Coming to an industry near you

July 30th, 2016


The European Union on Friday imposed anti-dumping tariffs on certain Chinese steel imports, as the bloc steps up efforts to protect European steelmakers struggling with overcapacity. The duties range from 18.4% to 22.5%. China’s Ministry of Commerce called the EU decision “unreasonable” and said it discriminated against Chinese products. “In its essence, this action is an artificial obstacle, an exclusion of Chinese products, and unfair protectionism for EU industry,” the ministry said in a statement posted on its website.

The decision comes amid a continuing investigation into unfair trade practices by Chinese steel manufacturers, after a complaint lodged in March by European steel association Eurofer, which represents more than 25% of total EU rebar production. Eurofer on Friday said it welcomed the decision. Currently the EU has 37 anti-dumping and antisubsidy measures in place in the steel sector, of which 15 concern China.

China’s steel capacity went from 70MM tons to 1200MM tons, a 17x increase. China has no plan to shut zombie companies and there is discord at the very top of the government. Expect a lot more of this.

Bad news, good news

July 29th, 2016

Bad news: Millennials Cause Home Ownership to Drop to Its Lowest Level Since 1965. Good news: the kids can sleep in the basement.

And this is just weird!

Mischief ahoy!

July 28th, 2016


China and Russia will hold joint naval exercises in the South China Sea in September, the Chinese Defense Ministry said, amid heightened regional tension following an international tribunal’s rejection of Beijing’s maritime claims there. China’s defense-ministry spokesman, Senior Col. Yang Yujun, gave few details at a monthly news conference on Thursday but said the drills were “routine” and not directed at any other countries. However, they are the first joint exercises in the South China Sea between China and Russia

In 2014, Russia and China held joint naval exercises in the East China Sea for the first time, a few months after a flare-up in a territorial dispute between Beijing and Tokyo over a cluster of islands. In May last year, China and Russia held drills in European waters for the first time—in the Mediterranean and the Black Sea—in what many Western officials saw as a show of solidarity following Moscow’s annexation of Crimea in 2014. Those were followed by more drills

Expect mischief and lots of it in the next few months. BTW, China and Russia are nice, but there are some really bad guys out there.

Smash that iPhone, boycott KFC

July 27th, 2016


U.S. Secretary of State John Kerry signaled that Beijing must recognize an international tribunal’s ruling against its sweeping claims in the South China Sea when negotiating with the Philippines over disputes in the strategic waters. Speaking in the Philippines, Mr. Kerry backed Manila’s assertion that any talks over the sea must have that ruling as its basis. “Our friend and ally, the Philippines, can only do so on terms that are acceptable to the government of the Philippines,” he said.

Beijing and Manila said this week they hoped to continue efforts to negotiate their differences over the South China Sea. But both also are constrained by their domestic politics in how far they can compromise.

In the aftermath of the tribunal’s July 12 ruling, some Chinese citizens called for boycotts of U.S. and Philippine products, picketed American fast-food chains and spread angry rhetoric on social media. China’s Communist leadership, which has long relied on stoking nationalism to bolster its political legitimacy, quickly urged calm. But the episode underscored how limited Beijing’s options are for compromise on territorial disputes. Likewise, Philippine President Rodrigo Duterte—elected in May on a nationalistic platform—must avoid being seen as bowing to Beijing

Smash that iPhone, boycott KFC. Here’s the official government line at the moment. We’ll see.

Even more numbers

July 26th, 2016


20 year annualized returns for public pensions in the U.S. are poised to decline to 7.47% once fiscal 2016 results are released in coming weeks, according to an estimate from Wilshire Trust Universe Comparison Service, which tracks pension investment returns. That would be the lowest-ever annual mark recorded by Wilshire, which began tracking the statistic 16 years ago. In 2001, near the height of the dot-com boom, pensions’ 20-year median return was 12.3%. Connecticut now allocates 10% of its budget to pay down unfunded pension liabilities that more than doubled in size over the past decade. Chicago’s $20 billion pension-funding hole prompted its credit rating to tumble to junk. Calpers said that its fiscal 2016 return was 0.6%, the slimmest gain since the 2008-2009 crisis. Calpers has a funding gap of roughly $112 billion, according to the most recent available data. As recently as last year, Calpers Chief Investment Officer Ted Eliopoulos said in an annual letter that the plan was “reassured by our 20-year investment return of 7.76%,” which exceeded the internal target of 7.5%. Now, “it is a struggle to have a positive return,” Mr. Eliopoulos said in a media call last week.

