Category: zerohedge

Following the latest month abysmal trade and PMI data out of Japan overnight (April exports crashed -10.1 %, worse than the exp. -9.8 and worse than last month’s -6.8% while imports plunged -23.3% also far worse than exp. -18.8 and March -14.9%; PMI 47.6, Exp. 48.3, last 48.2), it was supposed to be a straight up for the USDJPY, and its carry linked E-mini. However, that this did not happen, and instead the Yen jumped, sinking the USDJPY as low as 109.3 was troubling and suggests that the G7 “Sendai discord”, profiled here on Saturday, was worse than even we expected, and Japan indeed no longer has a right to devalue its currency which in turn has pressured the Yen higher.

Aside from Japan, and the previously announced latest mega-M&A in the form of Bayer’s unsolicited $62 billion bid for Monsanto, the overnight session saw various European PMI prints, where despite a miss and drop in the EU Composite PMI (at 52.9, below Exp. 53.2, and last 53.0), Germany reported a modest improvement in its mfg and service PMIs which provided some optimism to the session.

That however does not explain the sharp, sudden swings in the Dax and Stoxx 600, which from opening red, then turning green, were back in the red at last check. Energy companies posted the biggest decline of the equity benchmark’s 19 industry groups as commodities tumbled. Bayer AG lost 3.2 percent after disclosing an unsolicited $62 billion all-cash offer to acquire Monsanto Co. amid investor concern that it might overpay for a deal that would create the world’s biggest supplier of farm chemicals and genetically-modified seeds.

Apple Inc. suppliers AMS AG and Dialog Semiconductor Plc rose at least 2.4 percent, leading a gauge of technology stocks, after Taiwan’s Economic Daily News reported that the iPhone maker has asked suppliers to prepare production for a new version of its smartphones. Aixtron SE jumped 16 percent after the German supplier of semiconductor equipment said it has agreed to a 670 million-euro takeover bid from a group of Chinese investors.

One recurring concern is what the Fed will do, and how this will impact the dollar. As a result, government bonds rose as investors weighed the timing of the Federal Reserve’s next increase in interest rates and the outlook for inflation.  As Bloomberg puts it, treasury 30-year yields fell for a third day. The yen rose from near this month’s low, spurred by the biggest trade surplus in six years and a U.S. rebuttal of Japan’s case for intervention to weaken the exchange rate.

Investors are moving to price in the Fed’s first increase in interest rates since December after several policy makers signaled a move is becoming more likely, with Fed Bank of Boston President Eric Rosengren telling the Financial Times at the weekend that he’s ready to back a rate increase. Investors now see a 28 percent chance of a June rate hike, while the chances of a July increase have climbed to 48 percent. Regional Fed chiefs for St. Louis, San Francisco and Philadelphia are due to speak Monday.

“There is a lot of discussion about interest rates in the U.S. and the data we will see this week is important,” Herbert Perus, head of equities at Raiffeisen Capital Management in Vienna, told Bloomberg. “Maybe then we’ll have a better idea of what’s going on in June, July, or September.”

Maybe. Meanwhile, oil fell for a fourth day after Iran said again that it won’t countenance freezing output until its production is back at pre-sanctions levels, while iron ore tumbled on rising Chinese stockpiles and copper declined. The Stoxx Europe 600 Index fell, erasing an advance of 0.4 percent.

Futures on the S&P 500 also declined after initially jumping higher in thinly traded, illiquid tape. Best Buy Co. posts earnings today. Investors are also looking to economic data for indications of the strength of the world’s biggest economy and the trajectory of interest rates. A preliminary report due Monday is forecast to show U.S. manufacturing activity expanded to 51.0 in May, up from 50.8 a month ago.

Market Snapshot

• S&P 500 futures down 0.2% to 2046
• Stoxx 600 up 0.5% to 336
• DAX down 0.8% to 9838
• S&P GSCI Index down 0.5% to 365.3
• MSCI Asia Pacific up 0.4% to 126
• Nikkei 225 down 0.5% to 16655
• Hang Seng down 0.2% to 19809
• Shanghai Composite up 0.6% to 2844
• S&P/ASX 200 down 0.6% to 5319
• US 10-yr yield down 1bp to 1.83%
• German 10Yr yield down 1bp to 0.15%
• Italian 10Yr yield down less than 1bp to 1.47%
• Spanish 10Yr yield down less than 1bp to 1.56%
• Dollar Index down 0.05% to 95.29
• WTI Crude futures down 1.1% to $47.83
• Brent Futures down 0.9% to $48.19
• Gold spot down 0.2% to $1,250
• Silver spot down 1% to $16.37

Looking at regional markets, Asian stocks traded mixed despite initially beginning the week mostly higher following last Friday’s tech led-gains in US. Nikkei 225 (-0.5%) underperformed on weak data in which exports and imports fell more than expected highlighting sluggish demand. Japanese exporter sentiment was also pressured by a firmer JPY and contraction in PMI figures. ASX 200 (-0.3%) trades with losses as weakness in copper and oil weighed on sentiment, while Chinese bourses bucked the trend with the Shanghai Comp (+0.6%) & Hang Seng (-0.4%) initially mildly supported after the PBoC continued liquidity injections, coupled with comments from President Xi and Premier Li calling for several measures to support the economy. 10yr JGBs traded mildly higher as the risk-averse sentiment in Tokyo supported safe-haven demand.

China President Xi Jinping called for local authorities to prioritize supply-side reform and increase confidence in economic restructuring, while Chinese Premier Li Keqiang urged for less red tape, improved regulations and better services to support a sustained and healthy development of the economy.

Top Asian News

• Yuan Basket at One-Month High as China Seen Curbing Volatility: Gains against peers show aim to prevent disorderly sales, OCBC says
• Japan’s Exports Post Seventh Monthly Decline on Stronger Yen: April exports fall 10.1% y/y vs est. -9.9%
• Goldman Manages Japan Minus-Rate Bond as Swaps Lure Global Funds: State-backed Japan co. sells its first negative-rate notes
• 1MDB Bond Fates Diverge as Abu Dhabi Vow Trumps Najib Support: Malaysian fund talks with creditors Monday after April default
• S.F. Holding to Backdoor List in Estimated 43.3b Yuan Deal: Co. will list through reverse merger with Maanshan Dingtai Rare Earth

The European week has kicked off in a choppy fashion, with equities initially trading in the red across Europe before pulling off their worst levels by mid-morning (Euro Stoxx 50: -0.3%). German large cap Bayer (-2.1 %) is among the worst performers on the continent, after the Co. announced their USD 62b1n bid for Monsanto, with shares lower by around 14% since reports of their interest initially surfaced. The downside in equities has been met with upside in Bunds, with the German benchmark briefly moving above 164 albeit failing to hold the level , as participants initially focussed on the slip in supply this week, with some desks are also noting a recommendation from Commerzbank to take a tactical long position in Bunds. Of note however, the EFSF have mandated banks for an upcoming dual tranche offering with books now open for their new 10 and 31yr bonds.

European Top News

• Ryanair Profit Growth to Slow as Terror ‘Drip’ Crimps Fares: earnings growth will slow this year as a spate of terror attacks combines with lower fuel prices to prompt European airlines to cut fares
• CF Abandons $5.4 Billion OCI Deal in Face of Tax Inversion Rules: Although both companies explored alternative structures to try and get the deal done, they failed to find an option that would work
• Chinese Group to Buy Europe’s Aixtron for $752 Million: A group of Chinese investors agreed to buy Aixtron SE for about 670 million euros, giving the manufacturer a chance to boost sales by expanding in Asia
• Sky, Iliad Said Among Suitors Weighing Italian Wireless Assets: Vimpelcom, CK Hutchison seeking to sell towers, spectrum. Fastweb, Tiscali also in talks with owners of Wind, 3 Italia
• Brexit Spurs Torrent of Options Trading in Last Hedging Rush: investors are piling into contracts protecting against stock swings, paying prices not seen in more than a year for the hedges
• World’s Biggest Wealth Fund Faces Wider Ban on Coal Investments: A majority of parties in Norway’s parliament want to tighten guidelines that prevent the $850 billion fund from owning companies that base more than 30 percent of their activities or revenues on thermal coal

In FX, as anticipated, a cautious morning of trade, with the USD pushing a little higher, but after some of the recent moves seen, seems to be marginal positioning at best . Much of the focus is on Fed chair Yellen’s speech on Friday, so this will likely keep USD trade 2 way for the most part of the week, with her familiarly measured(/dovish) leaning (since the start of the year) a major risk for USD bulls. The yen appreciated 0.7 percent to 109.38 per dollar, after losing ground in each of the last three weeks as Japanese officials warned they may intervene to weaken the currency. Finance Minister Taro Aso raised the issue in a meeting with U.S. Treasury Secretary Jacob J. Lew, who said yen moves haven’t been overly volatile. The two were attending a meeting of Group of Seven finance chiefs in Japan.

