Thursday, August 6, 2015

Sieren's China: Ukraine is China's breadbasket

After more than a year of sanctions against Russia, the Chinese have been increasing their investments in Ukraine. They're having the last laugh, writes DW columnist Frank Sieren.
More than a year has gone by since the European Union imposed sanctions against Russia. While Russia and the West have scarcely approached each other, Beijing has been active.
Ever since Russia annexed Crimea in March 2014, Kyiv has increased its agricultural trade with Beijing by more than 50 percent. The crisis-stricken country has become the world's largest supplier of grain to the Chinese in the first half of this year, as the Russians purchase very little and the Europeans don't need anything.
Frank Sieren Kolumnist Handelsblatt Bestseller Autor China DW columnist Frank Sieren
In fact, Ukraine has overtaken the US, traditionally China's largest grain supplier. In their difficult situation, Ukrainians have had to offer favorable prices, sometimes giving discounts of up to 50 percent on purchases from agricultural companies.
But Beijing isn't just interested in food: China also aims to work more closely with Ukraine in the fields of technology, real estate and science. In March, Beijing pumped $15 billion (13.6 billion euros) in loans into Ukraine's devastated real estate market, and also enhanced its economic cooperation with the Ukrainian aviation industry. The first China-Ukraine Forum on Science and Technology was held on July 8. There, Beijing announced its aim to support Ukraine in the development of information technology.
No political preconditions
It's quite plausible that Ukrainians will not be quick to forget Beijing. Unlike the US and the EU, China separates investments from political conditions, as it has for several years in Africa, Latin America, Southeast Asia and Australia. And Beijing hasn't taken sides in the Ukraine conflict, even bearing with Kyiv's occasional impertinence - it recently banned the Communist Party in Ukraine. The country is simply too important strategically.
To Beijing, Ukraine is more than just an important food supplier and technology partner: It is also China's main arms supplier. The only Chinese aircraft carrier, for example, comes from Ukraine.
For the moment Beijing is benefiting from the last laugh. However, there is a risk that shouldn't be underestimated: If the conflict escalates, Chinese commitments will have been made in vain.
DW columnist Frank Sieren has lived in Beijing for 20 years.

The Number Of Potential Claims Per Deliverable Ounce On The Comex Has Risen To A Record High Of 121 To 1

by Jesse
As you can see from the first chart below, the number of potential claims per deliverable ounce on the Comex has risen to a record high of 121 to 1.
That can be corrected by higher prices for bullion that will prompt more legitimate sellers of actual bullion to take their stored gold and put it in the ‘registered’ for delivery category.
Or the trading desks of the banks and funds can continue to pummel the price with paper short selling, in the hopes of knocking down the open interest and the longs.
In the short term a fraud is relatively easy to sustain if you can compromise the ‘cops on the beat’ and you have powerful friends in the game with you.
In the longer term all such schemes collapse. But con men and other criminal sorts are rarely thinking about the longer term consequences.
And it is the character of our time that those who say they are for reform, and vigilantly seek out injustice in their own case, will so often not only ignore, but join in on the taunts and misery of others less fortunate, who are suffering their own injustices, often from the same perpetrators.
There is no real merit in acting solely out of self-interest. Even the worst of people will do this. But since this has become the guiding principle of our age, having sacrificed the notions of duty and honour on the altar of expediency and greed, so the virtue of the people is found wanting.
It is all too easy to act out of the self-interest, with your mind, and not for what is right out of a principled stand for what is just, with the heart.
Have a pleasant evening.

Retail Demand for Physical Gold and Silver Surged 135% in the Past 45 Days

by moneymetals

Top National Dealer Reports Startling Sales Figures

Public demand for gold and silver coins, rounds, and bars suddenly skyrocketed in mid-June – particularly among first-time customers – to multiples of earlier demand levels, according to Money Metals Exchange, a national precious metals dealer in the U.S.
From June 16 to July 31, Money Metals Exchange experienced a 135% surge in gold and silver sales over the prior 45-day period (which was representative of the early months of 2015). Since June 16, the number of first-time customers rose even more dramatically, with 365% more new purchasers than the prior period.
“As the Greece default debacle unfolded in late June, something clicked in investors’ minds, and many have since bought whatever physical gold or silver they could get their hands on,” said Stefan Gleason, president of Money Metals Exchange. “In particular, we experienced a dramatic and unprecedented surge in first-time customers clamoring to obtain the financial insurance that gold and silver represent.”
“Paper” gold and silver prices set by the future markets have fallen since mid-June, and a bifurcation has emerged. The overwhelming demand for actual physical metal has led to significant strains on the supply chain, particularly in silver.
Many government and private mints, including the U.S. Mint and the Royal Canadian Mint, have been unable to keep up with demand and have either temporarily halted silver sales or rationed out their insufficient supply of silver coins.
Private mints have scrambled for raw silver to keep production running at full tilt. Major national depots, such as Los Angeles, have run dry while some users and investors sought physical delivery of silver (and gold) from Comex warehouses.
Premiums (i.e., amount paid above the metal’s melt value) have risen on all silver products except 100 and 1,000 ounce silver bars, and delivery delays have lengthened as suppliers and retailers scramble to fill orders.
“We’re seeing more buying interest than at any time since the 2008 financial crisis. If we see a further spike in demand, the whole supply chain could be cleaned out,” said Gleason. “In that event, customers will face long lead times and limited product choices. Gold supply is showing some signs of strain, but silver could become completely unavailable.”

