Morning Report: Home Prices continue to rise 2/23/16

Stocks are lower this morning on fears of another yuan devaluation. Bonds and MBS are down.

Home Prices continued to rally in December, according to the Case-Shiller Home Price Index. They were up 0.8% on a month-over-month basis and up 5.7% on a year-over-year basis. Prices remain about 11.5% below their July 2006 peak. Note the FHFA House Price index which we will get on Thursday is already at new highs.

 

Existing Home Sales were up 0.4% at 5.47 million units in January, according to the National Association of Realtors. On a year-over-year basis, they are up 11%, the biggest gain in 3 years. The median home price rose 8.2% year-over-year to $213,800 as supply constraints continue to drive up prices. Housing inventory is 1.82 million units, which represents a 4 month supply. A balanced market is more like 6 – 6.5 month’s worth. Ultimately, the big price increases are unhealthy because incomes have yet to really exhibit growth (although that may be changing). The median house price to median income ratio is roughly 3.8x, using the median income data from Sentier. 3.3 – 3.7x which is about normal.

Speaking of home supply, McMansion builder Toll Brothers reported earnings this morning. Revenues were driven again by an 11.7% increase in average selling prices and not by unit growth. Gross margins fell, which speaks to increasing costs. So far this February, deposits and contracts are flat with last year. The decline in stocks probably has a lot to do with it as the luxury buyer is going to be more sensitive to asset prices than the first time homebuyer.

Interesting to see this dynamic with the builders – a reluctance to build more units despite higher prices. Interestingly, CalAtlantic (the new name for Standard Pacific and Ryland after their merger) is bringing back the buydown loan.

In other economic news, consumer confidence slipped in in February, and the Richmond Fed Manufacturing Index both fell.

Blackrock is warning clients that the Fed is not likely to sit out the rest of 2016, the way the Fed Funds futures markets are predicting. Efficient market theorists might scoff at that notion, however the interest rate markets are so manipulated by central banks at the moment it makes sense to look at market signals with a jaundiced eye. What does that mean to mortgage types? Make hay now, because no one knows how long these low rates are going to stick around.

Speaking of credit markets, the new subprime – auto loans – are beginning to exhibit signs of trouble. Auto loans are being priced like mortgages, however a mortgage is secured by a generally appreciating asset, while an auto loan is secured by a depreciating asset. This is the result of financial repression, which is the act of pushing interest rates to the floor. Investors who have to earn a return (like pension funds and insurance companies) are forced to move further and further out on the risk curve to earn their required return. The actuarial tables really couldn’t care less that interest rates are zero.

Donald Trump looks to be cruising to a third consecutive victory in Nevada. The big question for the D is whether he is a plurality winner or a majority winner. Once the establishment coalesces around one candidate will he continue to lead? One other interesting tidbit: Democratic turnout for the primaries is pretty depressed. Republican turnout is huge. Kind of pokes a hole in the media’s attempt to create a Bernie Sanders movement, doesn’t it?

67 Responses

  1. Frist!


    Heh heh!

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  2. JNC: we keep assuming good faith where there is none. It’s confusing the issue. And for some reason only we’re subject to purity tests

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  3. Who is bothered by the existence of Gitmo and her prisoners?

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    • I’d make some changes, but I believe that the detainees themselves are better off there than in a SuperMax facility. If I was subject to indefinite detention, I know that I would prefer Gitmo over SuperMax.

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    • Who is bothered by the existence of Gitmo and her prisoners?

      Not bothered by its existence. Bothered by some of the detainees. My understanding about detainees from the Iraq war, if any remain, is that they are due for repatriation. My understanding is that some from the Afghan war are held on flimsy allegations, including even mistaken identity.

      However, there are some irreducible minimum of them who may as well remain wards of the Marine Corps.

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      • I see tonight why Gitmo is in the news. Well, if it would be much cheaper to keep the irreducible minimum in SuperMaxes or a new civilian run facility that’s not a crazy idea.

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        • I’d vote for a bullet in the back of the head for the “irreducible.”

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        • Mark:

          Well, if it would be must cheaper to keep the irreducible minimum in SuperMaxes or a new civilian run facility that’s not a crazy idea.

