Bayer shares soared 11% on Friday on reports that Bayer had proposed to pay up to $8 billion to settle more than 18,000 US lawsuits alleging that Roundup – which it inherited during its acquisition of Monsanto – causes cancer. However, Bayer shares soared as much as 11% on the news, though they quickly shed most of their gains after Bayer denied reports of the settlement.
Bayer acquired Roundup and other glyphosate-based weedkillers as part of its $63 billion takeover of Monsanto last year. At one point, they were the best performing shares on the DAX.
Bayer shares had lost more than one-third of their value, or roughly 30 billion euros ($34 billion), since last August when a California jury found that Monsanto should have warned customers about the alleged cancer risks from Roundup.
Plenty of legal risk remains for Bayer. The company said this week that the next US. glyphosate lawsuit scheduled to be heard in St. Louis, Missouri, would likely be postponed and the company added on Friday that the following St. Louis case slated for September had been postponed to allow for settlement talks.
Bayer’s Chief Executive Werner Baumann last week said the company would consider settling with US plaintiffs only on reasonable terms, and if it “achieves finality of the overall litigation.”
He added at the time the group was “constructively engaging” in a court-ordered process with mediator Ken Feinberg on the cases heard in federal court. Most of the pending cases, however, have been filed with US state courts.
The company, which says regulators and extensive research have found glyphosate to be safe, has previously said it was banking on US appeals courts to reverse or tone down three initial court rulings that have so far awarded tens of millions of dollars to each plaintiff.
According to Bayer, the company is currently trying to settle all of the lawsuits that have been filed. Bayer has indicated it could pay $6 to $8 billion, while plaintiffs’ lawyers want more than $10 billion to drop their claims.
“Progress on settlement is a clear positive to potentially remove what has been the key overhang in shares for a year,” Bank of America analysts said in note.
An estimate of a $20 billion hit from the litigation has previously been reflected in the share price, while a likely litigation settlement liability was in the mid single-digit billion dollar range, they added.
But BofA kept a neutral rating on the stock, citing uncertainty over Bayer’s fortunes in the appeals process, with the first appeals verdict expected by the end of the year, and whether a settlement could be achieved before that.
Though as more potential plaintiffs emerge blaming glyphosate for their cancer, it’s difficult to say how much longer this will go on for.
via ZeroHedge News https://ift.tt/2OP3icd Tyler Durden
Last month, when reporting on the imminent failure of yet another Chinese bank in the inglorious aftermath of Baoshang Bank’s late May state takeover, we dusted off a list of deeply troubled Chinese financial institutions that had delayed their 2018 annual reports…
… and noted that the #2 bank on this list, Bank of Jinzhou recently met financial institutions in its home Liaoning province to discuss measures to deal with liquidity problems, and in a parallel bailout to that of Baoshang, the bank was in talks to “introduce strategic investors” after a report that China’s financial regulators are seeking to resolve its liquidity problems sent its dollar-denominated debt plunging.
Just a few days later, that’s precisely what happened, when in late July, Industrial and Commercial Bank of China (ICBC), the country’s largest lender by assets, China Cinda Asset Management and China Great Wall Asset Management, two of China’s four largest distressed debt managers, said on Sunday they would take stakes in Bank of Jinzhou.
To be sure, there was some token debate over the semantics: was this bailout a nationalization or a state-bank funded takeover:
“For Baoshang Bank, the government took a state takeover, while for Bank of Jinzhou, the government introduced some state-owned strategic investors,” said Dai Zhifeng, analyst with Zhongtai Securities Co; in reality both were government rescues, only in the latest case Beijing used state-owned bank intermediaries.
“The latter approach is more market-oriented and showcased the determination of regulators to resolve problematic banks, while injecting confidence into the market,” Dai said, although when stripped of all the pig lipstick, what just happened in China is that another major bank, one with $100 billion in assets, just collapsed and received a government-backed rescue.
The bigger problem, and the reason why Chinese bank stocks have tumbled ever since the Baoshang Bank bailout, is that investors (and depositors) were worried that now that Beijing has started down the path of bank bailouts, it was unclear where it would stop.
And so, fast forward to this week when overnight, the SCMP reported that China’s sovereign wealth fund has taken over Heng Feng Bank – the bank at the very top of the list shown above, one with roughly $200 billion in assets – a troubled lender linked to fugitive financier Xiao Jianhua, in the third case in as many months of the state exerting its grip over wayward financial institutions.