May 1 – Jun 15 Jun 15 – Jul 31 Increase
Total Sales ($) $11,943,241 $28,041,070 135%
Silver (Oz Sold) 369,268 797,711 116%
Gold (Oz Sold) 4,645 12,929 178%
First-Time Orders 598 2,778 365%
Repeat Orders 9,069 9,839 8%

Greece requires even more debt relief than that suggested by the NIESR

by Shaun Richards
It was only on Monday that I analysed the grim survey that Markit had undertaken on manufacturing in the Greek economy. Its analysis of the situation in July led to the lowest reading it has so far calculated for it (30.2 on a scale where 50 is unchanged) which is quite something when you consider the economic depression which has been raging there. This morning the UK NIESR (National Institute for Economic and Social Research) has released its view on what will happen next in the Greek economy.
The economy is expected to contract sharply again this year and next, with GDP falling 3 per cent in 2015 and 2.3 per cent in 2016. We expect the recession to end in mid-2016.
It does not make for happy reading especially if we put it into the overall context.
 At this point the economy will be more than 30 per cent smaller than at its peak in 2007 and smaller than when it joined the Euro Area in 2001.
Actually the Greek economy fell below the level it had entered the Euro a couple of years ago so it would be more accurate to say even further below the level at which it joined the level. Also the NIESR omits to point out that under its own definition of a depression Greece is not only trapped in one but escaping it seems unlikely this decade and maybe beyond that.
The economic effect of raising VAT
I have been very critical of the new austerity plan partly because the recessionary effect of raising indirect taxes such as VAT is now known because of what has happened. The NIESR has investigated this.
“The changes to the VAT system will hit already weak consumer spending, shrinking the economy even further this year and next. It will also mask some of the underlying deflationary pressure this year and next.”
Putting this into numbers they estimate that consumer spending will see a small nudge lower this year but the main impact will be falls on 1 to 1.5% in both 2016 and 2017 and 1% in 2018. Actually this will make the deflation problem worse and it is the disinflation which will be reduced by price rises which may add as much as 2.5% to consumer inflation in 2016. The ordinary Greek consumer facing higher prices is likely to consume even less and the whole downwards spiral starts one more time.
What about debt relief?
The IMF suggested that a large effort would be required in this area.
If Europe prefers to again provide debt relief through maturity extension, there would have to be a very dramatic extension with grace periods of, say, 30 years on the entire stock of European debt, including new assistance.
However the NIESR has gone further suggesting that even such a move would not be enough.
According to our modelling, restoring debt sustainability requires a debt write-off equivalent to at least 55 per cent of GDP, higher than the IMF’s estimate of 30 per cent……Restructuring, or writing off, €95 billion (55 per cent of Greek GDP) provides Greece with, at least, a chance of lowering its debt stock to the target levels of the original bailouts (around 120 per cent of GDP in 2020). More could be done.
Thus we see that just as the Euro area plans a new bailout of 85 billion Euros it faces the prospect of having to write-off an even larger amount! Actually they are more likely to do anything like this by fulfilling one of my themes from the beginning that the maturity dates of the Greek date will head towards infinity. Or to use my financial lexicon they will be “temporary”.
Monetary Union
The NIESR touches on another theme of this blog which is how monetary unions normally behave. If we look at the UK as one I have pointed out in the past that the weaker areas (or our equivalent to Greece) are supported by regional policies where funds are switched to support them and investment there is encouraged. For example the Nissan plant in Sunderland is a successful example of this. Actually even in relatively successful currency unions like the UK the amount of regional policy is invariably not enough to solve the problem but in one where national identities and treasuries are still strong it is even less likely.
The NIESR suggest that the following would be a better solution than those suggested so far.
The fiscal transfer from Euro Area members required to achieve this would represent 1 per cent of Euro Area GDP in one year. As it would be spread over many years and across the membership, we argue the impact on other Euro Area members would be minimal, and that this fiscal transfer is necessary if Euro Area membership is to be maintained.
Except we are back in the usual mess of trust and honesty and doubt over how much reform Greece has actually undertaken. Also such a move would have a real cost and have to be accounted for rather than being kicked to off-balance sheet organisations like the ESM and EFSM. I checked the situation for the UK’s involvement in the EFSM and we do not account for any funds guaranteed unless it is lost, so one day we may get a “Surprise,Surprise” type announcement.
The Banks
The opening of the Athens Stock Exchange has led to this for the Greek banks. From Kathimerini.
Greek banks extended a rout that has wiped out more than half their value this week, sending the nation’s stocks lower for a third day….An index of Greek banks has fallen to its lowest level since at least 1995.
I note one comment being Simply Red. The short-selling ban is not going so well is it? But if we look at the impact of this on the Greek economy we see that it continues to be a noose around its neck. From Macropolis.
More than half of small Greek businesses saw turnover dive by at least 50 pct due to capital controls.
Ironically the bank deposit situation has now stabilised and even improved a little according to leaks which suggest a 1 billion Euro net inflow since July 20th re-opening of the banks.
There is one rather odd part of the NIESR report.
While the establishment of a new currency in Greece is clearly fraught with risks, there may come a point where the calculus simply no longer favours remaining within the Euro Area.
Fraught with risks yes and the current situation is not? Also there is the risk of success! But the oddity is that the fact is that due to the continuing economic destruction being inflicted on Greece it is a case of the sooner the better in my opinion rather than waiting for some better day to leave the Euro.
Also whilst the NIESR analysis require more debt relief than published elsewhere the truth is that even it does not go far enough. The 120% target for the debt to GDP ratio only existed to avoid embarassing Italy and Portugal and Greece needs to get back to 100% as a maximum.

The Care and Feeding of a Financial Black Hole

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A while ago I had the pleasure of hearing Sergey Glazyev—economist, politician, member of the Academy of Sciences, adviser to Pres. Putin—say something that very much confirmed my own thinking. He said that anyone who knows mathematics can see that the United States is on the verge of collapse because its debt has gone exponential. These aren't words that an American or a European politician can utter in public, and perhaps not even whisper to their significant other while lying in bed, because the American eavesdroppers might overhear them, and then the politician in question would get the Dominique Strauss-Kahn treatment (whose illustrious career ended when on a visit to the US he was falsely accused of rape and arrested). And so no European (never mind American) politician can state the obvious, no matter how obvious it is.