          I thought the whole reason they were kept offshore was because of the legal implications of bringing them onshore. As enemy combatants they could be held indefinitely without trial. How can they be held on shore in a Super Max in the absence of a trial for a declared crime?

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        • And does any serious non-waterboard derived evidence exist? Would Obama really let KSM go on a technicality?

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        • And does any serious non-waterboard derived evidence exist?

          We have read that there is plenty of evidence against many of them, that was not extracted under duress.

          A lot of them, like the idiot who represented himself in federal court, have volunteered their Holy Missions.

          In fact, I do not believe we waterboarded for confessions as such, but for actionable intelligence against others. I opposed that practice, but I also think it was not the basis for KSM’s incarceration.

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        • As enemy combatants they could be held indefinitely without trial.

          Well, until the hostilities cease. So once hostilities cease for us in AFG, as they have in Iraq, we can return them. If we have evidence of war crimes, as I believe we do against some of them, they can be tried either in Federal Court or under a military tribunal that the Supremes find suitable. And then they can be held in a Super Max. Some can be held on piracy charges and they could definitely be tried by a naval tribunal. They should probably be in a military prison when convicted.

          I have read that of the 90 or so remaining, 35 are being sent back somewhere this year and that there are only actually around 30 we think must be held. I do not know if cases can be made against all of them or not.

          There is some propaganda benefit to closing Gitmo, we have been told, but there might be some to keeping it open. I don’t know.

          I do know that I oppose indefinite incarceration of enemy combatants past the expiration date of hostilities, unless they have been tried and convicted of crimes. I think the Supremes were unanimous in that sentiment, were they not?

          And I do not care what happens to them if we return them to their birth countries that will not treat them as humanely as we did. We cannot drop them from the sky without parachutes, of course, which has the same visceral appeal as shooting them.

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        • Mark:

          Well, until the hostilities cease. So once hostilities cease for us in AFG, as they have in Iraq, we can return them.

          Not only can we return them, presumably we must do so. But I doubt that “hostilities” are defined by where they take place (in Afghanistan) rather than against whom they take place (Al Qaeda). I realize it is a gray area since we are talking about a non-sovereign, but it seems to me as long as there is no formal or obvious peace between Al Qaeda and the US, hostilities have not ceased, regardless of whether the US has a presence in Afghanistan or anywhere else.

          But anyway, for whatever the final, irreducible number happens to be, it is the case, is it not, that in order to continue to hold them in a domestic prison they will have to be tried for some crime. My question to Obama would be, if he is so confident that these people can be convicted of a crime, why hasn’t he already done it? He came into office 8 years ago promising to close Gitmo and to rectify the alleged injustice of holding these people “without trial”. And yet to date he has done neither. My guess is that it is because he actually can’t. If he could have convicted these guys in court, he already would have.

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        • Scott, I haven’t kept up with this in the last couple of years. I don’t take issue with anything you wrote except the last three sentences. Last I knew, from prosecutorial sources, there had been about 700 Fed Ct. terrorism prosecutions after 9/11. Mainly convictions after trial, some plea bargains, and some outright dismissals, perhaps 50 as I recall, but no acquittals. But when Holder wanted to prosecute the 9/11 cases in the SDNY, the local and Congressional feedback was so strong that he eventually backed off. So where I disagree with you is that I think there are at least several provable cases that have been on hold because of NIMBY politics, rather than lack of evidence.

          I do think that I recall that some of the 50 or so dismissals were NOT released. I will try to search that if I get a chance.

          Of course these terrorism cases were not mainly Gitmo prisoners, but did include some – I don’t know how many.

          You remember the shoe bomber and the underwear bomber, for instance.

          From when I followed this stuff, the biggest legal issue was probably Special Administrative Measures, which first allowed DOJ to detain suspected terrorists for 120 days [back around 1998], but then became renewable for 1 year at a time at the request of an intelligence agency after 9-11. Which of course has led to some pretty lengthy dententions.

