UN envoy: Israel defies UN resolution on halting settlements

EDITH M. LEDERER
Wed, September 28, 2022

UNITED NATIONS (AP) — Israel continued its defiance of a 2016 U.N. Security Council resolution demanding an immediate halt to all settlement activity in lands the Palestinians want for their future state, advancing plans for construction of nearly 2,000 housing units in the last three months, the U.N. Mideast envoy said Wednesday.

Tor Wennesland told the council that no progress was made by Israelis and Palestinians on other demands in the resolution -- preventing all violence against civilians, refraining from acts of provocation, incitement and inflammatory rhetoric, distinguishing between Israeli territory and territories occupied since the 1967 war, and exerting “collective efforts to launch credible negotiations.”

He did cite several positive steps during the three-month period ending Sept. 20 -- two contacts between Palestinian President Mahmoud Abbas and high-level Israeli officials in July, Israel’s issuance of some 16,000 permits for workers and businesses for Palestinians in Gaza, and a 1.5% increase in imports and 54% increase in exports through the main Kerem Shalom crossing from Israel to Gaza compared to the monthly average for the first two quarters of 2022.

But Wennesland said “We continue to see little progress” in implementing the resolution since its adoption in December 2016.

The resolution was approved by the Security Council when the United States, in the final weeks of the Obama administration, abstained rather than using its veto to support longtime ally Israel as it had done many times previously. The Trump administration strongly opposed the resolution.

U.S. Ambassador Linda Thomas-Greenfield told the council Wednesday that from day one the Biden administration has supported a two-state solution, a position President Joe Biden reiterated to world leaders at last week’s high-level meeting at the General Assembly.

She said many leaders made similar calls, praising Israeli Prime Minister Yair Lapid’s "courageous and impassioned speech that articulated his vision of `two states for two peoples.’”

“The significance of his appeal for peace between Israelis and Palestinians should not be underestimated,” Thomas-Greenfield said. “And I also want to acknowledge president Abbas’ stated commitment to non-violence and reaffirmation of his support for a two-state solution.”

She said now it's time “to turn these words into action” and make real progress, stressing that “there are no short-cuts to statehood.”

Speaking to reporters afterward, Riyad Mansour, the Palestinian U.N. ambassador, called for the Security Council to start implementing its resolutions.

It should now propose “practical steps” to open the doors “for a meaningful political process” to begin implementing the “global consensus” for a two-state solution, he said.

Wennesland warned that “the absence of a meaningful peace process to end the Israeli occupation and resolve the conflict is fueling a dangerous deterioration" across the Palestinian territories, particularly the West Bank, “and driving the perception that the conflict is unresolvable.”

“Israelis and Palestinians must determine how they envision the future,” he said. “Negotiations can no longer be pushed indefinitely.”

“The current course is leading us towards a perpetual state of violence and conflict,” The Mideast envoy warned, and “meaningful initiatives” are needed quickly to turn this trajectory around.

Industrial Farming Causes Climate Change. The ‘Slow Food’ Movement Wants to Stop It


Aryn Baker

TIME
Wed, September 28, 2022 

Soy beans being planted in a field on a farm in Balfour, South Africa, on Oct. 20, 2021. Regenerative agriculture is a simple idea, instead of using pesticides, irrigation systems, and heavy tilling machinery, cover crops are used during the off season to keep the moisture and nutrients in the soil and control weeds.

 Credit - PHILL MAGAKOE/AFP— Getty Images

A biennial celebration of international small-scale farmers, breeders, fishers, and food producers just wrapped up in Turin, Italy. Convened by the Slow Food movement, one phrase in particular dominated the Terra Madre Salone del Gusto festival’s long roster of panel discussions and workshops: “Food is the cause of the environmental crisis, but it can also be the solution.”

In a year that has seen few places on earth untouched by the climate crisis, it was an apt starting point. Farmers from the U.S. to Japan, Australia, Uganda, Italy, and everywhere in between, talked about how drought, flood, fire, storms, heatwaves and plagues of pests had destroyed their livelihoods. Some swore they would persevere despite the challenges; others wondered if they could afford to start over—or even if they should.

Food production contributes approximately 37% of global greenhouse gas emissions, making farmers both contributors to, and victims of, climate change. But it doesn’t have to be that way, say proponents of Slow Food, a movement started in Italy 36 years ago that promotes “good, clean and fair food” along with a stronger connection between people and the food they eat. Adopting climate-smart farming practices, and taking a more flexible approach to what is farmed where, will make food production more resilient in the face of climate change. But even then, it may not be enough—absent severe reductions in fossil fuel emissions, some places will likely have to give up farming entirely in the near future.

Improving Resilience

Conventional agriculture seeks to maximize production via large scale farms that rely on monocrops fed by greenhouse gas-emitting fertilizers, protected by biodiversity-damaging pesticides and harvested by fossil fuel-spewing combines and tractors. Industrial farming may be able to produce food cheaply, but it comes with a great environmental cost, says Edward Mukiibi, Slow Food’s new president. The pursuit of profit above all else has resulted in soils so stripped of their nutrients that farmers have no choice but to add increasing amounts of chemical fertilizers and pesticides to maintain production in a downward spiral of additive addiction.

