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“Virtually Everybody Knew This Was Coming”

Was it Turkey’s “executive presidency” and its unwillingness to hike rates in the face of soaring inflation? Or maybe the record global debt accumulated over the past decade? Maybe the artificially low interest rates? Or perhaps it was the pervasive current account deficits amid easy outside capital. How about the rapid slowdown in China, its escalating trade war with the US, and the Yuan devaluation? Or perhaps it’s just the rising US interest rates and global quantitative tightening soaking up billions in excess liquidity?

However one justifies the current emerging market crisis, one thing is clear “virtually everybody knew this was coming.

At least that’s the common theme according to SocGen’s Albert Edwards, who after an extended absence has returned, with a new note looking at the turmoil gripping the EM sector. It’s hardly new territory for the SocGen strategist, who prior to his current role, was most famous for his correct predictions and observations on the Asian Financial Crisis of 1997.

Fast forward some 21 years, when the veteran SocGen strategist believes the current turmoil boils down to two things: the Fed’s ongoing tightening – a point we discussed earlier this week in “Forget About Turkey: Asia Is The Elephant In The Room” – and China’s rapid devaluation. Turmoil, which as Nedbank noted previously, is about much more than just Turkey, which is merely the symptomatic “tip of the iceberg.”

Here’s Edwards’ take on where we stand:

Many commentators have thought for some time that Turkey was a macro-accident waiting to happen. But the key issue is not Turkey’s idiosyncratic macro problems. The unfolding crisis in EM is the direct result of Fed tightening and the strong dollar. The Fed always raises rates until something breaks.

…click on the above link to read the rest of the article…

“This Is A Very Dangerous Outbreak” WHO Chief ‘Worried’ Over Ebola In DRC

The director of the World Health Organization (WHO) is urging a ceasefire between armed groups in the Democratic Republic of Congo (DRC), as raging conflicts in the region have hampered efforts to stop a new Ebola outbreak which is transmitting freely, reports the Daily Mail.

So far 41 deaths had been reported as of August 1 between the DRC’s North Kivu province, including the cities of Beni and Mangina.

As the death toll in the outbreak declared on August 1 in DRC’s violence-wracked North Kivu province hit 41, the World Health Organization chief also called for the rapid roll-out of an unlicenced drug being used for the first time to treat Ebola patients.

Tedros Adhanom Ghebreyesus told reporters in Geneva he feared conditions on the ground in the eastern province had created “a conducive environment for the transmission of Ebola.” –Daily Mail

Ghebreyesus, who traveled to the hot zones in Beni and Mangina in recent days, says that while he was worried before his trip – since his return “I am actually more worried.”

The latest outbreak now encompasses 57 probable and confirmed cases of Ebola in the DRC’s 10th outbreak since 1976, when the disease was first identified near the DRC’s Ebola river.

Beni was the scene of a 2016 massacre in which at least 64 people were killed by militants, bringing the toll to over 700 dead since October 2014.

in North Kivu, health workers are being forced to navigate their response among more than 100 armed groups, and Tedros said that there have been 120 violent incidents since January alone.

He said the region was sprinkled with so-called “red zones”, or inaccessible areas. –Daily Mail

“That environment is really conducive for Ebola … to transmit freely.”

…click on the above link to read the rest of the article…

 

Turkey Rules Out Capital Controls As Germany Says IMF Bailout “Would Be Helpful”

During this morning’s conference call organized by Citi, HSBC and other banks with “thousands”  of investors, Turkey’s Treasury and Finance Minister Berat Albayrak – the Jared Kushner of Turkey  – eased nerves when in an attempt to bolster confidence, said that capital controls were ruled out as a policy option for Turkey. As a reminder, capital controls are widely seen as the “worst case scenario” for Turkey as they could precipitate “self-fulfilling contagion”, and lead to broader capital flight from the EM space.

