There can be few fields of human endeavour in which history counts for
so little as in the world of finance. Past experience, to the extent that it is
part of memory at all, is dismissed as the primitive refuge of those who do not
have the insight to appreciate the incredible wonders of the present.
Depending on who is counting,
October is the 98th, 100th, or 101st month of
the current recovery from the rent-seeking, reckless gambling bankster crash of
2008, which almost wiped out the global financial system. Second time lucky
perhaps? This recovery is very long in the tooth, gasping for air, and looking
for a miracle from China’s 19th National Congress of the Communist
Party of China. I wonder if GB’s very own Comrade Corbyn of the New Communist
Labour Party has been invited, as the self-proclaimed leader of the next UK “government-in-waiting.”
Below, did yesterday’s
US jobs report, plus another Caribbean hurricane, just call time on the Great
Nixonian Error of fiat money, the age of gargantuan unrepayable debt, and the
greatest stock and bond market bubbles ever? Underneath the roar of all the
2017 hurricanes, is that the sound of the bell ringing at the top? Does it all
go downhill from here?
Dow, S&P 500 end streak of records after jobs report; indexes post weekly gains
Published: Oct 6, 2017 4:31 p.m. ET
Dow, S&P 500 rise for a fourth straight week
The S&P 500 and Dow Jones Industrial Average logged minor losses Friday, though the Nasdaq eked out a closing record and major indexes added to their string of weekly gains as investors mostly shrugged off a September jobs report that showed the first monthly drop in payrolls in seven years.The Dow Jones Industrial Average DJIA, -0.01% declined less than 2 points to 22,773.67, just barely ending a seven-day win streak. The S&P 500 SPX, -0.11% fell 2.74 points, or 0.1%, to finish at 2,549.33, putting an end to an eight-day streak that has taken it to repeated records. Eight of the primary 11 S&P 500 sectors ended lower on the day.
The Nasdaq Composite Index COMP, +0.07% switched between small gains and losses throughout the session but ended slightly higher, eking out a recrod close. The tech-heavy index ended up rose 4.82 points, or 0.1%, to 6,590.18.
All three benchmarks posted solid weekly gains. The Dow industrials rose 1.7% while the S&P 500 was up 1.2%. Both have risen for four straight weeks. The Nasdaq rose 1.5% in its second straight weekly gain.
October 5, 2017 / 1:20 PM / Updated 26 minutes ago
Evacuations in New Orleans as storm that killed 25 approaches
MANAGUA (Reuters) - New Orleans evacuated some residents from areas outside its levee system as Tropical Storm Nate swirled toward the U.S. Gulf Coast on Friday after killing at least 25 people in Central America.
Nate is set to become a Category 1 hurricane, the weakest on
a five-category scale used by meteorologists, by the time it hits the U.S.
central Gulf Coast on Saturday evening or Saturday night.
“Nate is at our doorstep or will be soon,” New Orleans Mayor
Mitch Landrieu said.
The greatest threat from this particular storm is not rain,
but strong winds and storm surge, Landrieu said. The winds could cause
significant power outages, and storm surges are projected to be six to nine
feet (1.8 to 2.7 meters) high, he added.
---- Nate was blowing maximum sustained
winds of 70 miles per hour (113 kmh) and was about 500 miles (805 km)
south-southeast of the Mississippi river on Friday evening, the NHC said.
19th National Congress of the Communist Party of China
The 19th National Congress of the Communist Party
of China (commonly referred to as Shijiu-da; Chinese:
十九大)
will be held in Beijing,
People's Republic of
China, opening on 18 October 2017.[2]
As an "odd-year" congress – the previous was held in 2012 – the
congress is closely watched mostly due to a far-reaching change in the makeup
of the top leadership of the Communist Party of China. A majority of
the Politburo
Standing Committee (top decision-making body) is expected to retire at this
congress.
