Tag: news

Self-Proclaimed Fiscal Conservative County Supervisor Pitches Nation’s Most Expensive Minor League Stadium

When Corey Stewart was running for governor of Virginia this year, he pledged to be a fiscal conservative who would block tax increases, tackle the tough task of cutting government spending, and oppose special interests seeking favors.

“At campaign time phony conservatives promise not to raise taxes, but they quickly betray their promises when the special interests come calling,” Stewart claimed in one press release.

Stewart lost in the primary by a narrow margin, but the chairman of the Prince William County Board of Supervisors still has a chance to show off his fiscally conservative bona fides later this summer when he votes on what might possibly be largest public subsidy for a minor league baseball stadium in the nation’s history.

The proposed stadium to be built off I-95 near Woodbridge for the Potomac Nationals, the single-A affiliate of Washington, D.C.’s major league team could end up costing Prince William County taxpayers more than $35 million.

And Stewart, you see, despite all his principled conservative and special interest fighter talk, has championed the stadium deal since it was first proposed in 2012. He voted with the majority of the board in March to give preliminary approval to the project. At a meeting last week, the board voted to block a proposed referendum on the stadium that would have given county residents the chance to express their opinion directly. Final approval of the project is expected in mid-July.

Unless Stewart and a board majority have a considerable change of heart, taxpayers will be on the hook for construction costs and about $7 million in planned infrastructure upgrades around the stadium.

The team will lease the stadium from the county and the county will have to lease the land for the stadium project from a private developer, JBG Companies. PotomacLocal.com reports that the annual rent payment of $450,000 would be the most expensive in all of minor league baseball.

“That’s $17 million over 30 years to lease the property. If we bought it outright, it would be vastly less expensive,” Supervisor Peter Candland, one of two county board member to oppose the project during March’s preliminary vote, told PotomacLocal.com.

Advocates for the project insist the lease payments will eventually (over 30 years) cover the construction costs. As David Boaz, executive vice president of the Cato Institute, pointed out last week (in a wide-ranging and very effective take-down of crony stadium deals), that’s a little bit like saying “I will gladly pay you Tuesday, 30 years from now, for a hamburger today.”

To help move things along, Potomac Nationals’ owner Art Silber told The Washington Post last week he’d sell the team if Prince William County doesn’t pony up the necessary cash. And he played the oldest trick in the get-the-taxpayers-to build-you-a-stadium book, suggesting the new owners might relocate the team.

An economic analysis of the project suggests that it would create 288 jobs and generate $4.9 million in tax revenue over 30 years. Projections like these for stadiums are notorious for their unreasonable optimism. The same report also warns that the Nationals may struggle “to generate the projected revenues,” potentially jeopardizing the plan to reimburse the county for the construction costs over the next three decades. If the team can’t fulfill those obligations, taxpayers would be left holding the bag, Candland told the Post.

“If the Potomac Nationals or the Silber family wants to sign a guarantee and say they’ll backstop it and they won’t push it onto the taxpayers, then that completely changes things,” Candland said. “But they’re not willing to do that.”

The Potomac Nationals’ stadium plan amounts to a massive government-funded giveaway to a privately owned baseball team, the sort gubernatorial candidate Corey Stewart would have railed against. It remains to be seen whether county supervisor Stewart has the will to keep the taxpayers’ best interest in mind.

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Germany Passes “Orwellian” Anti-Free-Speech “Facebook Law”

The writing has been on the wall for months, but German lawmakers have now passed a controversial law under which Facebook, Twitter, and other social media companies could face fines of up to €50 million ($57 million) for failing to remove hate speech.

As AP reports, the measure approved is designed to enforce the country’s existing limits on speech, including the long-standing ban on Holocaust denial. Among other things, it would fine social networking sites if they persistently fail to remove illegal content within a week, including defamatory “fake news.”

“Freedom of speech ends where the criminal law begins,” said Justice Minister Heiko Maas, who was the driving force behind the bill.

Under the law, social media companies would face steep fines for failing to remove “obviously illegal” content — including hate speech, defamation, and incitements to violence — within 24 hours. They would face an initial fine of €5 million, which could rise to €50 million. Web companies would have up to one week to decide on cases that are less clear cut.

Aside from the hefty fine for companies, the law also provides for fines of up to 5 million euros for the person each company designates to deal with the complaints procedure if it doesn’t meet requirements.

