Nov 30

Today’s News 30th November 2016

  • "Dear President Putin…"

    Submitted by Paul Craig Roberts,

    Vladimir Putin
    President of Russia
    Moscow
    28 November 2016

    Dear President Putin,

    Now that CIA agent Craig Timberg posing as a Washington Post reporter has blown my cover and exposed me as a Russian agent, I was wondering if I might ask you for a Russian passport and a bit of diplomatic cover, perhaps assistant press officer at the Russian embassy in Washington, until I can get out of the country. I saw that you gave a passport to Steven Seagal, so I am hopeful that being a Russian agent is as important as teaching martial arts to Russians.

    I don’t know what the pay scale for Russian agents is, but whatever I have coming to me please deposit in a Russian bank. The Swiss banks are no longer useful as the Swiss government allowed Washington to write its banking laws. Perhaps also you could line me up with a publisher for my memoirs—“My Life As A Putin Stooge.”

    We need to get on with this ASAP as the Washington Post has the FBI on my tail. They will be very angry at me for deceiving them all those years when I held top secret and higher security clearances while I was a Russian agent. Any day now the Washington Post might discover that my fellow KGB agent Ronald Reagan and I cut taxes on the rich in order to make capitalism so oppressive that the American people would rise up and overthrow it. Boy did we fool the left-wing!

    I regret that the Washington Post got wise to me being a Russian agent, but it wasn’t my fault. I think the leak came from one of those Atlanticist Integrationists you are stuck with in your government. Better check up on it as 200 of the Russian financed websites have already been exposed.

    Better have someone bring me the passport and diplomatic appointment. I would be nabbed by TSA if I fly to Washington to collect the documents. A diplomatic appointment is better than asylum, because Washington, like the old Soviet Union, doesn’t recognize political asylum. Just ask Julian Assange.

    Don’t let the Atlanticist Integrationists convince you that my exposure as a Russian agent is just a CIA ruse to plant an agent on you. My criticism of Washington’s policy of raising tensions between nuclear powers and support of your policy of reducing tensions is not spy cover. I really do prefer that the world not be blown up in thermo-nuclear war. This is a suspect view in the US, but I hope it is an acceptable one in Russia.

    Looking forward to that passport.

    Paul Craig Roberts

  • Steve Mnuchin Selected by Trump for Treasury Secretary, a Look at Previous Secretaries and Affiliations

    Trump selected Steve Mnuchin to be the next Treasury Secretary. Steve is a Goldman man. What else is new? Let’s have a look at the recent men who’ve filled this role in government and their affiliations.

    Steve Mnuchin: Parter at Goldman Sachs, Yale, Dad worked for Goldman for three decades, brief gig at Soros hedge fund, Hollywood producer.
    Jack Lew: COO of Citi prop trading unit that correctly bet on housing collapse in 2008, Harvard, Council on Foreign Relations.
    Hank Paulson: Former CEO of Goldman Sachs, Dartmouth, worked at Pentagon and in Nixon administration.
    John Snow: Former CEO of CSX, Chairman Cerberus Capital Management, served under several administrations and shilled on a sundry of boards.
    Paul O’Neil: Former CEO of Alcoa, Member of Carnegie Mellon University’s dean’s advisory council.
    Larry Summers: Former President of Harvard, managing partner at DE Shaw, Chief Economist at the World Bank.
    Robert Rubin: 26 Years at Goldman Sachs, London School of Economics, Yale, Co-Chair of the Council on Foreign Relations, Chair of Citi
    Lloyd Bentsen: University of Texas, WW2 Vet, promoted to Lt. Col and discharged in 1947, wanted to Nuke N. Korea, served on board of Lockheed Martin, helped convince republicans to pass NAFTA while serving under Clinton.

    Nice group of guys.

    Content originally generated at iBankCoin.com

  • China Liquidity Crisis Deepens, Spreads Across Asia

    Having exposed the deepening liquidity crisis in China previously, tonight's action across AsiaPac money-markets suggests – despite US equity record highs – all is very much not well below the surface of the global financial system. Short-term China repo rates have exploded to 20-month highs, Hong Kong Dollar money-market rates have jumped to the highest since May 2009, and Yen basis swaps are showing the most extreme demand for dollars since Lehman…

    China liquidty conditions have gone from bad to worse with 14-day repo spiking to 6.00% – the highest in 20 months…

    To be clear this means a Chinese bank was willing to pay 6% to ensure liquidty for the next 2 weeks (compared to 2.5% yesterday!)

