EM Archives - The Automatic Earth

Read this excellent piece by Gareth Porter and you’ll never believe another single word about meddling. DHS made it all up, because it wanted to be the no. 1 cybersecurity unit in the US.

• Department of Homeland Security Lied About Russia Hacking US Voter Sites (CN)

The narrative of Russian intelligence attacking state and local election boards and threatening the integrity of U.S. elections has achieved near-universal acceptance by media and political elites. And now it has been accepted by the Trump administration’s intelligence chief, Dan Coats, as well. But the real story behind that narrative, recounted here for the first time, reveals that the Department of Homeland Security (DHS) created and nurtured an account that was grossly and deliberately deceptive. DHS compiled an intelligence report suggesting hackers linked to the Russian government could have targeted voter-related websites in many states and then leaked a sensational story of Russian attacks on those sites without the qualifications that would have revealed a different story.

When state election officials began asking questions, they discovered that the DHS claims were false and, in at least one case, laughable. The National Security Agency and special counsel Robert Mueller’s investigating team have also claimed evidence that Russian military intelligence was behind election infrastructure hacking, but on closer examination, those claims turn out to be speculative and misleading as well. Mueller’s indictment of 12 GRU military intelligence officers does not cite any violations of U.S. election laws though it claims Russia interfered with the 2016 election.

“With impeccable timing, there is a flood of new condos expected to be completed over the next two years..”

• Housing Bubble Pops in Sydney & Melbourne

In Sydney, breeding ground for one of the world’s biggest housing bubbles, prices of single-family houses dropped 7.3% in August, compared to a year earlier. Prices of “units” — condos in US lingo — fell 2.2% year-over-year. Price declines were the sharpest at the high end, with prices down 8.1% in the most expensive quarter of home sales. Prices of all types of homes combined fell 5.6%, according to CoreLogic’s Daily Home Value Index. The index is down 5.8% from its peak last September:

Melbourne, where the inflection point has been lagging a few months behind Sydney’s, is in the process of catching up. Over the three month-period, June-August, prices fell 2.0%, making Melbourne the weakest housing market among the capital cities. By segment, house prices fell 2.7% from a year ago while condo prices still inched up 1.5%. At the most expensive quarter of sales, prices fell 5.2% from a year ago. For all types of dwellings combined, prices declined 1.7% year-over-year, to the lowest level since early June 2017, according to CoreLogic. Prices are down 3.6% from their peak at the end of November 2017:

[..] With impeccable timing, there is a flood of new condos expected to be completed over the next two years, something avid crane-counters in Sydney and Melbourne have been swearing for a while. Here are some of these astounding numbers that CoreLogic estimates based on data it collected from the industry: Greater Sydney: In 2019: 31,500 new condos are scheduled to be completed. In 2020, another 45,500 condos are expected to be completed. This brings the two-year total of new condos to 77,000 units, which will increase the total stock of condos by 9.3%! Greater Melbourne: The oncoming flood of new condos is expected to reach 29,000 units in 2019 and nearly 50,000 units in 2020. Over the two years, this will increase the total stock of condos by nearly 79,000 units, or by 11.5%!

“Even property investors have been priced out of the market.”

• Sydney, Melbourne Have Zero Cashflow Positive Suburbs Left (News.com.au)

Even property investors have been priced out of the market. There are “currently no suburbs” in Sydney, Melbourne or Canberra where an investor can buy a detached house and expect it to be cashflow positive with a deposit of 20 per cent or less, according to an analysis by Propertyology. Releasing a list of the country’s “best capital city cash cow suburbs”, the research firm said buyers would have to travel to the Central Coast, 100km from the Sydney CBD, before finding an investment property with decent cashflow. Even then, a median-priced $490,000 house in Lake Munmorah — the least worst “Sydney” suburb identified in Propertyology’s list — will leave the investor $3093 out of pocket.

“Victoria paints a similar picture, with greater Melbourne’s best locations for cash flow investors within the municipality of Melton — 40km northwest of the CBD,” Propertyology head of research Simon Pressley said in a statement. It comes as CoreLogic figures showed national dwelling values fell for the 11th consecutive month in August, led by weakness in the two major capitals that comprise about 60 per cent of Australia’s housing market by value. Negatively geared properties — when the rental return is less than the interest payments and other costs — are “okay when you’re getting 10 per cent capital growth year in, year out”, said AMP Capital chief economist Dr Shane Oliver.

But investors now face falling house prices, rising interest rates, tighter lending conditions and the possibility of a future Labor government cracking down on negative gearing and capital gains tax breaks. “The equation gets more complicated,” Dr Oliver said.

Getting rich off of other people’s work.

• Europe’s News Agencies Blast Google, Facebook For ‘Plundering’ Content (AFP)

Europe’s biggest news agencies accused Google and Facebook of “plundering” news for free on Tuesday in a joint statement that called on the internet giants to share more of their revenues with the media. In a column signed by the CEOs of around 20 agencies including France’s Agence France-Presse, Britain’s Press Association and Germany’s Deutsche Presse-Agentur they called on the European Parliament to update copyright law in the EU to help address a “grotesque imbalance”. “The internet giants’ plundering of the news media’s content and of their advertising revenue poses a threat both to consumers and to democracy,” the column said.

European Parliament lawmakers are to set to debate a new copyright law this month that would force the internet giants to pay more for creative content used on their platforms such as news, music or movies. A first draft of the law was rejected in July and the plans have been firmly opposed by US tech firms, as well as advocates of internet freedom who fear that the regulations could lead to higher costs for consumers. “Can the titans of the internet compensate the media without asking people to pay for access to the internet, as they claim they would be forced to? The answer is clearly ‘yes’,” the column said. The joint statement from the agencies, which are major suppliers of news, photos and video, said Facebook reported revenues of $40 billion (34 billion euros) in 2017 and profits of $16 billion, while Google made $12.7 billion on sales of $110 billion.

Been here before. This time is wider and deeper.

• The Emerging Market Crisis Is Back. And This Time It’s Serious (CNBC)

Markets have a very short attention span. Like babies, they move on quickly from one toy, or in this case an event, to another. For instance, markets seem to have moved on from the formation of the “Fragile Five,” a group of countries that suffered heavily when the U.S. Federal Reserve started to roll back its bond-buying program in 2013. Made up of Brazil, India, Indonesia, Turkey and South Africa, this group was marked by heavy currency depreciation, high current account deficits and political instability at home. The slump in commodity prices and fears of a Chinese slowdown kept the pressure on these economies. However, they have started to see a comeback; in India and Indonesia, for example, a change in government has led to political and economic reforms.

Investors started crowding this space and inflows into funds with exposure to these markets increased. But markets are feeling a sense of deja vu. Blame it on a stronger dollar, escalating tensions since President Donald Trump came to power, worries over a full-fledged trade war with China or rising interest rates in the U.S., this time around the crisis seems to have entered a new phase. The damage is far more widespread. The crisis has engulfed countries across the globe — from economies in South America, to Turkey, South Africa and some of the bigger economies in Asia, such as India and China. A number of these countries are seeing their currency fall to record levels, high inflation and unemployment, and in some cases, escalating tensions with the United States.

“..the rise of the rule of man begins to squeeze out the rule of law..”

• Bringing Up The Bodies in Emerging Markets (Napier)

Investors brought up in the developed world take for granted the stability and continuation of the rule of law. They expect it to be as available and constant as air. Anyway, what role can a consideration of the rule of law play in trying to obtain index beating quarterly returns? It is this myopia and not the myopia associated with the short-term dumping of assets, because they are labelled ‘emerging markets’, that is particularly dangerous. The history of emerging markets is the history of populism, the real populism that subverts human rights and property rights. On the rise in emerging markets, this populism is resulting in a growing exodus of what are now very large sums, even in global terms, of local savings.

It is the shift in local savings, more so than foreign savings, that is pushing emerging market exchange rates to ever lower levels. It is not the flighty financial capital seeking slightly better interest rate differentials that departs in situations like this. It is the financial capital that funds development and growth that flees, as the rise of the rule of man begins to squeeze out the rule of law. The loss of such capital has profound long-term economic impacts. There is a key reason why the strong men are on the rise and the rule of law on the decline: the world is failing to inflate away its debts. Even before we invented paper money, there was a well recognized method of inflating away debts.

Perhaps most famously Henry VIII’s so-called great debasement (1544-1551) inflated away the excessive debts run up to fund wars with France and Scotland, as well as a bit of lavish spending by the king himself. Your analyst meets investors almost every day who believe that inflation is currently playing a similar role. However, such an assertion ignores the fact that the global non-financial debt to GDP ratio is now 244% up from what seemed a dangerous level of 210% of GDP as the global economy peaked in December 2007.

A nation that hasn’t moved in decades.

• Brexit Is The Wrong Diagnosis Of A Real Crisis (LSE)

The Leave campaign in 2016 had a lot in common with the 1979 Conservative election manifesto. Both evoked the threat of a bureaucratic super-state and something approaching a conspiracy of that state against the public. Both promised to rescue a Greater Britain from the conspiratorial political forces that were holding it back. Both campaigns were a misdiagnosis of the real crisis at hand. This time we face a crisis of ungovernability potentially far more severe than that of the 1970s; but its roots are less in Europe than in the failures of the homegrown neoliberal reforms of the British state.

The last three decades of state reform in Western democracies have aggravated rather than resolved the social divisions that emerged with de-industrialisation. Over the last thirty years, liberal market economies in general and the UK in particular have transformed the character of their states through privatization and outsourcing, through the development of quasi markets in welfare, and the rejection of industrial policies. At the same time, permissive tax and regulatory regimes have encouraged large corporations to opt out of their former social obligations in the name of maximising shareholder value.

The ‘supply-side revolution’ of the last thirty years was driven by the dominant New Right diagnosis of the economic crises of the 1970s and based on the radical public choice economics aligned with the Chicago and Virginia schools. According to this diagnosis it was the state that was primarily responsible for the end of the post-war ‘golden age of growth’ because of its inhibition of the market. Thus, according to the New Right and later New Labour too, it wasn’t technological change, or de-industrialisation in the face of emerging markets, it wasn’t the Nixon shock, or the end of Bretton Woods, nor rising exchange rate instability, it wasn’t stagflation or the oil crises that had confronted the country with a need to re-evaluate its production regime. It was the state. And so it was the state, above all else, that had to be transformed.

But still there’s “A wave of African nations seeking to restructure their debt with China”. Care to explain?

• China Says It Is Helping Africa Develop, Not Accumulate Debt (R.)

China is helping Africa achieve development, not accumulate debt, a top Chinese official said on Tuesday, as the government pushes back against criticism it is loading the continent with an unsustainable burden during a major summit in Beijing. Chinese President Xi Jinping on Monday pledged funds of $60 billion to African nations at the opening of the Forum for China-Africa Cooperation, matching the size of the financing package offered at the last summit in Johannesburg in 2015. A wave of African nations seeking to restructure their debt with China has served as a reality check for Beijing’s relationship with the continent, though most countries still see Chinese lending as the best bet to develop their economies.

“If we take a closer look at these African countries that are heavily in debt, China is not their main creditor,” China’s special envoy for Africa, Xu Jinghu, told a news conference. “It’s senseless and baseless to shift the blame onto China for debt problems.” China would carefully choose projects that avoid causing debt problems when pushing forward with Xi’s pledges to Africa, she added. “When we cooperate with African countries we will conscientiously and fully carry out feasibility studies, to choose which projects can go ahead. These projects will take into account their development prospects so as to help African countries achieve sustainable development and avoid debt or financial problems.”

“The shale oil “miracle” was a stunt enabled by supernaturally low interest rates..”

• The Uncomfortable Hiatus (Kunstler)

Energy: The shale oil “miracle” was a stunt enabled by supernaturally low interest rates, i.e. Federal Reserve policy. Even The New York Times said so yesterday (The Next Financial Crisis Lurks Underground). For all that, the shale oil producers still couldn’t make money at it. If interest rates go up, the industry will choke on the debt it has already accumulated and lose access to new loans. If the Fed reverses its current course — say, to rescue the stock and bond markets — then the shale oil industry has perhaps three more years before it collapses on a geological basis, maybe less. After that, we’re out of tricks. It will affect everything. The perceived solution is to run all our stuff on electricity, with the electricity produced by other means than fossil fuels, so-called alt energy.

This will only happen on the most limited basis and perhaps not at all. (And it is apart from the question of the decrepit electric grid itself.) What’s required is a political conversation about how we inhabit the landscape, how we do business, and what kind of business we do. The prospect of dismantling suburbia — or at least moving out of it — is evidently unthinkable. But it’s going to happen whether we make plans and policies, or we’re dragged kicking and screaming away from it. Corporate tyranny: The nation is groaning under despotic corporate rule. The fragility of these operations is moving toward criticality. As with shale oil, they depend largely on dishonest financial legerdemain. They are also threatened by the crack-up of globalism, and its 12,000-mile supply lines, now well underway. Get ready for business at a much smaller scale.

Hard as this sounds, it presents great opportunities for making Americans useful again, that is, giving them something to do, a meaningful place in society, and livelihoods. The implosion of national chain retail is already underway. Amazon is not the answer, because each Amazon sales item requires a separate truck trip to its destination, and that just doesn’t square with our energy predicament. We’ve got to rebuild main street economies and the layers of local and regional distribution that support them. That’s where many jobs and careers are.

In the most corrupt places on earth, Monsanto can do what it wants.

• Brazil Court Lifts Ban On Monsanto’s Glyphosate Weedkiller (AFP)

An appellate court on Monday lifted a court-ordered suspension of licenses in Brazil for products containing glyphosate, an industrial weedkiller in common use in Latin America’s agricultural powerhouse. Federal appeals court judge Kassio Marques ruled that “nothing justified” the suspension by a lower court, saying it had been abruptly imposed “without previous analysis of the grave impact it would have on the country’s economy and on production in general.” The suspension, which had been ordered August 3 by a federal judge in Brasilia, was supposed to go into effect on Monday until a “toxicological re-evaluation” of all products containing glyphosate could be completed by Brazil’s sanitary authority.

The ban also was to have extended to products containing the chemicals thiram and abamectin. Glyphosate is used in weedkillers like Roundup, made by Monsanto, whose parent company Bayer had urged that the ban be scrapped. Bayer hailed the suspension as “very good news for Brazilian farmers.” It comes just weeks after a jury in California ordered Monsanto to pay $289 million to a dying former school groundskeeper for failing to warn him of the risk that Roundup might cause cancer.

Debt Rattle July 30 2018

Jul 302018

July 30, 2018 Posted by Raúl Ilargi Meijer at 9:13 am Finance Tagged with: Assange, Brexit, China, dollar, EM, Greece, Macron, Merkel, migrants, Tesla, Turkey, wildfires, worms 1 Response »

Salvador Dali Meditative rose 1958

• Julian Assange’s Fate Is Being Decided At The Moment (ZH)

• The Dollar Will Continue To Surge, Crush Emerging Markets Stocks (F.)

• China’s Yuan Hits 13-Month Low On Weaker Fixing And Depreciation Bets (R.)

• The Chinese Economy Is Held Together By Capital Controls (Peters)

• Beijing To Shut 1,000 Manufacturing Firms By 2020 (R.)

• Hedge Fund Manager Steve Eisman Bets Against Tesla (MW)

• This Is What A No-Deal Brexit Actually Looks Like (Dunt)

• As US Pushes For Mideast Peace, Saudi King Reassures Allies (R.)

• Support For Macron & Merkel’s Coalitions Plunges To Record New Lows (RT)

• IMF Reiterates Call For Greece To Meet Pledges (K.)

• Number Of Migrants Prevented By Turkey To Reach Europe Increases 60% (An.)

• Worms Frozen In Permafrost For Up To 42,000 Years Come Back To Life (ST)

• Greece Fire Death Toll At 91, 25 Remain Missing (K.)

Ecuador refusing to meet Assange’s lawyers is not a good sign.

• Julian Assange’s Fate Is Being Decided At The Moment (ZH)

Ecuador is holding high level discussions with Britain over the fate of Julian Assange, who has been living in the Ecuadorian embassy in London since 2012 after being granted political asylum, according to comments made by President Lenin Moreno to Spain’s El Pais daily newspaper. “The issue of Mr. Assange is being treated with the British government and I understand that we have already established contact with Mr. Assange’s lawyers so we can find a way out.” Not true, says Assange’s Attorney Carlos Poveda in a Sunday LaJournada article retweeted by the official WikiLeaks Twitter account. “The defense of Julian Assange is concerned about the contradictions of the government of Ecuador, which claims to be seeking a solution to the asylum of the founder of Wikileaks through dialogue, with all parties, but refuses to meet with their lawyers, said Carlos Poveda, one of the activist’s lawyers.” -LaJournada (translated)

“We have followed very closely the statements of President Lenin Moreno both in the United Kingdom and Spain,” said Poveda. “And I must warn that even the legal team that presides (the former judge of the Spanish Supreme Court) Baltasar Garzón requested a hearing to meet in London or Madrid, but they told him that Moreno’s schedule was full during the whole tour.” In other words – Moreno is talking out of both sides of his mouth while feigning a new found concern for Assange’s fate (after referring to the WikiLeaks founder as a “hacker”, “an inherited problem” and a “stone in the shoe”). “We know how (Moreno) addresses the issue , said Poveda, who said that the president’s statements leave us confused. In relation to the recent declarations of the Ecuadorian agent chief executive, of which his government is in “permanent” communication with London and with the legal team of Assange, Poveda maintained that that does not happen.” -LaJournada (translated)

It’s much worse for Brazil and Turkey than it is for China.

• The Dollar Will Continue To Surge, Crush Emerging Markets Stocks (F.)

A robust greenback is excellent for the U.S. economy because it attracts capital into the economy. More capital will result in yet more growth. But at the same time, the strong dollar is a nightmare for emerging markets because investors take their capital away and send it to the U.S. Emerging markets include lesser developed economies such as China, Russia, Brazil, and India. The result of this change in the value of the dollar has been falling values for stocks in emerging markets. The Vanguard FTSE Emerging Markets ETF (VWO), which tracks a basket of emerging markets stocks, has lost more than 6% this year while the S&P 500 gained more than 5%, according to data from Yahoo Finance. The figures do not include dividends.

Unfortunately, for those invested in emerging markets the rally of the greenback is probably not over yet. Friday morning we learned that U.S. growth in the second quarter hit 4.1%, according to the government’s first estimate. Meanwhile, growth in the single currency area of Europe, the so-called eurozone, has limped along at less than 1% for the last decade. The latest reading was a paltry 0.4%, according to data from Tradingeconomics.com that you can see here. Japan’s economy, the third largest in the world, is contracting, according to the latest reading. That differential in growth, between the U.S. and other developed economies, should be enough to keep cash flowing into the U.S. and away from other economies.

Mixed blessings. A weaker yuan has benefits, too.

• China’s Yuan Hits 13-Month Low On Weaker Fixing And Depreciation Bets (R.)

China’s yuan fell to a fresh 13-month low against the dollar on Monday, weighed by a much weaker central bank fixing and expectations the Chinese currency has further to fall as U.S. trade tensions worsen. In addition to developments in the global trade environment, investors are focusing on the amount of liquidity policy makers have injected into the financial system. “Together with announcements by the People’s Bank of China (PBOC) that will ease credit conditions, and a more gradual shift in the monetary stance over the last two months, this represents a significant change towards more accommodative policy,” analysts at Moody’s said in a note.

Prior to market opening, the PBOC lowered the midpoint rate to 6.8131 per dollar, largely matching market forecasts, 189 pips or 0.28 percent weaker than the previous fix of 6.7942 last Friday. In the spot market, the onshore yuan opened at 6.8159 per dollar and eased to a low of 6.8401 before changing hands at 6.8353 at midday, 213 pips weaker than the previous late session close and 0.33 percent softer than the midpoint. The onshore spot yuan hit its lowest intraday level since June 27, 2017. The offshore yuan was trading 0.10 percent weaker than its onshore counterpart at 6.8422 per dollar as of midday.

“The Chinese are dying to get their money out.”

• The Chinese Economy Is Held Together By Capital Controls (Peters)

“Russia at its very worst is a moderate threat to the US,” said the investor. “They have modest regional ambitions. They’re mischievous. But plenty of countries don’t do what we want.” If they wanted to nuke us, they would’ve during the Cold War. “China is the real strategic threat. They’ve coopted much of the US political and financial system,” he said. “Wall Street makes a ton of money from China.” No one that matters makes money from Russia. “It’s so telling that everyone is in hysterics over Russia. It’s a distraction that makes you wonder if the Chinese aren’t enabling or pushing the narrative.”

“The best way to bring Beijing to its knees is by running a tight monetary policy in the US,” continued the same investor. “China has the world’s most overleveraged, fragile financial system.” In 2008, China’s total debt-to-GDP was 140%. It is now roughly 300%, while GDP is slowing. “The economy is held together by capital controls. If those fail, the whole system fails.” The capital flight in 2015/16 cost the government $1trln in reserves, and that was with ultra-dove Yellen in charge. Imagine what would have happened with Volcker at the helm. “The Chinese are dying to get their money out.”

“Engineering a decade of rolling Chinese financial crises would be the most effective foreign policy the US could run,” continued the same investor. Forget about the South China Sea, don’t bother with more aircraft carriers, just let Beijing try to cope with their financial system. “And we’re 80% of the way there – we instigated a trade war, implemented a massive fiscal stimulus, which created the room to raise interest rates,” he said. “The combined policy mix makes capital want to leave at the same time it makes the dollar more attractive and effectively shuts down new investment inflows to China.”

That’s just the city itself.

• Beijing To Shut 1,000 Manufacturing Firms By 2020 (R.)

China’s capital Beijing will shut around 1,000 manufacturing firms by 2020 as part of a program aimed at curbing smog and boosting income in neighboring regions, state media said on Monday. Beijing will focus on dynamic, high-tech industries and withdraw from “ordinary” manufacturing, the Communist Party paper People’s Daily reported, citing a recent policy document published by the Beijing municipal government. The city has already rejected registration applications from 19,500 firms, and shut down or relocated 2,465 “ordinary” manufacturers, the paper said.

China launched a plan to improve coordination in the smog-prone Beijing-Tianjin-Hebei region in 2014 amid concerns that competition between the three jurisdictions was wasting resources and creating overcapacity and pollution. It plans to strip Beijing of manufacturing and heavy industry, as well as relocating universities and some government departments into Hebei’s new economic zone of Xiongan. The government also wants to create an integrated transport network and unify standards in areas such as welfare and education to make Hebei, known for its heavy industry, more attractive for investors. An official with Hebei province earlier this year said the plan has helped drive average incomes in Hebei up 41 percent since 2013, although they are still only half the level in Beijing.

‘..being smart’s not enough you gotta execute and he’s got execution problems.’

• Hedge Fund Manager Steve Eisman Bets Against Tesla (MW)

‘Look, Elon Musk is a very, very smart man but there are a lot of smart people in this world, and being smart’s not enough you gotta execute and he’s got execution problems.’ That is the view of Steve Eisman, the hedge-fund manager and investor who garnered prominence on Wall Street for his bets against dicey mortgage products engineered by some of the world’s biggest banks. Now Eisman is betting against Elon Musk’s Tesla Inc. because, as he put it during a Friday interview on Bloomberg TV, he doesn’t see value in the company and doesn’t believe Tesla is doing enough in autonomous driving. “I don’t see the value in Tesla,” Eisman said. “We’re short Tesla,” meaning he is betting that the price of the company’s shares will fall over time.

Eisman said Tesla’s quarterly results could be pivotal for the electric-car manufacturer whose polarizing founder has been ensnared in a series of controversies in recent weeks and has been described by critics as a distraction for Tesla. [..] For his part, Eisman finds more appeal in betting on General Motors, which he says would benefit if autonomous driving takes off and has emerged as a well-run institution after the 2007-09 financial crisis. “The one stock in my portfolio which I say hasn’t worked yet but has the potential for a big home run is General Motors.” Eisman garnered fame after his story of subprime mortgage glory was told in Michael Lewis’s “The Big Short,” where he wagered correctly that arcane mortgage securities would eventually rock the financial system to its very core.

Sometimes one thinks they do it on purpose.

• This Is What A No-Deal Brexit Actually Looks Like (Dunt)

March 30th 2019 becomes Year Zero. Overnight, British meat products cannot be imported into the EU. To bring these types of goods in, they have to come from a country with an approved national body whose facilities have been certified by the EU. But there has been no deal, so there’s no approval. This sounds insane. After all, British food was OK to enter Europe with minimal checks on March 29th, so why not on March 30? Nothing has changed. The reason is that food is potentially very dangerous, so we have strict systems in place for it. Imagine that right now someone is eating a burger made from the meat of a cow with a neurodegenerative disease, like BSE. This is what happened in Britain in the late-80s and led to the deaths of 177 people.

