Category: zerohedge

One year ago, in June 2017, we wrote “Why The (Collapsing) Global Credit Impulse Is All That Matters“ in which we explained that among the relentless barrage of economic data, the only indicator that truly matters for global macro was how much credit China – which has been responsible for the bulk of global debt creation since the financial crisis – is unleashing upon the world at any given moment: the so-called Chinese credit impulse.

Today, in its weekly Sunday Start piece titled “Don’t Fear China’s Policy Tightening“, Morgan Stanley follows up on this observation, with its Chief Asia Economist Chetan Ahya confirming that “if you had been able to reliably pick the key global macro variable over 2012-16, China’s credit impulse would have been your choice” and explains why (this should be obvious to regular readers): 

The incredibly tight link between the credit impulse and China’s growth cycle, emerging markets (EMs) exports, global growth and commodity prices meant that it would have accurately predicted the direction of almost all other global macro variables that mattered, with about six months’ lead time.

He further explains the “simple” – in retrospect of course – reason behind this observation:

China’s credit impulse – or its leverage cycle – was the only game in town back then. With global aggregate demand weak as developed markets (DMs) were deleveraging and EMs were adjusting, the change in China’s credit impulse was the most significant driver of the global economy

However, in a striking claim which breaks with precedent and which, if correct suggests a historic change in the relationship between China’s credit creation and its impact on global markets and economies, the Morgan Stanley economist then writes that the link between China’s credit impulse and the global economy “has now been broken” and justifies his answer as follows: 

China’s tightening has not had a material impact on the growth cycle either in China or globally, even though its credit impulse began to weaken about 24 months ago. As deleveraging and adjustment headwinds recede, the recoveries in domestic demand in both DMs and EMs have emerged as additional global growth engines.

Ahya uses the following chart to prove his thesis…

… and gives the following explanation as to why China’s credit tightening may no longer be a global factor:

Why hasn’t the tightening in China had a material impact on its growth trajectory? We see two reasons:

1) The pace of tightening is gradual and flexible in this cycle: Over the past 24 months, tightening in China has been slower than in 2013-15, and the pace of future tightening isn’t on auto-pilot. Policy flexibility is apparent in the recent cuts to reserve requirement ratios and the extended timeframe for implementing tighter regulations. What’s more, the bulk of the tightening cycle may well be behind us.

2) Tightening in China is counter-cyclical this time: As policy-makers in a highly levered economy attempt to tighten and slow credit growth, domestic demand should weaken. In China’s case, this usually raises worries of a hard landing, as it did in 2013-15 when policy-makers tightened pro-cyclically against a backdrop of weak growth in exports. However, with strong global demand now buoying exports, today’s tightening is counter-cyclical. While policy-makers continue to pare back stimulus in the infrastructure and real estate sectors, net exports, private investment and consumption are providing offsets, helping to support overall growth momentum. Indeed, on Morgan Stanley estimates, from 2016 to 2018, the contribution of net exports to GDP growth has swung by 120bp (from being a drag to a boost), offsetting the decline in contribution from investment.

Rising protectionist risks are an additional investor concern, given the importance of external demand to China’s outlook. Our long-standing view has been that the US and China will eventually negotiate a deal that brings about a gradual and non-disruptive adjustment in their trade relationship. This should limit the impact of trade frictions on economic growth. Furthermore, we expect the global trade cycle to stay buoyant, sustained by strong global demand. Also supportive is the prospect of fiscal expansion in the US when the economy is near full employment, which will keep non-oil import growth relatively high and likely widen the non-oil trade deficit.

It should therefore come as no surprise that our chief China economist, Robin Xing, projects only a moderate slowdown in China’s growth, to 6.5%Y, in 2018. Hence China will still contribute 1.2 percentage points to global GDP growth in 2018, close to its share in 2017. With growth holding up in DM and accelerating in EM ex China, we expect global growth to remain steady at around 3.8%Y over the next four quarters.

Nonetheless, some risks bear watching. We have been focused on financial stability in the US and tightening in China. As we argue here, we are relatively less concerned about China’s tightening. So if you had to pick just one factor to worry about, your choice should probably be US financial stability risks.

While we appreciate Morgan Stanley’s attempt at overhauling Austrian economics, we disagree with the conclusions, because when push comes to shove, it’s still all about credit creation, and – as we showed recently – China’s credit impulse works with a very distinct lag.

As for the best argument why Morgan Stanley is wrong, we will defer to what BofA’s Michael Hartnett also just wrote this morning, noting that “global central banks just eased led by the PBoC, reminding everyone that on April 17th China surprised with an easing of monetary policy” which incidentally has been the trigger for the most important move of the past month: the relentless US dollar strength.

In other words, just as the global slowdown from the ongoing Chinese credit impulse is finally being felt, China does what it has done every time global growth hit a brick wall: it has resumed easing in hopes of sending the country’s Credit impulse back into positive territory, re-stimulating global growth in the process.

So no, Morgan Stanley, the Chinese credit impulse link is most certainly not broken, and as for your advice to “not fear China’s policy tightening”, that may have been warranted 6 months ago, however now that China is once again easing, you may want to reassess.

via RSS https://ift.tt/2FPpYz1 Tyler Durden

Authored by Patrick Buchanan via Buchanan.org,

If Donald Trump does not wish to collaborate in the destruction of his presidency, he will refuse to be questioned by the FBI, or by a grand jury, or by Special Counsel Robert Mueller and his malevolent minions.

Should Mueller subpoena him, as he has threatened to do, Trump should ignore the subpoena, and frame it for viewing in Trump Tower.

If Mueller goes to the Supreme Court and wins an order for Trump to comply and testify to a grand jury, Trump should defy the court.

The only institution that is empowered to prosecute a president is Congress. If charges against Trump are to be brought, this is the arena, this is the forum, where the battle should be fought and the fate and future of the Trump presidency decided.

The goal of Mueller’s prosecutors is to take down Trump on the cheap. If they can get him behind closed doors and make him respond in detail to questions — to which they already know the answers — any misstep by Trump could be converted into a perjury charge.

