"The Credit Ponzi Is Dead" - Brexit Or Not, The Pound Will Crash
Submitted by Eugen von Bohm Bawerk via Bawerk.net
Status quo, as our generation know it, established in 1945 has plodded along ever since. It is true that it have had near death experiences several times, especially in August 1971 when the world almost lost faith in the global reserve currency and in 2008 when the fractional reserve Ponzi nearly consumed itself. While the recent Brexit vote seem to be just another near death experience we believe it says something more fundamental about the world.When the 1945 new world order came into existence, its architects built it on a shaky foundation based on statists Keynesian principles. It was clearly unsustainable from the get-go, but as long as living standards rose, no one seemed to notice or care. The global elite managed to resurrect a dying system in the 1970s by giving its people something for nothing. Debt accumulation collateralized by rising asset values became a substitute for productivity and wage increases. While people could no longer afford to pay for their health care, education, house or car through savings they kept on voting for the incumbents (no, there is no difference between center left and right) since friendly bankers were more than willing to make up the difference.It is clear for all to see but the Ph.Ds. that frequent elitist policy circles that the massive misallocation and consumption of capital such a perverted system enables will eventually collapse on itself. Debt used to be productive, id est. self-liquidating, but now it is used for consumption backed by future income projections based on historical experience. However, one should not extrapolate future income streams from a historical regime when the new one is fundamentally different. The promised incomes obviously never materialized and the world reached peak debt. The credit Ponzi is dead.Consider the following chart that depicts decennial change in average real earnings for the UK worker. It shows an unprecedented development. Not since the 1860s have the UK worker experienced falling real earnings over a ten-year period. Such dramatic change obviously does something to the so-called social contract people have been tricked into. People no longer believe in a brighter future and there is nothing more detrimental to a human being than that. No longer vested in the status quo, people opt for radical change, hence; Brexit, Trump, Le Pen, Lega Nord, 5MS. Old rules does not apply anymore.Over the next couple of years, we will experience a torrent of sea change, a lot of it unpleasant, but it will come nonetheless. In the social contract, immigration is OK when jobs are plentiful and people’s houses are worth more every year. Not so much when they are unemployed and without a house or even prospects of ever owning one. Corruption in the higher echelons of society is grudgingly accepted when the elite allegedly runs a system where incomes and productivity constantly moves upwards, but will not be tolerated as blue collar jobs are moved offshore.Productively invested capital and high savings are the indispensable ingredients in rising labour productivity.Consume your seed corn and productivity growth falls or even turns negative. Falling earnings on a level unmatched through history goes hand in hand with the weakest productivity growth in 100 years. Bottom line, the west is in a structural downturn, caused by decades of economic mismanagement and there is nothing our money masters can do to rectify it; they will only make the problem worse by postponing the inevitable.It is also interesting to note that the Brexiters do not even get to enjoy rising house prices anymore. Those are reserved for the highly paid remainers in the capital where the peak debt cycle has not yet struck.So what does this mean for the UK specifically? Few have lived as high on the hog as the brits have. Their current account deficit at 6 per cent of GDP is reminiscent of countries heading into depressions. In the mid-1970s, the IMF had to bail them out and in the early 1990s, the infamous ERM regime collapsed as Soros made his billion. The pound got a pounding on the Brexit vote, but it was destined to fall anyways. The adjustment needed to correct this imbalance is not over and we should all expect a far weaker pound in the months and years ahead. Brexit only triggered what was already baked into the cake in the first place.It is no secret that short-term portfolio investments fund a large part of Brits excesses. These are mere claims on UK future production or assets. The immediate withdrawal form UK real estate funds, which has since been gated, is the dying canary signalling what will come; the current account deficit will no longer be funded by complacent foreigners. The pound will collapse thus forcing the long overdue correction the UK economy desperately need for long-term sustainable prosperity.When it does GDP follows suit as it have one ever since the UK became a fully financialized economy. From the 1990s whenever the current account deficit went through three per cent of GDP, growth collapsed shortly after as the economy went through necessary adjustments. Today’s gap is at record level and it is thus logical that the coming adjustment will be even more gut wrenching that it has ever been.The British middle class are fed-up with the status quo and they no longer feel vested in its future. They are willing to opt for change no matter what the elite tell them, and change they will get. As the pound crashes, current account deficits are balanced and asset prices adjust accordingly the UK economy is up for a rough ride.Bonus charts:
- While income stagnated for the middle class, the top earners managed to boost their earnings fuelling resentment
- As peak debt struck the public tried to leverage the collective balance sheet with dire consequences for the longer term
"Why They Didn't Fire Is A Mystery" - Coup Pilots Had Erdogan's Plane In Their Sights And Did Nothing
Looking back at the failed Turkish coup, one question that nobody has been able to answer is why, if the coup was indeed a serious attempt at government overthrow, did the organizers not do the first thing that military coups have done since time immemorial: either capture, or simply eliminate the existing ruler, the vacationing president Erdogan?
