairs’ (Defra) catering contractors in the last year alone, under two separate outsourced contracts for use in catering outlets across its sites.

The figure was 589,700 in 2016 and 785,100 the previous year. The catering contractors did not previously provide any reusable cups, but purchased 200 reusable cups on 31 October 2017. Separate figures uncovered by the Lib Dems have revealed the House of Commons itself is also failing to get to grips with disposable cup waste, using almost 4m disposable cups in the past five years. They reveal that 657,000 disposable cups have been purchased by the Commons’ catering service in the last year alone – equivalent to 1,000 per MP – but down from 918,700 in 2013. In addition, 500 reusable or so-called “keep cups” were purchased in 2013, but only four of these have been sold in the last three years.

Everything bubble. Where’s Tesla, Uber, Airbnb?

• Biggest Bubble Ever? (ZH)

Yesterday we presented readers with one of the most pessimistic, if not outright apocalyptic, 2018 year previews, courtesy of BofA’s chief investment, Michael Hartnett who warned that in addition to the bursting of the bond bubble in the first half of the year, the stock market could see a 1987-like flash crash, potentially followed by a sharp spike in (violent) social conflict. However, in addition to his forecast, Hartnett also had one of the more informative, and descriptive, reviews of the year that was, or as he put it: 2017 was the perfect encapsulation of an 8-year QE-led bull market.

Here are his 15 bullet points that show why in 2017 we may have seen the biggest bubble ever (and why we can’t wait to see what 2018 reveals).
• Da Vinci’s “Salvator Mundi” sold for staggering record $450mn
• Bitcoin soared 677% from $952 to $7890
• BoJ and ECB were bull catalysts, buying $2.0tn of financial assets
• Number of global interest rate cuts since Lehman hit: 702
• Global debt rose to a record $226tn, record 324% of global GDP
• US corporates issued record $1.75tn of bonds
• Yield of European HY bonds fell below yield of US Treasuries
• Argentina (8 debt defaults in past 200 years) issued 100-year bond
• Global stock market cap jumped1 $15.5tn to $85.6tn, record 113% of GDP
• S&P500 volatility sank to 50-year low; US Treasury volatility to 30-year low
• Market cap of FAANG+BAT grew $1.5tn, more than entire German market cap
• 7855 ETFs accounted for 70% of global daily equity volume
• The first AI/robot-managed ETF was launched (it’s underperforming)
• Big performance winners: ACWI, EM equities, China, Tech, European HY, euro
• Big performance losers: US$, Russia, Telecoms, UST 2-year, Turkish lira

As Hartnett summarizes, “2017 was a perfect encapsulation of an 8-year QE-led bull market”

Xi needs to start letting zombies die, or he’ll lose control.

• China Is On Course To Become One Of The World’s Most Indebted Nations (BBG)

China’s debt is poised to soar over the next five years, severely reducing the chances the nation can avoid a financial crisis. Bloomberg Economics economists Fielding Chen and Tom Orlik estimate China’s total debt will reach 327% of GDP by 2022, double the level in 2008. That will put China among the most indebted countries in the world. “The rapid growth and high level of China’s debt have already placed them in the danger zone for a financial crisis,” said the economists in a note published Tuesday. “Adding debt equivalent to almost 70% of GDP in the next five years wouldn’t mean a crisis is inevitable, but it would severely reduce the chances of avoiding one.”

Central bank Governor Zhou Xiaochuan, who has hinted he’ll soon retire, recently warned of the risks in company and household debt, saying that corporate borrowing was “very high” and that the nation needs to be on guard against excessive optimism that could spark a sudden drop in asset prices. The Bloomberg estimates of future debt levels are based on a new model that assumes a moderate slowdown in growth, continued rebalancing of the structure of the economy toward services, a stabilization in the credit intensity of growth, and continued large-scale write-offs of bad loans. Economic expansion is expected to slow to 5.8% in 2022 from 6.7% in 2016, the economists said. Nominal growth, more relevant for calculating the debt-to-GDP ratio, is expected to edge down to 7.9% in 2022 from 8% in 2016, they said.

Bridges to nowhere and ghost cities account for a large part of China GDP growth.

• China’s Growth Miracle Has Run Out Of Steam (Pettis)

China’s 19th Communist party congress ended last month with an indication that Xi Jinping’s new administration plans to rein in debt by abandoning the country’s long-term economic targets and allowing gross domestic product growth to fall. Typically, analysts assume that changes in reported GDP reflect movements in living standards and productive capacity. In China, however, this is not the case. Local governments are expected to boost spending by whatever amount is needed to meet the country’s targets, whether or not it is productive. GDP growth is not the same as economic growth. Consider two factories that cost the same to build and operate. If the first factory produces useful goods, and the second produces unwanted ones that pile up as inventory, only the first boosts the underlying economy.

Both factories, however, will increase GDP in exactly the same way. Most economies, however, have two mechanisms that force GDP data to conform to underlying economic performance. First, hard budget constraints, which set spending limits, drive companies that systematically waste investment out of business before they can substantially distort the economy. Second, there is a market-pricing factor in GDP accounting that when bad debts caused by wasted investment are written down, the value-added component of GDP and the overall level of reported growth are reduced. In China, however, neither mechanism works. Bad debt is not written down and the government is not subject to hard budget constraints.

It is the government sector that is mainly responsible for the investment misallocation that characterises so much recent Chinese growth. The implications are obvious, even if most economists have been surprisingly reluctant to acknowledge them. Anyone who believes there has been a significant amount of wasted investment in China must accept that reported GDP growth overstates the real increase in wealth by the failure to recognise the associated bad debt. Were it correctly written down, by some estimates GDP growth would fall below 3%.

Anyone buying into Tesla will get what they deserve.

• Tesla’s Burning Through Nearly Half a Million Dollars Every Hour (BBG)

Elon Musk said last week that Tesla is designing a new sports car that could go from zero to 60 mph in 1.9 seconds. Not bad, but here’s a speed number that investors might want to focus on instead: Over the past 12 months, the electric-car maker has been burning money at a clip of about $8,000 a minute (or $480,000 an hour), Bloomberg data show. At this pace, the company is on track to exhaust its current cash pile on Monday, Aug. 6. (At 2:17 a.m. New York time, if you really want to be precise.) To be fair, few Tesla watchers expect the cash burn to continue at quite such a breakneck pace, and the company itself says it’s ramping up output of its all-important Model 3, which will bring money in the door. But still, its need for fresh cash came into high relief last week when Musk unveiled his latest plan to raise funds. He’s asking customers to pay him upfront to order vehicles that may not be delivered for years.

The Founders Series Roadster will cost buyers a $250,000 down payment even though it’s not coming for more than two years. Orders of those cars are capped at 1,000, meaning they alone could generate $250 million. Tesla is charging a total of $50,000 for reservations of the regular Roadster. Companies can also pre-order electric Semi trucks for $5,000, though they don’t go into production until 2019. But all this is a pittance compared with Tesla’s financial needs. It’s blowing through more than $1 billion a quarter thanks to massive investment in making the Model 3, a $35,000 car that’s looking less likely to generate a return anytime soon. “Whether they can last another 10 months or a year, he needs money, and quickly,” said Kevin Tynan, senior analyst with Bloomberg Intelligence, who estimates Tesla will be required to raise at least $2 billion in fresh capital by mid-2018.

Oh, puhlease… “The rise in new delinquencies is difficult to square with the continued strength of the labor market.”

• US Credit Card Delinquencies Spike (BI)

Americans are having increasing trouble paying their credit card bills, a potentially ominous sign for an economy reliant on consumer spending for some two-thirds overall activity. US credit card debt recently surged to new record highs, surpassing peaks seen before the 2008 financial crisis. Several large US banks and credit card companies reported a rise in credit card delinquency rates for August, the second consecutive monthly rise. Michael Pearce, economist at Capital Economics, does not see the spike as a major threat to the growth outlook for now. But given the prospect of higher interest rates from the Federal Reserve next year, it could become a growing problem. “The increase in new delinquencies may be an early sign of stress in household finances,” he wrote in a note sent out to clients on Friday.

“After all, credit card lending is one of the most expensive forms of borrowing, and missing a credit card payment doesn’t carry the same risk of repossession as falling behind on mortgage or car payments might,” Pearce added. “The rise in new delinquencies is difficult to square with the continued strength of the labor market.”

Feature not flaw.

