Month: July 2016

The flight to safety following last week’s quarter-end window dressing is accelerating, with constant news and flashing red headlines of record low yields across DM government bonds once the norm, and as of moments ago Denmark’s 10Y bonds joined the exclusive club of sub-zero yields; gold has soared to fresh multi-year highs above $1,370, the risk-off currency, the Yen, soaring and sending the USDJPY just above 100, while sterling crashed overnight once again below 1.27, levels not seen since 1985.

European banks continue to struggle and while Monte Paschi was halted up 10% earlier following the previously halted shorting ban, both Deutsche Bank and Credit Suisse have plunged to new all time lows, this time on concerns that the two trouble banks could be forced out of the Stoxx 50 Europe index according to an LBBW analysis while BlackRock cutting the region’s shares to underweight, with a negative view on the euro area’s banking sector, did not help. To be sure, all eyes remain on both Italian banks as well as UK property funds, where the announcement of more gating is widely perceived as imminent.

Indeed, as Bloomberg summarizes, it’s safety first for investors around the world as Brexit, no longer a risk on catalyst as it was a week ago, has instead become a reason to offload risk.  Demand for haven assets sent bond yields to record lows after Federal Reserve Bank of New York President William Dudley said Brexit’s significance could escalate if it triggers turmoil in markets beyond the U.K.

Based on overnight analyst quotes, the euphoria is certainly gone by now: “Everyone is trying to react to a situation we’ve never been in before,” said Stewart Richardson, chief investment officer at RMG Wealth Management in London. “We’ve had shocks to the system before, but we haven’t had one like this. And we won’t know the answers for a long time.”

Mitsuo Shimizu, deputy general manager with Japan Asia Securities, also opined saying that there are “fears the global economy will worsen due to Europe. The U.K.’s economic outlook is blurred with uncertainty and the pound’s recent weakness is likely to encourage speculative buying in the yen.”

After rallying last week on bets central banks will work to limit the fallout from Britain’s referendum, global equities are retreating again as the knock-on effects become evident and as central bank credibility and efficiency is once again questioned. Three asset managers froze withdrawals from U.K. real-estate funds on Tuesday following a flurry of redemptions and the Bank of England relaxed capital requirements for lenders. Societe Generale SA Chairman Lorenzo Bini Smaghi said a banking crisis in Italy, stoked by the referendum, could spread to the rest of Europe and rules limiting state aid to lenders should be reconsidered.

As noted earlier, yields continue to plunge: 10-year US Treasury yields fell as much as six basis points to 1.318% and was at 1.33% at 10:44 a.m. London time. Yields on 10-year government bonds in Australia, Japan, Germany, France and the U.K. also sank to records. The strength of the gains in government bonds is leaving investors to ponder how severe the fallout from Brexit is going to be. Securities in the Bloomberg Global Developed Sovereign Bond Index, with an average life of about 10 years, yield a record-low 0.40 percent. In Germany, the 10-year bund yield fell to minus 0.205 percent, while yields on similar-maturity French and British securities reached 0.101 percent and 0.729 percent, respectively.

Expect yields to continue plunging: declining prospects of a Fed rate hike have spurred a torrent of demand for Treasuries, with almost $10 trillion of securities in the Bloomberg Global Developed Sovereign Bond Index yielding less than zero, up from about $9 trillion a week ago. In addition to experimenting with negative rates, some monetary authorities abroad are buying government debt, reducing the supply for investors who count on fixed-income assets.

“In the risk-off environment produced by international events, there is a global rush to buy super-long sovereign debt, and bonds that still offer some yield are going to be most in demand,” said Hideo Suzuki, the chief manager of foreign exchange and financial products trading at Mitsubishi UFJ Trust & Banking Corp. in Tokyo.

And while until recently bonds and stocks had disconnected, as of this moment, plunging yields finally means sliding stocks as well. The MSCI All-Country World Index dropped 0.7% and the Stoxx Europe 600 Index slid 1.4 percent, falling for a third day, with all its industry groups declining. Automakers and insurers were the biggest losers, while Tullow Oil Plc sank 14 percent after announcing a $300 million sale of convertible bonds. The Stoxx 600 trades at around 14 times estimated earnings, near its lowest valuation since 2012 relative to the global index.

Deutsche Bank AG led losses in a gauge of European lenders as BlackRock Inc. cut the region’s shares to underweight, with a negative view on the euro area’s banking sector, amid the Brexit fallout. The Italian market regulator banned short selling on Banca Monte dei Paschi di Siena for Wednesday’s session, prompting a rally of 9 percent — after it slumped 31 percent in the past two days. The MSCI Emerging Market Index dropped 1.4 percent, falling for a second day. Shares in South Korea slid 1.9 percent and Taiwan’s benchmark slid 1.6 percent. Many markets across Asia and the Middle East were closed for religious holidays.

Finally, the US:

• S&P FUTURES NEAR SESSION LOW, -14PTS, AS EU STOCKS EXTEND DROP

At this rate the Fed’s biggest flip-flopper and stock market supporter, Jim Bullard, may want to wake up: the futures will need his jawboning support soon.