But by focusing on soil health—by letting fields lie fallow, rotating crops, planting hedgerows, or letting cattle churn up the earth and fertilize it with their droppings, among other practices—farmers can improve the quality of their crops, with the added benefit of increased biodiversity and carbon sequestration. That’s the way smallholders used to farm, back when crops were destined for the farmer’s kitchen as much as for the market. These days the practice is called agroecology or regenerative farming, but it’s what Slow Food has been advocating for decades.

Read More: The Ukraine Food Price Crisis is Just a Preview of What Could Happen as Climate Change Worsens

In addition, says Mukiibi, the movement’s promotion of heirloom seeds over commodity crops promotes biodiversity that serves as insurance against climate change. A harvest-time flood might wipe out a farmer’s entire monocrop as well as her yearly income, but if the farmer planted a diversity of seed types with different growth periods, she would likely be able to save a portion of her crops. Mukiibi, the son of a farmer and a trained agronomist, has seen this first hand in his native Uganda. “I’ve seen farmers lose everything. But I’ve also seen how biodiversity promotes resilience. And resilience is key for combating climate change.”

Climate ‘Whack-a-Mole’

But resilience is in increasingly short supply, and alone it may not be enough to protect farmers from the rapid onset of extreme weather caused by climate change. The past two years have battered farmers around the world with successive calamities that would have once been decades apart. The summer heatwave in the UK and France forced small-batch cheese makers to suspend production because their cows’ milk supplies dried up with the grass. In Japan, typhoon Nanmadol flattened Kyushu’s rice fields just before harvest, according to Megumi Watanabe, the head of Slow Food Japan. Meanwhile, warming ocean temperatures are driving fish stocks away, and even the seaweed harvest was low this year.

“Sometimes it feels like a whack-a-mole situation in which each season of the year requires more investment in time, energy, and supplies to get through,” says Adrianna Moreno, a first generation farmer and co-founder of Empowered Flowers, a woman-owned organic farm in Oregon. In 2021, she had to invest in shade cloth to protect her plants from sunburn through the unusually hot summer; this year she had to install greenhouses to help keep young seedlings dry in excessively wet conditions. She and her co-founder have no plans to throw in the towel, she says on the sidelines of the Terra Madre event, at least not “before we absolutely have to.”

Read More: The Cow That Could Feed the Planet

Others had it even tougher. Italy’s Po River Valley, a lush, well-watered plain that birthed ancient empires, succumbed to an unprecedented drought this summer. Starved by a dry winter that saw very little snowpack in the Alps, the Po dried up, along with a canal system that had irrigated the region’s rice paddies for centuries. Spring rains never arrived, compounding the problem. This is only the beginning, says Christina Brizzolari, an Italian rice farmer who converted conventional fields into a zero-waste, regenerative farm ten years ago. “Everyone is now saying that this summer will turn out to have been the best of the next ten years when it comes to weather.” Brizzolari lost 20% of her crop, and most of her neighbors lost everything. “This is a region that has been growing rice for hundreds of years. But tradition is no match for climate change. Without water, you can’t grow rice. What will we do, switch to soy?”

Preparing for the Future

The Slow Food movement promotes traditional crops wherever possible, but that ethos may soon have to give way to a climate that is changing too fast for tradition to keep up. The Intergovernmental Panel on Climate Change’s 2019 report on land use and food security warns that if current greenhouse gas emission trends continue, agriculture that has been practiced for generations may no longer be possible in many parts of the world by 2050, and in some areas, like northern Africa or Southeast Asia, even sooner.

Australians are starting to get a glimpse of what that might look like. Amorelle Dempster, a Slow Food advocate and farm-to-table restaurateur, has been converting conventional farmers in her corner of Australia’s Hunter Valley to biodiverse and regenerative systems for the past 20 years. But a series of biblical-level and climate-change connected plagues over the past three years, from drought to bushfires, mouse infestations, and now floods, have tested even the most committed of farmers.

It’s hard to see how diversifying crops and healthy doses of cow manure will make a difference in the face of such climate change driven extremes. The most important lesson of Slow Food, says Dempster, is not how to farm as much as how to be flexible in the way you think about farming. Sometimes that means going back to old traditions, like crop rotations. Other times that means moving beyond the farm gate entirely. In the next couple of decades, she says, the Hunter Valley’s rich floodplain will become increasingly saline as rising ocean levels inundate the river mouth. Farmers could think about planting salt-tolerant plants in those areas. They could also start considering taking their crops to higher ground. “We know how to farm in a way that is good for us and good for the soil. But that is not always enough. We also have to adapt,” says Dempster. “Now is the time to start talking about relocating farms and protecting fertile areas from development.” Climate change is a threat, she says, “but in a way it’s helping us to realign what we know about farming with how the food system will work in the future.”