Trump has to score 100 on a test to which Mueller’s team has all the answers in advance while Trump must rely upon memory.

Why take this risk?

By now, witnesses have testified in ways that contradict what Trump has said. This, plus Trump’s impulsiveness, propensity to exaggerate, and often rash responses to hostile questions, would make him easy prey for the perjury traps prosecutors set up when they cannot convict their targets on the evidence.

Mueller and his team are the ones who need this interrogation.

For, after almost two years, their Russiagate investigation has produced no conclusive proof of the foundational charge — that Trump’s team colluded with Vladimir Putin’s Russia to hack and thieve the emails of the Clinton campaign and DNC.

Having failed, Mueller & Co. now seek to prove that, even if Trump did not collude with the Russians, he interfered with their investigation.

How did Trump obstruct justice?

Did he suggest that fired NSC Advisor Gen. Mike Flynn might get a pardon? What was his motive in firing FBI Director James Comey? Did Trump edit the Air Force One explanation of the meeting in June 2016 between his campaign officials and Russians? Did he pressure Attorney General Jeff Sessions to fire Mueller?

Mueller’s problem: These questions and more have all been aired and argued endlessly in the public square. Yet no national consensus has formed that Trump committed an offense to justify his removal. Even Democrats are backing away from talk of impeachment.

Trump’s lawyers should tell Mueller to wrap up his work, as Trump will not be testifying, no matter what subpoena he draws up, or what the courts say he must do. And if Congress threatens impeachment for defying a court order, Trump should tell them: Impeach me and be damned.

Will a new Congress impeach and convict an elected president?

An impeachment battle would become a titanic struggle between a capital that detests Trump and a vast slice of Middle America that voted to repudiate that capital’s elite, trusts Trump, and will stand by him to the end.

And in any impeachment debate before Congress and the cameras of the world, not one but two narratives will be heard.

The first is that Trump colluded with the Russians to defeat Hillary Clinton and then sought to obstruct an investigation of his collusion.

The second is the story of how an FBI cabal went into the tank on an investigation of Clinton to save her campaign. Then it used the product of a Clinton-DNC dirt-diving operation, created by a British spy with Russian contacts, to attempt to destroy the Trump candidacy. Now, failing that, it’s looking to overthrow the elected president of the United States.

In short, the second narrative is that the “deep state” and its media auxiliaries are colluding to overturn the results of the 2016 election.

Unlike Watergate, with Russiagate, the investigators will be on trial as well.

Trump needs to shift the struggle out of the legal arena, where Mueller and his men have superior weapons, and into the political arena, where he can bring his populous forces to bear in the decision as to his fate.

This is the terrain on which Trump can win — an us-vs-them fight, before Congress and country, where not only the alleged crimes of Trump are aired but also the actual crimes committed to destroy him and to overturn his victory.

Trump is a nationalist who puts America first both in trade and securing her frontiers against an historic invasion from the South. If he is overthrown, and the agenda for which America voted is trashed as well, it may be Middle America in the streets this time.

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It has been a frustrating year for both bulls and bears.

On the bullish side an unprecedented fiscal stimulus, coupled with ongoing, if fading, central bank liquidity injections, and the best earnings season since 2010 has failed to push the S&P into the green for the year; meanwhile on the bearish side two 10% corrections in the S&P in just the past 4 months, a record surge in the VIX as the short-vol trade died a gruesome death on Feb 5, unprecedented geopolitical shocks and military escalations coupled with fears of imminent middle-eastern war, soaring commodity prices and a suddenly slowing global economy, and the S&P is… unchanged for the year.

In short, despite clear catalysts for both the bull and bear case, “asset markets are struggling” as BofA’s chief investment strategist Michael Hartnett points out this morning, and gives a simple explanation for this confounding pattern: “Because it’s late-cycle, profits are peaking, and the Fed is tightening.”

Here are the details:

• On Aug 22nd the S&P500 bull market will become the longest of all-time
• July 2019 US economic expansion will become the longest since the Civil War
• From Feb’16 low to Jan’18 highs global equity market cap soared $33tn (equates to one FedEx added each trading day)
• In 12 months IBES consensus forecasts the level of global corporate profits to be 1/3 higher than prior peak in 2008 ($3.3tn vs $2.4tn)
• US, UK, Germany, Japan unemployment rates are at multi-decade lows, and yet political populism is accelerating quicker than wage growth
• $1.45tn of tax cuts have been enacted in USA, and yet volatility & interest rates have risen more than stocks & GDP forecasts this year
• Government bond supply set to triple to $1.5tn by 2019, and yet 10-year UST yield can’t break 3%, stock of negatively-yielding global debt still >$10tn
• 2018 US corporate bond issuance on pace +$1.5tn, US equity supply -$0.9tn, and yet TINA theme (There Is No Alternative) to equities struggling
• By end-18 the Fed will be 8 hikes into a tightening cycle and central bank balance sheets, the dominant catalyst for credit & equity market bull markets, will be contracting (a point we underscored yesterday as part of the latest warning by Mtt King)

While there are more reasons behind the market’s rangebound pattern, what really matters for traders and investors is what could finally break this 2,550 – 2,850 range in the S&P. And here, according to Hartnett, are the answers, starting with a good old juxtaposition of good and bad news:

• The good news: BofAML Bull & Bear Indicator currently 5.1, i.e. in neutral territory, indicates investors no longer as directionally euphoric on credit & equity markets as they were late-January.
• The bad news: April BofAML Fund Manager Survey made clear that few are bearishly positioned for lower growth, lower yields, and lower cyclicals.

But first a tangent: it’s not just the S&P that has been stuck in a tight range of 2550-2850: as the muted gains of bonds & equities YTD suggest credit, equity, volatility markets have been stuck in ranges: e.g. IG OAS 90-120bps, HY OAS 320-400bps, SOX 1200-1400, EEM $46-50, and the VIX 15-20.