The Russians have that pretty well figured out by now. Yes, maintaining a dialogue and cordial directions with the Europeans is important. But it is well understood that the Europeans are just a bunch of American puppets with no will or decision-making authority of their own, so why not talk to the Americans directly? Alas, the Americans too are puppets. The American officials and politicians are definitely puppets, controlled by corporate lobbyists and shady oligarchs. But here's a shocker: these are also puppets—controlled by the simple imperatives of profitability and wealth preservation, respectively. In fact, it's puppets all the way down. And what's at the bottom is a giant, ever-expanding, financial black hole.

Do you like your black hole? If you aren't sure you like it, then let me ask you some other questions: Do you like the fact that your credit cards still work, or that you can still keep money in the bank and even get cash out of an ATM, or that you are either receiving or hope to eventually receive a pension? Do you like the fact that you can get useful things—food, gas, airline tickets—for mere pieces of paper with pictures of dead white men on them? Do you like the fact that you have internet access, that the lights are on, and that there is water on tap? Well, if you like these things, then you must also like the financial black hole, because that's what's making all of these things possible in spite of your country being bankrupt. Perhaps it's a love-hate relationship: you love being able to pretend that everything is still OK even though you know it isn't, and you wish to enjoy a bit more of the business-as-usual before it all goes to hell, be it for a few more days or another year or two; but you hate the fact that eventually the black hole will suck you in, after which point things will definitely... suck.

In the United States, so far the black hole has been sucking in individual families (although it does sometimes suck in entire cities, like Detroit, Michigan, or Bakersfield, California, or Camden, New Jersey). With the help of the fraudulent mortgage racket, it sucks in houses, and spits them out again encumbered with bad debt. With the help of the medical industry, it sucks in sick people and spits them out again, bankrupt. With the help of the higher education racket, it sucks in hopeful young people, and spits them out as graduates, with worthless degrees and saddled with mountainous student debt. With the help of the military-industrial complex, it sucks in just about anything and spits out corpses, invalids, environmental damage, terrorists and global instability. And so on.

But the black hole can also suck in entire countries. Right now it's busy trying to suck in Greece, but it's having a hard time with it, because Greece is, of all things, a democracy. This has the black hole's puppets in quite a state at the moment, and starting to clamor for “regime change” in Greece, so that Greece can be made to capitulate before the black hole gets hungry.

The way the black hole sucks in entire countries is as follows. If the black hole doesn't have enough to suck in for a period of time, it gets hungry and makes the financial markets go into free-fall. The financial instruments of countries that happen to be farther away from the black hole—out on the periphery—fall faster. In search of a “safe haven,” money floods out of these countries and into the “core” countries that are clustered tightly around the black hole—the US, Germany, Japan and a few others. The black hole gobbles up this money, but is then hungry for more. But since the periphery countries are now financially too weak to resist, they can easily be turned into black hole fodder. This is done by saddling the country with a foreign debt it can never repay, then forcing it to keep making payments against this debt by making it a condition for maintaining a financial lifeline—keeping the banks open, the ATMs stocked, the lights on and so on. To be able to make the payments, the country is forced to dismantle its society and economy through the imposition of austerity, to privatize everything in sight turning it into collateral for more loans, and to surrender its sovereignty to some transnational organizations, such as the IMF and the ECB, which are directly involved in the care and feeding of the black hole.

Who is in charge of all this? you might ask. If all there is is the black hole, the puppets charged with its care and feeding, and its hapless victims, then who is making the decisions? Well, it turns out that the black hole is sentient. But it is also very, very stupid. And the way is enforces its will is by destroying the minds of its puppets—by making them unable to understand certain things. However, stupidity is a double-edged sword, and in enforcing its will in this manner the black hole also thwarts its own purpose.

For example, some time ago the black hole happened upon a rather large item it wanted to suck in, but couldn't. The item is called Russian Federation. It controls a huge territory that is full of all sorts of natural resources the black hole would love to turn into loan collateral and suck in. The problem is that it is full of Russians, who are a difficult people for the black hole's puppets to deal with. They keep telling the puppets to please keep their toes on the other side of that red line over there, and if they don't then click goes the safety on their guns, precluding further discussion.

This situation calls for negotiation, but the black hole, which, as I mentioned, is very, very stupid, has just one negotiating tactic. It makes its demands, and then waits for the other side to capitulate. If that doesn't work, it applies pressure: imposes sanctions, attacks the currency, complicates financial transactions, arrests the country's foreign assets and so on—and waits for the other side to capitulate. And if that doesn't work either, then the country gets bombed to rubble by NATO or, if NATO doesn't want to come along, by the US alone. That generally works, but in the case of Russia it doesn't. But the black hole, if you recall, is very, very stupid, so it keeps trying anyway. As it does, the minds of its puppets get really warped, to a point where they don't understand what's going on at all.

For example, everybody knows by now that pressuring Russia doesn't work: according to Newton's Third Law, every action produces an equal and opposite reaction, and Russia is big enough that pushing it doesn't cause it to move at all—it just causes whoever is pushing it to hurt themselves. It's like trying to shift the Earth's orbit by jumping off a chair while keeping your knees locked—which is a good ploy if you are clamoring for medical attention. In fact, the Russians are rather grateful for the sanctions, because now they have a reason to finally get serious about investing in domestic economic development and self-sufficiency. But the puppets, having had their minds warped by the black hole, cannot see that, so they just keep pushing, wrecking their own economies in the process.

Since the sanctions don't work, it is time to exercise the military option. Doing so requires concocting a casus belli—a reason to go to war. The black hole does this by hallucinating: Russia invaded Crimea!—sure, a few hundred years ago, and has been there ever since, most recently based on an international agreement, but never mind! (Oh, and legally Crimea was never actually made part of the Ukraine because Nikita Khrushchev botched the paperwork when handing it over.) OK, never mind that, but then Russia invades the Ukraine!—on every day that has the letter “D” in it, but it's very sneaky and withdraws its troops before anybody can snap a single picture of them there. OK, never mind that either, but then Russia is poised to invade Estonia, Latvia and Lithuania, and maybe Poland too. Invade how? You mean like take a bus to the music festival in Jūrmala? Consider it done, but the festival is already over and the invading music fans are back home. OK, never mind that either. But the puppets keep saying “Russian aggression!” over and over again. It's the brain damage caused by proximity to the black hole. Look at this poor guy, for instance. He keeps flapping his lower jaw, going “Russian aggression! Russian aggression!” while trying to self-soothe by fondling the rump of his imaginary pet cow. God help him.

