Upset that Bernie Sanders isn’t progressive enough, five animal rights protesters jumped over barricades and rushed the podium where Sanders was speaking yesterday during a rally in East Oakland, California.

The protesters were led away by several Secret Service agents before they were able to reach the Democrat, whose speech was briefly interrupted by the disturbance, according to several posted videos. One of the protesters appeared to be hit by one of the security member’s baton, while another was carried out of the venue by his arms and legs.

The group called Direct Action Everywhere has disrupted Sanders’ events previously, and has said that human oppression applies to animals too, and that they seek an endorsement of full “personhood” for all animals according to ABC News.

The activist group issued a statement saying that it hoped to persuade Sanders to take a tough stance against factory farms.”Bernie Sanders claims to support the ‘good’ farms,” activist Rachel Ziegler said in the statement. “But as our repeated investigations have shown, even the ‘good’ farms are horrific.”

Security quickly took care of the situation, and although a spokesman for the group claims one of its members was assaulted, Sanders’ campaign spokesman Michael Briggs said he thought security handled the situation “professionally.”

After the protesters had been cleared out, one literally carried, Sanders took to the mic and announced: “We don’t get intimidated easily“

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• Major Bourses on Course to End Month Sharply Higher (WSJ)
• Brent crude lower on strong Middle East oil output (Reuters)
• Treasuries Lose Their Lead Over Shares as Fed Moves Toward Shift (BBG)
• Lost Decade for Value Stocks Tests Faithful Who Say End is Nigh (BBG)
• Iraqi army pause at southern edge of Falluja as IS fights back (Reuters)
• Risky Reprise of Debt Binge Stars U.S. Companies Not Consumers (BBG)
• The Untold Story Behind Saudi Arabia’s 41-Year U.S. Debt Secret (BBG)
• Nuns With Guns: The Strange Day-to-Day Struggles Between Bankers and Regulators (WSJ)
• China to ‘pressure’ U.S. on maritime issues, paper says (Reuters)
• Lost Year in Nigeria Under Buhari Leaves Economy on Knees (BBG)
• HSBC Tightens Hong Kong Safe-Deposit Box Rules to Boost Defenses (BBG)
• When Bigger Isn’t Better: Banks Retreat From Global Ambitions (WSJ)
• Euro-Area Inflation Rate Stays Negative as ECB Mulls Outlook (BBG)
• It’s settled then: China Buying Sparks Bitcoin Surge (WSJ)
• Former Zurich Insurance CEO Martin Senn Commits Suicide (WSJ)
• Great Plains Energy to Buy Westar Energy for $8.6 Billion (WSJ)
• Donald Trump Soured on a Deal, and Hong Kong Partners Became Litigants (NYT)
• U.S. Chamber of Commerce hopes to keep the GOP from losing control of the Senate in November (WSJ)
• Dismay in oil Twitterverse upon popular U.S. crude trader’s exit (Reuters)

 

Overnight Media Digest

WSJ

– Martin Senn, former chief executive of Zurich Insurance Group AG who stepped aside in December, has killed himself, the company said – the second suicide by a one-time top manager at the company in the past few years. (http://on.wsj.com/1O0G7oU)

– Iraqi special forces advanced to the edge of Fallujah on Monday but struggled to enter the city, where Iraqi and U.S. officials said Islamic State extremists were amassing civilians to serve as human shields. (http://on.wsj.com/1O0GdwW)

– Jazz Pharmaceuticals PLC is nearing a deal to buy Celator Pharmaceuticals Inc for about $1.5 billion, a large premium for a company with a promising leukemia drug but no revenue. (http://on.wsj.com/1O0Ghww)

– Two unions representing more than 36,000 Verizon workers won concessions from the carrier in a new four-year contract, helping to end a nearly seven-week labor strike. (http://on.wsj.com/1O0Gvnh)

 

FT

British investment firm Alliance Trust Plc said on Monday it had received an informal merger approach from RIT Capital Partners Plc, which is chaired by financier Jacob Rothschild.

Hedge funds and investment banks are attempting to profit from UK’s European Union referendum on June 23 by commissioning private exit polls to find early voting patterns.

Members of the European Round Table of Industrialists warned of the negative consequences of Brexit, saying Europe was at a “fork in the road” and that an “unravelling” of EU’s single market and its rules would reduce prosperity, according to a letter sent to the Financial Times.

 

NYT

– Viacom’s directors vowed on Monday to fight any potential moves by the ailing media mogul Sumner Redstone and his daughter, Shari Redstone, to eject them from the company’s board. (http://nyti.ms/1XajnWZ)

– Verizon reached a series of tentative agreements with unions representing nearly 40,000 workers on strike, retreating on some of the major points of contention, including pension cuts and greater flexibility to outsource work. (http://nyti.ms/20QWghX)

– Martin Senn, the former chief executive of Zurich Insurance Group, has killed himself, the company said on Monday, citing information from his family. Senn had resigned in December, mentioning business “setbacks in recent months.” (http://nyti.ms/1XKWojC)

– After more than 1,100 deaths exposed dangerous labor conditions in Bangladesh in 2013, brands such as Walmart , H&M and Gap pledged to improve the safety of some of the country’s poorest workers. But human rights groups say that three years on, those promises are still unfulfilled. (http://nyti.ms/20QXSbp)

 

Canada

THE GLOBE AND MAIL

** The glowing outlook for the world’s airlines is beginning to dull a little amid data showing that international passenger traffic rose by just 4.6 percent in April, the slowest year-over-year pace since January, 2015. (bit.ly/1OXTlgU)

** A new court ruling on assisted death is raising questions about whether the Liberal government’s proposed law is constitutional, as the House of Commons prepares to vote Tuesday on a historic bill to legalize the practice. (bit.ly/1PeZ9rV)

** Ottawa is considering setting up a ‘super’ Security Intelligence Review Committee that would provide oversight to a number of federal security departments and agencies, Public Safety Minister Ralph Goodale says. (bit.ly/1UeSkT9)

NATIONAL POST

** As oilsands companies send crews back to the Fort McMurray region of Alberta and prepare to restart production following the devastating wildfires, the cumulative hit to the industry’s cash flow is expected to be in the billions of dollars. (bit.ly/1WuwhOF)

** Ontario’s concussion safety bill, “Rowan’s Law”, will likely be passed at Queen’s Park next week, just days before the provincial legislature ends its spring session. The law, named in honor of Rowan Stringer, a Barrhaven, Ontario, high school student who died after sustaining two closely spaced concussion while playing rugby, would be a first in Canada. (bit.ly/1UeTePq)

 

Britain

The Times

A third of bosses at Britain’s biggest public companies say they have spent up to 1 million pounds ($1.46 million) preparing for the consequences of leaving the European Union, according to a survey of senior board members at FTSE 350 companies. (http://bit.ly/1VrbvOV)

The French economy grew faster than expected in the first quarter, one of two favourable economic snapshots released on Monday from eurozone countries. There were also more favourable numbers on German inflation, indicating that the continent’s biggest economy is emerging from deflation, after a 0.3 percent decline in inflation in April. (http://bit.ly/1VrbMBm)

