Saturday, 27 February 2016

Weekend Update 27/02/2016 – Brexit Picks Up Steam.

Brexit Countdown Clock.

Brexit Quote of the Day.
“People might cite David Cameron as proof that you can be totally impervious to the effects of an Eton and Oxford education.”

With apologies to Senator Barney Frank.

Despite a plethora of Brexit scare stories by European vested interests and the disgraceful unprosecuted perverts at the BBC, the sun will stop shining in Britain if we leave the EUSSR, Germany will refuse to sell us Mercs and Beamers, Spain won’t allow in British tourists, France will ban Champagne sales, and on and on, Brexit is looking better and better and picking up unlikely converts, and all because of Cameron’s total failure to negotiate anything meaningful with the EUSSR. But first this news of irrelevance at the G-20.

Brexit and Refugees Join G-20 Worry List in Draft Communique

February 27, 2016 — 1:53 AM GMT Updated on February 27, 2016 — 5:32 AM GMT
The Group of 20 added a potential Brexit and an escalating refugee crisis to its long worry list, even as it argued recent market volatility didn’t reflect global growth momentum.

In a draft of the communique obtained by Bloomberg News, the G-20 members agreed to use monetary, fiscal and structural tools to boost growth and "calibrate and clearly communicate" their policies.

Underscoring concerns over the limitations of central bank-led stimulus, "monetary policy alone cannot lead to balanced growth," the document said.

Finance chiefs from the G-20 nations agreed to "consult closely" on foreign exchange markets, warning that excessive volatility can hurt financial and economic stability. The group promised to improve their monitoring of capital flows in an effort to identify potential risks sooner and reiterated past pledges to refrain from competitive devaluations.

"It doesn’t seem the meeting offers concrete, deliverable or coherent solutions to boost growth," said Raymond Yeung, senior economist at Australia & New Zealand Banking Group Ltd. in Hong Kong. "I doubt whether it will have a meaningful impact on the market in the near term."

Steep losses on global stock markets and volatility in currencies this year fueled calls for G-20 members to do more to stoke economic growth and bolster stability. The International Monetary Fund last month trimmed its global growth projections and said 2016 would be a "year of great challenges."

Now back to Brexit. The Prime Minister’s campaign to Europe set out with very low expectations and triumphantly managed to exceed them.  The EU doomsters equate the EU with Europe. After Brexit Great Britain will still be in Europe, just thankfully not in the geriatric, wealth and jobs destroying, EUSSR.  Unlike Europe’s youth generation , Britain’s youth will at least have a chance at a job, and some wealth creation.

Below the latest Brexit developments.

Worse than the Japanese, at least worse looking, are the Germans, especially at pool-side. The larger the German body, the smaller the German bathing suit and the louder the German voice issuing German demands and German orders to everybody who doesn’t speak German….[But] this is nothing compared to the French on a tropical shore. A middle-aged, heterosexual, college-educated male wearing a Mickey Mouse t-shirt and a string-bikini bottom and carrying a purse — what else could it be but a vacationing Frenchman?

P.J. O’Rourke. Holidays From Hell.

If the arch-Europhile Lord Owen wants out of the EU, it should make us all stop and think

David Owen has weighed his own ideals against the lessons of history – and come to a stark conclusion

Many of those clamouring for Britain to leave the European Union have always loathed it. Not so David Owen. All of his political life, he has been a proud European – and has been prepared to stake his career on it. He resigned from Labour’s front bench in protest against its lack of commitment to the EU, then became foreign secretary when this was remedied. Later, after his party turned against the EU once again, he resigned to help set up the Social Democratic Party. He has always been a forceful critic of what he calls the “chauvinistic and unrealistic” idea that Britain can, or should, act alone.

So when he declares, now, that it’s time to leave the European Union, then his reasons are worth listening to. This is not the war cry of a Little Englander or a starry-eyed attempt to draw the sword of British sovereignty from the stone of Brussels. Lord Owen has carefully weighed his own pro-European ideals against the hard lessons of recent history: contrasting what the EU says with what it does. Just because it aims to promote unity, it’s hard to ignore that its policies have brought sado-austerity, scandalously high unemployment and the rise of the far-Right. So Lord Owen has become part of a group that may well decide this referendum: Europhiles for Brexit.

