Month: June 2018

Submitted by Bill Blain of Mint Advisors

“Some is rich, and some is poor, that’s the way the world is, but I don’t believe in lying back, saying how bad your luck is…”

End of the second quarter.. and how you doing? Half way through 2018 and where have we got? The numbers: as US rates rise, 10 year US Treasury yields have climbed from 2.45% to 2.85%, Bunds have been more volatile – falling from 0.42% to 0.34% while spiking to 0.77% in Feb. The S&P started the year at 2695, and is now 2716… Stunning? Not! The numbers don’t tell the story.

There is definitely a changed mood in markets. Stock markets are uncertain – unconvinced on valuations and tech weightings, but equally unconvinced the market is about to tumble. However, thin trading has many experienced market watchers convinced we’re running out of buyers willing to buy the next dip.

Bond markets are no better: as the Fed normalises, the BoE dithers, and the ECB angsts about ending its buyback programmes – supposedly by year-end – the crutch is tumbling from the market. Corporate spreads are ambling wider – new issues are struggling to catch the same fire as previously – especially as the ECB’s heat comes out the market. While rising US rates have caused many to declare the end of the 30 year bond bull market – as many are saying Treasuries look a great buy around 3%. What do they know that we don’t?

Many analysts fear recession and flat curves, fearing central banks don’t have anything left in the armoury to fight with. I’m sure they’ll think of something.. If it happens.. listen for the sound of helicopters.

Its’ the “noise” engulfing markets that’s been most interesting. If there has been a theme to 2018 thus far, I’d characterise it as “Contradictory Bluster” (and I know at least one senior HSBC exec will remember that phrase with a wry smile…) Contradictory Bluster as markets: try to strip out the bias, figure what Trump means, what tech and social media means, where rates are going, what Central Banks are saying, what populism can do to Europe, what’s really happening across Asia, and just why disappointing economic numbers have been spun into positive confirmations of globally aligned growth.

(There is then a second dimension to the bluster – just how deep does it go? A good measure of Bluster Depth is how long it takes a solution to become a new problem. For example – agreement on one aspect of trade ructions raises another crisis, questioning why has Trump got it so in for Europe, or does letting Italy score some cheap points in Brussels last night end up with the Eastern Europeans and Bavaria demanding more..?)

Meanwhile, another theme has been the dollar strengthen 16% since March (Bloomberg dollar Index), as investors pile into US treasuries as the only place to find “safe” returns. Really? They might get a shock as the rest of the world normalises and the US ballooning deficit comes back into focus – or they might not. 

And… some things never change – like this morning’s headlines about European agreement on Italian demands for a migration package; agreed at 4 pm in Brussels this morning. The Euro strengthens on the apparent unity of purpose. It will probably tumble next week as it become clear how Italy’s win could unravel.

I suppose the classic “same-as, same-as” story this morning is Deutsche Bank – the only bank failing the US banking stress tests this week. Just a few weeks ago we were wondering how they’d managed to take a 12x VAR hit. Now, the Fed says its internal controls aren’t up to the job – especially in terms of “capital-planning.” Oops. We’ve been here before.  “These weaknesses raise concerns about DB USA’s ability to effectively determine its capital needs on a forward looking basis”, said the Fed.

Failing the Fed Test isn’t a death sentence – but its’ hardly a ringing vote of confidence…. and a less than subtle message from the Fed to the bank’s management about their future business plans (ie, don’t bother.) Deutsche’s stock is now trading at its lowest this millennium – Euro 9.06. (Does that mean it’s a buy because its’ cheap as bratwurst?) The banks Contingent Capital deals have shown an equally steep downward trajectory this year – from a 4% Euro yield to 6.07% now. (Again, does that means it’s a screaming buy?) As BPE demonstrated last year – when it comes to “that moment” CoCos are a binary option with all the downside and none of the upside in crisis!  

There are definitely games to be played in DB. One bank analyst I follow closely describes the stock as “option value”, but what’s the value in German banks? Having followed the German banking market for years.. I’m struggling to see the upside… Perhaps readers can enlighten me? 

And on that happy note, have a great weekend. Lots to look forward to next week – we’ve a number of exciting things in the pipeline, including a superb new aviation deal to talk about.. (Let me know if you want an early look-see.)

via RSS https://ift.tt/2Kus79T Tyler Durden

On the last day of a volatile, tumultuous quarter European stocks rebounded sharply following a broad-based rally in Asia on hopes for an upbeat end to the week and quarter, with risk on sentiment further unleashed by an early morning (“vaguely worded”) European deal on migration which sent the Euro surging and 10Y Italian bonds surging. Indeed, it was nothing but green across global markets this morning:

However, the sense of precarious peace was shattered shortly after 6am ET when Axios reported that after several days of calm, President Trump has repeatedly told his advisers he seeks to withdraw the US from the WTO – a decision that would “throw global trade into wild disarray.” Some excerpts from the report:

• Trump has frequently told advisers, “We always get fucked by them [the WTO]. I don’t know why we’re in it. The WTO is designed by the rest of the world to screw the United States.”
• Trump’s economic advisers do push back in the moment when he raises the idea of withdrawal.
• But they’ve never put in place a policy process to take the idea seriously, according to four sources with direct knowledge of his private comments.
• That dismissive attitude in the face of Trump’s insistence could ultimately prove to be a mistake — as history has shown with other policy ideas of which aides do not approve.

The news halted the morning’s rally and pushed S&P futures lower in the pre-market, despite the fact that the story featured several caveats, which suggested that despite its bluster, the White House has no plans to follow through with these threats.

The reason for the market’s jumpiness is understandable: not only has Trump flip-flopped on trade virtually every single day in the past month, with his opinions determined by the size of the market decline, but Trump also famously labeled the WTO a “disaster” and threatened to pull out during a heated interview he gave shortly after locking up the Republican nomination. Trump has also in the past proven that he’s willing to move ahead with policies that his aides have advised against.

Before the Trump news, the biggest overnight event was the news that European Union leaders had agreed to a deal to stem the flow of migrants, easing concern over a standoff between Italy and the rest of the the trading block, while the recently battered Euro jumped the most in a month, and Italian 10-year government bonds rose.

For those who missed it, late on Thursday EU leaders reached an agreement on migration at the EU summit which include Mediterranean centres for migrants to be kept in on a voluntary basis and in which refugees will be shared among EU members on a voluntary basis. Furthermore, the leaders agreed they must ensure effective control of external borders and prevent uncontrolled migration that was seen in 2015, while EU leaders also agreed to extend economic sanctions against Russia for another 6 months. Additionally, EU leaders also signaled intentions to respond to potential tariffs on cars, should trade tensions escalate. EU leaders had initially failed to formally approve a final EU summit joint conclusions statement after Italy blocked all agreements until demands regarding migration were included in the final conclusions which had prompted the EU to cancel the press conference.

Following the news, Europe’s Stoxx 600 Index rose along with US index futures after a rally in Hong Kong and Shanghai led an advance in Asia, following a recent battering on escalating trade war fears. China stocks arrested their decline Friday, trimming losses at the end of a bruising month as central bank comments fueled speculation that liquidity conditions might be loosened. As Bloomberg reports, the Central bank report sends a signal that monetary policy will be a bit looser than previously expected, said Shen Zhengyang, Shanghai-based strategist with Northeast Securities, and shows official support for market and helps sentiment.

The Shanghai Composite Index, which entered a bear market this week, rose 2.2% on the news, trimming the monthly loss to 8%, its worst since January 2016. Meanwhile, developers soar, with Country Gardens leading gains on the Hang Seng Index climbing 11% following a buyback; it still remains the worst performing stock on the HSI this week, falling 12%.