So, looking first at the downside, what are the bearish triggers that could crack the 2550 SPX floor? According to Hartnett there are three:

• Weaker GDP & EPS: Chinese export growth slows to 0-5% (current 3MMA = >15%); political/geopolitical fear cause US ISM <55; US capex on back of US tax cuts fails to materialize
• Credit contagion: surge in US dollar causes EM asset volatility (e.g. BRL to 4) which, in turn, causes deleveraging and contagion across credit portfolios
• Policy impotence: ECB & BoJ QE and more dovish central bank rhetoric fails to suppress spreads & volatility (as we first remarked on Friday, this can be quantified by looking at the €70bn in annualized ECB purchases year-to-date which led to wider not tighter spreads in European high yield, an indication of what Hartnett called at the time “quantitative failure”)

What about the other side? What bullish triggers could smash the SPX 2850 ceiling? Here is Hartnett’s take:

• US policy makers “blink”: the Fed reduces its dot plot & the Trump administration backs away from protectionism
• Buybacks: math of US corporate bond issuance (annualizing $1.5tn in 2018) and US equity supply (on pace to fall $0.9tn via buybacks) kicks-in

• Tech bubble: “TINA to FAANG” narrative resumes; inability of global synchronized recovery, record EPS, US tax cuts and budget deficits, record low unemployment in US/UK/Japan/Germany, Fed balance sheet & surging commodity prices to induce higher wages & higher interest rates causes flows to surge back into deflationary tech disruption theme.

That’s the framework in a nutshell, although to the BofA CIO the bearish case is more likely than the bullish one, as he explains below.

So for those wondering how Hartnett himself is trading this, his “contrarian” recommendation is as follows:

The BofAML 2018 base case is as follows:

• Global GDP growth 4%, global inflation 3%, 10-year Treasury yield 3¼%, i.e. slow normalization continues
• A full-blown bear market in 2018 unlikely (recession and/or credit event required); but peak Positioning, Profits & Policy stimulus = peak asset returns = big, fat trading ranges for credit & equities (analog is late-1960s)
• Play defense via rotation from QE winners to QE losers, from levered cyclicals to liquid defensives

Here, Hartnett admits that he continue to tilt bearish as 2018 consensus too skewed toward:

• A macro view of higher GDP growth, strong global EPS, and a “good” rise in interest rates
• The 9-year bull market leadership of scarce “growth” & scarce “yield” via US stocks, tech stocks, US & EU high yield bonds, EM bonds and so on
• The 2-year bull market “global synchronized recovery” leadership of short G7 government bonds, US bank stocks & global cyclical stocks

In conclusion, Hartnett recommends the following trades:

• Long AAA-rated assets, e.g. BofAML’s Best of Breed basket of stocks…as peak profits, stubborn deflation favors quality, monopolies
• Long T-Bills, e.g. GB6 yield >2%…as the Fed now sole hawkish central bank
• Long China stocks, e.g. SHCOMP, HSP…on China policy easing & credibility
• Long US Dollar, e.g. vs EUR, CNH, SGD, MXN…on stealth easing by global central banks
• Short EM local currency-denominated debt, e.g. LDMP…on peak positioning & reducing EM FX exposure, a traditional vehicle to reduce portfolio beta
• Short FAANG, e.g. NYFANG…tricky as tech bubble risk remains high, but crowded & 2018 consensus too strongly believes weaker global EPS will not hurt FAANG
• Short High Yield bonds, e.g. H0A3, HEOO, HEB0…we think the best hedge against policy impotence

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Authored by Ryan McMaken via The Mises Institute,

May 5th marked the 200th Anniversary of Karl Marx’s birth, and in spite of inspiring a wide variety of political movements that have caused countless human rights disasters, Marx continues to be an object of admiration among many intellectuals and artists. One such example can be seen in Raoul Peck’s new film The Young Karl Marx which portrays Marx is a principled radical with a laudable thirst for justice. 

Fortunately for Marx the man and his reputation, he never personally gained control of the machinery of any state. Thus, the dirty work of actually implementing the necessary “dictatorship of the proletariat” was left up to others. And those who attempted to bring Marxism into the light of practical reality, quickly found that applied Marxism brings impoverishment and the destruction of human freedom. 

Nevertheless, after a century marked by brutal socialist regimes based on various interpretations of Marx’s ideas, Marx’s rehabilitation often rests on the idea that “real socialism” has “never been tried.” That is, a truly “pure” socialist experience — as Marx presumably wanted — has always been tainted by the presence of bourgeois ideas or lingering capitalistic habits present in the state apparatus. 

A typical example of this sort of thinking can be found in Noam Chomsky’s insistence that the obviously socialist regime in Venezuela is really “quite remote from socialism.” And it’s also notable in philosopher Slavoj Zizek’s 2017 article ” The problem with Venezuela’s revolution is that it didn’t go far enough” at The Guardian. 

In Zizek’s view, it seems, socialism can work if the habits and customs of the status quo are destroyed utterly and replaced by entirely new ways of thinking. Or, as Zizek’s describes it, old proverbs (i.e., modes of thought) must be totally replaced by new proverbs. For example: 

Radical revolutionaries like Robespierre fail because they just enact a break with the past without succeeding in their effort to enforce a new set of customs (recall the utmost failure of Robespierre’s idea to replace religion with the new cult of a Supreme Being). The leaders like Lenin and Mao succeeded (for some time, at least) because they invented new proverbs, which means that they imposed new customs that regulated daily lives.

Thus, the problem in Venezuela is not that countless private business have been seized, property rights been destroyed, and countless citizens deprived of basic freedoms. No, the problem is that the Venezuelan regime was too conservative and failed to implement a total break with the past. 

But how is that break from the past to be brought about? The truth lies in the language used by Zizek himself. It involves “enforc[ing] a set of customs” and “impos[ing] new customs.” This, of course, is the language of coercion and violence. These new “customs” wouldn’t have to be imposed, of course, if people wanted to adopt them voluntarily. 

