parity Archives - The Automatic Earth

There are only two ways to wipe out debt if it cannot be repaid by increases in output. The worst for the economy, even though it may be the fairest, is bankruptcy and debt deflation or destruction. A company or an individual—and sometimes a government—just says it can’t repay its debt. The lender takes control of the assets, if there are any, and tries to recover as much of the loan as possible, making up for the shortfall with its capital provision. This is exactly what happened during the Great Depression, when companies and individuals defaulted in droves, driving thousands of banks into bankruptcy as well. “If you borrowed money to buy a house or a machine, you couldn’t repay the debt, no matter how productive you were. Deflation penalized producers who misjudged the value of their assets at the time,” said Oliver.

Private debt declined 20% from 1930 to 1933 but GDP declined 38%, so the debt-to-GDP ratio actually increased from 175 to 225%, according to data from Debt Economics. “Deflation can increase the level of private debt to GDP, because GDP falls faster than private debt. Paying down the debt, withdrawing money from circulation and reducing its velocity, reduces GDP more than the decline in the debt,” said Keen. So this exercise is best avoided, which is precisely what central banks did during the 2008 crisis with their QE programs and bank bailouts. They managed to avoid a second Great Depression, but they didn’t get rid of the private debt. Despite the evident flaws in a system that has provided incentives for borrowers and lenders to indulge in too much debt for their own good, there are creative ways to reset the system and at least get the economy growing again.

“Every debt collapse in history has had a combination of debt forgiveness and inflation. That is how debt problems are dealt with historically,” said Oliver. Western central banks have tried to create inflation through their QE programs but weren’t successful because of deflationary pressures: overcapacity in China, technological innovation, and the fact that their money printing ended up in the hands of financial actors, who bought a lot of stocks, rather than real people, who would repay debt and buy goods and services. Many economists, including Keen, therefore call for QE for the private sector, rather than the banks, a concept dubbed “helicopter money.” “The creative way to get around it, is use the government’s capacity to create money. You use the same power the central banks did with QE but pay it into private sector accounts rather than commercial bank accounts. Households and companies can use it to pay down debt and those who don’t have debt, can get a cash injection,” he said.

“..America’s putative economic strength might be a mirage [..] the economy may in fact be a lot weaker than all the happy indicators are leading people to believe.”

• American Credit Card Debt Nears All Time Highs (BI)

By most accounts, the American economy seems to be humming along very nicely. Unemployment just hit a nine-year low, the stock market this month climbed to all-time highs, and consumer confidence is as chipper as its been in two years. But at least one indicator suggests that much of the US is actually struggling financially: Americans are piling on credit card debt at record levels that we haven’t seen since the financial crisis. Households added $21.9 billion in credit card debt in the third quarter — the largest increase for that period since 2007 — bringing the amount of outstanding credit card debt to $927.1 billion, according to the latest study from WalletHub. That matches the mark in 2007 before the recession began, and it’s the highest tally since the end of 2008, when the global economy was experiencing a full-on implosion.

Racking up credit card debt isn’t inherently bad, so long as it’s being paid back. And so far, Americans are defaulting on their credit card debt at near historically low levels. Charge-off rates – the percentage of credit card debt that the companies are unable to collect on — are only at 2.86%, compared with 3.95% in 2007 the quarter before the Great Recession began and in excess of 10% in the years following the crisis, according to WalletHub. But holding a balance is a lousy move from a personal finance perspective — a sign of financial fragility. The fact that the average household with debt now owes $7,941 to credit card companies, according to WalletHub, suggests that America’s putative economic strength might be a mirage – that the economy may in fact be a lot weaker than all the happy indicators are leading people to believe.

Something’s off.

• It’s Been A Nightmare Year For Australian Retail (News.com.au)

It’s been a nightmare year for Australian retail, with a parade of the nation’s best-known brands decimated one after another. And experts say things will only get worse if business leaders and governments do not pick up their game. First it was Dick Smith Electronics, then the Woolworths-owned Masters home improvement chain that went under. Now, thousands more workers will be jobless at Christmas after a fresh slew of corporate collapses rounded out 2016. Payless Shoes this week announced plans to close its doors by the end of February, hot on the heels of Howards Storage World’s demise, and that of children’s fashion label Pumpkin Patch.

While Treasurer Scott Morrison seized on the latest bad news to bolster the Coalition’s tax reform agenda, market watchers say there is far more that needs to be done. Retail analyst Barry Urquhart of Marketing Focus said neither corporate leaders nor government had acknowledged what he called “an attitudinal recession” that was restraining businesses. While the nation was yet to tip into an official recession – despite having just marked its worst quarterly performance since the global financial crisis – Australians remained apprehensive about their futures, he said. And any business that failed to respond to this by recapturing the public imagination with a compelling, value-driven offering would simply fall by the wayside.

JPMorgan’s role is interesting. So is Beppe Grillo’s view of that role: “Italy’s opposition 5-Star Movement has called for JPMorgan’s fees to be voided if taxpayers have to come to the rescue..”

• Italy Prepares To Pump €15 Billion Into Ailing Banks (R.)

Italy’s government is ready to pump €15 billion into Monte dei Paschi di Siena and other ailing banks, sources said, as the country’s third-largest lender pushes ahead with a private rescue plan that is widely expected to fail. The world’s oldest bank has until Dec. 31 to raise €5 billion in equity or face being wound down by the European Central Bank, potentially triggering a wider banking and political crisis in Italy. If needed, the government will pump €15 billion into the Siena-based lender and several other smaller banks to prevent that, two sources close to the matter said on Thursday. One source said unlisted regional banks Banca Popolare di Vicenza and Veneto Banca, which were rescued this year by a state-backed fund, would also get support from the state.

The government would make the €15 billion available in a decree on Dec. 22, La Repubblica newspaper said on Thursday, adding that Banca Carige could also benefit. Italy’s banking sector is saddled with €356 billion of bad loans, around a third of the euro zone’s total and a legacy of the 2008-2009 global financial crisis when, unlike Spain or Ireland, Italy did not act to help its banks. Monte dei Paschi di Siena, advised by investment banks JPMorgan and Mediobanca, plans to raise equity to remove €28 billion in bad loans from its books. Italy’s opposition 5-Star Movement has called for JPMorgan’s fees to be voided if taxpayers have to come to the rescue. “We would have never done a deal like that with JPMorgan. In any case we would not pay the commissions (if the bank had to be nationalized,” Alessio Villarosa, a 5-Star lawmaker, said.

It’s not going to stop at parity.

• Euro Parity With Dollar ‘Only A Matter Of Time’ – ING (CNBC)

Divergence in monetary policy between the United States and Europe will bring parity between the value of the euro and dollar, according to ING. On Thursday the euro hit a low of 1.0364 against the dollar, the lowest level since August 2003 when it traded as low as 1.0357. Dollar strength is the key driver as investors believe the Federal Reserve will adopt a higher rate rise path in 2017 as the U.S. economy gathers momentum. Conversely, the ECB has just announced it will inject a further €540 billion of QE stimulus into the stuttering EU economy.

Analysts at ING wrote Friday that with European inflation struggling to edge higher and yesterday’s dip in to the 1.03 handle, euro/dollar parity is now firmly in view. “With the U.S. economy close to reaching escape velocity (and sustainable 2% inflation), it will only reinforce the downside risks to EUR/USD.” “Expect some consolidation around the 1.0450-1.0500 area, but this week’s fresh EUR/USD low means that the move down to parity is now only a matter of time,” the note reads.

“..either hike the interest rate (as) the U.S. does, or they give up the exchange rate..”

• The Fed Is Pushing China Into A Messy Catch-22 (CNBC)

An interest rate decision in the United States is causing a dilemma for Beijing. The U.S. dollar index surged to a near 14-year high after the Fed’s rate hike on Wednesday and its surprise forecast for three more increases — instead of the two that were expected previously — to come in 2017. Higher interest rates in the United States make it tempting for China to raise its own rates, because Beijing doesn’t want more money to flee the country into higher-yielding U.S. bonds. That flight also hurts China’s currency, the yuan. But Beijing could get its economy into trouble by hiking rates, since its continued economic growth is very heavily driven by borrowing. “You had this pressure that was already building, and the Fed has basically complicated and added to that with a more hawkish message,” said Logan Wright at Rhodium Group.

China’s yuan subsequently fell to its lowest level since 2008, and the country’s 10-year bond yield jumped to its highest level in more than a year. Declines in five-year and 10-year Chinese bond futures were reportedly so drastic Thursday that trade was halted due to a market trading limit. “The bond market itself, it’s raising a lot of attention, and it’s likely reflecting [that] policymakers in China are facing a difficult choice right now,” said Kai Yan, an economist at the IMF. He noted that “the speculation in the market is high because the central bank wants to stand in front of currency pressure to prevent capital outflow.” Chinese policymakers must “either hike the interest rate (as) the U.S. does, or they give up the exchange rate,” Yan said. “It is likely they will do a combination of the two.”

[..] China’s financial and economic challenges have been on the back burner for U.S. markets for much of the past year. The yuan’s depreciation versus the dollar has been largely ignored by global markets, as economic updates out of China have held up thanks largely to a flood of debt that’s propping up the country’s economy. Earlier this year, the Fed was seen as giving China some breathing room to stabilize its currency and economic growth. The U.S. central bank cited international concerns in avoiding a rate hike in the fall of 2015 and reducing its expectations for 2016 rate increases. Those decisions from the Fed helped keep the dollar steady, allowing China to avoid a significant depreciation of its currency. Now, however, some say the Fed may be less concerned about China since the U.S. economy is on firmer footing and can expect big domestic government spending from President-elect Donald Trump’s proposals.

“Houses are for people to live in, not for people to speculate..” Sounds nice, but real estate has been a major contributor to China’s economy and GDP.

• China Vows To Contain Asset Bubbles, Avert Financial Risk In 2017 (R.)

China will stem the growth of asset bubbles in 2017 and place greater importance on the prevention of financial risk, while keeping the economy on a path of stable and healthy growth, media said, citing leaders at an economic planning meeting. China has seen growth stabilize this year, but corporate leverage and credit continue to expand, increasing risks to the world’s second-largest economy as it looks to push forward structural reforms. The annual meeting is attended by China’s top leaders and is closely watched by investors for clues on policy priorities and main economic targets for the year ahead. Monetary policy will be kept “prudent and neutral” in 2017, leaders attending the Central Economic Work Conference said in a statement, as reported by the official Xinhua news agency on Friday.

“Monetary policy will be kept prudent and neutral, adapt to new changes in money supply … and strive to smooth monetary policy transmission channels and improve mechanism to help maintain liquidity basically stable,” they said. The People’s Bank of China has maintained a prudent monetary policy since 2011, raising or cutting interest rates in line with shifts in the economy. The pro-active fiscal policy has been in place since the depths of the global crisis. The property market will be a focus of risk control, as authorities will restrain property bubbles and prevent price volatility, they said. The leaders called for a strict limit on credit flowing into speculative buying in the property market and for a boost in the supply of land for cities where housing prices face stiff upward pressure. “Houses are for people to live in, not for people to speculate,” Xinhua said, citing the statement.

Cohen of course is America’s no. 1 expert on Russia.

• Cold War Hysteria vs. US National Security (Stephen F. Cohen)

Thus far, no actual facts or other evidence have been made publicly to support allegations that the hacking was carried out on the orders of the Russian leadership, that Russian hackers then gave the damaging materials to WikiLeaks, or that the revelations affected the electoral outcome. Nor are Russian President Putin’s alleged motives credible. Why would a leader whose mission has been to rebuild Russia with economic and other partnerships with the West seek to undermine the political systems of those countries, not only in America but also in Europe, as is charged? Judging by the public debate among Russian policy intellectuals close to the Kremlin, nor is it clear that the Kremlin so favored the largely unknown and unpredictable Trump.

But even if Putin was presented with such a possibility, he certainly would have understood that such Russian interference in the US election would become known and thus work in favor of Clinton, not Trump. (Indeed, a major tactic of the Clinton campaign was to allege that Trump was a “Putin puppet,” which seems not to have helped her campaign with voters.) Still worse, since the election these allegations have inspired a growing Cold War hysteria in the American bipartisan political-media establishment, still without any actual evidence to support them. One result is more neo-McCarthyite slurring of people who dissent from this narrative. Thus a New York Times editorial (December 12) alleges that Trump had “surrounded himself with Kremlin lackeys.” And Senator John McCain ominously warned that anyone who disagreed with his political jihadist vendetta against Putin “is lying.”

A kind of witch hunt may be unfolding, not only of the kind The Washington Post tried to instigate with its bogus “report” of scores of American websites said to be “fronts for Russian propaganda,” but at the highest level. Thus, Trump’s nominee for secretary of state is said to be “a friend of Putin” as a result of striking a deal for Exxon-Mobil for Russian oil reserves, something he was obliged to do as the company’s CEO. Several motives seem to be behind this bipartisan American campaign against the President-elect, who is being equated with Russian misdeeds. One is to reverse the Electoral College vote. Another is to exonerate the Clinton campaign from its electoral defeat by blaming that instead on Putin and thereby maintaining the Clinton wing’s grip on the Democratic Party. Yet another is to delegitimate Trump even before he is inaugurated. And certainly no less important, to prevent the détente with Russia that Trump seems to seek.

Obama sounds smaller and weaker here.

• Obama Says Russia Is A Smaller, Weaker Country Than The US (CNBC)

In his final news conference of the year, President Barack Obama emphasized that Russia cannot change or significantly weaken the U.S., adding that Russia is a smaller and weaker country. He said Russia’s economy “doesn’t produce anything that anybody wants to buy,” except oil, gas and arms. The only way Russia can affect the U.S., he said, is “if we lose track of who we are” and “abandon our values.” “Mr. Putin can weaken us just like he’s trying to weaken Europe if we start buying into notions that it’s OK to intimidate the press, or lock up dissidents or discriminate against people,” he said. When asked if he would specifically name Russian President Vladimir Putin as directly responsible for the election hacking, Obama said he wanted to give the intelligence community a chance to gather the information necessary.

He added, however, that “not much happens in Russia without Vladimir Putin,” reaffirming that the hacking happened at the highest levels of the Russian government. “This is a pretty hierarchical operation,” he said. “Last I checked, there’s not a lot of debate and democratic deliberation, particularly when it comes to policies directed at the United States.” Obama reaffirmed his message of political unity and bipartisanship, urging the country to reunite across party lines to defend itself against Russia and others. “Our vulnerability to Russia or any other foreign power is directly related to how divided, partisan, dysfunctional our political process is,” he said. “That’s the thing that makes us vulnerable.”

“His main complaint is that “I don’t think she was treated fairly” by the press corps and the Russian hacks became “an obsession that dominated the news coverage.”

• Obama Goes Off the Clinton Script (WSJ)

Hillary Clinton told her donor base at Manhattan’s Plaza Hotel on Thursday that Russian cyber attacks were both “a personal beef against me” and meant to undermine “the integrity of our democracy,” and Democrats fanned out this week to spread this Kremlin-hacked-the-election narrative. President Obama was asked about all this in his year-end Friday press conference, but even he couldn’t square the contradictions. As liberals assailed the legitimacy of Donald Trump’s victory, Mr. Obama defended “the integrity of our election system,” noting that there is no evidence that ballots weren’t counted fairly. So much for those Jill Stein, Clinton-endorsed recounts, or the conspiracies about compromised voting machines. The President also explained that the emails stolen from John Podesta and the Democratic National Committee were “not some elaborate, complicated espionage scheme.”

He said intelligence and law enforcement were “playing this thing straight” and disclosed sufficient information about the hacks for “the American public to make an assessment as to how to weigh that going into the election.” Mr. Obama conceded that some of the leaked content was “embarrassing or uncomfortable” but all in all “pretty routine stuff.” His main complaint is that “I don’t think she was treated fairly” by the press corps and the Russian hacks became “an obsession that dominated the news coverage.” Really? The Podesta and DNC emails mostly revealed that the Clinton apparat don’t much like conservative Catholics or Bernie Sanders. Mr. Trump’s offenses against beauty queen Alicia Machado in the 1990s and his Billy Bush video were far bigger stories. The emails that really harmed Mrs. Clinton were those she stored on a personal server as Secretary of State, because the arrangement was potentially criminal and underscored doubts about her political character and judgment.

Not could, will. Curious that Dijsselbloem’s solo act in deciding to halt Greek debt relief doesn’t get more attention.

• Schaeuble Could Destroy Eurozone, Not Just Greece (EUO)

The sudden suspension of Greece’s short-term debt relief measures on Wednesday evening (14 December) has sparked fierce criticism by a number of EU officials. EU commissioner Pierre Moscovici, European Parliament president Martin Schultz, French president Hollande and finance minister Michel Sapin, along with many MEPs from the GUE/NGL, S&D and the Greens groups, have echoed support for Greece and prime minister Alexis Tsipras’s decision to give a one-time relief package to low-income pensioners. In essence, there has been no official decision taken by the Eurogroup, the European Stability Mechanism (ESM), or the European Council. Instead, there’s been unilateral action from the head of the Eurogroup without prior coordination with his colleagues.

Creditors should respect their own part of the deal and conclude the second review of the bailout programme, and acknowledge that there are open issues that need be addressed. The Greek government is fully implementing the bailout deal, moving on to needed reforms, providing safety nets for the vulnerable social groups. It’s possible Tsipras’s announcement was brought about by German finance minister Schaeuble and other circles pushing Greece to the limit. But in truth, we need not investigate who has taken the decision but instead focus on substantial issues. These issues include lowering primary surplus targets after 2018 and loosening tax rates so that the economy can become stable and growth can reach sustainable levels.