• Too-Big-To-Fail Banks Keep Getting Bigger (CNN)

Many too-big-to-fail banks have grown even larger during the decade since the financial crisis. The 2008 meltdown showed how big banks that get into trouble can hold the entire global economy hostage. Hoping to avoid another round of unpopular bailouts, financial watchdogs have forced too-big-to-fail banks to make themselves less dangerous by adding lots of capital that safeguards against losses. But regulators continue to monitor these financial institutions, creating a list of 30 “systemically important” banks that deserve extra scrutiny. JPMorgan Chase sits atop that list of banks that could threaten global stability, according to new rankings published on Tuesday by international regulators. While JPMorgan has been required to take significant steps to make itself less risky, America’s leading bank has nonetheless gotten much bigger over the past decade.

JPMorgan has amassed an incredible $2.56 trillion in assets. That’s nearly twice as much as at the end of 2006 when the subprime mortgage bubble was beginning to burst. A chunk of JPMorgan’s growth is due to its government-backed rescues of failing Bear Stearns and Washington Mutual. Bank of America and Deutsche Bank are ranked one level below JPMorgan on the “systemically important” list published by the Financial Stability Board. BofA’s asset footprint has soared by 56% since the end of 2006 to $2.28 trillion. Deutsche Bank’s asset size has increased by 21% over that span, according to FactSet. Wells Fargo, which acquired failing Wachovia during the financial crisis, is sitting on $1.93 trillion. That’s up nearly 300% since the end of 2006.

Big banks in China are also growing at a rapid pace. China’s four systemically important banks have more than tripled their asset sizes over the last 10 years, according to S&P Global Market Intelligence. Industrial and Commercial Bank of China is the world’s largest bank, with $3.76 trillion in assets. That’s up from $1.11 trillion at the end of 2006. “If and when another crisis hits, the biggest players will be far larger than they were in the last crash,” S&P Global Market Intelligence wrote in a report.

“Roughly 8 million Americans are on long-term opioid therapy for chronic pain, and as many as a million are taking dangerously high doses..”

• US Doctors Cut Off Opioids, Leaving Millions in Pain and Withdrawal (BBG)

Six months after surgery to repair a damaged urinary tract in 1998, computer technician Doug Hale woke one morning with excruciating, burning pain. Hale’s suffering persisted for years, despite all sorts of treatments. Finally, in 2006, he was prescribed strong doses of opioids. Fast-forward 10 years. Still on his pain killers, Hale was popping so many of the highly addictive pills that he regularly ran out of his prescription early. His doctor cut off his supply and urged Hale to enter a detox program. That didn’t work. Hale, still in agonizing pain and now suffering from intense withdrawal symptoms, returned to his doctor and pleaded to get back on his opioid regime. The doctor refused. The next day, Hale put the barrel of a small-gauge gun in his mouth and pulled the trigger.

It would be tempting to view Hale’s death, at 53, as one more sad entry in the never-ending national tragedy of opioid deaths. In fact, it’s much more than that. Hale’s story is a window into the country’s silent majority of opioid sufferers. These are the millions of painkiller-dependent users inhabiting a vast gray zone somewhere between medical patient and drug addict, who are finding themselves suddenly abandoned in droves by the medical system. Under threat of lawsuits and government and insurance industry crackdowns, doctors have been cutting off the supply of painkillers, forcing many of their patients to quit cold turkey after years or even decades of dependence, sometimes with catastrophic consequences. Worst of all, those left suddenly without their meds often have nowhere to turn for help.

[..] Roughly 8 million Americans are on long-term opioid therapy for chronic pain, and as many as a million are taking dangerously high doses, said Michael Von Korff, a senior researcher at the Kaiser Permanente Washington Health Research Institute. In the Medicare program alone, 500,000 patients were on high opioid doses in 2016, according to a 2017 report from the U.S. Department of Health and Human Services.

Close it down. Or lawsuits will.

• Uber Concealed Cyberattack Exposing Data Of 57 Million Users, Drivers (BBG)

Hackers stole the personal data of 57 million customers and drivers from Uber Technologies Inc., a massive breach that the company concealed for more than a year. This week, the ride-hailing firm ousted its chief security officer and one of his deputies for their roles in keeping the hack under wraps, which included a $100,000 payment to the attackers. Compromised data from the October 2016 attack included names, email addresses and phone numbers of 50 million Uber riders around the world, the company told Bloomberg on Tuesday. The personal information of about 7 million drivers was accessed as well, including some 600,000 U.S. driver’s license numbers. No Social Security numbers, credit card information, trip location details or other data were taken, Uber said.

At the time of the incident, Uber was negotiating with U.S. regulators investigating separate claims of privacy violations. Uber now says it had a legal obligation to report the hack to regulators and to drivers whose license numbers were taken. Instead, the company paid hackers to delete the data and keep the breach quiet. Uber said it believes the information was never used but declined to disclose the identities of the attackers. “None of this should have happened, and I will not make excuses for it,” Dara Khosrowshahi, who took over as CEo in September, said in an emailed statement. “We are changing the way we do business.” After Uber’s disclosure Tuesday, New York Attorney General Eric Schneiderman launched an investigation into the hack, his spokeswoman Amy Spitalnick said. The company was also sued for negligence over the breach by a customer seeking class-action status.

[..] In January 2016, the New York attorney general fined Uber $20,000 for failing to promptly disclose an earlier data breach in 2014. After last year’s cyberattack, the company was negotiating with the FTC on a privacy settlement even as it haggled with the hackers on containing the breach, Uber said. The company finally agreed to the FTC settlement three months ago, without admitting wrongdoing and before telling the agency about last year’s attack.

Airbnb gambles that it’s above and beyond the law. Let’s see.

• Airbnb Locks Horns With Athens (K.)

In its first public statement on Greek tax affairs, Airbnb took a tough stance against the Greek government and refused to share the tax details of the property owners with whom it cooperates with the Greek state. The short-term property lease website announced a few days ago that “hosts on Airbnb want to pay their share of tax and we want to help but in respect of their privacy. Personal data are subject to strict rules to protect privacy and we want to work together on a better way forward. Airbnb routinely shares information with Greece on the impacts of home sharing. Personal data is shared only through a valid legal request pursuant to national and European data privacy laws.”

The US-headquartered home-sharing firm therefore refuses to supply the tax registration numbers of its property owners, even though it knows that multiple property entries by the same owner aimed at tax-free investment utilization concerns at least 40% of its customers in Greece. According to Greek law, owners are not allowed to lease out more than two properties per tax registration number unless they set up a company for that purpose and are taxed accordingly. This is why it is crucial to distinguish owners who just top up their income from those who let properties for short periods as a professional/investment activity.

According to Airbnb, the average annual takings of Greek owners last year came to €2,375, while the average occupancy stood at just three days per month. However, this is far from representative as it also includes thousands of properties listed without having a single visitor and therefore no revenues, as they have been incorrectly registered or are simply located in unpopular areas. The vast majority of Greek owners on Airbnb appear to “forget” to declare their revenues from this activity to the tax authorities, knowing that the monitoring mechanism is unable to cross-check and inspect their revenues because their guests are typically foreign citizens who would not declare their expenditure to the Greek authorities.

Guess which one of the three will actually pan out.

• Greek Budget For 2018 Sees High Growth, Surplus And More Taxes (K.)

The government on Wednesday submitted the 2018 budget in Parliament, predicting a higher-than-expected primary surplus, of 3.8% of GDP, and a growth rate of 2.5%, as well as additional austerity with some 1 billion euros in new taxes. The strong growth rate of 2.5% is projected to follow a 1.6% expansion this year – a figure that has been downwardly revised twice following an original forecast of 2.7%. In a report accompanying the budget, the Finance Ministry looked forward to an “exit from a long period of programs of macroeconomic adjustment,” referring to Greece’s anticipated exit from its third foreign bailout in the summer of next year. The budget – which is to be voted on in Parliament on December 22 – foresees a primary surplus of 2.4% of GDP for this year, significantly above a target of 1.75%, and 3.8% for 2018.

“The significant overshooting of the targets… has contributed to restoring international trust in Greek public finances and created the preconditions for the country’s return to international capital markets in a sustainable way,” the ministry noted in its report. The budget also provides details about a “social dividend,” heralded by Prime Minister Alexis Tsipras last week, for 1.4 million households. The handout is worth an average of 483 euros, the ministry said, adding that a projected increase in growth rates in the coming years should allow the government to broaden its initiatives for social protection. The budget also includes a list of 12 measures that were passed in Parliament earlier this year but have yet to be implemented.

They include increases in social security contributions, cuts to heating and oil subsidies, higher tax rates for medium-sized and large properties, the elimination of value-added tax breaks for dozens of Aegean islands that had enjoyed a reduced rate of VAT, and a new hotel stayover levy. There are fears that the latter could have an impact on tourism, which remains one of Greece’s few dynamic economic sectors. The government hopes that the 12 measures will raise around 1 billion euros in revenue.