    Also notable is the upward pressure this has put in Offshore Yuan versus the dollar…

     

    Pushing Hong Kong Dollar HIBOR up to its highest since May 2009…

     

    It appears that Japan is suffering too as USD-JPY basis swaps have crashed to record lows – the most desperate demand for USDollar liquidity since Lehman…

     

    Finally, it's not just AsiaPac as our index of global dollar liquidity (BIS' new 'fear' index) is in grave trouble, trumbling to 4-month lows…

     

     

    As we noted previously, quoted by Bloomberg, Wu Sijie, bond trader at China Merchants Bank said "tightening interbank liquidity and the expectation of even higher short-term borrowing costs are driving up swap costs and affecting sentiment on the cash bond market."

    Meanwhile, signalling no change at all in its posture, overnight the PBOC drained funds in open-market operations for the fourth consecutive day, bringing the total withdrawal to 130 billion yuan.

    Why is all of the above relevant? Because while so far the global capital markets have been immune to the substantial tightening in financial conditions resulting from the sharp rise in the US Dollar and US interest rates, a similar tightening in China – which is now clearly taking place – will be far more difficult for global risk assets to ignore.

  • All Aboard! Trump's Express Train To The Future

    Authored by Bonner & Partners' Bill Bonner, annotated by Acting-Man's Pater Tenebrarum,

    Free Money!

    Last week, the Dow punched up above 19,000 – a new all-time record. And on Monday, the Dow, the S&P 500, the Nasdaq, and the small-cap Russell 2000 each hit new all-time highs. The last time that happened was on the last day of December 1999.

     

    1-djia-daily-ann

    Ironically, two events that were almost universally expected to trigger large stock market declines were followed by quite rapid and strong gains. Would the market have fallen if Hillary Clinton had won the presidential election? That would have confounded expectations as well. Also, the S&P 500 declined for nine days in a row (even if not by much) just before the election – at the time Clinton was still widely expected to win. it remains to be seen whether and for how long the recent discounting of Nirvana will last – click to enlarge.

    Just a few months later, the dot-com bubble burst and the tech-heavy Nasdaq lost 80% of its value. And the U.S. stock market, overall, lost about 50%. But investors are bullish. They believe President-elect Trump will be good for stocks.

    He is supposed to arrive in Washington for his inauguration and march directly over to the Capitol to demand a tax cut. This will return over $6 trillion to the private sector over the next 10 years… not to mention a proposed $1 trillion splurge on “infrastructure.”

    As Trump’s chief adviser (and former Goldman alum), Stephen Bannon, explained to Michael Wolff of The Hollywood Reporter last week:

    “Like [Andrew] Jackson’s populism, we’re going to build an entirely new political movement,” he says. “It’s everything related to jobs. The conservatives are going to go crazy. I’m the guy pushing a trillion-dollar infrastructure plan. With negative interest rates throughout the world, it’s the greatest opportunity to rebuild everything. Shipyards, iron works, get them all jacked up. We’re just going to throw it up against the wall and see if it sticks.”

    Whew!

    Everybody’s talking about the feds’ opportunity to “invest” free money.   It makes us nervous; we know how hard it is to get a good return on investment – especially when you don’t know what you’re doing.

    The government pays just over 2% on 10-year loans. If inflation over the next decade is anywhere near its long-term average, the real cost of funds is roughly zero.  The money, say the Big Spenders in Washington, will be free.

     

    biggovernment

    And henceforth it will be getting fed for free!

     

    All Aboard!

    In the pages of the Financial Times is another voice for investing money that doesn’t exist. Here’s Fed Vice Chairman Stanley Fischer speaking to the Council on Foreign Relations think tank:

    “Macroeconomic policy does not have to be confined to monetary policy,” said Mr. Fischer…

     

    “Certain fiscal policies, particularly those that increase productivity, can increase the potential of the economy,” he said.

    This is a train that’s going to sell out fast. Everyone is going to want to board. Free money. Jobs. Inflation. Infrastructure. What’s not to like? Who will not want to be a passenger on this express train to Fantasyland?

    Already on board, near the head of the train, is our friend Richard Duncan at Macro Watch. Richard, a specialist in credit analysis who has worked with the World Bank, shares our view: The world economy is a giant bubble waiting to pop.

    But his prescription is different. We would happily get out a pin and give the bubble a prick. Not that we like to see innocent people suffer. But we hate to see guilty people not suffer.

    Richard, on the other hand, is a kind-hearted soul, an optimist with a warm and uplifting view of human nature. He can’t bear thinking about the widows and orphans stuck in “another Great Depression,” which he believes would result if the credit bubble bursts.