According to the report, Central Huijin Investment, a subsidiary of the China Investment Corporation that acts as the Chinese government’s shareholder in the country’s four biggest banks, emerged as a strategic investor in Heng Feng, according to a brief report overnight by Shanghai Securities News, published by state news agency Xinhua.
The investment was a breakthrough in Heng Feng’s debt restructuring led by the Shandong provincial government, the state-owned newspaper said, without citing a source or providing financial details. Huijin’s investment would increase Heng Feng’s capital adequacy, improve the troubled bank’s management and enhance its operational capability, the paper said.
In short, a 3rd Chinese bank in as many months received an implicit (or explicit) state bailout, and with the dominoes now falling, it’s just a matter of time before most if not all of the banks shown in the list above collapse.
Some more details on bailout #3:
Heng Feng, based in Yantai city, was founded in 1987. It operated 18 branches and 306 sub-branches across the country. It is among more than a dozen city-level and rural lenders that had been put on notice by the authorities for a shake-up, as regulators step up their programme of cleaning up financial malfeasance and profligate lending.
It’s also the second of several banks in Xiao’s financial empire to be put under state ward, after the May 24 nationalisation of Baoshang Bank in Inner Mongolia’s Baotou city. As we reported back in May, Xiao’s Tomorrow Group, which owned 89% of Baoshang, had misappropriated large sums from the bank, triggering serious credit risks that prompted the government to step in, the central bank said. Xiao himself had not been seen in public since he was persuaded to return to mainland China from Hong Kong on the eve of the 2017 Lunar New Year to help with investigations into his financial affairs. Like so many other former oligarchs, he simply disappeared somewhere deep inside China’s “corrections” apparatus.
As the SCMP notes, at its apex, Tomorrow Group owned stakes via proxies in hundreds of Chinese listed companies, including at least 10 banks, the China Banking & Insurance Regulatory Commission said on June 9.
It all ended with a bang, however, with the Baoshang Bank seizure in late May.
Then, as we reported two months later, Baoshan was joined on July 29 by Bank of Jinzhou, which received the backing of three Chinese financial institutions, including Industrial & Commercial Bank of China. ICBC put 3 billion yuan (US$436 million) into Bank of Jinzhou, and assigned at least four senior executives to manage it. Cinda Asset Management and Great Wall Asset Management would also pour funds into Bank of Jinzhou.
The change in strategy, where Beijing was now openly seizing or bailing out insolvent banks – Baoshang was the Chinese government’s first nationalisation of a private bank since 1998 – led to a collective collapse in the stock prices of China’s listed banks, driving their valuations to record lows, amid fears that the shakeout would affect more lenders, and that the largest and best capitalized institutions would be called upon to bail them out.
That’s precisely what is happening right now, and unfortunately it’s about to get worse for a simple reason that was all the rage back in 2015 – namely the soaring amount of Chinese NPLs, a number which has been drastically massaged by the banks, regulators and politicians, to make China’s banking system appears safer than it was (see “ CLSA Just Stumbled On The Neutron Bomb In China’s Banking System“). As the SCMP notes, the level of non-performing loans among local lenders licensed to operate within city of urban centres were at 1.9% of their total lending at the end of March, worse than their larger peers, according to CBIRC data. The real number is likely orders of magnitude higher.
These local, city banks were also the least capitalised among all bank categories, with 12.6% capital adequacy ratio, compared with 18.3% in foreign banks.
It gets even worse when one looks at China’s rural commercial banks, which are licensed to serve villages and smaller towns, and which had 4.1% of their lending classified as bad loans, CBRC data showed. That compared with the 1.1 per cent average among larger nationwide commercial banks, and 0.8 per cent among foreign banks, the data showed. None of those numbers is remotely close to reality, and with China’s economic growth now sliding, it is just a matter of time before things get far worse.
Incidentally, just days before the Heng Feng rescue, JPMorgan correctly downgraded China’s banks due to increasing pressure for banks to support growth agenda as macro risk escalates:
The J.P. Morgan economics team revised down its GDP growth forecast for 2020 by 0.1ppt due to the recent sharp turn in Sino-U.S. trade negotiations. But even prior to that, declining PPI and industrial profits growth, suggesting declining debt-servicing ability and weakening cash flow for Corporate China, increase the risks that banks will be asked to support macro growth at the potential expense of profitability. Recent official PBOC comments on an accelerating interest rate liberalization process are illustrative of such rising risks.
