Nigel Farage Warns “The Establishment Is Losing Control Over The People”

"The Empire is befuddled," at Brexit, exclaims Nigel Farage, telling Alex Jones that globalist establishment is clueless on how to regain control. In a wonderfully frank interview, Farage explained that the establishment's "problem is that it’s fighting this argument on several fronts at once.”

"We’ve got the American elections going on, we’ve got a big referendum coming up in Hungary on migrant quotas from Germany, we’ve got a rerun of the Austrian presidency where the right-wing candidate was cheated by false votes,” Farage said. “So they’ve got a real problem, they’re fighting us now on a whole series of fronts.”


“What will they do to fight back? I don’t know the answer to that yet, and you know something? Nor do they.”


Brexit is the first strike-back against this phenomenon of the big banks, the big businesses, effectively owning politics, willfully destroying nation-state democracy, getting rid of that thing our forbearers actually fought and shed their blood to create and to preserve our liberties and our freedoms,” he continued. “All of that being taken away and suddenly in a referendum that no one said we could win, and we’ve done it.”


“What we’ve done is given inspiration to freedom fighters right across the Western World.”

Farage then broke down how Hillary is aligned with the globalist agenda and how the US elections are crucial to the fight against globalism.

“Hillary represents everything that has gone wrong in our lives over the last couple of decades,” he said. “She is part of that phenomenon where all that seems to matter now is corporatism.”


“The big, global companies who want to set the rulebooks to effectively put out of business any small or medium-size competitors.”

And Hillary loves the supranational global-type bodies which are accountable to nobody, Farage continued.

“I think she sees the European Union as a prototype for an even bigger form of world government,” he stated. “If you want nothing to change at all, if you want to continue with the kind of cronyism that we see with the Clinton Foundation, if you want things to stay the same, vote for Hillary.

Farage also commented on Hillary’s public criticism of his recent US visit to speak at a Trump rally in Mississippi.

“Can I please use this opportunity to thank Hillary Clinton from the bottom of my heart for doing what she’s done?” asked Farage with a chuckle. “She’s raised my profile massively in this presidential election. So Hillary, thank you.”

Full interview below…


via Tyler Durden

IG Bond Issuance Poised For New Record As Spreads Approach All-Time Lows

Pension and insurance demand for "juicy" investment grade paper seems to be insatiable.  Per Bloomberg data, $962 billion of IG paper has been issued so far in 2016 putting issuance for the year on track to set an all-time record.  August issuance alone was $115 billion, the highest level recorded in 12 years, and the current pipeline for September includes $120 billion of new issues. 

IG Bond Issuance


Obviously it's not terribly surprising that funds would flow out of sovereign debt markets and into IG bonds with over $13 trillion of sovereign paper now carrying negative yields (see "With Over $13 Trillion In Negative-Yielding Debt, This Is The Pain A 1% Spike In Rates Would Inflict").  That said, as we've pointed out before (see "Pension Duration Dilemma – Why Pension Funds Are Driving The Biggest Bond Bubble In History"), pensions aren't just "reaching for yield" they're also "reaching for duration" in an attempt to match their asset/liability duration.  The problem is that by "reaching for yield" (or "reaching for duration" if you prefer) large pension funds enter into a negative feedback loop that only serves to exacerbate their problem.  As billions of dollars are plowed into longer-dated securities the yields of those securities are driven even lower.  Even worse, as yields fall, negative convexity causes the duration gap between assets and liabilities to expand.  With that, pensions have no choice but to go even further out the yield curve and the cycle continues.

IG Spreads


The problem, of course, is that these rates have been artificially engineered by misinformed Central Banking policies and will, at some unknown point in the future, be unwound creating spectacular losses for the pensions and insurance funds holding the paper.  The Securities Industry and Financial Markets Association estimates there is about $8.5 trillion of corporate debt outstanding in the United States with an average maturity of about 15 years which means every 1% increase in yield will destroy just over $900 billion in value.  

But, we suppose it doesn't really matter if pensions destroy their asset base as long as their completely fictitious liability valuation also declines then all will be well in the world.  Right?

via Tyler Durden

Brickbat: Messing with Texas

GunsAfter Waller County officials received a letter from gun rights activist Terry Holcomb telling them they were violating state law by banning firearms from the courthouse, they immediately changed their policies to comply with the law. Just kidding. They sued Holcomb for $100,000. Waller County District Attorney Elton Mathis says the county doesn’t really intend to collect that money if it wins. He says he just wants a court to rule on whether the county has a right to ban firearms from the courthouse.

from Hit & Run

Gold and Bonds

By Chris at

Market dislocations occur when financial markets, operating under stressful conditions, experience large widespread asset mispricing.

Welcome to this week’s edition of “World Out Of Whack” where every Wednesday we take time out of our day to laugh, poke fun at and present to you absurdity in global financial markets in all it’s glorious insanity.


While we enjoy a good laugh, the truth is that the first step to protecting ourselves from losses is to protect ourselves from ignorance. Think of the “World Out Of Whack” as your double thick armour plated side impact protection system in a financial world littered with drunk drivers.

Selfishly we also know that the biggest (and often the fastest) returns come from asymmetric market moves. But, in order to identify these moves we must first identify where they live.

Occasionally we find opportunities where we can buy (or sell) assets for mere cents on the dollar – because, after all, we are capitalists.

