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Authored by Saxobank CIO Steen Jakobsen, via TradingFloor.com,

This weekend saw British prime minister David Cameron get a deal from Europe, but a deal which is far from the ambition he launched in his so called ”Bloomberg speech” in 2013:  “repatriation of power”  and “fundamental” reform.

What he did get, in the words of Simon Nixon of The Wall Street Journal was: "The PM found himself in the small hours of Friday morning staking 70 years of British foreign policy on securing rights to discriminate against Polish expatriate workers." Furthermore, the deal was seen by Brussels as giving him too much and of course by Eurosceptics and most of the media as being too little.

The bigger political risk, though, is what Wolfgang Münchau of the Financial Times states right in his headline: “Concession creates a two tier Europe”. "This is a formal exemption from the goal of ever closer union," he writes, and underlines what this is not: an opt-out, an exemption or a derogation, as many such processes in the past has been called by the EU – it’s the acceptance of a two-tier Europe, which was never the goal or the intention.

There is unilateral agreement that in two weeks times no one will remember or understand the deal, as it's too complicated and without any really fundamental changes, but also that the campaign will be fought on “In or Out” and that Cameron is a strong enough campaigner to make a difference underlying the uncertain future, the potential loss of jobs etc.

If he does lose he will be out of office (although he is claiming that he will remain…..): 50% of the MPs are already aligned with a No and it will be impossible for him to lead the Tories after a No, especially as the ever ambitious Boris Johnson at the last minute joined the Out camp (strategic move or conviction?)

Cameron also has the support of major companies and 50 out of FTSE 100 CEOs have either privately or as company chief executives signed up with Cameron and the Stay campaign. June 23 will be a big challenge not only for Britain but also for Europe.

I doubt the markets will find any consolation in opinion polls or even rhetoric from Cameron or the EU. The fact that Cameron delivered close to no reforms will not matter on June 23 – what will matter is how the EU tries to “convince” and how the Out camp is able to present their populist agenda. We already hear experienced hands in populism such as Marine Le Pen and Geert Wilders in the Netherlands talking about a “need for them also to vote on EU”.

If Britain does vote No the case for a European Union will collapse – the move away from common law and equal treatment has been for everyone to see. In Greece, in year in and year out violations of the Maastricht criteria, bank union, ECB action etc. Now the timing, June, is really bad for Europe as the European Central Bank will be in total panic about kick-starting inflation, refugees will be flowing over borders and Germany's Angela Merkel is currently the weakest she has been during her reign as chancellor.

In the worst case, come October 2016, Merkel and Cameron will be out of power, Marine Le Pen will be leading French election polls and Europe will be closing in on itself.

This is not my favorite goal or hope, but the tectonic plates of European politics are picking up speed and decades of non-reform and non-compliance is coming back with interest on top.

Overall, though, I doubt that the UK will end up quitting. History tends to favour no change in these kind of votes, but clearly as the refugee situation become a bigger and bigger issue the focus could be somewhere entirely different by June and hence create a “natural” exit for the UK.

Main Street and Wall Street both dislike change, we are about to see some of the biggest changes in my lifetime – even I am a bit concerned. I don’t really see many good outcomes to this.

via Zero Hedge http://ift.tt/1TAmLYN Tyler Durden

On the heels of weakness in the rest of the world's PMIs, US Manufacturing just printed 51.0 (missing expectations of 52.4) and tumbling to its lowest since October 2012… followed rapidly by Bernanke hinting at QE3. While Markit does 'blame the extreme weather', it notes however that "every indicator from the flash PMI survey, from output, order books and exports to employment, inventories and prices, is flashing a warning light about the health of the manufacturing economy."

Not good…

Even worse…

 

Chris Williamson, chief economist at Markit said:

“US factories are reporting the worst business conditions for over three years. Every indicator from the flash PMI survey, from output, order books and exports to employment, inventories and prices, is flashing a warning light about the health of the manufacturing economy.

