Tag: Greece (page 1 of 7)

The Stage Has Been Set For The Next Financial Crisis

Authored by Constantin Gurdgiev via CaymanFinancialReview.com,

Last month, the Japanese government auctioned off some US$4 billion worth of new two-year bonds at a new record low yield of negative 0.149 percent. The country’s five-year debt is currently yielding minus 0.135 percent per annum, and its 10-year bonds are trading at -0.001 percent. Strange as it may sound, the safe haven status of Japanese bonds means that there is an ample demand among private investors, especially foreign buyers, for giving away free money to the Japanese government: the bid-to-cover ratio in the latest auction was at a hefty US$19.9 billion or 4.97 times the targeted volume. The average bid-to-cover ratio in the past 12 auctions was similar at 4.75 times. Japan’s status as the world’s most indebted advanced economy is not a deterrent to the foreign investors, banking primarily on the expectation that continued strengthening of the yen against the U.S. dollar, the U.K. pound sterling and, to a lesser extent, the euro, will stay on track into the foreseeable future. See chart 1

In a way, the bet on Japanese bonds is the bet that the massive tsunami of monetary easing that hit the global economy since 2008 is not going to recede anytime soon, no matter what the central bankers say in their dovishly-hawkish or hawkishly-dovish public statements. And this expectation is not only contributing to the continued inflation of a massive asset bubble, but also widens the financial sustainability gap within the insurance and pensions sectors. The stage has been set, cleaned and lit for the next global financial crisis.

Worldwide, current stock of government debt trading at negative yields is at or above the US$9 trillion mark, with more than two-thirds of this the debt of the highly leveraged advanced economies. Just under 85 percent of all government bonds outstanding and traded worldwide are carrying yields below the global inflation rate. In simple terms, fixed income investments can only stay in the positive real returns territory if speculative bets made by investors on the direction of the global exchange rates play out.

We are in a multidimensional and fully internationalized carry trade game, folks, which means there is a very serious and tangible risk pool sitting just below the surface across world’s largest insurance companies, pensions funds and banks, the so-called “mandated” undertakings. This pool is the deep uncertainty about the quality of their investment allocations. Regulatory requirements mandate that these financial intermediaries hold a large proportion of their investments in “safe” or “high quality” instruments, a class of assets that draws heavily on higher rated sovereign debt, primarily that of the advanced economies.

The first part of the problem is that with negative or ultra-low yields, this debt delivers poor income streams on the current portfolio. Earlier this year, Stanford’s Hoover Institution research showed that “in aggregate, the 564 state and local systems in the United States covered in this study reported $1.191 trillion in unfunded pension liabilities (net pension liabilities) under GASB 67 in FY 2014. This reflects total pension liabilities of $4.798 trillion and total pension assets (or fiduciary net position) of $3.607 trillion.” This accounts for roughly 97 percent of all public pension funds in the U.S. Taking into the account the pension funds’ penchant for manipulating (in their favor) the discount rates, the unfunded public sector pensions liabilities rise to $4.738 trillion. Key culprit: the U.S. pension funds require 7.5-8 percent average annual returns on their assets to break even on their future expected liabilities. In 2013-2016 they achieved an average return of below 3 percent. This year, things are looking even worse. Last year, Milliman research showed that on average, over 2012-2016, U.S. pension funds held 27-30 percent of their assets in cash (3-4 percent) and bonds (23-27 percent), generating total median returns over the same period of around 1.31 percent per annum.

Not surprisingly, over the recent years, traditionally conservative investment portfolios of the insurance companies and pensions funds have shifted dramatically toward higher risk and more exotic (or in simple parlance, more complex) assets. BlackRock Inc recently looked at the portfolio allocations, as disclosed in regulatory filings, of more than 500 insurance companies. The analysts found that their asset books – investments that sustain insurance companies’ solvency – can be expected to suffer an 11 percent drop in values, on average, in the case of another financial crisis. In other words, half of all the large insurance companies trading in the U.S. markets are currently carrying greater risks on their balance sheets than prior to 2007. Milliman 2016 report showed that among pension funds, share of assets allocated to private equity and real estate rose from 19 percent in 2012 to 24 percent in 2016.

The reason for this is that the insurance companies, just as the pension funds, re-insurers and other longer-term “mandated” investment vehicles have spent the last eight years loading up on highly risky assets, such as illiquid private equity, hedge funds and real estate. All in the name of chasing the yield: while mainstream low-risk assets-generated income (as opposed to capital gains) returned around zero percent per annum, higher risk assets were turning up double-digit yields through 2014 and high single digits since then. At the end of 2Q 2017, U.S. insurance companies’ holdings of private equity stood at the highest levels in history, and their exposures to direct real estate assets were almost at the levels comparable to 2007. Ditto for the pension funds. And, appetite for both of these high risk asset classes is still there.

The second reason to worry about the current assets mix in insurance and pension funds portfolios relates to monetary policy cycle timing. The prospect of serious monetary tightening is looming on the horizon in the U.S., U.K., Australia, Canada and the eurozone; meanwhile, the risk of the slower rate of bonds monetization in Japan is also quite real. This means that the capital values of the low-risk assets are unlikely to post significant capital gains going forward, which spells trouble for capital buffers and trading income for the mandated intermediaries.

Thirdly, the Central Banks continue to hold large volumes of top-rated debt. As of Aug. 1, 2017, the Fed, Bank of Japan and the ECB held combined US$13.8 trillion worth of assets, with both Bank of Japan (US$4.55 trillion) and the ECB (US$5.1 trillion) now exceeding the Fed holdings (US$4.3 trillion) for the third month in a row.

Debt maturity profiles are exacerbating the risks of contagion from the monetary policy tightening to insurance and pension funds balance sheets. In the case of the U.S., based on data from Pimco, the maturity cliff for the Federal Reserve holdings of the Treasury bonds, Agency debt and TIPS, as well as MBS is falling on 1Q 2018 – 3Q 2020. Per Bloomberg data, the maturity cliff for the U.S. insurers and pensions funds debt assets is closer to 2020-2022. If the Fed simply stops replacing maturing debt – the most likely scenario for unwinding its QE legacy – there will be little market support for prices of assets that dominate capital base of large financial institutions. Prices will fall, values of assets will decline, marking these to markets will trigger the need for new capital. The picture is similar in the U.K. and Canada, but the risks are even more pronounced in the euro area, where the QE started later (2Q 2015 as opposed to the U.S. 1Q 2013) and, as of today, involves more significant interventions in the sovereign bonds markets than at the peak of the Fed interventions.

How distorted the EU markets for sovereign debt have become? At the end of August, Cyprus – a country that suffered a structural banking crisis, requiring bail-in of depositors and complete restructuring of the banking sector in March 2013 – has joined the club of euro area sovereigns with negative yields on two-year government debt. All in, 18 EU member states have negative yields on their two-year paper. All, save Greece, have negative real yields.

The problem is monetary in nature. Just as the entire set of quantitative easing (QE) policies aimed to do, the long period of extremely low interest rates and aggressive asset purchasing programs have created an indirect tax on savers, including the net savings institutions, such as pensions funds and insurers. However, contrary to the QE architects’ other objectives, the policies failed to drive up general inflation, pushing costs (and values) of only financial assets and real estate. This delayed and extended the QE beyond anyone’s expectations and drove unprecedented bubbles in financial capital. Even after the immediate crisis rescinded, growth returned, unemployment fell and the household debt dramatically ticked up, the world’s largest Central Banks continue buying some US$200 billion worth of sovereign and corporate debt per month.

Much of this debt buying produced no meaningfully productive investment in infrastructure or public services, having gone primarily to cover systemic inefficiencies already evident in the state programs. The result, in addition to unprecedented bubbles in property and financial markets, is low productivity growth and anemic private investment. (See chart 2.) As recently warned by the Bank for International Settlements, the global debt pile has reached 325 percent of the world’s GDP, just as the labor and total factor productivity growth measures collapsed.

The only two ways in which these financial and monetary excesses can be unwound involves pain.

The first path – currently favored by the status quo policy elites – is through another transfer of funds from the general population to the financial institutions that are holding the assets caught in the QE net. These transfers will likely start with tax increases, but will inevitably morph into another financial crisis and internal devaluation (inflation and currencies devaluations, coupled with a deep recession).

The alternative is also painful, but offers at least a ray of hope in the end: put a stop to debt accumulation through fiscal and tax reforms, reducing both government spending across the board (and, yes, in the U.S. case this involves cutting back on the coercive institutions and military, among other things) and flattening out personal income tax rates (to achieve tax savings in middle and upper-middle class cohorts, and to increase effective tax rates – via closure of loopholes – for highest earners). As a part of spending reforms, public investment and state pensions provisions should be shifted to private sector providers, while existent public sector pension funds should be forced to raise their members contributions to solvency-consistent levels.

Beyond this, we need serious rethink of the monetary policy institutions going forward. Historically, taxpayers and middle class and professionals have paid for both, the bailouts of the insolvent financial institutions and for the creation of conditions that lead to this insolvency. In other words, the real economy has consistently been charged with paying for utopian, unrealistic and state-subsidizing pricing of risks by the Central Banks. In the future, this pattern of the rounds upon rounds of financial repression policies must be broken.

Whether we like it or not, since the beginning of the Clinton economic bubble in the mid-1990s, the West has lived in a series of carry trade games that transferred real economic resources from the economy to the state. Today, we are broke. If we do not change our course, the next financial crisis will take out our insurers and pensions providers, and with them, the last remaining lifeline to future financial security.

http://WarMachines.com

“We Paid A Heavy Price For This Mistake” – Europe To Be Flooded With 2nd Refugee Wave, UN Warns

Back in 2015, at the height of Angela Merkel’s “open door” admission policy which in addition to granting German entry to over 1 million refugees, many of whom turned out to be radical jihadists and sent her approval rating crashing to the lowest in her career, the German chancellor realized that the great migration wave from the middle east into Central Europe, originally meant to reinvigorate Europe’s aging demographics (and prompted Deutsche Bank to even boost its German GDP forecast), maybe was not such a great idea, and was just not worth the risks and trade offs.

And while in the subsequent two years Germany in particular, and Central Europe in general managed to avoid another mass migration wave with most refugees gated either in Turkey or Italy, a second wave of migration into Europe now may be imminent as the situation in refugee camps in Africa and the Middle East is only getting worse, the head of the UN World Food Programme said. He added there is a clear link between hunger and migration.

Speaking to German newspaper Die Zeit, the executive director of the UN’s World Food Programme, David Beasley, said that living conditions, mostly food distribution, in refugee camps in crisis-affected regions had deteriorated dramatically before the European migrant crisis struck in 2015.

“We paid a heavy price for this mistake and I’m afraid we’re about to make it once again,” Beasley believes. According to the UN food chief, while many asylum seekers wanted to stay in their home region, the lack of food has driven them away. “If they don’t have enough food, they will leave. And many of them would go to Europe,” Beasley said.

Beasley also warned that while the UN has been seemingly making progress in fighting world hunger over the last 10 years, the number of people suffering hunger worldwide has now dramatically increased again; he added that the food crisis is caused mainly by wars and climate change. Yemen is threatened by famine because Saudi Arabia is blocking the country’s ports, preventing aid deliveries, urging Gulf countries not to stand aside but instead join the food aid program for crisis-stricken regions, Beasley said.

A WFP report from March says that some 108 million people across the globe faced “crisis food insecurity or worse,” a dramatic increase from 2015 when the figure was 80 million. The document says that major food crises were fueled by “conflict, record-high food prices and abnormal weather patterns.”

The number of asylum seekers in the EU during the second quarter of 2017 reached 149,000, according to statistical data from Eurostat. The applications mainly came from Syria, Nigeria and Afghanistan. Germany, Italy, France, Greece and the UK account for almost 80 percent of all first-time applicants in the union, the data shows.

Of course, for Europe’s political oligarchs none of the above social dimensions of the migrant tragedy matters, but one thing does: the chart shown below which demonstrated that as of December 2015, there was a direct correlation between the approval rating of establishment politicians and the migrant flood hitting Europe.

If Beasley is right, and Europe is indeed about to be flooded with millions of disgruntled migrants, the anti-establishment wave that brought brexit and countless subsequent tremors, will seem like a walk in the park next to the nationalistic backlash that will soon follow.

http://WarMachines.com

A Europe We Can Believe In

Via Oriental Review,

In early October a group of European intellectuals published a conservative manifesto with 36 tenets defending 'old Europe' and its values, which we are republishing today in full:

1. Europe is our home.

Europe belongs to us, and we belong to Europe. These lands are our home; we have no other. The reasons we hold Europe dear exceed our ability to explain or justify our loyalty. It is a matter of shared histories, hopes and loves. It is a matter of accustomed ways, of moments of pathos and pain. It is a matter of inspiring experiences of reconciliation and the promise of a shared future. Ordinary landscapes and events are charged with special meaning—for us, but not for others. Home is a place where things are familiar, and where we are recognized, however far we have wandered. This is the real Europe, our precious and irreplaceable civilization.

2. A false Europe threatens us.

Europe, in all its richness and greatness, is threatened by a false understanding of itself. This false Europe imagines itself as a fulfilment of our civilization, but in truth it will confiscate our home. It appeals to exaggerations and distortions of Europe’s authentic virtues while remaining blind to its own vices. Complacently trading in one-sided caricatures of our history, this false Europe is invincibly prejudiced against the past. Its proponents are orphans by choice, and they presume that to be an orphan—to be homeless—is a noble achievement. In this way, the false Europe praises itself as the forerunner of a universal community that is neither universal nor a community.

3. The false Europe is utopian and tyrannical.

The patrons of the false Europe are bewitched by superstitions of inevitable progress. They believe that History is on their side, and this faith makes them haughty and disdainful, unable to acknowledge the defects in the post-national, post-cultural world they are constructing. Moreover, they are ignorant of the true sources of the humane decencies they themselves hold dear—as do we. They ignore, even repudiate the Christian roots of Europe. At the same time they take great care not to offend Muslims, who they imagine will cheerfully adopt their secular, multicultural outlook. Sunk in prejudice, superstition and ignorance, and blinded by vain, self-congratulating visions of a utopian future, the false Europe reflexively stifles dissent. This is done, of course, in the name of freedom and tolerance.

4. We must defend the real Europe.

We are reaching a dead-end. The greatest threat to the future of Europe is neither Russian adventurism nor Muslim immigration. The true Europe is at risk because of the suffocating grip that the false Europe has over our imaginations. Our nations and shared culture are being hollowed out by illusions and self-deceptions about what Europe is and should be. We pledge to resist this threat to our future. We will defend, sustain and champion the real Europe, the Europe to which we all in truth belong.