Early action today has seen EUR/USD pushing lower to test bids from 1.1200 again, with moves partially driven by EUR/GBP losses which have seen Cable pushed back into the mid 1.4500’s as a result. German PMI’s were better than expected, but this was not reflected in the EU wide numbers. AUD/USD continues to struggle ahead of .7260 on the topside to keep the prospect of fresh lows alive, while USD/CAD is still consolidating above 1.3100 to see a potential move on 1.3200 on the table.

A measure of implied price swings in the pound over the next one month climbed to its highest since February as the vote that will decide the fate of Britain’s membership in the European Union draws closer. One-month implied volatility, a measure of price swings based on options, climbed 80 basis points to 11.24 percent.

In commodities, WTI and Brent looked to have based out in the session with WTI just under the USD 48.00/bbl level and Brent just above USD 48.00/bbl. West Texas Intermediate crude dropped 1.3 percent to $47.80 a barrel and Brent slid 1 percent to $48.23. The Organization of Petroleum Exporting Countries is unlikely to set a production target when the group meets June 2 as it sticks with Saudi Arabia’s strategy to squeeze out rivals, according to all but one of 27 analysts surveyed by Bloomberg. Iron ore prices fell in Asia as rising port inventories in China spurred concern that global supplies are once again topping demand. Futures on the Dalian Commodity Exchange fell 3.5 percent to 359 yuan a ton ($54.79). Steel rebar futures in Shanghai dropped 3.5 percent on Monday to 1,983 yuan a ton.

Copper fell 0.5 percent to $4,557 a ton, declining with other industrial metals following suggestions the Fed could raise interest rates as early as next month. Zinc lost 1.6 percent and nickel slid 1.7 percent. U.S. natural gas advanced after forecasts showing an increasing probability of above-normal temperatures in the northeast and Midwest, which can increase demand for electricity for cooling. Futures rose 2.6 percent to $2.116 per million British thermal units.

Gold has been trading sideways at USD 1250.83/oz firmly within a USD 15.00 trading range. Silver has just bounced off of its USD 16.33/oz support level but remains in a downtrend. Elsewhere in base metals copper and iron ore prices fell with Dalian iron ore futures slumping by 5% to its lowest since early March at the beginning of trade due to demand concerns from the world’s largest iron ore consumer, China.

Bulletin Headline Summary from Bloomberg and RanSquawk

• European trade has been relatively choppy thus far as initial downside in equities was pared with some citing upbeat German PMI data
• In FX markets, early action today has seen EUR/USD pushing lower to test bids from 1.1200 again
• Looking ahead, highlights include US PMI alongside Fed’s Bullard, Williams and Harker
• Treasuries rise during overnight trading amid drop in Japanese, European equity markets after euro-area Markit PMI showed growth in region’s private sector unexpectedly slowed in May, and Japan’s exports fell for a seventh consecutive month in April as the yen strengthened.
• Speaking in Beijing, St. Louis Fed President Bullard said growth inconsistent with slow-rising path for policy rate; also said some data support market view, some support FOMC view
• Belgium, Canada, France, Mexico, Spain, Switzerland and the U.K. have all sold debt maturing in 40 to 100 years since 2014, even if infrequently. Not the U.S., which in the interest of keeping sales regular has stuck to securities of three decades or less
• Mark Carney is limbering up for another encounter with members of Parliament’s Treasury Committee on Tuesday at 10 a.m. in London after a fiery exchange with pro-Brexit lawmaker Jacob Rees-Mogg in March over the U.K.’s referendum on European Union membership
• The U.K. government issued its starkest warning yet about the dangers of a vote to leave the EU in next month’s referendum, saying Brexit risks causing a yearlong recession, sparking a decline in the pound and costing hundreds of thousands of jobs
• With only one month to go before the U.K. votes on whether to remain in the EU, investors are piling into contracts protecting against stock swings, paying prices not seen in more than a year for the hedges
• Greece’s European creditors are preparing to disburse EU11b ($12.3 billion) once the nation successfully completes a review of its bailout program
• All but 1 of 27 analysts surveyed by Bloomberg said the OPEC won’t set an output target on June 2, as it sticks with Saudi Arabia’s strategy to squeeze out rivals including U.S. shale drillers by pumping near-record volumes
• The Swiss are discussing paying people $2,500 a month for doing nothing. The country will vote June 5 on whether the government should introduce an unconditional basic income to replace various welfare benefits
• Sovereign 10Y yields mostly lower; Asian equities mixed, European equities lower; U.S. equity-index futures lower; WTI crude oil, precious metals fall

US Economic Calendar

• 9:45am: Markit US Manufacturing PMI, May P, est. 51 (prior 50.8)

Central Banks

• 6:15am: Fed’s Bullard speaks in Beijing
• 8:00am: Fed’s Williams speaks in New York
• 6:30pm: Fed’s Harker speaks in Philadelphia
• 11:05pm: Reserve Bank of Australia’s Stevens speaks in Sydney

DB’s Jim Reid concludes the overnight wrap

a new week begins with today’s various flash PMIs from around the world the main highlight. Europe is expected to generally see a modest improvement overall as is the flash manufacturing number in US (51.0 expected vs. 50.8 last month). This number will be interesting as many of the regional numbers have been weak recently (Philly Fed and Empire Manufacturing) and the recovery in manufacturing seen in the US through Q1 seems to be stalling even with a firmer oil price.

Before we get to the data though, there’s been a few interesting snippets of newsflow to highlight over the weekend first. Over at the G7 finance leaders meeting this weekend much of the headlines are focused on what appears to be growing tension between the US and Japan concerning exchange rate policies. Indeed Japan’s Finance Minister Taro Aso hinted at growing frustration in the Japan camp about the stronger Yen and the subsequent impact that this was having on exporters. This point was seemingly made to US Treasury Secretary Jack Lew with Aso saying to reporters that he had told Lew that ‘one-sided, abrupt, and speculative moves were seen in the FX market recently, and abrupt moves in the currency market are undesirable and the stability of currencies is important’. According to Reuters Lew responded by saying that he did not consider recent moves in the Yen to be ‘disorderly’ and that ‘it’s important that the G7 has an agreement not only to refrain from competitive devaluations, but to communicate so that we don’t surprise each other’.

The Yen is close to half a percent stronger this morning while Japanese equity markets are weaker (Nikkei -1.11%) to begin the week although that in part reflects the latest trade data which was released overnight. Japan’s trade surplus has risen to the highest since March 2010 after imports plummeted in April (-23.3% yoy vs. -19.2% expected, -14.9% previously) – offsetting a steeper than expected fall in exports (-10.1% yoy vs. -9.9% expected, -6.8% previously). Also released a short time ago out of Japan was the Nikkei manufacturing PMI for May which showed further deterioration in the sector after dropping 0.6pts to 47.6 and to the lowest level since December 2012. Elsewhere it’s a bit more mixed in trading this morning. The ASX (-0.24%) is also lower although the Hang Seng (+0.23%), Shanghai Comp (+0.43%) and Kospi (+0.18%) are posting modest gains. Oil markets are slightly weaker (WTI -0.54% to $48.15/bbl) following comments over the weekend out of Iran’s state oil minister suggesting that the nation will refrain from joining any potential production freeze at the June 2nd meeting with OPEC partners.

Also of note from the weekend is the latest from Greece where some important progress has been made towards unlocking the next set of emergency funds. Lawmakers yesterday approved a package of additional austerity measures including tax increases and pension cuts, as well as the formation of a new privatisation fund. The vote passed by a narrow majority of 153 lawmakers in the 300-seat parliament. Unsurprisingly there was big push-back from the rival opposition parties, with the next stage now tomorrow’s Eurogroup meeting where the finer details are set to be discussed around debt relief and the actual disbursement of funds.

Staying in Europe, today marks the one month countdown to the UK EU referendum date. As per Reuters, an opinion poll from Opinium on behalf of the Observer newspaper became the sixth poll out of the last seven to be published which has shown the ‘Remain’ campaign as coming out on top. The results from the online poll showed that 44% would vote to stay in the EU with the leave campaign at 40%. The same pollster had the split at 42% and 41% respectively at the end of last month. Indeed our UK rates strategists (Jack Di-Lizia) now note that implied probabilities from bookmakers’ odds are tilted heavily in favour of a vote to remain, with the probability of a Remain outcome now at 82% which is up 4% from the prior week. That said much of the commentary – as highlighted by Reuters – is still suggesting that there is still a difference between the outcomes of telephone polls and online polls with the former tending to show a larger lead for the ‘Remain’ campaign, while the latter tend to show a much closer race. It’s worth noting that from this Friday (27th) the pre-referendum ‘purdah’ period kicks in which restricts the ability for those connected to government to campaign for either outcome. So it’s possible some of the noise around the campaign dies down as a result.

Moving on. It’s worth noting that this morning our European equity strategists have downgraded their YE 2016 Stoxx 600 forecast from 380 to 325 (current 338). They cite the latest FOMC minutes as a reason for increasing risks with fears that we will re-enter the “doom loop” from a more hawkish Fed to a stronger dollar, lower oil prices, higher HY credit spreads and lower equity markets. On the upside, they think the Fed’s increased sensitivity to the problem of dollar strength means it will quickly abandon its tightening intentions once asset prices are falling, thus capping the downside for markets.

