Good News! No Need to Have a Mental Breakdown Over ‘Climate Collapse’

ApocalypseClimateRona978Dreamstime“What if I told you there was a paper on climate change that was so uniquely catastrophic, so perspective-altering, and so absolutely depressing that it’s sent people to support groups and encouraged them to quit their jobs and move to the countryside?” asks reporter Zing Tsjeng over at Vice. She is citing Professor of Sustainability Leadership at Cumbria University Jem Bendell’s “Deep Adaptation” paper that asserts that man-made climate change will result in “a near-term collapse in society with serious ramifications for the lives of readers.” How near-term? In about 10 years or so.

Bendell says that he came to his dire prediction while on a recent unpaid sabbatical during which he “reviewed the scientific literature from the past few years.” He asserts that “the summary of science is the core of the paper as everything then flows from the conclusion of that analysis.” As a consequence, he claims to have discerned from his reading of recent climate science the initiation of drastic non-linear effects that are quickly leading to “runaway climate change.” Therefore, his review forced him to “establish the premise that it is time we consider the implications of it being too late to avert a global environmental catastrophe in the lifetimes of people alive today.” Bendell seems now to be grappling with a kind of spiritual crisis as a result of his melancholy study.

How catastrophic? “When I say starvation, destruction, migration, disease and war, I mean in your own life,” he writes. “With the power down, soon you wouldn’t have water coming out of your tap. You will depend on your neighbours for food and some warmth. You will become malnourished. You won’t know whether to stay or go. You will fear being violently killed before starving to death.”

Bendell decries “professional environmentalists [for] their denial that our societies will collapse in the near-term” and invites readers “to consider the value of leaving mainstream views behind.” But is Bendell’s reading of the recent climate science accurate? My own review of the literature suggests that he has essentially constructed a “parade of horribles” argument that falls apart under a more dispassionate analysis. Bendell anticipates that some critics will reject his grim conclusions by resorting to what he calls unwarranted and psychologically protective “collapse-denial.”

While trying to avoid the “collapse-denial” pitfall, a review of the most recent scientific literature suggests that while climate change will pose significant problems for humanity over the remainder of this century, near-term societal collapse due to runaway climate change is unlikely.

Bendell does report the relatively uncontroversial data that average global surface temperatures have increased by 0.9°C since 1880 and that 17 of the 18 warmest years in that record have all occurred since 2001. The State of the Climate in 2017 report issued last year by the American Meteorological Society cites weather balloon and satellite datasets indicating that, since 1979, the increase of global average temperature in the lower troposphere is proceeding at the rate of between 0.13°C and 0.19°C per decade. According to NASA’s Earth Observatory, the rate of temperature increase since 1975 as measured by thermometers at the surface is roughly 0.15-0.20°C per decade. The State of the Climate in 2017 report also notes that climate models assessed by Coupled Model Intercomparison Project Phase 5 (CMIP5) projected that the lower troposphere should be warming at the rate of 0.27°C per decade.

Reconciling the discrepancy between the rates of empirical and modeled temperature increase will depend on what equilibrium climate sensitivity (ECS) turns out to be. ECS is conventionally defined as how much warming can be expected to result from a doubling of atmospheric carbon dioxide. There is still considerable debate among climate researchers about the magnitude of this figure.

A 2018 article in Climate Dynamics calculated a relatively low climate sensitivity of range of between 1.1°C and 4.05°C (median 1.87°C). Another 2018 study in the Journal of Geophysical Research: Atmospheres estimated a higher ECS that is likely between 2.4°C and 4.6°C (median 3.3°C). The study noted that its analysis “provides no support for low values of ECS (below 2°C)” suggested by other analyses such as the one in Climate Dynamics. The higher that ECS is, the more likely the models’ rate of increase is right and the worse the effects of climate change are liable to be.

Ice

Bendell is particularly concerned about the rate of warming in the Arctic. He correctly observes that the Arctic is warming at twice the rate of the global average. Between the 1920s and the 1940s, a large warming event occurred in the Arctic. Researchers have concluded that that increase was most likely the result of natural internal atmospheric variability. While early 20th century Arctic warming was comparable to the recent 30-year warming, the temperature levels during the past five years (2014–18) have exceeded all previous records since 1900.

As a result of warming temperatures, the extent of arctic sea ice has been falling since 1980 at the rate of 12.8 percent per decade. Some recent research suggests that Arctic warming is affecting weather patterns in the northern hemisphere such as polar vortex outbreaks in the mid-latitudes.

Bendell chiefly hangs his prognostication of “our near-term extinction” on the “permafrost carbon bomb” hypothesis. The idea is that lots of carbon is trapped in the Arctic permafrost and in subsea methane hydrates, and that warming will produce a feedback loop in which carbon will be exponentially released into the atmosphere. Adding Arctic carbon dioxide to the atmosphere is bad enough, but rising temperatures will purportedly cause the non-linear release of vast amounts of methane which has a global warming potential that is 28 to 36 times greater than carbon dioxide.

In support of this dire scenario, Bendell points to a 2013 report in Nature that conjectured that warming could lead to a burp of 50-gigatons of methane over less than 10 years out of the Arctic Ocean. The result would be an immediate increase of global temperatures by about 5°C at a cost to the global economy of $60 trillion. The size of the global economy was then about $70 trillion. Rather than merely cratering the global economy, such a methane burp might also result in our extinction.

So how worried should we be? Bendell handwaves aside numerous more current scientific reviews and studies that conclude that a permafrost carbon bomb is implausible. One comprehensive 2017 review of sources and sinks of methane reported that “atmospheric measurements at long-term monitoring stations show no significant increase of Arctic methane emissions. This suggests that at present, Arctic emission increases are negligible or small in absolute terms.”

Bendell instead speculates that recent increases in atmospheric methane indicate that a nonlinear Arctic methane catastrophe that could result in “our near-term extinction” is in the offing. As evidence, he cites a recent experiment in which German researchers monitored chunks of melting permafrost for seven years and found that they did emit more than expected amounts of methane. Based on this experiment, the researchers calculate that “the permafrost soils of Northern Europe, Northern Asia and North America could produce up to 1 gigaton of methane and 37 gigatons of carbon dioxide by 2100.” That’s 1 gigaton of methane over 80 years, not 50 gigatons in 10 years. And as it happens, human activity emitted 37 gigatons of carbon dioxide in 2018, which means that Arctic permafrost thawing would add just a bit over 1 percent to annual carbon dioxide emissions between now and 2100.

In addition, a 2017 Nature Communications study traces the increases in atmospheric levels of methane that Bendell references not to permafrost, but instead to a combination of leaks from fossil fuel production and higher emissions from agriculture and wetlands. A 2019 Scientific Reports modeling study finds that abating man-made methane emissions would “limit methane-caused climate warming by 2100 even in the case of an uncontrolled natural Arctic methane emission feedback.” It appears that “our near-term extinction” from a detonating permafrost carbon bomb is highly unlikely.

Other than the trends in the Arctic region, Bendell asserts that humanity is already seeing the impacts of global warming on storms, drought, and flood frequencies. Climate change is also set to dramatically reduce harvests resulting in global famines. He further asserts that half of the world’s coral reefs have died in the past 30 years and that rising temperature is causing an exponential rise in mosquito and tickborne illnesses.

Weather

Let’s take storms first. In a 2018 study, researchers associated with the Global Precipitation Climatology Project reported that global precipitation increased between 1979 and 2017 by 0.33 percent per decade, for an overall increase of about 1 percent. Interestingly another 2018 study in the Bulletin of the American Meteorological Society (BAMS) reported, “The take-home message from our study using the new 33+ years of high-resolution global precipitation dataset is that there seems not to be any detectable and significant positive trends in the amount of global precipitation due to the now well-established increasing global temperature. While there are regional trends, there is no evidence of increase in precipitation at the global scale in response to the observed global warming.”

While the global trend toward more precipitation is small, meteorologists have found that there has been a significant increase in the frequency of more intense rainstorms. “On a global scale, the observational annual-maximum daily precipitation has increased by an average of 5.73 millimeters (0.23 inch) over the last 110 years, or 8.5 percent in relative terms,” reported a 2015 study.