          The Supremes have given the military, the intelligence community, and DOJ lots of leeway here that a strict constructionist might not have permitted. Fear does that. I probably would have done the same if I had been on the Court, myself. But I truly believe that indefinite prolonged incarceration at the whim of the government was never intended, and that the grey area [as you well described it] of combating AQ, or any non-state paramilitary, should be defined.

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        • Mark:

          So where I disagree with you is that I think there are at least several provable cases that have been on hold because of NIMBY politics, rather than lack of evidence.

          That is a fair point. I do recall that happening.

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  4. The Dow is taking Starbuck’s changes in its loyalty rewards program kinda hard today.

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  5. “Kind of pokes a hole in the media’s attempt to create a Bernie Sanders movement, doesn’t it?”

    One of the best observations that Paul Waldman and PL made recently was the potential impact on Sanders Super Tuesday primaries due to Spring Break.

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  6. Was watching an old Bill Maher episode and Keith Olberman showed that at least one liberal doesn’t subscribe to the Trump caricature:

    ““This is the scariest part of this: I have seen him,” Olbermann said. “I have talked to him, and obviously he’d be more interested in whether or not I’m happy with the experience than the average guy living there ’cause I have something of a public persona, but every conversation I ever had with him there, or when we worked together at NBC — simultaneously at NBC — was polite, calm, was about you, not him, was rational and solicitous.”

    “For the longest time I thought, ‘Well, which one is it?’ and then I thought, ‘It doesn’t matter,’” Olbermann said. “One of these things is a character. That scares me.””

    https://www.washingtonpost.com/news/arts-and-entertainment/wp/2015/11/08/keith-olbermann-has-us-asking-will-the-real-donald-trump-please-stand-up/

    The consolation prize on Trump winning will be the epic Plum Line meltdown.

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  7. Liked by 1 person

  8. And so it begins.

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  9. For anyone here who liked Lost and also likes a good period piece, Man in the High Castle (Amazon) & 11.28.63 (Hulu) are both recommended.

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    • I watched Man in the High Castle and found it most enjoyable (Old Hilter!). I’m really liking 11.22.63 but hate having to wait a week to see the next episode. I’m so spoiled by season binging.

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    • I watched and really liked High Castle. Although like Lost I realized I have no idea what is actually going on.

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    • Man In The High Castle is fantastic, particularly the production design. The show itself takes lots of liberties with the original story which is a little thin.

      I don’t have Hulu Plus so 11.28.63 is out. The show I just started is “The Magicians” on SyFy. Think Harry Potter meets Less Than Zero in Narnia. It’s based on a trilogy by Lev Grossman, Time Magazine’s book critic. I just read the middle book which I’m glad I did since the series combines and changes the first two volumes.

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  10. I love this.

    It’s the only educational institution to do this.

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    • What libertarian bell does Trump ring? I do not understand the fascination expressed here for him.

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      • I don’t think Libertarians support him, unless it’s to use him as a cudgel to attempt to destroy the current political order.

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      • His primary redeeming feature seems to be that he drives liberals (and many conservatives) into an apoplectic rage.

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        • YJ, I can see that.

          George, Trump is a product of the same-old same-old. He is a snake oil salesman with a Wharton degree. That he has made money scamming poor people and prospective students while staying within the
          boundaries of the criminal law attests to his ability to work the system, after inheriting a fortune. He seemingly has no actual political beliefs at all. You aren’t buying the wall crap; I know all of you dismiss that and know Trump is having a ball pulling his audience’s chain. Fun to watch? Sure, if it did not say so much about the audience.

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        • If Trump destroys the current order, more power to him. As far as ripping off people, how is he different than any University offering a Women’s Study degree of Mortgage company offering a loan to anyone?

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        • George, mainly no non-profit U, has ever said that a Woman’s Study degree would prepare one for a job, never mind for accumulating wealth. Trump’s pitch was that he would teach deal making, which would give you a chance to get rich, or at least get a job. However, he did not follow through and he encouraged folks to borrow money to pay him for his courses on the premise that it was a good investment.

          When my second daughter was in HS and thought she wanted to be a fine arts major, I sent her to interview profs at UT, and also at the Art Institute in SF. Both places honestly told her that she could not expect a job with her BFA. She had been editor of the Austin HS Yearbook and started to move her sights to advertising, which was in fact a useful degree.