In this week’s edition of the WOW we’re covering the relationship between Bonds and Commodities

As our monetary overlords swallow up more and more of the sovereign bond market, punching bonds higher, and kicking yields into negative territory, the inevitable consequences are showing themselves. Bonds are now being traded and priced in much the same way as commodities are.

To be clear: this isn’t “supposed” to happen. When traders buy a bushel of wheat they don’t do so expecting to receive a yield on it. They buy it to sell it at a higher price to the next guy.

Bonds, however, are completely different. Or at least they used to be.

Investors buy bonds (i.e. they lend money) and are then paid a set percentage fee for the lifetime of the loan, and they’re also paid the principal at the end of the loan term. The coupon or yield can be paid monthly, quarterly, annually, or capitalised and paid at maturity. That’s entirely different to a commodity. Also, we know that bonds are typically secured against assets standing ahead of other creditors in the event of liquidation and as such they’re more secure than equity.

Now, I’m not telling you anything you didn’t already know. My apologies for being really simplistic but I do it because when so little makes sense in markets, it’s probably time for us all to go back to basics, bring out the crayons, and ensure that 1 and 1 really does equal 2.

As I write to you today, bonds no longer trade on yield but on some future price. 

Let’s for a minute revisit the 2008 global financial crisis.

It’s worth revisiting – for the purposes of understanding – how and why we humans do such stupid stupid things and do them repeatedly.

It’s as if we have marshmallows between our ears. If it was the case for central bankers, we’d all be better off as instead of inflicting such damage to the world economy, they’d instead be found slumped on the sofa, eyes glazed over, and drool running down their chests. Alas there are not enough marshmallows to go around and so instead we get what we get.

As I discussed a couple of months ago, the GFC was birthed in the real estate market.

Now real estate is a yield bearing investment, or at least it should be. So unless you’re buying real estate for your personal use, it is essentially a bond. It has underlying collateral value, and it provides a quantifiable and consistent stream of cashflows.

In a bull market capital chases yield first. It doesn’t chase price appreciation. Price appreciation is simply the consequence of yield chasing since yields decline as more buyers dive in.

In today’s world of bond pricing 1 and 1 doesn’t equal 2 or even 15. It is so far removed from reality that today 1 and 1 equals a chicken.

Below is spot gold in red overlaid by the PIMCO 25-year zero coupon Treasury ETF in blue. They may as well be twins.

I find this correlation fascinating but not unsurprising.

Gold spot in red & The Pimco 25yr zero coupon Treasury ETF

Spot gold (red) and Pimco 25-year zero coupon Treasury ETF (blue)

When bonds are being bought for capital appreciation then of course they’re going to trade like a commodity.

Just as housing in the 2000’s was increasingly bought not of yield but capital appreciation so too today we find ourselves facing the same set of circumstances.

Ten years ago, heck even five years ago, if you’d told me that we’d have over US$13 trillion in negative yielding debt, underwritten by bankrupt governments, and at the tail end of a demographic boom in developed countries – with much of that debt in Europe which is also facing a collapsing banking sector, a fragmenting European Union, and the easiest short in recent history, I’d have suggested that you’ve been smoking crack. And yet here we are.

Contributing Factors


Central banks completely and totally have your back when investing in government bonds. Why?

Letting rates normalise by any meaningful amount would cause severe problems for governments to actually service debt payments. They would all suddenly look very Greek. And though the Greeks have a cool sounding accent, lovely beaches, and don’t pay their taxes nobody really wants to be Greek.

So even though core inflation seems to be rising in the US, it’s completely meaningless. Because even if inflation was raging, the resulting real adjustment in debt and the serviceability of it due to inflation would take some time to reach anything resembling manageable before the Fed could conceivably hike rates by a meaningful amount. They simply can’t afford to.


Kyle Bass Gold


So the central banks have your back on the long sovereign bond trade. That is obvious.

I can see why owning bonds makes sense based on having a central bank “put”. In fact, I’ve even suggested a few months ago that trading (not investing) by selling the Spanish ten year while going long the US ten year provided a great arbitrage as the inevitable discrepancy would get re-priced.

To be clear, that’s a short term opportunistic trade and I wouldn’t want to put something like that on and go on holiday for 6 months. I’m not getting paid enough to take duration risk on something like that.

What to Watch For

So when bonds, which are traditionally bought for safety and yield, provide neither and trade just like gold is it maybe, just maybe time to buy the asset which is traditionally bought purely for safety and offers no yield?

What I believe is a critical chart to watch is the chart I posted above. That of bonds and gold. When we see these diverging then the probability is higher that the belief in central banks is finally failing. Interestingly the only way for these two asset classes to move in tandem to the upside is if bonds continue to go into deeper negative yielding territory.

If you think about that for a minute it means that the cost of owning bonds becomes increasingly more expensive, surpassing the cost of owning gold. On a relative basis gold becomes cheaper to own even while its rising in value. Something for you to ponder.

And so… 


Something else? Share your thoughts in the comment box here.

Know anyone that might enjoy this? Please share this with them

Investing and protecting our capital in a world which is enjoying the most severe distortions of any period in mans recorded history means that a different approach is required. And traditional portfolio management fails miserably to accomplish this.

And so our goal here is simple: protecting the majority of our wealth from the inevitable consequences of absurdity, while finding the most asymmetric investment opportunities for our capital. Ironically, such opportunities are a result of the actions which have landed the world in such trouble to begin with.