Quickly recapping how we closed out markets on Friday. Despite there being no obvious drivers in what was a pretty quiet day overall, risk sentiment was vastly improved with equity markets bouncing back from their post-minutes retreat. The S&P 500 finished +0.60% and in the process moved back to within less than half of a percent of where it was immediately prior to the FOMC minutes on Wednesday. The move also helped the index snap three consecutive weekly declines after closing the five-days with a +0.28% return. US credit was also stronger (CDX IG -1.5bps) while the rebound for risk assets in Europe was even greater. The Stoxx 600 closed +1.23% while Main and Crossover ended 2bps and 5bps tighter respectively.

Treasury yields continue to stall with the benchmark 10y hovering at 1.839%, while the USD rally also took a pause for breath with the Dollar index little changed on Friday. That in part also reflected a quiet day for data. The only data out across the pond was the April existing home sales numbers with sales reported as increasing at a slightly greater than expected rate last month (+1.7% mom vs. +1.3% expected). The only data of note in Europe had been the UK’s CBI Industrial Trends survey (-8 vs. -13 expected) which was suggestive of some modest improvement this month.

Meanwhile in terms of Fed expectations we ended the week with a close to 50% hike priced in for this summer. The odds of a July hike are sitting at 48% (up from 47% on Thursday) with June sitting at 28% (unchanged versus Thursday). As you’ll see shortly it’s a busy week for Fedspeak this week and it’s set to be capped off by Fed Chair Yellen on Friday evening. There was actually a bit of chatter from the weekend to note with regards to the Fed. The usually dovish Rosengren (voter), in an interview with the FT, said that while he is sensitive to how the data comes in, also noted that he ‘would say that most of the conditions that were laid out in the minutes, as of right now, seem to be on the verge of being met’. Rosengren also added that the Fed had set a ‘relatively low threshold’ for improvement in growth and that the economy was ‘making progress on getting to inflation at 2%’. Meanwhile fellow Fed official Williams (non-voter), who leans slightly hawkish, played down the US President Campaign as having an impact on the Fed’s decision for a possible change in policy.

It’s a busy start to the week this morning in Europe with the flash May manufacturing, services and composite PMI’s set to be released with the Euro area composite expected to show marginal improvement. In the US this afternoon we’ll get the flash manufacturing PMI reading, while later on this afternoon the final revision to Euro area consumer confidence reading will be released.

Given the recent focus, there’s also likely to be a lot of attention placed on the Fedspeak this week. The big focus will be Fed Chair Yellen who is due to speak on Friday evening at Harvard University. We’ll also hear from Bullard, Williams and Harker today, Kashkari, Kaplan and Harker again on Wednesday and then Bullard and Powell on Thursday. The ECB’s Nouy (Tuesday) and Constancio (Wednesday) are also scheduled to speak.

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

Authored by Claire Bernish, Op-Ed via TheAntiMedia.org,

Mainstream headlines constantly decry Bernie Sanders supporters for disrupting events in outrage, as if their protests and demonstrations somehow illustrate the devolution of the elections. But that focus by the corporate media utterly negates the consistent and continual reports of fraud and disenfranchisement fueling their ire.

And it’s getting ridiculous.

Newsweek, though far from alone, offered a prime example of the obfuscation of the election fraud and questionable campaign tactics by Hillary Clinton in its skewering of Sanders’ supporters.

“Get Control, Senator Sanders, or Get Out,” Newsweek’s Kurt Eichenwald titled his op-ed — which thoroughly blasts the Vermont senator — as if he were somehow responsible for both the electoral chaos and the actions of an irate voting public.

“So, Senator Sanders,” Eichenwald writes [with emphasis added], “either get control of what is becoming your increasingly unhinged cult, or get out of the race. Whatever respect sane liberals had for you is rapidly dwindling, and the damage being inflicted on your reputation may be unfixable. If you can’t even manage the vicious thugs who act in your name, you can’t be trusted to run a convenience store, much less the country.”

Really?

Because what Eichenwald obviates most readily in his attack is the inability to understand why those protests might be occurring in the first place. Judging by the timing of his article, it’s likely Eichenwald wrote it after chaos broke out at the Nevada Democratic Convention on Saturday — chaos that transpired after the party took it upon itself to ignore thousands who rightly believed Sanders delegates had been excluded unfairly from the caucus proceedings.

Despite the call for a recount, party officials refused to follow necessary procedure and abruptly adjourned the convention, leaving thousands of voters in the lurch — and hotel security and local law enforcement to deal with the aftermath. When things seem suspicious, apparently Eichenwald feels voters should not only have no recourse, they should be happy about it.

“Sanders has increasingly signaled that he is in this race for Sanders,” he continues, “and day after day shows himself to be a whining crybaby with little interest in a broader movement.”

It would be nice if Eichenwald’s hit piece were as much a joke as it comes across, but clearly he’s missed the point — and the vast movement supporting not only Sanders, but electoral justice. Worse, he didn’t stop there:

“Signs are emerging that the Sanders campaign is transmogrifying into the type of movement through which tyrants are born.

 

“The ugly was on display” at the aforementioned Nevada convention, Eichenwald adds, “where Hillary Clinton won more delegates than Sanders.”

No kidding. That would be precisely the issue that “cult” expressed fury about — Clinton managed to put yet another state under her belt under highly questionable circumstances. In fact, suspect happenings at nearly every primary and caucus so far oddly favor the former secretary of state — and Nevada stood as further testament to why voters are practically up in arms over what appears to be electoral favoritism.

But Eichenwald wasn’t alone in overlooking those concerns — or in blatantly mischaracterizing both that bias and its consequential thwarting of the wishes of a hefty segment of the voting public.

In the New York Times, Alan Rappeport also took the chance to strike at Sanders’ followers by citing Roberta Lange, Nevada State Democratic Party Chairwoman, who adjourned the convention early — earning the wrath of Nevada’s voters.

“‘It’s been vile,’ said Ms. Lange, who riled Sanders supporters by refusing their requests for rule changes at the event in Las Vegas,” Rappeport notes, adding, “The vicious response comes as millions of new voters, many of whom felt excluded by establishment politicians, have flocked to the insurgent campaigns of Mr. Sanders and Mr. Trump.”

Though he at least presented that aspect of the elections fairly, his description of what Lange actually did in Nevada misses the mark — that rules change had originally occurred prior to the convention, and Lange’s hasty and subjective decision on a contentious voice vote to permanently install the change arguably created the eruption of anger. But a number of Times staff have contributed sizeable amounts to Hillary’s campaign — and a Clinton family organization also donated $100,000 to the Times’ charitable organization the same year it endorsed her. Funny how bias thus peppers its reporting.

But the media roasting of Sanders and his supporters also appeared in the Sacramento Bee — where the editorial board also called the senator to task for the Nevada incident in lieu of calling out the controversial elections. According to the Bee,

“The episode had the reek of Trump rallies, where threats, insults, and sucker punches to defend the presumptive Republican nominee have been common. Yet looking back at the hundreds of Sanders supporters who descended on a Clinton rally in East Los Angeles earlier this month to intimidate her supporters, making one little girl cry, it now seems inevitable that the same kind of violent eruption would afflict those ‘feeling the Bern.’”

Seriously?

While the protest in L.A. certainly rattled Clinton supporters, violence didn’t pepper the event. One Sanders supporter — sporting a Free Hugs tee-shirt, no less — even assisted Clinton-supporting families with teary-eyed children in tow navigate through the crowd. While reports that someone ripped apart a young girl’s pro-Hillary sign might be valid, it would stand as the exception to what amounted to a boisterous demonstration over justifiable grievances. And, again, this obfuscation forgets entirely the need for demonstrations, which Hillary Clinton — in repeated lies, controversial policy proposals, and a campaign replete with fraud complaints — has clearly helped create.

Perhaps corporate, mainstream media — instead of targeting the symptom — should attempt to report its root cause.

Perhaps enormous swaths of voters being dropped from the rolls in New York; Clinton’s inexplicably astronomical luck in coin tosses in Iowa; inexcusably untrained elections volunteers and their equally inexcusable tendency allowing Clinton supporters to participate in caucuses without first being registered; or any number of other examples from the mountain of ever-growing evidence the elections are, indeed, rigged, are infinitely more deserving of headlines than hit pieces against those protesting such affronts to the American electoral process.

Or perhaps we should all just do as Eichenwald suggests — swallow our pride and our desire for a less corrupt and fairer system — and turn tail.