Michael Howard: David Cameron's reform bid has failed – it’s time to go

Exclusive: The man who helped Cameron become Conservative leader explains why, with a heavy heart, he must now oppose his former protegé

By Michael Howard 10:00PM GMT 25 Feb 2016
In 1975 I campaigned for the UK to remain in the European Economic Community. I had high hopes that it would benefit Britain and the other members. Ever since, and even today, my preference has been for the UK to remain a member of a genuinely and fundamentally reformed EU. That reform is necessary because the EEC has morphed into a European Union that is flawed and failing.

The EU’s fundamental flaw is its misconceived attempt to impose rigid uniformity on countries as different as Finland and Greece, Portugal and Germany. The project would have a much greater prospect of sustainable success if it introduced greater flexibility – if it gave its member states room to breathe.

I had hoped that when the Prime Minister announced his intention to commence negotiations for a new UK-EU relationship he might be able to achieve fundamental reform along these lines. When he spoke of the need for fundamental reform, I believe he may have had something of this kind in mind.

It is not his fault that those efforts met with failure. It is the fault of those EU leaders so mesmerised by their outdated ambition to create a country called Europe that they cannot contemplate any loosening of the ties which bind member states.

So the questions I have asked myself are these: has the prospect of fundamental reform finally been extinguished or is there still some way in which that can be achieved? And if there is to be no fundamental reform, is the UK better in or out?

There is only one thing that just might shake Europe’s leaders out of their complacency: the shock of a vote by the British people to leave.

The very facts that make it certain that the UK could thrive as an independent country – we are the fifth largest economy in the world, the most important military power in Europe and the country with by far the most stable and deep-rooted institutions – make us very valuable members of the EU. We would be sorely missed.

The EU is like the Titanic, and we need to jump off before it sinks

Gerard Lyons25 February 2016 • 6:00pm
The European Union is like the Titanic. Imagine being in Southampton harbour the day the Titanic set sail. Its size gave the impression of invincibility: safe and secure. It wasn’t. Despite receiving warnings of impending danger it didn’t change course, hit trouble and sank.

Because it is huge, some in the UK feel we would be safer and economically stronger in the EU. This is wrong. We now have the opportunity to jump ship to safety. An opportunity we are never likely to have again. Not a leap into the dark, but for those able to look ahead, a move to safety.

Brexit allows the UK to address directly the areas that the EU has rendered us rudderless in. These include returning sovereignty and having a meaningful immigration target that can be met. We can focus attention on what is needed for small firms and for ordinary workers across the whole country. Outside the EU we can position the UK to be outward looking.

The world economy is changing as never before. Globalisation, technological change and urbanisation mean countries need to adapt, be flexible and control their own destiny.  In the modern era, talk of marriage and divorce is wide of the mark. It may not be a conscious uncoupling or an amicable split but we would strive in our post-Brexit negotiation to have an open relationship with the EU while having a polyamorous one with other countries across the world.  The choice is between a global Britain and an inward-looking, insular EU.

And time may be about to run out on the EUSSR this year, whether John Bull stays or goes.

Man Who Called Emerging-Market Rout Has a Warning for the Bulls

February 25, 2016 — 5:05 PM GMT Updated on February 26, 2016 — 2:33 AM GMT
If John-Paul Smith is right, some of the world’s biggest investors are setting themselves up for a major disappointment.

The London-based strategist, one of few to anticipate the slump in emerging markets that began in 2011, sees no sign of a turnaround and says the current environment resembles that of the late 1990s, when crises in Southeast Asia and Russia roiled the entire asset class. His stance clashes with bullish pronouncements from money managers including BlackRock Inc., Franklin Templeton and Research Affiliates LLC -- an adviser to Pacific Investment Management Co. that predicts developing-nation assets could become the next “trade of a decade.”

While Smith lacks BlackRock’s trillions under management and Franklin Templeton’s global footprint, the founder of research firm Ecstrat Ltd. has a track record for getting it right on emerging markets. His consistently pessimistic outlook since late 2010 foreshadowed losses of more than 30 percent in the MSCI Emerging Markets Index, while he gave early warning of Russia’s 1998 stock-market crash as a strategist at Morgan Stanley in Moscow.

“If there is a historical analogy for emerging markets at the present time, it’s with the 1997-98 period,” Smith said in an e-mailed response to questions on Thursday.