Tomorrow’s tabloid front pages will ask certain very important questions. Where did the meat come from? Was it produced domestically or imported? Who was responsible for its production, transport and storage? The people responsible will be hauled in front of cameras and Commons select committees. Ministers will have to give statements to parliament. The press will demand that heads roll. The BSE outbreak almost brought down the government. That’s how severe these threats are. And there are plenty more around, including foot and mouth, avian flu, and African swine fever, plus those that do not exist yet. This is why the certification system for food coming into Europe is so stringent and detailed.

After Brexit, we will fall out of the eco-system of EU rules, agencies and courts and become an external country. That means certification requirements will apply to us too. Certificates are approval stamps, designed per product and country, documenting the fact that it meets the various standards for human health and animal welfare. Say a container full of pork loins is sent from Leeds to Amsterdam after Brexit day. It will need to be signed off by a vet to say that the meat was slaughtered, stored, quality assured, sealed and despatched in a certain manner, with appropriate documentation proving compliance. This will be a cold splash of water to the face for Britain.

A preposterous headline of course. But interesting that the king whistles MBS back.

• As US Pushes For Mideast Peace, Saudi King Reassures Allies (R.)

Saudi Arabia has reassured Arab allies it will not endorse any Middle East peace plan that fails to address Jerusalem’s status or refugees’ right of return, easing their concerns that the kingdom might back a nascent U.S. deal which aligns with Israel on key issues. King Salman’s private guarantees to Palestinian President Mahmoud Abbas and his public defense of long-standing Arab positions in recent months have helped reverse perceptions that Saudi Arabia’s stance was changing under his powerful young son, Crown Prince Mohammed bin Salman, diplomats and analysts said. This in turn has called into question whether Saudi Arabia, birthplace of Islam and site of its holiest shrines, can rally Arab support for a new push to end the Israeli-Palestinian dispute, with an eye to closing ranks against mutual enemy Iran.

“In Saudi Arabia, the king is the one who decides on this issue now, not the crown prince,” said a senior Arab diplomat in Riyadh. “The U.S. mistake was they thought one country could pressure the rest to give in, but it’s not about pressure. No Arab leader can concede on Jerusalem or Palestine.” Palestinian officials told Reuters in December that Prince Mohammed, known as MbS, had pressed Abbas to support the U.S. plan despite concerns it offered the Palestinians limited self-government inside disconnected patches of the occupied West Bank, with no right of return for refugees displaced by the Arab-Israeli wars of 1948 and 1967. Such a plan would diverge from the Arab Peace Initiative drawn up by Saudi Arabia in 2002 in which Arab nations offered Israel normal ties in return for a statehood deal with the Palestinians and full Israeli withdrawal from territory captured in 1967.

Shaky grounds.

• Support For Macron & Merkel’s Coalitions Plunges To Record New Lows (RT)

The people’s dissatisfaction with the leading EU governments appears to be rising, as fresh polls show a record decline in the ratings of French President Emmanuel Macron and of German Chancellor Angela Merkel’s ruling coalitions. Support for Merkel’s conservative Christian Democratic Union (CDU) and its sister party, Bavaria’s Christian Social Union (CSU), has gone down to its lowest level since 2006, an Emnid poll, published by Bild am Sonntag, has revealed. The CDU/CSU are currently polling at 29 percent, their lowest result in 12 years. Merkel’s party came out tops in the country’s federal election in September 2017 with 33 percent of the vote. Such a situation is worrying for CSU, which seems to be at risk of losing its absolute majority in Germanys’ largest state of Bavaria after the regional election in October.

The survey provided no explanation for the results, but Merkel’s coalition nearly fell apart in June over a rift caused by the migrant crisis. [..] Meanwhile, in France, Macron also “has beaten his own anti-record,” the Journal du Dimanche wrote, commenting on the results of the survey, carried out for the outlet by Ifop. Support for the French President has fallen from 41 to 37 percent in the period between July 18 and 27, the research revealed. It’s the worst ratings the 40-year-old has had since he became French president in May 2017, claiming 66.1% percent of the vote in a run-off against Marine Le Pen. Macron’s previous worst result was recoded in August 2016, when he was backed by 40 percent of the French population.

This devolves into Beckett and Ionesco. Meaningless.

• IMF Reiterates Call For Greece To Meet Pledges (K.)

The IMF is due to publish its Article IV Report on the course of the Greek economy on Tuesday. This will include the much anticipated Debt Sustainability Analysis, which was carefully examined at a meeting last Friday, with the board confirming the medium-term sustainability of the Greek debt as well as the need for the government to remain committed to reforms. The IMF’s executive board spent about an hour pouring over the contents of the report and the reform course that Greece needs to pursue in the post-program period. Fund sources told the Athens-Macedonian News Agency on Friday that the Article IV Report’s timing is important – even if it is a routine process – as it comes a few days before the completion of the European Stability Mechanism’s program next month.

ANA-MPA added that the board acknowledged the achievement of significant results by Greece, but also stressed there should be no complacency and that it is necessary for the country to implement its pledges so that the sacrifices already made do not go to waste. Another issue addressed at the meeting was that of bad loans in Greece, with several IMF board members expressing doubts over the high targets set for the reduction of nonperforming exposures.

But arrivals are also up vs last year.

• Number Of Migrants Prevented By Turkey To Reach Europe Increases 60% (An.)

The number of migrants held trying to reach Europe from Turkey using illegal routes has increased by 60 percent this year, according to data from the Coast Guard Command. A total of 14,470 migrants were held in the first seven months of this year, especially in the Aegean Sea, as well as in Turkey’s southern Mediterranean Sea and the northern Black Sea, the data revealed. This figure was 9,152 during the same period in 2017. According to the data, most migrants prefer to use the illegal routes in Aegean Sea to cross into Europe as a number of Greek islands are located close to Turkish coasts. A total of 13,336 irregular migrants used the Aegean Sea to cross into Greece this year, the data revealed.

Among the irregular migrants intercepted by Turkey so far this year, 1,640 were held in January, 1,363 in February, 1,849 in March, 2,534 in April, 3,398 in May, 1,925 in June, and 1761 in first 29 days of July. Coast Guard data shows 54 irregular migrants lost their lives this year while the figure was 20 during the same period in 2017. In March 2016, the EU and Turkey reached an agreement to stop irregular migration through the Aegean Sea, and improve the conditions of more than 3 million Syrian refugees in Turkey. Turkey hosts some 3.5 million Syrians – more than any other country in the world.

Hope?!

• Worms Frozen In Permafrost For Up To 42,000 Years Come Back To Life (ST)

Nematodes moving and eating again for the first time since the Pleistocene age in major scientific breakthrough, say experts. The roundworms from two areas of Siberia came back to life in Petri dishes, says a new scientific study. ‘We have obtained the first data demonstrating the capability of multicellular organisms for longterm cryobiosis in permafrost deposits of the Arctic,’ states a report from Russian scientists from four institutions in collaboration with Princetown University. Some 300 prehistoric worms were analysed – and two ‘were shown to contain viable nematodes’. ‘After being defrosted, the nematodes showed signs of life,’ said a report today from Yakutia, the area where the worms were found.

‘They started moving and eating.’ One worm came from an ancient squirrel burrow in a permafrost wall of the Duvanny Yar outcrop in the lower reaches of the Kolyma River – close to the site of Pleistocene Park which is seeking to recreate the Arctic habitat of the extinct woolly mammoth, according to the scientific article published in Doklady Biological Sciences this week. This is around 32,000 years old. Another was found in permafrost near Alazeya River in 2015, and is around 41,700 years old. Currently the nematodes are the oldest living animals on the planet. They are both believed to be female.

It has taken PM Tsipras a full week to visit the area today, only some 25km from his office.

• Greece Fire Death Toll At 91, 25 Remain Missing (K.)

Fire officials in Greece have raised the death toll from a wildfire that raged through a coastal area east of Athens to 91 and reported that 25 people are missing six days after blaze. Before the national fire service updated the official number of fatalities Sunday night, it had stood at 86. Greek officials previously had not provided a tally of the people reported missing. The fire sped flames through the village without warning on July 23. A database maintained by the Center for the Research on the Epidemiology of Disasters in Brussels shows it as the deadliest wildfire in Europe since 1900. The vast majority of victims died in the fire itself, though a number drowned in the sea while fleeing the flames. Dozens of volunteer divers, some of them retired Navy Seals, kept searching the sea on Sunday looking for the bodies of more possible victims.

Debt Rattle June 30 2018

Jun 302018

June 30, 2018 Posted by Raúl Ilargi Meijer at 8:17 am Finance Tagged with: Assange, Brexit, Death Cross, EM, firewall, middle class, nonstarter, Single Market, Snowden, tariffs, Walmartization 2 Responses »

Paul Gauguin We hail thee Mary 1891

• If The US Middle Class Disappears So Will The US Economy (Hutch)

• Nervous Investors Exiting US Stocks At Near-Record Pace (CNBC)

• Emerging Markets Are In A Death Cross (CNBC)

• Are Central Banks Embracing Too Much Risk? (R.)

• Stress Test Results Signal More Flexible New-Look Fed (R.)

• EU Warns Deep Disputes With UK Threaten No-Deal Brexit (Ind.)

• EU Leaders Say Post-Brexit Single-Market Access For Goods A Nonstarter (G.)

• Hidden Figures (Jim Kunstler)

• Canada Hits US With Retaliatory Tariffs: ‘We Will Not Back Down’ (G.)

• Merkel Confirms Bilateral Migrant Agreements With Spain And Greece (DW)

• Not Up To US To Decide On Assange Asylum, Ecuador Says (AFP)

• Edward Snowden Calls Russian Government ‘Corrupt’ (Ind.)

• The Great Firewall Of China (G.)

“..the “Walmartization” of America.”

• If The US Middle Class Disappears So Will The US Economy (Hutch)

Economies have ebbs and flows. In spite of what they teach you in economics 101 nothing is ever in equilibrium. There are just too many parts as well as internal and external influences although there are times when activity is stronger than others. The US built one of the greatest economic powerhouses on earth after World War II, however it was already well on its way from the 1800s as it built out its infrastructure and put many to work. There was a time when the US consumed the majority of what it produced as a nation and then exported the remainder. Who was responsible for the consumption? It was the middle class. The middle class made up the majority of the population. They had jobs and respectable salaries. So what happened?

According to a research report by the Pew Research Center in 2012, “The Lost Decade of the Middle Class” they state: “For the half century following World War II, American families enjoyed rising prosperity in every decade—a streak that ended in the decade from 2000 to 2010, when inflation-adjusted family income fell for the middle income as well as for all other income groups, according to U.S. Census Bureau data.” The above graph shows that the 50s and 60s had the strongest middle class. In 1950 and 1951 the US had successive years of 8% GDP growth. The report also highlights how the net worth of middle income families—that is, the sum of assets minus debts— took a hit from 2001 to 2010 from the Federal Reserve’s Survey of Consumer Finances. Median net worth fell 28%, to $93,150, erasing two decades of gains.

So we have a situation where consumer debt has increased over the years and incomes have fallen. There are a large number of reasons for this. The manufacturing base has shrunk as companies chose to produce goods in other countries in order to take advantage of cheap labour so they could give themselves pricing advantages. There is, what has become to be known as the “Walmartization” of America. Author John Atcheson writes, “If you want to know why the middle class disappeared and where they went, look no further than your local Walmart. People walked in for the low prices, and walked out with a pile of cheap stuff, but in a figurative sense, they left their wages, jobs, and dignity on the cutting room floor of the House of Cheap.” Driving prices lower and lower is just a race to the bottom that erodes everyone’s quality of life.

Safety.

• Nervous Investors Exiting US Stocks At Near-Record Pace (CNBC)

Investors bailed out of U.S. stocks at a near-record pace in the last week, as money flowing into Treasury bills surged to a 10-year high. Outflows from U.S. stock funds and ETFs totaled $24.2 billion, the third-highest ever, and the $30 billion that came out of global stock funds in total in the past week was the second-highest ever and largest since the financial crisis, according to Bank of America Merrill Lynch strategists. The outflows from U.S. stocks were the highest since the stock market correction in February. Bonds, at the same time, saw small inflows of $700 million. “That nervousness, the losses people were experiencing in non-U.S. markets with the trade wars has probably led to what you’re seeing in the markets in the last week or so — a big unwind of positioning, a flight to quality,” said Michael Hartnett, BofAML chief investment strategist.

Hartnett said there was a “pervasive euphoria” about the U.S. at the beginning of the year and that has faded. Now, investors are adjusting positions, not panicking, though T-bills, considered the safest of safe haven bets, continued to pull in funds at a rapid pace. “It’s not like it’s February 2016. It’s not like we’re staring recession in the face, and everyone is cashed up to the eyeballs and policymakers are panicking. That’s not what’s happening. It’s just that people were pricing in Goldilocks forever earlier on in the year, and that was wrong. They’re probably unwinding that positioning,” he said. “It helps explain why the markets have firmed up in the last couple of days. You want to buy fear and sell greed.” Hartnett said July could be a month where investors sell volatility, but then the market could get rockier in August and September, ahead of the midterm elections.

Prone to get a whole lot worse.

• Emerging Markets Are In A Death Cross (CNBC)

Emerging markets are feeling the heat. China is in a bear market, Brazil is closing in on one, and the EEM emerging markets ETF could close out its worst quarter in nearly three years on Friday. Brace for more pain, says one technical analyst. “There’s really a time to own EEM and it’s time not to own EEM,” Piper Jaffray’s chief market technician Craig Johnson told CNBC’s “Trading Nation” on Thursday. “Our rising dollar is going to be an issue for EEM in here and it looks like to me you got probably another 12 percent downside before you get down to a material support area.”

A 12 percent decline from Thursday’s close would put the EEM ETF at around $37.50, its lowest level since March 2017. On Friday afternoon it had risen 1.5 percent to $43.35. The EEM ETF has also entered a death cross, a technical red flag for Johnson. A death cross marks the point on a chart where a longer-term moving average, such as the 200-day, breaks above a shorter-term moving average, such as the 50-day. The technical indicator demonstrates a sharp breakdown in a security’s price and often prefaces further downside.

How is that a question?

• Are Central Banks Embracing Too Much Risk? (R.)

Central banks are usually thought of as very conservative institutions; if they were cars they would be safe, family sedans. Lately, though, some central banks have been doing the market equivalent of zipping around in a sporty convertible. In recent years, at least two large central banks have been snapping up large quantities of equities, typically considered a risky investment. The Swiss National Bank now has about 20% of its reserves in equities, up from about 7 percent a decade ago. More than half of that is in U.S. equities. And to say that the Bank of Japan has become a player in that country’s equity market is an understatement; BOJ currently owns nearly 75% of the Japanese exchange-traded fund (ETF) market, again up sharply from just a few years ago.

Other central banks, including the European Central Bank and South African Reserve Bank, also make similar purchases, although Japan and Switzerland are the most aggressive buyers of equities. If the idea of a central bank owning a significant amount of stock in a company sounds strange to you, that’s hardly surprising. In the United States, for example, the Federal Reserve Bank is legally prohibited from owning equities, and instead invests its reserves in bonds and other government-backed securities. Some other countries, obviously, have different rules in their bank charters, and modest equity holdings have been a central bank strategy for years. Even so, the practice of central banks owning significant shares of equities is a very recent phenomenon. So why is it happening now, and what kind of risks does this unprecedented trend carry?

In the case of Japan, the motive is clear: for decades the country has had difficulty sustaining economic growth, and the Bank of Japan has already exhausted more traditional forms of stimulus, such as interest rate cuts and bond purchases. Both Prime Minister Shinzo Abe and BOJ Governor Haruhiko Kuroda have been at pain to stimulate growth and defy expectations of deflation. Switzerland’s bank, by contrast, seems to be acting more like an aggressive individual investor: it has been buying stocks because that is where money is to be made. Unbeknownst to many American investors, the Swiss National Bank is a significant shareholder in well-known American firms like Amazon, Apple, Facebook and Microsoft.

All in for Wall Street.

• Stress Test Results Signal More Flexible New-Look Fed (R.)

This year’s Federal Reserve stress test results suggested a more flexible approach, a further sign the regulator’s new leadership is responding positively to a Wall Street push for pragmatic bank supervision, analysts and lawyers said. Banks that took a one-off capital hit due to the 2017 U.S. tax overhaul got a conditional pass, a departure from the Fed’s traditional strict pass-fail approach to quantitative capital issues, while scandal-plagued Wells Fargo was able to double share buyback plans. Goldman Sachs and Morgan Stanley were dinged since their capital fell below the Fed’s minimum, but the regulator’s response this year sounded a more industry-friendly tone under Chairman Jerome Powell and Vice Chairman Randal Quarles, President Donald Trump appointees, analysts and lawyers said.

“They have allowed firms to pass on the basis there were special circumstances and applied a level of pragmatism in the way they haven’t in the past. This is the new Fed and it signals to me an early retirement of this super-strict quantitative test,” said Mike Alix, financial services risk leader at PwC. The Fed on Thursday approved the capital plans of 34 lenders following the second leg of its annual tests, a process introduced after the 2007-2009 financial crisis to assess banks’ capacity to withstand a severe recession. The U.S. central bank has ramped up its worst-case scenarios each year.

The U.S. tax code rewrite signed into law in December meant Goldman and Morgan Stanley’s Thursday results were weighed, in part, by changes to the treatment of past losses on hypothetical tax bills under the Fed’s scenarios. But since the tax issue was a one-off and capital levels in the system are high, the Fed felt it was unnecessary to fail the two banks, senior Fed officials said.

“Asked about Ms May’s dinner speech on Friday morning, Leo Varadkar, the Irish prime minister, looked confused, and said: “There was a speech? Haha.”

• EU Warns Deep Disputes With UK Threaten No-Deal Brexit (Ind.)

The European Union has warned that “serious divergence” between itself and Britain in Brexit talks risks the possibility of a no deal, following a meeting by the 27 national leaders in Brussels on Friday. After roughly an hour of discussion, leaders signed off a joint statement pledging to prepare for the possibility of a no-deal situation and highlighting their “concern” at the lack of progress on the Irish border issue. Speaking ahead of the meeting, Michel Barnier, the European Commission’s chief negotiator, warned: “On Brexit, we have made progress, but huge and serious divergence remains, in particular on Ireland and Northern Ireland.”

Mr Barnier called for “workable and realistic proposals” to be included in a UK government white paper scheduled for release next month. He added that “time is very short” and said UK negotiators should return to Brussels on Monday to intensify talks. The EU says a deal must be struck before October to stop Britain crashing out of the bloc in March without a transition period – a scenario that would be expected to cause economic chaos. Theresa May on Thursday night addressed leaders over dinner about Brexit for 10 minutes but her speech was apparently overshadowed by hours of discussions about the EU migration crisis, the main focus of the summit. Asked about Ms May’s dinner speech on Friday morning, Leo Varadkar, the Irish prime minister, looked confused, and said: “There was a speech? Haha.”

One long litany of nonstarters.

• EU Leaders Say Post-Brexit Single-Market Access For Goods A Nonstarter (G.)

Theresa May has been told by European leaders that an attempt to protect the UK’s industrial base by gaining single market access for goods alone after Brexit is a nonstarter, as the Irish prime minister warned: “We are not going to let them destroy the European Union.” After being given a “broad brush approach” presentation at a Brussels summit of May’s long-awaited paper, yet to be signed off by her warring British cabinet, the taoiseach, Leo Varadkar, told her that unless the final document presented a departure from the UK government’s thinking over the last two years, it would be dead on arrival. The British government is continuing to push the idea of keeping frictionless trade on goods, claiming that it would be a good deal for Europe, given the large trade surplus it enjoys.

May has promised to publish her vision for the future trading relationship after a cabinet meeting at Chequers on Friday. Speaking at the end of a summit dominated by a row over migration, Donald Tusk, the European council president, said that “quick progress” in the Brexit negotiations was needed for there to be any hope of an agreement in October, at what is increasingly being billed as a make-or-break summit. “This is the last call to lay the cards on the table,” Tusk said, of the EU’s call for a workable plan. The French president, Emmanuel Macron, said: “There is a clear message in this respect – we can no longer wait”.

Anyone seen Jeff Sessions lately?

• Hidden Figures (Jim Kunstler)

Now, Mr. Trey Gowdy (R – SC) is a different breed of porpoise among congressmen, kind of legal man-eating orca. In look and demeanor, he comes off as a cross between Atticus Finch and the young feller who played the banjo so well in the opening scenes of Deliverance. Mr. Rosenstein didn’t dare lay any mirthful smirky trips on Mr. Gowdy, who radiated the consolidated wrath of the legislative branch at this flock of executive branch popinjays. Mr. Gowdy, who is declining to run for his seat this year, may be bound for bigger things. Some say he may be the next Attorney General. In case you’ve forgotten, Rod Rosenstein is not the Attorney General, he’s the Deputy AG.

His boss is Mr. Jeff Sessions, an elusive figure for months now in the malarial DC backwaters, like that Louisiana Swamp Thang that turns up in the fake Bigfoot documentaries, looming hairily through the night-vision goggles in a cypress slough. Maybe three or four people have laid eyes on him since sometime back in April. Better check his office, make sure he isn’t hunched over face-down in a take-out order of tonkatsu ramen. It’s rumored that our president, the Golden Golem of Greatness, can, shall we say, put the Department of Justice and its subsidiary, the FBI, out of their current misery by finally firing a few of these conniving top dawgs. Order Rosenstein to release un-redacted files he’s been sitting on for a year, and fire his ass for cause when he refuses. In the case of Mr. Sessions, for Godsake, call the undertaker.

Yogurt and whiskey.

• Canada Hits US With Retaliatory Tariffs: ‘We Will Not Back Down’ (G.)

Canada has announced billions of dollars in retaliatory tariffs against the US in a tit-for-tat response to the Trump administration’s duties on Canadian steel and aluminum. Justin Trudeau’s government released the final list of items that will be targeted beginning 1 July. Some items will be subject to taxes of 10 or 25%. “We will not escalate and we will not back down,” the Canadian foreign minister, Chrystia Freeland, said. The taxes on items including ketchup, lawnmowers and motorboats amount to $12.6bn. “This is a perfectly reciprocal action,” Freeland said. “It is a dollar-for-dollar response.” Freeland said they had no other choice and called the tariffs regrettable.

Many of the US products were chosen for their political rather than economic impact. For example, imports just $3m worth of yoghurt from the US annually and most of it comes from one plant in Wisconsin, the home state of the House speaker, Paul Ryan. The product will now be hit with a 10% duty. Another product on the list is whiskey, which comes from Tennessee and Kentucky, the latter of which is the home state of the Republican Senate leader, Mitch McConnell. Freeland also said they are prepared if Donald Trump, the US president, escalates the trade war. “It is absolutely imperative that common sense should prevail,” she said. “Having said that, our approach from day one of the Nafta negotiations has been to hope for the best but prepare for the worst.”

How much money is on the line, Angela?

• Merkel Confirms Bilateral Migrant Agreements With Spain And Greece (DW)

Spain and Greece have agreed to take back asylum seekers already registered in those countries who are intercepted at the Austria-German border, Chancellor Angela Merkel confirmed on Friday. However she said no bilateral agreement had been made with Italy. The agreements are temporary measures to stem secondary migration until EU-wide policies take effect. “What we achieved here together is perhaps more than I had expected,” Merkel told reporters at the end of the summit. Merkel is to inform her coalition allies about the agreement on Friday evening.

Merkel was asked if the agreements with Athens and Madrid met demands from her German conservative CSU coalition partners. Merkel told reporters she believed they even surpassed them: “They are more than equivalent in their effect,” she said. “We are not at the end of the road. I always said that we would never be able to agree a common European asylum system here. But the more we agree among ourselves, the closer we get to a possible European solution. I’m convinced of that.” The tentative agreement with Greece and Spain came on the sidelines of an EU leaders’ summit that reached a breakthrough on migration. It will go into effect once operational details are worked out in the next four weeks, the Chancellery said.

Does Ecuador have a spine?

• Not Up To US To Decide On Assange Asylum, Ecuador Says (AFP)

It’s not up to Washington to decide the fate of WikiLeaks founder Julian Assange, Ecuador’s top diplomat said Friday, following the visit of US Vice President Mike Pence. Pence “raised the issue” of the Australian anti-secrecy activist – holed up at Ecuador’s embassy in London since 2012 – when he met with Lenin Moreno on Thursday, an official with the US vice president’s office confirmed. “Ecuador and the United Kingdom, and of course Mr Assange as a person who is currently staying, on asylum, at our embassy” will decide the next steps, Foreign Minister Jose Valencia told reporters. “It does not enter, therefore, on an agenda with the United States.” Pence and Moreno “agreed to remain in close coordination on potential next steps going forward,” the US official told reporters traveling with Pence.

Snowden sure has a spine.

• Edward Snowden Calls Russian Government ‘Corrupt’ (Ind.)

Edward Snowden, who fled to Russia after releasing thousands of documents from the US National Security Agency, has suggested his current homeland’s government is “corrupt in many ways”. The ex-IT contractor and Central Intelligence Agency (CIA) worker, said the country’s citizen’s were warm and clever but he “strongly” disagreed with the policies of Russian president Vladimir Putin. “I think the public feels disempowered. Russians are not naive, they know that state TV is unreliable. The Russian government is corrupt in many ways, that’s something the Russian people realise,” the 35-year-old told German newspaper Suddeutsche Zeitung. “Russian people are warm, they are clever. It’s a beautiful country. Their government is the problem not the people.”