Debt Rattle November 15 2017

Nov 152017

November 15, 2017 Posted by Raúl Ilargi Meijer at 8:53 am Finance Tagged with: Airbnb, bubble, delinquencies, deposits, ISIS, Mueller, subprime, Sweden, Syria, Zimbabwe 7 Responses »

Arkady Shaikhet Express 1939

• Richest 1% Own 50% Of Global Wealth, Poorest 50% Own 1% (BI)

• US Auto-Loan Subprime Blows Up Lehman-Moment-Like (WS)

• Household Debt Rises By $116 Billion As Credit-Card Delinquencies Pile Up (MW)

• Sweden’s Housing Market Shock is Hitting Its Currency (BBG)

• ECB Seeks Power To Freeze Bank Deposits (BBG)

• What History Teaches About Interest Rates (DR)

• Deus ex Mueller isn’t Coming (CJ)

• Raqqa’s Dirty Secret (BBC)

• How Western Imperial Power Set Out To Destroy Syria (Ren.)

• US Directly Supports ISIS Terrorists In Syria – Russia (Tass)

• Zimbabwe’s Military Seizes Power (BBG)

• Airbnb Puts Automatic Rental Cap On Central Paris Offers (R.)

• Airbnb Refuses To Disclose Financial Data To Greece’s Finance Ministry (KTG)

How do we do it? What an achievement!

• Richest 1% Own 50% Of Global Wealth, Poorest 50% Own 1% (BI)

The world’s richest 1% of families and individuals hold over half of global wealth, according to a new report from Credit Suisse. The report suggests inequality is still worsening some eight years after the worst global recession in decades. The release of the Paradise Papers, a trove of leaked documents uncovered by investigative journalists detailing the offshore tax holdings of the world’s super wealthy, has reinforced just how rampant the problem of wealth inequality has become. “The bottom half of adults collectively own less than 1% of total wealth, the richest decile (top 10% of adults) owns 88% of global assets, and the top percentile alone accounts for half of total household wealth,” the Credit Suisse report said.

Put another way: “The top 1% own 50.1% of all household wealth in the world.” This handy pyramid chart, which shows the relative number of people at different wealth levels and how much of the world’s assets each bracket controls, speaks volumes about the level of income concentration, which by some measures has not been seen since the early 20th century:

In most countries, including the United States, a large wealth gap translates into those at the top accruing political power, which in turn can lead to policies that reinforce benefits for the wealthy. President Donald Trump’s tax cut plan, for instance, has been widely criticized for favoring corporations and the wealthy over working families. Measured overall, Credit Suisse found total global wealth rose 6.4% in the year between mid-2016 and mid-2017 to $280.3 trillion. Stock market gains helped add $8.5 trillion to US household wealth during that period, a 10.1% rise. US inequality is considerably worse than in its more developed-country peers.

You really have to check the dates, to make sure this is not 10 year old news. The key word here is ‘surge’.

• US Auto-Loan Subprime Blows Up Lehman-Moment-Like (WS)

Given Americans’ ceaseless urge to borrow and spend, household debt in the third quarter surged by $610 billion, or 5%, from the third quarter last year, to a new record of $13 trillion, according to the New York Fed. If the word “surged” appears a lot, it’s because that’s the kind of debt environment we now have: Mortgage debt surged 4.2% year-over-year, to $9.19 trillion, still shy of the all-time record of $10 trillion in 2008 before it all collapsed. Student loans surged by 6.25% year-over-year to a record of $1.36 trillion. Credit card debt surged 8% to $810 billion. “Other” surged 5.4% to $390 billion. And auto loans surged 6.1% to a record $1.21 trillion. And given how the US economy depends on consumer borrowing for life support, that’s all good.

However, there are some big ugly flies in that ointment: Delinquencies – not everywhere, but in credit cards, and particularly in subprime auto loans, where serious delinquencies have reached Lehman Moment proportions. Of the $1.2 trillion in auto loans outstanding, $282 billion (24%) were granted to borrowers with a subprime credit score (below 620). Of all auto loans outstanding, 2.4% were 90+ days (“seriously”) delinquent, up from 2.3% in the prior quarter. But delinquencies are concentrated in the subprime segment – that $282 billion – and all hell is breaking lose there. Subprime auto lending has attracted specialty lenders, such as Santander Consumer USA. They feel they can handle the risks, and they off-loaded some of the risks to investors via subprime auto-loan-backed securities. They want to cash in on the fat profits often obtained in subprime lending via extraordinarily high interest rates.

Oh well.

• Household Debt Rises By $116 Billion As Credit-Card Delinquencies Pile Up (MW)

The numbers: Household debt rose by $116 billion, or 0.9%, to $12.96 trillion in the third quarter, the New York Fed said Tuesday. Credit-card debt rose by 3.1% while home equity lines of credit, or HELOC, balances fell by 0.9%. There were small gains in mortgage, student and auto debt. Flows into credit-card and auto loans delinquencies rose, with 4.6% of credit card debt 90 days or more delinquent, up from 4.4% in the second quarter, and 2.4% of auto loan debt seriously delinquent, up from 2.3%. That’s still nowhere near the 9.6% of student loan debt that is delinquent, which itself is understated because about half of those loans are currently in deferment, grace periods or in forbearance.

What happened: U.S. households aren’t aggressively leveraging up, and the ones that are did so had better credit. The higher level of auto loan originations was mainly to prime borrowers, and the median credit score to individuals originating new mortgages ticked up to 760 from 754. [..] Auto loans have grown for 26 straight quarters. But there are some worries as subprime auto loan performance continues to deteriorate — the delinquency rate for auto finance companies have grown by more than 2 percentage points since 2014, the New York Fed said.

World’s biggest housing bubble?

• Sweden’s Housing Market Shock is Hitting Its Currency (BBG)

Can a central bank steer the housing market? Not so long ago, Sweden’s Riksbank decided: no. Now, there’s a risk that decision may backfire as the biggest property market in Scandinavia risks sinking into a correction. The evidence of price declines was so worrying on Tuesday that it contributed to a 1.5 percent slump in the krona against the euro. A weak currency puts the Riksbank’s inflation target at risk. So should it be looking at the housing market more closely? Developments in Sweden’s housing market “could spark some doubts at the Riksbank as it may affect the overall economic outlook and inflation,” Nordea analyst Andreas Wallstrom said in a note. Sweden’s Riksbank has thrown all its energy into fighting deflation and, earlier this year, finally regained credibility on its inflation mandate.

Policy makers now say they may be ready to start raising rates in the middle of next year. At the same time, the Riksbank may extend a bond purchase program due to end this year. But in the minutes of the Riksbank’s latest rate meeting, Deputy Governor Cecilia Skingsley suggested that monetary policy, “under certain circumstances, can be used to combat the effects of major household debt.” She also said the housing market “must be carefully monitored,” given the latest developments. Nordea’s Wallstrom says the central bank will probably need to see a “sharp drop” in house prices with a direct impact on the real economy before it will look into adding significant stimulus. But the bank might decided to signal rates will stay where they are for even longer.

Which would cause panic and bank runs.

• ECB Seeks Power To Freeze Bank Deposits (BBG)

The European Central Bank intensified its push for a tool that would hand authorities the power to stop deposit withdrawals when a bank is on the verge of failing. ECB executive board member Sabine Lautenschlaeger said that bank resolution cases this year showed that a so-called moratorium tool, which would temporarily freeze a bank’s liabilities to buy time for crucial decisions, is needed. Her comment comes as policy makers in Brussels debate how such measures should be designed, and just days after the ECB officially called for the moratorium to extend to deposits as well. “If we have a long list of exemptions and we have a moratorium that doesn’t work, I do not want to have a moratorium tool,” Lautenschlaeger told a conference in Frankfurt on Tuesday. “Then you will never use it.”

EU member states appear ready to heed the request, according to a Nov. 6 paper that develops their stance on a bank-failure bill proposed by the European Commission. They suggest giving authorities the power to cap deposit withdrawals as part of a stay on payments only after an institution has been declared “failing or likely to fail.” The power to install a moratorium “can in principle apply to eligible deposits,” the paper reads. “However, resolution authority should carefully assess the opportunity to extend the suspension also to covered deposits, especially covered deposits held by natural persons and micro, small and medium sized enterprises, in case application of suspension on such deposits would severely disrupt the functioning of financial markets.”

Low interst rates = low growth economies. The chicken and the egg.