* * *

Market Snapshot

• S&P 500 futures down 0.7% to 2069
• Stoxx 600 down 1.3% to 320
• FTSE 100 down 0.6% to 6507
• DAX down 1.8% to 9357
• German 10Yr yield down 2bps to -0.2%
• Italian 10Yr yield down 5bps to 1.22%
• Spanish 10Yr yield down 4bps to 1.15%
• S&P GSCI Index down 0.6% to 362.1
• MSCI Asia Pacific down 1.1% to 129
• Nikkei 225 down 1.9% to 15379
• Hang Seng down 1.2% to 20495
• Shanghai Composite up 0.4% to 3017
• S&P/ASX 200 down 0.6% to 5198
• US 10-yr yield down 6bps to 1.32%
• Dollar Index up 0.1% to 96.27
• WTI Crude futures down 1.2% to $46.03
• Brent Futures down 0.8% to $47.57
• Gold spot up 1.1% to $1,371
• Silver spot up 2% to $20.34

Global Headline News:

• Melrose to Buy Ventilation Fan-Maker Nortek for $2.8 Billion: Plans fully underwritten rights offering of 1.6 billion pounds. Shareholders offered a 38% premium over Nortek’s closing price
• RBS, Lloyds Most Exposed to Commercial Property, JPMorgan Says: Smaller lenders at more risk due to greater leverage on debt. Asset managers freeze real-estate fund withdrawals post-Brexit
• BlackRock Cuts European Equities to Underweight Citing Brexit: BlackRock downgrades European stocks to underweight, with a negative view on the euro-zone banking sector, and upgrades U.S. credit and EM debt to overweight, according to note
• It’s Dollar’s Time Now Post-Brexit, Top Currency Forecaster Says: Julius Baer says greenback’s fortunes to ‘change massively’. It was among the biggest pound bears in the run- up to EU vote
• Italy Could Spark Systemic Banking Crisis: SocGen Chairman: Italy’s banking crisis could spread to rest of Europe; rules limiting state aid to lenders should be reconsidered, says Lorenzo Bini Smaghi on Bloomberg TV
• Fed Minutes Could Still Hold Important Clues Post-Brexit Vote: Economists cite shift in FOMC tone even before U.K. vote. Record could reveal crucial discussions on jobs, neutral rate

Looking at regional markets, Asia conformed to the downbeat tone seen across global markets in which Wall Street snapped its 4-day advance as ongoing Brexit fears spilled-over and dampened sentiment. Nikkei 225 (-1.9%) underperformed amid a firmer JPY as USD/JPY traded with a 100.00 handle, while the ASX 200 (-0.6%) suffered from the downturn in energy. Chinese markets were also pressured with the Shanghai Comp (+0.4%) weighed following a weak liquidity injection for a second consecutive day. 10-year JGBs benefited from the risk-averse sentiment seen in Japan and traded higher alongside the 10yr and 20yr yields printing fresh lows, while the BoJ also entered the market to acquire JPY1.27tIn worth of government debt. S&P stated that China’s economic growth trajectory is worrisome over the mid-term.

Top Asian News

• Yuan in Longest Losing Streak Since February as Forecasts Cut: China is using opportunity to engineer currency decline, RBC says
• Japan Pension Whale’s Stock Losses Force More Buying, Bond Sales: Fund could buy $41b in Japanese shares, analyst says
• Japan 20-Year Yield Goes Negative as Treasuries Rally to Record: Japanese, Aussie 10-year yields drop to unprecedented levels
• Hong Kong Hedge Fund Adds to Baidu, Samsonite After Brexit: Manas also added to Delfi shares, which surged 38% on June 30
• China Resources Beer to Raise $1.2 Billion From Rights Offer: Proceeds to finance buyout of Chinese venture with SABMiller

European equities slipped this morning with weakness yet again stemming from financial names, as such the Swiss banking giant Credit Suisse (-2.2%) has now fallen to its lowest level since 1989 with Deutsche Bank (-5.4%) also feeling the squeeze amid the continued uncertainty sparked by the fallout from Brexit. While property names have also been pressured with more fund managers announcing yesterday that they were halting there UK real estate funds. Additionally, Italian banks remain in focus in particular Banca Monte dei Paschi which has fallen around 20% since the beginning of the week, in turn the Italian regulator Consob has placed a temporary ban on Banca Monte dei Paschi, which has seen shares higher by over 10%. In credit markets, the fall in global bond yields persists with yields in the German 10-yr benchmark declining to a record low -0.19%, in turn prices have briefly moved above 168.00 . Alongside this the German yield curve has seen some notable curve flattening.

Top European News

• Swedish Central Bank Delays Rate Increase Plans After Brexit: Bank says rate increase now seen in second half of 2017. Riksbank keeps QE program unchanged for second half of 2016
• Italy Could Spark Systemic Banking Crisis, SocGen Chairman Says: Italy’s banking crisis could spread to the rest of Europe and rules limiting state aid to lenders should be reconsidered
• Morgan Stanley Sees Further Potential U.K. Property Fund Stress: U.K. property funds could come under further stress after a surge in redemptions following the country’s vote to leave the European Union caused three asset managers freeze their holdings
• From Paris With Love: France Woos U.K. Business Post Brexit: Paris Region lays out case for moving jobs to French capital. Former Sarkozy minister seeks tax advantages for foreigners
• Carney’s Crisis Management Gives U.K. Only Plan to Work With: In post-vote tumult, governor emerges as anchor of stability. Global officials blindsided by British decision to leave EU

In FX, the pound sank to a fresh 31-year low of $1.2798 before climbing back toward $1.30. The yen jumped 1.2 percent to 100.54 per dollar, taking its advance since Britain’s referendum to more than 5 percent. “The yen is taking the brunt of the pound selling,” said Takuya Kawabata, an analyst at Gaitame.com in Tokyo. “It’s a risk-off market triggered by the pound. We need to continue to remain wary of risk aversion prompted by the U.K.” The currencies of New Zealand. Russia and South Africa — commodity-exporting nations — all dropped by at least 0.5 percent. South Korea’s won led declines in Asia, sinking 0.9 percent versus the greenback. The yuan dropped as much as 0.2 percent to a five-year low of 6.6980 per dollar after ABN Amro Bank NV, Credit Agricole CIB and Goldman Sachs Group Inc. cut forecasts for the currency on Tuesday. An index tracking the yuan versus 13 peers fell for eight of the nine days since Britain’s referendum, spurring speculation China is seeking to weaken it amid the risk of a slowdown in the EU.