From the point of view of the socialist purist, if only a new Lenin or a new Mao were to come along and try harder, well, then socialism might finally succeed. After all, as the satirical publication The Onion recently suggested, “Stalin Was Just One Great Purge Away From Creating Communist Utopia.”

As hyperbolic as such a statement may seem, this idea nevertheless fundamentally describes the mindset of those who claim “socialism has never really been tried”; if socialism is to be implemented, something must be done to relieve people of their attachment to private property and all the other customs and ideas that get in the way of utopia. 

In practice, this has always meant using the power of the state to force a new way of life on people. Moreover, thanks to economic realities, it has also meant that the more socialism is applied, the lower the standard of living sinks. But — the thinking goes — so long as the socialist planners keep forging ahead, and refuse to be sabotaged by capitalist thought, then utopia can be reached. Yes, there will be a lot of suffering in the interim, but the ultimate payoff will be incalculably great.

Represented graphically, the idea looks like this: 

Both Marx and Stalin admitted this unfortunate “interim stage” was a problem. As Ludwig von Mises notes, Marx even had to invent a two-tiered evolution of socialism:

In a letter, Karl Marx distinguished between two stages of socialism — the lower preliminary stage and the higher stage. But Marx didn’t give different names to these two stages. At the higher stage, he said, there will be such an abundance of everything that it will be possible to establish the principle “to everybody according to his needs.” Because foreign critics noticed differences in the standards of living of various members of the Russian Soviets, Stalin made a distinction. At the end of the 1920s he declared that the lower stage was “socialism” and the higher stage was “communism.” The difference was that at the lower socialist stage there was inequality in the rations of the various members of the Russian Soviets; equality will be attained only in the later, communist, stage. 

Partial Capitalism Works Better Than Partial Socialism

Note, however, that capitalism doesn’t suffer from this problem. If we take a middle-of-the road interventionist economy and start introducing partial, half-way free-market liberal reforms, does this cause the economy to collapse? 

Certainly not. Indeed, everywhere we look and find a relatively less socialistic economy, the less poverty and more prosperity we find.

Historically, this is obvious. The countries that embraced free trade, industrialization, and the trappings of market economies early on are the wealthiest economies today. We also find this to be the case in post-war Europe where the relatively pro-market economies such as those in Germany and the UK are wealthier and have higher standards of living than the more socialistic economies of southern Europe — such as Greece and Spain. This is even true of the Scandinavian countries like Sweden, which, as Per Bylund has noted, historically built its wealth with a relatively laissez-faire regime.

We see this phenomenon at work in comparisons between West Germany and East Germany. In West Germany after World War II pro-market reforms helped usher in a period of immense economic growth — with only half-way reforms. By abolishing price controls and other government-imposed restraints on the economy, the Germany economy took off while more socialistic economies — like that found in the UK at the time — were more stagnant. 

Obviously, in the case of Germany, the West German state did not adopt “pure” capitalism. They merely adopted relatively more laissez-faire. And the economy expanded. In fact, according to Hans Sennholz, the West German state rather accidentally stumbled upon its free market reforms. And yet, we call the results “the German economic miracle.” 

Other examples can be found across Eastern Europe and Latin America. Where markets are more relatively free, the higher the standard of living, and the greater the economic growth. Capitalists aren’t forced to make excuses about how “real capitalism has never been tried” — even though purely free markets have never existed anywhere. 

200 years after Marx, though, every new Marx-inspired failure causes his defenders to resort to this same excuse again and again. One can only hope that 200 years from now, they’ve given up. 

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Pakistan’s interior minister, Ahsan Iqbal, was wounded on Sunday during an assassination attempt in the eastern region of the central Punjab province. According to federal Minister Talal Chaudhry, Iqbal was shot in the shoulder at an election rally.

OMG OMG Ahsan Iqbal under attack, shot in the arm? pic.twitter.com/aNPkBfkAWV

— Faisal Ranjha (@ranjha001) May 6, 2018

A suspect has been arrested and an investigation is underway, the government of Punjab province confirmed on Twitter.

One of the shooter has been arrested and being interrogated by the police. Ahsan Iqbal is being treated at DHQ hospital Narowal.

— Govt Of The Punjab (@GovtOfPunjab) May 6, 2018

The politician is out of “immediate danger,” his son Ahmad told local TV station Geo News. “He is being treated at the district headquarters hospital in Narowal. He is conscious and out of danger.”

Pakistan’s prime minister, Shahid Khaqan Abbasi strongly condemned the assassination attempt and directed authorities to take legal action against the culprit.

Prime Minister Shahid Khaqan Abbasi has strongly condemned attack on Interior Minister Mr. Ahsan Iqbal. Prime Minister has called for immediate report into the incident from IG Police Punjab. pic.twitter.com/8nEoAYxyXO

— Govt of Pakistan (@pid_gov) May 6, 2018

In addition to his ministerial duties Iqbal is a leader of the Pakistan Muslim League (Nawaz). General elections are scheduled to take place in Pakistan in July to elect the country’s National Assembly. Last month, the interior minister expressed concerns that there was a conspiracy to impede the ruling PML-N party in the upcoming election.

According to unconfirmed social media reports, the attacker who fired and injured Pakistan’s Interior Minister Ahsan Iqbal says he wanted to kill him because of Kathm-e-Nabuwat issue, admits to being under the influence of Tehrik-e-Labaik.

Attacker who fired and injured Pakistan’s Interior Minister Ahsan Iqbal says he wanted to kill him because of Kathm-e-Nabuwat issue, admits to being under the influence of Tehrik-e-Labaik. pic.twitter.com/Zp9Z6yTH6S

— Syed Talat Hussain (@TalatHussain12) May 6, 2018

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Just weeks after Cape Town began preparing for “day zero” – when the South African runs dry of water…

Marine salvage experts are floating a plan to solve the city’s worst water crisis in a century… by tugging icebergs from Antarctica…

Reuters reports that salvage master Nick Sloane is looking for government and private investors for a scheme to guide huge chunks of ice across the ocean, chop them into a slurry and melt them down into millions of litres of drinking water.