The following brief story will only add to the confusion (or maybe not).
As Reuters reports, at the height of the attempt to overthrow Turkish President Tayyip Erdogan, the rebel pilots of two F-16 fighter jets had Erdogan's plane in their sights. And yet he was able to fly on.
The government narrative, completely fabricated as it may be, is the following:
Erdogan said as the coup unfolded that the plotters had tried to attack him in the resort town of Marmaris and had bombed places he had been at shortly after he left. He "evaded death by minutes", the second official said. Around 25 soldiers in helicopters descended on a hotel in Marmaris on ropes, shooting, just after Erdogan had left in an apparent attempt to seize him, pro-government broadcaster CNN Turk said. Prime Minister Binali Yildirim had also been directly targeted in Istanbul during the coup bid and had narrowly escaped, the official said, without giving details.
Flight tracker websites showed a Gulfstream IV aircraft, a type of business jet owned by the Turkish government, take off from Dalaman airport, which is about an hour and a quarter's drive from Marmaris, at about 2240 GMT on Friday. It later circled in what appeared to be a holding pattern just south of Istanbul, around the time when a Reuters witness in the airport was still hearing bursts of gunfire, before finally coming in to land.
It is what happened during Erdogan's trip that is confusing. Again from Reuters:
The Turkish leader was returning to Istanbul from a holiday near the coastal resort of Marmaris after a faction in the military launched the coup attempt on Friday night, sealing off a bridge across the Bosphorus, trying to capture Istanbul's main airport and sending tanks to parliament in Ankara.
A senior Turkish official confirmed to Reuters that Erdogan's business jet had been harassed while flying from the airport that serves Marmaris by two F-16s commandeered by the coup plotters but that he had managed to reach Istanbul safely.
"At least two F-16s harassed Erdogan's plane while it was in the air and en route to Istanbul. They locked their radars on his plane and on two other F-16s protecting him," a former military officer with knowledge of the events told Reuters.
"Why they didn't fire is a mystery," he said.
Actually, now that we have seen the unprecedented crack down on all political opponents including the start of what is set to be a historic witch hunt, it is no mystery at all.
Pokemon Go T&Cs strip users of legal rights
Players of Pokemon Go are not only giving up their right to act like sane human beings in public, as they walk around, zombie-esque, reaching into the phones held in front of their faces, they are also likely to be waiving legal rights if they don’t take a very close look at Niantic Labs’ Terms of Service for the game.
As spotted earlier by The Consumerist, an arbitration notice states that Pokemon Go users automatically agree to waive their rights to any future trial by jury or class action lawsuit unless they opt out of a binding clause in the T&Cs…
ARBITRATION NOTICE: EXCEPT IF YOU OPT OUT AND EXCEPT FOR CERTAIN TYPES OF DISPUTES DESCRIBED IN THE “AGREEMENT TO ARBITRATE” SECTION BELOW, YOU AGREE THAT DISPUTES BETWEEN YOU AND NIANTIC WILL BE RESOLVED BY BINDING, INDIVIDUAL ARBITRATION, AND YOU ARE WAIVING YOUR RIGHT TO A TRIAL BY JURY OR TO PARTICIPATE AS A PLAINTIFF OR CLASS MEMBER IN ANY PURPORTED CLASS ACTION OR REPRESENTATIVE PROCEEDING.