Even with such strict deadlines, the Greek government has achieved all fiscal targets for 2016, increasing public income and reaching a higher primary surplus than expected. This positive development prompted Tsipras, a few days ago, to announce a one-time relief package for low-income pensioners; a substantive decision after 12 consecutive pension cuts between 2010 and 2014, a loss of more than 30% of national GDP, during the same period, with a considerable part of the population facing poverty and social exclusion. The Greek government’s urgent measures are the least this government can do to temporarily do something for the worse off.

Dimitrios Papadimoulis is vice president of the European Parliament and head of the Syriza party delegation.

Merkel sides with Schaeuble.

• Greek PM Tells Merkel ‘Wounds Of Crisis’ Must Be Healed (R.)

Greek Prime Minister Alexis Tsipras told German Chancellor Angela Merkel on Friday his country was set for strong economic growth and this would help to “heal the wounds of crisis” after years of austerity imposed under international bailouts. On a visit to Berlin, Tsipras was keen to emphasise Greek progress on reforms demanded by Germany as the EU’s most powerful economy and paymaster – a situation that has made Merkel a hate figure for some Greeks. The trip’s timing was also significant, as Greece wrangles with its creditors over terms for its current bailout, the latest of three. On Thursday it snubbed its lenders by passing legislation to give pensioners a one-off Christmas bonus.

Tsipras told reporters before meeting Merkel that he would inform the chancellor of the positive momentum of the Greek economy and his government’s “spectacular overachievement” of revenue targets. “The projections for the Greek economy are extremely positive for next year,” Tsipras said, adding authorities expected 2.7% growth in 2017 and 3.1% in 2018. But Greece’s economic development should not simply be confined to statistics and numbers, he added. “We want it to heal the wounds of crisis and to alleviate all those who have over these difficult years made huge sacrifices in the name of Europe,” Tsipras said.

Merkel showed little willingness to take a position on the disputed question of whether the pre-Christmas payout to pensioners was compatible with bailout obligations. Standing next to Tsipras, she said decisions lay in the hands of the Troika institutions handling negotiations with Greece but “the Greek prime minister’s assessment of the situation will certainly play a role in our discussions.” A German Finance Ministry spokesman said the institutions involved in Greece’s aid programme were critical of Athens in a preliminary report assessing the unilaterally announced measure. “To make the aid programme a success, it’s essential that measures are not decided unilaterally or are not taken back without advance notice,” said spokesman Dennis Kolberg.

Debt Rattle September 9 2016

Sep 092016

September 9, 2016 Posted by Raúl Ilargi Meijer at 8:57 am Finance Tagged with: BoJ, China, coal, debt, deflation, ECB, exports, Fraud, Germany, parity, wilderness Comments Off

NPC Daredevil John “Jammie” Reynolds, Washington DC 1917

• ECB’s Mario Draghi Has Run Out Of Magic As Deflation Closes In (AEP)

• ECB Stands Pat on Stimulus as Draghi Defends Policy (WSJ)

• German July Exports, Imports Plunge (Street)

• Goldman Calculates True Growth Rate Of China’s Debt: 40% of GDP Per Year (ZH)

• China’s Reviving the American Heartland – One Low Wage at a Time (BBG)

• Bank of Japan Risk: Running Out of Bonds to Buy (WSJ)

• Australia, New Zealand Housing Booms Set Currencies On Course For Parity (BBG)

• Coal Rises From the Grave to Become One of Hottest Commodities

• Historic Tax Fraud Rocks Denmark As Loss Estimates Keep Growing (BBG)

• Goldman Sachs Just Launched Project Fear in Italy (DQ)

• Humans Have Destroyed A Tenth Of Earth’s Wilderness In 25 Years (G.)

Why does it seem so normal to use the word ‘magic’ in this context? When did that start?

• ECB’s Mario Draghi Has Run Out Of Magic As Deflation Closes In (AEP)

Large parts of the eurozone are slipping deeper into a deflationary trap despite negative interest rates and €1 trillion of quantitative easing by the ECB, leaving the currency bloc with no safety buffer when the next global recession hits. The ECB is close to exhausting its ammunition and appears increasingly powerless to do more under the legal constraints of its mandate. It has downgraded its growth forecast for the next two years, citing the uncertainties of Brexit, and admitted that it has little chance of meeting its 2pc inflation target this decade, insisting that it is now up to governments to break out of the vicious circle. Mario Draghi, the ECB’s president, said there are limits to monetary policy and called on the rest of the eurozone to act “much more decisively” to lift growth, with targeted spending on infrastructure.

“It is abundantly clear that Draghi is played out and we’re in the terminal phase of QE. The eurozone needs a quantum leap in the nature of policy and it has to come from fiscal policy,” said sovereign bond strategist Nicholas Spiro. Mr Draghi dashed hopes for an expansion of the ECB’s monthly €80bn programme of bond purchases, and offered no guidance on whether the scheme would be extended after it expires in March 2017. There was not a discussion on the subject. “The bar to further ECB action is higher than widely assumed,” said Ben May from Oxford Economics. The March deadline threatens to become a neuralgic issue for markets given the experience of the US Federal Reserve, which suggests that an abrupt stop in QE stimulus amounts to monetary tightening and can be highly disruptive.

The ECB has pulled out all the stops to reflate the economy yet core inflation has been stuck at or below 1pc for three years. Officials are even more worried about the underlying trends. Data collected by Marchel Alexandrovich at Jefferies shows that the percentage of goods and services in the inflation basket currently rising at less than 1pc has crept up to 58pc. This is a classic precursor to deflation and suggests that the eurozone is acutely vulnerable to any external shock. The figure has spiked to 67pc in Italy, and is now significantly higher that it was when the ECB launched QE last year. The eurozone should have reached economic “escape velocity” by now after a potent brew of stimulus starting last year: cheap energy, a cheaper euro, €80bn a month of QE, and the end of fiscal austerity. [..] “The euro is far stronger than they want, and stronger than the economy deserves, but they don’t know how to weaken it. This is exactly what happened to the Japanese,” said Hans Redeker, currency chief at Morgan Stanley.

Draghi’s starting to come down on Germany, but it’s too late: their exports just fell 10%.

• ECB Stands Pat on Stimulus as Draghi Defends Policy (WSJ)

The ECB left its €1.7 trillion stimulus unchanged at a policy meeting Thursday, brushing off concerns over economic shock waves from Britain’s vote to leave the EU and disappointing investors expecting the ECB to act again soon. The decision to stand pat, even as new forecasts showed the ECB missing its inflation target for years, underlines how central banks are approaching the limits of what they can achieve without support from other policy areas, notably governments. In China earlier this month, Group of 20 leaders warned that monetary policy alone can’t fix the world’s economic ills, and pledged to boost spending and adopt overhauls aimed at boosting growth.

At a news conference here, ECB President Mario Draghi said he was concerned about persistently low eurozone inflation, which has fallen short of the ECB’s near-2% target for more than three years. Fresh ECB staff forecasts, published Thursday, showed inflation rising very gradually, to 1.2% next year and 1.6% in 2018. Despite that, Mr. Draghi said policy makers didn’t even discuss fresh stimulus, and praised the effectiveness of the bank’s existing policy measures, which include negative interest rates and €80 billion a month of bond purchases. He also aimed an unusually direct rebuke at Germany, criticizing Berlin for not boosting spending to support the economy. “Countries that have fiscal space should use it,” Mr. Draghi said. “Germany has fiscal space.”

Germany looks a lot like Japan and China.

• German July Exports, Imports in Shock Plunge (Street)

German imports and exports unexpectedly shrunk in July, with a sharp export contraction causing a surprise narrowing in Germany’s trade balance. Federal Statistical Office data showed seasonally adjusted exports fell by 2.6% – analysts had expected about 0.3% growth – whereas imports fell by 0.7%, as against expectations for a 0.8% rise. On the year exports slumped by 10% and imports shriveled by 6.5%. The foreign trade balance shrunk to €19.4 billion from €21.4 billion in June, as against expectations for a balance of €22 billion. The Federal Statistical Office said the pace of German exports to other EU countries fell by 7% in July, while imports from the region fell by 4.5%. The falls were slightly narrower for trade with other eurozone countries.

German trade outside the 28-nation EU fared worse, with exports plunging by 13.8% and imports by 10.1%. Faltering German exports amid lackluster worldwide growth and emerging-market volatility has long been a drag on German growth. But the sharper-than-expected export fall challenges expectations of a second-half pickup in German trade with the rest of the world, and the surprise – albeit small -import decline suggests domestic demand isn’t robust enough to step into the breach. The trade data come in a week that the statistics office reported weaker-than-expected industrial output and manufacturing production for July. But the euro held firm against the dollar after the figures and was recently up 0.11% at $1.1272.

“..some time around 2019, China’s total Debt/GDP will be over 400%, an absolutely ridiculous number, and one which assures a banking, if not global, financial crisis.”

• Goldman Calculates True Growth Rate Of China’s Debt: 40% of GDP Per Year (ZH)

For a long time when it came to Chinese loan creation, analysts would only look at the broadest reported aggregate: the so-called Total Social Financing. And, for a long time, it was sufficient – TSF showed that in under a decade, China had created over $20 trillion in new loans, vastly more than all the “developed market” QE, the proceeds of which were used to kickstart growth after the 2009 global depression, to fund the biggest capital misallocation bubble the world has ever seen and create trillions in nonperforming loans. However, a problem emerged about a year ago, when it was revealed that not even China’s TSF statistic was sufficient to fully capture the grand total of total new loan creation in China.

[..] according to Goldman, “a substantial amount of money was created last year, evidencing a very large supply of credit, to the tune of RMB 25tn (36% of 2015 GDP).” This massive number was 9% higher than the TSF data, which implied that “only” a quarter of China’s 2015 GDP was the result of new loans. As Goldman further noted, the “divergence from TSF has been particularly notable since Q2 last year after a major dovish shift in policy stance.” In short, in addition to everything else, China has also been fabricating its loan creation data, and the broadest official monetary aggregate was undercutting the true new loan creation by approximately a third. The reason for this is simple: China does not want the world – or its own population – to realize just how reliant it is on creating loans out of thin air (and “collateralized” by increasingly more worthless assets), as it would lead to an even faster capital outflow by the local population sensing just how unstable the local banking system is.

Here is the good news: compared to late 2015, the record credit creation has slowed down fractionally, and the gap with the TSF total has shrunk. The smaller gap seems to be in line with recent reports that listed banks’ “investment receivables” expanded less rapidly in 2016 H1, and it might partly reflect the regulators’ tougher stance against shadow lending in recent months. And now, the bad news: this “tougher stance” has not been nearly tough enough, because as the following chart shows on a 1-year moving average, nearly 40% of China’s “economic growth” is the result of new credit creation, or in other words, new loans. What this really means, is that China’s debt/GDP, estimated most recently by the IIF at 300%…

… is now growing between 30% and 40% per year, when one accounts for the unaccounted for “shadow” credit conduits. Here is how Goldman concludes this stunning observation: “The PBOC appears to have shifted to a less dovish, though still supportive, policy bias in the last few months. However, given the prospective headwinds from slower housing construction and tighter on-budget fiscal stance in the coming months, there remains a clear need to sustain a high level of infrastructure investment, which is credit intensive, to achieve the minimum 6.5% full-year growth target. This poses constraints on how much further the PBOC can keep reining in credit, in our view.”

Translating Goldman, some time around 2019, China’s total Debt/GDP will be over 400%, an absolutely ridiculous number, and one which assures a banking, if not global, financial crisis.

The resounding success of globalization.

• China’s Reviving the American Heartland – One Low Wage at a Time (BBG)

For six years, the General Motors factory that used to make Chevy Trailblazers in Moraine, Ohio, sat abandoned, a rusting monument to the decline of the American auto industry. These days, the plant is humming again, fueled by a resurgent U.S. consumer – but now under Chinese management. On the shop floor, Chinese supervisors in sky-blue uniforms that carry the logo of the new owners, Fuyao Glass, teach American employees how to assemble windshields. Drive along Interstate 75, through America’s industrial heartland, and you’ll find no shortage of Chinese-owned firms like Fuyao. They’re setting up shop in states such as Ohio and Michigan, key voter battlegrounds in November, where traditional manufacturing has been hollowed out – in many cases, by trade. With China.

[..] Fuyao acquired roughly half the old GM plant in 2014, spending $450 million to buy and remodel it. For a company that started out as a small producer of covers for water-meters and is now the world’s second-biggest auto-glass supplier, the acquisition capped a decade-long push into U.S. markets. For the Dayton area, it meant employment: the city, hometown of the Wright brothers, was hit hard by the shutdown of the GM plant two days before Christmas in 2008. [..] “Hey, 1,700 jobs is 1,700 jobs,” said Shawn Kane, a 28-year-old chef shopping at the Kroger grocery store in Moraine last month. “At least it’s not sitting empty anymore.” They’re jobs that tend not to pay as well as factory work once did, though – and there probably aren’t as many of them.

To keep its production in the U.S. viable, Fuyao uses more automation than it does in China, said John Gauthier, president of Fuyao Glass America. “Our customers, all they care about is that their cost doesn’t increase,” he said. A line worker at Fuyao starts at $12 per hour, equivalent to an annual salary of about $25,000. GM workers at the old Moraine plant could make at least twice that, topped off by perks like defined-benefit pensions, according to union officials and former employees. “When you don’t have enough protections for American workers, and when you’ve got a globalized economy, this is what happens,” said Chris Baker, a 40-year-old sales rep based near Moraine. “This is the new normal. It’s very sad.”

WHen will they start buying people’s homes? Cars perhaps?

• Bank of Japan Risk: Running Out of Bonds to Buy (WSJ)

Japan’s central bank is facing a new problem: It could be running out of government bonds to buy. The Bank of Japan is snapping up the equivalent of more than $750 billion worth of government debt a year in an effort to spur inflation and growth. At that rate, analysts say, banks could run out of government debt to sell within the next 18 months. The looming scarcity is a powerful sign of the limits central banks face as they turn to ever-more aggressive means of stimulating their economies. The problem is mirrored in Europe, where self-imposed rules limit how many eurozone government bonds the ECB can buy from individual governments. Facing a diminishing supply of sovereign bonds, the ECB started buying corporate debt in June.

Some economists have even called for the ECB to start buying stocks. The central bank left its bond-buying program and interest-rate policy unchanged at its meeting Thursday. The Japanese central bank has fewer options if the country’s banks, which have to hold a certain amount of safe debt to use as collateral in everyday transactions, ever become unwilling to sell more of their holdings. Its most obvious alternatives—pushing rates deeper into negative territory or buying other types of assets—have practical limitations. Meanwhile, the BOJ’s economic goals remain out of reach: Inflation is stubbornly low, and the yen has strengthened about 18% this year.

Does nobody have any common sense down under?

• Australia, New Zealand Housing Booms Set Currencies On Course For Parity (BBG)

Housing booms in New Zealand and Australia could be putting the neighbors’ currencies on course to reach parity for the first time ever. Both nations have seen house prices surge in recent years, but the underlying causes are fundamentally different, according to Deutsche Bank analysis. Australia’s boom is largely home-grown, whereas New Zealand’s is being fueled by record immigration. That’s affecting the countries’ current accounts differently. While Aussies are feeling richer due to house-price gains, prompting them to spend more on imports and boosting their current account deficit, New Zealand is sucking more offshore capital into its housing market, narrowing its current account gap. Currencies are sensitive to trends in the current account – a country’s balance with the rest of the world – because they are a gauge of risk for investors.

“The nature of the real estate boom in Australia should have bearish currency implications because it leads to deterioration in the basic balance,” Robin Winkler, a London-based strategist for Deutsche Bank, said in a research note. “This is not the case in New Zealand and adds to our conviction that AUD/NZD should drop to parity.” The two currencies have never converged in the free-floating era that began in the 1980s. They came close in April last year, when the kiwi briefly reached 99.79 Australian cents or, to express it the other way, the Aussie dollar fell below NZ$1.01. The New Zealand dollar was worth 96.8 Australian cents at 12:35p.m. in Wellington Friday.

Burn baby burn.

• Coal Rises From the Grave to Become One of Hottest Commodities

For all the predictions about the death of coal, it’s now one of the hottest commodities in the world. The resurrection may have further to run. A surge in Chinese imports to compensate for lower domestic production has seen European prices jump to near an 18-month high, while Australia’s benchmark is set for the first annual gain since 2010. At the start of the year, prices languished near decade lows because of waning demand from utilities seeking to curb pollution and amid the International Energy Agency’s declaration that the fuel’s golden age in China was over. Now, traders are weighing the chances of extreme weather hitting major producers and China further boosting imports as factors that could push prices even higher.

“It’s a commodity that’s been on a slippery slide for the past four years and it’s making a remarkable recovery,” said Erik Stavseth, an analyst at Arctic Securities in Oslo, who’s tracked the market for almost a decade. “There’s a strong pulse.” What could light up the market further is the occurrence of a La Nina weather pattern later this year. Last time it happened in 2010 and 2011, heavy rains flooded mines in Australia and Indonesia, the world’s two largest exporters. While some meteorologists have toned down their predictions for the weather phenomenon forming, “another strong forecast” would cause prices to rise further, according to Fitch’s BMI Research.

Still don’t think I know what exactly the fraud was. Though I read the piece twice.