The Guardian

UK companies have become gloomier about their trading prospects and the economic outlook as the EU referendum approaches, according to Lloyds Bank’s latest barometer of business mood. (http://bit.ly/1Vr91jE)

The property tycoons and advisers who backed Dominic Chappell’s takeover of UK retailer BHS are set to face questions from MPs over their involvement with the department store chain. (http://bit.ly/1Vr9anc)

The Telegraph

Britain’s booming “gig” economy has caught the eye of private equity house Dunedin, which has bought a 33 million pounds stake in Tewksbury-based broker Kingsbridge. (http://bit.ly/1Vr9XEG)

Deloitte will promote a record number of women to the position of partner this year, as the firm’s diversity drive takes hold. The accounting and advisory giant will add 80 employees to its partnership ranks, of which 24 are women. (http://bit.ly/1VrashX)

Sky News

Some of London’s top fund managers are to plough tens of millions of pounds into Time Out, the media group, which will this week unveil plans for its own London listing. Neil Woodford, the prominent investor, is expected to acquire a significant stake in Time Out as part of a flotation that would value the company 185 million pounds to 225 million pounds. (http://bit.ly/1VraZ3s)

Former Zurich Insurance Chief Executive Martin Senn has committed suicide, just three years after the company’s then chief financial officer also took his own life. (http://bit.ly/1Vrbn1S)

The Independent

The Bank of England has said plastic banknotes set to come into circulation later this year may suffer from a design flaw – they could stick together. (http://ind.pn/1VrbomD)

 

 

 

 

 

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After yesterday’s US and UK market holidays which resulted in a session of unchanged global stocks, US futures are largely where they left off Friday, up fractionally, and just under 2,100. Bonds fell as the Federal Reserve moves closer to raising interest rates amid signs inflation is picking up. Oil headed for its longest run of monthly gains in five years, while stocks declined in Europe.

Treasuries retreated in the first full day of trading since Yellen said late Friday that the improving economy meant a rate increase would probably be in order “in the coming months.” European shares dropped for the first time in six days as Volkswagen AG led carmakers lower after reporting a slide in profit at its namesake brand. In China, stocks climbed even after a flash crash in index futures with the Shanghai gauge jumping the most in almost three months. Gold rose for the first time in 10 days.

The recent monthly outperformance of TSYs over stocks is shown below.

Boosting expectations that the Fed may hike over the next few months is confirmation that the data are beating analysts’ forecasts by the most in about 16 months, according to the Bloomberg ECO U.S. Surprise Index.

The Fed’s rate outlook is occupying investors as futures show odds of a hike in July at more than 50 percent while gains in commodity prices from crude to crops bolster prospects for inflation. With officials emphasizing policy tightening is dependent on economic improvement, investors will be scrutinizing payrolls and personal income data due this week.

“The payroll data is probably the key figure that will shape the Fed decision,” said Otto Waser, chief investment officer of R&A Group Research & Asset Management in Zurich. “If the payroll data is weaker than what is now expected, it will raise the chance they won’t hike.” This is an all too real probability, because as we reported yesterday, as a result of the Verizon strike which even the BLS has noticed, the consensus print of +160,000 may be trimmed by as much as 35,000 jobs.

The potential for higher U.S. yields helped send a gauge of the dollar versus major peers to its biggest monthly gain since September 2014. “Yellen’s speech Friday afternoon was the key focus and people had the long weekend to ponder,” said Veronika Pechlaner, who helps oversee $10 billion at Ashburton Investments, part of FirstRand Group. “It would be a positive sign if we could stabilize and keep these levels, but we’ll see whether people take money off the table ahead of rate action. The market sold off after the last rate hike and we’re not in a much stronger position this time. That said, 25 basis points shouldn’t really do much.”

U.S. stock-index futures were little changed before data that may indicate how ready the economy is for higher interest rates that could come as soon as next month. Celator Pharmaceuticals Inc. soared 73 percent in early New York trading after agreeing to a $1.5 billion takeover offer from Jazz Pharmaceuticals Plc. Frontline Ltd. jumped 1.7 percent after the oil-tanker company posted better-than-estimated first-quarter net income.

Contracts on the S&P 500 expiring in June rose less than 0.1 percent to 2,098.25 at 6:04 a.m. in New York. The benchmark equity index advanced Friday, capping its best week since March. Dow Jones Industrial Average futures added 26 points, or 0.2 percent, to 17,875 today. U.S. markets were closed on Monday for the Memorial Day holiday.

Market Wrap

• S&P 500 futures up less than 0.1% to 2097.75
• Stoxx 600 down 0.2% to 350
• FTSE 100 down 0.2% to 6260
• DAX down 0.3% to 10306
• S&P GSCI Index up less than 0.1% to 372
• MSCI Asia Pacific up 0.7% to 129
• Nikkei 225 up 1% to 17235
• Hang Seng up 0.9% to 20815
• Shanghai Composite up 3.3% to 2917
• S&P/ASX 200 down 0.5% to 5379
• US 10-yr yield up 2bps to 1.87%
• German 10Yr yield up less than 1bp to 0.18%
• Italian 10Yr yield up 2bps to 1.38%
• Spanish 10Yr yield up 1bp to 1.5%
• Dollar Index up 0.25% to 95.76
• WTI Crude futures up 0.2% to $49.45
• Brent Futures down 0.7% to $49.43
• Gold spot up 0.5% to $1,211
• Silver spot up 0.6% to $16.09

Top Global News

• Verizon and Unions Reach an Agreement on Contract Ending Strike: 39,000 landline workers return to jobs Wednesday; 1,300 new call-center jobs, 70 wireless employees part of pact
• U.S. Treasury Eyes Deutsche Bank in Auction Probe: New York Post; Deutsche Bank emerged as a focus of a probe into whether traders rigged auctions for U.S. government debt, NYP reports
• Euro-Area Inflation Rate Remains Negative as ECB Ponders Outlook: consumer prices fell 0.1% in May, in line with median estimate
• Volkswagen’s Emissions Cheating Hits Profit at Biggest Brand: profit at Volkswagen brand dropped 86% in 1Q; co. plans to unveil strategy through 2025 next month
• TransDigm Group to Replace Baxalta in S&P 500: TransDigm to enter S&P 500 after close of trading June 2
• Viacom Directors Vow to Fight Any Board Removals, Leader Says: independent directors will contest any possible effort by founder Sumner Redstone to remove board members from co.
• Apple Likely to Take 3 Yrs Between iPhone Model Changes: Nikkei; Apple will likely take 3 years between full-model changes of its iPhone devices, Nikkei reports
• Toyota Seen Close to Buying Google’s Boston Dynamics: Tech Insider; Toyota is closing in on a deal to acquire Google robotics division Boston Dynamics, Tech Insider reports
• CIT Group Said to Start Commercial Air Unit Sale: Reuters; co. started sale of aircraft leasing assets by inviting more than dozen entities to consider bidding, Reuters reports
• Bayer May Table Improved Monsanto Bid This Week: Sunday Times; improved proposal likely as early as this week after weekend meetings of Bayer’s top bosses, Sunday Times reports
• “X-Men” Outdraws “Alice” Sequel as Fox Film Tops Disney’s: “X-Men: Apocalypse” led the North American box office this weekend