    All it would take is a big enough increase in interest rates. With so much debt in the world, he says, higher rates would be catastrophic. How to avoid it? Richard:

    “Very large-scale government investment in the industries and technologies of the future will lift America’s poor out of poverty. It will save the middle class. And it will make the most prosperous segments of our society wealthy – and healthy – beyond their wildest dreams.”

    In an open video-letter to Donald Trump, he proposes that the feds should identify 10,000 of America’s “most promising entrepreneurs.” They should all have good ideas for the future – biotech, nanotech, green tech, whatever – but it should have a “tech” at the end. Then the feds should invest in their businesses, forming public-private partnerships.

     

    big-govt

    Allocation of scarce resources by government bureaucrats – what could possibly go wrong?

     

    Hell Train

    Our cynical heart stops for a second. All that money up for grabs. All those cost-plus contracts! Architects’ phones must be ringing already; insiders are planning new wings for their Aspen vacation pads. These are government “investments” – no need to ever satisfy a customer or ever show a profit.

    And we’re talking 10 times more money than the $100 billion in Corn Belt giveaways… or the penny-candy subsidies to sugar tycoons, the Fanjul brothers (who, taking no chances, put on Miami campaign fundraisers for both Clinton and Trump). But Richard is already in the observation car, enjoying the sun on his face, dreaming.

    “Imagine what that would do,” he suggests, adding helpfully, “It would really Make America Great Again.”

    Our imagination is not up to the challenge. We close our eyes. We scrunch up our face. We just can’t do it. We can’t imagine a group of hacks, has-beens, and bureaucratic chair warmers capable of identifying the “industries of the future.”

     

    miracle_cartoon

    Richard Duncan probably figures that they will be helped by experts… and miracles will occur as well! It’s almost fool-proof…

     

    No one else has been able to foresee the future. How could they? Venture capitalists, even when their own money is at stake, are notoriously bad at backing successful futuristic enterprises. The feds, “investing” other people’s money, are bound to bet on the wrong ones.

    But wait –  our imagination has finally rebooted. And what’s this?  No train to the future? What we see is a runaway locomotive. Incompetence at the throttle, flimflam stoking the engine, and impossible, pie-in-the-sky hocus-pocus putting on a show for the passengers.

    A hellish train, in other words – loaded with trillions of dollars of looted resources – misallocated, stolen, and frittered away.

     

    train-to-hell

    The express train to hell. It is possible that tickets for the train to the future were sold out. Better luck next time.

  • Horseman Capital Asks "Is China Running Out Of Money"

    At the start of 2016, many financial pundits mocked Kyle Bass and a handful of other China skeptics for predicting that China’s economic difficulties, and accelerating capital outflows, would translate into a continued devaluation for the Yuan. Less than a year later, with the Yuan plunging to all time lows, just shy of USDCNH 7.00, they were right.

    And, as Horseman Capital’s Russell Clark writes in his latest Market Views note, in which he asks if “China is running out of money”, adding that “if Chinese foreign reserves continue to fall and the PBOC wants to maintain control of the exchange rate, they will need to face some difficult choices,” the one most difficult choice facing Beijing may be the one which assures far more weakness for the Yuan in the near future: a devaluation.

    Here are Clarke’s thoughts.

    IS CHINA RUNNING OUT OF MONEY?

    Since the global financial crisis, China has had a very strong currency, even with the recent devaluation of the Chinese Yuan.

    China has a managed exchange rate. The People’s Bank of China (PBOC) has had to step in to the exchange market to buy any USD coming into China. To buy the USD coming into China, the PBOC has had to create CNY for this purpose. Typically, to soak up these new CNY, the PBOC has issued CNY bonds, as well as having very high reserve requirements on the banks to control the supply of CNY.

    The PBOC is like any other bank, and it needs to match assets with liabilities. On the asset side, by far its biggest assets are foreign reserves. On the liability side are domestic deposits. For many years, foreign reserves were much larger than deposits, but now the gap is shrinking rapidly as foreign currency assets fall.

    If Chinese foreign reserves continue to fall and the PBOC wants to maintain control of the exchange rate, they will need to face some difficult choices. First of all, it could raise interest rates to try and make the Yuan more attractive and reduce outflows. This however would be negative for growth, a priority of the Chinese Communist Party. The other option is to reduce the holdings of deposits at the PBOC. The large holdings of deposits at PBOC is driven by the very high reserve requirements of the Chinese banking system, and previous cuts in the reserve requirements have reduced deposits at least temporarily.