“We want to show that if there is no other source to solve the water crisis, we have another idea no one else has thought of yet,” said Sloane, who led the refloating of the capsized Italian passenger liner Costa Concordia in 2014.

As his detailed presentation shows, this is how much water Cape town uses in one year…

…and this is how big an iceberg would need to be to provide the required 135 million litres of water every single day for a year:

Cape Town-based Sloane told Reuters his team could wrap passing icebergs in fabric skirts to protect them and reduce evaporation. Large tankers could then guide the blocks into the Benguela Current that flows along the west coast of southern Africa.

A milling machine would then then cut into the ice, producing a slurry and forming a saucer structure that will speed up the natural process, he said.

A single iceberg “could produce about 150 million litres per day for about a year,” around 30 percent of the city’s needs, said Sloane, a director at the U.S. marine salvage firm Resolve Marine.

The ocean currents could help push it towards South Africa. Assuming the capture is done in a location westward of South Africa, the combined impact of the Circumpolar and the Benguela currents, as well as the Coriolis effect (the impact of Earth’s rotation on weather patterns and ocean currents) may assist in reducing the towing power required.

It could then be parked 40km off the coast and turned into a mine.

As Reuters conclude, Sloane is planning to hold a conference later this month to try and sell the $130 million project to city officials and investors.

However, no matter whether icebergs appear or not as a solution, as the BBC notes, over one billion people lack access to water and another 2.7 billion find it scarce for at least one month of the year. A 2014 survey of the world’s 500 largest cities estimates that one in four are in a situation of “water stress”.

Here’s a list of 11 other major cities where the taps may soon run dry, courtesy of the BBC.

Sao Paulo

Brazil’s financial capital and one of the 10 most populated cities in the world went through a similar ordeal to Cape Town in 2015, when the main reservoir fell below 4% capacity.

At the height of the crisis, the city of over 21.7 million inhabitants had less than 20 days of water supply and police had to escort water trucks to stop looting.

It is thought a drought that affected south-eastern Brazil between 2014 and 2017 was to blame, but a UN mission to São Paulo was critical of the state authorities “lack of proper planning and investments”.

The water crisis was deemed “finished” in 2016, but in January 2017 the main reserves were 15% below expected for the period – putting the city’s future water supply once again in doubt.

Bangalore

Local officials in the southern Indian city have been bamboozled by the growth of new property developments following Bangalore’s rise as a technological hub and are struggling to manage the city’s water and sewage systems.

To make matters worse, the city’s antiquated plumbing needs an urgent upheaval; a report by the national government found that the city loses over half of its drinking water to waste.

Like China, India struggles with water pollution and Bangalore is no different: an in-depth inventory of the city’s lakes found that 85% had water that could only be used for irrigation and industrial cooling.

Not a single lake had suitable water for drinking or bathing.

Beijing

The World Bank classifies water scarcity as when people in a determined location receive less than 1,000 cubic metres of fresh water per person.

In 2014, each of the more than 20 million inhabitants of Beijing had only 145 cubic metres.

China is home to almost 20% of the world’s population but has only 7% of the world’s fresh water.

A Columbia University study estimates that the country’s reserves declined 13% between 2000 and 2009.

And there’s also a pollution problem. Official figures from 2015 showed that 40% of Beijing’s surface water was polluted to the point of not being useful even for agriculture or industrial use.

The Chinese authorities have tried to address the problem by creating massive water diversion projects. They have also introduced educational programmes, as well as price hikes for heavy business users.

Cairo

Once crucial to the establishment of one of the world’s greatest civilisations, the River Nile is struggling in modern times.

It is the source of 97% of Egypt’s water but also the destination of increasing amounts of untreated agricultural, and residential waste.

World Health Organization figures show that Egypt ranks high among lower middle-income countries in terms of the number of deaths related to water pollution.

The UN estimates critical shortages in the country by 2025.

Jakarta

Like many coastal cities, the Indonesian capital faces the threat of rising sea levels.

But in Jakarta the problem has been made worse by direct human action. Because less than half of the city’s 10 million residents have access to piped water, illegal digging of wells is rife. This practice is draining the underground aquifers, almost literally deflating them.

As a consequence, about 40% of Jakarta now lies below sea level, according to World Bank estimates.

To make things worse, aquifers are not being replenished despite heavy rain because the prevalence of concrete and asphalt means that open fields cannot absorb rainfall.

Moscow

One-quarter of the world’s fresh water reserves are in Russia, but the country is plagued by pollution problems caused by the industrial legacy of the Soviet era.

That is specifically worrying for Moscow, where the water supply is 70% dependent on surface water.

Official regulatory bodies admit that 35% to 60% of total drinking water reserves in Russia do not meet sanitary standards.

Istanbul

According to official Turkish government figures, the country is technically in a situation of a water stress, since the per capita supply fell below 1,700 cubic metres in 2016.

Local experts have warned that the situation could worsen to water scarcity by 2030.

In recent years, heavily populated areas like Istanbul (14 million inhabitants) have begun to experience shortages in the drier months.

The city’s reservoir levels declined to less than 30 percent of capacity at the beginning of 2014.

Mexico City

Water shortages are nothing new for many of the 21 million inhabitants of the Mexican capital.

One in five get just a few hours from their taps a week and another 20% have running water for just part of the day.

The city imports as much as 40% of its water from distant sources but has no large-scale operation for recycling wastewater. Water losses because of problems in the pipe network are also estimated at 40%.

London

Of all the cities in the world, London is not the first that springs to mind when one thinks of water shortages.

The reality is very different. With an average annual rainfall of about 600mm (less than the Paris average and only about half that of New York), London draws 80% of its water from rivers (the Thames and Lea).

According to the Greater London Authority, the city is pushing close to capacity and is likely to have supply problems by 2025 and “serious shortages” by 2040.

It looks likely that hosepipe bans could become more common in the future.