Read More: Massimo Bottura Wants You to Stop Wasting Your Food

Although regenerative farming can reduce carbon emissions while improving carbon sequestration, it is hard to see how it can be implemented on a scale large enough to truly reverse the effects of climate change on agriculture, all while feeding a growing global population. Slow food proponents say part of the solution lies in reducing food waste—a third of the world’s food production is either plowed under or thrown out every year—but the ability to maintain local food sources and food security well into the future requires substantial reductions in global greenhouse gas emissions that go far beyond the food system.

Slow Food evangelists like to say that change starts with individual choices: buying local, going organic, reducing meat consumption and avoiding food waste. “We are all just drops of water,” went another popular powerpoint slogan at the conference roundtables, “But together we make the ocean.” Actually, 7.98 billion drops barely fill a swimming pool. Slow Food alone won’t stop climate change. Ultimately the solution starts with eliminating fossil fuels. But at least we will eat better on the way.

House Democrats demand resignation of World Bank chief over climate remarks



Tobias 
Thu, September 29, 2022 

Twenty-seven House Democrats have joined a growing chorus of voices calling for the resignation of World Bank chief David Malpass after he made comments that critics say smacked of climate denial.

In a letter sent Thursday to President Biden, representatives Jared Huffman (D-Calif.), Sean Casten (D-Ill.) and 25 other Democrats said Malpass’s recent comments were both “troubling” and “unacceptable” and that the World Bank should have a “leader who listens to the science and is a global leader in combating climate change.”

“We urge you to advocate for the removal or forced resignation of David Malpass as World Bank Group President. The facts are clear that we are in a climate crisis and there’s no alternative but to take bold action,” the lawmakers wrote.

At an event during U.N. high-level week in New York, Malpass was asked whether he agreed with the scientific consensus that the “manmade burning of fossil fuels is rapidly and dangerously warming the planet.”

“I don’t even know. I’m not a scientist,” Malpass said in response.

His remarks prompted an outcry from environmentalists including Al Gore, who called Malpass a “climate denier.”

The World Bank chief later tried to restate his position in a subsequent interview with CNN International, saying he believed that greenhouse gas emissions are coming from man-made sources that include fossil fuels.

“It is unacceptable for David Malpass, as President for this leading international development institution to be so brazenly ignorant toward the impacts of the climate crisis,” the lawmakers wrote to President Biden.

“We need a World Bank Group leader who fully appreciates the threat of climate change and the need to accelerate the global transition to a clean just energy future to improve living standards, reduce poverty, and encourage sustainable growth.”

The Democrats argued that the U.S. should make investments in more environmentally friendly sources of energy and use its influence to pursue this goal in international institutions.

“The United States is the largest shareholder in the World Bank, and our influence can determine the direction of their investments for years to come. The United States has significant influence to push the institutions to end their support for fossil fuel investments and significantly increase the quality and quantity of their climate finance,” they wrote.

CAPITALI$M* DOESN'T CARE ABOUT 'CHINESE CHARACTERISTICS'

China Shares Plunge to Lowest Valuation on Record in Hong Kong

*WHAT GOES UP MUST COME DOWN


Lianting Tu and Charlotte Yang
Fri, September 30, 2022 




(Bloomberg) -- Grim milestones keep piling up for Chinese stocks listed in Hong Kong.

As September draws to an end, the Hang Seng China Enterprises Index has lost 14% to rank as the worst performer among major equity benchmarks globally this month. Hovering around the lowest since the global financial crisis, it is now trading at 0.6 times book value, the cheapest ever.

All but three stocks are down the year on the 50-member gauge, with property developers and tech companies at the bottom. China’s largest builder Country Garden Holdings Co. has lost almost three quarters of its value and video streaming firm Bilibili Inc. is down about two thirds.

While the swoon is part of a global rout as central banks around the world step up rate hikes to tame inflation, Chinese stocks have been hit particularly hard as the Covid-Zero policy took a toll on the nation’s economy and as Sino-American tensions worsened over Taiwan and Russia.

Also, unlike the mainland, Hong Kong’s open capital market means foreign investors can pull their money out anytime they want, making it prone to bigger swings amid macro headwinds.

READ: Things Keep Getting Worse for Hong Kong’s Embattled Stock Market

Some investors are pinning their hopes on China’s twice-a-decade Communist Party Congress in mid-October, an event that has typically boosted the stock market in the past. The nation has already been ramping up its support of the housing market ahead of the event, although analysts say it’s not enough to turn around the embattled industry.

“For China, it is still more about whether Covid restrictions will ease up after the 20th party congress and whether the economy will see a recovery,” said Kevin Li, fund manager at GF Asset Management.

China’s factory activity continued to struggle in September as the economic recovery was challenged by lockdowns. Demand from overseas for Chinese goods is also moderating: a gauge of new export orders in the official PMI fell to 47, the lowest in four months.

