Thursday, September 22, 2016

Today's Links

"The last 7 years of extreme monetary experimentation has created a mutant economy... where the only beneficiaries have been holders of financial assets. Investors have been loath to invest in real plant, infrastructure or jobs because the returns look so limited by artificially low rates. Instead they invest in financial assets because these returns are being inflated by monetary policy."Bill Blain, zero hedge

"We know already that the poisonous side-effect of zero rates and quantitative easing in the US, Europe, and Japan was to flood developing nations with cheap credit, upsetting their internal chemistry and drawing them into a snare. What is less understood is just how destructive this has been." AEP

1---Moron Yellen  talks up economy

Of course we are worried that bubbles will form in the economy, and we routinely monitor asset valuations, while nobody can know for sure what type of valuation represents a bubble,” said Yellen at the news conference after the meeting of the regulator.

However, the Fed decided against raising interest rates despite the concern, holding the rate between 0.25 percent and 0.5 percent. Three officials voted against the decision – the biggest dissent since December 2014.

“We’re generally pleased with the progress of the economy, and the decision not to raise rates today and to wait for some further evidence is largely based on the judgment that we’re not seeing evidence that the economy is overheating,” said Yellen

“Conditions in the labor market have strengthened and we expect that to continue, and while inflation remains low we expect it to rise to our two percent objective over time,” she said, stressing that the majority saw economic progress, but it was not a strong enough case to hike.

2--CNBC defends Wells Fargo

Have you ever read an article where 100% of the comments disagree with the author??

3--OECD Warns Fed, BOJ, ECB of Asset Bubbles, “Risks to Financial Stability,” Pinpoints US Stocks & Real Estate (Today's "must read")

The OECD estimates in its Interim Economic Outlook that for member nations as a whole, GDP-per-capita will grow only 1% in 2016, “which is half the average in the two decades preceding the crisis.”
Per-capita is what counts. It’s what people experience. It’s their slice of the economic pie. Population growth papers over a lot of ills for economists: for example, in the US, 14 million jobs were created since the Financial Crisis, which has been touted endlessly. But the US population grew by 15 million people. Now there are fewer jobs “per capita” than there were at the depth of the Financial Crisis. That’s why per-capita matters.
So 1% GDP growth per capita in 2016 is terrible. And it’s likely happening because of these scorched-earth monetary policies. The OECD blames:
  • “Weak investment”
  • “Slower growth of total factor productivity”
  • “Slowing of diffusion of innovations across firms”
  • “And slowing innovation at the technological frontier.”...
Yet its outlook, bad as it is, is “subject to significant risks.” The economy might further deteriorate, it says, because: “Financial instability risks are rising, including from exceptionally low interest rates and their effects on financial assets and real estate prices.”
Bubbles in stocks and real estate! The Fed, however, as always, is steadfastly blind to bubbles....

The report goes on:
Low interest rates underpin widespread and substantial increases in asset prices, both internationally and across asset classes, which increases the likelihood and vulnerability of a sharp correction in asset prices.
A reassessment in financial markets of interest rates could result in substantial re-pricing of assets and heighten financial volatility even if interest rates were to remain below long-term averages....

in Q3, S&P 500 companies are expected to report the sixth quarter in a row of year-over-year earnings declines, the first time this happened in FactSet’s data going back to 2008. With earnings this terrible, what has propped up stock prices, according to the OECD?
  • Falling long-term interest rates
  • Cost reduction measures
  • Share buybacks and dividend pay-outs, rather than as the result of additional productive investment.
  • The issue of “solvency” of pension funds and insurance companies: 

The Organization for Economic Co-operation and Development threw the Fed and the Bank of Japan – even as they had their meetings today – a curve ball.

We in the US woke up to a new central-bank term: “yield curve control.” This is what the BoJ promised its rapt audience of hedge fund managers. Another Kuroda surprise. His negative-interest-rate surprise in February was just aping the ECB. But now he has come up with something for which no one had even coined a word 

4--Most Small Businesses Are Barely Saving Any Money, New Study Shows

(The looting of America: small business living hand to mouth due to Fed policy) The companies in question may be small, but they represent an outsized share of the U.S. economy. According to the Small Business and Entrepreneurship Council, they account for roughly 50 percent of gross domestic product and more than 50 percent of new job creation — a metric that's closely watched by the Fed in determining whether the economy can withstand a constriction in financing conditions. Yet even though they're contributing a great deal to the economy there remains ignorance about their financial health, Farrell added. 