Albayrak also said that reining in inflation and narrowing the current-account deficit were policy priorities, although he provided no details on how we would do that absent raising interest rates – an outcome that Erdogan has decried as unlikely – with both an IMF bailout and capital controls off the table.

Discussing Turkey’s runaway inflation, Albayrak said the central bank alone wouldn’t be able to rein it in without tighter fiscal policy, although he has yet to provide any details on what options are on the table. In the meantime, GDP is set to slow further in the medium term from 7.4% expansion last year.

Still, after losing as much as a quarter of its value in the past few weeks after the U.S. sanctioned members of President Recep Tayyip Erdogan’s government, it continued to recover losses both before and after this morning conference call, rising to the highest level since last Friday, after Turkey cracked down on short sellers. Albayrak’s speech appears to have been successful, and the lira gained trading 4.0% stronger at 5.70 per dollar.

Meanwhile, as Albayrak was hoping to preserve some stability, a German government source told Reuters on Thursday that “the Federal Government believes that an IMF program could help Turkey.

…click on the above link to read the rest of the article…

From “Doom Loop” To Just “Doom”: Italian Debt Faces A “Huge Structural Shift”

At the start of July, we revealed that a familiar force had returned to Europe.

According to ECB data, during May when the market saw unprecedented Italian government bond turmoil, Italian bank holdings of domestic government bonds showed record buying over the month at €28.4bn, higher inflows than those seen during the European sovereign debt crisis of 2012. Visually, this is what the single biggest month of Italian bank purchases of BTPs in history looked like.

This vicious circle of Country X banks (in this case Italy) buying Country X bonds during times of stress – with the backstop of the ECB –has for years been Europe’s dreaded sovereign bank doom loop. And, as Italy clearly demonstrated, repeated and aggressive attempts by European regulators and policymakers to finally break the doom loop, most recently with the introduction of the 2014 BRRD directive, which sought which sought to remove the need for and possibility of bank bailouts, and instead ushered in bail ins, have been an abject failure.

It is also a major problem.

In a note published by Goldman on Wednesday, the bank’s Italy analyst Matteo Crimella writes that “regulatory and supervisory changes, together with the risk of a deterioration in banks’ capital ratios/ratings owing to weaknesses in the sovereign market could, all together, raise the bar for domestic banks to step in as buyers.

In other words, Italian lenders may no longer be as willing to snap up domestic government bonds during market stresses, something which Bloomberg calls “a potentially huge structural shift in demand in the euro area’s second-most indebted nation.”

…click on the above link to read the rest of the article…

Chart Of The Day: Australia’s Record Household Debt Is A Ticking Time Bomb

The Australian household debt to income ratio has ballooned to shocking levels over the past three decades as Sydney is ranked as one of the most overvalued cities in the world.

According to the Daily Mail Australia, credit card bills, home mortgages, and personal loans now account for 189 percent of an average Australian household income, compared with just 60 percent in 1988, as Callus Thomas, Head of Research of Topdown Charts, demonstrates that record high household debt is a ticking time bomb:

The average Australian credit card bill is roughly $3,272.70 as average income earners spend at least $2,000 a month on mortgage repayments, which has contributed to the affordability crisis, said the Daily Mail Australia. The average Australian holds about a $400,000 mortgage after they put down 20 percent deposit for a $500,000 property. The paper notes that the loan would barely buy a one-bedroom unit in most outer suburbs, as full-time workers take in about $82,000 salary per annum and spend an alarming 40 percent on mortgage repayments.

With household debt at crisis levels, CoreLogic said Australian home prices experienced their sharpest monthly drops in July since late 2011 as declines gathered momentum in Sydney and Melbourne (Sydney and Melbourne cover about 60 percent of Australia’s housing market by value and 40 percent by number). Nationally, the index of home prices dropped .60 percent in July from June, leading to an annual fall of 1.6 percent.

