Kondratieff Archives - The Automatic Earth

Theresa May’s prospects of cobbling together a cross-party majority to convince EU leaders to grant a short Brexit delay next week appear to be slipping away after Labour claimed she had failed to offer “real change or compromise” in talks. The prime minister made a dramatic pledge to open the door to talks with Labour on Tuesday after a marathon cabinet meeting. But after two days of negotiations and an exchange of letters on Friday, Labour issued a statement criticising the prime minister for failing to offer “real change or compromise”.= “We urge the prime minister to come forward with genuine changes to her deal in an effort to find an alternative that can win support in parliament and bring the country together,” a spokesperson said.

The pessimistic note came after May wrote to the European council president, Donald Tusk, on Friday morning, asking for Brexit to be delayed until 30 June, while cross-party talks continue. Even before Labour’s statement, EU politicians responded with bemusement to her failure to offer a concrete plan for assembling a coalition behind a workable deal – increasing the risk that they will take a tough line at next Wednesday’s summit. May’s letter suggested that the UK was preparing to field candidates in European parliamentary elections on 23 May if no deal could be reached.

Don’t be surprised if one country just says NO. Or more than one. For a new extension, May will need a new plan. She has none.

• France, Spain and Belgium ‘Ready For No-Deal Brexit Next Week’ (G.)

France has won the support of Spain and Belgium after signalling its readiness for a no-deal Brexit on 12 April if there are no significant new British proposals, according to a note of an EU27 meeting seen by the Guardian. The diplomatic cable reveals that the French ambassador secured the support of Spanish and Belgian colleagues in arguing that there should only be, at most, a short article 50 extension to avoid an instant financial crisis, saying: “We could probably extend for a couple of weeks to prepare ourselves in the markets.” The chances of Theresa May’s proposal of an extension to 30 June succeeding appeared slim as France’s position in the private diplomatic meeting was echoed by an official statement reiterating its opposition to any further Brexit delay without a clear British plan.

May wrote to the president of the European council, Donald Tusk, on Friday to ask for the delay until 30 June while she battles to win cross-party agreement on a way forward. EU states are extremely sceptical that an extension to 30 June will resolve anything in Westminster. Tusk is pushing the EU to offer at a summit next Wednesday what he has described as a “flextension” in which the UK would be given a year-long extension with an option to come out early if the deal is ratified.

“Mr. Mueller produced a brief of arguments pro-and-con about obstruction for others to decide upon. In doing that, he was out of order, and maliciously so.”

• Sucker Punch (Jim Kunstler)

Having disgraced themselves with full immersion in the barren RussiaGate “narrative,” the Resistance is now tripling down on RussiaGate’s successor gambit: obstruction of justice where there was no crime in the first place. What exactly was that bit of mischief Robert Mueller inserted in his final report, saying that “…while this report does not conclude that the President committed a crime, it also does not exonerate him?” It’s this simple: prosecutors are charged with finding crimes. If there is insufficient evidence to bring a case, then that is the end of the matter. Prosecutors, special or otherwise, are not authorized to offer hypothetical accounts where they can’t bring a criminal case. But Mr. Mueller produced a brief of arguments pro-and-con about obstruction for others to decide upon.

In doing that, he was out of order, and maliciously so. Of course, Attorney General Barr took up the offer and declared the case closed, as he properly should where the prosecutor could not conclude that a crime was committed. One hopes that the AG also instructed Mr. Mueller and his staff to shut the fuck up vis-à-vis further ex post facto “anonymous source” speculation in the news media. But, of course, the Mueller staff — which inexplicably included lawyers who worked for the Clinton Foundation and the Democratic National Committee — at once started insinuating to New York Times reporters that the full report would contain an arsenal of bombshells reigniting enough suspicion to fuel several congressional committee investigations.

The objective apparently is to keep Mr. Trump burdened, hobbled, and disabled for the remainder of his term, and especially in preparation for the 2020 election against whoever emerges from the crowd of lightweights and geriatric cases now roistering through the primary states. It also leaves the door open for the Resistance to prosecute an impeachment case, since that is a political matter, not a law enforcement action. This blog is not associated with any court other than public opinion, and I am free to hypothesize on the meaning of Mr. Mueller’s curious gambit, so here goes: Mr. Barr, long before being considered for his current job, published his opinion that there was no case for obstruction of justice in the RussiaGate affair. By punting the decision to Mr. Barr, Mr. Mueller sets up the AG for being accused of prejudice in the matter — and, more to the point, has managed to generate a new brushfire in the press.

Investigate the road the Steele dossier traveled. Might be all you need.

• The Russian Collusion Hoax Meets An Unbelievable End (Nunes)

It is astonishing that intelligence leaders did not immediately recognize they were being manipulated in an information operation or understand the danger that the dossier could contain deliberate disinformation from Steele’s Russian sources. In fact, it is impossible to believe in light of everything we now know about the FBI’s conduct of this investigation, including the astounding level of anti-Trump animus shown by high-level FBI figures like Peter Strzok and Lisa Page, as well as the inspector general’s discovery of a shocking number of leaks by FBI officials.

It’s now clear that top intelligence officials were perfectly well aware of the dubiousness of the dossier, but they embraced it anyway because it justified actions they wanted to take – turning the full force of our intelligence agencies first against a political candidate and then against a sitting president. The hoax itself was a gift to our nation’s adversaries, most notably Russia. The abuse of intelligence for political purposes is insidious in any democracy. It undermines trust in democratic institutions, and it damages the reputation of the brave men and women who are working to keep us safe. This unethical conduct has had major repercussions on America’s body politic, creating a yearslong political crisis whose full effects remain to be seen.

Having extensively investigated this abuse, House Intelligence Committee Republicans will soon be submitting criminal referrals on numerous individuals involved in these matters. These people must be held to account to prevent similar abuses from occurring in the future. The men and women of our intelligence community perform an essential service defending American national security, and their ability to carry out their mission cannot be compromised by biased actors who seek to transform the intelligence agencies into weapons of political warfare.

The only thing they talk about is software. But if anything goes wrong, these people will be guillotined.

• Boeing Slashes 737 Production By 20% (ZH)

Just a few hours after Ethiopian Airlines warned of a “stigma” associated with the 737 Max that may make them choose not to take delivery of the planes they ordered, Boeing has released a statement after-hours that the company will slash production of the 737 plane from 52 to 42 airplanes per month. Bloomberg reports that Boeing plans to coordinate with customers and suppliers to blunt the financial impact of the slowdown, and for now it doesn’t plan to lay off workers from the 737 program. “When the Max returns to the skies, we’ve promised our airline customers and their passengers and crews that it will be as safe as any airplane ever to fly,” Boeing Chief Executive Officer Dennis Muilenburg said in a statement Friday after the market close.

Boeing had planned to hike output of the 737, a workhorse for budget carriers, about 10 percent by midyear, to meet the backlogs. [..] if the issues are not resolved in a timely manner and production of the 737 MAX needs to be halted for an extended period of time, it would take about 0.15% off the level of GDP, or about 0.6%-point off the quarterly annualized growth rate of GDP in the quarter in which production is stopped. [..] the value of total shipments of aircraft by domestic producers in the US totaled $129 billion in 2016. Extrapolating that figure using monthly shipments data by the aircraft and parts industry implies a similar figure for 2018, around $130 billion.

End the Fed.

• Trump Says Economy Would Take Off Like ‘A Rocket Ship’ If Fed Cut Rates (CNBC)

President Donald Trump said Friday the U.S. economy would climb like “a rocket ship” if the Federal Reserve cut interest rates. Commenting after a strong jobs report for March, Trump said the Fed “really slowed us down” in terms of economic growth, and that “there’s no inflation.” “I think they should drop rates and get rid of quantitative tightening,” Trump told reporters, referring to the Fed’s policy of selling securities to unwind its balance sheet, a stimulus put in place during the financial crisis. “You would see a rocket ship. Despite that we’re doing very well.” White House aides have called for the Fed to cut interests rates by as much as 50 basis points. Following the Fed’s most recent meeting in March, the central bank decided to maintain interest rates and hold off on any further increases this year.