Additionally, JPM cautioned investors to stay away from Chinese banks as, “(1) we cut our NIM and earnings estimates to factor in potential NIM compression due to interest rate liberalization; (2) banks’ re-rating path comes to a halt, at least for now, due to the re-leverage of Corporate China leading to debt concerns; and (3) rising concerns of failed small banks contaminating the balance sheets of large banks may lead to de-rating pressure on large banks.“
It now appears that Beijing has indeed picked a model where concern (3) is especially valid, as large banks will be brought in to bail out smaller, insolvent ones (think JPMorgan and Bear Stearns), in the process “contaminating” their balance sheets, as what until now was a localized financial weakness diffuses across the entire banking sector.
But what may be worst for China, is that it as of this moment its options to boost the economy are severely limited following the latest inflation data which was “the worst of both worlds”, as PPI prices posted their first decline in 3 years, while CPI jumped to 16 month highs as food prices continued to soar.
This, as Bloomberg’s Kyoungwha Kim wrote, is “an ominous sign for equities because it underscores the difficulties the PBOC faces if it wants to boost policy stimulus”, or as we summarized it last night:
China can’t cut rates and ease to boost negative PPI as food prices are exploding
China can’t halt soaring pork prices as half of its pigs are dead or slaughtered
China can’t raise the yuan to ease the highest CPI in 16 months as it currently devaluing in retaliation to Trump
The bottom line: Trump now appears to be winning the trade war with China, whose economic contraction is accelerating and between slowing trade, sliding corporate profits (PPI), rising inflation (CPI), a devaluing Yuan, a record debt load, and now a sudden crisis in its banking sector, Beijing has found itself paralyzed and with zero credibly options how to kickstart the economy.
The only thing that’s left is for China to admit that this is indeed the case, so sit back, relax and watch as bank after bank on the list above fails and China’s financial cancer spreads across the country with the $40 trillion in assets (which is certainly not bad news for either gold or bitcoin).
via ZeroHedge News https://ift.tt/2OJUzYC Tyler Durden
The Fed desperately needs to keep credit expanding or the economy will collapse. However, it’s an unsustainable scheme.
Key Debt Points
In 1984 it took $1 of additional debt to create an additional $1 of Real GDP.
As of the fourth quarter of 2018, it took $3.8 dollars to create $1 of real GDP.
As of 2013, it took more than a dollar of public debt to create a dollar of GDP.
If interest rates were 3.0%, interest on total credit market debt would be a whopping $2.16 trillion per year. That approximately 11.5% of real GDP year in and year out.
Total Credit Market Debt Detail
Tiny Credit Drawdown, Massive Economic Damage
Note the massive amount of economic damage caused by a tiny drawdown in credit during the Great Recession
Q. Why?
A. Leverage.
The Fed halted the Great Recession implosion by suspending mark-to-market accounting.
What will it do for an encore?
Choking on Debt
The Fed desperately needs to force more debt into the system, but the system is choking on debt.
That’s the message from the bond market.
One look at the above charts should be enough to convince nearly everyone the current model is not close to sustainable.
Here’s another.
Housing Bubble Reblown
How the heck are millennials (or anyone who doesn’t have a home) supposed to afford a home?
So far, all of this negative-yielding debt is outside the US.
Why?
The ECB made a huge fundamental mistake. Whereas the the Fed bailed out US banks by paying interest on excess reserves, the ECB contributed to the demise of European banks, especially Italian banks and Deutsche by charging them interest on excess reserves that it forced into the system.
The demographics in Europe and Japan are worse than the US.
Tipping Point
We are very close to the tipping point where the Fed can no longer force any more debt into the system. That’s the clear message from the bond market.
The Fed remains on a foolish mission to achieve 2% inflation.
In reality, the Fed produced massive inflation but does not know how to measure it.
Inflation is readily see in junk bond prices, home prices, equity prices, and credit expansion.
Note that small credit contraction in 2008-2010. Recall the ‘Great Recession” damage that accompanied it.
I do not expect a repeat on that scale, all at once. But I do expect a prolonged period of credit stagnation as retiring boomers start to worry about their retirement. All it will take to set the wheels in motion is a prolonged downturn in the equity markets.