The brunt of the slowdown has been most significant in Sydney, where values were lower 5.4 percent in the year to July, while Melbourne slid 0.5 percent. Home price declines were the sharpest in expensive regions, while the affordable housing segment of the market experienced less stress.

…click on the above link to read the rest of the article…

16 Billion Reasons Why Turkey’s Currency Crisis Will Become A Debt Crisis

Earlier this week, when the Turkish lira imploded over the weekend, plunging by the most on record in two consecutive days, bonds of Turkish banks tumbled amid concerns that lira’s slump this year would makes it extremely difficult for lenders to repay dollar-denominated debts or rollover maturities. As a result, numerous bonds issued by Turkish banks tumbled to record lows on Monday: bonds of Yapi Kredi Bankasi AS were among the hardest hit, losing almost 30 cents on the dollar in the past week.

The reason for the prompt liquidation were investors fears that Turkish lenders would struggle to find the capital to repay about $34.4 billion of bonds sold during a decade of rapid economic growth and historically low global borrowing costs. Turkish banks alone have to service $7.6 billion in USD-denominated debt by the end of 2019.

“The material level of foreign currency borrowings among Turkish institutions makes them vulnerable,” said BNP Paribas analysts, while a Goldman report dropped the hammer on panicked bondholders with the claim that if the Turkish Lira tumbled to 7.1, then the excess capital in the Turkish bank sector would be wiped out.

Yet while the market has already punished Turkish banks, they are not the only culprits behind the nation’s ravenous dollar-denominated debt binge, and there are no less than 16 billion reasons why the Turkish currency crisis, unless arrested early, would morph into a debt/rollover crisis.

According to Bloomberg calculations, major Turkish companies, financial institutions and the government are facing a “bond wall” of at least $16 billion in bonds denominated in foreign currency that are due by the end of next year.

…click on the above link to read the rest of the article…

Turkey Joins Russia In Liquidating US Treasuries

Last month, when we reported that Russia had liquidated the bulk of its US Treasury holdings in just two months, we said that “we can’t help but wonder – as the Yuan-denominated oil futures were launched, trade wars were threatened, and as more sanctions were unleashed on Russia – if this wasn’t a dress-rehearsal, carefully coordinated with Beijing to field test what would happen if/when China also starts to liquidate its own Treasury holdings.”

As it turns out, Russia did lead the way, but not for China. Instead, another recent US foreign nemesis, Turkey, was set to follow in Putin’s footsteps of “diversifying away from the dollar”, and in the June Treasury International Capital, Turkey completely dropped off the list of major holders of US Treasurys, which has a $30 billion floor to be classified as a “major holder.”

According to the US Treasury, Turkey’s holdings of bonds, bills and notes tumbled by 52% since the end of 2017, dropping to $28.8 billion in June from $32.6 billion in May and $61.2 billion at the recent high of November of 2016.

Meanwhile, as we showed earlier, Russia – which first fell off the list last month after being a top-10 foreign creditor to the US just a few years ago – saw its Treasury holdings remain unchanged at an 11 year low of just $14.9 billion.

The selloffs took place well before a diplomatic fallout between the US and both Turkey and Russia resulted in new sets of sanctions and tariffs imposed on both nations. The Trump administration last week imposed new sanctions against Russia in response to the nerve agent poisoning in the U.K. of a former Russian spy and his daughter.

…click on the above link to read the rest of the article…

US Household Debt Hits Record $13.3 Trillion

Total household debt hit a new record high, rising by $82 billion to $13.29 trillion in Q2 of 2018, 3.5% higher than a year earlier according to the NY Fed’s latest household debt report. It was the 16th consecutive quarter with an increase in household debt, and the total is now $618 billion higher than the previous peak of $12.68 trillion, from the third quarter of 2008.  Overall household debt is now 19.2% above the post-financial-crisis trough reached during the second quarter of 2013.