He sees two major reasons for pessimism. The first is a lack of progress in reducing the state’s grip on developing-nation economies, a key part of his bearish thesis five years ago. Smith cites Brazil’s inability to move on from “state capitalism,” a model that’s helped plunge the economy into its worst recession in a century. He also worries about Russia, Turkey and Poland, where he says policy makers are moving in a more “authoritarian” direction.

Smith’s other big concern is China, where he predicts a financial crisis will strike as soon as this year. Nonperforming loans are poised to surge as borrowers pile on debt to repay their existing loans, he says, while companies face “big” asset writedowns as the economy slows and commodity prices sink.

“There is a significant possibility that China and Brazil, in particular, will have to undergo some form of economic or financial crises,” he said.

The worst kind of upward GDP revision — built on more inventories, less imports

Published: Feb 26, 2016 10:14 a.m. ET
WASHINGTON (MarketWatch) — The annual pace of U.S. economic growth in the fourth quarter was marked up slightly to 1%, but that was mainly because of a bigger stockpiling of inventories that could weigh on the economy in early 2016.

The latest snapshot of the economy’s fourth-quarter performance still reflects a slowdown in growth that set in during the waning months of 2015. The government last month initially reported that gross domestic product — the value of everything a nation produces — has expanded at 0.7% rate.

The “bottom line is that fourth-quarter GDP growth was still pretty modest,” said Paul Ashworth, chief U.S. economist at Capital Economics

The economy has also started out 2016 on a softer note — and the high level of inventories in the fourth quarter probably doesn’t help. Firms might have to cut back on production to get inventories back in line.

Oil crash: Halliburton slashes another 5,000 jobs

February 25, 2016: 5:11 PM ET
Halliburton (HAL) is cutting 8% of its workforce, or roughly 5,000 positions, the Houston energy company told CNNMoney on Thursday.

The new wave of job cuts will take place across the globe over the next several weeks.
It's the latest evidence of the crisis confronting the U.S. oil industry as crude prices have crashed to seven-year lows.

"Our industry has turned down faster than anyone ever expected," Halliburton CEO Dave Lesar and President Jeff Miller said in a memo to employees obtained by CNNMoney. The execs said it's now clear that business opportunities will be "much worse than anticipated" coming into the year.

The latest pink slips bring Halliburton's job cut tally to between 26,000 to 27,000 since employee headcount peaked in 2014, the company said.

Halliburton has also attempted to cope with cheap oil by consolidating facilities in 20 countries and closing down operations altogether in another two countries.

The oil downturn has sent Halliburton's profits plunging. Its stock price has lost more than half its value since mid-2014 when crude prices peaked.

Brexit Thought of the Week.

"Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be a more productive than energy devoted to patching leaks."

Warren Buffett.

We close for the weekend with some interesting thoughts from Harvard on China.

Urbanization with Chinese Characteristics? China’s Gamble for Modernization

by Kristen Looney and Meg Rithmire 18 Feb 2016
Harvard Business School Working Paper
 Urban China’s latest man-made disaster struck Shenzhen, a city of over 20 million people and one of the country’s major economic hubs, on December 20, 2015. A massive hillside pile of construction debris, illegally dumped with the complicity of local officials, collapsed in the city’s Guangming New District, burying 33 buildings and scores of people.2 After the spectacular explosion in Tianjin in August and the seeming barrage of reports of urban infrastructure failures throughout the country, one begins to wonder if China’s urbanization demands are dramatically outpacing the country’s ability to expand urban areas. On the other hand, reports of “ghost cities,” entire cities in the middle of the desert or large suburban developments devoid of people, inspire fears that China’s supply of urban areas and infrastructure is outpacing demand, fueled by unsustainable debt and over-investment.3

Are Chinese cities the engines of growth for the Chinese and global economy or are they ticking time bombs of debt and over-investment? In a sense, they are both. Urbanization in China has proceeded this far in spite of serious institutional barriers, but those barriers have created significant problems, including urban sprawl, conflict over land rights, local government debt, and substantial inequality. A proposed set of reforms aims to catalyze rapid urbanization while eliminating the negative economic, environmental, and social costs of the previous model.

The Chinese Communist Party (the CCP) sees this “New-Style Urbanization” and the creation of a large and secure middle class as critical to its shift from an investment and export-driven economy to one sustained by domestic demand. Instead of relying on markets and voluntary migration, the CCP aims to steer the process through its control of land, labor, and capital. If it succeeds, China will urbanize hundreds of millions of people in the next decades without experiencing the social dislocation and political agitation that urbanization historically brings. If it fails, the risks range from simple economic stagnation to political and social upheaval.