    This leaves the PBOC with a dilemma. Raising rates will restrict growth but defend the currency, while cutting rates or reserve rates for banks will encourage more currency weakness. One way to think about how high interest rates need to rise to stop a currency from falling is to look at how weak a currency has been over the last twelve months. You then compare this to the difference in 10 year bond rates, and the movement in the exchange rate over the last 12 months to get an idea of the interest rates increase needed to attract US dollars. The idea is that if a currency has been weak, but interest rates are relatively high, then you are being adequately compensated. Conversely, if the currency has been weak, and the interest rates are relatively low, then rates will need to rise. Currently, it suggests Chinese 10 year rates need to be 6.5% higher, to halt currency weakness.

    Given the large increase in rates needed to slow Chinese Yuan devaluation, devaluation must start to look like the more likely move. South Korea faced a very similar situation in 1997. In the mid-90s, Korean foreign reserves began to fall, like they are in China today. We have added Japanese foreign reserves to show that the fall in reserves was a Korean specific issue.

    Like the Chinese Yuan, the Korean Won was a managed exchange rate that began to depreciate slowly then quickly.

    Below we produce the same graphs, but replace Korea with China.

    Given the huge increase in debt in China in recent years, such a rate increase seems very unlikely to me. Investors should be prepared for bigger falls in the Chinese Yuan.

  • Why Are So Many Among The Elite Building Luxury Bunkers In Preparation For An Imminent "Apocalypse"?

    Submitted by Michael Snyder via The Economic Collapse blog,

    Do they know something that the rest of us do not?  There are tens of millions of ordinary Americans that are feeling really good about the future now that Donald Trump has won the election, but meanwhile the elite are feverishly constructing luxury bunkers at a pace unlike anything we have ever seen before.  So why are so many among the elite preparing for an imminent “apocalypse” when tens of millions of other Americans are anticipating a new era of peace and prosperity?  Are they smarter than most of the rest of us, or are they simply being paranoid?

    Without a doubt, something is going on among the elite.  Earlier today, WND published an article that discussed the fact that wealthy people “are quietly moving away from major cities” all over the globe because of concerns about security…

    Widespread media reports as well as independent investigations from groups such as New World Wealth suggest wealthy people around the globe are quietly moving away from major cities because of fears of social instability. Increasing crime, terrorism and rising racial tensions have all been identified as factors driving the exodus. Even the Daily Beast reported the introduction of large numbers of Muslim refugees into Europe has made once prosperous areas fraught with danger, in the opinion of some security experts.

    And just a few weeks ago a Hollywood Reporter article entitled “Panic, Anxiety Spark Rush to Build Luxury Bunkers for L.A.’s Superrich” talked about how “Oscar winners, sports stars and Bill Gates are building lavish bunkers” because of their anxiety about what is coming next.  The following is a short excerpt from that article…

    Given the increased frequency of terrorist bombings and mass shootings and an under-lying sense of havoc fed by divisive election politics, it’s no surprise that home security is going over the top and hitting luxurious new heights. Or, rather, new lows, as the average depth of a new breed of safe haven that occupies thousands of square feet is 10 feet under or more. Those who can afford to pull out all the stops for so-called self-preservation are doing so — in a fashion that goes way beyond the submerged corrugated metal units adopted by reality show “preppers” — to prepare for anything from nuclear bombings to drastic climate-change events. Gary Lynch, GM at Rising S Bunkers, a Texas-based company that specializes in underground bunkers and services scores of Los Angeles residences, says that sales at the most upscale end of the market — mainly to actors, pro athletes and politicians (who require signed NDAs) — have increased 700 percent this year compared with 2015, and overall sales have risen 150 percent. “Any time there is a turbulent political landscape, we see a spike in our sales. Given this election is as turbulent as it is, we are gearing up for an even bigger spike,” says marketing director Brad Roberson of sales of bunkers that start at $39,000 and can run $8.35 million or more (FYI, a 12-stall horse shelter is $98,500).

    This is all very odd, because among the general population interest in “prepping” has hit a multi-year low.  In fact, sales of emergency food and supplies are way down at the moment across the entire industry.

    So once again the question must be asked – do the elite know something that the rest of us do not?

    If they don’t, why are they spending so much time, effort and money on such extraordinary preparations?

    For instance, down in Texas one group of investors is constructing “a $300 million luxury community replete with underground homes”…

    An investor group is planning for a doomsday scenario by building a $300 million luxury community replete with underground homes. There will also be air-lock blast doors designed for people worried about a dirty bomb or other disaster and off-grid energy and water production.