As Trump’s chief economic adviser Larry Kudlow did on Friday, Federal Reserve Chairman Jerome Powell highlighted the slowing global economy. “We’re facing a worldwide slowdown [as] Europe is not doing well,” Kudlow said on Bloomberg TV. But unlike the White House, the Fed did not conclude in March that slowing global growth means the bank should begin cutting rates. Trump has been heavily critical of Powell’s decisions at the Fed, going as far as to say that “the Fed has gone crazy” with raising rates. Trump has blamed Powell’s decision-making for drops in the stock market, calling him “loco” for steadily raising rates in 2018 and saying choosing Powell for Fed chairman was the worst mistake of his presidency,

Capitalism needs capitalism first of all. For that to happen, the Fed will have to be dismantled. You can’t have capitalism without functioning markets. Ergo: America doesn’t appear to like capitalism, or it would make sure it exists.

• Ray Dalio Says Capitalism Needs Urgent Reform (MW)

Ray Dalio, founder of Bridgewater Associates LP, the world’s biggest hedge fund, says capitalism has developed into a system that is promoting an ever-wider wealth gap that puts the very existence of the United States at risk. In a two-part series published on LinkedIn, the noted investor argues that capitalism is now in need of reform — and offered ways to accomplish it: ‘I have also seen capitalism evolve in a way that it is not working well for the majority of Americans because it’s producing self-reinforcing spirals up for the haves and down for the have-nots. This is creating widening income/wealth/opportunity gaps that pose existential threats to the United States because these gaps are bringing about damaging domestic and international conflicts and weakening America’s condition.’

[..] Today, however, the system has produced little or no real income growth for most people for decades, according to the Dalio essay on LinkedIn. Prime-age workers in the bottom 60% have had no real (inflation-adjusted) income growth since 1980, and the percentage of children who grow up to earn more than their parents has fallen to 50% from 90% in 1970. The wealth gap is at its widest point since the late 1930s, with the top 1% owning more than the bottom 90% combined, “which,” Dalio notes, “is the same sort of wealth gap that existed during the 1935-40 period (a period that brought in an era of great internal and external conflicts for most countries).”

Most people in the bottom 60% “are poor,” he writes. About 40% of all Americans would struggle to raise $400 in the event of an emergency, he says, citing a recent Federal Reserve study. The childhood poverty rate stands at 17.5% and has not shown meaningful improvement in decades. That, in turn, leads to poor academic achievement, low productivity and low incomes.

It’s good when people who are not familar with it learn about Kondratieff (though I’ve seen better write-ups), but again: the Fed has become the economy, so what is real anymore?

• Kondratiev – Riding the Economic Wave (Kerevan)

There is a rich literature trying to identify the cause, in particular the work of the Belgian economist, the late, great Ernest Mandel. Crudely, it works like this. Social and economic conditions mature to spark a runaway investment boom in the latest cluster of new technologies. After a period, excess investment and increased competition lower rates of profitability, curbing the boom. At the same time – because this is as much a sociological as an economic process – growth expands the global workforce, both in numbers and geographically. The new, militant workforce launches social struggles to capture some of the wealth created in the boom.

This, in turn, adds to the squeeze on profits. The peak and early down wave are characterised by violent social conflicts, whose outcome determines the length of the contraction. To date each K-wave has seen a crushing of social protest and a halt to wage growth, if not a fall in real incomes for the working class. Thus conditions accumulate for a fresh investment boom, as profitability recovers. The ultimate trigger for the new upcycle is investment in the next bunch of new technologies, which simultaneously provide monopoly profits and a new set of markets.

Where precisely are we in the Kondratiev cycle? There is a dispute about this. Economists convinced by the Kondratiev theory largely agree there was a strong up-phase following the Second World War, lasting till the early 1970s. This was driven by the collapse in European wages imposed earlier by the Nazis and by the universal adoption of Fordist, mass production techniques. This expansion turned into a downswing in the 1970s and early 1980s, as profitability declined and the revived European economies (linked through the early Common Market) eroded American competitiveness.

The dispute concerns what happened next – the era of Reagan, Thatcher, neoliberalism and globalisation, running up to the present. In 1998, the American economic historian Robert Brenner published a hugely influential account of global capitalism which claimed to identify a super downswing running from circa 1970 to the turn of the millennium. Brenner rejected the notion global capitalism had (or was likely) to regain profitability, citing excess capacity rather than working class resistance as the primary driver. He pointed to the sudden stagnation in the Japanese economy, in the 1990s, as a precursor for the West’s future.

Youi’re going to have to go after individuals, not allow them to hide behind corporations.

• EU Charges BMW, Daimler and VW With Collusion Over Emissions (G.)

The European commission has charged BMW, Daimler and Volkswagen with colluding to limit the introduction of clean emissions technology, in the preliminary findings of an antitrust investigation. The car manufacturers have 10 weeks to respond and could face fines of billions of euros – up to 10% of their global annual turnover – if their explanations are rejected. A similar cartel case the commission took out in 2014 against MAN, Volvo/Renault, Daimler, Iveco and DAF ended with €2.93bn (£2.53bn) of penalties being levied. The EU’s competition commissioner, Margrethe Vestager, said: “Companies can cooperate in many ways to improve the quality of their products. However, EU competition rules do not allow them to collude on exactly the opposite: not to improve their products, not to compete on quality.”

She added: “Daimler, VW and BMW may have broken EU competition rules. As a result, European consumers may have been denied the opportunity to buy cars with the best available technology.” The EU announcement follows raids on the auto manufacturers in July 2017 after allegations in Der Spiegel that they had met in secret working groups in the 1990s to coordinate a response to diesel emissions limits. Between 2006 and 2014, the commission suspects that the “circle of five” carmakers – including VW’s Audi and Porsche divisions – colluded to limit, delay or avoid the introduction of selective catalytic reduction systems (SCRs) and “Otto” particle filters.

The drought comes one drop at a time.

• Australian Housing Downturn Becomes Widespread |(ZH)

After a three-decade boom, the Australian economy is finally facing a recession. The outlook for the economy is exceptionally bleak this year, as the decline in housing prices is more widespread than thought, according to a new report from CoreLogic. National home prices recorded a month-on-month decline of 0.60% in March, which CoreLogic noted was the smallest rate of monthly decline since October. “While the pace of falls has slowed in March, the scope of the downturn has become more geographically widespread,” CoreLogic head of research Tim Lawless said. All eight capital cities in Australia posted declines, with Sydney recording the most significant price drop of .90% month-on-month.

Quarterly, the value of single-family homes and condos declined 3.9%, followed by Melbourne (3.4%), Sydney (3.2%), Perth (2.9%), and Brisbane (1.1%). Prices in Canberra were unchanged. Sydney recorded the most significant annual decline of 10.9%. Melbourne followed with 9.8%. Australia’s regional housing markets have also deteriorated. Regional areas outside Sydney declined by 3.6% over the past year while regional Queensland saw a 1.6% decline. Regional Western Australia experienced a 9.5% decline over the past year, and for the past five years, values in the region have collapsed by 25.8%

It’s not entirely Fake News, but it’s certainly No News. There’s one competitor for the USD, and that’s the renminbi, which nobody wants because it’s not traded freely. End of story.

• Saudi Arabia Threatens To Ditch Petrodollar (R.)

Saudi Arabia is threatening to sell its oil in currencies other than the dollar if Washington passes a bill exposing OPEC members to U.S. antitrust lawsuits, three sources familiar with Saudi energy policy said. They said the option had been discussed internally by senior Saudi energy officials in recent months. Two of the sources said the plan had been discussed with OPEC members and one source briefed on Saudi oil policy said Riyadh had also communicated the threat to senior U.S. energy officials.