Social networks also have to publish a report every six months detailing how many complaints they received and how they dealt with them.

Maas said official figures showed the number of hate crimes in Germany increased by over 300 percent in the last two years.

But human rights experts and the companies affected warn that the law risks privatising the process of censorship and could have a chilling effect on free speech.

“This law as it stands now will not improve efforts to tackle this important societal problem,” Facebook said in a statement.

 

“We feel that the lack of scrutiny and consultation do not do justice to the importance of the subject. We will continue to do everything we can to ensure safety for the people on our platform,” the company said, noting that it is hiring 3,000 additional staff on top of 4,500 already working to review posts.

In an interview with Breitbart London, the CEO of Index on Censorship, Jodie Ginsburg, said:

"Hate speech laws are already too broad and ambiguous in much of Europe. This agreement fails to properly define what 'illegal hate speech' is and does not provide sufficient safeguards for freedom of expression.

 

"It devolves power once again to unelected corporations to determine what amounts to hate speech and police it — a move that is guaranteed to stifle free speech in the mistaken belief this will make us all safer. It won't. It will simply drive unpalatable ideas and opinions underground where they are harder to police — or to challenge.

 

"There have been precedents of content removal for unpopular or offensive viewpoints and this agreement risks amplifying the phenomenon of deleting controversial — yet legal — content via misuse or abuse of the notification processes."

A coalition of free speech organizations, European Digital Rights and Access Now, announced their decision not to take part in future discussions with the European Commission, saying that "we do not have confidence in the ill-considered 'code of conduct' that was agreed." A statement warned:

"In short, the 'code of conduct' downgrades the law to a second-class status, behind the 'leading role' of private companies that are being asked to arbitrarily implement their terms of service. This process, established outside an accountable democratic framework, exploits unclear liability rules for online companies. It also creates serious risks for freedom of expression, as legal — but controversial — content may well be deleted as a result of this voluntary and unaccountable take-down mechanism.

 

"This means that this 'agreement' between only a handful of companies and the European Commission is likely in breach of the EU Charter of Fundamental Rights (under which restrictions on fundamental rights should be provided for by law), and will, in practical terms, overturn case law of the European Court of Human Rights on the defense of legal speech."

Writing for Gatestone Institute, British commentator Douglas Murray noted that this assault on "racist" speech "appears to include anything critical of the EU's current catastrophic immigration policy." He wrote:

"By deciding that 'xenophobic' comment in reaction to the crisis is also 'racist,' Facebook has made the view of the majority of the European people (who, it must be stressed, are opposed to Chancellor Merkel's policies) into 'racist' views, and so is condemning the majority of Europeans as 'racist.' This is a policy that will do its part in pushing Europe into a disastrous future.

Janice Atkinson, an independent MEP for the South East England region, summed it up this way: "It's Orwellian. Anyone who has read 1984 sees its very re-enactment live."

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The Looming Energy Shock

Authored by Chris Martenson via PeakProsperity.com,

There will be an extremely painful oil supply shortfall sometime between 2018 and 2020. It will be highly disruptive to our over-leveraged global financial system, given how saddled it is with record debts and unfunded IOUs.

Due to a massive reduction in capital spending in the global oil business over 2014-2016 and continuing into 2017, the world will soon find less oil coming out of the ground beginning somewhere between 2018-2020.

Because oil is the lifeblood of today's economy, if there’s less oil to go around, price shocks are inevitable. It's very likely we'll see prices climb back over $100 per barrel. Possibly well over.

The only way to avoid such a supply driven price-shock is if the world economy collapses first, dragging demand downwards.

Not exactly a great "solution" to hope for.

Pick Your Poison

This is why our view is that either

  1. the world economy outgrows available oil somewhere in the 2018 – 2020 timeframe, or
  2. the world economy collapses first, thus pushing off an oil price shock by a few years (or longer, given the severity of the collapse)

If (1) happens, the resulting oil price spike will kneecap a world economy already weighted down by the highest levels of debt ever recorded, currently totaling some 327% of GDP:

(Source)

Remember, in 2008, oil spiked to $147 a barrel. The rest is history — a massive credit crisis ensued.  While there was a mountain of dodgy debt centered around subprime loans in the US, what brought Greece to its knees wasn’t US housing debt, but its own unsustainable pile of debt coupled to a 100% dependence on imported oil —  which, figuratively and literally, broke the bank.