News of potential further easing also boosted the offshore yuan rising and halting a record 11-day decline that was triggered by concern about Chinese policy makers’ intentions.

Buoyed by the Chinese rebound, the MSCI emerging-market index tocks climbed the most in more than a year, rebounding from the lowest level in 10 months.

Meanwhile, in the bond sector, European Govt Bond curves flatten aggressively on reports that ECB may favor long-end when executing QE reinvestments…

… while the bund/BTP spread tightened on migrant deal. Curiously, US Treasury remain stubbornly unchanged even after the return of some market optimism.

In FX, the euro held most of its Asia-session gains after the early morning EU migrant deal was announced. The Bloomberg Dollar Spot Index was lower a second day yet stood stronger on a weekly basis before the release of the Fed’s preferred gauge of inflation.  The pound rallied after GDP data for the first quarter was surprisingly revised higher from earlier estimates boosted by the construction sector. The yen, dollar and Treasuries all declined as demand for safer assets waned; Japan’s bond market showed muted reaction after the central bank reduced outright bond purchases for the third time this month.

In the latest Brexit news, EU’s Barnier says that progress has been made on Brexit but divergences remain with official European Council statement stating that no substantial progress has been made on Ireland, adding further progress is welcome on the withdrawal pact.

In commodities, diverging performance in energy markets, with WTI -0.3% and Brent +0.25%, after WTI hit its highest level in 4 years during Thursdays trade and set for its longest quarterly rise in 8 years, as supply disruptions continue to squeeze the US oil market alongside overarching trade tariff concerns.  In the metals scope, gold is up slightly around USD 1,250/Oz level, as the dollar falls off. This comes after gold hit a 6-month low in the previous session, and was set for its worst monthly performance in over 1 year. Shanghai steel is set for its best quarter in 5 as Chinese demand continues to grow, with the construction material up 2% on the day, and +15% in April-June. Zinc has parred the losses seen in early trade following planned output cuts of 10% by smelters, but is still set for its worst quarter since 2015.  

Friday’s expected data include personal income and spending, and University of Michigan Consumer Sentiment Index.  Constellation Brands and Greenbrier are among companies reporting earnings

Market Snapshot

• S&P 500 futures up 0.5% to 2,733.75
• STOXX Europe 600 up 1.2% to 381.29
• MXAP up 0.9% to 166.11
• MXAPJ up 1.5% to 539.19
• Nikkei up 0.2% to 22,304.51
• Topix up 0.2% to 1,730.89
• Hang Seng Index up 1.6% to 28,955.11
• Shanghai Composite up 2.2% to 2,847.42
• Sensex up 1% to 35,375.50
• Australia S&P/ASX 200 down 0.3% to 6,194.63
• Kospi up 0.5% to 2,326.13
• German 10Y yield rose 2.0 bps to 0.339%
• Euro up 0.6% to $1.1635
• Italian 10Y yield fell 3.0 bps to 2.511%
• Spanish 10Y yield fell 1.8 bps to 1.347%
• Brent futures up 0.8% to $78.43/bbl
• Gold spot up 0.3% to $1,251.50
• U.S. Dollar Index down 0.6% to 94.75

Top Overnight News

• ECB is considering buying more long-dated bonds as it reinvests maturing QE bonds, Reuters reports citing five central-bank sources
• Euro-area inflation hit the symbolic 2 percent level in June for the first time in more than a year, supported by higher oil prices
• Chinese policy makers will act to slow the yuan’s slide once it gets close to 6.7 per dollar in China’s onshore market, according to most of the 18 traders and analysts surveyed by Bloomberg
• Mitsubishi UFJ Financial Group Inc.’s joint venture with Morgan Stanley faces a 218 million yen ($2 million) fine for allegedly manipulating prices in the Japanese government bond futures market
• Ilmars Rimsevics, a member of the European Central Bank’s Governing Council, will face prosecution for bribery in Latvia, further tainting the nation’s reputation in a year that’s already brought U.S. money-laundering allegations and the closure of its No. 3 bank
• Indonesia’s central bank stepped up its policy action with a bigger-than-forecast interest-rate hike — the third increase in six weeks — to halt a deepening slide in the currency
• Turkey’s monetary blitzkrieg seems to have worked, with the lira showing signs of a much- needed turnaround

Asian stocks initially struggled for direction and traded mixed for most the session with the ASX 200 (-0.3%) and Nikkei 225 (+0.1%) contained on month-, quarter- and half-year end rebalancing, while better than expected Industrial Production and a 25year low Unemployment Rate in Japan failed to underpin the local benchmark. However, it was not all doom and gloom for stocks as a late breakthrough at the EU summit later provided the region with a mild uplift. Elsewhere, Hang Seng (+1.6%) and Shanghai Comp. (+2.1%) rallied amid outperformance in tech and plans to ease foreign investment restrictions which overshadowed the switch to a weekly net liquidity drain by the PBoC, although the 3 big telecom names were mixed after their spin-off JV China Tower received approval for a Hong Kong IPO which is set to be the largest globally since Alibaba. Finally, 10yr JGBs were slightly softer amid modest gains in Japanese stocks and after the BoJ cut its purchase amounts in the 5yr-10yr maturities, although the reaction to the Rinban was muted in comparison to previous similar reductions.   US Ambassador to China Branstad said the Trump administration is unconvinced China is willing to make enough progress on trade issues soon enough while he added there is scepticism regarding promises China has made and the US wants to see openings carried out.

Top Asian News

• Indonesia Surprises With Half-Point Rate Hike to Bolster Rupiah
• China’s Zinc Production Cut ‘Only a Proposal’ as Prices Drop
• China Is Expected to Defend Yuan If It Weakens About 1% Further
• Malaysia’s $69 Billion State Fund Chairman Is Said to Be Leaving
• MUFG-Morgan Stanley Venture Accused of Futures Manipulation

European equity bourses are higher (Stoxx 600 +1.19%) after the EU struck a deal for immigrants in the most recent EU summit, settling tensions within the region. Italian and German bourses are benefitting the most from reduced tensions, with the two respective indexes up 1.7% and 1.5% on the day after hitting multi-month lows earlier in the week. FTSE 100 is being weighed on by a stronger GBP as the UK posted positive GDP figures. US equity futures hampered in recent trade by reports via Axios that US President Trump is said to have told advisors he wants the US to withdraw from the WTO. IT names are benefitting from the improved risk tone as investors return to higher Beta assets, with the sector the current outperformer (+1.9%).  Bank stock are in focus, with the US Fed approving 34 of 35 capital plans in the second part of the bank stress tests. CaixaBank (+4.8%) also reached an agreement to sell 80% of its real estate business to private equity fund Lone Star. Gross book value of real estate assets as of end-October 2017 was around EUR 12.8bln Hapag Lloyd revised their guidance downwards on the back of fuel related costs, with this hitting the entire shipping industry; Maersk lower by around 4%.