The chances of the U.S. bill known as NOPEC coming into force are slim and Saudi Arabia would be unlikely to follow through, but the fact Riyadh is considering such a drastic step is a sign of the kingdom’s annoyance about potential U.S. legal challenges to OPEC. In the unlikely event Riyadh were to ditch the dollar, it would undermine the its status as the world’s main reserve currency, reduce Washington’s clout in global trade and weaken its ability to enforce sanctions on nation states. “The Saudis know they have the dollar as the nuclear option,” one of the sources familiar with the matter said. “The Saudis say: let the Americans pass NOPEC and it would be the U.S. economy that would fall apart,” another source said.

A Tide In The Affairs Of Men

Mar 192019

March 19, 2019 Posted by Raúl Ilargi Meijer at 1:18 pm Finance Tagged with: bedlamite, Ceasar, censorship, Kondratieff, madhouse, Robespierre, Rome, Shakespeare, ThomasMore, totalitarianism, Washington 19 Responses »

Leonardo da Vinci First anatomical studies c1515

Sometimes we find ourselves merely pondering, not so much solving big problems. Is there playing out, in the world at large, or at least the world of men, something akin to the Kondratieff cycle in economics, a larger cycle, a force, a tide, an energy, that we mostly ignore, but which drives our ‘affairs’? Dr. D. thinks there may well be. But if so, what happens to free will?

Dr. D.:

Dr. D.: I seem to have taken a dark and grumpy turn lately. Probably the winter, but as I get older, I find the present state of the world more and more frustrating.

I fear with the present madness it’s just de rigor to 1) label people as something they’re not, even the OPPOSITE of what they are, 2) furiously fight that strawman and 3) not care. I have no explanation for it, but there are times and tides in the affairs of men (as Shakespeare would say) which flood you out and cost a fortune. …Or something like that.

And it’s certainly flooding in Europe right now, as darkness falls as the shutters of censorship and totalitarianism are bolted up everywhere, every bit as clear and methodical as was done in 1935, even with a call for a shiny new army. …To use on no one, of course, because we all know broke nations fund and create armies for no ill intent whatsoever. But these things happen regularly.

“If…any person had told me that there would have been such [chaos] as [now] exists, I would have thought them a bedlamite, a fit subject for a madhouse.”
– George Washington, 1786 (after a fiat money blowoff in the states)

My belief is that these things happen from forces outside ourselves and are sadly predictable, as “the lesson of history is that no one learns anything from history.” There may be the “Fourth Turning” of generations, but a 4th-of-4 turning is some 200 years, the next cycle, the next fractal up, and things crack quite a bit wider.

As this follows exactly the weather, earthquake, and volcanic cycles, it suggests far more its external origin, the way birds grow senselessly restless and flock in fall, or animals are agitated and predict earthquakes. In this case, my guess is the human nervous system is very sensitive to the fluctuations in the sun, or possibly further, the wing of the galaxy we fly through like sand ripples 240 years apart. What else could it be to affect men, weather, and volcanoes all at once?

But I suspect the additional energy flooding into all men gives them a very hard time, hyping them up, and those who don’t know how to shed and direct the energy appropriately — which is most of us — become manic and unthinking, and to some extent collectively go mad. As events on the ground direct them, so it can be channeled into grandeur, like the industrial revolution, or into a suicidal bloodbath like Jacobin France.

We appear to desire the latter right now, where the most astonishing, easily falsifiable accusations are made, and followed through just as thoughtlessly by the mob. They attack and hang one man one day, then the next his accuser comes under scrutiny and is hanged in turn, yet no one makes a call to sense and order, but rather to more ghosts, more bogymen, and more panic that chases them in turn like the devil of Sir Thomas More. …Thankfully merely murder-by-reputation so far, but it would be shocking indeed if that lasted long.

I also believe men know this, and far from stopping it, prefer to make fortunes by going with the tide and pushing it along, tirelessly undermining nations they can short, and then supporting the kings rising on the wheel of fortune and hitching to their star until in the next cycle they will be undermined in turn.

Unfortunately, it is Europe and America’s time down on the wheel, and they are doing everything they can — spending trillions, directing Facebook and the Guardian, buying ministers and judges, undermining every pillar of our society, economic, social, moral — in their quest to drive us down, and therefore buy us up cheap in “Disaster Capitalism.” And being in the lowering tide, we don’t need any additional help.

However, with such sturm und drang, there’s just shouting man to man everywhere, sheer bedlam, and otherwise good people get caught up in it, accusing you, accusing me, and exhausting and ruining themselves at a time we most need to pull together, make forgiveness, and apply what limited forces we have to the task of saving ourselves and our values.

So what do we do? Well if indeed we are each being over-energized and overloaded as it seems, we need to calm and ground ourselves in deeper principles that are unchanging — a thing far easier said than done.

However, if we can see that all of us are in the same dilemma, we are all ill-at-ease, and it’s not the other guy, it’s ourselves too that is short tempered, short-sighted, jumping to conclusions — in a word: short — then we can go through the day and this time better, and address it better, redress it better, and make more accurate, more practical and productive responses than if we didn’t know where our new trouble and new agitation is coming from.

Because history shows these things happen, and we’re in it now and it’s clearly happening to us. Perceiving all this years ago, I took myself to a humble place and planted trees, as the Stoics at the fall of Rome retreated to walled gardens and enjoyed what life they could, and although it’s a hard life and everyone’s answer is different, these things pass and all men have troubles and die even in the best of times.

So while I find it as frustrating as anyone, to be outrageously accused, to not be heard day after day, I try to keep perspective as well. It may not be a help to them, but it’s a help to me at least, so I can possibly answer the call to help someday, should any someday come.

But I don’t think so. Like Robespierre or Washington, I expect it to vent its madness on me and on us all with little restraint instead. My job is to weather it as I can and wait for better springs to come, which they will, but decades from now.

“There is a tide in the affairs of men, Which taken at the flood, leads on to fortune.”
– Julius Caesar Act 4 Scene 3

China, Oil and Markets: It’s All One Story

Jan 072016

January 7, 2016 Posted by Raúl Ilargi Meijer at 2:05 pm Finance Tagged with: central banks, China, cycle, Kondratieff, markets, Ponzi, virtual, wealth, yuan 5 Responses »

Berenice Abbott William Goldberg, 771 Broadway, Manhattan 1937

If there’s one thing to take away from this year’s developments in markets and economies so far, it’s that they are all linked, they’re all part of the same thing. If you can’t see that, you’re not going to understand what’s happening.

Looking at falling oil prices as a separate thread is not much use, and neither is doing the same with Chinese stocks, or the yuan, or the millions of Americans who are one paycheck away from poverty, for that matter. It’s all one story.

And the take-away from that, in turn, is that focusing too much on ‘narrow’ conditions in your particular part of the globe has only limited value. We’re very much all in this together. In the UK today, it matters very little what George Osborne says or does, or Mark Carney, because they don’t shape the future of the economy.

The same goes for all finance ministers and central bank governors across the planet, Yellen, Draghi, Koruda, the lot: the influence they exert on their own economies, which was always limited from the start, is running into the boundaries imposed by global developments.

Even if central bankers could ever have ‘lifted’ anything at all (a big question mark), their power to do so is rapidly diminishing. The constraints global developments place on their powers will now be exposed -even more. And of course they’ll try to deny and ignore that, as naked emperors are wont to do.

And with the exposure of the limits to their abilities to make markets and economies do what they want, come the limitations of the mainstream financial press to make their long-promoted recovery narratives appear valid. Before we know it, we might have functioning markets back.

Oil -both Brent and WTI- have breached the $32 handle, and are very openly flirting with the $20s. China’s stock market trading was halted for a second time this year, just 14 minutes after the opening. This came about after the PBoC announced another ‘official’ devaluation of the yuan by 0.5% (stealth devaluation has been a daily occurrence for a while).

$2.5 trillion was lost in global equities in three days this year even before the Thursday China trading stop and ongoing oil price decline. Must be easily over $3 trillion by now. And counting: European markets look awful, and so do futures.

For the first time in years, markets begin to seem to reflect actual economic activity. That is to say, industrial production, factory orders, exports, imports and services sectors are falling both in China and the US. Many of these have been falling for a prolonged period of time.