0% interest rates are doom for fixed benefit pensions. Worse, when interest rates inevitably do rise, their immediate deficit impact will far outweigh the increased returns over time from 10 year Treasuries, etc.

Fun bonus.

GDP and debt numbers

July 25th, 2016

Martin Feldstein:

the federal government’s deficit this fiscal year will be about $600 billion, up by $162 billion from 2015, an increase of more than 35%. And the annual Long-Term Budget Outlook produced by the Congressional Budget Office (CBO) predicts that, with no change in fiscal policy, federal government debt will rise from 75% of GDP to 86% a decade from now, and then to a record 141% in 2046, near levels in Italy, Portugal, and Greece. By 2046, the projected outlays for the “mandatory” entitlement programs (Social Security and the major health programs), plus interest on the debt, would absorb more than all of the revenue that the government would collect with current tax rates. A small deficit (1.6% of GDP) would emerge even before spending on defense and other annually appropriated “discretionary” programs.

The yield on the 10 year Treasury is less than 1.6% now. What happens when rates triple or quadruple? Can’t happen, you say? The fed funds rate topped out at around 20% in 1980.

Numbers again

July 24th, 2016


At the beginning of July, 23 supertankers capable of holding 43 million barrels of oil were anchored for a month or more in the Singapore straits, according to Thomson Reuters’s vessel-tracking service, up from 15 ships at the start of the year. If they were full, it would be enough to meet the U.S.’s oil needs for more than two days. But no official count of the oil exists. Thomson Reuters and others offer estimates based on the reported level of a vessel’s waterline. Yet a number of ships are likely carrying fuel oil, a refined product used in shipping, analysts said. Others may be carrying seawater

nations don’t report “floating storage,” or tankers anchored off their coasts, as in Singapore. The IEA said floating storage in June rose to 95 million barrels, the highest level since 2009.

In China, another storage mystery is unfolding. Government data show oil imports rising at a faster rate than refiners are processing it. The figures suggest the country built a surplus 160 million barrels during the first half of the year, enough to meet its oil needs for about two weeks. Analysts believe those barrels have gone to commercial tanks, or to government-owned strategic reserves. The distinction is critical. If most of the oil has gone to strategic reserves, demand could shrink once the tanks reach capacity

The inverse of 2008?

Clarifying times

July 23rd, 2016

The federal government spends about $4 trillion this year, plenty to skim from, and overwhelming incentive to skim. Corporate lobbying is said to be $3 billion, but surely that number is far too low. How much have the OPEC countries spread around in Washington to keep America oil dependent on them, and to avoid having fingers pointed at them? Say, how would you like to make more than the president of Harvard for doing nothing at a university, courtesy of KKR and friends? What a great life to be a skimmer! And of course no nastiness should stick to these deeply erudite public servants. TWA 800, no problem. Benghazi, ditto, with a little additional help from media friends. And you don’t have to be a right wing nut to get on the bad list; the corruption is bipartisan. Nor is the problem limited to the US. Example: why trust any cover story about Munich after things like this? Very odd that so much of this seems to be cascading at once. Why?

Caution, genius at work

July 22nd, 2016

Official US government genius at work:

we really don’t have time to waste. At our nations – as we gather here, a hot summer day in Vienna, I think that we probably all recognize that an awful lot of the world – most of the world – doesn’t know this meeting is taking place. I had a feeling driving through the city that as I was coming over here, most people – the only people who knew we were here were the people who got disrupted by the traffic as I was moving. But I think you share that feeling, and yet – and they don’t really completely understand what we’re trying to accomplish. But the truth is our goal for these talks – amending the Montreal Protocol to phase down HFCs – is one of the single most important unitary steps that we could possibly take at this moment to stave off the worst impacts of climate change and to protect the future for people in every single corner of the globe.

Yesterday, I met in Washington with 45 nations – defense ministers and foreign ministers – as we were working together on the challenge of Daesh, ISIL, and terrorism. It’s hard for some people to grasp it, but what we – you – are doing here right now is of equal importance because it has the ability to literally save life on the planet itself. Week after week, month after month, year after year, we continue to see new evidence, scientific evidence, tangible evidence, of the danger that climate change poses to life on our planet. Last year was the hottest year in recorded history by far. Last month, the hottest month recorded. The month before that was the hottest month recorded. 2016 is on track to be hotter than last year. And the decade was the hottest decade in history, and the decade before that the second hottest in history, and the decade before that the third hottest in history.

