- Chinese Crash Continues After PBOC Cracks Down On Brokerage Liquidity
Just when you thought it was safe to buy the 12% collapse (the biggest since Lehman) in Chinese stocks, they re-plunge another 3-4% with no dip-buyers evident. The drivers are twofold: first, China PMI beat expectations modestly (uh oh no more QDII, QE, PSL, etc.); and second – and much more critically – The PBOC Operations Office has called for stricter regulation of brokerage liquidity (implicitly clamping down on the seemingly infinite expansion of margin lending required to fuel the boom). CHINEXT has entered a bear market (down 21.5%) and the rest of the Chinese complex is down 3-5% today (down 15-20% from the highs).
Following the worst week since Lehman (and a holiday last night), the margin calls are coming…
As Bloomberg reports,
China should better regulate liquidity situation of securities firms, whose debt increases “fast,” Jiang Zaiyong, vice head of PBOC Operations Office, writes in a commentary in Caijing Magazine.
China should also strictly restrict entry of wealth-management funds in the capital market, the commentary on preventing liquidity risks in asset management products says
Furthermore, China Brokerages Must Meet Liquidity Ratios by End-June
Some context for this drop…Chinese stocks are now down over the past month and unchanged for 7 weeks…
And all of this after China hides the new retail account opening data and halts various members of the 500%-club. So there has been 3 weeks with no data since the open accounts spiked to 4.4 million in one week…
And we warned investors that the IPO canary in the coalmine had croaked… The Bloomberg China IPO Index is now down 24.5% from its highs.
To be brief – it’s over!!
- China IPO Index -24.5%
- CHINEXT -21.5%
- Shanghai -17.6%
- CSI-300 -17.3%
- Shenzhen -17.2%
Without assistance (levitation) from the same PBOC that just clamped down on liquidity, the China bubble has burst.
- Container Shipping Rates from China to US, Europe Collapse
Wolf Richter www.wolfstreet.com www.amazon.com/author/wolfrichter
“Sluggish westbound volumes have brought about the worst spot market rate collapse that this trade has experienced.” That’s how Drewry Maritime Research summarized it in a report a couple of weeks ago. Since then, the collapse of the rates for shipping containers from China to the West has gotten worse with clockwork relentlessness.
In mid-April, there had already been a lot of handwringing. The Shanghai Containerized Freight Index (SCFI) tracks spot rates of shipping containers from Shanghai to 15 major destinations around the world. At the time, rates from Shanghai to Rotterdam had plunged to $399 per twenty-foot container equivalent unit (TEU), down 67% from a year earlier, the lowest rate ever, and half of what was considered the break-even rate for these routes.
It seemed that there would have to be some kind of uptick – that efforts by carriers to impose higher rates would stick. But nothing worked. So a week ago, there was a lot of handwringing because rates to Rotterdam had dropped to $243 per TEU, which wouldn’t even cover the cost of fuel of about $300 per TEU.
But now, in the week ended June 19, the spot rates from Shanghai to Rotterdam plunged another 15.6% to $205, a previously unimaginable low.
And it’s not just to Northern Europe.
On the routes from Shanghai to the US West Coast, carriers also tried to implement rate increases effective April 1. But after an ephemeral uptick of $300 to $1,932 per forty-foot container equivalent unit (FEU), spot rates re-swooned. By the beginning of May, the index had dropped to $1,783, about back where they had been a year earlier.
But look what has happened since. Last week the index plunged 5.4% to $1,268 per FEU, down 29% from the battered rates at the beginning of May.
Spot rates to the US East Coast are also getting beat up: down 3.3% last week. Of the 15 destinations in the index, rates dropped for 11, remained flat for Taiwan and Hong Kong, and rose for Korea and East Japan.
The overall SCFI dropped 4.3% for the week to its lowest level ever: 556.72. It’s now 44% below where it was during the Financial Crisis, on October 16, 2009, when it was set at 1,000, and down about 50% from February. This is what the terrible plunge looks like:
The phenomenon has impacted other ports and contractual rates, not just spot market rates.
The much broader China Containerized Freight Index (CCFI), which tracks contractual rates along with spot market rates from all major Chinese ports to major destinations around the world, dropped another 3.0% last week, to a multi-year low of 825.97. The China-Europe component plunged 7.9%. Rates to the US West Coast dropped 1.8% and to the US East Coast 0.2%
The CCFI is now 23% below where it was in February, and 17.4% below where it was in 1998, when it was set at 1,000! This is what the chilling trajectory looks like.
The total collapse of shipping rates from China to much of the rest of the world is driven by two factors:
Crummy demand for Chinese manufactured goods around the world, a result of lackadaisical economic growth, if any, in the developed markets.
And a breath-taking and ballooning oversupply of ships to transport these goods. The resulting losses for carriers have sent executives to tear out their hair. But not everyone is screaming.
The largest carriers, fueled by cheap money central banks have made available, are purposefully adding enormous capacity to drive up their market share and destroy the price so that smaller carriers with less money to blow would be forced to exit the market, allowing the top carriers to build a global shipping oligopoly.
“I don’t think it will backfire,” explained Nils Andersen, CEO of the Danish giant A.P. Møller-Mærsk, whose Maersk Line is the largest container carrier in the world. Read… Top Carriers Wage Price War to Form Global Shipping Oligopoly
- After The Charleston Massacre – Who Is A 'Terrorist'?
Submitted by Justin Raimondo via Antiwar,ciom,
The recent attack on a predominantly African-American church by a murderous racist has provoked a passionate debate about who is – and is not – a “terrorist.” According to FBI director James Comey, the perpetrator of the Charleston massacre – in which nine people were killed – doesn’t qualify:
“Terrorism is act of violence done or threatens to in order to try to influence a public body or citizenry, so it’s more of a political act and again based on what I know so more I don’t see it as a political act.”
Many are baffled by this, and point to what appears to be a curious double standard: after all, if a Muslim commits violence the media and the authorities are unanimous in their verdict that it was a “terrorist” act, and should be treated as such. And this is not just a matter of terminology: it is legally significant, since the post-9/11 era has given us a whole body of “terrorism”-related law that mandates severe punishment for crimes so designated. A piece in Newsweek avers:
“For many, [Dylann] Roof does not evoke the cultural norm of a terrorist. ‘We often have things labeled as hate crimes but there’s a big leap from the label ‘hate crime’ to ‘terrorism,” explains Ibrahim Hooper, the communications director for the Council on American-Islamic Relations. ‘We always wait when these incidents are first reported to hear if it was carried out by a Muslim to find out if it will be labeled terrorism.'”
Hooper’s complaint, echoed in some quarters of the media, is seemingly well-justified: after all, Roof is quite explicit about the essentially political-ideological motive behind his heinous act. Before opening fire he told his victims he “had to do it” because blacks are “taking over the county.” An online manifesto discovered after the Charleston attack explicates his racist views at some length. So why isn’t Dylann Roof a terrorist?
Glenn Greenwald has taken a stab at the who-is-a-terrorist issue in a recent article for The Intercept. He points to one Joseph Stack, whom he describes as “an anti-tax, anti-government fanatic” with “largely libertarian views”: Stack, you’ll recall, drove a plane into an IRS building, and – like most ideologicaly-motivated killers – wrote a manifesto justifying his actions. “The attack,” writes Greenwald, “had all of the elements of iconic terrorism, a model for how it’s most commonly understood: down to flying a plane into the side of a building. But Stack was white and non-Muslim. As a result, not only was the word ‘terrorism’ not applied to Stack, but it was explicitly declared inapplicable by media outlets and government officials alike.”
Greenwald goes on to list a number of incidents that seem to fit this “iconic” pattern, and yet were labeled mere “criminal” acts, as opposed to acts committed by Muslims, which seemingly qualify the perpetrator as a “terrorist.” This issue, he avers, is “about the identity of those committing the violence and the identity of the targets. It manifestly has nothing to do with some neutral, objective assessment of the acts being labeled.”
Yet Greenwald is too smart to fall into the same error as virtually all of the politically correct pundits waxing indignant over this question. He writes:
“The point here is not, as some very confused commentators suggested, to seek an expansion of the term “terrorism” beyond its current application. As someone who has spent the last decade more or less exclusively devoted to documenting the abuses and manipulations that term enables, the last thing I want is an expansion of its application.”
This is important, because several on the left have bemoaned the fact that the Department of Homeland Security was forced to back off of their “report” on “right-wing extremism” as a result of protests by conservatives in Congress and the media: according to the PC crowd’s logic, the Charleston incident shows they should be investigating “right-wing extremism” more seriously and strenuously. Which just goes to show that the left can be more of a threat to our civil liberties than even the right at its worst. Greenwald continues:
“But what I also don’t want is for non-Muslims to rest in their privileged nest, satisfied that the term and its accompanying abuses is only for that marginalized group. And what I especially don’t want is to have this glaring, damaging mythology persist that the term ‘terrorism’ is some sort of objectively discernible, consistently applied designation of a particularly hideous kind of violence. I’m eager to have the term recognized for what it is: a completely malleable, manipulated, vapid term of propaganda that has no consistent application whatsoever. Recognition of that reality is vital to draining the term of its potency.”
Seen from the government’s perspective, the issue has nothing fundamentally to do with Muslims. They are merely the latest group to get in Washington’s sights as a credible threat to its power and objectives. Back in the 1990s, you’ll recall, the terrorist threat had a different face: that of Timothy McVeigh, the mastermind behind the bombing of the Oklahoma City federal building. Like Stack, he was what Greenwald would characterize as an “anti-government fanatic,” but unlike Stack he was apparently part of an organized “extremist” underworld, with affiliations with the “militia” and “patriot” movements. Unlike Stack, he acted in concert with others: and, also unlike Stack, he was linked by federal officials – notably President Bill Clinton – with a much larger movement which included “mainstream” conservative figures.
A May 1995 New York Times story reporting on a Clinton speech is headlined: “Terror in Oklahoma: The President; Clinton Assails the Teachings of the ‘Militias'”:
“‘If you appropriate our sacred symbols for paranoid purposes and compare yourselves to Colonial militias who fought for the democracy you now rail against, you are wrong,’ Mr. Clinton said here in a commencement address at Michigan State University. ‘How dare you suggest that we in the freest nation on earth live in tyranny? How dare you call yourselves patriots and heroes?’
