en The Cost Of Delusion - Asset Prices & Monetary Policy In An Irrational World <p><em><a href="">Authord by Chris Whalen via The Institutional Risk Analyst,</a></em></p> <p><strong>Almost as soon as it started, the excitement surrounding earnings for financials in Q3 2017 dissipated like air leaving a balloon. </strong></p> <p><a href=""><img alt="" src="" style="width: 500px; height: 367px;" /></a></p> <p><a href=""><em>Source: HedgeEye</em></a></p> <p><strong>Results for the largest banks &ndash; including JPMorgan (NYSE:JPM), Citigroup (NYSE:C) and Wells Fargo (NYSE:WFC) &ndash; all universally disappointed, even based upon the admittedly modest expectations of the Sell Side analyst cohort.</strong></p> <p>Bank of America (NYSE:BAC), the best performing stock in the large cap group (up 60% in the past year), disappointed with a $100 million charge for legacy mortgage issues.&nbsp; Despite strong loan growth, year-over-year&nbsp;BAC&#39;s net revenue is up about 5% but actually fell in the most recent period compared with Q2 &#39;17.</p> <p><strong>As with many other sectors, in large-cap financials there was little&nbsp;excitement, no alpha --&nbsp;just slightly higher loss rates on loan portfolios that are growing high single-digits YOY.&nbsp; Yet equity valuations are up mid-double digits over the same period.</strong></p> <p>The explanation for this remarkable divergence between stock prices and the underlying performance of public companies&nbsp;lies with the Federal Open Market Committee.&nbsp; Low interest rates and the extraordinary expansion of the Fed&#39;s balance sheet have driven asset prices up by several orders of magnitude above the level of economic growth, as shown in Chart 1 below.</p> <p><a href=""><img alt="" src="" style="width: 500px; height: 193px;" /></a></p> <p><strong>Meanwhile across the largely vacant floor of the New York Stock Exchange, traders puzzled over the latest management changes at General Electric Co </strong>(NYSE:GE), the once iconic symbol of American industrial prowess.&nbsp; Over the past year, GE&#39;s stock price has slumped by more than 20% even with the Fed&#39;s aggressive asset purchases and low rate policies.&nbsp;&nbsp;Just imagine where GE would be trading without Janet Yellen.&nbsp;</p> <p><span>To be fair, though, much of GE&rsquo;s reputation in the second half of the 20th Century came about because of financial machinations more than the rewards of industry.&nbsp; A well-placed reader of </span><span>The IRA</span><span> summarizes the rise and fall of the company built by Thomas Edison:</span></p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>&ldquo;For years under Welch, GE made its money from GE Capital and kept the industrial business looking good by moving costs outside the US via&nbsp;all kinds of financial engineering.&nbsp; Immelt kept on keeping on. That didn&#39;t change until it had to with the financial crisis.&nbsp; No matter what, untangling that kind of financial engineering spaghetti is for sure and has been a decade long process.&nbsp; No manager survives presiding over that.&nbsp; Jeffrey Immelt is gone.&rdquo;</p> </blockquote> <p><span><strong>Those transactions intended to move costs overseas also sought to move tax liability as well, one reason that claims in Washington about &ldquo;overtaxed&rdquo; US corporations are so absurd.&nbsp; </strong>Readers will recall our earlier discussion of the decision by the US Supreme Court in January not to hear </span><span><a href="" target="_blank"><span>an appeal by Dow Chemical</span></a></span><span> over a fraudulent offshore tax transaction. </span></p> <p><span><strong>The IRS also caught GE playing the same game.&nbsp;</strong> Indeed, US corporations have avoided literally tens of </span><span>trillions</span><span> of dollars in taxes over the past few decades using deceptive offshore financial&nbsp;transactions.&nbsp; Of note, the Supreme Court&rsquo;s decision not to hear the appeal by Dow Chemical leaves offending US corporations no defense against future IRS tax claims.</span></p> <p>Like other examples of American industrial might such as IBM (NYSE:IBM), GE under its new leader John Flannery seems intent upon turning the company into a provider of software.&nbsp; Another reader posits that &ldquo;they&rsquo;re going to spend a decade selling the family silver to maintain a dividend and never make the conversion they would like and never get the multiple they want.&nbsp; GE is dead money at a 4% yield, which given some investors objectives &ndash; retirees and the like --&nbsp;might not be such a bad thing.&rdquo;</p> <p><strong>The question raised by several observers is whether the departure of Immelt signals an even more aggressive &ldquo;value creation&rdquo; effort at GE that could lead to the eventual break-up of the company.&nbsp;</strong> Like General Motors (NYSE:GM), GE has been undergoing a decades long process of rationalizing its operations to fit into a post-war (that is, WWII) economy where global competition is the standard and the US government cannot guarantee profits or market share or employment for US workers.</p> <p>GE&#39;s decision this past June to sell the Edison-era lighting segment illustrates the gradual process of liquidation of the old industrial business.&nbsp;&nbsp;Henry Ford observed that Edison was America&rsquo;s greatest inventor and worst businessman, an observation confirmed by the fact that Edison&rsquo;s personal business fortunes declined after selling GE.&nbsp; In fact, the great inventor died a pauper.&nbsp; And of the dozen or so firms that were first included in the Dow Jones Industrial Average over a century ago, GE is the only name from that group that remains today.</p> <p><u><em><strong>But the pressure on corporate executives to repurchase shares or sell business lines to satisfy the inflated return expectations of institutional investors is not just about good business management.&nbsp; The expectations of investors also reflect relative returns and asset prices, which are a function of the decisions made in Washington by the FOMC.&nbsp;&nbsp;Fed Chair Janet Yellen may think that the US economy is doing just fine, but in fact the financial sector has never been so grotesquely distorted as it is today. </strong></em></u></p> <p>Let&rsquo;s wind the clock back two decades to December 1996.&nbsp; The Labor Department had just reported a &ldquo;blowout&rdquo; jobs report.&nbsp;Then-Federal Reserve chairman Alan Greenspan had just completed a decade in office. He&nbsp;made a now&nbsp;famous speech at American Enterprise Institute wherein Greenspan&nbsp;asked if &quot;irrational exuberance&quot; had begun to play a role in the increase of certain asset prices.&nbsp; He said:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p><span>&ldquo;Clearly, sustained low inflation implies less uncertainty about the future, and lower risk premiums imply higher prices of stocks and other earning assets. We can see that in the inverse relationship exhibited by price/earnings ratios and the rate of inflation in the past. But how do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade? And how do we factor that assessment into monetary policy? We as central bankers need not be concerned if a collapsing financial asset bubble does not threaten to impair the real economy, its production, jobs, and price stability. Indeed, the sharp stock market break of 1987 had few negative consequences for the economy. </span><span>But we should not underestimate or become complacent about the complexity of the interactions of asset markets and the economy. Thus, evaluating shifts in balance sheets generally, and in asset prices particularly, must be an integral part of the development of monetary policy</span><span>.&rdquo;</span></p> </blockquote> <p><u><em><strong>In the wake of the 2008 financial crisis, the FOMC abandoned its focus on the productive sector and essentially substituted exuberant monetary policy for the irrational behavior of investors in the roaring 2000s.&nbsp; In place of banks and other intermediaries pushing up assets prices, we instead have seen almost a decade of &ldquo;quantitative easing&rdquo; by the FOMC doing much the same thing.&nbsp; And all of this in the name of boosting the real economy?</strong></em></u></p> <p>The Federal Reserve System, joined by the Bank of Japan and the European Central Bank, artificially increased&nbsp;assets prices in a coordinated effort not to promote growth, but avoid debt deflation.&nbsp;&nbsp;Unfortunately, without an increase in income to match the artificial rise in assets prices, the logical and unavoidable result of the&nbsp;end of QE&nbsp;is that asset prices must fall and excessive debt must be reduced.</p> <p><strong>Stocks, commercial real estate and many other asset classes have been vastly inflated by the actions of global central banks.&nbsp; Assuming that these central bankers actually understand the implications of their actions, which are nicely summarized by Greenspan&rsquo;s remarks some 20 years ago, then the obvious conclusion is that there is no way to &ldquo;normalize&rdquo; monetary policy without seeing a significant, secular decline in asset prices.&nbsp; &nbsp;The image below illustrates the most recent meeting of the FOMC.</strong></p> <p><img alt="" src="" style="width: 500px; height: 331px;" /></p> <p><strong>The lesson for investors is that much of the picture presented today in prices for various assets classes is an illusion foisted upon us all by reckless central bankers.&nbsp; Yellen and her colleagues seem to think that they can spin straw into gold by manipulating markets and asset prices.&nbsp; </strong>As Chairman Greenspan noted, however, &ldquo;evaluating shifts in balance sheets generally, and in asset prices particularly, must be an integral part of the development of monetary policy.&rdquo;</p> <p>While you may think less of Chairman Greenspan for his role in causing the 2008 financial crisis, the fact remains that he understands markets far better than the current cast of characters on the FOMC.&nbsp; <u><em><strong>Yellen and her colleagues pray to different gods in the pantheon of monetary mechanics.&nbsp; As investors ponder the future given the actions of the FOMC under Yellen, the expectation should be that normalization, if and when it occurs, implies lower returns and higher volatility in equal proportion to the extraordinary returns and record low volatility of the recent past.&nbsp;</strong></em></u></p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="707" height="518" alt="" src="" /> </div> </div> </div> Alan Greenspan Alpha American Enterprise Institute BAC Bank of America Bank of America Bank of Japan Bank of Japan Business Business Business cycle Central Banks Chris Whalen Citigroup Commercial Real Estate Department of Labor Dow 30 Dow Jones Industrial Average Dow Jones Industrial Average Economic bubbles Economics Economy European Central Bank European Central Bank Federal Open Market Committee Federal Open Market Committee Federal Reserve Ford GE Capital GE Capital General Electric General Electric General Motors Institutional Investors Internal Revenue Service Irrational Exuberance Janet Yellen Japan Jeff Immelt Market Share Monetary Policy New York Stock Exchange Quantitative Easing Real estate Stock market crashes Systemic risk U.S. Supreme Court US Federal Reserve US government Volatility Wells Fargo Tue, 17 Oct 2017 11:38:47 +0000 Tyler Durden 605453 at Former Miramax Screenwriter Posts Harvey Weinstein Mea Culpa: "Everybody Fu*king Knew" <p>The <a href="" target="_blank">LA Times asks</a>: so who has dared to defend Harvey Weinstein?</p> <p>The answer?: &quot;Oscar-winning director Oliver Stone, actress&nbsp;Lindsay Lohan, actor Tony Denison, fashion designer Donna Karan and director&nbsp;Woody Allen&nbsp;rose to Weinstein&rsquo;s defense despite a tidal wave of industry condemnation.&quot;</p> <p>Of course, each of these has subsequently and awkwardly walked back their initial enthusiasm for defending Weinstein as more accusations piled on and were substantiated. But what <a href="" target="_blank">we should really be talking about</a> is the <strong>decades of silence across the entertainment industry</strong> which few brave souls tried to warn about years ago.</p> <p>It was such an <a href="" target="_blank">&quot;open secret&quot;</a> that Courtney Love could say <a href="" target="_blank">this</a> back in 2005 at a red carpet appearance, though also worrying, <strong>&quot;I&#39;ll get libeled if I say it...&quot;</strong>:</p> <blockquote class="twitter-tweet" data-lang="en"><p dir="ltr" lang="en">.<a href="">@Courtney</a> Love&#39;s advice in 2005: &quot;If Harvey Weinstein invites you to a party at the Four Seasons, don&#39;t go.