robots Archives - The Automatic Earth

Newfound market volatility has shattered what had been a long period of stability and mounting value. The Dow’s dive erased gains for the year so far and extended a multi-day slump that saw the Dow drop by some 600 points on Friday. In addition setting a new record for number of points dropped in a day, the Dow’s 4.6% decline in value was the most substantial since 2011. It was still less severe than declines during market-rocking events like the 2008 financial crisis, when the Dow shed 7% of its value in its worst single-day hit. Earlier in the day the Dow had plummeted by nearly 1,600 points before recovering much of that value. It has swung some 2,100 points in the last week of trading, a slide approaching 8%.

In addition to the Dow shedding value, the S&P 500 index and the Nasdaq both saw declines of around 4%. The S&P 500 declined to about 7.8% below its all-time high. With thriving markets toppling records in recent months, some analysts said the pullback was all but inevitable. After cresting to a record high in January, the Dow has retreated by 8.5% from that apex. “It’s like a kid at a child’s party who, after an afternoon of cake and ice cream, eats one more cookie and that puts them over the edge,” David Kelly, the chief global strategist for JPMorgan Asset Management, told the Associated Press.

Worldwide.

• Stocks Crumble In Vicious Sell-off As ‘Goldilocks’ Trade Unravels (R.)

A rout in global equities deepened in Asia on Tuesday as inflation worries gripped financial markets, sending U.S. stock futures sinking further into the red after Wall Street suffered its biggest decline since 2011 in a vicious sell-off. S&P mini futures fell as much as 3.0% to four-month lows in Asia, extending their losses from the record peak hit just over a week ago to 12%. MSCI’s broadest index of Asia-Pacific shares outside Japan slid 4.3%, which would be its biggest fall since the yuan devaluation shock in August 2015, turning red on the year for the first time in 2018. Japan’s Nikkei dived 6.8% to near four-month lows while Taiwan shares lost 5.5% and Hong Kong’s Hang Seng Index dropped 4.9%.

Monday’s stock market rout left two of the most popular exchange-traded products that investors use to benefit from calm rather than volatile conditions facing potential liquidation, market participants said. The ructions in markets come after investors have ridden a nearly nine-year bull run, with low global rates sparking a revival in economic growth and bright corporate earnings. That good times may be nearing at end if Wall Street is anything to go by. U.S. stocks plunged in highly volatile trading on Monday, with the Dow industrials falling nearly 1,600 points during the session, its biggest intraday decline in history, as investors grappled with rising bond yields and potentially higher inflation.

They’ll all keep claiming that fundamentals are solid.

• Europe Joins Global Stock Selloff With Biggest Drop in 20 Months (BBG)

European stocks headed for their worst drop since the aftermath of the Brexit referendum as traders in the region caught up with an overnight selloff in the U.S. and Asia. The Stoxx Europe 600 Index fell 2.6% as of 8:16 a.m. in London, with all industry groups firmly in the red. After a strong start to 2018, most European stock benchmarks have wiped out gains for the year in a rout that is extending into a seventh day for the broader regional benchmark. Sentiment has been hurt by worries over rising government bond yields and the outlook for the trajectory of interest rates. “There is a sense out there that this is, in a way, a release of some of the pent-up low volatility we’ve seen over the past year,” said Ben Kumar, an investment manager at Seven Investment Management in London, which oversees about 12 billion pounds.

“We have been sitting on quite a large cash pile for some time and at some point, we will look to invest that. There may be a bit more pain to come before we start seeing a real dip to buy.” Cyclicals including automakers, technology and basic resources were among the worst sector performers. Still, data on Monday showed economic momentum in the euro-area climbed to the fastest pace in almost 12 years, and German factory orders surged in the last month of 2017. That’s leading some fund managers and traders to bet that equities are experiencing an overdue pullback rather than a deeper correction. “Market tops have probably been set for a pretty long time now on many equity indexes,” Stephane Barbier de la Serre, a strategist at Makor Capital Markets, said by phone.

They’ll have a hard time accepting the demise of easy money.

• ‘Short-Volatility Armageddon’ Craters Two Of Wall Street’s Favorite Trades (MW)

One of the most popular trades in the market, betting a period of unnatural calm would continue, may have amplified selling pressure in the stock market on Monday market participants said. At least two products tied to volatility bets were severely whacked with the hemorrhaging that could pose challenges to the exchange-traded notes. One popular product, the VelocityShares Daily Inverse VIX Short Term ETN, was down 90% in after-hours trade on Monday, following a session in which the Dow Jones Industrial plunged by 1,175 points, or 4.6%, while the S&P 500 index tumbled 4.1%—both benchmarks coughed up all of their gains for 2018.

The Cboe Volatility Index, meanwhile, skyrocketed by about 118%, marking its sharpest daily rise on record. The VIX uses bullish and bearish option bets on the S&P 500 to reflect expected volatility over the coming 30 days, and it typically rises as stocks fall. The XIV, meanwhile, was designed to allow investors to bet against a rise in volatility and such bets had been a winning proposition until recently, when equities accelerated a multisession unraveling fueled by fears that the Federal Reserve will be forced to raise borrowing costs faster than anticipated due to a potential resurgence in inflation, which had pushed Treasury yields higher. Monday’s stock-market drop may have been amplified because those making bets that volatility, as measured by the VIX, would remain relatively subdued, were caught wrong-footed.

Ultra low volatility is purely artificial.

• Volatility Spike Boosts US Options Hedging Activity (R.)

Wall Street’s “fear gauge” notched its biggest one-day jump on Monday in over two years, as U.S. stocks slumped and investors took to the options market in search of protection against a further slide in equities prices. Stocks slid in highly volatile trading on Monday, with the benchmark S&P 500 index and the Dow Jones Industrials suffering their biggest respective%age drops since August 2011 as a long-awaited pullback from record highs deepened. For the Dow, the fall at one point of nearly 1,600 points was the biggest intraday point loss in Wall Street history. The CBOE Volatility Index, better known as the VIX, is the most widely followed barometer of expected near-term volatility for the S&P 500 Index. On Monday, the index ended up 20.01 points at 37.32, its highest close since August 2015.

“The day started out fairly orderly, but somehow it took a turn for a worse, and then panic set in,” Randy Frederick, vice president of trading and derivatives for Charles Schwab. “There may have been some pretty sizeable program trades that were clicked in. It just looks like some institutional program selling,” he said. The intensity of the selloff drove traders to the options market and trading volume surged to 35.5 million contracts – the third busiest day ever and the busiest day since Aug. 21, 2015, according to options analytics firm Trade Alert. VIX call options, primarily used to protect against a spike in volatility, accounted for nine of Monday’s 10 most heavily-traded contracts. Overall VIX options volume hit 3.6 million contracts, or about three times its average daily volume.

VIX can trigger some pretty dramatic events.

• Traders Panic As XIV Disintegrates -90% After The Close (ZH)

Today’s market turmoil has left more questions than answers. “What was frightening was the speed at which the market tanked,” said Walter “Bucky” Hellwig, Birmingham, Alabama-based senior vice president at BB&T Wealth Management, who helps oversee about $17 billion. “The drop in the morning was caused by humans, but the free-fall in the afternoon was caused by the machines. It brought back the same reaction that we had in 2010, which was ‘What the heck is going on here?” Some tried to blame it on a fat-finger or ‘machines’, but in this case it was not the normal cuprits per se… “There was not a single self-help; there were no outs; there were no fat fingers that we saw,” Doug Cifu, CEO of high-speed trading firm Virtu, told CNBC. “There were no busted trades, no repricing. It was just an avalanche of orders around 3 o’clock-ish.”

But while we noted earlier that US equity futures were extending losses after the close, but the real panic action is in the volatility complex. Putting today’s VIX move in context, this is among the biggest ever… And it appears Morgan Stanley was right to bet on VIX hitting 30…

But the real action is in the super-crowded short-vol space. XIV – The Short VIX ETF – after its relentless diagonal move higher as one after another Target manager sold vol for a living… just disintegrated after-hours, down a stunning 90% to $10.00.

Which is a problem because as we explained last summer, the threshold for an XIV termination event is a -80% drop. What does this mean? Well, in previewing today’s events last July, Fasanara Capital explained precisely what is going on last July:

“Additional risks arise as ‘liquidity gates’ may be imposed, even in the absence of a spike in volatility. In 2012, for example, the price of TVIX ETN fell 60% in two days, despite relatively benign trading conditions elsewhere in the market. The reason was that the promoter of the volatility-linked note announced that it temporarily suspended further issuances of the ETN due to “internal limits” reached on the size of the ETNs. Furthermore, for some of the volatility-linked notes, the prospectus foresee the possibility of ‘termination events’: for example, for XIV ETF a termination event is triggered if the daily percentage drop exceeds 80%. Then a full wipe-out is avoided insofar as it is preceded by a game-over event.” The reaction of the investor base at play – often retail – holds the potential to create cascading effects and to send shockwaves to the market at large. This likely is a blind spot for markets.

Algorithms rule what is left.

• Machines Had Their Fingerprints All Over a Dow Rout for the Ages (BBG)

Risk parity funds. Volatility-targeting programs. Statistical arbitrage. Sometimes the U.S. stock market seems like a giant science project, one that can quickly turn hazardous for its human inhabitants. You didn’t need an engineering degree to tell something was amiss Monday. While it’s impossible to say for sure what was at work when the Dow Jones Industrial Average fell as much as 1,597 points, the worst part of the downdraft felt to many like the machines run amok. For 15 harrowing minutes just after 3 p.m. in New York a deluge of sell orders came so fast that it seemed like nothing breathing could’ve been responsible. The result was a gut check of epic proportion for investors, who before last week had been riding one of the most peaceful market advances ever seen. The S&P 500, which last week capped a record streak of never falling more than 3% from any past point, ended the day down 4.1%, bringing its loss since last Monday to 7.8%.

“We are proactively calling up our clients and discussing that a 1,600-point intraday drop is due more to algorithms and high-frequency quant trading than macro events or humans running swiftly to the nearest fire exit,” said Jon Ulin, of Ulin & Co. in an email. To be sure, not all of the rout requires inhuman agency to explain. Markets are jittery. Bond yields had been surging and stock valuations are approaching levels last seen in the internet bubble. Much of today’s selloff was perfectly rational, if harrowing – particularly coming after last week’s plunge in which the Dow fell 666 points on Friday. Observers looking for an electronic villain trained most of their attention on the roughest part of the tumble, a 15-minute stretch starting about an hour before the close. That’s when an orderly selloff snowballed, taking the Dow from down about 700 points to down a whopping 1,600. It quickly recovered.

When commodities trade is separated from what industries actually use, and they become financial tools only, inevitable.

• Commodities Dragged Into Global Selloff as Oil to Copper Get Hit (BBG)

Commodities from crude oil to metals and iron ore dropped as the global equity rout and surge in market volatility spurred investors to pare risk, cutting positions in raw materials even as banks and analysts stood by the asset class given the backdrop of solid global growth. Brent crude slid as much as 1.2% to $66.82 a barrel, heading for a third daily drop and the longest losing run since November. On the London Metal Exchange, copper sank as much as 2% to $7,025 a metric ton as zinc, lead and nickel declined. Iron ore futures fell 1.2% in Singapore. Global equity markets are in retreat after Wall Street losses that began in the final session of last week worsened on Monday, with the Dow Jones Industrial Average posting its biggest intraday point drop in history.

The selloff – triggered in part by an initial rise in bond yields and concerns about the pace at which the Federal Reserve will raise interest rates – is spilling into commodities, which rallied in late January to the highest level since 2015. Still, Citigroup said now’s the time for investors to add positions in metals. “Clearly there is a risk off tone in the markets that will weigh on the sector,” said Daniel Hynes at Australia & New Zealand Banking. “But there is no fundamental reason for this selloff to change our view of commodity markets.” Miners and energy companies fell as share benchmarks spiraled downward. In the U.S. on Monday, Exxon Mobil and Chevron were among the worst performers in the Dow. In Sydney, BHP Billiton, the world’s largest mining company, dropped 2.7% as Rio Tinto traded lower. Oil producer PetroChina lost as much as 7.3% in Hong Kong.

6,100 as I write this.

• Bitcoin Tumbles Almost 20% as Crypto Backlash Accelerates (BBG)

Bitcoin tumbled for a fifth day, dropping below $7,000 for the first time since November and leading other digital tokens lower, as a backlash by banks and government regulators against the speculative frenzy that drove cryptocurrencies to dizzying heights last year picks up steam. The biggest digital currency sank as much as 22% to $6,579, before trading at $7,054 as of 4:08 p.m. in New York. It has erased about 65% of its value from a record high $19,511 in December. Rival coins also retreated on Monday, with Ripple losing as much as 21% and Ethereum and Litecoin also weaker. “Although no fundamental change triggered this crash, the parabolic growth this market has experienced had to slow down at some point,” Lucas Nuzzi, a senior analyst at Digital Asset Research, wrote in an email. “All that it took this time was a large lot of sell orders.”