“In an interview published in the Detroit Free Press today, Mr. Clinton also singled out for the first time a conservative radio talk show host, G. Gordon Liddy, as the sort of figure who had said things "’I cannot defend.’ Mr. Liddy advised his listeners last week to shoot first to the body and then to the groin if confronted with force by Federal agents …
"’I say this to the militias and all others who believe that the greatest threat to freedom comes from the Government instead of those who would take away our freedom: If you say violence is an acceptable way to make change, you are wrong,’ Mr. Clinton said. ‘If you say that Government is in a conspiracy to take your freedom away, you are just plain wrong.
"If you treat law-enforcement officers who put their lives on the line for your safety every day like some kind of enemy army to be suspected, derided and, if they should enforce the law against you, to be shot, you are wrong."
Conflating “anti-government” ideology with violence, Clinton went around the country campaigning against the “far right,” which was, as a result of the Oklahoma City bombing, the bogeyman-du-jour. The incident not only revived his failing presidency – crippled by GOP success in the congressional elections and the failure of Hillary’s health insurance initiative – it paved the way for passage of draconian “anti-terrorism” legislation and the beginnings of a lucrative government-private sector industry centered around “terrorism prevention.” For the first time in modern history, “terrorism” was utilized as a rationalization for limitations on the right of habeas corpus, and invoked to justify spying on political groups. The easing of the Posse Comitatus restrictions on the use of the military in domestic law enforcement, expanding the use of wiretaps, and extending the power of government officials to spy on the Internet, were encoded into law for the first time. All the elements of the post-9/11 “Patriot” Act were prefigured in this 1995 legislation – drafted in large part by then Senator Joe Biden.
Greenwald is wrong that US government officials lack an objectively discernible and consistently applied definition of a “terrorist.” Simply put, terrorism is a term used by them to describe any organized attempt to resist the state-sanctioned terror of the United States government, here at home or internationally.
Note that it isn’t enough to commit violence on account of one’s “anti-government” views: Joseph Stack was merely a lone wolf whose protest represented nothing and no one but himself. Although Greenwald identifies him as a “libertarian,” in fact his act aroused no sympathy or defense from the libertarian movement for the simple reason that libertarians oppose violence. While one could argue that – from a libertarian point of view – Stack was acting defensively against a coercive institution, i.e. the federal government, this stance has close to zero support among libertarians not least because Stack’s act did nothing to advance the cause of liberty, and, indeed, did much to discredit it.
McVeigh, on the other hand, did represent a movement, the growth of which President Clinton seized on to shore up his sinking political fortunes – and, not incidentally, to expand the power of the State. The “anti-right-wing extremist” campaign launched in the wake of the Oklahoma City bombing gave Clinton the opportunity to link his political enemies in the Republican party to McVeigh’s heinous act – just as the 9/11 attacks gave George W. Bush and his neoconservative amen corner the chance to smear anyone who opposed his foreign policy of unmitigated aggression with the “terrorist” brush. “You’re either with us – or you’re with the terrorists!“
From the anarchist bombings of the nineteenth century to the Oklahoma City bombing to the 9/11 attacks and now the Charleston massacre – governments utilize the moral panic and genuine physical fear generated by these incidents to encroach on our rights guaranteed by the Constitution. And the rationalization is always the same: the threat of organized subversion, either the prospect of domestic rebellion or foreign invasion.
During World War II, these dual threats were merged into one and used to justify not only the internment of Japanese Americans but also a series of “sedition” trials. Right-wing “isolationist” opponents of the war were rounded up and tried en masse, at President Franklin Roosevelt’s insistence: the government tried to prove that the defendants were engaged in a “conspiracy” to encourage sedition in the military not on account of any actions they engaged in collectively – most had never even met each other – but because they represented a conspiracy of shared ideas. Likewise, the government charged the leaders of the Socialist Workers Party, an organization of Trotskyists, with a similar “crime,” and succeeded in locking them up. Both trials were cheered on by “liberals” of the time – with the Communist Party loudest in its hosannas. (Even the American Civil Liberties Union fell down on the job, refusing to defend the rightists, although they did offer legal and moral assistance to the Trotskyists.)
Wherever government officials sense a credible threat to their power, they invariably take every opportunity to crush it by any means necessary: this is the first principle of how governments function, and every libertarian is all too familiar with it. The post-9/11 era has brought this lesson home, far beyond the relatively narrow confines of the libertarian movement. And this latest tragedy, you can be sure, will be used to accomplish the same anti-libertarian ends: the calls to investigate “hate groups,” and even to ban “hate speech,” are already being heard. Of course, who and what constitutes a “hate group,” and who is hating whom are subjective evaluations that no government official is qualified to make – not that this stops the largely left-wing proponents of such a dangerous idea, who cannot imagine that these pernicious proposals will ever be used to target them.
As that political hack Rahm Emmanuel put it:
“You never let a serious crisis go to waste. And what I mean by that it’s an opportunity to do things you think you could not do before.”
- Ukraine’s President Poroshenko Admits Overthrow Of Yanukovych Was A Coup
Submitted by Eric Zuesse, author, most recently, of They’re Not Even Close: The Democratic vs. Republican Economic Records, 1910-2010, of CHRIST’S VENTRILOQUISTS: The Event that Created Christianity, and of Feudalism, Fascism, Libertarianism and Economics.
Ukraine’s Pres. Poroshenko Says Overthrow of Yanukovych Was a Coup
Ukraine’s President Petro Poroshenko requests the supreme court of Ukraine to declare that his predecessor, Viktor Yanukovych, was overthrown by an illegal operation; in other words, that the post-Yanukovych government, including Poroshenko’s own Presidency, came into power from a coup, not from something democratic, not from any authentic constitutional process at all.
In a remarkable document, which is not posted at the English version of the website of the Constitutional Court of Ukraine, but which is widely reported outside the United States, including Russia, Poroshenko, in Ukrainian (not in English), has petitioned the Constitutional Court of Ukraine (as it is being widely quoted in English):
“I ask the court to acknowledge that the law ‘on the removal of the presidential title from Viktor Yanukovych’ as unconstitutional.”
I had previously reported, and here will excerpt, Poroshenko’s having himself admitted prior to 26 February 2014, to the EU’s investigator, and right after the February 22nd overthrow of Yanukovych, that the overthrow was a coup, and that it was even a false-flag operation, in which the snipers, who were dressed as if they were Ukrainian Security Bureau troops, were actually not, and that, as the EU’s investigator put his finding to the EU’s chief of foreign affairs Catherine Ashton [and with my explanatory annotations here]:
“the same oligarch [Poroshenko — and so when he became President he already knew this] told that well, all the evidence shows that the people who were killed by snipers, from both sides, among policemen and people from the streets, [this will shock Ashton, who had just said that Yanukovych had masterminded the killings] that they were the same snipers, killing people from both sides [so, Poroshenko himself knows that his regime is based on a false-flag U.S.-controlled coup d’etat against his predecessor]. … Behind the snipers, it was not Yanukovych, but it was somebody from the new coalition.”
This was when Ashton first learned that the myth that Yanukovych had been overthrown as a result of public outrage at his having rejected the EU’s offer of membership to Ukraine was just a hoax. (Actually, the planning for this coup was already under way in the U.S. Embassy by at least early 2013, well prior to Yanukovych’s EU decision. Furthermore, the Ukrainian public’s approval of the government peaked right after Yanukovych announced his rejection of the EU’s offer, but then the U.S.-engineered “Maidan” riots caused that approval to plunge.)
If the Court grants Poroshenko’s petition, then the appointment of Arseniy Yatsenyuk by the U.S. State Department’s Victoria Nuland on 4 February 2014, which was confirmed by the Ukrainian parliament (or Rada) at the end of the coup on February 26th, and the other appointments which were made, including that of Oleksandr Turchynov to fill in for Yanukovych as caretaker President until one of the junta’s chosen candidates would be ‘elected’ on May 25th of 2014, which ‘election’ Poroshenko won — all of this was illegal.
However, this illegality had already been known. It was already explained in detail on 28 February 2014, that, “Yanukovych’s removal was unconstitutional.” That’s for lawyers; but, now, finally, Ukraine’s Constitutional Court is faced with the shocking predicament of Ukraine’s own President, who won his post as a result of this coup, requesting them to “acknowledge” that it was a coup, much as the founder of the “private CIA” firm Stratfor had even called it, “the most blatant coup in history.” (It was that because the authentic video and other evidence of its having been a Washington job was so massive.)
Also in the news now is that Dmitriy Yarosh’s Right Sector — the same group that Washington had hired for the coup and for the ethnic cleansing campaign in Ukraine’s former Donbass region — have announced that they will assemble in Kiev on July 3rd to overthrow Petroshenko unless he restarts right now the war against Donbass. The people whom Washington paid to oust Yanukovych are planning to do the same to Poroshenko. There is a struggle inside the Obama Administration about how far they can successfully go with their Ukrainian nazis not formally leading the country. Washington is having a hard time keeping in line the Ukrainian nazis upon whom Washington’s plan for Ukraine has been based. Ukraine’s nazis are thirsting for Russian blood, and want to slake their thirst faster than the Obama Administration is willing to go along with. Washington’s previous “F—k the EU!” hasn’t worked as well as they had hoped. There is thus increasingly bad blood between the Obama Administration and the Ukrainian enforcers upon whom Obama has been relying. Basically, Poroshenko now is torn between the EU, on one side, and Ukraine’s well-armed nazis, on the other; and, thus far, the ultimate decider, U.S. President Obama, who has needed cooperation both from Ukraine’s nazis and from the EU, in order for his Ukrainian gambit against Russia to work, is on the fence between those two sides. John Kerry sides with the EU; Victoria Nuland sides with the nazis. But Obama himself hasn’t yet played his hand.
- "Who's Allied With Whom?" Putin & The Saudi Caravan
Authored by Pepe Escobar, originally posted at SputnikNews.com,
No one – as usual – saw it coming.
So guess who walks into a room in St. Petersburg this past Thursday; Saudi Arabia’s Deputy Crown Prince – and Defense Minister – Muhammad bin Salman, favorite son of King Salman; Foreign Minister Adel al-Jubeir (former ambassador to the US and very close to key players in the Beltway); and all-powerful Oil Minister Ali al-Naimi. They were all there for a face-to-face with President Vladimir Putin, on the sidelines of the St. Petersburg Economic Forum.
In principle, there could not be a more spectacular game-changer-in-waiting. A royal Saudi caravan offering tribute, in the form of incense, gold and myrrh (or higher oil prices)? No one knows, yet, how this will play out in the New Great Game in Eurasia, of which a major spin-off is Cold War 2.0 between the US and Russia.