As the mainland goes on a weeklong Golden Week holiday, Hong Kong-listed stocks will lose a big group of buyers who have been loading up shares in the financial hub on all but three days this month.

Until China relaxes its Covid-Zero policy and reopens, “it is difficult to see what other factor could meaningfully give a boost to investor sentiment, especially in Asia,” said Christina Woon, investment director for Asia equities at abrdn plc.

Chinese archaeologists excavate 1-million-year-old human skull



Bryan Ke
Fri, September 30, 2022 

Chinese archaeologists announced that they have discovered an almost complete human skull around 1 million years old from a dig site in China’s Hubei province.

The skull, excavated by a team of archaeologists from the Hubei Provincial Institute of Cultural Relics and Archaeology, is the most complete human skull that has been unearthed from that period in mainland Eurasia, according to South China Morning Post, citing a Wednesday report from Hubei Daily.

Archaeologists expect that this latest discovery – the third human skull found at the same site in Yun County – will help shed light on human evolution in East Asia by providing accurate information on the skull and human face from that period in history.

“The No 3 skull is similar to the first two in terms of burial environment, faunal remains and technical characteristics of stone products, so the three skulls should belong to the same age,” Lu Chengqiu, head of the excavation team and a researcher with the Hubei Provincial Institute of Cultural Relics and Archaeology, told Hubei Daily.

Speaking to state-run network CCTV on Wednesday, Gao Xing, a team leader at the archaeological site, noted that archaeologists have excavated very few human fossils so far that date back over a million years.

“As in China and East Asia, the only ones over 1 million years old are Yuanmou Man, which dates back to 1.7 million years ago, and Lantian Man, which is around 1.6 million to 1.2 million years old,” Gao said.

The recently unearthed skull, named by archaeologists as “No. 3 Skull of Yunxian Man,” is believed to be from the Paleolithic period, also known as the Old Stone Age. The first two skulls were discovered

The excavation team has so far unearthed the frontal bone, orbit and other parts of the skull. They hope to locate the rest of it in November.

Archaeologists have also found animal fossils, such as those of large herbivores and some carnivores, as well as stone tools at the dig site. They believe that these tools were used for most likely used for hunting and cutting animals.

“The evidence suggests that Yunxian Man consumed many large herbivores,” Gao said.

Street vendors march to demand dignity, more protections in New York City

Thursday, September 29, 2022 

Street vendors and allies marched through the streets of Lower Manhattan to City Hall to demand dignity and more protections on Thursday. Mike Marza has the story.

LOWER MANHATTAN (WABC) -- Street vendors and allies marched through the streets of Lower Manhattan to City Hall to demand dignity and more protections on Thursday.

Vendors from across the five boroughs, elected officials, and allied organizations want an end to what they say is unjust enforcement.

The Street Vendor Project is advocating for roughly 20,000 street food vendors and merchandise sellers. They want the same protections that other small businesses receive.

Organizers say the city has only issued 5,000 food vendor permits.

They want to overhaul the system, which they say is outdated and often forces them to buy permits on the underground market.

The organization says the march follows a summer of record-breaking fines and being treated like criminals.

"We want to make sure everything is formalized, all the vendors can access the right licenses and permits from the city to make sure that people are formalizing the business and not dealing with the underground market and not being treated as criminals," said Mohamed Attia, managing director of the Street Vendor Project.

The Street Vendor Project says only about a quarter of the operators have proper permits.

"The hard thing for us is to get the permit because we're working for somebody," food vendor Maged Ereur said. "I have a license for like 15 years but I don't have a permit, I applied for a permit and am still in a waiting list."

The group says roughly 90% of vendors are immigrants.

"They are not criminals, they are hard-working people looking for dignity and looking for the legalization of their businesses," said New York State Sen. Jessica Ramos.

The Department of Consumer and Worker Protection acknowledged vending is a complicated issue, adding:

"Unlicensed vending and vendors who flout the rules put New Yorkers at risk of everything from food borne illness to traffic crashes."

ALSO READ | Long Island restaurant owner owes workers thousands of dollars in back wages, NY State says

UPDATES

PUTIN AGREES WITH TUCKER CARLSON

Putin says U.S. and allies blew up Nord Stream pipelines

Sept 30 (Reuters) - Russian President Vladimir Putin on Friday directly accused the United States and its allies of blowing up the Nord Stream pipelines.

"The sanctions were not enough for the Anglo-Saxons: they moved onto sabotage," Putin said. "It is hard to believe but it is a fact that they organised the blasts on the Nord Stream international gas pipelines."

"They began to destroy the pan-European energy infrastructure," Putin said. "It is clear to everyone who benefits from this. Of course, he who benefits did it."

A sharp drop in pressure on both pipelines was registered on Sept. 26 and seismologists detected explosions, triggering a wave of speculation about who might have sabotaged one of Russia's most important energy corridors.


The European Union said it suspected sabotage caused the damage to the Gazprom-led Nord Stream 1 and 2 pipelines in Swedish and Danish waters. The White House has dismissed Russian allegations it was behind the incidents.