– Chris

Ten years ago, the notion that zero-coupon perpetual securities should make a comeback seemed like a good April Fools’ joke. Now, it’s no laughing matter.” — Edward Chancellor


Liked this article? Don’t miss our future articles and podcasts, and

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via Capitalist Exploits

“It Was Fun While It Lasted” – Credit Manager ‘Sales’ Index Crashes To 7-Year Lows

Overall, it was fun while it lasted – the trends had been up and now they aren’t,” warns National Asscociation of Credit Managers' economist Chris Kuehl.

This sentiment comes as NACM's Credit Manager Index plummetes to its lowest since 2009…

The score reflects the deterioration in the combined favorable categories reading (56.4). In July, it was as high as it was in March (60.0). The categories in the favorable sector were lower than they had been last month, and some by quite a lot. The index of combined unfavorable factors also dropped (49.2 to 49.1), but not as dramatically. “The best that can be said about the decline is that it was bad and hasn’t gotten much worse,” Kuehl added.

When looking at specifics in the favorable categories, there was not much to celebrate and some of these sectors are worrying. The sales category was riding a high at 60.0 last month and dropped to 53.7, marking the lowest point in seven years.


“The sales collapse is consistent with what has been appearing in the Purchasing Managers’ Index and other statistics, so it is unlikely to be an anomaly, not good timing as far as the retail community is concerned,” explained Kuehl.

And finally, favorable and unfavorable aggregate indices have plunged…


We leave to Kuehl to sum up: “the most vexing part of the change is that it is happening at the start of the season that many in the economy count on for growth.”

Source: NACM

via Tyler Durden

“All Eyes On Central Banks” In September, But “No Reason To Smile”

Submitted by Saxo Bank Head of Macro Analysis, Christopher Dembik via,

  • Case for a US rate hike remains strong ahead of September FOMC meeting
  • ECB almost certain to extend QE programme
  • RBA changes governors as CPI expansion tumbles
  • Norwegian inflation high and rising, housing bubble in focus
  • Coup attempt derails Turkish economy, further easing expected


Macro outlook

The global economy is listing badly, and central banks' ability to right the ship is in question.

September will be quite a busy month for investors since there are around 30 major central banks meetings scheduled. Since the Bank of England’s last policy announcement, the total monthly amount in global official quantitative easing has reached almost $200 billion, which corresponds, for the purpose of comparison, to Portugal’s annual GDP in 2015.

Long-rumoured and oft-discussed, QE infinity is now a reality. Global credit conditions are the loosest they have ever been with the average yield on global government bonds (all maturities included) evolving to around 0.7%. 

The Federal Open Market Committee meeting on September 20-21 is the most crucial monetary policy event this month. There is clearly a case for an interest rate hike, but the final decision of the central bank will depend on the data for the month of August – especially the September 2 nonfarm payrolls report that could confirm the good momentum in the US labour market.

According to Bloomberg, more than 50% of investors expect a rate hike will happen before the end of the year.

In the wake of a Fed hike, monetary policy divergence would increase between the US and the euro area, which could further attract attention towards the US dollar. The European Central Bank will have fresh economic data this month that are likely to confirm downside risks are still present. These will encourage the central bank to adjust its asset purchase program at its September 8 meeting.

Our baseline scenario is that the ECB will extend its asset purchase program by six to nine months and will increase the issuer limits to 50%.

With the exception of the Russian central bank, the other central banks (Bank of Japan, Bank of England, Reserve Bank of Australia, etc.) should keep rates unchanged since they have already adjusted monetary policy in the past two months.


Global overview: Any reason to smile?

Is there a light at the end of the tunnel for the global economy? Consensus expected that the global PMI would enter into contraction this summer, which would constitute an early sign of recession. Actually, however, it inched up to a three-month high in July at 51.4.

This does not mean the global economy is getting better – far from it. The composite PMI output index for developed markets is still very sluggish. The stronger-than-forecasted emerging market growth (the composite PMI output index reached 51.7) is the main explanation behind the relatively solid global PMI performance in July.

Downward risks are still present, and that’s why central banks remain on alert.

Global PMI

Source: Saxo Bank 

The numerous central bank meetings scheduled this month could push volatility higher. The rapid reaction of central banks in the wake of Brexit certainly averted a panic this summer.

Over the past few weeks, the BoJ’s Kuroda and the ECB’s Coeure confirmed they won’t hesitate to act decisively again if needed, which is a clear signal that new measures are in the pipeline. However, one should not misinterpret their words. Global central banks acknowledge that monetary policy is not to remain the only game in town, thus they push more and more to hand the policy baton to the fiscal side of things.

Fixed income

Source: Saxo Bank 


The case for a US hike

The FOMC meeting on September 20-21 will be the key event this month for investors. There is clearly a case for higher interest rates. Here are six factors that could push the central bank to further normalise monetary policy:

  • The slowdown in the job market seen last spring appears to be temporary. Indeed, the latest economic indicators are quite good, with almost 255,000 new jobs created in July, well above the consensus of 180,000. If the next NFP report confirms this trend, it will give more weight to the arguments of the FOMC members who consider the economy to essentially be at maximum employment. In those circumstances, the Fed will have no excuse for not hiking rates.  

  • The official unemployment rate, established at 4.9%, is close to the NAIRU threshold at which the economy is in balance and inflation pressures are neither rising nor falling. Although the importance of the NAIRU has declined regarding monetary policy assessment, several FOMC members still continue to pay attention to this theoretical indicator that currently indicates it is about time to hike rates.