Tropical cyclones are the most damaging type of storms. Most climate models project that as temperatures rise there will be fewer but bigger hurricanes, typhoons, and cyclones. The MIT climatologist Kerry Emanuel reports a significant global increase since 1980 in all storms with maximum wind speeds above 175 kilometers per hour (109 miles per hour). Storms of 200 km/h (125 mph) and more have doubled in number, and those of 250 km/h (155 mph) and more have tripled. Climatologist Ryan Maue tracks global tropical cyclone activity and he also finds that while the number of cyclones has been declining since 1980, the trend toward bigger storms has been slightly increasing. While cyclones generate dangerous coastal storm surges, the good news is that global mortality from storm surges has been decreasing since the 1960s.

Storm surges from cyclones will likely become more damaging as water from melting glaciers and ice caps on land drains into the oceans and increase average sea level. A 2018 BAMS article notes that sea level rise is accelerating at 0.084 millimeters per year. On top of the current rate of 3 millimeters per year, this implies an average rise of about 20 inches by 2100. Between 1880 and 2015, sea level rose by almost 9 inches.

Using a worst-case climate scenario in which no efforts were made to reduce future warming, a 2018 study in Earth’s Future projected that sea level would rise by 2 and half feet by 2100. The researchers estimated that that increase would globally expand the area of land located in the 1-in-100 year coastal flood plain from its current area of about 210,000 square miles, to 290,000 square miles in 2100. The percent of the global population threatened by coastal flooding would rise (in the worst case scenario) from 3.6 percent now to about 5.4 percent by 2100.

A 2018 study in Global Environmental Change, this one also evaluating the economic effects of projected sea level increases ranging from 1 to 6 feet by 2100, concluded that it would be cost effective to invest in the protection of just 13 percent of the global coastline, thus safeguarding 90 percent of the global coastal floodplain population and 96 percent of assets in the global coastal floodplain. If these projections are approximately correct, addressing sea level rise will be costly, but it does not portend near-term societal collapse.

One might expect that more intense rainstorms should result in more flooding, but a 2017 study investigating maximum streamflow trends around the globe in the Journal of Hydrology found that there were more streamflow measuring “stations with significant decreasing trends than significant increasing trends across all the datasets analysed, indicating that limited evidence exists for the hypothesis that flood hazard is increasing.”

Another 2018 study in Water Resource Research reported that “flood magnitudes are decreasing despite widespread claims by the climate community that if precipitation extremes increase, floods must also.” The explanations for declining flood magnitudes include the possibility that soils now tend to be drier and so absorb more water, and that intense rainstorms–while more frequent–are geographically smaller, thus inundating less area. On the other hand, the Dartmouth Flood Observatory reports that the annual number of large floods increased from about 50 in the mid-1980s to around 200 in the early 2000s, and have fallen a bit since.

The opposite of flooding is drought. Is man-made global warming having an effect on the global prevalence of drought? A 2012 study in Nature concluded that “there has been little change in drought over the past 60 years.” A 2014 study in Nature Climate Change, however, suggested that “increased heating from global warming may not cause droughts but it is expected that when droughts occur they are likely to set in quicker and be more intense.” A 2015 study in Earth and Space Science found that the percent of global land area subject to drought has not changed since 1901, even though global evaporation rates and temperatures have increased. The authors suggest that increased precipitation may have counteracted a global trend toward more drought.

Whatever the trend in floods, droughts, and storms, the fact is that the global death rate due to natural disasters has fallen steeply over the past century, from about 24 per 100,000 annually in the 1920s to below 1 per year in the 2010s. This is remarkable considering that world population has quadrupled over that period, and it obviously cuts against Bendell’s dismal prognostications that humanity will be unable to successfully adapt to climate change.

Famine

Bendell asserts that “we are already in the midst of dramatic changes that will impact massively and negatively on agriculture within the next twenty years.” These impacts are supposedly already inducing the “sense of near-term disruption to our ability to feed ourselves and our families.” When contemplating Bendell’s prophecies of imminent agricultural collapse, everyone should keep in mind that cereal and livestock production have both nearly quadrupled since 1961 even as average global temperatures have risen.

In support of his claims that global famine triggered by climate change looms, Bendell references a couple of modeling studies that condescendingly suggest that farmers will essentially do nothing to adapt to climate change. But that’s not correct. For example, farmers in the U.S. and Canada are now taking advantage of the fact that the cornbelt is shifting northward due to warming temperatures.

Oddly, as evidence of impending famine, Bendell cites a 2015 Environmental Research Letter socioeconomic modeling study that actually finds that without climate change grain yields in 2050 would be between 65 and 55 percent higher than they were in 2005. With climate change, depending on the scenario, yields would be only be 45 to 60 percent greater. This is well within a 2017 BioScience study’s projection of a global food demand increase by 2050 that ranges between 25 to 70 percent above current global production.

In any case, many researchers find that agriculture can continue to produce more food while simultaneously adapting to future climate change. For example, a 2017 policy report for the European Commission found that “the impact of climate change on agricultural production in 2050 is negative but relatively small at the aggregated global level.” Remarkably, that study reported that efforts to mitigate greenhouse gas emissions from the agricultural sector by, for example, increasing the prices of fuel and fertilizer, would have a bigger negative impact on agricultural production than would climate change.

Oceans

Coral reefs occupy less than one quarter of one percent of our oceans, but they’re home to an estimated 25 percent of all marine species. Bendell correctly observes that coral bleaching due to rising average temperatures in the tropical oceans is increasing. When water temperatures get too hot, corals expel their symbiotic algae and that deprives them of nourishment. The BAMS State of the Climate 2017 report noted that mass coral bleaching has historically occurred when ocean temperatures rose during El Niño events in 1983, 1998, and 2010. However, an unprecedented 36-month ocean heatwave in 2014 to 2017 affected 75 percent of Earth’s tropical reefs, and at nearly 30 percent of reefs, it reached mortality level. Mass bleaching used to occur once every 25–30 years in the 1980s, but now mass bleaching returns about every six years and is expected to further accelerate.

Clearly reefs are suffering from the heat, but some recent research hints that they are adapting to cope with rising temperatures. A 2019 global analysis of coral bleaching over the past two decades in Nature Communications reports that “in the last decade, the onset of coral bleaching has occurred at significantly higher sea surface temperatures (∼0.5 °C) than in the previous decade.” The researchers suggest that individuals of various coral species that are especially liable to bleach when temperatures warm “may have declined and/or adapted such that the remaining coral populations now have a higher thermal threshold for bleaching.” In other words, corals appear to be evolving to withstand higher temperatures.

Disease

“In some regions we are witnessing an exponential rise in the spread of mosquito and tick-borne viruses as temperatures become more conducive to them,” writes Bendell. He cites a 2018 European Commission report evaluating the impact of climate change on the rates of viral disease chiefly spread by mosquitoes. All things being equal, the report notes that the range of two disease carrying mosquito species—Aedes aegypti and Aedes albopictus—are likely to expand as the global temperatures rise. These two especially vexatious species transmit Zika, dengue, and Chikungunya viruses. Climate change will eventually enable these species to expand their ranges, concurred a 2019 modeling study in Nature Microbiology, but “in the next 5 to 15 years, the models predict that spread of both species will be driven by human movement, rather than environmental changes.”

While certainly burdensome, the mortality rates for Zika, dengue, and chikungunya are low. So even implausibly assuming that no progress at all is made in controlling these pests and the diseases they transmit, their spread does not threaten near-term human extinction.

Fortunately, progress is being made on vaccines for each of these (and many other) vector-borne illnesses. In addition, biotechnologists are developing techniques that can either prevent mosquitoes from carrying pathogens or eliminate the pests from the landscape altogether. Similar biotech interventions are being developed to control diseases spread by other vectors as well. As a result, the role of climate change will decreasingly figure as a factor in determining human exposure to vector-borne illnesses.

Apocalypse

Bendell acknowledges that some researchers have suggested developing geoengineering as an emergency backup plan for cooling down the planet in case global warming runs faster than current projections suggest. But he dismisses it as a potential way to ameliorate climate change because he thinks that its unpredictability will prevent its deployment. This objection will not hold if most people think that rapidly rising temperatures is about to cause global social collapse. As it happens, a 2019 Nature Climate Change study, “Halving warming with idealized solar geoengineering moderates key climate hazards,” by Harvard engineer Peter Irvine and colleagues, finds that spreading sulfur dioxide into the stratosphere to reduce average temperatures by about half the amount temperatures would increase if atmospheric carbon doubled would not likely destabilize current weather patterns.