Russia's top spy said that Moscow had intelligence indicating that the West was behind what he said was a "terrorist act" against the pipelines. (Reporting by Reuters; editing by Guy Faulconbridge)

What's happening with the Nord Stream pipelines?

Joel Mathis, Contributing Writer
Fri, September 30, 2022 

A pipeline. Illustrated | Getty Images

Somebody has sabotaged the Nord Stream pipelines.

At least four leaks have appeared in the pipelines — both Nord Stream 1 and Nord Stream 2 — that are used to carry gas through the Baltic Sea from Russia to the rest of Europe. On Thursday, NATO formally declared the leaks to be an act of sabotage. "Any deliberate attack against Allies' critical infrastructure would be met with a united and determined response," vowed NATO Secretary-General Jens Stoltenberg.

So who did it? And why? Some fingers are pointing to Russia — and Russia is pointing fingers right back. All of this is going on amid Russia's war against Ukraine, of course, as well as a European energy crisis stemming from that war. What will the Nord Stream leaks mean for a continent in crisis? Here's everything you need to know:

What are the Nord Stream pipelines?

They don't carry all of Russia's natural gas exports to Europe, but they do carry a lot of it. They're owned by Gazprom, the giant Russian energy firm. The first pipeline was announced in 1997 and became operational in 2011, CNN reports. "For the past decade, it has been a key artery carrying Russia's vast gas supplies to Europe, accounting for about 35 percent of Europe's total Russian gas imports last year." The second pipeline was completed last year, but just as it was about to go into operation, Russia invaded Ukraine — and Germany shut the whole thing down.
Was it controversial before the war?

Absolutely. CNBC reported in 2019 that while the pipelines were seen by Europeans as a "sustainable way to ensure European energy security," there were many observers — particularly in the United States — who worried that "Germany's dependence on Russian energy … could make it susceptible to exploitation and more vulnerable to interference." Then-Energy Secretary Rick Perry warned that "Russian gas has strings attached," and Sen Ted. Cruz (R-Texas) was a vocal advocate of imposing sanctions on the second pipeline long before Russia invaded Ukraine.

"Putin's end game is his assured stranglehold over the European energy market," Cruz said in 2020. That would "allow Putin to hold winter energy supplies hostage for the ransom of European Union political deference."

What has happened since the war started?

The worries were justified. Even as European nations have cut off Russia's access to their markets, they've tried to avoid a complete cutoff of energy supplies, but that hasn't really worked out. In April, Russia cut off gas deliveries to Poland and Bulgaria, "cranking up retaliation for Western sanctions imposed for Moscow's invasion of Ukraine," Reuters reported. Then in July, Russia entirely stopped gas deliveries through the Nord Stream 1 pipeline for 10 days, ostensibly for maintenance, before announcing an indefinite shutdown earlier this month.

From that standpoint, the situation is unchanged: Europe already wasn't getting gas from Russia through the pipelines. But it does add uncertainty to an already tense situation.

Winter's coming. How will Europe get through?

Things are volatile.

The tightening of gas supplies from Russia has raised prices and put a massive strain on the continent. "High energy prices are lashing European industry, forcing factories to cut production quickly and put tens of thousands of employees on furlough" and raising the risk of recession, The New York Times reports. In Britain, the national energy regulator announced in August that "U.K. residents will see an additional 80 percent increase in their annual household energy bills." And AP reports that this week, "thousands of protesters rallied again in the Czech capital on Wednesday to condemn the Czech government's handling of the energy crisis and its support for Ukraine."
So if the Nord Stream pipelines were attacked, who did it?

"The short answer is: We don't know, and we won't know for some time," Emma Ashford, a columnist at Foreign Policy, said in a Twitter thread that lays out a number of possibilities. But there is a ton of speculation.

On Fox News, Tucker Carlson made the case that the United States did it, and that it might prompt retaliatory attacks from Russia. (Pro-Putin Russian TV commenters loved that.) A Russian official said the attack "looks like an act of terrorism, possibly on a state level," and suggested the United States might be the beneficiary. Poland and Ukraine blamed Russia, the Times reports, while others suspect "Ukraine or one of the Baltic states, which have long opposed the pipelines, might have had an interest in seeing them disabled." Meanwhile, European security officials say Russian Navy ships were spotted in the area shortly before the pipelines started to leak. What is clear is that nobody — whether or not they're responsible for the sabotage — wants to take the blame.

So what does all this mean for Europe and the war in Ukraine?

There are all kinds of consequences, both in the short-term and the long. Just one example: The gas leaks have been labeled a "climate disaster" because they've released 300,000 metric tons of gas into the atmosphere.