Mr Snowden was granted asylum in Russia after his flight from the US when he made public the NSA’s widespread undeclared surveillance in 2013. He faces three charges under the Espionage Act in his homeland, each of which carry a minimum of 10 years in jail. He has been granted permission to stay in Russia until 2020. Asked by the Suddeutsche Zeitung whether his comments could put him in danger by angering Mr Putin, Mr Snowden said: “There’s no question, it’s a risk. Maybe they don’t care, right? Because I don’t speak Russian. “And I am literally a former CIA agent, so it’s very easy for them to discredit my political opinions as those of an American CIA agent in Russia.”

Thought control.

• The Great Firewall Of China (G.)

In December 2015, thousands of tech entrepreneurs and analysts, along with a few international heads of state, gathered in Wuzhen, in southern China, for the country’s second World Internet Conference. At the opening ceremony the Chinese president, Xi Jinping, set out his vision for the future of China’s internet. “We should respect the right of individual countries to independently choose their own path of cyber-development,” said Xi, warning against foreign interference “in other countries’ internal affairs”. No one was surprised by what they heard. Xi had already established that the Chinese internet would be a world unto itself, with its content closely monitored and managed by the Communist party.

In recent years, the Chinese leadership has devoted more and more resources to controlling content online. Government policies have contributed to a dramatic fall in the number of postings on the Chinese blogging platform Sina Weibo (similar to Twitter), and have silenced many of China’s most important voices advocating reform and opening up the internet. It wasn’t always like this. In the years before Xi became president in 2012, the internet had begun to afford the Chinese people an unprecedented level of transparency and power to communicate. Popular bloggers, some of whom advocated bold social and political reforms, commanded tens of millions of followers.

Chinese citizens used virtual private networks (VPNs) to access blocked websites. Citizens banded together online to hold authorities accountable for their actions, through virtual petitions and organising physical protests. In 2010, a survey of 300 Chinese officials revealed that 70% were anxious about whether mistakes or details about their private life might be leaked online. Of the almost 6,000 Chinese citizens also surveyed, 88% believed it was good for officials to feel this anxiety.

Debt Rattle January 27 2018

Jan 272018

January 27, 2018 Posted by Raúl Ilargi Meijer at 10:58 am Finance Tagged with: 1987, Bombardier, Brexit, budget, crypto, Davos, EM, IMF, leverage, refugees, sweet spot, Trump 10 Responses »

Grete Stern Bertolt Brecht 1934

• Bankers, Policy Makers at Davos Revel in ‘Sweet Spot’ Economy (BBG)

• IMF Chief Warns Trump’s Tax Cuts Could Destabilise Global Economy (G.)

• China Set To Lose ‘Emerging Market’ Status As Growth Declines (F.)

• This was 1987. Start Rebalancing – David Rosenberg (ZH)

• What Could Possibly Go Wrong? (Lance Roberts)

• Equity Allocations At Record Highs As Investor Cash Hits All Time Low (ZH)

• Japanese Cryptocurrency Exchange Loses $535 Million To Hackers (CNBC)

• How Bitcoin Regulation Will Happen, And What It Will Mean (Ind.)

• Bombardier Gets Surprise Win After U.S. Rebuffs Boeing Trade Case (BBG)

• Canada Illegally Subsidized Bombardier: Embraer (R.)

• More Than Half Of New-Build Luxury London Flats Fail To Sell (G.)

• Building More Homes Will Not Solve Britain’s Housing Crisis (Pettifor)

• Brexit Saddles EU With A Huge Budget Problem (CNBC)

• Deal With France ‘Could Bring Hundreds More Child Refugees To UK’ (G.)

Not much longer.

• Bankers, Policy Makers at Davos Revel in ‘Sweet Spot’ Economy (BBG)

The global elites have rediscovered their animal spirits. As the World Economic Forum drew to a close in the Swiss ski resort, the overarching mood of the executives, policy makers and investors was that their economies are in fine shape and that stock markets have every reason to extend their run. “Let’s celebrate what could go right for the moment because we are in a sweet spot,” IMF Managing Director Christine Lagarde said on the closing panel discussion. The Standard & Poor’s 500 Index has gained about a quarter since the start of 2017 and the IMF is forecasting the strongest worldwide economic growth this year since a brief post-recession bounce in 2011. Some 57% of executives polled by PricewaterhouseCoopers saw the economy improving in 2018, about double the number of a year ago.

The rise of cryptocurrencies was evident in the Swiss town both in conference sessions and on the promenade where companies rent shopfronts to promote their wares. “The greatest worry I’ve heard over the past days in Davos is that there is not enough worry,” Mary Callahan Erdoes, JPMorgan asset-management unit CEO, said on the panel. “It’s O.K. to not be worried, to celebrate how we got here.” Erdoes thanked the policy makers on the stage for working “tirelessly” and “giving all of these government jobs such fabulous prestige and something that I know all of us now perhaps aspire to do.” “Wow,” said Bank of England Governor Mark Carney. “This is fantastic.” Such sentiment led delegates to declare that it was the most upbeat Davos gathering since before the financial crisis. Yet the giddiness also gave some investors pause as they warned against turning too exuberant.

Lagarde gets what she wants and then turns against it. Cover all your bases.

• IMF Chief Warns Trump’s Tax Cuts Could Destabilise Global Economy (G.)

Donald Trump’s huge tax cuts are a threat to the stability of the global economy, the managing director of the IMF has warned. Christine Lagarde singled out Trump’s tax reforms as one of three risks that could destabilise the current economic recovery, especially given the boom in stock markets in the past year. “While the US tax reforms certainly will have positive effects in the short term, for the US and other countries around, it might also lead to serious risks,” Lagarde told the World Economic Forum in Davos. “That has an impact on financial vulnerability, particularly given the high asset prices that we see around the world, and the easy financing that it still available,” she added. She was speaking shortly after the US president told Davos that his tax reforms had created “a big, beautiful waterfall” of pay rises for US workers, as American companies passed the tax cut on.

However, the IMF is concerned that cutting taxes will lead to a bigger US budget deficit, and that extra borrowing by the US Treasury will force up long-term American interest rates. As a result, it fears growth could be choked off in the longer term, making the stock market vulnerable to a sudden downward lurch. Lagarde cautioned against people becoming too complacent about the pick-up in global growth reported by the IMF at the start of the WEF’s annual meeting. The IMF raised its forecasts for global expansion to 3.9% this year and in 2019, reporting that all major economies – the US, EU and Japan – are doing better. “I don’t think that we’ve completed the job,” said Lagarde, who fears that the growing economic inequality in many countries is creating “fractures”. “Having growth is good, improving productive is good, but [policymakers should] make sure that the results of that growth are properly allocated,” said the IMF chief, adding that inequality is growing in many advanced economies, and very high in emerging markets.

An emerging market that’s stopped emerging.

• China Set To Lose ‘Emerging Market’ Status As Growth Declines (F.)

China has been considered an emerging market for over 25 years due to its rapid reform process. Generally speaking, emerging markets are defined as developing countries moving toward an open market economy. Unfortunately, if one takes a close look at growth levels and reform factors, China has shed some of the key characteristics of an emerging market, due to a sharp slowdown in the reform process, an increasingly state centered economy, and lower levels of true growth. China is an upper middle income country that enjoyed gangbusters growth through the 1990s and 2000s, but that is now suffering from a major economic slowdown that has no end in sight. One major reason for slowing growth is that market forces have been quashed by a a buildup in the state sector and mounting economic and financial risks that would result in economic collapse if the reform process is restarted.

Under President Xi Jinping, China’s economic policy has shifted toward enhancing the organization and financial sources of state owned enterprises, and away from liberalizing the currency and financial sector. Strides that were made toward internationalizing the RMB and bringing about a more market-based financial system have been reversed. A simultaneous over-reliance on easy credit has created plenty of risks in the financial sector that now prevent officials from even considering making the financial sector more market-based. Slow reform of the service sector and strong state presence in service subsectors like health and education have contributed to declining growth.

When fear is gone, all that’s left is greed. No balance.

• This was 1987. Start Rebalancing – David Rosenberg (ZH)

When discussing today’s unexpectedly weak Q4 GDP print, which came in at 2.6%, far below consensus and whisper estimates in the 3%+ range, and certainly both the Atlanta and NY Fed estimates, we pointed out the silver lining: personal spending and final sales, which surged 4.6% Q/Q (vs 2.2% in Q3), although even this number had a major caveat: “as we discussed previously, much of it was the result of a surge in credit card-funded spending while the personal savings rate dropped to levels last seen during the financial crisis.” Indeed, recall the stunning Gluskin Sheff chart we presented a month ago, which showed that 13-week annualized credit card balances in the U.S. had gone “completely vertical” in the last few months of 2017 which we said “should make for some great Christmas.”

Meanwhile, even more troubling was the ongoing collapse in the US personal savings rate, which last month tumbled to the lowest level since the financial crisis as US consumers drained what little was left of their savings to splurge on holiday purchases.

And while we highlighted and qualified two trends as key contributors to the spending surge in Q4 personal spending, Gluskin Sheff’s David Rosenberg – who is once again firmly in the bearish camp – did one better and quantified the impact. Not one to mince words, the former Merrill chief economist described what is going on as “The Twilight Zone Economy” for the following reason: “how many times in the past have we seen a 2.6% savings rate coincide with a 4.1% jobless rate? How about never…huge ETF flows driving equities higher, but these metrics are screaming ‘late cycle’.” He then proceeded to give “some haunting math” from the GDP number: “The savings rate fell from 3.3% to 2.6%. If it had stayed the same, real PCE would have been 0.8% (annualized) instead of 3.8% and GDP would have been 0.6% instead of 2.6%.”

[..] a more troubling development is that the conditions observed ahead of the Black Monday crash are becoming increasingly apparent. Here is Rosenberg’s stark assessment of where we stand: “Rising bond yields. Full employment. Fed tightening. Trade frictions. Weak dollar. Rising twin deficits, spurred by tax reform. Sound familiar? It should. This was 1987. Start rebalancing.”

More 1987.

• What Could Possibly Go Wrong? (Lance Roberts)

What goes up, eventually comes down. That is just reality. The bull market that began in 2009, has now entered the final stage of “capitulation” as investors throw caution to the wind and charge headlong into the markets with reckless regard for the consequences.

Of course, it isn’t surprising given the massive amounts of liquidity continually injected into the financial markets and global Central Banks have now figured out that continually rising financial markets solve much of the world’s ills. Simply, with enough liquidity, you can cover up bad (credit risks) by guaranteeing holders they will never default. It’s genius. It’s a “no lose” investment scheme. Unfortunately, we have seen this repeatedly in the past. In the 1980’s it was “Portfolio Insurance” – a “no lose” investment program that eventually erupted into the crash of 1987. But not before the market went into a parabolic advance first.

In the 1990’s – it was the dot.com phenomenon which was “obviously” a “no lose” proposition. Even after Alan Greenspan spoke of “irrational exuberance,” two years later the market went parabolic once again.

Then in 2006-2007, banks invented the CDO-squared, a collateralized derivative obligation based on other collateralized derivative obligations. It was a genius way to invest with “no risk” because the real estate market had never crashed in history.

Today, it is once again an absolute “certainty” that markets will rise from here as global Central Banks have it all under control. What possibly could go wrong?

Leverage squared.

• Equity Allocations At Record Highs As Investor Cash Hits All Time Low (ZH)

While Bank of America may or may not be right in its forecast that as a result of the market meltup, buying panic and sheer euphoria to get into stocks, which just pushed the bank’s proprietary “Bull and Bear” indicator to a level which on 11 out of 11 prior occasions always presaged a ~12% selloff…

… a market correction or worse is imminent, one thing that is indisputable is the funding status of the Private Clients served by BofA’s Global Wealth and Investment Management (GWIM) team. What it shows is that investor cash allocation has just dropped to a record low of just 10%…

… while investor equity exposure is rising at fastest pace in 10 years.

… and total equity allocations are back to record highs.

In other words: ‘bear capitulation’ as everyone is now long stocks in what BofA called a “non-stop euphoric cabaret.” When will this stop, or reverse? According to BofA, keep an eye on the dollar, which as long as it keeps sliding is supporting of risk assets, however the risk is once it bounces, to wit, the “US dollar key catalyst; note US-Europe FX spat sparked ’87 crash” and “higher US$ “pain trade” = risk-off coming weeks”

Even if cryptos don’t have a security issue, they certainly appear to have one.

• Japanese Cryptocurrency Exchange Loses $535 Million To Hackers (CNBC)

Hackers stole several hundred million dollars’ worth of a lesser-known cryptocurrency from a major Japanese exchange Friday. Coincheck said that around 523 million of the exchange’s NEM coins were sent to another account around 3 a.m. local time (1 p.m. ET Thursday), according to a Google translate of a Japanese transcript of the Friday press conference from Logmi. The exchange has about 6% of yen-bitcoin trading, ranking fourth by market share on CryptoCompare. The stolen NEM coins were worth about 58 billion yen at the time of detection, or roughly $534.8 million, according to the exchange. Coincheck subsequently restricted withdrawals of all currencies, including yen, and trading of cryptocurrencies other than bitcoin. Bloomberg first reported the hack. A CNBC email sent to Coincheck’s listed address bounced back.

Cryptocurrency NEM, which intends to help businesses handle data digitally, briefly fell more than 20% Friday before recovering to trade about 10% lower near 85 cents, according to CoinMarketCap. Most other major digital currencies, including bitcoin, traded little changed on the day. Coincheck management said in the press conference that it held the NEM coins in a “hot” wallet, referring to a method of storage that is linked to the internet. In contrast, leading U.S. exchange Coinbase says on its website that 98% of its digital currency holdings are offline, or in “cold” storage. The Japanese exchange said it did not appear that hackers had stolen other digital currencies.

There will never be a global consensus. Just a lot of poorly understood laws.

• How Bitcoin Regulation Will Happen, And What It Will Mean (Ind.)

Bitcoin has been surging and falling in recent weeks. And it seems mostly to come down to one thing: regulation. The lack of regulation is, for now, a large part of bitcoin and other cryptocurrencies’ intrigue: they seem to allow people to avoid the traditional restrictions in place in money and other assets. But they’re also part of their bad reputation, with the same anonymity and decentralisation allowing them to be used for crime. Many governments have suggested they could introduce such rules. But it’s still not clear what they’d look like, or how they’d arrive; here’s an attempt to predict what might be to come in that most unpredictable of markets. In recent weeks, bitcoin has plunged after the threat of regulation in South Korea.

But it was part of a much broader trend – countries around the world have already introduced new rules, and those that haven’t are talking about it. The price has mostly levelled out in recent weeks, after regulation brought volatility and a slowly sliding price. But there might be more disruption coming, as countries look towards regulation, worried about the activity and behaviour that bitcoin could be enabling. That was obvious as world leaders arrived in Davos and were asked their opinion. The event could be a preview of far more wide-ranging controls that could be introduced in March, when the G20 governments’ financial and economic leaders meet in Argentina – a number of the countries attending have specifically said they will focus on fixing regulation of cryptocurrencies at that meeting.

They include France and Germany, which are said to be working together on bitcoin regulation. Many other countries have called for the international community to work together to bring regulation to bitcoin. Davos has been a platform for various world leaders to give their opinion on bitcoin. And they all seem to agree on one thing. “My number-one focus on cryptocurrencies, whether that be digital currencies or bitcoin or other things, is that we want to make sure that they’re not used for illicit activities,” said Steven Mnuchin, Donald Trump’s most senior financial policymaker, told the World Economic Forum in Davos, Switzerland. “We encourage fintech and we encourage innovation, but we want to make sure all of our financial markets are safe,” Mnuchin said. “We want to make sure that the rest of the world – and many of the (Group of) 20 countries are already starting on this – have the same regulations.”

Airplane makers wars are set to intensify.

• Bombardier Gets Surprise Win After U.S. Rebuffs Boeing Trade Case (BBG)

Bombardier can start shipping C Series jets to Delta Air Lines after a surprise ruling by a U.S. trade panel that said the proposed imports won’t hurt American industry. U.S. companies and workers aren’t being harmed by sales of 100- to-150-seat aircraft from Canada, the International Trade Commission said Friday. The tribunal’s unanimous vote blocks a Commerce Department decision last month to impose duties of almost 300%. Friday’s vote deals a blow to Boeing, which said Bombardier sold the C Series in the U.S. at less than fair value while benefiting from government subsidies. The ruling also opens the door for Montreal-based Bombardier to woo new American customers while potentially easing U.S. trade tensions with Canada and the U.K., where the company builds wings for the aircraft. “I’m shocked,” said Chris Murray, an analyst in Toronto. “This clears the way for the jets being to delivered to Delta,” Murray said. “It also removes any concerns about potential future orders in the U.S.”

Bombardier goes from one lawsuit to another. Should have stuck to making skidoos.

• Canada Illegally Subsidized Bombardier: Embraer (R.)

Brazilian planemaker Embraer said on Friday that the U.S. Department of Commerce has shown that the Canadian government “heavily and illegally subsidized” Bombardier and its C Series aircraft, allowing the company to survive and distorting the aviation industry. The statement came just after Bombardier won an unexpected trade victory against U.S. planemaker Boeing when a U.S. agency rejected imposing hefty duties on sales of Bombardier’s new CSeries jet to American carriers.

Oh well, there’s plenty homeless people.

• More Than Half Of New-Build Luxury London Flats Fail To Sell (G.)

Developers have 420 towers in pipeline despite up to 15,000 high-end flats still on the market. More than half of the 1,900 ultra-luxury apartments built in London last year failed to sell, raising fears that the capital will be left with dozens of “posh ghost towers”. The swanky flats, complete with private gyms, swimming pools and cinema rooms, are lying empty as hundreds of thousands of would-be first-time buyers struggle to find an affordable home. The total number of unsold luxury new-build homes, which are rarely advertised at less than £1m, has now hit a record high of 3,000 units, as the rich overseas investors they were built for turn their backs on the UK due to Brexit uncertainty and the hike in stamp duty on second homes.

Builders started work last year on 1,900 apartments priced at more than £1,500 per sq ft, but only 900 have sold, according to property data experts Molior London. A typical high-end three-bedroom apartment consists of around 2,000 sq ft, which works out at a sale price of £3m. There are an extra 14,000 unsold apartments on the market for between £1,000-£1,500 per sq ft. The average price per sq ft across the UK is £211. Molior says it would take at least three years to sell the glut of ultra-luxury flats if sales continue at their current rate and if no further new-builds are started. However, ambitious property developers have a further 420 residential towers (each at least 20 storeys high) in the pipeline, says New London Architecture and GL Hearn. Henry Pryor, a property buying agent, says the London luxury new-build market is “already overstuffed but we’re just building more of them”.

Building more is the worst of all options. See above. But it’s alos the only option that lets the illusion last a bit longer.

• Building More Homes Will Not Solve Britain’s Housing Crisis (Pettifor)

Everyone – from the government, to housing charities, to housebuilders – has bought into the conventional wisdom that the dysfunction that racks our housing market is a matter of demand and supply. We’re not building enough houses, so house prices have been sent rocketing, taking home-ownership out of reach for growing numbers of young people. But in reality, our housing problems are not a simple feature of supply and demand. Rather, our housing market has a bitcoin problem. What has bitcoin mania got in common with house prices, especially in the capital? For starters, both are speculative bubbles. Vast sums of money have been poured into finite supplies of bitcoins and London property. Both have consequently exploded in value, albeit over different time periods.

And so both have become financialised assets that deliver capital gains far in excess of people’s ability to earn income from work, or from investment in the real economy. And as with bitcoin, so with London property: speculators are convinced that prices will continue to rise for ever. It’s speculation in the property market that is fuelling stratospheric house price rises, not shortage of supply. When the “fuel” of private capital, mortgage credit and cash from the bank of mum and dad is supplemented by government subsidies and tax breaks, house prices rise. Moreover, wealthy global and non-resident buyers have funnelled more than £100bn into London property over recent years, making the problem even worse.

So, rather counterintuitively, building more houses is not the right prescription. House prices won’t fall until the tide of cash flowing into the market abates, for example by tightening mortgage credit, or shrinking the pool of buy-to-let investors. That may already be starting to happen as real incomes continue to fall, the Bank of England toughens up buy-to-let mortgages, and stamp duty rises are phased in for second properties. Despite this, the government pretends the real cause of unaffordable housing is a shortage of new builds. It uses this argument to provide cover for further taxpayer-funded subsidies and tax breaks that benefit its property-owning core voters, its close allies in the construction industry and property market, and its supporters in the City of London.

Germany crony Holland wants to pay less toward Brexit because its economy is hit harder than others. It also wants the entire EU budget cut. Juncker wants to raise that budget and buy more Europe. This could blow up. Expect more heavy handedness from Brussels.

• Brexit Saddles EU With A Huge Budget Problem (CNBC)

Brexit is leaving the EU with a big problem on its hands and a “very tough” negotiation ahead, European Commission Vice-President Jyrki Katainen told CNBC on Friday. The U.K. has been one of the main contributors to the European budget, but once it has left the bloc there will be a gap in the EU budget that will have to be worked out somehow, Katainen said. “It is certainly a problem and we have to address it,” he said at the World Economic Forum (WEF) in Davos, Switzerland. “If I should bet something, we need to adjust the budget to a certain extent but also we need fresh money from member states. We also have to look at how money is spent, how we could get more out of less.”

But many EU members do not want to pay more to compensate for the U.K.’s decision to leave the union. Denmark, for example, made it clear last year that it would not step up its financial commitment because of Brexit. Katainen told CNBC that one solution could be using more financial instruments, including equity investments, to finance European projects rather than direct financial contributions. “This is what we are planning or exploring at the moment… it’s going to be a very though negotiation,” he said.

The current EU budget is planned out until 2020. The European Commission is due to come up with proposals on the future of the budget in May. During a speech in September, EC President Jean-Claude Juncker said: “An important element will be the budgetary plans the commission will present in May 2018. Here again, we have a choice — either we pursue the European Union’s ambitions in the strict framework of the existing budget, or we increase the European Union’s budgetary capacity so that it might better reach its ambitions. I am for the second option.”

Yeah, the ones they previously promised to take but never did.

• Deal With France ‘Could Bring Hundreds More Child Refugees To UK’ (G.)

Charities working to bring unaccompanied refugee children to safety are optimistic that agreements signed by Theresa May and Emmanuel Macron could lead to hundreds more receiving permission to travel legally to the UK. Details emerging from last week’s summit show that officials agreed to extend an eligibility deadline so that children fleeing conflict and arriving in Europe before last Friday could be considered under the Dubs amendment, the scheme launched in 2016 under which the government agreed to offer a safe and legal route to refugee children travelling alone. Previously, refugee children had to have arrived in Europe before March 2016 to be considered for acceptance under the scheme. This deadline meant large numbers of vulnerable young people who had arrived in France, Germany and Italy more recently were not eligible.

Lord Dubs, the Labour peer who forced the government to commit to helping more young refugees in January 2016, welcomed the development. “We hope dozens more will be transferred, but it is crucial that they get a move on. In France they are sleeping under the trees in very bleak conditions.” Although the May-Macron agreement focused on France, concerns are growing for the large number of unaccompanied refugee children in Greece where there are currently 3,150 refugee children, travelling without families, and only 1,109 spaces in shelters, according to the charity Safe Passage, which has campaigned to bring more young refugees to the UK. The charity hopes that a further 250 could be brought to safety under the Dubs scheme. The government has committed to accommodating 480 refugee children under the scheme, but has so far only transferred about 220.

Campaigners hope the announcement could reduce the number of young refugees killed on roads outside Calais, after a spike in deaths in recent weeks among asylum seekers attempting to climb on to lorries in order to travel illegally to the UK. The UK government also agreed to speed up the time it spends considering applications from young refugees for transfer to the UK, committing to providing an answer in 10 days, and to transferring them within 15 days after that. George Gabriel, at Safe Passage, said: “For those who are awaiting family reunion, these changes will mean that there is a much lower incentive to make a dangerous journey to reunite with a loved one.”

A Modest Plan

Jan 242018

January 24, 2018 Posted by Raúl Ilargi Meijer at 3:59 pm Finance Tagged with: bitcoin, blockchain, crypto, debt, depression, dollar, EM, gold, plan, reset, Trump, USD, workforce 11 Responses »

Rembrandt van Rijn The Storm on the Sea of Galilee 1633
On March 18, 1990, the painting was stolen by thieves disguised as police officers. They broke into the Isabella Stewart Gardener Museum in Boston, MA, and stole this painting, along with 12 other works. The paintings have never been recovered, and it is considered the biggest art theft in history. The empty frames still hang in their original location.

This is an article written by Dr. D, who last month wrote a series at the Automatic Earth entitled Bitcoin Doesn’t Exist.

It shouldn’t surprise you that bitcoin plays a cameo in his Modest -but actually quite grand- Plan as well.