In fact, Reuters quotes a Sydney trader as saying: The Chinese economy actually contracted in December. Given what I’ve written in the past year and change about China, that can hardly be a surprise anymore.

What we are looking at is debt deflation, in which virtual ‘wealth’ is being wiped out at a fast pace, and it’s taken some real wealth with it for good measure. It’s not going to be one straight line down, for instance because there are a lot of parties out there who need to cover bets they carry from last year, but it’s getting very hard to see what can stop the plunge this time. Volatility will be a popular term again.

The Fed could lose its last remaining shred of credibility through QE4,5,6 and a 180º turn on the rate hike, but it would lose that last shred for sure. Draghi’s ECB could start buying ever more paper, but they would have a hard time finding sufficient amounts of anything to buy that’s worth anywhere near the written value.

The PBoC can’t really do QE after the $25 trillion post-2008 credit pump, and the yuan devaluation today achieved the opposite of what it was intended for. The BoJ is being severely hampered by the rising yen. We’ll see crazy stuff from the global Oracles, for sure, but in reality they never had anything but expensive band-aids to offer, and they have nothing better now.

Ultimately, if China is a Ponzi (and $25 trillion in credit spent on overcapacity strongly suggests so), then the entire world economy is one. I would very much argue so, and have for years. And we all know what inevitably happens with Ponzi’s.

Economists like to think in cycles, in which things will simply bounce back at some point, but a lot of this stuff will not come back, not for a very long time. I’ve said it before: Kondratieff is also a cycle.

We’re watching the initial stages (though a lot has already vanished behind all sorts of curtains) of a massive ‘wealth’ destruction, a very loud POOF!, ‘wealth’ which can so easily be destroyed because most of it was never real, just inflated soap. It’s time to move to cash if you haven’t already, and if you have enough, perhaps a bit of gold, silver or bitcoin, but do remember those are not risk-free.

It’s tempting to see this as a China problem, but first of all there is no China problem that will not of necessity also gravely affect the west , and second of all when you read, just to name an example, that America’s new jobs pay 23% less than the jobs they replaced, it’s just plain silly to believe that the economy is doing well, let alone recovering.

Which is why a majority of Americans are living paycheck to paycheck, and don’t have enough savings even for a $500 car repair bill. All Ponzi’s burst, they can’t be tapered, and this one we have now is going down in epic fashion because there are no major economies left that are not overburdened by debt.

It’s also tempting, certainly for economists, to see money that’s lost in one ‘investment’ to automatically shift to another, but that’s not what’s happening. Much of it simply evaporates. That’s why investment funds where already in a huge high-yield bind last year, and why you should really worry about your pension fund.

Do prepare for rising taxes and services cuts: governments suffer along with everyone, and because they’re slow and lagging, probably even more so. And governments think they deserve to have their hands in your pockets. Prepare for mass lay-offs too. The consumption model is being broken and dismantled as we speak.

Are You Expecting A Recession?

Nov 102014

November 10, 2014 Posted by Raúl Ilargi Meijer at 8:57 pm Finance Tagged with: China, cyclical, EU, Fed, investors, Japan, Kondratieff, recession 8 Responses »

Russell Lee Columbia Gardens outdoor amusement resort, Butte, Montana Aug 1942

The folks at Bloomberg put this piece up today with the intriguing title‘Predictors of ’29 Crash See 65% Chance of 2015 Recession’, and I thought: wait a minute, that’s what people, lots of people, actually think, that there’s going to be recession. While still others will trust Morgan Stanley and Goldman Sachs, who, as the article put it, “posit an expansion that has plenty of room to run.”

For the vast majority of those in the world of finance, and probably in a much wider world, those are the options, because that’s how they think. Either more of the same, or a recession, as we know it in a cyclical sense, where the economic cycle goes up and down but in the end keeps turning up. And where any sudden moves are telegraphed well in advance by monetary authorities for the grace and benefit of them, the investors, so they don’t lose too much and can instead profit at every step, whether it’s up or down.

And then it dawned on me, which took a few seconds because that’s not how I see the financial system at all, I see neither a recession nor a helpful and friendly Fed, that this is why so much money is going to be lost by so many people. But then, from where I’m sitting, that’s the game, isn’t it? In a functioning market, someone needs to lose for someone else to gain. And the smartest prevail.

And y’all you want a real market, don’t you? One that reflects what’s really going on in the real economy?! Just so, you know, you’re not going to buy shares in companies that report numbers painted with big fat strokes of bright pink or shiny red lipstick on your porkchop.

The problem with this is that whatever money you manage to save in a collapse is money the major banks won’t be making. They’d much rather take it from you than let you keep it. And who do you think the Fed will turn out to be more friendly with, you or Jamie Dimon and the Oz behind his curtain?

if you take a good hard look at how the US – and EU and Japan – economies have developed over the past decade, there’s only one possible conclusion you can draw. Which is that these countries no longer have functioning markets. Without the multiple trillions in stimulus share prices would have been at a fraction of where they are now.

And then the question is how much longer that pretty much blind market support can continue. Well, it won’t be infinite. Because that would bankrupt nations too fast even for Wall Street’s international banks, but more importantly because those same banks are not making nearly enough money in the present set-up. And that’s the clincher.

But apart from what the Fed wants or doesn’t want, the fact remains that it has been instrumental in blowing the bubbles of the Dow and S&P to unforeseen heights. And that this has happened because through time investors started believing the Fed has their back. Countless ‘experts’ today will tell you that if markets start falling tomorrow, the Fed will step back in.

Really? To what end? If that were true, they might as well never have tapered. Because if anyone knows how the Fed has distorted the markets, it’s the Fed itself. So for all I know, they may simply think they’re done distorting. And that they can sit back and watch the, after all inevitable, collapse unwind.

Inevitable because the alleged progress and recovery we’ve seen since US QE started brings tears to your eyes when you look past the partly massaged and partly plainly made-up numbers that go into GDP and jobs reports. Wipe off all the lipstick from the American pig, and you’re left with no more than a handful meager slices of diet bacon.

The Fed knows this, I know this, and now you do too, but many investors don’t seem to be catching on. They are, instead, talking about the probability of a recession. But that’s not what lies ahead. We’re well, and fast, on our way to a deep depression. Nothing cyclical, unless perhaps you’re talking Kondratieff’s 70-year cycles.

Recession is a useless discussion by now. The US is a painted pig, the EU needs to let countries go or they’ll go to war, Japan hung its head in a noose for Halloween and China has its 32nd consecutive month of falling factory-gate prices.

Lower oil prices may for now hide some of the pain, but even that is too much for Japan, because of the deflationary effect of even less consumer spending. And it’s that lack of spending that’s everyone’s worst enemy. But you can’t solve that with central bank stimulus. The formerly rich world is loaded with burger flippers, food stamps and underwater homes, and that means less, not more, spending.

And we all know, though perhaps not by how much, that all ‘formerly rich’ governments have historically unequaled spin doctors on their payroll, so the real numbers across the board are much much worse even then what we are ‘allowed’ to know. And what we do know is already awful once you sweep away the propaganda. You’re only going to be OK as an investor if the Fed continues to hold your hand and lead you softly through the ups and downs. You really think they will?

Recession? In your dreams.