Putin and King Salman – very discreetly — had been in touch over the phone for weeks. The King’s son invited Putin to Riyadh. Accepted. Putin invited the King to Moscow. Accepted. No question, the suspense is already killing everybody. But is this real life? Or smoke and mirrors?
Who's allied with whom?
First of all, the crucial energy front. Putin is now discussing what was, so far, an oil price war but may become – and the operative concept is “maybe” – a “petroleum alliance” (in Naimi’s words), directly with the source: the House of Saud.
Assuming this entente cordiale will eventually lead to an oil price rise, Putin scores a major internal victory against what could be described as an Atlanticist Fifth Column trying to undermine Russia’s multipolar drive. Moreover, geoeconomically, it doesn’t hurt that Moscow is now able to add Saudi Arabia as a top purchaser of superior Russian defense systems.
Russian intelligence is fully aware that the House of Saud has been tremendously “disappointed” – and that’s a monster euphemism – with the self-described “Don’t Do Stupid Stuff” Obama administration, for a vast number of reasons, not least the concrete possibility of an Iran-P5+1 nuclear deal on June 30, which is code for Washington finally accepting to breach its own Wall of Mistrust against the Islamic Republic, built 36 years ago.
A highest-level meeting with the House of Saud, on top of it in Russia, ruffles infinite feathers in the Beltway. This won’t go unpunished – for both Moscow and Riyadh. After all, real Masters of the Universe – not their paperboys in different sectors of the US government — have been mulling for a while how to dump the House of Saud.
Russian intelligence also knows that in Washington, the House of Saud actually depends on the good favors of the Israeli lobby – and it’s all about demonizing Iran. And now an Iran nuclear deal – which will “normalize” Tehran with the West – could not provoke a more glowing red alert in an already vulnerable Riyadh.
Putin’s message to Iran is more sophisticated. Moscow has been very active working for a successful Iranian nuclear deal; so that invalidates the theory Moscow might be starting to play Riyadh to extract “concessions” from Tehran.
There are no “concessions”. Russia — and eventually Iran — will both provide energy to European markets. Not immediately, because the upgrading of Iranian infrastructure will take years and torrents of investment. But as soon as next year, a non-sanctioned Iran may be finally admitted to the Shanghai Cooperation Organization (SCO).
So Iran won’t be turning feverishly pro-West from one day to another – as much as some, non-neocon Beltway factions dream. Iran will be solidifying its regional power; engaging in normalized relations especially with Europeans; but most of all accelerating its Eurasian integration, which implies ever close relations with both Russia and China. Not to mention that in Syria, Iran and Russia are exactly on the same geopolitical page, which happens to be totally opposed to the House of Saud’s.
Putin’s move also carries the potential of isolating Qatar – which is indirectly, but very effectively, subsidizing al-Qaeda in Syria to facilitate its ultimate geoeconomic aim; a natural gas pipeline from South Pars through Saudi Arabia and Jordan to the Mediterranean coast.
The rival project happens to be the Iran-Iraq-Syria pipeline, which is now perennially threatened as a great deal of “Syraq” is under the vise grip of ISIS/ISIL/Daesh. Here, we see the fake Caliphate supporting Qatari designs, geoeconomically, and Saudi, geopolitically.
What is certain is that the top-level Saudi pilgrimage to St. Petersburg could not be more antithetical to (disgraced) Bandar Bush threatening Putin in August 2013 to unleash Chechen jihadis on Sochi if Moscow didn’t back off on Syria.
Who’s on message?
It's tempting to watch this fabulous unfolding drama as a subplot of the BRICS – mostly Russia and China – advancing in the Middle East, with Washington as the loser. It’s more like Putin playing Multipolar World, not Monopoly, and ensuring the Empire of Chaos will really have to sweat to keep its puppet/vassal blocs, such as the GCC, “on message.”
It remains to be seen, long-term, whether this is not a desperate Saudi play to extract “concessions” from its imperial protector. But assuming this is a real deal, Moscow retains the ability to match both Iran and Saudi Arabia’s interests, and ensure this concerted “pivoting to the Middle East” may turn out to be as spectacular as Russia’s “pivoting to Asia” and China’s New Silk Roads.There is no evidence so far to attest that the House of Saud has conclusively seen which way the wind is blowing, that is, towards the 21st century Silk Road Eurasian caravan, no matter any exceptionalist wishful thinking to the contrary.They are fearful; they are paranoid; they are vulnerable; and they need new “friends”. No one better than Putin – and Russian intelligence — to play the new groove in multiple ways. The House of Saud can hardly be trusted; see the latest, Wikileaks-released, Saudi cables. So this may turn out to be a geopolitical/geoeconomic bonanza. But it can also be a case of keeping your friends close, and your enemies closer.
- $140 Billion Bond Fund Goes To Cash As It "Braces For Bond-Market Collapse"
Recently, it’s become readily apparent that some of the world’s top money managers are getting concerned about what might happen when a mass exodus from bond funds collides head on with a completely illiquid secondary market for corporate credit.
Indeed, bond market illiquidity is the topic du jour and has almost become something of a cliche among pundits and mainstream financial media outlets years after we first raised the issue in these pages. But just because something has become fashionable to discuss doesn’t mean it’s not worth discussing and indeed, we’re at least pleased to see that the world is suddenly awake to the fact that a primary market supply bonanza catalyzed by rock-bottom borrowing costs and yield-starved investors could spell disaster when paired with shrinking dealer inventories.
For illustrative purposes, here’s a look at turnover in corporate credit…
Chart: Barclays
…and a snapshot of shrinking dealer inventories and ballooning bond funds…
Chart: Citi
…and finally, here’s UST market depth…
What all of these charts show is that whether you’re talking about corporate credit or “risk free” government debt, liquidity simply isn’t there and as was on full display last October, wild swings in illiquid markets will be exacerbated by the presence of parasitic HFTs.
Meanwhile, Treasury market participants are shifting to futures and corporate bond fund managers are using ETFs to offset “diversifiable” outflows, phenomena which prove investors are actively avoiding credit markets by resorting to derivatives, a practice which only serves to make the underlying markets still more illiquid.
Of course one way to mitigate risk is simply to move to cash (as we noted over the weekend, some managers are even moving to physical cash), a strategy TCW’s Jerry Cudzil is currently implementing in order to ensure he’s not one of the ones “looking silly” after the crash. Bloomberg has more:
TCW Group Inc. is taking the possibility of a bond-market selloff seriously.
So seriously that the Los Angeles-based money manager, which oversees almost $140 billion of U.S. debt, has been accumulating more and more cash in its credit funds, with the proportion rising to the highest since the 2008 crisis.
“We never realize what the tipping point is until after it happens,” said Jerry Cudzil, TCW Group’s head of U.S. credit trading. “We’re as defensive as we’ve been since pre-crisis.”
TCW isn’t alone: Bond funds are holding about 8 percent of their assets as cash-like securities, the highest proportion since at least 1999, according to FTN Financial, citing Investment Company Institute data.
Cudzil’s reasoning is that the Federal Reserve is moving toward its first interest-rate increase since 2006, and the end of record monetary stimulus will rattle the herds of investors who poured cash into risky debt to try and get some yield.
Of course, U.S. central bankers are aiming to gently wean markets and companies off zero interest-rate policies. In their ideal scenario, borrowing costs would rise slowly and steadily, debt investors would calmly absorb losses and corporate America would easily adjust to debt that’s a little less cheap amid an improving economy.
That outcome seems less and less likely to Cudzil, as volatility in the bond market climbs.
“If you distort markets for long periods of time and then you remove those distortions, you’re subject to unanticipated volatility,” said Cudzil, who traded high-yield bonds at Morgan Stanley and Deutsche Bank AG before joining TCW in 2012. He declined to specify the exact amount of cash he’s holding in the funds he runs.
Price swings will also likely be magnified by investors’ inability to quickly trade bonds, he said. New regulations have made it less profitable for banks to grease the wheels of markets that are traded over the counter and, as a result, they’re devoting fewer traders and money to the operations.
To boot, record-low yields have prompted investors to pile into the same types of risky investors — so it may be even more painful to get out with few potential buyers able to absorb mass selling.
“We think the market’s telling you to upgrade your portfolio,” Cudzil said. “Whether it happens tomorrow or in six months, do you want look silly before the market sells off or after?”
Well, preferably neither, but point taken and we would have to agree that if ever there were a time to take one’s money and run — before the realities of a dealer-less corporate credit market and/or an HTF-infested, VaR shock-prone government bond market conspire to prove, once and for all, that in today’s world, the idea that bonds are any safer than other asset classes is completely and utterly false — this is it.
- "What We Are Paying For Is 20 Years Of Blunder & Neglect"
Submitted by Simon Black via Sovereign Man blog,
In May 1940, a visibly concerned Winston Churchill traveled to Paris to survey the city’s defenses.
Nazi forces had already blasted past French units and were rolling easily through the Somme Valley towards Paris.
There wasn’t much time. And Churchill bluntly asked the commanders in his notoriously pitiful French, “Où est la masse de manoeuvre?”
“Where are your reserve forces?”
He later wrote in his memoirs that their response was one of the most shocking moments of his life. “Aucune,” replied the commander. “We have none.”
Hitler took Paris within a few weeks.
And on June 22, 1940, seventy-five years ago to the day, French diplomats signed a peace treaty making France a vassal state of Nazi Germany.
Maxime Weygand, France’s most esteemed general, remarked of the occasion, “What we are paying for is twenty years of blunder and neglect.”
Given the extraordinary risks in the system right now, these words may soon come to haunt us as well.
Seven years ago a global financial crisis was spawned from too much debt, artificially low interest rates, and a complete misperception of obvious risks (like loaning money to dead people…)
They ‘solved’ that problem with even more debt, lowering interest rates below zero, and continuing to ignore obvious risks (like buying stocks at all-time highs).
You don’t have to be a financial genius to see the absurdity in this logic.
Based on their own financial statements, most Western governments are completely insolvent, and most major central banks are close to insolvency.
They’ve already ratcheted interest rates down to zero (or below) and have racked up a mountain of debt.
There are effectively no tools left for governments and central banks to deal with another major crisis.
Like Paris in 1940, they have no Plan B. They’re completely defenseless to support the financial system or the currency in the event of a major shock.
We should all take a moment to appreciate this level of incompetence. This doesn’t happen overnight.
It takes decades of “blunder and neglect” to engineer financial vulnerability on this scale. But they’ve somehow managed to pull it off.
The only question is– how long until the next financial shock? Because it’s not a question of ‘if’, but ‘when’.