Weeks of negative news and commercial setbacks have buffeted digital tokens. Lloyds joined a growing number of big credit-card issuers have said they’re halting purchases of cryptocurrencies on their cards, including JPMorgan and Bank of America. Several cited risk aversion and a desire to protect their customers. SEC Chairman Jay Clayton said he supports efforts to bring clarity to cryptocurrency issues and that existing rules weren’t designed with such trading in mind, according to prepared remarks for a Senate Banking Committee hearing Tuesday on virtual currencies. Bitcoin’s longest run of losses since Christmas day has coincided with investors exiting risky assets across the board, with stocks retreating globally. Bitcoin so far seems to be struggling to live up to any comparison with gold as a store of value, which is an argument made by some of its supporters. Bullion edged higher as other safe havens – the yen, Swiss franc and bonds – also gained.

Stability breeds instability. Minsky.

• The Fed’s Dependence On Stability (Roberts)

Last week, I discussed how the Federal Reserve will likely be the culprits of whatever sparks the next major financial crisis. To wit: “In the U.S., the Federal Reserve has been the catalyst behind every preceding financial event since they became ‘active,’ monetarily policy-wise, in the late 70’s. As shown in the chart below, when the Fed has lifted the short-term lending rates to a level higher than the 10-year rate, bad ‘stuff’ has historically followed.” This past week, as Ms. Yellen relinquished her control over the Federal Reserve to Jerome Powell, the Fed stood by its position they intend to hike rates 3-more times in 2018.

With the entirety of the financial ecosystem now more heavily levered than ever, due to the Fed’s profligate measures of suppressing interest rates and flooding the system with excessive levels of liquidity, the “instability of stability” is now the biggest risk. The “stability/instability paradox” assumes that all players are rational and such rationality implies avoidance of complete destruction. In other words, all players will act rationally and no one will push “the big red button.” The Fed is highly dependent on this assumption. After more than 9-years of the most unprecedented monetary policy program in human history, they are now trying to extricate themselves from it. The Fed is dependent on “everyone acting rationally,” particularly as they try to reduce their balance sheet. The first attempt was seen in January. Well…sort of…but not really.

While the Fed did “reduce” their holding by $28 billion in January, it followed an increase of $21 billion in December. Which brings up several questions? Was the ramp up/run down just a test of the market’s stability? (Seems likely.) With the market throwing a “conniption fit” last week, will the Fed rethink their balance sheet reduction program? (Probably) More importantly, with the government on the verge of another “shut down” this coming week due to the expiration of the “continuing resolution” from three weeks ago, will the Fed continue its current path in the face of an event that could lead to fiscal instability? (Probably not) We will soon find out.

There will be a second Special Counsel.

• A Quandary (Jim Kunstler)

The Resistance pulled out all the stops last week in its shrieking denunciation of the Nunes Memo, and the various complaints had one thing in common: a complete lack of interest in the facts of the matter, in particular the shenanigans in the upper ranks of the FBI. Give a listen, for instance, to last Thursday’s Slate’s Political Gabfest with David Plotz, John Dickerson, and Emily Bazelon, the three honey-badgers of Resistance Radio (like the fabled honey-badgers of the veldt, they don’t give a shit about any obstacles in pursuit of their quarry: Trump). They’ve even been able to one-up Nassim Taleb’s defined category of “intellectuals-yet-idiots” to intellectuals-yet-useful-idiots.

The New York Times, with its termite-mound of casuistry artists, managed to concoct a completely inside-out “story” alleging that the disclosure in the Nunes memo of official impropriety at the FBI was in itself an “obstruction of justice,” since making the FBI look bad might impede their ability to give Trump the much wished-for bum’s rush from the White House. There was already enough dishonesty in our national life before the Left side of the political transect decided to ally itself with the worst instincts of the permanent Washington bureaucracy: the faction devoted to ass-covering. The misconduct at the FBI and DOJ around the 2016 election is really quite startling.

How is it not disturbing that Associate Deputy Attorney General Bruce Ohr brokered the Steele Dossier between the Fusion GPS psy-ops company and the FBI, when Fusion GPS was employed by the Clinton campaign, and Ohr’s wife worked for Fusion GPS? How is it okay that this janky dossier was put over on a FISA court judge to get warrants to surveil US citizens in an election campaign? How was it okay for Deputy FBI Director Andrew McCabe’s wife to accept $700,000 from the Clinton family’s long-time bag-man, Terry McAuliffe, when she ran for a Virginia State Senate seat, a few months before McCabe assumed command of the Hillary email investigation? How was it not fishy that FBI Deputy Assistant Director of the Counterintelligence Division, Peter Strock, and his workplace girlfriend, FBI lawyer (for Andrew McCabe), Lisa Page appeared to plot against Trump in their many cell-phone text exchanges?

Deceit as the big killer.

• 21st Century Plague (MarkGB)

The Black Death was a medieval pandemic which swept through the ‘old world’ in the 14th Century. It arrived in Europe from Asia in the 1340s and killed an estimated 25 million people, about 50% of the population. The social and economic consequences of this were ‘permanent’: it created a labour shortage which ended the medieval institution of serfdom. In short: Increased demand for labour + reduced supply of labour + chaos = collapse of status quo. What emerged from the chaos was a rudimentary ‘free market’ in labour and goods. The age of capitalism had begun…the unforeseen consequence of a plague, borne on a creature that looked like this:

The pandemic we face in the 21st Century is a psychological phenomenon rather than a biological one, but in my view, it is equally parasitic. Its name is ‘deceit’, and our political & economic institutions are riddled with it. The majority of people I speak to know that something is badly wrong with our societies and our economies – they feel it when they pick up a newspaper, turn on the TV or engage with the internet. Some of us try to disconnect from the drama and the constant stream of claim and counterclaim, in order to try to ‘get on with normal lives’ – but we feel something is badly wrong nevertheless. Some of us gather ourselves into political parties, protest movements, and/or intellectual cliques in order to discuss how to ‘fix’ what ails us.

And every 4 or 5 years, the majority of us go out and vote for an individual or a group of people that we hope will bring change…and then…we get more of the same. We just got, for example, the 3rd president in a row who ran on a promise of peace, and then immediately went looking for war. What the majority of people have not yet realised is that the politician’s ‘promise’ is part of the deceit – it’s what keeps you coming back for more, hoping this time will be different. It never is – it’s just a new coat of paint on a crumbling wall. What the majority of people have not yet realised is that the politician’s ‘promise’ is part of the deceit – it’s what keeps you coming back for more

It matters little whether you believe an individual candidate is a ‘good’ person, or a ‘bad’ person. Once in office he or she becomes a tool for the maintenance of the status quo – evidently. Why is this? Because the system is not run for your benefit. Its primary function is the concentration of power and wealth within the system itself, to serve the vested interests of a relatively tiny group of people. These are the manifestations of the 21st-century plague – the institutions of deceit: 1) A monetary system rigged for the banks and globalised corporations. 2) A military-industrial complex that requires endless war. 3) Politicians that are controlled by 1 & 2. 4) A mainstream media that is complicit with 1 to 3.

Expect appeal after appeal.

• UK Court To Rule On Lifting Assange Arrest Warrant (AFP)

A British court is to decide Tuesday whether to lift a UK arrest warrant for Julian Assange, potentially paving the way for the WikiLeaks founder to leave the Ecuadorian embassy in London where he has spent the last five years. If the court rules in Assange’s favour, allowing him to leave the embassy in the British capital without fear of arrest, it would be the first time that he has stepped outside embassy grounds since seeking asylum there in June 2012. Assange entered the Ecuadoran embassy to dodge a European arrest warrant and extradition to Sweden over a 2010 probe in the Scandinavian country into rape and sexual assault allegations.

Sweden dropped its investigation last year, but British police are still seeking to arrest Assange for failing to surrender to a court after violating bail terms during his unsuccessful battle against extradition. Assange’s lawyer Mark Summers told a London court last week that the warrant had “lost its purpose and its function”. He said Assange had been living in conditions “akin to imprisonment” and his “psychological health” has deteriorated and was “in serious peril”. The court heard that the 46-year-old was suffering from a bad tooth, a frozen shoulder and depression. But prosecutor Aaron Watkins called Assange’s court bid “absurd”. “The proper approach is that when a discrete, standalone offence of failing to surrender occurs, it always remains open to this court to secure the arrest,” Watkins said.

You like this future? It’s all yours. Who needs people?

• Robots Will Care For 80% Of Elderly Japanese By 2020 (G.)

Japan’s elderly are being told to get used to being looked after by robots. With Japan’s ageing society facing a predicted shortfall of 370,000 caregivers by 2025, the government wants to increase community acceptance of technology that could help fill the gap in the nursing workforce. Developers have focused their efforts on producing simple robotic devices that help frail residents get out of their bed and into a wheelchair, or that can ease senior citizens into bathtubs. But the government sees a wider range of potential applications and recently revised its list of priorities to include robots that can predict when patients might need to use the toilet. Dr Hirohisa Hirukawa, director of robot innovation research at Japan’s National Institute of Advanced Industrial Science and Technology, said the aims included easing the burden on nursing staff and boosting the autonomy of people still living at home.

“Robotics cannot solve all of these issues; however, robotics will be able to make a contribution to some of these difficulties,” he said. Hirukawa said lifting robotics had so far been deployed in only about 8% of nursing homes in Japan, partly because of the cost and partly because of the “the mindset by the people on the frontline of caregiving that after all it must be human beings who provide this kind of care”. He added: “On the side of those who receive care, of course initially there will be psychological resistance.” Hirukawa’s research centre has worked on a government-backed project to help 98 manufacturers test nursing-care robotic devices over the past five years, 15 of which have been developed into commercial products.

This is what Brussels and Berlin invite by ignoring the issue.

• Berlusconi Pledges To Deport 600,000 Illegal Immigrants From Italy (G.)

Silvio Berlusconi has pledged to deport 600,000 illegal immigrants from Italy should his centre-right coalition enter government after elections on 4 March, as tensions simmer over the shooting of six Africans by a far-right extremist on Saturday. The 81-year-old rightwing former prime minister said in a TV interview that immigration was a “social bomb ready to explode in Italy” and that the shooting in Macerata posed a security problem. “Immigration has become an urgent question, because after years with a leftwing government, there are 600,000 migrants who don’t have the right to stay,” said Berlusconi. “We consider it to be an absolute priority to regain control over the situation.” Berlusconi’s Forza Italia has forged an alliance with two far-right parties, the Northern League and the smaller Brothers of Italy, for the elections.

The three-time former prime minister is banned from running for office after being convicted of tax fraud, but could still end up pulling the strings of power should the coalition gain enough of a majority to govern. “When we’re in government we will invest many resources in security,” he said. “We will boost police presence and reintroduce the ‘Safe Streets’ initiative … Our soldiers will patrol the streets alongside police officers.” Berlusconi took a swipe at the EU for failing to share the burden of Italy’s migrant arrivals, saying: “Today, Italy counts for nothing in Brussels and the world. We will make it count again.” Italy is a favoured landing point on Europe’s southern coastline for people making the perilous journey across the Mediterranean, often on board unseaworthy boats, to enter the continent. However, 2017 was a turning point for Italy: the country went from large-scale arrivals in the first six months to a sharp drop-off, thanks to a controversial agreement between the EU and Libya.

Debt Rattle June 26 2015

Jun 262015

June 26, 2015 Posted by Raúl Ilargi Meijer at 10:14 am Finance Tagged with: China, default, democracy, Germany, Greece, migrants, robots, Shale, Snowden, surplus, yield 5 Responses »

NPC Dr. H.W. Evans, Imperial Wizard 1925

• Yield-Starved Investors Drive Asset Prices To Dangerous Levels: OECD (Reuters)

• What’s Gone Wrong For Germany Inc.? (Bloomberg)

• Europe: Writing Off Democracy As Merely Decorative (Habermas)

• The Beatings Will Continue Until Morale Improves (Irish Independent)

• Bureaucrazies Versus Democracy (Steve Keen)

• The Courage Of Achilles, The Cunning Of Odysseus (Jacques Sapir)

• Cash-Starved Greek State Posts Surplus (Kathimerini)

• IMF Would Be Other Casualty of Greek Default (El-Erian)

• Breaking Greece (Paul Krugman)

• The Upstarts That Challenge The Power In Beijing (FT)

• With $21 Trillion, China’s Savers Are Set to Change the World (Bloomberg)

• Shadow Lending Crackdown Looms Over China Stock Market (FT)

• Hedge Funds Love Consumer Stocks the Way Cows Love a Trombone (Bloomberg)

• UK Developers Play Flawed Planning To Minimise Affordable Housing (Guardian)

• Indebted Shale Oil Companies See Rough Ride Ahead (Fuse)

• Chief Justice John Roberts’ Obamacare Decision Goes Further Than You Think (MSNBC)

• French Justice Minister Says Snowden And Assange Could Be Offered Asylum (IC)

• Italy Rebukes EU Leaders As ‘Time Wasters’ On Migrants Plan (Reuters)

• Why Do We Ignore The Obvious? (ZenGardner)

• Robots Will Conquer The World and Keep Us As Pets – Wozniak (RT)

The by far biggest issue of our times. The world will never be the same. Ever.