Top European News

• Euro-Area Inflation Hits 2% Level Amid Boost From Oil Prices
• German Unemployment Slides Again in Sign Companies Stay Upbeat
• U.K. Economy Grows Faster Than Estimated on Construction
• UniCredit Said to Be Selling $3.5 Billion of Loans in Cleanup
• Novartis to Spin Off Alcon as CEO Focuses on Prescription Drugs

In FX, early European trade has been dictated by the firmer EUR seen in the wake of EU leaders reaching an agreement on migration at the EU summit. Optimism surrounding the deal has largely been spurred by relief regarding recent tensions within the CDU/CSU alliance in Germany. CSU’s Michelbach has viewed the deal as a ‘positive signal’ and thus markets are optimistic that this could pave the way for a mending of relations. Furthermore, the fact that Italy were able commit to the deal and avoid walking away has been met with positivity in the market; albeit Salvini has stressed the need for ‘concrete commitments. In terms of price action, EUR/USD soared through the 1.1600 level during thin Asia-Pac trading hours to make a high print of 1.1666 but still some distance of the 1.1720 high seen earlier in the week. EUR unfazed by in-line EZ CPI (Y/Y 2.0%). The sharp rise in the EUR has naturally pressured the DXY which has given up its 95.00 handle to trade lower by around 0.5%. Subsequently, the USD is softer against a bulk of its major counterparts with JPY the exception to the rule amid the broader risk environment spurred by events in Brussels. USD/JPY sits marginally higher for the session with the move to the upside running out of steam ahead of 110.80 with exporter offers from 110.80-90 capping gains. GBP is also firmer vs. the USD (but softer vs. EUR) and has subsequently reclaimed a 1.3100 handle. Brexit-related rhetoric from overnight was unsurprisingly inconclusive and generic with PM May stating that she wants a deal on Brexit that will work for both UK and EU. Perhaps more interestingly, Business Insider sources suggest the EU will reject any Brexit deal that stipulates the UK remains with the goods single market. GBP boosted above 1.3150 to a high of 1.3183 after Q1 GDP Q/Q was revised higher to 0.2% from 0.1% and thus provided some food for thought at the BoE ahead of their August meeting (albeit the MPC had been looking for a firmer upward revision to 0.3%). Elsewhere, broad USD softness has lent a helping hand to AUD with AUD/USD paring the softness seen in the wake of another

In commodities, diverging performance in energy markets, with WTI -0.3% and Brent +0.25%, after WTI hit its highest level in 4 years during Thursdays trade and set for its longest quarterly rise in 8 years, as supply disruptions continue to squeeze the US oil market alongside overarching trade tariff concerns. In the metals scope, gold is up slightly around USD 1,250/Oz level, as the dollar falls off. This comes after gold hit a 6-month low in the previous session, and was set for its worst monthly performance in over 1 year. Shanghai steel is set for its best quarter in 5 as Chinese demand continues to grow, with the construction material up 2% on the day, and +15% in April-June. Zinc has parred the losses seen in early trade following planned output cuts of 10% by smelters, but is still set for its worst quarter since 2015.   

Looking at the day ahead, we get inflation releases with preliminary June CPI reports due in France and the Euro area (core CPI of 1.0% yoy expected), followed by the May PCE report for the US.  Other data worth watching include June unemployment data in Germany, May money and credit aggregates data and the final Q1 GDP print in the UK, and May personal income and spending, June Chicago Fed PMI and final June University of Michigan consumer sentiment revisions in the US.

US Event Calendar

• 8:30am: Personal Income, est. 0.4%, prior 0.3%; Personal Spending, est. 0.4%, prior 0.6%
• 8:30am: PCE Deflator MoM, est. 0.2%, prior 0.2%; PCE Core MoM, est. 0.2%, prior 0.2%
• 9:45am: Chicago Purchasing Manager, est. 60, prior 62.7
• 10am: U. of Mich. Sentiment, est. 99, prior 99.3

DB’s Jim Reid concludes the overnight wrap

It’s amazing to think that by the close of business tonight the first half of the year will be wrapped up. Needless to say that it’s been a bit more of a challenge in 2018 compared to last year with 1379 (and counting) separate President Trump Tweets needing dissecting. In fairness Trump’s Twitter following is now up to 53 million and he’s just overtaken Colombian singer Shakira for 18th position on the most followed accounts globally. Ironically CNN is in 17th position, the news agency Trump has famously branded as being ‘fake news’.

While Trump might be working his way up the Twitter leaderboard, markets aren’t too sure if they’re coming or going at the moment with an initially weak European session yesterday giving way to a fairly decent late afternoon rally for risk in the US. By the end of play the S&P 500 closed +0.62% which means it has spent the past 8 sessions now passing from a loss one day to a gain the next. The magnitude of the losses outweigh the gains however with the index down a little over 2% in this spell. That looks fairly respectable in the context of EM equities however which are down over 5% in the same period. Elsewhere, the Nasdaq (+0.79%) was the relative outperformer yesterday on the back of a decent session for tech while in Europe the Stoxx 600 finished -0.82%, albeit playing a bit of catch up to the late losses on Wednesday. As has been the trend of late, bonds were fairly sanguine (10y Treasuries +1.1bps and Bunds -0.2bps) while Oil (WTI +0.95%) extended its move further into the $70s.

Yesterday was however a breakthrough day for US financials of sort with the S&P 500 financials index (+0.86%) finally snapping a record run of 13 consecutive daily losses. It’s worth noting that this came prior to the release of the second part of the Fed’s stress tests for Banks with the results out last night. Shortly following the announcement the 4 largest US lenders announced a cumulative distribution of more than $110bn through dividend and stock buybacks. Wells Fargo (+3.4%), JP Morgan (+2.0%) and Citigroup (+2.1%) all advanced in afterhours trading while a US financials ETF was up just under +1.0%.

Overnight, S&P 500 futures more broadly are up +0.34% while markets in Asia are closing out the week a bit better with the Hang Seng (+1.14%) and Shanghai Comp (+1.20%) rebounding strongly while the Kospi (+0.24%) and Nikkei (+0.19%) are posting smaller gains. The bigger news this morning however is the Euro which is up +0.76% after EU leaders negotiated a package of measures on migration at the EU summit where member states agreed to increase border security and pledged to overhaul rules for distributing migrants when a host country is overwhelmed. This came despite expectations being low for some form of multilateral agreement so its come as a fairly positive surprise. Importantly for Chancellor Merkel, the joint statement indicated a commitment  to “all necessary measures” to curb the movement of migrants northward.

That said it still remains unclear whether the package will be enough for Merkel to go back successfully to Seehofer’s CSU with however we will get a better idea of that over the weekend. In a report our German economists published yesterday prior to the overnight developments, the team highlighted that the CDU and CSU grandees will – in separate meetings – assess the outcome, in light of their positioning. Our colleagues expect both parties to come to a tentative and preliminary conclusion that things are moving in the right direction, but that major steps need to be taken. This would be face-saving for both sides and would allow Merkel (and Seehofer) to stay in office. On the other hand an alternative scenario, of fundamental discord between the CDU and CSU over the summit’s outcome, could trigger a government crisis in their view, which would likely lead to the CSU walking out of the federal government. So it’ll be well worth seeing how things develop over the weekend. You can find more details in our colleagues’ report here.

As well as that to look forward to, the other good news is that we have something non-trade related to distract us today with the May PCE report due out in the US this afternoon. Our US economists expect a +0.14% mom reading which should be enough to push up the annual rate to +1.9% yoy just about. If that is correct then this would be the highest core PCE inflation level since January 2017, so unless we see a big downside surprise, it’s hard to see today’s data as going against the Fed’s view of two more rate hikes this year. It’s worth also keeping an eye on this afternoon’s personal income and consumption reports for May for evidence that consumer activity remains on track to rebound strongly in the current quarter.