Debt Rattle October 9 2014

Oct 092014

October 9, 2014 Posted by Raúl Ilargi Meijer at 11:03 am Finance Tagged with: bonds, Draghi, ebola, France, Germany, Greece, Hollande, IMF, Kondratieff, Merkel, oil, Saudi 2 Responses »

DPC R.H. Macy & Co, Herald Square, Broadway at 34th Street, NYC 1908

• The IMF’s $3.8 Trillion Warning To The Fed (MarketWatch)

• IMF Warns Ultra-Low Interest Rates Pose Fresh Crisis Threat (Guardian)

• US Home Prices Headed For A Triple Dip (CNBC)

• Can Saudis Beat North Dakota In An Oil Price War? (MarketWatch)

• The Keystone Killer the Enviros Didn’t See Coming (Bloomberg)

• Will China Spark a Currency War? (Bloomberg)

• German Model Is Ruinous For Germany, And Deadly For Europe (AEP)

• German Exports Plunge 5.8%, Most Since 2009, as Economy Stumbles (Bloomberg)

• Hollande Falls Into Line as Merkel Fends Off EU Spending (Bloomberg)

• Draghi Policies Blunted in Berlin as German Protests Grow (Bloomberg)

• Where Did The German ‘Strongman’ Go? (CNBC)

• ‘Bad Choices’ Have Put French Economy Under Pressure, Says EDF Boss (TiM)

• ‘France Is Doing Badly, But German Energy Sector Is A Disaster’ (Telegraph)

• Europe In Danger Of Another ‘Lost Decade’: Ifo’s Sinn (CNBC)

• Samaras ‘Fully Comfortable’ Seeking Early Exit for Greece (Bloomberg)

• Banks in Sweden Beat Regulator With Plan to Cut Record Debt Load (Bloomberg)

• Brussels Backs New UK Nuclear Plant As Cost Forecasts Soar (FT)

• Japan Solar Boom Fizzling as Utilities Limit Grid Access (Bloomberg)

• U.S. to Check Temperatures of West Africa Passengers at Five Airports (WSJ)

• Kondratieff Winter: The Consequences of the Economic Peace (Grant Williams)

They could have given any other number, and it would have been just as believable and relevant. How does $5.6 trillion sound? Bit heavy, let’s do $3.8 trillion. Adjust your models accordingly. And then let’s play a round of golf.

• The IMF’s $3.8 Trillion Warning To The Fed (MarketWatch)

A rocky exit from low interest rates by the Federal Reserve risks $3.8 trillion of losses to global bond portfolios, the International Monetary Fund warned Wednesday in its latest global financial stability report. The IMF was at pains to emphasize that it’s not forecasting such losses, but it did point out that tightening in the past has been a key trigger for declines in fixed-income markets. The IMF came up with the $3.8 trillion figure by assuming a rapid adjustment that causes term premiums to go back to historic norms and credit risk premiums to normalize, with moves of 100 basis points each. That would trigger losses by more than 8%, which could “trigger significant disruption in global markets.”

The IMF also pointed to the low volatility term structure for the S&P 500, suggesting equities also may be underpricing the risk of higher volatility in the future. It’s these concerns that have led the Federal Reserve to increase their communication to the public, through quarterly press conferences as well as interest-rate and economic forecasts. Observers both inside and outside the Fed expect the first rate hike to occur in the middle of 2015. But there remains considerable debate over the pace of subsequent hikes. Meanwhile, while the IMF warned about the Fed lifting interest rates, they also note the risks of the Fed and other central banks keeping rates low for so long. The IMF pointed out that asset price appreciation, spread compression and record low volatility have occurred simultaneously across broad asset classes and countries.

Put ’em up, Calamity Janet.

• IMF Warns Ultra-Low Interest Rates Pose Fresh Crisis Threat (Guardian)

A prolonged period of ultra-low interest rates poses the threat of a fresh financial crisis by encouraging excessive risk taking on global markets, the International Monetary Fund has said. The Washington-based IMF said that more than half a decade in which official borrowing costs have been close to zero had encouraged speculation rather than the hoped-for pick up in investment. In its half-yearly global financial stability report, it said the risks to stability no longer came from the traditional banks but from the so-called shadow banking system – institutions such as hedge funds, money market funds and investment banks that do not take deposits from the public.

José Viñals, the IMF’s financial counsellor, said: “Policymakers are facing a new global imbalance: not enough economic risk-taking in support of growth, but increasing excesses in financial risk-taking posing stability challenges.” He added that traditional banks were safer after the injection of additional capital but not strong enough to support economic recovery. Viñals said the IMF had analysed 300 large banks in advanced economies, making up the bulk of their banking system. It found that institutions representing almost 40% of total assets lacked the financial muscle to supply adequate credit in support of the recovery. In the eurozone, this proportion rose to about 70%. “And risks are shifting to the shadow banking system in the form of rising market and liquidity risks,” Viñals said. “If left unaddressed, these risks could compromise global financial stability.”

At last. Let’s get some real prices.

• US Home Prices Headed For A Triple Dip (CNBC)

The headline for much of this year has been that home price gains are easing. Prices are still higher compared to last year, but not nearly as much as they had been. Now, suddenly, it looks as if home values could actually go negative on a national level. “That will be the first time collectively, as a nation, we’ve seen prices drop since the low point or the trough of the housing crisis,” said Alex Villacorta, vice president of research and analytics at data firm Clear Capital. Villacorta points to a 1% quarterly home price gain from the second to the third quarter of this year. Last year that quarterly gain was 3%. “The discouraging thing about that is, yes, we’re still in the positive, but that 1% has been waning from that three%, and this comes after what should have been the most active buying season in the housing market for the summer that just ended,” he added.

The West, which has some of the largest metropolitan markets in the nation, has seen a huge drop in distressed sales, as fewer properties go to foreclosure. At their peak in 2009, just over half of all sales in the West were of distressed properties; today that share is just over 12%, according to Clear Capital. Investors, consequently, are moving on to other markets in the South and Midwest, where there are still bargains to be had. The West is therefore seeing sharper drops in home price appreciation. “And that is why the West is really that leading indicator, the canary in the coal mine, because as the West goes, both on the downturn and in the recovery,we’ve seen the rest of the country go as well,” said Villacorta.

Pretty useless ‘analysis’. Is Saudi battling America? I wouldn’t be so sure. There might be something else going on.

• Can Saudis Beat North Dakota In An Oil Price War? (MarketWatch)

With oil prices tumbling — and dragging gasoline prices at U.S. pumps further below $4 a gallon — investors wonder if Saudi Arabia will cut production in an effort to stop the slide. Don’t count on it. In a note, commodity strategists led by Seth Kleinman at Citi argue that the Saudis aren’t likely to throttle back output, in part because they apparently “think that they can win any price war” with U.S. shale producers. In other words, Saudi producers are playing a long game, confident that “full cycle” shale production costs are considerably more than their own. As Julian Jessop, head of commodities at Capital Economics points out, there is precedent. Saudi Arabia responded to a glut of non-OPEC oil in the latter half of the 1980s by increasing its own output, successfully eroding the profitability of other producers, including those in the North Sea, he said.

Oil futures remained under pressure Wednesday, with the price of light, sweet crude for November delivery on the New York Mercantile Exchange falling $1.54, or 1.7%, to $87.31 a barrel, hitting the lowest price for a most-active contract since April 2013 after data showed a further rise in U.S. crude supplies. ICE November Brent crude futures fell 58 cents, or 0.6%, to $91.53 a barrel, setting a two-year low. Saudi Arabia earlier this month cut the official selling price for its crude, according to news reports, a move that put additional pressure on oil prices at the time. The Citi analysts say the Saudis might be right to think they can win a price war, but only up to a point.

What if they built a pipeline and nobody came?

• The Keystone Killer the Enviros Didn’t See Coming (Bloomberg)

When it comes to oil, U.S. is king. Discoveries in North Dakota and Texas have pushed American oil production past Saudi Arabia and Russia this year. The new supplies have boosted the economy and dialed down the price of oil everywhere – gasoline at $3 a gallon anyone? The price of oil has fallen so low it’s threatening the feasibility of controversial and expensive drilling projects proposed in the Canadian Oil Sands and the Arctic. West Texas Intermediate, the U.S. benchmark for crude, is going for less than $90 a barrel. That’s approaching the break-even point for profitability at many of the very wells driving the American oil boom.

“If prices go to $80 or lower, which I think is possible, then we are going to see a reduction in drilling activity,” Ralph Eads, vice chairman and global head of energy investment banking at Jefferies LLC, told Bloomberg News reporter Isaac Arnsdorf. “It will be uncharted territory.” At the current price of about $87 a barrel, cheap American crude undercuts many of the most aggressive oil projects under consideration by the oil majors. About $1.1 trillion of capital expenditures have been earmarked through 2025 for projects that require a market price of more than $95 a barrel, according to a May study by the Carbon Tracker Initiative, a London-based think tank and environmental advocacy group.