• What History Teaches About Interest Rates (DR)

“At no point in the history of the world has the interest on money been so low as it is now.” Who can dispute the good Sen. Henry M. Teller of Colorado? For lo eight years, the Federal Reserve has waged a ceaseless warfare upon interest rates. Economic law, history, logic itself, stagger under the onslaughts. We suspect that economic reality will one day prevail. This fear haunts our days… and poisons our nights. But let us check the date on the senator’s declaration… Kind heaven, can it be? We are reliably informed that Sen. Teller’s comment entered the congressional minutes on Jan. 12… 1895. 1895 — some 19 years before the Federal Reserve drew its first ghastly breath! Were interest rates 122 years ago the lowest in world history? And are low interest rates the historical norm… rather than the exception?

Today we rise above the daily churn… canvass the broad sweep of history… and pursue the grail of truth. The chart below — giving 5,000 years of interest rate history — shows the justice in Teller’s argument. Please direct your attention to anno Domini 1895: Rates had never been lower in all of history. They would only sink lower on two subsequent occasions — the dark, depressed days of the early 1930s — and the present day, dark and depressed in its own right. A closer inspection of the chart reveals another capital fact… Absent one instance at the beginning of the 20th century and a roaring exception during the mid-to-late 20th century, long-term interest rates have trended lower for the better part of 500 years.

Paul Schmelzing professes economics at Harvard. He’s also a visiting scholar at the Bank of England, for whom he conducted a study of interest rates throughout history. Could the sharply steepening interest rates that began in the late 1940s be a historical one-off… an Everest set among the plains? Analyst Lance Roberts argues that periods of sharply rising interest rates like this are history’s exceptions — lovely exceptions. Why lovely? Roberts: Interest rates are a function of strong, organic, economic growth that leads to a rising demand for capital over time. In this view, rates rose steeply at the dawn of the 20th century because rapid industrialization and dizzying technological advances had entered the scenery.

Likewise, Roberts argues the massive post-World War II economic expansion resulted in the second great spike in interest rates: There have been two previous periods in history that have had the necessary ingredients to support rising interest rates. The first was during the turn of the previous century as the country became more accessible via railroads and automobiles, production ramped up for World War I and America began the shift from an agricultural to industrial economy. The second period occurred post-World War II as America became the “last man standing”… It was here that America found its strongest run of economic growth in its history as the “boys of war” returned home to start rebuilding the countries that they had just destroyed.

“If you attribute all your problems to Trump, you’re guaranteeing more Trumps after him..”

• Deus ex Mueller isn’t Coming (CJ)

We know from the Snowden leaks on the NSA, the CIA files released by WikiLeaks, and the ongoing controversies regarding FBI surveillance that the US intelligence community has the most expansive, most sophisticated and most intrusive surveillance network in the history of human civilisation. Following the presidential election last year, anonymous sources from within the intelligence community were haemorrhaging leaks to the press on a regular basis that were damaging to the incoming administration. If there was any evidence to be found that Donald Trump colluded with the Russian government to steal the 2016 election using hackers and propaganda, the US intelligence community would have found it and leaked it to the New York Times or the Washington Post last year.

Mueller isn’t going to find anything in 2017 that these vast, sprawling networks wouldn’t have found in 2016. He’s not going to find anything by “following the money” that couldn’t be found infinitely more efficaciously via Orwellian espionage. The factions within the intelligence community that were working to sabotage the incoming administration last year would have leaked proof of collusion if they’d had it. They did not have it then, and they do not have it now. Mueller will continue finding evidence of corruption throughout his investigation, since corruption is to DC insiders as water is to fish, but he will not find evidence of collusion to win the 2016 election that will lead to Trump’s impeachment. It will not happen. This sits on top of all the many, many, many reasons to be extremely suspicious of the Russiagate narrative in the first place.

[..] If you attribute all your problems to Trump, you’re guaranteeing more Trumps after him, because you’re not addressing the disease which created him, you’re just addressing the symptom. The problem is not Trump. The problem is that America is ruled by an unelected power establishment which maintains its rule by sabotaging democracy, exacerbating economic injustice and expanding the US war machine. Stop listening to the lies that they pipe into your echo chambers and turn to face your real demons.

“IS may have been homicidal psychopaths, but they’re always correct with the money.” Says Abu Fawzi with a smile.

• Raqqa’s Dirty Secret (BBC)

Lorry driver Abu Fawzi thought it was going to be just another job. He drives an 18-wheeler across some of the most dangerous territory in northern Syria. Bombed-out bridges, deep desert sand, even government forces and so-called Islamic State fighters don’t stand in the way of a delivery. But this time, his load was to be human cargo. The Syrian Democratic Forces (SDF), an alliance of Kurdish and Arab fighters opposed to IS, wanted him to lead a convoy that would take hundreds of families displaced by fighting from the town of Tabqa on the Euphrates river to a camp further north. The job would take six hours, maximum – or at least that’s what he was told. But when he and his fellow drivers assembled their convoy early on 12 October, they realised they had been lied to. Instead, it would take three days of hard driving, carrying a deadly cargo – hundreds of IS fighters, their families and tonnes of weapons and ammunition.

Abu Fawzi and dozens of other drivers were promised thousands of dollars for the task but it had to remain secret. The deal to let IS fighters escape from Raqqa – de facto capital of their self-declared caliphate – had been arranged by local officials. It came after four months of fighting that left the city obliterated and almost devoid of people. It would spare lives and bring fighting to an end. The lives of the Arab, Kurdish and other fighters opposing IS would be spared. But it also enabled many hundreds of IS fighters to escape from the city. At the time, neither the US and British-led coalition, nor the SDF, which it backs, wanted to admit their part. Has the pact, which stood as Raqqa’s dirty secret, unleashed a threat to the outside world – one that has enabled militants to spread far and wide across Syria and beyond?

Narratives are starting to move.

• How Western Imperial Power Set Out To Destroy Syria (Ren.)

Virtually unknown among large swaths the general public both in Britain and the U.S is the fact that Bashar-al Assad’s secular government won the first contested presidential election in Ba’athist Syria’s history on July 16, 2014, which was reported as having been open, fair and transparent. American Peace Council delegate, Joe Jamison, who was allowed unhindered travel throughout Syria, stated: “By contrast to the medieval Wahhabist ideology, Syria promotes a socially inclusive and pluralistic form of Islam. We [the USPC] met these people. They are humane and democratically minded…. The [Syrian] government is popular and recognised as being legitimate by the UN. It contests and wins elections which are monitored. There’s a parliament which contains opposition parties – we met them. There is a significant non-violent opposition which is trying to work constructively for its own social vision.”

Jamison added: “Our delegation came to Syria with political views and assumptions, but we were determined to be sceptics and to follow the facts wherever they led us”, he said. “I concluded that the motive of the US war is to destroy an independent, Arab, secular state. It’s the last of this kind of state standing.” The notion that the United States government and its allies and proxies, want to see the destruction of Syria’s pluralistic state under Assad destroyed, is hardly a secret. Indeed, one of Washington’s key allies in the region, Israel, has conceded as much. The claim by Israel’s defence minister, Avigdor Lieberman, that Assad’s removal is the empires “ultimate goal”, would appear to be consistent with the notion that the aim of the U.S government is to stymie the non-violent opposition inside Syria. Washington has been engaged in this strategy since early 2012 after having deliberately helped scupper Kofi Annan’s six point peace plan.

Members of the Syrian opposition within a newly reformed constitution who wanted to participate in democratic politics have instead been encouraged by the Western axis – as a result of bribing government forces to defect and through funding the Free Syrian Army – to overthrow the Assad government by violent means. As commentator Dan Glazebrook put it: “Within days of Annan’s peace plan gaining a positive response from both sides in late March, the imperial powers openly pledged, for the first time, millions of dollars for the Free Syrian Army; for military equipment, to provide salaries to its soldiers and to bribe government forces to defect. In other words, terrified that the civil war is starting to die down, they are setting about institutionalising it.”

Now proven by the BBC. What’s next?

• US Directly Supports ISIS Terrorists In Syria – Russia (Tass)

The Russian Defense Ministry has said it has obtained evidence the US-led coalition provides support for the terrorist group Islamic State (outlawed in Russia). “The Abu Kamal liberation operation conducted by the Syrian government army with air cover by the Russian Aerospace Force at the end of the last week revealed facts of direct cooperation and support for ISIS terrorists by the US-led ‘international coalition,’” the Russian Defense Ministry said. The ministry showed photo shoots made by Russian unmanned aircraft on November 9 which show kilometers-long convoys of IS armed groups leaving Abu Kamal towards the Wadi es-Sabha passage on the Syrian-Iraqi border to avoid strikes by the Russian aviation and the government army.