If (2) happens, then the price of oil declines, if not collapses. Demand withers away, the oil business cuts back on its exploration/extraction investments even further, so that much later, when the global economy is trying to recover, it then runs into an even more severe supply shortfall. It becomes extremely hard to get sustained GDP growth back online.

If you really want to understand why I hold these views, you need to fully understand and digest this next chart. It shows the amazingly tightly-coupled linear relationship between economic growth and energy consumption:

(Source)

This chart above says, if you want an extra incremental unit of economic growth you're going to need to have an extra incremental unit of energy.  More growth means more energy consumed.

And today, oil is still THE most important source of energy. It's the dominant energy source for transportation, by far.  A global economy, after all, is nothing more than things being made and then moved, often very far distances. Despite what you might read about developments in alternative and other forms of energy, our dependency on oil is still massive.

Plunging Investment

Resulting from the start of oil's price decline in 2014, the world saw a historic plunge in oil investments (exploration, development, CAPEX, etc) as companies the world over retracted, delayed or outright canceled oil projects:

(Source)

In the chart above, note the two successive drops in oil investment from 2014-2015 and then again into 2016.  So far 2017 is shaping up for another successive decline, which will mark the only three-year decline in investment in oil's entire history.  So what's happening here is actually quite unusual.

This isn’t just a slump. It’s an historic slump.

We don’t yet know by how much oil investment will decline in 2017, but it’s probably pretty close to the rates seen in the prior two years.

Next, take note of the dotted blue arrow in the chart.  See how far oil investment climbed during the years from 2009-2014?  Not quite a doubling, but not far off from one either.  Remember those years, I’ll return to them in a moment.

The key question to ask about the 2009-2014 period is: How much new oil was discovered for all that spending?

Turns out: Not a lot.

Practically No Discoveries

There is one hard and fast rule in the oil business: Before you can pump it, you have to find it.

The growing problem here is that oil discoveries were horrible in 2016, really bad in 2015, and terrible in 2014. That recent three year stretch is the worst in the data series:

(Source)

Again: you have to find it before you can pump it. And around the world, oil companies are just not finding as much as they used to.  

Remember that blue dotted line on the oil investment chart above?  Here’s its counterpart, showing discoveries over the same time frame — it’s just a straight slump downwards:

Global oil discoveries fell to a record low in 2016 as companies continued to cut spending and conventional oil projects sanctioned were at the lowest level in more than 70 years, according to the International Energy Agency, which warned that both trends could continue this year.

 

Oil discoveries declined to 2.4 billion barrels in 2016, compared with an average of 9 billion barrels per year over the past 15 years. Meanwhile, the volume of conventional resources sanctioned for development last year fell to 4.7 billion barrels, 30% lower than the previous year as the number of projects that received a final investment decision dropped to the lowest level since the 1940s.

(Source)

Now it's clear why the oil companies pulled back their investment dollars so rapidly when prices slumped:  They were spending more and finding less throughout the 2009-2014 period, so they were already feeling the pain of diminishing returns. When the price of oil cracked below $100 a barrel, they wasted no time reining in their investment dollars.

Should we be concerned about this record lowest level of oil project funding in 70 years?  Why, yes, we should.  Everyone should:

"Our analysis shows we are entering a period of greater oil price volatility (partly) as a result of three years in a row of global oil investments in decline: in 2015, 2016 and most likely 2017," IEA director general Fatih Birol said, speaking at an energy conference in Tokyo.

 

"This is the first time in the history of oil that investments are declining three years in a row," he said, adding that this would cause "difficulties" in global oil markets in a few years.

(Source)

To give you a visual of the process, here’s a chart to help you understand why it takes years between making an initial find and maximum production:

(Source)

This bears repeating: Oil is the most important substance for our economy, we’re burning more of it on a yearly basis than ever before, and we just found the lowest amount since the world economy was several times smaller than it is now. And all this is happening while we're reducing our efforts to find more at an unprecedented rate.

There’s no way to speed up the process of oil discovery and extraction meaningfully, no matter how much money and manpower you throw at it.  It simply requires many years to go from a positive test bore to a fully functioning extraction and distribution/transportation program operating at maximum. 