More
Up
next this weekend poor Catalonia. After brutally bashing the Cats with clubs
last weekend, Spanish Generalisimo Rajoy in Madrid, is now threatening more to
come if Spain takes over Catalonia’s government. Cringing, silence, from
Brussels and Berlin. Euros anyone?
Below,
the glass is half full version of events from Bloomberg, who really ought to
know better.
“Small
sovereign EU states no longer have a right to exist, the road to self
government leads to independence. One cannot keep by democratic institutions
what one has acquired by force.”
EC
President Juncker, with apologies to a certain Mr. Hitler.
Catalonia's Isolation Grows as Largest Bank Heads for the Exit
By Esteban Duarte and Angeline Benoit
Catalonia’s separatists looked increasingly isolated
as the region’s biggest bank announced plans to leave and political pressure
rose in both Madrid and Barcelona to bring the standoff to a head.
Spanish Prime Minister Mariano Rajoy was resisting calls from his main ally in Madrid to suspend the Catalan regional government, according to a person familiar with their talks. The premier’s office is gathering details on what it would need to execute such a move, another person said. Catalan President Carles Puigdemont, meanwhile, was negotiating the text of a declaration of independence with his group’s more radical partner, El Mundo reported.
As both sides plotted their next move before next week’s likely showdown, the focus was on the financial toll secession talk was taking. The board of CaixaBank SA, the biggest symbol of the rebel region’s wealth and economic clout, decided to relocate its legal base at a meeting on Friday.
More
If Catalonia Declares Secession, Here’s How Assets Respond
By John Ainger and Blaise Robinson
6 October 2017, 07:49 GMT+1 6 October 2017, 10:17 GMT+1
Should
the leaders of Spain’s Catalonia region declare independence in the coming
days, European markets look poised to march on even as domestic assets
take a major hit.
Spanish
government bonds -- which have weakened since the vote -- could be one of the
biggest losers, while the country’s banking and construction stocks are also
vulnerable to further drops. The euro may escape damage, as a rebel declaration
would unlikely have immediate ramifications for the future of Europe.
“It is not a threat to the euro,” said Jan Loeys, chief investment strategist at JPMorgan Chase & Co., in an interview with Bloomberg Television. “This is a local problem. There will be affects on the local banks, local asset prices -- yes, Spanish equity prices will be hurt a bit.”
Spain has been roiled by escalating tensions between Catalonia, its largest regional economy, and the central government in Madrid. That has fed through into the nation’s bond market, with the premium demanded by investors to hold 10-year bonds over similar-dated German securities rising to the highest level since May.
Spanish stocks have also been hit, with the IBEX benchmark falling 2.4 percent this week. Stocks and bonds pared losses on Thursday after Bloomberg reported that separatists were trying to find a way to put off a definitive declaration of independence to create space for a negotiated settlement with Spain.
Spanish 10-year yields climbed three basis points to 1.7 percent as of 10:07 a.m. Friday, having hit 1.8 percent Thursday, the highest since March 22. The Ibex 35 index fell 0.8 percent.
Spain’s highest court on Thursday suspended the Catalan Parliament’s plans to convene Monday, when it may have started a 48-hour countdown to a formal declaration of independence. The leader of the most powerful group among the separatists promised the regional parliament will meet as planned, defying the order, though stopping short of vowing a unilateral declaration.
‘Uncertainty and Posturing’
Investors don’t see the decision as causing an uproar in Europe. Instead, it would likely prompt a further decline in the country’s bonds, according to Jack Kelly, a money manager at Aberdeen Standard Investments.“The short-term narrative is likely to be more uncertainty and posturing from both sides,” he said in emailed comments. “We maintain our precautionary underweight in Spain as we think the market hasn’t sufficiently re-priced weaker on the recent developments.”
More
In
other EUSSR news, in Germany the horse trading to form a new coalition
government is getting ugly.
