Tulip Archives - The Automatic Earth

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

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

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

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

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

Why the dollar’s demise is greatly exaggerated.

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

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

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

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

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

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

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

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

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

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

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

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

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

Not the plan.

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

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

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

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

• US Households Are Loaded Up With Stocks (Lyons)

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

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

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

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

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

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

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

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

I went for the headline. But good insights too.

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

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

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

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

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

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

Not could, will. Already has.

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

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

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

Party in the streets of Athens.

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

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

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

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

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

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

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

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

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

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

• There Never Was a Real Tulip Fever (Smithsonian)

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

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

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

Debt Rattle July 21 2017

Jul 212017

July 21, 2017 Posted by Raúl Ilargi Meijer at 8:58 am Finance Tagged with: bitcoin, Brexit, Concorde, EU, hyperloop, lion, Monsanto, Poland, QE, Tulip, Turkey 1 Response »

Francis Bacon Three Studies of Lucian Freud 1969

• European Central Bank Sticks To Low Rate Monetary Policy (R.)

• Bill Gross Is Worried Central Banks Will Lead The World Into Recession (CNBC)

• EU Threatens Poland With ‘Nuclear Option’ Over Supreme Court Control (Ind.)

• Germany Steps Up Economic Pressure On Turkey In Rights Row (R.)

• Britain Hasn’t Been This Risky in 40 Years (BBG)

• Concorde Was The Flying Brexit (G.)

• Why The Moaning? If Anything Can Halt Capitalism’s Fat Cats, It’s Brexit (G.)

• Australia Prime Minister Quietly Issues Warning On House Prices (NCA)

• Bitcoin Bubble Dwarfs Tulip Mania From 400 Years Ago – Prechter Jr (CNBC)

• Elon Musk: I Got ‘Approval’ For New York-DC Hyperloop. Officials Deny (G.)

• To Save Rural Iowa, We Must Oppose Monsanto-Bayer Merger (Dmr)

• Son of Cecil The Lion Killed By Trophy Hunter (G.)

Same old song: he misses all targets and then vows to do more of the same. Tries to convey a message of recovery but talks about even more QE.

• European Central Bank Sticks To Low Rate Monetary Policy (R.)

The European Central Bank left its ultra-easy monetary policy stance unchanged as expected on Thursday, keeping rates at record lows and even leaving the door open to more asset buys if the outlook worsens. After ECB chief Mario Draghi raised the prospect of policy tightening last month, he signalled that any policy tweaks would come only gradually, setting the scene for a possible discussion in September about a long-awaited tapering of its asset buys. “We need to be persistent and patient because we aren’t there yet, and prudent,” Draghi told his regular news conference after a meeting of ECB policy-makers in Frankfurt. He stressed that the bank’s governing council were unanimous both on the decision to keep its guidance unchanged and to avoid setting a precise date for a discussion of future policy, noting only that it would occur in the autumn.

The prospect of reduced monetary stimulus has kept financial markets edgy, with investors sifting through clues to gauge how big central banks around the globe will unwind unconventional policy that have kept borrowing costs at rock bottom. Euro and government bond yields across the bloc initially slipped after the statement. But as Draghi spoke, eurozone bond yields gained ostensibly on his confirmation of expectations that the taper would be discussed in autumn. The euro firmed more than 3% and German 10-year yields doubled since Draghi’s policy hint. Indeed, the euro’s 11% rise this year will weigh on inflation, compounding the impact of a more than 10% drop in crude oil prices. “As core inflation remains subdued, the ECB will likely prefer to err on the side of caution, that is moving more slowly rather than faster than many observers project,” Holger Schmieding at Berenberg noted.

It’s the only thing they’re good at.

• Bill Gross Is Worried Central Banks Will Lead The World Into Recession (CNBC)

Bond guru Bill Gross is warning about looming interest rate increases and the damage they can do to a debt-laden global economy. In his monthly investor outlook, the Janus Henderson Advisors fund manager said the course of global central banks toward tightening policy could be perilous for the economic recovery. Raising interest rates will increase the cost of short-term debt that corporations and individuals hold. In the U.S. alone, households have $14.9 trillion in debt while businesses owe $13.7 trillion, according to the Federal Reserve. “While governments and the U.S. Treasury can afford the additional expense, levered corporations and individuals in many cases cannot,” Gross said. The Fed is on a course of gradual rate increases, with financial markets expecting it to approve one more rate hike this year.

In addition, other central banks are pulling the reins on bond-buying and other liquidity programs aimed at injecting cash into their respective economies. Gross charged that the adherence of central bankers to hard-and-fast rules that govern when they should tighten policy has “distorted capitalism as we once knew it, with unknown consequences lurking in the shadows of future years.” For instance, he cast doubt on the belief it takes short-term interest rates exceeding longer-term rates — a condition known in economist as an inverted yield curve — to produce a recession. “The reliance on historical models in an era of extraordinary monetary policy should suggest caution,” Gross wrote. “Logically (a concept seemingly foreign to central banks staffs) in a domestic and global economy that is increasingly higher and higher levered, the cost of short-term finance should not have to rise to the level of a 10-year Treasury note to produce recession.”

The EU kicking members out? i’d call that a bluff. But the Union is shaking on its foundations.

• EU Threatens Poland With ‘Nuclear Option’ Over Supreme Court Control (Ind.)

The President of Poland has been urged to veto a bill passed by lawmakers in the country that would give parliament the power to appoint Supreme Court judges. Guy Verhofstadt, the President of the Alliance of Liberals and Democrats for Europe in the European Parliament, has called on President Andrzej Duda to take action and said the European Commission should trigger the EU’s Article 7 if the issue is not resolved. The Article has been often described as a “nuclear option” and can lead to the suspension of a member country’s voting rights. “The European Parliament made it clear earlier this week that these new laws are incompatible with EU Membership and would irredeemably weaken Poland’s future place in the West,” Mr Verhofstadt said. European Council President Donald Tusk, who is also a former Polish prime minister, called for an urgent meeting with President Duda to discuss the “political crisis” in the country.

Mr Tusk described the move as backwards backward and said it went “against European standards and values”. “The European Union is not only money and procedures. It is first and foremost values and high standards of public life. That is why a wave of criticism of the government is rising in Europe and in the whole West,” Mr Tusk said. The bill was passed despite objections from lawyers and opposition politicians after critcisms it undermines democracy and the rule of law. The move would put courts under direct government control and Poland’s human rights ombudsman, Adam Bodnar, told parliament that the legislation, would “deprive citizens of the right to an independent court”. “We are planting an explosive under our judiciary,” he said.

And then Erdogan can send more refugees. Merkel screwed this up years ago.

• Germany Steps Up Economic Pressure On Turkey In Rights Row (R.)

Germany told its citizens on Thursday to exercise caution if travelling to Turkey and threatened measures that could hinder German investment there, in a sign of growing impatience with a NATO ally after the detention of rights activists. The mass-selling daily Bild newspaper, citing government sources, also reported that Berlin was putting arms projects with Ankara on hold. Foreign Minister Sigmar Gabriel highlighted alarm at what Berlin sees as the growing unpredictability of Turkish President Tayyip Erdogan. “Everyone can be affected. The most absurd things are possible,” he said in advice to travellers. Gabriel broke off his holiday to deal with the crisis after Turkey arrested six human rights activists including German national Peter Steudtner on accusations of terrorism, the latest in a series of diplomatic rows.