“It would not be unusual to feel a bit affronted, disturbed, or saddened by the information and arguments I have just shared,” observes Bendell in his discussion of “systems of denial.” Such climate collapse denialism, he argues, is rooted in mixture of wishful thinking, paternalistic efforts to protect the public from despairing, and the refusal to accept our powerlessness to stop climate doom. Collapse denialism is further buttressed by the norms of scientific understatement, the natural psychological resistance to thinking about death, and the institutional positive problem-solving emphases of non-profit, private, and governmental organizations.

Bendell suggests that many people accept much of the data about climate change that he reports, but choose to interpret them in a way that makes them ‘safer’ to their personal psychologies. This, he asserts, amounts to a form of “interpretative denial.” On the other hand, Bendell admits he has “chosen to interpret the information as indicating inevitable collapse, probable catastrophe and possible extinction.” Thus it would seem that his predictions of imminent civilizational collapse are the consequence of a form of “interpretative confirmation.”

Recall that Bendell asserts that “the summary of science is the core of the paper as everything then flows from the conclusion of that analysis.” If his reading of current climate science is faulty or biased, then, so too, are his arguments. My reading of the recent scientific literature finds that while man-made climate change is a significant and growing problem, it does not portend, as argued by Bendell, imminent massive social collapse and the possibility of near-term human extinction.

That being the case, I must conclude, that as well-meaning as he may be, Bendell is engaging in “apocalypse abuse.” Like earlier practitioners of that suspect craft, Bendell operates chiefly by extrapolating only the most horrendous trends, while systematically ignoring any ameliorating or optimistic ones, offering worst-case scenarios in the guise of balanced presentations.

Bendell writes that the impending end of the world has caused him to reevaluate his work choices. He muses that “in order to let oneself evolve in response to the climate tragedy one may have to quit a job—and even a career.” Way back in 1971, overpopulation doomster Paul Ehrlich similarly told Look magazine, “When you reach a point where you realize further efforts will be futile, you may as well look after yourself and your friends and enjoy what little time you have left. That point for me is 1972.” Forty-eight years later, Ehrlich is still predicting an imminent ecological apocalypse and I suspect that Bendell will be doing the same thing in the year 2065.

In his paper Bendell does lamely observe, “We do not know if the power of human ingenuity will help sufficiently to change the environmental trajectory we are on.” Maybe not, but it’s a far better bet than is his concocted case for collapse fatalism.

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Boeing Anti-Stall Software Mistakenly Activated Before Deadly Crash, Investigators Believe

So far, Boeing executives have done a remarkable job of deflecting questions about the role Boeing’s MCAS anti-stall software played in the two plane crashes that inspired airlines around the world to ground the workhorse jets. But that’s about to get a lot harder.

Confirming widely held suspicions, investigators have reportedly determined that MCAS was active at the time Ethiopian Airlines flight ET302 plunged to Earth in March 10, just minutes after taking off from an airport in Addis Ababa, according to WSJ. The report confirms what the CEO of Ethiopian Airlines told the press earlier in the week, when he said that the airline believed the software had been active at the time, though he couldn’t confirm it.

Boeing

Investigators have reached a “preliminary conclusion” that the software automatically activated, according to what they told FAA officials during a high-level briefing with the FAA on Thursday. WSJ said it is the “strongest indication yet” that the software was involved in both the Lion Air and Ethiopian Airlines crashes, which killed more than 350 people.

US air safety experts have been analyzing information from the “black boxes” recovered from ET302 for the past few days. Meanwhile, a full preliminary report from the Ethiopian authorities is expected in the next few days.

Earlier this week, Boeing announced changes to MCAS, including allowing input from two sensors instead of one. Investigators suspect faulty data from the sensor helped trigger the system. Boeing is also adding certain cockpit alerts.

Here’s an illustration of how MCAS works (courtesy of Bloomberg):

Boeing

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S&P Futures Jump On Renewed “Trade Talk Optimism”, Set For Best Quarter Since 2009

Global stocks and US equity futures rose in a broad rally to end the strongest quarter for global markets since 2012 (and for the S&P since 2009) while bond yields rebounded after a prolonged slide on growth worries amid renewed “trade talk optimism” after Bloomberg reported overnight that U.S. negotiators have been working “line-by-line” through the text of the trade truce agreement and Steven Mnuchin said he had a “productive working dinner” the previous night in Beijing.

On Friday, Treasury Secretary Steven Mnuchin and U.S. Trade Representative Robert Lighthizer held meetings in Beijing to ensure there were no discrepancies in the English and Chinese-language versions of the text, and also to balance the number of working visits to each capital,

And yet, while traders saw this as signs of optimism, the reality is that this was only necessary because the two sets of drafts appeared to differ substantially, and the focus on the joint wording “has become a key issue after U.S. officials complained that Chinese versions of the text had walked back or omitted commitments made by negotiators.” The two sides have very different understandings of certain words, according to one of the officials, who noted that China’s Vice Commerce Minister Wang Shouwen started his career as a translator at the ministry.

As always expect lots of noise on the trade front and little to no signal, although markets will look for any excuse to window dress stocks sharply higher today. Sure enough, futures on the S&P 500, Nasdaq and Dow Jones all rose, and despite recent turbulence, the S&P 500 gained 12.3% so far this quarter, on pace for the best quarterly performance since 2009.

The MSCI World Index was up 0.17% on the day, and was set to post its best quarterly performance since March 2012

European markets opened higher, with the European STOXX 600 index up 0.4 percent. France’s CAC 40 index led gains, up 0.77 percent, while Britain’s FTSE 100 index was up 0.6 percent. Germany’s DAX rose 0.4 percent with miners and retailers leading the way higher.

Earlier, stocks rose across Asia, with China stocks leading gains across regional equity markets with U.S.-China trade talks underway in Beijing; Shanghai Composite and CSI 300 indexes both on course for their best quarter since 2014; The MSCI Asia Pacific Index was up 9% in 1Q.

“Our base case is for the current tariff truce extension to yield only a partial resolution, including select U.S. tariff rollbacks in exchange for some Chinese concessions on imports, market access and intellectual property,” strategists at UBS wrote in a note to clients.

European sovereign bond yield were marginally higher and the euro slumped even as German unemployment fell to a fresh record low.  Even so, German and French government bond yields were poised on for their biggest monthly falls since June 2016, ending a month where heightened anxiety about global growth prospects have sparked a flood into fixed income globally.

“We have moved a lot in the last two weeks so there is a bit of pause for now,” said Pooja Kumra, European rates strategist, TD Securities.

In the US, the 10Y Treasury yield edged up to 2.4263% from a 15-month low of 2.352% touched on Thursday after an almost relentless fall since the Federal Reserve’s dovish tone last week sparked worries about the U.S. economic outlook, after Thursday’s latest Q4 GDP revision showed U.S. economic growth was slower than initially thought growing a revised 2.2% from an earlier reading of 2.6%.

In overnight central bank news, Fed’s Bullard said the normalization process in US is at an end and suggested they have gone as far as they can. Bullard also commented that it is premature to consider a rate cut now and that he sees a likely rebound in economic growth during Q2 and the rest of 2019.

In the latest Brexit news, UK House of Commons speaker selects no amendments for debate today. A UK government source confirmed they were laying a motion to give MPs a vote on the withdrawal agreement only for Friday without the political declaration on the future relationship between the EU and the UK, while a government source said the vote to approve the withdrawal agreement would meet the EU’s test to extend A50 to May 22nd and is said to be substantially different to MV3. UK government ministers privately suggested a general election will be called if Friday’s vote is rejected or things “fall apart”, according HuffPost’s Paul Waugh. Elsewhere, there were comments from House Speaker Bercow that the new government motion meets his tests and only covers withdrawal agreement, while Sun’s Tom Newton Dunn reports it will occur at 14:30GMT/10:30EDT. In any case, there is little expectation in the EU today that the Withdrawal Agreement will pass and as such, the EU mood is one of resignation now, according to BBC’s Adler. However, a last minute burst of optimism emerged after SNP’s Gray says some Labour MP’s are preparing to back PM May’s agreement.

In FX, the Bloomberg Dollar Spot Index headed for its best week in seven amid stronger equity markets and optimism about a possible U.S.-China trade agreement. Quarter-end flows clouded the short-term outlook in the major currencies, providing choppy price action at times. The euro was initially lower, sliding as much as 1.121, before rebounding sharply to $1.1235, following speculation that today’s Brexit vote just may pass; even so it was headed for its worst month since October, weighed down by fears about economic growth and cautious signals from the European Central Bank. The Euro has also been weighed down by speculation the ECB will introduce a tiered deposit rate, providing a sign that policymakers plant to keep interest rates low for longer.