&quot; <a href=""></a></p> <p>&mdash; HannahJane Parkinson (@ladyhaja) <a href="">October 14, 2017</a></p></blockquote> <script async src="//" charset="utf-8"></script><p>And when Hollywood sexual abuse survivor Corey Feldmen tried to talk generally about the Hollywood subculture of rampant sexual assault and pedophilia <a href="" target="_blank">with cameras rolling on &quot;The View&quot;</a> in 2013... well if you haven&#39;t seen it yet, it&#39;s definitely one for the historical record which should never be forgotten. Though Feldmen was speaking about his own dark experience involving other powerful film industry predators and <a href="">not Weinstein in particular</a>, the response he got from one well-known host is certainly indicative of what victims were and are up against.</p> <p>&ldquo;Are you saying they are pedophiles and that they are still in this business?&rdquo; then-host Barbara Walters asked. &ldquo;Yes,&rdquo; Feldman replied.</p> <p>Walters immediately tried to shut Feldmen down with, <strong>&quot;You&#39;re damaging an entire industry!&quot;</strong></p> <blockquote class="twitter-tweet" data-lang="en"><p dir="ltr" lang="en">Shame on you, Barbara Walters.</p> <p>Corey Feldman tried to warn us about sexual predators in Hollywood &amp; you shamed him.<a href=";ref_src=twsrc%5Etfw">#FridayThe13th</a> <a href=""></a></p> <p>&mdash; #ThePersistence (@ScottPresler) <a href="">October 13, 2017</a></p></blockquote> <script async src="//" charset="utf-8"></script><p>And if it wasn&#39;t already clear by now, screenwriter <a href="" target="_blank">Scott Rosenberg</a> - who was made a star by Miramax - has just <a href="" target="_blank">posted a revealing bit of prose</a> in the form of an intense&nbsp;<em>mea culpa</em> to his Facebook page concerning what &quot;everybody-fu*king-knew&quot; for not just years, but for <em>decades </em>concerning&nbsp;Weinstein.&nbsp;</p> <p>At Miramax Rosenberg wrote the popular movies &quot;Beautiful Girls&quot; and<em>&nbsp;&quot;</em>Things To Do In Denver When You&rsquo;re Dead&quot; and acknowledges that &ldquo;they gave me my career&rdquo; as part of that period when&nbsp;Harvey Weinstein&nbsp;was the center of a golden age for the indie film universe.</p> <p><em>Excerpts from former Miramax screenwriter Scott Rosenberg&#39;s Facebook post, whose mentor was Weinstein throughout the 1990&#39;s and early 2000&#39;s:</em></p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p><strong>So, yeah, I was there.</strong><br />And let me tell you one thing.<br /><strong>Let&rsquo;s be perfectly clear about one thing:</strong><br /><strong>Everybody-fucking-knew.</strong><br />Not that he was raping.<br />No, that we never heard.</p> <p>But we were aware of a certain pattern of overly-aggressive behavior that was rather dreadful.</p> <p>&nbsp;</p> <p>We knew about the man&rsquo;s hunger; his fervor; his appetite.<br />There was nothing secret about this voracious rapacity; like a gluttonous ogre out of the Brothers Grimm.<br />All couched in vague promises of potential movie roles.<br />(and, it should be noted: there were many who actually succumbed to his bulky charms. Willingly. Which surely must have only impelled him to cast his fetid net even wider).<br />But like I said: everybody-fu*king-knew.</p> <p>&nbsp;</p> <p>And to me, if Harvey&rsquo;s behavior is the most reprehensible thing one can imagine, a not-so-distant second is the current flood of sanctimonious denial and condemnation that now crashes upon these shores of rectitude in gloppy tides of bullshit righteousness.<br />Because everybody-fu*king-knew.<br />And do you know how I am sure this is true?<br />Because I was there.<br />And I saw you.<br />And I talked about it with you.<br />You, the big producers; you, the big directors; you, the big agents; you, the big financiers.<br />And you, the big rival studio chiefs; you, the big actors; you, the big actresses; you, the big models.<br />You, the big journalists; you, the big screenwriters; you, the big rock stars; you, the big restaurateurs; you, the big politicians.<br />I saw you.<br />All of you.</p> </blockquote> <p>And more:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>So, yeah, I am sorry.<br />Sorry and ashamed.<br /><strong>Because, in the end, I was complicit.</strong><br />I didn&rsquo;t say shit.<br />I didn&rsquo;t do shit.</p> <p>&nbsp;</p> <p>Harvey was nothing but wonderful to me.<br />So I reaped the rewards and I kept my mouth shut.<br />And for that, once again, I am sorry.<br />But you should be sorry, too.<br />With all these victims speaking up&hellip;<br />To tell their tales.<br />Shouldn&rsquo;t those who witnessed it from the sidelines do the same?<br />Instead of retreating to the cowardly, canopied confines of faux-outrage?<br />Doesn&rsquo;t being a bystander bring with it the responsibility of telling the truth, however personally disgraceful it may be?</p> <p>&nbsp;</p> <p>You know who are.<br />You know that you knew.<br />And do you know how I know that you knew?<br />Because I was there with you.<br /><strong>And because everybody-fu*king-knew.</strong></p> </blockquote> <p><em><a href=""><img alt="" src="" style="width: 500px; height: 307px;" /></a><br />Harvey Weinstein and Screenwriter Scott Rosenberg. Image source Getty Images</em></p> <p><a href="" target="_blank">Read the whole thing.</a></p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="750" height="461" alt="" src="" /> </div> </div> </div> Cinema of the United States English-language films Entertainment Film Four Seasons Harvey Harvey Weinstein Hoodwinked! Human Interest Miramax Rosenberg Twitter Twitter Tue, 17 Oct 2017 11:15:44 +0000 Tyler Durden 605452 at Spanish F-18 Jet Crashes Outside Madrid; Pilot Killed <p>Another military jet, this time an F-18 fighter belonging to 12th Wing of the Spanish Air Force, crashed near the Torrejon military base outside Madrid on Tuesday, according to the Spanish Defense Ministry, killing the pilot in the second fatal accident involving a Spanish military jet in the past week. Five days ago, a <a href="">Eurofighter jet </a>suffered an unknown malfunction on its way back from participating in a military parade in honor of Spain&rsquo;s Oct. 12 National Day. The jet crashed south of Madrid, killing pilot Borja Aybar, local press reported.</p> <p>The F-18 on Tuesday suffered a loss of power, but no further information was immediately available, according to<a href=""> the Spain Report.</a></p> <blockquote class="twitter-tweet" data-lang="en"><p dir="ltr" lang="es">Seguimos con preocupación el accidente aéreo sucedido en la Base de <a href=";ref_src=twsrc%5Etfw">#Torrejón</a>, esperando noticias sobre la tripulación.</p> <p>Afortunadamente, pese a la cercanía con las viviendas, la población civil no se ha visto afectada. <a href=""></a></p> <p>&mdash; Luis Andrés Pérez (@LuisAndresPJ) <a href="">October 17, 2017</a></p></blockquote> <script async src="//" charset="utf-8"></script><p>The incident occurred during take-off maneuvers shortly after 11 am local time Tuesday.</p> <blockquote class="twitter-tweet" data-lang="en"><p dir="ltr" lang="es">Lo había grabado sin saber que era. Un F-18 se ha estrellado en las afueras de la base aérea de Torrejón <a href=""></a></p> <p>&mdash; Simon Derek (@SimonDerek) <a href="">October 17, 2017</a></p></blockquote> <script async src="//" charset="utf-8"></script><p>The F-18 was from the 12th wing of the Spanish Air Force, according to Spain&#39;<a href="">s El Mundo</a>. The pilot was unable to eject and was killed on impact.</p> <blockquote class="twitter-tweet" data-lang="en"><p dir="ltr" lang="es">Parece ser que podría haber habido otro accidente de un caza F18 y el piloto se habría ejectado. Eso esperamos????????<a href="">@europapress</a> <a href=""></a></p> <p>&mdash; Federacion GOES SUP (@GOESFedSUP) <a href="">October 17, 2017</a></p></blockquote> <script async src="//" charset="utf-8"></script><p>Local emergency services have been dispatched to Torrejon and are coordinating with firefighters stationed there. An investigation into the cause of the crash is underway, the Ministry of Defense confirmed via Twitter.</p> <blockquote class="twitter-tweet" data-lang="en"><p dir="ltr" lang="es">Seguimos con preocupación el accidente aéreo sucedido en la Base de <a href=";ref_src=twsrc%5Etfw">#Torrejón</a>, esperando noticias sobre la tripulación.</p> <p>Afortunadamente, pese a la cercanía con las viviendas, la población civil no se ha visto afectada. <a href=""></a></p> <p>&mdash; Luis Andrés Pérez (@LuisAndresPJ) <a href="">October 17, 2017</a></p></blockquote> <script async src="//" charset="utf-8"></script><p>An investigation into the cause of the crash is underway, the Ministry of Defense confirmed via Twitter.</p> <blockquote class="twitter-tweet" data-lang="en"><p dir="ltr" lang="es">El <a href="">@EjercitoAire</a> está investigando las causas del accidente que, por el momento, son desconocidas.</p> <p>&mdash; Ministerio Defensa (@Defensagob) <a href="">October 17, 2017</a></p></blockquote> <script async src="//" charset="utf-8"></script> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="718" height="368" alt="" src="" /> </div> </div> </div> Aircraft Aviation Carrier-based aircraft McDonnell Douglas F/A-18 Hornet Ministry of Defense Spanish Air Force Spanish Air Force Spanish Defense Ministry Twitter Twitter Tue, 17 Oct 2017 11:09:30 +0000 Tyler Durden 605450 at Global Stocks Just Shy Of Record Highs As Dollar, Yields Rise On Taylor Tension <p>Global markets traded near all-time highs on Tuesday, with S&amp;P futures, Asian shares and European stocks all flat this morning, while oil continued to gain on Kurdish geopolitical concerns while most industrial metals fell.&nbsp; The euro extended its recent slide and stocks drifted as Spain’s escalating hard-line response to the Catalonian secession threat fueled concern the crisis may intensify. </p> <p>Markets initially followed the US reaction to reports of a positive John Taylor (Rule) - Donald Trump meeting, which sent 2Y Treasury yields to their highest since 2008 and pushed up the dollar higher amid speculation the next Federal Reserve chairman will be more hawkish, while TSYs briefly traded through Monday’s session lows because as we showed yesterday, the Taylor Rule would suggest a Fed Funds rate that is far higher than the current.</p> <p><a href=""><img src="" width="500" height="281" /></a></p> <p>However, the pop in short-yields was not matched at the long end and the 2-to-10 year U.S. yield curve hit its shallowest in more than a year. </p> <p>“Fed chairs have often influenced U.S. monetary policy quite considerably in the past. And I would certainly see Taylor as a candidate who would fit in this pattern,” Commerzbank analyst Thu Lan Nguyen said. “That makes one thing clear: should Trump nominate Taylor as Yellen’s successor the U.S. dollar would initially appreciate notably.”</p> <p>Cable remained volatile through U.K. inflation data and dovish commentary from BOE’s Ramsden but eventually traded flat. In addition to Spain, the EUR/USD continued its recent trend lower, pricing a nine-month QE extension within ECB taper, while bunds and other EGBs continue to grind higher. The South African rand weakened following a Zuma cabinet reshuffle</p> <p>The <strong>common currency declined for a fourth day, the longest streak since May</strong>. The Stoxx Europe 600 Index was little changed following mixed trading in Asian stocks earlier, after North Korea warned that a nuclear war could “break out any moment.” Core European equity markets dipped from the open before trading back to unchanged with the tech sector supported by Infineon (2.5%) after positive comments from BofA, leisure sector underperforms after Merlin Entertainments (-19.5%) posts poor earnings forecast. Spain’s IBEX Index fell 0.3 percent to the lowest in a week as Spain cut its economic growth forecast for 2018, acknowledging the impact of an escalating political crisis that led the National Court in Madrid to jail two leading Catalan separatists. As reported on Monday, the Spanish state is turning up the pressure on the separatist leaders as Prime Minister Mariano Rajoy tries to persuade Catalan President Carles Puigdemont to drop his push for independence or see Madrid take direct control of the regionl two Catalan independence leaders were ordered jailed without bail during a sedition trial. </p> <p>Asia’s regional stock benchmark was little changed, holding near its highest level in 10 years, while a gauge of mining stocks advanced after Rio Tinto Group signaled it’s on track for record annual iron ore shipments. The MSCI Asia Pacific Index added less than 0.1 percent to 167.82 as of 11:40 a.m. in Hong Kong, after extending gains from its highest level since November 2007 on Monday. Materials stocks led gains Tuesday, rising 0.5 percent. Japan’s Topix fluctuated, erasing early gains, after a six-day rally pushed it further into technically overbought levels. It eventually closed 0.2% higher in Tokyo after gaining as much as 0.6%. Australia’s S&amp;P/ASX 200 Index rose 0.7 percent and South Korea’s Kospi index was up 0.2 percent.</p> <p> “Investors are pausing just a bit while waiting for more directional data points on the global state of affairs before they assess whether current high valuations have firm footing,” said Attila Vajda, managing director of Project Asia Research &amp; Consulting Pte. China’s GDP report due on October 19 will help determine investment decisions.