Economic Challenge to Keynesians
Of all the widely believed but patently false economic beliefs is the absurd notion that falling consumer prices are bad for the economy and something must be done about them.
The BIS did a historical study and found routine deflation was not any problem at all.
“Deflation may actually boost output. Lower prices increase real incomes and wealth. And they may also make export goods more competitive,” stated the BIS study.
It’s asset bubble deflation that is damaging. When asset bubbles burst, debt deflation results.
Deflationary Outcome
The existing bubbles ensure another deflationary outcome.
So prepare for another round of debt deflation, possibly accompanied by a lower CPI especially if one accurately includes home prices instead of rents in the CPI calculation.
Central banks’ seriously misguided attempts to defeat routine consumer price deflation is what fuels the destructive asset bubbles that eventually collapse.
The last few months have seen the Turkish Lira rallying, rebounding off record lows, despite nothing positive coming from that country… and now we may have a better idea of how this lift was achieved (or how investors were fooled).
As Bloomberg reports, according to two people with direct knowledge of the matter said, Turkey received around $1 billion worth of funds from China in June under a swap agreement that dates back to 2012.
The cash boosted Turkey’s foreign reserves in an election month and at a time when they were under intense scrutiny from investors.
The scrutiny was due to the fact that, as we detailed previously, traders were questioning the reality of Turkey’s reserve data – which had been grossly manipulated for swap contracts and was – in real terms – practically zero…
The chart below shows two sets of numbers: Turkey’s true net foreign reserves, and the number that the central bank had used for public consumption, which includes the nominal amount of swaps.
Confirming the FT’s analysis, a former senior official at Turkey’s central bank, who did not wish to be named (as it would mean an instant prison sentence by the country’s “executive president”), said the extra dollars had been borrowed, not earned. “This is not an orthodox [approach to] central bank reserve build-up.”
So China stepped in to bail out Erdogan. The June inflow was the first time Turkey received such a substantial amount under the lira-yuan swap agreement with Beijing, one of the people said.
The question now is – what was Erdogan’s quid pro quo here. With NATO scrambling over Turkey’s decision to install Russian missile defense systems, is this ‘friendly gesture’ from China designed to confirm BRI issues will be swept under the carpet?
via ZeroHedge News https://ift.tt/2KmOo8K Tyler Durden
Submitted by Chiara Zangarelli and George Buckely, European Economists at Nomura
Pulling the plug: Crisis in the Italian government – the roadmap
Lega’s Matteo Salvini has effectively called time on the current Italian government. While it is still formally in place, from here it seems highly likely that parliament will be dissolved or a confidence vote on Prime Minister Conte will be called. What is still uncertain is the timing, though in the event of an early election it will most likely be between mid-October and mid-November. The outcome of such an election, if called, could have far-reaching consequences for both Italy’s fiscal position and its interaction with the EU.
First of all, amid this government crisis there are a series of deadlines to be met that could make the whole process of calling an election in coming months more complicated:
26 August: Italy must present its candidate for European Commissioner. Mr Salvini had already provided a list of names to PM Conte.
27 September: The government must present in parliament an update of the document of economy and finance (NaDef).
15 October: The government must present its Draft Budgetary Plan to the EC.
27 October: Regional vote in Umbria, followed by Calabria and Emilia Romagna.
30 November: Brussels to express its opinion on Italy’s Draft Budgetary Plan.
There are several ways in which the current government crisis can be transformed into elections. It is not up to Mr Salvini to call new elections – his role of internal affairs minister does not allow it. Of course, if the party no longer wishes to cooperate with 5SM Prime Minister Conte will be required to submit his resignation to President Mattarella. From here the President of the Republic can either choose to accept the resignation immediately or ask for a no confidence vote on the current government. The latter could lengthen the process towards new elections by a number of weeks|. First of all, parliament will need to be recalled from summer recess to vote on the confidence motion against Mr Conte and that in itself would require few additional days – parliament is not due to return from recess until 9 September.
Once President Mattarella has officially accepted the resignation of Mr Conte – either immediately or after a vote of no confidence – Mr Mattarella will consider whether the current parliament will allow the formation of another majority government (it seems very unlikely in this case) before opting for another election. If a new majority government cannot be found then the President of the Republic can officially dissolve parliament and call new elections. New elections should be held within 40 to 70 days from when parliament is dissolved.