  • The increase in average hourly earnings, which is closely monitored by the Fed, has accelerated more than expected to a monthly path of 0.3% in July, and stands at its highest rate since the Great Recession;  

  • Financial stress indices are going down. The St. Louis Fed Financial Stress Index is close to its lowest level on record, which goes back to December 1993. 

  • Economic forecasts, which are always a tricky exercise, indicate the momentum is strengthening, particularly through sustained private consumption and durable good orders. The Atlanta Fed GDPNow forecast is currently at 3.5% for the third quarter;  

  • Last but not least, investors need to keep in mind the Fed is in a complicated position. The central bank needs to increase rates before it is too late and that the US enters an economic slowdown. Its strategic mistake is that it has waited too long. The economic situation was good enough in summer 2015 to tighten monetary policy, and the Fed has probably lost a few precious months which could complicate its task. It won't be able to act through changes in interest rates because they are already too low, so it will be forced to start a new program of bond buying that has many disadvantages, notably popping up the prices of financial assets.  

Bridge over troubled water

The US remains a rare beacon in a world of ever-increasing easing.

We think the possible rate hike in September should go very smoothly because it has already been priced in and, above all, it will not fundamentally change global credit conditions. After all, the scale of the rate increase will be quite low, and is expected to reach a maximum of 25 basis points.

Jobless rate versus NAIRU

Source: Saxo Bank 


Western Europe: No time to rest on its laurels

The other central bank at the top of the agenda in September is the ECB. Governor Mario Draghi has hinted that the ECB will conduct a review of the impact of monetary policy this month based on fresh economic data.

This review will certainly focus on the effect of the corporate bond buying program (CSPP) that was launched last June and that has been pretty successful until now. The purchases reach €7 billion euros/month (mostly BBB1 and lower-rated companies), which is quite remarkable given the summer lull. However, risks on the downside remain thus we believe that there is a 100% chance that the review will open the door to further easing.

The most likely scenario is that the ECB extends QE by March 2017 to six or nine months, which is almost a done deal, and that it sets the issuer limits at 50% instead of 33%. This could allow the ECB to buy more German bonds and it would be a coherent decision considering the likely extension of the asset purchases.

We cannot rule out further deposit rate cuts but it is a risky monetary policy instrument (as outlined by the last International Monetary Fund staff report on the euro area) that can seriously hurt the profitability of the financial sector.

Therefore, it is probable the ECB will restrain from using this tool again in the short term. In the long run, the most logical evolution of the ECB monetary policy would consist in increasing the monthly amount of the CSPP in order to lower further borrowing and investment costs for large companies.

In this matter, the Bank of England showed the way one month ago by deciding to buy corporate bonds up to £10 billion/month.

European Central Bank

Contrary to the ECB, the BoE will adopt a wait-and-see approach at its meeting on September 15. The central bank seems more and more sceptical about QE but it had to announce this sort of combination of measures last month, more for the sake of its own reputation than for that of economic benefits.

The direct market impact is to lower government bond yields that are progressively heading towards zero. The UK 10-year government bond yield, for instance, fell to 0.55% versus 1.38% pre-Brexit.

Two conclusions may be drawn from the BoE’s last monetary policy move:

1) Exit from QE is much more difficult than expected, at least for the majority of central banks.


2) The BoE has already prepared the market for another rate cut by the end of the year.

For now, negative rates are not an option, thus we can expect the policy rate will fall to 0.10% or 0.05% in the coming months. This move is already priced in by the market. A lower GBP exchange rate is the main objective sought by the BoE in the short term in order to help the economy to overcome Brexit.

However, what the UK really needs is a “Hammond moment”. The priority is to present a fiscal stimulus plan, which could be put forth by chancellor of the exchequer Phillip Hammond as soon as this autumn.

This would mark a fundamental break with the past and the fiscal consolidation plans presented by his predecessor, George Osborne.

UK benchmarks


Asia–Pacific: More easing to come…but later

In Asia-Pacific this month, the focus will be mainly on Japan and Australia. “Wait-and-pray” is the new mantra in Japan as the timid measures unveiled last July prove the central bank does not have much room left to act in the current monetary policy framework.

Since January 1, 2015, the BoJ’s balance sheet has increased by a massive 58% and the yen by 14% versus the US dollar. It is increasingly clear that Japanese monetary policy has not had the desired effect: it has not pushed the country out of deflation (Japan's July CPI print posted its largest annual fall in three years) and it has not succeeded in devaluing the Japanese yen, which is the most direct and massive consequence of accommodative monetary policy.

In this context, the next step for the BoJ will be when the report on the impact of the current monetary policy is submitted to the government, which should happen by the end of the month. Until then, no new measures are expected by the BoJ at its next meeting scheduled for September 20-21.

The ball is in the government’s court, monetary policy cannot do much at this level.


Japan is home to perhaps the world's longest-running experiment in central bank-led stimulus, and its prospects appear to be dimming.

The BoJ is not the first global central bank to recognise that current monetary policy is about to reach its limits. In its last quarterly bulletin, the BoE recognised that the “money multiplier” approach, commonly used by policymakers, does not work. Moreover, RBA governor Stevens, who is leaving office, recently declared that he has “serious reservations about the extent of reliance on monetary policy around the world," explaining that "it isn’t that the central banks were wrong to do what they could, it is that what they could do was not enough, and never could be enough, fully to restore demand after a period of recession associated with a very substantial debt build-up”.

