Bits Bucket for June 21, 2015
Post off-topic ideas, links, and Craigslist finds here.
The Housing Bubble
Examining the home price boom and its effect on owners, lenders, regulators, realtors and the economy as a whole.
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Name:Ben Jones
Location:Northern Arizona, United States
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Is another great big fat Greek bailout in the bag?
What useful purpose does the never ending Grexit Kabuki dance serve?
It’s a very boring public game of chicken between creditor and debtor, with the creditor being the one with more to lose.
Marketwatch dot com
Matthew Lynn’s London Eye
Opinion: How to know when Greece is about to exit the euro
By Matthew Lynn
Published: June 17, 2015 3:00 a.m. ET
Three signs that will tell you to start paying attention again
Reuters
Greek Prime Minister Alexis Tsipras
Crunch talks in Athens. The IMF flying home in a huff. German ministers leaking that the eurozone can survive a Greek exit, and Greek ministers insisting that austerity can’t be tolerated any more.
If it is Wednesday, at least one of those factors must be threatening to dump Greece out of the euro (EURUSD, -0.0880%) by the weekend. Or Monday. Or the end of the month.
It is now five years since the Greek crisis started, and during that time it appears to have gone through as many reboots as Jurassic Park — and with a plotline that is about as familiar. The trouble is, the crisis has been so protracted, and has been through so many twists and turns, that it has become increasingly hard for even the most diligent investor to keep track of them all.
And yet, the fact remains that a sudden and calamitous Grexit remains the biggest risk to any portfolio.
So how do you protect yourself from becoming exhausted by the whole saga — and work out whether this time around the talk of a Grexit might be for G-real? There will be three big clues. An acceleration of quantitative easing from the European Central Bank. An emergency-aid package being put together for Greece. And a freezing of the interbank lending market.
Until all those warning lights are flashing red all the talk of Greece coming out of the euro will be just that — talk.
…
The Wall Street Journal
International Greece
Will Russia’s Vladimir Putin bail out Greece?
By Chris Matthews
June 19, 2015, 9:39 AM EDT
Would you want to owe this man money?
Photograph by Alexander Nemenov — AFP/Getty Images
Greece can use all the help it can get.
Call it a case of the broke leading the broke.
On Friday, Vladimir Putin’s spokesman Dmitry Peskov told The Associated Press that Russia would be willing to lend Greece the money it needs to survive its debt crisis.
“If the Greeks ask for a loan then we will consider it, but they have not yet asked,” Peskov told the AP. “We would do this because they are our partners and this is a normal practice between countries who are partners.”
…
“If the Greeks ask for a loan then we will consider it, but they have not yet asked,” Peskov told the AP. “We would do this because they are our partners and this is a normal practice between countries who are partners.”
If I was the guy running Greece I would maybe latch onto this and play one side against the other, play Russia against the West.
I would not at all be surprised to see the West suddenly decide on a campaign of “Greece must be rescued”.
Greece should declare themselves to be a Chinese internet company, launch an IPO and their money problems would disappear by noon. Or change their name to Mexico.
I take it they ran out of borrowed money again? Austerity and haircuts for all. No more govt pensions.
Print more. Lend more. Greece will be bailed out again. As long as the can lend, they will. Everything else is window dressing. Haircuts don’t happen.
The Greek people are experiencing an endless haircut.
Endless haircut? Seems to be business as usual, but I’m really not following much and may be misinformed. How much have pensions and govt services been cut?
30% gov worker and free hc are a tough mix
Going Greeeeek
Is this the Big One, or a mere warning of what’s ahead?
The Wall Street Journal
Asia Stocks
China Shares Drop Amid Fears of Equity Bubble
Shanghai closes down 3.7%, Shenzhen falls 3.6%; ChiNext suffers one of worst days on record
By Gregor Stuart Hunter and Chao Deng
Updated June 18, 2015 5:32 a.m. ET
China’s stock market slid Thursday, with highflying startup stocks suffering one of their worst days on record and analysts turning increasingly wary of what they see as a bubble in the country’s equities.
The Shanghai Composite closed down 3.7% at 4785.36, while the smaller Shenzhen market fell 3.6%, extending a bout of volatility that began in late May.
The ChiNext index, which tracks small startup stocks, fell 6.3%—its third-largest drop since the market began in 2009 and its biggest since 2013—after nearly tripling in the past year. The ChiNext is now extending its collapse in correction territory, having dropped 10% by Tuesday from its record high on June 3.
“It’s the same old song and dance,” said David Welch, managing director at Reorient Group. The same “two Achilles’ heels of the market remain”—worries about further tightening on the use of borrowed money to buy stocks by retail investors and concerns that a wave of new listings will weigh on liquidity.
The Shanghai benchmark is now headed for its worst week of the year with a loss of 7.4% since last Friday, although it has rebounded since falling into correction territory in late May.
Analysts said that there were no fresh headlines contributing to the losses Thursday, although an increasing number of reports have warned that China’s domestic market is a bubble waiting to burst. Before the afternoon selloff, Credit Suisse warned that this would probably happen before the end of the year.
Morgan Stanley downgraded Chinese stocks from an overweight to equal weight position last month, while Bank of Communications has been warning that China’s market is a bubble since January.
“Next year we’ll see a double-dip or triple-dip in this economy,” said Credit Suisse’s head of equity China research Vincent Chan. “The structural slowdown trends are very severe.”
He added that nascent signs of economic recovery in May for China are “a mirage.” Earlier Thursday data showed a deceleration in Chinese housing prices.
…
Note this article was from Thursday, before the bigger crash on Friday.
How much total crash? Don’t these Asian markets do this up and down a bit a lot more frequently?
Yes. When a market goes up and down by 5% in a single day on a routine basis a 13% downturn can hardly be called a crash.
Except that it is a significant crash for those that are leveraged in the collapsing stocks that bring the whole market average down. Like a Monty Python flesh wound.
“…a 13% downturn can hardly be called a crash.”
Even if it occurs in just one day!?
Luckily the Chinese stock market investors have had all weekend to think about how much money they lost on Friday. I’m sure cooler heads will prevail come Monday.
chinese stock gamblers are to be broke @ss losers when the white collar boys get through with them.
“…a 13% downturn can hardly be called a crash.”
It did not happen in one day, it happened in one week.
“It did not happen in one day, it happened in one week.”
I stand corrected.
But to put the one-week decline of 13% in perspective, here is the annualized percentage rate of decline:
((1-0.13)^52-1) * 100% = -99.9%.
June 21, 2015
The Open
Who gets burned when China’s stock bubble bursts?
By Sophia Yan
China stocks have ballooned to unbelievable heights this year, generating huge returns for retail investors who have poured their savings into the market.
But with concerns over a bubble growing, those same investors are now in a precarious position.
The market’s strength is “just a mirage,” said Vincent Chan, managing director of equity research at Credit Suisse. There will be a final trigger that “comes as an accident, which nobody can really foresee … retail investors, if leveraged, are usually the first group of people … that lose.”