 

“Output and order books are growing at one of their slowest rates since late-2012, with exports falling amid weakened global demand and the strong dollar. Hiring has weakened as a result. With backlogs of work slumping to the greatest extent since the height of the recession in 2009 and inventories rising for the third successive month, it’s likely that firms will come under increasing pressure to cut payroll numbers and production in coming months unless demand revives.

 

“Prices are meanwhile falling at the fastest rate since mid-2012 as firms compete to win or retain customers.

 

“The one caveat is that the survey was conducted in a month in which parts of the US suffered extreme weather. However, few survey respondents reported that the weather had a material impact on business over the month, instead often simply observing a general slowdown in trade and the economy.”

And with Services now tumbling also, what excuse will the permabulls have next.

via Zero Hedge http://ift.tt/219zGpf Tyler Durden

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

No wonder we're devolving into a society of a few privileged haves and a vast populace of marginalized have-nots.

American culture contextualizes failure in individualistic terms: the system didn't fail–you failed. Never mind the system is set up to fail many (if not most) participants: the cultural narrative is that failure to succeed, failure to get ahead, and failure to fit in all boils down to personal failure: failure to follow the rules, work harder, please your boss, transition to a new career, extricate yourself from dysfunctional situations, and so on.

This narrative of individual failure and redemption is the foundation of thousands of self-help books, seminars, motivational speeches and the ever-present gung-ho rah-rah: you can beat any odds if you work hard enough, get out there and meet the right people, sell yourself, etc. etc.

Pop culture is a schizoid mix of this "dress/socialize/study for success" celebration of individual initiative and an equally zealous embrace of victimhood and self-pity: I made all these ridiculously poor choices because my family was dysfunctional or I was led astray.

No wonder our culture is psychotic. The way to get sympathy (and rationalize poor choices) is to make yourself out as even more of a victim than the rest of the self-justifying crowd.

But the ideal turn-around to self-pity and victimhood is the personal redemption via hard work, discipline, better choices, going back to school, etc.

These inspirational narratives at the heart of American culture serve a useful purpose, but they ignore the other half of the story: our institutions have failed us: they have failed not just the failures but the successful as well. They have failed the nation and every one of its citizens, but this systemic failure is verboten: speaking of systemic failure invites ridicule as a loser who blames the system instead of themselves.

Memo to the motivation-solves-everything crowd: Self-help books and rah-rah speeches won't change failed systems.

What can we say about a system that has hired tens of thousands of college administrators (under-assistant associate deans of student affairs et al.) at $200,000 each for doing nothing remotely productive in terms of educating students for the real world, while the system cheers impoverished students to take on $100,000 in student debt for increasingly worthless college diplomas?

How can anyone claim a system that glorifies the construction of $100 million student union complexes while loading over a trillion dollars of debt on students is not part of the success-failure equation?

Instead of shrugging off the systemic failure and pushing every student to borrow even more and "go back to school" as the "solution" to marginalization, how about turning our energies on tearing down a failed system and creating a system of higher education that is 90% cheaper and 90% more effective?

If you think this is "impossible," please read my book The Nearly Free University and the Emerging Economy. It's not only possible, it's necessary.

How can anyone claim a system that charges $22,000 for an emergency room visit for acute pain in the right side of the abdomen, and misdiagnoses what turns out to be appendicitis (and charges another $22,000 for the second visit a few hours later, and $40,000+ for the operation) is not part of the success-failure equation? (True story.)

As I have noted here before, the system only generates jobs for those whose labor is profitable. Unprofitable work is paid by the government, and that's how we end up with $500 Pentagon hammers, $800 cotton balls and $100,000 for worthless college degrees.

The system itself is broken, from the incestuous corruption of Washington D.C. to every institution that feeds at the federal/state trough. But it's not just the central state that's broken–the private sector is broken, too, because profitable work is increasingly scarce.

Though the culture insists everyone is equal not just in civil rights but in potential to go out and be a sports hero, Steve Jobs clone, etc., the reality is many of us will never manage to shoehorn ourselves into these rah-rah success boxes. It's not that we're not willing to work hard, or give it our best shot–we just don't have the capacity to do the stuff that's profitable in this economy.