He has perfectly summarised in two sentences the main problem of the global economy: monetary policy has replaced fiscal policy since 2007 but it is not sufficient to boost nominal demand and growth. Fiscal policy is also required to stimulate the economy.

This is exactly the message sent by the BoJ to the Japanese government one month ago.

BoJ balance sheet

In spite of his scepticism about the effect of monetary policy on the real economy, Stevens decided to cut the cash rate to all-time low of 1.5% last month. This is the end of an era; Australia was well-known for high interest rates which favored the use of the AUD in carry trade strategies.

The economic outlook is getting quite gloomy. CPI fell to 1% annually in the second quarter, the weakest expansion in 17 years, and consumer inflation expectations weakened again in August. Moreover, growth is expected to decline in the coming quarters.

Chinese GDP has increasingly become a key driver of the Australian nominal GDP and it indicates us that growth is decelerating. With inflation low and likely to remain low for a prolonged period of time, and considering the risk of economic slowdown, the new governor taking office this month will have to continue to drop rates again in an attempt to run the economy at a faster level.

The RBA is heading to 1%, but not yet. The central bank will certainly wait to see the macroeconomic and AUD exchange rate impacts from the last rate cut. 

AUD rate


CEE–Russia: Waiting for the storm to pass

In the CEE-Russia area, unchanged policy rates are widely forecasted by the market, except for Russia. The last economic figures could push the Russian central bank to lower interest rates by at least 25 basis points to 10.25% at its meeting on September 16.

Headline inflation was a bit lower than expected in July, at 7.2% year-over-year versus 7.5% y/y in June, which is the lowest level since March 2014. Moreover, preliminary data point out that Russia just saw its smallest economic contraction since 2014 (minus 0.6% on the second quarter y/y).

The primary force driving improvement was the industrial sector that benefited from a lower rouble but there are also early signs of recovery regarding consumer confidence and vehicle sales.

In this context, the central bank could be encouraged to lower rates in order to put the economy on the comeback trail. If it does not stimulate growth, the risk is quite high that the recovery will quickly falter and the economy will decline again, following what happened at the end of 2015.

Therefore, there is a strong probability the central bank will began a new cycle of rate cuts in September. 

Russian consumer confidence

Most of the countries in CEE are likely to adopt a wait-and-see position, like Poland whose central bank will meet on September 7. The NBP has closed the door to monetary policy easing for now. Therefore, the benchmark rate should stay at a record-low 1.5% until the end of the year.

However, we don’t share the optimism of the central bank regarding the capacity of escaping deflation. It forecasts that price growth will accelerate to 1.3% next year versus 0.8% in June but the main CPI components point out that downside risks are increasing.


Is the Polish central bank more bullish than circumstances warrant?

Compared with the beginning of 2015, only food – which is therefore the primary support for headline inflation – is in positive territory. Energy (electricity and gas) has been heading into negative territory since the end of last year.

From what we can see, the inflation outlook is worsening and not improving as expected by the NBP.


In Serbia, the upcoming meeting of the central bank on September 8 should not surprise. The main policy rate is expected to be maintained at 4.25%. As indicated in its last statement, the central bank will wait to have more visibility on the evolution of commodity prices and financial markets before taking a decision on the next step for monetary policy.

However, a further rate cut of 25 basis points is a done deal by the end of the year. The sharply downward trend seen in the Serbian CPI (which reached 0.3% in June, far below the targets of between 2.5% and 5.5%) and the need to offset the fiscal consolidation pushed by the new government will force the central bank to step in again. 


Finally, the central bank of Hungary will keep rates unchanged at a record-low 0.9%. This summer, it confirmed that it was done cutting and that rates will stay at its current level for an “extended period”. Therefore, there is no surprise to wait for.

The poor economic performance seen in the first quarter was certainly temporary. Growth is expected to rebound in the coming quarters, driven by strong private consumption growth, improving economic sentiment, and the fiscal stimulus package that will be presented this autumn.

One of the main black spots of the economy is construction output. The free fall in the sector that has started at the beginning of the year (minus 26.6% y/y in May) could last at least until the end of 2016. However, this very negative trend, mostly linked to the phasing out of EU funding, does not represent a real concern for the country for the moment. 



Nordic: Things are getting very messy for Norway

In the Nordic area, the focus will be on Norway. The consensus expected a new rate cut by the Norges Bank on September 22 but this option is less and less likely due to soaring inflation. For quite a while, the Norges Bank had chosen not to pay too much attention to the evolution of inflation in order to focus on economic growth.

Accepting an inflation rate of 3.7% (June) despite an inflation target of 2.5% clearly takes some courage. Norway is an exception in a world of low inflation. Although history illustrates that central banks are able to fight high inflation, it seems that the Norges Bank has played with fire for too long.

Since March, there has been a remarkable acceleration in housing prices (11.14% y/y in July). The central bank got it all wrong because it had forecasted that prices would only increase by 4% y/y. The problem is that the rise in property prices is accompanied by an increase in household debt that is also higher than the Norges Bank assumed last spring.

In this context, a new rate cut would put into question the credibility of the central bank and its will to maintain price stability. The best solution would be to wait for the storm to pass, hoping the housing bubble will not burst too fast. 