The US refused to conduct airstrikes over the leaving IS convoy. “Americans peremptorily rejected to conduct airstrikes over the ISIS terrorists on the pretext of the fact that, according to their information, militants are yielding themselves prisoners to them and now are subject to the provisions of the Convention relative to the Treatment of Prisoners of War,” the Russian Defense Ministry said. The Defense Ministry specified that “the Russian force grouping command twice addressed the command of the US-led ‘international coalition’ with a proposal to carry out joint actions to destroy the retreating ISIS convoys on the eastern bank of the Euphrates.” The Americans failed to answer the Russian side’s question on why IS militants leaving in combat vehicles heavily equipped are regrouping in the area controlled by the international coalition to conduct new strikes over the Syrian army near Abu Kamal, the Russian Defense Ministry stressed.

Mugabe under house arrest and according to South African media ‘planning to step down’. Rumors that Emmerson Mnangagwa, the vice-president Mugabe fired recently, will be interim president. Which in turn would confirm that the army acted because it doesn’t want Grace Mugabe in power.

• Zimbabwe’s Military Seizes Power (BBG)

The armed forces seized power in Zimbabwe after a week of confrontation with President Robert Mugabe’s government and said the action was needed to stave off violent conflict in the southern African nation that he’s ruled since 1980. The Zimbabwe Defense Forces will guarantee the safety of Mugabe, 93, and his family and is only “targeting criminals around him who are committing crimes that are causing social and economic suffering in the country in order to bring them to justice,” Major-General Sibusiso Moyo said in a televised address in Harare, the capital. All military leave has been canceled, he said. Denying that the action was a military coup, Moyo said “as soon as we have accomplished our mission we expect the situation to return to normalcy.” He urged the other security services to cooperate and warned that “any provocation will be met with an appropriate response.”

The action came a day after armed forces commander Constantine Chiwenga announced that the military would stop “those bent on hijacking the revolution.” As several armored vehicles appeared in the capital on Tuesday, Mugabe’s Zimbabwe African National Union-Patriotic Front described Chiwenga’s statements as “treasonable” and intended to incite insurrection. Later in the day, several explosions were heard in the city. The military intervention followed a week-long political crisis sparked by Mugabe’s decision to fire his long-time ally Emmerson Mnangagwa as vice president in a move that paved the way for his wife Grace, 52, and her supporters to gain effective control over the ruling party. Nicknamed “Gucci Grace” in Zimbabwe for her extravagant lifestyle, she said on Nov. 5 that she would be prepared to succeed her husband.

65,000 homes in Paris alone.

• Airbnb Puts Automatic Rental Cap On Central Paris Offers (R.)

Short-term rental website Airbnb, which has been challenging traditional hotel operators such as Accor and Marriott, said it would automatically cap the number of days its hosts can rent their property each year in central Paris. The decision, which goes into effect in January and mirrors initiatives already in place in London and Amsterdam, will force hosts to effectively comply with France’s official limit on short-term rentals of 120 days a year for a main residence. It comes as Airbnb, similar to its taxi-hailing peer Uber, is facing a growing crackdown from legislators worldwide – triggered in part by lobbying from the hotel industry, which sees the rental service as providing unfair competition. Airbnb and other rental platforms have also been criticized for driving up property prices and contributing to a housing shortage in some cities such as Paris or Berlin.

Airbnb, which has denied having a significant impact on housing shortages, has been trying to placate local authorities. “Paris is Airbnb number one city worldwide and we want to insure our community of hosts expands in a responsible and sustainable manner,” said Emmanuel Marill, Airbnb general manager for France. In Paris, the automatic rental cap will apply only to the city’s first four districts (“arrondissements”) unless the property owner has proper authorization. These districts include tourist hotspots such as the Marais, and landmarks such as the Louvre and the place de la Concorde square. Airbnb is implementing the cap as the Paris city council has made it mandatory from December for people renting their apartments on short-term rental websites to register their property with the town hall.

Ian Brossat, the housing advisor to the Paris Mayor, told Reuters that the cap should extend to the whole of Paris. “Under the law, websites must withdraw listings that do not comply with the law throughout Paris. One cannot accept that a website complies with the law only in the first four arrondissements of Paris,” said Brossat. With over 400,000 listings, France is Airbnb’s second-largest market after the United States. Paris, which is the most visited city in the world, is Airbnb’s biggest single market, with 65,000 homes.

Fine them until they do?! Half the city of Athens will turn into Airbnb if they don’t.

• Airbnb Refuses To Disclose Financial Data To Greece’s Finance Ministry (KTG)

Airbnb refused to provide the Greek Finance Ministry with information on property rentals thus delaying the launch of an online platform where owners should register the rental transactions and pay the necessary taxes. According to information obtained by economic news website economy365.gr, the Finance Ministry has tried for five months to get in touch with executives of the company in California as well as of other companies (Novasol etc). However, the companies showed no intention to cooperate with Greek authorities who have requested that the tax number of property owner is being registered to every property at the Airbnb platform. Owner’s tax number would facilitate the imposition of taxes on rentals via Airbnb. The tax legislation on short-term leases through digital platform like Airbnb was voted last year. The law foresees taxes of 15%-45% and a limited number of rentals per year.

Registration is mandatory. Authorities will provide the property owner with a certification number that has to be declared on any website and social media advert, including, of course, the Airbnb platform. Fines can reach up to 5,000 euros, if a property owner does not register on the Greek authorities registration platform and tries to evade taxes from short-term rentals. The state has estimated that revenues from Airbnb rentals could reach 48 million euros per year. According to the Finance Ministry property owners try to bypass the 3% commission to Airbnb and upcoming taxes by direct contact to customers via messenger or telephone. The payments are done cash at the arrival and not through the platform. In this way, property owners can bypass not only the commission but also registration of the rentals and future taxes. Just in case and even if one day, the Airbnb decides to hand over its Greek data to the tax authorities. For the time being it looks as the Greek goal to tax Airbnb properties has to be postponed.

Debt Rattle May 20 2016

May 202016

May 20, 2016 Posted by Raúl Ilargi Meijer at 8:59 am Finance Tagged with: Bayer, bubble, debt, delinquencies, G7, Kuroda, layoffs, Monsanto, refugees, showdown, steel 2 Responses »

John Vachon Window in home of unemployed steelworker. Ambridge, PA 1941

• Lacking New Ideas, G7 To Agree On ‘Go-Your-Own-Way’ Approach (R.)

• Japan And US Are Headed For A Showdown Over Currency Manipulation (MW)

• Kuroda Stresses Readiness to Act if Yen Rise Threatens Inflation Goal (WSJ)

• US Business Loan Delinquencies Spike to Lehman Moment Level (WS)

• China Steelmakers Attack US 522% Tariff Move; Say Need More Time (R.)

• The Iron Mountain on China’s Doorstep Tops 100 Million Tons (BBG)

• Big Chinese Banks Issue New Yuan-Denominated Debt In US (WSJ)

• Mass Layoffs Are Looming in South Korea (BBG)

• ‘Central Banks Can Do Nothing’: Steen Jakobsen (Saxo)

• Making Things Matters. This Is What Britain Forgot (Chang)

• Germany Strives to Avoid Housing Bubble (BBG)

• Bayer Eyes $42 Billion Monsanto in Quest for Seeds Dominance (BBG)

• Bayer’s Mega Monsanto Deal Faces Mega Backlash in Germany (BBG)

• EU Declines To Renew Glyphosate Licence (EUO)

• Ai Weiwei Says EU’s Refugee Deal With Turkey Is Immoral (G.)

In a strong sign of how fast the crisis is deepening, and in between the usual blah blah, the G7 is falling apart.

• Lacking New Ideas, G7 To Agree On ‘Go-Your-Own-Way’ Approach (R.)

A rift on fiscal policy and currencies is likely to set the stage for G7 advanced economies to agree on a “go-your-own-way” response to address risks hindering global economic growth at their finance leaders’ gathering on Friday. As years of aggressive money printing stretch the limits of monetary policy, the G7 policy response to anemic inflation and subdued growth has become increasingly splintered. Finance leaders gathering in Sendai, northeast Japan, sought advice from prominent academics, including Nobel Prize-winning economist Robert Shiller, on ways to boost growth in an informal symposium ahead of an official G7 meeting on Friday.

Participants of the symposium agreed that instead of relying on short-term fiscal stimulus or monetary policy, structural reforms combined with appropriate investment are solutions to achieving sustainable growth, a G7 source said. If so, that would dash Japan’s hopes to garner an agreement on the need for coordinated fiscal action to spur global demand. Germany showed no signs of responding to calls from Japan and the United States to boost fiscal stimulus, instead warning of the dangers of excessive monetary loosening. “There is high nervousness in financial markets” fostered by huge government debt and excess liquidity around the globe, German Finance Minister Wolfgang Schaeuble said on Thursday.