To opt out of the legal rights waiver, users need to email termsofservice@nianticlabs.com or can send regular mail to 2 Bryant St., Ste. 220, San Francisco, CA 94105.
But the opt out process is only valid if exercised within 30 days following the date a user first accepted the T&Cs.
Having a short opt-out window for legal rights embedded within T&Cs which the vast majority of users won’t read before clicking ‘I agree’ and rushing into their neighbor’s garden to try to catch a pikachu is a very aggressive stance.
Binding arbitration means a private dispute resolution process, heard outside a courtroom, with individual users having to mount their own cases — rather than having the ability to band together in a class action, for example, if there is a data breach which affects multiple users in the same way.
Only individual actions brought to small claims courts and actions seeking injunctive or equitable relief pertaining to IP infringement rights are unaffected.
The rules under which any arbitration would take place are specified as those of the American Arbitration Association — “in accordance with the Commercial Arbitration Rules and the Supplementary Procedures for Consumer Related Disputes”, albeit with some Niantic specific modifications. Safe to say, private arbitration is a restrictive route for redress that clearly disadvantages consumers.
We’ve asked Niantic Labs for comment on the arbitration clause and will update this post with any response.
As previously noted, Pokemon Go also requires extensive app permissions to run. And the Pokemon Go privacy policy states the company may share aggregated data with third parties, and identifiable user data with law enforcement agencies and other parties for a range of reasons it deems appropriate.
The privacy policy further notes that in the event of a sale of Niantic users would need to opt out of having their data disclosed/transferred to the third party acquirer — again with only a 30 day window to do so:
Information that we collect from our users, including PII [personally identifiable information], is considered to be a business asset. Thus, if we are acquired by a third party as a result of a transaction such as a merger, acquisition, or asset sale or if our assets are acquired by a third party in the event we go out of business or enter bankruptcy, some or all of our assets, including your (or your authorized child’s) PII, may be disclosed or transferred to a third party acquirer in connection with the transaction. In the event of such a transaction, we will give you notice of the transaction and the opportunity for a period of 30 days to refuse disclosure or transfer of your (or your authorized child’s) PII to the third party acquirer in connection with the transaction.
So, as ever when it comes to T&Cs, the devil is in the overlooked detail.
Gotta catch all those catches!
Volkswagen Promises U.S. Dealers Restitution for Tainted Diesels
Dealers say the TDI Settlement Program affects the nearly 500,000 tainted diesels on the road and another 12,000 vehicles that dealers are unable to sell
Volkswagen AG executives in the U.S. have pledged to unveil restitution within a month for hundreds of American franchise dealers that have been damaged by the car maker’s diesel scandal, according to dealers that met with the company on Friday.
A senior American executive from the German car maker made the pledge at a meeting with more than 150 Volkswagen dealers from the northeast at the Renaissance Hotel in Newark, N.J. that lasted nearly three hours Friday.
The meeting was titled “The TDI Settlement Program,” the first in a series of similar gatherings around the country. Volkswagen is hosting the meetings to inform dealers about how the company plans to implement a historic roughly $15 billion settlement agreed last month with customers and government authorities.
The TDI Settlement Program, explained to dealers at Friday’s meeting, outlined how customers would either sell their cars back to dealers or have them fixed. The dealer program affects the nearly 500,000 tainted diesels on the road today and another 12,000 vehicles that dealers are unable to sell and are storing on their lots, according to documents handed out to dealers at Friday’s meeting.
While dealers listened to Mark McNabb, a senior executive from Volkswagen Group of America, Inc., outline the program, one of them interrupted and turned the discussion to dealers’ demand for compensation, which wasn't on Volkswagen’s agenda.
Steve Kalafer, a N.J.-based co-owner of a large Volkswagen franchise, voiced frustration that the company still hadn’t committed to any form of compensation for its 650 dealers.