On average, the companies surveyed have just 27 days worth of cash reserves — or money to cover expenses if inflows suddenly stopped — according to the JPMorgan study, which analyzed 470 million transactions by 570,000 small business last year. Restaurants typically hold the smallest cash buffers, with just 16 days of reserves, while the real-estate sector boasts the biggest, at 47 days.

5--Rising poverty in the US

Among the troubling statistics in a new report released Tuesday was the rising concentration of poverty in city neighborhoods, and expanding number of census tracts where the poverty rate stood at 40 percent or higher.

The count of high-poverty census tracts has nearly doubled in the city, from 19 to 37 since 2000. Fully one-third of Rochester residents live in poverty, and nearly another third require some outside assistance to get by, according to estimates in the ACT Rochester and Rochester Area Community Foundation update to its 2013 report on the state of poverty and self-sufficiency across the Greater Rochester region

6--UN  fears third leg of the global financial crisis - with prospect of epic debt defaults

The third leg of the world's intractable depression is yet to come. If trade economists at the United Nations are right, the next traumatic episode may entail the greatest debt jubilee in history.
It may also prove to be the definitive crisis of globalized capitalism, the demise of the liberal free-market orthodoxies promoted for almost forty years by the Bretton Woods institutions, the OECD, and the Davos fraternity.
"Alarm bells have been ringing over the explosion of corporate debt levels in emerging economies, which now exceed $25 trillion. Damaging deflationary spirals cannot be ruled out," said the annual report of the UN Conference on Trade and Development (UNCTAD

We know already that the poisonous side-effect of zero rates and quantitative easing in the US, Europe, and Japan was to flood developing nations with cheap credit, upsetting their internal chemistry and drawing them into a snare. What is less understood is just how destructive this has been.

(WOW--UN wants to transform the entire system!)

The UN's diagnosis is that "shareholder primacy" and the entire edifice of liberal market finance are among the key culprits, all made worse by stringent fiscal austerity that has starved the global economy of sufficient demand.
Its prescription is radical. The world must jettison neo-liberal ideology, and launch a "global new deal" with a blitz of investment on strategic sectors. It wants a return of the "developmental state", commanding a potent industrial policy, and backed by severe controls on capital flows....

(Holy shit!)

It also explains the conundrum of collapsing productivity. There is no need for the grim pessimism of Professor Robert Gordon, who thinks the great the spurt of human progress over the last 250 years is largely exhausted, supposedly because we have already made most of the great advances. Falling investment explains it well enough.
The UN's advice to the emerging nations is to retake control of their destiny and turn the tables on the financial elites. They should impose capital controls, preferential tax treatment for retained earnings, and force fund managers to hold assets for longer. They should allocate credit without apology, and learn a trick or two from the Korea's methods of "financial repression"....

But what UNCTAD shows is that globalisation has not in fact worked for these countries, bar a few exceptions. One starts to suspect that it works for nobody except the owners of capital and their close allies.

7--The Guardian view on the global economic outlook: dark clouds ahead

8--A totally different world order?  China Joins Russia in Syria: Shaping the New Anti-Terrorist Alliance

In a major policy shift, China has launched the pivot to the Middle East aimed at increasing its involvement in the region by providing military training and humanitarian aid in Syria

9---US pushes for “no fly” zone as Syrian conflict escalates

Kerry also demanded the imposition of a de facto “no fly” zone over areas controlled by US-backed Islamist “rebels,” including those affiliated with Al Qaeda, under the pretext of assuring delivery of humanitarian aid and reviving the ceasefire.

“I believe that to restore credibility to the process, we must move forward to try to immediately ground all aircraft flying in those key areas in order to deescalate the situation and give a chance for humanitarian assistance to flow unimpeded,” Kerry told the Security Council meeting.

The Syrian government declared the ceasefire ended on Monday after reporting 300 violations by the Western-backed Islamist “rebels” and in the wake of the US bombing of a Syrian army outpost near the Deir al-Zor airport in eastern Syria on Saturday that killed as many as 90 soldiers and wounded another 100.

US officials have claimed that the attack was a mistake, while Damascus has pointed out that it was immediately followed by an assault on the position by fighters of the Islamic State (also known as ISIS), charging that the air and ground actions were coordinated. Deir al-Zor occupies a strategic position on the highway leading from Syria to Iraq and onto Iran....