Germany, Turkey’s chief export partner, called the allegations absurd. “We need our policies towards Turkey to go in a new direction…we can’t continue as we have done,” Gabriel told reporters in unusually direct language touching on sensitive commercial matters including corporate investment guarantees. The Turkish foreign ministry said it would make the “necessary response” to comments it described as one-sided. Foreign Minister Mevlut Cavusoglu later accused Germany of harbouring members of the Kurdistan Workers Party (PKK), which has fought an insurgency in southeast Turkey since 1984, and the network of U.S.-based cleric Fethullah Gulen that Ankara blames for a failed coup last July. “As a country providing shelter to PKK and FETO terrorists in its own territory, statements by Germany are just double standards and unacceptable,” Cavusoglu said on Twitter.

But that’s true for most of the world.

• Britain Hasn’t Been This Risky in 40 Years (BBG)

Britain is having a flashback to the 1970s, and it’s not flared trousers making a comeback. As Parliament breaks for the summer, Prime Minister Theresa May needs to come up with answers to the political drama unfolding at home and threatening her Brexit strategy as investors predict more trouble on the horizon for a country once seen as the stable counterpoint to European turmoil. You would have to go back 40 years to find a time when the country was deemed this politically risky, according to Mark Dowding at London-based BlueBay Asset Management. The ambivalence toward Europe, the political fragility of the government and a population grown weary of making sacrifices are all reminiscent of a time when Britain was tormented over whether to join a forerunner of the European Union and an economic crisis forced it to seek a humiliating bailout.

“Back in the 1970s the U.K. went to the IMF eventually and that’s likely where we will be once more,” warned Dowding. “We seem to have created some self-inflicted wounds here and it looks like we’ll be struggling for some time.” Like Edward Heath in 1974, May took a gamble in calling a snap election only for the Conservatives to lose their majority. Unlike him, she stayed on but with her future the subject of constant speculation and her rival, Labour leader Jeremy Corbyn, waiting in the wings with a promise to loosen the fiscal reins. The latest poll shows that no prime minister since 1977 has been as unpopular as she is a mere month after prevailing in elections. The next big test of her authority will be the Conservative conference in October, where challengers for the leadership might emerge.

Eurasia Group Managing Director Mujtaba Rahman said that “even though May will survive through to the party conference it’s unclear whether she survives on the other side of that.” The fallout from the Brexit vote, May’s tenuous position and a heightened security alert have created a level of turmoil rarely seen since the so-called lost decade when widespread labor unrest and political instability played out against a backdrop of terrorist attacks by Irish republicans.

Don’t know how far the analogy really goes, but a great headline.

• Concorde Was The Flying Brexit (G.)

The idea that we now live in an age of ‘post-truth’ implies that once-upon-a-time politics was guided by objective reality. Clearly, this is nonsense. We shouldn’t mistake a period in which the media and political establishment offered more coherent stories for a time when politics was truthful. In the recent past, politics could be astonishingly dishonest, especially when it came to supporting national machines. Concorde, the fastest lame duck ever built, was a flying Brexit. The political establishment privately despaired about its costs, whilst knowingly pretending that the project would improve Britain’s place in the world. Few politicians actually believed in the Concorde project. It was accepted inside Whitehall that the scheme would be an economic disaster.

After Harold Wilson came to power in 1964, the Anglo-French supersonic airliner only survived because the government was concerned that unilaterally cancelling the project would lead the French to sue them for more than it would cost to continue to develop the machine. Edward Heath, the Conservative prime minister, also wanted to cancel Concorde. Heath even personally stopped Prince Phillip flying it on the grounds that it would be quite embarrassing for the government to scrap the aeroplane soon after it had been treated to a royal pilot. Concorde only continued because Heath wanted to enter the European Economic Community. Annoying the French was to be avoided. Once Britain was in the Community, the unions kept Concorde afloat.

The second Wilson administration, a minority government, could not risk killing off Concorde for fear that the resulting the outcry in the labour movement would endanger their fragile political position. What, then, did politicians say about Concorde? Well, Concorde was not only going to bring supersonic speed to civil air travel, but also ensure that Britain could capture a crucial new export market and create a world-beating aviation industry in the coming supersonic revolution. In this bright future, Britain’s technology would be bought across the world. Most of the politicians who made these arguments knew better.

Brexit under Labour. How much worse could it be?

• Why The Moaning? If Anything Can Halt Capitalism’s Fat Cats, It’s Brexit (G.)

Jeremy Corbyn is not the first leader of the Labour party to have form as a Eurosceptic. Hugh Gaitskell was so fearful of the drive for European political union that he warned about Britain ending a thousand years of history as an independent state. Clement Attlee was no big fan of what was then called the common market either. But this was all a long time ago. Under a succession of leaders starting with Neil Kinnock, Labour warmed to Europe. In the 1980s, with Thatcherism rampant at home, the party saw Brussels as providing protection from free-market zealotry. In the 1990s, under Tony Blair, the feeling was that globalisation had made the nation state redundant. Even so, a small number of Labour MPs remained unreconciled. They pointed out that Labour’s love affair with Europe began just as Europe’s economic performance started to deteriorate.

They opposed the Maastricht treaty that paved the way for the single currency on the grounds that it would create an undemocratic central bank with deflationary tendencies. Corbyn was one member of this band. John McDonnell, now the shadow chancellor, was another. Unlike the majority of their parliamentary colleagues and most trade union leaders, they never bought the idea that being a progressive meant being positive about Europe. They saw nothing especially progressive about mass unemployment, the impact of the common agricultural policy on the developing world, the Transatlantic Trade and Investment Partnership, or the bias towards austerity ingrained in the stability and growth pact. Rather, they saw neoliberalism being hardwired into the European project. As indeed it was.

None of this really mattered until Corbyn became Labour leader two years ago. But since 2015 the maverick outsiders have become the maverick insiders. What’s more, the shambolic state of the Conservatives means that Corbyn and McDonnell could soon be neighbours in Downing Street and responsible for Brexit. Parliamentary arithmetic and the determination of the Tories to avoid another election at all costs makes this unlikely, but these are strange and unpredictable times. What Corbyn and McDonnell think about Europe now counts in a way that it didn’t before.

“Clearly you need to remember that asset price movements go in two directions..”

• Australia Prime Minister Quietly Issues Warning On House Prices (NCA)

The Prime Minister has issued a quiet warning to Australians investing in housing that they cannot continue to assume house prices will only go up. “Clearly you need to remember that asset price movements go in two directions,” Prime Minister Malcolm Turnbull said after a speech to an economics conference this week. In particular, this is relevant to housing. “It has been a pretty good one-way bet for a long time — but it is going to be important for people to be prudent.” Mr Turnbull made the comments alongside an observation that interest rates have risen for many borrowers. Interest rates are a big factor in the housing market. The lower the interest rate, the more you can borrow from the bank and the more you can pay for a house. Australians have borrowed a lot, and for now the risks of borrowing have been well managed, Mr Turnbull said.

But that could change. “High levels of indebtedness that are incurred with low levels of interest rates always pose a risk when you have the prospect of an increase in rates. Particularly if it has all been built on an assumption of rising asset prices.” Interest rates have been at record lows until banks recently tweaked up rates on certain investor loans. Higher interest rates across the whole housing market could be next. Financial market pricing hints that official interest rates are more likely to go up than down when the RBA next makes a move, perhaps in 2018. Mr Turnbull made his comments at the Economic and Social Outlook Conference, presented by the Melbourne Institute and The Australian. At the conference, which was thronging with people who watch the Australian economy with laser focus, Mr Turnbull was far from the only speaker worried about Australian house prices and debt.

“Crypto tech is like the internet in 1999: It was poised to take over the world, but the NASDAQ still fell almost 90% during the dot-com bust of 2000-2002.”