5. Solidarity and civic loyalty encourage active participation.

The true Europe expects and encourages active participation in the common project of political and cultural life. The European ideal is one of solidarity based on assent to a body of law that applies to all, but is limited in its demands. This assent has not always taken the form of representative democracy. But our traditions of civic loyalty reflect a fundamental assent to our political and cultural traditions, whatever their forms. In the past, Europeans fought to make our political systems more open to popular participation, and we are justly proud of this history. Even as they did so, sometimes in open rebellion, they warmly affirmed that, despite their injustices and failures, the traditions of the peoples of this continent are ours. Such dedication to reform makes Europe a place that seeks ever-greater justice. This spirit of progress is born out of our love for and loyalty to our homelands.

6. We are not passive subjects.

A European spirit of unity allows us to trust others in the public square, even when we are strangers. The public parks, central squares and broad boulevards of European towns and cities express the European political spirit: We share our common life and the res publica. We assume that it is our duty to take responsibility for the futures of our societies. We are not passive subjects under the domination of despotic powers, whether sacred or secular. And we are not prostrate before implacable historical forces. To be European is to possess political and historical agency. We are the authors of our shared destiny.

7. The nation-state is a hallmark of Europe.

The true Europe is a community of nations. We have our own languages, traditions and borders. Yet we have always recognized a kinship with one another, even when we have been at odds—or at war. This unity-in-diversity seems natural to us. Yet this is remarkable and precious, for it is neither natural nor inevitable. The most common political form of unity-in-diversity is empire, which European warrior kings tried to recreate in the centuries after the fall of the Roman Empire. The allure of the imperial form endured, but the nation-state prevailed, the political form that joins peoplehood with sovereignty. The nation-state thereby became the hallmark of European civilization.

8. We do not back an imposed, enforced unity.

A national community takes pride in governing itself in its own way, often boasts of its great national achievements in the arts and sciences, and competes with other nations, sometimes on the battlefield. This has wounded Europe, sometimes gravely, but it has never compromised our cultural unity. In fact, the contrary has been the case. As the nation states of Europe became more established and distinct, a shared European identity became stronger. In the aftermath of the terrible bloodshed of the world wars in the first half of the twentieth century, we emerged with an even greater resolve to honor our shared heritage. This testifies to the depth and power of Europe as a civilization that is cosmopolitan in a proper sense. We do not seek the imposed, enforced unity of empire. Instead, European cosmopolitanism recognizes that patriotic love and civic loyalty open out to a wider world.

9. Christianity encouraged cultural unity.

The true Europe has been marked by Christianity. The universal spiritual empire of the Church brought cultural unity to Europe, but did so without political empire. This has allowed for particular civic loyalties to flourish within a shared European culture. The autonomy of what we call civil society became a characteristic feature of European life. Moreover, the Christian Gospel does not deliver a comprehensive divine law, and thus the diversity of the secular laws of the nations may be affirmed and honoured without threat to our European unity. It is no accident that the decline of Christian faith in Europe has been accompanied by renewed efforts to establish political unity—an empire of money and regulations, covered with sentiments of pseudo-religious universalism, that is being constructed by the European Union.

10. Christian roots nourish Europe.

The true Europe affirms the equal dignity of every individual, regardless of sex, rank or race. This also arises from our Christian roots. Our gentle virtues are of an unmistakably Christian heritage: fairness, compassion, mercy, forgiveness, peace-making, charity. Christianity revolutionized the relationship between men and women, valuing love and mutual fidelity in an unprecedented way. The bond of marriage allows both men and women to flourish in communion. Most of the sacrifices we make are for the sake of our spouses and children. This spirit of self-giving is yet another Christian contribution to the Europe we love.

11. Classical roots encourage excellence.

The true Europe also draws inspiration from the Classical tradition. We recognize ourselves in the literature of ancient Greece and Rome. As Europeans, we strive for greatness, the crown of the Classical virtues. At times, this has led to violent competition for supremacy. But at its best, an aspiration toward excellence inspires the men and women of Europe to craft musical and artistic works of unsurpassed beauty and to make extraordinary breakthroughs in science and technology. The grave virtues of the self-possessed Romans and the pride in civic participation and spirit of philosophical inquiry of the Greeks have never been forgotten in the real Europe. These inheritances, too, are ours.

12. Europe is a shared project.

The true Europe has never been perfect. The proponents of the false Europe are not wrong to seek development and reform, and there is much that has been accomplished since 1945 and 1989 that we should cherish and honor. Our shared life is an ongoing project, not an ossified inheritance. But the future of Europe rests in renewed loyalty to our best traditions, not a spurious universalism demanding forgetfulness and self-repudiation. Europe did not begin with the Enlightenment. Our beloved home will not be fulfilled with the European Union. The real Europe is, and always will be, a community of nations at once insular, sometimes fiercely so, and yet united by a spiritual legacy that, together, we debate, develop, share—and love.

13. We are losing our home.

The true Europe is in jeopardy. The achievements of popular sovereignty, resistance to empire, cosmopolitanism capable of civic love, the Christian legacy of humane and dignified life, a living engagement with our Classical inheritance—all this is slipping away. As the patrons of the false Europe construct their faux Christendom of universal human rights, we are losing our home.

14. A false freedom prevails.

The false Europe boasts of an unprecedented commitment to human liberty. This liberty, however, is very one-sided. It sells itself as liberation from all restraints: sexual freedom, freedom of self-expression, freedom to “be oneself.” The Generation of ’68 regards these freedoms as precious victories over a once almighty and oppressive cultural regime. They see themselves as great liberators, and their transgressions are acclaimed as noble moral achievements, for which the whole world should be grateful.

15. Individualism, isolation, and aimlessness are widespread.

For Europe’s younger generations, however, reality is far less gilt with gold. Libertine hedonism often leads to boredom and a profound sense of purposelessness. The bond of marriage has weakened. In the roiling sea of sexual liberty, the deep desires of our young people to marry and form families are often frustrated. A liberty that frustrates our heart’s deepest longings becomes a curse. Our societies seem to be falling into individualism, isolation and aimlessness. Instead of freedom, we are condemned to the empty conformity of consumer- and media-driven culture. It is our duty to speak the truth: The Generation of ’68 destroyed but did not build. They created a vacuum now filled by social media, cheap tourism and pornography.

16. We are regulated and managed.

At the same time that we hear boasts of unprecedented liberty, European life is more and more comprehensively regulated. Rules—often confected by faceless technocrats in league with powerful interests—govern our work relationships, our business decisions, our educational qualifications, our news and entertainment media. And Europe now seeks to tighten existing regulations on freedom of speech, an aboriginal European freedom—freedom of conscience made manifest. The targets of these restrictions are not obscenity or other assaults on decency in public life. Instead, Europe’s governing classes wish to restrict manifestly political speech. Political leaders who give voice to inconvenient truths about Islam and immigration are hauled before judges. Political correctness enforces strong taboos that deem challenges to the status quo beyond the pale. The false Europe does not really encourage a culture of freedom. It promotes a culture of market-driven homogeneity and politically enforced conformity.

17. Multiculturalism is unworkable.

The false Europe also boasts of an unprecedented commitment to equality. It claims to promote non-discrimination and the inclusion of all races, religions and identities. Here, genuine progress has been made, but a utopian detachment from reality has taken hold. Over the past generation, Europe has pursued a grand project of multiculturalism. To demand or even promote the assimilation of Muslim newcomers to our manners and mores, much less to our religion, has been thought a gross injustice. A commitment to equality, we have been told, demands that we abjure any hint that we believe our culture superior. Paradoxically, Europe’s multicultural enterprise, which denies the Christian roots of Europe, trades on the Christian ideal of universal charity in an exaggerated and unsustainable form. It requires from the European peoples a saintly degree of self-abnegation. We are to affirm the very colonization of our homelands and the demise of our culture as Europe’s great twenty-first century glory—a collective act of self-sacrifice for the sake of some new global community of peace and prosperity that is being born.

18. Bad faith grows.

There is a great deal of bad faith in this thinking. Most in our governing classes doubtless presume the superiority of European culture—which must not be affirmed in public in ways that might offend immigrants. Given that superiority, they think that assimilation will happen naturally, and quickly. In an ironic echo of the imperialist thinking of old, Europe’s governing classes presume that, somehow, by the laws of nature or of history, ‘they’ will necessarily become like ‘us’—and it is inconceivable that the reverse might be true. In the meantime, official multiculturalism has been deployed as a therapeutic tool for managing the unfortunate but ‘temporary’ cultural tensions.

19. Technocratic tyranny increases.

There is more bad faith at work, of a darker kind. Over the last generation, a larger and larger segment of our governing class has decided that its own self-interest lies in accelerated globalization. They wish to build supranational institutions that they are able to control without the inconveniences of popular sovereignty. It is increasingly clear that the ‘democratic deficit’ in the European Union is not a mere technical problem to be remedied by technical means. Rather, this deficit is a fundamental commitment, and it is zealously defended. Whether legitimated by supposed economic necessities or autonomously developing international human rights law, the supra-national mandarins of the EU institutions confiscate the political life of Europe, answering all challenges with a technocratic answer: There is no alternative. This is the soft but increasingly real tyranny we face.

20. The false Europe is fragile and impotent.

The hubris of the false Europe is now becoming evident, despite the best efforts of its partisans to shore up comfortable illusions. Above all, the false Europe is revealed to be weaker than anyone imagined. Popular entertainment and material consumption do not sustain civic life. Shorn of higher ideals and discouraged from expressing patriotic pride by multiculturalist ideology, our societies now have difficulty summoning the will to defend themselves. Moreover, civic trust and social cohesion are not renewed by inclusive rhetoric or an impersonal economic system dominated by gigantic international corporations. Again, we must be frank: European societies are fraying badly. If we but open our eyes, we see an ever-greater use of government power, social management and educational indoctrination. It is not just Islamic terror that brings heavily armed soldiers into our streets. Riot police are now necessary to quell violent anti-establishment protests and even to manage drunken crowds of football fans. The fanaticism of our football loyalties is a desperate sign of the deeply human need for solidarity, a need that otherwise goes unfulfilled in the false Europe.

21. A culture of repudiation has taken hold.

Europe’s intellectual classes are, alas, among the chief ideological partisans of the conceits of the false Europe. Without doubt, our universities are one of the glories of European civilization. But where once they sought to transmit to each new generation the wisdom of past ages, today most within the universities equate critical thinking with a simpleminded repudiation of the past. A lodestar of the European spirit has been the rigorous discipline of intellectual honesty and objectivity. But over the past two generations, this noble ideal has been transformed. The asceticism that once sought to free the mind of the tyranny of dominant opinion has become an often complacent and unreflective animus against everything that is our own. This stance of cultural repudiation functions as a cheap and easy way of being ‘critical.’ Over the last generation, it has been rehearsed in the lecture halls, becoming a doctrine, a dogma. And to join in professing this creed is taken to be the mark of ‘enlightenment,’ and of spiritual election. As a consequence, our universities are now active agents of ongoing cultural destruction.

22. Elites arrogantly parade their virtue.

Our governing classes are advancing human rights. They are at work fighting climate change. They are engineering a more globally integrated market economy and harmonizing tax policies. They are monitoring progress toward gender equality. They are doing so much for us! What does it matter by what mechanisms they inhabit their offices? What does it matter if the European peoples grow more sceptical of their ministrations?

23. There is an alternative.

That growing scepticism is fully justified. Today, Europe is dominated by an aimless materialism that seems unable to motivate men and women to have children and form families. A culture of repudiation deprives the next generation of a sense of identity. Some of our countries have regions in which Muslims live with an informal autonomy from local laws, as if they were colonialists rather than fellow members of our nations. Individualism isolates us one from another. Globalization transforms the life prospects of millions. When challenged, our governing classes say that they are merely working to accommodate the inevitable, adjusting to implacable necessities. No other course is possible, and it is irrational to resist. Things cannot be otherwise. Those who object are said to suffer nostalgia—for which they deserve moral condemnation as racists or fascists. As social divisions and civic distrust become more apparent, European public life grows angrier, more rancourous, and no one can say where it will end. We must not continue down this path. We need to throw off the tyranny of the false Europe. There is an alternative.

24. We must turn back ersatz religion.

The work of renewal begins with theological self-knowledge. The universalist and universalizing pretensions of the false Europe reveal it to be an ersatz religious enterprise, complete with strong creedal commitments—and anathemas. This is the potent opiate that paralyzes Europe as a political body. We must insist that religious aspirations are properly the province of religion, not politics, much less bureaucratic administration. In order to recover our political and historical agency, it is imperative that we re-secularize European public life.

25. We must restore a true liberalism.

This will require us to renounce the mendacious language that evades responsibility and fosters ideological manipulation. Talk of diversity, inclusion and multiculturalism is empty. Often, such language is deployed as a way to characterize our failures as accomplishments: The unravelling of social solidarity is ‘actually’ a sign of welcome, tolerance, and inclusion. This is marketing language, a language meant to obscure reality rather than illuminate. We must recover an abiding respect for reality. Language is a delicate instrument, and it is debased when used as a bludgeon. We should be patrons of linguistic decency. Recourse to denunciation is a sign of the decadence of our present moment. We must not tolerate verbal intimidation, much less mortal threats. We need to protect those who speak reasonably, even if we think their views mistaken. The future of Europe must be liberal in the best sense, which means committed to robust public debate free from all threats of violence and coercion.

26. We need responsible statesmen.

Breaking the spell of the false Europe and its utopian, pseudo-religious crusade for a borderless world means fostering a new kind of statesmanship and a new kind of statesman. A good political leader stewards the commonweal of a particular people. A good statesman views our shared European inheritance and our particular national traditions as magnificent and life-giving, but also fragile gifts. He does not reject that inheritance, nor does he chance losing it all for utopian dreams. Such leaders covet the honors bestowed upon them by their people; they do not lust for the approbation of the ‘international community,’ which is in fact the public relations apparatus of an oligarchy.

27. We should renew national unity and solidarity.

Recognizing the particular character of the European nations, and their Christian mark, we need not be perplexed before the spurious claims of the multiculturalists. Immigration without assimilation is colonization, and this must be rejected. We rightly expect that those who migrate to our lands will incorporate themselves into our nations and adopt our ways. This expectation needs to be supported by sound policy. The language of multiculturalism has been imported from America. But America’s great age of immigration came at the turn of the twentieth century, a period of remarkably rapid economic growth, in a country with virtually no welfare state, and with a very strong sense of national identity to which immigrants were expected to assimilate. After admitting large numbers of immigrants, America closed its doors very nearly shut for two generations. Europe needs to learn from this American experience rather than adopt contemporary American ideologies. That experience tells us that the workplace is a powerful engine of assimilation, that a generous welfare system can impede assimilation and that prudent political leadership sometimes dictates reductions in immigration—even drastic reductions. We must not allow a multicultural ideology to deform our political judgments about how best to serve the common good, which requires national communities with sufficient unity and solidarity to see their good as common.

28. Only empires are multicultural.

After World War II, Western Europe cultivated vital democracies. After the collapse of the Soviet Empire, Central European nations restored their civic vitality. These are among Europe’s most precious achievements. But they will be lost if we do not address immigration and demographic change in our nations. Only empires can be multicultural, which is what the European Union will become if we fail to make renewed solidarity and civic unity the criteria by which to assess immigration policies and strategies for assimilation.