• Yield-Starved Investors Drive Asset Prices To Dangerous Levels: OECD (Reuters)

Encouraged by years of central bank easing, investors are ploughing too much cash into unproductive and increasingly speculative investments while shunning businesses building economic growth, the OECD warned on Wednesday. In its first Business and Finance Outlook, the Organisation for Economic Cooperation and Development highlighted a growing divergence between investors rushing into ever riskier assets while companies remain too risk-averse to make investments. It urged regulators to keep a close eye on investors as they piled into leveraged hedge funds and private equity and poured cash into illiquid assets like high-yield corporate bonds.

Meanwhile, judging by stock market returns, investors were rewarding corporate managers focused on share-buybacks, dividends, mergers and acquisitions rather than those CEOS betting on long-term investment in research and development. “Stock markets in advanced economies are punishing firms that invest,” OECD secretary general Angel Gurria said in a presentation of the report. “The incentives are skewed.” According to the OECD’s research, over the 2009-2014 period buying US shares in companies with a low investment spending while selling those with high capital expenditure would have added 50% to an investor’s portfolio.

Fidelity Worldwide chief investment officer for equities Dominic Rossi begged to differ with the OECD’s pessimism on corporate investment, saying that for every dollar of depreciation companies were reporting that 1.3 was invested. “Our own analysis would point to quite healthy levels of investment,” Rossi said, adding however that it was lower in the Unites States than in other countries.

Can’t hurt to inject some humility there.

• What’s Gone Wrong For Germany Inc.? (Bloomberg)

All is not well in corporate Germany. Be it Deutsche Bank or Deutsche Lufthansa, Siemens or RWE, the missteps plaguing the country’s flagbearers have helped turn the DAX into Europe’s worst-performing benchmark index this quarter and a laggard compared with U.S. gauges. Some of the biggest companies in Europe’s economic powerhouse are in upheaval and finding themselves playing catch-up as competitors adapt more quickly to disruptive technologies and new challengers. The problem: As European peers scale back fixed-income trading and other investment-bank activities, the bank that once boasted about making it through the financial crisis without state aid has pledged to gain market share as others retreat.

The plan hasn’t quite worked out as regulatory demands to rein in risk are shaving profit margins and prompting shareholders to question the bank’s strategy. The precedent: UBS Group. Deutsche Bank has appointed John Cryan to succeed Anshu Jain as co-CEO and become sole CEO next year as the bank prepares to carry out a strategic overhaul not unlike the one Cryan undertook about six years ago as finance chief at the bank’s Swiss rival. Siemens: The problem: Europe’s largest engineering company has frequently lagged the profitability of its biggest competitors. CEO Joe Kaeser’s response has been to shed fringe businesses such as home appliances with annual sales of about €11 billion and focus on energy generation and industrial processes.

That bet has proven ill-timed, with a slump in oil prices prompting even more job cuts. The precedent: General Electric. CEO Jeff Immelt started shedding the entertainment, finance and home appliances arms four years ago as he seeks to focus the Fairfield, Connecticut-based company on its industrial business.

That’s not just in Europe.

• Europe: Writing Off Democracy As Merely Decorative (Habermas)

The latest judgment of the European Court of Justice (ECJ) casts a harsh light on the flawed construction of a currency union without a political union. In the summer of 2012 all citizens owed Mario Draghi a debt of gratitude for uttering a single sentence that saved them from the disastrous consequences of the threat of an immediate collapse of their currency. By announcing the purchase if need be of unlimited amounts of government bonds, he pulled the chestnuts out of the fire for the Eurogroup. He had to press ahead alone because the heads of government were incapable of acting in the common European interest; they remained locked into their respective national interests and frozen in a state of shock. Financial markets reacted then with relief over a single sentence with which the head of the ECB simulated a fiscal sovereignty he did not possess.

It is still the central banks of the member states, as before, which act as the lender of last resort. The ECJ has not ruled out this competence as contrary to the letter of the European Treaties; but as a consequence of its judgment the ECB can in fact, subject to a few restrictions, occupy the room for manoeuvre of just such a lender of last resort. The court signed off on a rescue action that was not entirely constitutional and the German federal constitutional court will probably follow that judgment with some additional precisions. One is tempted to say that the law of the European Treaties must not be directly bent by its protectors but it can be tweaked even so in order to iron out, on a case by case basis, the unfortunate consequences of that flawed construction of the European Monetary Union.

That flaw – as lawyers, political scientists and economists have proven again and again over the years – can only be rectified by a reform of the institutions. The case that is passed to and from between Karlsruhe and Luxembourg shines a light on a gap in the construction of the currency union which the ECB has filled by means of emergency relief. But the lack of fiscal sovereignty is just one of the many weak spots. This currency union will remain unstable as long as it is not enhanced by a banking, fiscal and economic union. But that means expanding the EMU into a Political Union if we want to avoid even strengthening the present technocratic character of the EU and overtly writing off democracy as merely decorative.

Those dramatic events of 2012 explain why Mario Draghi is swimming against the sluggish tide of a short-sighted, nay panic-stricken policy mix. With the change of government in Greece he immediately piped up: “We need a quantum leap in institutional convergence…. We must put to one side a rules-based system for national economic policy and instead hand over more sovereignty to common institutions.” Even if it’s not what one expects a former Goldman Sachs banker to say, he even wanted to couple these overdue reforms with “more democratic accountability” (Süddeutsche Zeitung, March 17, 2015).

“What do you think happened next? Yes, you got it; the mutiny on the Bounty.”

• The Beatings Will Continue Until Morale Improves (Irish Independent)

Did you know that on the same day that Greece – home of the first openly gay city, Sparta – was forced to humiliate itself again at the feet of the EU’s creditor nations, the isolated island of Pitcairn became the smallest nation to legalise same-sex marriage, despite having only 48 inhabitants and no gay couples? While reading about Pitcairn, the expression attributed to Captain Bligh of the stricken HMS Bounty, against whom the mutineers revolted, came to mind. While flogging sailors for small misdemeanours, he is said to have declared: “The beatings will continue until morale improves.” When we see the torture of Greece by its creditors, I see that the EU has taken the same approach with one of its own family. The economic beatings of Greece will continue until its political morale improves.

Have you ever seen anything so stupid? The Greek crisis has gone on for the past five or six years now. It is a brilliant example of Einstein’s observation that the definition of insanity is repeating the same thing over and over again and expecting different results. Yesterday, Greece promised to raise a fresh €8bn in taxes from the rich in order to satisfy the EU creditors. The cycle has been more or less the same, year in year out. Every year, the Greek government cuts spending and raises taxes. This is followed by the economy collapsing, and so tax revenues fall and this means more austerity is demanded – and the process is repeated. All the while, the economy shrinks. It is 25pc smaller than it was in 2009 and wages are down by 35pc. As activity and wages fall, so too does demand.

The EU response is to repeat the beatings. Every time, the EU imposes a creditors’ levy in the form of higher taxes. The people of Greece, knowing that the taxes won’t go to paying for Greek education or health but will line the pockets of rich creditors, try to find ways to avoid paying the creditors’ levy. So what does the EU do? It imposes more taxes on a problem that was in part due to the inability of the government to raise taxes on the rich in the first place. What do you think will happen now? Do you think the Greeks will give in, and say ‘take our money’? Of course they won’t. The rule of the world is the higher the personal tax, the higher the tax evasion. Did we not learn that in our tax amnesties of the 1980s and 1990s?

The Greeks will just find different ways of getting their money out of the country because they know that the money isn’t being raised for Greece, but for Germany. What would you do if you had the ability? So this latest EU solution will fail spectacularly and we will be back at square one. What then? Repeat the beatings until Greek morale improves? [..] What do you think happened next? Yes, you got it; the mutiny on the Bounty.

Steve and I are on the same page. And we both know it too.

• Bureaucrazies Versus Democracy (Steve Keen)

The most recent of the almost daily “Greek Crises” has made one thing clear: the Troika of the IMF, the EU and the ECB is out to break the government of Greece. There is no other way to interpret their refusal to accept the Greek’s latest proposal, which accepted huge government surpluses of 1% of GDP in 2015 and 2% in 2016, imposed VAT increases, and further cut pensions which are already below the poverty line for almost half of Greece’s pensioners. Instead, though the Greeks offered cuts effectively worth €8 billion, they wanted different cuts worth €11 billion. Syriza, which had been elected by the Greek people on a proposal to end austerity, is being forced to continue imposing austerity—regardless of the promises it made to its electorate.

There are many anomalies in Greece—which its creditor overlords are exploiting to the hilt in their campaign against Syriza—but these anomalies alone do not explain Greece’s predicament. If they did, then Spain would be an economic heaven, because none of those anomalies exist there. But Spain is in the same economic state as Greece, because it is suffering under the same Troika-imposed austerity program. The willingness of the Troika to point out Greece’s failures stands in marked contrast to its unwillingness to discuss its own failings too—like, for example, the IMF’s predictions in 2010 of the impact of its austerity policies on Greece. The IMF predicted, for example, that by following its program, Greece’s economy would start growing by 2012, and unemployment would peak at under 15% the same year.

Instead, unemployment has exceeded 25%, and the economy has only grown in real (read “inflation-adjusted”) terms in the last year because the fall in prices was greater than the fall in nominal GDP. That is, measured in Euros, the Greek economy is still shrinking, four years after the IMF forecast that it would return to growth. A huge part of Greece’s excessive government debt to GDP ratio is due to the collapse in GDP, for which the Troika is directly responsible. This trumpeting of Greece’s failures, and unwillingness to even discuss its own, is the hallmark of a bully. And it makes transparently obvious that the agenda underlying the EU itself is fundamentally anti-democratic. Obviously the overthrow of democracy was not the public agenda of the EU—far from it. The core political principles of the EU were always about escaping from Europe’s despotic past, of moving from its conflictual history and the horrors of Nazism towards a collective brotherhood of Europe.

Sapir’s been writing a good series.

• The Courage Of Achilles, The Cunning Of Odysseus (Jacques Sapir)

The latest adventures in the negotiations between the Greek government and its creditors shines a light against the grain of many commentators. They assume that the Greek government “can only give” or “will inevitably give way” and consider each tactical concessions made by the Greek government as “proof” of its future capitulation, or that it regrets the promises of their vows. From this point of view, there is a strange and unhealthy synergy between the most reactionary commentators and others who want to pass for “radicals” who deliberately fail to take into account the complexity of the struggle led by the Greek government. The latter fights with the courage of Achilles and the cunning of Odysseus. Let us note today that all those who had announced the “capitulation” of the Greek government were wrong. We must understand why.

In fact, although the Greek government made significant concessions from the month of February, all these concessions are conditional on a general agreement on the issue of debt. Be aware that it is the burden of repayments that is forcing the Greek government to be in the dependence of its creditors. The tragedy of Greece is that it has made considerable budgetary effort but only to the benefit of creditors. Investment, both tangible and intangible (education, health) has been sacrificed on the altar of creditors. In these circumstances it is hardly surprising that the productive apparatus of Greece is deteriorating and that she regularly loses competitiveness. It is this situation that the current government of Greece, born of the alliance between SYRIZA and ANEL, seeks to reverse. The Greek Government did not request additional money from its creditors. It asked that the money that Greece produces can be used to invest in both the private and public sectors, both in tangible and intangible investments. And on this point, it is not ready to compromise, at least until now.

The creditors of Greece, meanwhile, continue to demand a full refund – despite knowing perfectly weII that this is impossible – so as to maintain the right to take money from Greece via debt interest payments. Everyone knows that no State has repaid all its debt. From this perspective the discourses that are adorned with moral arguments are completely ridiculous. But, it is appropriate to maintain the fiction of the inviolability of debt if we want to maintain the reality of Greece’s flow of money to the creditor countries. When on June 24, Alexis Tsipras noted the failure to reach an agreement, which he summarized in a tweet into two parts, he pointed to this problem.

But no surplus will ever be enough.