• Bitcoin Bubble Dwarfs Tulip Mania From 400 Years Ago – Prechter Jr (CNBC)

Just as many on Wall Street are warming up to bitcoin, one of the lone financial analysts who forecast a surge when the digital currency was just six cents now has an extremely negative view. “A bearish trifecta — the Elliott wave pattern, optimistic psychology and even fundamentals in the form of blockchain bottlenecks — will lead to the collapse of today’s crypto-mania,” analyst Elliott Prechter wrote in the July 13 edition of The Elliott Wave Theorist newsletter. “The price activity and manic sentiment that led to present prices have dwarfed even the Tulip mania of nearly 400 years ago,” he said. “The success of Bitcoin has spawned 800-plus clones (alt-coins) and counting, most of which are high-tech, pump-and-dump schemes.” “Nevertheless, investors have eagerly bid them up,” Prechter added.

He’s the son of the famed technical analyst Robert Prechter, who popularized the Elliott Wave by using it to forecast the stock market crash of 1987 and has published a newsletter since 1979. However, debate over the accuracy of the Elliott Wave has grown after Robert Prechter called the end of the 1990s bull market five years before it actually ended. The principle is a sophisticated form of technical analysis widely followed by traders that analyzes cycles of sentiment in an attempt to predict market performance — five waves typically signals a coming downturn. Regarding bitcoin, “under the Elliott Wave model, what we’re seeing, we’re making a final fifth wave from six cents,” the younger Prechter told CNBC in a phone interview Thursday.

“It does not imply it will go to zero. It does not imply it will go to six cents. I do think it will happen to the clones [newly formed digital currencies].” In September 2010, Elliott Prechter wrote in The Elliott Wave Theorist about bitcoin when it traded at 6 cents. Very few in the financial world seriously considered the digital currency at the time. “It proved to be the buying opportunity not just of a lifetime, but so far of all time,” Prechter said. Bitcoin hit a record of $3,025 in June, 50,000 times its price in 2010. The digital currency traded near $2,652 Thursday, more than twice where it started the year. [..] To be sure, Prechter told CNBC that a mania “can be both a mania and a revolution at the same time.”

Like many digital currency enthusiasts, he sees significant potential in the cryptocurrencies for automating the banking and legal industries. “The distant future of crypto is bright,” Prechter said in the report. “Crypto tech is like the internet in 1999: It was poised to take over the world, but the NASDAQ still fell almost 90% during the dot-com bust of 2000-2002.” But bitcoin may not be part of that future. “It’s too soon to know if Bitcoin is Facebook or MySpace,” Prechter said.

The Tesla Tulip.

• Elon Musk: I Got ‘Approval’ For New York-DC Hyperloop. Officials Deny (G.)

Elon Musk does not have government approval to build a Hyperloop tunnel from New York City to Washington DC. The Tesla executive took to Twitter this morning to tantalize his legion of fans and the tech press with the “news” that he had “just received verbal govt approval for The Boring Company to build an underground NY-Phil-Balt-DC Hyperloop. NY-DC in 29 mins … City center to city center in each case, with up to a dozen or more entry/exit elevators in each city.” Lest any billionaires need to brush up on civics 101: the US system of government does not operate on “verbal government approvals”. Musk walked back his claim about 90 minutes later, tweeting: “Still a lot of work needed to receive formal approval, but am optimistic that will occur rapidly”. A lot of work is needed to receive formal approval, indeed.

Musk was received with typical credulity by the tech press, and considerable consternation by various government agencies. Several spokespeople who answered the phones at relevant city, state and federal government bodies laughed upon hearing of the claim that an interstate transit project with a significant street-level footprint in four of the east coast’s largest cities could be approved verbally. “Who gave him permission to do that?” asked a spokesman with the Maryland department of transportation. “Elon Musk has had no contact with Philadelphia officials on this matter,” said Mike Dunn, the city spokesman. “We do not know what he means when he says he received ‘verbal government approval’. There are numerous hurdles for this unproven ‘hyperloop’ technology before it can become reality.”

A spokesperson for the state of Pennsylvania confirmed that neither the governor nor the state’s department of transportation had been contacted by Musk or his company. Ben Sarle, a spokesman for the New York City mayor’s office, said in an email: “Nobody in City Hall, or any of our city agencies, has heard from Mr Musk or any representatives of his company.”

Makes you ponder what voice people have left in their own societies.

• To Save Rural Iowa, We Must Oppose Monsanto-Bayer Merger (Dmr)

Iowa farmers face a crisis. Crop prices have fallen by more than 50 percent since 2013, with no end in sight. At the same time, farmers hold more debt and possess fewer capital reserves to fall back on. In fact, farmers’ debt levels are almost as high as they were prior to the farm crisis of the mid-1980s. Meanwhile, a wave of mergers among the world’s agricultural giants is upending the markets for seeds, fertilizers and pesticides. If approved, the proposed merger would result in just two companies — Monsanto-Bayer and Dow-DuPont — controlling about three-quarters of the U.S. corn seed market. The power that these corporations would hold in the seed market is unprecedented.

Farmers are already being squeezed. The price of corn seed has more than doubled in the past 10 years — from $51 per acre in 2006 to $102 in 2015 — as a result of similar consolidation, including Monsanto’s purchases of DeKalb and Cargill’s international seed business. If the Monsanto-Bayer merger is permitted, this problem will only intensify, further limiting farmers’ choices and making the products they need even more expensive. The merger does not just strengthen Monsanto’s control over the corn seed industry. It also helps the company grow its dominance in other areas, like fertilizers, pesticides, and precision farming technology. Monsanto’s goal is to bundle all of these products together, sort of like how a cable company bundles internet, phone and television.

And just like with most cable companies, the service will be overpriced and shoddy because it will leave farmers with no other option. Yet this mega-merger is moving forward with barely a murmur of concern from our elected officials in Washington. Not a single senator raised this matter at confirmation hearings for Secretary of Agriculture Sonny Perdue. Even worse, the nominee to lead the Department of Justice’s Antitrust Division is a former lobbyist who asserted in a recent interview that “a monopoly is perfectly legal.” It is not surprising that Monsanto and Bayer alone spent $120 million in the last decade on lobbying elected officials at the federal level.

And while stopping the Monsanto-Bayer merger would be a good first step, we need to go even further to prevent these giants from bullying Iowa farmers. Monsanto and other agricultural giants like it are just too big. A century ago, President Teddy Roosevelt broke up the trusts and monopolies of his time because he understood that the deck was stacked against consumers, farmers and small businesses. We need to take a cue from Roosevelt and break up Monsanto and other Big Ag corporations like it.

Easy solution, and high time: put a bounty on the heads of these idiots. Organize it halfway decently and you’ll get a lot of donations.

• Son of Cecil The Lion Killed By Trophy Hunter (G.)

A son of Cecil the lion has been killed by trophy hunters in Zimbabwe, meeting the same fate as his father whose death in 2015 caused a global outcry. Xanda was six years old and had fathered a number of cubs himself. He was shot on 7 July just outside the Hwange National Park, not far from where Cecil died, but news of the death only became public on Thursday. The trophy hunt was organised by Zimbabwean private hunter Richard Cooke but his clients, who may have paid tens of thousands of dollars, have not been revealed. Xanda was wearing a GPS tracking collar, fitted by scientists led by Andrew Loveridge at Oxford University, who have studied the Hwange lions for many years.

“Xanda was one of these gorgeous Kalahari lions, with a big mane, big body, beautiful condition – a very, very lovely animal,” Loveridge told the Guardian. “Personally, I think it is sad that anyone wants to shoot a lion, but there are people who will pay money to do that.” “I put the collar on Xanda last October and spent a bit of time following him around,” he said. “You have handled them so you feel a personal engagement with the animal.” But Loveridge does not condemn trophy hunting outright: “Trophy hunting protects an area about the size of France and Spain combined in Africa. So if you throw trophy hunting out, what happens to all that habitat?” Xanda was the pride male in a group with two adult lionesses and cubs which roamed near the boundary of the national park.