Mr. McNabb told the dealers there was “heavy discussion” at the company and an agreement to provide dealers with “fair restitution,” adding the company would make a decision on the matter within the next month, Mr. Kalafer told The Wall Street Journal in an interview after the meeting.
“McNabb said the company was working toward a fair settlement and restitution for the dealers. He used the word restitution for the dealers for the first time,” Mr. Kalafer said.
Volkswagen declined to comment on specifics of the negotiations with U.S. dealers.
“We maintain a regular dialogue with the Volkswagen National Dealer Advisory Council as we work to make things right,” said Jeannine Ginivan, a Volkswagen spokeswoman in an emailed statement.
Michael DiFeo, a member of the advisory council who operates a dealership in Roselle, N.J., said most of Friday’s discussion focused on how the buyback and fixes for tainted diesels would impact dealers.
He said Mr. McNabb “did bring up a dealer settlement and said that talks with the dealer investment committee was going very well. A dealer asked on a time frame which Mark said he hoped would happen within 30 days.”
Volkswagen gave dealers a detailed timeline of the buyback and fix program. According to documents passed out at the meeting and reviewed by the Journal, Volkswagen expects to identify and train by September dealers who would act as the program’s “ambassadors”. The buyback would begin in mid-October and is expected to run through the end of 2018.
Volkswagen provided a timeline for fixing the affected diesels in the U.S., according to the documents distributed at the meeting. A software fix would be available for third-generation diesels in October, followed by a “software/hardware modification” for first-generation diesels in January and a software update for second-generation diesel vehicles in February. In October 2017, Volkswagen expects to have a hardware fix ready for third-generation diesel vehicles.
U.S. environmental authorities haven't yet approved the fixes for the nearly 500,000 affected diesel vehicles in the U.S.
Customers who opt to sell their vehicles back to Volkswagen would first contact a third-party “settlement specialist”, who, in turn, would handle communications with the dealer, according to the documents distributed by Volkswagen.
If there is an approved fix available for a vehicle that a customer decides to sell back to Volkswagen, the dealer has an option to buy that vehicle for resale. If the dealer declines, the vehicle would be offered to other dealers.
Talks with the Dealer Investment Committee that has been established to negotiate dealers’ grievances with Volkswagen “are ongoing and progressing very well” under the company’s new U.S. management, said Alan Brown, a dealer based in Lewisville, Texas and chairman of the advisory council.
“Personally, I feel more bullish about VW and our future than ever before,” he said.
Unlike the company’s customers, who have forced the company to settle in the courts, the dealers have sought to negotiate with the company on their own, but some dealers have threatened to sue if Volkswagen failed to provide fair compensation.
“Volkswagen’s compensation for consumers is very generous, but it was done with a gun to their head,” Mr. Kalafer said. “We want to know what restitution Volkswagen is going to give to dealers, because we have not put a gun to their head.”
Over the past few years, Volkswagen’s U.S. dealers invested millions of dollars in revamping dealerships. They geared up for the launch of new products tailored to meet the tastes of American consumers in a bid to boost U.S. sales to 800,000 vehicles a year by 2018 and revive sales, which have been falling since 2012.
That plan hit a pothole last September when U.S. authorities disclosed that Volkswagen had rigged diesel engines to cheat on emissions tests. In the following months, Volkswagen U.S. sales tanked and some models weren't allowed to be sold, leaving dealers stuck with thousands of unsold vehicles.
Corrections & Amplifications
Mark McNabb told Volkswagen dealers that talks with the dealer investment committee were going well. A previous version of this article referred to the dealer investment community.