We’ll also get the broader Eurozone CPI report for June today although yesterday’s country level data didn’t throw up any surprises. To be fair with the ECB now pre-committed, you could probably argue that these have become less market sensitive releases compared to the past. Germany’s flash June reading came in at a slightly softer than expected +0.1% mom although base effects did leave the annual rate at +2.1% yoy as expected. Italy was a bit above market at +0.3% mom, while Spain was in line at +0.2% mom.

In the US the most significant data release yesterday was the downward revision to Q1 GDP (to +2.0% qoq annualized from +2.2%), mainly due to a downward revision to the contribution from inventories, although to be fair it didn’t particularly move the dial in markets. Just quickly on the GDP report it’s worth noting that corporate profits were confirmed as growing +6.8% yoy in Q1, the fastest rate since Q4 2016 and the sixth consecutive positive reading, following a run of 5 negative readings though 2015 and into 2016. In terms of the remaining data, the June Kansas Fed manufacturing index edged down 1pt mom to an above market print of 28 (vs. 26 expected) with the prices paid and prices received indices remaining elevated compared to historical norms. Meanwhile the weekly initial jobless claims ticked up to 227k (vs. 220k expected) while continuing claims fell slightly (1,705k vs. 1,717k expected).

Closer to home a busy week for the BoE, saw Chief Economist Andy Haldane become the latest MPC member to make public comments when he spoke in the afternoon. Haldane reiterated his hawkish stance (as a reminder he dissented in favour of a hike at the last meeting) by saying that a steady pick up in wage growth and a tighter labour market will “add impetus to cost and inflationary pressures”.

He went on to say that a hike now would “lower the risk of needing to tighten policy less gradually in future and cause a sharper adjustment in the economy”. Sterling closed -0.27% yesterday and 2y and 10y Gilts were +0.4bp and +1.7bp higher respectively.

Over in the US, more Fed speakers are now cautioning on the fallout from trade tensions. The Fed’s Bullard noted “I’m hearing full-throated angst” from his contacts, with “all aspects of the economy… affected” and that “shows you how uncertainty over trade policy can feed back” into business decision making. Elsewhere, the Fed’s Bostic said “there is so much concern in the business community…I’m hearing some very deep concerns”. Meanwhile on the topic of more  rate hikes, Mr Bostic said “I want to make sure as we move we are truly at a neutral space and not going too far” while Mr Kashkari is “comfortable with us moving to a neutral rate” although he believes we are “one or two hikes away from neutral”.

Before we wrap up a potentially important date for your diaries can now be confirmed for July 16th when President Trump will meet with Russian President Putin in Helsinki. That is one day after the World Cup Final so maybe Trump will be keeping a closer eye on Russia’s impending playoff run if he wasn’t already.

Looking at the day ahead, as mentioned earlier it’s another busy day for inflation releases with preliminary June CPI reports due in France and the Euro area (core CPI of 1.0% yoy expected), followed by the May PCE report for the US.  Other data worth watching include June unemployment data in Germany, May money and credit aggregates data and the final Q1 GDP print in the UK, and May personal income and spending, June Chicago Fed PMI and final June University of Michigan consumer sentiment revisions in the US.

via RSS https://ift.tt/2MyeLXH Tyler Durden

Back in April, BofA analyst Barnaby Martin suggested that in order to mitigate the potential fallout from the end of the ECB’s QE, the European Central Bank could engage in an “Operation Twist” to flatten the curve and keep term premiums low, or in other words, to avoid chaos for the European bond market.

BofA: “Our economists have recently talked about the possibility of an “Operation Twist” to the ECB asset portfolio, to help keep term premiums low.”

— zerohedge (@zerohedge) April 13, 2018

Overnight, and a little over two months later, Reuters reported that the ECB is indeed considering buying more long-dated bonds from next year as part of its bond reinvestment strategy to keep euro zone borrowing costs in check, effectively copycatting what the Fed did with its own Operation Twist first in 1961 and then again 2011, where the central bank replaced short-dated paper with longer-term debt to lower market interest rates and boost an ailing economy (which begs the question: is the European economy that ailing that the ECB is scrambling to come up with QE extensions even at a time when the Eurozone is supposedly recovering).

In this particular case, the “Twist” would be aimed at limiting the natural aging of its 2.6 trillion euro bond portfolio and keeping a lid on long-term bond yields, a key determinant of borrowing costs, bu maintaining a bid for long-term debt while short-term holdings are sold.

As is well known, while the ECB announced recently it would end its QE (absent major market shocks) in 2019, it will continue to reinvest the money it gets from maturing paper for a long time, to ensure cash in the euro zone remains abundant.

And, according to Reuters, conversations with five central bank sources show policymakers are wary of seeing long-term yields creep back up as the ECB’s stock of bonds ages, or “loses duration” in market parlance. To avoid this, the ECB is considering buying more longer-dated bonds, generally seen as maturing in 10 years or more, with the cash it gets from maturing paper. Additionally, since the ECB remains constrained by how many German bonds are available, the central bank may also smooth out its reinvestments by occasionally deviating from its “capital key” rule, Reuters sources added.

The sources said that any such deviation should be minor and that the main rule behind the contemplated changes is to give the bank more flexibility, not fundamentally alter how cash from expiring bonds is reinvested.

Why Twist and not shift to other securities? Because this option was reportedly seen as a more palatable option than increasing purchases of corporate debt, which have attracted criticism for being too risky after one of the companies the ECB had invested in found itself embroiled in an accounting scandal.

“The idea is to keep the duration of the portfolio as much as possible,” one of the sources said. “So it wouldn’t be the end of the world if we deviated from the capital key.”

To be sure, for now the details are scant and the ECB could be merely testing out another Trial Balloon idea via Reuters, which is clear to point out that the issue was not discussed at the ECB’s June 14 policy meeting, when rate-setters merely tasked ECB committees to come up with proposals; a full decision is expected in July or September.

And while Twist would certainly keep long-rates low indefinitely, and certainly for the duration of the ECB’s reinvestments, the problem is that such a move would further cripple European banks who are struggling to make profits at a time when NIRP and QE have collapsed Europe’s yield curve, and led to the unprecedented outcome of Deutsche Bank’s US operations failing the Fed’s stress test.

As expected, the European yield curve collapsed on the news, with the German 5s30s 5bps as much as flatter on the day, as Bond yields across core and semi-core jump, up 5-6bps across the 5-year sector, while the long-end is supported, as the market reprices to adjust for expectations of more ECB purchases on the long end.

As a reminder, two years ago Deutsche Bank was complaining that the ECB is the root of all of the bank’s problems. Therefore, it is safe to assume that the biggest European bank will hardly be excited by this particular proposal, which may therefore be shut down by the ECB hawks before too long.

For now however, the global flattening continues as the ECB remains stuck between a rock and a hard place: wanting higher inflation, yet completely unable to unlock the longer-end of the yield curve to price in just that outcome further perverting the “market.”

via RSS https://ift.tt/2NaTogf Tyler Durden

Authored by Mike Shedlock via MishTalk,

The EU meets again today (after yesterday’s utter failure) in a futile attempt to solve a near impossible problem. A page from Trump’s playbook might help.

Given the incessant bickering between EU countries over migration issues, it’s time to think outside the box.

Here is the 5-Point Dilemma.

1. Germany Merkel’s CDU: Seek a consensus solution under existing EU rules.

2. Germany Seehofer’s CSU: Turn them back at the border (i.e. Send them back to Italy through Austria)

3. Italy Five Star and the League: Change the “Dublin Rules” which state migrants must apply for asylum in the first country in which they land. Italy wants to distribute existing migrants throughout EU. It also supports “safe areas” in Africa.