“He was shot 2km from the park boundary, which is a hop and a skip for a lion,” Loveridge said. The scientists want a 5km no-hunting zone around the park. “It is something we have suggested for years,” he said. “But there is a lot of resistance because a lot of the hunting happens right on the boundary, because that is where the animals are. The photo-tourism operators in Hwange are very keen to have that discussion. They are annoyed that this has happened.” Xanda’s death poses no immediate danger to the 550-strong lion population in Hwange national park, which spreads over 15,000 square kilometres, Loveridge said: “The lion population is pretty healthy, but it would probably be better if it didn’t happen,” said Loveridge.

Debt Rattle May 11 2017

May 112017

May 11, 2017 Posted by Raúl Ilargi Meijer at 8:49 am Finance Tagged with: Aegean, capital controls, Draghi, Greece, insects, Labour, Lavrov, panic, QE, Silk Road, Trump, Tulip, VIX 2 Responses »

Paul Almasy Les Halles, Paris 1950

• Trump and Lavrov Meeting Round-Up (TASS)

• $9 Trillion Question: What Happens When Central Banks Stop Buying Bonds? (WSJ)

• Draghi Stays Calm on Stimulus as Dutch MPs Warn of Risks With Tulip (BBG)

• It’s Not Just The VIX – Low Volatility Is Everywhere (R.)

• Six Canadian Banks Cut by Moody’s on Consumers’ Debt Burden (BBG)

• China Holds Giant Meeting On Spending Billions To Reshape The World (CNBC)

• ‘Stagnant’ Buyer Demand Puts The Brakes On UK Housing Market (G.)

• UK Labour Party’s Plan To Nationalise Rail, Mail And Energy Firms (G.)

• Panic! Like It’s 1837 (DB)

• Italy Financial Regulator Threatens EU with Return to “National Currency” (DQ)

• Greek Capital Controls To Stay Till At Least End Of 2018 (K.)

• Greek PM Tsipras Heralds ‘Landmark’ Plan For Healthcare (K.)

• Turkish Coast Guard Publishes Maps Claiming Half Of The Aegean Sea (KTG)

• Libya Intercepts Almost 500 Migrants After Sea Duel (AFP)

• Where Have All The Insects Gone? (Sciencemag )

The presence of a TASS reporter when Lavrov visited the White House was critized in the US media. Here’s what he wrote.

• Trump and Lavrov Meeting Round-Up (TASS)

Before meeting with Donald Trump, Sergey Lavrov held talks with the US top diplomat Rex Tillerson. Lavrov’s talks with the US president lasted for about 40 minutes behind closed doors. Moscow and Washington can and should solve global issues together, Lavrov said following his meetings with US Secretary of State Rex Tillerson and US President Donald Trump. “I had a bilateral meeting with Rex Tillerson, then the two of us were received by President Trump,” the Russian top diplomat said. “We discussed, first and foremost, our cooperation on the international stage.” “At present, our dialogue is not as politicized as it used to be during Obama’s presidency. The Trump administration, including the president himself and the secretary of state, are people of action who are willing to negotiate,” the Russian top diplomat pointed out.

Lavrov said agreement reached with Tillerson to continue using diplomatic channel to discuss Russian-US relations. According to Lavrov, the current state of bilateral relations is no cause for joy. “The reason why our relations deteriorated to this state is no secret,” the Russian top diplomat added. “Unfortunately, the previous (US) administration did everything possible to undermine the basis of our relations so now we have to start from a very low level.” “President Trump has clarified his interest in building mutually beneficial and practical relations, as well as in solving issues,” Lavrov pointed out. “This is very important,” he said. Lavrov believes Syria has areas where US might contribute to operation of de-escalation zones. “We are ready for this cooperation and today have discussed in detail the steps and mechanisms which we can manage together,” Lavrov said.

“We have confirmed our interest in the US’ most active role in those issues,” Lavrov said. “I imagine the Americans are interested in this too.” “We proceed from the fact they will take up the initiative,” he added. “We have thoroughly discussed the Syrian issue, particularly the ideas related to setting up de-escalation zones,” the Russian top diplomat said. “We share an understanding that this should become a common step aimed at putting an end to violence across Syria,” he added.

One word: mayhem.

• $9 Trillion Question: What Happens When Central Banks Stop Buying Bonds? (WSJ)

Central banks have been the world’s biggest buyers of government bonds, but may soon stop—a tidal shift for global markets. Yet investors can’t agree on what that shift will mean. Part of the problem is that there is little agreement about how the massive stimulus policies, known as quantitative easing or QE, affected bonds in the first place. That makes it especially hard to assess what happens when the tide changes. Many expect bond yields could rise and shares fall, some see little effect at all, while others suggest it is riskier investments, such as corporate bonds or Italian government debt, that will bear the brunt. But recently, yields on European high-yield corporate bonds hit their lowest since before the financial crisis, in one potential sign that the threat of tapering has yet to affect markets.

When the unwinding begins money managers may not be positioned for it, and markets could move swiftly. In the summer of 2013, investors suddenly got spooked about the Federal Reserve withdrawing stimulus, leading to a swift bond sell off that sent yields on the 10-year Treasury up by more than 1%age point. By buying bonds after the 2008 financial crisis, central banks across the developed world sought to push yields lower and drive money into riskier assets, reducing borrowing costs for businesses. “If it’s unclear what benefits we’ve had in the buying, it’s unclear what will happen in the selling,” said Tim Courtney, chief investment officer at Exencial Wealth Advisors.

Recent data showed that the ECBholds total assets of $4.5 trillion, more than any other central bank ever. The Fed and the Bank of Japan each have $4.4 trillion, although the BOJ isn’t expected to wind down QE soon. With the world economy finally recovering, investors believe that holdings at the Fed and ECB have peaked. U.S. officials are discussing how to wind down their portfolio, which they have kept constant since 2014. The ECB’s purchases of government and corporate debt are now more likely to be tapered later in the year, analysts say, after pro-business candidate Emmanuel Macron’s victory in the French presidential election Sunday.

Dutch politicians either don’t care about their European Union peer Greece, or they don’t know about it. Neither is a good option. They are doing so well over the backs of the Greeks they want Draghi to enact policies that will make them even richer, and the Greeks even more miserable. Oh, and of course “The euro is irrevocable” only until it isn’t.

• Draghi Stays Calm on Stimulus as Dutch MPs Warn of Risks With Tulip (BBG)

Mario Draghi kept his cool in the Netherlands – at least on monetary policy. Repeatedly pressed by Dutch lawmakers to say when he’ll start winding down euro-area monetary stimulus, the Ecb president replied that it’s still too soon to consider, despite a “firming, broad-based upswing” in the economy. “Is it time to exit? Or is it time to start thinking about exit or not? The assessment of the Governing council is that this time hasn’t come yet.” His reward was a gift of a plastic tulip in a reminder of a past European financial crisis. Draghi’s voluntary appearance at the hearing on Wednesday put him front and center in one of the nations most critical of the ECB’s ultra-loose policies, which are seen by opponents as overstepping the institution’s mandate, burdening savers and pension providers, and stoking asset bubbles.

Legislators did appear occasionally to get under his skin. The tension rose when he was quizzed multiple times him on the possibility that a government will one day have to restructure its debt, while on the topic of a nation leaving the currency bloc – as Greece came close to doing in 2015 – Draghi’s response was blunt. “The euro is irrevocable. This is the Treaty. I will not speculate on something that has no basis.” The intense questioning underscored the gap between relatively rosy economic data and the discontent among individuals who can’t see the fruits of the ECB’s €2.3 trillion bond-buying program and minus 0.4% deposit rate. It’s a challenge for Draghi, who reiterated his concern that underlying inflation remains feeble and falling unemployment has yet to boost wage growth. The region is far from healing the scars of a double-dip recession that wiped out 9 million jobs and helped the rise of anti-euro populists such as Marine Le Pen, who lost this month’s French presidential election but still managed to pick up more than a third of the vote.