</p> <p>Elsewhere, the pound dropped amid speculation the Bank of England will deliver the U.K.’s first rate increase in more than a decade next month after data showed inflation in U.K. accelerated in September, although testimony by Governor Mark Carney befire lawmakers in London appears to have taken away the fizzle. British Prime Minister Theresa May and European Commission chief Jean-Claude Juncker agreed over dinner in Brussels on Monday that the pace of negotiations over Britain’s departure from the European Union should be stepped up. Some market watchers such as JP Morgan are sceptical on sterling’s outlook, recommending investors to buy euros against the British pound as “the overhang of the Brexit issue itself would constrain how much accommodation the BoE would be able to remove.”</p> <p>One of Monday’s big movers, oil, consolidated a near month-high having spiked after Iraqi forces seized the oil-rich city of Kirkuk from fighters loyal to the country’s semi-autonomous Kurdish Regional Government. After months of rangebound trading during which OPEC-led supply cuts supported crude values but rising U.S. output capped markets, prices have moved up significantly this month. Brent crude oil was 5 cents higher at $57.87 a barrel by 0800 GMT, up almost a third from its mid-year levels. U.S. West Texas Intermediate (WTI) crude CLc1 was nudging up again too at $51.99. There were unconfirmed reports that Kurdish forces had shut around 350,000 barrels per day (bpd) of oil production from major fields. “The 500,000 bpd Kirkuk oilfield cluster is at risk,” Goldman Sachs said in a note to clients.</p> <p>Tension between the United States and Iran is also rising, after U.S. President Donald Trump on Friday refused to certify Iran’s compliance over a nuclear deal which removed long-running sanctions. “If there (were new sanctions), we expect that several hundred thousand barrels of Iranian exports would be immediately at risk,” Goldman said. During the previous round of sanctions around 1 million bpd of oil was cut from global markets.</p> <p>In currencies, the Bloomberg Dollar Spot Index gained 0.1 percent to the highest in more than a week.&nbsp; The euro dipped 0.3 percent to $1.1764. The British pound dropped to session lows near $1.3226. The Japanese yen climbed less than 0.05 percent to 112.15 per dollar.</p> <p>Yields were little changed, with the US 10-year up one basis point to 2.31%; Germany’s 10-year yield decreased less than one basis point to 0.37 percent; Britain’s 10-year yield climbed two basis points to 1.336 percent, the biggest increase in almost two weeks.</p> <p>Gold declined and most emerging-market currencies weakened alongside developing-nation stocks. WTI crude resumed its push above $52 a barrel as tensions in Iraq lingered. Treasuries edged higher as odds rose that John Taylor will replace Janet Yellen at the Fed. </p> <p>Johnson &amp; Johnson, Goldman Sachs, Harley-Davidson, Morgan Stanley, Omnicom are among companies reporting earnings</p> <p><strong>Market Snapshot</strong></p> <ul> <li>S&amp;P 500 futures little changed at 2,556.10</li> <li>STOXX Europe 600 down 0.07% to 391.13</li> <li>VIX Index down 0.6% at 9.85</li> <li>MSCI Asia down 0.04% to 167.74</li> <li>MSCI Asia ex Japan unchanged at 553.36</li> <li>Nikkei up 0.4% to 21,336.12</li> <li>Topix up 0.2% to 1,723.37</li> <li>Hang Seng Index up 0.02% to 28,697.49</li> <li>Shanghai Composite down 0.2% to 3,372.04</li> <li>Sensex down 0.09% to 32,605.86</li> <li>Australia S&amp;P/ASX 200 up 0.7% to 5,889.61</li> <li>Kospi up 0.2% to 2,484.37</li> <li>German 10Y yield unchanged at 0.372%</li> <li>Euro down 0.2% to $1.1769</li> <li>Brent Futures up 0.5% to $58.10/bbl</li> <li>Italian 10Y yield fell 4.9 bps to 1.766%</li> <li>Spanish 10Y yield fell 1.6 bps to 1.566%</li> <li>Brent Futures up 0.5% to $58.10/bbl</li> <li>WTI crude up +0.5% at $52.15/bbl</li> <li>Gold spot down 0.5% to $1,289.85</li> <li>U.S. Dollar Index up 0.1% to 93.41</li> </ul> <p><strong>Top Overnight News from Bloomberg</strong></p> <ul> <li>John Taylor, a Stanford University economist and a candidate for<br /> Federal Reserve Chairman, made a favorable impression on President<br /> Donald Trump after the interview at the White House last week, according<br /> to several people familiar with the matter</li> <li>North Korea<br /> warned that a nuclear war may “break out any moment” as the U.S. and<br /> South Korea launched one of the largest joint naval dri</li> <li>Spanish Interior Ministry is preparing first steps it would take if govt opts to trigger clause in constitution allowing for suspension of Catalonia’s self-government, El Pais reported</li> <li>Spain cut growth forecast for 2018 to 2.3% from 2.6% earlier, acknowledging the impact of an escalating political crisis</li> <li>BOE is seen keeping rates on hold through 2018 after making first hike in over a decade in November, according to a Bloomberg survey; 76% of the economists see a rise next month, up from 22 percent of respondents in September but they don’t see another increase until 1Q 2019</li> <li>BOE’s David Ramsden said he wasn’t in MPC majority pushing for a hike in coming months</li> <li>Last-minute efforts by U.K. PM Theresa May to unblock stalled Brexit talks came up short with EU officials now looking to December to move negotiations on to discussions about the future EU-Britain relationship</li> <li>Some Qatari banks are becoming less willing to sell dollars to foreign lenders amid a lingering regional standoff with a Saudi- led alliance, according to people familiar with the matter</li> <li>European car sales fell in September for only the second monthly drop this year as concerns about Brexit among U.K. consumers more than offset gains in France, Italy and Spain</li> <li>Reserve Bank of Australia said economic conditions at home and abroad “had been more positive since 2016,” according to minutes of this month’s policy meeting where interest rates were left unchanged</li> <li>U.K. Prime Minister Theresa May and European Commission President Jean-Claude Juncker’s dinner attempt to smooth out Brexit differences yielded little, revealing entrenched previous stances before the summit on Thursday</li> <li>Industrial production in September and Home Builders Market Index for October will be announced today in the U.S. </li> <li>Goldman Sachs, Morgan Stanley, IBM, Johnson &amp; Johnson, Harley Davidson</li> </ul> <p><strong>Asia equity markets eventually traded mostly higher following the momentum from their US peers</strong>, where all major indices edged to fresh record levels once again. The positive lead provided an early bid tone in ASX 200 (+0.8%) which was also led by materials names as Rio Tinto rose to its highest in around 6 years on strong Q3 iron ore shipments, while Nikkei 225 (+0.4%) was also higher but saw some intraday pressure in which participants took heed of a strengthening JPY and booked profits. Elsewhere, Hang Seng (+0.1%) and Shanghai Comp. (+0.1%) were choppy despite a substantial liquidity operation by the PBoC, with participants tentative in the midst of earnings season and ahead of China’s 19th National Congress. Finally, 10yr JGBs were subdued amid a somewhat positive risk tone in Japan and after softer 20yr bond auction results in which the amount sold, b/c and accepted prices all declined from prior. PBoC injected CNY 100bln via 7-day reverse repos and CNY 90bln via 14-day reverse repos. PBoC set CNY mid-point at 6.5883 (Prev. 6.5839) China researcher states that China should tighten its monetary policy and toughen property curbs. </p> <p><em>Top Asian news</em></p> <ul> <li>The Money-Losing Volatility Trade That Hedge Funds Can’t Resist</li> <li>China Bonds Slump as Zhou’s Optimism on Economy Seen Taking Toll</li> <li>HNA to Spend $7.6 Billion on Technology in Tourism Industry</li> <li>Hedge Fund Oasis Joins Asatsu Shareholders Opposing Bain Bid</li> <li>China’s Stocks, Bonds, Currency Drop in Unison Before Congress</li> <li>Gym of Choice for Hong Kong Financial Elite Is Said to Seek Sale</li> <li>Don’t Panic: China’s Deleveraging May Actually Be Good for Bonds</li> </ul> <p><strong>European equity markets trade marginally in the red, </strong>the FTSE found a marginal bid following the UK CPI data, recovering from best levels, however, still<br /> behaving as one of the noticeable underperformers across Europe. The CAC continues to trade near session lows,<br /> despite strong earrings from the likes of Danone. An opening markdown for the 10-year German debt future, largely due to reports that the more hawkish-leaning John Taylor put in<br /> an impressive performance when interviewed by President Trump for the role as next Fed chair. The news unsettled US<br /> Treasuries, and especially the short end of the curve where 2 year yields rallied to multi-year peaks alongside a jump in implied<br /> rates per Eurodollar contracts from the turn of next year through to 2019. A strong German ZEW report could add more<br /> pressure, while supply is also due via a Eur4 bn Schatz offering (though dovish ECB forward guidance on rates should<br /> underpin sentiment here, and reiterated by speakers to come). Back to Eurex, the range so far for Bunds has been 162.59-<br /> 37.<br /> With a 3% headline print all priced in to the UK CPI data, (and in fact a bit more for many), Gilts have rebounded to a fresh intraday<br /> high of 124.34 (from 124.23 at best pre-data), while Short Stg futures have pared losses to just a tick. Note, comments from BoE’s<br /> Ramsden may also be lending some support to the 10 year bond and 3 month strip as he highlights slack in the economy, no<br /> second round inflation in wages and investment risks from Brexit. Note, however, y/y CPI has hit a 5 year-plus peak and November<br /> tightening remains a better than 50% prospect so any further bounce in debt/STIRs may be contained.<br /> Germany sells EUR 3.22bln vs. Exp. EUR 4bln 0% 2y Schatz Auction b/c 1.3 prev. 1.8 and average yield -0.75 prev. -0.72%,<br /> retention 19.5%. </p> <p><em>Top European news&nbsp;</em></p> <ul> <li>Bunds Unruffled by ECB Taper Prospects Paint a Picture of Calm</li> <li>Italy Exercises Power Over Strategic Telecom Italia Assets</li> <li>Lloyds Can’t Shake Troubled Past in Suit Over HBOS Takeover</li> <li>U.K. Inflation Climbs to 5 1/2-Year High on Food, Transport</li> <li>Brexit Timeline Pushed Back as May’s Late Push Comes Up Short</li> <li>Credit Suisse Investor Herro Opposes Push to Break Up Bank</li> </ul> <p><strong>In currencies, </strong>Sterling saw choppy trade following the 9.30 data, as the bid coming into the figures saw a marginal retracement. GBP/USD still trades near session highs, likely to look toward 1.33. USD: The greenback firmer by 0.2% following the move higher in US rates amid source reports stating that John Taylor (very hawkish) made a favourable impression on President Trump in regards to the Fed Chair position. The break above 93.32 (38.2% Fib retrace of the October fall) and the subsequent push through 93.40 indicates a bullish trend forming, however 93.50 is capping further gains for now. Meanwhile, <strong>the downward trend continues for EUR </strong>which ended yesterday’s session on the back foot amid the stronger greenback. Although with little key risk events until the Oct 26th ECB monetary policy decision it is possible that the pair will stay within close proximity to 1.18.</p> <p><strong>In commodities,</strong> US Total shale regions oil production for November is seen upwards of 82,000 bpd at 6.12mln bpd WTI and Brent Crude futures have ground higher through early European trade as WTI trades through&nbsp;&nbsp; 52.00/bbl, with latest news from an IEA head stating that OPEC compliance is currently at 86%.</p> <p><strong>Looking at the day ahead, </strong>the September industrial production print is the most notable release, while September manufacturing production and the import price index readings are also due, along with the October NAHB housing market index print. Onto other events, keep an eye on BoE Governor Carney testifying before the UK Parliament. Away from this, the ECB’s Constancio and Costa is also slated to make comments. Meanwhile EU foreign ministers hold preparatory talks ahead of the summit at the end of the week. Morgan Stanley, Goldman Sachs and IBM results are also due.