Or not. Because this system is rigged — and the corporate media helps pull the strings. But as long as independent media reports what the mainstream refuses, and as long as fraud inundates the 2016 election, there will be protests — regardless of whether or not Newsweek and the Times and the rest of their ilk ever grasp accuracy in reporting.

via http://ift.tt/1XM8JED Tyler Durden

While Draghi and his co-conspirators hammer the deflation ogre in Sendai, there is some good news for those who partake of ‘sin’. Broadly speaking the cost of beer-and-cigarettes (what Deutsche Bank defines as ‘sin’) has dropped notably over the past two years with prices in Moscow and Stockholm plunging the most (while Madrid and Mumbai have risen the most). However, those looking for the cheapest way to maintain their bad habits should head to Manila in the Philippines (and avoid Melbourne, Australia).

Bad habits cost most in Melbourne, Singapore, Auckland, New York City, and London (demand-driven?)

 

While Manila remains the cheapest for now, we note that prices are rising rapidly, similarly so in India.

via http://ift.tt/1XM1s7y Tyler Durden

Submitted by Michael Shedlock via MishTalk.com,

Greece remains in an economic depression interrupted by a few quarters of anemic growth.

Hiking taxes in a depression is one of the stupidest thing one can do, but Greece is set for another vote to do just that.

Prime minister Alexis Tsipras is once again prepared to kiss German Chancellor Angela Merkel’s behind, and his party will likely go along for the ride.

The wildcard IMF has yet to chime in on the economic stupidity of this hike.

Please consider Greece Set for Austerity Vote to Secure Bailout Cash.

Greece’s parliament is expected to vote late Sunday on a raft of fresh taxes and austerity reforms that the country must legislate to unlock further rescue loans, ahead of a crucial eurozone finance ministers meeting on Tuesday.

 

The bill includes the last portion of an austerity package worth €5.4 billion ($6.06 billion), or 3% of the country’s gross domestic product, which Greece has agreed on with its international creditors to implement by 2018 in exchange for fresh bailout funds under the terms of its third bailout deal.

 

The IMF has said it would only sign up to the Greek bailout if Germany agrees to debt relief. But German officials are seeking to delay any debt restructuring until the end of the current Greek bailout program in 2018, so that Germany’s parliament, the Bundestag, would pass such measures only after Germany’s 2017 elections.

 

To meet its targets, Athens was asked to set up a “contingency mechanism” of additional austerity measures worth some 2% of GDP.

 

The measures being voted on Sunday include new taxes on fuel, tobacco, alcohol, Internet, pay TV, hotel stays, cars, changes in property tax, as well as a rise in the basic value-added tax rate, applied to most goods and services, from 23% to 24%.

 

The Greek parliament is also expected to vote on the fiscal brake mechanism that would automatically cut state spending if Greece misses its budget targets.

 

How much the next bailout tranche would be is still to be determined, but European Union officials indicate it could be €10 billion.

 

Another Humiliating Greece Cave-In

On May 14, I reported Greece “Demands” Debt Relief, Owes Troika €11+ Billion by July.

My comment: “Greece has caved in every time, and in the most humiliating ways. Greece even caved in on pension cuts last week. Why should anyone believe Greek demands now?”

€10 billion would be a lot of money, if the money went to Greece. But virtually none of it will go to Greece.

 

Greece Short-Term Debt Timeline

Somehow I expect the next tranche to be a “greater than expected” €11 billion. Perhaps €10 billion will suffice if Greece has €1 billion of its own to pony up.

 

Greece Long-Term Debt Timeline

Payments to the Troika stretch all the way to 2059, while assuming Greece can maintain a primary account surplus of 3.5% the entire way.

The IMF says this is impossible, while proposing a surplus of 1.5%, also impossible.

 

Politics of Debt Relief

The IMF wants debt relief now, but Germany wants the IMF to hold off until Merkel wins reelection.

Meanwhile, the Greek depression resumes.

These tax hikes are insane. The key question remains: Is the IMF bluffing about debt relief or not?

via http://ift.tt/1TE55ee Tyler Durden

Hot on the heels of Trumpian-size tariffs imposed by The Obama administration on a desperately glutted and mal-invested steel industry, the entire panic-buying "well the market is always right", "China is recovering" narrative based rally in Chinese commodities has crashed back down to earth with an incredible thud. As one veteran trader in the China commodity markets put it "everything is plunging… except cotton," with Iron Ore, and Rebar down 7% today…

At least one industry executive "got it" – Baosteel's Zhang: "The price rebound is not beneficial to the overcapacity situation…. It will delay the shutdown of (inefficient) capacity."

How right he was…

Dalian Iron Ore has collapsed 30% in a month, down 7% today…

 

Steel Rebar has crashed 32% in a month, down 5% today… (it seems the brief BTFD support has completely collapsed)…

 

Hot Rolled Coil -28% in a month, down 6% today…

 

One word to describe mainland commodities: TIMBERRR???

— Simon Ting (@simonting) May 23, 2016

 

Makes one wonder what the world's only marginal-buyer-of-crude could do 'retaliate' to a nation imposing tariffs like that which is also dependent on a bounce in oil prices to supports its 'wealth-creating' stock market?

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

Authored by Paul Craig Roberts,

It is not only American generals who are irresponsible and declare on the basis of no evidence whatsoever that “Russia is an existential threat to the United States” and also to the Baltic states, Poland, Georgia, Ukraine, and all of Europe. British generals also participate in the warmongering.  UK retired general and former NATO commander Sir Richard Shirreff, Deputy Supreme Allied Commander in Europe until 2014, has just declared that nuclear war with Russia is “entirely possible” within the year.  

My loyal readers know that I, myself, have been warning for some time about the likelihood of nuclear war.  However, there is a vast difference between me and the Western generals.  I see the war as the consequence of the neoconservative drive for US world hegemony.  The neoconservative drive for world hegemony is acknowledged by the neoconservatives themselves in their public position papers, and it has a 15 year record of being implemented in America’s many and ongoing wars in the Middle East and Africa.  Although the Presstitute media does its best to keep our focus away from the known facts, the facts remain known.

The position of the Western generals is that “Russian aggression” is driving an innocent America/NATO to nuclear war.  

Here is General Shirreff’s list of “Russian aggressions”: “He [Putin] has invaded Georgia, he has invaded the Crimea, he has invaded Ukraine. He has used force and got away with it.  In a period of tension, an attack on the Baltic states… is entirely plausible.” Shirreff is talking about make-believe happenings that even if real would be taking place inside what were until recently Russia’s long-standing national boundaries. 

General Shirreff strikes me as either uninformed or a dissembler. It is the United States and Israel who use force and get away with it. The Russian invasion of the former Russian province, Georgia, was a response to the American puppet government’s invasion of South Ossetia in which the American and israeli trained and equipped Georgian troops killed Russian peace-keeping troops and a large number of South Ossetian civilians while the Russian government was at the Beijing olympics. 

It only took a small fraction of the Russian Army a few hours to roll up the American and Israeli trained Georgian Army.  Putin had the former Russian province in his hand. He could have hung the American puppet president and reincorporated Georgia back into Russia, where if probably belongs, having spent all of modern history in that location.

But Putin did not see Georgia as a prize, and having made his point, let the Americans have their puppet state back.  The president at the time, a scummy scoundrel, was thrown out of the country by Georgians and now serves the American puppet state of Ukraine, like so many others who are not Ukrainian. Apparently, Washington can’t find enough Ukrainians who will sell out their country for Washington and has to bring in foreigners to help Washington rule Ukraine.

There has been, alas, no Russian invasion of Ukraine.  Putin would not even accept the pleas of the Russian majority populations in the breakaway provinces of Donetsk and Luhansk to be reincorporated back into Russia where they belong. If Putin actually wanted Ukraine, he doesn’t need to send in an army.  He can take back the eastern and southern parts just by accepting the pleas of the people to again be a part of Russia.

The only plea that Putin accepted was that of the Crimeans, who with an extremely high turnout never experienced in “western democracies” voted 97.6 percent to rejoin Russia, where Crimea resided for longer than the US has existed, until Khrushchev, a Ukrainian, transferred Crimea from the Russian Soviet Republic to the Ukrainian Soviet Republic when both were provinces of the Soviet Union. 

Little doubt that Putin accepted Crimea’s plea because Russia’s only warm water port and entrance into the Mediterranean Sea is Russia’s naval base in Crimea, and little doubt that Putin refused Donetsk and Luhansk in order to deflect Washington’s propagandistic charges, such as those of former general Shirreff. Putin reasoned, mistakenly in my view, that his refusal to accept Donetsk and Luhansk would reassure Washington’s NATO puppet states and lessen Washington’s influence over Europe.  For the corrupt Europeans, facts are of no consequence. Washington’s money prevails.

Putin doesn’t understand the power of Washington’s money.  In the entire West only money counts.  There is no such thing as Washington’s word, government integrity, truth, or even empirical facts.  There are only well-propagated lies.  The entire West is a lie. The West exists for one reason only–corporate profits. 

The retired general Shirreff claims, without any evidence, which is typical, that Putin “used force and got away with it.”

What force is the general talking about?  Can he identify the force?  The independent international observers of the Crimean voting report that it was completely fair, that there was no intimidation, no troops or any Russian intimidation present. 