But G7 officials have signaled that they would not object if Japan were to call for stronger action using monetary, fiscal tools and structural reforms – catered to each country’s individual needs. That means the G7 finance leaders, while fretting about risks to outlook, may be unable to agree on concrete steps to bolster stagnant global growth. “I expect there to be a frank exchange of views on how to achieve price stability and growth using monetary, fiscal and structural policies reflecting each country’s needs,” Bank of Japan Governor Haruhiko Kuroda told reporters on Thursday.

The interests are too different to reconcile, and it’s by no means just Japan and the US that are involved in the showdown.

• Japan And US Are Headed For A Showdown Over Currency Manipulation (MW)

Investors will be watching for signs of tension between Japanese and U.S. powers this weekend, when central bankers and finance chiefs face off in Sendai, a city northeast of Tokyo, for the latest Group of 7 summit. The two countries have sparred over the dollar-yen exchange rate in the months since the Japanese currency began a prolonged rise against the dollar. The yen has lost nearly 9% of its value relative to the dollar since the beginning of the year. Last week, Japanese Finance Minister Taro Aso spoke publicly about the continuing disagreement between U.S. and Japanese policy makers over whether the rise in the yen seen since the beginning of the year has been severe enough to warrant an intervention.

Japan might favor a weaker currency primarily because it makes the country’s exports more attractive. “We’ve have often been arguing over the phone,” Aso said, according to The Wall Street Journal. He also reiterated that Japanese officials wouldn’t hesitate to intervene in the market if the currency continued its sharp moves. Plus, he said, the Treasury Department’s decision to put Japan on a currency manipulation monitoring list “won’t constrain” the country’s currency policy. The Treasury published the list for the first time this year, including it as part of a semiannual report on currency practices released late last month. Japan was joined on the list by China, Germany, Taiwan and Korea.

To be included on the Treasury’s watch list, a country must meet at least two of three criteria: A trade surplus with the U.S. larger than $20 billion, a current-account surplus larger than 3% of its GDP—or it must engage in persistent one-sided intervention in the currency market, which the Treasury qualifies as repeated purchases of foreign currency amounting to more than 2% of a country’s GDP over the course of a year.

And so are all other central bankers.

• Kuroda Stresses Readiness to Act if Yen Rise Threatens Inflation Goal (WSJ)

Bank of Japan Gov. Haruhiko Kuroda said he would act quickly if the yen’s rise threatens his inflation goal, highlighting his caution over exchange rates ahead of a major international convention. “Be it exchange rates or anything, if it has negative effects on our efforts to achieve our price-stability target, and from that perspective if we figure that action is necessary, we will undertake additional easing measures,” Mr. Kuroda told reporters Thursday. The remarks by Mr. Kuroda come at a time of tension between the U.S. and Japan over whether the yen’s appreciation seen earlier this year is sharp enough to warrant intervention by authorities. Investors are closely watching whether Tokyo and Washington will continue to clash over yen policy during a meeting in northern Japan Friday and Saturday of finance chiefs from the Group of Seven leading industrialized nations.

Mr. Kuroda defended his policy stance, saying it is no different from that of central banks abroad. He also reiterated that the BOJ has kept in place massive stimulus to achieve its target of 2% inflation, not to guide the yen lower. Mr. Kuroda said that while he is watching how the bank’s negative-rates policy affects the economy, “this doesn’t mean that we will sit idly by until trickle-down effects become clear.” The BOJ will review the need for fresh steps “at every policy meeting,” he added. Speaking of risks facing Japan’s economy, Mr. Kuroda acknowledged that he is “paying close attention” to the coming British referendum to decide whether to leave the European Union.

“Business loan delinquencies are a leading indicator of big economic trouble.”

• US Business Loan Delinquencies Spike to Lehman Moment Level (WS)

This could not have come at a more perfect time, with the Fed once again flip-flopping about raising rates. After appearing to wipe rate hikes off the table earlier this year, the Fed put them back on the table, perhaps as soon as June, according to the Fed minutes. A coterie of Fed heads was paraded in front of the media today and yesterday to make sure everyone got that point, pending further flip-flopping. Drowned out by this hullabaloo, the Board of Governors of the Federal Reserve released its delinquency and charge-off data for all commercial banks in the first quarter – very sobering data. So here a few nuggets. Consumer loans and credit card loans have been hanging in there so far.

Credit card delinquencies rose in the second half of 2015, but in Q1 2016, they ticked down a little. And mortgage delinquencies are low and falling. When home prices are soaring, no one defaults for long; you can sell the home and pay off your mortgage. Mortgage delinquencies rise after home prices have been falling for a while. They’re a lagging indicator. But on the business side, delinquencies are spiking! Delinquencies of commercial and industrial loans at all banks, after hitting a low point in Q4 2014 of $11.7 billion, have begun to balloon (they’re delinquent when they’re 30 days or more past due). Initially, this was due to the oil & gas fiasco, but increasingly it’s due to trouble in many other sectors, including retail.

Between Q4 2014 and Q1 2016, delinquencies spiked 137% to $27.8 billion. They’re halfway toward to the all-time peak during the Financial Crisis in Q3 2009 of $53.7 billion. And they’re higher than they’d been in Q3 2008, just as Lehman Brothers had its moment. Note how, in this chart by the Board of Governors of the Fed, delinquencies of C&I loans start rising before recessions (shaded areas). I added the red marks to point out where we stand in relationship to the Lehman moment:

Business loan delinquencies are a leading indicator of big economic trouble. They begin to rise at the end of the credit cycle, on loans that were made in good times by over-eager loan officers with the encouragement of the Fed. But suddenly, the weight of this debt poses a major problem for borrowers whose sales, instead of soaring as projected during good times, may be shrinking, and whose expenses may be rising, and there’s no money left to service the loan.

Hadn’t seen this claim before: “..local steelmakers are more efficient (and enjoy far lower costs) than their international counterparts.”

• China Steelmakers Attack US 522% Tariff Move; Say Need More Time (R.)

Chinese steelmakers attacked new U.S. import duties on the country’s steel products as “trade protectionism” on Thursday, saying the world’s biggest producer needs time to address its excess capacity. “There’s too much trade friction and it’s not good for the market,” Liu Zhenjiang, secretary general of the China Iron and Steel Association told Reuters when asked if China will appeal U.S. anti-dumping duties at the WTO. China said it will continue its tax rebates to steel exporters to support the sector’s painful restructuring after the United States said on Tuesday it would impose duties of 522% on Chinese cold-rolled flat steel. China, which accounts for half the world’s steel output, is under fire after its exports hit a record 112 million tonnes last year, with rivals claiming that Chinese steelmakers have been undercutting them in their home markets.

In the four months to April, China’s steel exports have risen nearly 7.6% to 36.9 million tonnes. “It’s not just China’s problem to tackle overcapacity. Everyone should play a part. China needs time,” Liu told an industry conference. “Trade protectionism hurts consumers, (it’s) against free trade and competition,” he added. China’s Commerce Ministry said on Wednesday the United States had employed “unfair methods” during an anti-dumping investigation into Chinese cold-rolled steel products. While a flood of cheap Chinese steel has been blamed for putting some overseas producers out of business, China denies its mills have been dumping their products on foreign markets, stressing that local steelmakers are more efficient and enjoy far lower costs than their international counterparts.

All we got to do is wait till they run out of space to store it.

• The Iron Mountain on China’s Doorstep Tops 100 Million Tons (BBG)

There’s a mountain of iron ore sat right on China’s doorstep. Stockpiles at ports have climbed above 100 million metric tons, offering fresh evidence of increased supplies in the world’s top user that may hurt prices. The inventories swelled 1.6% to 100.45 million tons this week, the highest level since March 2015, according to data from Shanghai Steelhome Information Technology. The holdings, which feed the world’s largest steel industry, have expanded 7.9% this year, and are now large enough to cover more than five weeks’ of imports. Iron ore has traced a boom-bust path over the past two months after investors in China piled into raw-material futures, then changed course after regulators clamped down.

While mills in China churned out record daily output in April to take advantage of a steel price surge, production in the first four months was 2.3% lower than a year earlier. Port inventories in China may continue to increase, BHP Billiton forecast this week. “There’s a lot of optimism actually that steel demand in China will increase,” Ralph Leszczynski at shipbroker Banchero Costa , said by phone. “It’s a bit of an ‘if’ as the economy is still quite fragile,” he said, calling the rise in port stocks “probably excessive.” The raw material with 62% content sank 5.8% to $53.47 a dry ton on Thursday, according to Metal Bulletin Ltd. Prices have tumbled 24% since peaking at more than $70 a ton in April, paring the gain so far in 2016 to 23%.