No, the US will.

• Will China Spark a Currency War? (Bloomberg)

Is China about to devalue? The question seems to pop up everywhere I go – most recently in Frankfurt, Sydney and New York. Economists here in Tokyo, too, are buzzing about the chances of a big decline in the yuan in the next few months. A new report from Lombard Street Research explains why all these folks may have reason for concern. According to London-based Charles Dumas, China’s slowdown will soon drag down gross domestic product growth below 5% (whether Beijing admits it or not). Dumas joins long-time Asia investor Marc Faber in thinking China will find itself in the 4% range by year end. A continued downtrend, Dumas says, would represent “a major, slow-motion shock for the world economy and financial markets” that will slam everything from commodities to growth rates from Japan to Germany.

Growth significantly below Beijing’s 7.5% target also complicates President Xi Jinping’s efforts to shift China to a services-based economy from an export-and-investment-led one. The obvious solution: a weaker exchange rate that boosts exports and thus buys Xi time to recalibrate growth drivers. While Chinese leaders aren’t dropping clear hints of a devaluation, it’s a logical next step. Even before the 2008 global crisis, Lombard Street says, capital spending in China had already reached an unsustainable 42% of GDP. Then the regime responded to the crisis with an unprecedented investment surge, beginning with a $651 billion stimulus package in 2009. By the end of that year, capital spending had jumped to 48% – where it remained until last year. It’s simply not possible for an economy that carries a consumer-spending ratio of about 36% to thrive long-term with an investment ratio on the cusp of 50%.

Since the crisis, Chinese corporate debt has also reached $14.2 trillion, topping that of the U.S., according to Standard & Poor’s. Recently, China’s central bank set out to measure activity in China’s $6 trillion shadow banking industry, implying that officials worry it’s even bigger than we know. And while estimates of the true size of liabilities facing local governments differ widely, roughly $1.65 trillion of their debt is already held by major banks, including Industrial and Commercial Bank of China and China Construction Bank. Borrowing more to gin up growth isn’t an option for a highly-indebted developing nation. Debt must be reduced.

Ambrose wants you to spend! He also says France will overtake Germany soon because of the birthrate.

• German Model Is Ruinous For Germany, And Deadly For Europe (AEP)

The German economy has already stalled. Output contracted in the second quarter. Factory orders fell 5.7pc in August. Germany’s “Five Wise Men” council of economic experts will slash the country’s growth forecast to 1.2pc next year in a report on Friday. Prof Fratzscher accuses Germany’s elites of losing the plot in every important respect. Investment has fallen from 23pc to 17pc of GDP since the early 1990s. Net public investment has been negative for 12 years. Growth has averaged 1.1pc since the beginning of the decade, placing Germany 13th out of 18 in the eurozone (or 156th out of 166 countries worldwide over the past 20 years). This chronic weakness been masked by slightly better growth since the Lehman crisis, and by the creditor-debtor dynamics of the EMU debt crisis. German looks healthy only because half of Europe looks deathly. The Hartz IV reforms – so widely praised as the foundation of German competitiveness, and now being foisted on southern Europe – did not raise productivity, the proper measure of labour reform.

Data from the OECD show that German productivity growth slumped to 0.3pc a year in the period from 2007 to 2012, compared with 0.5pc in Denmark, 0.7pc in Austria, 0.9pc in Japan, 1.3pc in Australia, 1.5pc in the US and 3.2pc in Korea. Britain has been negative, of course, but that is no benchmark. Prof Fratzscher says the chief effect was to let companies compress wages through labour arbitrage. Real pay has fallen back to the levels of the late 1990s. The legacy of Hartz IV is a lumpen-proletariat of 7.4m people on “mini-jobs”, part-time work that is tax-free up to €450. This flatters the jobless rate, but Germany has become a split society, more unequal than at any time in its modern history. A fifth of German children are raised in poverty. Philippe Legrain, a former top economist at the European Commission, says Germany’s “beggar-thy-neighbour economic model” works by suppressing wages to subsidise exports, to the benefit of corporate elites. This is “dysfunctional”, and the more that EU officials try to extend the model across the eurozone, the more dangerous it becomes.

The numbers keep coming in bad.

• German Exports Plunge 5.8%, Most Since 2009, as Economy Stumbles (Bloomberg)

German exports slumped the most since January 2009 in the latest sign Europe’s largest economy is struggling to rebound from its second-quarter contraction. Exports dropped 5.8% in August, after a 4.8% increase in July, the Federal Statistics Office in Wiesbaden said today. Economists surveyed by Bloomberg News predicted a decline of 4%. While the typically volatile data was influenced by the timing of German school holidays in late summer, it still depicts an economy that is stumbling as the euro-area recovery grinds to a halt. The European Central Bank has added unprecedented stimulus to try to revive inflation and economic growth in the 18-nation currency bloc.

German imports declined 1.3% in August, after dropping 1.4% in July, today’s report showed. The country’s trade surplus narrowed to €14.1 billion ($18 billion) from a record €23.5 billion. The current account surplus shrank to €10.3 billion from €20.1 billion. German gross domestic product fell 0.2% in the three months through June. Data earlier this week showed factory orders and industrial production each declined by the most since January 2009 in August.

Power battle between France and Germany.

• Hollande Falls Into Line as Merkel Fends Off EU Spending (Bloomberg)

German Chancellor Angela Merkel sidestepped French President Francois Hollande’s call to use stimulus measures to counter Europe’s faltering recovery, saying investments need to be carefully considered. With Germany’s economy slowing, France barely growing and Italy in its third recession since 2008, Hollande arrived at a jobs summit in Milan yesterday saying Germany should “do more to support demand” and that the European Union as a whole should provide €20 billion ($25 billion) to support joblessness over six years. Barely four hours later Merkel shied away from any commitment and Hollande fell into line. “We need to invest, yes, but we need to know where to invest, we need to know where the jobs are,” Merkel said. “We need to know what the professions of the future are. In the whole digital area I see the opportunities for the future. That’s where we should train people.”

Hollande and Italian Prime Minister Matteo Renzi want the European Union to use flexibility in its budget rules in the face of slowing growth and are pushing for the bloc to spend more creating jobs for the one in five young people who are out of work. Currently €6 billion has been set aside for the issue in 2014 and 2015. “I’d like to see more by 2020,” Hollande said. “If Europe can’t provide opportunities for the young, then people will turn away from Europe,” he said. France and Italy are also under pressure as lack of growth distances them from deficit-cutting commitments made earlier in the year. France now expects its budget deficit to rise this year for the first time in half a decade and doesn’t see the shortfall shrinking to the EU limit of 3% of gross domestic product before 2017. Italy has pushed back its plan to achieve a structural balance to next year from this year.

After lobbying for more EU spending on job creation on the way into yesterday’s meeting, Hollande echoed Merkel’s view that existing funds must spent first as he sat alongside her at the press conference afterward. “I’d like to see more by 2020, I’ve spoken of €20 billion, but before we must see these sums are spent,” he said. “We need simplification and speeding up of this disbursement.” Euro-area countries including France and Italy have until Oct. 15 to submit their 2015 budgets to the European Commission under the region’s fiscal rules. The commission will have to then judge their plans and decide whether governments have made sufficient efforts or need to be prodded to do more. The 3% limit was “conceived more than 20 years ago, in a different world,” Renzi said. “I respect the decisions of other countries such as France today or Germany in the past with a different government to breach the limit,” adding that Italy will meet its target all the same to bolster its credibility.

Better leave now, Mario.