• Cash-Starved Greek State Posts Surplus (Kathimerini)

The Greek economy is at its worst point since entering the bailout process over five years ago, as reflected in the data on the execution of the state budget. The result for the first five months may show a surplus, but this is misleading. The shortfall in tax revenues in the year to end-May exceeded €1.7 billion, while, apart from salaries and pensions, the state is not paying its obligations within the country, as expenditure was €2.6 billion less than that provided for in the budget. Had the government not decided to freeze all payments in a bid to secure cash for the timely payment of salaries and pensions, the primary budget balance would have shown a deficit of €1 billion, against the €1.5 billion primary surplus it showed in the January-May period, according to the official data.

However, the cash reserves have now run dry, as according to sources there will not even be enough for the payment of salaries and pensions at the end of June unless the social security funds and local authorities contribute their own reserves. The figures released on Thursday by the Finance Ministry showed that tax revenues were lagging €1.74 billion in the year to end-May, as in direct tax revenues not a single euro has yet been collected from taxpayers and companies in the form of 2015 income tax. Meanwhile, Alternate Finance Minister Nadia Valavani on Thursday issued a decision extending the deadline for the submission of income tax declarations from June 30 to July 27, with the exception of companies that have to file their statements by July 20.

The IMF should be dismantled, along with the EU. These clubs only hurt people.

• IMF Would Be Other Casualty of Greek Default (El-Erian)

All sides are working hard to prevent Greece from defaulting on its debt obligations to the IMF – and with good reason: Such an outcome would have dire consequences not only for Greece and Europe but also for the international monetary system. The IMF’s “preferred creditor status” underpins its ability to lend to countries facing great difficulties (especially when all other creditors are either frozen or looking to get out). Yet that capacity to act as lender of last resort is now under unprecedented threat. Preferred creditor status, though it isn’t a formal legal concept, has translated into a general acceptance that the IMF gets paid before almost any other lender.

And should debtors fail to meet payments, they can expect significant pressure from many of the fund’s other 187 member countries. That’s why instances of nations in arrears to the fund have been limited to fragile and failed states, particularly in Africa. The IMF has been able to act as the world’s firefighter, willing to walk into a burning building when all others run the other way. Time and again, its involvement has proved critical in stabilizing national financial crises and limiting the effects for other countries. Not long ago, it would have been improbable for the IMF to engage in large-scale lending to advanced European economies (the last time it did so before the euro crisis was in the 1970s with the U.K.). And it would have been unthinkable for the fund to worry about not getting paid back by a European borrower.

Yet both are happening in the case of Greece. Moreover, compounding the unprecedented nature of the Greek situation, other creditors (such as the European Central Bank and other European institutions) are in a position to help provide Greece with the money it needs to repay the IMF. Yet that would only happen if an agreement is reached on a policy package that is implemented in a consistent and durable fashion. If Greece defaults to the IMF, it would find its access to other funding immediately and severely impacted, including the emergency liquidity support from the ECB that is keeping its banks afloat. The resulting intensification of the country’s credit crunch would push the economy into an even deeper recession, add to an already alarming unemployment crisis, accelerate capital flight, make capital controls inevitable and, most probably, force the country to abandon Europe’s single currency.

I know, I know, quoting Krugman. Got to get used to that yet.

• Breaking Greece (Paul Krugman)

I’ve been staying fairly quiet on Greece, not wanting to shout Grexit in a crowded theater. But given reports from the negotiations in Brussels, something must be said — namely, what do the creditors, and in particular the IMF, think they’re doing?
This ought to be a negotiation about targets for the primary surplus, and then about debt relief that heads off endless future crises. And the Greek government has agreed to what are actually fairly high surplus targets, especially given the fact that the budget would be in huge primary surplus if the economy weren’t so depressed. But the creditors keep rejecting Greek proposals on the grounds that they rely too much on taxes and not enough on spending cuts. So we’re still in the business of dictating domestic policy.

The supposed reason for the rejection of a tax-based response is that it will hurt growth. The obvious response is, are you kidding us? The people who utterly failed to see the damage austerity would do — see the chart, which compares the projections in the 2010 standby agreement with reality — are now lecturing others on growth? Furthermore, the growth concerns are all supply-side, in an economy surely operating at least 20% below capacity. Talk to IMF people and they will go on about the impossibility of dealing with Syriza, their annoyance at the grandstanding, and so on. But we’re not in high school here. And right now it’s the creditors, much more than the Greeks, who keep moving the goalposts.

So what is happening? Is the goal to break Syriza? Is it to force Greece into a presumably disastrous default, to encourage the others? At this point it’s time to stop talking about “Graccident”; if Grexit happens it will be because the creditors, or at least the IMF, wanted it to happen.

Alibaba for president!

• The Upstarts That Challenge The Power In Beijing (FT)

There is an overarching force in China with tentacles reaching deep into almost everybody’s life. That force is not the Communist party, whose influence in people’s day-to-day affairs — though all too real — has waned and can appear almost invisible to those who do not seek to buck the system. The more disruptive force to be reckoned with these days is epitomised by the three large internet groups: Baidu, Alibaba and Tencent, collectively known as BAT, which have turned much of China upside down in just a few short years. Take the example of Ant Financial. Last week, it completed fundraising that values the company at $45bn to $50bn. It operates Alipay, an online payments system that claims to handle nearly $800bn in e-transactions a year, three times more than PayPal, its US equivalent.

That system, an essential part of China’s financial and retail architecture, and one familiar to almost every Chinese urbanite, is no brainchild of the Communist party. Instead it was the creation of Jack Ma, the former English teacher who founded Alibaba. Mr Ma established the system a decade ago as the backbone for Taobao, his consumer-to-consumer business. The name literally means “digging for treasure”, something that Mr Ma, one of China’s richest people, has clearly found. Alibaba handles 80% of China’s ecommerce, according to iResearch, a Beijing-based consultancy. That is a monopolistic position that even the Communist party, with its 87m members out of a population of 1.3bn, can only dream about.

True, the Communist party still regulates where people live (in the city or the countryside), what they publish (though less what they say) and how many children they have (though the one-child policy is fast fading). China’s internet companies, on the other hand, hold ever greater sway on how people shop, invest, travel, entertain themselves and interact socially. The BAT companies, which dominate search, ecommerce and gaming/social media, together with other upstarts, such as Xiaomi, a five-year-old company that has pioneered the $50 smartphone, are upending how people live.

Sounds cute, but will happen when Chinese stock markets crash?

• With $21 Trillion, China’s Savers Are Set to Change the World (Bloomberg)

Few events will be as significant for the world in the next 15 years as China opening its capital borders, a shift that economists and regulators across the world are now starting to grapple with. With China’s leadership aiming to scale back the role of investment in the domestic economy, the nation’s surfeit of savings – deposits currently stand at $21 trillion – will increasingly need to be deployed overseas. That’s also becoming easier, as Premier Li Keqiang relaxes capital-flow regulations. The consequences ultimately could rival the transformation wrought by the Communist nation’s fusion with the global trading system, capped by its 2001 World Trade Organization entry. That stage saw goods made cheaper across the world, boosting the purchasing power of low-income families at the cost of hollowed-out industries.

Some changes are easy to envision: watch out for Mao Zedong’s visage on banknotes as the yuan makes its way into more corners of the globe. China’s giant banks will increasingly dot New York, London and Tokyo skylines, joining U.S., European and Japanese names. Property prices from California to Sydney to Southeast Asia already have seen the influence of Chinese buying. Other shifts are tougher to gauge. International investors including pension funds, which have had limited entry to China to date, will pour in, clouding how big a net money exporter China will be. Deutsche Bank is among those foreseeing mass net outflows, which could go to fund large-scale infrastructure, or stoke asset prices by depressing long-term borrowing costs.

“This era will be marked by China shifting from a large net importer of capital to one of the world’s largest exporters of capital,” Charles Li of Hong Kong Exchanges & Clearing, the city’s stock market, wrote in a blog this month. Eventually, there will be “fund outflows of historic proportions, driven by China’s needs to deploy and diversify its national wealth to the global markets,” he wrote. The continuing opening of China’s capital account will also promote the trading of commodities in yuan, and boost China’s ability to influence their prices, according to an analysis by Bloomberg Intelligence. As was the case with China’s WTO entry, where many of the hurdles had been cleared in the years leading up to 2001, policy makers in Beijing have been easing restrictions on the currency, the flow of money and interest rates for years.

China will fall to bits if there’s a real crackdown.

• Shadow Lending Crackdown Looms Over China Stock Market (FT)

China’s shadow banks, increasingly wary of lending into a slowing economy, have turned to the stock market, fueling a surge in unregulated margin lending that has driven the market’s dizzying gains over the past year. Now regulators are cracking down on shadow lending to stock investors, a campaign analysts say is partly to blame for last week’s 13% fall in the Shanghai Composite Index — the largest weekly drop since the global financial crisis in 2008. “The price of funds has increased, the flow has shrunk, and transaction structures are getting more complicated,” says a Chongqing-based shadow banker who provides grey-market loans to stock investors.

“We’re no longer in a growth period. It’s more like, feed the addiction until you die, earn fast money. No one treats this as their main career.” China officially launched margin trading by securities brokerages as a pilot project in 2010. It expanded the program in 2012 with the creation of the China Securities Finance, established by the state-backed stock exchanges specifically to provide funds for brokerages to lend to clients. Official margin lending totaled Rmb2.2 trillion ($354 billion) as of Wednesday’s close, up from Rmb403 billion a year earlier, according to stock exchange figures. Yet this officially sanctioned margin lending, which is tightly regulated and relatively transparent, is only the tip of the iceberg for Chinese leveraged stock investing.

For standardized margin lending by brokerages, only investors with cash and stock worth Rmb500,000 in their securities accounts may participate. Leverage is capped at Rmb2 in loans for every Rmb1 of the investor’s own funds, and only certain stocks are eligible for margin trading. In the murky world of grey-market margin lending, however, few rules apply. Leverage can reach 5:1 or higher, and there are no limits on which shares investors can bet on. The money for these leveraged bets comes mainly from wealth management products sold by banks and trust companies. WMPs, a form of structured deposit that banks market to customers as a higher-yielding alternative to traditional savings deposits, also spurred China’s original shadow banking boom beginning in 2010.

Can’t go wrong with a headline t like that.

• Hedge Funds Love Consumer Stocks the Way Cows Love a Trombone (Bloomberg)

There’s a mesmerizing video making the rounds on Facebook of a guy who takes a trombone out into an empty cow pasture, sits down in a lawn chair and plays the song “Royals” by the New Zealand singer Lorde. Before he even gets to the first chorus, cows begin hustling over the hill toward the sound of the music. By the end of the video, he has a whole herd crowded together in front of him and they all wag their tales and moo their approval for the trombonist. What on Earth, you may ask, does this Facebook video have to do with the stock market? Great question, thanks for asking! Returns have been a lot like these cows – individual stocks over the last few years have appeared to be moving together like a herd of cows mesmerized by the same trombonist.

Market pundits have lamented this lack of return dispersion again and again and tried to wish it away, without much success. It’s hard to know – without access to a herd of cattle, a trombone and a lot of free time – whether it’s the specific song or the moo-like sound of the instrument itself that has enthralled the cattle. Similarly, it’s not 100% obvious what’s caused the herding in the stock market – maybe it’s the sweet music of low interest rates played by the Federal Reserve that has caused fixed-income cows to march into the stocks pasture, or maybe it’s the growth in popularity of index funds that makes the whole market look like a field of grass rather than a buffet table covered with an assortment of treats.

Yet, there’s an interesting surprise lurking amid all this herding in returns: dispersion among performance of equity hedge funds is actually increasing. The spread between the top fourth and bottom fourth of long-short strategy returns in the Credit Suisse Hedge Fund Index has widened from 10% to as high as 20% over the last year. That type of contrast is usually only seen during very volatile periods, not the calm markets we’ve seen this year, according to Mark Connors, Credit Suisse’s global head of risk advisory.

A great take on UK housing. Don Corleone would be proud.

• UK Developers Play Flawed Planning To Minimise Affordable Housing (Guardian)

Golden towers emerge from a canopy of trees on a hoarding in Elephant and Castle, snaking around a nine-hectare strip of south London where soon will rise “a vibrant, established neighbourhood, where everybody loves to belong”. It is a bold claim, given that there was an established neighbourhood here before, called the Heygate Estate – home to 3,000 people in a group of 1970s concrete slab blocks that have since been crushed to hardcore and spread in mounds across the site, from which a few remaining trees still poke. Everybody might love to belong in Australian developer Lend Lease’s gilded vision for the area, but few will be able to afford it.