Looking at regional markets, Asia stocks recovered from early losses to trade mostly higher with optimism in Chinese markets bolstering sentiment. Nikkei 225 (+1.0%) shrugged off discouraging Industrial Production data as JPY weakness underpinned exporters, while ASX 200 (-0.5%) underperformed following weakness in energy and retail names. China spearheaded the region’s ascent with both the Hang Seng (+0.9%) and Shanghai Comp (+3.3%) ignored a 12% flash crash in CSI-300 futures, edging firm on gains with financials underpinned after the PBoC upped its liquidity injection and reports Bank of China is to realise a HKD 30Bn profit from sale of one of its units, while prospects of MSCI inclusion further adding to the upbeat tone. 10yr JGBs traded flat despite the risk-on sentiment in the region and a than 2 year JGB auction with a better than prior b/c.

Asia Top News

• Hong Kong Property Seen Enduring Deep Slump Before Curbs Go: Prices may need to plunge 19% before easing, analysts estimate
• Scientist Turned Hedge Fund Founder Cuts Profitable Aussie Short: AE Capital gained about 6% in first four months of 2016
• Aso Falls Into Line With Supporters of Japan Tax-Hike Delay: Finance minister’s backing of postponement is about-face
• 1MDB Scandal Strains World’s Longest Bull Run as Selloff Deepens: Stock suffered biggest outflow of foreign funds in eight months
• One-Minute Plunge Sends Chinese Stock Futures Down by 10% Limit: Unexplained drop follows similar move in Hong Kong this month

European equities trade lower this morning with the Euro Stoxx 50 (-0.3%) modestly in the red after failing to take the impetus from the positive Asia-Pacific session with some participants eyeing the possibility of a nearing Fed rate hike. In terms of stock specific developments, the DAX has been hampered by weakness in auto names led by Volkswagen (-2.7%) after their earnings report showed profits declined 20%.  Additionally, some of the downside in equities has also been attributed to the slip in crude prices with Brent briefly dipping below USD 50.00/bbl.
Despite modest risk-averse sentiment, Bunds were initially under pressure with some desks noting stops being tripped at through yesterday’s low at 163.53, however German paper staged somewhat of a pull back to trade relatively flat as equities failed to make any substantial recovery. Also of note, periphery bonds have underperformed with Portuguese bonds yet again at the forefront.

European Top News

• Alliance Trust Says Rothschild’s RIT Made Informal Approach: Alliance Trust says not certain transaction will take place; approach comes as Alliance Trust conducts strategic review
• German Unemployment Rate Falls to Record Low Before ECB Meeting: number of jobless fell by 11,000 in May vs est. 5,000; unemployment rate drops to 6.1%, lowest since reunification
• Rosatom Aims for 20% of U.S. Nuclear Fuel Supply After GE Deal:

In FX, The yen was little changed at 111.07 per dollar. The dollar took a breather, with the Bloomberg Dollar Spot Index, a gauge of the greenback against 10 major peers, also little changed. The index is still up 3.6 percent in May, after retreating over the previous three months, leading to two consecutive devaluations in the Yuan that sent it to lows not seen since February 2011. Cable has seen a bout of softness against some of its major counterparts with some desks touting month-end flows in EUR/GBP as a catalyst. Subsequently, GBP/USD made a firm break below 1.4600 and yesterday’s low residing at 1.4592. Elsewhere, the USD gained some ground against its major counterparts in early trade before stabilising heading into the North American crossover with some desks noting that potential month-end flows could lead to USD selling by foreign investors in order to re-balance their books. AUD continues to remain supported as participants digest the overnight slew of upbeat data points from Australia which has dampened some expectations for further immediate reaction by the RBA. Elsewhere, EUR remains relatively unfazed by the latest Eurozone CPI report which saw a modest pick-up in inflation as forecast by analysts.

In commodities, West Texas Intermediate crude was up 0.3 percent from Friday’s close in the U.S., to $49.49 a barrel, as traders await Thursday’s meeting of OPEC suppliers. WTI has climbed 7.8 percent in May, its fourth straight monthly advance and the longest stretch of gains since 2011. Militant attacks have cut Nigerian oil supply to the lowest level in more than two decades while Canadian output is still stabilizing after sliding amid wildfires. Libya’s Petroleum Facilities Guard captured a town near the Es Sider and Ras Lanuf oil-loading terminals after fierce clashes with Islamic State militants. Soybeans were set for a third monthly gain amid speculation that reduced supply from South America will spur increased demand from the U.S. Soybeans for July rose 0.3 percent to $10.89 3/4 a bushel on the Chicago Board of Trade. The contract is up 5.8 percent this month and 26 percent this year. Raw sugar for July advances to highest since November 2014 amid congestion at ports in Brazil, the world’s biggest sugar grower and producer. Sugar futures rose 0.5 percent in the fourth straight day of gains on ICE Futures U.S. in New York. Gold for immediate delivery jumped 0.5 percent to $1,210.93 an ounce, after sliding almost 6 percent over the previous nine days as the prospect of a U.S. rate hike diminished the precious metal’s appeal. Copper declined 0.9 percent and lead was down 0.5 percent as the London Metals Exchange started trading for the week, while nickel surged 1 percent.

On today’s busy US economic calendar, the April core and deflator PCE’s as well as personal spending and income data are all due. There will be more regional manufacturing data in the form of the Chicago and Dallas Fed reports, while the S&P/Case-Shiller house price index is also set to be released. Consumer confidence for May is also released.

Bulletin Headline Summary from RanSquawk and Bloomberg

• European equities enter the North American crossover in modest negative territory as softness in auto names and Fed-speculation guides price action
• EUR/GBP has been supported throughout the morning alongside touted month-end demand while AUD trades higher in the wake of upbeat domestic data
• Looking ahead, highlights include US Personal Income, PCE, Chicago PM! and Canadian GDP
• Treasuries lower in overnight trading as Yellen comments concern investors, global equities mostly lower, precious metals rally; home prices and PCE core today kick off this week’s busy economic calendar.
• Euro-area consumer prices fell 0.1% in May from a year earlier, the fourth consecutive month without an increase, highlighting policy makers’ struggle to stoke inflation despite multiple rounds of stimulus
• The ECB will keep using all instruments at its disposal to counter the risk of low inflation in the euro region, Governing Council member Ignazio Visco said
• German unemployment declined more than economists estimated, pushing the jobless rate to the lowest level since reunification. The number of people out of work fell by a seasonally adjusted 11,000 to 2.695 million in May
• Italy’s unemployment rate rose to 11.7% in April from a revised 11.5% in March amid weakening business and household expectations for recovery in the euro region’s third-biggest economy
• Chinese residents pumped a record amount of money into Hong Kong insurance in the first quarter even as the mainland government tightened restrictions on the purchases, which serve as a popular tool for skirting the nation’s capital controls
• Chinese corporate local bond sales only just exceeded maturities this month, providing a narrow escape for many companies that are relying on selling new debt to pay off old liabilities
• Australian lending to businesses is growing at the quickest pace since the global financial crisis, loans to companies climbed 7.4% in April from a year earlier, the most since January 2009, according to the Reserve Bank of Australia
• Deutsche Bank AG has emerged as a focus of a probe into whether traders rigged auctions for U.S. government debt, the New York Post reported, citing unidentified people familiar with the matter
• Sovereign 10Y yields mixed; European, Asian equities mostly lower; U.S. equity-index futures rise; WTI crude oil, precious metals rally