Note- this is not some sensationalist, fear-mongering assertion. Quite the opposite. I’m incredibly optimistic about the future (more on that in a moment). But calling a spade a spade is merely a statement of fact.
Bear in mind that financial crises, depressions, and recessions are all ‘normal’ parts of the business cycle… even when there’s not this level of risk in the system.
In the United States, in fact, the government calculates an average of 57 months between the end of one recession and the beginning of the next one.
So just looking at the government’s own historical averages, at a minimum, a recession is long overdue.
Given all the other major risks around the world (a Greek default, bond illiquidity, the Chinese stock market, etc.), something much more severe may be in store.
Today, an independent, freedom-minded person knows they can’t rely on the government to reduce the risks they face in the world.
Luckily, you don’t have to. Your government might not have a Plan B. But all the tools are out there to take care of yourself and your family.
Consider this: most of the Western financial system is extraordinarily overleveraged right now.
Banks are highly illiquid. Governments are insolvent. Debt has exploded. And yet bond liquidity is drying up at an astonishing rate.
If you are 100% invested in this system, your money is exposed to significant risk.
Greece, Iceland, Cyprus, etc. are modern testaments to how easily governments impose capital controls when the metaphor hits the fan.
Why leave yourself so vulnerable, when instead you can easily shift some of your savings to a stronger, healthier banking jurisdiction abroad?
Or you could jump ship on the corrupt paper financial system entirely by owning real assets held abroad (or digitally)– precious metals, private businesses, real estate, and even cryptocurrency.
Another smart option is to establish a second residency abroad.
This gives you the legal right to reside elsewhere, ensuring that you always have a place to go in case you ever decide leave in hurry.
With the Nazis at the gate in 1940, I imagine a lot of people in Paris probably wished they had planned better.
And in general, a major crisis can turn people’s lives upside down if they’re unprepared.
But I’m optimistic.
We’re in the beginning of a major system reset thanks to a massive technological revolution.
Just as the Agricultural Revolution and the Industrial Revolution fundamentally changed human civilization forever, so will the Digital Revolution.
It will change everything– from the financial system to the power of government to the way that societies are organized.
And this is seriously exciting. There will likely be a number of upcoming crises as the old system fades away and a new system takes its place.
But for those who are prepared and in a position of strength with a solid Plan B, this is truly a time of tremendous opportunity.
- Let Them Snort Coke… On The Subway
Caught on tape: “Peak” Banker (again)
Because in a world without consequences and wristslaps for bankers, at best, this happens…
Brings a whole new meaning to the term “blow”-ing bubbles.
- An American Biologist Sums Up Financial Markets Perfectly
Submitted by Tim Price via Sovereign man blog,
The great biologist E.O. Wilson once observed:
“The real problem of humanity is the following: we have paleolithic emotions; medieval institutions; and god-like technology. And it is terrifically dangerous, and it is now approaching a point of crisis overall.”
In few arenas are our mental shortcomings thrown into more stark relief than in the investment markets. Our brains evolved ‘fight or flight’ mechanisms to enable us to recognise potential predators in the wild. However, they have not yet had the evolutionary time to help us respond to threats – real or perceived – in the economy, bond or stock markets.
In recent weeks we’ve highlighted the aberrant price and yield volatility of longer dated German government bonds.
Since these instruments represent something close to the ‘risk-free’ rate for the euro zone, the fact that their prices are convulsing like someone in an electric chair hardly bodes well for future price stability across other capital markets.
It’s not fair just to blame Greece – how about the central banks that drove interest rates down to zero, effectively forcing investors into higher risk markets?
The markets cocktail of 2015 is a strong one, and whatever decision you ultimately make involves having to take a sip or two.
Bond prices are high (but we think unlikely to go meaningfully higher – there’s certainly insufficient value there for us).
Most stock market levels are high (but may easily go higher).
Currency volatility is high.
Commodity price volatility is high.
Even deciding to hoard cash is a decision to embrace an unusual level of risk these days – as Greece may confirm in due course.
* * *
Empires Rise, they peak, they decline, they collapse, this is the cycle of history.
This historical pattern has formed and is already underway in many parts of the world, including the United States.
Don’t be one of the millions of people who gets their savings, retirement, and investments wiped out.
- Russia Slams Extension Of European Sanctions; Pentagon Warns Of "Nuclear Saber-Rattling"
Over the past several months, tensions between Russia and the West have escalated meaningfully. While it’s certainly true that, since Crimea, US-Russia relations have deteriorated steadily (baskets of potatoes notwithstanding), recent events suggests the situation may come to a head more quickly than either side cares to admit.
Ukraine has seen its worst outbreak of violence since February’s ‘ceasefire’ this month, with both sides blaming the other for the intensification of hostilities. Meanwhile, the US has dusted off the Cold War playbook (although, ironically, Defense Secretary Ash Carter claims Washington’s stepped up “containment” efforts are part of a new, more modern strategy designed to help America avoid being pulled back into the Cold War), suggesting heavy weapons may be stored permanently in Eastern Europe to ensure NATO forces can deploy quickly in the face of Russian “aggression.” Last week, Belgium, Austria, and France froze Russian state assets in an attempt to enforce an effectively unenforceable ECHR decision stemming from the long-running Yukos debacle, while Germany, Norway, The Czech Republic, and The Netherlands rehearsed a Ukraine siege in Poland.
Today, Europe has extended economic sanctions against Moscow for another six months or, until the Kremlin agrees to abide by the terms of the Minsk agreement which Europe, on the word of Kiev, assumes Moscow is violating. The Washington Post has more:
The extension until Jan. 31 will keep the economic pressures in place through the deadline for implementing all parts of a cease-fire agreement to settle the conflict between Ukraine’s Western-allied government and pro-Moscow rebels.
Western leaders have repeatedly stated that Russia must support implementation of the cease-fire agreement before sanctions can start to be rolled back..
European and American sanctions have limited or banned the export of key technology to Russia’s defense and energy sectors, and have severely restricted financing for the Russian banking sector.
In turn, Russia has banned the import of almost all produce, meat, dairy and fish from the European Union and the United States. Both sides have composed blacklists of individuals subject to asset freezes and travel bans.
Extending the sanctions against Russia was seen as a vital move to keep pressure on Moscow to keep the cease-fire efforts intact — even as escalating clashes threaten in Ukraine threaten to unravel the truce hopes.
Until several weeks ago, it was unclear whether the E.U. would be able to muster the necessary unanimous support to keep the current sanctions regime going.
Moscow says the extension proves the West has no real interest in de-escalation:
“Even partial softening of the sanctions would have created a positive dynamic,” Alexei Pushkov, the head of the Russian Duma’s international relations committee, said to Interfax. “Even though the prolongation of the sanctions does not immediately sharply worsen the situation — it remains as it was — it creates a negative tone for at least another half a year in the relations between Russia and the European Union.”
A statement from Russia’s Foreign Ministry said it was “very disappointed” that the E.U. sided with the “Russophobic lobby, which push the decision to extend the illegal restrictions.”
“The Americans declare their interest in the provision of sovereignty and territorial integrity of Ukraine. But they have absolutely no interest in Ukraine. They are interested in Russia,” said Nikolai Patrushev, chair of the Russian Security Council and a close ally of Russian President Vladimir Putin, in an interview with Russian newspaper Kommersant published Monday.
“The United States wants Russia to cease to exist as a country,” Patrushev said in the interview, explaining that the United States wanted to keep Russia from using its “huge” resources how it sees fit.
(Putin and Medvedev on Monday)
Of course, as discussed in these pages at length, Russia still has considerable international pull thanks to its energy exports.
Last week, for instance, Gazprom inked a new deal with Shell (among others) to double the capacity of the Nord line which allows Russian gas to flow to Europe without passing through Ukraine.
(Nord line)
Additionally, Gazprom is now settling gas and oil exports to China in yuan, marking the two countries’ push to de-dollarize the global energy trade at a time when low oil prices are already threatening to drive the petrodollar system into extinction.
Against this backdrop, US Defense Secretary Ash Carter is in Europe drumming up military support and tossing around the nuclear war rhetoric. Here’s Reuters:
The United States and its allies won’t let Russia “drag us back to the past”, U.S. Defense Secretary Ash Carter said in an address in Berlin on Monday, as he accused Moscow of trying to re-create a Soviet-era sphere of influence.
Russia’s intervention in Ukraine has put NATO allies in eastern Europe on edge and triggered a series of military moves by the NATO alliance, including an acceleration of exercises and the creation of a NATO rapid response force.
Carter, who will view components of that NATO force later on Monday, said the alliance would keep the door open to an improved relationship with Russia but said flatly: “It’s up to the Kremlin to decide.”
“We do not seek a cold, let alone a hot war with Russia. We do not seek to make Russia an enemy,” Carter said.
“But make no mistake: we will defend our allies, the rules-based international order, and the positive future it affords us all.”
Carter said on Sunday the United States and NATO were preparing militarily for the prospect that their rift with Russia could even outlast President Vladimir Putin.
And more from Bloomberg:
Russia is “actively seeking to undermine NATO and erode the security and economic ties that bind us together,” U.S. Defense Secretary Ashton Carter says in speech in Berlin.
“Moscow’s nuclear saber-rattling raises questions about Russia’s commitment to strategic stability and the profound caution and respect world leaders in the nuclear age have shown toward the brandishing of nuclear weapons,” Carter says in prepared speech text.
U.S., EU sanctions against Russia over Ukraine conflict are “the best tool we have to confront Russia’s aggression,” Carter says.
Sanctions have been effective, have “increased the cost Russia is paying for its aggression,” Carter says.
U.S., NATO will take “necessary steps” to deter Russia’s “malign and destabilizing influence, coercion and aggression,” Carter says.
In sum, the US, the EU, and NATO are going to extend economic sanctions and persist with war games, snap drills, and weapons deployment until such a time as Russia backs out of Ukraine altogether, something which seems unlikely at best. So, unless the US is willing to concede to Russia effectively redrawing the Russian border with Ukraine, one has to wonder how long it will be before the new Cold War turns hot.
- Minimum-Wage-Raising, Mysterious-Store-Shutting Wal-Mart Removes All Confederate Flag Merchandise From Stores
In the latest populist act of America’s largest retailer, minimum-wage-raising, mysterious store-closing Wal-Mart has decided to remove all Confederate Flag merchandise from its stores. Apparently it will continue to stock handguns, rifles, crossbows, ammunition, and other land-of-the-free-to-choose merchandise.
Walmart, the country’s largest retailer, will remove all Confederate flag merchandise from its stores, the company told CNN Monday.