The silence before.

• It’s Not Just The VIX – Low Volatility Is Everywhere (R.)

The current slump in expectations of market volatility is not just a stock market phenomenon – it is the lowest it’s been for years across fixed income, currency and commodity markets around the world. It shows little sign of reversing, which means market players are essentially not expecting much in the way of shocks or sharp movements any time soon. It’s an environment in which asset prices can continue rising and bond spreads narrow further. The improving global economy, robust corporate profitability, ample central bank stimulus even as U.S. interest rates are rising, and some fading political risk from elections have all contributed to create a backdrop of relative calm.

There is little evidence of investors hedging – or seeking to protect themselves – from adverse conditions. It is most notably seen in the VIX index of implied volatility on the U.S. S&P 500 stock index, the so-called “fear index”. But implied volatility across the G10 major currencies is its lowest in three years, and U.S. Treasury market volatility its lowest in 18 months and close to record lows. The VIX, meanwhile, has dipped to lows not seen since December 2006, is posting its lowest closing levels since 1993, and is on a record run of closes below 11. By comparison, it was at almost 90 at the height of the financial crisis. Not much current “fear”, then.

Implied volatility is an options market measure of investors’ expectation of how much a certain asset or market will rise or fall over a given period of time in the future. It and actual volatility can quickly become entwined in a spiral lower because investors are less inclined to pay up for “put” options – effectively a bet on prices falling – when the market is rising. If a shock does come the cost of these “puts” would shoot higher as investors scramble to buy them. Surging volatility is invariably associated with steep market drawdowns. According to Deutsche Bank’s Torsten Slok, an investor betting a year ago that the VIX would fall – shorting the index – would have gained around 160% today. Conversely, an investor buying the VIX a year ago assuming it would rise would have lost 75%.

What’s that rumbling sound in the distance?

• Six Canadian Banks Cut by Moody’s on Consumers’ Debt Burden (BBG)

Six of Canada’s largest banks had credit ratings downgraded by Moody’s Investors Service on concern that over-indebted consumers and high housing prices have left lenders vulnerable to potential losses on assets. Toronto-Dominion Bank, Bank of Montreal, Bank of Nova Scotia, Canadian Imperial Bank of Commerce, National Bank of Canada and Royal Bank of Canada had their long-term debt and deposit ratings lowered one level, Moody’s said Wednesday in a statement. It also cut its counterparty risk assessment for the firms, excluding Toronto-Dominion. “Expanding levels of private-sector debt could weaken asset quality in the future,” David Beattie, a Moody’s senior vice president, said in the statement.

“Continued growth in Canadian consumer debt and elevated housing prices leaves consumers, and Canadian banks, more vulnerable to downside risks facing the Canadian economy than in the past.” A run on deposits at alternative mortgage lender Home Capital has sparked concern over a broader slowdown in the nation’s real estate market, at a time when Canadians are taking on higher levels of household debt. The firm’s struggles have taken a toll on Canada’s biggest financial institutions, which have seen stocks slide on concern about contagion. In its statement, Moody’s pointed to ballooning private-sector debt that amounted to 185% of Canada’s GDP at the end of last year. House prices have climbed despite efforts by policy makers, it said. And business credit has grown as well.

Straight from the Monopoly printing press.

• China Holds Giant Meeting On Spending Billions To Reshape The World (CNBC)

[..] the most populous nation on the planet wants to increase its influence by digging further into its pockets — flush with cash after decades of rapid growth — to splash out with its “One Belt, One Road” policy. President Xi Jinping first announced the policy in 2013; it was later named one of China’s three major national strategies, and morphed into an entire chapter in the current five-year plan, to run through 2020. [..] The plan aims to connect Asia, Europe, the Middle East and Africa with a vast logistics and transport network, using roads, ports, railway tracks, pipelines, airports, transnational electric grids and even fiber optic lines. The scheme involves 65 countries, which together account for one-third of global GDP and 60% of the world’s population, or 4.5 billion people, according to Oxford Economics.

This is part of China’s push to increase global clout — building modern infrastructure can attract more investment and trade along the “One Belt, One Road” route. It could be beneficial for western China, which is less developed, as it links up with neighboring countries. And in the long run, it will help China shore up access to energy resources. The policy could boost the domestic economy with demand abroad, and might also soak up some of the overcapacity in China’s heavy industry, but analysts say these are fringe benefits. Experts say China has an opportunity to step into a global leadership role, one that the U.S. previously filled and may now be abandoning, especially after President Donald Trump pulled out of a major trade deal, the Trans-Pacific Partnership.

It’s clear China wants to wield greater influence — Xi’s speech in January at the World Economic Forum in Davos touted the benefits of globalization, and called for international cooperation. And an article by Premier Li Keqiang published shortly after also called for economic openness. But despite all the talk of global connectivity, skeptics highlight that China still restricts foreign investment, censorship continues to be an issue and concerns remain over human rights. [..] In 2015, the China Development Bank said it had reserved $890 billion for more than 900 projects. The Export-Import Bank of China announced early last year that it had started financing over 1,000 projects. The China-led Asian Infrastructure Investment Bank is also providing financing.

The British should be happy for housing prices returning to more normal levels.

• ‘Stagnant’ Buyer Demand Puts The Brakes On UK Housing Market (G.)

The UK housing market is continuing to slow down, with falling property sales, “stagnant” buyer demand and general election uncertainty all adding up to one of the most downbeat reports issued by surveyors since the financial crash. In its latest monthly snapshot of the market, the Royal Institution of Chartered Surveyors (Rics) said momentum was “continuing to ebb,” with no sign of change in the near future. Its report is the latest in a series of recent surveys suggesting that the slowdown is getting worse as household budgets continue to be squeezed and affordability pressures bite. It comes days after the Halifax said house prices fell by 0.1% in April, which meant they were nearly £3,000 below their December 2016 peak. Nationwide reported a bigger decline in April – it said prices fell by 0.4%, following a 0.3% drop in March.

Some parts of London appear to have been hit particularly hard, with estate agents and developers resorting to offering free cars and other incentives to try to tempt buyers. Rics said its members had reported that sales were slipping slightly following months of flat transactions. A lack of choice for would-be buyers across the UK appears to be one of the major factors putting a dampener on sales: the latest report said there was “an acute shortage of stock,” with the typical number of properties on estate agents’ books hovering close to record lows. New instructions continue to drop, which could make the situation worse: the flow of fresh listings to agents remained negative for the 14th month in a row at a national level, said Rics, though it added that the situation had apparently improved slightly in London.

How dead is the left? Nice contest.

• UK Labour Party’s Plan To Nationalise Rail, Mail And Energy Firms (G.)

Jeremy Corbyn will lay out plans to take parts of Britain’s energy industry back into public ownership alongside the railways and the Royal Mail in a radical manifesto that promises an annual injection of £6bn for the NHS and £1.6bn for social care. A draft version of the document, drawn up by the leadership team and seen by the Guardian, pledges the phased abolition of tuition fees, a dramatic boost in finance for childcare, a review of sweeping cuts to universal credit and a promise to scrap the bedroom tax. Party sources said Corbyn wants to promise a “transformational programme” with a package covering the NHS, education, housing and jobs as well as industrial intervention and sweeping nationalisation. But critics said the policies represented a shift back to the 1970s with the Conservatives describing it as a “total shambles” and a plan to “unleash chaos on Britain”.