Everyone that doesn't have what it takes to be brilliant, flexible, sociable to a fault, etc., is marginalized: their role in the system is to fill a dead-end job, enlist in the army of Precariats scratching out an insecure free-lance living, or sink into some variety of state dependence: "crazy money," disability, early retirement, etc.

I am all for carving out an individual definition and measure of success. That's the reason I wrote Get a Job, Build a Real Career and Defy a Bewildering Economy and listed the eight essential skills everyone should develop if they want to navigate an increasingly challenging economy.

But individual initiative and developing new skills and capital isn't going to fix failed systems. That requires admitting the over-arching systems and institutions of the nation have failed and need to be completely re-worked from the ground up.

This isn't a job for a centralized state, for the simple reason the source of the failure is centralization itself, as centralization concentrates wealth that then corrupts concentrated power which then destroys democracy.

The need for a new decentralized, more humane and truly democratic system is why I wrote A Radically Beneficial World: Automation, Technology and Creating Jobs for All: The Future Belongs to Work That Is Meaningful.

We can't magically make all of us equal in ability, bandwidth, or sociability, and embracing the illusion that this is possible is a core reason why our culture is toxic and our economy is stagnant. We need a system that has productive social roles and meaningful work for everyone, not just the well-connected, the brilliant and the highly flexible multi-tasker.

No wonder we're devolving into a society of a few privileged haves and a vast populace of marginalized have-nots: the system has failed, but we can't even talk about it.

via Zero Hedge http://ift.tt/1SN5ueD Tyler Durden

Negative rates may not have found their way to bank deposits in most locales (yet), but that doesn’t mean the public isn’t starting to see the writing on the wall.

At first, NIRP was an anomaly. An obscure policy tool that most analysts and market watchers assumed would be implemented on a temporary basis in a kind of “let’s see if this is even possible” experiment with an idea that, from a common sense perspective, makes no sense.

But then a funny thing happened. Central banks from Denmark to Sweden to Switzerland went negative and stayed there. They even doubled down, taking rates even more negative and before you knew it, the public started to catch on.

When NIRP failed to resuscitate global growth and trade, the cash ban calls began. The thinking is simple (if crazy): if you do away with physical banknotes, the effective lower bound is thereby eliminated. You can make rates as negative as you like because the public has no recourse as people aren’t able to push back by eschewing their bank accounts the mattress.

If that seems far-fetched, consider that the ECB is seriously considering pulling the €500 euro note and the calls are growing louder for the Fed to drop the $100 bill. Of course officials are pitching the big bill bans as an attempt to fight crime – because only a criminal would pay with a $100. But the underlying push is for a cashless society wherein monetary authorities can effectively force citizens to spend and thereby boost the economy by simply making interest rates deeply negative.

Now that the cash ban calls have gotten sufficiently loud to be heard by the generally clueless masses and now that the likes of Jose Canseco are shouting about negative rates, savers are beginning to pull their money out of the banks.

“Look no further than Japan’s hardware stores for a worrying new sign that consumers are hoarding cash–the opposite of what the Bank of Japan had hoped when it recently introduced negative interest rates,” WSJ wrote this morning. “Signs are emerging of higher demand for safes—a place where the interest rate on cash is always zero, no matter what the central bank does.”

“In response to negative interest rates, there are elderly people who’re thinking of keeping their money under a mattress,” one saleswoman at a Shimachu store in eastern Tokyo told The Journal, which also says at least one model costing $700 is sold out and won’t be available again for a month.

“According to the BOJ theory, they should have moved their funds into riskier but higher-earning assets. Instead, they moved into pure cash that earned nothing,” Richard Katz, author of The Oriental Economist newsletter wrote this month.

Meanwhile, in Switzerland, circulation of the 1,000 franc note soared 17% last year in the wake of the SNB’s move to NIRP.