The former NATO general Shirreff believes that a Russian attack “on the Baltic states is entirely possible.”  For what reason?  The Baltic states, former provinces of the Soviet Union, comprise no threat whatsoever to Russia.  The Russians have no reason whatsoever to attack the Baltic states. It was Russia that gave the Baltic states their independence.  Just as it was Russia that gave Ukraine and Georgia their independence.

Imperial Washington is leveraging the reasonableness of the Russian government to put Russia in a propagandistic light. The Russian government has permitted itself to be put on the defensive and has given the attack to Washington.

Russia has not attacked anyone except the terrorist group ISIS. Allegedly, Washington is opposed to terrorism, but Washington has been using ISIS in an effort to overthrow the Syrian government with terrorism.  Russia has put a halt to that. The question before us is whether the Russian government so desires to be accepted by the West that Putin sells out Syria to Washington/Israeli dismemberment in order to show that Russia is a good partner for the West.

If Russia doesn’t get over its affection for the West, Russia will lose its independence.

My understanding is that Russia has been resurrected as a Christian, morally principally country, perhaps the only one on earth.  The question that the Russian people and their Russian government need, desperately, to ask themselves is: Do we want to be associated with the War Criminal West that disobeys not only its own laws, but also international laws?

The vast majority of the evil in the world resides in the West. It is the west with its lies and greed that has devastated millions of people in 7 countries during the new 21st century.  This is the most threatening beginning of a new millennium in modern times.

Unsatisfied with its looting of the Third World, South America, Greece, Portugal, Latvia, Argentina, and now Brazil and Ukraine, the Western Capitalists have their sights set on Russia, China, India, and South Africa.

What a prize it would be to get Russia with all that vast expanse of Siberia that can be environmentally brutalized and destroyed for capitalist profits. The Russian government’s offering of free land in Siberia had better be limited to Russian citizens Otherwise, the land is likely to be bought up by the West, which will use its ownership of Russia to destroy the country.

The Russians and the Chinese are blinded by the fact that they lived for decades under oppressive and failed regimes.  They look to the West as success. Their misreading of the West endangers their independence.

Neither Russia nor China seek conflict. It is a gratuitous and reckless act for Washington to send the message to Russia and China that they must choose vassalage or war.

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

When the news hit on May 5 that Turkey’s Prime Minister Ahmet Davutoglu would unexpectedly stand down from his post as a result of sharply escalating fighting behind the scenes over president Tayyip Erdogan’s relentless attempt to rule Turkey with virtually no checks and balances, the market was not happy, and the volatility of the Turkish Lira soared the most in the past decade.

 

Since then the Turkish market has modestly tamed, even if the Erdogan’s push for supreme control has done anything but, and during today’s congress of Turkey’s AKP, Erdogan confirmed an impotent lapdog, Binali Yildirim – a close ally for two decades and a co-founder of the ruling AK Party – as his new prime minister on Sunday, which as Reuters explained was “a big step towards the stronger presidential powers [Erdogan] has long sought.” In plain English, Turkey is unofficially a dictatorship, in which Erdogan is president only in title and in reality a supreme despot as there is no longer anyone who can politically challenge the president.

Concurrently, Erdogan also accepted the resignation of outgoing Prime Minister Ahmet Davutoglu on Sunday, hours after AKP elected Yildirim as his replacement.

In a speech to AKP delegates who earlier elected him party leader at a special congress, Yildirim, transport minister for most of the past decade and a half, left no doubt that he would prioritise the policies closest to Erdogan’s heart. His main aim, he said, was to deliver a new constitution and create an executive presidency, a change Erdogan says will bring stability to the NATO member state of 78 million, but which opponents fear will herald greater authoritarianism.

Yildirim, 60, said constitutional change was a necessity to legitimize the existing situation, tacit acknowledgment that Erdogan has extended the traditionally ceremonial role of the Turkish presidency. “The most important mission we have today is to legalize the de facto situation, to bring to an end this confusion by changing the constitution,” he said. “The new constitution will be on an executive presidential system.”

Erdogan meets with incoming Prime Minister Binali Yildirim.

The constitutional change would give Erdogan unlimited power over virtually every aspect of governance.

As if proof were needed of where power in the party lies, delegates remained standing through a message from Erdogan read out at the start of the congress. Yildirim vowed that, under his leadership, the AKP’s way would be “Erdogan’s way“. Justice Minister Bekir Bozdag said Erdogan was the party’s one leader.

He has made clear he will pursue two of Erdogan’s biggest priorities – the executive presidency and the fight against militants of the outlawed Kurdistan Workers Party (PKK) in the largely Kurdish southeast. “They are asking us when the anti-terror operations will end. I am announcing hereby that operations will end when all our citizens are safe,” Yildirim said in an emotional speech.

“Operations will continue without pause until the bloody-handed terrorist organization PKK ends its armed actions.”

Despite Erdogan’s attempts to silence any journalistic criticism by sending his biggest public detractors to prison, some dares to voice their displeasure with what is happening inside the NATO member and Europe’s close Asian ally:

“If they can succeed, this will be a transition period for the executive presidency,” journalist Abdulkadir Selvi, who is seen as close to AKP, told Reuters.

And now that the Turkish premier figurehead is known, investors’ eyes shift to the future of Deputy Prime Minister Mehmet Simsek, who according to Reuters is seen as one of the remaining anchors of market confidence. Erdogan, who favors consumption-led growth, has repeatedly railed against high interest rates in Turkey, saying they cause inflation, a stance at odds with mainstream economics. Without Simsek, investors fear, it will be less likely that the government will deliver on promises to liberalize the labor market, encourage savings and bring in more private investment.

Installing a puppet PM was not all Erdogan did in this busy week: just to make sure Erdogan can use the law to crack down on any of his political opponents, last Friday Erdogan’s puppet parliament agreed to strip its members of immunity, a move which will be used by Erdogan to prosecute members of the pro-Kurdish HDP, parliament’s third-biggest party, as well as anyone else he choose to take down.

He accuses the HDP of being the political wing of the Kurdish Workers’ Party (PKK) which has waged a three-decade insurgency against the state. The HDP denies such links and says its parliamentary presence could be all but wiped out if prosecutions go ahead.

In other words, if any MP says or does something that the president disagrees with, said member of parliament will promptly find themselves under arrest and behind bars: a strong deterrent never to say or do anything that would displease the ascendant tyrant.

It is this stripping of immunity that Germany’s Chancellor Angela Merkel said she would discuss with Erdogan on Monday when the two meet tomorrow in Istanbul, voicing disquiet at a measure meant to sideline the pro-Kurdish opposition.

Erdogan meets with Merkel in Ankara, Turkey February 8, 2016

“Naturally some developments in Turkey are causing us grave concerns,” Merkel told the Frankfurter Allgemeine Zeitung on Sunday, one day before she meets Erdogan on the sidelines of a U.N.-sponsored humanitarian summit in Istanbul.

However, it’s not as if Merkel has any leverage or strings to pull. Quite the opposite: Merkel is facing accusations at home that she has become too accommodating of Erdogan as she tries to secure a European Union deal with Ankara to stem the flow of refugees from Turkey into Europe, the bulk of whom have gone to Germany.

Worse, the accusations are 100% accurate, because as of this moment the person who dictates the future of Europe is neither in Greece, nor in Great Britain, but is not even located in Europe in the first place (although that may change soon). This guy.

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Threats by prominent members of the black community against Donald Trump, either directly or indirectly, are nothing new.

Just under two months ago we reported about the latest social fallout incident from Trump’s rising popularity, when prominent Black Lives Matter activist and rapper Tef Poe tweeted a message for “white people”: if Donald Trump wins the presidency, “niggas” will ‘incite riots everywhere.’

“Dear white people if Trump wins young niggas such as myself are fully hell bent on inciting riots everywhere we go. Just so you know,” Poe tweeted. A screenshot of his since deleted tweet was captured below by the Daily Media.

 

To be sure, the antagonism among African-Americans toward Trump is well-known by now, and even CLSA’s noted commentator Chris Wood touched upon this in the latest edition of hs “Greed and Fear” newsletter.

 

However, a new and perhaps even more bizarre protest, not to mention death threat, against Donald Trump was revealed this weekend when Louisiana rapper Maine Muzik said during a YouTube video recording that he would kill presumptive presidential candidate Donald Trump if his “Mamma’s food stamps are taken away.” To wit:

I could go to war with whoever the fuck I want to, but I really want to go to war with Donald Trump because Donald Trump trying to take food stamps from my mamma and that’s all the fuck she’s got. As long as the motherfucking government let us keep food stamps… we gonna be good, but the first time this nigga pass a law talking about he taking Louisiana purchase, shit going to get ugly.  I swear to god on every motherfucking chain I got, bitchez gonna go down.

 

You gotta understand them (inaudible) love Fruit Loops. They love that shit so if you take that shit nigga it’s coming with the madness and a nigga ain’t gonna play about that.  Y’all take Donald Trump and let him know it’s up over here. We gonna declare war.