A stronger dollar makes this a huge gamble.

• Big Chinese Banks Issue New Yuan-Denominated Debt In US (WSJ)

Two of China’s largest banks are issuing new local currency debt in the U.S., offering attractive yields for investors willing to take some currency risk. Industrial and Commercial Bank of China, the world’s largest bank by assets, said it plans on Friday to raise 500 million yuan ($76 million) through 31-day certificates of deposit in the U.S. that will yield 2.6%. Agricultural Bank of China, the third-largest bank in the world, this week sold a 117 million yuan one-year bill that yields 3.35%. Both issues came at a significant premium to the 0.621% yield on the one-year U.S. Treasury bill. But the yuan-denominated debt could pay out less if the currency falls in value. Fed officials last month discussed the possibility of raising interest rates at their June policy meeting, according to minutes from the April meeting released on Wednesday.

A rate increase could cause the yuan to weaken against the dollar. China’s 3% devaluation in August sparked a selloff in yuan-denominated bonds, driving up interest rates in the offshore market, also known as the dim sum market. The new offerings will test demand for Chinese debt in local currency, the first issued by any Chinese bank in the U.S. since last year. China’s one-month interbank rate is currently 2.84%, which means some Chinese banks can borrow at better rates in the U.S. and other foreign markets than at home. The debt also promotes the use of the yuan abroad, one of the conditions set by the IMF when it said last year it would add the Chinese currency to its basket of reserve currencies. The IMF’s inclusion of the yuan is a step toward making the currency fully convertible.

Take that, G7.

• Mass Layoffs Are Looming in South Korea (BBG)

The South Korean government’s push to restructure debt-laden companies is set to cost tens of thousands of workers their jobs in an economy where social security is limited and a rigid labor market reduces the likelihood of getting rehired in a full-time position. Many of the layoffs will be in industrial hubs along the southeast coastline, where shipyards and ports dominate the landscape. These heavy industries, which helped propel South Korea’s growth in previous decades, have seen losses amid a slowdown in global growth, overcapacity and rising competition from China. As a condition of financial support, creditor banks and the government are pushing companies to cut back on staff and sell unprofitable assets. In Korea, losing a permanent, full-time job often means sliding toward poverty, one reason why labor unions stage strikes that at times lead to violent confrontations with employers and police.

A preference for hiring and training young employees, rather than recruiting experienced hands, means that many workers who get laid off drift into day labor or low-wage, temporary contracts that lack insurance and pension benefits, according to Lee Jun Hyup, a research fellow for Hyundai Research Institute. “The possibility of me getting a new job that offers similar income and benefits is about 1%,” said one of about 2,600 employees to be laid off following a previous restructure, of Ssangyong Motor in 2009. The 45-year-old worker, who asked only to be identified by the surname Kim as he tries to get rehired, initially delivered newspapers and worked construction after losing his permanent job. He’s now on a temporary contract at a retailer and taking night shifts as a driver to get by. Despite having these two jobs, his income has been halved. Being fired was “like being pushed into a desert with no water,” Kim said.

Jakobsen’s always interesting. This is quite a long piece.

• ‘Central Banks Can Do Nothing’: Steen Jakobsen (Saxo)

TradingFloor.com: The “new nothingness” thesis was based on zero rates, zero growth, zero reforms. But you hinted that all of this nothingness has spilled over into culture and politics as well… do these macro facts hinder peoples’ imagination, or their ability to deal with the problem?

Steen Jakobsen: Yes, I think so. This year, we see a growing gap between the central banks’ narrative – which is that you have a trickle-down impact from lower rates – and [the situation on the ground]. People understand that zero interest rates are a reflection of zero growth, zero inflation, zero hope for changes, and zero reforms. In my opinion as an economist and a market observer, people are smarter than central banks. And because they are smarter, they can live with policy mistakes for a while because the narrative is very strong and because people like (ECB head Mario) Draghi and (Fed chief Janet) Yellen have these platforms from which they not only talk but occasionally shout, and they are deemed to be “credible”, scare quotes mine…

We see [this gap] in the Brexit debate as well, where the elite and the academics talk down to the average voter. By doing that, of course, they alienate the voters from their representatives. That’s what we see globally, that’s why Brazil is going to change presidents, why Ireland could not get its government re-elected with 6% growth. It’s not about the top line, but about the average person seeing that we need real, fundamental change.

TF: Earlier this year, you said that the social contract – the agreement between rulers and the ruled – is broken. It made me think of this year’s Davos meeting, which showed a leadership class terrified of slowing jobs growth and enamoured with the idea that population movements might be used to address this. Given the current unpopularity of globalisation and its effects, would you say that there are some things it is impossible for 21st century leaders and the led to agree upon? Is a social contract impossible?

SJ: No, it could be re-established, but it needs to be established on terra firma. Right now, we have a panacea in the form of low rates and the idea that things will somehow improve in six months. This has led to buyback programmes, a lack of motivation [and all the rest]. We as a society have to recognise that productivity comes from raising the average education level. People forget that all the revolutionary trends, the changes we’ve seen in history, have come from basic research. I don’t mean research driven by profit, but by an individual’s particular interest in one very minute area of a specific topic. This is what creates new inventions.

The second thing we often forget is that the military has been behind a lot of the industrial revolution. Mobile telephony, for example, had nothing to do with private citizens or companies – instead, it had a lot to do with the US military. The key thing here is that we need to be more productive. If everyone has a job, there is no need to renegotiate the social contract. The world has become elitist in every way. Before, you could start a company and build a small franchise; now, you have to be global, you have to have a billion users (if you’re an IT company), and [the pursuit of this] does not necessarily provide the best technologies, but only the biggest ones, the ones backed by [the firms with] the deepest pockets and largest web of connections.

It’s what many countries ‘forgot’.

• Making Things Matters. This Is What Britain Forgot (Chang)

It’s being blamed on the Brexit jitters. But the weakness in the UK economy that the latest figures reveal is actually a symptom of a much deeper malaise. Britain has never properly recovered from the 2008 financial crisis. At the end of 2015, inflation-adjusted income per capita in the UK was only 0.2% higher than its 2007 peak. This translates into an annual growth rate of 0.025% per year. How pathetic this performance is can be put into perspective by recalling that Japan’s per capita income during its so-called “lost two decades” between 1990 and 2010 grew at 1% a year. At the root of this inability to stage a real recovery is the serious imbalance that has developed in the past few decades – namely, the over-development of the UK financial sector and the atrophy of manufacturing.

Right after the 2008 financial crisis there was a widespread recognition that the ballooning financial sector needed to be reined in. Even George Osborne talked excitedly for a while about the “march of the makers”. That march never materialised, however, and manufacturing’s share of GDP has stagnated at around 10%. This is remarkable, given that the value of sterling has fallen by around 30% since the crisis. In any other country a currency devaluation of this magnitude would have generated an export boom in manufactured goods, leading to an expansion of the sector. Unfortunately manufacturing had been so weakened since the 1980s that it didn’t have a hope of staging any such revival. Even with a massive devaluation, the UK’s trade balance in manufacturing goods (that is, manufacturing exports minus imports) as a proportion of GDP has hardly budged.

The weakness of manufacturing is the main reason for the UK’s ever-growing deficit, which stood at 5.2% of GDP in 2015. Some play down the concerns: the UK, we hear, is still the seventh or eighth largest manufacturing nation in the world – after the US, China, Japan, Germany, South Korea, France and Italy. But it only gets this ranking because it has a large population. In terms of per capita output, it ranks somewhere between 20th and 25th. In other words, saying that we need not worry about the UK’s manufacturing sector because it is still one of the largest is like saying that a poor family with lots of its members working at low wages need not worry about money because their total income is bigger than that of another family with fewer, high-earning members.

Just keep rates low enough for long enough and you’ll screw up any economy.

• Germany Strives to Avoid Housing Bubble (BBG)

The German government, after years of warnings, is about to clamp down on rising home prices and mortgage lending. The government is preparing to implement measures to prevent real estate bubbles, the Finance Ministry said in an e-mail late on Wednesday. These policies may include capping borrowers’ loan-to-income ratio in order to reduce the probability of default, Handelsblatt reported on Thursday. The government continues to study the consequences of low interest rates on financial stability, a finance ministry spokesman said in the e-mail. However, there are currently no signs that German residential real estate lending is causing acute risks, he said.