Back to the real world: the poor puppets are unable to understand that there is no military option when it comes to Russia: it's a nuclear power with an excellent strategic deterrent, a well-defended territory, and no aggressive intentions against anyone. But the puppets, with their warped minds, cannot see that, and so they pile various kinds of obsolete military junk along Russia's borders, and are even threatening to bring into Europe the entirely obsolete Pershing medium-range nuclear missiles. They are obsolete because the Russians now have the S-300 system with which to shoot them all down. The military option just isn't going to work, but don't tell that to the puppets—they cannot absorb such information without sustaining further neurological damage.

Back to Greece: tiny Greece certainly isn't mighty Russia, but it nevertheless refused to capitulate to the demands of the black hole. It was asked to completely wreck its society and its economy as a condition for maintaining its financial lifelines from the IMF and the ECB. Most inconveniently for the black hole and its puppets, Greece is not some obscure “third world” country peopled by dark-skinned people you wouldn't want your daughter to marry, but a European nation that is the cradle of European civilization and democracy. Greece managed to elect a government that tried to negotiate in good faith, but the puppets don't negotiate—they demand, threaten and cause damage until they get their way—or until their heads explode.

This one will be interesting to watch. If the black hole does succeed in sucking in Greece, then which country is next? Will it be Italy, Spain or Portugal? And, as that process continues, at what point will enough people say that enough is enough? Because when they do, the black hole will shrivel up. It's not a real black hole that's made up of incredibly dense matter—so dense that its gravitational field traps even light. It's a fake black hole, made up of everyone's combined greed. It has greed at its core, and fear all around it, and it sustains itself by feeding on fear. If it can continue sucking in people, families and entire countries, it can keep the greed at its core alive, but if it can't, then the greed will also turn to fear, and it will shrivel up and die. And I hope that when it dies all of its brain-damaged puppets will snap out of it, realize how deluded they have been, and go find something useful to do—farm sheep, grow vegetables, dig for clams...

Most Americans Agree Their Children Will Be Worse Off

cool  kids
(Quentin Fottrell)  The next generation of Americans will be healthier, their parents say, all except for their finances.
Barely more than one in 10 (13%) American adults believe their children will be better off financially than they were when their career reached its peak and just over half (52%) believe their children will have less disposable income than they did in the future, according to a survey of more than 1,100 American adults released Wednesday by life insurer Haven Life and research firm YouGov. What’s more, just 20% of Americans believe their children will have a better quality of life when they reach their age.
“For the baby boomer generation, pocket money from mom and dad was only part of their early childhood,” says Yaron Ben-Zvi, co-founder and chief executive of Haven Life. “Today’s parents are increasingly prepared to worry about and provide for their children’s financial well-being well far into their adulthoods.” (In fact, 40% of millennials say they get some kind of financial help from their parents, according to an April 2015 Bank of America/USA Today survey of 1,000 kids and 1,000 parents.)
Why do parents believe that their children are faced with bigger financial challenges? They are saddled with more student loan debt than previous generations. The number of borrowers who default (those who are at least nine months past due) rose to 1.2 million annually in 2012 from around 500,000 per year a decade ago, according to the Federal Reserve Bank of New York. And many young people — especially those living in big cities — are still priced out of the housing market.
Studies also show that the better start children have in life in terms of financial support and education, the more likely they are to surpass their parents’ earnings. Children raised in low-income American families are more likely to have very low incomes as adults, while children raised in high-income families can anticipate a much bigger jump in income, according to a report — “Economic Mobility in the United States” — released last month by researchers at Stanford University.
Their future is brighter in one way, parents say. Two thirds (66%) believe their kids will be as healthy or have a healthier lifestyle and, as such, will have a higher quality of life, the Haven Life/YouGov survey also found. Some 81% of millennials exercise regularly versus 61% of baby boomers, and millennials take more fitness classes, according to research group Nielsen. Unlike many of their parents, they’re also growing up in a country where smoking is banned by 36 states in workplaces, restaurants and bars.
Despite their parents’ concerns, millennials —those born between 1981 and 1996 — appear to be more optimistic about their own future. Relative to every other age group, they’re most likely to say their situation has improved relative to a year ago, according to a recent study by personal finance site In all components of the site’s financial security index — savings, debt, net worth, overall finances, and job security — millennials were the most likely of all age groups to note improved conditions versus a year ago.

It’s Not All Over In Greece Yet — And Won’t Be Until They Finally Shed The Euro And Return To The Drachma.

No, it’s not all over in Greece yet — and won’t be until they finally shed the Euro and return to the Drachma.
Prime Minister Tsipras is having trouble cobbling together a majority of the Greek Parliament to vote for the latest 86 billion Euro bailout deal which would keep Greece in the EU and forever dependent on its sagging Euro.
Left Platform Leader Pana-gio-tis Laf-az-anis opposes the European deal:
“Democracy is finished. The system of government in the country is the dictatorship of the euro.”
Tsipris has asked for party unity in order to approve the bailout. He says that otherwise he will have to resort to another referendum with the question:
“euro or drachma?”
So what’s wrong with that?
The President of the Greek Parliament,
Zo-e Kon-stan-top-ou-lou, also opposes the deal:
“It is the historic duty of the Left to protect the people and democracy … to protect the right to dream … to build a new, viable world.”
Greek officials were hoping to have the bailout deal signed by August 18 to avoid more bridging loans.
This timetable is now generally thought to be optimistic as new economic data shows that the Greek depression is deepening. New figures show the economy may contract by 7% this year.
This morning, the Greek stock market opened after a 5 week closure. It is plunging – down 20%.