In his tirade he even went on to declare his allegiance to the Islamic State.

And I ain’t worried about ISIS because they just called me, they want me to fuck with them now… Ya, we got them drums bitch and grenades but I’m scared to throw them.

According to Vidmax, on the same week Muzik record this threat, he was visited by police for posting a video to his Instagram account where he and his gang showed off a stockpile of weapons.

Threats aside, the implications from this “heartfelt” video for Trump could be substantial: if indeed the republican candidate wants to shift to a more “centrist” position, all he would have to do is promise he won’t “take momma’s foodstamps” and Trump could quickly find himself not only supported by belligerent Louisiana rappers, but also take a decisive chunk out of Hillary Clinton’s primary ethnic voting group.

In the meantime, we expect more such videos which explain that for millions in potential voters, all it really boils down to is whether or not the foodstamps are taken away.

via http://ift.tt/1TQv6Tv Tyler Durden

Authored by Richard M. Ebeling via The Future of Freedom Foundation,

The world is threatened with a renewed wave of anti-capitalism and anti-business sentiments and policies. Many who cheered the demise of Soviet communism in the early 1990s, presumed that this meant that, by default, the case for free markets and competitive enterprise had won in the battle of ideas. Over the last twenty-five years it has become clear that the same misguided arguments against free market capitalism constantly reemerge, like an ideological vampire waiting to rise from the intellectual grave and drain market freedom of its lifeblood by more government regulations and controls.

One of the most persistent of these misguided ideas is the belief that left on its own, competitive markets tend to bring about concentration of wealth, inequality of income, and “market power” to exploit workers and consumers of what justly should be theirs.

The most recent example of this is an article on, “Monopoly’s New Era,” by Joseph E. Stiglitz, the 2001 Nobel Prize winner in economics, which appeared on Project Syndicate website on May 13, 2016. Professor Stiglitz is one of those thinkers who seem to see a “market failure” at every turn and apparently has rarely found a government intervention he did not like.

Two Ways of Looking at the Market Process

He contrasts two differing views of the market economy. One view, an outgrowth of Adam Smith and those who followed in his intellectual footsteps over the last 250 years, argue that freedom, prosperity, and income equity are generally assured wherever the market is kept open and competitive, with minimal government impediments.

The other “school of thought” that he interestingly identifies with no one particular thinker of the past “takes as its starting point ‘power,’ including the ability to exercise monopoly control or, in labor markets, to assert authority over workers,” Stiglitz explains. “Scholars in this area have focused on what gives rise to power, how it is maintained and strengthened, and other features that may prevent markets from being competitive. Work on exploitation arising from asymmetries of information is an important example.”

Professor Stiglitz insists that this second approach has shown its insight and efficacy in the clear evidence of concentration of market control and income inequality in such sectors of the market such as finance and banking, cable television, health care, pharmaceuticals, agro-business, and a variety of others.

The truth and reality of this concentration of power and wealth conception of capitalism, Stiglitz argues, is also shown, historically, in labor markets, to the disadvantage of many “minority” groups. “Of course, historically, the oppression of large groups – slaves, women, and minorities of various types – are obvious instances where inequalities are the result of [market] power relationships,” he states.

His conclusion, therefore, should not be surprising. If competitive capitalism leads to it’s opposite – concentrated, monopoly capitalism – then government regulation and control is essential to preserve a free, prosperous, and “socially just” society. Or in the words with which Professor Stiglitz concludes his article: “But if markets are based on exploitation, the rationale for laissez?faire disappears. Indeed, in that case, the battle against entrenched power is not only a battle for democracy; it is also a battle for efficiency and shared prosperity.”

Karl Marx’s Theory of Worker Exploitation

The nineteenth century economist most famous for insisting that capitalism leads to concentration, monopoly and exploitation was, of course, Karl Marx. He is the leading thinker that Stiglitz avoids mentioning by name. Marx claimed to have unearthed “the laws of historical evolution” that by a necessity as irresistible as the physical laws of nature, place human history on a trajectory that transformed society from feudalism to capitalism and would have to culminate in the triumph of socialism and a post-scarcity world of communism.

Marx was insistent that businessmen are driven in the pursuit of profits to invest in laborsaving industrial machinery. This results in two consequences. First, in this competitive race for profits through industrialization, some private enterprisers would be driven to the wall and pushed out of business, with their companies bought up by those capitalists who had better weathered the market storm. As this process repeated itself, there would be fewer and fewer private enterprisers left standing, with the result of the private ownership of businesses remaining in fewer and fewer hands. Hence, market competition leads to the concentration of ownership and wealth in the hands of a diminishing number of enterprise owners, according to Marx.

Second, as machines replace workers, there are fewer and fewer jobs for all those needing employment to feed themselves and their families. The non-property owning workers – “the proletariat,” in Marxian jargon – are joined by the businessmen driven out of business due to that concentration of ownership and wealth.

Workers competing for a decreasing number of jobs bring about a lowering of wages and decreased living standards for the vast majority of the population. Thus, a growing material inequality emerges between most working members of society and the handful of property-owning wealthy capitalists, or as it has become fashionable to describe them nowadays, the “one percent.”

Finally, in the Marxian version of this theory, the workers rise up and overthrow the remaining handful of exploiting capitalists, and the new dawn of historical progressivism arrives: socialism, with the State owning, managing and centrally planning the resources and enterprises of the society in the name of “the people.”

Marx’s Errors and the Benefits from Classical Liberal Capitalism

Both economic theory and the actual events of economic history have shown the errors and absurdities in this and related theories over the last two hundred years. Rather than a bi-polar social world of a handful of “the rich” versus a human mass of “the poor,” industrial and financial capitalism saw the emergence of what has become known as “the middle class,” whose numbers came from the ranks of the poverty-ridden poor of the pre-capitalist era.

The political philosophy of classical liberalism that gained intellectual ground in the eighteenth and nineteenth centuries called for the end to absolute monarchy and the establishment of representative, but constitutionally limited government. It espoused the cause of ending the governmental privileges and favors bestowed on a narrow group of special interest groups surrounding and serving the king, including legal monopolies that prevented market competition.

Classical liberalism called for the end to slavery, the emancipation of women, and an equality of individual rights for all in society to life, liberty, and honestly acquired property before an unbiased and impartial rule of law.

Domestic and international trade barriers were reduced or abolished, opening the field to virtually unrestricted free market competition. A smaller and far less intrusive government brought about a lowered tax burden on all in the society, leaving more of the earned wealth by all in the hands of the private individuals whose efforts and energies had produced it.

Respect and enforcement of private property rights; competitive markets open to all those with entrepreneurial visions of how to manufacture and sell more, better and less expensive goods and services to consumers as the peaceful and honest means of pursuing the earning of profits; freed labor markets giving all the opportunity to search out gainful employment wherever the most attractive terms of earning a living seemed to offer itself; and a growing financial sector provided the means for making possible the expensive industrial investments that created jobs and expanded the productive capabilities of society.

Capitalism Created a Prosperous Middle Class from the Poor

The last point is, perhaps, worth emphasizing. Through most of human history, the vast majority of people who found themselves able to somehow save anything out of their meager earnings were fortunate if they could hide away a few gold or silver coins as a form of accumulated wealth.

But the development of modern banking now made it possible for even those of meager material means to put aside their modest savings in a financial institution offering an interest return on their deposits. These financial institutions could now pool together large amounts of savings from many modest savers. They funneled these people’s savings out to entrepreneurs who could never have funded their dreams of industrial enterprises out of their own incomes.

Out of the profits earned by the successful entrepreneurial borrowers came the monetary means to pay back what had been borrowed plus the interest payments agreed to, to start up or to expand their private enterprises. This interest income earned by the banks both paid the interest owed to the depositors and increased the capital of the banks to develop their ability to lend to a growing number of enterprising borrowers.

The increasing field of created and expanded private enterprises was made possible through the savings of “the workers,” themselves, and who thereby earned interest on their individual savings accounts, and through the plowing back of retained earnings into those enterprises by successful businessmen widened the number of businesses looking for workers to fill the growing number of jobs in the marketplace.

At the same time, investment in more and better machines, tools and equipment in those industrial enterprises were increasing the productivity of each worker employment, helped to increase the wages worth paying each worker hired in conjunction with the increased demand of more employers competing for workers in their businesses.

Of course, wages for all types of labor did not all rise at the same time and to the same degree. But looking over the decades of the nineteenth and twentieth centuries, competitive and relatively free markets demonstrated the lie to all the naysayers like Karl Marx who claimed that “the workers” were doomed to poverty, destitution, and despair.  Competitive capitalism did and has been raising increasing portions of mankind from wretched subsistence and starvation to unimaginable ease, comfort and convenience that even the richest and most successfully plundering kings and conquerors of the past could never have conceived.