Tokyo

The Japanese capital enjoys precipitation levels similar to that of Seattle on the US west coast, which has a reputation for rain. Rainfall, however, is concentrated during just four months of the year.

That water needs to be collected, as a drier-than-expected rainy season could lead to a drought. At least 750 private and public buildings in Tokyo have rainwater collection and utilisation systems.

Home to more than 30 million people, Tokyo has a water system that depends 70% on surface water (rivers, lakes, and melted snow).

Recent investment in the pipeline infrastructure aims also to reduce waste by leakage to only 3% in the near future.

Miami

The US state of Florida is among the five US states most hit by rain every year. However, there is a crisis brewing in its most famous city, Miami.

An early 20th Century project to drain nearby swamps had an unforeseen result; water from the Atlantic Ocean contaminated the Biscayne Aquifer, the city’s main source of fresh water.

Although the problem was detected in the 1930s, seawater still leaks in, especially because the American city has experienced faster rates of sea level rise, with water breaching underground defence barriers installed in recent decades.

Neighbouring cities are already struggling. Hallandale Beach, which is just a few miles north of Miami, had to close six of its eight wells due to saltwater intrusion.

* * *

Meanwhile, back in Cape Town, once Day Zero arrives, residents will be forced to assemble at daily collection points to acquire their daily ration of 25 liters of water. And as they gaze out over the beautiful blue waters of the South Atlantic, some of them will probably wonder: How did we ever let things get this bad… and beg for the day when icebergs will roll into the bay.

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Authored by Kimberley Strassel, op-ed via The Wall Street Journal,

A House subpoena, another missed deadline. What is the department hiding?

The feud that has simmered for months between Congress and the Justice Department erupted this week into a cage match. That’s because the House is homing in on the goods.

Until this week, Deputy Attorney General Rod Rosenstein and fellow institutionalists at the department had fought Congress’s demands for information with the tools of banal bureaucracy – resist, delay, ignore, negotiate. But Mr. Rosenstein took things to a new level on Tuesday, accusing House Republicans of “threats,” extortion and wanting to “rummage” through department documents. A Wednesday New York Times story then dropped a new slur, claiming “Mr. Rosenstein and top FBI officials have come to suspect that some lawmakers were using their oversight authority to gain intelligence about [Special Counsel Bob Mueller’s ] investigation so that it could be shared with the White House.”

Mr. Rosenstein isn’t worried about rummaging. That’s a diversion from the department’s opposite concern: that it is being asked to comply with very specific – potentially very revealing – demands. Two House sources confirm for me that the Justice Department was recently delivered first a classified House Intelligence Committee letter and then a subpoena (which arrived Monday) demanding documents related to a new line of inquiry about the Federal Bureau of Investigation’s Trump investigation. The deadline for complying with the subpoena was Thursday afternoon, and the Justice Department flouted it. As the White House is undoubtedly monitoring any new congressional demands for information, it is likely that President Trump’s tweet Wednesday ripping the department for not turning over documents was in part a reference to this latest demand.

Republicans also demand the FBI drop any objections to declassifying a section of the recently issued House Intelligence Committee report that deals with a briefing former FBI Director James Comey provided about former national security adviser Mike Flynn. House Republicans say Mr. Comey told them his own agents did not believe Mr. Flynn lied to them. On his book tour, Mr. Comey has said that isn’t true. Someone isn’t being honest. Is the FBI more interested in protecting the reputations of two former directors (the other being Mr. Mueller, who dragged Mr. Flynn into court on lying grounds) than in telling the public the truth?

It’s hard to have any faith in the necessity of the more than 300 redactions in the House Intel report, most of which the Republican committee members insist are bogus and should be removed. On every occasion that Justice or the FBI has claimed material must be withheld for the sake of national security or continuing investigations, it has later come out that the only thing at stake were those institutions’ reputations. Think the Comey memos, which showed the former director had little basis for claiming obstruction. Or Sen. Chuck Grassley’s criminal referral of dossier author Christopher Steele, the FBI’s so-called reliable source, whom we now know it had to fire for talking to the press and possibly lying.

The Justice Department is laying all this at the feet of the Office of the Director of National Intelligence, which technically oversees redactions. But ODNI consults with the agency that “owns” the material, and the FBI is clearly doing the blocking. Again, many pieces of the House Intel report that are being hidden happen to relate to FBI conduct during the 2016 election.

The increasingly poisonous interaction between Congress and the Justice Department also stems from a growing list of questions Republicans have about leading Justice Department officials’ roles in the events Congress seeks to investigate. Mr. Rosenstein’s name was on at least one of the applications for a warrant on Carter Page to the Foreign Intelligence Surveillance Court. Dana Boente’s name is on another, and he’s now serving as the FBI’s general counsel.

We can’t know the precise motivations behind the Justice Department’s and FBI’s refusal to make key information public. But whether it is out of real concern over declassification or a desire to protect the institutions from embarrassment, the current leadership is about 20 steps behind this narrative. Mr. Comey, Peter Strzok, Lisa Page, Andrew McCabe – they have already shattered the FBI’s reputation and public trust. There is nothing to be gained from pretending this is business as usual, or attempting to stem continued fallout by hiding further details.

This week’s events – including more flat-out subpoena defiance – put a luminous spotlight on Speaker Paul Ryan. The credibility of the House’s oversight authority is at stake. Mr. Ryan’s committee chairmen have done remarkable work exposing FBI behavior, and they deserve backup. The quickest way to get Justice and FBI to comply with these legitimate requests is for Mr. Ryan to state strongly and publicly that he has zero qualms about proceeding down the road of contempt or impeachment if House demands are not met. This is the people’s government, not the Justice Department’s.

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It’s beginning to seem like former New York City Mayor Rudy Giuliani can’t go 24 hours without saying something controversial during an interview with the news media.

After he directly contradicted President Trump during an interview with Sean Hannity last week when he revealed that Trump was, in fact, aware of Michael Cohen’s $130,000 hush money payment to adult film star Stormy Daniels (real name Stephanie Clifford), Giuliani said during an interview Sunday with ABC’s George Stephanopoulos that, if it were necessary, he believes Cohen would’ve made similar payments to other women.