Those retail investors — think grandma and grandpa — have benefited greatly as China stocks outperformed their international rivals. The Shanghai Composite has surged nearly 40% this year, and the Shenzhen Composite is up more than 90%, easily making it the world’s top-performing index.
But many analysts say the boom is built on government stimulus and investor frenzy, rather than robust economic fundamentals. In fact, first quarter GDP growth was China’s weakest since the financial crisis.
Already cracks are showing — Shanghai stocks dropped by 13% last week, something that could make retail investors rethink their financial strategy. Earlier in June, investors abruptly pulled out nearly $7 billion from Chinese funds and ETFs in a single week, according to financial data firm EPFR.
Retail investors shifted their money into stocks over the past year as the property market — a traditionally popular investment for the Chinese — deflated. At the same time, state media publications urged the public to invest in stocks, and other government initiatives opened up markets to foreign investors.
Many investors were unable to resist, especially when friends and acquaintances were reaping double digit returns.
“[When] the market is on a streak, more and more people are coming in,” said Mr. Shi, a retired driver who invests in stocks. “If it wasn’t like this, nobody would show up [to the brokerage].”
…
The Financial Times
Hanergy founder bought shares before crash
Cynthia O’Murchu
Li Hejun, the controlling shareholder of the world’s largest solar company, spent more than $50.1m buying additional shares in the Hong Kong listed company on the day its share price spectacularly crashed last week.
In a dramatic trading session last Wednesday, nearly $19bn was wiped off the market capitalisation of Hanergy Thin Film Power in just under half an hour. The fall came on the same day that Mr Li did not attend the company’s annual shareholder meeting.
Mr Li bought 54.5m shares in HTF at an average cost of HK$7.1 a share, according to filings with the Hong Kong stock exchange. The crash reduced the value of those newly acquired shares to HK$213m (US$27.5m). Trading in HTF shares was halted after the big drop and remains suspended.
HTF’s share price enjoyed a startling rate of growth in past months, increasing by 500 per cent from January 2014 to last week. It catapulted Mr Li to the top of China’s rich list and propelled HTF’s market value to at least five times its nearest competitor, First Solar of the US.
Analysts have raised questions about the company’s business model. The listed company is heavily reliant on sales to its parent company, Hanergy Group, which is also owned by Mr Li. The group also has a history of waiting for long periods before settling the sales booked by its subsidiary.
Two days before HTF’s shares plummeted, Mr Li pledged millions of his shares in the company as collateral to secure a $200m loan from Chinese state-owned investment manager China Huarong Asset Management, according to a Financial Times investigation.
Hanergy Group could not immediately be reached for comment about Mr Li’s share purchases.
…
Dumb.Borrowed.Money.
TIME
Investing stocks
Meet the Man Who Lost $14 Billion in 30 Minutes
MoneyTips
June 19, 2015
Li Hejun, Chairman of Hanergy Holding Group, attended a press conference at Hanergy Headquarters on Wednesday in Beijing, China. Li Hejun announced that Hanergy Holding Group will donate one billion yuan (161 million USD) on sand-control project in northwest China’s Gansu province in the next five years.
Song Fan—Imaginechina/AP
May 20th was a very bad day for Li Hejun.
Most of us would be dismayed at losing $14 in thirty minutes, much less $14 billion. One of China’s richest men recently did just that, losing $14 billion due to a stock collapse.
Unless you have been keeping up on foreign solar energy stocks or the Hong Kong stock market, you have probably never heard of Li Hejun or Hanergy Thin Film Power Group Ltd. Hanergy purchased a series of companies involved in thin-film solar panel technology — a promising alternative to traditional silicon-based systems, but currently relegated to a niche market. Hejun is the CEO and primary stockholder of Hanergy, generally owning 75-80% of the issues.
During the first four months of 2015, the share price of Hanergy was up 42%. The value tripled in the last twelve months, reaching a high of $40 billion and hovering near $39 billion on Wednesday, May 20th. That is when Hanergy’s stock collapsed. Within a half-hour, the stock lost 47% of its value before trading was suspended on the Hong Kong exchange. Hejun lost at least $14 billion during that exchange, and more by some accounts.
What caused the crash? Theories have ranged from the failure of Hejun to appear at the annual shareholder’s meeting to new trading connections between Hong Kong and China to a computer-assisted “flash crash” similar to the one in the U.S. in May 2010. All may play a role.
It was no secret that Hanergy was overvalued by almost any external standard. Assessing the true health of Hanergy was difficult, because the majority of Hanergy’s sales are to its privately held parent company, the Hanergy Group. However, Hanergy’s market cap of nearly $38 billion dwarfed the six largest competitors with an approximate $25 billion in market value. Hanergy did not appear to have anywhere near the production or income necessary to warrant that value.
What Hanergy does have is loans. The Financial Times has done an excellent job documenting the nature of the loans and the complex financial arrangements between Hanergy Thin Film and the parent Hanergy Group. Hanergy Group used Hanergy Thin Film shares as collateral on large loans, giving great incentive for an inflated stock price. This practice is not illegal in Hong Kong but must be disclosed, and there is some question as to whether proper disclosures were made.
…
How many Chinese companies are really just stock shufflers and givers and receivers of high interest loans? Does the paper tiger have a paper economy too? We’ll soon know.
Crushing.Housing.Losses.
I hope the 10 year yield drops to 1% so people can borrow more money and buy a bigger house.
Leverage is a wonderful thing. Using other peoples money is a divine right!
Equity parties are coming back.
Me too. And the best part about it? Demand will collapse even further.
US Housing Demand Plunges To 20 Year Low
http://2.bp.blogspot.com/-fqSztKilps8/VFlPKlr52JI/AAAAAAAAhKU/v5oS41S-y0s/s1600/MBANov52014.PNG
folks can service a bigger loan if rates drop to 1%. That means more equity in my pocket. cha ching!
Equity is a fallacy Poet. It doesn’t exist.
cash out refinances are so awesome. Its like getting a big @ss windfall every year.
When you take risk your life really comes together.
The cartoon debt humper has an empty bottle of wine that he will pay for over decades.
It is manifest destiny that every american get a 30 year loan on an appreciating asset such as a house!
Hot tip of the day - buy stock in debt collection agencies.
The cartoon debt humper has an empty bottle of wine that he will pay for over decades.
LOLZ, nice one, Blue!!
Nothing like financing a bottle of wine for 30yrs! Cause we smart like that.
“US Housing Demand Plunges To 20 Year Low”
Those are loan applications, not ‘housing demand’. You try really hard to make it worse than it really is. Very disingenuous.
Very disingenuous ??
Ya think !!
disingenuous;
insincere, dishonest, untruthful, false, deceitful, duplicitous, lying, mendacious; hypocritical
He flunked econ 101. Doom and gloom is all he preaches.
It’s organic demand my friend.
*Learn*it.