</p> <p><strong>US Event Calendar</strong></p> <ul> <li>8:30am: Import Price Index YoY, est. 2.6%, prior 2.1%; Export Price Index MoM, est. 0.45%, prior 0.6%</li> <li>9:15am: Industrial Production MoM, est. 0.3%, prior -0.9%; Capacity Utilization, est. 76.2%, prior 76.1%; Manufacturing (SIC) Production, est. 0.2%, prior -0.3%</li> <li>10am: NAHB Housing Market Index, est. 64, prior 64</li> <li>1pm: Fed’s Harker Speaks on Equitable Transit</li> <li>4pm: Total Net TIC Flows, prior $7.3b deficit; Net Long-term TIC Flows, prior $1.3b</li> </ul> <p><strong>DB's Jim Reid concludes the overnight wrap</strong></p> <p>Last week I mentioned that the previous weekend's papers were discussing how a supposed soothsayer was predicting that the start of the end of the world would happen this past weekend. This guy predicted that from&nbsp; October 15th the world will be hit with a tempest of tsunamis, earthquakes, hurricanes and then nuclear war. I dismissed this cheery forecast but if anyone took a walk around London yesterday afternoon then you'd be forgiven for thinking that the apocalypse had arrived as the overcast skies had turned an ominous dark orange. The only thing I've seen like it before was an eclipse on a cloudy day! It wasn't until I got home that I read that this was due to the bypass from Hurricane Ophelia bringing Saharan dust with it. Just to be safe I’m off to Frankfurt this morning to escape the day of reckoning.</p> <p>Maybe bonds thought the end of the world was nigh as yesterday was most notable for a strong rally in Euro Govt bonds. Core European 10y bond yields fell c3bp (Bunds -3.2bp; Gilts -3.3bp; OATs -3bp) while most peripherals outperformed, down c5bp (Italy: -5.1bp; Spain: -4.7bp; Portugal: -0.6bp). It’s not obvious to me why the dam broke yesterday, especially as US Treasuries actually climbed c1.8bp from intraday low into the European close.&nbsp; Some talked about Yellen being more resolute about low inflation being transitory over the weekend than Draghi who asked for patience with regard to inflation returning to normal. It didn’t feel to me that either deviated too much from recent remarks though. It could have also been a delayed reaction to the recent inflation misses in France and Sweden and then the US last week. So not easy to pinpoint the reason. Notably, the odds of a December rate hike in US has increased back to 80% (+7ppt from Friday, per Bloomberg).</p> <p>After Europe went home we saw a flurry of activity over the next Fed Chair as Bloomberg first reported that John Taylor had impressed Trump, but that Warsh had slipped down the pecking order. A short while later it was reported that Mr Trump will meet Mrs Yellen on Thursday. Net net, yields climbed to 2.31% on the Taylor news but quickly dipped back towards 2.29% and closed 2.304% (+3bp from Friday) as the Yellen headlines came through. Mr Taylor is a renowned economist, known for his Taylor rule on rates as well as serving on the Council of Economic advisers under three presidents. Interestingly, last week he noted that “rules should (not) be used as a way to tie central bankers’ hands” as “there are reasons to run policy with a strategy”. It seems that we should have an announcement on the new Fed Chair within a few weeks so this will remain an important topic. </p> <p>This morning, bond market will see the latest round of inflation numbers with the UK the more interesting. Headline UK CPI is expected at +0.3% mom and +3.0% yoy, with core unchanged mom and +2.7% yoy. This will be the highest annual rate since April 2012 for headline and joint highest since December 2011 for core if comes in as expected (Aug. 17 was 2.7% too). The final Euro area CPI is also due but this is the final reading. The flash reading was +0.4% mom and +1.5% yoy (headline) and little change is expected. Core is expected to be +1.1% yoy and also same as the flash reading.</p> <p>Over in Catalonia, in his letter to Spanish PM Rajoy, Catalan President Puigdemont has called for more negotiations rather than clarifying whether independence was formally declared or not. He has reasserted that he has a mandate from Catalan voters to declare independence, but noted “for the next two months, our main objective is to bring you dialogue…I’m sure we can&nbsp; find the path to a solution”. In response, Spain has ruled out&nbsp; negotiations until Puigdemont withdrew his demands for independence, noting that he has until Thursday (10am local time) to formally respond again. Spain’s deputy PM said “the question we have asked is…not hard to answer…It’s not hard in these three days for common sense to return” and that the decision “it’s in his hands”. Should Thursday’s response be unsatisfactory, PM Rajoy could ask the Senate to hold an emergency session to invoke Article 155 and seek a suspension of the self-rule by Catalans. The Spanish markets were a bit mixed with equities down 0.75% (Caixabank -1.73%, Sabadell -2.80%), but bonds were firmer with 10y yields down 4.7bp.</p> <p>In the latest 2018 budget plan to Brussels, Spain’s Economy ministry has revised down its economic growth forecasts to 3.1% for 2017 (-0.1ppt) and 2.3% for 2018 (-0.3ppt). Elsewhere, as per Bloomberg, Spain’s National Court&nbsp; as ordered the Catalan Police Chief to surrender his passport and report to the court in Madrid every two weeks.</p> <p>Turning to Brexit, there were quite a few headlines ahead of the official EU Summit meeting later this week which could make or break the current talks. Firstly, UK PM May flew into Brussels yesterday and had a “broad and constructive” working dinner with European Commission President Juncker,where they reviewed the progress made so far and “agreed that these efforts should accelerate over the months to come”, but fell short of delivering a tangible break through. Elsewhere, the FT has reported that PM May will not budge on her offer of €20bn divorce bill. Earlier yesterday, the UK Chancellor Hammond noted that a Brexit (transitional) agreement was in the interest of both sides, while PM May’s office (per Bloomberg) feared that talks are heading for a ‘catastrophic breakdown” unless EU signals a willingness to allow talks to move onto trade and transition at this week’s summit.</p> <p>On the other side, the messaging has been firmed but somewhat mixed. The latest draft of the EU summit conclusion has apparently tougher language where the UK have to make “sufficient progress” on all three key areas (the divorce bill, the Irish border and the status of EU citizens) before talks progress to trade. Elsewhere, according to EU officials (per Bloomberg), both Germany and France wants to toughen the tone on the summit declaration. This follows phone calls between PM May with Merkel on Sunday and France’s Macron on Monday. However, there is some optimism, as according to a draft paper prepared by Germany’s Foreign Ministry, it is working on proposals that include calls for the “comprehensive free trade accord” with the UK. So with all this bubbling along, we await for the EU summit later and see who blinks first.</p> <p>Staying in the UK, there were a couple of interesting headlines on house prices yesterday. Acadata &amp; LSL suggested that London home values are now down 2.7% in the year through to September, which is the most since 2009. Elsewhere, the stockpile of unsold London homes under construction also rose to a post GFC high, with the number of properties being built or completed but yet to find buyer now at 12,952 units (+2.8% from end of last year). Notably, outside of London and Southeast England, house prices are more resilient, with average prices up c3% on the year through to September.</p> <p>Turning to Italy, the Corriere della Sera reported that the President may dissolve parliament early and potentially call for an early election on 4th March, which is c2 months earlier than the original schedule for a May election. </p> <p>Overnight, North Korea’s deputy ambassador to the UN warned that a nuclear war “may break out any moment” but “as long as one does not take…military actions against NK, we have no intentions to use…..our nuclear weapons against” others. This morning in Asia, markets are trading slightly higher. The Nikkei (+0.27%), Kospi (+0.10%) and Hang Seng (+0.18%) are up slightly while the Chinese bourses are also up marginally as we type.</p> <p>Onto yesterday’s market performance, US bourses edged higher onto another&nbsp; fresh record high, with the S&amp;P (+0.18% to 2,557.6), Dow (+0.37%) and Nasdaq (+0.28%) all up slightly. Within the S&amp;P, modest losses were driven by the real estate and health care sectors (-0.38%), with the latter likely impacted by President Trump’s latest comments that prescription drug prices are “out of control” and that healthcare companies are “getting away with murder”.</p> <p>Elsewhere, the weakness was more than offset by solid gains from Telcos (+0.77%), financials and tech stocks. Notably, the VIX was slightly higher at 9.91 (+0.3 pts) yesterday, but has seen 15 sessions out of the last 19 below 10 now. </p> <p>Elsewhere, European markets were mixed, but little changed with Stoxx 600 flat, while the DAX (+0.09%) and CAC (+0.21%) rose marginally. Elsewhere, FTSE 100 (-0.11%) and Spain’s IBEX (-0.75%) fell modestly. </p> <p>Turning to currencies, the US dollar index strengthened 0.24% while Euro and Sterling weakened 0.20% and 0.26% respectively. In commodities, WTI oil rose 0.82% following reports of increased tensions between Iraqi and Kurdish forces which could disrupt oil supplies. Precious metals softened on the risk on bias (Gold -0.62%; Silver -1.1%), while LME copper rose 2.55% to a new 3 year high, but other base metals were slightly softer (Zinc -1.17%; Aluminium -0.88%). Elsewhere, palladium retreated 1.66% after reaching an intraday high of $1,010, which if held would have been the highest close since February 2001. Away from the markets and onto the timing of US tax reforms. Both President Trump and Senate Majority Leader McConnell have reaffirmed their aim of delivering a tax bill by December. However, Trump pointed out the last major tax reform in 1986 was achieved “mid-way” through President Regan’s second term, but “I’ve been here for a little more than nine months”. Elsewhere, Senator McConnell noted that some of the major changes under President Obama were also signed in the second year of his first term (Affordable Care Act and Dodd- Frank Act).</p> <p>Yesterday’s data releases were fairly quiet aheadof a more busy day and week ahead. In the US, the empire manufacturing survey was materially higher than consensu s at 30.2 (vs. 20.4 expected) - the strongest since&nbsp; September 2014. Elsewhere, the Eurozone’s August trade surplus was slightly higher than expected at €21.6bn (vs. €20.2bn expected).</p> <p>Looking at the day ahead, a bit of a bumper day for data and particularly inflation readings with September CPI/PPI/RPI due in the UK and the final September CPI report also due for the Euro area. The October ZEW survey will also be worth keeping an eye on in Germany. In the US the September industrial production print is the most notable release, while September manufacturing production and the import price index readings are also due, along with the October NAHB housing market index print. Onto other events, keep an eye on BoE Governor Carney testifying before the UK Parliament. Away from this, the ECB’s Constancio and Costa is also slated to make comments. Meanwhile EU foreign ministers hold preparatory talks ahead of the summit at the end of the week. Morgan Stanley, Goldman Sachs and IBM results are also due.</p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="800" height="450" alt="" src="" /> </div> </div> </div> 10 Year Bond ASX 200 Australia B+ Bain Bank of England Bank of England Bloomberg Dollar Spot BOE Bond Brexit Brexit negotiations British Pound Business CAC 40 Catalan police China Congress Copper CPI Crude Crude Oil DAX 30 Donald Trump Donald Trump Economy Equity Markets EuroDollar European Central Bank European Commission European Union European Union federal government Federal Reserve Finance Fixed income flash France FTSE 100 Germany Germany’s Foreign Ministry Gilts goldman sachs Goldman Sachs Hang Seng 40 Harley Davidson headlines Hong Kong Housing Market IBEX 35 Inflation Iran Iraq Italy Janet Yellen Japan Jim Reid Kospi Kurdish Regional Government Monetary Policy Money Morgan Stanley MSCI Asia Pacific NAHB NASDAQ National Congress National Court in Madrid Nikkei Nikkei 225 North Korea Omnicom OPEC Organization of Petroleum-Exporting Countries People's Bank of China Portugal Precious Metals President Obama Real estate Reserve Bank of Australia S&P S&P 500 S&P/ASX 200 Senate Southeast England Spain’s National Court Spanish Interior Ministry Stanford University Stoxx 600 Testimony Topix UK Parliament United Nations US Dollar Index US Federal Reserve VIX Volatility Warsh West Texas White House White House Yen Yield Yield Curve Yield curve Tue, 17 Oct 2017 10:59:35 +0000 Tyler Durden 605451 at Theresa May's Government Fears Imminent Collapse Of Brexit Negotiations <p>Following Theresa May’s dinner with Jean-Claude Juncker in Brussels, we have a promise that both sides are committed to accelerating Brexit negotiations…except nobody actually believes that. </p> <p><a href=""><img src="" width="500" height="273" /></a></p> <p>Apart from the “bear hug” that Juncker gave Britain’s Brexit Secretary, David Davis, as they went their separate ways, there is no evidence that relations are any more cordial, or that any tangible progress was made in breaking the deadlock. </p> <p>Rather than no progress, however, Bloomberg is reporting that the UK government sees the potential for the negotiations to collapse after this week’s EU Summit. <strong>“U.K. Prime Minister Theresa May’s government fears Brexit talks will break down unless the European Union gives ground at a key summit this week, according to a person familiar with her team’s views. Without a clear sign that negotiations will progress to trade and transition arrangements by December at Thursday’s summit of EU leaders, the entire Brexit process will be in danger of collapse.”