Bullion Direct Files Bankruptcy, Never Purchased Customer’s Gold

Largest Coal Company files for bankruptcy on the same day Obama releases his Clean Power Plan.

Obama has destroyed the coal industry just like he promised he would do. All the coal plants are filing for bankruptcy, as the struggle to survive has overcome them.
This means all plants powered by coal will have to switch to natural gas or die. This is a costly process.
from yahoo:
The bankruptcy filing by Alpha Natural Resources comes on the same day that the Obama administration released its Clean Power Plan, which calls for more reliance on renewable energy sources.
One of America’s largest coal companies filed for bankruptcy Monday, striking the latest blow to an industry that, by its own admission, is struggling to adapt to the ongoing global conversion to clean energy.
Alpha Natural Resources (ANR), based in Bristol, Va., is the country’s biggest miner of coal used in steelmaking. In a bankruptcy filing, Kevin Crutchfield, the company’s chairman and CEO, described “unprecedented changes” for the coal industry.
“The US coal industry as currently structured is unsustainable,” he said. “Multiple major producers … have been, and will continue to be, driven to the brink of insolvency.”

IMF Work Progresses on 2015 SDR Basket Review

IMF Survey
August 4, 2015
  • SDR review takes place every five years
  • Staff paper lays out initial considerations; formal Board meeting late 2015
  • Focus on Chinese renminbi for meeting inclusion criteria
The IMF Executive Board will formally review the composition and valuation of the Special Drawing Rights (SDR) basket toward the end of the year.
As part of this process, the IMF’s Executive Directors recently held an informal meeting to have a first discussion on the review of the valuation of the SDR, an international reserve asset created by the IMF in 1969 to supplement its member countries’ official reserves.
The SDR’s value is currently based on a basket composed of the U.S. dollar, the euro, the pound sterling and the Japanese yen. The IMF reviews the SDR basket valuation method every five years to ensure that it reflects the relative importance of major currencies in the world’s trading and financial systems, with the aim of enhancing the attractiveness of the SDR as a reserve asset.
In an interview, Siddharth Tiwari, Director of the IMF’s Strategy, Policy, and Review Department, discusses the details of the SDR review process.
IMF Survey: The IMF’s Executive Directors just held an informal meeting on the review of the SDR basket. What was the purpose of the meeting?
Tiwari: Every five years, the IMF reviews the status of currencies within the SDR and opens up a window for inclusion of additional currencies. 2015 is a review year. As a first step, the Executive Directors discussed informally a staff paper that laid out initial considerations for the review. The paper provided a status report on the progress made so far and clarified a number of technical issues, such as the applicable legal framework for the review, the scope of the review, operational implications and next steps.
The Executive Board will formally discuss the review toward the end of the year.
IMF Survey: What are the criteria for including a currency in the SDR basket?
Tiwari: The criteria, last updated in 2000, establish that the SDR basket comprises the four currencies that are issued by members or currency unions whose exports of goods and services had the largest value over a five-year period, and have been determined by the Fund to be "freely usable."
The export criterion aims to ensure that currencies that qualify for the basket are those issued by members/currency unions that play a central role in the global economy. The requirement for currencies in the SDR basket to be also freely usable was incorporated in 2000 to reflect the importance of financial transactions in valuing the SDR basket.
The Articles of Agreement define a “freely usable” currency as that which is widely used to make payments for international transactions and is widely traded in the principal exchange markets.
The concept of a freely usable currency concerns the actual international use and trading of currencies, and it is distinct from whether a currency is either freely floating or fully convertible. In other words, a currency can be widely used and widely traded even if it is subject to some capital account restrictions. On the other hand, a currency that is fully convertible may not be necessarily widely used and widely traded (due to the size and relative importance of that economy in international transactions).
IMF Survey: What will be the main focus of the review?
Tiwari: The Chinese renminbi (RMB) is the only currency not currently in the SDR basket that meets the export criterion. Therefore, a key focus of the current review will be whether the RMB also meets the freely usable criterion in order to be included in the SDR basket.
The staff paper that was discussed by the Executive Directors provides some building blocks to help inform a future decision by the Board. In addition to these issues, the review will also cover the methodology used to determine the currency weights in the SDR basket and a review of the instruments in the SDR interest rate basket.
IMF Survey: Why is staff proposing an extension of the current SDR basket?
Tiwari: To put this in context, the current SDR basket expires at the end of this year. We are proposing extending the current SDR basket by nine months until September 30, 2016. This is in response to feedback from SDR users on the desirability of avoiding changes in the basket at the end of the calendar year and facilitating continued smooth functioning of SDR-related operations. An extension of nine months would also allow users to adjust to a potential changed basket composition should the Executive Board decide to include the RMB.
The proposed extension, which will be decided by the Executive Board later this month, would not in any way prejudge the timing of conclusion or outcome of the review.
IMF Survey: What voting majority is required to include a currency into the basket?
Tiwari: As a general rule, changes to the method of valuation of the SDR basket require a 70 percent majority, while certain types of changes respecting the “principle” of the SDR’s valuation require an 85 percent majority of the total voting power. Historically, decisions that have changed the valuation method have been taken with a 70 percent majority.
IMF Survey: What are the next steps in this review process?
Tiwari: The review is well underway. Further work still needs to be undertaken in a number of areas to help inform the Executive Board’s decision. Staff continues its technical work, including on addressing data gaps and operational issues, while liaising closely with the Chinese authorities and other members ahead of the formal Board meeting expected later in 2015.