Those are loan applications, not ‘housing demand’.
HA is right on this one. Yes, you are correct that the Mortgage Banker’s Association index is an index of loan applications; but the vast majority of end-user purchases make use of a mortgage, so to a first approximation, that is an excellent proxy for organic demand.
True, it doesn’t measure investor demand—but it does measure end-user or organic demand.
Those are loan applications, not ‘housing demand’.
With mortgage interest rates inching up one would expect refis to shrivel up.
With mortgage interest rates inching up one would expect refis to shrivel up.
Every time rates tick up a bit, they do shrivel up; when rates go back down a bit, they pick back up.
Housing demand is housing demand. And the demand has been up, though it is on shaky ground right now due to fear of rising interest rates. Never mind ‘organic’. The entire world economy is anything but organic now thanks to ZIRP. Investors are still buying to flip or for passive income (thanks to zirp). And the flips are often sold to other investors, particularly the Chinese. I’m not a bear or a bull. I just don’t like the facts twisted and cherry picked as HA loves to do, like he did with one of the Vegas zip codes he linked. All the surrounding zips were trending higher, but he managed to find one that was down with very little volume in an obscure area.
“It’s organic demand my friend.
*Learn*it.”
And the attitude: “my friend…. learn it” ??
Your age, HA?
My guess, he’s in his 20’s.
Housing demand is at 20 year lows.
Refute it my friend.
Yep. Saw the same thing in Japan. Interest rates fell to the floor and housing prices started a two-decade period of declines.
And Japan is still considered to be a rich country in the early 60s it was a very poor country. The building of factories and infrastructure is real wealth.
Japan seems to have had a little 25 year setback. So much for an emerging country taking over the world with a debt bubble.
Over building is not wealth creation. It is wealth destruction.
The building of factories and infrastructure is real wealth ??
Right up to the point that someone else builds it cheeper & better…
Even with a declining population it is still rich, China took its place as the up and coming manufacturing country. Its GDP per capita is still higher than it was twenty five years ago.
Right up to the point that someone else builds it cheeper & better…
No, always until you wait for the infrastructure to collapse like we did, building mob museums in Las Vegas with stimulus money did not fix that problem.
http://www.tradingeconomics.com/japan/gdp-per-capita
Over building is not wealth creation. It is wealth destruction.
More generally, misallocation of capital via malinvestment is always wealth-destroying, as it is wealth-wasting.
But the trick is defining over building. U.S. corporations demand a much higher ROI than Chinese companies thus they consider China to be overbuilding but the return that Chinese want was sufficient for U.S. companies thirty years ago.
Idle factories are “tricky”?
Empty roads, mines, ship yards, housing towers and shopping malls are tricky too!
‘Refusal to Call Charleston Shootings “Terrorism” Again Shows It’s a Meaningless Propaganda Term’
‘Ample scholarship proves that the term “terrorism” is empty, definition-free and invariably manipulated. Harvard’s Lisa Stampnitzky has documented “the inability of researchers to establish a suitable definition of the concept of ‘terrorism’ itself.” The concept of “terrorism” is fundamentally plagued by ideological agendas and self-interested manipulation, as Professor Richard Jackson at the the National Centre for Peace and Conflict Studies in New Zealand has explained: “most of what is accepted as well-founded ‘knowledge’ in terrorism studies is, in fact, highly debatable and unstable” and is “biased towards Western state priorities.” Remi Brulin is a scholar who specializes in the discourse of “terrorism” and has long documented that, from the start, it was a highly manipulated term of propaganda more than it was a term of fixed meaning — largely intended to justify violence by the West and Israel while delegitimizing the violence of its enemies.’
‘What is most amazing about all of this is that “terrorism” — a term that is so easily and frequently manipulated and devoid of fixed meaning — has now become central to our political culture and legal framework, a staple of how we are taught to think about the world. It is constantly invoked, as though it is some sort of term of scientific precision, to justify an endless array of radical policies and powers. Everything from the attack on Iraq to torture to endless drone killings to mass surveillance and beyond are justified in its name.’
‘In fact, it is, as I have often argued, a term that justifies everything yet means nothing.’
https://firstlook.org/theintercept/2015/06/19/refusal-call-charleston-shootings-terrorism-shows-meaningless-propaganda-term/
“In fact, it is, as I have often argued, a term that justifies everything yet means nothing.”
It sounds to me it’s as if you are talking about the term “affordable”.
‘Authorities said Saturday that the man accused of killing nine African Americans in a venerable Charleston, S.C., church left a racist manifesto targeting blacks, Jews and Hispanics on his Web site, a white supremacist broadside that also appears to offer a rationale for the shootings.’
‘The lengthy declaration, loaded with offensive racial characterizations of blacks and others, includes the conclusion that “someone has to have the bravery to take it to the real world, and I guess that has to be me.”
“I have no choice,” states part of that final section, titled “An Explanation.” “I am not in the position to, alone, go into the ghetto and fight. I chose Charleston because it is [the] most historic city in my state, and at one time had the highest ratio of blacks to Whites in the country.”
‘Law enforcement officials said that the site belonged to Dylann Roof, the 21-year-old accused of gunning down nine people at a Bible study in Charleston’s historic Emanuel African Methodist Episcopal Church on Wednesday night, and that it reflected his views. The site also included 60 photos, most of which showed Roof.’
‘The Web site domain was registered on Feb. 9 to Roof, according to a law enforcement official. Another official said the material on it was last modified late Wednesday afternoon, just hours before Roof allegedly attacked the Bible study group at the church. In its penultimate paragraph, the manifesto states: “Unfortunately at the time of writing I am in a great hurry and some of my best thoughts, actually many of them, have been . . . left out and lost forever.”
http://www.washingtonpost.com/national/health-science/authorities-investigate-whether-racist-manifesto-was-written-by-sc-gunman/2015/06/20/f0bd3052-1762-11e5-9ddc-e3353542100c_story.html
The NSA has to record all of our phone calls and emails and even photograph the fronts and backs of our letters, to “keep us safe.” And this guy has this up on the web for all to see, and they miss it.
Yep. A drug addled inbred brain dead son of the South has quite a literate body of work there.
And those early media reports that his father gave him a gun for his birthday have now been amended to “his family gave him $400.00 for his birthday and he bought a gun with it.”
Speaking of the media, it’s like it is just one entire wiki clusterfark.
We don’t have a media, we have a wikimedia, but ya gotta have “real journalist” credentials to go in and change/refine the story.
His black friend says ‘He never said anything racist’ but forgot to mention to anyone that on a Wddnesday he said ” he wanted to shoot that school up , UCA”
Still don’t know who took the racist Rebel flag/Glock pictures.
Oh what heights we’ll hit, on with the show this is it.
1:15 he wanted to shoot that school up , UCA
Dylann Roof’s friend ‘He never said anything racist’ - YouTube
http://www.youtube.com/watch?v=jKSsY5rHNu0 - 321k - Cached - Similar pages
1 day ago
And this guy has this up on the web for all to see, and they miss it ??