Joseph Stiglitz and Asymmetric Information

Joseph Stiglitz, needless to say, is not a Marxist or a socialist, and it would be unfair to in anyway suggest that he is. His own variation on the injustice of capitalism and its potential for exploitation is partly based on his theory of “asymmetric information” and how it enables private enterprisers to take advantage of consumers and workers in society. Indeed, this theory helped earn him the Nobel Prize in Economics in 2001.

A core element in his theory is that individuals in the marketplace do not all possess the same type or degree of knowledge. Some people know things that others do not. And this “privileged” information can enable some to “exploit” others. For instance, the producer and marketer is likely to know far more about that product’s qualities, features and characteristics that he is offering on the market than most of the buyers possibly interested in purchasing it.

By withholding or not fully informing the potential buyer about all of the qualities, features and characteristics of his good, he may succeed in creating a false impression that makes the consumer have a greater demand for it and be willing to pay a higher price for it than would be the case if that consumer knew as much about the good as the seller knows.

Markets Integrate and Coordinate Decentralized Knowledge

There is no doubt that in a system of division of labor there is an accompanying division of knowledge, but this is a theme in theories of the market process long ago explained by economists in the “Austrian” tradition, especially Friedrich A. Hayek, who also received a Nobel Prize in Economics in 1974.

The Austrians have long emphasized that competition is a “discovery procedure” through which individuals find out things never known or imagined before. The peaceful rivalry of the marketplace creates the incentives for entrepreneurs to be unceasingly alert to profit opportunities to see possibilities that either others have missed or not thought of before. The unknown or barely perceived become seen and understood, and then taken advantage of in the form of new, better, and less expensive products offered to the consuming public.

The purpose of competitive markets and price systems is precisely to provide a way to integrate and coordinate the dispersed and decentralized knowledge in any society possessing a degree of complexity.

This same competitive market has also found ways to reduce and overcome the asymmetry of consumer versus seller knowledge concerning the qualities, features and characteristics of goods, as well, and thereby to reduce the potential and possibility of “exploiting” what the seller may know at the expense of the market buyers.

The Meaning of Search Goods and Judging the Quality of Products

In explaining how markets do this, economists sometimes distinguish between two types of goods offered and sold on the market: search goods and experience goods.

Search goods are those that can be examined and judged by the potential buyer before a purchase is made. For instance, suppose that a supermarket advertises that perfectly ripened bananas are available and on sale in their store. A consumer can enter the supermarket and fairly reasonably judge whether the quality of the good matches what has been promised in the advertising before buying it.

If examination shows that the bananas are either non-eatable green or over-ripened brown, the consumer can walk away without spending a penny on a product that has not met what was promised. By falsely or incorrectly advertising, or even unreasonably exaggerating in its advertising, the business runs the risk of not only losing that sale but the loss of its brand name reputation, threatening to see that consumer never return to that establishment again. Plus, that person can tell others what his “search” of the good came up with, potentially leading to those others not trusting that businesses advertising word without inspecting the good themselves.

This creates a self-interested incentive on the part of such sellers to practice “true in advertising,” or suffer the loss of some their regular customers upon whose repeat business their long-term profitability is dependent.

The Meaning of Experience Goods and Market Safeguards

Experience goods are those goods whose qualities, features and characteristics cannot really be fully known and appreciated without using the product in question for a period of time. Think of an automobile; you can go for a test drive, but your own best judgment of its safety, reliability and handling cannot be really known without driving the car in various weather and traffic conditions over a period of time. Or think of a bed mattress; you sit down and bounce on it, or stretch out and lay down on it in the furniture showroom, but you cannot really know if it will give you a comfortable and restful sleep every night until you’ve gone to bed on it for a period of time.

The same applies to many goods, such as household appliances, for instance. The competitive market’s response to this uncertain and imperfect knowledge on the part of potential buyers has been the seller and manufacture’s system of product warranties that enable the buyer to return the product over a period of time for his or her money back, or a replacement at no extra cost to the buyer.

It is, again, in the seller’s own self-interest to make sure that the product is what has been promised and is reliable in its working order and performance. Once more, the seller and manufacturer run the risk of losing their brand name reputation concerning quality and trustworthiness. Plus, if a warranty has to be fulfilled it is the manufacturer or seller who is forced to eat the cost of replacing the unit returned due to malfunction or failure to match buyer expectation, thus cutting into his own profit margin.

Market Uncertainty and Franchise Businesses

But what about those situations in which concern about repeat business or brand name reputation do not seem to be as present? For instance, suppose you are traveling on business or vacation and are passing through some town you are highly unlikely ever to see again.

You’re hungry for a meal or a place to stay for the night. How can you know about the quality of the meal in the local “Joe’s Greasy Spoon,” or the bedbug-free mattress in any of the rooms in the local “Bates Motel”?

The market has provided consumer information about the qualities, features and characteristics of such products and services to overcome this inescapable imperfect knowledge in the form of chain stores and franchises. You may never eat or sleep again in that particular town, but you will likely eat and sleep away from home somewhere at sometime again in the future.

The sight of the MacDonald’s “Golden Arches” or the sign for an IHOP (International House of Pancakes) anywhere, any place tells you the quality and variety of foods that you can have in any of their establishments, regardless of where its location in the United States or even the world. The same applies to seeing the sign for a Motel 6, or a Holiday Inn Express or an Embassy Suites, or a Hilton-family hotel.

You may never again go to that particular MacDonald’s or Holiday Inn, but if you travel you may very well eat or spend the night at some other chain franchise of that company. And that is the repeat business and brand name reputation that is important to the “mother company.” Thus, each chain store and franchise is required to meet standards of quality and variety that enables the consumer to have a high degree of confidence and reduced knowledge uncertainty of what he or she is getting when they enter any of these establishments regardless of where it may be located.

What makes this practice in the market consistently happen and successfully relied upon? Market competition and the self-interested profit motive.

“Perfect Competition” versus the Competitive Process

Professor Stiglitz sets up the straw man of what in economics is known as the “perfect competition” model. The presumption is that a market is only and truly “competitive” when it is filled with such a large number of sellers that each one is too small to influence the market price and in which each seller offers a product the quality of which is exactly the same ones sold by his competitors; and in which every buyer already knows all the same perfectly correct information as is known by all the sellers in those same markets.

Friedrich Hayek demonstrated the essential fallacies in this argument exacting 70 years ago when he delivered a lecture on “The Meaning of Competition” on May 20, 1946 at Princeton University. He explained that the very nature of a truly competitive market is precisely one in which rivals are attempting to improve the qualities of the products they offer to consumers and try to devise ways to make their products at lower costs precisely to be able to afford to offer them at lower prices to buyers to attract business way from their competitors. That is what makes market competition a dynamic, never-ending process of improved and less expensive goods and services available for the members of any society.

For economists like Joseph Stiglitz, trying to offer goods at prices different than your rivals or with qualities and characteristics differentiated from those sold by your competitors is a sign of “market failure,” of “imperfect” or “monopolistic” market practices. But for economists like Friedrich Hayek, such price and product rivalry and competition is the essential indication of the vibrancy of the competitive process at work.

Market competition in Hayek’s sense of the concept does not need a large number of rivals to be “truly” competitive. What is required are no political or legal barriers that stand in the way of potential competitors either at home or from abroad. From the economic point-of-view the market encompasses the world, regardless of where those who runs governments may have drawn lines on a political map.

Stiglitz’s “Market Failures” are Really Forms of Crony Capitalism

And this gets to the crucial and essential error in Professor Stiglitz’s argument concerning the concentration of “monopoly” power in the marketplace, and any resulting “unjust” inequality of wealth.

Every one of the examples that he lists as instances of such concentration of “market power” – finance and banking, cable television, health care, pharmaceuticals, agro-business – are all instances in which the competitive, free market has been interfered with by the paternalistic and regulatory hand of the government. It is not the market that has “failed” in these corners of the economy, but rather it is the presence and pervasiveness of the interventionist state.

But this, too, is typical of market critics such as Professor Stiglitz. They deceptively call “market failures” instances not of competitive free markets but of “crony capitalism” under which special interests have successfully interacted with politicians and bureaucrats to rig the market for their own benefit at the expense of both consumers and potential competitors who are legally prevented or hindered from entering sectors of the economy where they would like to try to gain market share and earn profits by offering better and lower priced goods than their privileged rivals are offering to those consumers.

Con Men Are Always with Us, Free Markets Constrain Them

Are there con men, hucksters and cheats? Of course there are. They existed in ancient Athens just as they exist today. There are always people who will try to dishonestly get what others have, when doing it that way seems easier and less costly than through honest production and trade.

The question is not whether human nature can be transformed to eliminate this aspect of human conduct. The question is, are their market institutions and incentives that can systemically reduce this type of behavior and, instead, generate more honest and properly informed human interactions?

And the answer is, yes. In fact, most of these positive incentive mechanisms have emerged and evolved out of the competitive market process, itself. These “market solutions” to the “social problem” of asymmetric information were discovered by market participants themselves to be profitable ways of gaining consumer trust and confidence and business, without any government command or imposition. Plus, their discovery and practiced institutional forms could never have been fully anticipated or imagined in their detail before and separate from the competitive market processes that generated them.