Kyrgyzstan will become full member of Eurasian Economic Union tomorrow — EEC

Kazakhstan on Wednesday ratified the agreement on Kyrgyzstan’s accession to the Eurasian Economic Union
© Yekaterina Shtukina/Russian government's press service/TASS
MOSCOW, August 5. /TASS/. Kyrgyzstan becomes a full member of the Eurasian Economic Union (EAEU) from August 6, the Eurasian Economic Commission (EEC) said in statement on Wednesday.
"On August the 6th the agreement on Kyrgyzstan’s entering the EAEU comes into force. Kyrgyzstan becomes the fifth full member of the Eurasian Economic Union alongside with Armenia, Belarus, Kazakhstan and Russia," runs the statement.
Kazakhstan on Wednesday ratified the agreement on Kyrgyzstan’s accession to the Eurasian Economic Union (EAEU). Kazakhstan was the last country to have ratified the agreement.
The agreement on Kyrgyzstan’s accession to EAEU was signed in December 2014 at a session of the Supreme Eurasian Economic Council in Moscow. On May 8, the leaders of EAEU member countries signed protocols to the agreement.
Kyrgyzstan will become the fifth Eurasian Union member-country. Russia, Belarus and Kazakhstan signed a treaty on the EAEU in Astana on May 29, 2014, which came into force on January 1, 2015. Armenia joined the union last December. The EAEU membership involves free movement of goods, capital and labor between its member-countries as well as the provision of services.
Infographics The Eurasian Economic Union starts its work The Eurasian Economic Union starts its work
The Treaty on the establishment of the Eurasian Economic Union comes into effect on January 1. Infographics by TASS

Pfff…The Post-2009 Commodity Gains Are Gone

The last time we dedicated a Chart Of The Day and Tumblr post to the Reuters/Jefferies Commodity Research Bureau Index (CRB) was October 30, 2014. In a post titled It’s Make Or Break Time For Commodities, we noted that the CRB was “at a potential make or break point for those investors looking for a resumption of the commodity bull market.” The rationale was that the index was testing some key levels on its chart around the 265 area, most notably A) the 61.8% Fibonacci Retracement of the 2009-2011 rally, B) the June 2012 lows and C) the top side of the post-2008 down trendline, broken earlier in the year. Here is the chart from that post.

That 265 level proved to be up to the task…for a month. On November 28, the CRB Index gapped down below the 265 level by 3% and has not looked back since. Verdict: Break.
Why do we bring it up today? Well, we ended that October post with this:
“…should this key level fail to provide support for the CRB, it opens the index up to further (perhaps significant) weakness. It would also cast a doubt on the likelihood of resuming the commodity bull market any time soon.”
Significant weakness did indeed follow and today the CRB reached a dubious distinction. It closed below it’s lows from 2009.

With the CRB, and many of its components, hitting or violating their 2008-2009 lows, we can pretty much stick a fork in the post-2009 commodity cyclical bull market. But what of the commodity secular “supercycle” that began around the turn of the century? Believe it or not, it may be premature to pronounce that over as well. No, the lower highs and lower lows now evident on the chart do not bode well. However, if the CRB can avoid too much more damage, it may be able to keep the possibility open the the secular bull remains intact, though bloodied.
One level, in particular to watch is the 194 level, which represents the 78.6% Fibonacci Retracement of the 1999-2008 rally. If the index can hold there, and bounce back above the 200 area, it could reasonably be considered a double-bottom/re-test/hold of the 2009 lows. That does not give the CRB room to go much lower, however.
The secular cycle’s fate will likely be determined by the energy and metals complexes which account for roughly 36% of the index. For, as badly as they have been beaten down, the other commodities, namely the grains and softs, have fared even worse. With the recent downside acceleration in energy and metals, it certainly doesn’t “look” good there. However, a case can definitely be made for a bottom there sometime soon. Sentiment and price action are about as washed out as they can be at the moment. And while the current downside move could certainly cascade further in the near-term, it could possibly be a capitulatory/exhaustive type move.
Perhaps then, commodity bulls can begin to finally reap some gains again. But for now, the gains from the 2009 low, like Keyser Soze, are gone.

Canada Threatens Retaliation With Billions Of Dollars Of Tariffs On US Exports If COOL Is Passed

Crude meat on a white backgrounds
(Dean Best)  Canada’s Agriculture Minister, Gerry Ritz, has warned the US an introduction of a voluntary scheme for country-of-origin labels on meat would be met with tariffs on imports.
After seeing plans for mandatory labels thrown out by the World Trade Organization for breaking trade rules, two US senators have tabled a bill for a voluntary programme. The US Senate is mulling the move, introduced last month by Democrat Senator for Michigan, Debbie Stabenow, and the Republican representative for North Dakota, John Hoeven.
However, the move was drawn criticism from the Canadian government, which, alongside Mexico, had turned to the WTO to block the US’s original move.
“Senators Hoeven and Stabenow’s proposal in no way reflects Canada’s voluntary labelling regime – any suggestion of this is blatantly false. ‎A voluntary regime as they propose does not require legislation. Should the United States move forward with their short-sighted proposal, Canada will have no choice but to impose billions of dollars of retaliatory tariffs on United States exports,” Ritz said.
Tabling the bill, Stabenow said the US would be able to satisfy its international trade arrangements and also “empower” consumers by providing them with access to meats labelled “product of the US”. These labels would be applied to beef, pork, chicken and ground meat products that are from animals born, raised and harvested in the US.
Ritz said US consumers would feel the impact if the measure does become law. “By continuing the segregation of and discrimination against Canadian cattle and hogs, Senators Hoeven and Stabenow’s proposed measure will continue to harm farmers, ranchers, packers, retailers and consumers. It will cost American families thousands of jobs, and guarantee Canadian retaliation,” he said.
“The only way for the United States to avoid retaliation is for the United States Senate to follow the lead of the House of Representatives and Senator Roberts and put forward legislation that repeals COOL once and for all.”
In June, the US House of Representatives repealed the existing mandatory COOL regulations after Canada and Mexico threatened US$3bn in retaliatory sanctions.
The full repeal gained the support of US meat industry body the North American Meat Institute, which praised the “full and simple repeal”. Speaking at the time, president and CEO Barry Carpenter insisted regulators could not “waste precious time debating proposals other than full and simple repeal” given the threat of trade sanctions. “Anything else jeopardises important segments of the US economy and ultimately our consumers,” he insisted.