• Historic Tax Fraud Rocks Denmark As Loss Estimates Keep Growing (BBG)

About two weeks after Denmark revealed it had lost as much as $4 billion in taxes through a combination of fraud and mismanagement, the minister in charge of revenue collection says that figure may need to be revised even higher. Speaking to parliament on Thursday, Tax Minister Karsten Lauritzen said he “can’t rule out” that losses might be bigger than the most recent public estimates indicate. It would mark the latest in a string of revisions over the past year, in which Danes learned that losses initially thought to be less than $1 billion somehow ended up being about four times as big. The embarrassment caused by the tax fraud, which spans about a decade of successive administrations, has prompted Lauritzen to consider debt collection methods not usually associated with Scandinavian governments.

Denmark has long had one of the world’s highest tax burdens – government revenue as a percentage of GDP – and a well-functioning tax model is essential to maintaining its fabled welfare system. “We’re entertaining new ideas, considering more new measures,” Lauritzen told Bloomberg. Danish officials are now prepared to pay anonymous sources for evidence from the same database that generated the Panama Papers. Jim Soerensen, a director at Denmark’s Tax Authority, says the first batch of clues obtained using this method is expected by the end of the month.

Project Fear didn’t work in Britain either.

• Goldman Sachs Just Launched Project Fear in Italy (DQ)

Project Fear began two years ago in the run up to Scotland’s national referendum. It then spread to the rest of the UK in the lead up to this summer’s Brexit referendum. But it keeps on moving. Its latest destination is Italy, where the campaign to instill fear and trepidation in the hearts and souls of Italy’s voters was just inaugurated by the world’s most influential investment bank, Goldman Sachs. It just released a 14-page report warning about the potentially dire consequences of a “no” vote in Italy’s upcoming referendum on the government’s proposed constitutional reforms. The reforms seek, among other things, to streamline Italy’s government process by dramatically restricting the powers of the senate, a major source of political gridlock, while also handing more power to the executive.

The polls in Italy are currently neck and neck, though the momentum belongs to the reform bill’s opponents. If the Italian public vote against the bill, the response of the markets could be extremely negative, warns Goldman, putting in jeopardy the latest attempt to rescue Italy’s third largest and most insolvent bank, Monte dei Paschi di Siena. The rescue is being led by JP Morgan Chase and Italian lender Mediobanca, and includes the participation of a select group of global megabanks that are desperate to prevent contagion spreading from Italy’s banking system to other European markets, and beyond. In the event of a “no” vote, MPS’ planned €5 billion capital increase would have to be put on ice, while investors wait for the political uncertainty to clear before pledging further funds.

This being Italy, the wait could be interminable and the delay fatal for Monte dei Paschi and other Italian banks, Goldman warns. It also points out that Italy is the only European country where a substantial portion of its bank bonds are held in household portfolios (about 40% according to data from Moody’s, four times more than Germany and eight times more than France and Spain). In other words, things could get very ugly, very fast, if those bank bonds collapse! As for Italian government bonds and Europe’s broader debt markets, they would be insulated from any fallout by former Goldmanite Mario Draghi’s bond binge buying.

We are unstoppable.

• Humans Have Destroyed A Tenth Of Earth’s Wilderness In 25 Years (G.)

Humans have destroyed a tenth of Earth’s remaining wilderness in the last 25 years and there may be none left within a century if trends continue, according to an authoritative new study. Researchers found a vast area the size of two Alaskas – 3.3m square kilometres – had been tarnished by human activities between 1993 and today, which experts said was a “shockingly bad” and “profoundly large number”. The Amazon accounted for nearly a third of the “catastrophic” loss, showing huge tracts of pristine rainforest are still being disrupted despite the Brazilian government slowing deforestation rates in recent years. A further 14% disappeared in central Africa, home to thousands of species including forest elephants and chimpanzees.

The loss of the world’s last untouched refuges would not just be disastrous for endangered species but for climate change efforts, the authors said, because some of the forests store enormous amounts of carbon. “Without any policies to protect these areas, they are falling victim to widespread development. We probably have one to two decades to turn this around,” said lead author Dr James Watson, of the University of Queensland and Wildlife Conservation Society. The analysis defined wilderness as places that are “ecologically largely intact” and “mostly free of human disturbance”, though some have indigenous people living within them. The team counted areas as no longer wilderness if they scored on eight measures of humanity’s footprint, including roads, lights at night and agriculture.

Debt Rattle March 12 2015

Mar 122015

March 12, 2015 Posted by Raúl Ilargi Meijer at 7:30 am Finance Tagged with: anthropocene, bond market crash, dollar, Draghi, easing, oil, parity, SWIFT, war reparations 2 Responses »

Harris&Ewing National Press Club Building newssstand, Washington DC 1940

• Six Days Until Bond Market Crash Begins (EconMatters)

• Global Finance Faces $9 Trillion Stress Test As Dollar Soars (AEP)

• Euro Predicted To Fall To 85 Cents Against US Dollar (CNBC)

• Asian Central Banks’ Dilemma: Balancing Debt and Growth (WSJ)

• China Economic Data Weaker Than Expected, Fuels Policy Easing Bets (Reuters)

• Greece Demands Nazi War Reparations And German Assets Seizures (Telegraph)

• Athens Threatens To Seize German Assets Over WWII Reparations (Kathimerini)

• Greek Alternative Reality Clashes With Eurozone Losing Patience (Bloomberg)

• The ECB’s Noose Around Greece (Ellen Brown)

• US Fed Slashes Payout Plans Of Large Wall Street Banks (Reuters)

• Draghi: ECB Action Shields Eurozone States From Greek Contagion (Reuters)

• How Big Oil Is Profiting From the Slump (Bloomberg)

• Russia Gets Seat On SWIFT Board (RT)

• Gas Terms For Kiev To Be Eased If It Pays East Ukraine Bills (RT)

• Saudi King Salman: We’re Looking For More Oil (Reuters)

• Suburb With 27% Jobless Shows Danger of Australian Recession (Bloomberg)

• Chinese Tourists Are Headed Your Way With $264 Billion

• The Year Humans Started to Ruin the World

What were you thinking?

• Six Days Until Bond Market Crash Begins (EconMatters)

Early on Thursday morning, realizing this was going to be a robust selloff in equities, the ‘smart money’, i.e., the big banks, investments banks, hedge funds and the like, ran to the old staple of buying bonds hand over fist with little regard for the yield they are getting paid for stepping in front of the freight train of rate rises coming down the tracks. Just six days away from the most important FOMC meeting in the last seven years, and another 300k employment report in the rear view mirror, this looks like an excellent place to hide for nervous investors who have far more money than they have grains of common sense. Newsflash for these investors, yes markets are over-valued, and you need to get out of Apple, and about 100 other high flying overpriced momentum stocks, but you can`t hide out in bonds this time.

That party is over, and next Wednesday`s FOMC meeting is going to make this point abundantly clear. There is no place to hide except cash. You should have thought about that before you gorged yourself on ZIRP to the point where you have pushed stocks and bonds to unsupportable price levels, and you keep begging for the Fed to stall just another six months, so you can continue to buy more stocks and bonds. Well you have done an excellent job hoodwinking the Fed to wait until June, you should thank your lucky stars you have done such a good job manipulating the Federal Reserve; but just like the boy crying wolf, this strategy loses its effectiveness over time. Throwing another temper tantrum right before another important FOMC meeting hoping that Janet Yellen will be alarmed by these Pre-FOMC Selloffs to put off another six months the inevitable rate hike, this blackmail strategy has run its course.

The Fed is forced to finally start the Rate Hiking Cycle after 7 plus years of Recession era Fed policies by an overheating labor market. You knew this day was going to come, but most of you are still in denial. What the heck were you buying 10-year bonds with a 1.6% yield five months before a rate hike?? You only have yourself to blame for the 65 basis point backup in yields on that disaster of an “Investment”. But really what were you thinking here?? That is the problem when the Fed has incentivized such poor investment decisions and poor allocation of capital to useful, growth oriented projects over the past 7 plus years of ZIRP that these ‘investors’ don`t think at all, they have become behaviorally trained ZIRP Crack Addicts!

“..the stuff of nightmares for those already caught on the wrong side of the biggest currency margin call in financial history..”

• Global Finance Faces $9 Trillion Stress Test As Dollar Soars (AEP)

Sitting on the desks of central bank governors and regulators across the world is a scholarly report that spells out the vertiginous scale of global debt in US dollars, and gently hints at the horrors in store as the US Federal Reserve turns off the liquidity spigot. This dry paper is the talk of the hedge fund village in Mayfair, and the stuff of nightmares for those in Singapore or Hong Kong already caught on the wrong side of the biggest currency margin call in financial history. “Everybody is reading it,” said one ex-veteran from the New York Fed. The report – “Global dollar credit: links to US monetary policy and leverage” – was first published by the Bank for International Settlements in January, but its biting relevance is growing by the day. It shows how the Fed’s zero rates and quantitative easing flooded the emerging world with dollar liquidity in the boom years, overwhelming all defences.

This abundance enticed Asian and Latin American companies to borrow like never before in dollars – at real rates near 1pc – storing up a reckoning for the day when the US monetary cycle should turn, as it is now doing with a vengeance. Contrary to popular belief, the world is today more dollarized than ever before. Foreigners have borrowed $9 trillion in US currency outside American jurisdiction, and therefore without the protection of a lender-of-last-resort able to issue unlimited dollars in extremis. This is up from $2 trillion in 2000. The emerging market share – mostly Asian – has doubled to $4.5 trillion since the Lehman crisis, including camouflaged lending through banks registered in London, Zurich or the Cayman Islands. The result is that the world credit system is acutely sensitive to any shift by the Fed. “Changes in the short-term policy rate are promptly reflected in the cost of $5 trillion in US dollar bank loans,” said the BIS.

“Europeans need to become a net creditor to the rest of the world. They need to buy a lot more foreign assets..”

• Euro Predicted To Fall To 85 Cents Against US Dollar (CNBC)

As analysts were waiting to see how fast the euro reaches parity against the U.S. dollar, one foreign exchange pro told CNBC he saw the common currency dropping even further, with the dollar strengthening another 20%. George Saravelos, global co-head of FX research at Deutsche Bank, said the euro could fall to 85 U.S. cents against the greenback. “The current account surplus is actually helping the euro to weaken,” he said Wednesday in an interview with “Squawk on the Street.” “There’s just too many savings in Europe, too much cash. When that’s combined with what the ECB is doing, which is basically pushing extra liquidity in the system, charging for that liquidity, the only solution is for that capital to flow out of Europe.”

The euro traded around a 12-year low against the dollar on Wednesday and analysts were betting that party with the greenback would be reached soon. Wednesday morning the euro traded around $1.06. The move comes as the ECB began its quantitative easing program Monday in an effort to simulate the euro zone’s economy. “It’s a once-in-a-century event, really. We’ve never had a period where the Fed is about to hike rates over the next few months while at the same time the second-biggest economic bloc of the world is engaging in an unprecedented QE with negative rates,” Saravelos said. Right now there are more foreigners invested in Europe than there are Europeans abroad, he said. “That has to change. Europeans need to become a net creditor to the rest of the world. They need to buy a lot more foreign assets for that adjustment to be completed.”

Korea just DID lower its rate. But…

• Asian Central Banks’ Dilemma: Balancing Debt and Growth (WSJ)

While slowing growth has given central banks across Asia room to cut rates, some are doing so timidly, fearing an even greater buildup in debt. But there’s a growing sense that policy makers are going to have to take bolder action to boost demand in the face of fast-decelerating economies. The Bank of Thailand surprised with a quarter-percentage-point rate cut on Wednesday, and some observers think South Korea’s central bank could follow suit in its meeting on Thursday. “It is clear that Korea’s growth outlook has worsened,” said HSBC economist Ronald Man, who expects a quarter-percentage-point cut to 1.75%, in a note to clients. “The sooner the Bank of Korea lowers its policy rate, the sooner its benefits will transmit through the economy and support growth.”

There are reasons for caution. Both countries have high household debt levels, built up since the onset of the global financial crisis in 2007. As U.S. and European demand for Asia’s exports sagged, Asian governments came to rely more on credit to households and companies to fuel domestic demand. McKinsey, in a report last month, named Thailand and South Korea, along with Australia and Malaysia, as places where household debt levels may be unsustainable. South Korea’s household debt-to-income level stood at 144% at the end of the second quarter last year, the latest data available. That’s higher than the U.S. before its subprime crisis.

Policy makers in South Korea are faced with a problem. Exports of electronics, automobiles and machinery still haven’t picked up, and growth is unlikely to break much above 3% this year for the fourth year in a row. Household spending has remained moribund, in part due to stagnant wages. The high debt overhang also is making consumers cautious. The central bank cut rates twice last year to try to engender more local demand. The moves led to some increase in debt to purchase real estate, and house prices in Seoul, the capital, have begun to recover. But overall domestic spending has remained in the doldrums.

QE would be suicidal for China. It already has a mountain of money

• China Economic Data Weaker Than Expected, Fuels Policy Easing Bets (Reuters)

– Growth in China’s investment, retail sales and factory output all missed forecasts in January and February and fell to multi-year lows, leaving investors with little doubt that the economy is still losing steam and in need of further support measures. The figures came a day after data showed deflationary pressures intensified in the factory sector in February, reinforcing expectations of more interest rate cuts and other policy loosening to avert a sharper slowdown in the world’s second-largest economy. “Activity data surprised the market on the downside by a large margin, suggesting that China’s first quarter GDP growth could likely fall to below 7%,” ANZ economist Li-Gang Liu said in a research note.

“In our view, the extremely weak data at the beginning of the year suggest that China needs to engage in more aggressive policy easing, and we see that a reserve requirement ratio (RRR) cut will be imminent,” he said, adding that stimulus measures rolled out since last year seem to have had limited effect. Industrial output grew 6.8% in the first two months of the year compared with the same period a year ago, the National Bureau of Statistics said on Wednesday, the weakest expansion since the global financial crisis in late 2008. Analysts polled by Reuters had forecast a 7.8% rise, down slightly from December. Retail sales rose 10.7%, the lowest pace in a decade and missing expectations for a 11.7% rise.

Fixed-asset investment, a crucial driver of the Chinese economy, rose 13.9%, the weakest expansion since 2001 and compared with estimates for a 15% gain. “Fixed asset investment will likely face even more challenges,” economists at Credit Suisse said in a note this week, adding that crackdowns on corruption and shadow banking have heavily squeezed spending by local governments. “Local officials and executives at state owned enterprises are more worried about their jobs than investment … The central government is pushing out more investment projects, but with the aim of partially offsetting losses in local investment, rather than accelerating growth.”

“The government will work in order to honour fully its obligations. But, at the same time, it will work so that all of the unfulfilled obligations to Greece and the Greek people are met..”

• Greece Demands Nazi War Reparations And German Assets Seizures (Telegraph)

Greece’s prime minister has demanded Germany pay back more than €160bn in Second World War reparations as his country is squeezed by creditors to overhaul its economy in return for vital bail-out funds. In an emotive address to his parliament, Alexis Tsipras said his government had a “duty to history, to the people who fought and to the victims who gave their lives to defeat Nazism.” The Leftist government maintains it is owed more than €162bn – nearly half the value of its total public debt – for the destruction wrought during the Nazi occupation of Greece. “The government will work in order to honour fully its obligations. But, at the same time, it will work so that all of the unfulfilled obligations to Greece and the Greek people are met,” said Mr Tsipras on Tuesday at a parliamentary debate on the creation of a reparations committee.

Syriza’s leader added the atrocities of the Nazi occupation remained “fresh in the memory” of Greek people and “must be preserved in the younger generations.” Greece’s demand for reparations centres on a war loan of 476m Reichsmarks the Greek central bank was forced to make to the Nazis, as well as further compensation for the destruction and suffering caused by the occupation. The country’s justice minister went further, threatening the seizure of German assets in order to compensate the relatives of Nazi war crimes. Nikos Paraskevopoulos told Greek television he was willing to back a supreme court ruling which would lead to the foreclosure of German assets in Greece. Germany’s vice-chancellor dismissed the prospect of repayment last month. “The likelihood is zero,” said Sigmar Gabriel.

The Third Reich famously subdued Greek resistance in a matter of weeks in 1941, after the country had held out for months against Mussolini’s Italian army. The Nazi occupation that followed saw more than 40,000 civilians starved to death in Athens alone. Germany has claimed it has already covered its obligations in the post-war reparations it has since paid to Greece. The rhetoric comes as Athens prepares to open its books to its lenders in a bid to release €7.2bn in bail-out funds the country desperately needs to stay afloat. Inspection teams from the ECB, IMF and EC are due to cast their eyes over the country’s finances and begin technical work over the terms of the bail-out extension in the coming days. Athens is scrambling to pay €1.3bn in loans to the IMF before the end of the month.

“You cannot pick and choose on ethical issues.”

• Athens Threatens To Seize German Assets Over WWII Reparations (Kathimerini)

Justice Minister Nikos Paraskevopoulos has said he is ready to sign an older court ruling that will enable the foreclosure of German assets in Greece in order to compensate the relatives of victims of Nazi crimes during the Second World War. Greece’s Supreme Court ruled in favor of Distomo survivors in 2000, but the decision has not been enforced. Distomo, a small village in central Greece, lost 218 lives in a Nazi massacre in 1944. “The law states that in order to implement the ruling of the Supreme Court, the minister of justice has to order it. I believe this permission should be given and I’m ready to give it, notwithstanding any obstacles,” Paraskevopoulos told Antenna TV on Wednesday.