Weekly Update
Dow +2.04% S&P +1.49% Nasdaq +1.47% Russell +2.37% Brazil +4.59% Nikkei +9.21% Hang Seng +5.33% CSI +2.63% Shanghai +2.63% EuroStoxx +4.25% FTSE +1.19% CAC +4.34% Dax +4.54% Ibex +4.22% MIB +4.25% SMI +1.47%
For much of the week equity prices moved up aggressively as investors pointed to a variety of reasons to add risk to their portfolios. A faster than expected, relatively smooth transition of Theresa May to UK prime minister allayed some lingering Brexit fears. Speculation on the growing likelihood of aggressive BOJ and BOE stimulus later this summer coincided with a deluge of US Federal Reserve speak that indicated the Fed is still likely to keep rates at very low levels for quite some time. Finally, solid early Q2 earnings reports/commentary provided hope that US earnings growth has troughed and business on both sides of the Atlantic can withstand any negative impacts related to the UK's decision to leave the EU. The Dow and S&P each registered multiple new all-time highs as investors that have kept cash on the sidelines felt compelled to jump in, forcing valuations higher. For the week the Dow rose 2%, S&P gained 1.5% and the NASDAQ added 1.5%. Risk-on flows also pulled money away from sovereign bond markets, sending rates higher. US Treasury supply was met with notably tepid demand early in the week spooking some bond investors. Improving US data, including some hotter than expected inflation readings, helped the US 10-year yield back up ~25 basis points to finish the week at 1.59%. The German 10-year Bund future traded without a negative yield for the first time since the UK vote.
Macro :
- BOE Should Implement ‘Immediate’ Rate Cut, Vlieghe Says in FT
- Italy Hires JPMorgan for EU50b ‘Bad Bank’ Plan: S. Telegraph
- Turkey Selloff May Be Buying Opportunity: Elbrus’s Khmelnitski
- Fethullah Gulen Denies Role in Turkey Coup Attempt: FT
Keep an eye on :
- AIR FP : AirAsia, Destini to Form JV to Buy Airbus MRO Subsidiary: Edge
- ALV GY : Allianz Seeks to Regain Market Share, CFO Wemmer Tells Boersen Z
- AAPL US : Apple Proposed Simplifying Royalty Payment System: N.Y. Times
- ATCOA SS : Atlas Copco CEO Says There Is M&A ‘Appetite‘ in the Company
- BAYN GY : Bayer/Monsanto Breakup Fee Suggests Lack of Confidence: CLSA
- BMPS IM : Banca Monte Dei Paschi Di Siena May Be Cut by Moody’s
- BMPS IM : Paschi Said to Weigh NPLs Sale, Recap Without State Help: Sole
- DB1 GY : Deutsche Boerse Workers Push to Renegotiate HQ in LSE Deal: DPA
- HSY US : Hershey, Mondelez Ratings Suspended at JPMorgan
- LSE LN : Deutsche Boerse Workers Push to Renegotiate HQ in LSE Deal: DPA
- LHA GY : Lufthansa’s Eurowings Resumes All Turkey Flights as of Now: Co.
- MON US : Monsanto to Seek Talks With U.K. Govt to Expand Presence: Times
- RBS LN : Santander Weighing Deal to Acquire RBS Consumer Bank Unit: Sky
- RCS IM : Cairo May Seek to Replace RCS MediaGroup Board Members: Stampa
- RR/ LN : Iran Energy Minister Has Talked With Siemens, Rolls-Royce: FT
- SAB LN : Children’s Investment Fund Has SABMiller Stake Near 1%: Times
- SAN SM : Santander Weighing Deal to Acquire RBS Consumer Bank Unit: Sky
- SBMO NA : SBM Signs Leniency Agreement W/Brazil Authorities: Prosecutors
- SIE GY : Iran Energy Minister Has Talked With Siemens, Rolls-Royce: FT
- STAN LN :
- HO FP : France’s Thales Scouting for More JV Partners in India: PTI
- VOW3 GY : VW Promises Compensation to U.S. Dealers on Diesel Engines: DJ
Deutsche Boerse’s proposed merger with LSE unlikely to be blocked by German state of Hesse
Deutsche Boerse’s [ETR:DB1] proposed merger with London Stock Exchange Group [LON:LSE] is unlikely to be blocked by the German state of Hesse, The Times reported.
The newspaper cited observers in Hesse and outside who believe the state will probably allow the merger to proceed.