“One consequence of the decision to cut the Swiss central bank’s deposit rate into negative territory in late 2014, and deepen the negative rate to -0.75% early last year, may have been to increase stockpiling,” WSJ reports. “Holding money in cash would protect it from the risk of Swiss banks at some point charging a broad range of customers to deposit money.”

“The connection between the increasing circulation of the big Swiss bill and the central bank policy is obvious,” Karsten Junius, chief economist at Bank J. Safra Sarasin said.

Well yes, it is. Just as the connection between soaring safe sales in Japan and Haruhiko Kuroda’s NIRP push is readily apparent.

So once again, we see that when one experiments with policies that fly in the face of logic (like charging people to hold their money), there are very often unintended consqeuences and when you combine sluggish demand with NIRP in a monetary regime that still has physical banknotes, you get a run on cash. And on safes to store it in. 

One Japanese lawmaker brought up the soaring safe sales in parliament on Monday. “It suggests a vague sense of unease among the public,” Katsumasa Suzuki remarked.

We’re not sure “vague sense of unease” quite covers it. People are rushing to buy safes to hoard their money in because the head of the central bank has lost his mind…

Perhaps “palpable sense of panic,” better describes the situation. 

In response to Suzuki Finance Minister Taro Aso could only muster the following: “There is money, but there is no demand. That is the biggest problem.”

via Zero Hedge http://ift.tt/1oxpQM6 Tyler Durden

WTI crude prices are up almost 6% this morning with April (the new front-month) trading above $33.50 – testing post-DOE plunge stops. The irony of the ramp is that it comes amid terrible global PMIs (demand), a report from IEA of oil staying in glut for longer than expected (supply), and warnings from Abu Dhabi's biggest bank that $20 oil is possible. Oh well, we are sure the algos know what they are doing… despite veterans of the 1980s oil glut warning it could take 7 to 10 years to emerge from the current slump.

Overnight saw Japanese PMI tumble, China PMI drop below 50 once again, and Europe worst in a year… so demand is not looking good.

On the supply side, as Bloomberg reports, the global oil glut will persist into 2017, limiting any chance of a price rebound in the short term as the surplus takes even longer to clear than previously estimated, according to the International Energy Agency.

While U.S. shale oil production will retreat this year and next as the price slump hits drilling, its subsequent recovery will ensure America remains the biggest source of new supply to 2021. The Organization of Petroleum Exporting Countries will expand its market share slightly this decade, with Iran, newly released from international sanctions, displacing Iraq as the organization’s biggest contributor to supply growth.

 

“Only in 2017 will we finally see oil supply and demand aligned but the enormous stocks being accumulated will act as a dampener on the pace of recovery in oil prices,” the Paris-based adviser to 29 countries said in its medium-term report Monday. “It is hard to see oil prices recovering significantly in the short term from the low levels prevailing.”

 

The IEA’s new outlook is the latest sign that oil forecasters are bracing for a “lower-for-longer” price environment. The agency acknowledged that the industry’s expectations — and its own predictions — that oil markets would recover in 2015 proved “very wide of the mark.” The report also signals that while OPEC will succeed in its policy of defending market share, the group will have to endure an extended period of reduced revenues.

Which has led Abbu Dhabi's biggest bank to warn of the possibility of $20 oil (as Bloomberg reports)

Oil prices may drop to near $20 a barrel this year as the global glut of crude persists into 2017, Abu Dhabi’s largest lender said.

 

U.S. benchmark West Texas Intermediate crude should trade in a range between $25 a barrel and $45 a barrel for the rest of the year, “although a very brief spike down towards $20 is possible,” the National Bank of Abu Dhabi PJSC wrote in its Global Investment Outlook 2016 report on Sunday. Prices at the lower end of the range will stimulate demand growth, it said.

 

“For at least the next few years there do appear to be solid fundamental reasons why oil prices are likely to remain in a trading range,” NBAD analysts wrote in the report. Producers have sold less of their crude this year through forward transactions than in past years, and forward-selling would likely accelerate if prices rallied much above $40 a barrel, the bank said.