</strong></p> <p>Mrs May made a telephone call on Sunday to the one person, Merkel, who could have softened the EU’s stance ahead of the dinner. Consequently, we were not surprised to learn that now “<strong>senior British ministers are losing faith in the EU’s willingness to strike a deal, the person said.”</strong></p> <p>As we’ve said before, it still boils down to money and the EU is not shifting until the two sides can agree on a number. </p> <p>The growing problem for Mrs May is that she now has little room to maneuver due to the weakness of her own position. The source in Mrs May’s team told Bloomberg “May took a political risk by promising to pay into the EU budget and settle the divorce bill in a speech in Florence, Italy, last month and now needs something in return for before she can make concessions.” </p> <p>So…the stand-off continues, with the EU contingent staying confident that they have far more to gain at this point.&nbsp; “German Chancellor Angela Merkel and French President Emmanuel Macron are the two key obstacles to allowing talks to move on trade, according to the first official. <strong>Germany has a vested interest in delaying the progress in the Brexit talks because Frankfurt is trying to tempt companies away from London, the person said</strong>.”</p> <p>You can throw in Paris, Amsterdam and Dublin as beneficiaries too…just as long as the deeply embedded structural problems in European banks don’t suddenly flare up again. </p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="1280" height="699" alt="" src="" /> </div> </div> </div> Angela Merkel Brexit Brexit negotiations Chivalry Emmanuel Macron European Union European Union European Union Germany Government Italy Jean-Claude Juncker Negotiation Politics Theresa May U.K. Prime Minister Theresa May’s government UK Government Tue, 17 Oct 2017 10:09:00 +0000 Tyler Durden 605449 at "I'm Concerned... It's Highly Unusual" - Vegas Massacre Security Guard Remains Missing <p><strong><a href="">Following reports of his disappearance late last week</a>,</strong> after numerous timeline changes and &#39;fact&#39; clarifications by The Mandalay Bay, The FBI, and Vegas PD; <strong>Jesus Campos, the secuirty guard,</strong> <a href=""><em>who may or may not have been shot by Vegas Massacre shooter Stephen Paddock</em></a>,<strong> remains missing and friends and family are concerned.</strong></p> <p><a href=""><img src="" style="width: 600px; height: 305px;" /></a></p> <p><a href=""><em>As we noted previously, </em></a>the general story of Campos&#39; disappearance appears to have been confirmed by <em>ABC</em> journalist Stephanie Wash, who tweeted Thursday evening:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>&ldquo;<em>Media scrum tonight as we learn security officer shot in Vegas attack, J<strong>esus Campos&rsquo; whereabouts are unknown.&rdquo;</strong></em></p> <p>&nbsp;</p> <p><em>&ldquo;Jesus Campos was set to do 5 intvs tonight per union president, <strong>but they&rsquo;ve lost contact. &lsquo;We were in a room &amp; we came out &amp; he was gone,&rsquo;&rdquo; </strong>she also tweeted.</em></p> </blockquote> <p>&nbsp;</p> <blockquote class="twitter-tweet"><p dir="ltr" lang="en">Jesus Campos was set to do 5 intvs tonight per union president, but they&rsquo;ve lost contact. &ldquo;We were in a room &amp; we came out &amp; he was gone&rdquo;</p> <p>&mdash; Stephanie Wash (@WashNews) <a href="">October 13, 2017</a></p></blockquote> <script src="//"></script><p><strong>Details are now emerging of Campos&#39; last whereabouts and contacts.</strong></p> <p><a href=""><em>As Fox News reports, </em></a>David Hickey of the Security, Police, and Fire Professionals of America (SPFPA) told reporters Friday that<strong> he got a text the night before saying Jesus Campos was taken to a UMC Quick Care facility,</strong> though he did not specify where or whom the text came from.</p> <p><strong>A spokesperson at the UMC Quick Care, </strong>which has eight locations throughout the Las Vegas area, told Fox News on Monday that<strong> they had &quot;heard nothing&quot; about Campos visiting them.</strong></p> <p><a href=""><strong><img alt="" src="" style="width: 601px; height: 393px;" /></strong></a></p> <p><strong>Hickey said Campos had requested to go public and wanted to tell his story and move on </strong>from the Oct. 1 shooting investigation.</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>&quot;<strong>For the past four days he&#39;s been preparing</strong> ... we had a meeting with MGM officials, and after that meeting was over, we talked about the interviews, <strong>we went to a private area, and when we came out, Mr. Campos was gone,&quot; </strong>Hickey told reporters,&nbsp;<a href="" target="_blank">according to Fox 5 Las Vegas</a>.</p> <p>&nbsp;</p> <p><strong>&quot;Right now I&#39;m just concerned where my member is, and what his condition is. It&#39;s highly unusual,&rdquo;</strong> Hickey said Friday.</p> <p>&nbsp;</p> <p><strong>&ldquo;I&#39;m hoping everything is OK with him and I&#39;m sure MGM or the union will let (media) know when we hear something,&quot;</strong> he said.</p> </blockquote> <p>Police say he was shot just before the crazed gunman killed 58 at music festival on the Las Vegas Strip &ndash; <strong>though the sequence of events is still in dispute</strong>.</p> <p>An independent journalist <a href="" rel="noopener" target="_blank">reported</a> on Twitter that Campos&rsquo; family is under a gag order, however that remains unconfirmed.</p> <p>Campos was last photographed in public on Oct. 10, accepting an &ldquo;SPFPA Hero Award&rdquo; for bravery in the line of duty, while dining with Hickey and others at a high-end Vegas steakhouse.</p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="600" height="305" alt="" src="" /> </div> </div> </div> Campos David Hickey FBI Federal Bureau of Investigation Fox News Hickey Las Vegas Las Vegas Strip Las Vegas Valley Nevada Twitter Twitter Tue, 17 Oct 2017 09:20:00 +0000 Tyler Durden 605446 at ECB May Have Only €220 Billion In QE Left If The Hawks Get Their Way <p>After seemingly sending out trial balloons (via Bloomberg and Reuters simultaneously) on tapering last Thursday, which had almost zero impact (see “<a href="">ECB Reportedly Considering Slashing QE in Half in January, EURUSD Shrugs</a>), Draghi’s minions have been busy again.</p> <p>“Central bank officials familiar with the matter” <a href="">told Bloomberg </a>that some - presumably quite hawkish - ECB policy makers <strong>“see room for little more than 200 billion euros ($235 billion) of purchases under the institution’s bond-buying program next year.”&nbsp; </strong>With said “officials” (who asked not to be named because the talks are <span style="text-decoration: line-through;">not</span> private <span style="text-decoration: line-through;">anymore</span>) seeing a <strong>limit to bond buying of 2.5 trillion euros under the current rules and purchases expected to reach 2.28 trillion by the end of 2017</strong>, we can do the calculation.</p> <p>According to last week’s trial balloons, the ECB was looking at reducing its purchases from €60 billion euros to about €30 billion for at least nine months.</p> <p>As we also explained in “<a href="">How Will The ECB's QE Tapering Impact The Market? Here Are The Possible Scenarios</a>”, the market neutral level of APP extension estimated by Citi appears to be around 250 billion Euros, or roughly €50 billion more than "some" ECB policymakers will permit. The three broadly market neutral scenarios laid out in Citi’s model were €20bn x 12mth, €30bn x 9mth and €40bn x 6mth as shown below.</p> <p><a href=""><img src="" width="500" height="193" /></a></p> <p>For what it’s worth, Citi’s neutral scenario corresponded closely with a Reuters poll (from 11-14 September) which suggested the <strong>consensus amongst economists was for €40bn (range €30- 50bn) over 6mths (range 3-12mths). </strong></p> <p>And while we can argue about what the ECB should do to optimize conditions in the real economy, it now has a little problem vis-à-vis market expectations for the upcoming 26 October meeting. A 220 billion Euro extension is among the worst scenarios and, as Bloomberg confirmed <strong>“such a limit is at the lower end of volumes under discussion, setting the Governing Council up for a potentially difficult policy meeting</strong>.”</p> <p>Citi previously noted that risks are skewed towards higher yields and bear-steepening due to issuer limit constraints. Following today’s trial balloon, HSBC commented that “The debate about the likely pace of QE continues to intensify in the run-up to the 26 October ECB meeting...If the ECB are correct then this would mean the pool of bonds would be used up beyond that point.”</p> <p>Marc Ostwald, global strategist at ADM ISI in London, also commented on the ECB’s limited room to maneuver. “If they stick to the capital key, then there are only about 55 billion of Bunds that they could buy, which in turn caps what they can buy in total, especially with limits on what they can buy of smaller countries debt. However, they could reduce the relative proportion of govt bonds in a 30 billion euro per month QE pace to try and circumnavigate the problem…but even that will only be a marginal help.”</p> <p>Bloomberg also notes that some policy makers are concerned about the reluctance of investors to sell their bonds “Reducing monthly buying to 25 billion Euros – which would total 225 billion euros over nine months – may address some of those concerns, the officials said.”</p> <p>Perhaps the best tactic here is to release as many trial balloons beforehand, that 26 October becomes a non-event...</p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="1280" height="853" alt="" src="" /> </div> </div> </div> Bond Business Central bank Citigroup Economy European Central Bank Finance Financial services Governing Council Midtown Manhattan Reuters Subprime mortgage crisis Tue, 17 Oct 2017 09:00:00 +0000 Tyler Durden 605444 at UK PMs Push Back As Regulators "Bend The Rules" To Accommodate Saudi Aramco IPO <p><strong>All IPO&rsquo;d up and no place to go? UK portfolio managers with $6.9 trillion resist rule bending by regulator to achieve Aramco London listing</strong></p> <p><strong><img height="220" src="" width="500" /></strong></p> <p><strong>Another potential problem for the world&rsquo;s biggest ever (potential) IPO&hellip;</strong></p> <p>A lobby group representing UK portfolio managers with $6.9 trillion AUM has <strong>warned the UK financial regulator that bending the rules to accommodate Aramco&rsquo;s IPO will damage London&rsquo;s status as a global financial centre.</strong></p> <p>In a letter to the head of the Financial Conduct Authority (FCA), the embattled Andrew Bailey, the Investment Association (IA) argued that it <strong>threatened the &ldquo;high standards&rdquo; of London&rsquo;s listing regime.</strong></p> <p>In &ldquo;Funds fire broadside over Saudi oil float&rdquo;, the Sunday Times noted that<strong><em> &ldquo;Britain&rsquo;s largest investors have turned up the heat on the City watchdog over its controversial plans to allow Saudi Arabia&rsquo;s oil giant to float in London.&rdquo;</em></strong></p> <p>Besides the tricky issue of its oil and gas reserves (especially the Ghawar field), the IA argued in the letter that<strong><em> &ldquo;For the premium segment of the UK main market, investors must have confidence that a company is run for all shareholders, not just the major or controlling shareholder.&rdquo; &nbsp;</em></strong></p> <p>Selling only 5% of the share capital, rather than the prescribed 25%, is one of the major stumbling blocks in terms of the listing regulations.</p> <p>According to the London Stock Exchange, a premium listing meets &ldquo;the UK&rsquo;s highest standards of regulatory and corporate governance.&rdquo;</p> <p><u><em><strong>However, regulations are made to be broken&hellip;not just by banks and funds&hellip;but (when it suits) by the regulator itself, it seems. </strong></em></u>The FCA&rsquo;s Bailey has proposed a new category of premium listing which would be tailor-made for government-controlled companies, like Aramco.</p> <p>According to Bailey, investor safeguards would not be &ldquo;weakened.&rdquo;</p> <p>It turns out that Bailey proposed the new category of premium listing after meeting and having conversations with Aramco and its advisers. As the Sunday Times reports, Bailey &ldquo;emphasised during those conversations that we (FCA) were reviewing the listing regime.&rdquo;</p> <p><strong>Perfect timing.