The Turkish lira continued its slid, dropping 1.7%, a day after it had plunged 4 percent. President Tayyip Erdogan blamed the currency’s weakness on attacks by the West ahead of nationwide local elections on Sunday. TD Securities recommended a lira short whereby it urged clients to buy USDTRY calls targeting 7.9 after this weekend’s elections pass.

The big mover, however, was the British pound, which fired slumped as low as $1.3004 after sliding more than 1 percent the previous day, before rebounding sharply higher above 1.31 on speculation that some Labour MPs may back May’s deal. It looks like it will be another nailbiter until the end.

Sterling had taken a knock as the prospect of a swift agreement on Brexit faded with the British parliament yet again failing to agree on a way forward.

In commodities, oil extended gains as the OPEC+ coalition’s production cuts supported prices, putting crude markets on track for their biggest quarterly rise since 2009. WTI trade at $59.76 per barrel, up 0.8 percent on the day and recovering from Thursday’s low of $58.20.

Market Snapshot

  • S&P 500 futures up 0.4% to 2,832.25
  • STOXX Europe 600 up 0.4% to 378.18
  • German 10Y yield unchanged at -0.068%
  • Euro up 0.06% to $1.1228
  • Brent Futures up 0.4% to $68.08/bbl
  • Italian 10Y yield rose 3.2 bps to 2.132%
  • Spanish 10Y yield fell 0.4 bps to 1.086%
  • MXAP up 0.6% to 159.47
  • MXAPJ up 0.7% to 527.75
  • Nikkei up 0.8% to 21,205.81
  • Topix up 0.6% to 1,591.64
  • Hang Seng Index up 1% to 29,051.36
  • Shanghai Composite up 3.2% to 3,090.76
  • Sensex up 0.1% to 38,595.64
  • Australia S&P/ASX 200 up 0.08% to 6,180.73
  • Kospi up 0.6% to 2,140.67
  • Brent Futures up 0.4% to $68.08/bbl
  • Gold spot down 0.1% to $1,288.79
  • U.S. Dollar Index up 0.05% to 97.25

Top Overnight News from Bloomberg

  • Chinese and U.S. negotiators are working line-by-line through the text of an agreement that can be put before President Donald Trump and counterpart Xi Jinping to defuse a nearly year-long trade war, according to officials familiar with the matter
  • Federal Reserve Bank of New York President John Williams, one of the U.S. central bank’s top policy makers, downplayed fears of recession risks being signaled by bond markets. James Bullard, president of the St. Louis Fed, said he expected second-quarter growth to rebound after a sluggish start to the year and calls for a rate cut were “premature.”
  • White House economic adviser Larry Kudlow said Thursday the Trump administration is prepared to keep negotiating with China for weeks or even months to reach a trade deal that will ensure the world’s second- largest economy improves market access and intellectual-property policies for U.S. companies
  • Japan’s industrial production rose in February, though it wasn’t enough to signal a turnaround from months of declines as weak overseas demand weighs
  • Oil heads for its best quarter in almost 10 years as the OPEC+ coalition’s production cuts and the loss of barrels due to U.S. sanctions on Iran and Venezuela outweighed a wobbly demand outlook
  • With overseas holdings already at record levels, the April 1 inclusion of a slice of China’s near-$13 trillion of onshore bonds in a Bloomberg Barclays index will usher in fund managers who use the benchmark. Strategists see $100 billion or more flowing in in 2019 and for years to come
  • A jumbo wager on an Australian interest-rate cut has emerged again, stoking speculation the same trader is hoping to strike gold at the third attempt.A splurge of buying has seen open interest in Australia’s April bank bill futures jump almost 30 percent so far this week to the highest since May 2016, suggesting sizable new longs are being built
  • London continued to lead the U.K.’s weakening property market at the start of 2019, with values falling the most since the financial crisis a decade ago
  • German unemployment fell to a fresh record low, suggesting that the country’s buoyant services sector is offsetting weakness in manufacturing
  • Russia and Iran’s energy ministers will discuss a possible extension of the OPEC+ agreement to curb oil production when they meet in Moscow next week
  • As Treasury issuance outstrips crisis-era records, the rising share of government bonds in market-weighted fixed-income indexes is pulling in more global investors

Asian equity markets were higher across the board as the region took impetus from the US, where all major indices finished positive and trade-sensitive sectors outperformed on optimism as US-China high-level talks resumed in Beijing. ASX 200 (+0.1%) eked mild gain as most sectors remained afloat heading into quarter-end although gold miners were heavily weighed after the precious metal succumbed to the pressure from a firmer greenback. Nikkei 225 (+0.8%) was driven by currency weakness with Daiichi Sankyo surging nearly 16% to hit limit up and a record high after it signed a USD 6.9bln collaboration and commercialization deal for its cancer drug with AstraZeneca in which it will receive an upfront payment of USD 1.35bln. Elsewhere, Hang Seng (+1.0%) conformed to the upbeat tone and the Shanghai Comp. (+3.2%) outperformed as trade discussions continued in Beijing and after China announced electricity and fuel costs reductions ahead of incoming VAT cuts. Huawei also supported the risk appetite after it posted a 25% increase in annual profits despite the ongoing US tiff, although not all stocks benefitted as some contended with disappointing earnings including China’s largest lender ICBC which fell short of FY net forecasts after flat Q4 profits. Finally, 10yr JGBs were lower as the fixed income complex eased from the rampant inflows seen this week and as gains in stocks dampened demand for safe-haven assets, although downside was limited with the BoJ also in the market for JPY 710bln of JGBs in the belly to super long-end.

Top Asian News

  • Japan’s Job Outlook Brightest in Decades. Pity About the Wages
  • Foreigners Dive Back Into China Stocks, Buy Most Since December
  • Bet on Philippine Boom Pays Off for This Top-Performing Manager
  • Jet Airways Is Said to Miss Paying $109 Million Loan From HSBC

A relatively upbeat start for European equities [Euro Stoxx 50 +0.5%] following on from a stellar performance in Asia, wherein the Shanghai Composite ended the week higher in excess of 3% as US-Sino talks concluded on a seemingly positive note. Broad based gains are seen across major indices, UK’s FTSE (+0.5%) is keeping its composure amid the Brexit-induced weakness in the Sterling and as heavyweight mining names benefit from the surge in base metal prices: [Antofagasta (+2.6%), Glencore (+2.4%), Anglo American (+2.1%) and Rio Tinto (+2.0%)]. Sector-wise, material names lead the gains, whilst consumer discretionary names benefit from positive broker moves for Kering (+1.4%), LVMH (+1.2%) and Richemont (+0.9%). Looking at individual movers, Wirecard (-6.9%) shares plumb the depths following yet another FT article which noted that half the company’s revenues come from partners whilst noting that at some of them there is a mismatch with reality on the ground. A Wirecard executive has noted the article in incorrect and misleading. Elsewhere, yet more trouble for Scandi banks with Swedbank (-9.5%), Nordea Bank (-9.8%) lower after New York regulators reportedly expanded money laundering scandal probe into Nordea Bank.

Top European News

  • H&M Surges as Earnings Beat Analyst Estimates on Fewer Discounts
  • Altice Jumps as Drahi’s Carrier Predicts Higher French Growth
  • Italy’s Nexi Says IPO Offering Value Seen at EU1.9b- EU2.2b
  • Pound Reverses Gains as Chance May’s Brexit Deal Passes Seen Low

In FX, USD – The Greenback remains firm overall, but has lost a bit of momentum against a few G10 and other counterparts at the start of the final trading session of the week, month and quarter as latest US-China trade talk reports suggest more progress made. However, the DXY has nudged above the 97.300 level that capped its advances yesterday and in doing so crossed a key Fib at 97.245 (76.4% retrace of the fall from 97.711 to 95.735), which bodes well from a chart standpoint ahead of potentially pivotal data including Chicago PMI and a trio of Fed speakers (Williams, Kaplan and Quarles).