Thats what I concluded…How the hell a kid with this much outward anger,hate and a gun does not get outed ??
An excellent question. Especially these days, when outing friends and family is a favorite sport of vigilant sjw youth.
It would be difficult to round up all the dangerously mentally ill people. Possible exception is where they are highly concentrated, like in D.C.
It would be difficult to round up all the dangerously mentally ill people. Possible exception is where they are highly concentrated, like in D.C.
Reminds me of a line from Miracle on 34th St, where the store toy department manager, who upon learning that Kris Kringle really believes that he’s Santa Claus: “Maybe he’s only a little crazy … like the men in Washington”
“And this guy has this up on the web for all to see, and they miss it ??”
Miss it? They wrote the script.
http://www.youtube.com/watch?v=F-t8PngHgWY - 278k -
LOL, every time I see that bit I crack up.
Special guest appearance by Mitt Romney (The Take-That-Thing-Down Man).
Jeebus, you expect Hillary to do some phony finger-wagging, but Romney rushing in from stage left was a real WTF moment, until I realized he just might actually declare a Republican presidential candidacy any. moment. now.
“Jeebus, you expect Hillary to do some phony finger-wagging,”
Hillary Clinton Denounces White Privilege, Calls for Taking Guns From ‘Those Whose Hearts Are Filled With Hate’
Clinton said white Americans need to “question our own assumptions and privilege.”
by Breitbart | KATIE MCHUGH | June 21, 2015
In an emotional speech that heaped scorn and blame on America for failing to pass gun control measures while it supposedly perpetuates racism, Democratic presidential nominee Hillary Clinton said white Americans need to “question our own assumptions and privilege.”
“We still allow guns to fall into the hands of people whose hearts are filled with hate. You can’t watch massacre after massacre and not come to the conclusion that President Obama has said, ‘We must tackle this challenge with urgency and conviction,’” she said to applause at the 83rd annual U.S. Conference of Mayors in San Francisco.
I just saw a car with an big R on the door. Call the cops.
Republican?
HE has a fetish with realtors.
Reporter.
Have a cup of loss…. it’s on me.
https://goo.gl/yRCqOC
my equity is a gift from the gods!
Drink up Poet…. drink up.
“Plunging Profits, Big Losses Expose Disconnect With India’s Growth Story”
http://www.dnaindia.com/money/report-plunging-profits-big-losses-expose-disconnect-with-india-s-growth-story-2091090
Was it a capital r? Because if it wasn’t, then you need to notify the NAR so they can sue the driver for misrepresenting their trademark.
Weston, CT Housing Prices Fall 8%
http://www.movoto.com/weston-ct/market-trends/
“Airbnb Losing Money and Asking for $1 Billion in New Funding”
http://www.newseveryday.com/articles/19623/20150619/reports-airbnb-raise-1-billion-new-funding.htm
Remember… liquidate everything you’ve got and get out of debt quickly. You’ll thank me later.
have they done an ipo yet so they can get some cash to operate on?
One of the key sentences, oil is being kept just below the price that would trigger shale oil drilling on a temporary basis:
http://bakken.com/news/id/240095/north-dakotas-oil-production-has-peaked-kemp/
With a global supply glut, falling prices and collapsing demand, what’s not to like Dan?
Positive economic news…
Update: Crude Oil Plummets 41% YoY
http://www.marketwatch.com/investing/future/crude%20oil%20-%20electronic
oil and coal are dirty and polluting the air.
And keeping people from freezing and starving to death. High cost energy is a death sentence. You can control the pollution and still produce affordable energy.
There has been a thirty dollar a barrel increase in the price of oil in the Bakken oil fields since the lows in February. Fifteen dollars of that is due to WTI increases but fifteen dollars of that is due to the fact that there is no longer a glut of locally produced oil. Despite this oil production is dropping like a stone now, geology is destiny.
With new oil being formed every single day, geology is destiny indeed.
*Learn* it.
With new oil being formed every single day, geology is destiny indeed.
If you can wait around tens of million of years you can fill your tank.
No need to wait considering the rate of development is greater than the rate of extraction.
Geology my friend.
No need to wait considering the rate of development is greater than the rate of extraction.
Mind explaining the process by which it is being produced, and a pointer to the data on rate of development?
Shale oil is a toppling debt pyramid, dependent on a toppling global building debt pyramid.
http://www.bloomberg.com/news/articles/2015-06-18/next-threat-to-u-s-shale-rising-interest-payments
So how do we replace over five million barrels of oil per day. Iran might produce 500,000 barrels extra, Iraq maybe 300,000 barrels extra, Libya 300,000 barrels, Saudis 500,000 but 1.6 million does not replace over 5 million and you lose 70% of shale oil production the first year without a constant drilling of wells. You have just made my case Blue, oil prices need to move up to $80 to $100 a barrel.
I haven’t necessarily made your point dan. Your point is that credit based growth can and will continue to the moon, and that sets “what we need”. I think there is a limit, and falling off the credit merry-go-round will reduce oil consumption drastically. It should prove to be a rough ride. We all really need a lot less than what we’ve bought on credit. This lesson will be learned by us just as it was by our grandparents.
I think there is a limit, and falling off the credit merry-go-round will reduce oil consumption drastically.
I think their is a limit but it is much higher than you think and it is a moving limit. Right now, China in nominal terms is growing by about 9.3% per year. Thus, the limit which they are under is increasing 9.3% per year because it is a function of the GDP. China is several decades behind us in the credit cycle due to their debt actually being used mostly productively while ours financed entitlement spending. Thus, the collapse is going to happen here first not there.
Obviously, China is not growing 9%. Aside from the CCP mouthpieces, some say 1 -2%, some say contraction. I see what is happening in their stock market as an indication that productive investment is nowhere to find. Also, they are not behind the US and Europe in the so-called credit cycle. It is not a cycle, it is something we have never seen before. They have, relative to their underlying wealth, gone where no man has gone before. I will still watch for the dominoes to start dropping seriously there.
GDP is not such a useful measure of anything, mostly because it is bogus.
Housing needs a similar 41 percent haircut.
oil is being kept just below the price that would trigger shale oil drilling on a temporary basis ??
Perfect…Lets use up their oil as fast as we can….
Of course. The Saudis want to be No. 1 in market share to sell as much oil as possible before climate change becomes bad enough it triggers a global consensus to sharply reduce the use of oil, leaving the oil producers with stranded assets.
Good luck with that. Sure, it’s great to have Teslas and all, but the “poors” are driving cars which are 15-20 years old, and still use gasoline. In other words, even if your global consensus happened today, it would take AT LEAST 30 years to finally get the old fossil stuff off the road. And that doesn’t include off-the-grid machinery like chainsaws or backhoes. You gonna plug those into a solar panel?
There will never be stranded fossil assets.