In Part 2: Preparing For The Coming Shock we provide the evidence that shows why by 2019, or 2020, oil prices will have forced a new crisis upon the world.

More economic growth requires more energy. Always has and it always will. Oil is the most important form of energy of them all. But everyone assumes — especially today when it appears as if we're "awash" in it given the current supply glut — that we will always have access to as much as we need.

That's not going to be the case soon. And you are one of the few to understand why.

You get to use that awareness to make conscious decisions about your own life right here and right now. You can position yourself for safety, as well as to take advantage of what are likely to be once-in-a-lifetime investment opportunities.

But you also need to prepare for those in your life, like most other people today, who lack the ability, insight, or capability to join you at this early stage.

Click here to read the report (free executive summary, enrollment required for full access)

 

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Watergate Reporter Hints At Coup, Warns “Non-Functioning” Trump Presidency Is “Malignant”

While Bob Woodward is more stoic in his public discussion of the predicament this nation finds itself in (lambasting the 'fake news' media rather than directing his ire at the body politik), his partner in un-crime, legendary Watergate reporter Carl Bernstein, called the Trump administration a "malignant presidency" on Saturday, and suggested that the wrongdoings committed by the White House were unprecedented.

Speaking on CNN, The Hill reports that Bernstein warned that the Trump administration is "not functioning," and appears to hint at a 'soft coup' amid the nation's deep state…

"We are in the midst of a malignant presidency," Bernstein said. "That malignancy is known to the military leaders of the country, it's known to the Republican leadership in Congress who recognize it, and it's known to the intelligence community."

 

"The presidency of Donald Trump is not functioning," he continued. "It's really not functioning because the character and capabilities of this president are called into grave question in a way that those that know him are raising serious concerns about."

While Bob Woodward warned the "smug" media against "hyperventilating" over Trump, Bernstein suggested Trump was the "greatest journalistic challenge of the modern era."

"To report on a malignant presidency, what it means, and where it's going," he said. "This president is not in control of the presidency in a way that it is functioning."

 

"That has got our leaders worried, they are worried about his character, they are worried about his temperament," Bernstein said.

 

"We are in foreign territory. We have never been in a malignant presidency like this before."

As a reminder, Woodward previously warned that it’s not in the interest of either the Trump White House or the media to war with each other.

"I think everyone has accelerated this work. The other question to ask, is there any justification for Trump and people like — in his White House responding this way? And the only justification I can think of, which really isn’t a justification, but it accounts for emotional spasm of, my God, this is enemy of the people, I know that reporters have talked to people in the Trump house, — Trump White House about very sensitive intelligence operations, that we find out about in the press. And I think Trump is horrified that this is out there. And these are not necessarily things that are going to be published, but Trump is a newcomer saying, my God how do reporters know about these things? And so it’s — we’ve got to stop it.” 

 

“[I]t’s not in our interest, the media’s interest to have a war with the Trump White House. It’s not in Trump’s interest to have this war.”

Sadly, it appears it's too late to get this toothpaste back in the tube (for both sides).

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Illinois Taxoholics Wear Down Rauner: Massive Tax Hikes In The Works

Authored by Mike Shedlock via MishTalk.com,

Total capitulation by Governor Bruce Rauner is in the works. The taxoholics wore him down.

In the emergency session, Rauner has agreed to hike the personal income tax rate to 4.95% from the current 3.75%. The corporate income tax rate will rise to 7% from the current 5.25% rate.

For what? Nothing. Reforms are non-existent.

Another Deadline Come and Gone

Illinois failed to approve a budget today and thus heads into its third fiscal year without one.

A vote has been scheduled for Sunday.

I do not expect your opinion will matter, but in the slim chance I am wrong, Please Email Your Representative voicing displeasure of the tax hike.

The preceding link will find your rep based on your address.

Rule of Nothing

A zombified Rauner has capitulated in every way but the final signing.

Tax hikes have been agreed to with no reforms in return.

The Rule of Nothing is clearly in play.

Rule of Nothing

 

In any given political situation, the best outcome one can reasonably expect generally happens when politicians do nothing.

 

Implied corollary#1: When politicians attempt to fix any problem, they are highly likely to make matters worse.

 

Corollary #2: Politicians almost never do nothing. It’s why we have a messed up healthcare system, education system, public pension system, etc..

Taxoholics Win Again

Chicago schools will not get fixed. The hikes will not shore up pension plans.