29. A proper hierarchy nourishes social well-being.

Many wrongly think Europe is being convulsed only by controversies over immigration. In truth, this is but one dimension of a more general social unraveling that must be reversed. We must recover the dignity of particular roles in society. Parents, teachers and professors have a duty to form those under their care. We must resist the cult of expertise that comes at the expense of wisdom, tact and the quest for a cultured life. There can be no renewal of Europe without a determined rejection of an exaggerated egalitarianism and the reduction of wisdom to technical knowledge. We endorse the political achievements of the modern era. Each man and woman should have an equal vote. Basic rights must be protected. But a healthy democracy requires social and cultural hierarchies that encourage the pursuit of excellence and give honor to those who serve the common good. We need to restore a sense of spiritual greatness and give it due honour so that our civilization can counter the growing power of mere wealth on the one hand and vulgar entertainment on the other.

30. We must restore moral culture.

Human dignity is more than the right to be left alone, and doctrines of international human rights do not exhaust the claims of justice, much less of the good. Europe needs to renew a consensus about moral culture so that the populace can be guided toward a virtuous life. We must not allow a false view of freedom to impede the prudent use of the law to deter vice. We must be forgiving of human weakness, but Europe cannot flourish without a restoration of a communal aspiration toward upright conduct and human excellence. A culture of dignity flows from decency and the discharge of the duties of our stations in life. We need to renew the exchange of respect between social classes that characterizes a society that values the contributions of all.

31. Markets need to be ordered toward social ends.

While we recognize the positive aspects of free-market economics, we must resist ideologies that seek to totalize the logic of the market. We cannot allow everything to be for sale. Well functioning markets require the rule of law, and our rule of law should aim at more than mere economic efficiency. Markets also function best when they are nested within strong social institutions organized on their own, non-market principles. Economic growth, while beneficial, is not the highest good. Markets need to be oriented toward social ends. Today, corporate giganticism threatens even political sovereignty. The nations need to cooperate to master the arrogance and mindlessness of global economic forces. We affirm the prudent use of government power to sustain non-economic social goods.

32. Education needs to be reformed.

We believe Europe has a history and culture worth sustaining. Our universities, however, too often betray our cultural heritage. We need to reform educational curricula to foster the transmission of our common culture rather than indoctrinating young people into a culture of repudiation. Teachers and mentors at every level have a duty of memory. They should take pride in their role as a bridge between generations past and generations to come. We must also renew the high culture of Europe by setting the sublime and the beautiful as our common standard and rejecting the degradation of the arts into a kind of political propaganda. This will require the cultivation of a new generation of patrons. Corporations and bureaucracies have shown themselves to be poor stewards of the arts.

33. Marriage and family are essential.

Marriage is the foundation of civil society and the basis for harmony between men and women. It is the intimate bond organized around sustaining a household and raising children. We affirm that our most fundamental roles in society and as human beings are as fathers and mothers. Marriage and children are integral to any vision of human flourishing. Children require sacrifice from those who bring them into the world. This sacrifice is noble and must be honoured. We endorse prudent social policies to encourage and strengthen marriage, childbearing, and childrearing. A society that fails to welcome children has no future.

34. Populism should be engaged.

There is great anxiety in Europe today because of the rise of what is called ‘populism’—though the meaning of the term seems never to be defined, and it is used mostly as invective. We have our reservations. Europe needs to draw upon the deep wisdom of her traditions rather than relying on simplistic slogans and divisive emotional appeals. Still, we acknowledge that much in this new political phenomenon can represent a healthy rebellion against the tyranny of the false Europe, which labels as ‘anti-democratic’ any threat to its monopoly on moral legitimacy. The so-called “populism” challenges the dictatorship of the status quo, the ‘fanaticism of the centre,’ and rightly so. It is a sign that even in the midst of our degraded and impoverished political culture, the historical agency of the European peoples can be reborn.

35. Our future is the true Europe.

We reject as false the claim that there is no responsible alternative to the artificial, soulless solidarity of a unified market, a transnational bureaucracy, and glib entertainment. Bread and circuses are not enough. The responsible alternative is the true Europe.

36. We must take responsibility.

In this moment, we ask all Europeans to join us in rejecting the utopian fantasy of a multicultural world without borders. We rightly love our homelands, and we seek to hand on to our children every noble thing that we have ourselves received as our patrimony. As Europeans, we also share a common heritage, and this heritage asks us to live together in peace as a Europe of nations. Let us renew national sovereignty, and recover the dignity of a shared political responsibility for Europe’s future.

*  *  *

Signers:

Philippe Bénéton (France)

Rémi Brague (France)

Chantal Delsol (France)

Roman Joch (Czech Republic)

Lánczi András (Hungary)

Ryszard Legutko (Poland)

Pierre Manent (France)

Janne Haaland Matlary (Norway)

Dalmacio Negro Pavón (Spain)

Roger Scruton (United Kingdom)

Robert Spaemann (Germany)

Bart Jan Spruyt (Netherlands)

Matthias Storme (Belgium)

 

http://WarMachines.com

Kyle Bass Is Having A Bad Day – Greek Bank Stocks Crash To 16-Month Lows

Just over a month ago, Kyle Bass discussed why he was long effectively "long Greece."

Bass penned a Bloomberg editorial in which the hedge fund founder and CIO called on the IMF to stop bullying Greece –  publicizing the fact that he is now effectively long Greece. Greek government bonds have performed reasonably well so far this year: They’re up about 16%, and if Bass is right, they could have another 20% to 30% over the next 18 months if the IMF abandons its insistence on austerity and acknowledges that debt relief will need to be part of the long-term alleviation of debt. Bass added that, in the near future, voters will elect a more business-friendly government that will help reestablish the country’s creditworthiness, much like the government of Mauricio Macri did for Argentina. 

I think you also have an interesting political situation in Greece where I think there's going to be a handoff from the current Syriza government to kind of a more slightly-center-right but very economically independent new leadership in the next, call it, 18 months.

 

And so, I think you asked why now? And I think you're starting to see green shoots. You're starting to see the banks do the right things finally in Greece and you are about to have new leadership.

 

So, I think that you're going to see – and if you remember Argentina as Kirschner was going to hand-off – hand the reins over to someone that was much more let's say focused on business and economics than being a kleptocrat, I think you're going to see something again slightly similar in Greece where you have leadership today that might not be the right leadership and the government-in-waiting, I believe, and I think you know Mr. (Mitsutakous) – I think you're going to see something great happen to Greece in the and next, kind of, two years.

Then, just yesterday, the founder and chief investment officer of Hayman Capital Management, which manages an estimated $815 million in assets under management, told CNBC that he's been invested in Greek bank stocks that are trading at a quarter of book value.

According to Bass, foreign investors are waiting on the sidelines for a tectonic political shift to take place in 2018. The country is now preparing to end its international bailout program next year, with more than €320 billion (US$372 billion) in national debt. On Monday, Greece announced it will distribute 1.4 billion euros ($1.63 billion) as a social dividend to pensioners and others hit hard by the country's austerity program.

"My best guess is a snap election for prime minister will be called between April and September of next year and Prime Minister Alexis Tsipras will lose power.

 

"When that happens, there will be a massive move into the Greek stock market. Big money will flow in as investors feel more confident with a more moderate administration.

 

"It's going to take Kyriakos Mitsotakis, president of New Democracy, the Greek conservative party, to be voted in as prime minister to reform the culture and rekindle investor confidence," said Bass.

 

"I have no doubt €15 billion in bank deposits will come back to Greek banks if he's elected. The stock and bond markets will also jump following the election."

All of which brings us to today.

Greek bank stocks crashed over 8% today – plunging to the lowest since July 2016…

And in context, that's not good…

However, Bass is not pertrubed. As he explains, economic activity will get reenergized with the right leadership. The sectors global investors are eyeing right now are real estate, energy and tourism.

"There is so much potential," he said. "Pimco, Lonestar, KKR are all looking to buy commercial properties in Greece."

He also noted that the country will have marquee privatizations over the next two years.

"From my perspective, we have to fix two things in Greece for the market to take off," Bass said. "First, Greeks have to stop evading taxes. Second, they have to start repaying their loans."

Well if you believe him – you just got an 8% discount on your entry.

http://WarMachines.com

Futures Jump, Global Stocks Rebound From Longest Losing Streak Of The Year

After five consecutive daily losses on the MSCI world stock index and seven straight falls in Europe, there was finally a bounce, as investors returned to global equity markets in an optimistic mood on Thursday, sending US futures higher after several days of losses as global stocks rebounded following a Chinese commodity-driven rout. 

The House is poised to vote, and pass, on tax legislation although what happens in the Senate remains unclear. European shares rebounded for the first time in eight sessions, following Asian stocks higher as the global risk-off mood eased. The euro, Swiss franc and yen all weakened as the dollar edged higher. “After five or six days of steady selling you have got people coming back in looking for bargains,” said CMC Markets' Michael Hewson. “I think it’s temporary though. We haven’t had a significant sell off this year and the fact of the matter is that equity markets have done so much better than anyone dared to envisage.”

As Bloomberg echoes, "investors seem to be regaining their appetite for risk after several days of global declines in stocks and high-yield credit that had many questioning whether the selloff could become a rout."

Still, investor concern over the progress of a massive U.S. tax reform plan showed no sign of abating as two Republican lawmakers on Wednesday criticized the Senate’s latest proposal. U.S. President Donald Trump hit back, tweeting that “Tax cuts are getting close!”

“If we look at what the markets are focusing on, it’s still very much the tax cut debates in the U.S., and how much progress there’s going to be on this front,” Barclays' Mitul Kotecha told Reuters.

Indices in Tokyo, Shanghai and Hong Kong and Seoul all rallied overnight, while London, Frankfurt and Paris started 0.3-0.4% higher as cyclical stocks which had driven the sell-off made a comeback. In Japan the Topix index ended its longest losing streak in a year, rising 1% with technology stocks providing the biggest boost, and the Nikkei 225 advances 1.5%. The ASX (+0.2%) also managed to shake off its early losses, closing higher with the energy sector outperforming as consumer staples and utilities weighed. Chinese stocks edged lower despite a massive cash injection by the PBOC, while the Hang Seng moved higher. Hong Kong stocks rebounded from their worst day in four weeks, as insurers led by Ping An Insurance Group Co. jumped on optimism that rising bond yields will boost investment income. Tencent Holdings climbed after posting its fastest revenue growth in seven years.

China’s sovereign bonds finally rebounded, advancing after the central bank boosted cash injections by the most in 10 months, fueling speculation that the authorities are looking to stabilize sentiment after a debt selloff. Having flirted with 4% in recent days, the yield on 10-year government notes dropped 3 basis points to 3.95%; the 5-year yield fell 1 basis point to 3.95%. The 10-year yield surpassed 4% this week for the first time since 2014. The People’s Bank of China added a net 310 billion yuan ($47 billion) through reverse-repurchase agreements on Thursday, bringing this week’s open-market operation additions to 820 billion yuan, also the most since January.

European stocks bounce back from a seven-day rout – the longest losing streak of the year – that had erased almost 400 billion euros ($471 billion) from the value of the region’s benchmark. The Stoxx Europe 600 Index adds 0.7%, following gains in Asia and climbing from a two-month low. All national benchmarks in the region are in the green, except those in Italy and Greece. Most industry groups also rise, with automakers rebounding from an eight-day slump on data showing European car sales grew in October. Financial services firms and builders were among the biggest gainers in the broad advance of the Stoxx Europe 600 Index.

There was some relief too that oil prices had pulled out of what had been a near 5 percent drop and that upbeat U.S. data on Wednesday had helped the dollar halt the euro's sharp recent rise.

In currencies, the pound fluctuated as Brexit rhetoric rumbled on, and data showed U.K. retail sales barely rose in October. Concerns about Brexit continue to mount: an article in 'The Sun' newspaper, stated that UK PM May, could increase her divorce bill offer to the EU in December; deal would add GBP 20bln to the GBP 18bln said to already be on offer. Source reports indicate that EU is said to reject UK bid for `bespoke' trade deal, according to Politico. BoE's Carney states that the Bank will do whatever they can to support the UK economy during the Brexit transition period. Chancellor Hammond said to stick to fiscal rules and resist demands for spending surge in upcoming UK budget. Michael Gove is reportedly facing a Conservative party backlash as he is accused of using the cabinet to audition for UK Chancellor

The dollar index was slightly higher on the day at 93.828 having hit four- and five-week lows against the yen and euro. The euro was down around 14 ticks at $1.1760 retreating from a one-month top of $1.1860 on Wednesday. Havens underperformed on Thursday, with gold trading little changed, and the yen and Swiss franc among the worst-performing major currencies. The Swiss franc decreased 0.3 percent to $0.9918, the largest dip in more than two weeks.

Commodities largely stabilized as China’s central bank boosted the supply of cash in the system by the most since January, though oil eventually reversed a gain. Gold edged 0.1% lower to $1,277.29 an ounce. It reached $1,289.09 overnight, its highest since Oct. 20. Oil prices gained despite pressure after the U.S. government reported an unexpected increase in crude and gasoline stockpiles. They had lost ground to this week’s International Energy Agency (IEA) outlook for slower growth in global crude demand.

European government bonds took their cue from the U.S. benchmark, turning lower as the yield on 10-year Treasuries increased. Bond markets saw a broad rise in yields after mostly upbeat U.S. economic news on Wednesday had added to expectations the Federal Reserve will hike interest rates again next month as well as multiple times next year. Two-year Treasury yields US2YT=RR crept to fresh nine-year peaks in European trading, though significantly the U.S. yield curve remained at its flattest in a decade. European yields nudged higher too but the standout there was a fall in the premium investors demand to hold French debt over German peers to its lowest in over two years, almost to record lows.

Wal-Mart, Viacom, Best Buy and Applied Materials are among companies due to release results. Economic data include initial jobless claims, Philadelphia Fed Business Outlook.