Russian military officials, meanwhile, reported Wednesday that a US Predator drone, capable of firing multiple air-to-surface missiles, was seen flying over the aid convoy at the time of the attack. Earlier, the Russian Defense Ministry released an aerial video showing that the aid convoy had been accompanied by a “rebel” truck towing a large-caliber mortar launcher, which subsequently disappeared from view.

In his statement to the Security Council, Lavrov also insisted that there could be no more “unilateral” cessations of hostilities in Syria. Russia has charged that the US-backed Islamists never accepted the ceasefire and continued to carry out attacks on government positions after it went into effect on September 12.

Speaking before the same Security Council meeting, Syria’s ambassador to the UN Bashar al-Jaafari vowed that his country “will not become another Libya or Iraq,” and stated that his government was prepared “to reach a political solution that is decided by the Syrians”...

The Syrian ceasefire has been the subject of bitter divisions within the Obama administration, with the Pentagon and top uniformed commanders in the Middle East calling into question whether the military would even obey orders to implement the deal.
Those most heavily involved in the US-orchestrated war for regime change in Syria, particularly elements within the CIA, have opposed the agreement because it calls upon Washington to oversee the separation of the so-called “moderate opposition” that it has paid and armed from Al Qaeda-linked forces like the Al Nusra front that are formally designated as “terrorists.” In the week following the ceasefire’s initiation, there was no sign of these “moderates” distancing themselves from the Al Qaeda elements. Such a separation is opposed by Washington’s “rebels” because Nusra represents the most significant armed group fighting the Syrian government....

Even more importantly for the Pentagon, the ceasefire’s call for the establishment of a joint operations center with Russia to share intelligence and targeting information would cut across the US military’s escalating preparations for war with Russia itself. The bombing of the Syrian army position on Saturday, followed by the attack on the aid convoy on Monday, served to squelch this proposal.
Amid the diplomatic sparring between the US and Russia at the United Nations, there were multiple signs that the conflict in Syria is on the brink of a dangerous escalation, carrying with it the threat of a wider and even world war....

Before leaving for the UN General Assembly meeting in New York City, Erdogan told reporters that the Turkish intervention had “cleared” an area of 900 square kilometers (about 350 square miles) of “terrorists,” by which he meant both ISIS and the Kurdish YPG. He added, “We may extend this area to 5,000 square kilometers as part of a safe zone.” Such an intervention would require the deployment inside Syria of thousands of Turkish troops.

10--Battle for Deir Ezzor takes a turn for the worse as ISIS captures Jabal Thardeh

The Islamic State of Iraq and Al-Sham (ISIS) launched a major offensive in southwest Deir Ezzor on Wednesday, targeting the strategic Thardeh Mountains at the western rim of the provincial capital...

Much of the Islamic State's success is a result of the U.S.' airstrikes that fractured the Syrian Arab Army's defenses at Jabal Thardeh

11--Assad accuses US of intentionally bombing Syrian troops in Deir Ezzor

It was not an accident by one airplane; it was four airplanes which kept attacking the position of the Syrian troops for nearly one hour or maybe a little bit more than one hour”.
On September 17, at least 62 Syrian soldiers were killed by US-led coalition airstrikes on Army posts in Jabal al-Thadreh; a strategic mount that overlooks the Deir Ezzor military airbase.

The attack on Syrian troops came as they were defending the area against a full-scale offensive launched by ISIS.
The IS troops attacked at the very same time as the American strike. How could they know that America was going to attack that position in order to gather their militants right away and attack it one hour after the strike. It was definitely intentional and not unintentional,” Assad added.
The Pentagon acknowledged the attack and said its fighter jets accidently hit Syrian government troops and that the airstrikes were meant to strike ISIS jihadists.

12--Russia is Tired of the Bullshit: Lavrov: No More Unilateral Pauses in Syria

Russia’s Foreign Minister, Sergey Lavrov, has said during the United Nations Security Council meeting on Syria that there will be no more unilateral ‘ceasefire’ pauses in Syria. According to Lavrov it can’t even be discussed because all pauses have been used by militants, incluinng Jabhat al-Nusra, to regroup and get reinforcements

points to it being the militants of the terrorist organizations who exploded and set on fire the trucks of the convoy," he added.

It should be also noted, al Malas added, that the attack coincided with the militant assault on the positions of the Syrian army near Aleppo. "Therefore it was more likely a provocation aimed at capturing the media's attention in order to accuse Damascus and Moscow of the attack," he stated....

The attack [on the convoy] is a provocation aimed to disrupt the peaceful settlement of the Syrian conflict and any possible negotiations on the matter," the political analyst added.

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