Bitcoin’s Tech entering the major leagues
http://www.cnbc.com/id/102707183
It’s exciting stuff and I continue to be amazed at where it’s going.
The secure and fast transaction part is what is really disruptive. It would open the door to a small transaction tax to replace our current bizarre-world tax system.
Anyway, I just want to say “Happy Father’s Day” to all you dads on the blog. You all have one of the toughest jobs there is, and it gets tougher by the year, looks like. More issues to contend with, etc.
From the bottom of my heart, Happy Father’s Day!
Thank you
Temperatures ramping up! You won’t be hearing the “Pause” word any longer because the pause is over (in much the same way as you no longer hear conservatives say “trickle down”).
Hat trick for May 2015
#1 record for warmest land temperatures
#1 record for warmest ocean temperatures
#1 record for warmest combined land+ocean temperatures
http://www.ncdc.noaa.gov/sotc/service/global/glob/201505.gif
These temps include a massive heat wave in Alaska, which is continuing now, triggering dozens of wildfires.
Did everyone know that parts of Alaska (and the northern reaches of Canada) have had high temperatures and wild fires in the summer before? It’s twoo, it’s twoo, I saw it on PBS! Not to mention hordes of miskeeters.
Also interesting to read are accounts of some of the early settlers from France and England. Sometimes a person who wandered off from the settlement was found dead in the wild from numerous miskeeter bites (if a bear didn’t get ‘em). Real bummer for the early settlers who suffered from winter cabin fever, and then found they could only have limited time in the outdoors during the summer.
And when the wildfires came, sometimes entire settlements would run to the nearest river and stay in/near the water as long as they could until the fire burned out or changed course. Some people died from hypothermia as a result of staying in the water, some died of smoke inhalation. The smarter ones crammed into boats and took off, letting the current take them out of range.
Sometimes it pays to be a dilettante history buff.
Now that they have manipulated their figures, what does the more accurate (harder to manipulate) satellite data show? Flat as a pancake to down when we should be up one degree F over the last twenty years if AGW was real.
We are in an El Nino year just like 2010 and 1998 but we are much cooler:
http://www.drroyspencer.com/latest-global-temperatures/
In all fairness, dan, living here in Florida, we have had an earlier than usual onset of vicious summer heat, worse than usual, earlier than usual. As if June is the new July. From what I’ve been reading, this is also happening in other parts of the Southeast as well.
People seem to have different theories about this, like more population in the Southeast due to lost economic opportunity and colder winters up north (and check out recent temps in Chicago, unusually cold for this time of year), combined with the decrease in tree cover due to development, seasons slipping backward, etc.
I mean, I’m experiencing it, but I’m not ready to go all global warming about it, unless they start instituting progeny credits instead of carbon credits.
“In all fairness, dan, living here in Florida, we have had an earlier than usual onset of vicious summer heat, worse than usual, earlier than usual. As if June is the new July. From what I’ve been reading, this is also happening in other parts of the Southeast as well.”
That’s called weather. Several months ago people in the Northeast got some of this weather stuff and it froze their asses off.
But lemme say this, one of my normally skeptical buddies is into the global warming thing hook, line and stinker. In fact, although he’s an older guy, his leftward drift over the past 10 years has been disturbing, seems to have coincided with prescription drugs for various age and lifestyle related ailments
I’m the same way.
Science says the Earth goes around the Sun — I believe it hook, line and sinker.
Science says matter is made of tiny atoms — I believe it hook, line and sinker.
Science says illness is caused by little organisms called bacteria and viruses — I believe it hook, line and sinker.
What can I say? I’m a sucker for this science stuff!
Except real scientists are generally fired and ostracized from the scientific community for “improving” the data.
What can I say? I’m a sucker for this science stuff!
So am I and when they can predict the climate as accurately as you can predict the speed of a falling object instead of having all the AGW models being off by wide margins and the predictions by the “deniers” being dead on accurate, I will believe hook line and sinker.
I have some respect to those that fall in line with the talking heads. Last week we got a 60 mph blow from the NW right off the lake and a cottonwood tree blew apart. The section of trunk that fell on one of the fancy RVs parked at the marina blew it up like a linebacker stomping on a Styrofoam cooler.
One lady said “see, global warming”. I think we are all just so smart that the future is…well I don’t know what our future is.
The chart has this associated with it:
“Observations of sea surface and land–near-surface merged temperature anomalies are used to monitor
climate variations and to evaluate climate simulations; therefore, it is important to make analyses of these
data as accurate as possible. Analysis uncertainty occurs because of data errors and incomplete sampling
over the historical period. This manuscript documents recent improvements in NOAA’s merged global
surface temperature anomaly analysis, monthly, in spatial 5° grid boxes. These improvements allow better
analysis of temperatures throughout the record, with the greatest improvements in the late nineteenth
century and since 1985. Improvements in the late nineteenth century are due to improved tuning of the
analysis methods. Beginning in 1985, improvements are due to the inclusion of bias-adjusted satellite data.
The old analysis (version 2) was documented in 2005, and this improved analysis is called version 3.”
https://www.ncdc.noaa.gov/monitoring-references/docs/smith-et-al-2008.pdf
Variations of the word ‘improved” were used seven times in this statement and the term “adjusted” was not used even once even though adjusted is what was done to the data that went into creating the “improved” chart.
BTW, I ran across this chart that shows the various fluctuations in our atmosphere of that evil gas carbon dioxide:
http://co2.utah.edu/co2tutorial.php?site=7&id=1
Variations of the word ‘improved” were used seven times in this statement and the term “adjusted” was not used even once
“Adjusted” is an accurate word to describe what was done; “improved” is PR spin.
And when the scientific process is highjacked by those who prefer spin to accurate wording, check your wallet.
Daily and seasonal variations in CO2 are completely normal. Nothing new there.
Something of interest that may (or may not) have to do with warming in Alaska:
“Sudden Stratospheric Warming”
“A sudden stratospheric warming (SSW) is an event where the polar vortex of westerly winds in the winter hemisphere slows down or even reverses direction over the course of a few days. The change is accompanied by a rise of stratospheric temperature by several tens of kelvins.”
https://en.wikipedia.org/wiki/Sudden_stratospheric_warming
IMO this is a good read.
Yes, that could be part of it. So could the PDO, El Nino, and so on. But natural cycles and global warming cannot be separated because global warming affects all cycles. In other words, even without global warming Alaska still would have had a warm spell, Calif. would still in a drought — it’s just that global warming magnifies and worsens the effects.
If it was occurring it would but that has not occurred in almost twenty years and we are still are 2 degrees Celsius cooler than the last interglacial period. Michael Mann should have to pay back all his government grants due to fraud.
Whether man-made or not, climate changes, has changed, and will change…always.