     

    The development, called Trident Lakes, is northeast of Dallas.

     

    Residents will enjoy an equestrian center, 18-hole golf course, polo fields, zip lines and gun ranges. Retail shops, restaurants and a row of helipads are also in the works. For those looking to “get away,” they’ll also be able to enjoy three white sand beaches and a neighborhood spa.

    Most of us could hardly even imagine such luxury, and this is yet another example of the growing gap between the ultra-wealthy and the rest of us in this country.

    If you do happen to be one of the ultra-wealthy, perhaps you may be interested in purchasing one of the extremely expensive U-shaped “Earthships” that one company has been constructing for the elite…

    Billionaires are buying up “indestructible” alien boltholes to seek sanctuary in during alien Armageddon or more-likely nuclear war and disaster.

     

    The US company creating the $1.5million “Earthship” eco-structures says humans “must evolve” and insists they “will soon be a necessity” for our species “to survive on this planet.”

     

    The bizarre U-shaped hideaways, which can reportedly survive in any climate, can be deployed to any part of the world and are self-sufficient enough to survive in isolation – during a killer virus outbreak or a radiation catastrophe.

    I have to admit that I felt a twinge of jealousy when I first learned about these “Earthships”.  They are completely self-sufficient, they are environmentally-friendly, and they sound like they are quite comfortable. 

    The following is what one reporter discovered when she visited a community of these “Earthships”…

    In addition to the cord-cutting power and self-sustaining water supply, each abode contains its own greenhouse. I could forage for figs, bananas, pineapple, broccoli, rosemary and chives in my fluffy socks. Or if the zombies weren’t looking, I could dash over to my neighbor’s place for supper. The Phoenix, a three-bedroom that sleeps six, dedicates one-third of its space to food production. Its tropical jungle supports parakeets and cockatiels (not for consumption) and a garden bursting with fruits and vegetables, including grapes, artichokes, lemons, melons, kale, squash, hot peppers and mushrooms that cling to a log.

     

    Chickens cluck around the back yard, which features a sunken den with a grill for coop-to-kebob meals. An indoor fishpond once contained a robust stock of tilapia before a group of guests threw a fish fry. Now, the littlest survivors swim laps with koi. For the dairy course, the staff is considering resident goats.

    It sounds wonderful.

    But once again, why go to all of this effort if a new era of peace and prosperity for humanity is right around the corner?

    I really like what Carl Gallups had to say about this.  Carl is the author of Be Thou Prepared, and this is what he told WND about the preparations that the elite are making…

    “I think that the rich and elite are becoming increasingly aware of the dangerous and potentially unstable world in which we now reside,” he warned. “Massive instances of civil unrest, even in America, are becoming a very real possibility. Internal terror attacks, swelling illegal alien populations, an influx of Islamic refugees, increasing racial discord, ambushing police officers, the rule of law continually being trampled by the political elite and an almost complete collapse of trust in the mainstream media – all of this has led to widespread cynicism and distrust among the population as a whole.”

     

    Gallups noted “the rich usually have deeper connections to reliable information and prediction sources, and most of them have the means to take immediate action.”

    I believe that Carl Gallups is right on the money.

    Normally I am extremely hard on the elite, but in this case I believe that they are showing much more wisdom than the general population.

    So many people are crying “peace and safety” right now, and yet we are right in the middle of what I have labeled “the danger zone“.

    Our world is becoming more unstable with each passing day, but there is so much apathy among the American people at the moment.

    I just don’t understand it.

    The self-destructive behavior that we are engaging in as a nation is a recipe for national suicide, and the warning signs are all around us, but because disaster has not struck yet most people seem to believe that the warnings that they have been hearing are not true.

    Meanwhile, the elite are preparing extremely hard for an imminent “apocalypse”, and I have a feeling that they are going to end up looking like the smart ones once it is all said and done.

  • Aussie Housing Market Collapses: Building Approvals Crash 25%

    Following September's 9.3% MoM plunge in Aussie home approvals, hopes were high that October would see a bounce (expectations were for a 2% gain) as central bankers jawboned confidence higher. However, it didn't… Building approvals collapsed 12.6% MoM and a shocking 24.9% year-over-year decline is equal to the worst drop since Lehman. Ironically, just this month Aussie Treasurer eased restrictions on foreign buyers (otherwise known as bag holders it would seem).