4. Czech Republic, Hungary, Poland and Slovakia: All refuse new migrants

5. Austria: Austria’s Prime Minister, Sebastian Kurz, wants quotas and “safe areas” in refugees’ countries of origin. In a controversial twist, he said Brussels should organize it and “back it militarily.”

I cannot take credit for this brilliant idea, but Europe needs a wall, and Africa needs to pay for it.

Eurointelligence Comments

Angela Merkel knows she is not going to get a refugee deal. The question is, can she sell what she will get to her sceptical sister party? Will she get a bit of extra time, enough to tide her over until after the Bavarian election? Will it enable the CSU to claim victory, or at least avoid humiliation?

We cannot rule out that the CSU falters at the last minute. But they have leaned themselves so far out of the window that a last-minute retreat would be considered a hard sell, politically. If the purpose of this exercise was to score points ahead of the Bavarian election, a retreat would be the equivalent of losing at football against South Korea.

Giuseppe Conte secured his senior team’s backing for a hard line in the Council negotiations. The Huffington Post Italia report this morning that he is going to Brussels with the determination to veto any agreement on refugees unless there is a commitment to reform the Dublin regulation.

One issue the CSU will have to explain – and hasn’t done so – is how the CSU’s plan would work in practice. [See Point Number 2 above] Austrian interior minister Herbert Kickl, a member of the FPÖ and a close ally of Salvini’s said if Germany decides to send back refugees, Austria would not take them. And we cannot see Italy taking them either. So, where would they go?

And we noted before that Italy could easily respond to Seehofer’s unilateralism by failing to register refugees. That would be a blatant violation of the Dublin regulation, but Seehofer’s position is also in breach of European rules. [See point number 3]

This would be a battle that would pitch German nationalists on the one side, and Austrian/Italian nationalists on the other. This is a somewhat unfamiliar dividing line in European politics. [See point number 1]

In terms of the feasibility of Tusk’s strategy to solve the problem at the external border, we share the scepticism of the CSU. It is illusionary to think that the EU will be able to protect its borders to stem the flow of immigrants completely. The option of building a wall, and letting Africa pay for it, is simply not available because of geography. [Right on the crux of victory, Eurointelligence threw away the logical solution.]

Floating Safe Areas

This brilliant idea seems to handle all positions except point number one. But Merkel will soon be gone so who cares?

To address point number 5, the EU can build floating safe areas in the Mediterranean Sea.

Government Spending Pays For Itself!

Many naysayers will pooh-pooh this project, but please remember the primary thrust of Keynesian and MMT theory: Government spending pays for itself!

Jobs Galore

A massive number of jobs will stem from this project! Inflation? You bet. It’s nearly every economist’s wet dream at the moment.

Rather than paying people to do nothing, we can pay them to build the world’s most beautiful wall, complete with hanging gardens.

The wall will be so beautiful, Tourists will pay to go see it.

Condos

We can build condos on the North side of the wall, well away from floating safe areas on the south side of the wall. Artificial reefs? Sure. Fishing will be fantastic.

Krugman Approved!

Given that Paul Krugman once proposed (seriously) the world could use a fake space alien threat to spur growth, how could he possibly object to this marvelous project.

Krugman later claimed he was being facetious, but play the video. He was dead serious.

He even admitted to Bill Maher on Real Time that he was serious.

Instead of wasting money fighting a fictional space alien threat, why not build a great wall?

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Does ‘America first’ really mean ‘Europe first’ in the preparation for war with Russia? 

At the expense of the American taxpayer, the Trump administration wants to restore the Cold War-era footprint in Europethrough massive investments in military infrastructure to deter Russian aggression and reinforce allies.

It is odd that the administration wants to spend massive amounts of money on infrastructure projects in Europe, but has yet to fix America’s crippling D- infrastructure. Somehow, the priorities of this administration of ‘America first’ have been lost through the alignment with the military-industrial-complex and Washington’s warmongers.

The Trump administration asked for $828 million in 2019 to expand and upgrade military infrastructure projects throughout Europe as part of a continuous fearmongering campaign against Russia to allocate more money to defense. Nearly half of that construction funding would go towards U.S. Air Force projects.

The request for additional funding would more than double the military’s infrastructure projects under the European Deterrence Initiative (EDI), from the 2018 request, when just a few years ago, the Pentagon was scaling back its Cold War-era footprint in Europe.

According to Defense News, the EDI request increased to $6.5 billion from $4.8 billion in 2018, military construction projects in the EDI request jumped from $338 million in 2018, while pre-positioning funds soared from $2.2 billion to $3.2 billion.

The Air Force would spend roughly $368.6 million to pre-position equipment and $363.8 million for military construction projects. While the spending is almost equal to what was expensed in fiscal 2018, it is a huge jump from 2017, when the Air Force was only allotted $31.2 million in pre-positioning funds and $85.4 million for military construction.

What is the reasoning behind the increased military infrastructure spending in Europe?

Well, it is the idea if Russia invaded a NATO ally — the U.S. Air Force will have the tools to instantly respond to the threat, supported by upgraded airfields to reload munitions, higher capacity refueling stations, and more engineering bays to service damaged aircraft.

Areas of focus include Air Force assets in NATO countries, like Germany and the United Kingdom, and countries in Central and Eastern Europe.

Defense News notes that the Trump administration is not planning on constructing new airbases in former Soviet bloc countries, but it is upgrading existing infrastructure to ensure its fifth-generation fighter jets, drones, and other aircraft are adequately prepared for the next round of hybrid wars.

“It makes it easier to reinforce [allies] in a crisis,” said Mark Cancian, a retired Marine Corps officer and senior international security adviser with the Center for Strategic and International Studies.

“The munitions, the taxiways and refueling points makes it much easier to move in there in an emergency,” Cancian added.

During congressional testimony in March, U.S. European Command chief Gen. Curtis Scaparrotti confirmed the plans of a rapid military infrastructure program in Europe. He told U.S. lawmakers that the FY’18 and FY’19 budget requests would “enable the rapid reception of fourth- and fifth-generation fighters, close-air support, bombers and air mobility aircraft in a contingency.”

Near the Russian border in Estonia, the 2018 budget request has funded significant upgrades for refueling infrastructure and a fighter aircraft parking and taxiway at Amari Air Base. The Trump administration wants more Fairchild Republic A-10 Thunderbolt II, General Dynamics F-16 Fighting Falcon, Lockheed Martin F-22 Raptor, and Lockheed Martin F-35 Lightning II aircraft stationed at Amari Air Base to counter Russia. The FY’19 budget also wants a $16 million Special Operations Command training and operations facilities at the airbase.

At Kecskemet Air Base, in Hungary, the administration wanted $56 million in 2018 to upgrade fuel storage, airstrip construction, and other improvements to support the McDonnell Douglas F-15 Eagle and Lockheed C-5 Galaxy aircraft.

At the Malacky Air Base, in Slovakia, the FY’19 budget asks for a large munitions storage facility, where FY’18 budget asked for tactical fighter aircraft parking for the Fairchild Republic A-10 Thunderbolt II and McDonnell Douglas F-15 Eagle. Piecing together the puzzle, the new munitions storage facility could store laser-guided bombs and missiles.

“Across the board, I think there’s a recognition that we took our eye off the ball, and now that we want to increase our deterrence capabilities, we’re seeing deficiencies, and we’re correcting them,” said retired Gen. Frank Gorenc, who served as the Commander, U.S. Air Forces Europe; Commander, U.S. Air Forces Africa; Commander, Allied Air Command; and Director, Joint Air Power Competence Center.