</strong></p> <p><em>Clicking on the &ldquo;About Us&rdquo; tab on the FCA&rsquo;s website, the regulator champions its wish that &ldquo;consumers can place their trust in transparent and open markets&rdquo; under the heading &ldquo;Enhancing Market Integrity&rdquo;.</em></p> <p><em>Having said that, there is an option to click &ldquo;No&rdquo; after the question &ldquo;Was this page helpful?&rdquo;</em></p> <p><strong>In Bailey&rsquo;s defence, it is possible that he&rsquo;s being lent on by the British government to find a way to accommodate the high-profile Aramco IPO. </strong></p> <p>After all, Theresa May travelled to Saudi Arabia in April with the CEO of the London Stock Exchange, Xavier Rolet.</p> <p><em><strong>Here is Mrs May making the introductions in Riyadh on 5 May 2017.</strong></em></p> <p><a href=""><img alt="" src="" style="width: 500px; height: 333px;" /></a></p> <p><strong>Given the stringent anti-trust laws in the US and Aramco&rsquo;s pivotal role in the Opec cartel, a US listing is also looking problematic. So, it&rsquo;s no wonder that chatter about delays to the IPO or a private sale to China, or a consortium of sovereign wealth funds, has gathered pace.</strong></p> <p><em>Aramco denied such reports on Twitter over the weekend &ldquo;All listing venues under review for optimal decision, IPO process is on track for 2018.&rdquo;</em></p> <p>If three denials are forthcoming, maybe we&rsquo;ll know what&rsquo;s really happening.</p> <p><strong>In the meantime, it&rsquo;s embarrassing to the Saudi regime and not good news for improving its short/medium term cash flow problem. </strong></p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="778" height="342" alt="" src="" /> </div> </div> </div> British government Business China Dhahran Economic history of Saudi Arabia Economy of Saudi Arabia Financial Conduct Authority Ghawar Field Initial public offering Investment Association London London Stock Exchange OPEC Organization of Petroleum-Exporting Countries Petroleum industry Saudi Arabia Saudi Aramco Twitter Twitter Tue, 17 Oct 2017 08:15:00 +0000 Tyler Durden 605439 at US Deploys Special Forces "Decapitation" Team To South Korea <p>Today, the South Korean and U.S. navies kicked off massive combined drills off the coast of the Korean peninsula amid heightened tensions, a training exercise which North Korea has warned may prompt another ballistic missile launch potentially to coincide with the launch of the Chinese 19th Party Congress on October 18. The two allies plan to continue the Maritime Counter Special Operations Exercise (MCSOFEX) through Friday in the East Sea and the Yellow Sea. </p> <p><a href=""><img src="" width="500" height="287" /></a></p> <p>As reported over the weekend, the drill involves the U.S. 7th Fleet's aircraft carrier USS Ronald Reagan (CVN-76) and two Arleigh Burke-class destroyers - the USS Stethem (DDG-63) and the USS Mustin (DDG-89). The carrier strike group will train with South Korean warships and other defense assets, such as the Sejong the Great Aegis ship and P-3 Orion anti-submarine aircraft in the East Sea.</p> <p>And while details of the drill were well-known in advance, what was reported for the first time <a href="">overnight from Yonhap </a><strong>is that a unit of U.S. special forces tasked with carrying out "decapitation" operations is also aboard a nuclear-powered submarine in the group, according to a defense source</strong>. So far, little else is known about why said decapitation team is on location, or whether it will be put into use, although it presence may explain Trump's "calm before the storm" comment that beffudled the media two weeks ago.</p> <p>Among other assets mobilized for the joint drill are F-15K, FA-18 and A-10 fighter jets, as well as AH-64E Apache attack helicopters, Lynx and AW-159 Wild Cat naval choppers. The U.S. has also deployed a Joint Surveillance Target Attack Radar System (JSTARS) plane to closely monitor the North's ground and naval forces.</p> <p>Some more details about the drill from Yonhap: </p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>The joint training is aimed at promoting "communications, interoperability and partnership in the (U.S.) 7th Fleet area of operations," the fleet said. It initially announced that the practice around the peninsula will end next Thursday but later corrected the date to Friday. Meanwhile, the U.S. has sent a B-1B Lancer strategic bomber, F-22 Raptor stealth fighter jets and several other types of high-profile defense assets to the Seoul air show to open this week. </p> <p>&nbsp;</p> <p>"Approximately 200 U.S. personnel are expected to participate in the Seoul International Aerospace and Defense Exhibition (ADEX) 2017, scheduled from Oct. 17-22 at the Seoul K-16 airport," the 7th Air Force said.</p> <p>&nbsp;</p> <p>Among the U.S. military aircraft to join the biennial event are the F-22 Raptor, B-1B Lancer, A-10 Thunderbolt II, C-17 Globemaster III, C-130J Hercules, KC-135 Stratotanker, E-3 Sentry, U-2 Dragon Lady and RQ-4 Global Hawk, it added. Also fielded will be the Air Force's fifth-generation fighter, the F-35A Lightning II, U.S. Navy P-8A Poseidon and a U.S. Army CH-47F Chinook. </p> <p>&nbsp;</p> <p>"This year's air show will feature demonstrations from U.S. Air Force F-22 Raptors assigned to the 3rd Wing, Joint Base Elmendorf-Richardson, Alaska," the 7th Air Force said. More than 400 defense firms from 33 countries plan to participate in the ADEX to begin Tuesday.</p> </blockquote> <p>As part of the drills, the US military said on Monday that <strong>it would practice evacuating noncombatant Americans out of South Korea in the event of war and other emergencies, </strong>the <a href="">NYT reported</a>.&nbsp; The evacuation drill, known as Courageous Channel, is aimed at preparing American <strong>“service members and their families to respond to a wide range of crisis management events such as noncombatant evacuation and natural or man-made disasters,” </strong>the United States military said in a statement.</p> <p>The South Korean government of President Moon Jae-in has repeatedly warned that it opposes a military solution to the North Korean nuclear crisis because it could quickly escalate into a full-blown war in which Koreans would suffer the most, with some estimates predicting that over 2 million South Koreans <a href="">could die in the North Korean retaliation</a>.</p> <p>Meanwhile, on Monday, North Korea accused the US of “pushing” the DPRK into making a hydrogen bomb, the head of North Korea’s delegation to the multinational Inter-Parliamentary Union (IPU) meeting has said. </p> <p><strong>“Exactly the US have pushed the DPRK [Democratic People’s Republic of Korea] to become a possessor of the hydrogen bomb,” </strong>the deputy chairman of the Supreme People’s Assembly of North Korea, An Tong Chun, announced Monday. The North Korean official was speaking at the assembly of the world’s oldest international body of lawmakers in St. Petersburg, Russia. Parliamentarians from more than 160 nations are attending the IPU session.</p> <p>The question now is whether North Korea will once again test said Hydrogen bomb and, if so, whether the crack "decapiation" team meant to take out North Korea's leadership will be put to use. </p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="500" height="287" alt="" src="" /> </div> </div> </div> 7th Air Force A-10 Aftermath of the Korean War Aftermath of World War II Air Force Arleigh Burke-class destroyers Battles of the Korean War Congress FA-18 and A-10 Inter-Parliamentary Union Korean War Military Military history by country Naval warfare North Korea North Korea North Korea–South Korea relations Northrop Grumman E-8 Joint STARS Politics Proxy wars South Korean government Supreme People’s Assembly United States Army United States military United States Navy United States Seventh Fleet US military USS Mustin USS Stethem War Tue, 17 Oct 2017 07:55:09 +0000 Tyler Durden 605386 at Get Ready For A New Chernobyl In Ukraine <p><a href=""><em>Via Oriental Review,</em></a></p> <p><span lang="en-US">With the onset of winter and the increasing strain on Ukraine&rsquo;s energy system, <strong>the threat of a new nuclear disaster in Central Europe is becoming more than just a theoretical danger.</strong></span></p> <p><a href=""><span lang="en-US"><strong><img alt="" src="" style="width: 600px; height: 296px;" /></strong></span></a></p> <p><span lang="en-US">According to analysts from </span><span style="color: #000080;"><span style="text-decoration: underline;"><a href="" rel="noopener" target="_blank"><span lang="en-US">Energy Research &amp; Social Science</span></a></span></span><span lang="en-US"> (ERSS), </span><span style="text-decoration: underline;"><em><span lang="en-US"><strong>there is</strong></span><span lang="en-US"><strong> an 80% probability of a &ldquo;serious accident&rdquo; at one of Ukraine&rsquo;s nuclear power plants before the year 2020. </strong></span></em></span><span lang="en-US">This is due both to the increased burden on the nuclear plants caused by the widespread shutdowns of Ukraine&rsquo;s thermal power plants (the raw material they consumed &ndash; coal from the Donbass &ndash; is in critically short supply) and also because of the severe physical deterioration of their Soviet-era nuclear equipment and the catastrophic underfunding of this industry.</span></p> <p><span lang="en-US"><strong>Should such an incident occur, the EU would not only be faced with the potential environmental consequences, but also &ndash; given the recent introduction of visa-free travel &ndash; a large-scale exodus of Ukrainians out of contaminated areas. </strong></span></p> <p><span lang="en-US">Let&rsquo;s start by taking a brief tour of the Ukrainian nuclear industry:</span></p> <p><a href=""><img class="size-full wp-image-17183 aligncenter" src="" style="width: 600px; height: 455px;" /></a></p> <p><span lang="en-US">Ukraine currently has</span><span lang="en-US"><strong> four operating nuclear power plants</strong></span><span lang="en-US">: the </span><span style="color: #000080;"><span style="text-decoration: underline;"><a href="" rel="noopener" target="_blank"><span lang="en-US"><strong>Zaporizhia</strong></span></a></span></span><span lang="en-US"> (the largest in Europe, with six reactors and a combined power output of 6,000 MW), the </span><a href="" rel="noopener" target="_blank"><span style="color: #000080;"><span style="text-decoration: underline;"><span lang="en-US"><strong>Rivne</strong></span></span></span></a><strong> </strong><span lang="en-US">(four reactors and a combined power output of 2,880 MW), the </span><span style="color: #000080;"><span style="text-decoration: underline;"><a href="" rel="noopener" target="_blank"><span lang="en-US"><strong>Khmelnitskiy</strong></span></a></span></span><span lang="en-US"> (two reactors and a combined power output of 2,000 MW), and the </span><span style="color: #000080;"><span style="text-decoration: underline;"><a href="" rel="noopener" target="_blank"><span lang="en-US"><strong>South Ukraine</strong></span></a></span></span><strong> </strong><span lang="en-US">(three reactors and a combined power output of 3,000 MW):</span></p> <p><span lang="en-US">The</span><span style="color: #000080;"><span style="text-decoration: underline;"><a href="" rel="noopener" target="_blank"><span lang="en-US"><strong> Chernobyl</strong></span></a></span></span><span lang="en-US"> plant with its four reactors was finally shut down for good in 2000.</span></p> <p><span lang="en-US">Of the 15 nuclear reactors currently operating in Ukraine, 12 were brought online during the Soviet era, prior to 1990. All of them rely on the classic type of </span><span style="color: #000080;"><span style="text-decoration: underline;"><a href="" rel="noopener" target="_blank"><span lang="en-US">VVER nuclear reactors</span></a></span></span><span lang="en-US"> that were designed during the 1960s and 1970s at the Kurchatov Institute in Moscow. Those reactors should have a maximum life expectancy of 30 years. But as of today, </span><span lang="en-US"><strong>10 of the 15 reactors operating in Ukraine have already outlasted their expected service life. </strong></span></p> <p><span lang="en-US">And all the while, the strain on Ukraine&rsquo;s crumbling reactors constantly increases due to the dramatic decline in the availability of anthracite reserves from the Donbass at the country&rsquo;s thermal power plants (by mid-2017, electricity production at Ukraine&rsquo;s thermal power plants had dropped to almost half of 2013&rsquo;s output, down to just over 50 billion kWh per year). According to <strong>Energoatom</strong>, the state company that runs Ukraine&rsquo;s nuclear plants, in 2016 </span><span style="color: #000080;"><span style="text-decoration: underline;"><a href="" rel="noopener" target="_blank"><span lang="en-US">those plants were operating at only 65.5%</span></a></span></span><span lang="en-US"> of their total capacity, but by January 2017 </span><span style="color: #000080;"><span style="text-decoration: underline;"><a href="" rel="noopener" target="_blank"><span lang="en-US">they were up to 77.6%.