Within one month of tax hikes, public unions will ask for more money. And people will leave the state. So will corporations.

Rauner pledged 44 reforms. He is 0-44 on his pledges.

The property tax freeze currently under debate has so many holes it is as useful as a bucket with no bottom.

Trading tax hikes for nothing is a horrible deal. Nonetheless, the taxohalics won again.

More business flight and human capital flight is the guaranteed outcome. Doing nothing at all would have been a far better outcome.

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Trump Tweets Mock Video Of Himself Pummeling “Fraud News CNN” In A Wrestling Match

Just when you thought American politics couldn’t get much more surreal, this happened:

 

Of course, this latest “big league” video came after Trump launched yet another tweet storm last night blasting the media.

 

Meanwhile, CNN seems to have been triggered…

CNN

 

…which means that Trump’s plan worked.

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What Makes America Different?

Authored by Bill Bonner via InternationalMan.com,

“Elizabeth,” I asked this morning as my wife climbed out of the pool. “How would you describe that sea turtle we saw on the beach?”

Pausing for a moment, she replied, “Rotating its slow and majestic flippers, it ground its way slowly and inexorably toward China…”

The sea turtle was headed east. Whether China was its destination or not, I don’t know. I only know that it was about to leave the Latin America isthmus, from the west coast of Nicaragua, and put out to sea when a muscular, brown young man picked it up and carried it back up on the beach. He and his friends had dug a big hole in the sand where the turtle was placed.

At night, we often see the dim light of flashlights along the beach. “It’s the locals looking for turtle eggs,” Manuel explained. “It’s illegal to take them, but…” Manuel shrugged his shoulders.

Sea turtles are protected by international convention. But here in the wilds of Nicaragua, they still end up in the soup from time to time.

Not the Same America

This is America, too… but it is not the same America. It is the New World… but not as new as the world north of the Rio Grande. Here, the Old World has not yet been snuffed out. It survives in a semitropical paradise.

But the object of our attention today is neither the Old World nor the new one – but the ever-changing, never fully explored idea of America.

“Proud to be an American,” says one bumper sticker. “One nation – indivisible,” says another. America was, of course, founded on the opposite principle… the idea that people were free to separate themselves from a parent government whenever they felt they had come of age. But no fraud, no matter how stupendous, is so obvious as to be detected by the average American. That is America’s great strength… or its most serious weakness.

After September 11, so many people bought flags that the shops ran short. Old Glory festooned nearly every porch and bridge. Patriotism swelled in every heart.

Europeans, coming back to the Old Country, reported that they had never seen anything like it. A Frenchman takes his country for granted. He is born into it, just as he is born into his religion. He may be proud of La Belle France the way he is proud of his cheese. But he is not fool enough to claim credit for either one. He just feels lucky to have them for his own.

What Makes America Different?

America, by contrast, is a nation of people who chose to become Americans. Even the oldest family tree in the New World has immigrants at its roots. And where did its government, its courts, its businesses, and its saloons come from?

They were all invented by us. Having chosen the country… and made it what it is… Americans feel more responsibility for what it has become than the citizens of most other nations. And they take more pride in it, too.

But what is it? What has it become? What makes America different from any other nation? Why should we care more about it than about, say, Lithuania or Chad?

Pressed for an answer, most Americans would reply, “Because America is a free country.” What else can be said of the place? Its land mass is as varied as the earth itself. Inhabiting the sands of Tucson as well as the steppes of Alaska, Americans could as well be called a desert race as an arctic one.

Its religions are equally diverse – from moss-backed Episcopalians of the Virginia tidewater to the Holy Rollers of East Texas to the Muslims of East Harlem.

Nor does blood itself give the country any mark of distinction. The individual American has more in common genetically with the people his people come from than with his fellow Americans. In a DNA test, your correspondent is more likely to be mistaken for an IRA hitman than a Baltimore drug dealer.

America never was a nation in the usual sense of the word. Though there are plenty of exceptions – especially among the made-up nations of former European colonies – nations are usually composed of groups of people who share common blood, culture, and language.

Americans mostly speak English. But they might just as well speak Spanish. And at the debut of the republic, the Founding Fathers narrowly avoided declaring German the official language… at least that is the legend.

A Frenchman has to speak French. A German has to speak the language of the Vaterland. But an American could speak anything. And often does.