The date of the elections depends on how long this whole process will take. If Mr Conte resigns without a vote of no confidence, Mr Mattarella accepts his resignation and parliament is dissolved next week then this is about the shortest possible timeline for new elections – which could be held by mid-October. However, if the government is removed via a vote of no confidence, then this will take longer and elections might not be expected to happen until mid-November at the earliest.
An important question is who, in this situation, would prepare the budget bill before year-end, in order that the planned VAT hike scheduled for early 2020 can be avoided? Both governing parties, 5SM and the League, agree on the fact that the VAT hike (worth €23bn) should be avoided. However, a newly formed government may not have enough time to act upon this.
The VAT hike clause is an instrument used by the Italian government enshrined in the budget law that intends to safeguard European deficit rules. It has been in place in Italy since 2011 (introduced by Mr Berlusconi’s government), but since then every government has either postponed or offset it with other measures to be compliant with European rules. This time should be no different. However, finding a way to plug the €23bn fiscal hole that postponing the VAT hike implies may not be easy, particularly if a government is not formed until the very end of the year.
Another key question is what government will result from new elections? While it is uncertain how the ‘alliances’ game plays out, it seems reasonable to conclude based on the opinion polls that it would be a League-led coalition. An alternative government could result from coalition talks between 5SM and PD, though we see this as less likely as we do not expect the two parties to run together as a coalition at the next elections. Our base case remains a right-wing coalition taking power after an election. Figure 1 shows that the League might only require the support of a smaller party such as Fratelli d’Italia (Brothers of Italy), thereby not requiring the support of Mr Berlusconi’s Forza Italia in the coalition. That would lead to a far-right government, the consequences of which may be increased concerns about Euroscepticism or even, in the extreme, fears of a euro exit (see Figure 2).
We had expected new elections not to take place until the spring of 2020. However, following this week’s news the likelihood of earlier elections has increased significantly. We now think that fresh elections will most likely take place between mid-October and mid-November 2019.
Our base case is of a far-right government headed by Mr Salvini’s Lega. However, much uncertainty remains on the exact date of these elections, which will depend crucially on PM Conte’s intentions and President Mattarella’s willingness to dissolve parliament. The results of the election could have far-reaching consequences for both Italy’s fiscal position and its interaction with the EU.
via ZeroHedge News https://ift.tt/2MbqiQg Tyler Durden
Following last night’s deflationary print in China PPI (and super-inflationary food CPI print) from China, all eyes are back on the US hoping for some dismal producer price data offering Powell more ‘data’ to be ‘dependent’ on.
And ‘they’ were given just that – a dismal miss on core PPI (even if the headline was in line), with Final Demand rising just 1.7% YoY – the weakest since January 2017.
PPI ex food and energy slipped 0.1% MoM (against expectations for a 0.1% rise) – the first monthly deflation since early 2017…
But it was the ex-food, energy, and trade services that really tumbled (slowing from +2.1% YoY to +1.7% YoY).
The cost of goods rose 0.4% after falling 0.4% the previous month. Services prices decreased 0.1% after a 0.4% gain in June.
A major factor in the decline in prices for final demand services was the index for guestroom rental, which moved down 4.3 percent – so blame AirBnB for unleashing the deflationary tsunami.
We await yet another tweet from President Trump proclaiming the lack of inflation and demanding action from The Fed.
via ZeroHedge News https://ift.tt/2KzB2ox Tyler Durden
“The country was in peril; he was jeopardizing his traditional rights of freedom and independence by daring to exercise them.”
You can make an educated guess on just how badly the current Bond Bonanza is going to end by the number of fund managers and individuals bragging about how much they’ve made in Fixed Income in recent days. Tumbling Global bond yields scream global slowdown, ($15 trillion of negative yielding debt) while stocks remain resolutely optimistic. Make sense of that if you will. Remember Blain’s Mantra No 1: “The Market has but one objective – to inflict the maximum amount of pain on the maximum number of participants!” And Mantra No 2: “In Bonds there is truth.”
You know its past hat-stand o’clock when one of the best performing global assets is a 100yr Century bond issued by Mexico! If you’d bought the much derided 100yr Austria bond-tap a few months ago, you are up 25%! Current bond prices are so high (and the yields so low) because they reflect the likelihood today’s financial fears turning into real destabilising events. In contrast, stocks are so high because they factor the expectations things will get better, central banks will keep juicing markets through easing and new QE, and the reality that stock dividend yields beat bond yields!