The announcement is the latest indication that the flag, a symbol of the slave-holding South, has become toxic in the aftermath of a shooting last week at a historic African-American church in Charleston, South Carolina. Gov. Nikki Haley announced in a Monday afternoon news conference that she supports removing the Confederate flag from the state capitol grounds.
Walmart.com currently carries the Confederate flag as well as attire featuring the flag’s design, such as T-shirts and belt buckles.
“We never want to offend anyone with the products that we offer. We have taken steps to remove all items promoting the confederate flag from our assortment — whether in our stores or on our web site,” said Walmart spokesman Brian Nick. “We have a process in place to help lead us to the right decisions when it comes to the merchandise we sell. Still, at times, items make their way into our assortment improperly — this is one of those instances.”
Walmart’s statement came in response to a CNN inquiry Monday. In addition to Walmart, CNN asked Amazon and eBay whether they would remove Confederate flag merchandise from their sites. Neither company responded to repeated requests for comment.
The long-running debate over displaying the Confederate flag on government buildings took a swift turn after last week’s massacre in Charleston, which left nine African-Americans dead in their church. The shooter, 21-year-old Dylann Roof, has confessed to the murders and has said he wanted to instigate a “race war.”
One widely circulated photo of the shooter holding a gun and a Confederate flag has stirred intense outrage. Critics of the flag quickly called on South Carolina to take down what is widely viewed as a symbol of racism.
* * *
One quick question… what happens if the next gunman/terrorist/shooter/nutjob is carrying an American Flag?
- The NAR Sees "No Housing Bubble", So Here Is A Look At NAR's History Of Absolutely Disastrous Forecasts
When it comes to industry associations such as the homebuilders’ National Association of Realtors, one thing is certain: their chief economists, in this case the always wrong Lawrence “Larry” Yun, never see anything but blue skies ahead… even when the second great depression is starting them in the face.
Which is logical: after all forecasting anything but a chart from the lower left to the upper right for a person tasked with selling houses (which is what the NAR ultimately does) is the same as Goldman issuing “sell” recommendations on all its stocks, starting a market crash, and alienating all of its corporate clients. It is also why all NAR recommendations are utter garbage and why in 2011 the NAR admitted it had artificially inflated its housing metrics by 14% for the 2007-2010 period.
Unfortunately, these individuals also never learn from their mistake, and today was a perfect example: as part of its improving housing market propaganda, which incidentally is now carried almost entirely on the back of Chinese investors parking the PBOC’s hot money in US real estate, and who just surpassed Canadians as the largest foreign buyers of homes in the US…
… the inimitable Larry Yun made a repeat CNBC appearance (we wonder where his August 2008 CNBC interview with Diana Olick disappeared to which he patiently explained that there is no better time to buy houses just weeks before housing suffered its biggest collapse since the Great Depression) in which he pronounced “that 2015’s annual price could exceed the 2006 peak. Then he made another bold claim: “This is clearly not a bubble.“
“Yun defines a “bubble” as home sales and prices rising at an unsustainable pace, not supported by economic fundamentals, such as steady job growth, and/or sales and prices driven by lax underwriting. Mortgage credit availability is now far tighter than it was during the housing boom, when anyone with a pulse could get essentially free money. Fundamentals, however, are another story.”
CNBC adds: “The year 2006 saw both sales and price bubbles. That is not the case today.“
Terrific: surely Lawrence “Larry” Yun, an expert on things to come, foresaw that bubble and warned homebuyers to stay away from housing in 2006.
Since things tend to stick on the internet, we can go to the primary source: here is the NAR’s December 2005 forecast about the state of housing in 2006. Enter Larry Yun and what surely will be his dire warning of an imminent bubble in both “sales and price” right? Wrong. To wit:
With the fundamentals in the housing marketplace still solidly in place, it is likely that housing activity will only moderate in 2006 rather than experience a sharp decline. With demand for property continuing to remain strong due to favorable demographic and population trends, there will continue to be some upward pressure on home values…. the much anticipated home price appreciation is expected to decelerate back into single-digit territory, registering 6.1 percent and 7.3 percent for existing and new home prices, respectively. Although it is difficult to follow the strongest year ever, housing in 2006 will not disappoint. At year-end, 2006 is expected to post the second highest home sales on record.
The above forecast was enough to win the NAR’s Larry Yun an entry in Bloomberg’s worst predictions of 2006:
PREDICTION: The national median home price will rise about 6.1% in 2006. Over a full year, it “has never declined since good record-keeping began in 1968.” — National Association of Realtors, Dec. 12, 2005
THE REALITY: Through October, the median price of residential properties was down 3.5% from a year earlier
Wait, didn’t CNBC just say that in 2006 there was a clear bubble? Why did Larry Yun not warn us about this, instead of predicting a 6.1% increase in home prices?
But that is nothing compared to what was about to be unleashed.
Fast forward one year when in December 2006 we again read Larry Yun’s forecast for housing in 2007:
Fortunately though, that same compression means a lower base with which to compare in 2007. By the late spring of 2007, the media will likely begin reporting positive “uplifting” trends. Statistical momentum says that will inevitably happen…. Some smarter buyers will see the herd of impending buyers over the horizon and will want to get a jump start. The stock market also is agreeing that the worst of the housing slowdown is over.
So, we can all feel good that the year is over. Housing has weathered the storm, and down the road, it will be back to health.
In other words, the worst is behind us, the NAR’s Larry Yun says. Here is the truth one year later from the USA Today:
Home sales plummeted 13% in 2007
The most severe real estate recession in a generation sent sales of existing homes plunging 13% last year — the steepest annual dive in 25 years — and the median U.S. home price fell, probably for the first year since the Great Depression, the National Association of Realtors said Thursday.
The 2008 outlook remains equally grim, though many experts expect the housing market to bottom out by the middle or end of the year.
Sales could fall a further 13% this year, says Doug Duncan, chief economist of the Mortgage Bankers Association — and even more if the overall economy falls into recession. He puts those odds at 50-50. “It’s going to be an intense and turbulent year,” says Steve O’Connor, the MBA’s senior vice president.
Odd, it is almost as if the situation got far, far worse, and still no warnings from Larry Yun.
But wait, there is more. Much, much, much more.
Because as the US housing market was clearing plunging into a depression from which it still hasn’t emerged 8 years later, surely at least then Larry Yun would warn anyone who was dumb enough to listen to him, to realize that the housing bubble has burst.
Nope.
Luckily courtesy of the Lawrence Yun Watch blog we have a detailed chronicle of the NAR’s chief “economist” every public utterance of stupidity starting in 2007. Which there are countless examples of.
Let’s begin:
May 2007: NAR presentation: “Price Correction – ending?”
US market ‘sluggish’ but upturn expected
NAR expects es should experience ‘a gradual upturn’ later in the year, the National Association of Realtors has forecast.
‘Overall housing levels are historically strong, but sales remain sluggish compared to the recent boom’, NAR senior economist Lawrence Yun explained. ‘Home sales will probably fluctuate in a narrow range in the short run, but gradually trend upward with improving activity by the end of the year. It’s important to keep in mind that all real estate is local, and many markets are expected to have higher sales and strengthening prices during the second half of this year’.
Psychological factors blamed
NAR senior economist Lawrence Yun said, ‘I think psychological factors are currently the biggest drag on the housing market.’ While subprime problems are still a ‘headwind,’ he said. Yun said buyers are simply waiting to step forward and make purchases. He’s found that household formation has slowed dramatically since late 2006, something rarely seen outside of a recession.
“The market is underperforming when you consider positive fundamentals such as the strength of job creation, economic growth, favorable mortgage interest rates and flat home prices,” Yun said
* * *
Here Larry Yun talking to Diana Olick again:
Lawrence Yun, NAR senior economist, said the market softness is understandable. “I think psychological factors are currently the biggest drag on the housing market, in addition to a disruption from tighter credit for subprime borrowers,” he said. “Household formation has slowed dramatically since late 2006, implying that many people are doubling-up – they’re adding roommates or moving in with parents.
“We are encouraged that home prices, at least for now, have stopped declining,” said Lawrence Yun, senior economist at NAR. “If they were to drop much larger than that, it could tip the economy into recession.” The association has predicted that existing home sales will fall by 1 to 2 percent in 2007.
The Wrong Correction
The media aren’t making the distinction between what’s happening to you and what’s happening to consumers. But you can make that distinction for your customers.
Consumers are hearing a lot in the media about the correction in housing, and they’re understandably concerned about whether now is a good time to get into the housing market.
This hesitancy is evident in home sales volume: Even though interest rates fell to 6.2 percent in early 2007 from 6.8 percent in August 2006, and the economy added 3.5 million new jobs, existing-home sales were down 8.5 percent in 2006, with further softening expected in 2007.
The irony, of course, is that although declines in sales volume have hurt real estate practitioners, they may be a plus for consumers. To a great extent, we can thank steady media coverage of the real estate market “correction” for unfounded consumer concerns.
Pending home sales fell in July to lowest level since 2001
Pending sales of existing homes fell in July to the lowest level in nearly six years as borrowers struggled to finalize home purchases, particularly in expensive areas. July’s reading of 89.9 was the second-lowest ever for the index and its lowest since September 2001, when the economy was jolted by the terrorist attacks.
Lawrence Yun, the Realtors trade group’s senior economist, called the problems “temporary,” and related to jumbo home loans above $417,000 that can’t be packaged into securities sold to investors by government-sponsored mortgage giants Fannie Mae and Freddie Mac.
Realtors Group Revises Home Sales Forecast
“The speculative excesses have been removed from the market and home sales are returning to fundamentally healthy levels, while prices remain near record highs, reflecting favorable mortgage rates and positive job gains,” Yun said.
October 24, 2007, Further distortions of reality:
National Prices Drop 4.2 Percent, Rise in Some Areas
“Because there were fewer transactions at the upper end of the market, there is a downward distortion reflected in a lower national median home price,” Yun says. “Home prices continue to trend up in the Northeast and in the condo sector. In other areas not dependent on jumbo loans, such as much of the Midwest, prices are rising.”
Larry Yun promoted to Chief Economist of the NAR
The National Association of Realtors® today named Lawrence Yun chief economist and senior vice president of research. Yun has served at NAR since 2000, most recently as vice president and senior economist.
“Lawrence is a talented economist and an outstanding forecaster who has contributed greatly to NAR’s growth and prestige as the leading advocate for the housing industry,” said Dale Stinton, NAR executive vice president and chief executive officer. “We are proud to have a man of Lawrence’s integrity and honor.