October 6, 2017 / 10:53 AM / Updated 20 hours ago
FDP leader wants tougher euro zone policy, no new German debt
BERLIN (Reuters) - The leader of Germany’s pro-business Free Democrats (FDP), a possible junior partner in Chancellor Angela Merkel’s next coalition government, has called for a tougher stance on fiscal and euro zone policy - without so far claiming the finance ministry.
Merkel is trying to form a three-way coalition with the FDP
and the Greens after her conservatives lost support in a federal election last
month and it has been widely speculated that the FDP would demand the top
finance post as a price for joining.
“For us, a change in fiscal policy is more important than a
new minister,” FDP leader Christian Lindner told Handelsblatt newspaper in an
interview published on Friday when asked if his party wanted to take over the
powerful finance ministry from Merkel’s centre-right CDU/CSU bloc.
“It makes no sense to speculate about people and posts so long as we don’t have any clarity on the policy,” he added.
Lindner ruled out taking on new debt to manage the balancing
act of cutting income taxes and increasing investment on digital infrastructure
- two key demands of his party.
He criticized outgoing Finance Minister Wolfgang Schaeuble
for not being tough enough on Greece and not cutting income taxes for
middle-class workers.
More
October 6, 2017 / 9:55 PM / Updated 8 hours ago
Young German conservatives call for change after election losses
DRESDEN, Germany (Reuters) - The youth wing of German Chancellor Angela Merkel’s conservatives said on Friday the bloc had a credibility problem on migration and needed “new faces” after suffering big losses in the Sept. 24 national election.
Merkel won a fourth term in office, but her Christian Democrats
(CDU) and their Bavarian sister party saw their worst results since 1949,
bleeding support to the far-right Alternative for Germany and the pro-business
Free Democrats (FDP).
Merkel, who will address 1,000 delegates from the Young
Union (JU) in Dresden on Saturday, will try to hammer out differences with
Bavarian party leaders on Sunday about their call for an upper limit to
migration.
An agreement is needed before conservatives can enter into talks on a tricky three-way coalition with the FDP and the environmentalist Greens, an alignment untested thus far on a national level.
The young conservatives’ “Dresden declaration” called for an “honest and unflinching questioning of our polices of the past years” given the election results.
“Things cannot just continue as they were,” the declaration
said. “Many people have the feeling that ‘those up there’ have forgotten ‘us
down here’.”
More
Next,
while President Trump readies himself for war on North Korea, and continuing
President Obama’s policy of snubbing the Saudis, the Saudis are busy slumming
it in Moscow, cutting deals with the Russians. It’s turning into a funny old
world. Great Britain’s “government-in-waiting” has all but gone 1930s
communist, meanwhile Moscow and Riyadh are all but signing a friendship treaty.
In a somewhat panicky response, the USA just rushed out a new missile defence deal
for Saudi Arabia.
Inside the Saudi King’s 1,500-Person Entourage in Moscow
Saudi officials booked
two entire luxury hotels and brought their own carpets and hotel staff with
King Salman bin Abdulaziz on his historic visit.
By Ilya Arkhipov, Henry Meyer, and Evgenia Pismennaya
6 October 2017, 03:01 GMT+1
Saudi King
Salman bin Abdulaziz brought 1,500 people, a golden escalator and his
own carpets on his historic, four-day state visit to Russia, a person familiar
with the matter said.
The
81-year-old leader of the Gulf kingdom exited his plane late Wednesday and
stepped out onto the special escalator he travels with. But something went
wrong: It malfunctioned halfway down, and he had to walk the rest of the way. A
cavalcade of cars sped the monarch to the center of the city, flanked by
Russian police escorts.
During
the first visit to Russia by a Saudi monarch, the two countries have already struck
a deal
on weapons sales and discussed ways to continue to cooperate on stabilizing the
oil market. And as they have done in other cities, the Saudis made themselves
at home in Moscow.
A Saudi
plane is traveling daily between Riyadh and Moscow to transport supplies, said
the person, who said that 800 kilograms (1,764 pounds) of food has been
brought in. Members of the royal entourage also replaced some of the hotel
staff with their own personnel, who know exactly how they like their coffee
made, the person said. King Salman, who’s staying at the Four Seasons, also
came with his own furniture.