In Commodities, precious metals surged as investors piled into haven assets. Gold advanced as much as 1.1 percent to $1,371.39 an ounce in London, the highest level since March 2014. Silver gained as much as 2.9 percent. Most industrial metals declined, with copper falling 1.5 percent to $4,744 a metric ton and lead dropping 1.6 percent. Nickel gained 0.4 percent on concern that supply could be disrupted in the Philippines, the world’s biggest producer of nickel ore. West Texas Intermediate crude slipped 0.4 percent in London to $46.40 a barrel after closing Tuesday at a one-week low.

On today’s US calendar, the highlight is the ISM non-manufacturing print which is expected to come in at 53.3 after printing at 52.9 in May. Also due out is the May trade balance reading and the final June PMI revisions (services and composite). Later this afternoon we get the FOMC minutes from the June meeting which we expect to strike a relatively cautious tone. Remember that this meeting was pre-Brexit. Away from the data the ECB’s Draghi is due to speak this morning in Frankfurt while the Fed’s Tarullo is due to speak (at 2.00pm BST) on regulation and monetary policy.

Bulletin Headline Summary from RanSquawk and Bloomberg

• Risk sentiment guides action in Europe with financial names feeling the squeeze from continued downbeat investor sentiment
• GBP/USD printed a fresh low overnight to briefly break below 1.2800 before being granted some reprieve and meeting resistance at 1.3000
• Looking ahead, highlights include FOMC minutes, US Services PMI, Trade Balance and a host of central bank speakers
• Treasuries rally overnight on continued flight to quality flows, with 10Y yield reaching all-time lows, as global equities, commodities (except gold) all dropping; FOMC minutes released at 2pm ET.
• While U.K. Brexit vote spurred many forecasters to revise their Fed calls — with Morgan Stanley among those now saying nothing will happen before 2018 — BofAML, Citi, Deutsche Bank, Goldman Sachs and JPMorgan still think Fed will raise rates this year, in Dec., while Barclays maintains call for Sept. hike
• Italy’s banking crisis could spread to the rest of Europe and rules limiting state aid to lenders should be reconsidered, Societe Generale SA Chairman Lorenzo Bini Smaghi said
• As Italy considers options to recapitalize its banks, the Texas ratio, a measure of bad loans as a proportion of capital reserves, illustrates the scale of the problem
• Mark Carney has unveiled his four-point plan to cope with the Brexit crisis and it’s just about the only one Britain has to go on
• Royal Bank of Scotland and Lloyds Banking Group are the two major U.K. lenders most exposed to the commercial real estate market, which poses a risk for banks after asset managers froze withdrawals from property funds, JPMorgan said
• German factory orders unexpectedly failed to rise in May as uncertainty over the global outlook deterred demand for goods. Orders, adjusted for seasonal swings and inflation, were unchanged from April, when they fell a revised 1.9%
• In the background of another epic bounce for U.S. stocks was the bull market’s oldest friend: buybacks. American companies announced $52 billion of repurchases last week alone. That pushed total buybacks in June to more than $65 billion, the most since February
• Battered Tokyo stock investors may find savior in an old friend: the world’s biggest pension fund. Because shares held by Japan’s $1.4 trillion Government Pension Investment Fund have suffered such large losses, it will need to add to those holdings to meet targets for their weighting
• Japan’s 20-year government bond yield dropped past zero for the first time as ultra-low yields worldwide failed to deter investors from rushing to buy the safest assets
• Bank of America Corp. sees the $3 trillion U.S. corporate pension industry throwing its interest-rate assumptions out the window. And that means the retirement plans will probably throw more money into Treasuries

* * *

US Event Calendar

• 7:00am: MBA Mortgage Applications, July 1 (prior -2.6%)
• 8:30am: Trade Balance, May, est. -$40b (prior -$37.4b)
• 9:45am: Markit U.S. Services PMI, June F, est. 51.3 (prior 51.3); Markit US Composite PMI, June F (prior 51.2)
• 10:00am: ISM Non-Manufacturing Composite, June, est. 53.3 (prior 52.9)

* * *

DB’s Jim Reid concludes the overnight wrap:

At the start of this week we thought that the Brexit news flow would slow down a little, with Italian banks in the spotlight and focus gradually moving onto the data, especially Friday’s payroll report. However the news over the last 24 hours or so that three UK commercial property funds worth £9.1bn have suspended redemptions reminds us of the various ways Brexit can impact markets and has people fearful of more stress to come. Indeed the moves also hammer home the vulnerable position that commercial real estate in the UK now sits in following the vote outcome and it wouldn’t be a great surprise to see similar moves by other funds in the coming days and weeks. Funds, diversified financials and insurers were hit hard yesterday as a result. L&G (-7.11%), Hargreaves Lansdowne (-5.70%), Standard Life (-5.20%), Schroders (-5.07%), Prudential (-4.48%) and Aviva (-3.94%) all stood out on a day that the FTSE 100 actually closed up +0.35% despite markets elsewhere tumbling.