          That is not how the for-profits operate.

          And this is a recent critique of the litigation bound Trump U.

          https://www.washingtonpost.com/news/fact-checker/wp/2016/02/29/a-trio-of-truthful-attack-ads-about-trump-university/

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        • Do you see a difference between going into debt to receive a BA in Women’s studies from, say Wellesly vs going into debt to receive whatever Trump’s school is?

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        • Sure. You can go get your ed cert and teach from Wellesley. You would still be 3 years away from that out of Trump U. There is also the networking with quality broads to be considered.

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        • So with both you come out with debt and no job guarantee and a worthless “credential.”

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        • McWing:

          As far as ripping off people, how is he different than any University offering a Women’s Study degree of Mortgage company offering a loan to anyone?

          He’s running for president.

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        • What difference does that make? Charlatan’s a Charlatan,no? Whether it’s a BS get rich scheme or a Women’s
          Studies degree from a Ivy League school.

          Could a ethical person counsel another to incur debt for either?

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        • McWing:

          What difference does that make? Charlatan’s a Charlatan,no?

          Sure, and I would be equally disturbed by the prospect of the head of Harvard’s Women’s Studies program becoming the Republican nominee for POTUS. But that is not the prospect we are facing.

          In the context of the presidential race, I’m not sure I understand the relevance of the fact that Trump shares an objectionable characteristic with those who run Women’s Studies programs. And to whatever extent it is relevant, it hardly seems to be a point in his favor.

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        • If your point is that Trump is a disaster, I agree with you. I don’t agree that he’s a uniquely bad choice this cycle.

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        • McWing:

          I don’t agree that he’s a uniquely bad choice this cycle.

          I agree. HRC or Sanders would be just about as bad.

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        • I don’t agree that Trump is a disaster. I think that is unknowable. That’s the thing about loose cannons. They might actually hit the target. Then again …

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        • Mark:

          Fun to watch? Sure, if it did not say so much about the audience.

          My sentiments exactly!

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        • He seemingly has no actual political beliefs at all.

          This. I am not entirely convinced this is a bad thing. It would certainly be a new thing in a president.

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      • I don’t support him at all, but my reasons for opposing him are probably 180 degrees opposite of progressives/liberals/Democrats.

        Calling Trump a fascist/racist is meaningless to me, in large part because progressives/liberals/Democrats have been saying the same thing about every Republican since Goldwater.

        My issue is that I don’t like Trump’s positions on eminent domain, libel law changes, free trade, entitlements, etc. He’s also recently flip flopped on legalizing drugs and now opposes it whereas he used to support it.

        Trump’s one redeeming feature is the people who are his enemies.

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        • JNC, I obviously have misread you. I apologize.

          Yes, calling a real estate investor and casino operator who is consumed with his own deal making prowess political names [like “fascist”] completely misses the point and is obviously incorrect, so I take it that those who say it are just using the word “Fascist” to mean asshole, because they have limited vocabularies conditioned on limited understanding of politics.

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        • Ditto the term racist. It’s now completely meaningless.

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        • The term is only meaningless as used by ideologues, politicians, activists, and anybody on the Internet. Or in Hollywood.

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        • They are also playing right into Trump’s hands. It amazing to me that they don’t see how such strategies backfire. At best, it fires up his supporters. At worst, it creates new ones. Too many people confuse the pleasures of preaching to the choir with the ability it make a compelling sermon to a skeptic.

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        • KW:

          They are also playing right into Trump’s hands.

          What kind of attack on Trump wouldn’t be construed as “playing into his hands”?

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        • Observations of the lack of policies, careful breakdown of the price of some of his proposals (the review of his tax policies, from the left, were good attacks). Arguing that he’s Hitler because he wants to pause an immigration program that might be letting terrorists, unvetted, into the country (irrespective of the actual risk involved) is practically an endorsement. Referring to him as embracing the KKK and calling him Hitler suggests those critics are bankrupt of ideas and have no real or meaningful critiques of the guy. It’s basically like admitted he’s awesome so this nonsense is all they have to throw at him.