“There must probably be some negotiation with Germany,” said Paraskevopoulos, who first announced his intention Tuesday during a Parliament debate on the creation of a committee to seek war reparations, the repayment of a forced loan and the return of antiquities. During the same debate, Prime Minister Alexis Tsipras expressed his government’s firm intention to seek war reparations from Germany, noting that Athens would show sensitivity that it hoped to see reciprocated from Berlin. Tsipras told MPs that the matter of war reparations was “very technical and sensitive” but one he has a duty to pursue. He also seemed to indirectly connect the matter to talks between Greece and its international creditors on the country’s loan program.

“The Greek government will strive to honor its commitments to the full,” he said. “But it will also strive to ensure all unfulfilled obligations toward Greece and the Greek people are fulfilled,” he added. “You cannot pick and choose on ethical issues.” Tsipras noted that Germany got support “despite the crimes of the Third Reich” chiefly thanks to the London Debt Agreement of 1953. Since reunification, German governments have used “silence, legal tricks and delays” to avoid solving the problem, he said. “We are not giving morality lessons but we will not accept morality lessons either,” Tsipras said.

“If it carries on like this, it’s a road to a car crash..”

• Greek Alternative Reality Clashes With Eurozone Losing Patience (Bloomberg)

Ask Greek Finance Minister Yanis Varoufakis about his country’s predicament, and you’re likely to get a very different response from the one echoing around the euro region. The Athens University professor said on Monday he’s convinced the six-week-old government is doing what’s needed to secure more funding and avoid bankruptcy. His counterparts, during a euro-area finance ministers’ meeting, spoke of mixed messages, dawdling and a lack of detail over Greece’s deteriorating financial situation. Impressions aside, Greece is running out of time, money and friends. France’s Michel Sapin, whose government had made the most conciliatory noises toward Greek calls for less austerity, expressed frustration with Varoufakis. Spain’s finance minister, concerned about an anti-austerity insurrection at home, also hardened the rhetoric.

“The time comes when what’s needed is not declarations of intentions or slogans, but figures and verifiable data,” Sapin said in Brussels. Greece is seeking the disbursement of an aid payment totaling about 7 billion euros ($7.5 billion) amid speculation its coffers could be empty by the end of the month. With technicians representing the EC, ECB and IMF set to begin work Wednesday to assess the nation’s needs, officials around the euro zone have complained about the lack of progress. Much of the negotiations of the past few weeks have been a “complete waste of time,” according to Dutch Finance Minister Jeroen Dijsselbloem. “Not so much has happened,” in Greece since the euro area in February allowed the government’s loan agreement to be extended by four months,’’ he told reporters after the meeting. “So the question arises: how serious are they?”

For Varoufakis, 53, an economist whose expertise is game theory, all is working well and the government is on course to meet all its debt obligations. “I believe that we are doing our job properly,” Varoufakis said at the conclusion of Monday’s talks. “Our job is to start the process which is necessary for the European Central Bank to have confidence.” After promising the electorate it would break free from the conditions tied to the country’s bailout, the government committed to coming up with a package of economic reforms in exchange for the aid. It now has to give more details of how it will implement them. “If it carries on like this, it’s a road to a car crash,” Andrew Lynch at Schroder in London, told Bloomberg. “Both sides need to stop the posturing and get a deal done as quickly as possible because otherwise you just get to a stage where accidents can happen, and accidents at this stage could be very serious.”

“The ECB bought public debt from private banks for a fortune, because the ECB could not buy public debt directly from the Greek state. The icing on this layer cake is that private banks had found the cash to buy Greece’s public debt exactly from…the ECB, profiting from ultra-friendly interest rates. This is outright theft. And it’s the thieves that have been setting the rules of the game all along.” “Goldman Sachs “helped” Greece get into the Eurozone through a highly questionable derivative scheme involving a currency swap that used artificially high exchange rates to conceal Greek debt. Goldman then turned around and hedged its bets by shorting Greek debt.

• The ECB’s Noose Around Greece (Ellen Brown)

Remember when the infamous Goldman Sachs delivered a thinly-veiled threat to the Greek Parliament in December, warning them to elect a pro-austerity prime minister or risk having central bank liquidity cut off to their banks? It seems the ECB (headed by Mario Draghi, former managing director of Goldman Sachs) has now made good on the threat. The week after the leftwing Syriza candidate Alexis Tsipras was sworn in as prime minister, the ECB announced that it would no longer accept Greek government bonds and government-guaranteed debts as collateral for central bank loans to Greek banks. The banks were reduced to getting their central bank liquidity through “Emergency Liquidity Assistance” (ELA), which is at high interest rates and can also be terminated by the ECB at will.

In an interview reported in the German magazine Der Spiegel on March 6th, Alexis Tsipras said that the ECB was “holding a noose around Greece’s neck.” If the ECB continued its hardball tactics, he warned, “it will be back to the thriller we saw before February” (referring to the market turmoil accompanying negotiations before a four-month bailout extension was finally agreed to). The noose around Greece’s neck is this: the ECB will not accept Greek bonds as collateral for the central bank liquidity all banks need, until the new Syriza government accepts the very stringent austerity program imposed by the troika (the EU Commission, ECB and IMF). That means selling off public assets (including ports, airports, electric and petroleum companies), slashing salaries and pensions, drastically increasing taxes and dismantling social services, while creating special funds to save the banking system.

These are the mafia-like extortion tactics by which entire economies are yoked into paying off debts to foreign banks – debts that must be paid with the labor, assets and patrimony of people who had nothing to do with incurring them. Greece is not the first to feel the noose tightening on its neck. As The Economist notes, in 2013 the ECB announced that it would cut off Emergency Lending Assistance to Cypriot banks within days, unless the government agreed to its bailout terms. Similar threats were used to get agreement from the Irish government in 2010. Likewise, says The Economist, the “Greek banks’ growing dependence on ELA leaves the government at the ECB’s mercy as it tries to renegotiate the bailout.”[..]

The ECB bought public debt from private banks for a fortune, because the ECB could not buy public debt directly from the Greek state. The icing on this layer cake is that private banks had found the cash to buy Greece’s public debt exactly from…the ECB, profiting from ultra-friendly interest rates. This is outright theft. And it’s the thieves that have been setting the rules of the game all along. That brings us back to the role of Goldman Sachs (dubbed by Matt Taibbi the “Vampire Squid”), which “helped” Greece get into the Eurozone through a highly questionable derivative scheme involving a currency swap that used artificially high exchange rates to conceal Greek debt. Goldman then turned around and hedged its bets by shorting Greek debt.

Predictably, these derivative bets went very wrong for the less sophisticated of the two players. A €2.8 billion loan to Greece in 2001 became a €5.1 billion debt by 2005. Despite this debt burden, in 2006 Greece remained within the ECB’s 3% budget deficit guidelines. It got into serious trouble only after the 2008 banking crisis. In late 2009, Goldman joined in bearish bets on Greek debt launched by heavyweight hedge funds to put selling pressure on the euro, forcing Greece into the bailout and austerity measures that have since destroyed its economy.

Somone’s blowing smoke, but who is it?

• US Fed Slashes Payout Plans Of Large Wall Street Banks (Reuters)

– Four of the largest U.S. banks just scraped by in an annual Federal Reserve check-up on the industry’s health, underscoring their top regulator’s enduring doubts about Wall Street’s resilience more than six years after the crisis. Goldman Sachs, Morgan Stanley and JPMorgan, all with large and risky trading operations, lowered their ambitions for dividends and share buybacks, the Fed said on Wednesday, to keep them robust enough to withstand a hypothetical financial crisis. The revised plans allowed them to pass the Fed’s simulation of a severe recession. And Bank of America was told to get a better grip on its internal controls and its data models even as the Fed approved its payout plans after the so-called stress tests. “Bank of America exhibited deficiencies in its capital planning process…. in certain aspects of (its) loss and revenue modeling practices,” the Fed said.

The failure of four of the largest U.S. banks to win unconditional approval on their first attempt underscores the split between Wall Street banks and their regulators over whether the lenders have enough capital on their books to weather another crisis. Citigroup, whose Chief Executive Mike Corbat has staked his job on not failing the so-called stress tests again, will sigh a breath of relief as it passed, allowing it to raise its payouts after failing last year for the second time in three years. The Fed first started running its so-called stress tests in 2009, when many of the largest U.S. banks were struggling to repay taxpayer bailout funds they took after the collapse of Lehman Brothers a year earlier. Citi said it will raise its quarterly dividend to 5 cents a share from the penny a share payout it had to adopt during the financial crisis and that it had won approval to buy back $7.8 billion of stock over five quarters. Shares in Citi rose by as much as 3.2% after the bell.

The Fed rejected plans for the U.S. units of two European banks, Deutsche Bank and Santander, in line with earlier media reports. The objection came even though both banks satisfied the Fed’s minimum capital requirements, since there were “widespread and substantial weaknesses across their capital planning processes,” the Fed said. JPMorgan, Goldman Sachs and Morgan Stanley each had to adjust their capital plans to meet the Fed’s minimum capital requirements. “For those banks it’s going to be a continuing balancing act between how much leverage can you have to pass the stress tests and still maximize your profitability as a bank,” said David Little, the head of the enterprise Risk Solutions unit at Moody’s, referring to banks with large trading books operating on Wall Street.

Mario’s on pills of some kind: “..a slowdown in growth had reversed and that the recovery should “broaden and hopefully strengthen.”

• Draghi: ECB Action Shields Eurozone States From Greek Contagion (Reuters)

ECB buying of government and other debt may be shielding countries in the euro zone from any knock-on effect from events in Greece, ECB President Mario Draghi said on Wednesday. The ECB began a policy of printing money to buy sovereign bonds, or quantitative easing, on Monday with a view to supporting growth and lifting euro zone inflation from below zero up towards its target of just under 2%. “We also saw a further fall in the sovereign yields of Portugal and other formerly distressed countries in spite of the renewed Greek crisis,” Draghi told a conference in Frankfurt. “This suggests that the asset purchase program may be shielding euro area countries from contagion.”

Draghi spoke as Greece embarked on technical talks with its international creditors to agree reforms and unlock further funding amid growing frustration with Athens. The new left-wing Greek government, keen to show voters it is keeping a promise not to work with the detested “troika” of foreign lenders, has been trying to avoid having talks with inspectors from the three institutions in their own country. Earlier this week, ministers spent barely 30 minutes discussing Greece at their monthly meeting, an EU official said, stressing it was time for Athens to engage in serious, detailed discussions with experts from the institutions formerly known as the “troika”.

On the outlook for the euro zone economy, Draghi said a slowdown in growth had reversed and that the recovery should “broaden and hopefully strengthen.” Updated forecasts by ECB staff published last week showed the QE program would support growth in the 19-country euro zone and lift inflation from below zero up to 1.8% in 2017 – in line with the ECB’s goal. Draghi said these forecasts were conditional on the full implementation of all the ECB’s announced measures. The central bank plans to buy €60 billion a month of assets – mostly sovereign bonds – until at least September next year.

Trading houses. Or is that casinos?

• How Big Oil Is Profiting From the Slump (Bloomberg)

Europe’s largest oil companies are gaining support from an unlikely source as they confront the industry’s worst slump since the financial crisis: lower oil prices. Although better known for their oil fields, refineries, and petrol stations, BP, Shell and Total are also the world’s biggest oil traders, handling enough crude and refined products every day to meet the consumption of Japan, India, Germany, France, Italy, Spain and the Netherlands. The trio’s sway in commodities trading, largely unknown outside the industry, is set to pay off in 2015 as the bear market allows traders to generate higher returns by storing cheap oil today to sell at higher prices later and using lower prices to make more bets with the same capital.

“Volatility has increased dramatically over the last three or four months,” said Mike Conway, the head of Shell’s trading and supply business. “Parts of your business that are volatility driven are probably doing pretty well.” While companies are shy about revealing the financial results from their trading business, a look at the last major bear market provides clues to the opportunity they have today. In the first quarter of 2009, BP said it made $500 million above its normal level of profits from trading. That means that trading accounted for, at the very least, 20 percent of BP’s adjusted income that quarter of $2.38 billion.

From dealing floors that resemble the operations of Wall Street banks in cities including Geneva, London, Houston, Chicago and Singapore, oil trading could provide BP, Shell and Total with an edge over U.S. rivals Exxon Mobil and Chevron, which sell their own production, but largely eschew pure trading as a means of generating profits.

How funny is that?

• Russia Gets Seat On SWIFT Board (RT)

Increased banking traffic means Russia now has a seat on the board of the SWIFT global interbank communications system. The seat comes at a time of increased pressure for Russia to be removed from the organization because of sanctions. It is the first time Russia has had a seat on the 25-member board of directors of the Society for Worldwide Interbank Financial Telecommunication (SWIFT) since it joined in 1989. Every three years the organization reconfigures the shares among the countries participating. Each country receives a number of shares in proportion to the traffic in the system. The reallocation has led to changes in the structure of the board.

“By the end of 2014 the SWIFT traffic growth in Russia allowed us to reach thirteenth place in the world, so Russia has increased its stake to a level that allows it to nominate a candidate to the Board of Directors”, the executive director of the Russian National SWIFT Association Roman Chernov told RBC. On this basis, Russia gained a seat as Hong Kong lost one, Belgium gained an additional seat giving it two and the Netherlands lost a seat giving it one, according to The Banker. “The threat of disconnection from SWIFT does not decrease after the appearance of the Russian representative on the board of directors, since the decision to disconnect from SWIFT is independent, but such a presence means that we can influence decisions made by SWIFT in terms of the introduction of the new standards, service improvements, and tariff systems”, Alma Obaeva, the Chairman of the non-commercial National Payments Council was cited as saying by RBC.

Another major chuckle.

• Gas Terms For Kiev To Be Eased If It Pays East Ukraine Bills (RT)

Russia could give Ukraine better terms provided Kiev pays for gas supplied to the Donbass region, said Russian Energy Minister Aleksandr Novak adding that this would open the possibility for new discounts. “We are supplying [East Ukraine – Ed.] under the [2009] contract. Gazprom doesn’t ship for free. Bills, invoices are being prepared,” Novak said Wednesday quoted by Reuters. He added that no clarification has been made over the further payments of gas supplies to Donbass. Ukraine’s Naftogaz owes Gazprom $2.4 billion for deliveries, including $200 million in penalties, according to the minister’s earlier estimates. The so-called ‘winter package’ terms for gas supply to Ukraine expires on March 31, along with a $100 discount per 1,000 cubic meters of gas and a suspension of a take-or-pay agreement that requires payment for gas no matter if Ukraine needs it by that date or not.

Novak said Russia is open to extend those concessions even without signing a new deal after the ‘winter package’ expires. “A discount is possible under the contract as well. No separate packages are needed if Ukraine and Russia reach an agreement. Take-or-pay [suspension – Ed.]… is also possible, it depends on the talks between the companies,” Novak said. If the gas price in the second quarter is $330 per 1,000 cubic meters or higher, the maximum discount for Kiev would be $100, he said. If the price is lower, the discount will be no greater than 30% of the cost. The price for the second quarter may be in the range of $350-360 without discounts, compared $329 in the current quarter.

Thanks man, we really need it.

• Saudi King Salman: We’re Looking For More Oil (Reuters)

Saudi Arabia’s King Salman said he would fight corruption, diversify the economy and confront anybody who challenged the stability of the world’s top oil exporter in his first big speech since taking power on Jan. 23. His speech, carried on state television, focused on the need to create private sector jobs for young Saudis, a main policy goal for many years as Riyadh strives to meet a looming demographic challenge while controlling public spending. Addressing the chaos threatening the kingdom from around the region, he said no one would be allowed to tamper with Saudi Arabia’s security or stability. He said Saudi foreign policy would be committed to the teachings of Islam and spoke of a move towards greater Arab and Islamic unity to face shared threats, as well as a continued focus on working with other countries against terrorism.

He also pledged to maintain the kingdom’s Sharia Islamic law, emphasising its central place in the kingdom, in a nod to the powerful clerical establishment that confers religious legitimacy on the unelected ruling dynasty. Salman also reassured Saudis about lower oil prices, noting the historically high revenues of recent years and saying the government would reduce the impact on development projects and continue to explore for oil and gas reserves. Addressing himself to young Saudis of both sexes, he said the state would do all it could to help develop their education, sending them to prestigious universities, to help them get jobs in either the public or private sector. King Salman added that he had directed the government to review its processes to help eradicate corruption, a source of dissatisfaction among many Saudis, alongside concerns about expensive housing and joblessness.

Sounds familiar: “They’re too scared to spend because they don’t know what the next day will hold.”

• Suburb With 27% Jobless Shows Danger of Australian Recession (Bloomberg)

In a shopping center full of sale signs in Broadmeadows, a Melbourne suburb with 27% unemployment, Soney Kul is struggling to shift half-price jewelry. “People don’t want to spend,” the 27-year-old said, gesturing at the sparsely-filled display cases in his family-owned store, Altinbas. “They’re too scared to spend because they don’t know what the next day will hold.” After a decade-long mining boom powered by Chinese demand, Australia’s economy is falling back to earth fast. Among the worst hit are industrial areas like Broadmeadows, whose Ford Motor Co. plant will shut after a record-high currency made operations untenable, and the slowdown is spreading. Only four months after economists were forecasting interest-rate increases in 2015, the country’s central bank has cut its benchmark to a fresh record low.

Goldman Sachs estimates a one-in-three chance Australia will fall into recession in the next 12 months. Australians’ wage growth last quarter matched a record-low pace and prices of the country’s key commodity exports were down 27% in February from a year earlier. “You’re at stall speed,” Tim Toohey, chief economist for Goldman Sachs in Australia, said of national income growth. “It’s that level of uncertainty, and excess capacity in the labor market, that is continuing to be the main story on why consumers aren’t engaging.” Australia’s jobless rate stands at a 12 1/2-year high of 6.4% and there are a growing number of pockets in the nation where it’s much worse.