That relative outperformance had alot to do with the latest sharp leg lower for Sterling. Indeed the Pound tumbled -1.99% yesterday versus the USD and is down another -1.21% this morning at 1.2864 – the lowest post Brexit and the lowest since 1985. Along with the property redemption freeze news the latest moves also came following the comments from BoE Governor Carney yesterday who warned that ‘there is the prospect of a material slowing of the economy’ and that the financial risks of Brexit ‘have begun to crystallise’. Carney and the Financial Policy Committee also announced that they are reducing the countercyclical capital buffer to 0% from 0.5% of risk weighed assets which is said to raise lending capacity ‘by up to £150bn’.

All of this culminated in a much weaker day for risk overall. European stocks fell for a second consecutive session with the Stoxx 600 closing -1.70% and the DAX -1.82%. The FTSE 250 also fell -2.37%. Across the pond the S&P 500 returned from the long weekend holiday with a -0.68% loss although it did benefit from a slight bounce into the close. Oil markets didn’t help after WTI tumbled nearly 5% and back below $47/bbl for the first time since Monday last week. Meanwhile Gold (+0.42%) benefited from the flight to safety while core global bond yields hit fresh record lows across the board. 10y Gilt yields fell over 6bps and closed at 0.768% and 30y yields fell nearly 7bps to 1.583% – both the lowest on record. 10y Bunds moved deeper into record negative territory (4.4bps lower to -0.186%) with the curve now negative out to 15 years.

Danish 10y yields turned negative (-0.006%) while bonds in Netherlands (0.020%), Finland (0.072%) and Sweden (0.080%) moved one step closer. It was much the same in the Treasury market where 10y  Treasuries tumbled nearly 7bps and along with the move this morning (another 3.2bps lower) are now hovering at 1.343% and the lowest yield on record. This unchartered territory means the 10y is now down a fairly incredible 40bps from its pre referendum poll level on the 23rd.

Taking a look at the rest of markets this morning and with Sterling and bond yields extending their moves lower (20y JGB’s have now gone to below 0%), equities markets are following suit in Asia with almost all major bourses in the red. The Nikkei (-2.96%) has seen the heaviest fall followed by the Kospi (-2.03%) and Hang Seng (-1.92%) while the ASX and Shanghai Comp are -1.36% and -0.18% respectively. EM FX is under pressure while the risk off moves has helped the Yen to gain 1%. Credit markets are a couple of basis points wider while US and UK equity index futures are down half a percent.

Moving on. The latest news out of Italy and specifically the banking sector concentrated on a Bloomberg story suggesting that the Italian government is looking at potentially invoking an EU rule stipulating  the allowance of temporary state aid should regulatory stress tests uncover a shortfall. It’s hard to gauge the reliability of the story so we’re taking it with a pinch of salt for now.  So with political risk rife, yesterday Hungary announced that it is to hold a referendum on October 2nd concerning the plan to share the burden of refugees across the EU. Prime Minister Orban’s right wing government has previously opposed the plans of reallocation of large numbers of migrants across the EU. President Ader announced that the question asked will be “Do you want the EU to be entitled to prescribe the mandatory settlement of non-Hungarian citizens in Hungary without the consent of parliament?”. Interestingly the timing of the vote comes on the same day that Austria will be re-running the presidential election which itself carries its own level of uncertainty.

Moving onto credit, yesterday we published a ‘Credit Bites’ reviewing EUR and GBP corporate IG issuance YTD. After the slowest start of the year in over a decade, we have now seen very strong overall EUR IG issuance YTD. In the non-bank senior space (ECB CSPP universe), record run rates have been reached. Less than 4% (€241mn) out of €6.4bn of ECB CSPP purchases settled in June originated from the primary market. However, issuance with June settlement after the purchases started was relatively limited. We expect a notable pick-up in primary purchases by the Eurosystem over the coming months, particularly after the summer lull, with the CSPP eliciting a supply response. Given the rise in uncertainty following the Brexit vote, the notable drop in GBP issuance by non-UK corporations is likely to continue. The GBP market has been in relative supply decline for years but Brexit created an extra dent, at least for now. See the report out yesterday afternoon or email Michal.Jezek@db.com if you didn’t get a copy.

As has been the case recently the macro data came off second best yesterday to the focus on the Brexit-driven fallout in markets. The data that we did get in the US however was reasonably soft. The IBD/TIPP economic optimism reading for July fell 2.7pts from June to 45.5 (expectations were for no change) which is the lowest level since November last year and further evidence of the drop off in confidence post Brexit. Meanwhile factory orders declined a little more than expected in May (-1.0% mom vs. -0.8% expected) while the final headline durable goods orders reading for May was revised down another tenth to -2.3% mom.

Over in Europe we received the final PMI revisions for June. The Euro area services reading was nudged up 0.4pts to 52.8 which, when taken with the manufacturing reading, saw the composite print revised up to 53.1 from 52.8 and so making it unchanged from May. Regionally Germany saw a 0.3pt upward revision to the composite to 54.4 while France had a 0.2pt upward revision to 49.6. Italy’s composite printed at 52.6 (from 50.8 in May) after getting a boost from the services sector while the composite reading for the UK declined 0.6pts to 52.4, although that was a little better than expected. Importantly our European economists note that all of the responses in the manufacturing survey (data collected 13-23 June) and 90% of those for the services (13-27 June) were collected before the result of the UK EU referendum and so that leaves these PMI’s, as well as the May retail sales data for the Euro area (+0.4% mom) as less relevant than usual. The July flash PMI’s which get released on the 22nd of this month (and the day after the ECB policy meeting) will provide us with the earliest snapshot of the Brexit impact.