At some point, rational human beings have to stop and begin to understand and take this in and recognize that we have to take action. I was in Greenland just last month with my good friend Borge Brende of Norway, the foreign minister, and I flew right over – very low over an ice fjord from which the glacier flow is 86 million metric tons of ice each day dumping into a fjord to move into the ocean south and melt. That daily, added through the year, is enough to meet the needs – all the needs – of New York City, a gigantic city, for two decades.

It’s happening. Climate change is happening and it’s happening faster than most of us anticipated. And when I say, “faster than most of us anticipated,” I was in that Senate hearing room in 1988 when Jim Hansen first warned us that it’s here and it’s happening now. That was ’88. And then we gathered in Rio in ’92 and we tried to voluntarily move forward and make a difference. Last year, many of you were in Paris when we all joined in that unbelievable moment of the gavel coming down and people realizing what we had accomplished – all together, multilaterally, 186, 190 nations – the most ambitious climate agreement in history

He has no clue that he’s spouting rubbish. Whose payroll is he on? Help!!!


July 22nd, 2016

Gallup A: “In general, are you satisfied or dissatisfied with the way things are going in the United States at this time?” R-6, I-16, D-29. Overall average: 17%. Gallup B, same question: B-49, H-47, W-28.

Survey Methods for A. Results for this Gallup poll are based on telephone interviews conducted July 13-17, 2016, on the Gallup U.S. Daily survey, with a random sample of 1,023 adults, aged 18 and older, living in all 50 U.S. states and the District of Columbia. For results based on the total sample of national adults, the margin of sampling error is ±4 percentage points at the 95% confidence level. All reported margins of sampling error include computed design effects for weighting.

Survey Methods for B. Results for this Gallup poll are based on telephone interviews conducted June 7-July 1, 2016, with a sample of 3,270 adults, aged 18 and older, living in all 50 U.S. states and the District of Columbia, who had previously been interviewed in the Gallup Daily tracking poll and agreed to be re-interviewed for a later study. The sample is weighted to be representative of U.S. adults.

Huh? What did we miss? We understand the small timing difference between A and B, but something else must account for the radical differences in approval ratings.

Discord at the top in China

July 21st, 2016


Messrs. Xi and Li are the only two members of the seven-man Politburo Standing Committee—the top leadership body—not due to retire. The two men have very different backgrounds and public personas. Mr. Xi, 63 years old, whose father was a revolutionary hero, has close personal ties to other descendants of the party elite and has cast himself as a paternalistic, if aloof, authoritarian. The bookish and affable Mr. Li, 61, came to prominence as a star student of law and economics. He rose through the ranks of the Communist Youth League, becoming a favorite of the previous party chief, Hu Jintao.

The first episode of the discord came in May, when the official People’s Daily published a lengthy front-page interview with an unidentified “authoritative person,” which criticized the heavy role of credit in driving first-quarter growth. Mr. Xi’s top economic advisers drafted the article under his instruction, according to people familiar with the matter, who said Mr. Xi was upset that China unleashed 4.6 trillion yuan ($697 billion) in bank credit from January through March, even exceeding stimulus in 2009 during the depth of the financial crisis.

Mr. Xi was worried that his plan to pare debt and industrial overcapacity was “on the line,” one of the people said. While the article didn’t mention Mr. Li by name, the people said it was meant as a public rebuke of the premier’s stimulus policies. In addition, the article poured cold water on a debt-for-equity swap program publicly touted by Mr. Li in March, saying such a program shouldn’t be used to keep alive “zombie” firms—money-losing companies in industries with excessive capacity.

This month, Mr. Xi held a meeting with more than two dozen of the country’s top economists and analysts. Mr. Li wasn’t invited, according to people with knowledge of the matter. “It’s a meeting held by Xi Dada,” one of the people said, using a popular nickname for Mr. Xi. “It’s not necessary for Li to attend.” Two days later, Mr. Li held his own round-table discussion with a separate group of economists

Very odd criticism by Xi of the debt increase. Does he not know that the debt is used to manufacture GDP, the empty cities and all that

More on Turkey

July 20th, 2016


On the back of an economic boom, the Justice and Development Party (AKP) grew into a formidable force in the 2000s, boasting a support base that stretched from Istanbul to the Anatolian core. As the confidence of the party and its allies swelled, they sought to neuter the force that had pinned them down for so many years. The government launched the Sledgehammer and Ergenekon trials, designed to uproot the alleged “deep state” of the ultranationalist military officers, politicians, judges and businessmen who challenged the new Turkey. By the mid-to-late 2000s, Islamists had deeply penetrated the military, and Gulenist-run media outlets were regularly armed with intelligence that was used to blackmail military personnel. Through a series of trials, many of which were presided over by Gulenist judges, the military was purged and the ranks of the air force, army gendarmerie and navy were refilled with loyalists.