Suburbs like Broadmeadows and Elizabeth in South Australia are dominated by manufacturers that received little benefit from China’s surging demand for raw materials, while suffering the fallout from an overvalued currency driven up by the commodities boom. Across Australia, regions with unemployment of 10% or more of the workforce rose to 13.3% of all areas in the third quarter from 10.9% of the total a year earlier, according to government data released in December. In response, the central bank cut its benchmark interest rate last month for the first time in more than a year, saying growth would stay “below trend” and unemployment peak at a higher level for longer than it previously expected. Traders are pricing in almost two more reductions over the next 12 months from the current record low of 2.25%.

And I will sell them my Brooklyn Bridge… Well, you know, either that or I’ll get myself the same brand of printing press that the Chinese have.

• Chinese Tourists Are Headed Your Way With $264 Billion

Book your holiday now, before a wave of 174 million Chinese tourists snap up the best bargains. Already the most prolific spenders globally, the number of Chinese outbound tourists is tipped to soar further as the millennial generation spreads its wings. Here are the numbers: 174 million Chinese tourists are tipped to spend $264 billion by 2019 compared with the 109 million who spent $164 billion in 2014, according to a new analysis by Bank of America Merrill Lynch. To put that in perspective, there were just 10 million Chinese outbound tourists in 2000. How much is $264 billion? It’s about the size of Finland’s economy and bigger than Greece’s.

“China-mania spread globally in the past few years, akin to when the Japanese started travelling some 30 years ago, when the world went into frenzy then, pandering to Japanese customers’ needs,” the analysts wrote. “In our view, this is going to be bigger and will last longer given China’s population of 1.3 billion vs Japan’s population of 127 million.”

Millennials, or 25- to 34- year olds, are expected to make up the bulk of Chinese tourists at 35% of the total, followed by 15- to 24- year olds accounting for around 27%. Only about 5% of China’s 1.3 billion populace are thought to hold passports, meaning the potential for outbound tourism is vast. The projected boom could be good news for the global economy. The Chinese are the world’s biggest consumers of luxury goods, with half of that spending done overseas. Chinese visitors to the U.S. have risen more than 10% since 2009, the fastest pace for a destination outside of Asia. Australia, France and Italy are also popular.

Very interesting.

• The Year Humans Started to Ruin the World

Astronomers have been telling us for nearly 500 years that humanity is not the most important thing in the universe. Evolutionary biologists established long ago that we’re not even the greatest show on earth. Now, geologists—the scientists who literally decide what on earth is going on—may reach the opposite conclusion: Humanity is the most powerful force on the planet, shaping the environment more than water, wind, or plate tectonics. Fifteen years ago, two prominent researchers suggested that the earth has formally entered a phase of human domination. Unless there’s some unforeseen calamity caused by volcanic activity or a meteor, they argued, “mankind will remain a major geological force for many millennia, maybe millions of years, to come.”

Nobel prize-winning chemist Paul Crutzen and University of Michigan biologist Eugene Stoermer called this new episode in planetary history the Anthropocene Epoch. The idea has been gaining steam in both the scientific and mainstream press for several years. Enough scientists have bought into the idea that this week, the journal Nature dedicates more than nine pages to the next logical question: If we have crossed into the Anthropocene—which “appears reasonable,” they write with understatement—when did it begin? Geologists are quite insistent on physical evidence. Wherever possible, each of the planet’s eons, eras, periods, epochs, and ages are distinguished with a “golden spike,” a physical marker somewhere in rock, glacier, or sediment that signals evidence of big changes in the earth’s operating system. It needn’t be gold, or even a spike, but without satisfying the International Commission on Stratigraphy’s requirements (which includes several additional procedural hurdles), there will be no new epoch.

The Nature article, by Simon Lewis of University College London and Mark Maslin of the University of Leeds, evaluates nine possibilities that others have put forward as the starter’s pistol of the Anthropocene Epoch. The episodes reach as far back as tens of thousands of years ago, when people hunted large mammals to extinction. Others are as recent as the post-World War II period, when such “persistent industrial chemicals” as plastics, cement, lead, and other fruits of the laboratory started to find their way into nature. The authors ultimately dismiss all but two of the examples because the events were too local (rice farming in Asia) and happened over too long a time span (the extinction of large mammals), which are two main obstacles to a golden spike. The two dates that meet their standard are 1610 and 1964.

Debt Rattle March 6 2015

Mar 062015

March 6, 2015 Posted by Raúl Ilargi Meijer at 12:20 pm Finance Tagged with: Draghi, El Nino, Greece, Mediterranean Diet, Nuland, oil, parity, Ukraine 4 Responses »

Harris&Ewing War-bond rally on Penn. Avenue, Washington DC 1918

• Dollar-Euro Parity A Matter Of When Not If (CNBC)

• “Chinese Economic Activity Has Probably Slowed To Less Than 3%” (Zero Hedge)

• Mario Draghi’s Yield of Dreams (WSJ)

• Greece Seeks To Plug Its ‘Bermuda Triangle’ Of Lost Taxes (AFP)

• Draghi Declares Victory for Bond-Buying Before It Starts (Bloomberg)

• Nowhere But Down? Euro Reacts To QE (CNBC)

• Is Greece Already Rolling Back On Its Pledges? (CNBC)

• Wall Street Will Crush Obama’s Plan To Protect 401(k) Savers (Paul B. Farrell)

• Storage Dearth May Drive Oil Prices To $30 (MarketWatch)

• UK Trade Deal Finances ‘Dirty Energy’ Projects In Mexico (Guardian)

• The American Woman Who Stands Between Putin and Ukraine

• Victoria Nuland: Russia’s Actions In Ukraine Conflict An ‘Invasion’

• ‘Nuland Ensconced In Neocon Camp Believes In Noble Lie’ (Ron Paul Inst. at RT)

• A Mediterranean Diet Is Even Better For You Than You Thought (Independent)

• El Nino Declared As Climate Scientists Watch On With ‘Amazement’ (SMH)

Major shift afoot.

• Dollar-Euro Parity A Matter Of When Not If (CNBC)

Parity between the dollar and euro is likely “a matter of when not if,” a strategist told CNBC on Thursday. Sameer Samana of Wells Fargo said on “Squawk on the Street” that it would depend on quantitative easing in Europe and economic data in the U.S. “The economic surprises in Europe have been getting a little bit better and the ones in the U.S. are getting a little more negative so I would say appreciation probably starts to happen at a much-slower pace,” he said. “Parity is probably only a matter of when not if.”

Meanwhile, Ward McCarthy, Jefferies chief financial economist, expects money to flow to the U.S. “Investors who sell bonds to the ECB are going to look for some place to put their money,” he also said on “Squawk on the Street.” “The dollar should strengthen and the U.S. bond market continues to be high yield, so I think expectations are a lot of this money will find its way over here and I think that is exactly what’s going to happen.” Samana recommends investors stay in stocks with diversified portfolios. “Going forward it looks like Europe has the chance to actually surprise to the upside.”

I’ve been saying this forever: there’s no way they get 7% in a 1% at best world.

• “Chinese Economic Activity Has Probably Slowed To Less Than 3%” (Zero Hedge)

In a world in which sell-side research (and even that of independent third-parties) is not only meaningless – because as we first said in 2010 the only thing that matters in the New Paranormal is ‘the Fed’s H.4.1 statement’ – there are few sources of insightful, non-conflicted analysis. One place which stands out is Cornerstone Macro – yes, it costs a lot of money, but it’s worth it. Cornerstone is the one place which actually turned bearish a little over a month ago, purely on fundamental factors (FX, oil, global recession), and has been pointing out many of the discrepancies in the narrative (then again, as we showed before, in a world in which central banks are set to have the greatest amount of nominal “intervention” surpassing even the post-Lehman period…

… one doesn’t have to be a rocket surgeon to realize that things are not only not good, but have rarely been worse even with the benefit of $13 trillion in central bank liquidity).

We bring it up because Cornerstone’s analysis of recent developments in China bears keeping a very dose eye on. We won’t spoil it, especially for those who are paying subscribers to the paid (and quite expensive) service, but we will present what they have chosen to broadcast publicly on their research section, which in light of last night’s official news of yet another confirmation the slowdown in China is getting worse (not only on the unprecedented debt build up which we have covered extensively in the past, and where monetary ‘austerity’ is suddenly a very hot topic, but where capital outflows have become the number one focal issue) has released several key research reports. Here are the key publicly-available excerpts from some of their salient recent reports:

From Hello Beijing, We Have a Problem:
China is likely to continue to ease, for 3 reasons:
1. Chinese economic activity has probably slowed to less than 3%.
2. China is likely to experience broad-based deflation.
3. China is Nicely to continue to experience net capital outflows. That last bullet, net capital outflows, is the focus of the report today.

“Mr. Draghi’s open-mouth operations to talk down the euro..”

• Mario Draghi’s Yield of Dreams (WSJ)

The ECB begins its much-anticipated purchases of sovereign bonds on Monday, and ECB President Mario Draghi says the program known as quantitative easing is working before it has even begun. He’s right about that, as strange as it sounds, and therein lies the paradox of Europe’s dive into QE: It may already have had the most effect it is going to have through Mr. Draghi’s salesmanship and Europe’s will to believe. Recall how the ECB got here. Demands have grown for years for an ECB program to match the bond purchases by central banks in the U.S., U.K. and Japan. Mr. Draghi started hinting at a willingness to play along in his August speech at the global central banking conference at Jackson Hole, Wyo. By the time Mr. Draghi in September announced a plan to buy private securities, investors viewed it as a stepping-stone to buying sovereign debt too.

As investors came to view QE as inevitable, prices responded, especially the price of the euro. As a result of Mr. Draghi’s open-mouth operations to talk down the euro—coupled with an expectation that interest rates might rise soon in the U.S.—the euro has declined steadily against the dollar and other currencies. On Thursday it hit an 11-year low of $1.10, compared to about $1.40 last summer. QE boosters hope the euro devaluation will enhance European export competitiveness, although there’s little evidence so far. The euro’s fall might also have produced some inflation through higher euro-denominated import prices had the global price of oil not fallen by some 50% in the past few months. Above all, by demonstrating his commitment to bold steps to avert full-blown deflation, Mr. Draghi has been trying to jolt market expectations about future price moves.

QE expectations have driven down bond yields across Europe, which is supposed to be another benefit. Yields on government bonds have fallen significantly, some into negative territory. Large companies are also starting to line up to issue ultralow yield debt. French energy company GDF Suez on Wednesday sold bonds worth €500 million ($551 million) with a zero coupon, the first such deal in Europe in more than 14 years. Berkshire Hathaway on Thursday raised €3 billion in its first euro-denominated bond issue. So Mr. Draghi has some cause to say, as he did Thursday, that “we have already seen a significant number of positive effects” from the ECB’s January QE announcement.

“.. the only efficient way of countering smuggling was to cut the tax on cigarettes..”

• Greece Seeks To Plug Its ‘Bermuda Triangle’ Of Lost Taxes (AFP)

It could be a scene from a thriller: a ghost ship abandoned in the crystal-clear bay of a Greek island, its hold crammed with millions of illegal cigarettes, the crew nowhere to be seen. And no one knows where the freighter Amaranthus or its cargo were bound for when it beached on the island of Zanthe off the Ionian coast of western Greece in December. But such discoveries are now almost routine for police as cigarette and petrol smuggling has become big business in crisis-hit Greece. Every country in Europe has a problem with cigarette smuggling but in Greece – which has the highest proportion of smokers of any developed country – it has mushroomed since the economy sank into crisis. A security official told AFP corruption and a lack of resources had caused “major failings in the Greek Customs system” with few major seizures or investigations into smuggling rings.

Yet it is by cracking down on this multi-billion euro business, and the even more lucrative trade in petrol smuggling, that the new left-wing government hopes to find some of the money it needs to pay off Greeces gigantic debts. Prime Minister Alexis Tsipras has made stamping out fuel and cigarette fraud one of his priority reforms, with the state losing an estimated €1.5 billion a year in petrol tax alone, and between €500 and €600 million in lost revenue on tobacco. According to the market research company Nielsen, which used official Greek data, more than one cigarette in five smoked in Greece last year was smuggled, compared with only 3% in 2009 when the crisis that has devastated the Greek economy first struck.

But with the price of cigarettes rocketing, and cash-strapped governments raising taxes on them five times in as many years, researcher Ioannis Michaletos of the Institute of Defence Studies and Analyses said “the only efficient way of countering smuggling was to cut the tax on cigarettes”. This is not, however, what the government, desperate to fill the states empty coffers, want to hear, and it seems determined instead to tighten controls and fully implement European rules on the traceability of cigarettes. Michaletos is sceptical any such crackdown would work “given that European states better equipped than Greece have not had much success.”

No kidding: “We don’t have any experience with this quantitative easing, so anybody who knows this now should speak up.”

• Draghi Declares Victory for Bond-Buying Before It Starts (Bloomberg)

Mario Draghi is claiming victory for his quantitative-easing program before it even starts. As the European Central Bank president set a start date of Monday for his 1.1 trillion euro ($1.2 trillion) bond-buying program, he said the stimulus will spur the euro area’s fastest economic growth since 2007 and return inflation to the ECB’s goal within three years. The bullish tone after policy makers met in Nicosia on Thursday signals optimism that what Draghi called the ECB’s “final set of measures” will restore the 19-nation currency bloc to health. The risk is that this is just yet another false dawn, leaving the central bank needing to do more. “Draghi had a tough battle to reach the QE compromise, now of course he wants to promote it as much as possible,” said Thomas Harjes at Barclays in Frankfurt. “He gave a strong statement that QE will deliver.”

Draghi’s faith in quantitative easing, which he pushed through against German-led opposition, was reflected in the ECB’s new economic forecasts. After consumer prices fell 0.3% in February, the central bank now sees a deflationary spiral averted. Prices are projected to be flat over the whole of 2015. Inflation should average 1.5% next year, twice as much as the 0.7% estimate in December, and 1.8% in 2017. The ECB’s goal is just below 2%, a level not seen since early 2012. As for economic growth, the ECB’s economists lifted their outlook for this year to 1.5% from 1%, for 2016 to 1.9%, and projected 2.1% in 2017. The economy hasn’t expanded faster than 2% since 2007. “Our monetary-policy decisions have worked,” Draghi told reporters in the Cypriot capital.

He may be catching a lucky break. Critics of quantitative easing, such as Bundesbank President Jens Weidmann, said the euro-zone economy would enjoy an uplift anyway after oil prices fell by half, the euro tumbled, and stimulus in recent months such as interest-rate cuts take effect. Whether QE will work “is not that easy to answer,” Bundesbank board member Andreas Dombret said on Bloomberg TV on Thursday. “We don’t have any experience with this quantitative easing, so anybody who knows this now should speak up.”

“Killing three birds with one stone…”

• Nowhere But Down? Euro Reacts To QE (CNBC)

With the ECB about to launch its €1 trillion bond-buying program on Monday, foreign exchange experts are already preparing to readjust their forecasts for the single currency. After the ECB announced its massive quantitative easing (QE) campaign would start Monday, the euro fell below $1.1000 for the first time since September 2003. On Friday, the currency was hovering around 1.1012. Against sterling, the euro had also fallen to near seven-year lows of 72.29 pence. Whether the euro could recover after the ECB announced that it was to begin purchasing €60 billionworth of assets a month has prompted analysts to question their forecasts for the currency. One market analyst said the euro was being “brutally punished” by traders. “Volatility is the name of the game for today,” Naeem Aslam at Ava Trade said.

“Short the euro and buy the dollar is probably the most crowded trade for the last year, and yet till this day, investors are not afraid to put more chips on the table. This is causing a tremendous amount of pressure for the euro zone currency.” Derek Halpenny at Bank of Tokyo-Mitsubishi, said in a note Thursday that his year-end forecasts for euro/dollar “might quickly look too conservative.” “(The) ECB press conference certainly highlighted the determination of the ECB to implement the QE program but the forecasts suggest the markets should not expect more,” Halpenny said in a note Thursday. Currencies tend to weaken during QE as there is more money in circulation and lower interest rates tend to encourage consumers to spend and businesses to invest. Killing three birds with one stone, a cheaper euro is expected to help combat deflation and stimulate both the region’s economy and exports, which become more attractive with a cheaper currency.

At this point, it’s not Greece that’s the problem.

• Is Greece Already Rolling Back On Its Pledges? (CNBC)

It’s payback time for Greece. Despite securing a four-month lifeline on its loans, the bills are already piling up. On top of this month’s repayments to the International Monetary Fund worth a total of 1.5 billion euros, the country faces debt obligations amounting to €22.5 billion for 2015. And there are mounting concerns that, in spite of the extension, Greece still won’t be able to pay its way. A snap election on January 25th led to a new government headed by left-wing Syriza party, which has pledged to make a break from the past austerity measures imposed on it by its lenders. 5 years down the line, and Greece is still tied to two loan programs worth €240 billion overseen by the so-called Troika of the EC, the ECB and the IMF. The bailout, that was due to expire at the end of last year, has been extended twice to give time to Greece’s international creditors to negotiate with the new government.