Mortgage balances—the largest component of household debt—rose by $60 billion during the second quarter, to $9.00 trillion. Credit card debt rose by $14 billion to $829 billion; auto loan debt increased by $9 billion in the quarter to $1.24 trillion and student loan debt hit a record high of $1.41 trillion, an increase of $2 billion in Q2.

Balances on home equity lines of credit (HELOC) continued their downward trend, declining by $4 billion, to $432 billion. The median credit score of newly originating mortgage borrowers was roughly unchanged, at 760.

Mortgage originations edged up to $437 billion in the second quarter, from $428 billion in the first quarter. Meanwhile, mortgage delinquencies continued to improve, with 1.1% of mortgage balances 90 or more days delinquent in the second quarter, versus 1.2% in the first quarter.

Most newly originated mortgages continued went to borrowers with the highest credit scores, with 58% of new mortgages borrowed by consumers with a 760 credit score or higher.

Outstanding student loan debt was mostly unchanged in the second quarter and stood at a record $1.41 trillion as of June 30. Auto loan balances also hit an all time high, as they continued their six-year upward trend, increasing by $9 billion in the quarter, to $1.24 trillion. Meanwhile, credit card balances rose by $14 billion, or 1.7%, after a seasonal decline in the first quarter, to $829 billion.

…click on the above link to read the rest of the article…

Technocrats Rule: Democracy Is OK as Long as the People Rubberstamp Our Leadership

Technocrats Rule: Democracy Is OK as Long as the People Rubberstamp Our Leadership

Technocrats rule the world, East and West alike.

We are in a very peculiar ideological and political place in which Democracy (oh sainted Democracy) is a very good thing, unless the voters reject the technocrat class’s leadership. Then the velvet gloves come off. From the perspective of the elites and their technocrat apparatchiks, elections have only one purpose: to rubberstamp their leadership.

As a general rule, this is easily managed by spending hundreds of millions of dollars on advertising and bribes to the cartels and insider fiefdoms who pony up most of the cash.

This is why incumbents win the vast majority of elections. Once in power, they issue the bribes and payoffs needed to guarantee funding next election cycle.

The occasional incumbent who is voted out of office made one of two mistakes:

1. He/she showed a very troubling bit of independence from the technocrat status quo, so a more orthodox candidate is selected to eliminate him/her.

2. The incumbent forgot to put on a charade of “listening to my constituency” etc.

If restive voters can’t be bamboozled into passively supporting the technocrat status quo with the usual propaganda, divide and conquer is the preferred strategy. Only voting for the technocrat class (of any party, it doesn’t really matter) will save us from the evil Other: Deplorables, socialists, commies, fascists, etc.

In extreme cases where the masses confound the status quo by voting against the technocrat class (i.e. against globalization, financialization, Empire), then the elites/technocrats will punish them with austerity or a managed recession.The technocrat’s core ideology boils down to this:

…click on the above link to read the rest of the article…

Google Is Constantly Tracking, Even If You Turn Off Device ‘Location History’

Perhaps it should come as no surprise that Google is actually tracking you even when you switch your device settings to Location History “off”.

As journalist Mark Ames comments in response to a new Associated Press story exposing Google’s ability to track people at all times even when they explicitly tell Google not to via iPhone and Android settings, “The Pentagon invented the internet to be the perfect global surveillance/counterinsurgency machine. Surveillance is baked into the internet’s DNA.”

In but the latest in a continuing saga of big tech tracking and surveillance stories which should serve to convince us all we are living in the beginning phases of a Minority Report style tracking and pansophical “pre-crime” system, it’s now confirmed that the world’s most powerful tech company and search tool will always find a way to keep your location data.

The Associated Press sought the help of Princeton researchers to prove that while Google is clear and upfront about giving App users the ability to turn off or “pause” Location History on their devices, there are other hidden means through which it retains the data.

According to the AP report:

Google says that will prevent the company from remembering where you’ve been. Google’s support page on the subject states: “You can turn off Location History at any time. With Location History off, the places you go are no longer stored.”