The irony is that most people are really conservatives - by definition, conservatives want to conserve their situation. So the odd thing is that the AGW people want to prevent nature from doing its job, which is to C-H-A-N-G-E. In addition, it is very odd that the AGW people do not count man as part of nature. Man’s nature is to create things to make his life more enjoyable. If pollution is a by-product, then the tree huggers, to be consistent, must accept the pollution, or if there is a market for clean air and water, the private sector can charge pollution fees by selling off the airspace and waterways and the owners would charge polluters in their air or waterways.
Where does this tie in with real estate? Why the fact that people think their dream house will last forever in the same environment which they bought it or found it. That is a big fallacy. And at times climate change can occur fast so that the climate where they have their dream house makes living there impossible or unbearable and the property value declines to cents on the dollar.
Renters don’t have any reason to give a rat’s a$$ about climate change. It happens. So rather than worry about Phoenix becoming so hot that summers are unbearable (even to me), I could just move my trash and me to Nova Scotia.
or if there is a market for clean air and water, the private sector can charge pollution fees by selling off the airspace and waterways and the owners would charge polluters in their air or waterways.
I’m someone who is strongly in favor of market-based solutions to most problems; but the notion that free markets can handle pollution strike me as ridiculous. What possible recourse is there when a corporation goes bankrupt after causing unimaginable harm (e.g. you will never clean up the PCBs from the environment)? Oh right, you want to get rid of the liability shield for corporate shareholders—good luck with that.
You don’t get this in public school for obvious reasons and you do not think of the free market alternatives because you went through public schools. But here it is:
https://mises.org/library/libertarian-manifesto-pollution
Freedom is not supposed to mean free to crap on your neighbors.
Addressing Bill’s omission of assets to look into from yesterday’s bit bucket, I looked at platinum today. Wow, near $1085 current spot price. How much longer before silver capitulates downward?
I remember in 2001 no one was buying gold. I was. It was out of favor. People claimed gold was dead. This could be like 2001 in precious metals.
Savings bonds - series I ones - were laughed at. They had the fixed yield of 3%. Lots of people have been kicking themselves for over a decade for not buying the series I bonds between 1998 and 2001. I read about one guy who bought those, and his wife bought those, about $240,000 worth over a four year period. The maximum investment per individual per year was $30,000. They did a good thing.
We are years away from another great Series I savings bond purchase opportunity. But precious metals and crypto currency are those that people (including the bloggers here) laugh at.
“This could be like 2001 in precious metals.”
Are you suggesting the price may drop back to $300/oz?
‘Lots of people have been kicking themselves for over a decade for not buying the series I bonds between 1998 and 2001.’
I am one among them. Not having a credit card back then is what blocked me basically. Yep, there was a time you could use your rewards card to buy I-bonds. And yeah, in retrospect, the rates are really good versus what a fixed income instrument sans the risk, could produce now.
Karl Rove: Only Way To Stop The Violence Is To Repeal Second Amendment
The only way to guarantee they will stop is to “remove guns from society,” he said
by Christian Datoc | Daily Caller | June 21, 2015
Republican strategist Karl Rove said on “Fox News Sunday” the only way to stop gun-related violence, like the Wednesday massacre at Emmanuel African Methodist Church in Charleston S.C., was to repeal American citizens’ Second Amendment rights.
When Chris Wallace asked Rove how we can, “stop the violence,” the long-time gun-rights advocate stated that we have made great strides as a nation in empathizing with the victims of these types of shootings, but the only way to guarantee they will stop is to “remove guns from society.”
WALLACE: How do we stop the violence?
ROVE: I wish I had an easy answer for that, but I don’t think there’s an easy answer.
We saw an act of evil. Racist, bigoted evil, and to me the amazing thing is that it was met with grief and love.
Think about how far we’ve come since 1963. The whole weight of the government throughout the South was to impede finding and holding and bringing to justice the men who perpetrated the [Birmingham] bombing.
And here, we saw an entire state, an entire community, an entire nation come together, grieving as one and united in the belief that this was an evil act, so we’ve come a long way. Now maybe there’s some magic law that will keep us from having more of these.
I mean basically the only way to guarantee that we will dramatically reduce acts of violence involving guns is to basically remove guns from society, and until somebody gets enough “oomph” to repeal the Second Amendment, that’s not going to happen.
“remove guns from society”
That seems like an extreme solution. How about just making it harder for members of the lunatic fringe and extremist groups to lay hands on them?
Comment by phony scandals
2015-06-21 19:06:09
Karl Rove: Only Way To Stop The Violence Is To Repeal Second Amendment
dailycaller.com/2015/06/21/karl-rove-only-way-to-stop-the-violence-is-to-repeal-2nd-amendment/
Is China’s soaring stock market nearing a crash?
Is China’s soaring stock market nearing a crash?
STR/AFP/Getty Images
Will Deener
Published: 21 June 2015 08:47 PM
Updated: 21 June 2015 09:03 PM
Many readers of this column probably couldn’t care less about the Chinese stock market, but I find the madness of crowds in a country as friggin’ big as China both fascinating and instructive.
For those who haven’t been paying attention, the Shanghai Composite Index, the country’s benchmark index, is up 120 percent over the 12 months, and 34 percent in the first half of this year. That performance in such a short time is reminiscent of the late 1990s in the U.S. just before the crash of the cyber rockets.
The ascent of Chinese stocks into the stratosphere has me wondering whether the white-hot Shanghai index will soon return to an Earthly orbit — or, dare I say, crash. Allow me to stipulate that this is not a prediction made with anything resembling conviction.
Heck, economists and market pundits a lot smarter than I am have been forecasting the demise of both the Chinese economy and stock market for the better part of two years. And it hasn’t happened.
…
Craig Stephen’s This Week in China
Opinion: China’s stock debuts will show if bubble has already burst
Published: June 21, 2015 10:08 p.m. ET
HONG KONG (MarketWatch) — With Shanghai stocks just having completed their worst weekly performance since 2008, it’s now impossible to ignore the question of whether China’s bull market has come to a close.
Last Friday, the Shanghai Composite Index (SHCOMP, -6.42%) ended down 6.4%, taking it to a 13% drop for the week. Reports that over 400 individual shares fell by their 10% daily limit suggest further selling pressure will follow through to this week.
It’s often said that with China’s “policy-driven” stock market, the bull market will continue for as long as the government wants it to. But the real wild card is predicting how China’s momentum-trading novice investors will react to the latest correction.
One way in which Beijing’s fingerprints can be seen on China’s bull market is with the practice of systematically underpricing new offerings to whip-up a retail-led investor frenzy.
In China, the regulator acts as a gate keeper to the stock market, not just by deciding who gets to list, but also by deciding the prices for those listings. This has led to an effective cap on the price of new offerings, where if a company wants to receive listing approval, they cannot price higher than 23 times earnings.
The result is that investors in initial public offerings have been all but guaranteed free money from a limit-up gain of 44% on the first day, with a majority of new stocks advancing by more than 200% in their first month of trading.
It is hardly surprising that this performance has fed an almost manic interest in equities, with literally millions of new stock-trading accounts opened on a weekly basis.