The Saudi
government booked two entire luxury hotels for the visit: the Ritz Carlton and
the Four Seasons. The latter had to ask some guests to cancel their
reservations to make room—and even moved out people who live in the hotel
permanently, people familiar with the matter said.
A doorman
dressed in red livery at the Four Seasons said the entire hotel was booked
through Oct. 8 and wasn’t open to the public.
Representatives
from the Ritz and Four Seasons declined to comment. The Royal Court in Riyadh
didn’t respond to a request for comment on size of the delegation.
U.S.
presidents also travel with large entourages, including a bullet-proof
limousine and a Secret Service protection force, and sometimes also book entire
hotels. Former U.S. President Barack Obama stayed at the Ritz in
Moscow during a 2009 trip, and President Donald Trump also stayed there in 2013
for the Miss Universe contest that he owned.
The bill
for fully booking the two hotels during the visit may run about $3 million, not
including what the delegation will spend on services, restaurant meals and spa
treatments, said Vadim Prasov, vice president of the Federation of
Restaurateurs and Hoteliers of Russia.
U.S. Approves $15 Billion Thaad Missile Package for Saudi Arabia
By Anthony CapaccioNegotiations on contracts can move ahead unless the U.S. Congress acts to block the deal within 30 days. The Saudis would be the second international buyer of Thaad after the United Arab Emirates. Thaad, which uses a hit-to-kill warhead to destroy short and medium-range missiles, gained international attention this year after the U.S. placed a Thaad battery in South Korea over China’s objections.
The proposed Saudi sale underscored enduring U.S.-Saudi defense cooperation on a day when Saudi King Salman bin Abdulaziz visited Russian President Vladimir Putin in Moscow, with deals announced on arms sales as well as energy.
More
In
other Russian news, anything you can do, we can do too, says Russia.
Russia Threatens to Retaliate Against U.S. Media for RT’s Targeting
By Henry Meyer and Ilya Arkhipov
6 October 2017, 11:46 GMT+1
Russia is
threatening to retaliate against U.S. media after American authorities targeted
state broadcaster RT, accelerating a downward spiral in ties between the two
countries.
The
Prosecutor General’s Office and other government institutions are examining the
possibility of declaring a number of U.S. media outlets “undesirable,” which
under Russian law would ban their activities and financing, the Interfax news
service reported on Friday, citing unidentified people. The prosecutor’s office
couldn’t be reached immediately for comment.
“Several
of our media are facing unprecedented pressure” in countries including the
U.S., Kremlin spokesman Dmitry Peskov said on a conference call Friday, citing
RT and the Sputnik state-run news agency in particular. “In the event of
further restrictions, further violations of the rights of our media, we of
course can’t exclude reciprocal actions.” He said he wasn’t aware of any
actions by the prosecutors in this area, however.
The
Department of Justice has given RT’s U.S. contractor until Oct. 17 to register
as a foreign agent, according to the channel’s editor-in-chief, Margarita
Simonyan. The broadcaster, which faces a halt to its activities if it doesn’t
comply, will have to provide a list of all employees, their salaries, home
addresses and telephones, she said. The U.S. Congress is investigating RT’s
role in the Russian interference in the 2016 election, as well as possible
influence by Sputnik.
Tensions
have risen steadily between the U.S. and Russia since Donald Trump took office
early this year despite the U.S. president’s campaign promises of better
relations. The two countries have targeted each other in tit-for-tat diplomatic
measures after America toughened sanctions on Russia for alleged election
meddling.
In what appeared to be a potential first step toward
retaliation, on Sept. 29, Russian communications watchdog Roskomnadzor said it
had found administrative violations at CNN International’s operating company in
the country and given it until Oct. 11 to rectify them or face the suspension
of its broadcasting license.