Dr. D: With all the talk about the bubble market, people are once again saying Donald Trump is a fool, he should never have taken credit for a Dow that’s about to collapse. In addition, how does he think he can get away with claiming we have a great economy made greater? He said in the election the economy was terrible and the Dow was a bubble, that’s why he won.

But hold on: you have to remember, they’re politicians; they may be dishonest but they’re not stupid. Let’s try a scenario to see what they’re thinking:

We have a situation in the U.S. where 100 million people are out of the workforce, the real economy is on life-support, debt is crushing, and monetary velocity is at an all-time low. The Fed’s every effort at market-rigging, lowering rates and pumping in money, bailing out the banks and giving unearned interest for Fed deposits have run up both the housing market and the stock market, neither of which is their legal mandate. If either one goes higher, they’ll pop as workers, particularly millennials, have no income to buy houses, and stocks are levitating on just 5 insider-paid FAANG stocks.

It’s untenable. However, if either falls, the collateral that upholds the whole system will fail, margins will be called, the housing market will fall, and there will be an instant Depression… You know, more than the 100 million out of work Depression we already have. A Depression that makes Congressmen and government workers lose their profits and 401k’s instead of just turning students to open prostitution, and mass opioid death, and starving people in Oklahoma – you know, a Depression that finally hurts someone who matters.

Since this is self-evident and unsustainable, isn’t Trump just stepping in it by pushing all the same policies as Obama? Not necessarily. Look at what matters to him. A tax plan, and barely, not one he liked, but look at what he settled for: return of foreign profits abroad. Why? Large as it is – and it’s already creating long-withheld bonuses – that’s not enough to turn the dial. But that’s a card he wanted. Tax policy and a high stock market. What else?

Well, we have a crippling high debt, easily 100% even 200% of GDP. With that weight, nothing can move, no way to win. Pensions also are nearly dead, along with insurance companies; the high Dow is all that’s saving them from bankruptcy. What else? Well he was interested in health reform but was willing to let it remain for now. He wrote deferrals but not pardons for 5 banks showing he’d like to keep them functioning for the moment. He wanted to increase the military.

Certainly the only other promise was to create jobs and economies again, in a way saying the few protected industries: Finance, Health Care, and Military would have to become a smaller % of GDP, so those dollars could be returned back to Main Street. But we just said those three aren’t happening.

So. What if instead of pulling money from intractable lobbying groups he got new investment money from abroad? We saw this initially with Carrier and Ford and more recently with Japan. But it’s not enough and he knows all this; they all do. How do you solve the problem? How do you get more?

Calling all 1st year econ students: how do you attract capital to your country? With higher rates. As the US 10-year breaks out above 2.6% you’d have to think that’s attractive. Attractive investing in a bankrupt nation that’s barely moving? It does if you’re a company that must maintain legal investment ratios and you’re getting 0% in Japan, and negative rates in Europe, both with economies as bad or worse.

But aren’t rising rates bad? The Fed model raises rates to clamp down on the economy. Money will leave the stock market and go to bonds. Housing prices will fall as the monthly cost increases. Cats and Dogs living together….except it isn’t true.

Let’s go down the list:

1. Trump starts with plausible seed corn, a billboard sign: a tax cut and a few trillion overseas to start economic motion.

2. If the Fed raises rates, that will draw in trillions of world capital Trump wants, enough to turn the dial and really matter.

3. Enough money flowing into the U.S. will create demand for the US$, and the US$ will rise. This part has to work. Be flashy, attract attention. Go big or go home.

4. The US$ rising will attract foreign buyers into U.S. investment and together the stock market will counterintuitively rise.

5. The Fed will detect overheating and raise rates again and again in a reinforcing cycle, drawing capital to only the U.S. and suffocating the world.

6. The massive investment re-industrializes the U.S. to some extent while the high US$ gives some relief to Main Street.

7. Foreign buying, better jobs, and low exchange rates hold off the housing collapse, while all the mortgage bonds are also sold overseas.

8. Emerging markets are hammered by the high US$ and fail, driving ever-more capital to safe havens like the US.

9. Ultimately, the U.S. does what all reserve currencies do and fails LAST.

See why they think they can get away with this? The U.S. can still ravage the world, and Trump can, in fact, call it his “success.” …Just like all the Presidents since Nixon.

But this is history, and it never ends there.

10. The whole world, strangled by the US and its dollar have no choice but to reject the US system entirely in private contracts and move to an alternative.

11. We now have at least three alternatives: the CIPS/Yuan banking bloc, gold, and cryptocurrencies. They aren’t exclusive: the most likely outcome is a gold-backed trading note priced in Yuan on a blockchain, perhaps in the Shanghai Exchange.

12. Being entirely too high the US$ ultimately cripples the U.S. as well, but the alternative currency the world creates becomes the lifeboat to escape. Let’s be simple and say it’s Bitcoin (it won’t be): Bitcoin hits John McAfee’s $1 million. What do you call it when a currency rapidly becomes worth 1/10th, 1/100th, 1/1,000,000th of the standard? Isn’t that hyperinflation?

13. The U.S., like every nation since Adam Smith, defaults on its $20T in $ debt – and all its internal consumer, corporate, and pension debt – using “hyperinflation” of the dollar. New twist is that, instead of gold, it hyperinflates vs. cryptos or the new world exchange standard as planned in 1971 and publicized in 1988.

14. The reset occurs, no one dies (in the U.S.), supply chains are maintained, oil flows, and the economy stops being a feral, diabolical means of theft and control and returns to being a fair, voluntary exchange. For now.

That’s not to say they’ll succeed, but this is why they think they can go this way and win at it. What does the Trump world look like?

1. Stock market rose, like he said.

2. Manufacturing returns, reindustrializing a hollow nation and allowing the country to catch up to the stock prices, like he said.

3. Unemployment drops, like he said.

4. Crime is reduced and the cities are improved, like he said.

5. This helps win the black vote, snatching the rest of the Democratic base and locking them out for years, like Bannon said.

6. Economic growth normalizes the banking/medical oversize, like he wanted.

7. Free, untracked money for bribes and illegal cover end and law and order returns with fair exchange, like he said.

8. The U.S. is unwelcome overseas, and the breaking of bonds re-sets the multipolar world, where the U.S. is just one trading nation among many, like he said.

9. Without the money of empire the military returns home, like he said.

10. The world is pretty mad at us and that renewed military came in handy. That’s okay, they’ll be consoled that the economy now works and the U.S. can no longer start wars and act terribly.

What does the world look like after? A lot more like it was before 1945. You know, back when we were great and before we got terrible.

Again, not to say this WILL happen, but you can see that it CAN happen, and they are now in control of most of the levers required. From their rhetoric, you can see the glass darkly that this is what they find a priority, a possibility, and therefore a doorway out. In addition, downsizing and re-establishing honesty will not allow their opponents to wiggle out and reverse it.

Why wasn’t this done before? My guess is that a) previous planners thought with a little more effort they could take over the world, as seen in the Arab Spring plan that would culminate in the capture of Iran, the only remaining oilfields on the planet, and b) given the world’s first entirely fiat financial system, it was too complex and disruptive to return to a gold standard.

Without a lighting fast crypto base, banking and trade would fail and millions would die. Only when the one was burned out and the other made available could this move be attempted. Watch and see.

Debt Rattle Thanksgiving 2017

Nov 232017

November 23, 2017 Posted by Raúl Ilargi Meijer at 9:43 am Finance Tagged with: artificial light, austerity, budget, China, CLO, EM, Facebook, Fed, leverage, Putin, refugees, UK, zombie 8 Responses »

Roger Viollet Great Paris Flood, Avenue Daumesnil 1910

• Fed Fears New Record High Credit Bubble – Danielle DiMartino Booth (USAW)

• Global Debt Is Rising, Especially in Emerging Economies (St. Louis Fed)

• Pressure on US Households Intensifies (DDMB)

• Zombie Firms Roam Europe Because Banks Help Keep Them Undead

• China Is Pumping A Lot Of Cash Into Its Economy To Calm Investors (CNBC)

• Chinese Investors Eye Leverage to Juice U.S. CLO Returns (BBG)

• China’s $3.4 Trillion Corporate Bond Market Faces Rocky 2018 (BBG)

• Worst Growth In Decades Pushes UK To Inject £25bn Into Economy (Ind.)

• Budget Shows Tories Are Unfit For Office – Corbyn (G.)

• Facebook To Let Users See If They ‘Liked’ Russian Accounts (R.)

• Putin Tell Russian Firms To Be Ready For War Production (Ind.)

• PNG Police Move In On Closed Australia Refugee Camp On Manus (AFP)

• Night Being Lost To Artificial Light (BBC)

“I don’t think any of us know what the implications are for a $50 trillion debt build since the great financial crisis (of 2008). It is impossible to say. We have never dealt with anything of this magnitude.”

• Fed Fears New Record High Credit Bubble – Danielle DiMartino Booth (USAW)

Former Federal Reserve insider Danielle DiMartino Booth says the record high stock and bond prices make the Fed nervous because it’s fearful of popping this record high credit bubble. DiMartino Booth says, “The Fed’s biggest fear is they know darn well this much credit has built up in the background, and the ramifications of the un-wind for what has happened since the great financial crisis is even greater than what happened in 2008 and 2009. It’s global and pretty viral. So, the Fed has good reason to be fearful of what’s going to happen when the baby boomer generation and the pension funds in this country take a third body blow since 2000, and that’s why they are so very, very intimidated by the financial markets and so fearful of a correction.”

Why will the Fed not allow even a small correction in the markets? DiMartino Booth says, “Look back to last year when Deutsche Bank took the markets to DEFCON 1. Maybe you were paying attention and maybe you weren’t, but it certainly got the German government’s attention. They said the checkbook is open, and we will do whatever we need to do because we can’t quantify what will happen when a major bank gets into a distressed situation. I think what central banks worldwide fear is that there has been such a magnificent re-blowing of the credit bubble since 2007 and 2008 that they can’t tell you where the contagion is going to be. So, they have this great fear of a 2% or 3% or 10% (correction) and do not know what the daisy chain is going to look like and where the contagion is going to land.

It could be the Chinese bond market. It could be Italian insolvent banks or it might be Deutsche Bank, or whether it might be small or midsize U.S. commercial lenders. They can’t tell you where the systemic risk lies, and that’s where their fear is. This credit bubble is of their making.” In short, the Fed does not know what is going to happen, and according to DiMartino Booth, nobody does. DiMartino Booth contends, “I don’t think any of us know what the implications are for a $50 trillion debt build since the great financial crisis (of 2008). It is impossible to say. We have never dealt with anything of this magnitude.”

“2017 is the record for quantitative easing (money printing) globally. We have never, not even in the darkest days of the financial crisis, central banks have never injected as much money as they have into the markets. . . . I am not a gold bug, but we do know that in times of corrections that there is no place to hide in traditional asset classes that you can get at your Merrill Lynch brokerage. Gold and silver in the precious metals complex are the only places to hide and get true diversification and safety.”

They do know what’s going on.

• Global Debt Is Rising, Especially in Emerging Economies (St. Louis Fed)

The world has become used to cheap credit. And the increase in borrowing by emerging economies could pose a risk as monetary policy normalizes. In response to the most recent recession, central banks around the world decreased their main policy rates to almost zero, as seen in the figure below.

[..] The downward trend in short-term and long-term interest rates has made borrowing cheaper over time. As a result, global debt has increased substantially since 2007. According to Bank for International Settlements (BIS) data, total debt of the nonfinancial sector (that is, households, government and nonfinancial corporations) amounted to $145 trillion in the first quarter of 2017, an increase of 40% since the first quarter of 2007. Most of this increase has been driven by an increase in total debt in emerging economies, especially in China, as seen in the following figure.

Furthermore, emerging economies have borrowed heavily in foreign currency, mainly in U.S. dollars, shown in the figure below.

According to the BIS, total dollar-denominated debt outside the U.S. reached $10.7 trillion in the first quarter of 2017, and about a third of this debt is owed by the nonfinancial sector of emerging economies. Analysts have stressed that the rapid accumulation of debt in emerging economies could pose risks for the global economy in the presence of U.S. monetary policy normalization. Market expectations of a rapid increase in the policy rate and the reduction of the Federal Reserve’s balance sheet could lead to higher borrowing costs and an appreciation of the U.S. dollar. This, in turn, would increase the cost of refinancing debt in emerging economies. If these risks materialized, there could be an increase in the demand for safe assets, particularly U.S. Treasuries. This would lead to a decrease in long-term rates. In times of monetary normalization, the yield curve would flatten, and banks profitability could be eroded.

After the storms…

• Pressure on US Households Intensifies (DDMB)

The full effects of Hurricanes Harvey and Irma are rapidly showing up in the data. In September, according to Black Knight, the number of mortgages either past due or in foreclosure rose by 214,000, or 9%, compared with August. At 5.1%, the combined rate is far off the previous month’s 4.7% and the most recent low of 4.5% recorded in March 2007. October’s numbers have brought the picture more clearly into focus. More than 229,000 past-due mortgages are tied to the storms. Hurricane Irma accounted for 163,000 and Harvey, 66,000. To place the damage to households in context, before the storms, Florida and Texas ranked 22nd and 20th among non-current mortgage states. As of October, Florida has risen to second place and Texas is in fifth place.

The economy has also enjoyed a rush of car sales as sufficiently-collateralized and insured drivers immediately replaced vehicles destroyed by the storms. According to the latest retail data, car sales slowed to a 0.7% growth rate in October, far below September’s blistering 4.6-percent pace. Nonetheless, the next development could be a further deterioration in auto delinquencies attributed to storm victims. The most recent third-quarter data from the New York Fed suggest struggling households continue to buckle under the strains of their monthly payments. The delinquency rate for subprime loans originated by auto-finance companies, as opposed to banks, hit 9.7% in the three months ended in September.

With one in four auto loans outstanding going to subprime borrowers, the rate has been rising since 2013 and is at a seven-year high. What’s most notable is that these delinquency rates are being recorded outside recession, all but ensuring 2009’s peak of 10.9% will be breached in the next downturn. And while credit-card delinquencies are nowhere near their crisis-era double-digit peaks, the New York Fed noted that serious delinquencies have been on the rise for one year. The serious delinquency rate hit 4.6% in the third quarter, up from 4.4% the prior quarter. Adjusted for inflation, the growth of U.S. credit-card spending has outpaced that of incomes for 26 straight months.

Anyone shorting Italy for real yet?

• Zombie Firms Roam Europe Because Banks Help Keep Them Undead

So-called zombie firms – companies that would be out of business or painfully restructured in a competitive economy – have become a key issue for policy makers grappling with sluggish productivity growth in developed economies. The fear is that those “zombies” are sucking up capital that could otherwise go to more productive firms. A new study by the OECD helps explaining how banks favor the spread of zombie firms. It shows that weak companies tend to be connected to weak banks which prefer to roll over or restructure bad loans rather than declaring them delinquent and writing them off. The OECD’s research by Dan Andrews and Filippos Petroulakis lends new urgency to the ECB’s efforts to slash non-performing loans in the region.

Supervisors have asked for detailed plans of how NPLs will be cut and are mulling requiring banks to set aside more capital for soured loans. “In order to facilitate the unwinding of the zombie problem, it is essential that bank balance sheets are strong, underlining the need for fast recapitalizations after crises and other measures to reduce NPLs,” write the authors. “The zombie firm problem in Europe may at least partly stem from bank forbearance.” Weak productivity matters in an ageing continent like Europe, where a shrinking working population is expected to support an ever increasing number of retirees. This can’t happen unless technology and education make it possible to squeeze more and more output from labor and capital.

The OECD has been investigating the impact of living-dead companies for years. It argues that zombification leads to capital misallocation, as weak banks tend to steer less capital to healthier and more productive firms. This in turn leads to low productivity and returns, making it more difficult to get credit even for innovative companies. Andrews and Petroulakis also say that, in addition to forcing banks to work down their NPLs and bolster capital, efficient laws on insolvency are needed. It is not a coincidence that Italy – the European country with the largest NPL problem – overhauled its bankruptcy rules last month to make them quicker and more efficient.

Mr. Xi, sir, it’s time to be careful.

• China Is Pumping A Lot Of Cash Into Its Economy To Calm Investors (CNBC)

China has been pumping a lot of cash into its system to lift market sentiment, as the world’s second-largest economy walks a thin line between curbing debt and keeping everything running smoothly. Last week, the People’s Bank of China injected cash totaling 810 billion Chinese yuan ($122.4 billion) in five straight days of daily liquidity management operations. Those actions, which represented the largest weekly net increase since January, were in part a Beijing response to its 10-year sovereign bond yields spiking to multiyear highs, experts said. “Surging Chinese government bond yields hit the nerve of policymakers, so in order to further prevent a greater surge, they injected liquidity into the system to improve market sentiment,” said Ken Cheung, a foreign exchange strategist at Mizuho Bank who focuses on Chinese currencies and monetary policies.

Nomura analysts said last week in a note that the bond rout was due to fears of regulatory tightening from Beijing. Bond yields, which move inversely to prices, briefly hit 4% in China for the first time in three years. A rise in the benchmark government bond yield threatens to drive up overall borrowing costs — and potentially worsen the country’s debt situation. On Monday and Tuesday of this week, the PBOC injected a net 30 billion yuan ($4.5 billion), but it didn’t expand that money supply on Wednesday. Analysts said that pause may have been due to market sentiment seemingly stabilizing, but it may be short-lived. As Chinese 10-year yields are still near the psychologically important 4% level, Cheung told CNBC he expects more injections ahead if necessary, as Beijing needs to “maintain liquidity to please the market.”

“It’s dangerous territory. Leveraging BB-rated bonds – is that a good idea?”

• Chinese Investors Eye Leverage to Juice U.S. CLO Returns (BBG)

The last time Asian investors borrowed money to invest in structured-credit products – during the run-up to the financial crisis – it didn’t work out so well. Now, a new set of buyers from China are hoping things turn out differently. Instead of snapping up packages of risky derivatives tied to U.S. home loans, they’re buying collateralized loan obligations that bundle together corporate loans to highly leveraged companies. And while such CLOs weathered the last crisis relatively well, there’s already concern that these investors are being tempted to deploy leverage to amplify their returns. The problem is that even the riskiest pieces of CLOs can yield less than the 8 to 10% targets Chinese investors have grown accustomed to in their markets, according to Collin Chan, a CLO analyst at Bank of America Corp.

So CLOs, the junk-rated slices of which yield just 5.5 percentage points more than Libor, “may not be crazily attractive” to them, said Chan, whose team has trekked to China multiple times this year to pitch the products to investors there. On a recent trip to China, potential new investors expressed interest in the idea of applying leverage for the purchase of CLOs, even at the riskier BB level, Chan said. He estimates levered returns for the BB-rated CLO slice may be almost 20%. Leverage is employed using the repo financing market, where short-term loans allow investors to borrow money by lending securities. It’s the latest evidence of the search for yield that has engulfed credit markets and provided a significant boost for CLO sales this year. China and its many types of financial institutions now look like promising buyers for a product that in Asia has typically been bought by Japanese banks and Korean insurers.

“It wouldn’t be wise for the Chinese to use leverage at this stage,” said Asif Khan, head of CLO origination and distribution at MUFG. “It’s dangerous territory. Leveraging BB-rated bonds – is that a good idea? Any potential use of leverage by Chinese investors could pose potential risk in case of severe volatility.” [..] Chinese investors have yet to enter the CLO market en masse. However signs point to their growing participation. In some cases, investment banks and CLO managers have made as many as five trips to Asia this year, adding on special CLO-focused investor conferences in mainland China for the first time ever to raise the product’s profile. The demand to diversify into dollar assets has grown from a wide range of investors, despite Chinese-government capital controls limiting deployment of capital abroad.

$3.4 trillion sounds low.

• China’s $3.4 Trillion Corporate Bond Market Faces Rocky 2018 (BBG)

China’s deleveraging campaign is finally starting to bite in the nation’s corporate-bond market, a shift that will make 2018 a clearer test of policy makers’ appetites to let struggling companies fail. Yields on five-year top-rated local corporate notes have jumped about 33 basis points since the month began, to a three-year high of 5.3%, according to data compiled by clearing house ChinaBond. Government bonds, which have far greater liquidity, had already moved last month as the central bank warned further deleveraging was needed. With more than $1 trillion of local bonds maturing in 2018-19, it will become increasingly expensive for Chinese companies to roll over financing – and all the tougher for those in industries like coal that the nation’s leadership wants to shrink.

Two companies based in Inner Mongolia, a northern province that’s suffered from a debt-and-construction binge, missed bond payments on Tuesday, in a demonstration of the kind of pain that may come. In the long haul, that all may be good for China. Allowing more defaults could see its bond market become more like its overseas counterparts, with a greater differentiation in price. And that could mean it channels funds more productively. “The deleveraging campaign and the new rules on the asset management industry will further differentiate good and bad quality credits, and make the onshore credit market more efficient,” said Raymond Gui at Income Partners Asset Management. “Weaker companies will find it harder to roll over their debts because funding costs will stay high.” Gui predicts yields will keep climbing. The average for top-rated corporate bonds is already 2.2 percentage points above what investors demanded to hold them in October last year.

More austerity.

• Worst Growth In Decades Pushes UK To Inject £25bn Into Economy (Ind.)

Britain faces its worst period of economic growth in more than half a century after official data revealed a country hamstrung by feeble productivity and Brexit. Dismal figures released alongside Philip Hammond’s Budget led the Chancellor to announce a £25bn cash injection to strengthen the ailing economy. The major giveaway will see money head towards housebuilding, preparing Whitehall for Brexit, the NHS and boosting the tech sector. But despite the extra cash most government departments will still experience deep cuts over the next five years, as Mr Hammond struggles to get the public finances under control. Mr Hammond tried to put a positive sheen on progress towards reducing net debt and abolishing the deficit, but data suggested Britain would now fail to achieve a budget surplus before 2031.

Forecasts from the Office for Budget Responsibility indicated GDP would grow by 1.5% in 2017, down from the 2% forecast in March. The Government’s official financial auditor said growth would drop to 1.4% next year – as low as 1.3% in 2019 and 2020 – and then pick up to 1.5% in 2021 and 1.6% in 2022. The OBR said the main downward pressure on growth was a big fall in the UK’s projected productivity, intensifying public spending cuts and Brexit uncertainty. The body was established in 2010 by then-Chancellor George Osborne to end a system under which the Treasury produced its own economic growth estimates. The latest predictions are the gloomiest that the auditor has ever given, and they are also smaller than any produced by the Treasury since 1983. Institute for Fiscal Studies director Paul Johnson said the 1.4% average growth forecast over the period was “much worse than we have had over the last 60 or 70 years”.

“.. the reality will be – a lot of people will be no better off. And the misery that many are in will be continuing.”

• Budget Shows Tories Are Unfit For Office – Corbyn (G.)

In his response to the budget, Corbyn – it is the leader of the opposition who traditionally speaks rather than the shadow chancellor – said Hammond had completely failed to tackle a national crisis of stagnation and falling wages. “The test of a budget is how it affects the reality of people’s lives all around this country,” the Labour leader said. “And I believe as the days go ahead, and this budget unravels, the reality will be – a lot of people will be no better off. And the misery that many are in will be continuing.” Largely eschewing direct focus on Hammond’s specific announcements in favour of a broader critique of the government’s wider economic approach, Corbyn castigated Hammond for again missing deficit reduction targets, and for a continued spending squeeze on schools and the police.

Speaking about housing, Corbyn said rough sleeping had doubled since 2010, and that this Christmas 120,000 children would be living in temporary accommodation. “We need a large-scale publicly funded housebuilding programme, not this government’s accounting tricks and empty promises.” Summing up, he said: “We were promised a revolutionary budget. The reality is nothing has changed. People were looking for help from this budget. They have been let down. Let down by a government that, like the economy they’ve presided over, is weak and unstable and in need of urgent change. They call this budget ‘Fit for the Future’. The reality is this is a government no longer fit for office.”

Mish commented on Twitter he’d be more interested in seeing which CIA propaganda sites he’d liked.

Question is: should we trust Facebook’s assessment of what is Russian and what not? I don’t think so.

• Facebook To Let Users See If They ‘Liked’ Russian Accounts (R.)

Facebook said on Wednesday it would build a web page to allow users to see which Russian propaganda accounts they have liked or followed, after U.S. lawmakers demanded that the social network be more open about the reach of the accounts. U.S. lawmakers called the announcement a positive step. The web page, though, would fall short of their demands that Facebook individually notify users about Russian propaganda posts or ads they were exposed to. Facebook, Alphabet Inc’s Google and Twitter are facing a backlash after saying Russians used their services to anonymously spread divisive messages among Americans in the run-up to the 2016 U.S. elections. U.S. lawmakers have criticized the tech firms for not doing more to detect the alleged election meddling, which the Russian government denies involvement in.