State revenues, key to helping Greece repay its loans, dropped dramatically in January as people stopped paying taxes in the hope of new legislation. Banks, meanwhile, have been hit by a big wave of capital flight as depositors took money abroad in fear of a “Grexit”.
Meanwhile, Spain’s finance minister, Luis de Guindos, said this week that a third bailout on top of the 240 billion euros already doled out is inevitable. “It is absolutely clear from a market’s perspective that Greece will have to continue relying on official sector financing if it likes to stay in the euro. The new government may try different ways to raise tax revenue etc. than previous governments, but investors have heard the same song over and again”, David Schnautz, interest rates strategist for Commerzbank in New York told CNBC.

The new Greek government is pushing for the money that it thinks is rightfully theirs. Finance minister Yanis Varoufakis has been arguing that the ECB should release €1.9 billion that it gained in interest from its Greek bond holdings. These proceeds, currently held by other euro zone countries, would be returned to Greece once the final review of the country’s bailout programme was concluded. A further €7.2 billion, the last tranche of aid from this second package, is also to be released. Eurogroup President Jeroen Dijsselbloem said this week that a first disbursement could be made as soon as this month, if Greece picked up the speed of its reforms – as the country agreed on February 20th.

“Janet Yellen’s Fed favors too-greedy-to-fail banks versus America’s 95 million Main Street investors..”

• Wall Street Will Crush Obama’s Plan To Protect 401(k) Savers (Paul B. Farrell)

President Obama’s new fiduciary rule for retirement advice is DOA. Why? Not just because a 2004 GOP Senate killed the fiduciary rule Vanguard’s Jack Bogle has been pushing for over a half century. Not just because Wall Street banks will defeat any and every proposed fiduciary rule, just like they’ve been killing all bank reforms like Dodd-Frank since the 2008 crash. And not just because Janet Yellen’s Fed favors too-greedy-to-fail banks versus America’s 95 million Main Street investors. Even if Obama’s fiduciary rule is not dead on arrival, it will get buried soon in Washington’s deadly partisan graveyard. No such rule will ever go far in today’s hostile GOP Congress, any more than Bogle’s Fidelity Rule did a decade ago. Why? Because banks will fight to the death to protect the hundred of billions in fees generated without any fiduciary rules.

Banks and the financial industry a ideologically selfish. They will never voluntarily put the investor’s interests first, never! Even without a fiduciary rule, America’s 95 million Main Street investors can beat Wall Street at its own game, building a bigger, better retirement portfolio. Here’s how: Last year we built our own new set of rules based on a comparison of fees in the Wall Street Journal. Listen: “For example, imagine putting $200,000 in stock ETFs averaging 0.04% fees. Do that and you’ll have $2 million for your retirement in three decades. But put the same $200,000 in mutual funds charging the industry average, an annual fee of 1.25%, and you’d have only $1.4 million in 30 years. Yes, you lose $600,000. You’d have $600,000 less for your retirement years. Meanwhile, some clever advisers would pocket your $600,000 into their retirement accounts.”

Or $10.

• Storage Dearth May Drive Oil Prices To $30 (MarketWatch)

As the U.S. runs out of space to store its glut of crude-oil supplies, prices for the commodity could sink to as low as $30 a barrel. When storage is full, there is pressure on those holding oil in storage to “dump that inventory,” said Charles Perry, chief executive officer of energy-consulting firm Perry Management. So a space shortage could cause a drop in prices to the $30 to $40-per-barrel range, he said. West Texas Intermediate crude – the U.S. benchmark — has already seen its prices halved from a year ago. A cost of $30 per barrel of oil represents a 40% drop from the current level, which stands near $51. At Cushing, Okla., the “mecca” of oil storage in the U.S., “the Motel 6 may have a vacancy sign out, but the storage terminals really don’t,” said Kevin Kerr, president of Kerr Trading International.

Here’s why storage plays such a big part: While there are several storage options such as pipelines, very large crude carriers, also known as VLCCs, aboveground tanks and underground salt caverns, the costs for these have “dramatically increased, forcing some companies to sell their inventory as a cheaper option, thus putting significant pressure on prices,” said John Macaluso at Tyche Capital Advisors. It’s not clear how much costs have increased but Perry, an oil-and-gas industry veteran, points out that he’s always heard the going rate for aboveground storage at Cushing was, more or less, 50 cents a barrel a month. Oil tanker storage is the most expensive, with prices likely in the $1 to $1.25 a barrel a month range, he said. Total utilization of crude storage capacity in the U.S. is at about 60% as of the week ended Feb. 20, and capacity at Cushing, the delivery point for WTI futures contracts, is about 67% full, the EIA reported Wednesday.

Coincidentally, the CME Group announced plans Wednesday for what it calls the “first-ever physically delivered crude-oil storage futures contract.” Storage is a major component of the supply-glut dilemma. U.S. crude inventories are at their highest level on record, according to EIA records dating back to the 1980s. Supplies have climbed for eight weeks straight. Capacity for many of the storage locations will be at or near capacity in several weeks to a few months, Kerr estimates — and if storage facilities “begin to turn away supplies and/or dump them on the market en masse,” the market could see oil prices at or below the $45 level. “The scenario could keep us in cheap oil for some time to come,” Kerr said. “We don’t see much spare storage opening up anytime soon. What we do expect are higher rates for storage and a glut of supply.”

Anything for a buck.

• UK Trade Deal Finances ‘Dirty Energy’ Projects In Mexico (Guardian)

The UK government has become embroiled in a row over financial support for fossil fuel companies after announcing a $1bn (£660m) funding package involving Pemex, the Mexican state oil group. Greenpeace said the move to provide credit for “dirty” energy projects under the UK Export Finance (UKEF) scheme flew counter to the government’s commitments to fighting climate change. The Tories and Lib Dems pledged in 2010 that export finance would be used to champion British companies that developed and exported innovative green technologies around the world, “instead of supporting investment in dirty fossil fuel energy production”.

“The truth is that the ‘greenest government ever’ has spent the last five years bankrolling some of the dirtiest energy developments on the planet, from Russian coal mining to the Saudi oil industry,” said Lawrence Carter, a Greenpeace UK energy campaigner. “Our ministers should stop acting like the merchant bankers of climate change and start using export finance to promote the cutting-edge clean technologies that are reshaping energy markets the world over.” The financing agreement was revealed during a visit to Aberdeen by Matthew Hancock, the UK energy minister, alongside Mexico’s president Enrique Peña Nieto who is on a wider state trip to the UK.

Mexico’s energy system is undergoing significant reform and Nieto was visiting Scotland to speak to energy leaders across the business and education sectors, as well as signing agreements with the UK government for greater collaboration in the areas of energy and climate change. “This visit today by President Peña Nieto to the UK’s energy capital cements the already close links between our two countries and heralds an era of closer collaboration in energy,” said Hancock. “The government of Mexico expects $50bn of investment by 2018 in the wake of its energy reforms – boosting the economy and creating jobs while rejuvenating production,” he added.

See my artcile March 5.

• The American Woman Who Stands Between Putin and Ukraine

Ukraine is a nation at war, which is why Natalie Jaresko, the minister of finance, has traveled 20 miles from Kiev to the town of Irpin, a settlement of 40,000 on the edge of a pine forest. She’s here to visit a rearguard army hospital and to console convalescing veterans of recent battles against Russian forces and their proxies in the Ukrainian east. “Where did you serve?” she asks, moving slowly from room to room. “How were you wounded?” She may be from Chicago’s West Side, but she speaks Ukrainian fluently, and if anyone notices her American accent, no one seems to care. Jaresko tells the soldiers they’re heroes, the country’s national accountant handling a job for generals. The crisis has thrust people into unlikely roles.

Three months ago, Jaresko, 49, left the private equity firm that she co-founded in Ukraine in 2006 to join the government of Petro Poroshenko. At the time, Jaresko didn’t even have Ukrainian citizenship. Now, as the country’s top economic official, she’s Ukraine’s liaison to the World Bank, the IMF, and the European Bank for Reconstruction and Development. Tax reform is hers. So is the treasury.

[..].. whether Ukraine succeeds as an independent democratic nation arguably depends as much on the efforts of Jaresko and her colleagues as it does on the military battles. Together they must rebuild a shattered economy and restore international confidence in Ukraine while confronting the corruption and cronyism that have haunted the country since the fall of communism. And they must somehow do so as state-owned banks teeter on the brink of collapse, the national treasury counts its last foreign notes, and inflation is at 28% and rising. The longer the war carries on and reforms are delayed, the more hostile Ukrainians will become to their government and its Western supporters, leaving the country even more vulnerable to Vladimir Putin.

Get rid of the freak already.

• Victoria Nuland: Russia’s Actions In Ukraine Conflict An ‘Invasion’

Assistant secretary of state Victoria Nuland has admitted the US considers Russia’s actions in Ukraine “an invasion”, in what may be the first time a senior American official has used the term to describe a conflict that has killed more than 6,000 people. Speaking before the House committee on foreign affairs, Nuland was asked by representative Brian Higgins about Russia’s support of rebels in eastern Ukraine, through weapons, heavy armor, money and soldiers: “In practical terms does that constitute an invasion?”

Nuland at first replied that “we have made clear that Russia is responsible for fielding this war,” until pressed by Higgins to answer “yes or no” whether it constitutes an invasion. “We have used that word in the past, yes,” Nuland said, apparently marking the first time a senior official has allowed the term in reference to Russia’s interference in eastern Ukraine, and not simply its continued occupation of the Crimean peninsula.

Obama administration officials across departments have strenuously avoided calling the conflict an invasion for months, instead performing verbal contortions to describe an “incursion”, “violation of territorial sovereignty” and an “escalation of aggression”. In November Vice-President Joe Biden, who has acted as one of Obama’s primary liaisons with the Ukrainian president, Petro Poroshenko, rapidly corrected himself after breaking from the White House’s careful language on CNN, saying “When the Russians invaded – crossed the border – into Ukraine, it was, ‘My god. It’s over.’”

“.. the US does not want peace to break out.” “..the US hasn’t provided one piece of proof, except for Ambassador Geoffrey Pyatt’s Rorschach tests he passes off as a satellite photo.”

• ‘Nuland Ensconced In Neocon Camp Believes In Noble Lie’ (Ron Paul Inst. at RT)

RT:World leaders and international monitors agree the situation in Ukraine is generally improving. Why are we still witnessing aggressive rhetoric from some US officials?

Daniel McAdams: Because the US does not want peace to break out. The US is determined to see its project through. But unfortunately like all of its regime change projects this one is failing miserably. Victoria Nuland completely disregards the role of the US in starting the conflict in Ukraine. She completely glosses over the fact that the army supported by Kiev has been bombarding Eastern Ukraine, as if these independent fighters in the east are killing themselves and their own people. Victoria Nuland was an aid to Dick Cheney; she is firmly ensconced in the neocon camp. The neocons believe very strongly in lying, the noble lie… They lied us into the war in Iraq; they are lying now about Ukraine. Lying is what the neocons do.

RT: Nuland listed a lot of hostile actions by Russia without providing any reliable proof. Do you think she can be challenged on these topics?

DM: Maybe she is right but the US hasn’t provided one piece of proof, except for Ambassador Geoffrey Pyatt’s Rorschach tests he passes off as a satellite photo. Maybe they are true but we have to present some evidence because we’ve seen now the neocons have lied us into the war. This is much more serious than the attack on small Iraq. This has the potential for a global nuclear war. So I think they should be held to a higher level of scrutiny. Thus far they have not provided any. We do know however that the US is providing military aid. As the matter of fact this week hundreds of American troops are arriving in Ukraine. Why is that not an escalation? Why is it only an escalation when the opponents of the US government are involved?

RT: How probable is that the Western nations ship lethal aid to Ukraine?

DM: It is interesting because Victoria Nuland this week spent some time with Andriy Parubiy, one of the founders of the fascist party in Ukraine and I believe one of the founders of the Joseph Goebbels Institute. She met with him this week and had a photo taken with him. He came back to Ukraine and assured his comrades that the US will provide additional, non-lethal weapons – whatever that means – and felt pretty strongly that they would provide lethal weapons. The Chairman of the Joint Chiefs of Staff, General Martin Dempsey has been urging the US government to provide lethal weapons as has the new US defense secretary [Ashton Carter], both of whom come from the military industrial complex which is thrilled by prospect of a lot more arms to be sold.

RT: Nuland has said the State Department is in talks with EU leaders for another round of sanctions on Russia. Do you think the EU will agree?

DM: I think they will be pressured into agreeing. It is interesting that Nuland said that the new Rada, the new Ukrainian parliament, in this first four months has been a hive of activity. I was just watching some videos from the fights in the Ukrainian parliament. So that was one bit of unintentional humor probably in her speech. It looks like a fight club over there.

Or just stop eating crap.

• A Mediterranean Diet Is Even Better For You Than You Thought (Independent)

You’ve heard the evidence before but one can never be too sure – yet another study has shown that adopting a Mediterranean diet is good for your health. Filling up on oily fish, nuts, whole grains and fruit and vegetables – and even the odd glass of red wine – could cut your risk of developing heart disease by almost half over a 10-year period. Scientists at Harokopio University in Athens found that the benefits even outweigh those of regular exercise – and it doesn’t matter whether you’re a man or a woman, old or young. The study, which will be presented at the American College of Cardiology’s 64th Annual Scientific Session in San Diego later this month, reinforces previous research. But it is also the first of its kind, in that it tracked heart disease risk in a general population. Most other studies have focused on middle-aged people.

Ekavi Georgousopoulou, a PhD candidate, who conducted the study along with Professor Demosthenes B Panagiotakos, said: “Our study shows that the Mediterranean diet is a beneficial intervention for all types of people – in both genders, in all age groups, and in both healthy people and those with health conditions. “It also reveals that the Mediterranean diet has direct benefits for heart health, in addition to its indirect benefits in managing diabetes, hypertension and inflammation.” More than 2,500 Greek adults, aged 18 to 89, provided researchers with details about their health each year from 2001 to 2012. The participants also completed comprehensive surveys about their medical records lifestyle and dietary habits three times throughout the study: at the start, after five years and after 10 years.

Weak little kid.

• El Nino Declared As Climate Scientists Watch On With ‘Amazement’ (SMH)

Unusual warming of waters in the central equatorial Pacific has prompted the US government to declare an El Nino event and predict a better-than-even chance that it will linger through the middle of the year. The US National Oceanic and Atmospheric Administration said the above-average sea-surface temperatures had exceeded key thresholds, triggering the declaration of the “long-anticipated” El Nino. However, the location of the main warming – about 10 degrees west of the International Dateline rather than to the east – and its timing early in the year are puzzling climate experts looking for similar events. “Climate scientists are monitoring this with amazement,” said Cai Wenju, a principal CSIRO research scientist who has published widely on the El Nino Southern Oscillation (ENSO) climate pattern. “We only understand what we have seen.”

El Ninos involve the relative warming of sea-surface temperatures in the eastern equatorial Pacific, compared with western regions. In such events, the typical east-to-west trade winds abate or reverse, and large areas of the western Pacific including eastern Australia receive reduced rainfall. Currently, the area of most anomalous warmth is located about 7000 kilometres west of the area where El Ninos are typically centred. They also tend to appear in the late autumn to winter period for the southern hemisphere. “All these are very different from a classic El Nino,” Dr Cai said. While Japanese researchers have identified similar central Pacific warming events – dubbing them El Nino Modoki, or “same but different” in Japanese – the current pattern is about 1500 kilometres further to the west than previous ones, Dr Cai said.

Earlier this week, the Bureau of Meteorology upgraded its ENSO Tracker to “watch” level, reflecting the recent warming. “Weakened trade winds are forecast to continue, and this may induce further warming,” the bureau said. Andrew Watkins, the bureau’s supervisor of its Climate Prediction Services unit, said Australia’s definition differs from the NOAA’s so it is yet to declare an El Nino event. “Even by their definition, it’s very weak,” Dr Watkins said. “It just scrapes over the line.” For the bureau to declare an El Nino event, greater warmth needs to persist in the monitored areas – 0.8 degrees above average compared with 0.5 degrees – and the atmosphere must begin to “couple” with the changed ocean conditions, reinforcing them.

Debt Rattle January 29 2015

Jan 292015

January 29, 2015 Posted by Raúl Ilargi Meijer at 11:52 am Finance Tagged with: austerity, commodities, cuts, debt, Fed, Greece, oil, parity, QE, Syriza 2 Responses »

Unknown Crack salesmen ‘Going East’ on streamliner City of San Francisco 1936

• What The Oldest Stock Market Index Is Telling Us (MarketWatch)

• I Am So Bearish, I Am Growing Fur! (MarketWatch)

• The Euro Is Crashing Below Parity And Will Get Cheaper Still (MarketWatch)

• Goldman Cuts Outlook For Whole Commodity Sector (CNBC)

• Three Myths About Greece’s Enormous Debt Mountain (Telegraph)

• Investors Have Woken Up To Greece’s Nuclear Risk (AEP)

• Tsipras Aims to Avert Catastrophe But Greek Markets Sink Further (Bloomberg)

• Greece Wants a Debt Break. What About Its Poorer Neighbors? (Bloomberg)

• Investors Turn On Tsipras’s Campaign to End Austerity in Greece (Bloomberg)

• Greek Bank Stocks And Deposits Hit By Default Fears (CNBC)

• Bank Of England Governor Attacks Eurozone Austerity (Guardian)

• The Really Scary Thing About Europe’s QE Plan (CNBC)

• Federal Reserve Paves Way For Earlier-Than-Expected Rate Hike (Guardian)

• Jeffrey Gundlach: Fed Is on the Brink of Making a Big Mistake (Bloomberg)

• ‘Two Percent Inflation’ and The Fed’s Current Mandate (Ron Paul)

• Who Doubts Yellen’s Policies? Summers for One. Investors too (Bloomberg)

• China Regulator To Inspect Stock Margin Trading At 46 Firms (Reuters)

• Kern County Declares Fiscal Emergency Amid Plunging Oil Prices (LA Times)

• Shell Cuts $15 Billion of Spending as Profit Misses Expectations (Bloomberg)

“If you want to know whether lower oil prices are benefitting the economy, take a look at the Dow Jones Transportation Average. The picture isn’t pretty.”