The Hesse economics minister Tarek Al-Wazir and the exchange supervisory authority have the power to block the proposed merger, the item explained.
Al-Wazir has given little indication of his position on the merger, the item said, noting that the merger has met with opposition from other politicians in Germany.
The economics ministry regulates the Deutsche Boerse’s Eurex derivatives market and the Frankfurt stock exchange, the article said, adding that Al-Wazir’s opinion will carry the most weight.
Al-Wazir has said further information is required to assess the proposed merger. The economics minister has also indicated that he will consider the merger’s potential impact on the operation of the Frankfurt stock exchange. The report cited unspecified sources who stressed that Al-Wazir’s focus is on the potential effects on markets regulated by the economics ministry, rather than on the merger per se.
The European Commission is the only other regulator with the power to block the merger, the report said.
As previously reported, the merged Deutsche Boerse/LSE would be valued at EUR 24.4bn (USD 26.92bn).
Barrons weekend summary: Positive on GILD, MSG, KW, CI
Cover story: Positive on Royal Dutch Shell: After its acquisition of BG Group, oil major slashed spending on projects and sold low-return businesses, and announced a capital plan that calls for more asset sales and a limit on capital spendinga makeover that could raise shares by 20% in a year.
Tech Trader: Virtual reality devices such as FBs Oculus Rift may offer powerful hardware, but the software still feels rudimentary; Theme parks such as SIX are ramping up efforts to integrate VR into their rides; Cycling game Zwift may have a transformative impact on the VR industry.
Trader: Tradition Capital Management chief investment officer Benjamin Halliburton says that its hard to see significant upside in the stock market going forward; Positive on GILD: The pharma company faces a number of concerns, but if just one or two fall away the stock could rise about 25% during the next two years; Positive on TSN, MDLZ, MSFT, ACN, INTU, XL, HIG: U.S. blue-chip dividends are expected to rise 7% in the third quarter, down from the 11.6% third-quarter growth seen over the past three years.
Profile: Jim Cullen and Jennifer Chang, co-managers, Cullen High Dividend Equity fund, take a value investing approach that focuses on low P/E stocks with the potential to raise their dividends (top 10 holdings: NEE, T, JNJ, RTN, HCN, CSCO, MO, KMB, GE, MRK).
Interview: Charles de Vaulx and Chuck de Lardemelle of International Value Advisors take a value-oriented approach with a focus on absolute, not relative, value (picks: BAC, Astellas Pharma, Samsung Electronics).
Features: 1) Positive on MSG: Companys assets include two prime sports teams, a refurbished sports arena, and substantial air rights, but despite these trophy properties, shares are sharply undervalued; 2) Barrons first-half stock picks beat the S&P 500 but trailed, as a group, the benchmarks against which they were tracked; 3) Positive on CI: Managed-care provider could have plenty of upside, even if its merger with ANTM doesnt go through, with the potential for a 27% gain during the next 12 months.
Small Caps: Positive on KW: Company has a $2B real estate portfolio, including multifamily buildings in the U.S., Japan, and Europe, and an impressive track record of creating value from of out-of-favor properties.
Follow-Up: Positive on Nintendo: The impact of the companys Pokemon Go game could go far beyond mobile, giving bricks-and-mortar stores a boost through sponsorships and paving the way for similar games on wearables.
European Trader: European banks are too risky for many investors, and Italys hold more danger than most, even after a sharp drop in their share prices in 2016.
Asian Trader: Positive on Charoen Pokphand Foods: Agribusiness and food company has a vertically integrated operation, and should benefit from surging pork prices and a better shrimp business.
Emerging Markets: The military coup attempt in Turkey will take a toll on stocks and put the countrys bankswhich already faced concerns about bad debtat further risk.
Commodities: Gas prices have started to drag down oil prices, and that could continue through the third quarter.
Streetwise: The lunge at defensive stocks might seem like a contrarian signal that buying power isnt yet exhausted, though Doug Ramsey of Leuthold Group isnt so sure.