    It's been weak year anyway but this is an utter disaster as the Aussie housing bubble finally pops… (on a non-seasonally-adjusted basis the year-over-year drop is 28% – the biggest since Nov 2008)

    This is the lowest level of building approvals per capita in 2 years as it seems China's credit impulse has faded entirely.

    The cracks have been showing with default rates on the rise (as AFR reports)

    Mirvac said it experienced a rise in the default rate for the settlement of off-the-plan residential sales, above its historic average of 1 per cent.

    On top of defaults, the Australian apartment markets – which boomed in the last four years – are facing other fresh risks…

    On Friday, HSBC said an oversupply of apartments in Melbourne and Brisbane could send unit prices down by as much as 6 per cent in 2017.

     

    The apartment building boom, an ongoing concern for the Reserve Bank of Australia, especially in inner city Melbourne is likely to "start showing through" in price drops of between 2 per cent and 6 per cent in that city next year, HSBC chief economist Paul Bloxham said in a note.

     

    It's a similar story in Brisbane where apartment prices are forecast to fall by as much as 4 per cent.

     

    "A national apartment building boom, which has been part of the rebalancing act, is likely to deliver some oversupply in the Melbourne and Brisbane apartment markets, which is expected to see apartment price falls in these markets," Mr Bloxham said.

    "A modest shakeout in the inner-city apartment markets in Brisbane and Melbourne, as we are forecasting, is not expected to have a broad-based impact on the overall housing market or economy."

    Which perhaps explains why Aussie Treasurer Scott Morrison said the government will make changes to the foreign investment framework to allow foreign buyers to buy an off-the-plan dwelling that another foreign buyer has failed to settle as a new dwelling.

    The federal government has announced it will make it easier for foreigners to buy new apartments amid concerns of a looming glut that will drive down prices.

     

    Previously, on-sale of a purchased off the plan apartment was regarded as a second hand sale, which is not open to foreign buyers. Foreign buyers can only buy new dwellings.

     

    The move effectively opens up the pool of buyers who can soak a potential flood of apartments hitting the residential markets due to failed settlements.

    Hoping for some of the capital taking flight from China to rush down, we are sure.

    By way of reminder, here is David Llewellyn-Smith via Acting-Man.com, to explain why the Australian property bubble is on a scale like no other…

    Yesterday Citi produced a new index which pinned the Australian property bubble at 16 year highs:

    Bubble trouble. Whether we label them bubbles, the Australian economy has experienced a series of developments that potentially could have the economy lurching from boom to bust and back. In recent years these have included:

    •  the record run up in commodity prices and subsequent correction;
    •  the associated boom in mining investment and current reversal;
    •  record low bond yields;
    •  the boom in housing construction, specifically apartments, that was spurred by the low interest rates.

     

    Housing indicators in the bubble meter are at record highs but interest rates remain at record lows. Typically monetary policy is well into tightening mode at this stage in the housing cycle. A destabilizing housing burst (both in activity and prices) is a clear risk, particularly the longer the upswing runs.

     

    r3-1

    Click to enlarge.

     

     

    The size of the Australian property bubble is old news. It’s extreme in valuation terms:

    dsfg

    Click to enlarge.

     

    zdfb

    Click to enlarge.

     

    Underpinned by world-beating household debt:

    zseg

    Click to enlarge.

     

    And nose-bleed levels of foreign borrowing:

    wry

    Click to enlarge.

     

    What is less well understood is how such a large and sustained bubble has distorted the Australian political economy.  The bubble has been running for twenty years (which some argue proves it is no such thing) and every time it has been threatened it was saved by luck or a bailout which sold off a little more of Australia’s liberal democracy.

    In 2003, the bubble first threatened to burst as the Reserve Bank raised interest rates. But the bubble was rescued by the combined forces of demand side fiscal stimulus for first home buyers in the form of large cash grants, and the arrival the Chinese commodity boom that flooded the economy with people and income. The government of the day learned its lesson and economic reform has been dead ever since!

    In 2008, the bubble was jeopardised again when the pipeline of offshore debt froze solid and major Australian banks were rendered insolvent given they could not roll over their enormous foreign debts. The government of the day rode to their rescue with guarantees to all offshore funding, directly bought mortgage backed securities (which it still holds), unleashed the largest proportional fiscal stimulus in the world, doubled the first home buyer grants, opened the spigots on foreign investor buying, and other measures. Almost all of it violated existing financial sector architecture and governance and virtually none of it has been wound back. No housing market in the world enjoyed such wholesale and limitless support.