Be What You Want to Be

Nor is there even a common history. The average immigrant didn’t arrive until the early 20th century. By then, America’s history was already three centuries old. The average citizen missed the whole thing.

Neither blood, history, religion, language – what else is left? Only an idea: that you could come to America and be whatever you wanted to be. You might have been a bogtrotter in Ireland or a baron in Silesia; in America, you were free to become whatever you could make of yourself.

“Give me liberty or give me death,” said Patrick Henry, raising the rhetorical stakes and praying no one would call him on it. Yet the average man at the time lived in near-perfect freedom.

There were few books and few laws on them. And fewer people to enforce them. Henry, if he wanted to do so, could have merely crossed the Blue Ridge west of Charlottesville and never seen another government agent again.

Taxation With Representation

Thomas Jefferson complained, in the Declaration of Independence, that Britain had “erected a multitude of New Offices, and set hither swarms of Officers to harass our people, and eat out their substance.”

Yet the swarms of officers sent by King George III would have barely filled a midsize regional office of the IRS or city zoning department today.

Likewise, the Founding Fathers kvetched about taxation without representation. But history has shown that representation only makes taxation worse. Kings, emperors, and tyrants must keep tax rates low… Otherwise, the people rise in rebellion.

It is Democrats that really eat out the substance of the people: The illusion of self-government lets them get away with it. Tax rates were only an average of 3% under the tyranny of King George III. One of the blessings of democracy is average tax rates that are 10 times as high.

“Americans today,” wrote Rose Wilder Lane in 1936, after the Lincoln administration had annihilated the principle of self-government… but before the Roosevelt team had finished its work, “are the most reckless and lawless of peoples… We are also the most imaginative, the most temperamental, the most infinitely varied.”

But by the end of the 20th century, Americans were required to wear seat belts and ate low-fat yogurt without a gun to their heads. The recklessness seems to have been bred out of them. And the variety, too. North, south, east, and west, people all wear the same clothes and cherish the same decrepit ideas as if they were religious relics.

And why not? It’s a free country.

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CANADA: 2008 all over again?

A major issue arising in Canada hasn’t received too much attention lately. Year after year, quarter after quarter, the level of the household debt is increasing both in absolute and relative numbers:

Source: tradingeconomics.com

The net debt versus disposable income tells you the total amount of debt in a household versus that household income and is a bit comparable to a net debt/EBITDA ratio on a company basis. A ratio of 170% means a Canadian household would have to spend 21 months of its (entire!) disposable income on debt repayment before being debt free. If a repayment capability is for instance just 20% of the disposable income, you’re talking about a repayment period of 10 years – excluding the additional interest expenses.

Did you want to see another perspective? The next chart shows the net debt versus Canada’s GDP. As you can see, this ratio has increased sharply, indicating Canadians are outspending.

Source: tradingeconomics.com

And finally, a third chart which should worry you; the total amount of car loans.

Source: globalnews.ca

One of the ‘arguments’ from those who consider the elevated debt levels ‘not too bad’ is the argument the asset value of the households is increasing as well, predominantly due to increasing real estate prices. Technically, one is correct when assuming the increasing asset prices keep the debt/equity ratio in balance despite an increasing debt level.

However, the real estate market is actually a major part of the problem in Canada, and that’s also something the Bank of Canada has pointed out in a recent update. The total indebtedness of the Canadian households actually increased exactly due to the increasing real estate prices, increasing the need for its citizens to apply for larger mortgages.

Canadians seem to think the only way the real estate prices are going, is up. Does this sound familiar to you? Because it definitely sounds familiar to us, as inflated real estate prices and ‘over-borrowing’ homeowners were the main culprits of the global financial crisis in the USA in 2008.

Back then, the Canadian banks were seen as some of the safest banks in the world, but the stability of the main banks is now being threatened by losses related to loans to oil companies and a negative shock in the real estate market might have very negative consequences. Even if we wouldn’t expect the housing prices to drop but to level off, the expected increases in the benchmark interest rates will make a mortgage much more expensive.

Source: globalnews.ca

Whereas the average cost of a mortgage is currently approximately 3%, this could easily increase towards the 5% level by the end of the current decade. If you’re a Vancouver- or Toronto-based homeowner who borrowed $1M, your interest expenses will increase by $20,000 per year or $1,500 per month. That’s a pure cost increase and doesn’t reduce the principal payments on your loan.