It’s incredible investors in ultra-long bonds are crowing about such short-term returns! But that’s the world – short-term is everything, while we neglect the long-term.
And the really annoying thing is – you could rationally have predicted this would happen. As the world wallowed into trade crisis, rising geopolitical tensions and expectations of slow down, it was kind of obvious central banks lacked any other policy response but to keep cutting rates and promise more financial distortion. If you’d just listened to that financial genius Donald Trump (US Readers – Sarcasm Alert) you’d have made off like the butcher’s dog with the sausages!
The next question is: for how much longer does this go on?
The bottom line is lower for longer rate and QE infinity are not economically healthy. But, perhaps we are finally approaching the end of the last 12 years of economic insanity…. It’s Friday, and it’s been a while since I’ve had a good rant. Indulge me for a few moments…
One of the great military quotes is Marshal of France Ferdinand Foch: “My Centre is giving way, my right is in retreat, situation excellent. I attack!”
The markets are convinced the global economy is headed towards slowdown/recession, stocks and bonds look utterly mis-priced and bubblicious, while looming trade wars, Brexit, Italy and other geopolitical minefields aplenty threaten growth. What’s possibly to like about the market outlook?
Absolutely Everything! Short-term BEAR, but long-term BULL!
For a start, the picture isn’t half-as-bad as it seems. In the UK and US, strip away the political noise of Trump and Brexit, and you actually got two high employment, strong pro-business, and energetic economies. Europe has far more serious issues. Trade wars and Brexit won’t help, but we’ve got through far worse times.
My spidey senses tell me the US and UK are moving into a new phase – which will redefine markets. Let me try to explain: I’d characterise the last 12 years as a series of monetary and policy mistakes. (Read about them in my book: The Fifth Horseman: How to Destroy The Global Economy.) Now we might be approaching the converse – a new era of Fiscal Stimulus. In the past the mere whiff of governments plotting fiscal spending to reflate jaded economies would send markets a flutter, bond yield soaring and currencies crashing. Markets don’t like high-spending governments, because governments don’t spend money well.
Now we face a completely unconventional and very different markets. When interest rates are this low and have done precisely f**k-all to stimulate the Occidental economy, then it’s time to do something different, and do it well. We have to do something different – does anyone really think the Fed or the ECB is going to stave off looming recession with a further 25 bp of interest rates cuts? Sure, they will try… but experience shows its pretty pointless. Time for something different.
Done well, Fiscal Stimulus might be a good thing. (And let’s try not get sucked into arguments about Neo-Keynsian New Monetary Theory, which pretty much sounds like fiscal carpet bombing. Please don’t anyone suggest it to Labour MPs – they will be all over it like the proverbial cheap suit.)
Fiscal policy has a bad rep.
Its extraordinary how much the focus and concerns of financial markets have shifted over the last 12 years. In 2008 it was the “End of the World” as Lehman went down, and the Fed started monetary experimentation on the grand scale through quantitative easing. In 2009 governments were ruing the costs of bank bailouts, while the market wondered if more “socially useless” financials would go to the wall. Global stock markets were unloved. By 2010 we had a full European sovereign debt crisis developing. In 2012 Mario Draghi pledged to do whatever it takes. 4 shocking years changed investment thinking completely. These events still colour the way markets react today. The reason no one tried Fiscal policy 7 years ago were fears it would reignite the Sovereign Debt Crisis. But, that’s a European problem. They no longer hold their own keys to the money printing presses. The UK and US do.
Since the Big Crisis global stock markets have recovered, and the global economy has utterly changed. While Oriental economies have been posting spectacular growth numbers, we’ve seen wheezing, lethargic “lower for longer” recovery in Europe and the US. It’s changed the balance of trade. Despite slow growth, stock markets are close to record levels, fuelled by buy-backs paid for through corporate binge-borrowing!
There are all kinds of reasons why growth has been so lackadaisical in the occidental economies – a mix of over-hasty reactive bank regulation that made bank lending more difficult, the insanity of pumping billions into financial assets to reflate economies even as countries adopted deflationary Austerity spending as a response to the debt crisis, and the increasing bureaucratization of finance. Who knows why growth was so weak, but.. it really doesn’t matter.