While the Heygate was home to 1,194 social-rented flats at the time of its demolition, the new £1.2bn Elephant Park will provide just 74 such homes among its 2,500 units. Five hundred flats will be “affordable” – ie rented out at up to 80% of London’s superheated market rate – but the bulk are for private sale, and are currently being marketed in a green-roofed sales cabin on the site. Nestling in a shipping-container village of temporary restaurants and pop-up pilates classes, the sales suite has a sense of shabby chic that belies the prices: a place in the Elephant dream costs £569,000 for a studio, or £801,000 for a two-bed flat.

None of this should come as a surprise, being the familiar aftermath of London’s regenerative steamroller, which continues to crush council estates and replace them with less and less affordable housing. But alarm bells should sound when you realise that Southwark council is a development partner in the Elephant Park project, and that its own planning policy would require 432 social-rented homes, not 74, to be provided in a scheme of this size – a fact that didn’t go unnoticed by Adrian Glasspool, a former leaseholder on the Heygate Estate.

No ride at all.

• Indebted Shale Oil Companies See Rough Ride Ahead (Fuse)

There has been a lot of speculation about how deeply and how quickly U.S. shale production would contract in the low price environment. The industry has proven resilient, with rig counts having fallen by more than half since October 2014 but actual production not exhibiting a corresponding precipitous decline. That could soon change. Shale companies drastically cut spending and drilling programs following the collapse in oil prices. For example, Continental Resources, a prominent producer in the Bakken, slashed capital expenditures for 2015 from $5.2 billion to $2.7 billion. Whiting Petroleum, another Bakken producer, gutted its capex by half. The list goes on. To be sure, exploration companies are achieving a lot of efficiency gains in their drilling operations.

After years of pursuing a drill-anywhere strategy, many are now approaching the shale patch with more forethought and cost-saving technologies. Oil field service companies are also dropping their rates, allowing for drilling costs to decline. That will allow U.S. companies to squeeze more oil out of shale while spending less. However, the improved productivity could be temporary. Much of the cost reductions have come in the form of layoffs rather than fundamental gains in the cost of operations. If drilling activity picks up in earnest, costs could rise again as workers will need to be rehired. The tumbling “breakeven” costs for producing a barrel of oil could be a bit of a mirage.

If oil prices remain relatively weak, or even drop further in the second half of the year, the problems could start to mount. Shale wells suffer from steep decline rates after an initial rush of output. That means that unless enough new wells are drilled to offset natural decline, overall output could drop precipitously. Add to that the fact that the companies are bringing in 40% less per barrel than they were last year because of lower oil prices, and falling revenues start to become a problem for weaker companies.

Has it really been such a disaster?

• Chief Justice John Roberts’ Obamacare Decision Goes Further Than You Think (MSNBC)

Chief Justice John Roberts did more than simply save Obamacare by ruling for the administration on Thursday – he etched the president’s signature policy into American law for a generation or more. And in a bitter irony for the political right, Robert’s ruling actually puts Obamacare on firmer ground than it would have been if conservatives never brought the suit in the first place. A narrow decision could have simply upheld today’s health care subsidies by accepting the Obama administration’s interpretation of the health law’s tax rules. Roberts’ decision in King v. Burwell goes further, however, in a way many policymakers and critics have yet to fully grasp.

The ruling not only upholds current healthcare subsidies – the first big headline on Thursday – it also establishes an expansive precedent making it far harder for future administrations to unwind them. That is because Roberts’ opinion doesn’t simply find today’s subsidies legal. It holds that they are an integral, essentially permanent part of Obamacare. In other words, for the first time, the Supreme Court is ruling that because Congress turned on this spigot for national health care funding, only Congress can turn it off. That is bad news for potential Republican presidents, who may have hoped that down the road they might hinder Obamacare by executive action. Now their only apparent route to dialing back the policy is by controlling the White House, the House, and a 60-vote margin in the Senate.

Roberts establishes this precedent by essentially wresting power from the White House, and handing it back to Congress. While that might sound like a good thing for Republicans, who control Congress now, the case attacked the statute’s original meaning, so Roberts hands that power to the Democratic Congress that enacted Obamacare. That legal reasoning is the crucial backdrop for one of the most striking lines in the opinion, Roberts’ closing flourish that Congress passed the ACA “to improve health insurance markets, not to destroy them.”

Still a good idea.

• French Justice Minister Says Snowden And Assange Could Be Offered Asylum (IC)

French Justice Minister Christiane Taubira thinks National Security Agency whistleblower Edward Snowden and WikiLeaks founder Julian Assange might be allowed to settle in France. If France decides to offer them asylum, she would “absolutely not be surprised,” she told French news channel BFMTV on Thursday (translated from the French). She said it would be a “symbolic gesture.” Taubira was asked about the NSA’s sweeping surveillance of three French presidents, disclosed by WikiLeaks this week, and called it an “unspeakable practice.”

Her comments echoed those in an editorial in France’s leftist newspaper Libération Thursday morning, which said giving Snowden asylum would be a “single gesture” that would send “a clear and useful message to Washington,” in response to the “contempt” the U.S. showed by spying on France’s president. Snowden, who faces criminal espionage charges in the U.S., has found himself stranded in Moscow with temporary asylum as he awaits responses from two dozen countries where he’d like to live; and Assange is trapped inside the Ecuadorian Embassy in London to avoid extradition to Sweden. Taubira, the chief of France’s Ministry of Justice, holds the equivalent position of the attorney general in the United States.

She has been described in the press as a “maverick,” targeting issues such as poverty and same-sex marriage, often inspiring anger among French right-wingers. Taubira doesn’t actually have the power to offer asylum herself, however. She said in the interview that such a decision would be up to the French president, prime minister and foreign minister. And Taubira just last week threatened to quit her job unless French President François Hollande implemented her juvenile justice reforms.

Explode that union. Get it over with. People are getting killed.

• Italy Rebukes EU Leaders As ‘Time Wasters’ On Migrants Plan (Reuters)

Italian Prime Minister Matteo Renzi rebuked fellow EU leaders on Thursday for failing to agree a plan to take in 40,000 asylum-seekers from Italy and Greece, saying they were not worthy of calling themselves Europeans. EU leaders are divided over a growing migrant crisis in the Mediterranean and have largely left Italy and Greece to handle thousands of people fleeing war and poverty in Africa and the Middle East. “If you do not agree with the figure of 40,000 (asylum seekers) you do not deserve to call yourself Europeans,” Renzi told an EU summit in Brussels. “If this is your idea of Europe, you can keep it. Either there’s solidarity or don’t waste our time,” he said.

Another official described the debate as “controversial”. Much of the tension appeared to be about ensuring that the migration plan was voluntary, not mandatory as the European Commission had initially suggested. Stung by deaths this year of almost 2,000 migrants trying to reach Europe by boat, the European Union has promised an emergency response but not national quotas for taking people. According to a draft final summit communique, governments would agree to relocation over two years from Italy and Greece to other member states of 40,000 people needing protection. It said all member states will participate.

As EU leaders tackled the issue over dinner, some eastern and central European countries, which are reluctant to take refugees, sought guarantees that the system be temporary and voluntary. “We have no consensus on mandatory quotas for migrants, but … that cannot be an excuse to do nothing,” said Donald Tusk, president of the European Council who chairs summits. “Solidarity without sacrifice is pure hypocrisy.”

It’s all in the design. No escaping that.

• Why Do We Ignore The Obvious? (ZenGardner)

I have a hard time with people not being willing to recognize what’s obviously in front of their faces. It’s a voluntary mind game people play with themselves to justify whatever it is they think they want. This is massively exacerbated by an array of social engineering tactics, many of which are to create the very mind sets and desires people so adamantly defend. But that’s no excuse for a lack of simple conscious recognition and frankly makes absolutely no sense. We can’t blame these manipulators for everything. Ultimately we all have free choice. Plainly seeing what’s right in front of our noses, no matter how well sold or disguised, is our human responsibility. That people would relinquish this innate right and capability totally escapes me.

The Handwriting On the Wall Actually, it’s much more obvious than even that. Pointless wars costing millions of innocent lives, poisoned food, air and water, demolished resources, manipulated economies run by elitist bankers who nonchalantly lend money with conditions for “interest”, corporate profiteering at any cost to humanity, a medical system built on sickness instead of health, media mindmush poisoning children and adults alike, draconian clampdowns for any reason, and on and on. Why is this not obvious to people that something is seriously wrong, and clearly intended to be just the way it is? Do they really think it’s gonna iron itself out, especially with clearly psychopathic power mad corrupt maniacs in charge? That’s what they’ll tell you. “Give it time, we’re just going through a hiccup. Everything works out…” yada yada. Why? Because that’s what they want to believe. And the constructed world system is waiting with open arms to reinforce that insanity. And “Heck, if millions of others feel the same as me I can’t possibly be wrong.”

Fear of Drawing Conclusions That’s pretty much the bottom line. Acceptance for seeming security. However, if even one of these inroads of control vectors becomes clear to people then their whole world threatens to turn upside down. When two or more start appearing then the discomfort becomes quite intense, and that’s when the decision takes place. Either they keep pursuing this line of awakened thought or they shut it down. It’s all about comfort. And what a deceptive thing that is! Call it sleepwalking to oblivion or what have you, it’s endemic to today’s dumbed-down society. This is why the education system was their primary target since way back, conditioning humanity from childhood to not think analytically but to simply repeat whatever is in their carefully sculpted curriculum. But most of all do not question authority.

And have a yearly man-eating fest?!

• Robots Will Conquer The World and Keep Us As Pets – Wozniak (RT)

Apple co-founder Steve Wozniak, who used to be gloomy about a distant future dominated by artificial intelligence, now believes it would be good for humanity in the long run. Super smart robots would keep us as pets, he believes. “They’re going to be smarter than us and if they’re smarter than us then they’ll realize they need us,” Wozniak told an audience of 2,500 people at the Moody Theater in Austin, Texas, on Wednesday. The speech was part of the Freescale Technology Forum 2015. “They’ll be so smart by then that they’ll know they have to keep nature, and humans are part of nature. So I got over my fear that we’d be replaced by computers. They’re going to help us. We’re at least the gods originally,” he explained.

The timetable for humans to be reduced from the self-crowned kings of Earth to obsolete sentient life forms sustained by their own creations is measured in hundreds of years, Woz soothed the audience. And for our distant descendants life won’t really be bad. “If it turned on us, it would surprise us. But we want to be the family pet and be taken care of all the time,” he said. “I got this idea a few years ago and so I started feeding my dog filet steak and chicken every night because ‘do unto others,'” he quipped. Wozniak, who invested some $10 million into an IA firm, used to refer to artificial intelligence as “our biggest existential threat.” The concern is shared by some leading IT experts, inventors and scientists, including Elon Musk, Bill Gates and Stephen Hawking.

Debt Rattle May 28 2015

May 282015

May 28, 2015 Posted by Raúl Ilargi Meijer at 11:15 am Finance Tagged with: buybacks, contingent jobs, creditors, deposit, FIFA, Grexit, oil, property, rent seeking, RICO, robots, tiny house, TPP, yen 3 Responses »

Walker Evans Vicksburg, Mississippi. “Vicksburg Negroes and shop fronts” 1936

• US Firms Spend More on Buybacks Than Factories (WSJ)

• You’ve Met Hillarynomics. Now Meet Left-of-Hillarynomics. (Vox)

• 40% of American Workers Now Have ‘Contingent’ Jobs (Forbes)

• Fossil Industry Faces A Perfect Political And Technological Storm (AEP)

• The Tanker Market Is Sending a Big Warning to Oil Bulls (Bloomberg)

• China Stocks Plunge 6.5%, Worst Selloff In 4 Months (CNBC)

• Yen Drops to 12-Year Low as Yellen Builds Case for Fed Rate Rise (Bloomberg)

• US To Urge Greece, Creditors To End Brinkmanship At G7 Meeting (Guardian)

• Greek Bank Losses Show Predicament Amid Record Deposit Outflows (Bloomberg)

• Athens, Creditors Offer Conflicting Views On Negotiations (Kathimerini)

• Romantic Notions Meet Reality (Alexis Papachelas)

• Grexit and the Morning After (Krugman)

• Australia Property Boom Is On Borrowed Time (Business Spectator)

• US Treats FIFA Like the Mafia (Bloomberg)

• You’ll Be Sorry When The Robot McJournalists Take Over (Irish Times)

• Julian Assange: TPP Isn’t About Trade, But Corporate Control (Democracy Now)

• The Cheapest Way To Help the Homeless: Give Them Homes (Mother Jones)

• US Droughts Set To Be Worst In 1000 Years (OnEarth)

• Fossil Fuel Burning Nearly Wiped Out Life On Earth 250m Years Ago (Monbiot)

• A 19th Century Shipwreck Could Give Canada Control of the Arctic (Bloomberg)

• The Tiny House Powered Only by Wind and Sun (Atlantic)

Behold: an economy broken to the bone. No investement in manufacturing capacity equals no confidence in the future.