</span></a></span></span><span lang="en-US"> During the first half of 2017, Ukraine&rsquo;s nuclear power plants </span><span style="color: #000080;"><span style="text-decoration: underline;"><a href="" rel="noopener" target="_blank"><span lang="en-US">produced more than 45 billion kWh of electricity</span></a></span></span><span lang="en-US"> (up 13% compared to 2016), which means that they were responsible for </span><span lang="en-US"><strong>58%</strong></span><span lang="en-US"> &ndash; an unprecedented </span><span lang="en-US">share &ndash; of the country&rsquo;s total energy matrix.</span><strong> </strong></p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p><span lang="en-US"><strong>Today</strong></span> <span lang="en-US"><strong>Ukraine is desperately squeezing out the last drops of use from its decrepit Soviet-era nuclear facilities. </strong></span></p> </blockquote> <p><span lang="en-US">The situation is being aggravated by Ukrainian energy officials, who are under political pressure to find a substitute for the nuclear fuel made by the Russian company </span><span style="color: #000080;"><span style="text-decoration: underline;"><a href="" rel="noopener" target="_blank"><span lang="en-US">TVEL</span></a></span></span><span lang="en-US">. Thus at a number of reactors they have made repeated attempts to instead use a product made by the </span><span style="color: #000080;"><span style="text-decoration: underline;"><a href="" rel="noopener" target="_blank"><span lang="en-US"><strong>Westinghouse Electric Company</strong></span></a></span></span><span lang="en-US">, an American-Japanese corporation. </span></p> <p><span lang="en-US">It is astonishing how the Ukrainians have entirely ignored the painful experiences of the Czechs. Back in 1996, the Czech </span><span style="color: #000080;"><span style="text-decoration: underline;"><a href="" rel="noopener" target="_blank"><span lang="en-US">Temelín</span></a></span></span><span lang="en-US"> nuclear plant (built by the Soviet Union) signed a contract with Westinghouse. After the reactors at the plant were fed an American fuel that had been designed to mimic the Russian TVEL product, the plant was forced to repeatedly refuel the reactors ahead of schedule, because the American assemblies leaked and exhibited structural defects. The scientists at Westinghouse could not correct the problem. In addition to the threat of a nuclear accident, the faulty fuel assemblies significantly increased the costs of producing electricity, since the reactors had to be continually shut down to replace the American parts. As a result, after yet another </span><span style="color: #000080;"><span style="text-decoration: underline;"><a href=""><span lang="en-US">major accident in January 2007</span></a></span></span><span lang="en-US">, the Czech Republic refused to purchase further fuel from the US and by 2010 Temelín had fully returned to the use of Russian TVEL products.</span></p> <p><a href=""><img class="size-full wp-image-17184" src="" style="width: 601px; height: 404px;" /></a></p> <p><em>The Czech Temelin nuclear power station had effectively got rid of the counterfeit Westinghouse fuel by 2010.</em></p> <p><span lang="en-US">Ukraine has been experimenting with American-made clones of Russian fuel assemblies since 2005. That was the year that Energoatom shipped six TVS-WR assemblies manufactured by Westinghouse to the South Ukraine nuclear plant and began their pre-installation inspection. As a result of their experiments, it was concluded that the American fuel assemblies were defective. However, they still decided to proceed to the next stage of the experiment &ndash; the annual loading of the reactor using this fuel. In 2008, Energoatom and a Swedish subsidiary of Westinghouse <a href="" rel="noopener" target="_blank">signed an agreement</a> to supply the South Ukraine nuclear plant with enough American fuel for the scheduled annual partial refueling of the three reactors from 2011 to 2015.</span></p> <p><span lang="en-US">However, as early as April 2012, malfunctions in the American assemblies were noted at the reactors of the South Ukraine nuclear plant. In an emergency procedure, all the TVS-WR assemblies were completely unloaded from the reactors after they were found to be damaged, mainly due to structural flaws in the spacer grids. As a result,</span><span lang="en-US"><strong> in 2013, following a thorough inspection, Ukraine&rsquo;s State Nuclear Regulatory Inspectorate instituted a total ban on the use of American fuel at Ukrainian nuclear plants. </strong></span></p> <p><span lang="en-US">But the victory of the </span><span style="color: #000080;"><span style="text-decoration: underline;"><a href="" rel="noopener" target="_blank"><span lang="en-US"><em>Revolution of Dignity</em></span></a></span></span><span lang="en-US"> has once again cleared the path for American TVS-WRs to be used in Ukraine. In April 2014, Kiev carefully reassembled the torn-up scraps of its old contract with Westinghouse and decided to give things another go. The media reported that American fuel was subsequently loaded into reactor no. 3 at the South Ukraine nuclear plant </span><span style="color: #000080;"><span style="text-decoration: underline;"><a href="" rel="noopener" target="_blank"><span lang="en-US">(March 2015</span></a></span></span><span lang="en-US">), reactor no. 5 at the Zaporizhia nuclear plant (</span><span style="color: #000080;"><span style="text-decoration: underline;"><a href="" rel="noopener" target="_blank"><span lang="en-US">June 2016</span></a></span></span><span lang="en-US">), and reactor no. 2 at the South Ukraine nuclear plant </span><span style="color: #000080;"><span style="text-decoration: underline;"><a href="" rel="noopener" target="_blank"><span lang="en-US">(August 2017</span></a></span></span><span lang="en-US">). The consequences were soon evident.</span></p> <p><span lang="en-US">In February 2016 there was an emergency shutdown of reactor no. 3 at the South Ukraine nuclear plant &ldquo;<em>due to an increase in the level of coolant in the steam generator.</em>&rdquo; As local residents reported on social media, the area surrounding the nuclear plant was immediately cordoned off by the military. And on March 23, 2016, operations at the South Ukraine nuclear plant </span><span style="color: #000080;"><span style="text-decoration: underline;"><a href="" rel="noopener" target="_blank"><span lang="en-US">were completely suspended for an entire day</span></a></span></span><span lang="en-US">! </span></p> <p><span lang="en-US">The Zaporizhia nuclear plant has already undergone a dozen emergency shutdowns of its reactors since 2014. For example, in November 2015, military troops in the Zaporizhia region </span><span style="color: #000080;"><span style="text-decoration: underline;"><a href="" rel="noopener" target="_blank"><span lang="en-US">beefed up their safety measures</span></a></span></span><span lang="en-US"> after the reactors at the nuclear plant suffered an emergency power loss &ndash; all of the soldiers and officers were issued special equipment to protect themselves from radiation and chemicals. But no official comment was forthcoming about the incident. </span></p> <p><span lang="en-US">Curiously enough, in May 2015 the </span><span lang="en-US"><em>Guardian</em></span><span lang="en-US"> published a bombshell </span><span style="color: #000080;"><span style="text-decoration: underline;"><a href="" rel="noopener" target="_blank"><span lang="en-US">report</span></a></span></span><span lang="en-US">, claiming that over 3,000 spent nuclear fuel rods were being stored in metal casks in an open-air yard on the grounds of the Zaporizhia nuclear plant. Apparently these were Russian TVEL assemblies that had been hastily stored after being replaced with the TVS-WRs. This would seem to indicate that experiments to introduce the defective fuel rods into the reactor cores at the Zaporizhia nuclear plant were being conducted long before the reactor was officially brought online using American fuel in June 2016. </span></p> <p><span lang="en-US">This being the case, the time line of accidents at the Zaporizhia nuclear plant can be viewed in a different light:</span></p> <p><span lang="en-US"><em>Nov. 28, 2014 &ndash; There was an emergency shutdown of reactor no. 3 after the automatic system that prevents damage to the core was activated.</em></span></p> <p><span lang="en-US"><em>July 18, 2015 &ndash; There was an emergency shutdown of reactor no. 1 in connection with the automatic shutdown of the pump responsible for cooling the nuclear reactor. </em></span></p> <p><span lang="en-US"><em>April 11, 2016 &ndash; There was an emergency shutdown of reactor no. 6 at the Zaporizhia nuclear plant in connection with the depressurization of the gas system of the turbogenerator. The local media reported a 10-fold increase in radiation levels around the station. </em></span></p> <p><span lang="en-US"><em>May 18, 2016 &ndash; There was an emergency shutdown of reactor no. 4 due to damage to the transformer. </em></span></p> <p><span lang="en-US"><em>August 14, 2016 &ndash; Reactor no. 5, the first at Zaporizhia to have been loaded with the Westinghouse knockoff product, was sent out for repairs. </em></span></p> <p><span lang="en-US"><em>Sept. 20, 2016 &ndash; Reactor no. 6 was taken off-line for &ldquo;scheduled maintenance&rdquo; (at the very start of the winter heating season!). </em></span></p> <p><span lang="en-US"><em>Oct. 24, 2016 &ndash; There was an emergency shutdown of reactor no. 2, only two and a half weeks after being overhauled. </em></span></p> <p><span lang="en-US"><em>In March 2017, at the peak of the energy crisis, that same reactor had to be taken off-line again.</em></span></p> <p><span lang="en-US"><em>April 18, 2017 &ndash; There was yet another emergency shutdown of reactor no. 6.</em></span></p> <p><span lang="en-US"><em>In early August 2017, reactor no. 4 was taken off-line for &ldquo;scheduled maintenance work.&rdquo;</em></span></p> <p><span lang="en-US">As a result, only two of the six reactors at the Zaporizhia nuclear plant are currently fully serviceable. </span><span lang="en-US"><strong>Overall, the accident rate at Ukraine&rsquo;s nuclear plants has increased 400% since 2010! </strong></span></p> <p><strong><span lang="en-US">The report from Energy Research &amp; Social Science mentioned above also stressed that &ldquo;[i]n Ukraine, for example, most nuclear energy accidents and incidents have not been included in databases over the past several years, although state Media confirmed their occurrence.&rdquo;</span></strong></p> <p><span lang="en-US">In addition to the use of knockoff fuel, the biggest reason for the increased number of incidents at Ukraine&rsquo;s nuclear plants has been the chronic underfunding of the industry. In the 25 years since the collapse of the USSR, literally not a cent has been invested in that sector. But in the meantime, the reactors that have outlived their 30-year lifespan either need to be closed (which would cost money that Energoatom does not have) or have their service life extended. Naturally, the Ukrainians are pursuing the second option. Ideally, when the operational life of a nuclear plant is extended, that should involve a major overhaul and updates. The estimated costs of extending the lifespan of a single reactor range from $150-180 million. But neither Energoatom nor the government of Ukraine has that kind of money, nor do they expect to find it anytime soon, hence the authorization to extend the operation of the reactors is a pure formality. Judging by </span><span style="color: #000080;"><span style="text-decoration: underline;"><a href="" rel="noopener" target="_blank"><span lang="en-US">publicly-accessible reports</span></a></span></span><span lang="en-US">, regular 10-year extensions on the service life of Ukrainian nuclear reactors are granted readily and without arguments. However, the internal documents from Energoatom that were </span><span style="color: #000080;"><span style="text-decoration: underline;"><a href="" rel="noopener" target="_blank"><span lang="en-US">released</span></a></span></span><span lang="en-US"> this week by Cyber-Berkut paint quite a different picture.</span></p> <h3><u>Cyber-Berkut Documents</u></h3> <p><strong><span lang="en-US">Cyber-Berkut obtained access to </span><span style="color: #000080;"><span style="text-decoration: underline;"><a href="" rel="noopener" target="_blank"><span lang="en-US">documents</span></a></span></span><span lang="en-US"> from government offices in Austria, Romania, Moldova, Belarus, Greenpeace, and the Bankwatch network of environmental NGOs, dated from the summer of 2017, which sound the alarm about Energoatom&rsquo;s plans to prolong the operation of these old reactors.