That isn’t true. Even with Location History paused, some Google apps automatically store time-stamped location data without asking.

For example, Google stores a snapshot of where you are when you merely open its Maps app. Automatic daily weather updates on Android phones pinpoint roughly where you are.

…click on the above link to read the rest of the article…

Will Turkey be the first domino to fall?

There has been many financial crises over the past century, yet few of those provided much of a warning that they were about to hit.  It only becomes clear after the fact. We then begin to hear speeches on what there was to learn and how to avert any future crisis, until the next crisis arrives in a slightly different form. Philosopher George Santayana, once wrote, “Those who cannot remember the past are condemned to repeat it.” History has proven this to be true.

We now have a situation brewing in Turkey, yet there are many in the financial media who are already quick to write off the current collapse in the Turkish Lira as contained to Turkey and that the size of Turkey’s GDP makes it less of a threat. Yet, Turkey’s GDP is double the size of what Thailand’s was during the Asian crisis. Therefore, in order to understand the current crisis in Turkey, it is worth looking back at the Asian crisis of 1997.

In 1997, just before the crisis hit, Thailand’s economy was booming. Banks were lending freely. The resulting large quantities of credit that became available generated a highly leveraged economic climate, which led to excessive real estate speculation, and pushed up asset prices to an unsustainable level. An economic expansion, that nobody wanted to end, was in full force. In fact, the Thai central bank kept the currency artificially high, fuelling the speculative bubble.

I guess you could say that there were signs of a brewing crisis if you choose to focus on them. Banks began lending against the security of the buildings that didn’t have too much of a chance at being filled. Muang Thong Thani was a housing estate built for 700,000 people and became a victim of the coming crash.

…click on the above link to read the rest of the article…

“All Bets Are Off” – Ruble, Lira Crushed By US Sanctions

“All Bets Are Off” – Ruble, Lira Crushed By US Sanctions

Emerging Market currencies are down broadly but the biggest losers (for now) are the Turkish Lira (record lows) and Russian Ruble (20-mo lows) as both suffer from US government actions.

The Ruble has broken down to its lowest since Nov 2016 (US election)…

The move comes after the U.S. said it was imposing the new restrictions to punish President Vladimir Putin’s government for the March 4 nerve-agent attack on former spy Sergei Skripal and his daughter in the U.K. As Blomberg reports, the threatened measures spooked investors, driving the ruble to the lowest levels since 2016 and pushing stocks like Aeroflot and VTB, which could be targeted by some of the new restrictions, down as much as 6 percent.

“It is clear that major sanctions actions are looming against Russia now either by the Administration, by Congress or both,” Tim Ash, a senior emerging-market strategist at Bluebay Asset Management LLC in London, said. “All bets are off.”

And The Lira is plumbing new record low depths…

As Bloomberg reports, the grip of bears on Turkish assets tightened as the nation’s souring relationship with the U.S. added to investor concern over authorities’ inability to put a lid on inflation, sending its currency to a fresh record low and driving up bond yields.

The development “raises the odds that the U.S. will double down on their sanctions” and adds to the “domestic challenges that plague lira-denominated assets,” analysts including Michael Every at Rabobank in London wrote in note to clients.

And for now, the great fall of China remains halted with offshore yuan still treading water…

 

Ten Bombshell Revelations From Seymour Hersh’s New Autobiography

Among the more interesting revelations to surface as legendary investigative journalist Seymour Hersh continues a book tour and gives interviews discussing his newly published autobiography, Reporter: A Memoir, is that he never set out to write it at all, but was actually deeply engaged in writing a massive exposé of Dick Cheney a project he decided couldn’t ultimately be published in the current climate of aggressive persecution of whistleblowers which became especially intense during the Obama years.

Hersh has pointed out he worries his sources risk exposure while taking on the Cheney book, which ultimately resulted in the famed reporter opting to write an in-depth account of his storied career instead — itself full of previously hidden details connected with major historical events and state secrets.