Facebook says the propaganda came from the Internet Research Agency, a Russian organization that according to lawmakers and researchers employs hundreds of people to push pro-Kremlin content under phony social media accounts. As many as 126 million people could have been served posts on Facebook and 20 million on Instagram, the company says. Facebook has since deactivated the accounts. Facebook, in a statement, said it would let people see which pages or accounts they liked or followed between January 2015 and August 2017 that were affiliated with the Internet Research Agency. The tool will be available by the end of the year as “part of our ongoing effort to protect our platforms and the people who use them from bad actors who try to undermine our democracy,” Facebook said.

The web page will show only a list of accounts, not the posts or ads affiliated with them, according to a mock-up. U.S. lawmakers have separately published some posts. It was not clear if Facebook would eventually do more, such as sending individualized notifications to users.

NATO is a real threat.

• Putin Tell Russian Firms To Be Ready For War Production (Ind.)

Russian business should be prepared to switch to production to military needs at any time, said Vladimir Putin on Wednesday. The Russian president was speaking at a conference of military leaders in Sochi. “The ability of our economy to increase military production and services at a given time is one of the most important aspects of military security,” Mr Putin said. “To this end, all strategic, and simply large-scale enterprise should be ready, regardless of ownership.” A day earlier, the president had spoken of a need to catch up and overtake the West in military technology. “Our army and navy need to have the very best equipment — better than foreign equivalents,” he said. “If we want to win, we have to be better.”

Since the 2008 Georgian war, which was a difficult operation, the Russian military has undergone extensive modernisation. Ageing Soviet equipment has gone. There is a new testing regime. There are new command structures. The budget has also increased exponentially. This year, military expenses will cross 3 trillion roubles, or 3.3% of GDP. This would be a record were it not for one-off costs in 2016. Over the next two years, spending is forecast to be cut back slightly, to approximately 2.8% of GDP. Though that budget remains less than 30% of the combined Nato budget in Europe, many countries are increasing their military spending in response to the “Russian threat”. Nato military command has also been restructured — it says in response to Russian cyber and military threats.

First thing that needs to happen is Australian media reporting on this. Then people must protest. New Zealand recently offered to take a whole group of these people, Australia declined. Many need medical treatment. Australia refuses.

• PNG Police Move In On Closed Australia Refugee Camp On Manus (AFP)

Papua New Guinea police moved into the shuttered Australian refugee camp on the country’s Manus Island Thursday in the most aggressive push yet to force hundreds of men to leave, the Australian government and detainees said. The police operation was confirmed by Australia’s Immigration Minister Peter Dutton, who said Canberra was “very keen for people to move out of the Manus regional processing centre”. “I think it’s outrageous that people are still there,” he told Sydney commercial radio station 2GB. “We want people to move.” Iranian Behrouz Boochani tweeted from inside the camp earlier Thursday, writing that “police have started to break the shelters, water tanks and are saying ‘move, move'”.

“Navy soldiers are outside the prison camp. We are on high alert right now. We are under attack,” he said, adding that two refugees were in need of urgent medical treatment. Other refugees posted photos to social media sites showing police entering the camp, which Australia declared closed on October 31 after the PNG Supreme Court declared it unconstitutional. [..] Australia had shut off electricity and water supplies to the camp and demanded that some 600 asylum-seekers detained there move to three nearby transition centres. Around 400 of the asylum-seekers have refused to leave, saying they fear for their safety in a local population which opposes their presence on the island. They also say the three transition centres are not fully operational, with a lack of security, sufficient water or electricity.

[..] Canberra has strongly rejected calls to move the refugees to Australia and instead has tried to resettle them in third countries, including the United States. But so far, just 54 refugees have been accepted by Washington, with 24 flown to America in September. Despite widespread criticism, Canberra has defended its offshore processing policy as stopping deaths at sea after a spate of drownings.

Oh, the lights will go out eventually…

• Night Being Lost To Artificial Light (BBC)

A study of pictures of Earth by night has revealed that artificial light is growing brighter and more extensive every year. Between 2012 and 2016, the planet’s artificially lit outdoor area grew by more than 2% per year. Scientists say a “loss of night” in many countries is having negative consequences for “flora, fauna, and human well-being”. A team published the findings in the journal Science Advances. Their study used data from a Nasa satellite radiometer – a device designed specifically to measure the brightness of night-time light. It showed that changes in brightness over time varied greatly by country. Some of the world’s “brightest nations”, such as the US and Spain, remained the same. Most nations in South America, Africa and Asia grew brighter. Only a few countries showed a decrease in brightness, such as Yemen and Syria – both experiencing warfare.

The nocturnal satellite images – of glowing coastlines and spider-like city networks – look quite beautiful but artificial lighting has unintended consequences for human health and the environment. Lead researcher Christopher Kyba from the German Research Centre for Geoscience in Potsdam said that the introduction of artificial light was “one of the most dramatic physical changes human beings have made to our environment”. He and his colleagues had expected to see a decrease in brightness in wealthy cities and industrial areas as they switched from the orange glow of sodium lights to more energy-efficient LEDs; the light sensor on the satellite is not able to measure the bluer part of the spectrum of light that LEDs emit.

“I expected that in wealthy countries – like the US, UK, and Germany – we’d see overall decreases in light, especially in brightly lit areas,” he told BBC News. “Instead we see countries like the US staying the same and the UK and Germany becoming increasingly bright.” Since the satellite sensor does not “see” the bluer light that humans can see, the increases in brightness that we experience will be even greater than what the researchers were able to measure.

UK, Netherlands, Belgium

Debt Rattle September 25 2017

Sep 252017

September 25, 2017 Posted by Raúl Ilargi Meijer at 9:19 am Finance Tagged with: anthem, debt, EM, Kaepernick, knee, Merkel, Schaeuble, Trump, Tulip, yuan 9 Responses »

Pablo Picasso Portrait of the artist’s mother 1896

• Colin Kaepernick Has Won: He Wanted A Conversation And Trump Started It (G.)

• The World Can’t Stop Borrowing Dollars (BBG)

• What’s Around The Corner For The Hottest Emerging Markets (BBG)

• China Plans Closer Oversight of $304 Billion in State Company Funds (BBG)

• China’s Yuan Is Anything But Stable as Party Congress Approaches (BBG)

• US Households Are Loaded Up With Stocks (Lyons)

• Merkel Lands Fourth Term, But at What Cost? (Spiegel)

• Angela’s Ashes: 5 Takeaways From The German Election (Pol.)

• German Vote Could Doom Merkel-Macron Deal On Europe (R.)

• German FinMin Wolfgang Schaeuble May Soon Be Losing His Job (CNBC)

• Luxury Properties On Greek Islands Attract Ever More Foreign Buyers (K.)

• There Never Was a Real Tulip Fever (Smithsonian)

Apparently, players never stood for the anthem until 2009. Then the Defense Department started paying teams to get them out of the dressing room and onto the field when the anthem was played. A recruiting tool.

But Kaepernick is a brave man no matter what. Trump should invite him to the White House and talk.

• Colin Kaepernick Has Won: He Wanted A Conversation And Trump Started It (G.)

All Colin Kaepernick ever asked was for his country to have a conversation about race. This, he warned, would not be easy. Such talks are awkward and often end in a flurry of spittle, pointed fingers and bruised feelings. But from the moment the former San Francisco 49ers quarterback first spoke about his decision to kneel or sit during the national anthem, he said was willing to give up his career to make the nation talk. In one speech on Friday night, Donald Trump gave Kaepernick exactly what he wanted. With a fiery blast at protesting NFL players that seemingly came from nowhere, the president bonded black and white football players with wealthy white owners in a way nobody could have imagined. By saying any player who didn’t stand for the anthem was a “son of a bitch” and should be fired by his team’s owner, Trump crossed a line from which no one could look away.

Come Sunday afternoon, players who wanted nothing of a racial dialogue stood before giant flags, linking arms in protest. Owners who once wished their kneeling players would just stop offending fans fired off statements in their support. Networks who have avoided showing the raised fists of dissent had no choice but show the rows of players standing strong against Trump’s rage. Whether anyone wanted it or not, Trump has forced the US to have the conversation Kaepernick has been requesting. [..] “I think this is something that can unify this country,” Kaepernick said in the summer of 2016, at his first press conference about his protest. “If we can have the real conversations that are uncomfortable for a lot of people – if we can have this conversation there’s a better understanding where both sides are coming from. (And) if we can reach common ground and can understand what everyone’s going through, we can really affect change.”

Why the dollar’s demise is greatly exaggerated.

• The World Can’t Stop Borrowing Dollars (BBG)

Companies and governments around the world can’t seem to stop borrowing U.S. dollars. This could be a problem, both for them and for the Federal Reserve. Not long ago, it seemed as though a global boom in dollar borrowing had to be reaching its limit. Encouraged by near-zero interest rates, non-U.S. borrowers had binged on trillions in new dollar-denominated debt. With the central bank aiming to increase rates and the U.S. currency rising, strains were beginning to show, as companies struggled to pay back the dollars with devalued local-currency earnings. Yet the party keeps going, perhaps thanks to the Fed’s extremely gradual pace of rate increases and a related decline in the dollar’s exchange rate. According to the Bank for International Settlements, total dollar borrowing outside the U.S. reached $10.7 trillion in the first quarter of 2017, up about 6% from a year earlier and up 83% from 2009. Here’s how that looks as a%age of non-U.S. GDP:

About a third of the debt is owed by companies and governments in emerging markets, where the relatively high volatility of earnings and exchange rates can make dollar borrowing particularly risky. Here’s the dollar-denominated debt of the countries that the BIS tracks, as a%age of their GDP:

To be sure, some of the debt might not be too burdensome if borrowers have a lot of dollar revenue from, say, oil exports (think Russia and Saudi Arabia). But to the extent that the obligations aren’t hedged, they will make the world more sensitive to the Fed’s interest-rate moves. And if future rate increases trigger belt-tightening and defaults abroad, the malaise could easily spread back to the U.S., complicating the Fed’s efforts to keep growth on track. So the world is becoming increasingly exposed to the Fed, which leaves the Fed increasingly exposed to the world.

What’s around the corner is more debt. Dollar-denominated debt.

• What’s Around The Corner For The Hottest Emerging Markets (BBG)

Nothing has been able to silence the roar of emerging markets this year, be it Kim Jong-Un’s missiles, President Donald Trump’s protectionist rhetoric or a host of domestic political ructions from Brazil to South Africa and Turkey. Instead, investors have focused on economies supported by slowing inflation, a recent recovery in commodity prices and the comfort of watching central banks conducting policy by more conventional methods than their developed-nation counterparts. The MSCI EM Currency Index and the Bloomberg Barclays index of emerging-market local-currency government bonds both reached three-year highs this month, while a gauge of developing-nation equities is close to its highest since 2011. And now that the Federal Reserve has laid out a tapering game plan likely to drive down longer-maturity U.S. Treasuries, the bulls are taking new heart, betting the rally’s just getting started.

For others, it’s getting perilously near to closing time. “We all enjoyed the party, but this may be its last leg and there maybe more volatility in the year-end,” said Peter Schottmueller, the head of asset allocation at Deka Investment GmbH in Frankfurt, who helps manage the equivalent of $7.8 billion. “The market is very myopic and very short-term focused.’’ Corporate borrowing has outstripped economic growth over the five years through 2016, according to the Bank for International Settlements. That’s raised questions about how long it can continue as central banks in developed nations prepare to pare back quantitative easing, according to Toru Nishihama, at Tokyo-based Dai-ichi Life Research.

Emerging economies expanded 4.4% in 2016, almost half of the rate of a decade ago, when the Fed was in its last year of a cycle of interest-rate increases. “There remains a gap between the growth rate of emerging economies and developed countries as well as returns from investment, and investors will continue to pour funds into emerging markets,” Dai-ichi’s Nishihama said. “However, from here, not all emerging-market investments are rosy, and investors may become more selective in which country or countries to invest.”

“China will create a centralized financing company..” Yes, but to oversee assets, or to oversee debt, liabilities?

• China Plans Closer Oversight of $304 Billion in State Company Funds (BBG)

China will create a centralized financing company to oversee some $304 billion of funds held by the country’s state-owned enterprises’ finance units, people familiar with the matter said, allowing the government closer supervision of SOEs’ borrowing and investments. The plan, approved by the State Council or Cabinet, will increase the government’s ability to supervise the non-financial central SOE finance companies’ investments, giving the entity a fuller picture of how these companies are using funds, according to the people, who asked not to be named because the plans have not been made public. Non-financial, central SOEs have their own finance units that currently offer various products and services such as deposits and loans, and the new entity could facilitate those efforts.

The plan would assist regulators by directing some 2 trillion yuan of funds held by the non-financial SOEs through the new company, meaning they could monitor the flow through only one financing company rather than dozens. Many details about the new entity were not immediately clear, such as who would control it, how much regulatory and oversight authority it would have, and how it might conduct external financing on behalf of the SOEs. The aim is to boost efficiency in the $20 trillion state sector in line with a government campaign to reduce the companies’ debt, according to the people. While the centralized finance company would have a regulatory oversight role, the SOEs would retain control over the funds, the people said.

Not the plan.

• China’s Yuan Is Anything But Stable as Party Congress Approaches (BBG)

China’s currency has swung from hot to cold in a matter of weeks, thwarting expectations that policy makers would keep the yuan stable before a crucial Communist Party Congress next month. The yuan fell 0.3% to 6.6075 per greenback at 2:29 p.m. in Shanghai, taking its decline from a Sept. 8 peak to 2.6%. That’s a sharp reversal from earlier this month, when the currency surged 1.5% in just six days. The stunning shift has propelled a gauge of 50-day price swings on the yuan to a six-month high. With China’s financial markets closed for the whole of next week due to National Day holidays, there are effectively just over two weeks of trading to go before the congress begins Oct. 18.

The turning point for the currency came when the PBOC eased a forwards trading rule that made betting against the currency more expensive – a clear signal that the surge had gone far enough. A mild recovery in the greenback thanks to a more hawkish Federal Reserve – the Bloomberg Dollar Spot Index is up 1.2% since Sept. 8. – has hastened the yuan’s decline. “Investors were too optimistic earlier, and they are now pushing the yuan lower because they figured the policy makers believed the currency was too strong,” said Eddie Cheung at Standard Chartered in Hong Kong. “There’s still room for the dollar to rise in the short term if the market becomes more confident on U.S. rate hikes. That said, the yuan could weaken further this year, though the PBOC wouldn’t allow any sharp declines.”

Hmm, really? With so many people living paycheck to paycheck?

• US Households Are Loaded Up With Stocks (Lyons)

From the Federal Reserve’s latest Z.1 Release (formerly, Flow Of Funds), we learn that in the 2nd quarter, household and nonprofit’s stock holdings amounted to 35.7% of their total financial assets. This is the highest%age since 2000. In fact, the blow-off phase from 1998 to 2000 leading up to the dotcom bubble burst was the only time in the history of the data (since 1945) that saw higher stock investment than now. You might say that everyone is in the pool. We’ve talked about this data series many times. It is certainly not a timing tool. Rather, it is what we call a “background” indicator, representative of the longer-term backdrop — and potential — of the stock market.

It also serves as an instructional lens into investor psychology. For these reasons, it is one of our favorite metrics pertaining to the stock market, as we wrote in a September 2014 post: “This is one of our favorite data series because it reveals a lot about not only investment levels but investor psychology as well. When investors have had positive recent experiences in the stock market, i.e., a bull market, they have been happy to pour money into stocks. It is consistent with all of the evidence of performance-chasing pointed out by many. Note how stock investment peaked with major tops in 1966, 1968, 1972, 2000 and 2007. Of course, investment will rise merely with the appreciation of the market; however, we also observe disproportionate jumps in investment levels near tops as well.

Note the spikes at the 1968 and 1972 tops and, most egregiously, at the 2000 top. On the flip side, when investors have bad recent experiences with stocks, it negatively effects investment flows, and in a more profound way than the positive effect. This is consistent with the scientifically proven notion we’ve discussed before that feelings of fear or loss are much stronger than those of greed or gain. Stock investment during he 1966-82 secular bear market provides a good example of this. After stock investment peaked at 31% in 1968 (by the way, after many of the indexes had topped in 1966 – investors were still buying the dip), it embarked on steady decline over the next 14 years. This, despite the fact the stock market drifted sideways during that time. By the beginning of the secular bull market in 1982, the S&P 500 was right where it was in 1968. However, household stock investment was at an all-time low of 10.9%.

She won but lost. What happens here is the future of Europe is decided by German voters alone. That is the core of the European problem.

• Merkel Lands Fourth Term, But at What Cost? (Spiegel)

Angela Merkel’s election result four years ago was, to be sure, extraordinary. It was clear from the surveys that her conservatives wouldn’t be able to repeat it. But a fall like this? Merkel’s Christian Democratic Union (CDU) and its Bavarian sister party Christian Social Union (CSU) saw their joint result fall by more than eight%age points – their worst showing since 1949. During her first appearance after the election at her party’s headquarters, the chancellor said she had, in fact, hoped for a somewhat better result. Those gathered at the headquarters dutifully chanted, “Angie, Angie.” Then things grew quiet again. Nobody waved the German flag. It was a far cry from 2013, when CDU politicians broke out into a spontaneous karaoke session after the results were announced. This time, the prominent members of Merkel’s party who had gathered behind her on the stage seemed sobered by the tepid showing.

Merkel can keep her job as chancellor, the “strategic goal” has been achieved, as Merkel refers to it. But it comes at a high price. Voters have severely punished the parties of the current governing coalition, with Merkel’s conservatives losing dozens of seats in parliament. The right-wing populist Alternative for Germany (AfD) will now enter parliament with a strong, double-digit result. And it will be extremely difficult for Merkel to build a government coalition that will be stable for the next four years. There won’t just be a sprinkling of renegades representing the AfD in parliament. The right-wing populists will be the third-largest party in the Bundestag and they have announced their intention to “chase down” the chancellor as one of the party’s two leading candidates expressed it on Sunday.

The election campaign already gave a taste of what might be coming, with AfD supporters loudly venting their hatred and anger at events held by Merkel’s CDU. Merkel, who isn’t known for being the world’s best public speaker, will now be confronted by them on a daily basis. And the conservatives will also have to ask themselves what share of the responsibility they carry for the AfD’s success. What can they do to win back disappointed voters? More than a million voters are believed to have flocked from the CDU and the CSU to the AfD. And most of them say that it was the chancellor’s refugee policies that led them to vote for the right-wing competition. It’s little wonder, then, that Merkel has identified the enduring regulation of refugee flows and domestic security as the key topics for the coming years.

I went for the headline. But good insights too.

• Angela’s Ashes: 5 Takeaways From The German Election (Pol.)

1. Merkel’s twilight has begun SPD leader Martin Schulz told Merkel on live television she was the election’s “biggest loser.” A bit harsh perhaps (especially coming from a candidate who just recorded his party’s worst-ever result), but there’s some truth to it. Instead of addressing tough questions such as migration head-on, Merkel ran a vague, feel-good campaign, promising a “Germany in which we live well and happily,” while offering few specifics about how she wanted to get there.

2. Germany’s consensus-driven political model is shattered The next parliament will include seven parties (eight, if you count the CSU, the Bavarian sister party to Merkel’s CDU), representing a much more diverse cross-section of the country’s body politic than its predecessor. Sparks will fly. The inclusion of the far right in parliament will make German politics louder and nastier. AfD leader Jörg Meuthen made it clear Sunday that confrontation and “provocation” were central to the party’s strategy. If other European countries where populists have a strong foothold are any indication, that no-holds-barred spirit will infect the political mainstream, creating a decidedly more raucous political climate.

3. Forget about meaningful eurozone reforms Merkel’s conservatives were skeptical of French President Emmanuel Macron’s reform proposals even before Sunday. A grand coalition represented the French president’s best chance for realizing his vision. With that option now off the table, a weakened Merkel is unlikely to be able win over the Free Democrats and skeptics in her own party, even if she wanted to. France and Germany may agree to establish some form of budget and an oversight position for the eurozone with the title of finance minister, but neither will have the scope the French, not to mention many economists, had been hoping for.

4. Berlin will play hardball with Europe on refugees German patience over Europe’s lack of solidarity on the refugee front was already wearing thin. After Sunday’s result, look for outright confrontation with countries like Poland and Hungary. In the view of many Christian Democrats, the AfD would have never gotten this far if other European countries had taken in their fair share of refugees instead of letting Germany bear the burden. It’s payback time.

5. This isn’t Weimar For all the breathless historical comparisons, it’s worth taking a deep breath and remembering Germany is a stable democracy. The vast majority of Germans didn’t vote for the AfD and most of those who did, did so in protest. The coming years won’t be pretty, but Germany’s democratic foundations are robust enough to withstand the populist onslaught.

Not could, will. Already has.

• German Vote Could Doom Merkel-Macron Deal On Europe (R.)

Weakened by the worst result for her party since 1949 and facing a more fractious political landscape at home, Germany’s Angela Merkel could be forced to rein in plans to re-shape Europe together with France’s Emmanuel Macron. Merkel’s conservatives garnered more support than any other party in the German election on Sunday, projections showed, ensuring that she will return for a fourth term as chancellor. But her party appeared on track for its poorest performance since the first German election after World War Two and its only path to power may be through an unwieldy, untested three-way coalition with the ecologist Greens and liberal Free Democrats (FDP), fierce critics of Macron’s ideas for Europe.

Over the next four years, Merkel will also have to cope with a more confrontational opposition force in the Alternative for Germany (AfD), a eurosceptic, anti-immigration party that rode a wave of public anger after her decision to open Germany’s borders to hundreds of thousands of migrants in 2015.[..] This will be a new world for Merkel, who has grown accustomed to cozy coalitions and toothless Bundestag opposition during her 12 years in power. “In my mind, reform of the euro zone is the single most important foreign policy issue that the new government has in front of it,” said Thomas Kleine-Brockhoff, who runs the Berlin office of the German Marshall Fund. But he predicted a so-called “Jamaica” coalition between Merkel’s conservatives, the FDP and the Greens – whose combined party colors of black, yellow and green are like those the Jamaican national flag – would struggle to deliver.

Party in the streets of Athens.

• German FinMin Wolfgang Schaeuble May Soon Be Losing His Job (CNBC)

In the aftermath of the German election, there could be one important casualty for markets. Wolfgang Schaeuble, the German Finance minister, could soon lose his influence on Germany and the euro zone if coalition talks remove him from his key ministry. Schaeuble became the face of austerity and had a determinant role in bailout programs across the euro zone, namely Greece, and is often described as Chancellor Angela Merkel’s co-chancellor, given his importance to the German government. However, given the tough political horse-trading that lies ahead, Merkel might not manage to keep her close ally. “Coalition building will be extremely difficult,” Carsten Brzeski, chief economist at ING, told CNBC Monday via email.

“If Schauble would really no longer be Finance minister it would be a watershed for the entire euro zone. An exit of one of the main characters of the entire euro zone crisis clearly marks the end of a historical chapter,” he said. Merkel’s center-right CDU and its Bavarian sister-party the CSU won 33% of the vote, provisional votes showed, down from 41.5% in the previous election. The pro-business FDP party, which placed fourth with 10.7% of the votes, has said it is open for coalition talks with Merkel’s CDU. The Greens are set to join coalition talks too, which could ultimately form Germany’s first four-party government in decades. In German politics, it’s usually the case that the largest party chooses the chancellor, and the second largest group picks the next post.

As such, the FDP could opt for the Finance Ministry and put an end to Schaeuble’s eight-year reign. The future for Schaeuble is “the question” from a market perspective, Carsten Nickel, managing director at Teneo Intelligence, told CNBC Monday. “In the end, I think there is probably very little alternative to Schaeuble, right now, at least in terms of individual politicians. There’s nobody who really comes to mind as the key person who would challenge him for that role. I wouldn’t be surprised if he stays on in the end,” he said. f Germany were to lose Schaeuble as Finance minister, the current momentum for further euro zone integration could also be damaged.

The firesale continues unabated. Prices were cut in half over the last decade, even in the high end. Greeks won’t own anything in their own country anymore.

• Luxury Properties On Greek Islands Attract Ever More Foreign Buyers (K.)

The rise of tourism and the popularity of certain destinations such as Myconos and Santorini have sent demand for and purchases of luxury holidays homes soaring. The first half of the year saw a 63.5% annual increase in the inflow of capital for property buys in Greece, following a 45.3% rise in the entire 2016 year-on-year to reach 270 million euros. Another factor boosting investments in holiday homes grow is the considerable decline in prices – averaging at 50% – compared to the period before the financial crisis, around 2008. The drop mainly took place from 2009 to 2013, as this section of the property market has become stable since then with some growth signs mainly regarding properties that have unique features and are regarded as emblematic.

Several foreigner buyers are scrambling to complete their acquisitions within the year, sensing that the window of opportunity may shut in the coming months, as there already are cases of owners who are raising their asking prices in view of the spike in demand. Franceska Kalamara, the head of the Franceska Properties estate agency that is active in the Myconos market, tells Kathimerini that “the buyers from abroad are interested in sizable and luxurious properties, from 400 square meters upward, and at very favorable locations, as close to the sea as possible. These are mostly individuals from Egypt, Lebanon and Israel, but also from the US, while there has recently been particular activity by Cypriot buyers.”