Corbyn’s leaked blueprint, which is likely to trigger a fierce debate of Labour’s national executive committee and shadow cabinet at the so-called Clause V meeting at noon on Thursday, also includes:
• Ordering councils to build 100,000 new council homes a year under a new Department for Housing.
• An immediate “emergency price cap” on energy bills to ensure that the average duel fuel household energy bill remains below £1,000 a year.
• Stopping planned increases to the pension age beyond 66.
• “Fair rules and reasonable management” on immigration with 1,000 extra border guards, alongside a promise not to “fan the flames of fear” but to recognise the benefits that migrants bring.

On the question of foreign policy, an area on which Corbyn has campaigned for decades, the draft document said it will be “guided by the values of peace, universal rights and international law”. However, Labour, which is facing Tory pressure over the question of national security, does include a commitment to spend 2% of GDP on defence. The draft manifesto, which will only be finalised after it is agreed on Thursday, also makes clear that the party supports the renewal of Trident, despite Corbyn’s longstanding opposition to nuclear weapons.

Cycles.

• Panic! Like It’s 1837 (DB)

180 years ago today, everyone panicked. On May 10, 1837, New York banks finally realized that the easy money they were lending was unsustainable, and demanded payment in “specie,” or hard money like gold and silver coin. They had previously been accepting paper currency that for every $5 was backed by only $1 in silver or gold. Things culminated to that point after years of borrowing the paper currency to expand west, buy land, and build infrastructure. As silver came in from Mexico, banks lent out five times the amount of their deposits–fractional reserve banking. At the same time, the value of silver was falling because its supply was increasing in America. Great Britain, which had been lending much of the money, was less interested in silver because they could pay for trade with China in opium.

So even though Britain had a year earlier begun demanding payment in specie, the abundant silver in America did not hold the same weight, so to speak, it had previously. Now, reflect on this for a second. The USA was depending on loans from a country that they had successfully revolted and seceded from fewer than 50 years earlier. Britain had also provoked The War of 1812 just 25 years earlier when they wouldn’t stop attacking American ships. But somehow it still seemed like a good idea to depend on British banks to form the foundation of American development. So at the same time when American banks had to backstep their risky practices, Britain also just so happened to need 25% less cotton, which was the foundation of the American economy. This only exacerbated the trade deficit.

But still, despite whether or not Britain’s actions were nefarious, the whole situation would have been remarkably cushioned if fractional reserve banking had not been used. Because of this “easy money,” land was bought at enormous rates on credit, but credit that was not backed by actual value–only 1/5 of the actual value existed of what was being lent! President Andrew Jackson was not entirely without blame either. When he deconstructed the federal bank, he deposited the money into state banks, and encouraged them to go ahead and lend, lend, lend! Of course, when the time came for the banks to return the deposits, the money was gone. So when this massive real estate bubble burst in 1837, it caused a panic and ensuing recession that lasted until 1844. Does any of this sound familiar to you?

The moment the ECB is allowed to buy Greek bonds again is also the moment it decides to quit its bond-buying program.

• Italy Financial Regulator Threatens EU with Return to “National Currency” (DQ)

Despite trillions of euros worth of QE, Italy has continued to suffer a 30% loss in competitiveness compared to Germany during the last two decades. And now Italy must begin to prepare itself for the biggest nightmare of all: the gradual tightening of the ECB’s monetary policy. “Inflation is gradually returning to the area of the 2% target, while in the United States a monetary tightening is taking place,” Vegas said. The German government is exerting mounting pressure on the ECB to begin tapering QE before elections in September. So, too, is the Netherlands whose parliament today treated ECB President Mario Draghi to a rare grilling. The MPs ended the session by presenting Draghi with a departing gift of a solar-powered tulip, to remind him of the country’s infamous mid-17th century asset price bubble and financial crisis.

For the moment Draghi and his ECB cohorts refuse to yield, but with the ECB’s balance sheet just hitting 38.7% of Eurozone GDP, 15 %age points higher than the Fed’s, they may ultimately have little choice in the matter. As Vegas points out, for Italy (and countries like it), that will mean having to face a whole new situation, “in which it will no longer be possible to count on the external support of monetary leverage.” This is likely to be a major problem for a country that has grown so dependent on that external support. According to the Bank for International Settlements, in 2016, international banks in particular those in Germany reduced their exposure to Italy by 15%, or over $100 billion, half of it in the last quarter of the year. ECB intervention helped plug the shortfall, at least for a while.

But the ECB has already reduced its monthly purchases of European sovereign debt instruments, from €80 billion to just over €60 billion. As the appetite for Italian government debt falls, the yields on Italian bonds will rise. The only market participants seemingly still willing and able (for now) to increase their purchase of Italian debt are Italian banks. In his address, Vegas proposed introducing a safeguard threshold of €100,000 for the banks’ bondholders, many of whom are ordinary Italian citizens, with combined holdings worth some €200 billion, who were told by the banks that their bonds were a secure investment. Not any more. “The management of crises may require timely intervention that is not compatible with the mechanisms in Frankfurt and Brussels,” Vegas added.

To get his point across, he issued a barely veiled threat in Frankfurt and Brussels’ direction — that of Italy’s exit from the Eurozone, a prospect that should not be altogether discounted given the recent growth of anti-euro sentiment and rising political instability in Italy. So he threatened: “Merely the announcement of a return to a national currency would provoke an immediate outflow of capital that would seriously jeopardize Italy’s ability to refinance the world’s third biggest public debt.”

In other words: any positive numbers you may read about Greek GDP are false.

• Greek Capital Controls To Stay Till At Least End Of 2018 (K.)

Greece will spend at least three-and-a-half years under the restrictions of capital controls as their abolition is not expected to come any earlier than the end of 2018, according to a competent credit sector source. The next step in terms of their easing will come after the completion of the bailout review and the disbursement of the funding tranche, provided banks see some recovery in deposits. Sources say that the planning provides primarily for helping enterprises by increasing the limit on international transactions concerning product imports or the acquisition of raw materials. Almost two years after the capital controls were imposed, by next Tuesday, according to the agreement with the creditors, the Bank of Greece and the Finance Ministry have to present a road map for the easing of restrictions.

The road map is already being prepared and according to sources it will not contain any dates for the easing of controls but rather will record the conditions necessary for each step to come. Kathimerini understands that the conditions will be the following: the return of deposits, the reduction of nonperforming loans, the state’s access to money markets, the country’s inclusion in the ECB’s QE program, and the settlement of the national debt. “Ideally, by end-2018 we will be able to speak of an end to the controls. In any case, the restrictions on deposits will be the last to be lifted,” notes a senior banking source, referring to the cash withdrawal limit that currently stands at €840 per 14 days. The Hellenic Bank Association’s Executive Committee will meet on Wednesday to discuss proposals for the gradual easing of restrictions.

The bankers’ proposals will constitute an updated version of those tabled in November 2016; they will likely include the introduction of a monthly limit of 2,000 euros for cash withdrawals and an increase in the withdrawal limit for funds originating from abroad from 30% to 60%. The drop in deposits over the first quarter of the year will make it harder for such proposals to be implemented for the time being.

Saving the healthcare system from Troika-induced collapse is a good idea. Not sure this is the way.

• Greek PM Tsipras Heralds ‘Landmark’ Plan For Healthcare (K.)

Speaking of an “institutional intervention of landmark significance,” Prime Minister Alexis Tsipras heralded on Wednesday the creation of a new primary healthcare system to be based on local health centers staffed with general practitioners. The aim is to set up 239 such centers by the end of the year, employing 3,000 family doctors and nursing staff, Tsipras said in a speech at a health center in Thessaloniki. The first 60 of those centers are to start operating by the summer, the premier said, noting that poorer areas will be prioritized. “If you were to ask me what I want to be left behind after the years of governance by SYRIZA and ANEL,” he said, referring to junior coalition partner Independent Greeks, “I would say a very essential landmark health sector reform with the creation of primary healthcare.”