Apple stock plummets for a fifth straight day, wiping out $113billion of its value, as the company struggles to meet raised expectations

  • The world's most valuable public company saw its stock price drop for a fifth straight day on Tuesday 
  • Apple shares are now down 14 percent since closing at a record $133 in February 
  • That loss breaks down to $113.4billion in paper wealth 
  • iPhone sales were not quite as good as some analysts predicted, and the lukewarm forecast for the current period is causing the drop

Apple is slumping as the usually high-flying tech stock struggles with the burden of raised expectations.
The world's most valuable public company saw its stock price drop for a fifth straight day on Tuesday, falling as much as $5.19 or 4.4 percent, to $113.25 as investors fretted over China's economy and whether Apple can keep growing at the pace it's maintained over the last few quarters.
Apple shares are down 14 percent since closing at a record $133 in February. That puts Apple in a 'correction,' which is Wall Street jargon for price declines of 10 percent or more from a peak.
That loss breaks down to $113.4billion in paper wealth according to USA Today
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Bad times: The world's most valuable public company saw its stock price drop for a fifth straight day on Tuesday (Apple CEO Tim Cook speaks above at an October 2014 event)
Bad times: The world's most valuable public company saw its stock price drop for a fifth straight day on Tuesday (Apple CEO Tim Cook speaks above at an October 2014 event)
The stock also dropped below its 200-day moving average, a technical indicator that traders use to gauge momentum.
Apple sold more than 47 million of its signature iPhones in the last quarter, or 35 percent more than a year earlier. That drove the company's profit and earnings above Wall Street estimates. 
But iPhone sales were not quite as good as some analysts predicted, and executives gave a lukewarm forecast for the current period. That has sent the stock into a decline since Apple reported earnings on July 21.
Shareholders are also worried about recent hiccups in China's economy, because the country is viewed as one of Apple's biggest markets for expansion, said Daniel Ives, a managing director and senior analyst for FBR Capital Markets.
He added that investors are looking ahead to the December quarter, which is traditionally Apple's strongest. The company sold 74 million iPhones during that period last year, a 46 percent jump. But it will be more difficult for Apple to show that kind of growth again.
Apple is now a 'prove me' stock for some investors, said Ives, although he added that new products like Apple Pay and the expected release of new iPhone models this fall could give the company a boost.

Donald Trump: Yellen Creating a Bubble

During an interview on Bloomberg television, Donald Trump said he thinks the low interest policy of Fed chair Janet Yellen may be creating a bubble.

He also said that he thought the position of Fed chairman was one of the most important because of its overall impact on the economy,

He said he liked Paul Volcker as Fed chairman because "he did what had to be done."

Volcker became chairman of the Fed at a time price inflation was at double digit levels. He stopped the Fed inflation by focusing on slowing money supply growth, rather than interest rates, and killed the rampant inflation of that period.

Trump also said he was against the Export-Import Bank and listed among the points that it was not free enterprise.


U.S. Wage Growth Slowest In 33 Years

(Profit)  Although the U.S. labor market has seen steady declines in unemployment, wage growth has ground to a near standstill, suggesting the U.S. economy is far less stable than commonly believed. The Employment Cost Index edged only 0.2% in the second quarter; the smallest gain since the index was created in 1982. The new data has stoked fears that an economic collapse is around the corner. (Source: Bloomberg, July 31, 2015.)
Analysts were optimistic after the number of job openings spiked to 5.36 million in May 2015. The rise in available positions signaled a strong recovery in near-term employment, pushing up market expectations.
A Bloomberg survey of 57 economists predicted an ECI increase of 0.6%, far above the eventual reality. But after June’s lackluster results, markets are adjusting their near-term outlook.
Specifically, an upbeat message coming out of the Federal Reserve’s meeting on Wednesday had investors convinced that a September rate hike was all but guaranteed. But analysts are estimating that the new data will force a rethink at the central bank.
While benefits for state and local government employees increased slightly from May to June, private industry workers faced a 0.2% cut in benefits last month. (Source: Bureau of Labor Statistics, July 31, 2015.)
Although the Federal Reserve usually makes its monetary policy decision based on inflation concerns, the financial crisis gave birth to a second mandate; the Fed committed to low interest rates until employment had recovered.
Janet Yellen has repeatedly said that improving labor conditions were a key metric in deciding when to raise rates. While private industry workers faced a 0.2% cut in benefits last month, it seems likely that Fed policymakers will push the interest rate hike to December.  (Source: Bureau of Labor Statistics, July 31, 2015.)

Shocking: Could This Lead to an Economic Collapse in 2015?

Job numbers this depressing raise concerns about our near-term economic future. So ask yourself: how safe is your portfolio from a stock market crash? While government officials try to soothe investors’ fears with a lot of “happy talk,” new indicators suggest the U.S. economy may be on the verge of collapse. In fact, it’s starting to happen already.

Chart of doom: Greece’s bank shares plunge for third day. Now down 15%

Chart of doom: 's bank shares plunge for third day. Now down 15% 

United States Postal Service Charging Priority Rates for Standard Service

US post boxAs requested by a friend, I am sharing this experience and advisory regarding the US Postal Service.
I have to say I am not impressed with even the most basic service with USPS. We ship a fair bit of mail and it’s sometimes returned to us, rather than being shipped to the recipient’s address. If they can’t even determine the To and From addresses, what good are they? That’s a 50/50 chance of getting it to its destination.  ~ BP
priority mail
** Folks – be aware of this if you do business internationally with eBay, Amazon or other means as I just discovered this today. (July 30, 2015)
Today I was speaking with a USPS customer service rep who informed me that Priority Mail International Flat Rate Envelopes and Small Boxes offer no additional service over First Class International packages except that they are priced 50-100% higher.
Although Priority mail is marketed as being a faster service with tracking, insurance included and indemnity, I have learned that a package that I shipped using this service to South Africa did not get tracked outside of the USA, nor will the USPS attempt to locate it, nor will it be covered for any insurance or indemnity in the event that it is lost.This is a clear case of fraud in that Priority mail is being marketed as a premium service when it offers, internationally, identical service as First Class International, but at a much higher price.As it stands, I shipped a $250 item via a service I thought was premium and would be safely tracked and instead I am told that the USPS is washing their hands of responsibility.The customer service rep agreed that this is ridiculous and said that they have filed complaints on others’ behalf, but nothing has changed.Again, this affects the Priority International flat rate envelopes and small flat rate boxes. I was advised to write a letter of complaint to:
The USPS Vice President of Consumer & Industry Affairs
475 l’enfant plaza SW
Room 4115
Washington, DC
This is fodder for a massive class action lawsuit given the amount of priority international shipments (using these services) purchased by consumers expecting a premium service and not getting it.
Please forward this along to anyone else you know, primarily those who ship internationally with any regularity.
#usps #postalinspectors #fraud #international #prioritymail #mailfraud