In one final mention of Brexit for today, we also heard from a couple of Fedspeakers yesterday on the subject and how that impacts their outlook for the US economy. San Francisco Fed President Williams (centrist to slightly dovish) said that he sees Brexit, as it has played out so far ‘as being a relatively modest risk to the US outlook’. He also reiterated that a Fed rate hike this year could still be warranted should the data come in consistent with his outlook. The NY Fed President Dudley (dovish) was a lot more cautious. He said that while it’s still early days to fully grasp the consequences of Brexit, ‘if there is broad contagion through financial markets’ and ‘if it leads to greater consequences about the stability of the EU, then it could have significant consequences.

Looking at today’s calendar, it’s a quiet day for data in Europe this morning with German factory orders for May the only release of note. Over in the US the highlight is the ISM non-manufacturing print which is expected to come in at 53.3 after printing at 52.9 in May. Our US economists are expecting a 53.0 print. Also due out this afternoon is the May trade balance reading and the final June PMI revisions (services and composite). Later this afternoon we get the FOMC minutes from the June meeting which we expect to strike a relatively cautious tone. Remember that this meeting was pre-Brexit. Away from the data the ECB’s Draghi is due to speak this morning in Frankfurt while the Fed’s Tarullo is due to speak (at 2.00pm BST) on regulation and monetary policy.

via http://ift.tt/29tCGrl Tyler Durden

The fact that Abenomics has been a miserable failure has been well established, and even the IMF felt the need to get involved and tell Japan what it should do next. One of the IMF's recommendations to the BOJ was for the inflation target to be scrapped entirely.

To wit:

The Bank of Japan in February introduced a negative interest rate in part to support domestic demand. However, in the event that the IMF's suggestions will not be implemented, Japan will lack growth and therefore would need a longer time to get its fiscal books in order. In that scenario, the IMF called on the bank to scrap its time frame for achieving its 2% inflation target, which the BOJ now sets at somewhere in fiscal 2017.

Inflation in Japan has now turned down again, and household inflation expectations have declined as well.

While we touched on one reason for Japan's inflation headwind, namely that China has been and will continue to export deflation as the yuan is devalued, there is also another reason of course, which is that businesses aren't spending.

As Goldman notes, FY'2016 business capex plans are the weakest in years.

FY2016 capex plans weakest in recent years:

 

The FY2016 capex plan (all companies, all industries) calls for +0.4% yoy, an upward revision from the March survey (-4.8%). The Tankan capex plan tends to be particularly conservative in the March survey after which it is usually raised gradually through to year-end. Even so, it is the weakest plan in the past

several years. We see a strong downside risk to capex, with the outlook for FY2016 recurring profits (all companies, all industries) calling for a drop of 7.2% and uncertainty growing with regards to domestic and external demand.

One of the most interesting examples of business sentiment on capital spending is that major Japanese manufacturers are buying salvaged computer parts from a small business owner instead of spending the money to upgrade. Those who picture Japanese manufacturing production lines as being on the cutting edge of the newest technology have the wrong impression.

Operating from a hilltop warehouse in the backwoods of Japan's Izu peninsula, Tomoharu Iguchi makes a living by scavenging  parts from long obsolete computers and selling them to businesses. Not just a few businesses, as the Financial Times reports, Iguchi's customer base is a nationwide, 1,000 strong list of Japanese companies that includes major railway operators, auto-parts giants, drugmakers, retailers, and hundreds of small manufacturers.

As the FT explains

Operating from a flimsy hilltop warehouse in the backwoods of Japan’s Izu peninsula, Tomoharu Iguchi is a highly successful technology cannibal. His existence is one of the country’s darker secrets: a necessary strut in a corporate edifice defined by decades of deflation.

 

For those who picture Japanese production lines at the bleeding-edge of modernity, Mr Iguchi’s business of disembowelling, scavenging and supplying parts from long obsolete computers, seems improbable. His stockroom — a precariously stacked jumble of grimy monitors, half-gutted ’90s-era PCs and spaghetti knots of yellowed keyboard and mouse cabling — should not logically be humming with activity in 2016.

 

But his customer base — a nationwide, 1,000-strong list of Japanese companies that includes major railway operators, auto-parts giants, drugmakers, retailers and hundreds of small manufacturers — reveals a rather more threadbare Japan. It cannot live without its creaking, underpowered, 20-year-old computers. Or Mr Iguchi.

 

Mr Iguchi is hardly to be blamed for the phenomenon, but the corporate mindset and decision-making that keeps him in business are one of the main reasons that Abenomics is having such a hard time gaining traction.

 

Larger Japanese manufacturers, as reflected in the Bank of Japan’s most recent Tankan survey of business sentiment, are narrowly planning to raise their IT spending. But the less visible industrial heartlands are dragging their heels. Those managers and business owners who opt for Mr Iguchi’s services have spent a large part of their careers in the shadow of deflation. For them, cost-cutting — to the point of not replacing computers — has become a cherished corporate skill and guarantee of promotion.

PC-98 series computers was so successful in the 1980s that for years businesses never found a good reason to upgrade, and NEC even continued to make replacement parts until 2010. Iguchi's business has blossomed due to the fact that PC-98s are still embedded in production lines, and firms simply aren't willing to spend the capital to upgrade the systems. This sentiment speaks volumes to the fact that Abenomics simply hasn't been able to convince businesses to open up spigot and spend money, thus creating yet another headwind for the failed policy.