According to the Bank of Canada, the total amount of mortgage debt increased by 6% in the past year to C$1.45T. A 2% increase in the average cost of debt would increase the total annual payment by C$30B. To put this in perspective (as the C$30B will have to be funded by slashing other expenses), that’s approximately 2% of the country’s GDP so you can be pretty certain the trickle down effect will be substantial.

Source: Bank of Canada

And the higher mortgage rates will have another negative consequence. Exactly because the cost of debt is increasing, fewer people will be able to afford a mortgage, and banks will tighten their conditions. This by itself will cause the real estate prices to stall, and very likely to decrease. After all, unless the foreign buyers are filling the gap, there will be fewer buyers in the market for the available properties. The central bank is absolutely right when it says the ‘household vulnerabilities have moved higher’.

A low oil price, low (hard) commodity prices, an ‘over-borrowing’ population and an overvalued real estate market. Oh, what could possibly go wrong?

> Protect yourself with HARD assets. Read our Guide to Gold right now!

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Draghi did not expect THIS market reaction

The markets weren’t really expecting ECB president Mario Draghi to announce or say anything ‘shocking’ last week, but it’s now starting to look like Mr Draghi and Mr Carney, the President of the Bank of England (the Central Bank in Great Britain) have had several discussions in the past few days and weeks to make sure they’d spread the same message.

Mario Draghi caught its audience by surprise after telling his audience during the ECB’s annual forum ‘deflationary forces have been replaced by reflationary ones. As Morningstar correctly analyzed, this immediately resulted in the Euro gaining a lot of ground versus the US Dollar, reaching the highest level since June last year, as you can see on the next chart.

Source: stockcharts.com

Still according to Morningstar, Draghi made it sound like the ECB had a plan to reduce the economic stimulus readily available for the ECB and this obviously caught investors by surprise as they were counting on the ECB lifeline with ‘free cash’ for an extended period of time. What makes Draghi’s comment really interesting is the fact Carney said pretty much the same thing in a different speech.

Despite the Brexit and the economic uncertainty connected to the UK potentially leaving the European Union, Carney was hinting on a BoE rate hike rather than an additional interest rate decrease. Not only did Carney hint at a rate hike, he also commented the ‘removal of monetary stimulus is becoming necessary’.

The comments from both presidents were a huge surprise as even though investors were expecting to see the stimulus measures being reduced, the tone of the announcements was pretty aggressive. Draghi’s written release tried to keep the total damage limited by referring to the Phillips Curve (which tries to correlate the wellbeing of an economy based on the inflation rate and the unemployment rate, as shown in the next chart:

Source: Slideshare.com

Danske Bank argues the ECB thinks the ‘natural interest rate’ has increased, meaning the real interest rate gap has increased as well. In order to keep a certain monetary policy unchanged (the spread between the real interest rate and the actual interest rates of the central bank), the central bank will need to update its interest rate policy in order to keep the policy unchanged (increasing the intended interest rates reduces the gap with the real interest rate).

Source: Danske Bank

Danske correctly notes the ECB is very likely too optimistic (something we also have already pointed out in our previous columns). Just like in the USA, the ‘real’ inflation rate simply isn’t there; as the majority of the YoY inflation was caused by higher energy prices. This wasn’t a surprise at all as the oil and gas prices were trading at multi-year lows (and even decade lows) so any increase in the energy prices would have had an impact on the ‘headline’ inflation rate. But the ‘real’ inflation rate is very likely still way below the eyed 2% mark.

Whilst the central banks are pretending all is well with the world economy and are hinting at future interest rate hikes, things aren’t as great as they want you to believe. The so-called ‘move away from ultra-easy policy’ might come way too early. Unless, of course, we’ll move from ‘ultra-easy’ to just ‘easy’…

Gold still is the best way to protect yourself against the central banks. Read our Guide to Gold now for free! 

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One Day Before The Saudi Ultimatum Expires, A Defiant Qatar Is “Ready To Face The Consequences”

Two days ago, when previewing the showdown in the Qatar “diplomatic quagmire“, we reminded readers that “Qatar only has until July 3 to comply with the 10-day ultimatum of 13 demands imposed by the Saudi-led bloc”, a list which the Saudis described as non-negotiable, with Riyadh’s foreign minister Adel al-Jubeir saying Doha must “amend its behavior” or “remain isolated.”