• Draghi Policies Blunted in Berlin as German Protests Grow (Bloomberg)

Mario Draghi’s policy tools are being blunted in Berlin. The European Central Bank president has stopped short of large-scale sovereign-bond purchases as efforts to mollify Germany’s political elite do little to silence criticism of his ever-more expansionary measures. Support for anti-euro groups such as Alternative for Germany has risen and the ECB’s latest plan to buy assets sparked an outcry within all major parties. “German public opinion matters an awful lot,” said Anatoli Annenkov, senior economist at Societe Generale SA in London. “Draghi wants the ECB to be a central bank like any other, one that can go and buy government debt. But he’s perfectly aware of Germany’s opposition, and the storm now is a clear signal that it’ll be much more difficult.” Draghi may be pressured at the International Monetary Fund meetings in Washington this week to take further measures to revive the 18-nation currency bloc’s recovery.

That won’t be easy in the face of a German aversion to quantitative easing that is rooted in the 1920s, when money-printing laid the foundation for a society that still fears rising prices more than deflation. The debate over sovereign-debt purchases will be raised again on Oct. 14 when the European Union’s highest court hears arguments about the ECB’s still-unused OMT program. Germany’s Federal Constitutional Court has already expressed doubts about the legality of the two-year-old pledge to buy bonds of stressed countries after a challenge by a German lawmaker and a group of academics.

The German ‘Strongman’ went home. And he’s going to stay there.

• Where Did The German ‘Strongman’ Go? (CNBC)

This week’s disappointing German manufacturing data are the latest sign the “strongman” of Europe is weakening, in what could mark a worrying turn for the rest of Europe. Tuesday’s industrial output numbers for Germany missed forecasts, with production slowing by 4% month-on-month in August. German factory orders, out on Monday, also showed a steep—and unexpected—decline. “The data from Germany is persistently dreadful,” said Societe Generale’s Kit Juckes in a note on Wednesday. The warning comes after the International Monetary Fund (IMF) cut Germany’s growth outlook for this year and next on Tuesday. It now sees the economy growing by 1.4% in 2014 and 1.5% in 2015. This is better than the euro zone average, but below peers like the U.K., where the economy is expected to expand by 3.2% this year and 2.7% next.

Here we take a look at some of the reasons why Germany could be losing its economic clout: France has criticized Germany for hoarding cash rather than using it to stimulate domestic demand, which could help boost growth throughout the euro zone. “Germany must fulfil its responsibilities,” French Prime Minister Manuel Valls declared at a policy meeting last month. Now, some economists say the zealous fiscal prudence exercised by Chancellor Angela Merkel and colleagues is harming Germany, as well as its neighbors. “The figures should provide something of a wake-up call to those in the German government still resisting calls to loosen the fiscal reins and provide the euro zone’s biggest economy with more support,” said Jonathan Loynes, chief European economist at Capital Economics, in a note on Wednesday.

Sure, let’s turn to the rich to solve our problems.

• ‘Bad Choices’ Have Put French Economy Under Pressure, Says EDF Boss (TiM)

One of France’s leading businessmen has admitted the economy is ‘under pressure’ and lashed out against high taxes. Henri Proglio is the chairman and chief executive of EDF, the French energy giant with more than 150,000 employees worldwide. He was speaking as EDF received approval from the EU for its nuclear power plants at Hinkley Point in Somerset. Brussels revealed the price of the work has risen to £24.5billion from the projected £16billion once debt financing is included. It could rise to as high as £34billion in a worst-case scenario. Proglio’s comments on the French economy come only days after John Lewis boss Andy Street said that France was ‘finished’ because it is ‘sclerotic, hopeless and downbeat’.

The French Prime Minister Manuel Valls, on an official trip to Britain, subsequently responded to the comments by suggesting that the John Lewis chief had ‘drunk too much beer’. Speaking yesterday, Proglio said: ‘France today is in a poor situation. It’s a country under pressure.’ He admitted that France ‘made some bad choices for a few years’ that have led to ‘overtaxation’. He added: ‘It’s not a brilliant situation.’ He said the country should be ‘forced’ to slash government spending – currently at more than 50 per cent of GDP – and ‘drive more investment’.He said: ‘It’s too easy to say today France is doing bad, because it’s obvious. ‘How can you make it better? This is the point.’

I’m bad, but you’re worse.

• ‘France Is Doing Badly, But German Energy Sector Is A Disaster’ (Telegraph)

France’s economy may be doing badly but Germany’s energy sector is a “disaster”, the head of French state-owned energy company EDF has said. Henri Proglio, EDF chief executive, acknowledged his country was “in a poor situation” and “under pressure”. But he said different industries should be considered in their own right, highlighting the German energy sector, where the country’s phase-out of nuclear power and drive for renewables has severely damaged its two biggest companies. “When it comes to energy they are in a disaster. Their two major companies – E.On and RWE – are under huge pressure. One is more or less dead, the other one is in a very difficult situation,” he said. By contrast, he said EDF was doing “quite well” and the French aerospace industry was “number one in the world”.

Mr Proglio was speaking after his company was granted EU state aid approval to build Britain’s first new nuclear plant in a generation at Hinkley Point in Somerset. “It’s too easy to say today France is doing bad, because it’s obvious,” he said, adding attention should focus on “how can you make it better”. “On the fiscal point of view, France, in my view, made some bad choices for a few years. Over-taxation is very negative for the country,” he said. “On the other hand, we have some very good companies.” Mr Proglio said it was “very important to consider industry as a key driver for growth”. “You have to force a country to make some improvements in overheads, public overheads and to drive more investment.” Earlier this week French Prime Minister Manuel Valls admitted the country’s economic growth had been in “long breakdown” but insisted that his government was “pro-business”.

Paul Massara, the head of RWE’s UK supply business npower, did attack the Hinkley Point subsidy deal, suggesting it was poor value for consumers. “We recognise the need for Britain to have modern, efficient energy infrastructure with a diverse mix of technologies, but this must happen at the lowest possible cost to the consumer. “We are concerned that today’s decision around guaranteed revenue from new nuclear power stations in return for their delivery could force the next three generations of British consumers to pay unnecessarily high energy bills,” he said.

“We have already lost, under the euro, one decade because of these enormous capital flows into users in southern Europe which were not so productive and we will lose another decade if we don’t act … ”

• Europe In Danger Of Another ‘Lost Decade’: Ifo’s Sinn (CNBC)

If euro zone countries like France do not complete vital structural reforms, the currency union faces another “lost decade,” Hans-Werner Sinn, president of the Munich-based Ifo Institute, told CNBC. Rather than the breakup of the single currency, Sinn warned that the euro zone will see another prolonged period of stagnation with weak growth unless countries can boost productivity and complete tough rebalancing programs. “We have already lost, under the euro, one decade because of these enormous capital flows into users in southern Europe which were not so productive and we will lose another decade if we don’t act,” he told CNBC on Thursday.

The euro zone’s main problem over the last decade has been that savings have been shifted into southern European nations that have “eaten up” that capital rather than using it to increase productivity in their economies, he said. He now believes that struggling southern European nations should undergo painful devaluation in order for them to grow again. So, instead of continuing to borrow at low interest rates through the current period of low growth and low inflation, Sinn says that painful reforms need to be implemented. “If you take the pain anyway it won’t happen,” he said.

With unemployment numbers like Greece has, this sounds like nonsense.

• Samaras ‘Fully Comfortable’ Seeking Early Exit for Greece (Bloomberg)

Prime Minister Antonis Samaras said he aims to sever the international lifeline that has kept Greece afloat since 2010 by forgoing disbursements of emergency loans scheduled over the next two years. “We feel fully comfortable” that Greece can cover its financing needs from the bond markets in the coming years, Samaras, 63, said in an interview in Milan yesterday after a European Union summit. An improvement in public finances and low interest rates have emboldened Samaras, who said the Greek parliament will discuss the end of aid from the euro area and International Monetary Fund, which have granted the country €240 billion ($306 billion) in bailout loans, in a confidence-vote debate scheduled to run through tomorrow. Greek bonds are the best-performing securities in the Bloomberg indexes this year, having earned 20% through yesterday.