Roskomnadzor
is monitoring 40 U.S. media, as well as Internet outlets, which are not
registered under Russian law, deputy chief Vadim Subbotin told a parliamentary
hearing Thursday, the Interfax news agency reported. “Believe me, Russia has enough
legal mechanisms, and we also have a very flexible legislature, to take
appropriate measures in case the situation on the U.S. rises to a new level,”
he said.
More
We
close for the weekend with a glimpse of how the Great Nixonian Error of fiat
money ends. We all of course know how it ends, just not when or why, though the
“why” is usually corruption and over issuance.
-----But the U.S. [Zimbabwe,
your government here] government has a technology,
called a printing press (or, today, its electronic equivalent), that allows it
to produce as many U.S. dollars [your currency here] as it wishes at essentially no cost. By increasing the
number of U.S. dollars [your currency here] in
circulation, or even by credibly threatening to do so, the U.S. government [your
government here] can also reduce the value of a dollar [your
currency here] in terms of goods and services,
which is equivalent to raising the prices in dollars [your currency here] of those goods and services. We conclude that, under a
paper-money system, a determined government can always generate higher spending
and hence positive inflation.
October 6, 2017 / 11:38 AM / Updated an hour ago
In Mugabe's Zimbabwe, hard currency just got a whole lot harder
HARARE (Reuters) - After defying economic gravity for a year, Zimbabwe’s homemade U.S. dollars have fallen to earth with a bump.Rumours the central bank was buying up black market U.S. dollars last month with one of its own versions of the currency created panic in a country scarred by the hyperinflationary spiral of 2008 that wiped out people’s savings.
The worthless Zimbabwe dollar was replaced by the U.S. dollar in 2009 but the economy has struggled over the last 18 months because of a massive domestic shortage of greenbacks.
As a result, cash, especially crisp, new, $100 (76.55 pounds) bills, has enjoyed a steady 10 percent to 20 percent premium over dollars stored electronically in bank accounts - nicknamed “zollars”.
But two weeks ago, the rumours that even the central bank had run out of hard currency sent the premium soaring to nearly 50 percent, according to black market traders and unofficial measures of the zollar value.
“I am really scared that I will wake up one day and find my money in the bank is worthless,” said Jethro Nkosi, a computer technician at a hotel in the capital Harare.
The central bank has not published currency reserves since dollarisation and Zimbabweans worry it is creating zollars without the backing of sufficient reserves or gold, leaving the system vulnerable to a crisis of confidence.
Another currency implosion would also be a major headache for 93-year-old President Robert Mugabe as he seeks to extend his 37 years in power in an election in less than a year.
On Friday, buying $100 in cash via a bank transfer cost 145 electronic zollars, a marginal improvement on 160 last week. But on Sept. 23, when rumours of the central bank buying black market dollars swept Harare, the rate spiked to 185.
The price of everyday goods has also leapt as importers of food to fuel to medicine are forced to turn to an increasingly unfavourable and risky black market to pay for their wares.
In just one week, the cost of cooking oil, cereal and butter imported from South Africa leapt by as much as 30 percent.
DOLLARS BOLLARS ZOLLARS
One Harare banking source said the Reserve Bank of Zimbabwe’s (RBZ) Fidelity Printers and Refiners division sparked the panic two weeks ago by offloading a large quantity of dollar “bond notes” to buy gold from small-scale mining firms.When the newly minted notes, nicknamed “bollars”, hit the streets, currency dealers assumed the central bank was mopping up greenbacks from the black market, sending the value of real dollars soaring.
Bond notes are the third form of dollars used in Zimbabwe, besides cash and zollars. Like their electronic counterparts, the quasi-currency notes are meant to be equivalent to dollars issued by the U.S. Federal Reserve but they are now worth less.
The
notes, backed by an opaque $200 million loan facility from the Cairo-based Afreximbank,
were first introduced in November. This week they were trading at 1.3 to the
dollar after weakening to as much as 1.5 in late September.