“And while those airfield improvements may appear mundane, the ability to operate in such a distributed fashion across Europe gives the U.S. Air Force real capability, both as a deterrent and in a potential conflict,” he told Defense News.

“That’s not sexy stuff, but for an airman, there’s nothing more exciting than an airfield that is actually capable of generating high-volume combat operations with fuel and weapons and those kinds of things,” Gorenc said.

He added, “And I can assure you there’s so much work to be done in those areas, that have to be done, that have been facilitated by that extra funding. It’s really exciting.”

The FY’19 EDI request also shows the Trump administration wanting to allocate large sums of taxpayers dollars to upgrade the largest U.S. Air Force bases in Europe: Ramstein, Germany, and Royal Air Force Fairford, U.K. The EDI also specifies a number of construction projects to upgrade logistics across all domains, such as ammunition storage, staging areas, rail improvements, bulk fuel facilities, and airfield and port improvements.

The aggressive spending of Air Force investments across Europe could be due to service’s footprint is at a low point, “down to some 34,000 personnel, six main operating bases and 204 aircraft ― from 72,000 personnel, 25 main operating bases and 805 aircraft during the 1990s,” said Defense News.

Amid the threats of a Russian invasion of Europe, the U.S. Air Force is preparing to repel Russian forces, provide adequate air support to NATO allies, and attempt to seize the militarized Russian enclave Kaliningrad.

Last week, we reported that new satellite images show Russia may have significantly modernized a nuclear weapons storage bunker and security system at a secret facility in Kaliningrad.

Not too long ago, Moscow deployed the nuclear-capable Iskander missiles to the region. So, it would make sense that Moscow is creating a nuclear umbrella around Kaliningrad to deter NATO from an invasion.

“What you see is a realization that you can’t defend Eastern Europe from Western Europe,” Cancian said. “If all your forces are in Germany and in an emergency, you try to rush them east, it’s just going to take too long. Just doing the paperwork [from Germany to Poland] takes a week. It’s clearly better to have your forces in Eastern Europe to start with.”  

While it seems the Trump administration is quickly preparing for war with Russia through massive military infrastructure projects in Europe, it has been quite obvious that the priorities of ‘America first’ through investments in domestic infrastructure projects are nowhere to be seen.

War is coming, just follow the taxpayers’ money to Europe.

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Authored by Dmitry Orlov via Club Orlov blog,

Around the world, very few people are capable of wrapping their heads around the European reaction to the migrant crisis.

On the side of the migrants, we have avid displays of barbarism, fanaticism and aggression;

On the side of the Europeans, we have abject fear of appearing… intolerant.

In an out-of-control situation where we would expect people to organize, protest, put up road blocks and vote en masse for nationalist parties, we are instead subjected to the ridiculous spectacle of meek, effeminate Europeans dressed up in unisex outfits chalking “No to terrorism!” on sidewalks.

Most people around the world see in this an orchidaceous display of anthropological nullity. “Is Europe dead?” they wonder aloud.

Lest you think that this impression is politically incorrect or undiplomatic or somehow marginal rather than mainstream, Russia’s FM Sergei Lavrov, a senior Russian statesman and a diplomat’s diplomat, is on the record saying that the European Union is “committing suicide” by letting in the invading hordes from the Middle East and North Africa.

Here we have a flood of people coming in, the majority of them young adult males shirking military service back home, and relatively few of them are qualified to seek asylum. Most of them are unqualified to do any sort of work within the EU due to lack of literacy, education or work ethic. Many of them would not be trainable in any case, coming as they are from populations bred for physical stamina and disease tolerance rather than intelligence.

Quite a few are Islamic radicals who see themselves as actual colonizers; many more have no qualms about robbing Europeans and raping European women. A few thousand are actual terrorists being sent in to await orders. For most of them, crashing into the EU and freeloading there is part of an excellent adventure – far more exciting than herding cattle or growing millet in their native villages.

European NGOs equip them with inflatable lifeboats and life vests and set them adrift off the coast of Libya or in the Adriatic. European NGO ships then scoop them up and deliver them to ports in Italy, Greece or Spain. And then they get to freeload, for months on end, while more NGO types help them with the paperwork and clog up the courts with lawsuits they file on their behalf.

I am sure that some Europeans might think me unkind for presenting such an unflattering summary of the situation. But there is a much higher standard by which to measure it than mere kindness: is it truthful? Truth is often cruel and painful, and yet without truth—with which to understand the true consequences of our actions—we are all but lambs to the slaughter.

Refusal to face the truth by hiding behind a hypocritical, threadbare veil of “kindness” is mere cowardice. Indeed, cowardice is often on display in Europe, hiding behind another threadbare veil—of “security.” When ISIS bombed the airport in Brussels, the Belgian king Philippe and his royal spouse were swiftly evacuated. During medieval times such cowardly behavior would have cost the monarch his crown, possibly along with his head. But now it is fine for a cowardly nation to have a cowardly king.

It is quite difficult to understand the rationale behind such enforced cowardice. Why are the European elites so insistent on ramming “tolerance” down the throats of their citizens and replacing them with imported barbarians? What happened to the spirit of bloodthirsty empires that had bled the entire planet dry for centuries, accumulating countless treasure?

What I believe happened is that the Europeans became too comfortable. Yes, they did experience some hardship during the two world wars, but it was nothing compared to what many other nations went through, Russia and China especially. When life is a struggle, experience is vivid, simple joys are profoundly felt, intelligent choices are critical to survival and acts of heroism are both necessary and valued. When life is comfortable, people become satiated and hard to satisfy, tastes become decadent and effete, questions of safety are pushed off on specialists and spontaneous acts individual heroism and bravery come to be treated as symptoms of social maladaptation.

Given enough safety and comfort, they become ends in themselves and the standards by which all things are measured. Those less safe and less comfortable are perceived as less successful and fashionable, and become less popular, in a game of endless oneupmanship. In turn, those yet to be seduced by safety and comfort, and willing to battle for principles higher than mere tolerance and kindness, become incomprehensible; after all, what else is there but safety and comfort? But this is only a setup for the next leg down, because safety and comfort cannot function as absolutes.

Safety cannot be guaranteed in all places and at all times: accidents do happen. You might get punched in the face by a belligerent drunk, get molested by a horny migrant, die in a terrorist attack because Allahu akbar or, more likely, break your neck by falling off your bicycle. Since you are no longer responsible for providing for your own safety—it is now the work of paid professionals—you can’t blame yourself. You can, of course, blame the paid professionals, but they are, you know, doing their best… Your only choice is to claim that you are a victim. Victimhood becomes a prized commodity and a badge of honor. Extreme attention and care lavished on all varieties of victims, who are encouraged to organize and to bargain collectively, helps assure the rest that their total security is very important. You can be a victim, but you can’t be a victim of your own stupidity.

Speaking of stupidity, the realization that you are stupid is not comfortable, yet everyone—even the stupid—must remain comfortable at all times. Given that exactly half the people are of below-average intelligence, this is rather tricky to arrange. Claiming that half the population are victims of stupidity doesn’t exactly solve the problem: such an overabundance of victims hollows out the promise of universal comfort. Nor is the problem addressed by imposing a system of universal meritocracy based on individual rights: the intelligent will do better than the unintelligent, causing the latter considerable discomfort.