In such a momentum-driven share market, the behavior of new retail investors could be pivotal. At some stage, it would seem inevitable that the supply of retail investors and the supply of new offerings will reach their natural limits, at which point the market will be unable to keep absorbing ever-increasing amounts of paper.
We may have already reached that point.
…
Will fall in China’s benchmark Shanghai Composite help Dalal Street bounce back?
By Rajesh Mascarenhas, ET Bureau | 22 Jun, 2015, 06.05AM IST
Will China’s recent pain be India’s gain? That is the question many Dalal Street participants are asking with China’s benchmark Shanghai Composite sliding 13% over the past five trading sessions.
India’s Sensex gained 4% during the same period. The decline in Chinese stocks was particularly severe on Friday as the Shanghai Composite dived almost 6% amid worries that the recent rally fuelled a stock bubble. Chinese stocks have gained 120% in a year compared to Sensex’s 7%.
…
Markets
Shanghai Stocks Offer Little Fuel for China’s Economy
Even after last week’s slump, benchmark has more than doubled in 12 months; retail sales haven’t kept pace
Luxury-car sales agents say buyers are delaying purchases to put more cash into stocks. Above, a concept car on display in Shanghai.
Photo: HOW HWEE YOUNG /EUROPEAN PRESSPHOTO AGENCY
By Wei Gu
Updated June 21, 2015 7:16 p.m. ET
HONG KONG—Even after a slump last week, China’s benchmark stock index has more than doubled in the past year, but there is no sign that investors are splurging with their profits to help the sagging economy.
In developed markets like the U.S., rising stock markets sometimes boost consumer spending and help spur growth. But in China, that effect appears to be nonexistent. The Shanghai Composite Index has jumped 122% in the past 12 months, but retail sales increased just 10% year on year in May and April, the slowest rate of growth in five years.
The reason? At the most, one in 15 Chinese trade stocks, compared with more than half of Americans. That means that much of the gains in equities are made by wealthier Chinese, who have money to put into the markets but are more likely to save profits than spend them. And those who do own stocks appear to be deferring spending, so they can invest more in the markets, especially since recent history shows that rallies can be short-lived.
On Friday, the market fell 6.4%, taking its loss for the week to 13%.
“Chinese investors tend to believe the bull market is short but the bear market is long,” said Helen Qiao, Morgan Stanley ’s chief economist for China. “As they become busier trading stocks, they also have less time for shopping.”
…
Money & Markets
China’s stock market surge dream could easily bring about its worst nightmare
Linette Lopez
Tomorrow at 9:00 AM 17
China’s ruling Communist Party has made it clear that it has a mortal enemy: social unrest.
Separately, it has also made it clear that the Chinese people should be heavily invested in the stock market.
And so, dutifully, the Chinese people have done just that, spurring the longest bull market in the country’s history — the glorious 100% rally of the Shanghai Composite over the past year.
Unfortunately, it looks as if that rally may be coming to an end. This week, the Shanghai composite had its worst week since 2008, falling 6.5% on Friday. It is now officially in correction territory.
“The tide is going to go out, and there’s going to be a lot of people without their swimming trunks on,” Ewen Cameron Watt, chief investment strategist at BlackRock — which oversees $US4.8 trillion as the world’s biggest money manager — said in an interview on Bloomberg Television in London. “We’re seeing it deflating quite rapidly.”
When that happens, these two separate ideas — investing in the stocks and social unrest — could come together and turn China’s Shanghai Composite dream into a nightmare.
…
Are Grexit fears keeping you up at night?
Financial Times
ft dot com/global economy
June 21, 2015 12:12 pm
Spectre of Grexit sparks fears for central and eastern Europe
Jonathan Wheatley in London
The river Danube is seen against an illuminated skyline of Budapest, Hungary, on Saturday, Jan. 7, 2011. Hungary raised its target amount in a sale of bills, paying the highest yield since June 2009 as Prime Minister Viktor Orban’s Cabinet worked to restart talks on an international bailout.
Photographer: Akos Stiller/Bloomberg
©Bloomberg
Budapest, where Grexit would hit the florint
As Greece teeters on the brink of a eurozone exit, jittery investors have been trying to second-guess the consequences for other peripheral members of the single currency. They might do better looking closer to the source of the problem.
While government borrowing costs for Spain, Italy and Portugal have risen as the spectre of a Greek default draws nearer, it is the geographically closer economies of central and eastern Europe that will suffer the most in terms of economic activity, according to analysts at UBS.
They argue in a report that a messy Greek exit would wipe up to a fifth off the dollar value of eastern European currencies and have spillover effects around the emerging world.
“In an exit scenario, rising stress in the eurozone would soon hurt investor sentiment, weighing on emerging markets across asset classes,” the analysts wrote. “The strongest impact . . . would be in currencies like the Hungarian forint and Polish zloty, where we would expect a 5-10 per cent depreciation against the euro, implying a downside of 15-20 per cent against the US dollar.”
The Czech Republic, Hungary and Poland, whose economies depend heavily on exports to the EU, would be hardest hit in terms of trade and investment, UBS argued.
William Jackson of Capital Economics notes that the euro crisis of 2011-12 pushed large parts of the region into recession. While many countries are better placed now than then, he says, they are still very vulnerable.
“The whole of central and eastern Europe has very large trade and banking ties” with the eurozone, he says. “The other channel that is often not appreciated is confidence. If there is a messy situation in Greece, firms in eastern Europe will postpone investment and consumers will hold back on spending.”
…
International
Jun. 22, 2015 | 12:04 AM
Specter of Grexit sparks fears for Europe
Jonathan Wheatley| Financial Times
As Greece teeters on the brink of a Eurozone exit, jittery investors have been trying to second-guess the consequences for other peripheral members of the single currency. They might do better looking closer to the source of the problem.
While government borrowing costs for Spain, Italy and Portugal have risen as the specter of a Greek default draws nearer, it is the geographically closer economies of central and eastern Europe that will suffer the most in terms of economic activity, according to analysts at UBS.
They argue in a report that a messy Greek exit would wipe up to a fifth off the dollar value of eastern European currencies and have spillover effects around the emerging world.
“In an exit scenario, rising stress in the Eurozone would soon hurt investor sentiment, weighing on emerging markets across asset classes,” the analysts wrote. “The strongest impact … would be in currencies like the Hungarian forint and Polish zloty, where we would expect a 5-10 per cent depreciation against the euro, implying a downside of 15-20 per cent against the US dollar.”
The Czech Republic, Hungary and Poland, whose economies depend heavily on exports to the EU, would be hardest hit in terms of trade and investment, UBS argued.
William Jackson of Capital Economics notes that the euro crisis of 2011-12 pushed large parts of the region into recession. While many countries are better placed now than then, he says, they are still very vulnerable. “The whole of central and eastern Europe has very large trade and banking ties” with the Eurozone, he says. “The other channel that is often not appreciated is confidence. If there is a messy situation in Greece, firms in Eastern Europe will postpone investment and consumers will hold back on spending.”