There is no doubt that Erdogan benefited from the weakening of the military at the hands of the Gulenists. But he also grew wary of just how powerful they had become. From his self-imposed exile in Pennsylvania, Gulen had begun to politically assert himself and publicly voiced his disapproval of Erdogan’s policies. Then, in 2013, when Erdogan attempted to boost his credentials with the Arab world by capitalizing on Turkey’s confrontation with Israel over the Mavi Marmara flotilla incident, Gulen criticized Erdogan’s anti-Israel stance. But the final straw may have come in late 2013, when the Gulen movement tried to leverage its clout within the judiciary and leaked audio recordings to implicate Erdogan’s inner circle — including his son, Bilal — in a corruption scandal.

From that point on, the gap between the Gulenists and Erdogan’s backers became unbreachable. In 2014, a Gulenist prosecutor began to target one of Erdogan’s key allies, Hakan Fidan, by accusing him of engaging in secret talks with the Kurdistan Workers’ Party (PKK). (Gulen seemed to resent that Erdogan and Fidan, the head of Turkish intelligence, were managing the government’s peace talks with the PKK without involving his movement.) The same year, Gulen blatantly criticized Erdogan’s crackdown on Gezi Park protesters, even seeking the help of secular opposition parties that were fundamentally opposed to his own movement’s views in an attempt to undermine the ruling AKP. As the conflict deepened, Erdogan decided that he would be better off disarming the Gulenists while he still had the power to do so. Equipped with the same weapons that the Gulenists had used against the military, Erdogan launched a domestic and international campaign to decimate his former Islamist allies.

Since 2014, the Turkish government has shut down Gulenist media offices, seized banks and businesses, shuttered schools and sacked judges. But purging the military was a job left unfinished. Erdogan knew that the biggest threat to his rule resided there, but he decided to address it in stages. It appears Fidan may have caught wind of a coup in the making, and he was rumored to be planning to have the perpetrators arrested ahead of the Supreme Military Council meeting on Aug. 1. The putschists, aware their cover was blown, sped up their timetable and launched the coup early, putting their plan into action July 15. Yet the fact that they represented a polarizing minority faction within the military doomed them from the start. They went off the script of a bygone era, taking care to seize state-run media but not thinking to do the same with private broadcasts. Anti-coup sentiments trumped anti-Erdogan ones, as evidenced by the massive crowds in Turkey’s streets and the unity statement against the coup made by the country’s main political parties. The coup started to fall apart just two hours after it began, and within less than 24 hours it had collapsed completely.

At this point in its geopolitical cycle, Turkey has started down a neo-Ottoman path that compels a deeper involvement beyond its own borders, both as near as northern Syria and Iraq and as far as Libya, Gaza and Nagorno-Karabakh. At the same time, Turkey’s leaders preside over Ataturkian borders and have a duty to protect the republic’s national integrity. Policy contradictions will thus become more frequent, and Turkey’s actions may appear almost schizophrenic. The Turkish government has already spearheaded a peace process with the Kurds and referred to vilayets, where minorities can enjoy greater autonomy, only to launch a heavy-handed crackdown, branding any form of Kurdish assertiveness as terrorism against the state a year later.

What a mess. And it’s only going to get worse. Get a load of the palace Erdogan built for himself in 2014. More photos and family shopping sprees here. Glenn Reynolds calls Erdogan the new Sultan of a new Ottoman Empire. One thing we pretty much know for sure: just like the old days, there will be plots within plots within plots, and things are likely to end pretty badly.


July 19th, 2016


Turkey’s Council of Higher Education is seeking the resignation of 1,577 deans at state and private universities nationwide, state-run TRT reported. The channel did not give a reason for the decision, and calls to the educational body, known in Turkish as YOK, were not immediately returned. The country also canceled the licenses of 21,000 private-school teachers, according to Yeni Safak. That brings the total of those suspended, fired, removed from jobs or stripped of professional accreditation to 59,628 in the wake of the bloody events of Friday night

Dozens of generals on trial, TV and radio station licenses revoked. Almost 20,000 soldiers, cops and judges arrested or fired. Seems like a comprehensive response to a coup, if indeed there was one.