Did Michael Cohen make payments to other women on behalf of the president? Rudy Giuliani tells @GStephanopoulos: “I have no knowledge of that, but I would think if it was necessary, yes.” https://t.co/LYBy2d6vA3 pic.twitter.com/ESMcGETxx4

— ABC News (@ABC) May 6, 2018

Asked about the retainer arrangement between Trump and Cohen, Giuliani parroted President Trump’s line that these types of agreements are common among wealthy individuals, and that the specific agreement between Trump and Cohen had been worked out some time before – and that Cohen likely would’t have informed Trump before making these types of settlement payments.

Pres. Trump’s attorney Rudy Giuliani tells @GStephanopoulos he expects Michael Cohen “is going to cooperate” with investigators, but adds “I don’t think they’ll be happy with it because he doesn’t have any incriminating evidence about the president.” https://t.co/LYBy2d6vA3 pic.twitter.com/VMl7To87ZR

— ABC News (@ABC) May 6, 2018

Stephanopoulos asked if Cohen made similar payments to other women. Giuliani said that, while he has no knowledge of other payments, he wouldn’t be surprised to learn that Cohen did so.

“I have no knowledge of that but I — I — I would think if it was necessary, yes. He made payments for the president or he’s conducted business for the president. Which means he had legal fees, monies laid out and expenditures, which I have on my bills to my clients,” Giuliani said.

For what it’s worth, Giuliani also tried to walk back his Hannity comment by parroting the new White House line – that Trump was only made aware of the payment after the fact – which was introduced by Sarah Huckabee Sanders during a press briefing earlier this week.

“I don’t think anyone believes that he knew about it at the time. The question is, when did he find out,” Giuliani added.

Giuliani added that Trump wouldn’t have known about the $130,000 payment initially because the sum is so small. Trump wouldn’t have been consulted before the settlement – and that’s actually somewhat commonplace for wealthy individuals, Giuliani said.

“$130,000 between a lawyer and a client and – and a client who’s worth, you know, billions, is not – George, you know, I don’t like saying this, but it’s not a great deal of money. $1.3 million is a great deal of money. That’s the kind of money you would think of as a settlement. If I saw $130,000, I would never think it was to settle a substantial claims against my client.

[…]

“Well how could he if he didn’t know it? Right? I mean, first of all, it isn’t a liability, it’s an expense and I don’t think those are included. So I’m representing the president, let’s say. And I came down to Washington this weekend. That’s a certain expense. I’d bill him for it three months from now or two months from now. That’s not a loan. He’s not loaning me money.”

“I’m — I’m — my law firm or I — in this case, I, because I’m representing him individually. I lay out the money and then he pays me back. Sometimes those expenses go on for a couple years.”

[…]

“The agreement with Michael Cohen, as far as I know, is a longstanding agreement that Michael Cohen takes care of situations like this then gets paid for them sometimes. Gets — pays him (ph) sometimes it’s reimbursed in another way, depends on whether it’s business or personal.”

Describing the Daniels payment as a “nuisance payment,” Giuliani insisted that people “don’t go away” for $130,000.

“I never thought $130,000 — I know this sounds funny to people there at home. I never thought $130,000 was a real payment, it’s a nuisance payment,” Giuliani continued. “People don’t go away for $130,000.”

Pres. Trump’s attorney Rudy Giuliani calls $130,000 payment to Stormy Daniels “a nuisance payment.”

“I never thought $130,000 was a real payment… people don’t go away for $130,000.” https://t.co/lh2gx0bKQO pic.twitter.com/PhJjXUKeNX

— ABC News (@ABC) May 6, 2018

Asked if Cohen is still serving as Trump’s attorney, Giuliani pointed out that Cohen would be barred from representing Trump because of conflicts. He also insisted that while there might be minor inconsistencies between Trump and Cohen’s testimony in the Daniels case, they would agree on the key points.

“Not in any material respect. Look, if it didn’t contradict it at all, then somebody would be lying. I remember that great cross examination when the person just repeated the things over and over again the same way. Of course there’ll be minor details. On the two main facts, was it for the — was it for another purpose other than just campaign, even if it was campaign? Yes. It was to settle a personal issue that would be embarrassing to him and his wife. Number two, did he repay it over a period of time and then find out ultimately what it was about? Yes.”

Reports surfaced last week claiming that President Trump wasn’t happy with Giuliani’s interview with Hannity. And once again, it appears Giuliani might’ve said a few things that he might later regret (certainly, that comment about Cohen possibly paying other women appears ill-advised).

We now wait to see if Trump – or Daniels – will respond.

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One week ago, we reported that according to Goldman’s chief equity strategist David Kostin, the main worry consuming Goldman’s clients was the increasingly adverse impact of rising oil prices on the broader economy, and with good reason: “higher energy input costs weigh on the profit margins of firms in other sectors” Kostin said, adding that “higher gasoline prices also reduce the disposable income of consumers and weigh on spending.”

As a result, it is hardly surprising that as oil prices continued to rise in the past week, nearing $70 on fears Trump is about to end the Iranian nuclear deal, eliminating 1 million barrels in Iranian oil exports from the global market, and sending the price of oil even higher, Goldman’s clients are expanding their worries and as Kostin writes in his latest Weekly Kickstart, “Many investors fear the current economic expansion will soon end.”

Here, as Matt King did yesterday, Kostin also highlighted the “paradox” plaguing the market: why despite a blockbuster earnings season is the S&P still down for the year, and why are investors becoming increasingly fearful of the future. Here is Kostin: “Despite the strong 1Q earnings growth reported by so many companies, the top question from portfolio managers is actually macro-related: “What is the timing of the next economic downturn?”

Here, Goldman’s own economic team has not been helping boost optimism: as we reported last week, the bank found that its proprietary Global Economic Momentum indicator, a coincident proxy for GDP, had just declined to the lowest level since 2011.