  • NZD/AUD/CAD – Bucking the broad trend on the aforementioned constructive US-China vibes, but with the Kiwi also getting a much needed fillip from ANZ’s consumer sentiment survey overnight showing an improvement in March. Nzd/Usd rebounded to just over 0.6800 at one stage, but then pared gains on more dovish RBNZ impulses, albeit indirectly as JPM updated its 2019 outlook for NZ rates with back-to-back cuts now seen in May and June. Similar story for the Aussie that briefly reclaimed 0.7100 before fading, while the Loonie is still relatively rangebound between 1.3420-45 ahead of Canadian PPI data.
  • JPY/EUR/CHF/GBP – All softer vs the Usd, with the Jpy extending its retreat from a fraction shy of 110.00 to circa 110.92 amidst reports of Japanese selling for FY end on top of the general improvement in risk sentiment. However, supply is said to be sitting at 111.00 and the recent 110.96 peak is still providing technical resistance. The single currency is holding just above 1.1200 with buying interest touted from 1.1210 down to the figure and decent option expiry interest also supporting as 1.5 bn rolls off at the NY cut vs 1.2 bn from 1.1250-60. The Franc is essentially flat vs the Buck and Euro around 0.9950 and within 1.1190-65 parameters respectively following SNB comments on Thursday reinforcing the commitment to maintain NIRP and intervention given the Chf’s ongoing high valuation and fragility in the currency markets. Last, but by no means least heading into yet another crucial Brexit vote in the HoC, the Pound is depressed with Cable almost losing the 1.3000 handle despite a big buy order at 1.3010 and Eur/Gbp pivoting 0.8600 where a sizeable 1 bn expiries reside and run-off only 30 minutes or so before the Parliament decide whether to back the WA.
  • EM – In contrast to partial recoveries elsewhere, the Lira has lurched to new lows vs the Dollar not far from 5.6600 as the run continues almost relentlessly, and with little last respite from a narrower than forecast Turkish trade deficit.

In commodities, WTI (+0.8%) and Brent (+0.6%) futures are on the front foot thus far amid the overall positive risk sentiment around the market as US-China talks are to continue next week after concluding in Beijung on a positive note. WTI futures extended gains above USD 59.00/bbl and remain in relatively close proximity to USD 60.00/bbl whilst Brent futures reside around USD 67.50/bbl. In the month of March, Brent Crude advanced around 1.6% whilst WTI crude posted gains in excess of 4%. In terms of recent energy news-flow Russian Energy Minister denied the report that Russia will only agree to extend output cut deal by 3 months and said Russia and Iran potential extension of OPEC+ deal. This follows source reports yesterday that OPEC and Russia could agree to a 3-month extension of the current agreement at the June meeting. Elsewhere, Gold ekes mild gains following yesterday’s slump below USD 1300/oz. Meanwhile, copper and iron are extending on earlier gains as optimism surrounding trade talks bolster the base metals. Russia Energy Minister denies report that Russia will only agree to extend output cut deal by 3 months and said Russia and Iran potential extension of OPEC+ deal. (Newswires) This follows source reports yesterday that OPEC and Russian could agree to a 3-month extension of the current agreement at the June meeting.

US Event Calendar

  • 8:30am: Personal Income, est. 0.3%, prior -0.1%; Personal Spending, est. 0.3%, prior -0.5%
  • 8:30am: PCE Deflator YoY, est. 1.4%, prior 1.7%; PCE Core YoY, est. 1.9%, prior 1.9%
  • 9:45am: MNI Chicago PMI, est. 61, prior 64.7
  • 10am: New Home Sales, est. 619,500, prior 607,000; New Home Sales MoM, est. 2.06%, prior -6.9%
  • 10am: U. of Mich. Sentiment, est. 97.8, prior 97.8; Mich. Current Conditions, prior 111.2; Expectations, prior 89.2

DB’s Jim Reid concludes the overnight wrap

Welcome to the last business day of Q1, a quarter that most market participants will remember more fondly than Q4 2018. Craig is skiing at the moment but assuming he’s not like me and doesn’t get injured every time he steps foot on the snow, he’ll be doing the usual performance review when he’s back on Monday. Today is also the day that 1008 days after the Brexit vote, the UK was supposed to leave the EU. However if I had to make a spread as to how many more days the UK will continue to be in the EU I don’t think I’d quite know where to start. Anywhere from 14 to infinity. I’m happy to trade on this spread if anyone wants to. I’ve ordered a bit of furniture for our new house from Italy and yesterday I enquired as to when it might arrive. The guy on the other end of the phone then proceeded to tell me that there was something called Brexit that was going on and told me all about how it was going, his views on every politician involved, and that the risks to his business (and to my table) of a no deal Brexit. By the end of the conversation I was none the wiser about when it will arrive. Suffice to say that if you’re reading this in Italy and you need a new table and there’s a no deal Brexit, then I may be in a position to do business.

Today we will get a fresh vote on the Withdrawal Agreement (WA) at about 2:30pm but only the WA part and not the Political Declaration on the Future Relationship as with the two previous votes. Maybe I’ll get my chairs but not my table then. The government hopes that by separating out the two, the WA could have a greater chance of success. Furthermore, it satisfies Speaker Bercow’s criteria that the vote must be on something different to last time. The other thing it satisfies is the EU’s criteria from their European Council meeting last week that in order to get an extension of the Brexit deadline from the 12 April to 22 May (the day before the European Parliament elections begin), the House of Commons just needs to approve the WA.

However, it’s not obvious that this will help the government win, with Labour’s shadow Brexit Secretary, Sir Keir Starmer, saying that if the two were separated, “that would mean leaving the EU with absolutely no idea where we’re heading. That cannot be acceptable, and we wouldn’t vote for that.” And on the other side, one of the main reasons the ERG and DUP MPs have been opposed to the deal has been the backstop, which is a part of the WA.

Another issue is that this risks complicating the ratification process, as in UK law under the European Union (Withdrawal) Act 2018, to ratify the WA it requires that both the WA and the framework for the future relationship have been approved in a motion by the House of Commons. Therefore, unless new legislation were passed that changed this requirement, the political declaration on the future relationship would still need to be approved in a motion by the House of Commons before the WA could be ratified. Maybe the benchmark for any defeat today will be how it compares to the indicative votes supporting a second referendum and the Customs Union – the two that got closest to a majority.

Sterling weakened against every other G10 currency yesterday (-1.10% vs USD but +0.2% this morning), although other UK assets performed strongly, with sterling’s decline supporting the FTSE 100 (+0.56%) to outperform other European indices yesterday, while UK 10yr gilt yields fell -1.2bps yesterday, the only major European country to see ten-year debt yields fall.

In the US-China trade negotiations, Trade Representative Lighthizer and Secretary Mnuchin will be continuing talks today, before China’s Vice Premier, Liu He, returns to Washington for further talks next week. Treasury Secretary Mnuchin has said overnight that they had a “very productive” working dinner yesterday with Chinese negotiators. National Economic Council Director Kudlow said yesterday that they are willing to extend the talks if necessary, saying that “If it takes a few more weeks, or if it takes months, so be it.” Kudlow also addressed the Commerce Department’s report on auto tariffs, which President Trump is currently reviewing. A decision on whether or not to impose broad import tariffs on the sector was supposed to come within 90 days of the report’s submission. That would put the deadline at May 19 for an announcement, but Kudlow said that Trump “could take longer” to reach a final decision.

Asian markets are responding to the Mnuchin headline and the positive Wall Street lead this morning with China’s bourses leading the advance – the Shanghai Comp (+2.54%), CSI (+3.21%) and Shenzhen Comp (+2.60%) are all up. The Nikkei (+0.78%), Hang Seng (+0.77%) and Kospi (+0.42%) are also up. Elsewhere, futures on the S&P 500 are up +0.18%. In terms of overnight data releases, we saw Japan’s February industrial production in line with consensus at +1.4% mom, marking the first gain after three consecutive negative readings while the February unemployment rate came in at 2.3% yoy (vs. 2.5% yoy expected), matching the 25 year low set in May 2018. February retail sales came in at +0.2% mom (vs. +1.0% mom expected) with an upward revision to the previous month to -1.8% mom from -2.3% mom. South Korea’s February industrial production was at -2.6% mom (vs. -0.7% mom expected), the largest decline since February 2017, due to a drop in the production of cars and transportation equipment. Meanwhile the UK’s March GfK consumer confidence number was unchanged compared to prior month at -13 (vs. -14 expected).