Some things change, some don’t

July 18th, 2016

IBM: “The Armonk, N.Y., company reported Monday that its revenue for the second quarter dropped 2.8% to $20.24 billion, as its established businesses continue lose ground to cloud computing services delivered over the internet. The company has posted revenue declines for 17 straight quarters.” We wrote a few lines of fortran for a government operated 360, maybe in 1970; IBM then owned the world. And this: “Yahoo on Monday said its revenue, minus commissions paid to partners for web traffic, fell 19% in the second quarter. That is its sixth decline in the past seven periods.” CNBC in 2000: “when Yahoo gets down to $80, back up the truck.” On the other hand, some things don’t appear to change.

The shocking and the trivial

July 17th, 2016

Watch this Heather Mac Donald address at Hillsdale; the numbers she quotes at around seven minutes will blow your mind. And Spengler is saying unsayable things as well. Andy McCarthy points out someone spouting nonsense, but hey, she gets well paid to do so. Meanwhile, what’s going on in California and Connecticut that the taxpayers are subsidizing? Why, this and this for starters — the last paragraph on page three of this thought piece from CT is particularly funny and clueless. We’ll check in a week or so to see if Steve Loomis still has a job. That’s it for now.

Istanbul, not Constantinople

July 16th, 2016

Hmmmm. The friendly TV stations remained on the air and were able to interview the president and PM while a coup was underway. 2745 judges and prosecutors were immediately detained or fired (after 3750 last month). Some guy in Pennsylvania who apparently floated corruption charges against Erdogan’s son was the subject of instant and sizeable demonstrations in front of his house. Looks like there was a coup alright, just not the one that’s being reported.

Strange times

July 15th, 2016

There’s a coup attempt in Turkey. Boris Johnson provided commentary. BTW, the following limerick was passed on to us by a Benedictine monk. Have a nice day!

PS: Here’s some bad stuff and more bad stuff and JV bad stuff, if you’re so inclined.

11 years and counting

July 14th, 2016

France 24

Speaking on the national July 14 holiday, Hollande said the decree after the November 13 attacks will not be renewed beyond July 26, because a law bolstering security in France was adopted in May. “We had to prolong the state of emergency until we could be sure that the law gives us the means to counter the terrorist threat effectively,” he said

This chaos has been going on for 11 years now, and Nice is just the latest example. Here’s another piece from 11 years ago. Not many choices left. Get serious or become a dhimmi or die.

The sad state of affairs

July 14th, 2016

This, this, and this are all interrelated and sad. In 1950, births to unwed mothers were about 4% of the total; now they’re 10x that, with all the bad consequences you’d expect. Can anything turn this around?

WSJ pontificates

July 13th, 2016


The Hague-based Permanent Court of Arbitration found that China’s main claim to the sea, represented by its notorious “nine-dash line” map, has “no legal basis.” It further slammed China’s frequent claims to “historic” rights, confirming that these don’t fly under the U.N. Law of the Sea Treaty, and that there is “no evidence that China had historically exercised exclusive control over the waters or their resources.”

The ruling also undercuts China’s claims in the Spratly archipelago, off the Philippine coast, where Beijing has built and militarized seven artificial islands since 2014. It found that no feature in the Spratlys is a natural “island” under the law, so none entitles its owner to a 200-mile exclusive economic zone. That means the only exclusive zone there derives from the coast and belongs to the Philippines, confirming that China has no right to threaten Philippine commercial or military vessels as it has at places like Reed Bank and Second Thomas Shoal.

As for China’s artificial islands, the tribunal found that some are built on natural “rocks” that are above water at high tide and thus yield 12-mile territorial seas. But the others are built on underwater features over which no one can claim sovereignty — making China an illegal occupier.

The tribunal also confirmed that China violated Philippine rights in seizing Scarborough Shoal, the 2012 incident that drove Manila to file suit. Beijing has since kept Philippine fishermen away from the 60-square-mile area and may want to build an artificial island there, 120 miles from the Philippine navy base at Subic Bay.

By asserting “indisputable sovereignty” over an area larger than the Mediterranean and encroaching on the territory and rights of others, Beijing has threatened the rules-based order that has given Asia decades of prosperity. Its pillars include freedom of navigation and the peaceful settlement of disputes.

Though the South China Sea is the main economic artery of the world’s most dynamic and populous region, the stakes are even broader. As French defense chief Jean-Yves Le Drian noted recently: “If the law of the sea is not respected today in the China seas, it will be threatened tomorrow in the Arctic, the Mediterranean or elsewhere.”

Yeah, no kidding. Stay tuned. Here’s a little more huffing and puffing: “No U.N. tribunal decision can be a victory for the rules-based liberal order if liberal states won’t defend that order.” We think China has that one figured out.