• What The Oldest Stock Market Index Is Telling Us (MarketWatch)

If you want to know whether lower oil prices are benefitting the economy, take a look at the Dow Jones Transportation Average. The picture isn’t pretty. Consider what’s happened over the five weeks since I last devoted a column to the Dow Transports, the oldest stock market index in widespread use today. (The Dow Industrials are the second-oldest.) Since then, oil prices have dropped 20%. If cheaper oil were a net positive for the economy, one of the first places you’d expect to see it show up is the transportation sector. Yet it hasn’t: Over this same five-week period, the Dow Transports have fallen nearly 2%. The Transports’ surprisingly poor performance is worrisome for at least two reasons. The first is that the Transports are a leading indicator of economic downturns.

The transportation sector’s track record as a leading indicator was documented several years ago by the Bureau of Transportation Statistics in the U.S. Department of Transportation, titled “The Freight Transportation Services Index as a Leading Economic Indicator.” The study found that the department’s index over the past three decades “led slowdowns in the economy by an average of 4-5 months.” Unfortunately, we don’t know where the Freight Transportation Services index currently stands, since it is reported with a significant time lag. The latest data, for example, are for November. But it is significantly correlated with the Dow Jones Transportation Average, so that average’s weakness is definitely worrying.

The other reason the Transports’ weakness is ominous: It is one of the two stock market averages that are the focus of the Dow Theory, the oldest stock market timing system in widespread use today. The other average, of course, is the Dow Industrials. To be sure, not all Dow Theorists agree on the hurdles over which the two Dow averages must jump before the Dow Theory would issue a “sell” signal. But suffice it to say that the further they retreat from their highs, the further the market gets from confirming that the bull market is still alive — and the closer it gets to signaling that a bear market has begun. As of Tuesday’s close of trading, the Dow Industrials were 4% below its all-time high, and the Transports were 4.1% below.

“This condition has happened two other times, in March 2000 and December 2007. In each of the following years, the market lost more than 30%.”

• I Am So Bearish, I Am Growing Fur! (MarketWatch)

The recent bubble that burst in the oil market has been the talk around the world. What would people say if the stock market fell 40% in 2015? The U.S. market’s foundation is crumbling, according to my calculations — just as it did in 2000 and in 2008. My proprietary daily indicator, called The Cook Cumulative Tick indicator, or CCT, measures several internal market components, the strongest of which is the duration of buying versus the duration of selling. A healthy bull market sees mostly buying, indicated by the NYSE tick. But when the duration of the plus-column NYSE tick is less than the duration of the minus tick, this suggests weakening buying volume for stocks. A second component of the CCT focuses on the NYSE “big block” buying and selling.

A bullish market has numerous big blocks of buying. A print on the NYSE tick in excess of plus-1000 signifies fund buying by numerous entities, which accompanies a healthy bull market. Nowadays the big institutional money has dried up. Market action in both December 2014 and January 2015 have given a short-term sell signal. I believe the correct way to gauge a market condition is by measuring the strength or weakness of a rally. The S&P 500 futures registered a triple-top in the range between 2,088 and 2,089, on December 26th, December 29th, and December 30, 2014 respectively. The resulting pullback took the index to the 1,970 price area. The gauge of measurement following the lows of 1,970 is the rally strength generated in the rally phase, which carried prices to 2,062.

This last rally covered approximately 90 S&P futures points. A rally of this magnitude under normal market conditions would record a net Daily CCT reading of plus-9.0. This means that there would be a recorded reading of 9 more incidences of plus-1,000 NYSE tick readings than minus-1,000 tick readings. Yet the actual readings during this period registered a minus CCT reading, not a plus. This condition has happened two other times, in March 2000 and December 2007. In each of the following years, the market lost more than 30%. I am so bearish, I am growing fur!

“There is no way of fixing this mess without a lot of saber-rattling on both sides. The real issue is not going to be the Greek debt burden. The payment terms have already been extended, and the interest payments reduced, so that the annual payments are hardly onerous. ”

• The Euro Is Crashing Below Parity And Will Get Cheaper Still (MarketWatch)

Now the fun part begins. After months of speculation, the radical antiausterity party Syriza has now taken power in Athens. Its platform of staying within the euro while overthrowing the conditions of membership is going to test the leadership of the European Union to the limit. The euro has already plunged to a multi-year low against the dollar, partly on account of the potential for chaos that the election result has unleashed But it is about to go a lot lower still. Why? Because there will be a tense game of brinkmanship between Brussels and Athens before a compromise is worked out. Because Syriza’s victory will encourage other antiausterity parties, especially in Spain. And because the ECB will throw more quantitative easing at the problem.

The euro will crash through parity with the dollar before the end of the year — and when it does, eurozone assets, and equities in particular, will be a bargain for foreign investors. The mandate secured by the new Greek Prime Minister Alexis Tsipras was as decisive as it could be in the circumstance. He soundly beat the moderate center-right incumbent, and will now govern in coalition with a small far-right party that is even more determined in its opposition to the austerity package Greece agreed to in return for a bailout. Over the next few weeks, he will attempt to renegotiate the terms of that bailout, postponing or re-scheduling the country’s debt, and freeing up space for the government to increase wages and welfare benefits, and, it hopes, start to lift the country out of the most savage recession any country has experienced since the 1930s.

The market took that – perhaps surprisingly – in its stride. That may have been because the result was so widely expected. Greek bond yields shot up, but in the rest of the peripheral eurozone states, they barely moved. The euro itself hardly showed any reaction, and equities traded as if it was a normal day. Over the next three months, however, the euro is going to take a big hit. Here are the three reasons why. First, there will be a game of chicken between Brussels, Berlin and Athens. There is no way of fixing this mess without a lot of saber-rattling on both sides. The real issue is not going to be the Greek debt burden. The payment terms have already been extended, and the interest payments reduced, so that the annual payments are hardly onerous.

“Despite the large declines in commodity prices, we see risks as still skewed to the downside over the near-term. Lower oil prices are also driving cost deflation across the broader commodity complex..”

• Goldman Cuts Outlook For Whole Commodity Sector (CNBC)

After countless oil price downgrades, analysts at Goldman Sachs have cut their outlook for the commodity sector as a whole. Goldman downgraded commodities on Wednesday—including energy, metals, agriculture and livestock—to “underweight” from “neutral” on a 3-month basis. “Despite the large declines in commodity prices, we see risks as still skewed to the downside over the near-term. Lower oil prices are also driving cost deflation across the broader commodity complex,” Goldman strategists led by Christian Mueller-Glissmann said in a research note. The strategists forecast WTI crude oil prices would remain at around $40 per barrel for most of the first half of the year, which would “slow supply growth, keep further capital investment in U.S. shale sidelined, and “We think the oil market is experiencing a marginal cost re-basement,” they said.

Mueller-Glissmann and colleagues forecast that “balance” would return to global oil markets by 2016 and they upgraded their 12-month view of the commodity sector to “overweight” from “neutral”. “By the end of 2015, we see inventories closer to a neutral level and prices rising to the marginal cost of production, which we estimate to be US$65 for WTI and US$70 for Brent. However, the timing of normalizing inventories and prices remains highly uncertain, in part due to ongoing cost deflation in shale,” they said. Barclays also revised down its forecasts for oil prices on Wednesday, in its second substantial revision in recent months. The bank now forecasts Brent and WTI will average $44 and $42 respectively over 2015. Less than two months ago, Barclays’ forecasts were $93 and $85 respectively.

Mehreen Khan reveals some interesting points. Things are not what they seem.

• Three Myths About Greece’s Enormous Debt Mountain (Telegraph)

€317bn. Over 175pc of national output. That’s the enormous debt mountain that faces the new Greek government. It is the issue over which the country is set to clash with other countries in the eurozone. As it stands, Greece’s debt-to-GDP ratio is the highest in the currency bloc. It has been steadily rising as the country has undergone painful austerity and experienced a severe contraction in economic output. The new far-left/right-wing coalition is now demanding a write-off of up to 50pc of its liabilities. The government argues that this is the only way Greece can remain in the single currency and prosper.

According to the newly appointed finance minister, who first coined the term “fiscal waterboarding” to describe Greece’s plight, the EU has loaded “the largest loan in human history on the weakest of shoulders – the Greek taxpayer”. So far, the rest of the eurozone is adamant that it will not meet demands for debt forgiveness. And yet, the value of Greece’s debt mountain has been called a meaningless “accounting fiction” by Nobel laureate Paul Krugman. So what does Greece’s €317bn debt really mean for the country and its creditors? And can it ever be paid back?

“A freshly elected government cannot allow itself to be intimidated by threats of Armageddon..”

• Investors Have Woken Up To Greece’s Nuclear Risk (AEP)

Markets have woken up to Greek nuclear risk. Bank stocks in Athens have crashed 44pc since Alexis Tsipras swept into power this week with a mandate to defy the European power structure. Contrary to expectations, Mr Tsipras has not resiled from a long list of campaign pledges that breach the terms of Greece’s EU-IMF Troika Memorandum and therefore put the country on a collision course with Brussels and Berlin. He told his cabinet he is willing to negotiate on demands for debt relief but will not abandon core promises. “We will not seek a catastrophic solution, but neither will we consent to a policy of submission,” he said. If anything, he is upping the ante, going into coalition with a nationalist party even more hostile to the Troika, clearly gambling that Germany and the creditor powers will not let monetary union break apart at this late stage having already committed €245bn (£183bn), for to do so would shatter the illusion that the eurozone crisis has been solved.

“We will immediately stop any privatisation,” said Panagiotis Lafazanis, leader of the Marxist Left Platform, the biggest bloc in the Syriza pantheon. Plans to sell the PPT power utility and the Piraeus Port have been halted. The minimum wage will be raised from €500 to €751 a month as a first order business, an explicit rejection of Troika austerity terms. We are witnessing a revolt. Never before have the EMU elites had to face such defiance on every front, and they have yet to experience the lacerating tongue of Yanis Varoufakis, a relentless critic of their 1930s ideology of debt-deflation and “fiscal waterboarding”. Mr Varoufakis told me before becoming finance minister that Syriza will not capitulate even if the European Central Bank threatens to cut off €54bn of liquidity for the Greek banking system, a move that would force Greece to nationalise the banks, impose capital controls, and reintroduce the drachma within days.

“A freshly elected government cannot allow itself to be intimidated by threats of Armageddon,” he said. His first act in office today was to announce that 600 cleaners in the finance ministry will regain their jobs, paid for by cutting financial advisers. Whether you are “staunchly” Left or “unashamedly” Right – as the BBC characterises opinion – it is hard not to feel a welling sympathy for this revolt. If it takes a neo-Marxist like Alexis Tsipras to confront the elemental folly of EMU crisis strategy, so be it. The suggestion that Syriza is retreating from “reform” is laughable. There has been no reform. The two dynastic parties in charge of Greece for three decades have treated the state as a patronage machine and seem unable to shake the habit. At least Syriza are outsiders.

Mr Varoufakis has vowed to smash the “rent-seeking” kleptocracy that have turned state procurement into an enrichment scam. “We will destroy the bases which they built for decade after decade,” he said. What Syriza is really retreating from is a scorched-earth austerity regime that has cut investment by 63.5pc, caused a 26pc fall in GDP, pushed the youth jobless rate to 62pc, and sent debt spiralling up to 177pc of GDP. We have witnessed “The Rape of Greece”, to borrow the title of a new book by Nadia Valavani, suddenly catapulted into power as deputy finance minister. IMF officials privately agree. The fund confesses that the Troika fatally under-estimated the violence of the fiscal multiplier. It is true that Athens lied about the true state of public finances in the years leading up to the crisis, but this is a distraction in macro-economic terms.

The flood of French, German, Dutch, and British capital into Greece was so vast that the drama would have unfolded in much the same way even if Greek politicians had been angels. The greater lie was the silent complicity of the whole eurozone in allowing a deformed monetary union to incubate disaster. What has happened to Greece since then is a moral scandal. Leaked documents from the IMF board confirm the country needed debt relief at the outset. This was blocked by the EU for fear it would set off contagion at a time when the eurozone did not have a lender-of-last resort. Greece was sacrificed to buy time for the euro.

“Talks won’t be easy, they never are in Europe..”

• Tsipras Aims to Avert Catastrophe But Greek Markets Sink Further (Bloomberg)

Greek Prime Minister Alexis Tsipras and his finance chief pledged to avoid a standoff with creditors as stock and bond markets tumbled on the prospect of a prolonged fight with fellow European governments. “There will neither be a catastrophic clash, nor will continued kowtowing be accepted,” Tsipras, 40, said on Wednesday, in comments broadcast live. The new Greek leadership “will not be forgiven” if it betrays its pre-election pledges to renegotiate the terms of the country’s bailout, he said. The new premier convened his cabinet that includes a foreign minister who raised questions over European Union sanctions against Russia and a finance minister who has called Greece’s bailout a trap.

Germany warned the Mediterranean nation against abandoning prior agreements on aid, after analysts said that setting Greece on a collision course with its European peers might lead to its exit from the euro region. The Syriza-led government came to power on a platform of writing down Greek public debt, raising wages and halting spending cuts while remaining in the euro. “Talks won’t be easy, they never are in Europe,” Finance Minister Yanis Varoufakis, 53, said as he took over from his predecessor. “There will be no duel, no threats, or an issue of who blinks first.” Greek stocks and bonds slumped for a third day, after new ministers said they will cease the sale of some state assets and increase the minimum wage. Yields on three-year bonds rose 2.66 percentage points to 16.69%.

The benchmark Athens General Index decreased 9.2% to its lowest level since 2012, led by a collapse in the value of banks. Yields on 10-year bonds rose back above 10% after being as low as 5.7% in September. In mid 2012, they exceeded 30%, the highest since the country’s debt restructuring, the largest in history. Statements of newly appointed ministers “imply confrontation and tense negotiations in the near future,” Vangelis Karanikas, head of research at Athens-based Euroxx Securities, wrote in a note to clients. The country has about €330 billion of outstanding borrowings. It has to refinance Treasury bills on Feb. 6 totaling €1 billion and another €1.4 billion on Feb. 13, according to data compiled by Bloomberg. The government typically would do that mostly through local banks.

“The country has suffered economic ruin on a scale usually seen only in times of war. The crisis has shorn away nearly a quarter of Greece’s GDP. The unemployment rate is 26%, higher than that of the United States at the height of the Great Depression.”

• Greece Wants a Debt Break. What About Its Poorer Neighbors? (Bloomberg)

Alexis Tsipras’s first official act as Greece’s new prime minister was to lay a small bouquet of roses at the site of a World War II memorial. It marks the execution by firing squad of 200 mostly communist activists by Nazi soldiers. The move was highly symbolic, and not only because Tsipras heads a party named Syriza, an acronym for The Coalition of the Radical Left. The 40-year-old prime minister’s rise to power has put him on a collision course with Germany, as he struggles to deliver on his campaign promises to renegotiate his country’s debt and overturn the painful austerity demanded by Greece’s creditors. But if Tsipras is to bring home the deal he feels Greece deserves, he will have to more than face down the Germans. He’ll have to win over skeptical taxpayer in other euro zone countries, reassure European leaders worried about insurgent challenges of their own and make the case that – in a Europe still reeling from the 2008 global financial crisis – Greece is uniquely deserving of assistance.

Even after seven year of devastating recession, Greece remains much richer than most of its neighbors. Its gross domestic product is $22,000 a person. Albania’s is $4,000, Macedonia’s $5,000. In Bulgaria – like Greece, a member of the European Union – it’s $8,000. “It’s very difficult to make the point to a worker in Bulgaria that they should give part of their taxes to help people in Greece who are richer than they are,” said Ruslan Stefanov, director of the economic program at the Center for the Study of Democracy in Sofia. “If you are spending money like that in Greece, you should spend money in Bulgaria and other Eastern European countries. This is an argument that is being made by politicians here.”

There’s no denying that the situation in Greece is heart-wrenching. The country has suffered economic ruin on a scale usually seen only in times of war. The crisis has shorn away nearly a quarter of Greece’s GDP. The unemployment rate is 26%, higher than that of the United States at the height of the Great Depression. Among the young, it has topped 50%. Families have been plunged into poverty. The private sector has been gutted. The public sector is in shambles. And yet the alternative to austerity is money, and the money has to come from somewhere. Just as Tsipras would suffer if he tried to return empty-handed to the Greeks who elected him, so would politicians in countries like Germany if they tried to sell debt forgiveness to national parliaments and voters.

“Hardest hit were banks, falling as much as 30% on Wednesday because of concern about their supply of funds.”

• Investors Turn On Tsipras’s Campaign to End Austerity in Greece (Bloomberg)

Investors gave their verdict on the new Greek government, selling the country’s stocks and bonds in a signal to Prime Minister Alexis Tsipras of the price he will pay for sticking to promises to end austerity. Hardest hit were banks, falling as much as 30% on Wednesday because of concern about their supply of funds. In the run-up to Sunday’s election, Greek deposit outflows accelerated last week to levels not seen even at the peak of the debt crisis, totaling €11 billion ($12.5 billion), according to a person familiar with the matter. Tsipras’s plans to boost the minimum wage and halt the sale of state assets helped win him a decisive endorsement from voters.