Before this US equities advanced yesterday perhaps helped by some slightly positive real-time economic data (more below). The S&P 500, DOW, and NASDAQ rose +0.36%, +0.36%, and +0.34%, with gains fairly broad-based. The main laggard was utilities, as rising rates pressured the bond-proxy sectors. Earlier in the day, European indexes had a mostly negative day, with the STOXX 600 down -0.12%, though the DAX did eke out a +0.08% gain. Bund and treasury yields rose +1.2bps and +2.3bps, respectively, and the US move was encouragingly driven entirely by inflation breakevens. The 10y breakeven rate rose +3.3bps, its biggest rise since January, though at 1.86%, it’s likely still a bit low for the Fed to be completely comfortable. Notably, Japanese 10-year yields are down to -0.094%. The Bank of Japan’s stated policy is to keep them “around zero percent,” so they’re approaching the edge of the potential policy range, though it’s not clear how concerned the BoJ would be at falling yields, as opposed to rising yields.

Early yesterday, President Trump asked in a tweet that “OPEC increase the flow of Oil” because “price of Oil (is) getting too high.” That initially caused WTI oil prices to drop -2.04%, but they subsequently retraced higher as the session continued to end the day near flat at $59.38 per barrel. Energy sector stocks performed in-line with the broader index, rising +0.37%. The rebound was especially striking, since it coincided with a further rally for the dollar, with the DXY index gaining +0.47%. That sent an index of emerging market currencies to its lowest level since January 3, falling -0.16% on the day.

The Turkish Lira plunged again against the dollar, down -4.16% yesterday to reach 5.5603. The central bank announced that its foreign exchange reserves rose by $2.4bn last week, easing some concerns that it was using up its firepower trying to prevent currency depreciation, which helped the currency strengthen around +1.07% off its trough. Funding markets normalized a bit, with overnight liquidity back down to 32%, down from Wednesday’s peak of over 1,300%. This morning lira is down further -0.43%.

Turning to the Fed Speakers, James Bullard, president of the St. Louis Fed, said that he expects growth to rebound in second-quarter after a sluggish start to the year while adding that calls for a rate cut were “premature.” Elsewhere, John Williams, president of the New York Fed, said that “the most likely case” was for U.S. growth of 2% with the economy continuing to add jobs amid low unemployment and added that “I still see the probability of a recession this year or next year as being not elevated relative to any year.” On inversion of the yield curve, he said that “there’s a lot of reasons to think that it has been a recession predictor for reasons in the past that kind of don’t apply today,” and “I think it’s telling us that growth will be pretty modest” in the U.S. and global economies going forward.

Data releases were mixed yesterday but there was some positive more real-time signs in the US. US Q4 GDP saw a downward revision to an annualised QoQ rate of 2.2% (vs. 2.6% in the previous estimate), while the personal consumption reading was revised down to 2.5% from 2.8%. Pending home sales also fell by -1.0% in February (vs. -0.5% expected), bringing the YoY total to -5.0%. However, initial jobless claims came in beneath expectations at 211k (vs. 220k expected), the lowest reading in nine weeks, while the previous reading was also revised down by 5k. Furthermore, the Kansas City Fed manufacturing index rose sharply to 10 in March (vs. 0 expected), with the 9 point increase being the largest since December 2016.

In the Eurozone, the economic sentiment indicator released by the European Commission fell once again in March, reaching 105.5 (vs. 105.9 expected), its lowest level since October 2016 and the 9th consecutive monthly decline. Meanwhile, German consumer prices rose by 1.5% in March (vs. 1.6% expected), the lowest level for 11 months. It’ll be interesting to see whether today’s French and Italian inflation data and Monday’s for the Eurozone paint a similar picture.

Looking to the day ahead, we have the latest big Brexit vote as well as more trade talks in Beijing between the US and China. It’s also another busy day for data. From Europe, we’ve got French and Italian CPI readings for March, in Germany we’ve got February’s retail sales figures and March’s change in unemployment, and from the UK, we’ll get the latest reading of Q4 GDP, along with February’s mortgage approvals, consumer credit, and M4 money supply. From the US, we’ll get the final University of Michigan sentiment reading for March, personal income for February, personal spending for January, the MNI Chicago PMI for March, along with February’s new home sales. In Canada, we’ll get January’s GDP figure.

via ZeroHedge News https://ift.tt/2FHnchA Tyler Durden

Futuristic Tech-Driven Policing Will Only Be as Good as the Cops Doing It: New at Reason

In Washington, D.C. in 2054, a Department of PreCrime determines who is going to commit a crime before it happens. The government uses three mutants, known as “precogs,” who have precise visions of future events. Police are sent in advance to arrest the not-quite-criminals and, voila, the crime rate drops to zero. That is the backdrop of the movie, “Minority Report,” based on a story from the late Orange County sci-fi writer Philip Dick.

Dystopian stories take real-life trends and extrapolate them far into the future, as a way to explore the moral conundrums of current policies. Flash forward 17 years from the movie’s release (or back 35 years from the future!), and we find the Los Angeles Police Department wanting to impose its own version of what is known as “predictive policing.” Instead of mutants, LAPD uses computers and human analysts.

The department pinpointed high-crime LASER zones—Los Angeles Strategic Extraction and Restoration—and tried to determine where to deploy a greater police presence. That sounded OK, but the computer system also created a profile of actual people who might have a propensity to commit crimes based on data about gang membership and arrest records. That’s startling.

The inspector general found that “44 percent of chronic offenders had either zero or one arrest for violent crimes” and “about half had no arrest for gun-related crimes,” according to a Los Angeles Times report, which noted that LAPD ultimately suspended the tool. Apparently, these technologies work better in the movies.

It reminds me of the state attorney general’s APPS program (Armed Prohibited Persons System), which sends agents to the homes of people who are no longer are deemed eligible to own firearms. It sounds like a great way to remove guns from “bad guys,” until one realizes that the complex computer-generated lists are woefully inaccurate, according to some reports. Our government cannot get its current databases right, so how could we expect it to predict the future, asks Stephen Greenhut.

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Kurt Loder Reviews The Twilight Zone: New at Reason

Those of moderately advanced years may remember what a thrill it was, back in 1993, to encounter The X-Files for the first time. To see a primetime TV show rooted in semi-disreputable genres—sci-fi and horror—that took them seriously enough to bring real money and craft to bear on their revival. Everything about The X-Files, from its woodsy noir atmosphere and baroque conspiracy plot to its eerie earworm synth theme, announced that something new—or at least a cool new take on something old—was suddenly at hand. That feeling didn’t last for all nine years of the show’s original run—good writing is famously hard to sustain—but the early seasons stuck in your head, writes Kurt Loder.

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Blain: When This Insane Monetary Experiment Ends You Will Have Zero Chance To Exit

Blain’s Morning Porridge, submitted by Bill Blain

This is the day the UK isn’t exiting Europe. Surprised? Not really.

Think I’ll try something different this morning – a review of the week touching on some of the key themes we should be thinking about. Let me know what you think.

But firstly let me apologise for the lack of porridge this week. On Wednesday it was being unable to find anywhere to sit with a computer in London City Airport. Yesterday it was courtesy of Flybe from Edinburgh – I’d like to thank them for leaving us standing in a cold bus while they tried to rustle up a crew. The BA flight took off on time, although I wonder if it went to Duesseldorf?

Let me start with a rant:

Bond Yields and the END OF ABSALOOTLEY EVERYTHING…

While everyone is panicking about US curve inversion and the possibility it is signalling recession, is the real issue even simpler and more obvious? Should we be worried about tumbling global bond yields? Aside from it being impossible for funds to meet long term liabilities, what’s not to like about lower for longer? Actually – quite a lot. Even the ECB has noticed zero bond yields haven’t exactly stimulated growth and jobs across Europe and done nothing in terms of stimulating inflation.

Equities seem blithely unconcerned despite all the cack about trade-wars, rising political anarchy, and a distinct feel this business cycle is likely to wind-down into a slough of earnings downgrades and suchlike unpleasantness. The smart money is not worried, because they understand the truth – there is nothing to worry about BECAUSE A STOCK MARKET MELTDOWN IS ACTUALLY IMPOSSIBLE!

Apparently the taxi firm that isn’t Uber is going to IPO at $72 bln, a phenomenal $25 bln valauation, beating all records as the company getting the most money for losing the most money ever…  Why? (Clue the answer is not because Lyft and Uber will be an unbeatable oligopoly – they will probably eat each other, and I have 4 different taxi apps on my phone and none are UBER!)
Nope. The reason is because when bond yields are zero, then stocks become more attractive because they not only offer the potential of dividend yields but also the HOPE of stock price upside. As a result, even the most fantastical, utterly hat-stand, loss-making off the wall crazy as a Mad Fox, Unicorn proposition looks attractive if/when the stock price is likely to rise… (But, remember: Hope is never a good strategy.)