So after all that… oil prices are soaring…

But now that we have run stops into the DOE ledgge… what happens next?

Well, if veterans of the 1980s oil glut are correct, as Reuters reports, the current drop in prices carries echoes of those desperate days.

Interviews with some of those involved in that period reveal that while there is little consensus on how long prices will stay depressed, experience suggests the current market glut will not evaporate soon.

 

…

 

By late 1986, Saudi Arabia and other OPEC members opened the taps again to regain market share, and prices did not recover for 20 years.

 

The memory leaves Sheikh Ali, now 71, feeling grim about a price recovery this time.

 

"Tomorrow if the price of oil goes down to $20 I would not be surprised,” he said. "You don't take excess oil away very quickly. It was true in the 1980s, now it's even worse."

 

…

 

"They realize that at a price that's too high … U.S. shale production comes roaring back," said Morse, the global head of commodities research at Citigroup.

 

…

 

Sheikh Ali estimated it will take seven to 10 years to emerge from the current slump. "The idea that U.S. companies are going to collapse and therefore their production is going to zero is daydreaming," he said. "Even the wells that have closed can easily re-open."

 

…

 

Saudi Arabia may no longer be the swing producer of global markets, but the United States is now the world's "spring producer," Sheikh Ali said. Shale stands to put a long term damper on global markets, because when oil prices rise even a little, North Dakota and Texas output can pop back to market far easier than expensive deepwater or Alaskan production did decades ago, he said.

 

"I don't think it is negative for countries in the Gulf," he said. "It will make us more rational, pay more attention to our economy, reduce corruption, have better management. It may be a blessing in disguise."

So "unequivocally good", after all the lower for longer bad is over… which may take up to ten years to clear.

via Zero Hedge http://ift.tt/1Q5uhVy Tyler Durden

Until recently, ad blocking – the biggest threat to every Silicon Valley ad-driven business model – was largely a peripheral concern stemming from such companies as AdBlock, which was recently snapped up by a “mystery buyer” while ad-driven quasi-monopolies such as Google pay comparable adblockers to allow their ads through. That however is about to change because as the WSJ reports two Chinese-owned European wireless carriers are set to unleash online advertising blocking on their networks, which as the WSJ accurately summarizes, “threatens Silicon Valley’s prevailing business model.“

However, instead of relying on potentially compromised third parties to block bandwidth-hogging ads, the networks will implement the technology within the actual pipe at the network-level: the operators, Three UK and Three Italia, are working with Israeli company Shine Technologies and plan eventually to roll out the platform to other wireless providers in their group. 

According to the WSJ, the two carriers are owned by CK Hutchison Holdings Ltd., which is controlled by Asian billionaire Li Ka-shing and also owns wireless networks in Ireland, Austria, Sweden, Denmark, Hong Kong and Indonesia. Shine is backed by Mr. Li’s Horizons Ventures tech fund.

“We don’t believe customers should have to pay for data usage driven by mobile ads,” Tom Malleschitz, chief marketing officer of Three UK, said in a statement. “Irrelevant and excessive mobile ads annoy customers and affect their overall network experience.”

Shine’s platform prevents online-ad networks such as those operated by Alphabet Inc. from delivering display and video ads to browsers or apps. Unlike ad-blocking apps downloaded by customers to their devices, it works at the network level.

The CK Hutchison-owned carriers are not the first to take this aggressive step: last year, Jamaica-based wireless operator Digicel Group began working with Shine as the first operator to implement the technology so it could block advertising on its networks in the Caribbean and South Pacific. The carrier criticized online advertising companies, including goliaths like Alphabet and Facebook Inc., for not contributing to the costs of building the networks that deliver their ads.

More importantly, these are not some token networks: Digicel has about 13 million subscribers across the Caribbean, Central America and the South Pacific. Hutchison had more than 30 million customers across Europe as of mid-2015.