He then formed a coalition with a party that also wants to ditch Greece’s bailout terms and appointed a finance minister who has called them a trap, alarming investors that he’s set for a protracted clash with fellow European leaders. “The market was expecting most of it was going to be political posturing ahead of the elections,” said Gianluca Ziglio, executive director of fixed-income research at Sunrise Brokers in London. Instead, “there’s walk after the talk, and a good deal of it,” he said. Standard & Poor’s said it may cut Greece’s credit rating, already five levels below investment grade, should the new government fail to agree with official creditors on further financial support for the country. Stocks and bonds slumped after Germany and the Netherlands warned Tsipras against abandoning prior agreements on aid and analysts said his policies might lead to Greece’s exit from the euro region.

“Shares of Bank of Piraeus, Alpha Bank, National Bank of Greece and Eurobank all fell by more than 25% on Wednesday.”

• Greek Bank Stocks And Deposits Hit By Default Fears (CNBC)

Greece’s already-fragile banking sector has taken a hammering as fears of a debt default have hit lender’s stocks—and deposits. Following the victory of anti-austerity Syriza in the polls at the weekend, traders are seriously considering the possibility of a default on Greece’s sovereign debt. It’s not the first time Greece has defaulted—the first one was around 450 BC and, more recently, private bond-holders were forced to take a haircut on their debt back in 2012. But Greece’s banks are ill-prepared for another one. Shares in the country’s four main banks have tumbled since Friday, when polls indicated a victory for Syriza. Shares of Bank of Piraeus, Alpha Bank, National Bank of Greece and Eurobank all fell by more than 25% on Wednesday. Meanwhile, Greek banks have hemorrhaged deposits since December, when a Syriza victory was seen as increasingly likely. On Wednesday, Citi Bank economists cited estimates suggesting that around €3 billion euros flew out of Greek banks in December, followed by a further €8 billion in January.

Syriza’s fiery young leader Alexis Tsipras has consistently argued that Greece’s sovereign debt burden of 320 billion euros ($364 billion) is unsustainable, and that the country must be offered some form of debt relief—a policy that Germany, among other lenders to Greece, has dismissed. “Europe and Germany is prepared for accepting the worst case of a Greece default,” Friedrich Heinemann, head of the department for public finance at Munich’s ZEW research institute, told CNBC on Wednesday. “A big name is starting now… They are sending out signals of a very tough stance in the upcoming negotiations. But I think it is important that Europe now also sends out a signal that it cannot be blackmailed, because the Greek government, I think it has the expectation that Europe is very anxious to avoid any stopping of payments from the Greek side.”

“Since the financial crisis all major advanced economies have been in a debt trap where low growth deepens the burden of debt..”

• Bank Of England Governor Attacks Eurozone Austerity (Guardian)

The Bank of England governor, Mark Carney, has launched a strong attack on austerity in the eurozone as he warned that he single-currency area was caught in a debt trap that could cost it a second lost decade. Speaking in Dublin, Carney said the eurozone needed to ease its hardline budgetary policies and make rapid progress towards a fiscal union that would transfer resources from rich to poor countries. “It is difficult to avoid the conclusion that, if the eurozone were a country, fiscal policy would be substantially more supportive,” the governor said. “However, it is tighter than in the UK, even though Europe still lacks other effective risk-sharing mechanisms and is relatively inflexible.” Carney’s remarks come just three days after the election of the Syriza-led government in Greece presented a direct challenge to the austerity policies championed in the eurozone by Germany’s Angela Merkel.

While not mentioning any eurozone country by name, Carney made it clear that he thought the failure to complete the process of integration coupled with over-restrictive fiscal policies risked driving the 18-nation single currency area deeper into a debt trap. “Since the financial crisis all major advanced economies have been in a debt trap where low growth deepens the burden of debt, prompting the private sector to cut spending further. Persistent economic weakness damages the extent to which economies can recover. Skills and capital atrophy. Workers become discouraged and leave the labour force. Prospects decline and the noose tightens. “As difficult as it has been, some countries, including the US and the UK, are now escaping this trap. Others in the euro area are sinking deeper.”

“Will individual governments be forced to re-capitalize, or bail out the central banks, which are trying to bail out the very countries they are trying to help?”

• The Really Scary Thing About Europe’s QE Plan (CNBC)

The European Central Bank’s plan to, along with each member country’s central bank, launch a $1 trillion bond-buying program raises as many questions as it answers. The most important of which is not whether it will boost European Union growth and inflation, but whether it will create an unexpected problem, the likes of which the Federal Reserve never need deal with. Will the ECB and individual central banks make or lose money on their bond buys? Remember when the Fed launched its zero interest-rate policy (ZIRP) and the first round of quantitative easing (QE), many said the Fed would take a bath buying both U.S. Treasury bonds and mortgage securities? The difference was that the Fed, almost by definition, was “buying the bottom” in mortgages, whose prices were so distressed, and the market so illiquid that the Fed could virtually only make money on the transactions.

So, too, with Treasurys. The Fed started buying bonds when interest rates were considerably higher and, thus, since the start of QE I, all the way through QE III, the Fed has logged large capital gains on its bond portfolio and remitted back to the Treasury the interest payments from both mortgage securities and Treasury bonds. However, in the case of the ECB and other individual central banks, they will be buying sovereign debt with yields at historic lows and, as bond math goes, prices at historic highs. In some cases, European bond yields are negative, suggesting that it will be impossible for some of the central banks to ever make money on their QE programs.

Rather ironically, QE is designed to bring about lower interest rates, something the Fed’s program was quite successful at. With the exception of Greece, European rates had already greatly discounted the well-telegraphed ECB program, leaving no room for the “shock and awe” that could move markets in a desired direction. The larger question, which only a handful have thought to ask, is what happens to the central banks if they do, indeed, lose money on their bond buys? Larger balance sheets, with portfolio losses could reduce the available capital of the individual central banks and the ECB. Will individual governments be forced to re-capitalize, or bail out the central banks, which are trying to bail out the very countries they are trying to help?

Yellen just makes it up by cherry picking data.

• Federal Reserve Paves Way For Earlier-Than-Expected Rate Hike (Guardian)

The Federal Reserve appeared to be paving the way for an earlier-than-expected increase in interest rates on Wednesday night, as it highlighted the recent strength of the US economy. After its two-day meeting, the Fed announced that borrowing costs would remain unchanged, at 0-0.25%; but seasoned Fed-watchers pointed out that in the accompanying statement, it had upgraded its assessment of the strength of the world’s largest economy. “Economic activity has been expanding at a solid pace,” the Fed said. “Labour market conditions have improved further, with strong job gains and a lower unemployment rate.” Janet Yellen, who took over as Fed chair a year ago, has stressed that with oil prices plunging, she wants to see evidence that inflation is returning to its 2% target before she agrees to a shift in rates. But markets saw the relatively upbeat language about growth and jobs as a sign that opinion at the Fed is shifting towards an increase in borrowing costs.

Economists are bitterly divided about when monetary policy should be tightened. Some Fed policymakers are nervous that falling unemployment could soon spark inflation. But outside experts, including Nobel prizewinner Paul Krugman, have warned that high levels of debt among many US households would make an early rate rise risky. Krugman said in Dubai last month that he believed the Fed could even delay a rate rise until next year. “When push comes to shove, they’re going to look and say: ‘It’s a pretty weak world economy out there, we don’t see any inflation, and the risk if we raise rates and it turns out we were mistaken is just so huge.’” Unlike December’s no-change decision, the Fed said Wednesday’s meeting was unanimous, after the new year saw a reshuffle among the chairs of the various regional federal reserve banks, who take turns to vote.

“My idea is the Fed raises rates for philosophical reasons. That may be short-lived.”

• Jeffrey Gundlach: Fed Is on the Brink of Making a Big Mistake (Bloomberg)

Jeffrey Gundlach says the Federal Reserve is on the brink of making a big mistake. U.S. central bankers have been talking about raising benchmark borrowing costs this year even though the outlook for global growth is worsening as oil prices tumble. If Fed Chair Janet Yellen goes ahead with this plan, she runs the risk of having to quickly reverse course and cut interest rates, according to Gundlach. “There’s no fundamental reason to raise interest rates,” Gundlach, chief executive officer at DoubleLine, said at a conference yesterday in Hollywood, Florida. “My idea is the Fed raises rates for philosophical reasons. That may be short-lived.” Policy makers concluded a two-day meeting in Washington today.

The Fed maintained its pledge to be “patient” on raising interest rates and boosted its assessment of the economy and labor market, even as it expects inflation to decline further. Yellen said in December that being patient meant such a tightening wouldn’t happen “for at least the next couple of meetings,” or not before late April. Bond traders would seem to share Gundlach’s concern that the Fed may be getting ahead of itself with its road-map for an exit from six years of near-zero interest rates. They are pricing in annual inflation of about 1.33% during the next five years, short of the Fed’s 2% goal, based on break-even rates for Treasury Inflation Protected Securities. Oil prices have fallen to $44.28 a barrel from $107.26 in June. “I would bet a great deal of money that oil’s not going to go to $90 by year-end,” Gundlach said.

“The Fed and its friends in the financial industry are frantically hoping their next mandate or strategy for managing the system will continue to bail them out of each new crisis.”

• ‘Two Percent Inflation’ and The Fed’s Current Mandate (Ron Paul)

Over the last 100 years the Fed has had many mandates and policy changes in its pursuit of becoming the chief central economic planner for the United States. Not only has it pursued this utopian dream of planning the US economy and financing every boondoggle conceivable in the welfare/warfare state, it has become the manipulator of the premier world reserve currency. As Fed Chairman Ben Bernanke explained to me, the once profoundly successful world currency – gold – was no longer money. This meant that he believed, and the world has accepted, the fiat dollar as the most important currency of the world, and the US has the privilege and responsibility for managing it. He might even believe, along with his Fed colleagues, both past and present, that the fiat dollar will replace gold for millennia to come.

I remain unconvinced. At its inception the Fed got its marching orders: to become the ultimate lender of last resort to banks and business interests. And to do that it needed an “elastic” currency. The supporters of the new central bank in 1913 were well aware that commodity money did not “stretch” enough to satisfy the politician’s appetite for welfare and war spending. A printing press and computer, along with the removal of the gold standard, would eventually provide the tools for a worldwide fiat currency. We’ve been there since 1971 and the results are not good. Many modifications of policy mandates occurred between 1913 and 1971, and the Fed continues today in a desperate effort to prevent the total unwinding and collapse of a monetary system built on sand.

A storm is brewing and when it hits, it will reveal the fragility of the entire world financial system. The Fed and its friends in the financial industry are frantically hoping their next mandate or strategy for managing the system will continue to bail them out of each new crisis. The seeds were sown with the passage of the Federal Reserve Act in December 1913. The lender of last resort would target special beneficiaries with its ability to create unlimited credit. It was granted power to channel credit in a special way. Average citizens, struggling with a mortgage or a small business about to go under, were not the Fed’s concern. Commercial, agricultural, and industrial paper was to be bought when the Fed’s friends were in trouble and the economy needed to be propped up. At its inception the Fed was given no permission to buy speculative financial debt or U.S. Treasury debt.

“People have no confidence in the central banks being able to fight off deflation..”

• Who Doubts Yellen’s Policies? Summers for One. Investors too (Bloomberg)

Janet Yellen is betting she has the formula for fending off deflationary forces. Investors and some of her fellow economists aren’t so sure. The Fed chair says history and theory suggest wages will pick up as the job market tightens, and prices will rise in line with the Federal Reserve’s 2% target. Former Treasury Secretary Lawrence Summers argues policy makers can’t count on this, while Richard Clarida of Columbia University in New York says it hasn’t happened in the last few economic expansions. Investors have their doubts, too: They expect inflation will run well below the Fed’s target for the next decade, based on trading in U.S. Treasury securities.

“People have no confidence in the central banks being able to fight off deflation,” said Marvin Goodfriend, a former Fed official who is now a professor at Carnegie Mellon University. The Fed chair and her colleagues said Jan. 28 that inflation probably will ebb further in the next few months, driven lower by falling energy prices. Over the medium term, they see it rising “gradually toward 2%” as the labor market tightens and oil’s impact fades, according to the statement released after their Jan. 27-28 meeting. Yellen’s predecessor, Ben S. Bernanke, won plaudits in monetary-policy circles when he finally got the Fed to sign on to an inflation target in early 2012. There’s just been one small hitch: Since April of that year, inflation has failed to hit the central bank’s objective. It was 1.2% in November.

“The irony is that Bernanke got his inflation target in January 2012, and in almost every month since then they’ve fallen below it,” said Clarida, who is also executive vice president at Pacific Investment Management Co. in Newport Beach, California, which oversees some $1.7 trillion in assets Summers said the Fed shouldn’t base its interest-rate decisions on a theory that links changes in inflation to developments in the labor market. That theory, known as the Phillips Curve, posits that wages and prices rise as unemployment falls.

“..banks have been told to tighten lending supervision to avoid loans being funneled into stock markets.” Yeah, but what about the shadow banks?

• China Regulator To Inspect Stock Margin Trading At 46 Firms (Reuters)

China’s stock regulator will inspect the stock margin trading business of 46 companies, the official Xinhua news agency said, amid concerns that the country’s stock markets are becoming over-leveraged and vulnerable to a sudden reversal. Sources told Reuters on Wednesday that Chinese regulators would launch a fresh investigation into stock margin trading, and banks have been told to tighten lending supervision to avoid loans being funneled into stock markets. “The inspection belongs to normal regular supervision and should not be over-interpreted,” Xinhua said late on Wednesday, quoting the China Securities Regulatory Commission (CSRC). Chinese stocks have climbed by around 40% since November, raising some concern that the rally is out of step with a marked slowdown in the world’s second-largest economy. The tide of money into stocks follows a recent cut in interest rates and a weak property market, which is traditionally a strong investment destination for household savings.

The outstanding value of margin loans used to purchase shares has hit record highs for the past three days, reaching 780 billion yuan ($124.5 billion) on Wednesday. The CSRC punished three of the nation’s largest brokerages this month for illegal conduct in their margin trading businesses. At the same time, banking regulators moved to curb abuse of short-term forms of credit in the interbank market that were seen as being used for stock market speculation. Reports of previous investigations and regulatory clampdowns caused a dramatic plunge in stocks on Jan. 19, with main indexes tumbling over 7% in a single day. Regulators followed up by reassuring the market they were not trying to suppress the rally, one of the few bright spots in Chinese capital markets.

“It just doesn’t bode well.”

• Kern County CA Declares Fiscal Emergency Amid Plunging Oil Prices (LA Times)

Kern County supervisors declared a state of fiscal emergency at their weekly meeting Tuesday in response to predictions of a massive shortfall in property tax revenues because of tanking oil prices. Surging oil supplies domestically and weak demand abroad have left Kern, the heart of oil production in California, facing what could be a $61-million hole in its budget once its fiscal year starts July 1, according to preliminary calculations from the county’s assessor-recorder office. Oil companies account for about 30% of the county’s property tax revenues, a percentage that has been declining in recent decades but still represents a critical cushion for county departments and school districts.“It affects all county departments – every department will be asked to make cuts,” said County Assessor Jon Lifquist in an interview this month. “It just doesn’t bode well.”

Soaring pension costs also influenced the fiscal emergency declaration, which allows supervisors to tap county reserves. Operating costs expected at a new jail facility in fiscal 2017 and 2018 factored into the decision as well. Looking at an operational deficit of nearly $27 million for the 2015-16 fiscal year, supervisors adopted a plan to immediately begin scaling back county spending rather than making deep reductions all at once in July. The Service Employees International Union Local 521 urged officials in a statement to “not adopt drastic cuts that could cripple vital community services.” The union said that although temporary wage cuts and hiring freezes “may be an obvious solution,” such tactics “are never the sole answer to economic problems.”

”Shell warned there could be more to come should crude prices remain relatively low..”

• Shell Cuts $15 Billion of Spending as Profit Misses Expectations (Bloomberg)

Royal Dutch Shell Plc will cut $15 billion of spending over the next three years as the crash in oil prices saw fourth-quarter profit miss expectations. Shell, the first of the world’s largest oil companies to report earnings following the slump in crude to a five-year low, will review spending on about 40 projects worldwide, Chief Executive Officer Ben van Beurden said in an interview. “We see pressure on our investment program,” van Beurden said on Bloomberg TV. “It’s a game of being prudent but at the same time not overreacting.” Profit excluding one-time items and inventory changes was $3.3 billion in the quarter, up from $2.9 billion a year earlier, Shell said today in a statement. That missed the $4.1 billion average of 13 analyst estimates compiled by Bloomberg. Shell shares dropped as much as 4.4% in London. The global industry is scurrying to respond as oil below $50 a barrel guts cash flows. Statoil, Tullow and Premier have delayed projects or cut exploration spending. BP has frozen wages and Chevron delayed its 2015 drilling budget.

By cutting spending, companies aim to protect returns to investors. Shell, based in The Hague, will pay a quarterly dividend of 47 cents a share, the same as the previous three months. It will pay the same in the first quarter. The payout is an “iconic item at Shell, I will do everything to protect it,” the CEO said in the television interview. In addition to the $15 billion of cuts in planned spending over three years, Shell warned there could be more to come should crude prices remain relatively low. “Shell has options to further reduce spending but we are not over-reacting to current low oil prices,” it said. The drop in oil prices has put investment levels “under severe pressure in the near term.” While declining to speculate about where crude prices are headed, he warned that canceling or delaying too many projects could risk putting in jeopardy supply over the longer term.