Meanwhile, "the extent of the damage means the Nord Stream pipelines are unlikely to be able to carry any gas to Europe this winter even if there was political will to bring them online," Al Jazeera reports. That could end up being a permanent situation. "Europe is trying to move away from Russian gas, and they'll never again view Russia as a reliable supplier," the Brookings Institution's Samantha Gross tells Slate. This winter, she said, Europeans will probably be forced to put on sweaters and turn down their thermostats: "There's no question — pipeline or no pipeline, accident or no accident — that Europe is facing a real gas crisis this winter."

WORKERS CAPITAL

U.S. pension rebalancing could boost bonds,

 international stocks, banks say

David Randall
Thu, September 29, 2022 


U.S. currency is seen in this picture illustration

NEW YORK (Reuters) - U.S. fixed income and international equities could benefit from quarter-end rebalancing as pension funds square their books after a brutal three months for most asset classes, according to estimates from several Wall Street banks.

Overall, Credit Suisse expects pension funds to buy $30 billion worth of developed market equities and another $15 billion in emerging markets while trimming U.S. large-cap consumer discretionary stocks.

"September has been rough on most asset classes, but on a relative basis, the US has fared better than its international peers," analysts at the firm wrote in a Thursday report.

Wells Fargo, meanwhile, expects pensions to move $10 billion into U.S. fixed income as the group's mean funded ratio - a projection of the gap between a fund's assets and its future liabilities - rises to 107%, near its peak for the year.

Wall Street pays close attention to quarter-end moves by pension funds given their potential outsized market influence. Overall, U.S. state and local pension funds have $5.12 trillion in assets under management, according to data from the Federal Reserve, and often rebalance each quarter to maintain consistent asset allocations.

This year's market swings have presented a challenge to asset managers looking to square their portfolios against a benchmark or return to their long-maintained allocation of stocks versus bonds. The S&P 500 is down 4.6% in the third quarter and has lost 24.2% year to date, while the U.S. bond market - as measured by the $80.3 billion Vanguard Total Bond Market Index fund - is down 3% over the quarter and 14% for the year.

The twin declines in U.S. stocks and bonds this quarter will dampen the overall market effect of investor rebalancing compared to prior periods given that allocations are likely stable, said Marko Kolanovic, chief global market strategist at JPMorgan, in an email to Reuters.

"Stocks are underperforming bonds and other assets - e.g. alternatives - so there could be a bounce 1-2% in stocks given the current low liquidity environment," he said.

(Reporting by David Randall; Editing by Kirsten Donovan)

Pension Rebalancing Threatens to Spur $26

Billion Equity Selloff

Vildana Hajric and Denitsa Tsekova
Thu, September 29, 2022



(Bloomberg) -- US stock investors looking for anything that could halt the rout might not be able to count on a source of support that’s buoyed markets in the past: portfolio rebalancing.

Every quarter- and month-end, pension funds and other institutional investors check their market exposures to make sure they meet strict allocation limits between equities and bonds, as well as between domestic and international stocks. Even amid a global rout, US equities still outperformed many other asset classes, leaving portfolio managers needing to cut their exposure.

When September wraps up, pension funds could be done selling roughly $26 billion in equities thanks to that relative outperformance, according to a Credit Suisse Group AG model.

That’s bad news for anyone who’d hoped buying from that past source of support could act as a lift this time around too. In the last two quarters, the rebalancing by the world’s biggest money managers revived equities by bringing $250 billion into stocks in June and $230 billion in March, according to estimates by JPMorgan Chase & Co.

The S&P 500 lost as much as 2.7% on Thursday as market sentiment soured amid concerns about inflation and the global economy. While the index has slumped 3.7% in the third quarter, global equities have fared even worse, dropping 5.6% with emerging-market stocks falling roughly 12%.

That could give international stocks a boost as Credit Suisse expects buyers to snap up about $46 billion in non-US equities, with $16 billion of that tied to emerging markets. The bank warns the timing of trades could vary dramatically on market sentiment and regularly scheduled cash flows, among other pressures.

Don’t expect the historically stabilizing force of the target-date funds (TDFs) to lead to the usual “miraculous quarter-end stock market rallies,” said Vincent Deluard, a macro strategist at StoneX Financial Inc.

“Equities have outperformed bonds this quarter so the TDF whale should not save the stock market this week,” he wrote

©2022 Bloomberg L.P.

UK government bond tumult ripples into US and European markets

Madeleine Bruder

 

Turmoil in UK government debt has sent shockwaves through global markets, sparking big swings in US and European bonds.

“Bond markets are always highly correlated, but we’ve definitely seen the tail wagging the dog this week,” said Dickie Hodges, head of unconstrained fixed income at Nomura Asset Management. “The moves in gilts were so big that they filtered through to European and US bond markets.”

The 10-year US Treasury, the benchmark in the world’s biggest and most important debt market, on Wednesday posted its biggest one-day rally since March 2020 after the Bank of England announced emergency bond purchases to halt the freefall in UK government debt. Those gains followed heavy losses for global bond markets since last Friday as the heavy sell-off in gilts spread around the world.