 

US Event Calendar

• 8:30am: Personal Income, April, est. 0.4% (prior 0.4%)
  • Personal Spending, April, est. 0.7% (prior 0.1%)
  • Real Personal Spending, est. 0.4% (prior 0%)
  • PCE Deflator m/m, April, est. 0.3% (prior 0.1%)
  • PCE Deflator y/y, April, est. 1.1% (prior 0.8%)
  • PCE Core m/m, April, est. 0.2% (prior 0.1%)
  • PCE Core y/y, April, est. 1.6% (prior 1.6%)
• 9am: S&P/Case-Shiller US HPI m/m SA, March (prior 0.41%)
• 9:45am: Chicago Purchasing Manager, May, est. 50.5 (prior 50.4)
• 10am: Consumer Confidence Index, May, est. 96.3 (prior 94.2)
• 10:30am: Dallas Fed Mfg Activity, May, est. -8 (prior -13.9)

DB’s Jim Reid concludes the overnight event summary

Enjoy the last day of May. My advice for today is to get rid of all your overdue admin, do your pending compliance training, sort out your expenses, have morale boosting chats with your team mates, finalise that summer holiday and then get home at a decent time tonight and sleep well. June is set to be a very busy month with (in no particular order) the ECB starting to buy corporate bonds and holding a meeting this Thursday, an increasingly important FOMC meeting (June 15th), an under pressure BoJ meeting (June 16th), a Spanish election, results of the 1st new TLTRO auction, and the ‘Brexit’ referendum. There’s also an OPEC meeting to throw in which could always spark a surprise.

Outside of Brexit, the Fed are perhaps the biggest focal point at the moment. For those who missed it due to the holiday weekend, Yellen’s speech on Friday at Harvard University reaffirmed much of the chatter from her colleagues in recent weeks in that a rate hike ‘in the coming months’ is likely to be appropriate. Yesterday saw the St Louis Fed President Bullard, a notable hawk, add that in his view ‘markets are well prepared for a possible rate increase globally’. Bullard also added that that he doesn’t think that a change in the White House either way will affect the Fed’s policy. Given the holidays in the US and the UK yesterday, price action was largely dominated by currencies, rates and commodities. Indeed the most notable of that bunch was another leg lower for Gold after the precious metal ended -0.61% on the day and so extended its run of losses now to nine consecutive sessions. That’s the joint longest such run since March last year with the precious metal down just shy of 6% in that time. In fact since touching a 15-month high at the end of April, Gold has now tumbled 7% off those highs or about $90/oz with a significant re-pricing of interest rate expectations at the epicentre of that.

Over in FX markets, emerging market currencies were most under pressure in yesterday’s session while the USD index was a touch firmer. The Greenback did break through ¥111 versus the Yen however (which closed -0.73% weaker) following those sales tax delay reports in the Japanese press over the weekend. Treasury futures markets were open meanwhile with the 10y yield closing up just over 3bps higher on the day in reaction to Yellen’s comments. European sovereign bond markets finished with similar moves with 10y Bunds up 3bps by the close at 0.166% although they have in effect just hovered around current levels for nearly a month now.

Elsewhere, European equity markets managed to eke out some small gains albeit with volumes some 50% or so below the usual daily average. The Stoxx 600 finished +0.14%. That means that European equities are on a five-day winning streak now (the joint longest this year) with some improvement in the latest Euro area confidence indicators helping yesterday.

More on that data shortly but now switching over to the latest in Asia this morning where it appears that the bulk of the regional benchmarks are set to finish the month on a high. Indeed its Chinese equities markets which appear to have taken the bull by its horns this morning with the Shanghai Comp and CSI 300 +2.62% and +2.43% respectively. It’s not entirely obvious what’s fuelling that although financial stocks are leading the way with Bloomberg attributing that to a suggestion that MSCI Inc may include yuan-denominated shares in its global benchmark indices as soon as next month. Meanwhile, the Nikkei (+0.78%) is also up and the Yen is little changed after Japan reported a better than expected industrial production reading for April (+0.3% mom vs. -1.5% expected), with the impact from the earthquake mid-through the month less than feared. Elsewhere the Hang Seng is +1.24% and Kospi is +0.54%. Only the ASX (-0.10%) is in the red. US equity index futures are showing moderate gains at the moment while Oil markets are hovering around the $49.50/bbl mark.

Moving on. We wanted to highlight the latest piece from our European equity strategy team where they focus on five key questions they have been discussing with clients over the past weeks – the oil price, the Chinese CNY, the impact of the Brexit referendum, the scope for a rebound in earnings and the outlook for value stocks. A couple of the main highlights are; a) the degree to which the oil price has decoupled from the dollar since the beginning of the month (a linear regression between the USD and the oil price over the past five years would suggest a fair-value oil price of $39/bbl, following the 3% rise in the broad USD TWI, some 20% below current levels). Is the oil price starting to decouple from the dollar?, and b) The CNY has stealthily depreciated by 1.6% against the USD from its April peak, the same depreciation as during the January devaluation episode which shocked asset prices. Intriguingly, European equities have tracked the CNY/USD pretty closely over the past year – but have not yet reacted to the latest move lower in the Chinese currency, pointing to some downside risk for their market.

Staying in Europe and running through the data yesterday in the region. Encouraging was the latest reading for the European Commission’s economic sentiment index which rose 0.7pts in May to 104.7 (vs. 104.4 expected) which puts the index at its best reading since January. Elsewhere the consumer confidence reading for the Euro area was confirmed at -7 for May, while over in Germany the headline CPI figure for May printed in line with expectations at +0.3% mom. That’s had the effect of lifting the YoY rate to +0.1%, an increase of two-tenths. The other data was out of France where the preliminary Q1 GDP report came in a little better than expected at +0.6% qoq (vs. +0.5% expected).