Gold Two Steps Forward … One Step Back: ‘Death Of Gold’ Greatly Exaggerated, Gold Rose Sharply In Years Preceding Crisis And During Crisis

by GoldCore

  • ‘Death of gold’ greatly exaggerated
  • Vital context: gold rose sharply in years preceding crisis and during crisis
  • Important to consider gold in local currency terms
  • In euro, gold is up 2% in 2015, after 13% gain in 2014
  • Gold at €300 in 2001, rose to €1,400 during crisis and at €1,000 today
  • History, academic and independent research shows gold is a safe haven
  • Sharp fall in value of commodities means global economy is weakening
The deluge of negative publicity regarding gold in recent weeks would give one the impression that it was now worthless and serves no function in a portfolio. We believe this publicity is greatly exaggerated and will be seen as folly in the coming months.
In the years running up to the financial crisis of 2008 gold rose dramatically despite the warning signs being widely ignored. It continued to act as a reliable store of value as the crisis deepened and then began to fall back following the stability – temporary, we believe – provided by central banks creating more debt to deal with a crisis of over-indebtedness.
The negative publicity has generally focussed on the performance of the gold price in dollar terms which is not particularly relevant to investors and savers in other currencies.
Gold rose from €300 in 2000 to around €1,400 at the height of the crisis. It has since fallen back to €1,000. In this context, one can see that gold’s function as a store of value and as a safe haven is still clearly evident. Gold’s recent performance in euro terms has been reasonably strong with a very respectable 13% rise last year and 2% gains so far this year.
gold_price_05-08-2015 History, academic research and independent research show unequivocally that gold acts as a safe haven. As GoldCore’s research director Mark O’Byrne pointed out onRTE Radio 1’s Morning Ireland this morning [click to listen] gold has an inverse relationship to other financial instruments.
The recent negative publicity points out that gold should have seen gains during the recent crisis in Greece and thus failed to act as a safe haven. This is not strictly correct. The uncertainty caused by the crisis should equally have caused stock markets and bond markets to falter. They did not and therefore gold’s inverse relationship to these assets was never tested.
Mark also made the point that the sharp drop in the value of commodities in recent months should not be viewed as a triumph for non-tangible assets such as stocks and bonds. Indeed it indicates latent weakness in the global economy and possible trouble on the horizon.
“It’s interesting because the fall in value of all commodities and oil prices suggests that the global economy is much, much weaker than people actually think and that should give pause for concern in terms of the outlook in the coming months.”
The lower price for gold at this time should be viewed as an opportunity to acquire physical gold as a financial insurance against the unresolved debt crisis which must assert itself again in the coming months or years and may be imminent.
Mark, let’s go through the price movements with regard to gold over the past few years. We’ve seen it go from $700 to $1,900 during the financial crisis and it has come back to about $1,100?
Exactly, yes, and more important for Irish people, it’s important to think in local currency terms – which is obviously euros for Irish people – so there has been a similar big price move in euro terms. It actually went from €300 in the year 2000 to €1,400 at the height of the financial crisis after Lehman Brothers and indeed then the euro-zone debt crisis. So it’s very much a case of two steps forward in the early part of the decade and then one step backwards in recent months and years and we’ve had a very sharp correction, particularly in dollar terms. It’s actually more a story of dollar strength rather than gold weakness because gold in euro terms is actually up 14% last year and this year gold is actually up in euro terms but you wouldn’t know that from the headlines. It’s up 2% so far in 2015.
We had the Greek situation in July and a fall in [gold] price in July. Might we have expected to see it go up in July because of that Greek situation?
Yeah, absolutely, and I think a lot of people were scratching their heads. It is a safe haven asset – there is a huge body of academic research and indeed independent research from asset allocation experts who have shown that gold is a safe haven asset. It has an inverse relation so it goes up when everything else is going down. I suppose the Greek crisis did not lead to a correction in the stock markets and bond markets as some people were expecting and therefore that could be a reason that gold did not react as people expected.
Also, physical demand did increase but it didn’t increase hugely. There was a lot of safe haven buying going on particularly out of Germany because the Germans are worried about what is going to happen to the euro and, of course, in Greece itself. But also, there wasn’t any sudden selling of gold by central banks or investors in physical coins and bars. The selling was actually on the futures market so a lot of the speculative money that’s in the global financial system – which is a bit of a casino – and the hedge funds are momentum-driven and they follow trends. The trend in the gold price has been down in recent months and these guys are shorting the marketplace and pushing prices lower.
We also had the situation in China with very heavy losses in stock markets in July and that was accompanied by pressure on commodities. Why was that the case?
China is one of the biggest economies in the world with 1.3 billion people and a growing middle class and the narrative was that this is creating huge demand for commodities – as it was – as China industrialises. Now obviously there are concerns about China and we would have serious concerns about the Chinese economy going forward given – like most economies – a lot of the growth has been driven by huge increases in debt levels and obviously we’ve seen property markets there fall quite a bit in most of the cities around China and then we’ve had the huge wallop on the stock market over there. So people are beginning to question that story. It’s interesting because the fall in value of all commodities and oil prices suggests that the global economy is much, much weaker than people actually think and that should give pause for concern in terms of the outlook in the coming months.
You can listen to the full interview with Mark O’Byrne RTE’s Morning Ireland website.