Tsipras also took the opportunity to lash out at the political opposition, accusing previous governments of having a plan for “the passive privatization of the health sector.” As for the national federation of Greek hospital workers (POEDIN), which has railed against the current government for cutbacks in the health sector, Tsipras hit back, calling it “a trade union that has secured privileges.” The prime minister added that his government remained determined to fight corruption in the health sector, referring to alleged scandals embroiling the Hellenic Center for Disease Control and Prevention (KEELPNO) and the Swiss pharmaceuticals firm Novartis. “Everything will come to light,” he said.

Erdogan’s at the White House today, or is that tomorrow?!

• Turkish Coast Guard Publishes Maps Claiming Half Of The Aegean Sea (KTG)

The Turkish Coast Guard published alleged official maps and documents claiming half of the Aegean Sea belong to Turkey. In this sense, Ankara claims to won dozens of Greek islands, the entire eastern Aegean from the island of Samothraki in the North to Kastelorizo in the South. The maps and claims have been uploaded on the website of the Turkish Coast Guard in the context of a 60-page report about the activities of the TCG in 2016. On page 7 and 13 of the report, the maps allegedly show Turkey’s Search And Rescue responsibility area. The maps show half of the Aegean Sea and also a very good part of the Black Sea, where Turkey’s SAR area coincides with the Turkish Exclusive Economic Zone (EEZ). Turkey did not signed the convention in order to not be obliged to recognize the Greek EEZ.

The United Nations Convention on the Law of the Sea (UNCLOS), also called the Law of the Sea Convention or the Law of the Sea treaty, is the international agreement that resulted from the third United Nations Conference on the Law of the Sea (UNCLOS III), which took place between 1973 and 1982. The Law of the Sea Convention defines the rights and responsibilities of nations with respect to their use of the world’s oceans, establishing guidelines for businesses, the environment, and the management of marine natural resources. The most significant issues covered were setting limits, navigation, archipelagic status and transit regimes, exclusive economic zones (EEZs), continental shelf jurisdiction, deep seabed mining, the exploitation regime, protection of the marine environment, scientific research, and settlement of disputes. Turkey started to claim areas in the Aegean Sea after 1997 when a Turkish ship sank near the Greek islet of Imia and Ankara sent SAR vessels.

Sea Watch seems to go a bit far.

• Libya Intercepts Almost 500 Migrants After Sea Duel (AFP)

Libya’s coastguard on Wednesday intercepted a wooden boat packed with almost 500 migrants after duelling with a German rescue ship and coming under fire from traffickers, the navy said. The migrants, who were bound for Italy, were picked up off the western city of Sabratha, said navy spokesman Ayoub Qassem. The German non-governmental organisation “Sea-Watch tried to disrupt the coastguard operation… inside Libyan waters and wanted to take the migrants, on the pretext that Libya wasn’t safe,” Qassem told AFP. Sea-Watch posted a video on Twitter of what it said was a Libyan coastguard vessel narrowly cutting across the bow of its ship.

“This EU-funded Libyan patrol vessel almost crashed (into) our civil rescue ship,” read the caption. Qassem also said the coastguard had come under fire from people traffickers, without reporting any casualties. The 493 migrants included 277 from Morocco and many from Bangladesh, said Qassem, and 20 women and a child were aboard the boat. All were taken to a naval base in Tripoli. There were also migrants from Syria, Tunisia, Egypt, Sudan, Pakistan, Chad, Mali and Nigeria, he added. According to international organisations, between 800,000 and one million people, mostly from sub-Saharan Africa, are currently in Libya hoping to make the perilous Mediterranean crossing to Europe.

No insects, no bats, no birds, etc etc.

• Where Have All The Insects Gone? (Sciencemag )

Entomologists call it the windshield phenomenon. “If you talk to people, they have a gut feeling. They remember how insects used to smash on your windscreen,” says Wolfgang Wägele, director of the Leibniz Institute for Animal Biodiversity in Bonn, Germany. Today, drivers spend less time scraping and scrubbing. “I’m a very data-driven person,” says Scott Black, executive director of the Xerces Society for Invertebrate Conservation in Portland, Oregon. “But it is a visceral reaction when you realize you don’t see that mess anymore.” Some people argue that cars today are more aerodynamic and therefore less deadly to insects. But Black says his pride and joy as a teenager in Nebraska was his 1969 Ford Mustang Mach 1—with some pretty sleek lines. “I used to have to wash my car all the time. It was always covered with insects.”

Lately, Martin Sorg, an entomologist here, has seen the opposite: “I drive a Land Rover, with the aerodynamics of a refrigerator, and these days it stays clean.” Though observations about splattered bugs aren’t scientific, few reliable data exist on the fate of important insect species. Scientists have tracked alarming declines in domesticated honey bees, monarch butterflies, and lightning bugs. But few have paid attention to the moths, hover flies, beetles, and countless other insects that buzz and flitter through the warm months. “We have a pretty good track record of ignoring most noncharismatic species,” which most insects are, says Joe Nocera, an ecologist at the University of New Brunswick in Canada. Of the scant records that do exist, many come from amateur naturalists, whether butterfly collectors or bird watchers.

Now, a new set of long-term data is coming to light, this time from a dedicated group of mostly amateur entomologists who have tracked insect abundance at more than 100 nature reserves in western Europe since the 1980s. Over that time the group, the Krefeld Entomological Society, has seen the yearly insect catches fluctuate, as expected. But in 2013 they spotted something alarming. When they returned to one of their earliest trapping sites from 1989, the total mass of their catch had fallen by nearly 80%. Perhaps it was a particularly bad year, they thought, so they set up the traps again in 2014. The numbers were just as low. Through more direct comparisons, the group—which had preserved thousands of samples over 3 decades—found dramatic declines across more than a dozen other sites.

Such losses reverberate up the food chain. “If you’re an insect-eating bird living in that area, four-fifths of your food is gone in the last quarter-century, which is staggering,” says Dave Goulson, an ecologist at the University of Sussex in the United Kingdom, who is working with the Krefeld group to analyze and publish some of the data. “One almost hopes that it’s not representative—that it’s some strange artifact.”

You Are Not An Investor

Apr 212017

April 21, 2017 Posted by Raúl Ilargi Meijer at 6:35 pm Finance Tagged with: asset, bubble, ECB, Fed, investor, losers, markets, profiteer, Tesla, Tulip, Uber 4 Responses »

Giotto Legend of St Francis, Exorcism of the Demons at Arezzo c.1297-1299

You are not an investor. One can only be an investor in functioning markets. There have been no functioning markets since at least 2008, and probably much longer. That’s when central banks started purchasing financial assets, for real, which means that is also the point when price discovery died. And without price discovery no market can function.

You are therefore not an investor. Perhaps you are a cheat, perhaps you are a chump, but you are not an investor. If we continue to use terms like ‘investor’ and ‘markets’ for what we see today, we would need to invent new terms for what these words once meant. Because they surely are not the same thing. Even as there are plenty people who would like you to believe they are, because it serves their purposes.

Central banks have become bubble machines, and that is the only function they have left. You could perhaps get away with saying that the dot-com bubble, maybe even the US housing bubble, were not created by central banks, but you can’t do that for the everything bubble of today.

The central banks blow their bubbles in order to allow banks and other financial institutions to first of all not crumble, and second of all even make sizeable profits. They have two instruments to blow their bubbles with, which are used in tandem.

The first one is asset purchases, which props up the prices for these assets, through artificial demand. The second is (ultra-) low interest rates, which allows for more parties -that is, you and mom and pop- to buy more assets, another form of artificial demand.

The most important central bank-created bubble is in housing, if only because it facilitates bubbles in stocks and bonds. Home prices in many places in the world have grown much higher than either economic growth or homebuyers’ wages justify.