Market Snapshot

  • S&P 500 futures up 0.4% to 2,574
  • STOXX Europe 600 up 0.7% to 384.61
  • MSCI Asia up 0.8% to 169.14
  • MSCI Asia ex Japan up 0.7% to 555.93
  • Nikkei up 1.5% to 22,351.12
  • Topix up 1% to 1,761.71
  • Hang Seng Index up 0.6% to 29,018.76
  • Shanghai Composite down 0.1% to 3,399.25
  • Sensex up 1% to 33,095.23
  • Australia S&P/ASX 200 up 0.2% to 5,943.51
  • Kospi up 0.7% to 2,534.79
  • German 10Y yield rose 1.3 bps to 0.389%
  • Euro down 0.1% to $1.1779
  • Brent Futures down 0.03% to $61.85/bbl
  • Italian 10Y yield rose 0.7 bps to 1.57%
  • Spanish 10Y yield rose 1.1 bps to 1.561%
  • Brent Futures down 0.03% to $61.85/bbl
  • Gold spot down 0.02% to $1,277.91
  • U.S. Dollar Index up 0.1% to 93.91

Top Overnight News

  • After a month of discussions, German Chancellor Angela Merkel faces a self-imposed end-of-week deadline to unlock coalition negotiations
  • British PM Theresa May saw some support from officials of her German counterpart Merkel
  • Manfred Weber, who leads Merkel’s Christian Democrats in the European Parliament and is a self-proclaimed skeptic on Brexit, changed his tone dramatically after meeting May saying the U.K. had a “credible” position and there was a “willingness to contribute to a positive outcome”
  • Sterling came under pressure after a Politico report said the EU’s Chief Brexit Negotiator Michel Barnier’s team flatly reject May’s bid for a “bespoke” trade deal
  • Fed officials are pushing for a potentially radical revamp of the playbook for guiding U.S. monetary policy. With inflation and interest rates still low, the central bank has little room to ease policy in a downturn
  • U.S. Treasury Secretary Steven Mnuchin is trying to persuade businesses and the Republican faithful to get behind a proposed tax overhaul from the Trump administration that so far lacks broad public support
  • The tax plan has provisions that may affect coverage and increase medical expenses for millions of families
  • President Robert Mugabe’s refusal to publicly resign is stalling plans by Zimbabwe’s military to swiftly install a transitional government after seizing power on Wednesday
  • Tax overhaul update: President Donald Trump is scheduled to head to the House, rallying Republican members before vote on tax bill
  • German Chancellor Angela Merkel meets heads of her Christian Democratic-led bloc, Free Democrats and Green party to kick coalition talks into gear
  • Cisco Sees First Revenue Growth in Eight Quarters; Shares Up
  • Koch Brothers Are Said to Back Meredith Bid to Buy Time Inc.
  • Health Care for Millions at Risk as Tax Writers Look for Revenue
  • Cerberus’s Feinberg Switches Strategy to Shake Up German Banking
  • Mattel Drops on Report That It Rebuffed Approach From Hasbro
  • New SUVs at Peugeot, Ford Offset U.K. Drag on Europe Car Sales
  • Google Sued for Using ‘Bait and Switch’ to Hook Minority Hires
  • Santos Seen Luring More Bids After Rejecting $7.2 Billion Offer
  • AT&T’s Clash With America Movil Slows Nafta Telecom Talks
  • Mobileye’s $15 Billion Deal Masks Drop in Israel Tech M&A
  • Mugabe’s Refusal to Resign Is Said to Stall Zimbabwe Transition

In Asian markets, a modest uptick in US stock index futures helped the Nikkei 225 stem some of its recent losses, with financials and retailers leading the way; as a result, he Japanese blue-chip index closed up 1.5%. The ASX (+0.2%) also managed to shake off its early losses, last closing up, with the energy sector outperforming (although this was on the back of confirmation of a rebuffed Santos takeover offer) as consumer staples and utilities weighed. Chinese stocks edged lower, while the Hang Seng moved higher Treasuries operated in a narrow range throughout the APac session, while JGBs were relatively listless, with a solid 20-year auction the highlight of the session. Aussie bond yields moved to session highs in the wake of the aforementioned labour market release, where they consolidated.

In European markets, equities kicked off the session on the front-foot in a continuation of some of the sentiment seen overnight during Asia-Pac trade (Nikkei 225 +1.5%). Some slight underperformance has been observed in the FTSE 100 with gains capped by a slew of ex-dividends which have trimmed 14.56 points off the index. Notable ex-dividends include both of Royal Dutch Shell’s listings, with the oil-heavyweight subsequently hampering the energy sector as WTI and Brent crude have failed to make any meaningful recovery from Thursday’s losses. Elsewhere, the likes of Fiat Chrysler (+2.5%) and Volkswagen (+2.4%) have been giving a help hand by the latest EU new car registration data. In fixed income, a limited reaction to better than forecast UK consumption data, and clear reservations about retail activity over the key Xmas and New Year period based on bleaker signals from anecdotal surveys and non-ONS data. Hence, Gilts dipped to 124.72 (-15 ticks vs +8 ticks at best), while the Short Sterling strip reversed pre-data gains to stand flat to only 1 ticks adrift before stabilising again. In truth, core bonds were already on the retreat from early highs (ie Bunds down to 162.43 vs 162.71 at best) in what appears to be a broad  retracement within recent ranges rather than anything more meaningful.

 

In FX, GBP has once again been a key source of focus with GBP/USD hit early doors amid reports in Politico that the EU are leaning towards rejecting the UK’s request for a bespoke trade deal. However, sentiment saw a mild recovery after reports in the Sun suggested that PM May could be on the cusp of upping her Brexit settlement offer in an attempt to kick-start trade talks. The main data release of the session thus far came in the form of UK retail sales which painted a less dreary picture of the UK economy than some had feared, although gains were short-lived as Brexit remains the focus. Marginal sterling buying was seen in EUR/GBP, trading around session lows, helped by a stop hunt through yesterday’s lows. Cable too saw a bid later in the session, benefiting from the weaker USD. Elsewhere, EUR/USD is back below 1.1800 vs the USD after topping out just ahead of October’s 1.1880 high, and now in a fresh albeit higher range flanked by big option expiries between 1.1795-1.1800 (913mln) and 1.1815-25 (4.8bln). Another roller-coaster ride for the Antipodeans, with AUD choppy on mixed labour data (headline count miss, but jobless rate and full employment upbeat) and pivoting the 0.7600 handle vs the USD.

In the commodities complex, as mentioned above, WTI and Brent crude futures have failed to make any noteworthy recovery from the sell-off seen on Tuesday with energy newsflow particularly light during today’s session thus far with markets looking ahead to the November 30th OPEC meeting which is set to give nations the instruction to extend oil production cuts. In metals markets, gold prices have traded in a relatively similar manner with prices unable to be granted any reprieve from their latest tumble. Elsewhere, Nickel and Copper have been weighed on, sending prices to multi-week lows as concerns around Chinese growth prospects continue to linger.

Looking at the day ahead, weekly initial jobless claims, Philly Fed PMI for November, import price index for October, industrial production for October and NAHB housing market index for November will be released. The BoE Carney’s, Broadbent and Haldane will all participate at a public plenary session while the ECB’s Villeroy de Galhau and Constancio are due to speak, along with the Fed’s Williams, Mester and Kaplan.

US Event Calendar

  • 8:30am: U.S. Initial Jobless Claims, Nov. 11, est. 235k (prior 239k); Continuing Claims, Nov. 4, est. 1900k (prior 1901k)
  • 8:30am: U.S. Philadelphia Fed Business Outl, Nov., est. 24.6 (prior 27.9)
  • 8:30am: U.S. Import Price Index MoM, Oct., est. 0.4% (prior 0.7%); U.S. Export Price Index MoM, Oct., est. 0.4% (prior 0.8%);
  • 9:15am: U.S. Industrial Production MoM, Oct., est. 0.5% (prior 0.3%); Capacity Utilization, Oct., est. 76.3% (prior 76.0%)
  • 9:15am: U.S. Bloomberg Consumer Comfort, Nov. 12, no est. (prior 51.5); Economic Expectations, Nov., no est. (prior 47.5)

Central Bank speakers:

  • 9:10am: Fed’s Mester delivers keynote address at Cato Conference
  • 1:10pm: Fed’s Kaplan speaks to CFA society in Houston
  • 3:00pm: ECB’s Constancio speaks in Ottawa
  • 3:45pm: Fed’s Brainard delivers keynote at OFR FinTech Conference
  • 4:45pm: Fed’s Williams speaks at Asia Economic Policy Conference

DB's Jim Reid concludes the overnight wrap

There has been a lot of noise around the HY market in the past week or so as a combination of macro factors along with some notable earnings misses have weighed on the market. iTraxx Crossover and CDX HY have widened by around 25bps and 30bps respectively from their most recent tights, while the price level of the largest USD HY ETF (HYG US) is basically back to the same level as where it started the year, however this overstates the move in the US cash market and even more so in Europe. Looking in more detail at the cash market US HY has widened by around 60bps and EUR HY is 46bps wider from the  recent cycle tights only a few weeks back but both are still around 25bps and 100bps tighter on the year respectively.

In a broad historic context the recent moves hardly register but in the context of a year that has been headlined by extremely low levels of volatility they are certainly significant. For EUR HY there were two other periods where we saw some sort of correction this year. In March/April (ahead of the French elections) the index widened 27bps in 42 days and then in August/September (after the North Korean escalation) we saw a 29bps widening over 30 days. So the current 46bps of widening in just 12 days has been somewhat more aggressive than anything else we’ve seen this year.

Looking at similar data for the US we have also seen two previous corrections. In March spreads widened 61bps in 20 days and then in July/August we saw 45bps of widening in 15 days. So the current c.60bps widening over 22 days is actually of a similar magnitude to this year’s previous corrections. The moves look even more stark when we focus on single-Bs though. EUR single-Bs have widened by more than 100bps from the most recent tights, more than halving the YTD tightening we had seen. For USD single-Bs the recent widening (65bps) has actually reversed more than 80% of the YTD spread tightening we had seen to the recent tights.

The question from here is whether this recent back-up in spreads is simply going to lead to a fresh buying opportunity or whether it will lead to something more significant. Despite some of the recent profit warnings we think that it is more likely to be the former at the moment. But at the very least the pace of this turn around highlights how quickly market sentiment can change, especially when spreads are so tight. HY was looking very very stretched relative to IG in Europe and this corrects some of that. Overall it certainly provides us with some food for thought as we look to publish our 2018 outlook in the next 10 days.

Even though US HY has been one of the weaker markets of late there’s no doubt that the recent global equity sell off has struggled to gather momentum as the US session has progressed over the last week. Following through on this, Asia has been weak since the Nikkei sudden sell-off last week and Europe has followed with yesterday seeing the 7th successive daily fall in the Stoxx 600 (-0.49%) – the longest losing streak since October/November 2016. Meanwhile yesterday the US (S&P 500 -0.55%) again closed off the early session lows showing that this equity sell-off isn't really being US led. For the record since last Wednesday's close the S&P 500, Stoxx 600 and Nikkei are down -1.15%, -3.17% and -3.86% respectively which helps illustrate this.

Volatility has been on the way up though even in the US over this period. The VIX spiked to 14.51 intraday which was the highest since August 18th. It closed at 13.13 (+13%) which is still the highest since the same period. Meanwhile the VSTOXX index was up +2.25% and is now at the highest level since early September.

This morning in Asia, markets have stemmed losses and are trading higher. The Nikkei (+1.24%), Kospi (+0.52%), Hang Seng (+0.53%) and ASX 200 (+0.30%) are all up as we type. WTI oil is trading marginally higher and after the bell in the US, Cisco was up c6% after guiding to its first revenue gain in eight quarters.

On now to the big data of the yesterday and possibly the month. US Core CPI inflation surprised modestly to the upside in October, rising 0.225% in month-on-month terms (a firmer 0.2% print than DB expected). This raised the year-overyear rate to 1.8% (1.7% expected). The data provide additional evidence that the core inflation trend is firming after a string of very weak prints earlier this year. According to our economists, the three-month annualised change in core CPI inflation is now at 2.4%, the strongest since February 2017. We think inflation is turning a corner and regular consistent misses vs expectations will not be a feature of markets in 2018.

Staying in the US, the House’s version of the tax plan is reportedly on track for a vote on Thursday (local time). In terms of the Senate’s version, rhetoric appears to be heating up as the mark up process continues. The Democrats were reportedly not impressed with the last minute change to add in the repeal of the Obamacare individual mandate, to which Republican Senator Collins partly agrees on, noting that it “gravely complicated our efforts to combine tax reform and changes”, although she has not decided whether to vote against the bill or not. Elsewhere, Republican Senator Johnson has publicly confirmed that he is opposed to the revised GOP plan as it stands, in part as it does not do enough to help partnerships relative to the larger tax cuts for corporates.

Quickly recapping other markets performance from yesterday. Bond markets were firmer with core bond yields down 2-5bp (UST 10y -5bp; Bunds -2.1bp; Gilts -3.5bp) while peripherals underperformed with Portugal bonds leading the softness (+2.5bp). Key currencies were little changed, with US dollar index marginally higher, while Euro dipped -0.06% but Sterling rose 0.05%. In commodities, WTI oil fell another -0.70% (-3.2% for the week), in part following reports that Russia believes it’s too early to announce a potential extension of production cuts at OPEC’s meeting at end of the month. Notably, WTI is still up c18% from late August. Elsewhere, precious metals softened a little (Gold -0.16%; Silver -0.14%) and other base industrial metals were little changed (Copper -0.45%; Zinc -0.54%; Aluminium +0.36%).

Away from the markets, there were a deluge of Fed and ECB central bankers commentaries yesterday but overall contained minimal market moving information. In the details, the Fed’s Evans noted he was open-minded regarding policy action at the December FOMC ahead of discussions with fellow colleagues and sounded dovish on inflation, noting “I feel we are facing below target inflations” while reiterating the US labour market is “vibrant” and unemployment rate “could go below 4%”.

In Europe, the ECB’s Hansson was upbeat on the demand side of the economy and “feel more confident that inflation will eventually reach the levels consistent with our aim”. Elsewhere, the ECB’s Praet pointed to the importance of interest rates post QE, noting that “policy rates will eventually regain their status as the main instrument of policy, and our forward guidance will revert to a singular approach”. Finally, the ECB’s Coeure noted that it’s important for the ECB “to ensure that our own measures do not adversely affect the intermediation capacity of repo markets”.

Over in China yesterday, there were more signs that the government may tolerate slower economic growth in 2018. The Economic Daily reported that the deputy head of the Research Office of the State Council Ms Han has flagged that GDP growth at 6.3% in 2018-2020 would be sufficient to achieve the Party's 2020 growth target. As a reminder, our Chinese economists expect GDP growth to slow to 6.3% yoy by 1Q.

Finally, over in Zimbabwe, President Mugabe’s c40 years of power may be coming to an end with Bloomberg reporting the 93 year old was confined to his home, with military forces taking control of state owned  media outlets and sealing offthe parliament and central bank’s offices.

Before we take a look at today’s calendar, we wrap up with other data releases from yesterday. In the US, the core retail sales for October (ex-auto & gas) was in line at 0.3% mom, but with the prior reading upwardly revised by 0.1ppt. Elsewhere, the September business inventories was flat and in line for the month. Finally, the November empire manufacturing index fell from a c3 year high of 30.2 to a still solid reading of 19.4. After the recent economic data, the Atlanta Fed’s GDPNow estimate of 4Q GDP growth has edged 0.1pp lower to 3.2% saar.

In the UK, the September unemployment rate was in line and steady at 4.3% – still at a 42 year low, while the average weekly earnings remains low but was slightly above expectations at 2.2% yoy (vs. 2.1% expected). Elsewhere, jobless claims (1.1k vs. 1.7k previous) and claimant count rate (2.3% vs. same as previous) were broadly similar to prior readings. The Eurozone’s September trade surplus widened to EUR$25bln (vs. EUR$21bln expected), while the final reading for France’s October CPI was unrevised at 0.1% mom and 1.2% yoy.