With mortgage rates at record lows and savings accounts earnings almost nothing – thanks to a string of ECB rate cuts – Germans are buying homes at the fastest rate in decades. That’s pushed prices in cities including Berlin, Hamburg and Munich up by more than 30% in five years. New mortgages jumped by 22% in 2015 after five years of rising at 3% or less, according to the Bundesbank. In March, Bundesbank board member Andreas Dombret said he sees “clouds gathering on the horizon” and that the central bank is keeping a close eye on mortgages. Finance Minister Wolfgang Schaeuble, who has been critical of the ECB’s policy of pushing growth with cheap cash, in December said the hunt for yield could lead to the “formation of bubbles and excessive asset values.”

Don’t think I can say in public what I think should happen to companies like Monsanto, Bayer, Syngenta et al. The people who brought you Agent Orange, Zyklon B and chemical warfare are coming for your food, all of it. A start might be to figure out who holds shares in these things. Your money fund, your pension fund? This is the industry of death, as much as arms manufactureers are.

• Bayer Eyes $42 Billion Monsanto in Quest for Seeds Dominance (BBG)

Bayer made an unsolicited takeover offer for Monsanto Co. in a bold attempt by the German company to snatch the last independent global seeds producer and become the world’s biggest supplier of farm chemicals. The St. Louis-based company, with a market value of $42 billion, said it’s reviewing the offer in a statement Thursday. It didn’t disclose the terms of the proposal. Bayer, confirming the bid, said the combination would bolster its position as a life sciences company. Shares of Bayer plunged amid concern that a large purchase would weigh on its credit rating and force the company to sell more stock. The proposal by Werner Baumann, who’s been at Bayer’s helm for less than a month, follows Monsanto’s failed attempt to buy Syngenta and the proposed merger of Dow Chemical and DuPont.

To help finance its quest to buy the world’s largest seed maker, Bayer is considering asset disposals and a share sale, according to people familiar with the matter, who asked not to be identified because discussions are private. The German company is exploring the potential disposal of its animal-health business and the remaining 69% stake in plastics business Covestro, the people said. Animal health could fetch $5 billion to $6 billion, according to one of the people, and the Covestro holding is worth about €4.9 billion. If Bayer buys Monsanto, it could be the biggest acquisition globally this year and the largest German deal ever, according to data compiled by Bloomberg. A takeover of Monsanto would require an enterprise value of as much as €65 billionß, according to analysts at Citigroup.

[..]Merging Monsanto with the company that invented aspirin would bring together brands such as Roundup, Monsanto’s blockbuster herbicide, and Sivanto, a new Bayer insecticide. Monsanto is particularly vulnerable to a takeover after piling up a mountain of problems this year. The company has cut its earnings forecast, clashed with some of the world’s largest commodity-trading companies and become locked in disputes with the governments of Argentina and India. Shares are down 19% in the past 12 months. “It’s a relentless string of bad news,” Jonas Oxgaard, an analyst with Sanford C. Bernstein in New York, said. “It’s almost like they forgot to sacrifice a goat to the gods.”

Bayer won’t be able to sell its new ‘products’ at home.

• Bayer’s Mega Monsanto Deal Faces Mega Backlash in Germany (BBG)

Bayer’s proposed mega deal to buy Monsanto is likely to create a mega public relations challenge for the German company at home. Bayer faces a backlash against Germany’s biggest planned acquisition because of two products from the St. Louis-based company that are widely detested in the country: genetically modified seeds and the weedkiller Roundup, which uses a compound called glyphosate that some believe can cause cancer. “Germans view Monsanto as the main example of American corporate evil,” said Heike Moldenhauer, a biotechnology expert at German environmental group BUND. “It may not be such a good idea to take over Monsanto as that means incorporating its bad reputation, which would also make Bayer more vulnerable.”

A German Environment Ministry study released last month found 75% of citizens are against genetic engineering of plants and animals. Aware of voter suspicions, members of Chancellor Angela Merkel’s junior coalition partner, the Social Democrats, have already come out against the deal, which would turn Bayer into the biggest supplier of farm chemicals. Monsanto, which has a market value of $42 billion, said Thursday it’s studying the offer. Neither party has disclosed the terms. A merger would “strengthen the economic power of genetic engineering in Germany, which we see as very problematic as the majority of the population in Germany is opposed to the technology,” said Elvira Drobinski-Weiss, the lawmaker responsible for formulating policy positions on genetic engineering for the Social Democrats.

BASF four years ago abandoned research into genetically modified crops in Germany, citing a lack of acceptance of the technology in many parts of Europe from consumers, farmers and politicians. The German company moved the unit to the U.S. and halted development of products targeted for Europe to focus on crops for the Americas and Asia. “There’s virtually no market for genetically modified seeds in Europe because they’re so unpopular,” said Dirk Zimmermann, a GMO expert at Greenpeace in Hamburg. A deal combining Bayer and Monsanto would “hurt the future of sustainable agriculture.”

The EU is good for something after all. The pro-Roundup arguments get an eery left field feel to them though: “We use it for some farming practices such as no-till and minimum-tillage, helping to ensure less greenhouse gas emissions and soil erosion.”

• EU Declines To Renew Glyphosate Licence (EUO)

European experts failed again to take a decision on whether to renew a licence for glyphosate, the world’s widest-used weedkiller, during a meeting on Wednesday and Thursday (18-19 May). The EU standing committee on plants, animals, food and feed (Paff), which brings together experts of all EU member states, failed to organise a vote. There was no qualified majority for such a decision. The current licence expires on 30 June. The Paff committee was expected to settle on the matter already in March, but postponed the vote after France, Italy, the Netherlands and Sweden raised objections, mainly over the impact of glyphosate on human health. The European Commission has since tabled two new proposals, both of which failed to convince the member states.

The health commissioner Vytenis Andriukaitis insists that member states decide with a qualified majority because of the controversies involved. A spokesperson said the commission will reflect on the discussions. ”If no decision is taken before 30 June, glyphosate will be no longer authorised in the EU and member states will have to withdraw authorisations for all glyphosate based products”, the spokesperson said. Pekka Pesonen, the secretary general of agriculture umbrella organisation Copa-Cogeca, told EUobserver he regretted the outcome. ”This adds to uncertainty in an already pressured business”, he said. Glyphosate is widely used by European farmers because it is cost-efficient and widely available on the market.

”Without it, production will be jeopardised. This raises questions about food safety, competitiveness of European farmers, as well as our commitments to climate change,” Pesonen said. “We use it for some farming practices such as no-till and minimum-tillage, helping to ensure less greenhouse gas emissions and soil erosion.” ”Glyphosate is also recognised as safe by the EU food safety authority [Efsa]”, he added.

“It is not legal or moral, it is shameful and it is not a solution. It will cause problems later.”

• Ai Weiwei Says EU’s Refugee Deal With Turkey Is Immoral (G.)

The Chinese artist Ai Weiwei described the EU’s refugee deal with Turkey as shameful and immoral as he unveiled the artistic results of his stay on the Greek island of Lesbos. Speaking in Athens, where the works are going on public display for the first time from Friday, Ai said that although he had seen and experienced extreme and violent conditions in China, he “could never have imagined conditions like this”. Lesbos last year became the main European entry point for tens of thousands of Syrian and Iraqi refugees, but arrivals have fallen dramatically since the implementation of an agreement between Brussels and Ankara to return migrants from the Greek islands to Turkey. Of the agreement, Ai said: “It is not legal or moral, it is shameful and it is not a solution. It will cause problems later.”

The artist told the Guardian: “These people have nothing to do with Europe; they are like people from outer space, but they have to come. They have been pushed out and they are being totally neglected by Europe. They are sleeping in the mud and rain and it is only volunteers giving them food or clothes.” Ai arrived on Lesbos in December, having been invited to stage an exhibition at the Museum of Cycladic Art in Athens. The island seemed like a good starting point for thinking about ancient Greece and its mythologies, philosophies and values. Instead Ai became caught up in what he said was the biggest, most shameful humanitarian crisis since the second world war. He had told his girlfriend and young son it was a holiday, but five months later he and his studio are still there. He said he has been changed by what he has seen.

“It is such a beautiful island – blue water, sunshine, tourists – and to see the boats come in with desperate children, pregnant women and elderly people, some 90 years old, and they all have fear and they all have it in their eyes … You think: how could this happen? I got completely emotionally involved.” Ai said Europe needed to understand that the refugees were fleeing their countries because they had to. It was leave or die, he said. The exhibition at the MCA, Ai’s first in Greece, includes an enormous collage of 12,030 small pictures taken on his camera phone, documenting his time on the island. He is also exhibiting photographs taken by six Greek amateur photographers, in partnership with the Photographic Society of Mytilene.