Before we wrap up, one last report of interest yesterday was out of Greece where Greek press are reporting that a disagreement between Athens and its Creditors over the implementation of certain reforms could see a delay in the disbursement of the first tranche of bailout funds. Indeed Ekathimerini is suggesting that Finance Minister Tsakalotos was said to have informed European Commission representatives and also the IMF last week that certain demands could not be fulfilled, referring specifically to a privatisation of the country’s grid operation and freezing the wages of some essential services including the coast guard and police. The article goes on to say that the government may submit its own amendments at some stage tomorrow to Parliament with a Euro Working Group meeting scheduled for Thursday. One to keep an eye on.

With the holiday’s on both sides of the Atlantic yesterday, this morning we’re republishing most of our week ahead recap from yesterday’s EMR. This morning in Europe we start in France with CPI and PPI reports, before we then get German unemployment data and the May CPI report for the Euro area (headline -0.1% yoy reading expected). Euro area money supply data and the unemployment rate will also be released this morning. Over in the US this afternoon it’s set to be a busy session for data. The April core and deflator PCE’s as well as personal spending and income data are all due. There will more regional manufacturing data in the form of the Chicago and Dallas Fed reports, while the S&P/Case-Shiller house price index is also set to be released. Consumer confidence for May is also released in the afternoon. It’s all eyes on China on Wednesday morning with the official manufacturing and non-manufacturing PMI’s for May due out, while in Japan the latest capital spending and company profits numbers are set to be released. In Europe on Wednesday we’ll get the final manufacturing PMI’s for May as well as a first look at those in the periphery, while in the UK mortgage approvals and money and credit aggregates are set to be released. In the US on Wednesday the big focus will be on the ISM manufacturing and new orders figures where the former is expected to decline 0.4pts to 50.4. Construction spending, the final manufacturing PMI revision, vehicles sales for May and the Fed’s Beige Book are also due out. Thursday morning starts in Europe with the latest Euro area PPI data. That’s before the ECB meeting at midday while over in the US we’ll get the ADP employment change print, initial jobless claims and the ISM NY. We close the week on Friday in Asia with a wrap up of the non-official May PMI’s in China and Japan. The European session will also see the final revisions to the services and composite PMI’s (as well as first looks at the periphery) while Euro area retail sales is also due out. Over in the US on Friday afternoon the big focus will be on the May employment report including nonfarm payrolls. As well as that we’ll also get the final revisions to durable and capital goods orders, factory orders and the ISM services print (expected to nudge down 0.3pts to 55.4).

Along with a busy week of data, we’ll also hear comments from the Fed’s Powell and Kaplan on Thursday, as well as Evans and Brainard on Friday. There’s little in the way of chatter out of the ECB this week aside from Draghi’s press conference post ECB. Before we wrap up, the one last event to keep an eye on is this Thursday’s OPEC meeting in Vienna which – while expectations are relatively low for any sort of production freeze – could still be a market sensitive event depending on how much of an additional insight on global production we get.

 

via http://ift.tt/1WWc0Sf Tyler Durden

 

 

 

 

 

 

 

 

 

 

Higher Wages For The Workers Help EVERYONE

Written by Jeff Nielson (CLICK FOR ORIGINAL)

 

 

 

Much of what is known as “economic theory” is gibberish. It is propaganda, implanted into the minds of academics for one reason: to preserve the status quo of always favoring the (very) wealthy over all other members of the population. The facets of economic doctrine which are valid, are valid because they do little more than express principles of simple arithmetic and common sense.

“Supply and demand” is just simple arithmetic and common sense. If supply exceeds demand (i.e. there is a surplus), the price falls. This depresses supply and stimulates demand, until equilibrium is restored. If demand exceeds supply (i.e. there is a deficit), the price rises. This stimulates supply and depresses demand, until equilibrium is restored.

Similarly, the principle of economics known as the Marginal Propensity to Consume, is nothing more than an expression of simple arithmetic and common sense. Put a dollar into the hands of a poor person, and that person will spend the entire dollar, providing maximum stimulus to the economy. That’s not a “theory.” It is an elementary fact.

Put a dollar into the hands of a middle class person (the few who remain), and that person will spend most of the dollar, and save a small portion of it. Again, this is not a “theory.” It is an elementary fact. Put a dollar into the hands of a wealthy person, and that person will hoard the vast majority of that dollar. The wealthier the person, the greater the percentage that is hoarded.

Thus economic theory tells us that the more-equitably that wealth is distributed in any economy (and society) the stronger and more prosperous that economy will become. The last century of empirical evidence shows us precisely the same thing. In the 1960’s; wealth was distributed in our societies more equitably than at any other time in our history. In the 1960’s, our economies were more prosperous than at any other time in our history.

Today, wealth is distributed less equitably than at any time in our history, i.e. the oligarchs at the very top, are hoarding a greater percentage of wealth than at any time in our history. Our economies are bankrupt. (Real) unemployment is at record levels. The middle class has almost been wiped out, and individually, we are drowning in more debt than at any other time. And this is how things look as the Next Crash looms before us.

When was the only other time in history when our economies were in almost this horrific a condition? During the Great Depression. The Great Depression is the only other time in our history when wealth was concentrated almost as extremely and inequitably as it is today.

This is nothing more than a manifestation of common sense. We have “capitalist economies.” What happens when a tiny minority of people hoard most of the wealth, and thus this “capital” ceases to circulate in the economy? The economy begins to starve to death, i.e. there is a Depression. The evidence could not be more obvious.

 

 

More and more and more wealth is hoarded by the Top 0.1%. Less and less and less capital circulates in our capitalist economies. What is the only way to restore any semblance of health to our economies after we initiate Debt Jubilee)? By increasing the percentage of wealth in the hands of the people, and reducing the percentage being uselessly hoarded by the oligarchs.

In the United States; the Top 0.1% is hoarding as much total wealth as the bottom-90% combined. Obviously this tiny group of people didn’t earn (roughly) 90% of all wealth. They stole it. The easiest way to liberate this stolen wealth is via taxation.

The easiest way to put more dollars into the hands of the people is a two-stage process:

1.  Create jobs for everyone, instead of structuring the economy so that 20+% of the population are not allowed to work.
2. Pay the people fair wages.

 

In real dollars, wages for the Average Person have been declining for nearly 50 years. Consequently, our standard of living has fallen by well over 50%. Yet despite all of these indisputable facts, there is still a large community of Neanderthals who insist that paying people a livable wage (rather than a slave wage) would destroy our economies.

“It’s going to cause a job loss across the country like you’re not going to believe.”

What was the context for this dire prediction? These were the words of a McDonalds executive, predicting the End of the World, should McDonalds employees ever be paid a livable wage of $15/hour (USD). Let’s explicitly expand upon the reasoning behind this fear-mongering.

1.  If McDonalds was forced to pay its workers $15/hour (due to a mandatory minimum wage) it would have to raise prices.
   
2. If McDonalds raised its prices, people would stop buying its food, sales would fall, and the (fairly paid) workers would lose their jobs.
   

 

Why would McDonalds’ sales fall dramatically, if it raised its prices? Because the United States is (like Canada) a minimum wage economy: the land of the Working Poor. If McDonalds paid its workers fairly (so goes the logic), the rest of the Working Poor could no longer afford to shop there.