The yield on 10-year debt fell as low 5.52% on Sept. 8, the lowest since early 2010. Even after a sell off in the past month, that compares to a record high of 44% in March 2012, on the eve of the world’s biggest-ever debt restructuring. Samaras’s confidence contrasts with fellow euro-area and IMF officials, who insist Greece should retain access to bailout funds next year. The prevailing view among those officials is that Greece’s market access remains fragile, according to two people directly involved in the negotiations. European Central Bank President Mario Draghi weighed into the debate last week, saying the country needs to remain in some kind of program for Greek banks’ junk-rated asset-backed securities to be eligible for the ECB’s ABS purchase program. The bailout loans came with belt-tightening conditions that exacerbated a six-year Greek recession, left more than a quarter of the workforce jobless and triggered a social backlash. Aid next year would also come with strings attached.

“A plan by the Swedish Bankers’ Association to require borrowers to pay down new loans to 50% of property values may be enough”. Sounds like trouble for borrowers.

• Banks in Sweden Beat Regulator With Plan to Cut Record Debt Load (Bloomberg)

Sweden’s financial regulator may not push ahead with formal rules on amortization after the country’s banks presented a proposal targeting a reduction in mortgage debt. A plan by the Swedish Bankers’ Association to require borrowers to pay down new loans to 50% of property values may be enough, Martin Andersson, head of the Swedish Financial Supervisory Authority, said yesterday in a phone interview. If banks “present a proposal that’s very similar to what we ourselves think is a very good proposal it’s absolutely a conceivable alternative,” he said. Banks can implement such a plan quicker and it provides “the flexibility needed for particularly vulnerable households that for a period of time are unemployed, or sick, or whatever it may be that makes it hard to amortize,” Andersson said.

Sweden is trying to stem an increase in private debt that has soared to record levels while protecting the most vulnerable households from new requirements. Finance Minister Magdalena Andersson, Riksbank Deputy Governor Cecilia Skingsley and Klas Danielsson, chief executive officer of state-owned bank SBAB, have urged policy makers to exempt some demographic groups from amortization requirements. The Bankers’ Association this week proposed new guidelines that would force homeowners to pay down their mortgage debt to 50% of property values after lowering it to 70% from 75% in March. The group said it hopes the measure aimed at fostering a better amortization culture will prevent the regulator from introducing formal legislation.

Let’s cheer?!

• Brussels Backs New UK Nuclear Plant As Cost Forecasts Soar (FT)

Britain won EU approval for a new nuclear power plant in Somerset on Wednesday, allowing the government to commit to 35 years of financial support for Europe’s biggest and most controversial infrastructure project. Hinkley Point C will cost £24.5bn to build, EU officials revealed – a much higher figure than the £16bn disclosed last year by EDF, the French utility running the project. The lower figure was in 2012 prices and excluded interest payments made during construction and other pre-building costs, said EDF. Joaquín Almunia, the EU competition commissioner, said the project’s total costs would be about £34bn, including cash the developers had to show they could come up with in the event of problems during construction.

Formal state aid approval from the European Commission, on the condition of some minimal revisions, came after a deeply divided debate that led to four EU commissioners voting against the decision. Mr Almunia said the final decision had been taken, despite initial doubts, because the UK had shown there was a “genuine market failure” which meant that “without public support this investment could not take place”. “This decision will not create any kind of precedent,” he added, describing Hinkley Point as a project of “unprecedented nature and scale”.

Another baseload issue.

• Japan Solar Boom Fizzling as Utilities Limit Grid Access (Bloomberg)

Japan’s solar energy boom is starting to fizzle after two years of rapid expansion left utilities saying they’re unable to accept electricity from so many new sources that generate power only when the sun shines. At least five of the nation’s biggest utilities are restricting the access of new solar farms to their grids. Struggling to compensate for nuclear shutdowns after the Fukushima reactor meltdowns, the government of Prime Minister Shinzo Abe offers some of the highest incentives for solar in the world. That’s helped make Japan the second-biggest market for photovoltaic panels, providing an alternative to downturns in Germany and Spain, nations that once led the industry. “Everyone was entering the solar market because it was lucrative, and that has strained the market,” said Yutaka Miki, who studies clean energy at the Japan Research Institute.

Japan’s trade ministry has approved plans for about 72 gigawatts of renewable energy projects since July 2012. The country installed almost 7.1 gigawatts of solar capacity last year, more than currently exists in all of Spain, according to Bloomberg New Energy Finance. A gigawatt is about the size of a nuclear reactor. Japan’s investment in the technology more than tripled to $29.6 billion in 2013 from 2010 levels, data from London-based BNEF show. Kyushu Electric Power, which supplies power to the southern island of Kyushu, said in late September that it will suspend giving new grid access to clean-energy producers while examining how much more capacity it can take on. The question is whether Japan’s grid can handle intermittent power deliveries from solar systems that only generate when the sun is shining.

What good is this going to do?

• U.S. to Check Temperatures of West Africa Passengers at Five Airports (WSJ)

\The U.S. plans to start checking the temperatures of passengers arriving at major airports from West African countries with high rates of Ebola, federal officials said Wednesday. The measure is part of a growing list of steps aimed at detecting travelers infected with the disease to stop it from spreading inside the U.S. Authorities plan to start the new screenings at John F. Kennedy International in New York on Saturday. Next week, they’ll add it at O’Hare International in Chicago, Hartsfield-Jackson International in Atlanta, Washington Dulles International near Washington, D.C., and Newark Liberty International in Newark, N.J. Authorities said more airports may follow.

After their passports are reviewed, passengers arriving from Liberia, Guinea and Sierra Leone will be pulled aside to a separate screening area where U.S. Customs and Border Protection staff will question them about their health and exposure to Ebola, take their temperature with an infrared thermometer and collect their contact information in the U.S. If that screening suggests exposure to the disease, an officer from the Centers for Disease Control and Prevention will evaluate the traveler more, take his temperature again and decide whether the person needs to be taken to a hospital or be monitored by local health authorities. Coast Guard medical staff could also be involved in the screenings, according to a person briefed on the plans. “These measures are really just belt-and-suspenders,” President Barack Obama said in a conference call with state and local officials. “It’s an added layer of protection on top of the procedures already in place at several airports.”

Real economics. And real scary too.

• Kondratieff Winter: The Consequences of the Economic Peace (Grant Williams)

In 1920, a year AFTER the Treaty of Versailles, a Russian economist called Nikolai Kondratieff founded something he named The Institute of Conjuncture, at which he and a team of fellow economists studied, yes, conjuncture — or business cycles, with a particular focus on the long waves they identified within those cycles. Over the years since Kondratieff first laid out his theory on long-wave cycles, a tremendous debate has ensued as to the usefulness of such long-term prognostication; but there is one very good reason why I (and many others) believe there to be a significant advantage gained through the study of long-wave cycles… (Wikipedia: Long-wave theory is not accepted by most academic economists.)

Kondratieff, being a Russian, of course took the long view. He took Schumpeter’s four stages (expansion, crisis, recession, and recovery) and equated them to the four seasons in a year. Once he had identified what he felt to be the length of each “Spring,” “Summer,” “Autumn,” and “Winter,” Kondratieff had his “Wave;” and, as it turned out, that Wave ran for approximately 53 years. In 1925, when he published his book The Major Economic Cycles, using existing data, Kondratieff overlaid his wave on world history and projected it forward — meaning that everything for the 89 years that followed was conjecture on his part… How’d he do? Well, as it turns out, surprisingly well. Kondratieff nailed far too many major turns to have his work simply dismissed, and his most recent turn into Winter occurred in 2000 or, for those of you who measure the passing of time by such things, precisely at the bursting of the tech bubble.

The blue shaded area shows how far into the current Kondratieff downwave we are and — far more importantly — how much farther we have to go before things are supposed to turn around. But what do the inner workings of a Kondratieff Winter look like? And are we in the middle of one, as a nearly 90-year-old forecast would have us believe? Like Schumpeter’s cycles, the four seasons in a Kondratieff Wave are broken down and characterised by the phenomena usually seen during each specific phase of the full cycle. I won’t go through all four seasons now, as we don’t have time, but rather we’ll focus on the longest phase — Winter — as it’s the one we find ourselves mired in.