</span></strong></p> <p><span lang="en-US">The most informative of these is a </span><span style="color: #000080;"><span style="text-decoration: underline;"><a href="" rel="noopener" target="_blank"><span lang="en-US">chart</span></a></span></span><span lang="en-US"> drawn up by the Ukrainians listing all the grievances put forth by their foreign partners, plus their own responses (the document is primarily written in Ukrainian). </span></p> <p><span lang="en-US">The first fact that jumps out is that <strong>Kiev arbitrarily decided to extend the operation of the reactors back in 2015, but it was not until 2017 &ndash; after the fact &ndash; that it sent that (pre-approved) program to update the nuclear plants to its neighboring countries and international environmental organizations for study.</strong></span></p> <p><span lang="en-US">This was a simultaneous breach of two UN Conventions that require signatories to obtain public and intergovernmental approval</span><span lang="en-US"><strong> prior to </strong></span><span lang="en-US">(not after) commencing work at a nuclear power plant: the Convention on Environmental Impact Assessment (the </span><span style="color: #000080;"><span style="text-decoration: underline;"><a href="" rel="noopener" target="_blank"><span lang="en-US">1991 Espoo Convention</span></a></span></span><span lang="en-US">) and the Convention on Access to Information, Public Participation in Decision-Making and Access to Justice in Environmental Matters (the </span><span style="color: #000080;"><span style="text-decoration: underline;"><a href="" rel="noopener" target="_blank"><span lang="en-US">1998 Aarhus Convention</span></a></span></span><span lang="en-US">). Jan Haverkamp, a recognized expert in nuclear energy and a Greenpeace staffer, writes about this issue specifically:</span></p> <p><a href=""><img class="alignnone size-full wp-image-17186" src="" style="width: 600px; height: 478px;" /></a></p> <p lang="en-US"><span lang="en-US">The Ukrainian response to him (third column) states, &ldquo;</span><span lang="en-US"><strong>The State Nuclear Regulatory Inspectorate</strong></span><span lang="en-US"> [the Ukrainian acronym is </span>?<span lang="en-US">I</span>???<span lang="en-US"> &ndash; OR]</span><span lang="en-US"><strong> is an independent body and its actions are not subject to these conventions</strong></span><span lang="en-US"> [!!!-OR]&rdquo;</span></p> <p><span lang="en-US">Echoing Mr. Haverkamp, Bankwatch&rsquo;s Romanian representative, Maria Seman, also raises a red flag:</span></p> <p><a href=""><img class="size-full wp-image-17187 aligncenter" src="" style="width: 600px; height: 778px;" /></a></p> <p>&rdquo;<span lang="en-US"><em>In accordance with the Aarhus Convention, article 6 (4), public participation (along with a cross-border process to allow public participation in the Environmental Impact Assessment &ndash; EIA) should take place when all options are still open. In the case of decision-making processes that happen at many different levels, if there was no public participation in previous decisions, the public should once again be invited to take part in those decisions that were made earlier and they should still be viewed as open. This applies to reactors 1 and 2 of the South Ukraine nuclear power plant and reactors 1 and 2 of the Zaporizhia nuclear power plant, where updates were made and their license was renewed despite the red flags raised by neighboring countries and Espoo Convention Implementation Committee.&rdquo;</em></span></p> <p><span lang="en-US">Ukraine offered a simple, straightforward answer:</span></p> <p>&ldquo;<span lang="en-US"><strong>The answer to this question was provided above.&rdquo;</strong></span></p> <p><span lang="en-US">Following are more of Maria Seman&rsquo;s contentions about how Ukraine has violated international legislation: Kiev refused to notify stakeholders before making decisions about nuclear plants and now cannot guarantee that all input will be taken into account as the reactors are being updated:</span></p> <p><a href=""><img class="size-full wp-image-17188 aligncenter" src="" style="width: 600px; height: 449px;" /></a></p> <p><span lang="en-US">However, Kiev seems relatively unconcerned, offering only mocking answers to the objections made by the foreign investigators:</span></p> <p>&ldquo;<span lang="en-US"><em>Ukraine did not refuse to do anything. </em></span><span lang="en-US"><em><strong>A delay occurred. </strong></em></span><span lang="en-US"><em>The decisions to extend the licenses were made in accordance with national law and it was not possible to postpone them.&rdquo;</em></span></p> <p>&ldquo;<span lang="en-US"><em><strong>There may be a conflict between the laws, </strong></em></span><span lang="en-US"><em>but the regulatory body that made the decisions on this matter</em></span><span lang="en-US"><em><strong> did not violate national law.&rdquo;</strong></em></span></p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p><span lang="en-US"><strong>In other words, the Ukrainians call ignoring the demands of the UN &ndash; &ldquo;a conflict between the laws,&rdquo; and violating the basic principles of environmental oversight &ndash; &ldquo;a delay.&rdquo;</strong></span></p> </blockquote> <p><span lang="en-US">Ukraine seems unaware that these conventions were created in order to preclude arbitrary actions by political authorities on questions of nuclear energy. Violations of international law are a matter of concern not just for environmentalists. They are a legal issue that calls for investigation, the identification of the perpetrators, and the correction of the transgressions. </span><span lang="en-US"><strong>Where are the international commissions, where are the criminal cases that have been filed, where are the courts and tribunals that should be avidly defending the letter of the law? Why is the Ukrainian government being allowed to ignore UN treaties that it is bound to observe? </strong></span><span lang="en-US">The Espoo Convention Compliance Committee and other relevant authorities must respond.</span></p> <p><span lang="en-US">According to Mr. Haverkamp, the authors of the program to extend the licenses of the nuclear power plants do not know the first thing about risk assessment and have not learned the lessons of Chernobyl or Fukushima, because the continued use of the reactors at the South Ukraine and Zaporizhia nuclear plants raises the chance of another nuclear disaster:</span></p> <p><a href=""><img class="alignnone size-full wp-image-17189" src="" style="width: 600px; height: 520px;" /></a></p> <p><span lang="en-US">In turn, the Romanian government has submitted a whole list of transgressions, omissions, and missing information. Here are just two items:</span></p> <p><a href=""><img class="alignnone size-full wp-image-17190" src="" style="width: 600px; height: 205px;" /></a></p> <p>&ldquo;<span lang="en-US"><em>The statements [by the Ukrainians] about their policy in regard to nuclear safety are misleading, incomplete, and not supported with pertinent details &hellip;&rdquo;</em></span></p> <p><a href=""><img class="alignnone size-full wp-image-17191" src="" style="width: 600px; height: 477px;" /></a></p> <p>&rdquo;<span lang="en-US"><em>The documents submitted by the Ukrainians are missing important information about the assessment of the consequences of potential accidents at the nuclear power plants &hellip;&rdquo;</em></span></p> <p><span lang="en-US">However, the Ukrainians are not troubled with remorse for their shoddy work &ndash; their answer again takes a defiant tone. The experts in Kiev apparently believe that there are not enough qualified investigators in the Romanian government to legitimately request such information:</span></p> <p><strong>&ldquo;<span lang="en-US"><em>This information, in our opinion, may be a subject of interest to suitably qualified experts, but for the discussion of the EIA at the state level, it is superfluous.&rdquo;</em></span></strong></p> <p><span lang="en-US">Representatives from other neighboring countries also complain about the lack of data necessary to fully evaluate the program to update Ukraine&rsquo;s nuclear power plants.</span></p> <p><span lang="en-US">In particular, the Ministry of the Environment of the Republic of Moldova has emphasized that the environmental impact assessment does not take into account the physical aging &ndash; resulting from bombardment by neutron fluxes &ndash; of either the reactors or the components of their radiation shield.</span></p> <p><span lang="en-US">The Ministry of Natural Resources and Environmental Protection of the Republic of Belarus has requested &ldquo;comprehensive information regarding the documents on the basis of which the decision was made to extend the service life of the two reactors at the nuclear power plant, as well as information regarding the updates to each reactor,&rdquo; and so on.</span></p> <p><a href=""><img class="size-full wp-image-17193 aligncenter" src="" style="width: 599px; height: 233px;" /></a></p> <p><span lang="en-US">Ukraine&rsquo;s reaction: <strong>&ldquo;</strong></span><strong><span lang="en-US"><em>That answer lies outside the scope of our authority.</em></span><span lang="en-US">&rdquo;</span></strong></p> <p><span lang="en-US">Serious concerns are being raised about the fact that the Ukrainian state agencies responsible for nuclear energy have not yet devised ways to dispose of the spent nuclear fuel and other radioactive waste, now that the service life of the reactors has been extended and given the fact that Ukraine is refusing to use Russian storage facilities. Maria Seman, for example, has this to say:</span></p> <p><a href=""><img class="alignnone size-full wp-image-17194" src="" style="width: 599px; height: 220px;" /></a></p> <p><span lang="en-US"><em>&ldquo;The section on radioactive nuclear waste does not provide enough information on the total quantity of waste generated over the course of a year, nor a detailed plan for handling it, which must include storage. The on-site facilities for storing nuclear waste at the nuclear plants are limited, and the transportation of waste and spent fuel to Russia was suspended once the civil war in eastern Ukraine intensified. It is essential to request this information.&rdquo;</em></span></p> <p><span lang="en-US">However, Kiev seems less concerned with problem of how to dispose of radioactive waste than with offering its own rhetoric about events in the eastern part of its country. Instead of providing a substantive answer about what to do with the increasing quantity of spent fuel, the officials advised the Romanian investigator on her choice of newspapers:</span></p> <p>&ldquo;<span lang="en-US">There is no civil war in Ukraine &ndash; only the aggression of the Russian Federation [!!!-OR]. </span><span lang="en-US"><strong>The author should find reliable sources of information.</strong></span><span lang="en-US">&rdquo;</span></p> <p><span lang="en-US">Among other topics the Europeans raised for discussion with their Ukrainian colleagues: the massive doses that Kiev has decided fall within the bounds of &ldquo;permissible radioactive contamination,&rdquo; despite the fact that they are lethal to 50% of the population of the zone that has been thus contaminated; the sources of the funding for the impending programs to take the Ukrainian nuclear power plants off-line in the future; the absence of assessments in Energoatom&rsquo;s materials regarding the impact of radiation on the rise in leukemia among children living near nuclear power plants; and so on:</span></p> <p><a href=""><img class="alignnone size-full wp-image-17195" src="" style="width: 600px; height: 563px;" /></a></p> <p><span lang="en-US">Officials in Kiev either evade answering these questions or else play the fool: &ldquo;<strong>What, we should keep records of every case?</strong>&rdquo; (in regard to the incidence of childhood leukemia).</span></p> <p>*&nbsp; *&nbsp; *</p> <p><em><span lang="en-US"><strong>All these facts are evidence that Ukraine&rsquo;s nuclear power plants not only present a genuine threat to Europe&rsquo;s security, but that given the current economic situation and political instability in Ukraine, they also have no chance of bucking this negative trend. How to effectively cope with this aggravating situation should be a matter of urgent technical and political talks between the Russian and concerned EU states authorities.</strong></span></em></p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="1260" height="621" alt="" src="" /> </div> </div> </div> Central Europe Chernobyl Nuclear Power Plant Czech eastern Ukraine Energy Energy conversion Environment Espoo Convention Compliance Committee Espoo Convention Implementation Committee European Union Greenpeace Kurchatov Institute in Moscow Ministry of Natural Resources and Environmental Protection of the Republic of Belarus Ministry of the Environment of the Republic of Moldova Nuclear and radiation accidents and incidents Nuclear energy policy by country Nuclear Power Nuclear power Nuclear reactor Nuclear safety and security Nuclear technology radiation radiation shield Romania Romanian government South Ukraine South Ukraine Nuclear Power Plant Ukraine Ukrainian government United Nations VVER Westinghouse Electric Company Tue, 17 Oct 2017 07:30:00 +0000 Tyler Durden 605447 at