The solution is to step back from the principle of meritocracy. Instead of guaranteeing individual equal rights and opportunities based on ability and performance we strive for equality of outcome: everybody gets a participation prize and a bit of money just by being obedient and polite, with the size of the prize and the sum of money carefully calibrated based on one’s level of victimhood. This is now sometimes referred to by the strangely repurposed word “equity.” Since it is hard to organize the distribution of “equity” on an individual level, people are formed into a myriad of groups and each group gets weighted against the rest. If you are a disabled black lesbian, you get to check off three victimhood boxes at once and be handed the same prize as an able-bodied white heterosexual male. This is now strangely referred to as “social” justice—as if there were ever any other kind.

This new type of person, which arose first in Europe and then spread all over the West and beyond, does seem like a degenerate form of humanity: bereft of great passion and lofty goals, lacking any clear ethnic or social allegiance or preference, fixated on comfort and safety and deficient in both masculinity and femininity: a sort of civilizational eunuch imprisoned in a four-star LGBTQ concentration camp. These may seem like major negatives, but on the plus side this type of person is mostly harmless. Half a billion people now inhabit, without posing much of a danger to each other, a smallish peninsula jutting out of Western Eurasia that until recently has been the scene of endless armed conflict. They do not destroy material or cultural artifacts but seek to accumulate them, investing in comforts and in consumption. That, most people will agree, is progress.

The last major challenge to this way of being was presented by the integration of Eastern Europe, where national passions still run high. But that problem was easily solved by finding a scapegoat—Serbia—which was cursed for its lack of multiculturalism and tolerance and bombed into submission. This scared everyone else in Eastern Europe into inaction, for the time being. But now mass migration has presented a problem on an entirely different scale, causing Poland, Hungary and now even Italy to rise up in rebellion against the alien onslaught.

The newcomers predominantly come from cultures that are the opposite of tolerant and kind. They are mainly characterized by cruelty, passion, clannishness and religious and political fanaticism. They want to live right here and right now, take pleasure in the beastlier side of human nature, and they see Europe as a treasure chest to be looted. Their cultures hearken back to an earlier era of European history, when huge crowds gathered in city squares to watch people being drawn and quartered or burned alive.

The Europeans conquered their own medieval nature, but then reimported it. The new, emasculated Western European Man is unable to push back against it; nor can their governments, whose leaders are forced to abide by the same cultural codes of tolerance, political correctness and compulsory kindness. But the Eastern European Man, only temporarily frightened into acting tolerant and emasculated, will not stand for any of this for much longer. His medieval nature is still quite close to the surface, while their Western neighbors have placed theirs in museums and various other tourist traps. This is already apparent: there was a recent EU summit on immigration; the East Europeans didn’t even bother showing up.

Looking at the situation from even farther east, from European Russia and the rest of the Eurasian landmass, there is a distinct sense of sadness in watching Europe die. A large chunk of human history is about to get trampled and despoiled. Having spent the last several decades resurrecting Eastern Christendom after the damage caused to it by the Bolshevik barbarians, they watch with dismay as the relics and ruins of Western Christendom are becoming submerged by a new barbarian wave. Western Europe’s inhabitants may no longer amount to much, but they are still valuable as museum attendants and tour guides.

That Europe is turning itself into a museum was apparent to Dostoevsky 150 years ago, when he wrote this (speaking through the character of Versilov):

“To a Russian Europe is just as precious as Russia; every stone in it is charming and dear. Europe is as much our Fatherland as Russia… Oh, how precious are to us Russians these old foreign stones, these miracles of an old, godly world, these shards of holy miracles; they are more precious to us than to the Europeans themselves!”

And then again, this time speaking as Ivan Karamazov, with even greater passion:

“…I want to travel to Europe, and so I will. Of course, I know that I will just be visiting to a cemetery. But so what? The corpses that lay in them are precious; every headstone tells the story of a great life, of passionate belief in heroism, in one’s own truth, one’s own struggle. I know already that I will fall to the ground and kiss these stones, and cry over them—even though convinced with all my heart that all of this has turned into a cemetery long ago, and is nothing more.”

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When you regularly buy goods or services, it helps fuel the economy at both the local and national level.

But, as Visual Capitalist’s Jeff Desjardins asks, what if you live in a place like Syria, that is torn apart by a seven-year long civil war?

Aside from the obvious humanitarian costs, these dire circumstances would ultimately change your spending behavior, how businesses operate, and how capital gets utilized. The fact is that conflicts, homicides, terrorism, and other types of violence can hinder productivity and wealth creation, and this ultimately has an impact on families around the world.

CALCULATING AN ECONOMIC IMPACT

In today’s chart, we use data from the Global Peace Index 2018 report, which tries to put a figure on the expenditures and economic effects related to “containing, preventing and dealing with the consequences of violence”.

Courtesy of: Visual Capitalist

According to the report, the economic impact of violence to the global economy was $14.76 trillion in 2017 in constant purchasing power parity (PPP) terms. This is roughly 12.4% of world gross domestic product (GDP), or $1,988 per person.

While those figures themselves are quite staggering, how it all breaks down is even more interesting.

VIOLENCE BY TYPE

Violence comes in many forms, so how does factor into the economic impact?

The Institute for Economics and Peace, the non-profit think tank that has authored the report for the last 12 years, breaks down economic impacts as follows:

The vast majority of impact comes from military and security spending, which are both aimed at the prevention or containment of violence. Meanwhile, homicide and conflict – two more direct violent actions – are the next two biggest factors.

Here’s how this breaks down by region:

Dollars are going to military and security spending in North America, Asia-Pacific, and Europe. Meanwhile, it’s actual violence like homicides, conflict, and terrorism that cause economic havoc in South America, Central America, and Africa.

THE COUNTRIES MOST AFFECTED

Which countries are impacted the most by violence, as a percentage of their GDP?

Here are the top 10, as per the report:

Syria, which has been in its civil war for seven years now, is the country most affected by the economic impact of violence. Meanwhile, war-torn Afghanistan is not far behind.

Interestingly, the cost of violence in Latin American countries is comparable to regions that have been at war for years. El Salvador ranks a surprising fourth place, due to its issues with gang activity and a sky-high homicide rate, and Colombia makes the list as well.

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Authored by Alex Gorka via The Strategic Culture Foundation,

The predictions have come true about the emergence of a new defense group that will change the European security environment.

On June 25, the defense chiefs from nine EU countries signed off on the creation of a new force called the European Intervention Initiative (EII), which is spearheaded by French President Emmanuel Macron. The new organization will have a common budget and a doctrine establishing its guidelines for acting and joint planning for contingencies in which NATO may not get involved. The group includes the UK, Germany, Denmark, the Netherlands, Belgium, Estonia, Spain, and Portugal. Italy may join soon. The initiative is not tied to the EU’s Common European Defense, which includes the PESCO agreement as well as NATO. Great Britain has always opposed the idea of creating a European defense alliance, fearing it would undermine transatlantic unity. Now it has done an about-face, as the rifts within the US grow deeper.

The new force is to be much more efficient than anything else the EU has to offer, with a streamlined decision-making process that will permit a quick reaction time. Its relatively small number of members will give it more flexibility in comparison with the EU or NATO. For instance, the EU’s four multinational military battle groups that were created as far back as 2007 have never been deployed.

Its main mission is to offer a rapid response to crises that could threaten European security. The operations are to be conducted independently from US control. The UK will remain a member of this European defense entity even after it leaves the EU next year. Denmark, which retains a special opt-out status and has not joined PESCO, is a signatory to the EII. This is a step on the path to creating a real European armed force to unite non-EU participants with those who keep their distance from the European deterrent headed by Brussels. If the process gains traction, Norway, a NATO member that is outside the EU, plus Sweden and Finland, which are EU members outside of NATO, may consider joining the EII as well. Sweden and Finland are already members of the UK Joint Expeditionary Force.