• US Firms Spend More on Buybacks Than Factories (WSJ)

U.S. businesses, feeling heat from activist investors, are slashing long-term spending and returning billions of dollars to shareholders, a fundamental shift in the way they are deploying capital. Data show a broad array of companies have been plowing more cash into dividends and stock buybacks, while spending less on investments such as new factories and research and development. Activist investors have been pushing for such changes, but it isn’t just their target companies that are shifting gears. More businesses sitting on large piles of extra cash are deciding to satisfy investors by giving some of it back. Rock-bottom interest rates have made it cheap to borrow to buy back shares, which can boost a company’s stock price. And technology-driven productivity gains are enabling some businesses to do more with less.

As the trend picks up steam, so too has debate about whether activist investors—who take sizable stakes in companies, then agitate for changes they think will boost share prices—have caused companies to tilt too far toward short-term rewards. Laurence Fink, chief executive of BlackRock, the world’s largest money manager, argued as much in a March 31 letter to S&P 500 CEOs. “More and more corporate leaders have responded with actions that can deliver immediate returns to shareholders, such as buybacks or dividend increases, while underinvesting in innovation, skilled workforces or essential capital expenditures necessary to sustain long-term growth.”

An analysis conducted for The Wall Street Journal by S&P Capital IQ shows that companies in the S&P 500 index sharply increased their spending on dividends and buybacks to a median 36% of operating cash flow in 2013, from 18% in 2003. Over that same decade, those companies cut spending on plants and equipment to 29% of operating cash flow, from 33% in 2003. At S&P 500 companies targeted by activists, the spending cuts were more dramatic. Targeted companies reduced capital expenditures in the five years after activists bought their shares to 29% of operating cash flow, from 42% the year before, the Capital IQ analysis shows. Those companies boosted spending on dividends and buybacks to 37% of operating cash flow in the first year after being approached, from 22% in the year before.

Rent seeking.

• You’ve Met Hillarynomics. Now Meet Left-of-Hillarynomics. (Vox)

Conventional thinking holds that wealth should be invested and, through investment, put to productive use, with those investments creating job opportunities and higher wages. Alternatively, if few productive investment opportunities are available, the return on invested wealth should start falling. It ought to be a self-correcting cycle in which wealth cannot outpace incomes for long. But the return from capital remains high, and wages are stagnating. Something’s gone wrong. The problem, Stiglitz and his co-authors write, is that the rise in wealth isn’t coming from productive investments. It’s coming from what economists call rents — a metaphorical extension of the 18th-century practice of small farmers paying rent to landlords for the right to use the total inert asset of land.

Stiglitz and his co-authors extend the idea to include a wider and more modern array of rents. A patent or a copyright, for example, can be a valuable financial commodity to own, even without being productive in the way a factory or tractor is. To see the distinction, imagine you have $300 million and can either invest it in a startup or use it to buy the rights to the Beatles’ songs. In the former case, you’re providing money that a company can then use to hire people, produce goods, and generally create wealth in the world. In the latter, you’re producing nothing; you’re just grabbing something that someone else produced and claiming the proceeds from it. “Rent-seeking,” as economists call it, is generally viewed as economically counterproductive. It’s especially counterproductive when it becomes so lucrative as to provide a more attractive outlet for people’s money than real investments.

The report’s authors argue that’s exactly what’s happening with Wall Street. Its growth has fueled a big rise in credit — credit that tends to go to those who already have wealth, often in the form of rents, exacerbating existing rent-based problems. Financiers have also identified novel ways to rent-seek. “Too big to fail” status, for example, can count as a rent. It increases the value of firms like Goldman Sachs or JPMorgan Chase not by making them more productive, but by providing an implicit government subsidy. Trading mortgage-backed securities for profit, similarly, does little to actually increase wealth but a lot to redirect it. That makes it attractive as a business activity for banks and hedge funds, redirecting their energies from profitable activities that create wealth.

Many of these rents are explicitly created by government policies. “Too big to fail” is an obvious example, but financial deregulation more broadly has made speculation vastly more profitable in recent decades, encouraging rent-seeking on the part of financial firms. Stiglitz and his co-authors also finger tax cuts for the wealthy as a culprit. [..] countries that slashed their top marginal tax rates the most in recent decades also saw the biggest increases in inequality before taxes. That might make sense if the tax cuts boosted growth, but that wasn’t really what happened. [..] the tax cuts gave top earners bigger incentive to extract rents for themselves, to bargain hard to increase their share of the company’s wages. In the 1950s, when the top marginal tax rate in the US was 91%, getting an extra $1 in income through rents only yielded $0.09 after taxes. Today, it means getting $0.60. That’s a sixfold increase — a huge increase in the incentive to find rents for oneself.

All the job protection our (grand-)parents fought for are gone.

• 40% of American Workers Now Have ‘Contingent’ Jobs (Forbes)

Tucked away in the pages of a new report by the U.S. General Accounting Office is a startling statistic: 40.4% of the U.S. workforce is now made up of contingent workers—that is, people who don’t have what we traditionally consider secure jobs. There is currently a lot of debate about how contingent workers should be defined. To arrive at the 40.4 %, which the workforce reached in 2010, the report counts the following types of workers as having the alternative work arrangements considered contingent. (The government did some rounding to arrive at its final number, so the numbers below add up to 40.2%).

Agency temps: (1.3%); On-call workers (people called to work when needed): (3.5%); Contract company workers (3.0%); Independent contractors who provide a product or service and find their own customers (12.9%); Self-employed workers such as shop and restaurant owners, etc. (3.3%); Standard part-time workers (16.2%). In contrast, in 2005, 30.6% of workers were contingent. The biggest growth has been among people with part time jobs. They made up just 11.9% of the labor force in 2005. That means there was a 36% increase in just five years. The report uses data from the Bureau of Labor Statistics. It begs an important question: Are traditional jobs—the foundation of our consumer economy–running their course and going the way of the typewriter and eight-track tape? And if so, what do we do about it?

This report is important because it’s the first time since the Great Recession that the U.S. government has taken stock of how many people are working without the protections that come with traditional, full-time W-2 jobs. It reinforces estimates of the independent workforce that have come from observers ranging from the Freelancers Union to Faith Popcorn and are in a similar ballpark. Many people in this workforce are struggling economically. In a note issued with the report, Senators Patty Murray (D-WA) and Kirsten Gillibrand (D-NY) write, “Because contingent work can be unstable, or may afford fewer protections depending on a worker’s particular employment arrangement, it tends to lead to lower earnings, fewer benefits, and a greater reliance on public assistance than standard work.”

Sorry, technodreamers, but we will never power anything like our present economy on renewables. Ambrose has no clue.

• Fossil Industry Faces A Perfect Political And Technological Storm (AEP)

The political noose is tightening on the global fossil fuel industry. It is a fair bet that world leaders will agree this year to impose a draconian “tax” on carbon emissions that entirely changes the financial calculus for coal, oil, and gas, and may ultimately devalue much of their asset base to zero. The IMF has let off the first thunder-clap. An astonishing report – blandly titled “How Large Are Global Energy Subsidies” – alleges that the fossil nexus enjoys hidden support worth 6.5pc of world GDP. This will amount to $5.7 trillion in 2015, mostly due to environmental costs and damage to health, and mostly stemming from coal. The World Health Organisation – also on cue – has sharply revised up its estimates of early deaths from fine particulates and sulphur dioxide from coal plants.

The killer point is that this architecture of subsidy is a “drag on economic growth” as well as being a transfer from poor to rich. It pushes up tax rates and crowds out more productive investment. The world would be richer – and more dynamic – if the burning of fossils was priced properly. This is a deeply-threatening line of attack for those accustomed to arguing that solar or wind are a prohibitive luxury, while coal, oil, and gas remain the only realistic way to power the world economy. The annual subsidy bill for renewables is just $77bn, trivial by comparison. The British electricity group SSE is already adapting to the new mood. It will close its Ferrybridge coal-powered plant next year, citing the emerging political consensus that coal “has a limited role in the future”.

The IMF bases its analysis on the work Arthur Pigou, the early 20th Century economist who advocated taxes to ensure to stop investors keeping all the profit while dumping bad side-effects on the rest of society. The Fund has set off a storm of protest. Subsidies are not quite the same as costs. Oil veterans retort that they have been paying punitive taxes into the common welfare pool for a long time. But whether or not you agree with the IMF’s forensic accounting the publication of such claims by the world’s premier financial body is itself a striking fact. The IMF is political to its fingertips. It rarely deviates far from the thinking of the US Treasury.

It is becoming clearer last year’s sweeping deal on climate change between the US and China was an historical inflexion point, the beginning of the end for a century of fossil dominance. At a single stroke it defused the ‘North-South’ conflict that has bedevilled climate policy and that caused the collapse of the Copenhagen talks in 2009. Todd Stern, the chief US climate negotiator, said the chemistry is radically different today as sherpas prepare for the COPS 21 summit in Paris this December. “The two 800-pound gorillas are working together,” he said.

Glut.

• The Tanker Market Is Sending a Big Warning to Oil Bulls (Bloomberg)

Four months into oil’s rebound from a six-year low, the tanker market is sending a clear signal that the rally is under threat. A sudden surge in demand for supertankers drove benchmark charter rates 57% higher in the two weeks through May 20. OPEC will have almost half a billion barrels of oil in transit to buyers at the start of June, the most this year, while analysts say about 20 million barrels is being stored on ships in another indication the glut has yet to dissipate. OPEC is pumping the most oil in more than two years, determined to defend market share rather than prices. A record cut to the number of active U.S. drilling rigs and billions of dollars of spending reductions by companies since last year’s price plunge has yet to translate into a slump in barrels produced.

The world is producing about 1.9 million barrels a day more crude than it needs, according to Goldman Sachs “Supply of oil continues to build,” said Paddy Rodgers of Euronav, whose supertanker fleet can haul 56 million barrels of crude. “All of this oil needs to go somewhere,” he wrote in an e-mail May 19. Daily rates for supertankers on the industry’s benchmark route reached $83,412 on May 20, from $52,987 on May 6, according to the Baltic Exchange in London. While rates since retreated to $69,594, they’re still the highest for this time of year since at least 2008.

OPEC’s 12 members have will have 485 million barrels of oil in transit to buyers in the four weeks to June 6, the most since November, Roy Mason, founder of Oil Movements, monitoring the flows, said by e-mail Wednesday. Iraq, the group’s second-largest producer, plans to boost exports to a record 3.75 million barrels a day next month, according to shipping programs. Spare tanker capacity in the Middle East has seldom been tighter. The combined excess of ships competing for the region’s exports stood at 6% last week, the lowest for the time of year in Bloomberg surveys of shipbrokers that started in 2009. While that expanded to 12% this week, the monthly average was still the lowest on record for May.

Expect many, and bigger, swings.

• China Stocks Plunge 6.5%, Worst Selloff In 4 Months (CNBC)

It was a sea of red in China, with the key Shanghai Composite ending down 6.5% at a near one-week low, marking its biggest one-day loss since January 19 and breaking an eight-session winning streak. The CSI 300 index of the largest listed companies in Shanghai and Shenzhen tumbled 6.7%, while the start-up board ChiNext sank 5.4%. News that more Chinese brokerages are tightening margin lending rules seem to be the main cause of concern among retail investors, experts say. According to IG market strategist Bernard Aw, Guosen Securities increased the margin requirement for 908 counters while Southwest Securities reduced the amount of margin financing that traders can receive using collateral.

Separately, the Shanghai Securities News also reported that regulators have recently urged banks to submit data regarding money flows into the stock market, according to Reuters. Meanwhile, Hong Kong shares tracked their mainland peers to recede more than 2%, hitting a two-week low. Shares of Hong Kong-listed Evergrande Real Estate Group inched up 0.1% after announcing plans to raise around $600 million in a Hong Kong share offering. Sunac China Holdings plunged nearly 6% following news that it is terminating a takeover deal for troubled Chinese developer Kaisa.

“Once it’s government policy, you better pay attention.”

• Yen Drops to 12-Year Low as Yellen Builds Case for Fed Rate Rise (Bloomberg)

The yen fell to a 12-year low versus the dollar as the Federal Reserve prepares to raise interest rates, sharpening the contrast with the Bank of Japan’s unprecedented monetary stimulus. Japan’s currency led declines among 16 major peers this week as signs of U.S. economy strengthening revived the greenback’s rally. The yen’s 30% drop since 2012 is driving record profits at Japan’s biggest companies, helping the nation’s stocks toward their longest rally since 1988. BOJ Governor Haruhiko Kuroda repeated this week that he’ll adjust monetary policy if needed to meet his inflation target.