    In 2011, the bubble again faltered when the China commodity boom returned and raised interest rates. But, when threatened, the bubble was bailed out, this time by a central bank that desperately cut interest rates to all-time lows because it had over-estimated the durability of the commodities boom, and an influx of Chinese capital that was allowed to price-out local buyers with barely a word of protest from regulatory authorities.

    While those three saves of the bubble have been widely admired as solid Keynesian policy-making, and have allowed Australia to claim a “miracle” economic expansion of 25 years, they have also transformed its economy and political economy.

    The Australian economy is now structurally uncompetitive as capital inflows persistently keep its currency too high, usually chasing land prices that ensure input costs are amazingly inflated as well. Unsurprisingly, Australian manufacturing’s share of outlook has collapsed to 5.8% of GDP (even before the exit of car manufacturing scheduled for the next 12 months) half that of the supposedly “hollowed out” US and UK economies, and on a par with the financial haven of Luxembourg. Wider tradables sectors have been hit hard as well and Australian exports are now a lousy 20% of GDP despite the largest mining boom in history.

    The other major economic casualty has been multi-factor productivity. It has been virtually zero for fifteen years as capital was consistently and massively mis-allocated into unproductive assets. To grow at all today, the nation now runs chronic twin deficits with the current account at -4% and Budget deficit of -3% of GDP.

    But the damage is in some ways even worse in the political economy. How have Australian authorities responded to this growing crisis? By egging it on.

    Not only are they running unsustainable deficits into looming sovereign downgrades, they have sustained historically very high rates of immigration to attempt to back-fill and support property prices. These levels have been so aggressive in the major eastern cities, which are now projecting a near doubling of their populations within 40 years (from four-plus to eight million), that elections are now routinely won and lost on issues of choked infrastructure, and a vehemently anti-immigration movement is afoot in the polity. Younger generations are also boiling over with anger at being locked out of housing markets. A full half of first home buyers rely upon parents for equity and their numbers have collapsed to just 12% of total sales.

    Five prime ministers in six years have come and gone as standards of living fall in part owing to massive immigration inappropriate to economic circumstances and other property-friendly policy. The most recent national election boiled down to a virtual referendum on real estate taxation subsidies. The victor, the conservative Coalition party, betrayed every market principle its possesses by mounting an extreme fear campaign against the Labor party’s proposal to remove negative gearing. This tax policy allows more than one million Australians to engage in a negative carry into property in the hope of capital gains. In a nation of just 24 million, 1.3 million Australians lose an average of $9k per annum on this strategy thanks to the tax break.

    The campaign against tax reform was led by former head of Goldman Sachs Australia, Prime Minister Malcolm Turnbull, who is a large Australian property-holder, and Treasurer Scott Morrison, who is the former head of research at the Property Council of Australia, the nation’s leading realty lobby. Australia’s 225 politicians hold a combined property portfolio worth over $300m.

    The property corruption has even undermined the nation’s strategic outlook. The large wave of Chinese immigrants and investors have been accompanied by a hard-edged soft power drive from Beijing that is sorely undermining Australia’s commitment to its traditional US alliance partner. Chinese bribery scandals have erupted in the parliament, usually from property-based sources, and have clearly perverted policy-making. So much so, that Australia’s defence and espionage agencies are in a rising panic that Australia is literally auctioning its strategic outlook to Chinese property speculators.

    How could all of this happen without the media holding it to account? As the economy gets ever more reliant upon its great foreign-funded housing ponzi scheme, and the political economy wraps ever more tightly around it, Australian media has been engulfed as well. Aussie media is a duopoly divided between a conservative Murdoch press and liberal Fairfax press. But both are largely loss-making old media empires whose only major growth profit centres are the nation’s two largest real estate portals, realestate.com.au and Domain. Thus neither reports real estate with any objective other than the further inflation of prices. Indeed newspaper (print and online) operations are nothing more than loss-leaders for over-excited real estate eyeballs. In the event that the Australian bubble were to pop then Australians will certainly be the last to know and the propaganda is so thick that they may never find out until they actually try to sell!

    Before the year 2000, the Australian economy was a vibrant mix of world-leading productivity growth, liberalised tradable sectors balanced between commodities, services and manufacturing, solid household wealth, a reasonable external position, a clean public balance sheet and reliable institutions.

    Today, it is a wildly imbalanced propertocracy with enormous offshore debts, a polity soaked by a Goebbels-like property propaganda machine, and a government run by realty carpet-baggers willing to sell their children to Chinese communists so long long as they pick up a three bedroom apartment along with little Johnny.