Kostin confirms as much, noting that “although the US Current Activity Indicator (CAI) suggests an economy growing at an above-trend pace of 3.1%, the second-derivative shows growth deceleration, raising investor concerns.” Worse, looking at just the US, Kostin notes that “the Goldman Sachs US MAP index – a measure of economic data surprises – turned negative in April. Today’s non-farm payroll gain of 164K jobs was below the 192K consensus forecast although the unemployment rate fell to 3.9% vs. 4.0% expectation. The ISM manufacturing index registered a nine-month low and disappointed relative to the consensus forecast (57.3 vs. 58.5). Similarly, the ISM non-manufacturing index was also below expectations (56.8 vs. 58.0).”

In short, Goldman’s clients have reason to be worried.

Or maybe not: despite admitting that global economic momentum has hit a brick wall, the economy is still not in contraction as Goldman’s famous swirlogram shows:

And here things get amusing, because despite its growing skepticism, Kostin writes that the bank forecasts the current nine-year-and-counting expansion – now the second longest on record – will continue for several more years, and forecasts the following GDP for the near-future: 

• 2018: 2.8%
• 2019: 2.2%
• 2020: 1.5%
• 2021: 1.3%

The trend may be clear, but don’t let that fool you, as Kostin will quickly counter that Goldman’s recession probability model assigns a 5% likelihood of a recession during the next four quarters, 19% during the next eight quarters, and 34% during the next 12 quarters. Then again, the Goldman only assigned a maximum 30% probability of a recession taking place in the next 4 quarters the last three times a recession actually hit.

And while one can exhibit a healthy dose of skepticism when it comes to the latest dose of Goldman doublespeak, it will not stop Kostin from pushing the party line that a recession is not imminent, as:

“the consumer accounts for 69% of US GDP and confidence stands near its 20-year high. Business spending is also robust. S&P 500 capex is tracking at +24% in 1Q year/year. We forecast 2018 capex growth of 10% to $690 billion (27% of cash spending).”

Ironically, both confidence, profit growth and capex spending were all at their peaks just prior to the last 3 recessions too.

In short, one almost gets the impression that Goldman is pushing a specific angle here, and sure enough, from warning about the future, to easing fears of a recession, Kostin then promptly pivots to the bank’s next recommendation for this confused period, and tells Goldman’s investors to be overweight Financials, and banks in particular. Why? Goldman lays out 7 specific reasons why investors should drop everything and buy bank stocks (such as Goldman Sachs):

(1) Rising interest rates. Financials typically outperform when 10-year Treasury yields rise, but lag when the yield curve flattens. However, a sharp divergence has occurred as the recent back-up in Treasury yield has corresponded with sector underperformance.

(2) Increased capital return. In early April, banks submitted to the Fed their proposed plans under the Comprehensive Capital Analysis and Review (CCAR) program. By late June, the Fed will render its opinion. Last year, the government approved a 43% jump in capital returned to shareholders via buybacks and dividends.

(3) Further deregulation. Proposed amendments to the CCAR rules that would take effect next year would increase balance sheet capacity and give boards more control over the use of their capital. See CCAR stress capital buffer proposal…, April 11, 2018 and SLR/TLAC proposal, April 12, 2018.

(4) Strong M&A advisory fees. ”Merger Monday” kicked off one of the busiest weeks of the year for corporate actions. In the past two weeks, deals totaling $150 billion were announced, lifting YTD growth to +100% vs. the same period in 2017.

(5) Net Interest Margin (NIM) expansion. As the long end of the yield curve rises, benefits accrue to banks through higher investment and loan yields. Since the Fed began the current hiking cycle in December 2015, NIMs for the US banking system have expanded by 22 bp (to 317 bp from 295 bp).

(6) Loan growth. The major investor pushback we receive on our overweight recommendation for banks relates to the perceived anemic loan growth. Fund managers focus on the 2.6% year/year loan growth for the Top 25 domestic banks, the lowest since 2014 and dragged down by the -1% growth at Wells Fargo (WFC). However, small banks have registered a 7.7% jump in loan growth boosting the overall bank loan growth to 4.6%  Furthermore, the drivers of loan growth are trending in a positive direction (increased capex plans, increased M&A, and low cash balances).

(7) Attractive valuation and growth. The Financials sector trades at an above-average relative valuation discount vs. the S&P 500 across several metrics. However, Financials operate with much lower leverage than in the past. Consequently, the median return on tangible equity (ROTE) for the sector equals just 13%. Loan growth, NIM expansion, and advisory fees should drive EPS growth of 30% (2018) and 10% (2019). Buybacks will lower the equity base, and support a higher P/TB valuation than the current 2.0x. Dividends will grow by 16% in 2018 and 12% in 2019.

To summarize all of the above, while filtering what Goldman really means, a recession is coming and Goldman has a lot of bank stocks to sell ahead of it.

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Authored by Ana Alexandre via CoinTelegraph.com,

Tangem, a start-up operating from Switzerland and Singapore, has launched a pilot sale of physical notes of Bitcoin (BTC), according to a press release published May 3.

image courtesy of CoinTelegraph

Tangem Notes, described in the press release as “smart banknotes” with a chip developed by Samsung Semiconductor, reportedly allow consumers to physically carry Bitcoin stored in denominations of 0.01 (about $96) and 0.05 BTC (about $482). The first pilot batch, consisting of 10,000 notes, will be shipped from Singapore to potential partners and distributors around the world.

According to the press release, the idea behind creating physical notes of Bitcoin was in part to increase the ease of spending crypto, “improv[ing] the simplicity and security of acquiring, owning, and circulating cryptocurrencies.”

Singapore has developed a reputation as a hub for cryptocurrency and blockchain development in Asia. Recently, The Singapore Fintech Association and the Fintech Association of Japan signed a Memorandum of Understanding to collaborate on fintech development. Additionally, China and Singapore completed a shipment of gasoline entirely using blockchain technology in early April. In March of this year, Singapore’s central bank reaffirmed its commitment to using blockchain for cross-border payments.

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