Forget reality – in today’s world equities are all and only about the stock price. And you can square that equation when Global Central Banks can’t afford to admit all their monetary experimentation has been about as much use as tea strainer bailing on the Titanic. The reality is the non-normalisation of monetary policy leaves every single fundamental thing I thought I understood about markets; valuations, yields, risks and returns to be wrong. Utterly.

Central banks are complicit in the illusion – understanding the brutal reality of what their monetary experimentation has led to: a world where the most sensible corporate investment is buying back stock, and stock markets can’t be allowed to fall, because such a collapse in sentiment would utterly undo the little financial good zero interest rates created. Ouch.. “Its a rat trap baby, and you been caught!”

My only recommendation would be in such a mad, mad, mad world… fill yet boots….

There is no point in worrying today about stuff you will have to worry about tomorrow: if and when the illusion ends, you will have zero chance of being able to exit, because concurrent with insane monetary policy experimentation and distortion, global regulators decided they’d better get in on the act and thus they stepped in to regulate markets to prevent a repeat of 2008. So they introduced new rules and killed liquidity, made hedging irrelevant, and turned markets from being vibrant centres of wealth creation into despondent job creation schemes for compliance officers.  

THE FUTURE OF FINANCE AND INVESTMENT

I was up in Edinburgh earlier this week, at Heriot-Watt University’s Centre for Finance and Investment. I’m hoping to become an advisor to the centre. I’d see my mission as altering today’s graduate and post-graduate students to the dangers of regulation, monetary experimentation, but, when all around in financial assets is distorted, especially the opportunities inherent in my alternative assets investments! Get them young I say.. give me the boys and girls today and I shall give you tomorrow’s CIOs!

One of the areas we discussed were ideas for research projects – and that’s particularly interesting; for instance turning around my long held belief that firms with large cash piles tend to underperform because their management lack the imagination to deploy money effectively – empirical research demonstrates they’ve actually outperformed in recent years.

Discussing research ideas with the Centre’s advisory board through up lots of fascinating ideas, concepts and approaches. Topics ranged across the board – from the underperformance of Absolute Return Funds, Corporate Governance and Behavioural Bias, The Woodford Effect, Private Equity distortions, liquidity and a host of other stuff including the promotion of gender equality across finance.

Very happy to hear ideas from readers on areas for academic research – I’ll feed the sensible ones to the centre.

BOEING – A MORE FUNDAMENTAL ISSUE?

A few weeks ago Boeing stock tumbled in the wake of the second B737 MAX crash. Then the price stabilised, waiting for the investigative reports to come in. Markets took the view the situation would quickly be fixed, the production run of over 5000 aircraft would continue, and that the 350 B-737 Max aircraft parked around the planet would be allowed to fly again.

Easier this week Boeing released a software update to the suspect MCAS stall prevention system. Yesterday officials investigating the Ethiopia crash confirmed it was broadly similar to the earlier Lion Air disaster: the MCAS system activated. The  Ethiopian Airlines flight crashed soon after. 346 people died in the two related disasters.

We know that in the Lion Air the crew spent their last precious seconds desperately trying to find out what was wrong with their the plane from the manuals – a failed sensor meant the stall system was repeatedly pointing the nose down every 15 seconds. As they didn’t know the system was even installed, and the airline hadn’t fitted the “extra cost” warning light, the crash was inevitable.. Pilots are on the record saying crews would have less than 40 seconds to save an aircraft if the stall system went off due to a faulty system – if the crew were unprepared or unaware, then it was impossible.

You can imagine the horrific situation on the very busy flight deck where the alarms are screaming, the plane is gryating up and down the sky, the sensors are telling them the plane is flying straight and level, but the automatic stall prevention system is trying to plow the plane into the ground. They have 40 seconds to figure it out, switch off the system and resume level flight.

Boeing might be in more trouble than we think. Although Boeing reacted quickly to the first crash and warned operators of the problem, the immediate issues will include; why weren’t operators more fully informed of the system from the outset of the Max programme and did Boeing deliberately downplay the significance of the stall system so they could cut the need for additional pilot training to make their aircraft a cheaper system? The law suites are coming in.

It doesn’t help the rest of the world now distrusts the US Federal Aviation Authority – considering their oversight of Boeing to have been lax, and that they were slow to act following the second crash. While US B737 Max aircraft may be back flying in US airspace in just a few days, the rest of the world could take months to approve the Boeing fix. That has serious implications for deliveries, for current schedules, for aviation linked paper, and replacement aircraft values – call for more info.

There may be a much bigger problem.

At its root is the venerable B-737 design. The decision not to replace the 50 year old design with something new now looks a mistaken management compromise. Back in the 2000s, Boeing embarked on Project Yellowstone. It was (and may still be) Boeing’s plan to replace its ageing designs with new designs using new composite technologies, cleaner more efficient engines and other next generation design enhancements. So far only the 787 Dreamliner has come to fruition. It’s a fantastic plane.

Plans to replace the B-737 (and the 757/767 series) were dropped/postponed when Boeing decided to go for the cheaper option of simply stretching the workhorse B-737 at little bit more to produce the B-737 Max. That was great for Boeing – no need to tool up for an expensive new plane, instead, keep making something they’d already delivered 10,000 of.. they could make it cheap and cheerfully. And they could say it was a completely new plane because it incorporated modern stuff, and it was called… MAX!

The pitch-book to customers must have looked perfect: an aircraft type they already knew and flew, no need for additional expensive pilot training, no major conversion costs. And it would be pretty efficient.

But, the new design MAX is a lash-up compromise. The new fuel efficient high bypass engines have been made to fit, but only by squeezing them in and making them a little bit less efficient. The are bigger, heavier and change the trim. The undercarriage has to be bigger, upsetting the trim a little more, and was difficult to fit making it a little more less efficient. The shape and weight of bigger engines changed the design – giving a nose up position, hence the need for a stall-management system.

Its now becoming clear its not such a great proposition. Pilots apparently don’t like it – knowing what was once a thoroughbred now has the aerodynamics of a brick, a carthorse of the skies. Passengers are concerned. Airlines are cancelling orders – although Lufthansa just came in with talk of a new order. The good news for Boeing is the Airbus A320/321 series is 30 years old, and is going through a similar modernisation process – the Neo series.

Supporting Boeing is the need for 30,000 new mid-size aircraft in the next 20 years. There just are not enough planes being made.  Should they have been introducing a brand-new but expensive aircraft now to take that market? Probably. It will take years before a new plane, the B-797, is ready.

In the meantime, what happens to the 5000 B-737 Max’s currently on order? If I was an airline executive.. I would not be happy.. If I was on the Boeing board…. I’d be nervous.

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New at Reason: Apocalypse 2020

“We are at an inflection point in in the history of our world,” Sen. Kamala Harris (D-Calif.) pronounced when kicking off her candidacy in January. “We are here because the American dream and our American democracy are under attack and on the line like never before.”

Apocalyptic rhetoric isn’t just for Donald Trump and Bernie Sanders anymore, writes Matt Welch. It’s the whole damn Democratic field.

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Pound Tumbles As May’s Brexit Deal Appears Headed For Third Defeat

The British pound dropped sharply on the morning of “the day that should have been Brexit” after a Labour Party spokesman confirmed that the opposition party would oppose PM Theresa May’s “meaningful vote 2.5”, setting the third vote on May’s unpopular withdrawal deal with the EU up for almost certain failure.

Sterling dropped to $1.3009, leaving it down roughly 2% for March, though it remained, no pun intended, up 2% on the quarter, making it the best performer among major currencies.

That might come as a surprise to some, seeing as the public has been treated to one Brexit-related disappointment after the next, with May’s deal having already been voted down twice by wide margins. Just this pass week, an indicative vote on possible Brexit alternatives showed that not one would received majority support in the Commons.

May and her team have warned MPs that if her deal is defeated again on Friday, they will risk delaying Brexit by months or even years. Then again, there’s also the risk that the UK will crash out of the EU (though May and her team have largely glossed over that possibility). International Trade Secretary Liam Fox said Friday that losing the vote would mean a longer extension to Brexit.

The DUP, the 10 unionist MPs from Northern Ireland who help shore up the Tories Parliamentary majority, have already said they will oppose the vote. And many of the ERG leaders, including Boris Johnson and Jacob Rees-Mogg who said earlier this week that they would back the deal to prevent a longer Brexit delay have flipped-flopped on their stance.