What matters is where do we go from here!
The point is to acknowledge the world is dynamically changing. Disruptive new technologies are now mainstream and have spawned new economic and manufacturing revolutions. A great example is Telsa: it may be a disaster of a car company, but it’s made 100 years of automotive tech obsolete and about as relevant as the horse drawn carriage. Financial Darwinism is occurring across all sectors – adapt, change or die. New opportunities from AI, VR and 3D are there to be exploited or missed. Decisions made today about climate change dictate our grandkids futures. Taking advantage of these opportunities is about smart business, but also smart governments in making sure we have healthy, well-educated workforces available to crew them.
We are likely to living with ultra-low interest rates for the long-term, but real money investors can’t meet their pension liabilities on 2% US Bonds or Negative Bund yields. The World has changed, and investment rules have changed with them. Investors need something more attractive to invest in – and why not invest long-term by taking long-term direct stakes in the changing economy? I’d argue GDP growth is irrelevant, while social wealth – creating new well-paid tech jobs, solving climate change while addressing change is far more pertinent.
And it requires government and private sector investment – coordinated fiscal spending/investment! Government money is often squandered – sucked into high-spending internal bureaucracies like health and education without really considering how these vital areas of state provision are also evolving and their financial needs changing – ie why prioritise maternity wings when the biggest challenge is the elderly care? My experience bringing private investors into projects to finance them is their due diligence is the key to successful investments. I suggest the market’s diligence can rein-in unwise government spending.
The challenge before a state today is the same as business – evolve to the new opportunities. Markets understand that – so why not encourage private investment into state social and economic infrastructure? Sure, that model was discredited with PPI in the UK – but let’s learn why and evolve better ways of doing it.
I reckon new fiscal spending initiatives in economic and social infrastructure could transform the UK and US. The problem is politics – can these countries get past political gridlock in Washington and Brexit in the UK? I am far less certain on Europe – I wrote recently I’d become a Euro Bull when I see some kind of Fiscal equivalent to the Euro emerge. German friends assured me it was going to happen, but since then they’ve said Germany is growing more insular and its less likely. Sorry to say it but without Germany supporting fiscal policy, then Europe is doomed, and so is Germany. They may be great engineers, but lack the financial imagination to see what’s wrong with their horse-drawn carriage economy!
Here’s my thinking. I want to retire in a few years time. I want a decent pension. But I can’t get that from Gilts at these levels. Do I chose dividend yields from stocks, or do I look to my pension fund investing in long-term income producing assets diversified across private and public assets… Why not indeed? Why shouldn’t my pension be dependent on a university churning out valuable well trained engineers and techs to run AI and Robotic factories 3 D printing new Electric power cells. Or do we just leave it unchanged and spend billions producing yet more General Studies graduates with the economic potential of a lump of coal?
I suppose my point is that what we once believed about states reining back spending and where markets are is no longer relevant in the new age. Society must evolve in line with evolving economies – and that’s a government function.
If the last 10 years have been about unwise monetary experimentation and financial repression. Will the coming years represent a return to sanity? Perhaps. Time for a good dose of fiscal policy. Its ok for countries to borrow – as long as they do it well, and spend the money wisely. That’s why I’m confident there are great investment opportunities coming!
Blain’s Brexit Watch
The UK remains in stand-off mode with Europe. The odds of a destabilising No-Deal get higher ever day. Any deal would be a great thing.
I increasingly sympathise with the BoJo government. The UK parliament repeatedly rejected the deal Theresa May “agreed” with Europe on the basis of the backstop. Even Boris and his mob finally vote for it – and it still failed. That should make clear to Brussels the Backstop is simply not acceptable to the UK. If Europe won’t change, then no deal it is.
Brussels can argue there is no point in negotiating away the backstop – Boris lacks a solid majority to get it passed in parliament anyway. Brussels is betting the Remainers in Parliament will cause the government to fall, a general election and a second referendum that might go their way. If that happens… we should all hang our heads in shame at the death of democracy.
If would be much much much better to get a deal – and it will hurt no one, except dent the Irish Teashop’s pride and a few Brussels egos.
Get over it and talk!