Once again, the “let-alone” principle of peaceful competitive market association has demonstrated itself to be superior to the presumption and arrogance of the governmental social engineer.

Worker Exploitation has Its Source in Government Intervention

Furthermore, if workers have been exploited in the past or present, and do not receive the full and proper value for the labor services they may render, this, too, has been the result of politically-sponsored or allowed “power” inside the market. Compulsory labor unions have manipulated and rigged labor markets, giving wage and work privileges and favors to some workers, but at the expense of other workers locked out of employment and income opportunities due to the “closed shop.”

Government imposed minimum wage laws have priced some low and unskilled workers out of jobs leaving them unemployed and possibly permanent wards of the government’s welfare state programs. Anti-competition regulations and related market restrictions (including burdensome taxes on business) have reduced the private sector’s ability and incentives to create jobs and invest in ways that raise the value of workers’ output over time.

If workers are “exploited” in the modern world, Professor Stiglitz should look at the very interventionist policies that he proposes and defends. They are the primary cause of the very conditions and injustices that he deplores, including the greater degrees of material inequality than would or need exist, if only the regulating and paternalistic state they he so much desires and admires were to get out of the way of the free market competitive process.

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Two months ago we were amazed to read that according to the latest “deus ex machina” proposed by the PBOC, China would “sweep away” trillions in bad loans by equitizing them in the form of debt-for-equity exchanges. This is how we tried to explain this unprecedented move on March 10 when Reuters first hinted it was coming:

This proposal entails nothing short of a nationalization on a grand scale, one which gives China’s impaired commercial banks – all of which are implicitly state controlled – the “equity keys” to the companies to which they have given secured loans, loans which are no longer performing because the underlying assets are clearly impaired, and where the cash flow generated can’t even cover the interest payments.

 

In effect, the PBOC is proposing the biggest debt-for-equity swap ever seen. What it also means is that since the secured lender, which is at the top of the capital structure will drop all the way down, it wipes out the existing equity and unsecured debt, and make the banks the new equity owners, and as such China’s commercial banks will no longer be entitled to interest payments or security collateral on their now-equity investment. Finally, while this move does free up loss reserves, it essentially strips banks of their security and asset protection which they enjoyed as secured lenders.

 

So why is China doing this? By equitizing trillions in bad loans, it frees up the corporate balance sheets to layer on fresh trillions in bad debt, the same debt that pushed these zombie companies into insolvency to begin with.

 

What this grand equitization does not do, is make the underlying business any more profitable or viable: after all the loans are bad because the companies no longer can generate even the required cash interest payment – as a result of China’s unprecedented excess capacity and low commodity prices which prevent corporate viability. It has little to do with their current balance sheet.

 

That, however, is irrelevant to the PBOC which is hoping that by taking this step it can magically eliminate trilliions in NPL from commercial bank balance sheets in what is not only the biggest equitization in history, but also the biggest diversion since David Copperfield made the statue of liberty disappear, as instead of keeping the bad loans on the asset side as NPLs, thus assuring at least some recoveries, the banks are crammed down and when the next NPL wave hits, their exposure will be fully wiped out as mere equity stakeholders.

So why are banks agreeing to this? Because they know that as quasi (and not so quasi) state-owned enterprises, China’s commercial banks are wards of the state and when the ultimate impairment wave hits and banks have to write down trillions in “equity investments”, Beijiing will promptly bail them out. Essentially, in one simple move, Beijing is about to “guarantee” trillions in insolvent Chinese debt.

 

In short, what the PBOC has proposed is the biggest “shadow nationalization” in history, one which will convert trillions in bad loans in insolvent enterprises into trillions in equity investments in the same enterprises, however without any new money actually coming in! Which means it will be up to new credit investors to prop up these failing businesses for a few more quarters before the reorganized equity also has to be wiped out.

We concluded as follows: “While this is surely “good” news for the very short run, as it allows the worst of the worst in China’s insolvent corporate sector to issue even more debt, in the longer run it means that China’s total debt to GDP, which is already at 350% is about to surpass Japan’s gargantuan 400% within a year if not sooner.”

It also means much more deflation, because Chinese corporations which were adding to China’s massive excess capacity bubble and which would have otherwise gone out of business, will remains in business as they no longer have to worry about funding interest (after being effectively nationalized by the state), and instead will pump output at historical levels.

* * *

To be sure, we did not think much more of this proposed grand nationalization in the past two months, because virtually everyone had spoken up against it: from pundits to analysts, even the media figured out what a naive plan this was.

And then today we learned that not only was China going through with this epic debt-for-equity swap, but it has already equitized over $220 billion in non-performing loans.

Note: these are not traditional, Chapter 11 prepacks where the debt is converted into equity and the debt holder gets the keys to the company. In this case, it is the Chinese government itself which indirectly via state-owned banks, has become the de facto owner of countless companies.

As the FT reports:

“Beijing has stepped up its battle against bad debt in China’s banking system, with a state-led debt-for-equity scheme surging in value by about $100bn in the past two months alone. The government-led programme, which forces banks to write off bad debt in exchange for equity in ailing companies, soared in value to hit more than $220bn by the end of April, up from about $120bn at the start of March, according to data from Wind Information.”

As we said two months ago, and as the FT now confirms, this is nothing short of a state-led bailout of virtually every troubled, overindebted industry.

The latest figures for the debt-to-equity swap, and a debt-to-bonds swap initiated last year, show a subtle bailout is already under way. “One can argue the government-led recapitalisation is already happening in an atypical way and thus reducing the need for recapitalisation in its written sense,” said Liao Qiang, director of financial institutions at S&P Global Ratings in Beijing.

Sorry Liao, but ever since the Global Financial Crisis, recapitalization in the “written sense” has meant a direct or indirect taxpayer funded bailout of the most insolvent sector. And that is precisely what China is doing.

To be sure, Beijing’s debt-to-equity strategy should be differentiated from the debt-to-bonds plan unveiled last year: under the latter program, up to Rmb4tn ($612bn) had been approved in 2015 for the debt-to-bonds swap, which has seen state-controlled banks trade short-term loans to companies connected to local governments in exchange for bonds with much longer maturities. The program relieved the pressure on local governments were that were forced to take out bank loans to proceed with public works projects in the absence of municipal bond markets.

However, the debt-to-equity project has received far less enthusiasm from analysts, who say that coercing banks to become stakeholders in companies that could not pay back loans will further weigh down profits this year. Instead of underpinning stability at banks, Mr Liao says the efforts undermine it.

The programmes are just two fronts in Beijing’s battle against bad debt.  A third one was revealed recently when China started repackaging its massive NPLs in the form securitizations. As the FT writes, “the government is also reopening the market for securitising bad debt with two deals worth Rmb534m due this month. The efforts have even gone online, with debt managers hawking off bad loans on China’s biggest online retail site.”

The good news for China is that by swapping one bad asset into another, it may have confused the market long enough to buy a few quarters of time.

The bad news is that, as we first reported last November citing Fitch calculations, China’s bad debt “neutron bomb” is roughly 20% of total bank loans. Last week, CLSA’s Frarncis Cheung came up with his own calculation of China’s NPL program which he see as anywhere between 15% and 19%. Here is his analysis:

As analysts are now competing to come up with estimates of the real level of stressed loans in the China banking system and related shadow finance cycles, a good starting point can be found in the IMF’s latest Global Financial Stability Report published in April. This, based on a  sample of 2,871 listed and unlisted nonfinancial Chinese companies, calculates that 15.5% of total commercial bank loans to the corporate sector are “potentially at risk”. This debt-at-risk ratio is defined as having an interest coverage ratio (EBITDA dividend by interest expenses) of below one. Assuming a 60% loss ratio, the IMF puts potential bank losses at 7% of GDP, a level which it still considers as “manageable” while noting that for this to remain the case “prompt action” to address excess capacity and the like needs to occur.

All this is perfectly reasonable. Still Francis Cheung makes the valid point in his report that the IMF has relaxed its criteria from when a similar exercise was done in 2014. Then the debt-atrisk estimate was done using an interest coverage ratio of less than 2x. Now it is 1x. If the same 2x threshold was employed in 2015 the debt-at-risk estimate would rise to 28% of total corporate loans. Meanwhile, Cheung estimates, using the latest listed A-share company data for 2015, China’s bad-debt ratio or NPL ratio at 15-19% based on companies’ interest coverage and debt sustainability.

In short, whether China’s NPL are 15%, 19% or even 28% of total debt, these are absolutely gargantuan amounts – recall that China will report roughly $35 trillion in bank assets this quarter.

 

To believe that any government, even that of China, will be able to cover up what is indeed the “neutron bomb” (as we first dubbed it) under the entire Chinese financial system with some rhetorical sleight of hand, and shifting non-performing assets from one bucket into another without actually addressing the underlying issue, namely collapsing of cash flow, is the height of stupidity and arrogance. Which probably explains why so many sellside banks see this as a viable plan.

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