In many instances they have even caused a feeding frenzy, where people are so desperate to either have a place to live or not miss out on profits that they’ll pay any price, provided rates are low enough for them to get a loan approved.

As I said a few weeks ago in Our Economies Run on Housing Bubbles, the housing bubbles created in this way are essential in keeping our economies going, because it is through mortgages -loans in general- that money is created in these economies.

If this money creation machine would stop, so would the economies. Home prices would come down to more realistic levels, but there still wouldn’t be anyone to buy them, so they would sink further. That, too, is called price discovery. For which there is a bitter and urgent need.

The Fed is an outlier in the central bank system, in that it no longer buys up too many assets. But other central banks have duly taken over. Indeed, Tyler Durden observes today via Bank of America that BoJ and ECB have bought more assets so far in 2017 than central banks ever have before. One may wonder at what point the term ‘asset’ will lose its rightful meaning to the same extent that ‘investor’ and ‘markets’ have:

A quick, if familiar, observation to start the day courtesy of Bank of America which in the latest overnight note from Michael Hartnett notes that central banks (ECB & BoJ) have bought $1 trillion of financial assets just in the first four months of 2017, which amounts to $3.6 trillion annualized, “the largest CB buying on record.” As Hartnett notes, the “Liquidity Supernova is the best explanation why global stocks & bonds both annualizing double-digit gains YTD despite Trump, Le Pen, China, macro…”

A recent graph from Citi and Haver illustrated it this way:

Note the rise in central bank balance sheets before 2008. There’s nothing innocent about it.

As an aside, I like this variation from the Twitter account of “Rudy Havenstein”, which came with the comment:

Here is a chart of the well being of the American middle-class and poor over the same period.

The Fed tries to become even more of an outlier among central banks, or at least it seems to discuss ways of doing this. Now, I don’t know what is more stunning, the fact that they go about it the way they do, or the lack of anger and bewilderment that emanates from the press and other voices -nobody has a clue what a central bank should be doing-, but the following certainly is ‘something’:

Fed Intensifies Balance-Sheet Discussions With Market Players

Federal Reserve staff, widening their outreach to investors in anticipation of a critical turning point in monetary policy, are seeking bond fund manager feedback on how the central bank should tailor and communicate its exit from record holdings of Treasuries and mortgage-backed securities. Fed officials are intent on shrinking their crisis-era $4.48 trillion balance sheet in a way that isn’t disruptive and doesn’t usurp the federal funds rate as the main policy tool. To do that, they need to find the right communication and assess market expectations on the size of shrinkage, which is why conversations with fund managers have picked up recently. “All indications suggest that conversations around the balance sheet have accelerated,” said Carl Tannenbaum at Northern Trust Company. “The consideration of everything from design of the program to communication seems to have intensified.”

Most U.S. central bankers agreed that they would begin phasing out their reinvestment of maturing Treasury and MBS securities in their portfolio “later this year,” according to minutes of the March meeting. They also agreed the strategy should be “gradual and predictable,” according to the minutes. Fed staff routinely seek feedback from investors and bond dealers to get a fix on sentiment and expectations. The New York Fed confirmed the discussions and said it is part of regular market monitoring. The Fed is getting closer to disclosing its plan, and conversations have become more intense. “They are gauging what’s the extent of weak hands in the market that will dump these assets,” said Ed Al-Hussainy, a senior analyst on the Columbia Threadneedle Investment’s global rates and currency team. “They are calling all the asset managers. It is not part of the regular survey.”

The Fed-created bubbles in stocks, bonds, housing, what have you, have propped up these ‘market players’, which wouldn’t even be ‘market players’ anymore if they hadn’t. That would have made for a much saner world. These people are not ‘investors’ any more either, by the way, and they’re not the chumps either; they are the cheats, the profiteers. At your expense.

Now, with the new capital they have, courtesy of the Fed and other central banks only, certainly not their own intelligence or timing or knowledge, they get calls from Yellen and other Fed people about what the Fed can do for them this time. Yellen et al are afraid that if the Fed starts selling, the so-called ‘market players’ will too. Of course they will.

The bubble created by artificial demand cannot be allowed to burst all at once, it has to be done “gradual and predictable.” As if that is possible, as if the Fed controls the bursting of bubbles it has itself created. And Yellen is not going to call you or me, she could not care less; she’s going the call the pigs she fattened up most. The Fed is more than anything a bunch of academics, seduced exclusively by textbook theories that are shaky at best, to transfer wealth to the most sociopathic and hence seductive financial predators, at everyone else’s expense.

And that expense is humongous. At the same time that the Fed and the rest of the world’s central banks fattened their balance sheets as seen in the graph above, this is what happened to US debt vs GDP:

The Fed bubbles, intended to keep market players whole, are blown at the expense of the real economy. Imagine if all those $20 trillion and counting in central banks’ bubble blowing would have been used to prop up Main Street instead of Wall Street; everybody would have been better off except for the ‘investors’ who are not even real investors.

The problem is, the Fed has no control over its own bubbles. It may or may not devise ways to ‘deflate’ its balance sheet, but the bubbles that balance sheet gave birth to cannot be deflated in the same way. If the Fed did have ‘bubble control’, it would have chosen to keep both the stock markets (S&P) and housing prices at a much lower level, with only a gradual increase. That would have given the impression that things were still doing sort of fine, without adding the risk -make that certainty- that the while shebang would blow up. But once’s the genie’s out of the bubble…

The academics must have missed that part. In the end the Fed works for banks and affiliated ‘industries’, not for people. Even -or especially- those people that like to think of themselves as ‘investors’. Today, in the process, America’s central bank is actively destroying American people. And while the Fed’s operatives may know this or not, the people certainly don’t. They think they’re making fat profits in either stocks or housing. And they are the lucky ones; most Americans are simply drowning.

A great representation of all that’s wrong in this comes courtesy of this Lance Roberts graph. A chilling illustration of the price you pay for setting S&P records.

These days, every rising asset price, every single bubble, comes at the expense of enormous increases in debt. And there are still people who wish to claim that this is not a bubble. That it is OK to get into deep debt to purchase a home, or stocks, with leverage: can’t miss out on those rates! And sure, that is still true in theory; all you have to do is get out in time. If only the Fed can get out in time, if only you can get out in time.

‘Getting out in time’ is bubble territory by definition. It’s not investing. Investing is buying an interest in something that you expect to do well, something that you think may be successful in benefiting society in such a way that people will want to own part of it. As I write down these words, I can’t help thinking of ‘It’s A Wonderful Life’, simply because it is so obvious but already feels so outdated.

I’m thinking also of Uber and Airbnb and Tesla and so many other ‘innovative’ ideas. All seemingly thriving but only because there’s so much excess cash sloshing around courtesy of Bernanke and Yellen and Draghi, looking for a next bubble to ‘invest’ in. Ideas that apparently have no trouble raising another $1 billion or $10 billion ‘investment’, in the same way that the Tulip Bubble had no such trouble, or the South Sea or Dot.Com ones.

Good luck with all that, but you’ve been warned, you’re hereby on notice. The odds that you’ll be able to ‘get out in time’ are vanishingly small. And even if you do, most others just like you won’t. And neither will the Fed academics. They have the most so-called ‘money’ at their disposal, and the least sense of what to do with it. But they have their advisers in the private banking industry to tell them all about where to put it: in one bubble or another; anywhere but the real economy.

Have I mentioned yet that all these start-ups and other bubbles are being launched into a rapidly shinking economy? Or you don’t think it is shrinking? Look, there would be no need for the Fed to blow bubbles if the economy were doing fine. And if so, they wouldn’t. Even academics have an innate sense for risk overdose.

C’mon, you’re not an investor. And perhaps you won’t even end up a loser, though the odds on that are slim, but one thing’s for sure. You are a character in an epic poem about losers.