A comparable story from Bloomberg lays out the rising confrontation between carriers and ad-providers in more detail:

As Zuckerberg prepares to return to Barcelona for this year’s MWC on Feb. 22, phone executives say his company looks more like a competitor than a partner. Last year, WhatsApp introduced free voice calls—something Facebook already offered—and both brands have messaging apps. These so-called over-the-top services cut into mobile carriers’ voice and texting revenue because they’re offered over the Internet. Some phone companies say Facebook and its ilk are freeloaders that rely on carriers’ network infrastructure without spending any money to support it. “WhatsApp is competing with us, not only with messaging but with voice, too,” Telefónica Chief Operating Officer José María Álvarez-Pallete said in August at a telecommunications industry event in the Spanish coastal city of Santander. “The premise should be, same services, same rules.”

Think “net neutrality” but for wireless carriers, something Netflix has had significant issues with in recent months. And just like in the case of Netflix, where content providers and cable companies were slow to respond, so ad networks did not realize that they are handing out bandwidth to those who are being directly funded by bandwidth-hogging ads, in the process threatening the survival of the networks themselves. Having finally figured out the dynamic, the carriers are angry.

First, in Latin America:

Telefónica has huge operations in Latin America. And it’s in emerging markets where the tension with the messaging apps is most evident. Carriers there are more dependent on revenue from voice and text (in developed countries, data is the bigger moneymaker). A Brazilian judge in December ordered WhatsApp to suspend service in the country following a complaint from a telecommunications lobbying group, though the decision was soon overruled by another court.

Then in Africa:

In South Africa, carriers MTN Group and Vodacom Group contend that services such as WhatsApp, Skype, Google Hangouts, and the Viber messaging app cost the country billions of rand in tax revenue and compromise security because their encryption makes it easier for criminals to avoid government surveillance. South Africa’s telecom regulator has begun an investigation into the impact of over-the-top services, and Nigeria is considering regulating them. “Technology has outpaced current consumer legislation in many countries,” says Lisa Felton, who oversees regulatory issues for Vodafone, the controlling shareholder of Vodacom.

And soon everywhere else?

To be sure, the biggest “threat” is the FaceBook-owned WhatsApp, which be definition makes Mark Zuckerberg the number one enemy of the established industry:

WhatsApp doesn’t provide data on voice calls, but it claims 1 billion users, roughly double the number it had when Facebook bought the company. And Skype says it carries in excess of 2 billion minutes of calls per day. In Eastern Europe, where such apps are growing in popularity for national and international calls, mobile carriers’ voice revenue has dropped by a third over the past five years, a decline that hasn’t been fully offset by rising data usage, according to Bloomberg Intelligence analyst Erhan Gurses. Facebook declined to comment.

One suggestion is a war of attrition, where carriers lower fees to compete with WhatsApp; the problem is that for many WhatsApp remains free and funded by advertising – the same advertising which uses carrier bandwidth to be shown to consumers.

In the long run, say some industry analysts, WhatsApp and other alternatives shouldn’t be seen as a threat to the voice service of phone companies. The typically superior sound quality of the voice calls in the apps uses lots of data. “If carriers price their data offerings correctly, it could drive up revenues,” says John Delaney, an analyst at researcher IDC. And when people graduate to video apps like Skype, data consumption grows exponentially. Says Delaney, “What carriers resent is investing heavily and having others piggyback on their investments.”

For many, however, this is not an option, and instead they are rolling out the nuclear option: banning the very technology which makes companies like FaceBook and Microsoft’s Skype profitable in the first place: online ads.

“This answers any speculation about the possibility of rolling out network-level ad blocking in Europe,” said Roi Carthy, chief marketing officer of Shine, in a statement. “Shine now has boots on the ground.”

The only question is how long until most, if not all other carriers, already threatened by collapsing revenues and rising ad-supported competitors, follow suit and ban ads, that lifeblood of virtually every Silicon Valley revenue model, including 2 of the 5 biggest largest by market cap pure-play ad revenue-driven companies in the world.

via Zero Hedge http://ift.tt/1WDsuLm Tyler Durden