“He is a no-nonsense and level-headed analyst of the housing market who calls the data as he sees it, and has guided NAR with skill as chief spokesman for the past several months in a competitive real estate market. We have great faith and trust that Lawrence’s tenure will be a stellar one that will enhance NAR’s reputation as the most reliable and credible source of real estate research.”
Housing market at the bottom, realtors say
“The market for existing homes is “hitting the low right now” and heading for a “modest recovery” next year, the chief economist for the National Association of Realtors said at the group’s annual convention here Tuesday.
The number of sales will rise to 5.69 million next year, Yun said. But the housing recovery will be very uneven, with some markets bouncing back more quickly than others, Yun predicted.”
* * *
And cue 2008, the year everything just imploded:
Stable Existing-Home Sales Expected in Early 2008, then Gradual Rise
“‘The exact timing and the strength of a home sales recovery is a bit uncertain,’ Lawrence Yun, the group’s chief economist, said in a statement. ‘A meaningful recovery in existing-home sales could occur as early as this spring, or it may be further delayed toward late 2008.’
Worst is behind
While Yun was mostly positive on Denver’s outlook, the issue of foreclosures remains. With about a 1.8 percent foreclosure rate, Denver is keeping pace with the national average, according to Yun. Michigan, Indiana and Ohio are faring worse, with foreclosure rates above 3 percent.
The subprime-mortgage crisis already is a thing of the past and should not affect the housing market going forward, Yun said.
Economist: Housing slump overblown
Talk of a pending recession spurred by a housing slump is greatly exaggerated by national media and could spur a self-fulfilling prophecy as the negative news is emphasized, the chief economist for the National Association of Realtors told local real estate agents today. “Paraphrasing Franklin Delano Roosevelt, what I fear is fear itself,” Lawrence Yun said at the Greater Rochester Association of Realtors 2008 Real Estate Trends and Issues luncheon today at the Hyatt Regency Hotel.
Yun told the audience that the national news outlets tend to cherry pick data and expert interviews to perpetuate the story that the economy is heading into recession as housing prices fall and foreclosure rates rise.
“If the news organizations have an agenda, they will call somebody and they’ll get the information they want,” he said.
He said short-term losses have actually brought the markets back to healthy levels, which is often ignored in the national storyline. They give more play to economic experts who support those stories, he said.
February 19, 2008 – revisionist history
It is also fine for people to point the finger at me. In a fast changing market conditions, I too have been off on my forecast. I knew that the boom was clearly unsustainable and I made the forecast in early 2007 that home prices were likely to experience a price decline on a national level for the first time since the Great Depression. The national median home price indeed fell by 1.4%. I believe I downgraded my forecast for ten or so straight months in 2007 as it was strongly pointed out to me. At the same time, the Blue Chip consensus forecast, comprised of about top 50 private forecasters, including forecasts by Merrill Lynch, Goldman Sachs, UCLA, and the like — had also downgraded the housing forecast by more than 20 straight months. Forecasting is never perfect. Forecasts are bound to be off but the forecaster’s job is to make the best prognosis given the available information at the time. The readers should always view any forecast with caveat emptor.
Existing home sales slip and prices tumble
The NAR’s chief economist, Lawrence Yun, said the market is “scratching the bottom,” with sales holding at a deflated rate of around 5 million units for the past several months.
March 18, 2008, USA Today names Larry Yun its fifth top economic forecaster, Yun predicts “No” recession in 2008
Yun was named NAR’s chief economist and senior vice president of research in November 2007. He has been with the association since 2000, previously serving as vice president and senior economist. He pioneered the development of the Commercial Leading Index after helping develop the residential Pending Home Sales Index.
“I’m honored to be recognized among some of the best economists in the country,” said Yun. “The economy and housing industry are facing many challenging issues at this time, which makes this an interesting and stimulating position.”
USA Today enlisted the help of the Federal Reserve Bank of Atlanta to determine the most accurate forecasters among the economists surveyed in the newspaper’s quarterly survey on the U.S. economy.
April 9, 2008: Larry Yun doing what he does best: pitching houses.
Silver lining? Prices falling sharply
When it comes to housing, the optimists are those who see the near free fall in home prices as encouraging: It may at least shorten the economic agony.
“Because the prices are going down so fast, we’ll be hitting the stabilization point sooner,” said Lawrence Yun, chief economist at the National Assn. of Realtors.
June 17, 2008: Larry Yun predicts 99% of market will have higher values in 5-years than today.
July 24, 2008, and here
Pent up demand
“There are signs of pent up demand,” Yun said during the press conference. “People are very hesitant to enter the market because of price declines.” A stabilization in prices would bring first-time buyers into the market, allowing current owners to move up in the market, he said.
* * *
“I think we are very near to the end of the housing downturn,” Yun said.
September 20, 2008: winter’s fault, all the way back then:
Yun also said that he expects the worst of the housing slowdown is over, or nearly so. “The winter months are always weaker,” he said. “But this winter wil be better than last winter. There is a great pent-up demand that cannot be held back any further.”
October 8, 2008, 1 month after Lehman, Yun suddenly expects a recession 5 months after telling USA Today the opposite
Yun now expects growth in the U.S. gross domestic product (GDP) to contract for two consecutive quarters, in the fourth quarter of this year and the first quarter of 2009, before expanding in latter part of 2009 as the housing market begins a steady improvement.
And then, in February 2009, after years of constantly wrong forecasts, and predictions that cost millions of homeowners billions in losses, Yun says he will take full responsibility for his stream of constant errors:
National Association of Realtors Chief Economist Lawrence Yun said in Orange County this morning that his bosses at the real estate brokers’ trade group never pressured him to spin forecasts in a positive light, something his predecessor said happened when the housing boom began to falter a few years back.
“Whatever I say, I take full responsibility for everything I do,” Yun said moments before addressing more than 200 people at the Orange County Association of Realtors headquarters in Laguna Hills.
And thus, having taken full responsibility for his actions does Yun resign? Of course not.
So in case it is still confusing, here is a visual summary of his forecasts:
* * *
And with all that said, let’s go back to today’s CNBC article, coming some 6 years after Yun said we would take full responsibility. So what does he do? Why goes back to square one: peddling more lies, more propaganda, and more disinformation:
Soaring home prices not a ‘bubble’: Realtors
The median price of a home sold in May of this year was $228,700, according to the National Association of Realtors (NAR). That was just off the highest monthly median home price ever of $230,400 in July 2006, at the peak of the last housing boom.
It was also high enough for NAR’s chief economist, Lawrence Yun, to pronounce that 2015’s annual price could exceed the 2006 peak.
Then he made another bold claim: “This is clearly not a bubble.”
And scene.
- The Euro "Young Adults Living With Their Parents" Zone
A 'region' divided… because nothing says 'recovery' like 45-55% of young peripheral European adults (25-34 year olds!!) living with their parents.
h/t @AmazingMaps
And it's not just Europe – as we noted previously…
As hopes (of better jobs and higher incomes driving the young adult to their first home purchase) are dashed on the shores of Fed-driven asset-inflation and utter unaffordability.
- 12 Signs That The United States And China Are Moving Toward War
Submitted by Michael Snyder via The End of The American Dream blog,
If the United States and China are supposed to be such “great friends”, why are both sides acting as if war is in our future? Thanks to events in the South China Sea and the blatant theft of the personal information of millions of U.S. government workers, tensions between the United States and China are the highest that they have been in decades.
Most Americans typically assume that a real, actual shooting war between the U.S. and China could never possibly happen, but as you will see below the Chinese are actually spending a lot of time and money preparing for precisely such a conflict. In fact, the Chinese are working feverishly to develop new offensive weapons systems that would only be used in such a war. Of course it is extremely unlikely that a military conflict between our two nations will happen in our immediate future, but without a doubt we are moving in that direction. And this is how wars typically happen – things build up over a period of time before they finally reach a breaking point.
Just think about what took place between the United States and Japan in the lead up to our war with them. There were years of diplomatic troubles before Japan finally made the decision to launch a “surprise” attack on Pearl Harbor. Right now, I believe that we are moving into a similar period of diplomatic trouble with China. Initially, this will likely affect our trade relationship with the Chinese, but ultimately it could be much more than that. The following are 10 signs that the United States and China are moving toward war…
#1 China’s moves in the South China Sea have greatly angered Obama administration officials. Some of the islands that China has grabbed are also claimed by Malaysia, Vietnam, Taiwan, Brunei and the Philippines. The United States is bound by treaty to defend the Philippines in any conflict with China, and Brunei, Malaysia and Vietnam are all slated to be parties to the new super secret global trade treaty that Obama is currently negotiating. The following comes from Business Insider…
China’s reclamation of more than 2,000 acres of land on disputed islands and atolls in the South China Sea since last year has raised international alarm over its territorial ambitions. Washington took the unusual step last month of publicizing a U.S. military surveillance flight that showed the massive scale of China’s island-building.
China says the islands are its sovereign territory, but Washington argues that the continuation of building work and militarization of the islands could enflame complex territorial disputes with China’s neighbors, with whom the U.S. is seeking to forge closer ties while preserving freedom of navigation in sea lanes crucial for world trade.
#2 In China, there is talk that a war may be necessary to defend China’s interests in the South China Sea. In fact, a newspaper that is a mouthpiece for the Communist Party actually stated that war with the United States “is inevitable” if the U.S. continues to insist that the Chinese must halt activities on those islands…
Coinciding with the publication of the white paper, an editorial in The Global Times – a tabloid newspaper mouthpiece for the ruling Communist Party – issued a warning to the US to halt its protests over the South China Sea.
Last week, China’s foreign ministry revealed it had lodged a complaint with the US over an American spy plane that flew over parts of the disputed archipelago.
The article read: “We do not want a military conflict with the United States, but if it were to come, we have to accept it.”
It added that China should “carefully prepare” for the possibility of war with Washington and that “if the United States’ bottom line is that China is to halt activities, then a US-China war is inevitable in the South China Sea”.
#3 The theft of the information of up to 14 million federal workers is being described as “an act of war“. At this point, the Obama administration appears convinced that this horrible act was committed by the Chinese government…
Cybersecurity is another source of acrimony that’s up for discussion, given fresh urgency by the massive security breach that led to the theft of personal information of as many as 14 million current and former U.S. federal employees. The Obama administration believes that China’s government, not criminal hackers, was responsible for the breach that included detailed background information on military and intelligence personnel.
China has denied involvement in the break-in and says it is also a victim of cyberattacks.