Fast forward to just one day before the Saudi ultimatum expires, when Qatari Foreign Minister Mohammed Al Thani said his nation is unwilling to concede to any demands that threaten its sovereignty or violate international law. The small but wealthy Gulf emirate said it was prepared “to let pass the deadline for complying with 13 demands set down by the bloc“, including shutting down Al Jazeera and cutting back ties with Iran, Al Thani said in Rome quoted by Bloomberg, where he met the Italian foreign minister. 

“There is no fear from our direction. We are ready to face the consequences,” Al Thani said. “There is an international law that should be respected and not violated.”

And while Al Thani repeated that Qatar is willing to sit down and negotiate under the right circumstances, he repeated that the ultimatum issued June 23 was made to be rejected.

As a reminder, nearly a month ago, Saudi Arabia, Bahrain, the U.A.E and Egypt severed commercial, diplomatic and financial links with Qatar saying they were isolating the sheikdom over what they see as its tolerant attitude to Iran and support for Islamist groups, which is ironic since Saudi Arabia is widely acknowledged as the world’s premier supporter of offshore terrorism. The group’s demands also include Qatar severing relations with the Muslim Brotherhood and ending Turkey’s military presence in the country. On June 23, Qatar was given 10 days to respond.

Meanwhile, not mincing his words, Al Thani accused the blockading nations – it’s clear who he was referring to here – of themselves having ties to groups and individuals accused of terrorism.

“As for the countries that accuse Qatar of financing terrorism, they have the same problems as Qatar, more so, they are on top of the list in that area,” he said. “There are financial institutes in these countries involved in financing terrorist organization and financing terrorist operations in western countries.”

The coalition presented Qatar with its requirements to end the standoff after U.S. Secretary of State Rex Tillerson urged the Saudi-led bloc to lay out its demands. In a statement on June 25, Tillerson conceded that Qatar would find it “very difficult” to comply with some of the requests. On June 27, during a visit in Washington, Saudi Foreign Minister Adel al-Jubeir called the demands non-negotiable.

As previewing the outcome of the ultimatum, earlier this week Citi said that unless the demands are met by July 3 “then this situation is likely to get a lot worse before it gets any better.”

Meanwhile, Citi added, there has been a continued lack of reaction from ‘the West’: there is also confusion as to the stance of key historical players in the Middle East, such as the UK and the US, who have either said very little – Trump once called Qatar a “haven for terrorism”, while Rex Tillerson has twice upbraided Saudi Arabia’s approach. Last Friday, a White House spokesman told the Guardian: “The United States is still accessing the list and we are in communication with all parties. As we have said, we want to see the parties resolve this dispute and restore unity among our partners in the region, while ensuring all countries are stopping funding for terrorist groups.”

* * *

And while the US is still trying to decide on whose side it wants to be in the ongoing conflict, Russia wasted no time and as Reuters reported yesterday, Russian President Vladimir Putin had telephone discussions with the leaders of Qatar and Bahrain, stressing the need for diplomacy to end the dispute between Qatar and several other Arab states.

Moscow is trying to tread cautiously in the dispute, since it wants good relations with both Qatar and Saudi Arabia. Russia backs President Bashar al-Assad in the six-year-long Syria conflict and is close to Iran, which has fraught ties with the Saudis.

 

Moscow sold a stake in its state oil champion Rosneft to Qatar last year and has been coordinating oil output cuts with the Saudis as part of a global pact to lift oil prices.

 

The Kremlin, which announced the phone calls with the leaders of Qatar and Bahrain in two separate statements on its website on Saturday, did not say when they happened. It clarified that they happened on the initiative of Qatar and Bahrain.

“Vladimir Putin stressed the importance of political-diplomatic efforts aimed at overcoming differences of opinion and the normalization of the difficult situation that exists,” said the statement on the talks between Putin and Qatar’s emir, Sheikh Tamim bin Hamad al-Thani.

And the punchline: “the Russian and Qatari leaders also discussed cooperation between their countries in energy and investment.” In other words, as the Gulf region copntinues to split itself apart, and the strategic role of the US in the region remains unclear, Russia is more than happy to step in and fill whatever power void has been created. We look forward to Russian hacker being blamed for yet another tactically prudent and rational move by the Kremlin.

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