Looking at the day ahead, the final October CPI report for the Euro area will be out. UK retail sales data for October and Q3 employment data for France will also be released. In the US weekly initial jobless claims, Philly Fed PMI for November, import price index for October, industrial production for October and NAHB housing market index for November will be released. The BoE Carney’s, Broadbent and Haldane will all participate at a public plenary session while the ECB’s Villeroy de Galhau and Constancio are due to speak, along with the Fed’s Williams, Mester and Kaplan.

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The EU’s Biggest Standing Armies

As we detailed previously, the foreign and defense secretaries of 23 EU countries (out of 28 in total) agreed on Monday to take further steps towards forming a European defense force.

Five countries opted out: The United Kingdom (that's is leaving the EU), Denmark, Ireland, Portugal and Malta.

The defense union has been on the agenda for a long time and is called the Permanent Structured Cooperation, or PESCO.

This chart shows the EU countries with the largest standing armies, according to data provided by GlobalFirePower.com.

Infographic: The EU's Biggest Standing Armies | Statista

You will find more statistics at Statista

It counts in all active military personnel, so-called "ready-to-fight" elements, but not civilian employees or reservists.

France has the biggest standing army, counting 204,000 Soldiers, followed by Germany and the relatively small Greece.

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Doug Casey On Why Race Will Break The US Apart, Part I

Via CaseyResearch.com,

“America is a marvelous idea, a unique idea, fantastic idea. I’m extremely pro-American. But America has ceased to exist.”

Longtime readers will recognize this. It’s one of Doug Casey’s more memorable quotes.

I’m sharing it with you today because Doug said something last week that touched on this radical idea. He said the United States could break apart due to racial tensions.

Most people haven’t considered this possibility. After all, the U.S. is supposedly a “melting pot” where different races can coexist peacefully.

So, a few days ago, I called Doug to learn why he thinks this. Below is the first part of our discussion.

*  *  *

Justin: Doug, the last time we spoke, you said the United States could break apart because of racial tensions. Why do you think that?

Doug: Well, I used to know a guy by the name of Michael Hart. He would come to our Eris Society meetings in Aspen. Eris was a private annual event I ran for 30 years, for authors, scientists, and people who were well-known for something. It enabled people who might not otherwise meet to get to know each other and exchange ideas. Michael was a university prof, best known for his book The 100: A Ranking of the Most Influential People in History.

One year, he gave a speech about how the U.S. was going to break up into smaller countries, and part of it would be on racial lines.

I thought that unlikely at the time; it was about 1990. Now, I think Michael may have been right.

I’ll explain why in a minute. But we should first discuss the origins of democracy.

Democracy originated in 6th-century BC Greece. It was a unique and workable method of governance for city-states of a few thousand people. And in the case of Athens, as many as 40,000 people.

But these people all shared a common language. They worshipped the same gods. They were the same ethnicity. They had the same customs and beliefs.

They were like an extended clan with many similarities. Differences were among individuals, not groups.

When the U.S. democracy was started, it was much like that. It was very much like a Greek city-state, an extended one. Everybody shared culture, ethnicity, language, habits, and so forth, with just minor regional differences. People saw themselves first as New Yorkers, Virginians, or whatever, just as the Greeks saw themselves first as Athenians, Thebans, Corinthians, or many scores of other polities.

As you know I don’t believe in democracy, I believe in personal freedom. Democracy is workable enough in something like a cohesive city-state. But absolutely not once voters get involved in economic issues—the poor will always vote themselves a free lunch, and the rich will buy votes to give themselves more. Democracy always devolves into class warfare.

In ancient Greece, if you weren’t a landowner you weren’t respected. In the U.S., voting rules were determined by the States, and originally, everywhere, you had to be a landowner. That meant you had something to lose. But that’s not the case anymore.

Justin: What’s changed?

Doug: For one thing, anybody can vote. People who are penniless. Eighteen-year-olds who have no knowledge or experience and are fresh out of the indoctrination of high school. Lots of non-citizens, probably millions, manage to vote. Voting has become, as H.L. Mencken said, just an advance auction on stolen goods.

For another thing, today, the United States is multicultural. America used to have its own distinct culture; the U.S. no longer stands for anything.

Race is just the most obvious thing that divides people. You can see that somebody’s of a different race just by looking at them. The old saying about birds of a feather flocking together is basically true. It’s very politically incorrect to make that observation, of course. Certainly if you’re white. But it’s factually accurate. Most things that are PC fly in the face of reality.

If people are of a different race, it increases the chances that they’re not going to share other things. The key, for a rational person, is to judge people as individuals. Race, sex, religion, and cultural background are quick indicators of who a person might be. As are dress, accent, attitude, and what they say among many other indicators. You need as much data as you can get to help you judge what the other person will do, and who he is. It’s actually quite stupid to not discriminate among people you encounter. But then the whole PC movement is quite stupid by its very nature.

But, back to the subject, you can’t have a multicultural democracy. And you especially can’t have one where the government is making laws that have to do with economics…where it allocates wealth from one group to another group.

So, sure. The U.S. is going to break apart, and you can certainly see it happening along racial lines. The active racism among many blacks isn’t an anomaly.

Justin: I agree that racial tensions are rising in this country. But that’s clearly not the only source of tension. What else might cause the U.S. to break apart?

Doug: Cultural differences.

The Pacific Northwest draws people who like the idea of ecotopia. Southern California draws a very different type of person than Northern California does. People that live in Las Vegas are quite different from the people that live in Omaha, and very different again from people that live in New York.

The U.S. has turned into a domestic empire. It’s no longer the country that it was when it was founded.

And the constitution itself has changed at least as much. It’s a dead letter. Mainly window dressing. It’s been interpreted out of existence.

Sure, the U.S. is going to break up; throughout history the colors of the map on the wall have always been running. I don’t think the racial situation in the near term is going to get better. And the breakdown of the culture is definitely getting worse.

On the other hand, there’s more racial intermingling and marriage now than there’s ever been in the past. If we look down the road 1,000 years or so, racial distinctions will probably disappear. The average person will probably look like most Brazilians. Brazil, incidentally, is theoretically an integrated country—but there’s still a huge amount of racism. Go farther into the future, when homo sapiens has conquered the planets and hopefully the stars, and we’ll likely transform not only into new races, but new species. But I don’t think any of us are looking that far ahead.

*  *  *

Stay tuned for Part II of our discussion tomorrow. In it, Doug explains why the U.S. is “no longer a country”… And gets into all the problems that are bubbling to the surface…

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Manic Tories Trump Monty Python

Authored by Raul Ilargi Meijer via The Automatic Earth blog,

There can be little doubt that the British, in general, have a sense of humor. And that’s perhaps the lens through which we should view the country these days. After all, what other options do we have? A comment yesterday to a Guardian article sums up the situation quite perfectly in just a few words (note: Dignitas has something to do with assisted dying):

Brexit is rapidly becoming like someone who booked a trip to Dignitas when they were told they were dying and has now been told there’s a cure. But they’re going to Switzerland anyway, because they can’t face dealing with Ryanair’s customer service team.

There are two main British political parties, Tories and Labour, which fight each other whenever and wherever they can. Moreover, each party has several camps that fight each other even more, if at all possible. The George W.- friendly Tony Blair Orchestra in the Labour Party seems to have lost out to the actually left-wing Jeremy Corbynistas for now, but they won’t give up without a fight (power is their only hobby). Blair is still commenting from the sidelines on Corbyn’s perceived follies while his faithful lament about how their Tone was misled by 43 into bombing Iraq.

The Tories have gone full-monty Monty Python. John Cleese et al must feel at least a pang of jealousy. 40 Tory MPs have allegedly gathered to demand for PM Theresa May to quit. A whole bunch of both Labour and Tory lawmakers threaten to tackle her over not allowing them a vote in any Brexit deal (which for now is entirely hypothetical). Other voices across party lines demand the resignation -or sacking- of foreign not-so-very-ministerial Boris Johnson.

One Tory MP, the Rt. Hon. John Redwood MP, who’s also Chief Global Strategist for Charles Stanley, wrote an op-ed in the FT telling investors to pull their money out of the UK. You can’t make that kind of stuff up. Or you can, but no-one would believe a word. The Python crew would have never made a dime if they had started out today, because life in Britain has now seriously trumped art. When the other guys are funnier without even trying, maybe comedy’s not your thing.

And that’s how we slide seamlessly right down into Theresa May and the Holy Grail, the probably best representation of what is going on. May never wanted a Brexit, but she’s so power hungry that she jumped at a chance of defending what she doesn’t believe in. By the way, apart maybe from Corbyn, all the actors in this comedy are in it not because they care for their country, but for themselves, exclusively. Brilliant video, by the way.

Not that Brexit is necessarily such a terrible thing. Putting distance between yourselves and the European Union may well be the most sensible thing there is. Because Brussels is now defined more than anything by what it has done -and failed to do- to Greece, to the refugees and to Catalonia. And it will never be able to shake that off. The EU, just like the UK, is ruled by people who care only about themselves. Our political systems self-select for sociopaths, with precious few exceptions.

Even if you see Brexit as a purely economical move, which most people do even though it’s very much not true, the British people should rejoice knowing that they won’t be the ones forking over for the next pan-European bank bailout. Then again, they’ll have to bail out their own banks. Which have grown way out of hand, the price paid for wanting to become a global finance center.

Nor will the British people be forced to pay up for the newly-revived, scary-as-hell and unholy idea of a European army, an idea that originated in the 1950s and has re-gained support the very moment Britain voted for Brexit:

EU To Sign Defense Pact, May Allow Limited British Role

France, Germany and 20 other EU governments are set to sign a defense pact on Monday they hope marks a new era of European military integration to cement unity after Britain’s decision to quit the bloc. In Europe’s latest attempt to lessen its reliance on the United States, the 22 governments will create a formal club that should give the European Union a more coherent role in tackling international crises.

 

“We’ve never come this far before,” said a senior EU official said of EU defense integration efforts that date back to a failed bid in the 1950s. “We are in a new situation.” The election of pro-European Emmanuel Macron as France’s president and warnings by U.S. President Donald Trump that European allies must pay more towards their security have propelled the project forward, diplomats said.

 

[..] A system to spot weaknesses across EU armed forces, in coordination with U.S.-led NATO, is due to start in a pilot stage, while a multi-billion-euro EU fund to support the pact is still under negotiation. Long blocked by Britain, which feared the creation of an EU army, defense integration was revived by France and Germany after Britons voted to leave the EU in June 2016.

 

[..] London is not part of the initiative but British officials have been pressing for third country involvement. Britain’s aerospace industry and its biggest defense firm BAE Systems fear losing out, diplomats said. Britain may be able to join in, but only on an exceptional basis if it provides substantial funds and expertise.

They don’t even know who’ll be the leader of this European Army. There are plenty of reasons this was voted down 60 years ago and left in the dustbin ever since. A German supreme commander, anyone? The female German minister of defence just yesterday let slip that she supports regime change in Poland. That’s all you should need to know.

This is presented in Brussels as a money saver. European countries have too many different weapons systems, is the reasoning, and need to become ‘more efficient’. I bet you right here and now that it will cost Europe an arm and an extra leg or two-three. But not Britain. Which can also, simultaneously, if and when sensible people are in office, ditch its grandiose notions of being an empire or world power, and cut its armed forces by 50 or 75%.

And while they’re at it, cut its arms industry into little pieces and flush them down the Thames. Brexit can be an opportunity, a chance for the country to fully re-invent itself. But first, the Python-styled tragic comedy starring Theresa and Boris will have to be played to its tragic finale. To that end, and since it just wouldn’t feel fair to leave him out, let’s make sure we reserve a role for George Orwell as well – it comes natural:

UK Government Tensions Rise After Leak Of ‘Orwellian’ Memo Sent To May

The tensions in Theresa May’s government intensified on Sunday night ahead of this week’s vital votes on the Brexit bill, as ministers accused Boris Johnson and Michael Gove of sending an “Orwellian” set of secret demands to No 10. As an increasingly weakened prime minister faces the possibility of parliamentary defeats on the bill, government colleagues have said they are aghast at the language used by the foreign secretary and the environment secretary in a joint private letter.

 

The leaked letter – a remarkable show of unity from two ministers who infamously fell out during last year’s leadership campaign – appeared to be designed to push May decisively towards a hard Brexit and limit the influence of former remainers. It complained of “insufficient energy” on Brexit in some parts of the government and insisted any transition period must end in June 2021 – a veiled attack on the chancellor, Philip Hammond.

A decision as big and defining as Brexit should always have been executed by a government, or a coalition, in which as broad a spectrum of the population as possible is represented. It’s crazy to let just one party push through their version, especially when views are so divergent and tensions run this high. The Tories have just a slight majority.

But really, all Labour have to do is wait until May and Boris and Gove and all the others run out of gas and their engine seizes. They lost two ministers in a week and more will follow. So Labour makes a peace offer, knowing full well it won’t be accepted, but has to be made just for form.

As per tomorrow, May’s EU Withdrawal Bill will be discussed in Parliament and the next episode of Theresa May and the Holy Grail can start. John Cleese will be watching, thinking every five minutes: “Why didn’t I think of that?”. The Bill will be ripped to shreds, between a Hard Brexit and a No Brexit side, and hundreds of amendments, and May will be ripped along with it.

Even her chances of lasting just the week are slim. She has to turn to Labour for support, but she can’t. If she does, Boris will smell his opportunity for the top post. He might even get it, but that would lead to something awfully close to civil war; still, maybe that’s inevitable anyway, and perhaps it would be a good thing. Cards on the table.

UK Labour Makes Brexit Offer to May as Future in Balance

Keir Starmer, the party’s Brexit spokesman, wrote to May on Monday telling her there was a “sensible majority” in Parliament to secure a two-year transition deal for after Brexit. That would allow Britain to stay inside the European Union’s single market and customs union after 2019 while it completes trade talks with the bloc. He said the opposition to such an arrangement came from Conservatives.

 

“Over recent weeks, it has become increasingly clear that you alone do not have the authority to deliver a transitional deal with Europe and to take the necessary steps to protect jobs and the economy,” Starmer wrote in the letter, which was released by his office.

 

May is unlikely to welcome Labour’s offer, which highlights the fragility of her position. The premier, who lost two cabinet ministers in a week to different scandals, has received a letter from pro-Brexit rival Boris Johnson demanding a bolder approach to the divorce, the Mail on Sunday reported. And 40 Conservative lawmakers back a challenge to her leadership, The Sunday Times said, just eight short of the number that triggers a vote.

 

[..] May’s landmark Brexit legislation, the EU Withdrawal Bill, returns to Parliament on Tuesday, where it faces hundreds of proposed amendments to be considered over eight days of debate. Even with the backing of Northern Ireland’s Democratic Unionist Party, May only has a slim majority. Tories who want to keep close ties to the EU have put their names on many of the measures, suggesting the government will have to back down or be defeated.