Among the recent well-known buyers of luxurious homes on Greek islands are Israeli entrepreneur Teddy Sagi (owner of Camden Market in London) who bought a series of properties on Myconos, according to estate agency sources, and Egyptian businessman Naguib Sawiris, buyer of two villas on the same island costing a total of some 11 million euros. It should be noted that the actual volume of the funds invested in the Greek holiday home market is far greater than reported by the Bank of Greece, as the majority of sellers ask buyers to deposit the money in bank accounts abroad. This trend has grown considerably since the imposition of capital controls two years ago.

But we like the story! Don’t take our modern mythology away.

• There Never Was a Real Tulip Fever (Smithsonian)

According to popular legend, the tulip craze took hold of all levels of Dutch society in the 1630s. “The rage among the Dutch to possess them was so great that the ordinary industry of the country was neglected, and the population, even to its lowest dregs, embarked in the tulip trade,” wrote Scottish journalist Charles Mackay in his popular 1841 work Extraordinary Popular Delusions and the Madness of Crowds. According to this narrative, everyone from the wealthiest merchants to the poorest chimney sweeps jumped into the tulip fray, buying bulbs at high prices and selling them for even more. Companies formed just to deal with the tulip trade, which reached a fever pitch in late 1636. But by February 1637, the bottom fell out of the market.

More and more people defaulted on their agreement to buy the tulips at the prices they’d promised, and the traders who had already made their payments were left in debt or bankrupted. At least that’s what has always been claimed. In fact, “There weren’t that many people involved and the economic repercussions were pretty minor,” Goldgar says. “I couldn’t find anybody that went bankrupt. If there had been really a wholesale destruction of the economy as the myth suggests, that would’ve been a much harder thing to face.” That’s not to say that everything about the story is wrong; merchants really did engage in a frantic tulip trade, and they paid incredibly high prices for some bulbs. And when a number of buyers announced they couldn’t pay the high price previously agreed upon, the market did fall apart and cause a small crisis—but only because it undermined social expectations.

“In this case it was very difficult to deal with the fact that almost all of your relationships are based on trust, and people said, ‘I don’t care that I said I’m going to buy this thing, I don’t want it anymore and I’m not going to pay for it.’ There was really no mechanism to make people pay because the courts were unwilling to get involved,” Goldgar says. But the trade didn’t affect all levels of society, and it didn’t cause the collapse of industry in Amsterdam and elsewhere. As Garber, the economist, writes, “While the lack of data precludes a solid conclusion, the results of the study indicate that the bulb speculation was not obvious madness.” [..] All the outlandish stories of economic ruin, of an innocent sailor thrown in prison for eating a tulip bulb, of chimney sweeps wading into the market in hopes of striking it rich—those come from propaganda pamphlets published by Dutch Calvinists worried that the tulip-propelled consumerism boom would lead to societal decay.

Debt Rattle December 13 2016

Dec 132016

December 13, 2016 Posted by Raúl Ilargi Meijer at 9:36 am Finance Tagged with: bad bank, EM, Greece, IMF, India, OPEC, reindeer, Trump, UniCredit 1 Response »

Lewis Wickes Hine Newsies Gus Hodges, 11, and brother Julius, 5, Norfolk VA 1911

• Trump-Powered Dollar To Be The Bogeyman Of 2017 For Emerging Markets (MW)

• Oil Prices Moderate as Doubts Over OPEC’s Output-Cut Plan Set In (WSJ)

• Saudi Arabia Is Playing Defense To Hold On To Its Most Prized Customers (BBG)

• UniCredit To Raise €13 Billion In Fresh Capital, Lay Off 14,000 (AFP)

• One Bad Deal That Destroyed Four Bad Banks (WSJ)

• Indian Banks’ Poisoned Chalice (BBG)

• London House Prices Are Having Their Worst December in Years (BBG)

• Mrs. O’Leary’s Cow (Thomas)

• Trumpxuberance… Until It’s Not (Jim Kunstler)

• Greece Faces Permanent Crisis – IMF: Bail-Out Plan ‘Simply Not Credible’ (Tel.)

• Greece Heads Toward New Crisis in Debt Saga, Support for Tsipras Slumps (WSJ)

• World’s Largest Reindeer Herd Plummets (BBG)

Prime candidate for biggest 2017 finance story.

• Trump-Powered Dollar To Be The Bogeyman Of 2017 For Emerging Markets (MW)

Foretelling the future is a daunting task. But the one thing that strategists are agreed on for 2017 is that Donald Trump’s presidency will usher in a new era of dominance for the U.S. dollar that will have wide-ranging implications. Among the biggest casualties of the buck’s rise will be developing economies, which tend to be more sensitive to external shock. Ethan Harris at BofAML cautioned that emerging markets are vulnerable on two fronts: capital outflows in response to higher rates in the U.S. and trade restrictions that will hurt economies that heavily depend on U.S. markets. The ICE U.S. Dollar index measure of the greenback’s performance against a basket of six rivals, has recently broken out of its narrow range to trade at the highest level since late 2002, FactSet data show.

That spells trouble for Brazil, China and Russia, which statistically have the highest negative correlation to the dollar, according to Mislav Matejka, an equity strategist at J.P. Morgan Cazenove. Even before Trump’s election, Matejka had downgraded emerging markets to neutral from overweight, citing the bullish dollar on the back of a Federal Reserve rate hike in December. Hans Redeker, a strategist at Morgan Stanley, expects the dollar index to gain 6% before topping out in the second quarter of 2018. Apart from the rallying dollar, Redeker warned that the possibility of a global shift toward protectionism will put trade-centric economies at a disadvantage, weigh on economic growth and add to deflationary pressure.

Meanwhile, higher bond yields on expectations of stronger growth and accelerated inflation will widen the yield spread in favor of the dollar against the Chinese yuan, where authorities are projected to maintain easy monetary policy. The yuan has retreated over 6% in 2016 to 6.92, with more room to fall in the coming months. “We expect the Chinese yuan depreciation to continue. The balance of payments position remains in deficit, indicated by declining foreign exchange reserves,” said Redeker in a report. Even though capital outflows from China have not been as large as they had been earlier this year, muted economic growth and limited investment opportunities domestically could lead to more funds fleeing the country, pressuring the yuan, he said.

Headfake.

• Oil Prices Moderate as Doubts Over OPEC’s Output-Cut Plan Set In (WSJ)

Crude-oil prices lost steam in early Asian trade Tuesday as investors turned bearish over oil producers’ commitment to observe a deal aimed at easing supply to the market. On the New York Mercantile Exchange, light, sweet crude futures for delivery in January traded at $52.75 a barrel at 0347 GMT, down $0.08 in the Globex electronic session. February Brent crude on London’s ICE Futures exchange rose $0.01 to $55.70 a barrel. The price fall is largely a reflection of investors’ bearishness over a deal that is supposed to lift prices to at least the $60-$70 range per barrel. This shows the market isn’t really buying the OPEC rhetoric and that they recognize the potential risks. Over the weekend, 11 non-OPEC countries, including Russia, agreed to slash their output by 558,000 barrels a day, in concert with OPEC’s own pledge to cut 1.2 million barrels a day.

The total sum represents almost 2% of global supply. The deal will take effect on Jan. 1 but the reduction will be carried out in phases. Participating countries will meet in six months to evaluate progress. Analysts say if producers fully adhere to agreed quotas, the oil market could shift into a deficit. OPEC’s own calculations forecasts world crude demand will hit 95.5 million barrels a day in 2017, an increase of 1.2 million barrels a day. Removing excess barrels will lift prices, possibly into the target range of $60-$70 per barrel, but it would mostly hinge on the compliance of the producers who have been known to cheat, BMI Research said. “We note that the higher the barrel price, the greater the temptation to break allocated quotas,” the firm said. In 17 production cuts since 1982, OPEC members have reduced output by an average of just 60% of their commitments, according to Goldman Sachs.

OPEC cuts, prices rise, shale expands.

• Saudi Arabia Is Playing Defense To Hold On To Its Most Prized Customers (BBG)

As Saudi Arabia goes on a shock and awe attack to curb a global oil glut, it’s also playing defense to hold on to its most prized customers. The kingdom is largely sparing Asia from reductions in crude sales, at least for now. That’s amid the threat of more U.S. and European supply coming to the world’s biggest market, as Saudi-led production cuts have boosted the Middle East oil benchmark relative to other regions. Also, crude’s surge risks reviving shale output while American shipments are already making their way to countries including Thailand, Japan and South Korea. While OPEC’s biggest member could yet curb some volumes to Asia in coming months, it’s unlikely to completely abandon the battle for market share even as it changes tack from its pump-at-will policy of the past two years.

It’s counting on regional refiners’ inability to completely switch over to rival supply, as their plants are geared to process ‘sour’ sulfurous crudes like those produced by Saudi Arabia rather than ‘sweet’ shale or North Sea oil. It can afford to cut sales more significantly in other places that aren’t as valuable as Asia. “Now that Saudi Arabia has committed to such large production cuts, it’s important for them to retain market share in the region where they see the most growth potential,” said Peter Lee at BMI Research. “In Asia, we still have India and China where Saudi Arabia is vying for market share. It makes sense for them to concentrate on the region and try to keep buyers happy.”

UniCredit’s entire market cap is €14 billion for pete’s sake.

• UniCredit To Raise €13 Billion In Fresh Capital, Lay Off 14,000 (AFP)

Italy’s biggest bank, UniCredit, on Tuesday confirmed plans for a capital increase worth €13 billion as it scrambles to raise funds amid market uncertainty. UniCredit also announced plans to shed around 14,000 jobs by the end of 2019, which it said would save it €1.1 billion in staff costs. The bank’s plans to raise fresh funds come at a time when investor confidence in Italy has been shaken by the collapse of former PM Renzi’s government. And the Italian banking sector is in a perilous state, with the world’s oldest bank, Monte dei Paschi di Siena, scrambling to put together a private-sector rescue after losing 80% of its market capitalisation in the past year. UniCredit’s announcement was part of a major strategic review launched under new chairman Jean-Pierre Mustier, that involves selling off assets to strengthen the bank’s capital base. Mustier said it was a “pragmatic plan based on conservative assumptions, with tangible and achievable targets.” The bank is targeting a net profit of €4.7 billion in 2019.

When Europe’s bankers and politicians alike proved they’re inept.

• One Bad Deal That Destroyed Four Bad Banks (WSJ)

The crisis engulfing the world’s oldest bank, Italy’s Banca Monte dei Paschi di Siena, has many causes, but its roots go back nine years to a lunch at a fancy Geneva hotel. It was there, at the Four Seasons Hotel des Bergues, that three of Europe’s top bankers gathered to plot a hostile bid to buy and break up Dutch bank ABN Amro in what became the biggest bank takeover, worth €71 billion (then $101 billion). The deal will go down as one of humankind’s worst business transactions. It led to government rescues of what was then the biggest bank in the world, Royal Bank of Scotland, and the biggest bank in Belgium, Fortis, as well as taking out Dutch bank SNS Reaal. Now its legacy threatens the oldest bank in the world.

With M&A booming again, have investors learned the lessons of ABN? The brief answer is probably that yes, enough of the lessons have sunk in that an equally catastrophic bank takeover is unlikely soon. The longer answer is a resounding no, and investors retain a pigheaded inability to avoid taking excessive risks when the good times beckon—as they do now. The Michelin-starred restaurant in Geneva gave the chief executives of RBS, Fortis and Santander a pleasant start to what became a vicious 2007 bidding battle for ABN. The weak Dutch bank had been an obvious target for years, with a complex string of small businesses spread across retail and investment banking in the Netherlands, U.S., U.K., Italy and Brazil. Each banker saw opportunities, but they had to wrest ABN away from an agreed deal with Barclays.

After succeeding, the canny Santander abandoned its stated aim of expanding in Italy and flipped ABN’s Banca Antonveneta to Monte dei Paschi for €9 billion—before it had even completed the deal. Santander was badly hurt by the crisis, but thanks to its highly profitable Italian switcheroo was the only bank involved not to be critically injured by ABN. Monte dei Paschi, after overpaying wildly, has been short of capital ever since, making it even harder to cope with years of Italian recessions. The biggest lesson is that the good times don’t last forever. RBS, Fortis and Monte dei Paschi took on too much debt to buy parts of ABN, leaving them even weaker than the rest of the overstretched banking system when the bust came.

Throw in utter corruption and you have a recipe for unrest.

• Indian Banks’ Poisoned Chalice (BBG)

What should have been a cornucopia of new deposits from old cash has become a poisoned chalice. Lenders don’t have enough banknotes to meet even the restrictive withdrawal limits the central bank has set for depositors. People have died waiting in ATM queues, and bank staff fear the wrath of crowds. Safety concerns are rising amid pressure from authorities to expand card and online-payment systems that are still rudimentary. Even the ATM networks, running on outdated software, aren’t very secure.To top it all, the taxman is waiting in the wings, ready to confiscate any unusual surge in deposits that people don’t surrender voluntarily. Instead of sympathy for lenders, there’s schadenfreude. Some feel bank employees have colluded with the holders of ill-gotten cash to give their unaccounted wealth safe passage. The poor, and their bank accounts, are suspected to have been used as mules.

The initial premise of demonetization was that a big chunk of cash would be too tainted to dare return to the banking system, and canceling those liabilities would generate a bumper profit for the government. With most old currency deposited into accounts or exchanged into new money, however, that hypothesis has been shredded. Banks – and bankers – are in the crosshairs for robbing the nation of its demonetization rewards. Reporting requirements have gone through the roof: The government wants to know how much of lenders’ fresh deposits are old legal tender, and how much is new. Axis Bank suspended 19 employees for allegedly exchanging old banknotes illegally and asked KPMG to do a forensic audit. That, one suspects, is the genesis of the whisper campaign.

As banking regulator, the Reserve Bank of India ought to be keeping a lid on operational risks, lest they overwhelm the system and scar its reputation. But the monetary authority is too busy shoring up its own sullied credibility to be of any real assistance. The barrage of befuddling rule changes it has unleashed since Nov. 8 – including a temporary but ham-handed confiscation of banks’ excess liquidity with no compensation – have made things worse, and investors have been forced to change their minds about the impact of the cash ban. Amid the chaos, discussions about improving the governance of India’s dominant state-run banks, and selling or shuttering the weakest of them, have come to a standstill.

The more urgent task of cleaning up their compromised balance sheets has also lost the steam it had gathered under previous RBI Governor Raghuram Rajan. If a month ago there was fond but foolish hope that banks would get a big one-time recapitalization boost, now there’s despair about how long they can go on fighting fires without any chance of a revival in credit demand. It’s hard to believe PM Modi didn’t think through these unintended consequences. What’s even scarier is the possibility that he did, and topped up the banking industry’s chalice regardless.

No, their best.

• London House Prices Are Having Their Worst December in Years (BBG)

London home prices are having their worst December in six years, led by weakness in prime areas in the capital that is likely persist into 2017. Rightmove said on Monday that asking prices fell 4.3% from November to 616,160 pounds ($775,500), with inner London dropping 6%. The property website operator said the bubble in prime London “continues to deflate,” and it sees prices there declining 5% next year. “Alongside the seasonal slowdown, the readjustment of prices to match buyers’ greater reticence continues, especially in more expensive inner London,” said Rightmove Director Miles Shipside. “Buyers are being put off the really big-ticket purchases.” In a sign of the disparity within the city, average prices in inner London are down 2.6% over the past year, whereas outer areas are up 2.7%.

That left average prices across the capital little changed. The split partly reflects the luxury end of the market, where an April tax increase on property investors and worries about Brexit are sapping demand. Rightmove’s report also showed demand in London — as measured by sales agreements – was down 7.2% in November from a year earlier. Nationally, asking prices fell 2.1% in December from the previous month, in line with the seasonal average, and were up 3.4% from a year earlier. In contrast to London, Rightmove expects national prices to increase for a seventh consecutive year in 2017, forecasting a 2% advance.

One spark will do.

• Mrs. O’Leary’s Cow (Thomas)

In 1871, a large portion of the city of Chicago burned to the ground. The Chicago Tribune attributed the fire to a cow owned by a Mrs. O’Leary. The Tribune stated that the cow kicked over a lantern as she was being milked, burning the barn and much of Chicago. Whether the story is accurate is of little concern. (Somebody always has to be found to take the blame for catastrophe.) Whatever started the barn fire in Mrs. O’Leary’s neighbourhood, a seemingly minor event resulted in a major conflagration. And so it is with economic events. Bankers are expected to maintain a fractional reserve of 3–10%, depending on the level and type of liabilities, but, not surprisingly, they often drop below the official level, especially in times of economic difficulties. Bank managers assume that they can always increase the reserve when good times return.

The trouble is they’re at their most exposed at a time when a substantial reserve is most critical. But why would bankers take such a risk? Aren’t they fearful that they’ll get caught out if a crisis occurs? Not really. Their assumption is very often that their indiscretion exists in isolation. They assume that if they alone cheat the system a bit, they can always catch up later. For whatever reason, it rarely occurs to them that, in a struggling economy, each of their associates in the industry is also cheating the system. Since each one keeps his activities under wraps, it doesn’t become apparent that the whole system is a house of cards until a black swan jolts the system, which, due to its overall instability, self-destructs. Similarly, in shaky economic times, there’s quite a bit of fiddling that’s done in the stock market.

As the public begins to lose their confidence in the system, they offers their shares for sale. In order to cover up the loss of confidence, these shares may be bought up by central banks, governments, and/or the corporations themselves – buying back their own shares. Of course, this is risky, as crashes are caused by loss of confidence. Papering over that loss of confidence by papering over the cause of the problem only means that when the crash comes, it will be worse than if it had been allowed to collapse earlier. Pensions tend to be heavily invested in the markets, which tends to put them at risk as well. The foremost mutual fund in the US is invested in 507 companies – commodities, energy, financials, industrials, IT, etc. To be sure, these will not suffer equally in a crash, but all will be affected – some severely.

Trump may have buildings, but he has no room.

• Trumpxuberance… Until It’s Not (Jim Kunstler)

When Reagan stepped in the national debt was only (only!) about half a trillion dollars. It will be over $20 trillion when Trump hangs his golden logo on the White House portico. Oh, by the way, consider that a trillion dollars is a thousand billion dollars and a billion dollars is a thousand million dollars. Just so you know. Reagan had room for plenty of government finance monkey business. Trump has no room. Bush One, Clinton, Bush Two and Obama dug the deadfall debt trap for poor Donald and the election shoved him right into it. He thinks he’s on an upper floor of his enchanted tower; he’s actually down in a pit. Trump thinks he’s going to rebuild highways and bridges for another century of Happy Motoring — to make America like it was in 1962 forever. Fuggeddabowdit.

The bond market is poised for collapse as I write, and Trump’s money people (that is, the Goldman Sachs gang he has assembled) are talking about issuing fifty and 100 year “Build America” bonds. Their nostrils must be rimed with the frost of Medellin. They’re certainly not going to accomplish this trick by raising taxes. On who? Corporations? Ha! The 1%? Double-Ha! Everyone else? Pitchforks and torches! American oil companies can no longer make a buck doing their thing. Exxon-Mobil’s U.S. production business lost $477 million in the third quarter, the seventh straight quarter in the red. Why? Because it costs a lot more to get the stuff out of the ground than it did ten years ago, and that high cost is bankrupting oil companies and industrial economies. That is the stealth action of Peak Oil that so many people pretend is not happening. It will ultimately destroy the banking system.

The disappointment issuing from this dire set of circumstances is apt to be epic as Trump flounders and the furious tweets of futility waft out of the hole he’s trapped in. Christmas will be over, and with it the hopes of a retail reprieve. Gasoline may remain cheap, but the little people won’t be able to buy the cars to run it in. Or buy much of anything else. Not even tattoos. We’ll soon discover the temperamental difference between Donald J. Trump and Franklin Delano Roosevelt.

This will not stop.

• Greece Faces Permanent Crisis – IMF: Bail-Out Plan ‘Simply Not Credible’ (Tel.)

The IMF has hit back at claims that it is demanding more austerity in Greece, as the Fund warned that the country’s ambitious budget targets were “simply not credible”. Firing a broadside at Brussels and Athens, Maurice Obstfeld, the IMF’s chief economist, and Poul Thomsen, director of the IMF’s European department, said cuts to investment and discretionary spending had “gone too far” and would prevent the Greek economy from recovering. Just 48 hours after Euclid Tsakalotos, Greece’s finance minister, accused the IMF of “betraying” the country by pushing for more belt tightening, the senior IMF officials insisted that they were “not demanding more austerity”. “We have not changed our view that Greece does not need more austerity at this time. Claiming that it is the IMF who is calling for this turns the truth upside down,” they wrote in a blog post.

They warned that demands by Greece’s creditors for a sustained 3.5pc primary surplus – which excludes debt servicing costs – were unrealistic and unnecessary. The IMF has previously insisted that a primary surplus target of 1.5pc of GDP is more realistic. It has also called for significant debt relief that goes beyond the action taken this month to reduce Greece’s debt share by 20 percentage points. Mr Obstfeld and Mr Thomsen said the IMF was not demanding more cuts either now or in the future to lower the need for debt relief, as they signalled that Greece itself had signed up for tougher budget targets. “To be more direct, if Greece agrees with its European partners on ambitious fiscal targets, don’t criticise the IMF for being the ones insisting on austerity when we ask to see the measures required to make such targets credible,” they said.

Tsipras is going to call 2017 snap elections with the intent of losing them.

• Greece Heads Toward New Crisis in Debt Saga, Support for Tsipras Slumps (WSJ)

Greece’s crisis is approaching a potential breaking point after a year of relative calm, as a government with declining political stamina confronts creditors’ unyielding demands. The ruling left-wing Syriza party, grappling with slumping popularity, is considering the option of calling snap elections in 2017, as it loses hope of winning concessions on debt relief or austerity from the eurozone and IMF. No decision for elections has been made, said Greek officials, who added that they would review the state of negotiations in January, after pressing creditors again to show more flexibility. Elections would allow Syriza—if not Greece—to escape from the pressures of an unpopular bailout program whose strained math has eventually brought down every Greek government since the crisis began in 2009.

Syriza’s leader and Prime Minister Alexis Tsipras, like his predecessors, is struggling to meet strict fiscal targets in a recession-scarred country weary of austerity. A renewed flare-up of the Greek debt crisis in 2017 would create a further test for the cohesion of the EU, whose political establishment is facing challenges from EU-skeptic populists in a string of major elections next year. European governments’ appetite for another bout of Greek drama is low—but so too is willingness to grant Athens concessions to avoid one. The embattled Mr. Tsipras, who is due to hold talks with the leaders of Germany and France in the coming days, surprised Greeks and creditors last week with fiscal gifts that were widely seen as preparing the option of elections.

He promised 1.6 million pensioners a Christmas bonus of between €300 and €800. He also suspended a planned increase in sales tax for Aegean islands that have received large numbers of Middle-East refugees. EU officials said they would study whether Mr. Tsipras’s promises are compatible with Greece’s bailout commitments.

It all dies baby, that’s a fact. We’re not even trying to stop it from happening. All we got is words.

• World’s Largest Reindeer Herd Plummets (BBG)

The world’s largest wild reindeer herd has fallen by 40% since 2000, scientists have warned. They say that the animals, which live in the Taimyr Peninsula in the northernmost tip of Russia, are being affected by rising temperatures and human activity. This is causing the animals to change their annual migration patterns. The research has been presented at the Fall Meeting of the American Geophysical Union (AGU). “There is a substantial decline – and we are also seeing this with other wild reindeer declining rapidly in other parts of the world,” said Andrey Petrov, who runs the Arctic Centre at the University of Northern Iowa, US. The Taimyr herd is one of the most monitored groups of reindeer in the world. The animals have been tracked for nearly 50 years by aerial surveys and more recently by satellite imagery.

The population reached a peak of one million in 2000, but this latest research suggests that there are now only 600,000 reindeer. “Climate change is at least one of the variables,” explained Prof Petrov. “We know in the last two decades that we have had an increase in temperatures of about 1.5C overall. And that definitely impacts migration patterns.” Industrial development is increasing in the region, which is also changing the animals’ distribution. The researchers found that in the summer, the reindeer were moving east to avoid human activity. But they were also shifting north and to higher elevations. The team thinks this is to try to get to cooler ground and also to avoid the mosquitoes that are booming as the region gets warmer and wetter.

“They just move and move and move to escape them,” said Prof Petrov. This is extending the distance that the animals have to migrate between winter and summer. “They now have to travel much longer distances to reach those areas with their newborn calves, and that means there is an increase in calf mortality.”

Debt Rattle November 14 2016

Nov 142016

November 14, 2016 Posted by Raúl Ilargi Meijer at 9:57 am Finance Tagged with: Assange, bonds, deplorables, depression, EM, EU, Fed, pensions, rout, Trump 1 Response »

Wyland Stanley Transparent Car, General Motors exhibit, San Francisco 1940

• Era of Low Interest Rates Hammers Millions of Pensions Around the World (WSJ)

• President Trump Will Fumigate The Fed (Mises Inst.)