In order to meet Speaker John Bercow’s test that “substantial” alterations be made to the withdrawal agreement for it to be brought up for another vote, May decided to separate the WA from the non-binding political declaration – and EU officials confirmed that only the WA would need to be accepted for the UK to leave the EU.

UK

Given that it’s headed for defeat, observers might wonder why May is even bothering to bring it up for another vote. In an explainer for the BBC, political editor Laura Kuenssberg explained that it’s another way for May of “extending the road before it finally runs out.”

But the vote, on what was meant to be Brexit Day, is a request to MPs to allow her to keep going, to carry on pursuing her route, with its well-documented flaws.

There’s a challenge there too, not just to her own Brexiteers but to Labour and the other opposition parties, to say “no” to a long delay to our departure from the EU, the last moment when Number 10 believes anything even approaching a timely exit can be guaranteed.

There are signs now that many Eurosceptic MPs are ready to say “yes” – not because they suddenly have realised Mrs May’s deal is perfect, but because more of them officially realise that it is the clearest break from the EU they can realistically hope for.

Yet her Northern Irish allies are not persuaded. Labour, even though they have sometimes accepted that what’s on the table – the divorce deal – will never be unpicked by the EU, will still, in the main, resist.

As things stand, even though some influential Brexiteers believe there is a chance it will get through, it looks like the prime minister is heading for another loss.

But for Number 10, it is another way of extending the road before it finally runs out.

And in this environment, with control slipping away, that, for Theresa May, is worth a try.

No amendments have been selected for debate before the vote, which is expected to take place at 10:30 am ET (2:30 pm London Time).

via ZeroHedge News https://ift.tt/2CLBfBM Tyler Durden

A “Perfect Coup” Is Unfolding In Algeria

Authored by Cyril Widdershoven via Oilprice.com,

The ongoing unrest in one of North Africa’s largest oil and gas producers Algeria is reaching boiling point.

After weeks of protests from the opposition, aimed at blocking the possible re-election of long-time president Bouteflika, there still doesn’t seem to be a resolution within reach. Even after the sudden withdrawal by Bouteflika from new elections, demonstrations continued.

Opposition and some regime insiders still feel that the old guard is clinging to power. The Algerian army, however, has stepped into the fray, urging the removal of the current president. Algerian army chief of staff General Ahmed Gaid Salah suddenly stated that Abdelaziz Bouteflika should be deemed unfit to rule. The latter was greeted by support of opposition parties and European analysts. The end to the old guard and Bouteflika clan seems to be near. Officially, the Algerian army has been stepping in to support the “legitimate demands” of the hundreds of thousands of protesters flocking the streets lately. Optimism is growing and Western media is already suggesting the possibility of a new Arab Spring movement. The reality of Algeria’s political upheaval, however, is that it is less Arab Spring 2.0 and more Cairo 2.0, with the re-emergence of the army as the real power broker.

Since the Algerian Revolt against France, the North African country has been ruled by a bipartisan system based on a political party, coming from the Algerian independency groups, and the newly formed Algerian army. This system has endured a multitude of changes and crises, and got almost obliterated during the brief rule of the Islamists after their election victory in the 1990s. Soon after this Islamist victory, the Algerian army with support of the old guard, took over and reinstated their own rule. The current situation looks almost the same, with one big difference. Algerian military strategists seem to have been reading all reports and analysis pieces written during and after the Arab Spring developments in Egypt. Cairo’s long-time ruling elite, headed by president Husni Mubarak, had outlived its time. Democratic and religious opposition combined their forces and removed Mubarak from power. At the same time, the Egyptian army stayed in their barracks, not interfering at all, despite the fact that Mubarak’s rule was built with the support of the army. After the removal of Mubarak, and the electoral victory of the Muslim Brotherhood, the army put in place its own strategy to regain its grip on the fractured country. Within 2 years, Egypt’s minister of defense and general Sissi took over, with a huge mandate from the Egyptian public.

When looking at Algeria, the same structures and strategies seem to be unfolding. An old president, supported by a corrupt and undemocratic political party, is heading for the abyss. Algeria’s economy is struggling at the same time, even though the country holds vast oil, gas and mineral resources. Mismanagement and clientism, combined with paternalistic political views, have brought the country to its knees. Europe’s former 2nd largest gas supplier is even struggling to keep its gas and LNG exports in place, despite its reserves being immense. The time is rife for change, looking at the political disorder and economic crisis scenarios.

The opposition feels that there is a chance for change. However, this may not be a change to their own liking, but a re-emergence of military rule, with official political support. By acting currently on the behalf of the legitimate demands of the Algerian people, the armed forces, including the security services, can play the same role as the Egyptian armed forces played several years ago. The media’s opinion that the army’ current move can be seen as ‘supporting the people’ is most probably a misperception.

The North African country is facing the Egyptian scenario without realizing it. The movement for change, currently being supported by the Algerian armed forces, is not going to increase democracy or change the rules of engagement. The army has analyzed the situation and has come to the conclusion that it needs to enter the void left by Bouteflika. The armed forces, which have always been a prominent force in the country’s domestic politics are reinventing themselves and a new generation of military politicians is being groomed. Without any doubt, Bouteflika will be removed, either by the National Assembly or forcefully by the army in the next couple of days/weeks. With a grand gesture, General Salah will hand over the powers to the president of the Algerian Senate, Abdelkader Bensalah, who will take over as interim president. The latter however will know that he has been given the position due to action of the military forces.

If the Cairo 2.0 scenario plays out, no real changes in the power structure in the country will be made. From a Western point of view, increased powers for the army are always bad, at least in the eyes of the media and politicians. Looking at the current state of the country, a power vacuum will bring no good at all. The economic crisis, combined with a fledgling oil and gas sector, needs some hard and strict changes the coming months. The Algerian opposition is not able to do this, as all crucial economic sectors are still in the hands of the ruling party structures. The army move is already seen as the “perfect coup”, as there is no viable opposition in place to take over when given the chance.

At the same time, Algeria’s neighbors are on edge. Algiers’s main rival Morocco will aim to keep a very low profile, and make sure not to stir up a possible regional conflict, such as the one in Western Sahara. Others are very worried about instability as Algeria is an important party in neighboring Libya, which is still struggling to get its act together. The super-powers US and Russia also have a lot at stake. Certain pundits in Washington will see a possible new opportunity for a rapprochement with Algeria, as Bouteflika has been leaning towards Russia. Washington’s dream could, however, be a fata morgana, as Moscow has been on the ground since the 1960s. Putin’s Mediterranean strategy, after getting a stronghold in Syria again, entails full military cooperation (army and navy) with Algeria. And after a short break in the 1990s, Russia, once again has a full grip on the North African country, supplying it with high-tech arms while entering its oil and gas sectors too. Russian officials even have stated that around 50% of total arms exports to Africa go to Algeria. At the same time, Moscow and Algiers are both worried about US-NATO operations in and around Central Africa or Libya. Moscow’s current analysis for sure will be that a military move in the country is not going to threaten its influence at all.

Europe, as always, is waiting for things to happen without showing any pro-active strategies. Algeria is close to the soft belly of Europe, and is potentially an entry point for migrants to the continent, but Brussels and NATO have so far kept quiet. At the same time, European based agencies such as the IEA in Paris publish reports that say that Algeria’s oil and gas production and exports are not yet threatened at all. The latter is in stark contrast to reports that US oil major ExxonMobil’s talks with Algeria stalled last week due to the unrest. At present there has been no real threat made by any party to Algeria’s oil and gas fields or exports, but when the heat is on Europe’s energy supplies could be squeezed. A possible counter-reaction by either Bouteflika supporters or disillusioned protesters can be expected. Algeria’s only life-source is oil and gas, so an eye should be kept on it. Growing instability in the country also will have its detrimental effects on Western Libya and the regions of Mauritania/Western Sahara and Central Africa.

via ZeroHedge News https://ift.tt/2FFD8Rr Tyler Durden

Brickbat: Naked and Afraid

Closet DoorTwo teachers at a Head Start program run by Southern Illinois University-Edwardsville (SIUE) have been placed on leave and could face charges after police said they forced students to stand naked in a closet as punishment when they misbehaved in class. SIUE Police Chief Kevin Schmoll says at least four students, aged 4 and 5, were forced to take their clothes off.

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