Wrong.

If all of the Working Poor were being paid $15/hour (USD) instead of the current minimum wage of $7.25/hour, all of the slaves would have more than twice as much money in their pockets. If everyone was paid a livable wage, no one would lose their jobs because of higher prices.

Note the other argument of the McDonalds Neanderthal:

“It’s cheaper to buy a robot than hire at $15/hour.”

Yes. Why don’t all the Slave Masters replace all their slaves with automation, instead of paying those slaves a livable wage? And once all of the slaves have been replaced with “robots”, who will buy McDonalds hamburgers? The robots? Indeed, with McDonalds’ sales already spiraling downward, if they ever did pay their workers a livable wage, it could be the basis for a new advertising campaign: buy McDonalds “fair-wage burgers..”

We don’t need to view this issue hypothetically, when we have a real-life example of (relative) enlightenment: Switzerland. In Switzerland, a referendum was held to seek to raise the minimum wage to the equivalent of $25/hour (USD). According to people like the McDonalds Neanderthal, if a $15/hour minimum wage would cause job losses “like you’re not going to believe” then a $25/hour minimum wage would be nothing less than economic Armageddon.

In fact, the referendum was defeated. However, of greater relevance is the fact that even if the referendum had passed, almost nothing would have changed in Switzerland’s economy. In Switzerland, 90% of the workers already make more than $25/hour (USD). Is Switzerland’s economy collapsing, because its workers are being “overpaid”? No. Switzerland has one of the only healthy economies in the Western world.

High wages (for the workers) = prosperity.

This was an empirical fact with our own economies, a half-century ago. It is an empirical fact with Switzerland today. Simple arithmetic and common sense tell us that fair wages for the workers must lead to greater economic prosperity, for everyone. All of our economic empirical evidence shows precisely the same thing. As our economies become more-equitable, they become stronger and stronger. As our economies become less-equitable, they get weaker and weaker.

For those who choose to ignore simple arithmetic and common sense, and for those who choose to ignore 100 years of empirical evidence, we have the IMF.

IMF study finds inequality is damaging to economic growth.

Simple arithmetic. Common sense. Empirical evidence. Economic studies. Still not convinced that greater wealth equality helps everyone? How about these words of wisdom?

An imbalance between rich and poor is the oldest and most fatal ailment of all Republics.

Who uttered those words? Were they from one of the authors of the IMF study? No. Those were the words of Plutarch, a Greek philosopher who lived 2,000 years ago. Two thousand years ago; it was already “old news” that the fastest/easiest way to destroy the economy of any nation is to allow the wealthy to steal-and-hoard most of the wealth.

Apparently, we haven’t learned much in 2,000 years.

 

 

 

 

Please email with any questions about this article or precious metals HERE

 

 

 

 

 

 

 

Higher Wages For The Workers Help EVERYONE

Written by Jeff Nielson (CLICK FOR ORIGINAL)

via http://ift.tt/1XLsXxY Sprott Money

Submitted by Michael Snyder via The End of The American Dream blog,

Starting on June 7th, FEMA will be conducting a large scale drill that has been named “Cascadia Rising” that will simulate the effects of a magnitude 9.0 earthquake along the Cascadia Subduction Zone and an accompanying west coast tsunami dozens of feet tall. According to the official flyer for the event, more than “50 counties, plus major cities, tribal nations, state and federal agencies, private sector businesses, and non-governmental organizations across three states – Washington, Oregon, and Idaho – will be participating”.  In addition to “Cascadia Rising”, U.S. Northern Command will be holding five other exercises simultaneously.  According to the final draft of the Cascadia Rising drill plan, those five exercises are entitled “Ardent Sentry 2016″, “Vigilant Guard”, “Special Focus Exercise”, “Turbo Challenge” and “Joint Logistics Over-The-Shore”. 

The primary scenario that of all of these participants will be focusing on will be one that involves a magnitude 9.0 earthquake along the Cascadia Subduction Zone followed by a giant tsunami that could displace up to a million people from northern California to southern Canada.

 

We have never seen such a disaster before in all of U.S. history.

Do they know something that the rest of us do not?

It is funny that they are preparing to deal with the effects of a magnitude 9.0 earthquake along the Cascadia Subduction Zone, because that is precisely the size of earthquake that I warned about in an article back in March.

The San Andreas Fault in southern California gets more headlines, but the Cascadia Subduction Zone is a much larger threat by far.  This fault zone is where the Juan de Fuca plate meets the North American plate, and it stretches approximately 700 miles from northern Vancouver Island all the way down to northern California.

If a magnitude 9.0 earthquake were to strike, the immense shaking and subsequent tsunami would cause damage on a scale that is hard to even imagine right now.  Perhaps this is why FEMA feels such a need to get prepared for this type of disaster, because the experts assure us that it is most definitely coming someday.  The following comes from the official website of the “Cascadia Rising” exercise…

A 9.0 magnitude earthquake along the Cascadia Subduction Zone (CSZ) and the resulting tsunami is the most complex disaster scenario that emergency management and public safety officials in the Pacific Northwest could face. Cascadia Rising is an exercise to address that disaster.

 

June 7-10, 2016 Emergency Operations and Coordination Centers (EOC/ECCs) at all levels of government and the private sector will activate to conduct a simulated field response operation within their jurisdictions and with neighboring communities, state EOCs, FEMA, and major military commands.

If you don’t think that the scenario that they are studying is realistic, perhaps you should consider the fact that the largest earthquake in the history of the continental United States stuck along the Cascadia Subduction Zone back in 1700.  The following comes from CNN…

In fact, “the Cascadia” already has made history, causing the largest earthquake in the continental United States on January 26, 1700. That’s when the Cascadia unleashed one of the world’s biggest quakes, causing a tsunami so big that it rampaged across the Pacific and damaged coastal villages in Japan.

Yes, we all remember the big Hollywood blockbuster about the San Andreas fault.  But if they wanted to be more realistic, they should have made the movie about the Cascadia Subduction Zone.  According to a professor of geophysics at Oregon State University, the Cascadia Subduction Zone has the potential to create an earthquake “almost 30 times more energetic” than anything the San Andreas Fault can produce…

Everyone knows the Cascadia’s cousin in California: the San Andreas Fault. It gets all the scary glamor, with even a movie this year, “San Andreas,” dramatizing an apocalypse in the western U.S.

 

Truth is, the San Andreas is a lightweight compared with the Cascadia.

 

The Cascadia can deliver a quake that’s many times stronger — plus a tsunami.

 

“Cascadia can make an earthquake almost 30 times more energetic than the San Andreas to start with, and then it generates a tsunami at the same time, which the side-by-side motion of the San Andreas can’t do,” said Chris Goldfinger, a professor of geophysics at Oregon State University.