They’re talking about dates and timelines to present proposals to the EU, but they’ll never agree on any. And even if they do, Brussels will be ready to tear them to pieces.

It’s hard to see how a Brexit will ever happen, but it’s easy to see that if it ever does, it’ll be an absolutely fabulous mess. And then even John Cleese won’t be laughing anymore.

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Visualizing The Rapidly Aging Western World

From issues such as declining fertility rates to the ongoing complications resulting from China’s famous “One Child Policy”, there are many demographic challenges that the world must grapple with in the coming years.

However, Visual Capitalist's Jeff Desjardins notes one problem of particular importance – at least in places like Europe and the Americas – is a rapidly aging population. As the population shifts grayer, potential consequences include higher dependency ratios, rising healthcare costs, and shifting economies and cities.

EUROPE: A PRIME EXAMPLE

We’ve discussed Germany’s demographic cliff before, but it’s not only Germany that will be impacted by a rapidly aging population.

The above animation from data visualization expert Aron Strandberg shows the median age of European countries between 1960 and 2060.

Starting about a decade from now, you can see that the U.N. projects some European countries to start hitting a median age of 50 or higher. This includes countries like Spain, Italy, Portugal, and Greece, and then later Germany, Poland, Bosnia, and Croatia.

The UK, France, Ireland, Scandinavia, and former Soviet countries will be younger – but only slightly so. Median ages in these places by 2060 will be in the early to mid-forties.

THE AMERICAS

Populations in North and South America are also graying fast, though not quite at Europe’s pace.

Here’s a similar map of the Americas that highlights median age between 1960 and 2060, based on U.N. projections.

Chile and Brazil, in particular, are trending older. Meanwhile, Canada is not far behind with an expected median age of 45 in 2060. Interestingly, the United States is anticipated to only hit a median age of 42 by 2060, which is lower than almost all Western countries.

While this makes the U.S. look younger in comparison, the country will still experience the same type of economic burden from an aging population. In fact, it’s expected that the population of Americans older than 65 years will nearly double from 48 million to 88 million over the coming three decades.

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Dijsselbloem Admits “We Used Taxpayers’ Money To Bailout The Banks”

“We had a banking crisis, a fiscal crisis and we spent lot of the tax-payers’ money – in the wrong way, in my opinion – to save the banks” outgoing Eurogroup head Jeroen Dijsselbloem said adding “so that the people criticizing us and saying that everything was being done for the benefit of the banks were to some extent right.”

As KeepTalkingGreece.com reports, Dijsselbloem was responding to a question posed by leftist MEP Nikos Chountis during a session at the European Parliament’s Employment and Social Affairs Committee on Thursday.

“This is valid for the banks of all our countries. Everywhere in Europe banks were saved at taxpayers’ cost,” he underlined.

 

“This was the reason for banking union and the introduction of higher standards, better supervision and a reform and rescue framework when banks have losses,” he said stressing  “precisely so that we don’t find ourselves in that situation again.”

Despite the admission he supported the fiscal programs for Greece. He claimed that “there have been measures to boost employment.” He confirmed “even today when I spoke with the [lenders’] institutions they assured me that the third review is going well.”

Labor market reforms, unemployment

The labour market reforms adopted by Greece had brought “clear improvements” that were reflected in the latest unemployment figures in the country, Dijsselbloem said without daring mentioning, of course, the rise of part-time and flexible work contracts that ‘bless’ workers with wages that cannot feed them.

He said that Greece has implemented a great many labour market reforms as part of its programme, which sought to increase the competitiveness of the Greek economy by making the labour market more flexible and correcting imbalances.

“Labour market reform is a delicate balancing act, particularly in the context of a fragile economy. On the one hand there is the crucial issue of respect of workers’ social rights, on the other hand there is the need to preserve flexibility and improve the relative attractiveness of labour as a production factor.”

On collective bargaining, he said these had been frozen to “correct” imbalances caused by excessive wage hikes after the introduction of the euro but agreed that restoring them was now a priority, saying that this would happen at the end of the programme in the summer of next year.

The reforms carried out in Greece until now were “a good compromise,” Dijsselbloem added.

Greek program

On the programme as a whole, Dijsselbloem said the economic situation in Greece had improved as a result of the reforms and stressed the need to conclude the third review on time, while appearing confident that a staff-level agreement have be achieved before the end of the year, so that the next disbursement of loans to Greece can be approved at the start of 2018.

A downward revision of Greek growth rates in 2017 was due to the delay in concluding the second review, he said, but a swift conclusion of the third review will significantly boost confidence and enable growth rates as high as 2.5 pct of GDP in 2018.

“In August we come to the end of the programme and from then Greece stands again fully on its own feet, not just financially but also in policy terms…I hope that there will be such strong effects by then in terms of growth and improvement that the motivation to continue what has been done will be strong,” he said.

 

“If there are, again, adverse shocks or underperforming of growth in Greece, we stand ready to do more to alleviate the Greek debt issue. Work on that mechanism, which is going to be very important in coming decades, will start at the beginning of the year and hopefully then we will go toward the exit of the programme,” he added. (Dijsselbloem speech amna.grtvxs.gr)

We? Dijsselbloem’s term as Eurogroup head ends in December 2017, he should have packed his luggage by January 2018.

*  *  *

So, Dijsselbloem claims he did not agree with “saving the banks” but apparently had to agree following his master’s voice? Whatever… He will go into history as the most wimpy president of the Eurogroup. But who cares? Oh, the millions of Greeks living at the poverty line or below and the more than 3,000 people who committed suicide  unable to cope with the financial crisis. And the crisis is not over. Not for the real people. Maybe for the country , Greece, but not for the real people.

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Steve Keen: How I Sold Out To The Putin-Soros-Murdoch Conspiracy To Destroy Western Civilization

Authored by Steve Keen via RT.com,

I was delighted to find myself in the Top Ten (alright; top 15) of the European Values list of 2,326 “Useful Idiots” appearing regularly on RT shows, and thus legitimizing Vladimir Putin’s attempt to destroy Western civilization as we know it.

Why delighted? Because it completes the set of conspiracies to which I can now be accused of belonging. They include:

  • The Putin Conspiracy, since I am regularly interviewed on Russia Today (and even worse, I now get paid to write for RT!);

  • The Soros Conspiracy, since my research, has been funded by the Institute for New Economic Thinking (INET) which he established;

  • The Murdoch Conspiracy, since I appear every week on Sky News Australia with Carson Scott, and I used to get paid by News Ltd to write a weekly column; and

  • The Alt-Right Conspiracy, since I’ve signed a book contract with Vox Day’s publishing firm Castalia House.

So not only am I a “useful idiot,” I’m a useful idiot for four contradictory conspiracies. Does that make me a double-double agent?

No, it makes me someone who’s quadruple pissed off with people who attempt to understand the world from the perspective of conspiracy theories in the first place. I don’t deny the existence of conspiracies: in fact, far from it, because they’re everywhere. What I do deny is the implicit assumption that the conspirators understand the system they’re attempting to manipulate.

For example, I’ve heard plenty of conspiracy theorists assert that the 2008 financial crisis was caused by the Federal Reserve/George Soros (Hi George!)/Hedge Funds/Academic-Economists-Who-Peddle-The-Efficient-Markets-Hypothesis, and “they” profited from it.

This implies “they” knew what “they” were doing. Pardon me, but I’ve met many of these protagonists – and in the case of academic economists, I’ve worked with them for 30 years. “They” don’t have a clue (except George). Even those that were actively conspiring—like many hedge funds during the subprime bubble were doing so on the basis of utterly deluded theories about how the system they were trying to game actually worked. Where apparent conspiracies did work, like Soros’s punt against the British Pound decades ago, they did so because a CSP (Clever Sinister Person) bet against the conventional wisdom of others who thought they understood the system (and did not), rather than because the CSP set up the whole thing in the first place.

Higher standards

As for the argument that I’m unwittingly playing into Vladimir Putin’s malevolent plans for Western democracy by being interviewed on RT, I have three rebuttals.

The first and most important is that RT simply has better programs and better journalists than, for example, the BBC.

I would gladly discuss issues such as what caused the 2008 economic crisis on the BBC, were I asked. But the BBC (and most other Western outlets that European Values and other conspiracy theorists think are superior to RT) just isn’t interested in the issues. With precisely two honorable exceptions, BBC programs and its journalists have only been interested in a story involving me when there was a personality angle to it.

I have been interviewed by the BBC 11 times since I arrived in the UK in mid-2014. Only two interviews were motivated by the journalist’s or program’s genuine interest in my non-orthodox approach to economics: a HARDtalk interview in August 2016, and an interview by Alice Baxter in January 2016.

Fully six were about my friend Yanis Varoufakis when he was Greece’s finance minister.

Two others were on November 3rd, 2016, about some news story that I’ve since forgotten.

And my most recent interview on the BBC, on September 14th this year to mark the 10th anniversary of the collapse of Northern Rock, was the clincher for me. That failure was the most significant financial event in the UK in almost eighty years: it was the first bank run since the Great Depression. I was pleased to be asked to discuss it on air, and I expected a serious treatment of it.

Instead, the item consisted of a two-minute introduction by one presenter, and a three-minute exchange with another which rates as one of the most vacuous interviews I’ve experienced in forty-five years of being interviewed by journalists (my first was as a 19-year-old politically active student at the University of Sydney in 1972). I did my best to answer inane questions seriously, but as one member of my Patreon community commented, you could see my answers parting the journalist’s hair. That was a cruel remark, but frankly a fair one.

BBC vacuum

Which raises the second riposte: why aren’t there shows that are interested in the in-depth analysis of economic issues on the BBC? Shows like the RT staples on which I was and continue to be interviewed regularly: Capital Account, the Boom Bust, the Keiser Report, Renegade Inc, the 7pm News with Bill Dod, and Going Underground.

It’s not because the programs were devised by dastardly Russian stooges: most of them were developed by independent broadcasters and pitched to a number of outlets. I know for a fact that at least one of these shows was pitched to the BBC before it was offered to RT. They weren’t interested, but RT was.

This isn’t because the BBC – and most Western media outlets – were too highbrow for these programs: the opposite is more the case. The BBC and its commercial rivals seem more interested in infotainment than analysis, more concerned with filling time with fancy graphics and pretty (male and female) talking torsos, than in actually getting to grips with the serious economic issues in a seriously challenging world.

The third rebuttal, which I’ll develop in more depth in a later column, is that if I can help strengthen Russia as a rival axis of power to the USA, then I think that’s a good thing. I’d rather have a bipolar (or tripolar) battle for global dominance between two (or more) Superpowers, than have a unipolar world with a single Superpower, led by a leader with a bipolar personality.

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Italy Target2 Imbalance Hits Record €432.5 Billion As Dwindling Trust In Banks Plunges

Authored by Mike Shedlock via www.themaven.net/mishtalk,

Contrary to ECB propaganda, Target2 imbalances are a direct result an unsustainable balance of payment system. The imbalances represent both capital flight and debts that can never be paid back. If you think Italy can pay German and other creditors a record €432.5 Billion, you are in Fantasyland.

The interesting aspect of Italy's new record Target2 Imbalance is that it comes just as Dwindling Trust in Italian Banks is on the rise.

Just 16 percent of Italians have confidence in the country’s lenders, down from an already meager 17 percent in June, according to a poll by the SWG research group of Trieste on Friday. Only 24 percent trust the Bank of Italy, plunging from 36 percent in June.

 

One likely reason: a tortuous bank crisis that caused losses for savers and led the government to rescue three lenders with taxpayers’ money this year. The vanishing confidence is likely to show in campaigns for national elections expected by next spring.

 

Supporters of the populist Five Star Movement and anti-migrant Northern League have the least confidence in lenders and the Bank of Italy among those with a definite opinion, according to the survey of 1,000 adults conducted Oct. 23-25.

Confidence in Banks Plunges

The eurosceptic Five Star Movement just happens to have the largest share of the vote in recent polls.

Target2 Discussion

Target2 stands for Trans-European Automated Real-time Gross Settlement System. It is a reflection of capital flight from the “Club-Med” countries in Southern Europe (Greece, Spain, and Italy) to banks in Northern Europe.

Pater Tenebrarum at the Acting Man blog provides this easy to understand example: “Spain imports German goods, but no Spanish goods or capital have been acquired by any private party in Germany in return. The only thing that has been ‘acquired’ is an IOU issued by the Spanish commercial bank to the Bank of Spain in return for funding the payment.

This is not the same as an auto loan from a dealer or a bank. In the case of Target2, central banks are guaranteeing the IOU.

Target2 also encompasses people yanking deposits from a bank in their country and parking them in a bank in another country. Greece is a nice example, and the result was capital controls.

If Italy or Greece (any country) were to leave the Eurozone and default on the target2 balance, the rest of the countries would have to make up the default according to their percentage weight in the Eurozone.

Another Look at Capital Flight

It is no coincidence that Target2 imbalances are on the rise as faith in banks collapses. Target2 is a measure of capital flight despite the ECB's assurances to the contrary.

 

http://WarMachines.com

Israel Begins “Largest-Ever Aerial Military Drill”, As Saudis Consider Missile Strike “Act Of War”

Today, Israel kicked off its largest international aerial training exercise ever – coined: Blue Flag 2017

Air-forces from nine countries with about 50 planes are now starting to drill in the most southern region of the country utilizing Uvda Air Base in Israel.  Teams from India, the United States, Greece, Poland, France, Italy and Germany with be flying over 300 sorties simulating ‘real war’.

According to Israel Defense,

Throughout the first week of the two-week-long exercise, the international aircrews will acclimate themselves to the base and get to know each other. Throughout the second week, the participants will rehearse complex scenarios and coalition flights.

 

During some of the sorties, the participants will fly against the “Flying Dragon” Squadron, the IAF’s aggressor squadron, which will simulate enemy forces via “enemy” aircraft, SAM (Surface-to-air missile) batteries and MANPADS (Man-portable air-defense systems).  

Lt. Col. Nadav, Commander of the 133rd Squadron (“Knights of the Twin Tail”), which operates “Baz” (F-15) fighter jets and is heading up the drill says,

“…the Blue Flag exercise is a significant quantum leap in our ability to hold an exercise and provide our multi-national participants with a quality training experience as performed in Israel. This is a significant milestone in our relationship with the international air forces, some of which are arriving in Israel to train for the first time. This exercise will allow us to continue cooperating with these forces in the future as well.”

The Indian Air Force sent a C-130J transport plane, other countries sent fighter jets, transport planes and refueling aircraft. Israel Defense notes some other various types of aircraft participating in the war games,

Participating on behalf of Israel are a “Baz” (F-15) squadron, a “Sufa” (F-16I) squadron and two “Barak” (F-16C/D) squadrons, alongside tactical transport aircraft, helicopters, UAVs (Unmanned Aerial Vehicles) and EL (Electronic Warfare).

 

The US, Hellenic, and Polish air forces arrived with F-16 fighters; the French with “Mirage” 2000D fighters; the Germans with “Eurofighter Typhoon” jets; the Italians with variants of the “Panavia Tornado” multirole fighter and the Indians with a C-130J “Super Hercules.”  