In a recent wide-ranging interview with the UK Independent, Hersh is finally asked to discuss in-depth some of the controversial investigative stories he’s written on Syria, Russia-US intelligence sharing, and the Osama bin Laden death narrativewhich have gotten the Pulitzer Prize winner and five-time Polk Award recipient essentially blacklisted from his regular publication, The NewYorker magazine, for which he broke stories of monumental importance for decades.

Though few would disagree that Hersh “has single-handedly broken more stories of genuine world-historical significance than any reporter alive (or dead, perhaps)” — as The Nation put it — the man who exposed shocking cover-ups like the My Lai Massacre, the Abu Ghraib prison scandal, and the truth behind the downing of Korean Air Flight 007, has lately been shunned and even attacked by the American mainstream media especially over his controversial coverage of Syria and the bin Laden raid in 2011.

…click on the above link to read the rest of the article…

“What They Did Was Unacceptable”: Saudis To Dump Canadian Assets “No Matter The Cost”

Update 2: Saudi foreign minister Adel Al-Jubeir has made a new statement – attempting to talk back The Kingdom’s rhetoric somewhat (or perhaps avoid sending its Canadian asset prices tumbling into a firesale).

“What Canada did was unacceptable.

Canada committed a big mistake, must rectify it.

We in Saudi Arabia do not accept dictation, interference.

There is no need for mediation, Canada knows what it needs to do, it must change its policies, ways with The Kingdom.

The Saudi measures only apply to new investments [ZH: so no immediate asset dumping]

Saudis are still weighing other measures to take against Canada.

The Loonie rebounded:

*  *  *

Update 1: Russia has sided with Saudi Arabia in the ongoing diplomatic rift with Canada on Wednesday, issuing a statement accusing the latter of attempting to “politicize human rights issues.”

The statement said Russia rejected the “authoritative tone” of Canada toward Saudi Arabia, adding that the Kingdom had the full sovereign right to manage its own affairs.

“We consistently and firmly advocate compliance with universal human rights with due regard for the specific national customs and traditions that developed in a given country over a long period of time. We have always said that the politicization of human rights matters is unacceptable,” Russian Foreign Ministry spokeswoman Maria Zakharova said in a statement posted on the ministry’s website.

*  *  *

The Saudis have escalated their fury towards Trudeau’s “progressive” propaganda. Having expelled the Canadian ambassador, froze new trade and investment with the G7 member, suspended a student exchange program and halted Saudi Arabian Airlines flights to Canada, the Saudis are stepping up their pressure very directly.

…click on the above link to read the rest of the article…

Diplomatic Feud Goes “Nuclear”: Saudis Start Dumping Canadian Assets “No Matter The Cost”

The Saudis have escalated their fury towards Trudeau’s “progressive” propaganda. Having expelled the Canadian ambassador, froze new trade and investment with the G7 member, suspended a student exchange programme and halted Saudi Arabian Airlines flights to Canada, the Saudis are stepping up their pressure very directly.

The FT reports that the Saudi central bank and state pension funds have instructed their overseas asset managers to dispose of their Canadian equities, bonds and cash holdings “no matter the cost.”

Third-party managers are estimated to be mandated to invest more than $100bn of Saudi funds in global markets, executives say. While the proportion of that figure invested in Canadian holdings would be “fairly small in absolute terms,” the asset sale sent a strong message, one of the people said.

The sell-off began on Tuesday and underlines how the Gulf monarchy is flexing its financial and political muscle to warn foreign powers against what it regards as interference in its sovereign affairs.

“This is severe stuff,” said one banker.

The most immediate reaction appears to be in the currency…

Why are the Saudis doing this (aside from responding to Ottawa’s criticism of the arrest of a female activist)?

One Twitter wit noted – “to secure funding for the Tesla LBO?”

Olduvai II: Exodus
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Olduvai
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Olduvai II: Exodus
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Olduvai III: Cataclysm
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