And the kind of tsunami that would be created by such a massive quake along the Cascadia Subduction Zone would absolutely dwarf the massive tsunami that struck Japan back in 2011.  In fact, an article in the New Yorker quoted the head of the FEMA division that oversees Oregon, Washington, Idaho and Alaska as saying that “everything west of Interstate 5 will be toast”…

If the entire zone gives way at once, an event that seismologists call a full-margin rupture, the magnitude will be somewhere between 8.7 and 9.2. That’s the very big one.

 

…By the time the shaking has ceased and the tsunami has receded, the region will be unrecognizable. Kenneth Murphy, who directs FEMA’s Region X, the division responsible for Oregon, Washington, Idaho, and Alaska, says, “Our operating assumption is that everything west of Interstate 5 will be toast.”

 

In the Pacific Northwest, everything west of Interstate 5 covers some hundred and forty thousand square miles, including Seattle, Tacoma, Portland, Eugene, Salem (the capital city of Oregon), Olympia (the capital of Washington), and some seven million people.

We live at a time when the crust of our planet is becoming increasingly unstable.  

All over the world the Ring of Fire is roaring to life, and the Cascadia Subduction Zone lies directly along the Ring of Fire.  Just last week, I wrote about the alarming earthquake swarms that we have seen directly under Mt. Rainier, Mt. Hood and Mt. St. Helens, and now we have learned that FEMA is about to hold a major drill that is going to simulate a magnitude 9.0 earthquake along the Cascadia Subduction Zone and an accompanying west coast tsunami dozens of feet in height.

Of course most Americans aren’t concerned about this threat at all.

Most Americans just assume that life will continue to go on normally just as it always has.

But I happen to agree with the experts that are promising us that an absolutely massive earthquake along the Cascadia Subduction Zone will strike someday, and when that happens life in America will be permanently altered.

via http://ift.tt/1O0VYDU Tyler Durden

Vowing to intensify their action to overturn an unpopular labor law, striking French union workers have already left hundreds of thousands of tourists stranded, gas stations empty, and nuclear power plants stretched. However, as low-skilled American workers fall foul of minimum wage blowback, the French parliament – despite Prime Minister Valls insistence that "France must show that it’s capable of reforming" – just passed new legislation making it illegal for your employer to send you an email outside of work hours.

As Valuewalk's Brendan Byrne reports, we’ve all been there, you’re heading to bed and see an email from your boss asking you for something, and have you noticed how it’s always urgent. You either do it, or pretend you didn’t see the email (not guilty), but either way your night has been ruined. You lie there thinking about it and how to deal with the situation. People are finding it more and more difficult to get away from digital connectivity, and we are seeing the rapid rise of mindfulness'.

Well this late night email situation can no longer happen with our French friends. Known for imposing the 37 hour week, truck drivers going on strike over literally anything, and general hard work, the French certainly are leading the charge for the much vaunted work life balance.

 

It has been termed ‘the right to disconnect‘, and was first tabled back in 2014.  Benoit Hamon of the French National Assembly told the BBC earlier in May, “All the studies show there is far more work-related stress today than there used to be, and that the stress is constant. Employees physically leave the office, but they do not leave their work. They remain attached by a kind of electronic leash— like a dog. The texts, the messages, the emails — they colonize the life of the individual to the point where he or she eventually breaks down.”

 

Unfortunately for some, it is not a catchall law. There is a caveat, if the company has less than 50 employees, the new law does not apply.

 

One question the new law raises, is what about international firms with French employees. Can a US firm send an afternoon email to employees that will arrive after work hours for Jean-Louis, who is enjoying some cheese and fine wine in his local Parisian cafe?

 

The question remains how some of the world’s largest tech companies with offices in Paris but headquarters in California, such as Google and Facebook, will react to the news. The time difference between France and California is nine hours, which means all email from California will have to occur no later than 9am PST.

There is an increased awareness that our addiction to smartphones is affecting lives. South Korea, were the average person spends over four hours looking at phones and tablets per day, has introduced a ‘space-out’ competition were people sit in silence without looking for any digital stimulation.

The producitvity-sapping farce is completed as this legislation is ironically passed as French PM Valls said the government will not back down over labor reform, stating that "France must show that it’s capable of reforming." As MishTalk's Michael Shedlock explains – having been previously fined by the French for daring to speak the truth about French banking fragility – things are about to get worse in France…

Already hundreds of thousands of tourists in France have had planes delayed or canceled over French union strikes.

 

Gas stations are running out of gas thanks to a strike at refineries. Nuclear power plants have been hit as well.

 

French unions vow to increase strikes. They will target trains and buses next.

 

Please consider French Transport Strikes to Intensify as Valls Digs In on Law.

French unions seeking to overturn an unpopular labor law are set to intensify their protests as the government shows no sign of giving in after a week of strikes and blockades caused gas stations in many regions of the country to run dry.

By the end of this week, the national railroad, the Paris metro, ports and air traffic controllers will all be on strike, though the degree to which the actions will be followed is unclear.

After a week in which many French gas stations faced shortages and some protests turned violent, Prime Minister Manuel Valls in a series of weekend interviews said the government will not back down on the labor law or the contentious article 2 that lets companies negotiate labor contracts outside industry-wide accords.

“France must show that it’s capable of reforming,” Valls said in an interview with Journal du Dimanche on Sunday. Valls said he spoke by phone on Saturday with union leaders including with Philippe Martinez, the head of the CGT, which has been leading the opposition to the labor law.

Trains, Planes

Four unions including the CGT have called for an unlimited strike at the national railroad SNCF starting Tuesday, the CGT has called for a stoppage at the RATP, which manages Paris’ metro and buses starting Thursday and the UNSA-INCA union of air traffic controllers has called for a strike June 3-5. The CGT has called for a 24-hour strike Thursday at France’s ports.

All the strikes are linked to labor disputes specific to those sectors, but are also aimed at forcing a withdrawal of the labor law. Another union, Force Ouvriere, has called for transport strikes to start June 10, the opening day of the European soccer championships that France is hosting.

According to a Ifop poll for Journal du Dimanche, 46 percent of the French want the law withdrawn, 40 percent want it modified, and only 13 percent want it to pass in its current form. The poll questioned 982 people on May 27 and 28. Meanwhile, Valls’s popularity in May fell six points to 24 percent, its lowest ever, a BVA poll said Saturday.

Unions, union rules, and French labor laws in general are literally strangling France, yet people still support those laws.

 

This is further escalation of my May 25 article, France Running Out of Gasoline; Strikes Now Spread to Nuclear Plants.

 

Carry on Dudes

 

 

 

By all means, carry on dudes. The massive “Code du Travail” (Labor Code) says you have rights.

 

“The Code du Travail is regarded by many in France as untouchable. Successive governments have chiselled away at its 10,000 articles – notably easing restrictions on layoffs and working hours – but without ever daring a comprehensive overhaul.”

 

PATCO Moment Needed

 

Ronald Reagan provided the precisely need solution for union insanity. Reagan fired them every PATCO (air traffic control union employee) who would not return to work when ordered.

 

I wrote about this once before, also in regards to France. Flashback October 12, 2010: French Unions On Strike Against Pension Reform, Disrupt Rail, Air Traffic.