• Teslas in the Trailer Park: California Faces Its Housing Squeeze (NYT)

• China Home Sales Value Rose 38% YoY in October (BBG)

• Emerging Market Bond, Currency Markets Face ‘Meltdown’ After Trump Win (CNBC)

• Bond Rout Deepens as Trump Bets Boost Dollar, Industrial Metals (BBG)

• We Are Living In A Depression – That’s Why Trump Took The White House (G.)

• Deplorables 1, Empire 0 (Edwards)

• Morgan Stanley: “Trump Policies Are Like Schrodinger’s Cat” (ZH)

• It’s Trump Versus New Normal In Play For US Growth (BBG)

• ‘Nobody’ Won the 2016 Presidential Election – and It Was a Landslide(TAM)

• What So Many People Don’t Get About the US Working Class (Joan C. Williams)

• EU Offers Trump Cooperation While Signaling Policy Firmness (BBG)

• Trump Splinters Europe: UK, France, Hungary Snub EU Emergency Meeting (ZH)

• Julian Assange To Be Interviewed Today Over Sex Assault Claim (G.)

Trouble coming to the USA: “They range from as low as a government bond yield in much of Europe and Asia to 8% or more in the U.S.”

• Era of Low Interest Rates Hammers Millions of Pensions Around the World (WSJ)

Pension funds around the world pay benefits through a combination of investment gains and contributions from employers and workers. To ensure enough is saved, plans adopt long-term annual return assumptions to project how much of their costs will be paid from earnings. They range from as low as a government bond yield in much of Europe and Asia to 8% or more in the U.S. The problem is that investment-grade bonds that once churned out 7.5% a year are now barely yielding anything. Global pensions on average have roughly 30% of their money in bonds.Low rates helped pull down assets of the world’s 300 largest pension funds by $530 billion in 2015, the first decline since the financial crisis, according to a recent Pensions & Investments and Willis Towers Watson report.

Funding gaps for the two biggest funds in Europe and the U.S. have ballooned by $300 billion since 2008, according to a Wall Street Journal analysis. Few parts of Europe are feeling the pension pain more acutely than the Netherlands, home to 17 million people and part of the eurozone, which introduced negative rates in 2014. Unlike countries such as France and Italy, where pensions are an annual budget item, the Netherlands has several large plans that stockpile assets and invest them. The goal is for profits to grow faster than retiree obligations, allowing the pension to become financially self-sufficient and shrink as an expense to lawmakers. ABP,[Europe’s largest pension fund], currently holds 90.7 cents for every euro of obligations, a ratio that would be welcome in other corners of the world.

But Dutch regulators demand pension assets exceed liabilities, meaning more cash is required than actually needed. This spring, ABP officials had to provide government regulators a rescue plan after years of worsening finances. ABP’s members, representing one in six people in the Netherlands, haven’t seen their pension checks increase in a decade. ABP officials have warned payments may be cut 1% next year. “People are angry, not because pensions are low, but because we failed to deliver what we promised them,” said Gerard Riemen, managing director of the Pensioenfederatie, a federation of 260 Dutch pension funds managing a total of €1 trillion. Benefit cuts have become such a divisive issue that one party, 50PLUS, plans for parliamentary-election campaigns early next year that demand the end of “pension robbery.” “Giving certainty has become expensive,” said Ms. Wortmann-Kool, ABP’s chairwoman.

Sounds like that’s a good thing for pensions. But my guess is it’s way too late.

• President Trump Will Fumigate The Fed (Mises Inst.)

Trump’s occasional dovish comments do not match the passion and enthusiasm of his repeated hawkish campaign trail rhetoric. For the past year, the president-elect has been railing against the “false economy” that the Fed has created, as well as the political influence that runs rampant throughout the central bank. Perhaps Trump’s most scathing attack on the institution came last October, when he insinuated that Fed actions are crippling the middle class without creating any type of benefit to the economy at large. “[Chairwoman Yellen] is keeping the economy going, barely,” he said. “You know who gets hurt the most [by her easy money policies]? The people that went through 40 years of their life and saved a hundred dollars every week [in the bank].”

He then paused and shook his head for added effect before adding: “They worked all their lives to save and now what happens is they’re being forced into an inflated stock market and at some point they’ll get wiped out.” These anti-Fed talking points were recycled often on the campaign trail. In September, Trump attacked the Fed for putting us in a “big, fat, ugly bubble” and for keeping rates artificially low for political purposes, points that he again repeated in the first presidential debate. The business mogul has also promised to audit the Fed within the first 100 days of his administration and even included a criticism of the central bank in a recent online video ad. Team Trump’s economic advisers paint an even more optimistic picture of his future monetary policy.

Some of today’s most reasonable mainstream economic voices are included in his inner circle. These names include David Malpass of Encima Global, who co-signed a letter with Jim Grant opposing the Fed’s “inflationary” and “distortive” quantitative easing program; John Paulson of Paulson & Co., who made billions from shorting the housing market before the Great Recession; Andy Beal, a self-described “libertarian kind of guy” who blames the Fed for the credit crisis; and the Heritage Foundation’s Stephen Moore, who told CSIN in 2012 that he is a “very severe critic” of the Fed’s “incredibly easy-money policies policies of the past decade.”

While none of Trump’s economic advisers are by any means Austrians, they are far more hawkish than most of Presidents Bush and Obama’s past economic advisers. Ian Shepherdson, chief economist at Pantheon Macroeconomics, has even said that these advisers are pushing Trump to nominate two “hard money” candidates to fill the Fed’s current vacancies. “A core view of many Trump advisors is that the extended period of emergency policy settings has promoted a bubble in the stock market, depressing the incomes of savers, scared the public and encouraged capital misallocation,” Shepherdson told Market Watch. “Right now, these are minority views on the Fed policymaking committee, but Trump appointees are likely to shift the needle.”

Growth like tumors grow.

• Teslas in the Trailer Park: California Faces Its Housing Squeeze (NYT)

For all its imagination about the future, Silicon Valley’s geography looks a lot like the past. Today’s college-educated millennials might be crowding into city centers, but each day employees at companies like Google and Facebook endure hours in cars or on buses commuting to squat office complexes that have all the charm of a Walmart. Many employees say they would prefer to live closer to work. But these companies reside in small cities that consider themselves suburbs, and the local politics are usually aligned against building dense urban apartments to house them. Take Palo Alto, the Silicon Valley city that has become emblematic of the state’s reputation for rampant not-in-my-backyard politics. Palo Alto has one of the state’s worst housing shortages. With about three jobs for every housing unit, it has among the most out-of-balance mixes anywhere in Silicon Valley.

But instead of dealing with this issue by building the few thousand or so apartments it would take to make a dent in the problem, the city has mostly looked to restraining a pace of job growth that the mayor described as “unhealthy.” Farther up the peninsula near San Francisco, the small city of Brisbane told a developer that its proposal for a mixed-use development with offices and 4,000 housing units should have offices for about 15,000 workers, but no new housing. Play that out a thousand times over and the crux of the state’s housing crisis is clear: Everyone knows housing costs are unsustainable and unfair, and that they pose a threat to the state’s economy. Yet every city seems to be counting on its neighbors to step up and fix it.

The results are strange compromises like the one made by Rebecca and Steven Callister, a couple in their late 20s who live in a double-wide trailer in a Mountain View mobile home park whose residents are retirees and young tech workers. Mr. Callister is an engineer at LinkedIn, the sort of worker who, in most places, would own a home. But given the cost of housing in Mountain View and the brutal commute times from anywhere they could afford, a trailer makes the most sense and lets him spend more time with the couple’s two young children. “We joke that it’s the only mobile home park with Mercedeses and Teslas in the driveway,” Mrs. Callister said. “It’s like the new middle class in California.”

In contrast to Palo Alto, Mountain View is trying to wedge new apartments into its office parks. Much of the action centers on the North Bayshore area, a neighborhood of low-slung office buildings surrounded by asphalt parking lots.

So many stories about market curbs, all the time. But this is still the reality.

• China Home Sales Value Rose 38% YoY in October (BBG)

China’s new home sales growth slowed in October from a year earlier, suggesting the push by policy makers to rein in runaway prices is getting traction. The value of homes sold rose 38% to 941 billion yuan ($138 billion) last month from a year earlier, according to Bloomberg calculations based on data the National Bureau of Statistics released Monday. The increase compares with a 61% gain the previous month. Local authorities in nearly two dozens cities have since late September rolled out property curbs ranging from raising down-payments for first and second homes to ruling some potential buyers ineligible.

China’s banking regulator has told banks to review their business related to mortgage lending and property development loans, after China Minsheng Banking Corp. suspended approvals of some non-standard mortgages in Shanghai. Slower home sales have helped moderate credit growth. New medium- and long-term household loans, mostly residential mortgages, stood at 489.1 billion yuan in October, down from 571.3 billion yuan in September, according to central bank data on Friday. New yuan loans edged down to 651.3 billion yuan last month from 1.22 trillion yuan in September.

It’s just dollars coming home, and that not as positive a sign as many seemt ot hink.

• Emerging Market Bond, Currency Markets Face ‘Meltdown’ After Trump Win (CNBC)

U.S. President-elect Donald Trump appears to have burst the bond bubble, putting emerging markets (EM) from Mexico to Indonesia at the sharp end of a sell-off. Expectations of fiscal stimulus, infrastructure spending and reflationary policies under a Trump administration were fueling inflation fears, sending benchmark U.S. ten-year Treasury yields and the dollar surging. Expectations for tighter monetary policy and a December rate hike by the Federal Reserve were also playing a role. In the wake of last week’s election outcome, the U.S. 10-year Treasury yield climbed above 2% from levels below 1.8% in the days before the result, with many analysts pointing to expectations that Trump’s promised policies would spur a resurgence of inflation and further interest rate hikes from the U.S. Federal Reserve.

That created a negative feedback loop for emerging market assets. Indonesia’s rupiah fell by as much as 3% against the dollar on Friday to five-month lows, hurting local stocks, with the declines extending on Monday. Malaysia’s ringgit also fell to its lowest against the dollar since late 2015, near levels not seen since the Asian Financial Crisis in 1998. Central banks last week in Malaysia and Indonesia intervened to support their currencies, while foreign investors have slashed holdings of sovereign EM bonds perceived as most risky. Analysts were rejigging their outlook for Asian bonds. “Asian fixed income assets have operated on a ‘lower for longer’ assumption’ for U.S. rates since June,” RBS economists led by Vaninder Singh wrote. “This assumption is being challenged. High-yielding currencies will have to re-price to become attractive again.”

A bit much casino for me.

• Bond Rout Deepens as Trump Bets Boost Dollar, Industrial Metals (BBG)

Routs in global bonds and emerging markets intensified, while the dollar climbed with U.S. equity futures and industrial metals as investors position for the wave of fiscal stimulus that Donald Trump plans to unleash. Sovereign bonds in the Asia-Pacific region slid with U.S. Treasuries, extending a record debt selloff, amid speculation President-elect Trump’s pledge to boost infrastructure spending will trigger U.S. interest-rate hikes as economic growth and inflation pick up. Bloomberg’s dollar index climbed to a nine-month high as an earthquake weighed on New Zealand’s dollar. Japanese shares were set for their best close since April after gross domestic product data, while shares in developing nations fell. Copper surged to a 16-month high and gold slumped.

Trump’s election victory continues to send shockwaves through global markets, having already led to $1.2 trillion being wiped off the value of bonds worldwide last week as equities added about $1 trillion and industrial metals soared by the most in four years. Emerging markets are being hit by an exodus of capital as speculation builds that the U.S. is headed for an era of rising interest rates and more protectionist trade policies. “In the short-term the election of Donald Trump as president is causing a bit of uncertainty and markets tend to overreact to that,” said Shane Oliver at AMP Capital. “I suspect the dust will settle down in the next couple of months and this sort of market overreaction will provide opportunities.”

Absolutely.

• We Are Living In A Depression – That’s Why Trump Took The White House (G.)

Words matter. The process of understanding why Donald Trump is now heading for the White House starts with the correct description of what has happened in the eight years since Barack Obama became president. Some economists call the turbulent period that followed the collapse of Lehman Brothers the Great Recession. Others say the US along with other developed nations is experiencing secular stagnation. Anything, it seems, to avoid using the D word: depression. The dictionary definition of a depression is a sustained, long-term downturn in economic activity, which sums up precisely what has occurred since 2008. Growth rates globally have remained low despite colossal amounts of stimulus. Living standards have barely risen and the threat of deflation has loomed large.

The depression since 2008 has not been as severe as that of the 1930s but there are echoes of it all the same: in the food banks that are the new soup kitchens; in the mass movements of migrants in search of a better life who are the modern equivalent of the Okies in the Grapes of Wrath; and in Trump, who has tapped into anger that has been bubbling away quietly for decades. The turning point for the average American worker came in the mid-1970s because for the first 30 years after the second world war the gains from rising prosperity were evenly shared. But this trend was broken around the time of Watergate and the end of the Vietnam war. Since 1975, productivity in the US has more than doubled, but average hourly compensation has increased by only 50%. The fruits of growth have been captured by the few, not the many.

“Created by the wars that required it, the Machine now creates the wars it requires.”

• Deplorables 1, Empire 0 (Edwards)

It’s done. The foolish, arrogant propaganda excreted by the captive press of the Imperial Establishment is flushed, and they and their owners are eating their hubris, choking down the bitter, toxic medicine they inflicted on themselves. The nightmare they swore could never win is the Chosen One. What this may mean to them, to all of us, and to The Empire, no one can guess. The origin, though, of what Michael Moore called the greatest “Fuck You” in our political history, is clear behind the shock and awe of the elite. Between them, Trump and Clinton diligently stripped away the last shreds of the rent and ragged camouflage that disguised our zombie body politic.

Behind the mantra of Exceptionalism, the American Empire has behaved with exactly the same solipsistic arrogance all empires have embraced. Internationally it has raged, as imperial China did, as if with a “Mandate of Heaven”, flaunting self-interest with no regard for other nations or the laws of war. It has inflicted misery, chaos, and death on many millions of the poor and helpless for a Full Spectrum Dominance it could never impose. America’s Capitalist War Machine has raped and destroyed many countries for its profit, and destablized the entire world in its megalomania. Schumpeter said it best, of Imperial Germany’s military industry: “Created by the wars that required it, the Machine now creates the wars it requires.”

America has been transformed over time from a civil democracy with imperial economics to a militarist empire with vaudeville democracy. This was accomplished by binding both wings of the duopoly to the exclusive interest of Predatory Capitalism with corrupting money. A corporate state imposed via political and military power is the essence of Fascism. For generations, Americans have been dosed with the ultra-nationalist poison of Exceptionalism, with its implicit racist subtext, and its sexism buried in a hoo-rah masculinity cult, but it has always been flavored with the sweetening agent that We, The People, were both masters and beneficiaries of our benign, patristic system. The last several decades have painfully taught any conscious observer that this is a cynical fiction.

I thought he was a straight talker…

• Morgan Stanley: “Trump Policies Are Like Schrodinger’s Cat” (ZH)

As the sellside reports analyzing the post-president Trump world keep pouring in, one that caught our attention was from Morgan Stanley’s Andrew Sheets in which the strategist openly admits that pretty much nobody has any idea what is coming: “Most remarkably, however, after three debates, two conventions and an election that seemed to last forever, there remains a great deal of uncertainty over what type of president Trump will actually be. In an election that was dominated by coverage of tweets, videos and emails, policy questions received surprisingly little airtime. And those questions are now crucial for markets.

“To a remarkable extent, investors we’ve spoken to both before and after November 8 disagree on what President-Elect Trump will actually do. Many have told us, confidently, that they believe that, while he said some extreme things on the campaign trail, he is ultimately a moderate, pragmatic businessman. A deal-maker who will delegate policy to experts, lead with market-friendly (almost Keynesian) fiscal stimulus and ultimately avoid a large fight on trade. Other investors take a less benign view. They say the President-Elect should be taken at his word, and that since the start of his campaign he has defied predictions that he would moderate his tone or policy message.”

The problem, according to Morgan Stanley, is during the campaign, “Trump was a master at keeping both possibilities open, broadening his appeal. Like Schrodinger’s cat, his policies existed in a state of being both pragmatic and radical, all at the same time. Upcoming cabinet appointments offer clues to which interpretation is right. Until then, we promise to keep an open mind, and focus on modelling the different paths a Trump administration could take, and what it means for markets.”

“The market’s been looking for the fiscal theme to take over,” said Deutsche Bank’s Alan Ruskin. “The burden of responsibility has shifted..”

• It’s Trump Versus New Normal In Play For US Growth (BBG)

Count this among the ways that Donald Trump’s election has rocked the financial world: monetary policy is no longer in charge. The president-elect’s proposals for significant commitments to spending and tax cuts have shifted the burden of stimulating growth from central banks, for the moment at least. “The market’s been looking for the fiscal theme to take over,” said Deutsche Bank’s Alan Ruskin. “The burden of responsibility has shifted,” with those who doubt the market’s recalibration being the ones who need to prove their case. That accounts, in part, for the enthusiasm for equities and commodities. Expectations of faster U.S. inflation are also spreading to Europe and Japan as seen in rising breakeven rates.

Trump may get some of the spending and, especially, the tax cuts he wants from Congress. Whether these will have the effect the market is now betting on remains to be seen. Trump will be pushing against an economy that is on a lower long-term growth trend in what many economists call “the new normal.” As a candidate, he promised an expansion of 3.5% or faster. If it doesn’t materialize, will he double-down on his policies? The upward surge in bond yields across the curve, inflation expectations and the dollar may complicate Trump’s plans. Futures show traders are locking in bets on a December rate increase. It’s possible that tightening financial conditions may slow the Fed from further moves until stimulus bears fruit.

But monetary policy is no longer what’s driving these moves. Increasingly, central banks may see themselves in a defensive role, reacting to events rather than dictating trends. The greenback’s rally is already forcing Asian and Latin American central banks to protect their currencies. More such moves may be in the offing if dollar gains continue. Will Europe and Japan turn to the Trump model in an attempt to boost growth and inflation in ways monetary policy hasn’t? Europe may have a limited ability to increase spending, while Japan has essentially exhausted that growth channel, too, said Robert Tipp of Prudential. But for now, after growing weary of monetary-led slow growth, markets are grasping at Trump’s answer to the New Normal.

People don’t vote when the only choices are -perceived to be- elites.

• ‘Nobody’ Won the 2016 Presidential Election – and It Was a Landslide(TAM)

“Nobody for President, that’s my campaign slogan,” Nick Cannon asserted in “Too Broke to Vote,” his viral criticism of the American electoral process from March of this year. Now, it turns out nobody for president won the 2016 election in a landslide. According to new voter turnout statistics from the 2016 election, 47% of Americans voted for nobody, far outweighing the votes cast for Trump (25.5%) and Hillary (25.6%) by eligible voters. And the “I voted for nobody” group is actually much larger than the 47% reported because that number only includes eligible voters. How many millions of Americans under the legal voting age – not to mention the countless millions who have lost their voting rights – voted for nobody, as well? Factoring in those individuals, around 193 million people did not vote for Trump or Clinton.

That’s nearly two-thirds of the population of the United States. Nobody also seemingly won the presidential primaries, with only 9% of Americans casting their votes for either Trump or Clinton. So when does nobody take office? Nobody won the majority of votes in the primaries or the general election, and the two main candidates who were running didn’t “win” the popular vote — they simply slightly outcompeted each other considering neither garnered over 50% of the eligible voters’ ballots. That’s where the real debate begins. As I wrote back in August when the primary voter turnout rates came in, one could argue that Trump (and Obama) do not have a legitimate mandate to rule over the people of the United States. Trump did not win the majority of Americans’ votes – not even close.

When all Americans are included, Trump only garnered the votes of about 19% of us. This means the United States will be ruled over by a small minority of voters who elected someone to continually impose their political positions on the other 81% of us. Of course, as is the case with Democrats looking to assign blame for Hillary’s loss, pundits and political pontificators argue the people who didn’t vote have no right to complain about the outcome. After all, a non-vote or a vote for a third-party candidate was, in actuality, a vote for Trump. But that logic is flawed. The majority of Americans don’t vote anymore because the political system no longer represents them. We’ve been disenfranchised by decades of corrupt, unrepresentative politicians.

“The dorkiness: the pantsuits. The arrogance: the email server. The smugness: the basket of deplorables. Worse, her mere presence rubs it in that even women from her class can treat working-class men with disrespect. ”

• What So Many People Don’t Get About the US Working Class (Joan C. Williams)

My father-in-law grew up eating blood soup. He hated it, whether because of the taste or the humiliation, I never knew. His alcoholic father regularly drank up the family wage, and the family was often short on food money. They were evicted from apartment after apartment. He dropped out of school in eighth grade to help support the family. Eventually he got a good, steady job he truly hated, as an inspector in a factory that made those machines that measure humidity levels in museums. He tried to open several businesses on the side but none worked, so he kept that job for 38 years. He rose from poverty to a middle-class life: the car, the house, two kids in Catholic school, the wife who worked only part-time. He worked incessantly. He had two jobs in addition to his full-time position, one doing yard work for a local magnate and another hauling trash to the dump.

Throughout the 1950s and 1960s, he read The Wall Street Journal and voted Republican. He was a man before his time: a blue-collar white man who thought the union was a bunch of jokers who took your money and never gave you anything in return. Starting in 1970, many blue-collar whites followed his example. This week, their candidate won the presidency. For months, the only thing that’s surprised me about Donald Trump is my friends’ astonishment at his success. What’s driving it is the class culture gap. One little-known element of that gap is that the white working class (WWC) resents professionals but admires the rich. [..] Why the difference? For one thing, most blue-collar workers have little direct contact with the rich outside of Lifestyles of the Rich and Famous.

But professionals order them around every day. The dream is not to become upper-middle-class, with its different food, family, and friendship patterns; the dream is to live in your own class milieu, where you feel comfortable — just with more money. “The main thing is to be independent and give your own orders and not have to take them from anybody else,” a machine operator told Lamont. Owning one’s own business — that’s the goal. That’s another part of Trump’s appeal. Hillary Clinton, by contrast, epitomizes the dorky arrogance and smugness of the professional elite. The dorkiness: the pantsuits. The arrogance: the email server. The smugness: the basket of deplorables. Worse, her mere presence rubs it in that even women from her class can treat working-class men with disrespect.

Look at how she condescends to Trump as unfit to hold the office of the presidency and dismisses his supporters as racist, sexist, homophobic, or xenophobic. Trump’s blunt talk taps into another blue-collar value: straight talk. “Directness is a working-class norm,” notes Lubrano. As one blue-collar guy told him, “If you have a problem with me, come talk to me. If you have a way you want something done, come talk to me. I don’t like people who play these two-faced games.” Straight talk is seen as requiring manly courage, not being “a total wuss and a wimp,” an electronics technician told Lamont. Of course Trump appeals. Clinton’s clunky admission that she talks one way in public and another in private? Further proof she’s a two-faced phony.

The EU’s hubris is incredible, the disconnect to reality near complete. They’ve all fallen over each other to insult Trump over the past year, and now they come with vows and demands?

• EU Offers Trump Cooperation While Signaling Policy Firmness (BBG)

The EU promised to cooperate with U.S. President-elect Donald Trump while vowing to stand by international agreements he has questioned including United Nations deals to curb climate change and ease sanctions on Iran. After a dinner in Brussels to discuss future EU-U.S. relations in the wake of Trump’s victory in the Nov. 8 American election, European foreign ministers also signaled a determination to maintain their opposition to Russia’s encroachment in eastern Ukraine. “We are looking forward to a very strong partnership with the next administration,” EU foreign policy chief Federica Mogherini told reporters late Sunday after hosting the gathering. “For us, it’s extremely important to work on the climate-change agreement implementation but also on non-proliferation and the protection of the Iranian nuclear deal.”

Trump’s win last week threatens to upend eight years of EU-U.S. cooperation during the tenure of President Barack Obama and decades of trans-Atlantic relations underpinned by NATO. As the Republican Party’s presidential candidate, Trump raised doubts about UN accords on global warming and Iran’s nuclear program that the Obama administration helped to forge and about the benefits of U.S.-led NATO. Trump also had praiseworthy words for Russian President Vladimir Putin, whose annexation of the Ukrainian region of Crimea in 2014 and support for pro-Russia rebels in eastern Ukraine prompted the U.S. and EU to impose sanctions that remain in place. “The EU has a very principled position on the illegal annexation of Crimea and the situation in Ukraine,” Mogherini said. “This is not going to change regardless of possible shifts in others’ policies.”

This is the Europe Trump will encounter. No unified voice in sight anymore. And that’s before all the referendums and elections.

• Trump Splinters Europe: UK, France, Hungary Snub EU Emergency Meeting (ZH)

While America’s so-called “establishment”, the legacy political system and mainstream media, appear to be melting, and transforming before our eyes into something that has yet to be determined, Europe also appears to be disintegrating in response to the Trump presidential victory: as the FT reports, in a stunning development, Britain and France on Sunday night snubbed a contentious EU emergency meeting to align the bloc’s approach to Donald Trump’s election, exposing rifts in Europe over the US vote. Hailed by diplomats as a chance to “send a signal of what the EU expects” from Mr Trump, the plan fell into disarray after foreign ministers from the bloc’s two main military powers declined to attend the gathering demanded by Berlin and Brussels.