Direct connections between Greece and emerging markets are few, the most concrete being the subsidiaries of Greek banks operating in eastern European countries such as Romania and Bulgaria. Even these have cut their operations in those countries in recent years.
Pessimists argue that the brunt of a Grexit’s impact would be indirect: a sudden setback to the Eurozone economies that would hit emerging market trading partners, especially but not only in central and Eastern Europe. Emerging markets with far fewer significant links, such as Mexico, Brazil, South Africa and Turkey, would also suffer from market volatility as investors shied away from riskier assets.
“We could see broader contagion, especially for countries with big current account deficits,” says Mr Jackson. “Turkey flashes up here. A messy exit would be very troublesome, by disrupting the flows that Turkey needs to finance its deficit.”
…
Greek ‘state of emergency’ approaches as US warns of Grexit
Increased sabre-rattling from Athens could heighten investor fears about the strength of euro-sceptic parties in other Eurozone countries
By Andrew Hammond| Special to Gulf News
Published: 15:52 June 21, 2015
Gulf News
European heads of state meet tomorrow in an extraordinary session to discuss the Greek crisis. With the June 30 deadline for agreeing a new deal with creditors closing in fast, prospects for a breakthrough remain highly uncertain.
With compromise still needed from both sides, perhaps the key element that still appears to be missing that may make a deal politically viable for Greek Prime Minister Alexis Tsipras to sell to his support base in Greece is some type of debt write-down. It is widely agreed that the country’s debt burden, which is over a staggering 175 per cent of its GDP, is unsustainable.
In a dramatic last few couple of weeks, Greece has been warned that it could soon face a “state of emergency” if it does not reach a deal with its creditors by Guenther Oettinger, Germany’s European Union Commissioner. Moreover, the International Monetary Fund (IMF) pulled out of talks after it accused Athens of failing to compromise in key areas, including labour market and pension reforms, whilst Standard & Poor’s downgraded Greece’s credit rating one notch further into junk territory from “CCC+” to “CCC”.
The rating agency’s move follows Athen’s decision to postpone a 300 million euro (Dh1.25 billion) instalment due at the start of the month to the IMF. Instead, it has asked to bundle this with other payments due in June into a single 1.6 billion euro deposit due to the IMF at the end of the month.
It is reported that Tsipras has asked Greece’s creditors for a 9-month extension of its current bailout package until March 2016. While this would ‘buy time’ for the new left-wing government that has been in crisis-mode since its election in January, it would probably only defer a potential crisis for a few months.
While many uncertainties remain, it is clear that an end-game could now be fast approaching that will determine whether Greece defaults and potentially also stays in the Eurozone. In the absence of new loans from its creditors, a cash-strapped Athens is now engaged in a high stakes game of poker and it has been reported it has already made plans to potentially nationalise the banking sector and introduce a parallel currency to pay bills in the event its cash reserves are exhausted.
The stakes have been raised in recent days by Greece’s highly unusual decision to bundle its payments to the IMF this month. Only one other country, Zambia, has reportedly used the procedure to bundle payments before, which happened in the mid-1980s.
Moreover, should Greece not make the bundled payment in coming weeks, it will become the first developed country ever to fall into arrears to the IMF or any other Bretton Woods institution. Highlighting the risky nature of the territory the country may be headed into, United States Treasury Secretary Jack Lew warned recently of the dangers of an “accidental” Greek exit from the euro (so-called Grexit) with deadlines now closing in so fast.
The prospects for such a rupturing of the Eurozone, with the possible economic earthquake this could bring, have grown since Syriza’s coming to power, which saw a radical left party win power for the first time in the EU in years. Syriza is the Greek ‘Coalition of the Radical Left’, comprising a broad spectrum of socialists and communists, anti-fascists, environmentalists, anti-globalisation campaigners and human rights advocates.
This loose grouping only came together in 2012 as a single political entity, rather than an alliance of multiple different parties. And it appears to be fraying in its unity over Athens’s stance in recent negotiations with its creditors.
While Grexit cannot, therefore, be dismissed, some market participants appear to be more sanguine about this possibility today than compared to a few years ago. In part, this is because of the changed ownership of Greek public debt.
Today, more than 80 per cent of Greece’s public debt is owned by institutional investors, whereas private investors held the vast bulk of Greek bonds in 2011. This may mean further turmoil in Athens will not spread significant contagion through the Eurozone.
Nonetheless, Grexit would still be highly unpredictable. Some have noted the potential parallels with 2008 when it was widely assumed that the international financial system was sufficiently resilient to manage collapse of a single major bank (Lehman Brothers).
The IMF has also asserted that it is not yet clear what the true contagion risk would be from Grexit. However, the fact that it is likely to have significant economic fallout for Europe is reflected by estimates that, even under the mildest of financial stress scenarios, there would potentially be a contraction in Eurozone GDP of at least 1.5 per cent. This is greater than the current contribution of the Greek economy.
…
Opinion
The EU is dead: The Grexit crisis has laid bare Europe’s inability to rescue itself
Dr John C Hulsman is senior columnist at City AM, a life member of the Council on Foreign Relations, and president of John C. Hulsman Enterprises. He can be reached for corporate speaking and private briefings at chartwellspeakers.com
by John Hulsman
22 June 2015 3:39am
JUMPING the shark” is one of my favourite American idioms. It was first used in the context of a particularly notorious episode of the 1970s classic US television show Happy Days, which centred on the unlikely but enduring friendship between a young, square, 1950s good guy, Richie Cunningham, and his cool, but from-the-wrong-side-of-the-tracks ally Fonzie.
For five seasons, the show’s good-hearted premise worked, as Richie’s decency and Fonzie’s coolness managed to vanquish the daily travails of life. However, in one revealing moment, the basic preconceptions behind the show were fatally called into question. An absurd plotline had Fonzie water-ski (complete with dorky life preserver) over a series of sharks. In an instant, it was glaringly apparent to everyone watching that the show was a fraud; Fonzie wasn’t cool at all.
In a nutshell, that is what has happened to Europe over the endless Greek crisis.
A full decade ago, I wrote an article for the US foreign policy journal National Interest with the provocative headline “The EU is dead”, comparing what its cheerleaders said to the stages of coming to terms with death pioneered by Elisabeth Kubler-Ross. At the time, “serious” people were sonorously intoning that Europe, through the use of its soft power, was on course to dominate the twenty-first century as the most important global power, an entity so admired it was bound to be copied throughout the world. Where my friend and co-author Will Schirano and I saw only economic sclerosis, a fatal democratic deficit, and puny military assets, others were outraged that we “didn’t get with the programme”.
As such, I have watched with horrified amusement as even Europe’s most blind cheerleaders have deserted the sinking ship over the now very real prospect of Grexit. It truly is the moment where perception has at last caught up with geopolitical reality.
…
phony scandals