The correct government response to this mess is to do what Reagan did to the PATCO workers, fire all the public union employees on strike and terminate their benefits.

Moreover, the French government should take this opportunity handed to them on a silver platter and go one step further to make a much needed change and dissolve all public unions. The same should happen in the US.

This would end the nonsense quickly and effectively. As in the US, there would be lines miles long to take those jobs at much lower wage and benefit levels.

Message From FDR

 

Inquiring minds are reading snips from a Letter from FDR Regarding Collective Bargaining of Public Unions written August 16, 1937.

All Government employees should realize that the process of collective bargaining, as usually understood, cannot be transplanted into the public service. It has its distinct and insurmountable limitations when applied to public personnel management.The very nature and purposes of Government make it impossible for administrative officials to represent fully or to bind the employer in mutual discussions with Government employee organizations.

Particularly, I want to emphasize my conviction that militant tactics have no place in the functions of any organization of Government employees.

A strike of public employees manifests nothing less than an intent on their part to prevent or obstruct the operations of Government until their demands are satisfied. Such action, looking toward the paralysis of Government by those who have sworn to support it, is unthinkable and intolerable.

FDR was correct.

As Shedlock concludes, Reagan was correct, but he did not go far enough. Reagan should have dissolved every public union.

Had he done so. We would not have the pension/state budget crisis we have today.

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Shops are being looted as Venezuela's citizens, who live on top of the world’s largest oil reserves, are literally starving and dying for lack of food and medicine; all while the country’s gold reserves are being sold to finance its debt. With 1.8 million signatures on a petition for a referendum on Nicolas Maduro’s presidency, the country is threatening to become a failed state. 

Venezuela is in crisis…

 

So, Ricardo Hausmann, former minister of planning for Venezuela, explains (via Project Syndicate) how too much heteredoxy (read – monetary policy experimentation and central planning and control) can kill you…

Ever since the 2008 financial crisis, it has been common to chastise economists for not having predicted the disaster, for having offered the wrong prescriptions to prevent it, or for having failed to fix it after it happened. The call for new economic thinking has been persistent – and justified. But all that is new may not be good, and that all that is good may not be new.

 

The 50th anniversary of China’s Cultural Revolution is a reminder of what can happen when all orthodoxy is tossed out the window. Venezuela’s current catastrophe is another: A country that should be rich is suffering the world’s deepest recession, highest inflation, and worst deterioration of social indicators. Its citizens, who live on top of the world’s largest oil reserves, are literally starving and dying for lack of food and medicine.

 

While this disaster was brewing, Venezuela won accolades from the United Nations Food and Agricultural Organization, the Economic Commission for Latin America, British Labour Party leader Jeremy Corbyn, former Brazilian President Luiz Inácio Lula da Silva and the US Center for Economic Policy Research, among others.

 

So what should the world learn from the country’s descent into misery? In short, Venezuela is the poster child of the perils of rejecting economic fundamentals.

 

One of those fundamentals is the idea that, to achieve social goals, it is better to use – rather than repress – the market. After all, the market is essentially just a form of self-organization whereby everyone tries to earn a living by doing things that others find valuable. In most countries, people buy food, soap, and toilet paper without incurring a national policy nightmare, as has happened in Venezuela.

 

But suppose you do not like the outcome the market generates. Standard economic theory suggests that you can affect it by taxing some transactions – such as, say, greenhouse-gas emissions – or giving money to certain groups of people, while letting the market do its thing.

 

An alternative tradition, going back to Saint Thomas Aquinas, held that prices should be “just.” Economics has shown that this is a really bad idea, because prices are the information system that creates incentives for suppliers and customers to decide what and how much to make or buy. Making prices “just” nullifies this function, leaving the economy in perpetual shortage.

 

In Venezuela, the Law of Just Costs and Prices is one reason why farmers do not plant. For that reason, agro-processing firms shut down. More generally, price controls create incentives to flip goods into the black market. As a result, the country with the world’s most extensive system of price controls also has the highest inflation – as well as an ever-expanding police effort that jails retail managers for holding inventories and evencloses the borders to prevent smuggling.

 

Fixing prices is a short dead-end street. A longer one is subsidizing goods so that their price remains below cost.

 

These so-called indirect subsidies can quickly cause an immense economic mess. In Venezuela, subsidies for gasoline and electricity are larger than the budget for education and health care combined; exchange-rate subsidies are in a class of their own. With one daily minimum wage in Venezuela, you can buy barely a half-pound (227 grams) of beef or 12 eggs, or 1,000 liters (264 gallons) of gasoline or 5,100 kWh of electricity – enough to power a small town. With the proceeds of selling a dollar at the black market rate, you can buy over $100 at the strongest official rate.

 

Under these conditions, you are unlikely to find goods or dollars at official prices. Moreover, since the government is unable to pay providers the necessary subsidy to keep prices low, output collapses, as has happened with Venezuela’s electricity and health sectors, among others.

 

Indirect subsidies are also regressive, because the rich consume more than the poor – and hence appropriate more of the subsidy. This is what underpins the old orthodox wisdom that if you want to change market outcomes, it is better to subsidize people directly with cash.

 

Another bit of conventional wisdom is that creating the right incentive structure and securing the necessary know-how to run state-owned enterprises is very difficult. So the state should have only a few firms in strategic sectors or in activities that are rife with market failures.

 

Venezuela disregarded that wisdom and went on an expropriation binge. In particular, after former President Hugo Chávez was reelected in 2006, he expropriated farms, supermarkets, banks, telecoms, power companies, oil production and service firms, and manufacturing companies producing steel, cement, coffee, yogurt, detergent, and evenglass bottles. Productivity collapsed in all of them.

 

Governments often struggle to balance their books, leading to over-indebtedness and financial trouble. Yet fiscal prudence is one of the most frequently attacked principles of economic orthodoxy. But Venezuela shows what happens when prudence is frowned upon and fiscal information is treated as a state secret.

 

Venezuela used the 2004-2013 oil boom to quintuple its external public debt, instead of saving up for a rainy day. By 2013, Venezuela’s extravagant borrowing led international capital markets to shut it out, leading the authorities to print money. This caused the currency to lose 98% of its value in the last three years. By the time oil prices fell in 2014, the country was in no position to take the hit, with collapsing domestic production and capacity to import, leading to the current disaster.

 

Orthodoxy reflects history’s painfully acquired lessons – the sum of what we regard to be true. But not all of it is true. Progress requires identifying errors, which in turn calls for heterodox thinking. But learning becomes difficult when there are long delays between action and consequences, as when we try to regulate the water temperature while in the shower. When reaction times are slow, exploring the heterodox is necessary, but should be done with care. When all orthodoxy is thrown out the window, you get the disaster that was the Chinese Cultural Revolution – and that is today’s Venezuela.

*  *  *

So what should the world learn from the country’s descent into misery? In short, Venezuela is the poster child of the perils of rejecting economic fundamentals.

via http://ift.tt/1sYcRWA Tyler Durden