Will it undermine NATO? To a certain extent it will. Any defense group outside the alliance that acts independently weakens it. At the same time, this gives NATO an opportunity to focus on the European theater of operations without being distracted by other hot spots. Any coin has two sides. Afghanistan is an example of NATO solidarity but is also an example of how a crisis that takes place outside of the alliance’s primary area of responsibility has weakened NATO’s standing in Europe.

Europeans have participated in the operations in Afghanistan and Iraq, conflicts in which they have no interest, in order to please the US. The real threat to Europe comes from the Middle East and North Africa (MENA). The planned creation of migrant reception centers in Africa may require military involvement. Washington views Europe’s migrant crisis as a far-flung problem that does not directly impact its own national security interests. NATO forces Europeans to focus more on the so-called Russian threat that no one takes seriously, despite the fact that defending its own borders is a pressing issue.

Europe can never be truly independent without the capability to mount a robust defense on its own. For instance, the EU needs a joint border force to prevent illegal immigration, which is plainly a real threat. The interests of the new group and Russia are not in conflict. Far from it. If the Russian-backed Syrian government finally wins, the flood of refugees to Europe will significantly diminish. Some migrants may return home. Russia has an important role to play in Libya, another source of refugees. Those interests coincide, while conversely, the US is more interested in countering Iran, which will exacerbate tensions, prompting more people to move to Europe seeking refuge from war. If an international operation in Libya is approved by the UN Security Council, the EII and Russia may act together, unified by a common interest.

With the EU still unable to bring its plans to fruition, the project led by President Macron stands a very good chance of creating a European group that would become an independent global player. NATO and the EU are being torn apart by internal conflicts while the EII is not. That group will be able to stand up to real threats, not imaginary ones.

Something is rotten in the state of Denmark, as NATO and the EU defense initiatives are failing to meet the interests of European security, forcing those nations to seek other alternatives, such as the EII. The threat of the Russian bogeyman has failed to paper over those differences. The quest continues. Whatever is in store for the newborn alliance, this is very bad for NATO, as this news is coming just a couple of weeks before the summit that may break up the alliance and consign the much-vaunted concept of “Western unity” to its grave. 

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If there’s one group that has benefited from Venezuela’s economic collapse, it’s the country’s military, which has been handed control over much of the country’s remaining industry as the collapse has intensified. Venezuela’s army, about 160,000 strong, controls the mineral-rich Arco Minero del Orinoco, and some of its top officers are also serving as executives of Venezuela’s state-run oil company.

And as the collapse of social services has caused water supplies to dwindle, the military has recently hijacked what spigots remain, transforming access to water into a luxury that most Venezuelans can’t afford. Many of the pipes and reservoirs have fallen into disarray – or seen their supplies drastically diminished – the military is stepping in to take charge of the “equitable distribution” of what little remains. As part of the government’s socialist policy program, the cost of water is supposed to be subsidized – at least in theory. But with the state-owned water utility, known as Hidrocapital, has effectively abdicated its responsibilities, the military is increasingly stepping in, commandeering trucks and vans used by private individuals who have tried to step in and service parts of the capital, according to a Bloomberg report.

Venezuela’s military has come to oversee the desperate and lucrative water trade as reservoirs empty, broken pipes flood neighborhoods and overwhelmed personnel walk out. Seven major access points in the capital of 5.5 million people are now run by soldiers or police, who also took total control of all public and private water trucks. Unofficially, soldiers direct where drivers deliver — and make them give away the goods at favored addresses.

Rigoberto Sanchez, who runs a water tanker that ferries water from the El Paraiso water-filling station in Caracas to an array of customers in the city, says his No. 1 business hazard is being intercepted by the military.

Those who want more must pay. Private tankers like Sanchez had been filling up and reselling water for many times its worth. Then, military personnel were deployed to the capital’s water points in May in an emergency supply plan.

The El Paraiso station is blocks from El Guaire, a filthy river carrying sewer water that the late President Hugo Chavez pledged to clean enough for a swim back in 2005. Even before the sun heats the muddy waters, the scent is putrid. It is untreated. Unpotable and drinking water must come from elsewhere.

Depending on driving distance from the water point, Sanchez charges about 18 million bolivars to fill an average residential building’s tank. For bigger jobs he can charge up to 50 million. While that’s just $17 at black-market exchange rates, compares that to a month’s minimum wage of about $1.

Recently, Sanchez has a new expense: Military officers have begun commandeering trucks, according to a dozen water providers in Caracas. Drivers are forced to go wherever officers tell them without the expectation of pay. Sometimes they’re led to government buildings, others to military residences or private homes. In other cases, soldiers simply block access to springs and wells. At a filling station near a large park in Eastern Caracas, a lock had been placed on the water lever.

[…]

“They hijack our trucks, just like that,” said Sanchez, leaning on a rusty railing. “Once that happens, you’re in their hands, you have to drive the truck wherever they want you to.”

President Nicolas Maduro last month appointed Evelyn Vasquez, a Hidrocapital official, as the head of a new water ministry. But Norberto Bausson, who ran the utility back in the 1990s, said that “institutional incompetence” is risking a “disaster” should Venezuela have a exceptionally dry year. Already, the utility sometimes cuts service int he capital for as long as two days at a stretch.

People in Caracas, who on average only have access to water for 30 minutes every morning and night, frequently rush home from work and social gatherings to shower or collect water, racing against the clock before supplies are once again shut off. And while the situation in Caracas is dire, circumstances are even worse for poor Venezuelans living in the more remote provinces. To wit, a report from charity Caritas recently revealed that only 27% of poor Venezuelans have continuous access to safe drinking water. 65% have access for three days a week or less, while in the state of Miranda, not a single poor family has access for more than three days a week.

These shortages have made gathering the day’s supply of water a tedious part of the morning routine for many families.

When water makes a rare appearance at Odalys Duque’s two-bedroom home, it’s usually at dawn and wakes her with a rattle at the bottom of a plastic drum. She then has to rush to align buckets, bins and pots in hopes of gathering every drop for her husband and two small children.

In mid June they’d had none for three weeks. Instead, they survived on what was left in a roof tank and what her husband could carry in paint buckets strapped on his shoulders from a well at the bottom of the sprawling hillside slum of Petare.

“It’s an ugly situation that keeps getting uglier,” said Duque, 32. “The little one cries when I pour the bucket of cold water on him, but at least we still get something. My family that lives higher up the mountain hasn’t had water in months.”

[…]

The situation governs much of Duque’s life. For drinking water, she waits for particles to settle at the bottom of plastic buckets and then pours the surface water into a pot where she boils it at least half an hour. For laundry, she’ll wash several loads of clothes and linens in the same dirty water.

Elderly people and children from neighborhoods even higher up the mountain knock on her door asking for water. “I always give them something, even if it’s just a glass,” she said.

The lack of access to clean water, as horrifying as it sounds in Latin America’s socialist paradise, is perhaps even more galling because of the $500 million in loans the country has received over the past decade from the Latin American Development Bank and the Inter-American Development Bank to upgrade its water-treatment infrastructure. Unfortunately for the people of Venezuela, none of it appears to have helped.

While water shortages threaten the population with malnutrition and other diseases as people are forced to drink unclean or non-potable water just to survive, Bloomberg recently pointed out another shocking development: The cost of a single cup of coffee in Caracas has eclipsed one million bolivars (equal to about 29 US cents) That’s about one-third of the average monthly wage in the country, which has slipped to roughly $1 thanks to the government’s frantic money printing.

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