The
banking source said RBZ’s Fidelity, Zimbabwe’s sole gold trader, was paying
mining firms for gold 60:40 in dollars and bond notes, compared with only
dollars a month ago - and that had fuelled suspicions the RBZ was running out
of hard currency.
Reserve
Bank of Zimbabwe Governor John Mangudya denied Zimbabwe was locked in another
currency crisis. He told Reuters the bank was spending $1 million in bond notes
a week to buy gold but said that should not affect currency market values.
“In an
economy with $180 million of bond notes, I am not very sure whether that amount
could have been responsible for a few days’ change in economic fundamentals of
premiums in the parallel markets,” he told Reuters.
However,
the situation is febrile and fluid.
To try to
prevent a run on the domestic banking system, the government has tried to kill
the black market with decrees giving the police more powers and stating that
illegal currency traders face up to 10 years in prison.
Despite
the warnings, illegal currency dealers continue to trade on Harare’s streets,
albeit more discretely than usual because of plain-clothes police lurking in
the shadows.
More
“When it becomes serious, you have to
lie.”
Jean-Claude Juncker. Failed former
Luxembourg P.M., serial liar, president of the European Commission. Scotch connoisseur.
Finally,
as yet another Caribbean hurricane heads towards America, an update from Jason
in California, on the situation in Puerto Rico.
With Its Electric Grid in Shambles,
Puerto Rico may have found help in an unlikely source-with potential worldwide
implications
N. Jason Jencka
October 7th 2017 1:30 am ET
Despite two weeks having passed
since Hurricane Maria made its September 20th landfall on the island of Puerto
Rico, the vast majority of the island’s 3.4 million residents remain without
reliable electric power. The island is presently relying on gasoline and diesel
generators with fuel delivery being prioritized to hospitals and government
buildings. To place the magnitude of the electricity crisis affecting Puerto
Rico in context, the number without power exceeds the combined population of
Chicago and the District of Columbia. This challenge would ordinarily be
addressed through emergency government expenditure of a massive scale however
Puerto Rico finds itself $ 70 billion in debt, in need of emergency
congressional action just to meet civil payrolls for this month. This against
the backdrop of a President and Congress
distracted by budget negotiations, a revenue-reducing tax reform proposal and
simmering healthcare debate. Further, Puerto Ricans lack the ability to vote in
presidential elections, with their only federal representation being a Delegate
that is unable to participate in final Congressional votes. The sum-total of
these factors is Puerto Rico is in a crisis with which it has limited hope of
resolution by traditional means.
Into this figuratively and literally dark
picture steps enigmatic and at times mercurial Silicon Valley billionaire Elon
Musk. Musk has offered, by Twitter message sent to Puerto Rico’s governor
Ricardo Rossello to deploy Tesla’s Powerpack solar-energy storage system on the
island. Such systems have already been successfully deployed on (on a much
smaller scale) to power islands such as Ta’u in American Samoa among other,
smaller projects. If Tesla is able to provide the tools to bring renewable
electricity to Puerto Rico, with costs and timeframes being more favorable than
what would be required to restore the original grid, the tragedy of Hurricane
Maria may just have a silver-or rather green- lining for Musk and advocates of
renewable energy around the world.
Sources:
Tim Johnson-Miami Herald, October
6th, 2017: http://www.miamiherald.com/news/weather/hurricane/article177523656.html
Ezra Fiezer-Bloomberg October 4th,
2017: https://www.bloomberg.com/news/articles/2017-10-04/puerto-rico-will-run-out-of-cash-on-oct-31-treasurer-says
N. Jason Jencka graduated in Finance and Economics
at Sierra Nevada College, located near the shores of Lake Tahoe on the border
of California and Nevada. His interests include the interplay between world
markets and the global political sphere, with a focus on developments of both
sides of the Atlantic in North America and Europe. In his leisure time he
enjoys connecting with those people that have an interesting story to tell and
a genuine desire to make an impact in the world.
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