Computer cannibalisation highlights the blockage. Mr Iguchi is entirely focused on the PC-98 — a famously workhorse-like series of computers first produced by the Japanese technology group NEC in the 1980s. A Japanese-made computer, it was suited to Japanese use at a time when Japan was buying. A decade later, the arrival of the internet and flatscreen monitors created hot demand for new computers across corporate Japan. As offices upgraded their desktops, manufacturing and other sectors took the same opportunity to embed a new generation of machines in production lines, points of sale and back-office operations.

 

But the PC-98 was rather too successful: the machines were so user friendly and so deeply embedded, says Mr Iguchi, that for years nobody could see any good reason to replace them. Until 2010, NEC was still making replacement parts. Many took the 2010 cut-off as the prompt to finally ditch their old machines, but thousands decided that the cost was simply too high.

 

As a result, PC-98s are still embedded in production lines. They cannot simply be replaced with something newer, and replacing entire production lines instead seems recklessly expensive when people like Mr Iguchi are around to replace the crucial burnt-out microchip for a few thousand yen.

* * *

This particular story should be used as a business case in every university in order to show that central planning simply cannot consider all the elements of an economy, no matter how intelligent those that are doing the planning may believe they are. We're kidding of course, we realize that academia is a staunch supporter of central planning and stories that clearly display the failures of central planning will be forever hidden from those debt-laden students who believe they are being properly educated and prepared for the real world.

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Submitted by Michael Shedlock via MishTalk.com,

Spain’s Social Security system is expected to go broke by 2018.

In the US, concerns over such matters are virtually nonexistent.

But Spain cannot print Euros, and is already deep in the hole on meeting budget deficit targets.

 

Via translation from El Confidencial, Spain’s Social Security Reserve Fund Exhausted by 2018.

The Social Security reserve fund will run out of money in 2018. The cause in bonus payments to pensioners, which consumes every six months (in December and July) over 8.5 billion euros. Revenue from social security contributions are not sufficient to meet the payment obligations.

 

Starting in 2018, only an extraordinary contribution by the State would make it possible for Social Security can meet its commitments.

 

The financial problems of Social Security are not a temporary problem. The government itself expects that this year the public pension system will register equivalent to 1.1 percent of GDP deficit (about 11 billion euros ), while in 2017 planned is an imbalance equivalent to 0.9% of GDP.

 

In 2016, revenues from social security contributions recorded an accumulated a deficit of 12.24% compared to expectations. The deviation is even higher than the already recorded in 2015.

Spain Budget Deficit Wildly Off Target

Spain has missed watered down budget deficit targets a half-dozen times. Spain is already under pressure from Brussels to cut spending or hike taxes, by 8 billion euros.

Something has to give.

via http://ift.tt/29m3SHL Tyler Durden

Not only will Brexit be used as an excuse for companies to lower earnings guidance and for central banks to provide more quantitative easing, but it may also be a scapegoat for banker bonuses in London being slashed – everyone can let out their collective gasp now.

As we have been covering, banker jobs have been getting cut for quite some time now, most recently with RBS announcing it will be cutting another 900 jobs. Times have been difficult for banks leading up to Brexit, but now, as Bloomberg reports, the message London's investment banks are giving staff this year is that in the aftermath of Brexit, just be thankful to have a job, and forget a fat bonus at the end of the year.

"It's a great opportunity to blame Brexit, giving people the message 'you're lucky enough to have a job'" said Stephane Rambosson, managing partner at DHR executive search firm in London, adding that bonuses could fall 30% or more in some areas.

Jason Kennedy, CEO of recruitment firm Kennedy Group in London said "Reality is going to kick in, today it's about job preservation, rather than bonuses. Things are going to change, and some people shouldn't expect any bonuses."

Jon Terry, a partner at PricewaterhouseCoopers in London, at least admits that things were falling apart even before Brexit: "If we hadn't had the referendum results, this year was looking pretty tough anyway. We haven't seen an end to various fines and compensation related to payment protection insurance and Libor. There are still billions of pounds being charged to the accounts. Ever since the financial crisis, there has been a need for reshaping the spend on compensation costs. Brexit is possibly one of the biggest catalysts for the next stage of reduction."

As Bloomberg explains, banks have expressed concern that the slump will continue after the vote:

On the advisory side, Goldman Sachs Group Inc. has said it expects a slump to continue as uncertainty about what Brexit will look like chills investment. The vote has already led to multiple deals being scrapped or reassessed. Even before the vote, announced mergers worldwide were down 11 percent from a year earlier, while global equity issuance fell by more than half.

 

Morgan Stanley analysts said in a note on June 29 that revenue from equities for European banks may fall about 18 percent in 2016, while fixed income and investment banking may decline about 13 percent each in the same period.

* * *

Wherever the banks choose to place the blame is irrelevant however, as the impact is real. Banks will continue to fire employees if activity doesn't pick up, and the truth of the matter is that for most in the industry, having a job at the end of the year will be a welcome sight, even if no bonuses get paid out.

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Via TheAntiMedia.org,

As Europe comes to terms with a Brexit vote fueled in large part by anti-immigrant hate-mongering, a new report exposes how war profiteers are influencing EU policy to make money from unending Middle East conflicts as well as the wave of refugees created by that same instability and violence.

The report (pdf), Border Wars: The Arms Dealers Profiting from Europe’s Refugee Tragedy, released jointly by the European Stop Wapenhandel and Transnational Institute (TNI) on Monday, outlines arms traders’ pursuit of profit in the 21st century’s endless conflicts.