Although it has achieved remarkable urbanization, China is still under-urbanized relative to its level of industrialization. Unlike most countries that the World Bank classifies as “upper middle income,” barely a majority of Chinese residents live in cities. Yet at the same time, China’s industrial sector accounts for well over 40 percent of the country’s GDP.4 This “industrialization without urbanization” is a unique product of institutions that limit the free movement of labor, land, and capital. To understand these institutions—and how they fit together—is to understand the past, present, and future of urbanization in China.

The most notorious of these institutions is the household registration system, or hukou. Established in 1958, the hukou system divides the population between rural and urban and attaches each person’s citizenship to a specific locale. Traditionally, those with urban hukou have been entitled to a suite of state-provided benefits denied to rural hukou holders, including social insurance, housing, grain rations, and public services. 

Following the introduction of market reforms in the late 1970s, urban labor markets gradually opened up to rural residents, but the urban public goods regime remained out of reach. Still, the lack of access to public goods has not stopped rural residents from migrating to urban centers by the hundreds of millions. Presently, about 17 percent of China’s population, or 230 million people, belong to the “floating population” that lives in cities but does not possess a local hukou.5 Despite frequent declarations that the CCP intends to dismantle the system, reforms have proceeded around the edges of the institution while preserving its basic form. By preventing the rural population from settling permanently in the cities, the hukou system has created what some scholars have called a rural-urban “apartheid.”6

But however you look at China, China now seems to be in deep trouble. The scripted numbers never made sense and now that they are all going haywire, the apparatchiks in Beijing seem to have panicked.

As China’s Economic Picture Turns Uglier, Beijing Applies Airbrush

by New York Times • 
BEIJING — This month, Chinese banking officials omitted currency data from closely watched economic reports.

Weeks earlier, Chinese regulators fined a journalist $23,000 for reposting a message that said a big securities firm had told elite clients to sell stock.

Before that, officials pressed two companies to stop releasing early results from a survey of Chinese factories that often moved markets.

Chinese leaders are taking increasingly bold steps to stop rising pessimism about turbulent markets and the slowing of the country’s growth. As financial and economic troubles threaten to undermine confidence in the Communist Party, Beijing is tightening the flow of economic information and even criminalizing commentary that officials believe could hurt stocks or the currency.

The government moved to bolster confidence on Saturday by ousting its top securities regulator, who had been widely accused of contributing to the stock market turmoil. Mr. Xi is also putting pressure on the Chinese media to focus on positive news that reflects well on the party.

But the tightly scripted story makes it ever more difficult to get information needed to gauge the extent of the country’s slowdown, analysts say. “Data disappears when it becomes negative,” said Anne Stevenson-Yang, co-founder of J Capital Research, which analyzes the Chinese economy.

The party’s attitude has raised further questions among executives and economists over whether Chinese policy makers know how to manage a quasi-market economy, the second-largest economy in the world, after that of the United States.

---- “We are going to continue to see crackdowns on people telling a different story than what Beijing wants to hear,” Mr. Miller said. “At the same time, Beijing appears to be conflicted on this issue, because it recognizes that without independent gauges, commercial relations and foreign direct investment will suffer, due to growing skepticism over official data.”

Last September, Markit Economics, a British company, and Caixin Media, based in Beijing, stopped publishing preliminary results from a monthly survey of purchasing managers at Chinese factories. 

The preliminary results, which came a few days before the two firms and the government separately released complete numbers, often affected markets. As a result, officials at China’s statistics bureau objected to the early release, according to people with knowledge of the official order.

A spokeswoman for Markit declined to comment, while Caixin representatives did not respond to a request for comment.

“It’s a very influential economic indicator, and it’s highly cited overseas,” said Mr. Yuan, the researcher at Tsinghua. “Given the international worry over the Chinese economy, I had a sense last August that the Caixin indicator wouldn’t really last long, because its publishing in mainland China had touched high-tension lines.”

In January data released last week, the Chinese central bank omitted or hidone key number and altered the parameters of another that gave insightinto what the central and commercial banks were doing to prop up the country’s currency.

 "On the whole David Cameron wants to be good, but not too good on Europe, and not quite all the time.”

With apologies to George Orwell.

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