    In a world replete with bubbles, rarely has one been quite so complete!

  • Trump Reaches Deal To Keep 1,000 Carrier Jobs In The U.S.

    Nine months ago the video of a plant-full of American workers getting the news that they were 'fired' due to Carrier International moving its air-conditioning plant from Indiana to Mexico went viral and became a meme for Trump's "America First" plans. Today, according to CNBC's David Faber, the Trump team and United Technologies have reached an agreement on keeping close to 1,000 factory jobs at the Carrier plant in Indiana.

    As a reminder, this is what happened in February when United Technologies decided to reinforce both of these trends all at once, when the company announced it would be eliminating 1,400 jobs at a Carrier plant in Indianapolis in favor of hiring some new "foreign-born" employees – only these "foreign-born" workers will be hired in Mexico.

    "Two Indiana plants that make products for the heating, ventilating and air conditioning industry are shifting their manufacturing operations to Mexico, which will cost about 2,100 workers their jobs," The Indianapolis Star reports.

     

    "Carrier is shuttering its manufacturing facility on Indianapolis' west side, eliminating about 1,400 jobs during the next three years [and] United Technologies Electronic Controls said that it will move its Huntington manufacturing operations to a new plant in Mexico, costing the northeastern Indiana city 700 jobs by 2018."

    Watch below as 1,000 soon-to-be Donald Trump voters react to the announcement:

    Trump frequently railed against the move and pledged to force Carrier to keep its jobs in the U.S. while on the campaign trail.

    "Here's what's going to happen," Trump told a crowd in Indianapolis in April. "I'll get a call from the head of Carrier and he'll say, 'Mr. President, we've decided to stay in the United States. That's what's going to happen — 100 percent."

    And now, as CNBC's David Faber reports, Trump appears to have been right.

    More from the NYT:

    On Thursday, Mr. Trump and Mike Pence, Indiana’s governor and the vice-president elect, plan to appear at Carrier’s Indianapolis plant to announce they’ve struck a deal with the company to keep a majority of the jobs in the state, according to officials with the transition team as well as Carrier.

     

    Mr. Trump will be hard-pressed to alter the economic forces that have hammered the Rust Belt for decades, but forcing Carrier and its parent company, United Technologies, to reverse course is a powerful tactical strike that will rally his base even before he takes office.

     

    In exchange for keeping the factory running in Indianapolis, Mr. Trump and Mr. Pence are expected to reiterate their campaign pledges to be friendlier to business by easing regulations and overhauling the corporate tax code. In addition, Mr. Trump is expected to tone down his rhetoric threatening 35 percent tariffs on companies like Carrier that shift production south of the border.

    On its behalf, Carrier announced on Twitter shortly after the announcement that it was "pleased to have reached a deal with President-elect Trump & VP-elect Pence to keep close to 1,000 jobs in Indy." We expect more companies to follow in these anti-offshoring footsteps.

    We expect more details of the deal tomorrow but as The NY Times reports, roughly 10 percent of United Technologies’ $56 billion in revenues comes from the federal government, with the Pentagon its single largest customer. Its Pratt & Whitney division, for example, supplies the engines for the Air Force’s most advanced fighters and host of other planes. So perhaps some quid pro quo.

    On the heels of the reported 'deal' with Ford, it seem president-elect Trump is starting to make good on some promises (but we can't help but wonder why President Obama did not do these things?)

  • Trump, Romney Spotted Having Dinner Inside Trump Hotel Amid Cabinet Speculation

    With Donald Trump set to make his official announcement of Steven Mnuchin’s appointment to the Treasury Secretary post tomorrow at 6:30am, in the process placing yet another former Goldman banker in one of the most important US government positions, a move which has already led to accusations of selling out by members of his core support base, is Trump preparing to serve up another major cabinet surprise?

    As was reported earlier by ABC, Donald Trump and Mitt Romney would be having dinner this evening amid ongoing “cabinet speculation” that Romney is one of the leading contenders for the Secretary of State position.

    While we don’t know what the two have said to each other, and it is still unknown if Trump has or will offer Romney – a person many define as the embodiment of the “swamp” – the top US diplomat position, we do know where the two met – the Jean George restaurant located at the Trump International Hotel & Tower New York next to both CNN and Central Park – and we also have an almost intimate dinner-side coverage of how the dinner between the two, who were joined by RNC Chairman Reince Priebus, progressed courtesy of the omnipresent Twitter.

    And this is why the media has a nervous breakdown any time Trump forgets to inform it that he is leaving for dinner.

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