According to Maj. (res.) Tal, Head of the Blue Flag Management Team:

One of the more significant ways to improve international relationships and connect countries is to create military cooperation. The IAF is Israel’s ‘display window,’ and the direct encounter between the air forces is an inseparable part of forming strong, continuous relationships with other countries, near or far.”

 

*  *  *

Meanwhile, across the sand dunes this evening, a far more interesting story is developing, and could shed light on the end game for Blue Flag 2017. Yesterday we reported that the Saudis intercepted a ballistic missile over the nation’s capital of Riyadh. Now the Saudis call the missile attack “blatant act of aggression” by Iran and “could be considered act of war”. 

The smell of war is in the air and simultaneously Israel and other countries are drilling for ‘real war’. As, what we’ve seen before – drills sometime go live.

http://WarMachines.com

Preparing For EU Collapse

Authored by Raul Ilargi Meijer via The Automatic Earth blog,

If there is one thing the Spain vs Catalonia conflict reminds us of, it has got to be Turkey. And that is a much bigger problem for the EU than it realizes.

First of all, Brussels can no longer insist that this is an internal, domestic, Spanish issue, since Catalan president Puidgemont is in… Brussels. So are 4 members of his government.

That moves decisions to be made about his situation from the Spanish legal system to its Belgian counterpart. And the two are not identical twins. Even if both countries are EU members. This may expose a very large European problem: the lack of equality among justice systems. Citizens of EU member countries are free to move and work across the Union, but they are subject to different laws and constitutions.

The way the Spanish government tries to go after Puidgemont is exactly the same as the way Turkish president Erdogan tries to get to his perceived archenemy, Fethullah Gülen, a longtime resident of Pennsylvania. But the US doesn’t want to extradite Gülen, not even now Turkey arrests US embassy personnel. The Americans have had enough of Erdogan.

Erdogan accuses Gülen of organizing a coup. Spanish PM Rajoy accuses the Catalan government of the same. But they are not the same kind of coup. The Turkish one saw violence and death. The Spanish one did not, at least not from the side of those who allegedly perpetrated the coup.

Brussels should have intervened in the Catalonia mess a long time ago, called a meeting, instead of claiming this had nothing to do with the EU, a claim as cowardly as it is cheap. You’re either a union or you’re not. And if you are, the well-being of all your citizens is your responsibility. You don’t get to cherry pick. You got to walk your talk.

Belgian news paper De Standaard today makes an interesting distinction. It says the Belgian judicial system is not asked to “extradite” Puidgemont to Spain (uitlevering), but to “surrender” him (overlevering). Legal gibberish.

The paper also states that the case will go through three different courts, each of which has 15 days to announce a decision, so Puidgemont is safe for at least a month and a half. And then on December 21, Rajoy had called elections in Catalonia. For which, reportedly, he will seek to ban several parties. Don’t be surprised if that includes Puidgemont’s.

Moreover, even if the democratically elected president of Catalonia loses all appeals available to him, he could then ask for asylum in Belgium (apparently, Belgium is the only EU member country in which EU citizens can ask for asylum). And then you would really get into a mix-up of EU versus Belgian versus Spanish laws. In a way this is good, it would test a system that is not prepared at all for such divergences.

But what a disaster this is, once more, for the EU. It has shown zero leadership in the case, neither from the likes of European Commission head Juncker nor from Angela Merkel, its most powerful head of state. How can one not conclude that the Union is completely rudderless? This is just as bad as the refugee crisis, and the beheading of the Greek economy.

Threatening people with 30-year jail terms for organizing a peaceful vote is not what the EU should stand for. And now that is does, it threatens its own survival. Europe cannot be the land of Erdogan or Franco, it cannot look the other way and live.

That may be why the German armed forces, the Bundeswehr, have prepared a report that looks at future scenarios for Europe, including worst-case ones. The article in Der Spiegel is in German only, and my command of the language is a tad rusty, but the translation through Google is surprisingly accurate, I only had to change a few words.

The authors don’t seek the worst case option in either Spain or Greece, but perhaps they should. Then again, some of their projections are stark enough to offer plenty food for thought.

Military planners think EU collapse is conceivable

According to SPIEGEL information, the Bundeswehr played through social and political trends until 2040 for the first time. Strategists are also developing a worst-case scenario. The Bundeswehr believes that an end to the West in its current form over the next few decades is possible. This is according to information from Der Spiegel from the “Strategic Perspective 2040”, which was adopted at the end of February by the top of the Ministry of Defense and since then kept under wraps.

 

For the first time in its history, the Bundeswehr’s 102-page document shows how social trends and international conflicts could influence German security policy in the coming decades. The study sets the framework in which the Bundeswehr of the future is likely to move.

 

The paper does not yet provide any concrete conclusions for equipment and strength. In one of the six scenarios (“The EU in Disintegration and Germany in Reactive Mode”), the authors assume a “multiple confrontation”. The future projection describes a world in which the international order erodes after “decades of instability”, value systems worldwide diverge and globalization is stopped.

 

“The EU enlargement has been largely abandoned, other states have left the community, Europe has lost its global competitiveness,” write the Bundeswehr strategists: “The increasingly disorderly, sometimes chaotic and conflict-prone world has dramatically changed the security environment of Germany and Europe.” In the fifth scenario (“West against East”), some eastern EU countries are freezing the state of European integration while others have “joined the Eastern bloc”.

 

In the fourth scenario (“multipolar competition”), extremism is on the rise and there are EU partners who “even occasionally seem to seek a specific approach to Russia’s” state capitalist model “. The document expressly makes no prognosis, but all scenarios are “plausible with the 2040 time horizon,” write the authors. The simulations were developed by scientists of the Federal Armed Forces Planning Office.

Funny, that ‘future projection’ looks a lot like how I see the EU today, not in 2040.

There’s a longer article behind a paywall at Der Spiegel, but this should be sufficient to get a conversation going. Angela Merkel may be all EU all the time, just like all her EU peers, but her own army has serious questions about that. And given the Catalonia swamp, who could doubt that they are right about having doubts?

Yanis Varoufakis’ DiEM25 movement is all set towards democratizing the EU, but how realistic is that goal? How divergent does a Union have to get before you give up on it? Poland, Hungary, Czechia all want completely different things from what Holland and Germany want. New French president Macron is finding out as we speak that he can only do what Merkel allows him to.

And then along comes Spain and tries to inflict Franco era laws and violence on its citizens. But Brussels does nothing, and neither does Berlin. Refugees can rot away on Greek islands if eastern Europe doesn’t want them, and Catalan grandmas can get beaten to a pulp by the remnants of Franco’s troops, Brussels has zilch.

The way the EU functions today is no accident, and it’s not some new development. Present-day Brussels is the culmination of 50-60 years of institutionalization. You don’t change that with an election here or there.

Will Catalonia be the endgame of Brussels? Will it be the refugee crisis? Brexit? It’s impossible to say, but what is certain is that in its present state, the Union has no future. And at the same time, there’s no solution in sight. The powers that be are deeply invested, and they’re not going to let go just because some country, or part of a country, or political party, or group of voters wants them to.

The EU is profoundly anti-democratic, and it intends to stay that way.

But imagine that Belgium ‘surrenders’ Puidgemont, a man whose movement has lifted anti-violence to a whole new and modern level, and Rajoy jails him for 30 years, and the next day sits in on some meeting in Brussels, what picture does that paint for the 500 million EU citizens?

They’re crazy if they think they can get away with this.

http://WarMachines.com

Traders On Hold As “Super Thursday” Looms

Yesterday’s brief late night dip in ES has been promptly bought with US equity futures fractionally lower, Asian shares inching higher on Thursday and Europe unchanged ahead of today’s Super Thursday, where we get the Republican tax bill revealed shortly before noon, the BoE’s rate hike announcement, and Trump appointing Jay Powell as the next Fed chair, as well as as earnings from companies including Apple and Starbucks. With the dollar dropping slightly, markets seem to have taken a shine to the euro and EM FX, specifically your high beta currencies.

“There is some element of uncertainty about the U.S. tax bill and next Fed chief, and this is having an effect on the U.S. market, though shares in Asia appear quite resilient today,” said Ayako Sera, senior market economist at Sumitomo Mitsui Trust. “Still, it would not be surprising if some investors used the uncertainty as a reason to take profits after recent strong gains,” she said.

Among the main events today, and as widely reported yesterday, the White House plans to nominate current Fed Governor Jerome Powell as the next chair when Janet Yellen’s term expires in February, a source familiar with the matter said on Wednesday. Powell’s nomination, which would need to be confirmed by the Senate, is expected later on Thursday before President Donald Trump leaves on a trip to Asia. Rising expectations that Trump will tap Powell, who is seen as more dovish on interest rates, have pressured U.S. Treasury yields and kept the dollar on the backfoot this week, according to Reuters.

The progress toward American tax reform is also on most investors’ radars, alongside corporate earnings and Friday’s U.S. jobs report. There have been conflicting reports about when and how the U.S. tax rate on companies would be lowered. US GOP tax bill said to propose 12% repatriation tax on cash and 5% rate on non-cash holdings. US House Republicans were reported to be mulling a corporate tax phase out after 10 years, while US House Tax Committee Chairman Brady said that a permanent corporate tax reduction could require several steps.

On Wednesday, the Fed held policy steady as expected and emphasized rising economic growth as well as a strengthening labor market, while downplaying the impact of recent hurricanes. Investors took that as a sign the U.S. central bank is on track for another hike next month, with federal fund futures putting the odds of a December rate hike at about 85% according to Bloomberg calculations.

With regards to the BoE, the market prices in a 90% probability of a hike today. Our economists see the outlook for the meeting as tilted towards hawkish messaging on the outlook for rates next year, at least relative to market pricing. But they struggle to see this as credible without more certainty over Brexit and more evidence of faster wage growth.

Both the dollar and sterling lag G-10 peers as investors awaited central bank news from both sides of the Atlantic, with BOE forecast to raise rates for the first time in a decade and Trump said to nominate Powell as the next Fed Chair. Bund futures set fresh day lows after soft French, Spanish auctions drive broad EGB weakness. Gilt and Treasury futures dip, though trade in tight ranges. European stocks mostly lower, with DAX leading losses while Italy’s FTSE MIB outperforms; health care leads sector declines, Sanofi weighing after trimming the outlook for its diabetes business. Rally in base metals pauses; most metals drop on LME, led by zinc and nickel.

In global equity markets, European stocks were little changed near their highest level since 2015 amid a slew of earnings, as investors braced for the BOE’s first rate hike in more than a decade. The Stoxx 600 rose 0.1%, with real estate shares leading gains, led by Intu Properties which rose after saying it sees sustained retailer demand and rising rents. Credit Suisse climbed as its assets under management rise to a record. Playtech slumped, dragging on travel-and-leisure shares after forecasting full-year performance below the bottom end of estimates. The U.K.’s FTSE 100 holds steady ahead of the BOE rate decision on Thursday.

Asian shares were mixed as a rally that drove prices to the highest level in 10 years showed signs of tiring. Materials stocks led gains in Asia amid a surge in nickel prices this week to a two-year high. The yen strengthened against the U.S. dollar after the Powell news hit the tap.e The MSCI Asia Pacific Index gained 0.1% percent to 169.86 as of 4:19 p.m. in Hong Kong, with the materials sector gauge touching a five-year high. Nickel has jumped 10 percent this week through Wednesday to the highest level since June 2015, while some investors are betting iron ore will command higher prices next year. Honda Motor Co. was the biggest boost to the index after raising its guidance and announcing a new shareholder returns policy. News about Trump’s decision to nominate Powell, first reported by the Wall Street Journal, followed the central bank’s policy statement that reinforced expectations of a rate hike in December and said growth in the world’s largest economy was “solid.” Investors expect the appointment of Powell, the Fed’s only Republican, to be an extension of the dovish policies under Janet Yellen that have contributed to the rise in global stock markets. “The biggest factor for today’s gain is the sudden rally of nickel prices on Tuesday and Wednesday, as its surge affects miners in Indonesia, Australia and New Zealand, in the midst of recent rallies of crude and iron ore,” said Seo Sang-young, a strategist at Kiwoom Securities.

China stocks retreated as small caps fell to a one-month low. The ChiNext Index of small-cap and tech shares was the biggest loser Thursday, dropping to a one-month low, while the Shanghai Composite Index also declined and stocks in Hong Kong gave up earlier gains. The SHCOMP lost 0.3% to 3383, facing strong resistance at 3400; mid & small-caps selloff continues, Nasdaq-style Chinext down 1.3%. Tesla-related stocks tumbled as Elon Musk said Tesla would not spend major capital in China until 2019.

After initially rising following a strong ADP report, Treasury yields then fell on Wednesday and the yield curve flattened the most since 2007 after the Treasury Department said it would keep auction sizes steady in the coming months, despite the Fed’s plan to reduce its bond holdings. 10-year yields were at 2.359% in Asian trading, compared to their U.S. close of 2.376% on Wednesday, when they dipped as low as 2.349% . German 10Y yields rose one bps to 0.39 percent, the highest in a week. Britain’s 10% yield also climbed to 1.356 percent, +1bp, the highest in a week, while Japan’s 10Y declined 0.055 percent, -1bp, the lowest in four weeks.

In commodities, crude oil futures steadied, with Brent crude up 7 cents at $60.56 per barrel and U.S. crude down 1 cent at $54.29.  While oil settled lower on Wednesday after weekly U.S. government inventory data showed the latest crude stock draw was not as big as an industry trade group had reported, both Brent and U.S. crude futures remain near their highest levels since July 2015 as lower global supply pushed markets higher. Gold gained 0.1% to $1,276.34 an ounce, the highest in more than a week. Copper fell 0.7% to $3.12 a pound.

Elsewhere, bitcoin extended gains for the fourth consecutive day, hitting $7,000 to establish a fresh record.