Middle East: Tough Q3 for Turkey

Our worst fears were realized for Turkey. The economy has been severely hit by the attempted military coup. The Turkish business climate index collapsed by 24 points in August while core sales fell by 33% in July compared to the previous month.

As expected, Turkey’s central bank cut its interest rate for the sixth straight month in August to 8.5%. It is quite unlikely the central bank will be able to fully meet its commitment to maintain high interest rates in order to contain inflation. Political pressure will increase to further cut rates in the purpose to support domestic demand.

A new rate cut is not our baseline scenario for the central bank meeting on September 22. It is highly probable that the status quo will prevail this month. However, we expect further easing in the coming months and that Turkey’s overnight lending rate will be progressively cut to at least 8% by the end of the year.


via Tyler Durden

Europe Reels As A New Wave Of Refugees Begins To Flood The Continent

Angela Merkel, and Europe in general, had hoped they had managed to move beyond the unprecedented wave of refugees unleashed on the content in 2015 courtesy of the German Chancellor’s open door policy, with the fragile March 2016 refugee deal signed with Turkey. Sadly – for both Europeans who have suffered a surge in terrorist attacks as a result and for Merkel, whose approval rating has subsequently plunged – Europe is once buckling under the weight of a new wave of migrants.

According to Reuters, some 3000 migrants were saved in the Strait of Sicily in 30 separate rescue missions just on Tuesday, the Italian coastguard said, bringing the total to almost 10,000 in two days and marking a sharp acceleration in refugee arrivals in Italy. The migrants were packed on board dozens of boats, many of them rubber dinghies that become dangerously unstable in high seas. No details were immediately available on their nationalities.

Data from the International Organization for Migration released on Friday said around 105,000 migrants had reached Italy by boat in 2016, many of them setting sail from Libya. An estimated 2,726 men, women and children have died over the same period trying to make the journey.

A Red Cross member carries a child as migrants disembark from the Italian

Navy vessel Sfinge in the Sicilian harbour of Pozzallo, southern Italy

The reason for the surge are favorable weather conditions, which this week have seen an increase in boats setting sail. Some 1,100 migrants were picked up on Sunday and 6,500 on Monday, in one of the largest influxes of refugees in a single day so far this year. Italy has been on the front line of Europe’s migrant crisis for three years, and more than 400,000 have successfully made the voyage to Italy from North Africa since the beginning of 2014, fleeing violence and poverty.  So far this year, some 116,000 migrants—many of them from sub-Saharan Africa—have arrived in Italy. That compares with 154,000 for all of 2015, a phenomenon overshadowed by the surge of migrants arriving in Greece via Turkey.

The closing of European borders to the migrants means that, unlike, in previous years, the vast majority are stuck in Italy, unable to reach Europe’s north as they had hoped. Italian reception centers now host 145,000 migrants, according to the interior ministry in Rome.

And while North African refugees are fleeing the chaos in their native lands by boat, hoping to reach Italy in a perilous voyage across the Mediterranean, Greece is once again the target of those refugees from Syria who find themselves in Turkey as an intermediate step.

According to the WSJ, the number of people landing on Greek islands has risen to about 100 a day in August, up from fewer than 50 a day in May and June. About 460 people landed on Greek islands on Monday, a number Greece hasn’t experienced since early April.

The traffic is still far below daily peaks of 6,800 in October last year. But the rising numbers are making Greek and EU officials worried that the fragile deal with Turkey—aimed at returning almost all who land on Greek shores—could break down.

It could get much worse: as we have reported over the past few months, as Turkish officials, angered by what they see as a lack of European support for Turkish democracy as Ankara roots out alleged supporters of July’s failed coup, have threatened to scuttle the migration deal if the EU doesn’t grant Turkish citizens visa-free travel to the bloc by October. Turkey says it was promised the concession.

“We cannot independently verify an uptick, but even if it were true it is related to the increasingly popular view among illegal immigrants that the Turkey-EU agreement is on the brink of collapse and that there will be no legal mechanism to return them to Turkey once they cross the Aegean Sea,” a senior Turkish official said. “If the European Union fails to honor its agreement with Turkey, no matter how strong the enforcement, there will be greater incentives for more migrants to risk their lives at sea.”

As we have further said, Turkey continues to have most of the leverage, something the WSJ confirms: “The tough talk from Turkey has alarmed Athens, which knows that any sharp increase in migration would mainly affect Greece. “We will be tested very hard if the agreement with Turkey collapses,” Greek Migration Minister Yiannis Mouzalas said this month.”

Greek officials say they suspect the recent uptick in migrant arrivals partly reflects a manpower issue: Numerous Turkish military and police personnel were suspended as part of the Turkish government’s postcoup crackdown. Turkey says it is assiduously keeping up its end of the migrant deal and that its security forces’ operational ability hasn’t been hampered in the wake of the coup attempt.


The closure of the Balkan migration route into the heart of Europe earlier this year has left nearly 60,000 refugees and other migrants trapped in Greece. Mr. Mouzalas said that if it weren’t for the deal with Turkey, which has slowed arrivals since March, 130,000 to 180,000 more people might be stuck in Greece.

Unlike in Italy, in smaller, poorer Greece, the numbers arriving on Aegean islands don’t need to reach 2015’s high levels to cause problems. The five islands that receive most of the newcomers—Lesbos, Leros, Chios, Kos and Samos—are already struggling.