The meeting, which comes as Trump appointed his key deputies – chosing the more moderate establishment figure, RNC chairman Reince Priebus, to be his chief-of-staff over campaign chairman Stephen Bannon, who becomes chief strategist and counsellor – was supposed to create a framework for Europe in how to deal with a “Trump threat” as Europe itself faces an uphill climb of contenuous, potentially game-changing elections over the coming few months[..] The split in Europe highlights the difficulties “European capitals face in coordinating a response to Mr Trump, who has questioned the US’s commitments to Nato and free trade and hinted at seeking a rapprochement with Russian president Vladimir Putin” much to the amusement of famous euroskeptic Nigel Farage who was the first foreign political leader to meet with Donald Trump at the Trump Tower over the weekend.

Trump’s move infuriated members of Europe’s fraying core, with Carl Bildt, the former Swedish prime minister, tweeting: “If Trump wanted to look statesmanlike to Europe, receiving Farage was probably the worst thing he could [do].” As the FT adds, British foreign secretary Boris Johnson dropped out of the Brussels meeting, with officials arguing that it created an air of panic, while French foreign minister Jean-Marc Ayrault opted to stay in Paris to meet the new UN secretary-general. Hungary’s foreign minister boycotted the meeting, labeling the response from some EU leaders as “hysterical”. Johnson’s refusal to attend will add to an already difficult relationship with his German counterpart Frank-Walter Steinmeier, who has told colleagues that he cannot bear to be in the same room as the British foreign secretary.

In time for a pardon? Or does Sweden still have darker designs? Why are Swedish people not more enganged in this scandal?

• Julian Assange To Be Interviewed Today Over Sex Assault Claim (G.)

The Ecuadorian government has welcomed moves by the Swedish authorities to interview Julian Assange, who will be questioned on Monday inside its embassy over a sex assault allegation. Representatives from the Swedish prosecutor’s office and the Swedish police will be present while questions are put to the WikiLeaks founder by an Ecuadorian official. Assange has been granted political asylum by Ecuador and has been living inside the embassy for more than four years. He believes that if he leaves the embassy he will be extradited to the US for questioning about the activities of WikiLeaks. He denies the allegation against him and has been offering to be interviewed at the embassy.

Guillaume Long, Ecuador’s foreign minister, said: “We are pleased that the Swedish authorities will finally interview Mr Assange in our embassy in London. “This is something that Ecuador has been inviting the Swedish prosecutors to do ever since we granted asylum to Mr Assange in 2012. “There was no need for the Swedish authorities to delay for over 1,000 days before agreeing to carry out this interview, given that the Swedish authorities regularly question people in Britain and received permission to do so on more than 40 occasions in recent years. “Ecuador has never sought to stand in the way of any legal process in Sweden. “What we have asked from Sweden, and the UK, are guarantees that Mr Assange will not be extradited to a third country, where he could be persecuted for his work as a journalist.

Debt Rattle November 11 2016

Nov 112016

November 11, 2016 Posted by Raúl Ilargi Meijer at 11:00 am Finance Tagged with: drones, EM, end of growth, Leonard Cohen, rupee, Trump, tunnel vision, yuan 5 Responses »

Leonard Cohen 21 September 1934 – 7 November 2016

• The End of Growth and the Rise of Trump (Tyee)

• Donald Trump Is Moving To The White House, And Liberals Put Him There (Frank)

• Rupee Note Cancellation Plunges India Into Panic (G.)

• Emerging-Markets Rout Deepens as Europe Shares, Commodities Rise (BBG)

• China Household Debt/GDP More Than Doubled In Under 10 Years To 40.7% (R.)

• China’s Yuan Set for Steepest Weekly Loss Since January (BBG)

• Judge Tells Trump University Litigants They Would Be Wise To Settle (R.)

• The Unbearable Smugness Of The Press (CBS)

• Obama Asks Congress For Extra $11 Billion, Wants More Lethal Drones (BBG)

• BoE Chief Economist Andy Haldane: Economics Suffers From Tunnel Vision (BBG)

• London Property Market Is “Tanking By The Day” (BBG)

• Leonard Cohen Knew Things About Life, And If You Listened You Could Learn (G.)

Andrew Nikiforuk calls me an economist. Now we’ve heard it all… Still, good to see people are listening.

• The End of Growth and the Rise of Trump (Tyee)

The economist Raúl Ilargi Meijer wrote an interesting essay explaining why there is a Donald Trump in September. He credited Trump’s rise to “the most important global development in decades.” That development, says Meijer, is “the end of global economic growth, which will lead inexorably to the end of centralization (including globalization). It will also mean the end of the existence of most, and especially the most powerful, international institutions.” “In the same way it will be the end of — almost — all traditional political parties, which have ruled their countries for decades and are already today at or near record low support levels (if you’re not clear on what’s going on, look there, look at Europe!),” he wrote.

“This is not a matter of what anyone, or any group of people, might want or prefer, it’s a matter of ‘forces’ that are beyond our control, that are bigger and more far-reaching than our mere opinions, even though they may be man-made.” The end of growth is tied inexorably to the deplorable quality of energy now being fracked and mined in North America. Bitumen and fracked oil just can’t support rich societies because these poor resources invite debt, environmental ruin and poor returns. Meijer adds “that the politico-econo-media machine churns out positive growth messages 24/7 goes some way towards explaining the lack of acknowledgement and self-reflection, but only some way. The rest is due to who we ourselves are. We think we deserve eternal growth.”

In the end, neither candidate talked about what mattered: growing climate anarchy; unrelenting economic stagnation; declining energy returns; and the onslaught of robots and algorithms in the workplace, government and home. Trump should remind us of two things and Camus, who understood the nature of tragedy, has expressed them well. The first is that “Nothing is more despicable than respect based on fear.” Trump embodies that sentiment. The second is the growing absurdity of it all. “Basically, at the very bottom of life, which seduces us all, there is only absurdity, and more absurdity. And maybe that’s what gives us our joy for living, because the only thing that can defeat absurdity is lucidity.”

Not too impressed with Thomas Frank’s piece overall, but he gives a reasonable expose of what the Dems did wrong.

• Donald Trump Is Moving To The White House, And Liberals Put Him There (Frank)

Start at the top. Why, oh why, did it have to be Hillary Clinton? Yes, she has an impressive resume; yes, she worked hard on the campaign trail. But she was exactly the wrong candidate for this angry, populist moment. An insider when the country was screaming for an outsider. A technocrat who offered fine-tuning when the country wanted to take a sledgehammer to the machine. She was the Democratic candidate because it was her turn and because a Clinton victory would have moved every Democrat in Washington up a notch. Whether or not she would win was always a secondary matter, something that was taken for granted. Had winning been the party’s number one concern, several more suitable candidates were ready to go.

There was Joe Biden, with his powerful plainspoken style, and there was Bernie Sanders, an inspiring and largely scandal-free figure. Each of them would probably have beaten Trump, but neither of them would really have served the interests of the party insiders. And so Democratic leaders made Hillary their candidate even though they knew about her closeness to the banks, her fondness for war, and her unique vulnerability on the trade issue – each of which Trump exploited to the fullest. They chose Hillary even though they knew about her private email server. They chose her even though some of those who studied the Clinton Foundation suspected it was a sketchy proposition. To try to put over such a nominee while screaming that the Republican is a rightwing monster is to court disbelief.

If Trump is a fascist, as liberals often said, Democrats should have put in their strongest player to stop him, not a party hack they’d chosen because it was her turn. Choosing her indicated either that Democrats didn’t mean what they said about Trump’s riskiness, that their opportunism took precedence over the country’s well-being, or maybe both. Clinton’s supporters among the media didn’t help much, either. It always struck me as strange that such an unpopular candidate enjoyed such robust and unanimous endorsements from the editorial and opinion pages of the nation’s papers, but it was the quality of the media’s enthusiasm that really harmed her. With the same arguments repeated over and over, two or three times a day, with nuance and contrary views all deleted, the act of opening the newspaper started to feel like tuning in to a Cold War propaganda station.

From email I received yesterday: “People have been wiped out overnight. He had given a tax amnesty initially, declare your black money and pay a 30% tax. Later that increased to 50% and finally this. Huge wealth confiscation. Property prices expected to collapse. Dunno why such a shock move was implemented? The economy is doing well, low levels of debt overall, banks under state control and he was doing the right things. Income tax reform and a sales tax would’ve been much better to widen the tax base. India has major issues but when I went earlier this year to Delhi the development and progress is obvious. Infrastructure is pretty good, super airport, air quality is horrid, malls springing up everywhere and housing rental is very affordable but buying is ludicrously expensive. Economy was booming. Perfect black swan event. Only 3 people knew- The PM, FM and CB governor.”

• Rupee Note Cancellation Plunges India Into Panic (G.)

Queues of angry, panicked Indians wound around bank buildings in Mumbai, the financial capital, on Thursday morning, two days after the prime minister, Narendra Modi, announced that 500- and 1,000-rupee notes, worth around £6 and £12, would be taken out of circulation. In a televised announcement on Tuesday night, Modi had urged Indians not to rush to banks, as they would have until the end of 2016 to deposit cash in their accounts. But with the high-value notes withdrawn from Wednesday in an effort to combat corruption, black-market trade and tax evasion, many were left without cash for day-to-day expenses. Banks were closed on Wednesday, and reopened on Thursday morning with a cap on cash withdrawals. ATMs remained closed, so currency was only available from the banks.

Newspapers around the country reported long queues at branches, as people scrambled to exchange their high-value banknotes for 100-rupee bills. At the Churchgate branch of the Bank of India, dozens of people queued in the midday heat, filling out deposit forms as a security guard barked instructions. “Life is completely paralysed,” said Maganbhai Solanki, who had been waiting in line for four hours. “On the news, they said banks would open at 8am today. I got here at 8.01,” he said. “Now, it’s noon, but I’m still here. Around 50 people in the queue ahead of me got tired of waiting and left but I have no choice. There’s no money in the house. We only have 500- and 1,000-rupee notes which are worth nothing. We didn’t even have enough to pay the milkman this morning.”

The dollar comes home.

• Emerging-Markets Rout Deepens as Europe Shares, Commodities Rise (BBG)

An emerging-markets selloff deepened amid concern developing economies will face capital outflows and weakening exports once Donald Trump is in The White House, while optimism surrounding his policies spurred gains in commodities and European shares rose. MSCI gauges of emerging-market equities and currencies sank to four-month lows since the election of Trump, who pledged to restrict imports and add fiscal stimulus that’s seen hastening interest-rate hikes by the Federal Reserve. More than $1 trillion was wiped off the value of bonds this week, something that’s happened only once before in the last two decades, as Treasuries lost the most since 2009. Shanghai shares entered a bull market, while industrial metals had their best week in more than 25 years.

Developing-nation assets have been roiled since Trump’s surprise win in Tuesday’s vote and central banks in India and Indonesia were said to have intervened Friday in support of their currencies. Futures indicate an 80% chance that the Fed will raise rates next month and expectations are building for more increases. Ten-year Treasury yields have climbed above 2% for the first time since January amid speculation the president-elect’s plans to cut taxes and boost spending will widen the U.S. budget deficit and stoke inflation. “There’s been a big rotation out of emerging markets into U.S. dollar assets,” said Jeffrey Halley, a market strategist at Oanda Asia Pacific Pte in Singapore. “An emerging market is a market you can’t emerge from in an emergency. It’s one of the best lessons I’ve ever learnt in 30 years in the market. When everybody runs for the door at the same time, the door’s very small.”

Why repeat the west’s mistakes? What’s in it for Xi?

• China Household Debt/GDP More Than Doubled In Under 10 Years To 40.7% (R.)

China’s household debt as a proportion of GDP has more than doubled to 40.7% in less than 10 years. While developed nations have higher rates of household debt, Chinese families are much more leveraged because income is lower and so proportionately the costs of social welfare from pensions to healthcare are much higher. At the end of 2014, the out-of-pocket health spend in China as a%age of total expenditure was 32%, compared to 9.7% in Britain and 11% in the United States, World Health Organization data shows. “Household debt leverage is very alarming, even though the aggregate amount is controllable,” said Wan Zhe, chief economist at China National Gold Group Corporation, visiting researcher at Chongyang Institute for Financial Studies, Renmin University of China.

“The first issue is that household debt has risen too quickly, the second is that it has risen too quickly as a proportion” of GDP and disposable income, said Wan. Underlining these concerns, authorities are trying to calm a property rally. In the latest move, regulators told banks to limit the issuance of home loans, the Shanghai Securities Journal reported on Thursday. The balance of retail mortgages at the end of the third quarter hit 16.8 trillion yuan ($2.5 trillion), more than a third higher than a year earlier, China central bank data shows. More broadly, consumer debt financed by Chinese banks has grown sharply, from 3.8 trillion yuan at the end of 2007 to 17.4 trillion yuan at the end of last year, a compound annual growth rate of 21%, Fitch Ratings said in a report.

But the growth in income has been much more modest, rising 6.3% in January to September compared with the year-earlier period, the weakest pace since 2013 when the National Bureau of Statistics first started issuing the data. “The rapid growth in outstanding (consumer) loan balances has been accompanied by an increase in NPLs (non-performing loans) across all segments of consumer debt,” the Fitch report said.

It just keeps falling, that’s all it does anymore.

• China’s Yuan Set for Steepest Weekly Loss Since January (BBG)

China’s currency is heading for its steepest weekly drop since January, when a series of weaker fixings roiled global financial markets, as Donald Trump’s election victory boosted the dollar and raised the threat of a more protectionist America. Bonds tumbled. The yuan fell 0.06% to 6.8134 at 10:07 a.m. in Shanghai, approaching the 6.83 level at which China pegged the currency after the 2008 global financial crisis. The exchange rate has fallen 0.9% this week to a six-year low as Trump’s unexpected win spurred a tectonic shift in fund flows, with emerging-market currencies tumbling with bonds while stocks rally. The 10-year yield on government debt climbed about 10 basis points this week, the most since May 2015.

Bloomberg’s dollar index held near an eight-month high amid speculation the Federal Reserve will boost interest rates to cap inflation as a Trump-led administration steps up spending. Trump has also threatened punitive tariffs on China’s imports. Accelerating declines in the yuan are a turnaround from the August-September period, when policy makers were suspected of propping up the currency before its entry into the IMF’s reserves basket. “A rally in the dollar has driven the yuan weaker, and the PBOC won’t likely defend the currency at this point because the costs of intervention could be very high under such an environment,” said Irene Cheung at Australia & New Zealand Bank in Singapore. “But if the depreciation accelerates in the coming weeks, there’s still a chance that China could take measures to stabilize the market.”

Potentially messy if used for political purposes.

• Judge Tells Trump University Litigants They Would Be Wise To Settle (R.)

The U.S. judge overseeing a lawsuit against President-elect Donald Trump and his Trump University told both sides they would be wise to settle the case “given all else that’s involved.” Lawyers for the president-elect are squaring off against students who claim they were they were lured by false promises to pay up to $35,000 to learn Trump’s real estate investing “secrets” from his “hand-picked” instructors. Earlier on Thursday, U.S. District Judge Gonzalo Curiel tentatively rejected a bid by Trump to keep a wide range of statements from the presidential campaign out of the fraud trial. Trump owned 92% of Trump University and had control over all major decisions, the students’ court papers say. The president-elect denies the allegations and has argued that he relied on others to manage the business.

Trial is scheduled to begin Nov. 28, and Curiel told lawyers he was not inclined to delay the six-year-old case further. Trump lawyer Daniel Petrocelli said he would ask to put the trial on hold until early next year, in light of the many tasks the magnate has before his inauguration. Curiel said he would allow both sides to file briefs on whether to delay the case. He also indicated they should consider making a deal. “It would be wise for the plaintiffs, for the defendants, to look closely at trying to resolve this case given all else that’s involved,” Curiel said. Petrocelli told reporters after the hearing that Trump might have to be a “little more flexible” about settling the case now that he is president-elect, although the lawyer wasn’t sure his client would was willing.

ANother thing that just continues.

• The Unbearable Smugness Of The Press (CBS)

The mood in the Washington press corps is bleak, and deservedly so. It shouldn’t come as a surprise to anyone that, with a few exceptions, we were all tacitly or explicitly #WithHer, which has led to a certain anguish in the face of Donald Trump’s victory. More than that and more importantly, we also missed the story, after having spent months mocking the people who had a better sense of what was going on. This is all symptomatic of modern journalism’s great moral and intellectual failing: its unbearable smugness. Had Hillary Clinton won, there’s be a winking “we did it” feeling in the press, a sense that we were brave and called Trump a liar and saved the republic. So much for that. The audience for our glib analysis and contempt for much of the electorate, it turned out, was rather limited.

This was particularly true when it came to voters, the ones who turned out by the millions to deliver not only a rebuke to the political system but also the people who cover it. Trump knew what he was doing when he invited his crowds to jeer and hiss the reporters covering him. They hate us, and have for some time. And can you blame them? Journalists love mocking Trump supporters. We insult their appearances. We dismiss them as racists and sexists. We emote on Twitter about how this or that comment or policy makes us feel one way or the other, and yet we reject their feelings as invalid. It’s a profound failure of empathy in the service of endless posturing. There’s been some sympathy from the press, sure: the dispatches from “heroin country” that read like reports from colonial administrators checking in on the natives.

But much of that starts from the assumption that Trump voters are backward, and that it’s our duty to catalogue and ultimately reverse that backwardness. What can we do to get these people to stop worshiping their false god and accept our gospel? We diagnose them as racists in the way Dark Age clerics confused medical problems with demonic possession. Journalists, at our worst, see ourselves as a priestly caste. We believe we not only have access to the indisputable facts, but also a greater truth, a system of beliefs divined from an advanced understanding of justice. You’d think that Trump’s victory – the one we all discounted too far in advance – would lead to a certain newfound humility in the political press. But of course that’s not how it works.

To us, speaking broadly, our diagnosis was still basically correct. The demons were just stronger than we realized. This is all a “whitelash,” you see. Trump voters are racist and sexist, so there must be more racists and sexists than we realized. Tuesday night’s outcome was not a logic-driven rejection of a deeply flawed candidate named Clinton; no, it was a primal scream against fairness, equality, and progress. Let the new tantrums commence!

How about using the $11 billion to rebuild Syria?

• Obama Asks Congress For Extra $11 Billion, Wants More Lethal Drones (BBG)

An $11.6 billion defense request that President Barack Obama sent Congress includes funds to buy more lethal drones for U.S. commandos fighting Islamic State and other terrorists as well as networks to counter the pilotless aircraft those groups are now using. The extra war-related funding requested Thursday for the current fiscal year would provide $5.8 billion for the Pentagon to continue operations in Iraq and Afghanistan. An equal amount for the State Department and the U.S. Agency for International Development would support counterterrorism efforts, refugee aid and improved embassy security, Obama said in a letter to lawmakers. While the amount requested for lethal drones is small, it provides a glimpse into a largely hidden phase of U.S. special operations in Iraq.

The White House requested $46.5 million to buy 535 Lethal Miniature Aerial Missile Systems and related equipment requested by the Special Operations Command Central due to “urgent operational needs.” The drone request is described as “for analytics, targeting, training, and equipment to support deployed U.S. Forces.” The only U.S. fighters in Iraq who are actively engaged in combat against Islamic State are in the highly classified Expeditionary Targeting Force set up a year ago to kill or capture militants. U.S. special operations forces also conduct raids in Afghanistan. The administration also requested, without elaboration, $150 million to develop and field within two years a network of “counter-small unmanned aerial systems at sites” in Iraq.

A rare light in the profession.

• BoE Chief Economist Andy Haldane: Economics Suffers From Tunnel Vision (BBG)

Bank of England Chief Economist Andy Haldane says economics suffers from tunnel vision and there’s a need to bring new ideas to the profession to make it relevant again. Haldane, whose speeches and papers have analyzed policy using everything from technology to biology, said his industry remains an “insular, self-referential discipline,” and this has to change. “One of the potential failings of the economics profession is that it may have borrowed too little from other disciplines – a methodological mono-culture,” he said in a speech on Thursday in Cambridge, England. An issue that dogs current economic models is forecasting performance, he said, noting the failure to predict the financial crisis and, since then, IMF world growth projections that “consistently over-estimated” the recovery.

It’s a timely point for BOE policy makers, who last week revised their projections for growth and inflation in the wake of Brexit. Haldane said economists need to improve their understanding of the world because rapid changes in economies have social and political implications. “It has been argued that these models were not designed to explain such extreme events” as the financial crisis, he said. “For me, this is not really a defense. If our models are silent about these events, this jeopardizes the very thing that makes economics interesting and economic policy important.” In his speech, he cited economist George Shackle’s description of the economy as a “kaleidoscope, a collision of colors subject to on-going, rapid and radical change.”

Haldane said agent-based models used in physics, chemistry and other sciences could enable a “fundamental changes in model dynamics.” Using it at the BOE has helped a better understanding of the housing market and the interaction of buyers, lenders and renters. Contrasting ABM models with traditional micro-founded economic ones, Haldane said the big picture usually looks very different from the small one. “Aggregating from the microscopic to the macroscopic is very unlikely to give sensible insights into real world behavior, for the same reason the behavior of a single neuron is uninformative about the threat of nuclear winter.”

It will take a long time before people understand this is a positive thing.

• London Property Market Is “Tanking By The Day” (BBG)

London’s real estate market, hurt by the Brexit vote, is “tanking by the day,” Green Property Chairman Stephen Vernon said. The firm, which has closed its London office, is waiting for an opportunity to buy into the market at lower values, the 66-year-old said at a conference in Dublin. Vernon would consider buying a real estate company, raising a fund or buying a portfolio of assets in London, he said. “It’s absolutely fantastic what’s going on,” said Vernon, who sold most of the firm’s properties in Ireland before values there crashed in 2008. A decision to re-enter the London market would be through a venture separate from Green Property and focus on commercial real estate, a spokesman for the investor said.

Office values in the City of London financial district fell the most in at least seven years in July after Britain voted to leave the European Union. Home prices in the U.K. capital fell for a fifth month in August, the worst streak since 2009, as higher taxes and the referendum result damped demand. The referendum result, higher levies on business premises and a rise in the stamp duty sales tax have led to a reduction in London commercial property values, Derwent London Plc Chief Executive Officer John Burns said in a statement on Thursday. “The central-London office market faces a number of challenges, including heightened global uncertainty, and business activity is likely to slow,” he said.

I am the one who loves changing from nothing to one.

• Leonard Cohen Knew Things About Life, And If You Listened You Could Learn (G.)

Leonard Cohen was always the grown-up in the room. He was young once, of course, but the world never saw much of the modestly successful poet and novelist from Montreal. He was already 33 — ancient by 60s standards — when he gazed out from the sepia-tinted, photo-booth snapshot on the cover of 1967’s Songs of Leonard Cohen with his shirt, tie and smart side-parting. The face suggested that he’d been around the block a few times; the voice and words confirmed it. The man knew things about life and if, you listened closely, you might learn something. The truth was that Cohen felt as lost as anybody. What gave his work its uncommon gravitas wasn’t that he knew the answers but that he never stopped looking.

He searched for clues in bedrooms and warzones, in Jewish temples and Buddhist retreats, in Europe, Africa, Israel and Cuba. He tried to flush them out with booze and drugs and seduce them with melodies. And whenever he managed to painfully extract some nugget of wisdom, he would cut and polish it like a precious stone before resuming the search. Funny about himself but profoundly serious about his art, he liked to describe his songs as “investigations” into the hidden mechanics of love, sex, war, religion and death – the beautiful and terrifying truths of existence. A Leonard Cohen song is an anchor flung into a churning sea. It has the kind of weight that could save your life. [..] When the chief executive of Columbia Records heard that A&R man John Hammond wanted to sign Cohen in 1967, he reportedly said: “A 32-year-old poet? Are you crazy?” But Hammond, who had launched Billie Holiday, Bob Dylan and Aretha Franklin, didn’t give up. During the first recording session for Songs of Leonard Cohen he shouted encouragement: “Watch out, Dylan!”

At the time, Bob Dylan was rock’n’roll’s preeminent poet. Cohen really was a poet but he wasn’t rock’n’roll. Steeped instead in literary discipline, French chanson and Jewish liturgy, his work suggested old-fashioned patience. To Dylan a song was a lump of wet clay to be moulded before it sets fast; to Cohen it was a slab of marble to be chipped into shape with immense dedication and care. Cohen never stopped being a poet or lost his reverence for words. You’ll find some erratic musical choices in his back catalogue but not a single careless line; nothing disposable. Years later, he said he had only one piece of advice for young songwriters: “If you stick with a song long enough it will yield. But long enough is beyond any reasonable duration.” When you sense that a songwriter has spent that long finding the right words, the least you can do is pay attention.

Older Entries