So was China behind this theft?
Perhaps we will never know for sure, but without a doubt this incident has raised tensions between the two nations.
And as tensions continue to increase, it is likely that the cyber espionage being committed by both sides will only get worse. Ian Bremmer, the founder of Eurasia Group, recently told Business Insider that he believes that a “virtual war” between our countries has already begun…
“We should be very clear: China is at virtual war with the United States, and the threat is far higher than that of terrorism, which gets the lion’s share of attention — and, in the post-9/11 world, funding.”
#4 China recently conducted a series of massive military exercises that simulated an attack against Taiwan. Since the U.S. is committed to protecting Taiwan, a real conflict of this nature would almost certainly involve the United States. The following comes from an article that was posted on janes.com…
In a new analysis by Richard Fisher and James Hardy, IHS Jane’s reports that “A series of Chinese military exercises between late May and early June showcased the ability of the People’s Liberation Army (PLA) to project land, air, and naval power into the area around Taiwan.”
The exercises demonstrated the People’s Liberation Army’s plan to use civilian ships during emergencies to help boost its forces.
“To compensate for the relatively small size of its formal naval amphibious transport fleet the PLA has co-funded construction of a large number of ferries used by civilian companies. They will be made available to the PLA during emergencies and are a frequent element in civil-military transport exercises,” Fisher and Hardy write.
#5 According to Paul Joseph Watson, thousands of Chinese merchant ships are being retrofitted for military purposes. The only possible conflict in which the Chinese military would need “thousands of merchant ships” would be a war with the United States…
China is set to retrofit thousands of merchant ships for military purposes so they can be used in the event of a war, another disturbing indication of growing tensions between Beijing and Washington.
Shipping industry publication TradeWinds reveals that China is preparing a new fleet of “war-ready ships” to serve as “a reserve military logistics wing” in the event of a naval conflict.
The new policy will apply to “containerships, ro-ros, multipurpose ships, bulkers and other ships,” with shipbuilders receiving a government subsidy to pay for the cost of making the vessels “militarily useful.”
#6 The Chinese have developed a “carrier killer” missile which was specifically designed to destroy U.S. aircraft carriers. There are some that have suggested that these new missiles may have made U.S. aircraft carriers obsolete…
Nevertheless, some have suggested that the DF-21D has rendered the supercarrier obsolete. While it depends on how we use the term “obsolete,” it’s probably too early to make that claim. China has expended vast time and resources determining how to kill US carriers, which suggests that the Chinese military takes carrier capabilities seriously. Moreover, the number of countries with both the interest and technical capability to develop the system of systems necessary to operate an ASBM is probably limited to two for the foreseeable future, with only Russia joining China.
#7 The Chinese now have the capability of equipping their nuclear missiles with MIRV warheads. According to Bill Gertz, this has significantly equalized the balance of power between the U.S. and China…
China carried out a long-range missile flight test on Saturday using multiple, independently targetable reentry vehicles, or MIRVs, according to U.S. defense officials.
The flight test Saturday of a new DF-41 missile, China’s longest-range intercontinental ballistic missile, marks the first test of multiple warhead capabilities for China, officials told the Washington Free Beacon.
China has been known to be developing multiple-warhead technology, which it obtained from the United States illegally in the 1990s.
However, the Dec. 13 DF-41 flight test, using an unknown number of inert maneuvering warheads, is being viewed by U.S. intelligence agencies as a significant advance for China’s strategic nuclear forces and part of a build-up that is likely to affect the strategic balance of forces.
#8 Of much greater concern than the MIRV warheads are the new hypersonic glide vehicles that China has developed. These ultra-high-speed missiles are capable of carrying nuclear warheads and represent a huge threat to the United States…
China recently conducted the second flight test of a new, ultra-high-speed missile that is part of what analysts say is Beijing’s global system of attack weapons capable of striking the United States with nuclear warheads.
The latest test of the new hypersonic glide vehicle (HGV) known as Wu-14 took place Aug. 7 at a missile facility in western China, said U.S. government officials familiar with details of the test reported in internal channels.
#9 The Chinese Navy is building a series of extremely quiet ballistic missile submarines. These subs could potentially creep up to our coastlines and rain nuclear missiles down on us within just a few minutes. The following comes from an article by Bill Gertz…
The Chinese Navy has deployed three ballistic missile submarines at sea capable of striking the United States with nuclear missiles, the commander of the U.S. Northern Command said Tuesday.
Adm. William Gortney, the commander, said the submarines are a “concern” and will be able to strike the United States when fully deployed with missiles and warheads.
The missile submarines are deployed in the South China Sea at a base on Hainan Island, according to a defense official.
#10 The Chinese have developed submarine-based nuclear missiles that could potentially reach all 50 states from the waters of Hawaii…
China could soon target the United States with sea-based nuclear weapons as it is reinforcing its submarines with long-range nuclear ballistic missiles, a US congressional report has found.
China’s military is set to acquire a reliable, hard-to-destroy sea-based nuclear deterrent, with a dozen JL-2 missiles that are being mounted on its JIN class submarines, according to a report submitted to Congress by the US-China Economic and Security Review Commission.
The missiles have a strike range of around 7,350 km, meaning they can reach all 50 US states if they are launched from waters west or east of Hawaii.
#11 At a time when the U.S. military is actually shrinking, Chinese military spending is increasing each year by double digits…
China’s government in March announced a 12.2 percent increase in military spending to $132 billion. That followed last year’s 10.7 percent increase to $114 billion, giving China the second-highest defense budget for any nation behind the U.S., which spent $600.4 billion on its military last year.
#12 The Chinese military is not the only one preparing for a war between our two nations. It turns out that the U.S. military has been conducting military exercises that are specifically geared toward simulating a conflict with China. The following comes from the BBC…
Watching the US Navy close up like this, it is hard not to be slightly awed. No other navy in the world has quite the same toys, or shows them off with the same easy charm.
But as I stand on the deck filming my report on how “the US is practising for war with China”, I can see my host from the Navy public affairs office wincing.
You get used to hearing the PR rhetoric: the US Navy “is not practising for war with any specific country”. But the US Navy has not assembled two whole carrier battle groups and 200 aircraft off the coast of Guam for a jolly, either. This is about practising what the Pentagon now calls “Air Sea Battle”.
It is a concept first put forward in 2009, and it is specifically designed to counter the rising threat from China.
Like I said, a war between the United States and China is not going to happen in our immediate future.
But it would be a grave mistake to assume that it could never happen.
Over in China, their military operates under the assumption that a war between the two superpowers will definitely take place at some point, and the Chinese are working feverishly to figure out ways that they can come out on top in such a conflict.
Yes, the Chinese have become exceedingly wealthy selling us goods. In the process, we have lost thousands of businesses, millions of jobs and we now owe the Chinese more than a trillion dollars. The Chinese never intended to have a balanced and fair trading relationship with us, because it has always been their plan to emerge as the sole, dominant superpower on the entire planet.
Once our debt-fueled economy collapses, the Chinese won’t have too much use for us anymore. Instead, we will just be a barrier in the way of their goal of total global domination.
If you don’t think that the Chinese view us in this manner, just read some of the white papers produced by the Chinese government and the Chinese military. They do not consider us to be a “friend” at all. Rather, they consider us to be an enemy that must ultimately be vanquished.
Sadly, most Americans seem to assume that the global community is just one big, happy family these days.
In the end, we will likely pay a very great price for being so naive.
- In These 13 States, Employment Has Still Not Recovered From The Recession
As regular readers are no doubt aware, we have cast an incredulous eye towards the supposedly “robust” US labor market.
In addition to lackluster wage growth for 83% of America’s workforce, we’ve also highlighted the tumbling labor force participation rate, on the way to contrasting the record number of people not in the labor force with an official unemployment figure that would seem to indicate almost no slack in the market.
To explain this apparent paradox, we documented the story of America’s vanishing worker, noting that the reason America’s labor metrics have devolved to such a Schrodingerian state in which the US labor market is both alive and dead, depending on whose propaganda one observes, is that many (former) employees have been forced to move away, retire or give up on finding a job. As a result, the unemployment rate has fallen even as the jobless are no closer to being able to provide for their families.
Whatever one wishes to believe about the veracity of BLS statistics, one thing is certain: For some US states, the ill effects of the crisis on employment still linger some seven years later.
As the following map shows, 13 states are still struggling to regain pre-crisis employment levels:
- "Greece Is Rescued" Euphoria Fades After Europe's Close, Nasdaq Record Highs
It's that time again….
Hope triumphed over experience (and facts) as a slow leak turned into panic buying athe European open and then again after decent housing data and the US Open… weakness hit the moment Europe closed…
Cash equity indices opened gap up, rallied into the EU close… Nasdaq record high close
Then drifted weaker into the close… (performance from EU close)…
Despite US equity weakness and EUR retracement, Greek stocks held gains after the European close…
Perhaps Taylor Swift should cost AAPL millions more often…
From The FOMC, long bonds are now red, stocks nicely green and Gold holding small gains…
Treasuries and Stocks were sold instantly the moment Europe closed…
G481
Leaving Treasury yields up 8-10bps on the day (with a notable 2s30s steepening)… 2nd worst day for Treasuries in almost 4 months…
EURUSD roundtripped to weaker… (anyone else notice the far greater instant selling pressure than buying pressure… almost as if someone wanted to ensure EURUSD stayed lower and was not contagiously dragged higher)
But broad-based major selling sent USD 0.35% higher on the day (as Swissy dumped)…
Gold was monkey-hammered (because Greece is now entirely fixed and there is no more risk) but the rest of the commodity complex clung to gains (with a meltup in Crude into the close…)
And as if by magic, WTI closed at $60.01 as the July Futures contract expired with a perfectly human ramp…
Across the asset classes…
European VIX collapsed 18% – the most since oct 2014…
Charts: Bloomberg
- Greece Capitulates: Tsipras Crosses "Red Line", Will Accept Bailout Extension
We’ve long said that negotiations between Greece and its creditors are more a matter of politics than they are a matter of economics or finance.
From the troika’s perspective, breaking Greece and forcing PM Alexis Tsipras to concede to pension cuts and a VAT hike is paramount, and not necessarily because anyone believes these measures will put the perpetually indebted periphery country on a sustainable fiscal path, but because of the message such concessions would send to Syriza sympathizers in Spain and Portugal. In short, the troika cannot set a precedent of allowing debtor nations to obtain austerity concessions by threatening to expose the euro as dissoluble.