Analysts and investors say some of the moves in Treasuries or German Bunds have been caused by leveraged investors — who use debt to amp up their gains and losses — dumping easily tradeable assets elsewhere in order to cover their losses in the UK. But the similar — albeit much more muted — moves in the US and Europe are also down to the shared challenges facing most big economies of how to tame runaway inflation without choking off economic growth.

“Even though the UK is a basket case of its own making, the fact is the same pressures are being acutely felt elsewhere,” said Richard McGuire, a rates strategist at Rabobank. “Investors see the government’s ill-conceived experiment, and wonder if it’s a sign of things to come in other countries.”

Following chancellor Kwasi Kwarteng’s £45bn package of tax cuts and energy subsidies last Friday, traders swiftly priced in a steeper rise in UK interest rates, betting that the BoE would need to tighten monetary policy faster in order to offset the inflationary effects of the fiscal stimulus. Eurozone markets also added expectations for an extra European Central Bank rate increase over the coming year “in sympathy,” said McGuire. He added that his clients, who invest in eurozone sovereign debt, currently have the UK at the top of their list of questions.

The global alignment of monetary policy has also meant that when one central bank changes direction, like when the BoE this week decided to delay its quantitative tightening process, it raises questions about whether other central banks will follow suit.

“In the US market we’re a bunch of single-celled monkeys. You see the Bank of England ending quantitative tightening suddenly and you think that maybe the US will end quantitative tightening too,” said Edward Al-Hussainy, a senior interest rate strategist at Columbia Threadneedle.

The aftershocks of the UK crisis have been particularly evident in the US because of the volatile state of markets more broadly, said analysts and investors. The US and UK, among central banks globally, are raising interest rates at a rapid rate, which has created unusual price swings, even in markets that are typically ultra-stable, like Treasury bonds. Two- and 10-year Treasury notes are both on track to record their biggest sell-off on record this year.

A significant reaction in markets is to be expected, given the historic shift in monetary policy this year. But those moves have also been exacerbated as the uncertainty about the future direction of monetary policy have pushed more cautious investors on to the sidelines. With fewer investors in the market, price swings become even more dramatic, a phenomenon some investors have described as a “volatility vortex.” 

“In higher volatility moments, everything becomes correlated,” said John Briggs, head of US rates strategy at NatWest Markets.

“Even though what is going on in the UK, objectively, shouldn’t have any impact on the Fed outlook or inflation, the fact is that when markets move to that degree, no one is going to be immune. Volatility begets volatility,” said Briggs.

Two Fed officials this week have indicated that the crisis in the UK could potentially create problems for the US. Raphael Bostic, president of the Atlanta Fed said that the UK’s tax plan and the ensuing market volatility could increase the chances of tipping the world economy into a recession. New Boston Fed president Susan Collins also said that “a significant economic or geopolitical event could push our economy into a recession as policy tightens further.”

“There is money moving back and forth that keeps various national markets in line with one another,” said Gregory Whiteley, portfolio manager at DoubleLine. “It is natural spillover as money moves between markets to take advantage of changing prices.”

Five lessons from Britain’s bad week

Madeleine Bruder

This article is an on-site version of our Unhedged newsletter. Sign up here to get the newsletter sent straight to your inbox every weekday

Good morning. Yesterday, we avoided writing about the UK’s fiscal/financial/economic car crash, pleading that we were simple provincials focused on the American colonies. Readers wrote to say this was a dumb excuse for avoiding the biggest story in markets. We fold. Email us: robert.armstrong and ethan.wu.

Also, Monday will bring another collaborative edition of Unhedged, this time on Japan. We’re excited.

The mess in the UK

Financial journalists know that something has probably gone badly wrong when they have to learn a new acronym. This week it was LDI.

Liability-driven investing is a niche concept from the pension industry, of particular importance in the UK. But as much fun as it is to blame feckless pension managers or witless politicians, nothing about this week’s crackup is intrinsically pension-specific or British. It is exactly the type of event one expects at moments like this — at the end of a long bull market, with financial conditions tightening and growth slowing. So, lesson number one:

1. The LDI near-catastrophe was not a one-off

Here is what appears to have happened with pension funds and the gilt collapse this week:

• Some big UK pension plans had a lot of long-term liabilities.

• The plans didn’t have enough money to buy long-term government bonds that closely matched all their liabilities — because bond yields have been miserably low for years.

• The plans therefore bought things with higher expected returns than bonds, such as equities.

• This put the plans at risk for asset-liability mismatches. If interest rates fell — that is, if bond prices rose — the value of their liabilities will rise. Their equity (or whatever) assets might not rise at the same time, leaving them in a badly unfunded position on their next accounting statement.

• So the plans signed derivative contracts, under which they would receive money from their counterparties when bond prices rose and pay money to those counterparties when bond prices fell. These were probably some flavour of receive-fixed pay-floating swaps.

• A while later, UK chancellor Kwasi Kwarteng, dumped a petrol can of unfunded tax cuts on to the UK’s inflationary fire. UK gilt prices fall a lot. The plans now had to pay a lot of money.