Chios is currently sheltering about 3,300 migrants and refugees, three times its camp’s capacity. In the camp, built around an abandoned aluminum factory, migrants live in overcrowded containers with unsanitary conditions. Six to eight people, often from two different families, typically share a room designed for four. “We live like animals here,” says Wassim Omar, a 34-year-old English teacher from Syria, as he waits in the line for his family’s dinner of potatoes, olives and bread.

Many complain there isn’t enough food or access to doctors. Women say they and their children are afraid to leave their rooms after dark, as fights often break out among migrants of different nationalities.

Because of the overflow, many stranded on Chios are sleeping in two open camps closer to the island’s port. The razor fence around the official center also has holes in it, allowing people to walk in and out. Locals have complained of a surge in thefts and damage to their crops. To ease the situation on the islands, the Greek government will transfer a few hundred people to a new camp on the mainland, starting from Chios. Officials fear, though, that the move may encourage more people to come.

Vournous, the mayor, says he fears tensions between locals and migrants could easily escalate.

What is probably most vexing for the Greeks and the Italians, is that the influx of refugees was unleashed as a result of German, and specifically Angela Merkel, policies. However, as a result of border closures, Germany has largely succeeded in isolating itself from the refugee flow. The losers, once again, Europe’s poorest, peripheral nations.

via Tyler Durden

Three Hanjin Ships Stranded Off California Coast

Earlier today we reported that in an surprising and abrupt development, one which may lead to ripple effects on global supply-chains and worldwide “just-in-time” logistics, the biggest South Korean shipping company and the world’s 7th largest container shipper, Hanjin Shipping, filed for bankruptcy leaving its assets frozen as ports from China to Spain denied access to its vessels.


It did not take long for the fallout from this historic bankruptcy – the largest ever for a container shipper in terms of capacity –  to reach the US, because as Bloomberg reported moments ago, at least three Hanjin ships are currently stranded off the California coast.


While we await details on just how this asset “freeze” will be resolved, we wonder what is the cargo on these ships, where it was meant to be delivered to, and just how much US production will be bottlenecked as a result of missing key supply-chain components. And then, we extrapolate that to the dozens of Hanjin ships around the globe.

via Tyler Durden

Half of Corporate America losing BILLIONS in Forex for no reason

Here’s the big irony for the markets.  As we explain in Splitting Pennies book, Forex is the largest market in the world and the least understood.  Corporate America certainly doesn’t understand Forex.  Well, according to this report, about 50% do:

Forty-eight percent of nonfinancial companies listed on U.S. stock exchanges remained exposed to volatility in foreign exchange rates, commodity prices and interest rates in 2012 because they did not hedge them, according to a new study by Chatham Financial.  The interest-rate and currency risk adviser studied a sample of 1,075 companies ranging from $500 million to $20 billion in revenue. The nearly half that did not use financial instruments to hedge their exposures demurred despite the threat the risks posed to both the balance sheets and reported earnings (see chart at bottom). “That was surprising, knowing the pressure senior management teams and treasury feel around identifying ways to reduce risk to factors within their control so business can focus on other areas,”Amol Dhargalkar, managing director for corporate advisory at Chatham, says.

Many analysts have pointed to the fact that the new excuse of “Currency Headwinds” (accountant code word for “Don’t Understand Forex”) to define earnings in 2016:

Companies that do business outside of the USA have substantial forex exposure. This exposure can be an asset, if properly managed – but often it is a liability. Recently, the trend in corporate accounting has been to blame “currency headwinds” which can be a good excuse for up to $10 billion in losses. Did these executives ever hear about hedging?

So what does this data mean?  It means that half of Corporate America is speculating BIG in Forex.  Not hedging, when you have FX positions, is speculating.  For example, imagine you’re a big US multinational like McDonalds (MCD).  McDonalds (MCD) is a great example because they are one of the companies that lives off their FX hedges.  Without FX hedging, it’s questionable if MCD could survive, because more than 60% of their revenue comes from non-US Dollar (USD).  That means their revenue, without FX hedging, would be nearly an exact function of the FX markets (which is the case for these companies that don’t hedge).  Companies that lose billions of dollars due to ‘currency headwinds’ – they are losing huge in Forex.  

Here’s the irony.  Pension Funds and many institutions are reluctant to invest in Forex strategies because they are ‘risky’.  But they invest in the stock of companies that lose billions in Forex!  And that’s OK.  Well, everyone is losing, so why not us too.  Heck, I don’t want to be singled out as the one state pension fund that’s actually MAKING money for our retirees, that might cause me to get promoted, or lose my job.  

Why don’t these companies hedge you ask?  Isn’t it their fiduciary duty to their shareholders?  Here’s one perspective from PWC:

When a publicly held company engaged in a multi-billion dollar investment in an overseas location
recently, the firm considered using a hedge — or swap — contract to reduce the risk that a big currency
swing would impact costs and financial results. The plan was sound financially. Yet, management had
concerns about the reaction of investors to this approach and decided to drop the hedging plan, says
Chris Rhodes, accounting advisory services partner at PricewaterhouseCoopers (PwC).  Why? Because the CFO determined that,
although the hedge would protect all the cash
spent in the foreign jurisdiction against currency
exposure, the cost of capital — in this case
borrowing in external markets — “would be
negatively impacted by the inability of some
analysts to understand the reporting issues
involved,” Rhodes explains. “The concern is that,
although many analysts would immediately grasp
the sophisticated currency-hedging procedures
that were key to the plan, others might not.”