“There is one group of interests that have only benefited from the refugee crisis, and in particular from the European Union’s investment in ‘securing’ its borders,'” the report finds. “They are the military and security companies that provide the equipment to border guards, the surveillance technology to monitor frontiers, and the IT infrastructure to track population movements.”

 

The report shows that “far from being passive beneficiaries of EU largesse, these corporations are actively encouraging a growing securitization of Europe’s borders, and willing to provide ever more draconian technologies to do this.”

In the past decade, the report says, corporate players have viewed intractable Middle East warfare as a windfall: “Several large international arms companies cited instability in the Middle East to assure investors about future prospects for their business. The arms companies are assisted by European governments, which actively promote European arms in the region and are very reluctant, to say the least, to impose stricter arms export policies.”

Indeed, “from 2005 to 2014, EU member states granted arms exports license to the Middle East and North Africa worth over 82 billion euros,” according to the report.

The report details how a steady flow of arms from outside the Middle East supplies all players in multi-part conflicts, such as Syria’s civil war, with an endless supply of high-tech weaponry—thus ensuring that those conflicts endure.

And as these wars create more and more refugees who seek asylum in Europe, the very same corporations are lobbying the EU to ‘securitize’ its borders against them—thus creating additional profit for those in the business of militarization.

Moreover, Stop Wapenhandel and TNI found “industry representatives, government officials and military and security personnel meet around the year at conferences, fairs and round tables.”

The report quotes Nick Vaughan-Williams, international security professor at the University of Warwick, saying: “At these events it is possible to identify a cyclical culture whereby the presentation of new technologies not only responds to, but also enables and drives the formulation of new policies and practices in the field of border security and migration management.”

And these “special fairs and congresses on border security are relatively new,” the report notes. “They all started within the last decade.”

“I believe the influence of the military and security industry on the shaping of the [EU’s] border security policy is quite big, especially on the securitization and militarization of these and on the expanding use of surveillance technology and data exchange,” Stop Wapenhandel’s Mark Akkerman told Common Dreams. “Industry efforts include regular interactions with EU’s border institutions (including high ranking officials and politicians), where ideas are discussed that later turn up in new EU policy documents.”

 

“For example, the industry has been pushing for years to upgrade [EU border agency] Frontex to a cross-European border security agency,” Akkerman added. “The new European Border and Coast Guard Agency the European Commission has proposed, which has a lot more powers (has its own equipment, direct interventions in member states, binding decisions forcing member states to strengthen border security capacities) than Frontex has now, is exactly that.”

 

“If the establishment of the European Border and Coast Guard Agency proceeds,” the report notes, “this would mean a fundamental shift to an EU-controlled system of border security, with the possibility of bypassing the member states and forcing them to strengthen controls and purchase or upgrade equipment.”

 

“It is not hard to predict that this will lead refugees to use increasingly dangerous routes, strengthening the business case for traffickers. For the military and security industry, however it means the prospect of more orders from the agency itself and from member states,” the report continues.

Akkerman pointed out the EU’s stunning dismissal of human rights in this profit-motivated process:

The human rights of refugees play no real role in this thinking, except for promotional purposes. Both the policy makers and the industry sometimes try to sell the increase in and militarization of border security as a humanitarian effort, in terms of strengthening search and rescue capacities. The EU has repeatedly tried to put all the blame for refugee deaths on traffickers. This has resulted in narrowing its response to ‘taking away the business model of smugglers’, with even more military means to try to accomplish this.

 

This creates a downward spiral: the greater the controls and the more the repression, the greater the risks refugees are forced to take resulting in more deaths. Experts (academics) and human rights organizations have been warning about this for years, but they have been ignored.

As death tolls rise and a record number of people are displaced by conflict, it seems that the fear-mongering and profiteering—and devastating human rights abuses—will only continue.

*  *  *

Full report below…

Border Wars Report Web

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Authored by Paul Craig Roberts,

The Latest TSA Horror

“These people think they are God. They think they can do anything they want.”

A partially blind, partially deaf young woman returning home from treatment for a brain tumor was brutally smashed to the ground by goon tug TSA “security” while her mother, a nurse, was shoved away.

The goon thugs responsible should get at least 30 years in a maximum security prison for assault with intent to kill. But nothing will happen to them. Their corrupt bosses always cover up for the psychopaths who occupy so many “security” and police positions from which they exercise unaccountable brutality over those of us forced to pay their salaries.

This is America today. We are forced to pay for our own brutilization by a criminal element that has taken refuge in “security” that “protects us.” We are in far more danger from the security forces allegedly protecting us than we are from terrorists. Indeed, the security forces are the terrorists.

Remember, during eight years of the Iraq War, US police killed more Americans than the US lost troops in combat. We needed our soldiers at home protecting us from the police, not over there “protecting” us from Iraqis who were not bothering us at all.

The only way to stop the continuous murder and brutalization of American citizens by “security” is to give the same jail sentences to the psychopaths, who comprise a large percentage of police, as are given to criminals without badges to hide behind. Until this happens, no one is safe, not even a handicapped young women traveling home from a hospital with her mother.

The same prison sentences should be given to executive branch officials who initiate wars of aggression on the basis of lies and fraud. These officials are criminals, not “world leaders.”

Read the article from the Guardian and weep for your lost country in which we are far less safe from “our” government than we were under King George. Indeed with Washington’s record of destroying seven countries in 15 years, no one in the world is safe from the government of “the land of liberty.”