“The dollar will appreciate relative to the yen because Japanese government policy is to depreciate the yen,” Daniel Fuss at Loomis Sayles said in an interview in Tokyo Wednesday. “Once it’s government policy, you better pay attention.” The Japanese currency has depreciated by 2.1% versus the greenback since May 21, the day before Fed Chair Janet Yellen said she expects to raise interest rates this year for the first time since 2006. Until last week, the yen had been trading in a range of just two yen around 120 per dollar this quarter. The yen’s weakness came as the BOJ pursued policies including unprecedented debt purchases, seeking to revive an economy that spent more than a decade battling deflation.

The fine print: the original Guardian headline is: “US to urge Greece to end brinkmanship with creditors at G7 meeting”, accusing Greece of brinkmanship. But that’s not what Lew said, even in the article.

• US To Urge Greece, Creditors To End Brinkmanship At G7 Meeting (Guardian)

The US Treasury secretary has said he will use the G7 finance ministers’ meeting to press Greece and its European creditors to end their brinkmanship and forge a rescue deal. With the Syriza-led coalition scrambling to secure an agreement, which will release the final €7.2bn (£5.1bn) tranche of bailout cash and prevent it defaulting on a looming payment to the International Monetary Fund (IMF), Jack Lew urged both sides in the ongoing Greek debt crisis to “treat every deadline as the last”. Washington has looked on with varying degrees of frustration and alarm throughout the long-running saga, which has seen Greece bailed out twice by a total of €240bn.

On a day when share prices soared on rumours of a breakthrough in the debt talks, before German officials scotched talk of “progress”, Lew warned both sides against complacency. Speaking to students at the London School of Economics before flying to Dresden for the G7 summit, which will take place on Thursday and Friday, he said: “No one should have a false sense of confidence that they know what the result of a crisis in Greece would be.” He stressed that he believed all parties were negotiating in good faith, with neither deliberately aiming at a Greek default. However, Lew said he feared an “accident”, with the high-stakes negotiations ending in crisis. “It is profoundly in the interests of the US and European economies for the accident to be avoided,” Lew said, speaking to students at the London School of Economics. “Brinksmanship is a dangerous thing”.

Dangerous. The troika could stop this, but won’t.

• Greek Bank Losses Show Predicament Amid Record Deposit Outflows (Bloomberg)

Greek banks, forced into a central bank liquidity lifeline, are poised to report sustained losses as they grapple with record deposit outflows and an economy that plunged into double-dip recession. National Bank of Greece, the country’s biggest lender by assets, and Alpha Bank report first-quarter earnings Thursday. Piraeus Bank on Wednesday said its first-quarter loss was €69 million, as deposits shrank by 15% to €46.5 billion, with a further €1.9 billion of private deposit outflows through mid-May. “We expect the Greek banks to remain loss-making this quarter” on more expensive funding from the ECB and higher provisions for souring loans, Euroxx Securities analyst Maria Kanellopoulou said.

The prolonged uncertainty on Greece’s support program “will inevitably weigh on banks’ asset quality, with a fresh rise in new non-performing loans.” Greek lenders have lost access to capital markets and the ECB’s normal financing operations amid a standoff between the country’s anti-austerity coalition and its creditors over the terms of the current bailout. Lenders rely on more than €80 billion of Emergency Liquidity Assistance extended by the Bank of Greece to stay afloat, a more expensive source of funding, while they are forced to participate in liquidity-draining auctions of government treasury bills rather than let the country default.

“Tsipras added that there is “absolutely no risk to salaries and pensions, nor to bank deposits.”

• Athens, Creditors Offer Conflicting Views On Negotiations (Kathimerini)

Prime Minister Alexis Tsipras said Wednesday that a deal with creditors was “close” and government officials said an agreement was being drafted but representatives of the country’s creditors made it quite clear that they do not share such optimism. In comments after a meeting at the Finance Ministry, Tsipras said a deal with creditors was “close” and that “very soon we will be able to present more details.” He stressed the need for “calm and determination,” noting that Greece would come under additional pressure in the final stretch of negotiations. He also referred to “conflicting views between institutions” and to “countries with different approaches.” Tsipras added that there is “absolutely no risk to salaries and pensions, nor to bank deposits.”

According to sources, Tsipras was advised to make the statement by aides fearing that jitters were creeping back into the markets and could prompt a new wave of deposit outflows. Tsipras chose to make the statement flanked by Finance Minister Yanis Varoufakis to underline the government’s backing for the latter, who has come under fire over his confusing statements about the content of a potential deal. Earlier in the day, the ECB decided not to raise the ceiling on emergency liquidity to Greece. A Greek government official commented that the Bank of Greece had not requested an increase to emergency liquidity as the current ceiling of €80.2 billion is regarded as adequate “following a stabilization of deposit outflows.”

In an interview with Die Zeit on Wednesday, German Finance Minister Wolfgang Schaeuble said it was down to Greece to decide on whether to introduce capital controls. He defended the decision by Greece’s creditors to link loans to further reforms, despite the country’s tightening liquidity problems. “That is the philosophy of the rescue program. The new government is saying: we want to keep the euro but we don’t want the program any more. That doesn’t fit together,” he said. Earlier, on a stopover in London on his way to a meeting of Group of Seven finance ministers in Dresden, US Treasury Secretary Jack Lew called on Greece’s creditors “show enough flexibility so if the Greeks are prepared to take the kind of steps they need to take, they find a pathway to resolving this without there being an unnecessary crisis.”

It’s easy to forget that all Syriza has been able and allowed to do so far is to negotiate with creditors, and that everything else has been forced onto the backburner.

• Romantic Notions Meet Reality (Alexis Papachelas)

Before the elections, there was a considerable number of people who totally disagreed with the ideas and program put forward by SYRIZA, but they expected that the leftist party would, at least, provide a breath of fresh air as it climbed to power. They believed that SYRIZA would do away with the highly partisan tactics of its socialist and conservative predecessors and move on to adopt more meritocratic practices. They expected that SYRIZA would install young, independent people in key government posts, making use of the best talents that the country has to offer. They hoped that SYRIZA officials would man the state apparatus after poring over the CVs of thousands of job-seekers in the private sector. And they anticipated a growth-oriented strategy that would enable people to try their luck without running into unnecessary or artificial obstacles, and without having to pay bribes here and there.

It was only natural that a large section of voters would expect all that. Because, regretably, and despite the crisis, the old political system failed to change the way things work in this country. Unfortunately, the expectations of all those voters with romantic notions of what to expect have not been fulfilled. The state mechanism has mostly been manned by friends and political cronies of the ruling party. Key posts have been entrusted to well-connected representatives of the good old system. The way SYRIZA has dealt with the so-called oligarchs seems very selective. It does not seem to have allowed the domestic institutions to carry out their work in a fair and transparent manner. In fact, it smacks of an attempt to install a new oligarchy – only, this time, one that is pro-SYRIZA.

So, no breath of fresh air. The question, of course, is why? The answer is that SYRIZA has strong ties with groups that depend exclusively on the state for their survival. The healthy private sector which does not rely on the generosity of the state for its well-being has no political representation in Alexis Tsipras’s party. The truth is, even the country’s conservative parties have failed in that respect. It’s hard to say how long SYRIZA will manage to stay in power. Any prediction would be risky these days. That said, those who looked forward to some creative big bang, as it were, spawned by SYRIZA’s victory are beginning to feel disappointed. That does not mean to say that the party will not be able to consolidate itself as the dominant political player. It does mean, however, that the dreamers will have to wait. Or move to a more cynical, same-old view of things.

A moment of clarity from Ye Olde Paul.

• Grexit and the Morning After (Krugman)

We just had another electoral earthquake in the euro area: Podemos-backed candidates have won local elections in Madrid and Barcelona. And I hope that the IFKAT — the institutions formerly known as the troika — are paying attention. The essence of the Greek situation is that the actual parameters of a short-run deal are clear and unavoidable: Greece can’t run a primary budget deficit, because nobody will lend it new money, and it won’t (and basically can’t) run a large primary surplus, because you can’t squeeze even more blood from that stone. So you would think that an agreement for Greece to run a modest primary surplus over the next few years would be easy to reach — that is what will happen, so why not make it official?

But now the IMF is playing bad cop, declaring that it cannot release funds until Syriza toes the line on pensions and labor market reform. The latter is dubious economics — the IMF’s own research doesn’t support enthusiasm about structural reforms, especially in the labor market. The former probably recognizes a real problem — Greece probably can’t deliver what it has promised pensioners — but why should this be an issue over and above the general question of the primary surplus. What I would urge everyone to do is ask what happens if Greece is in fact pushed out of the euro. (Yes, Grexit — ugly word, but we’re stuck with it.) It would surely be ugly in Greece, at least at first.

Right now the core euro countries believe that the rest of the euro area can handle it, which might be true. Bear in mind, however, that the supposed firewall of ECB support has never actually been tested. If markets lose faith and the time for ECB purchases of Spanish or Italian bonds arises, will it really happen? But the bigger question is what happens a year or two after Grexit, where the real risk to the euro is not that Greece will fail but that it will succeed. Suppose that a greatly devalued new drachma brings a flood of British beer-drinkers to the Ionian Sea, and Greece starts to recover. This would greatly encourage challengers to austerity and internal devaluation elsewhere.

Think about it. Just the other day the Very Serious Europeans were hailing Spain as a great success story, a vindication of the whole program. Evidently the Spanish people don’t agree. And if the anti-establishment forces have a recovering Greece to point to, the discrediting of the establishment will accelerate. One conclusion, I guess, is that Germany should try to sabotage Greece post-exit. But I hope that will be considered unacceptable. So think about it, IFKATs: are you really sure you want to start going down this road?

Has been for years. The plunge will be historic.

• Australia Property Boom Is On Borrowed Time (Business Spectator)

The stage is set for Australian property to finally feel the pain so evident across other sectors of the economy. A series of headwinds – combined with tighter lending standards – ensures that the investor property boom is now on borrowed time. Yesterday, Westpac decided to cut the lucrative interest rate discounts offered to new housing investors – following similar action from its major rivals last week – as regulatory pressure from the Australian Prudential Regulation Authority begins to take effect. The implication of this shift in regulatory policy will be modest at first but could soon snowball into a much weaker period for Australian property. Rarely can a housing downturn be so easily identified.

Nevertheless, right now, prices continue to rise at a rapid pace in Sydney and to a lesser extent Melbourne. By comparison, conditions in the other capitals remain more modest. Real dwelling prices – that is prices adjusted for inflation – have increased by 30% since the beginning of 2013 in Sydney and by 15% in Melbourne. In the other capitals, price growth has better reflected income growth. But the tide is clearly turning and the outlook for the property sector needs to be viewed against the broader economic backdrop. The Reserve Bank, for example, was recently forced to cut their economic outlook for the fourth time in the past five quarters. We are currently stuck in the middle of an ‘income recession’ due to the sharp fall in commodity prices.

In the next few years, higher taxes will hit the market at the very top – since high income earners obviously purchase expensive housing – but also towards the bottom – since investors often favour cheap rental properties. Alternatively, higher taxes could make negative gearing more attractive. Meanwhile, the Federal Government has taken clear and decisive steps to reign in foreign investment in established property, while maintaining the existing arrangements for new construction. We also cannot ignore the possibility that the Western Australia economic bust has significant spill over effects for the broader economy and financial system.

But will it stick? Does RICO apply to FIFA?

• US Treats FIFA Like the Mafia (Bloomberg)

It wasn’t exactly extraordinary rendition. But when Swiss police arrested seven officials of FIFA, the international football federation, for extradition to the U.S., there were some echoes of the secret terrorism arrests. Soccer is a global game, and it matters more to almost everyone than to Americans. So why is the U.S. acting as the international sheriff and grabbing up non-U.S. citizens to try them domestically for corrupting the sport worldwide? And more to the point, why is this legal? It turns out the legal basis for the FIFA prosecutions isn’t all that simple or straightforward – and therein lies a tale of politics and sports. The prosecutions are being brought under RICO, the Racketeer Influenced and Corrupt Organizations Act of 1970, which was designed to prosecute crime syndicates that had taken over otherwise lawful organizations.

Roughly speaking, the law works by allowing the government to prove that a defendant participated in a criminal organization and also committed at least two criminal acts under other specified laws, including bribery and wire fraud. If the government can prove that, the defendant is guilty of racketeering, and qualifies for stiff sentences, the seizure of assets and potential civil-liability lawsuits. The first and most obvious problem raised by the FIFA arrests is whether the RICO law applies outside the U.S., or “extraterritorially” as lawyers like to say. Generally, as the Supreme Court has recently emphasized, laws passed by Congress don’t apply outside the U.S. unless Congress affirmatively says so. RICO on its face says nothing about applying beyond U.S. borders. So you’d think that RICO can’t reach conduct that occurred abroad, and much of the alleged FIFA criminal conduct appears to have done so.