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Finally, Defendants seek to dismiss a claim that Fischman styles “Negligent Destruction of Plaintiffs’ [sic] Employment Opportunities.” The allegations relevant to this claim “are identical to those supporting the claim for intentional infliction of emotional distress” — in short, that Fischman was not allowed to send a goodbye email to her colleagues and was escorted from the building when she was fired. In taking those steps, Fischman argues, “Defendants breached their duty of reasonable care by terminating [her] employment in a manner that all but guaranteed she would never work as an attorney again.”
That claim borders on frivolous. “The elements of a negligence claim under New York law are: (i) a duty owed to the plaintiff by the defendant; (ii) breach of that duty; and (iii) injury substantially caused by that breach. If the defendant owes no duty to the plaintiff, the action must fail.” Fischman cites, and the Court has found, no case to support the proposition that an employer has a duty to fire an employee in a way that will not interfere with her future employment opportunities or to provide her with a letter of recommendation. Nor does Fischman provide any factual support for her assertion that Defendants have “all but guaranteed” that she will not be able to find work as a lawyer again. Thus, whether construed as a negligence claim or as a claim for tortious interference with prospective economic advantage (which requires, at this stage, a factual allegation of a business relationship with a third party), this claim must also be dismissed.
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Finally, Defendants seek to dismiss a claim that Fischman styles “Negligent Destruction of Plaintiffs’ [sic] Employment Opportunities.” The allegations relevant to this claim “are identical to those supporting the claim for intentional infliction of emotional distress” — in short, that Fischman was not allowed to send a goodbye email to her colleagues and was escorted from the building when she was fired. In taking those steps, Fischman argues, “Defendants breached their duty of reasonable care by terminating [her] employment in a manner that all but guaranteed she would never work as an attorney again.”
That claim borders on frivolous. “The elements of a negligence claim under New York law are: (i) a duty owed to the plaintiff by the defendant; (ii) breach of that duty; and (iii) injury substantially caused by that breach. If the defendant owes no duty to the plaintiff, the action must fail.” Fischman cites, and the Court has found, no case to support the proposition that an employer has a duty to fire an employee in a way that will not interfere with her future employment opportunities or to provide her with a letter of recommendation. Nor does Fischman provide any factual support for her assertion that Defendants have “all but guaranteed” that she will not be able to find work as a lawyer again. Thus, whether construed as a negligence claim or as a claim for tortious interference with prospective economic advantage (which requires, at this stage, a factual allegation of a business relationship with a third party), this claim must also be dismissed.
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Is Donald J. Trump anti-gun rights? Some might say “yes,” because the president has joined with Senator Lindsey Graham (R-SC) to support “red-flag” laws that allow government agents to take guns temporarily from those deemed too dangerous or unfit to possess a weapon. Such laws may be a major threat to the Second Amendment unless great care is taken to ensure due process is observed strictly and fully.
“Graham, in a statement, said he has reached a deal with Sen. Richard Blumenthal (D-CT) on a bill that would start a federal grant program to help and encourage states to create ‘”red flag” protection order’ laws, which are meant to make it easier for law enforcement to identify mentally ill people who should be banned from purchasing guns.”
Trump announced his support for the red-flag laws from the White House on Aug. 5, stating that “those judged to pose a great risk to public safety (should) not have access to firearms and that if they do, those firearms can be taken through rapid due process.”
But, the President’s latest tweets on the subject of gun control could, perhaps, be seen as backing away from that, tweeting that:
” Serious discussions are taking place between House and Senate leadership on meaningful Background Checks. “
Quick to explain that he is fully behind the right to bear arms:
“I am the biggest Second Amendment person there is, but we all must work together for the good and safety of our Country “
Adding that he has been consulting both sides:
“I have also been speaking to the NRA, and others, so that their very strong views can be fully represented and respected.”
But his bottom line is simple:
” Guns should not be placed in the hands of mentally ill or deranged people. “
“Common sense things can be done that are good for everyone! “
Serious discussions are taking place between House and Senate leadership on meaningful Background Checks. I have also been speaking to the NRA, and others, so that their very strong views can be fully represented and respected. Guns should not be placed in the hands of…..
….mentally ill or deranged people. I am the biggest Second Amendment person there is, but we all must work together for the good and safety of our Country. Common sense things can be done that are good for everyone!
The worry that many gun owners have is also simple – what the left anti-gun group sees as “common sense” is very different from rational “common sense” in the real world.
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