Bulletin headline Summary from RanSquawk

  • Markets subdued as anticipation on the BoE
  • USD finds some support following overnight weakness, as Trump intends to select Powell as the next Fed Chair
  • Looking ahead, highlights include The BoE Rate Decision and QIR, Fed’s Powell, Dudley and Bostic

Market Snapshot

  • S&P 500 futures down 0.2% to 2,570.25
  • STOXX Europe 600 up 0.02% to 396.85
  • MSCi Asia up 0.1% to 169.84
  • MSCI Asia ex Japan down 0.05% to 556.24
  • Nikkei up 0.5% to 22,539.12
  • Topix up 0.4% to 1,794.08
  • Hang Seng Index down 0.3% to 28,518.64
  • Shanghai Composite down 0.4% to 3,383.31
  • Sensex down 0.04% to 33,588.29
  • Australia S&P/ASX 200 down 0.1% to 5,931.71
  • Kospi down 0.4% to 2,546.36
  • Gold spot up 0.1% to $1,276.28
  • U.S. Dollar Index down 0.2% to 94.67
  • German 10Y yield rose 1.1 bps to 0.384%
  • Euro up 0.2% to $1.1636
  • Brent futures down 0.4% to $60.28/bbl
  • Italian 10Y yield fell 2.3 bps to 1.538%
  • Spanish 10Y yield unchanged at 1.475%

Top headline News from Bloomberg

  • President Donald Trump plans to nominate Federal Reserve Governor Jerome Powell to the top job at the U.S. central bank, according to people familiar with the decision. The annoucement is due at 3 p.m. Washington time.
  • “Not only is he the continuity candidate given he is already on the Fed board, but he also has a good working relationship with the current FOMC,” Michael Hewson, chief market analyst at CMC Markets, writes of Powell.
  • House Republican leaders plan to unveil a tax bill Thursday that would cut the corporate tax rate to 20 percent — though it may not stay there. The decision may come down to congressional scorekeepers who’ll assess the effect on the federal deficit
  • Euro-zone manufacturing PMI increased to 58.5 in October — the highest since February 2011 and the second-highest in over 17 years, as companies boost hiring to cope with a surge in orders that is set to last
  • Japan’s Government Pension Investment Fund posted its fifth-straight quarterly gain, the longest run in more than two years, as global stocks advanced to new highs and weakness in the yen helped boost the value of overseas investments
  • Bitcoin climbed past $7,000 for the first time, breaching another milestone less than one month after it tore through the $5,000 mark
  • North Korea is working on an advanced version of the KN-20 intercontinental ballistic missile that could potentially reach U.S., CNN reports, citing unidentified U.S. official
  • Tesla Inc. still hasn’t figured out how to overcome manufacturing challenges that threaten its viability as an automaker, with battery factory- line glitches pushing out production targets for the Model 3 sedan
  • While Credit Suisse Group AG wasn’t immune to the third- quarter trading slump, Chief Executive Officer Tidjane Thiam’s pivot to wealth management drove assets to a record as the bank predicted continued strong performance
  • After two rocky days in Congress, Facebook and Twitter face rising momentum for regulation of political ads to curb Russian election meddling, although some key Republicans remain skeptical and urged the companies to do a better job on their own
  • German Unemployment Extends Decline as Economy Powers Ahead
  • Sex-Harassment Storm Hits U.K. Political Elites Amid Brexit

Asian equity markets were mostly subdued as region failed to sustain the early momentum from US, where stocks printed fresh intraday record levels before some profit taking crept in. Furthermore, a deterioration in sentiment coincided amid a continued pullback in US equity futures due to tax plan uncertainty, with reports now suggesting the plan could include a phase out in corporate taxes after a decade. As such, ASX 200 (-0.1%) finished negative with financials pressured after big 4 NAB announced to drop 6,000 workers. Elsewhere, Nikkei 225 (+0.3%) was indecisive but extended on 21-year highs nonetheless, while Hang Seng (-0.2%) and Shanghai Comp. (-0.7%) were lower after the PBoC skipped its liquidity operations. Finally, 10yr JGBs saw marginal gains as they tracked upside in T-notes and amid an indecisive risk tone in Japan, while the BoJ were also in the market for JPY 710bln of JGBs in the belly to super-long end.

European Equity markets have traded mixed, with little way of direction, as participation focus moves to 12:00GMT and the BoE. Sectors also trade rangebound, with Telecoms out-performing, marginally so, up 0.30% with financials behind, as expectations are on a hike from the UK Central Bank. Healthcare and IT pull the bourses lower however, both down 0.50%. Fixed Income markets follow the subdued trading fashion, with yields relatively stagnant. Much attention was on auctions from Spain and France, particularly the former, as an increased scope has been on Spain following the recent political turmoil.

In FX, the central bank week continued yesterday evening, as the FOMC’s retained rates between 1.00% – 1.25%. Markets were seemingly unfazed, with much of the Greenback’s hinging on President Trump’s announcement of the next Fed chair, with market expectation increasingly looking toward an appointment of Governor Powell. The Dollar Index saw some selling pressure as we entered the morning’s Asian session, finding some support around the 94.40 area as Europeans came to market, aided by the rate hike expectations for Dec increasing to 92%, from a previous 83%. EUR/USD looks towards key support at last week’s low at 1.15, as GBP/USD trades in a range-bound fashion, as full focus is on the BoE interest rate decision. Sterling traders will await the MPC’s decision, followed by Carney’s 12.30 press conference 30 minutes later, with expectations on a 25bps hike (>90%) from the Central Bank. Concerns remain toward data from the UK however, with a larger trade deficit, weaker retail sales and manufacturing activity, accompanied by a slowdown in CPI growth, all possibly still on the mind of the MPC members. EUR/GBP trades around a key support level, above the 0.8750, despite the break seen yesterday, offers do remain around these levels.

In commodities, oil news has been light today, with the highlight coming from the SOMO stating Southern Iraqi Crude exports stood at 3.35mln bpd in October (3.24mln bpd in Sep). Markets are unfazed, with WTI consolidating within the day’s range.. Saudi Energy Minister Al-Falih said he expects oil market to continue proving and producers to renew resolve to normalize stockpiles. Kuwait said it sees oil output cut being announced in Vienna and that the length of extension and other alterations could be announced in Feb-Mar. (Newswires) OPEC wants to see the floor for oil prices at USD 60/bbl in 2018, according to a source familiar with Saudi oil thinking.

US Event Calendar

  • 7:30am: Challenger Job Cuts YoY, prior -27.0%
  • 8:30am: Initial Jobless Claims, est. 235,000, prior 233,000; Continuing Claims, est. 1.89m, prior 1.89m
  • 8:30am: Nonfarm Productivity, est. 2.6%, prior 1.5%; Unit Labor Costs, est. 0.4%, prior 0.2%
  • 9:45am: Bloomberg Consumer Comfort, prior 51

DB’s Jim Reid concludes the overnight wrap

Today’s EMR is basically a therapy session and if I’m still writing the EMR in 30 years’ time (for anyone that will have me) you can trace the reason why back to today. For 43 years on this planet I’ve lived my life in a fairly prudent  manner making sure that there is a rainy day fund for any unforeseen circumstances. However guess what I’m doing today on the day the Bank of England likely raises rates for the first time in a decade and from the lowest level in the bank’s 323 year history? Yes I’m taking out a large loan and buying a new house. Likely at the top of a very expensive UK property market and as Brexit lurks around the corner.

Long time readers will remember that 3-4 years ago we did extensive renovations on our current house which was supposed to be a forever home. However at that point we didn’t have any children and had to come to terms with the fact that we may never be lucky enough to have them. Not in our wildest dreams did we imagine that 3 years later we’d have 3 of them. So although our house is wonderful, after finding out we had twins coming we very vaguely explored the possibility of finding a house with a layout more appropriate for our expanded family and the next thing we knew we’d fallen in love with a place and made an offer. It completes today. We won’t move in for a year as we don’t do anything simply and it needs a fair amount of work. So I’m in state of shock still. One day I will weigh up the full lifetime monetary cost of the ‘incident’ last Xmas holidays that led to the twins arrival (e.g. new car, full time childcare help, new house, future school fees, university costs and deposit for a first home etc etc). However for now I’m burying my head in the sand

From the sand dunes welcome to super , super Thursday with a busy day ahead. First we have the European manufacturing PMIs delayed from yesterday due to holidays, then we’ll likely have the first BoE rate hike for a decade and then in the US session Mr Trump is going to be busy as he announced yesterday that today would see his Fed Chair pick revealed (WSJ say Powell chosen) and he’s also likely to stand with lawmakers to announce the House tax bill  (9am EST/3pm BST the time expected).

With regards to the BoE, the market prices in a 90% probability of a hike today. Our economists see the outlook for the meeting as tilted towards hawkish messaging on the outlook for rates next year, at least relative to market pricing. But they struggle to see this as credible without more certainty over Brexit and more evidence of faster wage growth.

This follows last night’s FOMC where the statement was largely designed to not tone down markets’ strong expectation of a rate hike in December (probability now up 9ppt to 92%). In the details, Fed officials voted unanimously to keep rates on hold this month. On the recent economic performance, the Fed has upgraded the description from rising “moderately” to “rising at a solid rate despite hurricane-related disruptions”. On unemployment, it changed from “has stayed low” to it has “declined further”. On inflation, it acknowledged that although the storms had boosted headline inflation, core inflation remained soft, but there was no change to the committee’s view that “inflation…is expected to remain somewhat below 2% in the near term, but (will) stabilize around the 2% objective over the medium term.” On the recent hurricane disruptions, it reiterated that it will continue to affect economic activity, “but past experience suggests that the storms are unlikely to materially alter the course of the economy over the medium term”. Overall, DB’s Peter Hooper continues to expect three more hikes next year with the voting committee shifting in a modestly hawkish direction. Refer to link for more details.

Now onto tax reform, as per Republican lawmakers involved in the discussions, the tax bill will impose a one-time tax of 12% (vs. 10% from prior reports) on US companies’ accumulated offshore earnings that are held as cash and 5% for non-cash holdings (per Bloomberg). Finally, Treasury Secretary Mnuchin is reportedly resisting a gradual phase-in of tax cuts over 5 years (ie: from 35% to 20% by 2022, -3ppt p.a) as it would not boost growth as much as expected. We can’t wait to find out more later today.

As for the Fed Chair announcement this afternoon, the WSJ claimed last night that Powell has got the job. According to people familiar with the matter, the White House has notified Powell that President Trump intends to nominate him as the next Chairman and that Trump has also personally spoken with Powell on Tuesday too. Such an outcome had been increasingly priced in so it’s unlikely to impact markets too much.

This morning in Asia, markets are trading a bit lower, but the Nikkei is up 0.19% to a fresh 21 year high following Honda’s corporate result (shares +5%). Although we’re at 21-year highs we first saw these levels 30 years ago so three decades of treading water for the index in reality. Across the region, the Hang Seng (-0.15%), Kospi (-0.39%), Shanghai Comp. (-0.58%) and ASX 200 (-0.08%) are all down as we type.

Looking forward, most eyes this morning will be on the final revisions to the October manufacturing PMIs, which also includes a first look at the data for the periphery. The consensus is for no change to the flash reading for the Eurozone at 58.6. As a reminder, if that holds it will be the highest reading in 80 months. We’ll actually have to wait until next week to get the remaining services and composite prints. In terms of the country specific details today, Germany and France are expected to broadly stay put relative to their flash readings, while Spain is expected to nudge up half a point to 54.8. Italy is also expected to see a modest rise of 0.2pts to 56.5. For completeness, yesterday’s data in the Netherlands (60.4) was the second highest on record while Greece softened a bit to 52.1 – although more significantly held above 50 for the fifth month in a row following nine sub-50 prints. Elsewhere the  UK firmed 0.3pts to 56.3 (vs. 55.9 expected), a solid level but still below levels of other G10 nations.

Now recapping market’s performance from yesterday. US bourses edged higher back towards their record highs, with the S&P (+0.16%) and Dow (+0.25%) up slightly, while the Nasdaq dipped 0.17% following strongerperformance back on Tuesday. Within the S&P, gains were led by energy (+1.09%) and materials stocks, with partial offsets from telco and utilities names. After the bell, Facebook was down c2% despite posting higher than expected quarterlyrevenue, although the stock is already up c56% YTD (vs. S&P up c15% YTD). European markets were also broadly higher, as the DAX jumped 1.78% to a fresh record high as trading resumed post a holiday. Across the region, the Stoxx gained 0.39% to a 2 year high driven by materials and tech stocks, while the FTSE (-0.07%) and Spain’s IBEX (-0.16%) fell marginally. The VIX was broadly steady at 10.2.

Over in government bonds, yields were mixed but little changed. The UST 10y pared back intraday gains to be 0.7bp lower, while core European bond yields rose c1bp (Bunds +0.9bp; Gilts +1.1bp; OATs +0.8bp). At the 2y part of the curve, Bunds were flat while Gilts rose 2.9bp ahead of the potential BOE rate hike today.

Turning to currencies, the US dollar index gained 0.28% following the marginally hawkish FOMC meeting, while the Euro and Sterling weakened 0.23% and 0.29% respectively. In commodities, WTI oil dipped 0.15% following an API report that showed a slightly less than expected decline in US crude and gasoline stockpiles. Precious metal strengthened modestly (Gold +0.25%; Silver +2.53%) while other base metals fell marginally (Copper -0.04%; Zinc -0.59%; Aluminium -0.73%).

Away from the markets, the UK trade secretary Fox said the EU is being “unreasonable” by requiring UK to pay a Brexit bill before allowing talks to move onto trade and transition deal. He noted “the idea that the UK would actually agree to a sum of money before we knew what the end state looked like… I think is a non-starter”. However, this partly contradicts Brexit Secretary Davis earlier comments where he noted “the withdrawal agreement…will probably favour the EU in terms of things like money and so on”. Elsewhere, the CEO of BOE’s prudential regulation authority Sam Woods noted that Oliver Wyman’s estimate of up to 75,000 job loss in banking and insurance is “plausible” if the UK leaves the EU bloc without a trade deal. With all this bubbling along, we shall find out more with the next round of Brexit talks to resume from 9th November.

Over in Japan, Mr Abe has been officially reappointed as PM following his clear election win. On the choice of the next BOJ governor whose term ends next April, PM Abe said “the slate is completely blank”, although he also noted “I’ve faith in (existing) governor Kuroda’s abilities and I leave monetary policy up to him”.

Before we take a look at today’s calendar, we wrap up with other data releases from yesterday. In the US, the macro data was a bit mixed. The October ADP employment change was above expectations at 235k (vs. 200k expected), although there was a 25k downward revision to the prior month’s reading. The October ISM manufacturing remains solid as it eased from last month’s 13 year high to 58.7 (vs. 59.5 expected). In the details, 16 of 18 industries reported expansion and the new orders index eased 1.2pts to a still very solid reading of 63.4. The final reading for the October Markit manufacturing PMI was broadly in line at 54.6 (vs. 54.5 expected). Elsewhere, construction spending came in at 0.3% mom (vs. -0.2% expected) and total car sales in October were above expectations at 18m (vs. 17.5m expected) as demand continues to be supported by post storm purchases. Finally, the Atlanta Fed’s early GDPNow model estimate of 4Q GDP growth is now 4.5% saar. If true, this would only mark the 4th quarter since the great recession has the US economy ever reached this high level.

Finally in the UK, the October Nationwide house price index was in line at 0.2% mom, leaving an annual growth of 2.5% yoy and Sweden’s manufacturing PMI was 59.3 (vs. 63.5 expected) in October. Looking at the day ahead, we have the BoE meeting outcome due around lunchtime. BoE Governor Carney will follow while the Bank’s latest inflation report will also be released alongside this. Datawise we’ll receive the final October PMI revisions in Europe along with the October unemployment print in Germany and initial jobless claims and Q3 nonfarm productivity and until labour costs in the US. The Fed’s Bostic is also due to speak along with the IMF’s Lagarde. Today the new Fed Chair and draft tax plans are expected to be announced. Apple and Credit Suisse are amongst the notable corporate reporters.

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