But in 2014, the U.S. Court of Appeals for the Second Circuit held that RICO could apply extraterritorially – if and only if the separate criminal acts required by the law, known as “predicate acts,” violated statutes that themselves apply outside U.S. borders. The court gave as an example the law that criminalizes killing an American national outside the U.S. That law clearly applies abroad, the court pointed out. And it may function to define one of the predicate offenses under RICO. Thus, RICO can apply abroad. To convict the FIFA defendants, therefore, the Department of Justice will have to prove either that they committed crimes within the U.S. or that they committed predicate crimes covered by RICO that reach beyond U.S. borders.

Bet you didn’t know.

• You’ll Be Sorry When The Robot McJournalists Take Over (Irish Times)

If you consume much of your daily news diet online, you’re probably already acquainted with the work of “robot journalists”, you just don’t know it yet. We’re not talking here about Wall-E running around with a reporter’s notebook chasing stories on Amal Clooney (well, not yet), but about the algorithms used by organisations such as Forbes, AP and Fortune to produce millions of stories AP relies on a content generation package called Wordsmith to produce some of its quarterly-earnings business stories and will soon be using it for sports coverage too. You’ve never heard of Wordsmith but you’re probably familiar with its work: it produced 300 million stories last year and is aiming for one billion this year. A rival company, Narrative Science, provides content to Forbes, Fortune and others.

“We sort of flip the traditional content creation model on its head,” Robbie Allen, creator of Wordsmith told the New York Times. “Instead of one story with a million page views, we’ll have a million stories with one page view each.” The cheerleaders for this new technology – who includes some journalists (New York magazine declared that “the stories that today’s robots can write are, frankly, the kinds of stories that humans hate writing anyway”) – claim that it will free journalists up to do more meaningful pieces, while algorithms churn out rewrites of press releases, mine longer texts for insights, or produce entirely personalised packages of content tailored for individuals. That’s nonsense. As always, “freeing people up” invariably means “liberating them of their jobs”.

But leaving aside the prospect of fewer people in employment, the notion that algorithms may end up taking over even the quotidian aspects of content production is depressing, and not just for journalists. [..] it’s you, the reader, who will suffer. Algorithms may be good at crunching numbers and putting them in some kind of context, but journalists are good at noticing things no one else has. They’re good at asking annoying questions. They’re nosy and persistent and willing to challenge authority to dig out a story. They’re good at provoking irritation, devastation, laughter or controversy. Wildly efficient robot journalists may offer hope to an industry beset by falling advertising rates and disappearing readers. The world will have fewer human journalists as a result, which may not be altogether a bad thing. But the question is: does it really need a billion more pieces of McJournalism?

Go to site to watch video.

• Julian Assange: TPP Isn’t About Trade, But Corporate Control (Democracy Now)

As negotiations continue, WikiLeaks has published leaked chapters of the secret Trans-Pacific Partnership — a global trade deal between the United States and 11 other countries. The TPP would cover 40% of the global economy, but details have been concealed from the public. A recently disclosed “Investment Chapter” highlights the intent of U.S.-led negotiators to create a tribunal where corporations can sue governments if their laws interfere with a company’s claimed future profits. WikiLeaks founder Julian Assange warns the plan could chill the adoption of health and environmental regulations.

Julian Assange: ..it’s the largest-ever international economic treaty that has ever been negotiated, very considerably larger than NAFTA. It is mostly not about trade. Only five of the 29 chapters are about traditional trade. The others are about regulating the Internet and what Internet—Internet service providers have to collect information. They have to hand it over to companies under certain circumstances. It’s about regulating labor, what labor conditions can be applied, regulating, whether you can favor local industry, regulating the hospital healthcare system, privatization of hospitals. So, essentially, every aspect of the modern economy, even banking services, are in the TPP.

And so, that is erecting and embedding new, ultramodern neoliberal structure in U.S. law and in the laws of the other countries that are participating, and is putting it in a treaty form. And by putting it in a treaty form, that means—with 14 countries involved, means it’s very, very hard to overturn. So if there’s a desire, democratic desire, in the United States to go down a different path—for example, to introduce more public transport—then you can’t easily change the TPP treaty, because you have to go back and get agreement of the other nations involved. Now, looking at that example, what if the government or a state government decides it wants to build a hospital somewhere, and there’s a private hospital, has been erected nearby?

Well, the TPP gives the constructor of the private hospital the right to sue the government over the expected—the loss in expected future profits. This is expected future profits. This is not an actual loss that has been sustained, where there’s desire to be compensated; this is a claim about the future. And we know from similar instruments where governments can be sued over free trade treaties that that is used to construct a chilling effect on environmental and health regulation law. For example, Togo, Australia, Uruguay are all being sued by tobacco companies, Philip Morris the leading one, to prevent them from introducing health warnings on the cigarette packets.

But that’s against our life philosophy?!

• The Cheapest Way To Help the Homeless: Give Them Homes (Mother Jones)

Santa Clara County is perhaps best known as the home of Silicon Valley. It also has one of the country’s highest rates of homelessness and its third largest chronically homeless population. An extensive new study of the county’s homelessness crisis, published yesterday, finds that the most cost-effective way to address the problem is to provide people with homes. Those findings echo a similar approach that’s been successfully adopted in Utah, the subject of Mother Jones’ April/May cover story. The study was conducted by county officials who teamed up with Economic Roundtable, a nonprofit public policy research organization, and Destination: Home, an agency that works to house the homeless.

Researchers dug into 25 million records to create a detailed picture of the demographics and needs of the more than 104,000 people who were homeless in the county between 2007 and 2012. They found that much of the public costs of homelessness stemmed from a small segment of this population who were persistently homeless, around 2,800 people. Close to half of all county expenditures were spent on just five% of the homeless population, who came into frequent contact with police, hospitals, and other service agencies, racking up an average of $100,000 in costs per person annually. Those costs quickly add up—overall, Santa Clara communities spend $520 million in homeless services every year.

The study also highlights solutions. The researchers examined Destination: Home’s program, which has housed more than 800 people in the past five years. The study looked at more than 400 of these housing recipients, a fifth of whom were part of the most expensive cohort. Before receiving housing, they each averaged nearly $62,500 in public costs annually. Housing them cost less than $20,000 per person—an annual savings of more than $42,000.

Fifty shades of dry.

• US Droughts Set To Be Worst In 1000 Years (OnEarth)

The National Oceanic and Atmospheric Administration’s seasonal outlook is out, and this summer is going to be a dry one. The massive drought consuming the West will likely continue and even intensify in most places (sorry Nevada, that forecast covers the entire Silver State.) But it won’t be alone: The upper Midwest and Northeast will be parched, too. As for the lower Midwest, a few states could get some relief, but…I wouldn’t let those green lawns go to your head. Scientific models predict that as the climate warms, we’ll see more droughts, and according to the video below, they’ll also last longer than in the past. So Americans, start swinging your partner round and round, shaking your moneymaker, or electric-sliding (if you must)—because we may need to come up with a national rain dance.

History revised: no asteroid.

• Fossil Fuel Burning Nearly Wiped Out Life On Earth 250m Years Ago (Monbiot)

In the media, if not scientific literature, global catastrophes have long been associated with asteroid strikes. But as the dating of rocks has improved, the links have vanished. Even the famous meteorite impact at Chicxulub in Mexico, widely blamed for the destruction of the dinosaurs, was out of sync by more than 100,000 years. The story that emerges repeatedly from the fossil record is mass extinction caused by three deadly impacts, occurring simultaneously: global warming, the acidification of the oceans and the loss of oxygen from seawater. All these effects are caused by large amounts of carbon dioxide entering the atmosphere. When seawater absorbs CO2, its acidity increases. As temperatures rise, circulation in the oceans stalls, preventing oxygen from reaching the depths.

The great outgassings of the past were caused by volcanic activity that were orders of magnitude greater than the eruptions we sometimes witness today. The dinosaurs appear to have been wiped out by the formation of the Deccan Traps in India: an outpouring on such a scale that one river of lava flowed for 1,500km. But that event was dwarfed by a far greater one, 190m years earlier, that wiped out 96% of marine life as well as most of the species on land. What was the cause? It now appears that it might have been the burning of fossil fuel. Before I explainthis extraordinary contention, it’s worth taking a moment to consider what mass extinction means.

This catastrophe, at the end of the Permian period about 252m years ago, wiped out not just species within the world’s ecosystems but the ecosystems themselves. Forests and coral reefs vanished from the fossil record for some 10 million years. When, eventually, they were reconstituted, it was with a different collection of species which evolved to fill the ecological vacuum. Much of the world’s surface was reduced to bare rubble. Were such an extinction to take place today, it would be likely to eliminate almost all the living systems that sustain us. When plants are stripped from the land, the soil soon follows.

Blackberry founder decides Artic ownership?

• A 19th Century Shipwreck Could Give Canada Control of the Arctic (Bloomberg)

Jim Balsillie, the former co-CEO of Research In Motion, the company behind the BlackBerry, believes rituals are scenes we perform so our lives might take the shape we need them to take. It’s a symbolic act, and symbols matter to him. Directly beneath the hole in the ice, visible on the seafloor, is the biggest symbol of all: the HMS Erebus, one of two British navy ships lost during Sir John Franklin’s doomed 1845 quest to find the Northwest Passage through the Arctic. The whereabouts of the Erebus frustrated hundreds of searchers for more than 150 years, costing several their lives. Balsillie helped finance and coordinate the successful hunt for the ship, rediscovered in September 2014.

On a personal level, the search for the Erebus was a way for him to take more control over his life after his unceremonious exit from RIM, which left him angry, drained, and disoriented. But it’s much more than an archeological artifact. It represents an opportunity for Canada to take more control of the Arctic. Exploring the Erebus, Balsillie hopes, will draw the collective attention of Canadians northward to a neglected region with billions in potential resources. And by conducting a complex operation in the waters, Canadian military and civilian officials say they are demonstrating their sovereignty over the Northwest Passage. The Queen Maud Gulf, where the Erebus sits, is part of the southern branch of the Northwest Passage.

The route is a fabled link between the Atlantic and Pacific that for centuries proved a dangerous magnet for seekers of knowledge, fortune, and glory. Since 2007, as a result of climate change, the passage has become navigable by smaller ships for a couple of months during most summers. An open route can cut thousands of miles off of trips between the west coast of the Americas and Europe. The two alternative routes are the Panama Canal and the Northern Sea Route, which runs from the Bering Strait and over the Russian Arctic. In 2013 the MS Nordic Orion, a Norwegian freighter, made the first cargo transit of the Northwest Passage. That trip, which carried coal from Vancouver to Norway, hasn’t been repeated. But it raised an unanswered question in maritime law: Who really controls the waters of the route and the rest of Canada’s Arctic archipelago, which consists of more than 30,000 islands?

She’s a beauty.

• The Tiny House Powered Only by Wind and Sun (Atlantic)

In theory, I support the tiny-house lifestyle. I would enjoy the opportunity to live on a lonesome plain somewhere, with only the stars and many insects for company. I’m sure I could find a way to de-clutter my life such that the floor of my room/house was not always covered by 100 pairs of yoga pants. I would emerge from the experience a stronger, more reflective person who, if tiny house documentaries are to be believed, is also an expert in knitting and roof repair. The problem would lie in the construction of said house. If I were in charge of hooking up my own water lines, for example, I would be dead of dysentery by now.

Enter the Ecocapsule, a new kind of micro-house powered entirely by solar and wind energy. The capsule, made by a Slovakian company called Nice Architects, comes pre-made and ready to house two adults. Its kitchenette spouts running water, the toilet flushes, and the shower flows hot. It is 14.6 feet long and 7.4 feet wide. Nice Architects will start taking pre-orders in the fall of this year, and it expects to start delivering the first units in the beginning of 2016. They’re unveiling the Ecocapsule publicly for the first time this week at the Pioneers festival in Vienna. The company suggest the Ecocapsule can be used as a portable hotel, a research station, or even a charging hub for electric vehicles.

The designers, for whom English is not a first language, also write in the release that the “capsule can be used as a urban dwelling for singles in the high-rent, high-income areas like NY or Silicone valley. It can be placed on the rooftop or vacant parking lot.” (Hear that, Google employees? Enjoy dealing with your new, pod-dwelling roof squatters!) Okay, so maybe that last one is wishful thinking. But if it works as described, the capsule might just be the perfect tiny house for those who yearn to live on the edge of an ethereal cliff but don’t want to learn how to build a composting toilet.