          The flip-flopping critiques may be weak, but they are better than “Trumphitler”. Way better. Critiques of his tax plan or pointing out his endorsement of single-payer and then discussing current healthcare costs and pointing out he has no clear idea of how he’d reduce those costs would be good critiques. I think discussing his so-called university and the fraud of it, perhaps deconstructing his multiple bankruptcies, his alleged use of legal labor are all possible good attack lines—now, he may charismatically rebut these critiques and come out fine, but at least in those cases the critics aren’t doing the work for him. When critics go to Hitler and KKK, they don’t do any damage to Trump, but they do suggest they had no legitimate objections to the guy. It’s why “virulent racist” and “Worst since Hitler” and “friendly with the KKK” are essentially endorsements of Trump, reflect poorly on his opponents that use them, makes me wonder if a Vicente Fox doesn’t actually want a Trump presidency, and makes the Facebook members and PL-regulars who think they are conducting biting attacks are simply helping the guy. Best case for the left is the GOP establishment does enough to torpedo Trump at some point that he runs 3rd party, splits the vote, and we elect a president Hillary or Bernie. Because the left’s critiques of Trump are, IMO, completely ineffectual.

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        • KW:

          Observations of the lack of policies, careful breakdown of the price of some of his proposals (the review of his tax policies, from the left, were good attacks).

          It’s been done, to little or no effect at all. I think that is because support for Trump is largely not rational, policy-based support. It is visceral, emotion-laden support centered largely on who he is not (ie not the “establishment”). As such, supporters are not prone to being persuaded by any kind of Trump critic. To criticize him at all is to identify yourself as part of the problem, and so not to be listened to.

          Because the left’s critiques of Trump are, IMO, completely ineffectual.

          All critiques seem to be.

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        • Point being, Scott, there is a difference between attacks that don’t work because Trump is coated in Teflon, or because Trump can smart-ass his way out of them, and attacks that actually benefit Trump because they are hyperbolically absurd. These are non-attacks; they are attacks that actively do Trump a favor, as opposed to ones that make him break a sweat to wiggle out of.

          When someone on the left calls somebody a Nazi, I sit up and take notice, and not because I believe for one second the liberal critic has any clue what they are talking about. Combine Trump’s own non-stick coating and self-promotion with idiots on the left who think they are “destroying” Trump with comparisons to Hitler and Nazi Germany and asserting he embraces endorsements from the KKK and it’s a prefect storm for either a President Trump or a near-miss at President Trump.

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        • Whenever I post something that’s an analysis of Trump’s actual likelihood of winning, it’s often taken as support of him as a preferred candidate. This is to be expected at PL where there’s no distinguishing between what one wants to happen and their view of what is likely to happen.

          I’m most likely voting for Gary Johnson again:

          https://www.garyjohnson2016.com/

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        • I’m definitely voting for Johnson. But if we get a president Trump, I think we have mostly his detractors to thank. Everytime I see a picture of Trumo morphing into Hitler, or a learned leftist explaining to me how Trump is exactly like Hitler, or how Trump loves to the KKK, I want to vote for the guy.

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        • would be a pure spite vote for me. “you’ve said i was heartless and evil …. and you were right!” bhahahaa.

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        • jnc:

          Trump’s one redeeming feature is the people who are his enemies.

          Cruz, it seems, fulfills that role too, and has a lot more redeeming features. Hence my puzzlement over the seeming preference for Trump among so many alleged conservatives.

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        • Cruz has a problem invisible to his supporters that important but not relevant, ultimately. It’s the whole “punchable face” vibe. He gives a certain segment of the population, even people who would support him ideologically, the creeps. He just give me a bad vibe. Intuitively, I have a negative response to him. Doesn’t mean he wouldn’t be a fine president, but the charisma-vacuum is a big problem in modern era elections.

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  11. Gotta admit, I find Merkel’s Europe first, Germany second attitude interesting.

    http://in.mobile.reuters.com/article/idINKCN0W208X?irpc=932

    “Sometimes, I also despair. Some things go too slow. There are many conflicting interests in Europe,” Merkel told state broadcaster ARD. “But it is my damn duty to do everything I can so that Europe finds a collective way.”

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