On the Greek side of the table, Tsipras must convince Syriza party hardliners that concessions are preferable to Grexit and the economic malaise that would come with redenomination. For some on the Left Platform, compromising the party’s electoral mandate is simply not an option and it’s these lawmakers (who just two weeks ago voted to leave the euro and default) that Tsipras will need to sway or else attempt to push an unpopular agreement through parliament a gambit which implicitly assumes that the ensuing political upheaval and voter backlash is preferable to economic collapse. The problem with the latter approach is that it effectively means the troika will have succeeded in using financial leverage to subvert the democratic process, an eventuality that die hard Syriza hardliners are in no mood to suffer.
After one final attempt to table a proposal that retains some semblance of Tsipras’ defiant posturing, it appears he may have finally broken after a meeting with ECB chief Mario Draghi where is sounds as though the central bank warned the PM that without concessions, ELA to Greek banks would be cut off and that, of course, would mean game over as Greeks would take to the streets en masse. From Bloomberg:
European Central Bank President Mario Draghi told Greek Prime Minister Alexis Tsipras in meeting on Monday in Brussels that the ECB will help secure the country’s banking system as long Greece is in an aid program, Greek government official tells reporters on the condition of anonymity.
And shortly thereafter (via AFP):
Greece has accepted the principle of extending its current bailout programme which expires at the end of the month so as to keep it afloat while a long-term debt solution is worked out, Greek government sources said Monday.
“For the first time, we accept the extension of the programme as the only way forward,” one source said as eurozone leaders discussed Greece’s future in the single currency ahead of the June 30 end of its current aid programme.
And so, we turn to politics or, more appropriately, Greek politics because the fate of Greece now looks to rest in the hands of Syriza’s far left factions. Dow Jones has more:
To avert a default and possible exit from the eurozone, Greek Prime Minister Alexis Tsipras must sell Germany’s chancellor, Angela Merkel, on his plan to fix Greece’s finances.
Then he needs to persuade Vassilis Chatzilamprou.
But out at the Resistance Festival, an annual gathering of Greece’s far left, the lawmaker from Mr. Tsipras’s left- wing Syriza party said he was in no mood for submission.
“We cannot accept strict, recessionary measures,” Mr. Chatzilamprou warned. It was after midnight Sunday, and the weekend festival was winding down. “People have now reached their limits.”
Syriza isn’t a traditional party but a coalition of left-wing groups with an intricate family tree formed out of doctrinal splinters and squabbles. It is those many, disparate factions that Mr. Tsipras must also satisfy with any potential bailout agreement with Greece’s creditors.
Mr. Chatzilamprou, for instance, is a member of the Communist Organization of Greece, which is an outgrowth of the Organization of Marxist-Leninists of Greece. It is distinct from the Communist Tendency, which has a Trotskyite bent. (Neither should be confused with the Communist Party of Greece, which is outside Syrzia.)
That unusual composition has made it especially hard for Mr. Tspiras to strike a deal with eurozone and International Monetary Fund officials. “The people who are responsible for the negotiation move within a frame that is determined by the central committee of the party,” says Alekos Kalyvis, a longtime union official who is on the committee and responsible for its economic-policy portfolio.
The negotiators have some latitude to make decisions, he said, “but this shouldn’t be interpreted as if they have a blank check from the party–neither them nor Tspiras.”
Many of Syriza’s factions regard the party’s rise as a epochal moment for the left–and any compromise on a bailout as a deep betrayal of its principles.
Stathis Leoutsakos, another Syriza member of Parliament, said Germany and the other creditor countries are determined to defeat Syriza. “In my opinion, their aim is to humiliate the Greek government,” he says. “They want the message that no other politics are accepted in the eurozone.”
It is also uncertain exactly what kind of deal would be acceptable to the left wing of Syriza. The party’s argument that fiscal austerity–steep budget cuts and tax increases–has deepened Greece’s economic slump has been central to its popular success.
Most on the party’s left wing reject any additional pension and wage cuts outright, saying Greek workers have suffered enough in years of depression since Greece’s first bailout.
Mr. Leoutsakos, like others on the far left, also insist that at least some of Greece’s debt must be forgiven. “In order to service it, we’d need to execute the Greek people,” he said. “And nobody in Syriza is willing to do it.”
There is also the question of Mr. Tsipras’s future as prime minister if he does compromise. No one here is unaware of the fates of former Greek premiers George Papandreou and Antonis Samaras. Both signed bailout agreements with Europe.
Both lost their jobs, and Mr. Papandreou’s party has been all but destroyed.
Going back on his leftist principals “would be political suicide for Tsipras,” Mr. Chatzilamprou said. “It would mean he is also recyclable: They could replace him with someone else.”
And DB has more color on the political fight Tsipras faces in the coming weeks:
Subject to further progress this week, focus is likely to shift very quickly to the Greek domestic political front. Disbursements for Greece ahead of the IMF tranche due at the end of the month will require domestic parliamentary approval. It is likely that the Greek PM would first attempt to obtain approval from the SYRIZA party’s 200-strong Central Committee before bringing an agreement to parliament. In the event of failure at the party level, a referendum would likely be called. In the event of party approval, a vote would be likely taken to the parliamentary floor. Depending on the process adopted, such a vote may take between 2 days to a week.
It will remain a major challenge for the Greek PM to successfully pass a potential agreement through parliament. Local press reports that 10-40 SYRIZA MPs are likely to dissent (the government has an 11 MP majority), while overnight the Independent Greeks junior coalition partner (12 MPs) has also raised the possibility of withdrawing from government. How the political process plays out largely depends on the number of MPs the current government loses. A loss of less than thirty parliamentarians may force a change in coalition to include the two small moderate parties in parliament (PASOK and the River) jointly controlling 30 MPs. More substantial losses requiring the support of major opposition party New Democracy would open up the possibility of broader changes to the government or a referendum.
We’ll close with what we said last week about the tough choice the PM faces: “Tsipras must decide how he wants history to remember his tenure as Prime Minister. Either he will be the leader who allowed Greece to crash out of the euro on its way to a redomination-driven economic collapse, or he will go down as the fiery advocate for change who caved under pressure and allowed the troika to stamp out democracy in the place where it was born.”
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And because this is Europe after all, someone had to deny the “rumors”:
- MERKEL SAYS THERE WAS NO DISCUSSION OF EXTENSION SCENARIOS ON GREEK BAILOUT
- Wealthy Greeks Slam "Incompetent Communists Ruining The Country", Demand EU "Save" Greece
Despite the market's exuberant hope that everything will be contained and business-as-usual will resume shortly in Europe, the message from the wealthiest Greeks is very different… As The FT reports, not since the nation's civil war has Greek society been riven by deep divisions between left and right as Greece's financial plight reopens old wounds. "The government are incompetent and are ruining the country because they are communists and do not understand reality," said Maria, a banker. "But there has to be a deal. The EU has to save us," she said, fingering her golden necklace. "Right?"
As The FT reports, for the affluent, life without the euro is almost unimaginable…
The single currency made it easier for them to send children to study abroad and purchase property and luxury goods elsewhere in Europe.
More than that, it distinguished Greece from its impoverished Balkan neighbours, confirming its place at the centre of a prosperous Europe. But as the crisis has dragged on, other Greeks — particularly supporters of the left-wing premier Alex Tsipras — increasingly equate membership of the currency with crippling public spending cuts and social inequality.
Until now, much of the country’s elite had assumed Mr Tsipras’s defiance to the country’s creditors was a calculated bluff to extract more aid from EU leaders fearful of the ramifications of a Greek exit from the eurozone.
But the wealthy Greeks are now revolting too…
But at the north Athens party, it was dawning on some that many Syriza supporters feel they have nothing to lose, and are therefore willing to take a leap into the unknown with a potential default rather than suffer the ignominy of a climbdown and more cuts to public spending.
“The working class with no money to spend and empty bank accounts . . . has nothing to lose,” said Patroklos Koudounis, founder of Adequate, a political risk consultancy. “Hence, they support the government and, as polls clearly show, half of them are in favour of a Grexit.”
Mr Koudounis found himself joining a pro-EU protest on Thursday night in central Athens, organised in response to a demonstration the night before by Syriza supporters. It was an act, he admitted, he “never would have ever imagined myself doing”.
“Those who have something — or a lot — to lose are becoming quite irritated,” he remarked. “They feel that they are under extreme danger and are now ready to get off the comfort of their couches and protest in the streets.”
Fear of what might come this week, including warnings of capital controls for Greek banks if no deal is reached on Monday, has prompted rich Greeks to move the bulk of their personal wealth and business accounts abroad, or hoard piles of cash in their homes.
- The Fed Confirms It Is Above The Law: Yellen Tells Hensarling "No" On Leak Probe Documents
Just a few days after Jeb Hensarling accused The Fed of “willful obstruction” in the Congressional leak probe, demanding “immediate compliance” with the subpoena seeing “no legal basis to withhold records from Congress,” Janet Yellen has responded in a letter:
- *YELLEN REPEATS FED CAN’T PROVIDE DOCUMENTS ON LEAK PROBE
If this does not confirm The Fed is utterly above the law, we are not sure what it will take to convince skeptics of the need for an independent audit. As Hensarling previously noted, this appears to be “vigorous and coordinated obstruction.”
Here is the letter…
Fed Chair Yellen to @FinancialCmte on why central bank did not comply with Congressional subpoena: pic.twitter.com/Yt4gpdGNu0
— Pedro da Costa (@pdacosta) June 22, 2015
Which translates as…
YELLEN TO HENSARLING: pic.twitter.com/xZ9GYiXjZ9
— Timothy Connolly CFA (@SconsetCapital) June 22, 2015
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As The Wall Street Journal’s Pedro da Costa reports,
Federal Reserve Chairwoman Janet Yellen said the central bank didn’t provide most of the information requested by members of Congress about an internal investigation because of an ongoing criminal probe into the matter.
In a letter to Rep. Jeb Hensarling (R., Texas), chairman of the House Financial Services Committee, Ms. Yellen said the Fed’s Office of the Inspector General, which is conducting the criminal probe with the Justice Department, advised that sharing of the information could harm their investigation.
Ms. Yellen wrote the inspector general has indicated that “providing access at this time to records and information would risk jeopardizing that ongoing criminal investigation, and the Department of Justice shares this concern.”
“We are committed to working with you to fulfill the Committee’s requests with respect to this matter once the OIG and the Department of Justice have informed us that they have completed their criminal investigation,” Ms. Yellen added.
The Fed declined to comment further for this article.
We suspect Pedro will once again not be invited back to the Fed poress conference.
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