America is now justice-proof. “Security” has so thoroughly inoculated us against justice that justice cannot happen in America. Winning some taxpayer money in a civil lawsuit is not justice. Justice is prison for the goon thug criminals with badges.

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While there have been numerous headlines and stories that have come out of the immigrant crisis over the past year and a half, one recent revelation is particularly disturbing.

Migrants traveling from Africa to Europe who are unable to pay smugglers for their journey are being sold and killed for their organs the Independent reports.

Nuredein Wehabrebi Atta, a people smuggler who has been sentenced to five years in prison for his involvement in moving migrants, told Italian police that migrants who couldn't pay for journeys across the Mediterranean "were sold for €15,000 to groups, particularly Egyptians, who are equipped for harvesting organs."

Atta's testimony helped break open a transnational network dedicated to migrant trafficking with Italian police confirming they have detained 38 people suspected of being involved: 25 Eritreans, 12 Ethiopians and one Italian. Interior Minister Angelino Alfano said the group used Rome for its financial transactions hub, and the arrests have dealt a "harsh blow" to the criminal network.

Atta had been granted witness protection in Italy in exchange for a confession, and an Eritrean man arrested in 2014 had collaborated with authorities in order to provide for the first time a complete picture of the trafficking operations.

From the Independent

Palermo police said in a statement that an Eritrean man who was arrested in 2014 collaborated with authorities, providing for the first time "a complete reconstruction of criminal activities" of migrant trafficking involving operations both in North Africa and Italy.

 

Mr Atta is the first foreigner to be granted witness protection in Italy. He said the shocking number of deaths among migrants attempting to cross the sea is what led him to confess, specifically the death of 360 due to a boat sinking in Lampedusa, though he said he was not involved in the incident.

 

"The deaths that we were aware of were a small part of it," Mr Atta told police, according to local media. "In Eritrea alone there have been victims in eight out of 10 families."

 

He said that migrants who can not afford to pay the smugglers are then sold to organ traffickers.

* * *

The number of refugees displaced by conflict was estimated to have reached a global total of 65 million, a record high, at the end of 2015. Sadly, much of this crisis (if not all) is driven by countries such as the United States meddling in other people's affairs and creating an even worse situation than was previously the case. Unfortunately, we don't believe this will cease being the case any time soon.

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Authored by Eric Zuesse,

18 U.S. Code § 1512 — Tampering with a witness, victim, or an informant

(c) Whoever corruptly

(1) alters, destroys, mutilates, or conceals a record, document, or other object, or attempts to do so, with the intent to impair the object’s integrity or availability for use in an official proceeding; or

(2) otherwise obstructs, influences, or impedes any official proceeding, or attempts to do so,

shall be fined under this title or imprisoned not more than 20 years, or both.

 

18 U.S. Code § 1519 — Destruction, alteration, or falsification of records in Federal investigations and bankruptcy

Whoever knowingly alters, destroys, mutilates, conceals, covers up, falsifies, or makes a false entry in any record, document, or tangible object with the intent to impede, obstruct, or influence the investigation or proper administration of any matter within the jurisdiction of any department or agency of the United States or any case filed under title 11, or in relation to or contemplation of any such matter or case, shall be fined under this title, imprisoned not more than 20 years, or both.

 

18 U.S. Code § 2071 — Concealment, removal, or mutilation generally

(a) Whoever willfully and unlawfully conceals, removes, mutilates, obliterates, or destroys, or attempts to do so, or, with intent to do so takes and carries away any record, proceeding, map, book, paper, document, or other thing, filed or deposited with any clerk or officer of any court of the United States, or in any public office, or with any judicial or public officer of the United States, shall be fined under this title or imprisoned not more than three years, or both.

(b) Whoever, having the custody of any such record, proceeding, map, book, document, paper, or other thing, willfully and unlawfully conceals, removes, mutilates, obliterates, falsifies, or destroys the same, shall be fined under this title or imprisoned not more than three years, or both; and shall forfeit his office and be disqualified from holding any office under the United States. As used in this subsection, the term “office” does not include the office held by any person as a retired officer of the Armed Forces of the United States.

 

18 U.S. Code § 641 — Public money, property or records

Whoever embezzles, steals, purloins, or knowingly converts to his use, or the use of another, or without authority, sells, conveys or disposes of any record, voucher, money, or thing of value of the United States or of any department or agency thereof, or any property made or being made under contract for the United States or any department or agency thereof, …

Shall be fined not more than $10,000 or imprisoned not more than ten years or both. …

 

18 U.S. Code § 793 — Gathering, transmitting or losing defense information …

(f) Whoever, being entrusted with or having lawful possession or control of any document, writing, code book, signal book, sketch, photograph, photographic negative, blueprint, plan, map, model, instrument, appliance, note, or information, relating to the national defense, (1) through gross negligence permits the same to be removed from its proper place of custody or delivered to anyone in violation of his trust, or to be lost, stolen, abstracted, or destroyed, or (2) having knowledge that the same has been illegally removed from its proper place of custody or delivered to anyone in violation of its trust, or lost, or stolen, abstracted, or destroyed, and fails to make prompt report of such loss, theft, abstraction, or destruction to his superior officer —  

Shall be fined not more than $10, 000 or imprisoned not more than ten years, or both. (g) If two or more persons conspire to violate any of the foregoing provisions of this section, and one or more of such persons do any act to effect the object of the conspiracy, each of the parties to such conspiracy, shall be subject to the punishment provided for the offense which is the object of such conspiracy.

 

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