So you see, according to this perspective, CFOs understand Forex, but they understand that others such as analysts don’t understand, and think that there’s a negative perception problem, to closing a big gaping hole in their FX exposure.

One year in the 90’s, Intel Corporation made more money on their FX positions than they did selling processors.  Not all of Corporate America is completely stupid.  There are some savvy FX managers out there, that do a great job.  But for the other half, one has to wonder if FX volatility will finally drive these unhedged companies out of business.

Here’s what you see on every street corner in Russia:

At least, some humans are prepared for potential financial catastrophe, even if it’s as simple as FX volatility.

To learn more about Forex Hedging, checkout Splitting Pennies – your pocket guide designed to make you an instant Forex Genius!  Or checkout Fortress Capital Forex Hedging.

via globalintelhub

Donald Trump’s Mexico Day Trip and Immigration Policy Nightmare

Republican presidential nominee Donald Trump visited Mexico today, in a trip his campaign described as a “relationship builder,” before speaking at a rally in Phoenix in the evening, where he talked about his immigration plans, largely involving the border wall, deportations, and other police state measures. The speech was reportedly written by Stephen Bannon, formerly of, and Stephen Miller, a former aide to Sen. Jeff Sessions (R-Ala.) who has taken a hard-line on immigration.

In Arizona, Trump told the crowd that immigration reform meant “amnesty, open borders, lower wages” and that the “fundamental problem with the immigration system” was that “it serves the needs of wealthy donors, political activists, and powerful, powerful politicians.” At the rally, Trump painted a grim picture about immigrants overwhelming government services and contributing to higher crime rates (not true).

Trump also noted the attention paid to his immigration plans in recent weeks and said he’d make his plans clear to the crowd. “We will build a great wall along the southern border,” Trump said to great applause and chants of build the wall, “and Mexico will pay for the wall, 100 percent.” He said the wall would be “impenetrable, physical, tall, beautiful, southern border wall.”

Trump said his ten-point plan also included an end to “catch and release” (praising Dwight Eisenhower’s Operation Wetback) , “zero tolerance for criminal aliens,” two bills named after victims, hiring 5,000 new border patrol agents (the number of border patrol agents has doubled since 2004), President Obama did), establishing a deportation task force (“maybe they’ll be able to deport” Hillary Clinton, he said), ending the acceptance of refugees from Syria and the Middle East, stricter screenings, “ideological certification,” turning off “the jobs and benefits magnet,” and a litany of other severe measures that will require an expansion of government power and government spending. Trump insisted his plan would earn a “peace dividend” that could be spent on other government programs.

Earlier in the day, at a joint news conference with Mexico President Enrique Peña Nieto, Trump claimed he and Peña Nieto discussed the border wall but that “we didn’t discuss payment of the wall.” Peña Nieto tweeted afterward that he had made clear his position that Mexico would not pay for a wall across the U.S. border. The Trump campaign said the meeting was not a negotiation, which would have been “inappropriate.”

Trump and Sessions and Rudy Giuliani, former New York City mayor, met with Mexico President Enrique Peña Nieto for about an hour before the joint press conference. In Mexico City, Trump pointed to five “shared goals” that would increase “prosperity and happiness” in both countries: stopping illegal immigration to the U.S. and to Mexico, a secure border, which he called a “sovereign right and mutually beneficial,” dismantling drug cartels and “ending the movement of illegal drugs, weapons and funds across oru border,” which would require “cooperation, intelligence and intelligence sharing, and joint operations between our two countries,” improving the North American Free Trade Agreement (NAFTA), “a 22 year old agreement that must be updated to reflect the realities of today,” and keeping “manufacturing wealth” in the Western hemisphere.

Trump called the migrant routes from Central America to the U.S. a “humanitarian disaster” that had to be solved. “It must be solved, it must be solved quickly,” Trump said, “not fair to the people anywhere worldwide you could truly say, but certainly not fair to the people of Mexico or the people of the United States.” Deportations by the United States and by Mexico have gone up in recent years, with the Obama administration ordering more deportations as recently as this spring.

Trump, of course, didn’t mention ending the war on drugs, one of the surest ways to dismantle the drug cartels, as mainstream candidates in the U.S. and in Mexico by and large still do not, although he did say he would stop the flow of drugs into the country. The drug war is yet another significant exception to whatever conceit toward “non-interventionism” some of Trump’s supporters believes he has.

On NAFTA, Trump insisted that wages had been going down in the U.S. for 18 years, a popular refrain also on the anti-trade left. “Improving pay standards and working conditions will create better results for all, and all workers in particular,” Trump said of renegotiating NAFTA, “there’s a lot of value that can be created for both countries by working beautifully together, and that I am sure will happen.” Trump’s America first anti-trade stance took a hemisphere approach in Mexico, where Trump said the two countries had to “keep manufacturing wealth” in the hemisphere. “When jobs leave Mexico, the U.S. or Central America and go overseas, it increases poverty and pressure on social services as well as pressures on cross-border migration,” Trump argued. Since the passage of NAFTA, 25 million jobs were created in the U.S. and Mexico, and the economy has improved in other ways since the deal.

Peña Nieto said he had extended invitations to Trump and to Clinton. Clinton said she’d meet with the Mexican president at the “appropriate time.”

from Hit & Run