• To raise this money, the plans had to sell whatever’s handy. Gilts were one of the handy things.

• Gilts fell more. More margin calls followed. More selling. Finally, the BoE was forced to intervene.

The key feature of this sorry tale is that some financial institutions had de facto or actual financial leverage that did not seem to be particularly risky to them, or to almost anyone else. This time around the leverage took the forms of those derivatives. They may have thought: what are the chances of gilt yields moving more than a full percentage point in a few days? Why, that’s a six-sigma event (or whatever)! Hidden leverage of this sort grows, like black mould in a basement, during long placid periods in markets. Low interest rates also provide a humid environment for financial fungi to grow. More floorboards will be ripped up, and more mould will be found, before this policy tightening cycle ends. Relatedly:

2. Stressed markets are non-linear markets

We learned in the great financial crisis that financial market outcomes are not normally distributed — not when it counts, anyway. The point was repeated in research reports, articles, books, movies and bumper stickers. But before long we all default to thinking in terms of average annual performance, standard deviations and so on. We just can’t help it. Well, friends, tail risk is back. How many UK investors were positioned for 30-year gilts to rise 121 basis points in three trading days? Investors who can’t handle high volatility — say, middle-aged journalists with big mortgages and twins who will be in college in a few years — should think about cutting risk now.

3. Central banks want to fight inflation, but they have other priorities, too

The Bank of England’s (temporary) resumption of bond-buying shows that the fight against inflation is conditional. It is stunning that the central bank would buy bonds with UK headline inflation at 10 per cent. It nodded to this awkward fact in a statement issued by the BoE financial policy committee (notably, not its Monetary Policy Committee):

Were dysfunction in [the long-dated gilt] market to continue or worsen, there would be a material risk to UK financial stability. This would lead to an unwarranted tightening of financing conditions and a reduction of the flow of credit to the real economy …

These purchases will be strictly time limited. They are intended to tackle a specific problem in the long-dated government bond market.

This mini-QE is supposed to last two weeks and, if it goes no further, the ultimate impact on UK inflation will probably be small. But if the gilt market remains unsteady, the BoE could end up removing monetary stimulus with one hand (through higher rates) while adding to it with the other (through bond-buying). In other words, the cost of stopping a financial meltdown is higher longer-term inflation risk. Relatedly:

4. Another developed economy is using yield curve control, or at least an impromptu version of it. Others could follow

By pinning down long rates while not backing down from further short rate increases, the BoE is dabbling in yield curve control. It hasn’t gone full Japan; there is no explicit long yield cap. But the move will revive the argument over whether YCC should be part of the central bank toolbox. Over at Free Lunch (subscribe here), the FT’s Martin Sandbu has made the case:

If financial markets are so sensitive to moves in longer-term government bonds, then why should central banks not focus more on controlling those rather than the short rates? We know two things. First, that if monetary policy controlled long yields, changing them gradually as the macroeconomic picture required, this week’s UK pension funds debacle would not have happened. Second, that central banks can choose to target long rates: the Bank of Japan has, for years, demonstrated how. Other central banks have adopted Japanese policies before. It seems time to consider doing so again.

This makes Unhedged nervous. True, Japan’s experience with YCC has not looked catastrophic. But Japan is Japan; its circumstances are sui generis. In a different context, might YCC, basically open-ended QE, drive private capital out of government bond markets and fuel speculative excess elsewhere? How much the unwinding of QE has frazzled US Treasury markets hints at another unappreciated risk: the process only works smoothly and predictably in one direction. Any unforeseen consequences may prove hard to undo.

5. End-of-an-era arguments just got a little stronger 

Some people think that after the current inflationary incident is over, we will return to what was once called “the new normal”: low inflation, low growth, low rates, low volatility, high asset prices. Other people think that the pandemic only hastened the end of this pleasant economic regime. They argue it was doomed anyway, driven by demographics, global politics, the energy transition and huge accumulation of debt. Unhedged has written about this debate a number of times.

One leg of the fin-de-siècle argument is that, under demographic, political and financial pressure, governments will resort to fiscal as well as monetary excess, pushing inflation and rates up and asset prices down. The argument was articulated by Albert Edwards of Société Générale, with characteristic flourish, a few days before the Truss budget came out:

Until recently, economic ideology had prevented [politicians] breaking free from fiscal austerity. That had caused central bankers to fill the economic void with super-expansionary monetary policy. Those days are now over and aggressive fiscal activism reigns supreme, most visible currently in the UK. This will bring higher growth, higher inflation, and higher interest rates across the curve. The party for investors is over.

It is easy to laugh off the so-called perma-bears who have argued (for as much as a decade) that the post-financial crisis financial settlement was unsustainable and would end in tears: Edwards, John Hussman, Nouriel Roubini, Jeremy Grantham, and a few others. But if we do get a crash, they will be forgiven for being early. And the events in the UK this week fit nicely with their dreary prognostications. (Armstrong & Wu)