- Germany May Be A Bigger Threat To The European Union Than Brexit
Submitted by John Mauldin via MauldinEconomics.com,
Two polls were recently released that call the European Union in question.
A poll in Italy reported that the Five Star Movement (a populist political party that wants to hold a referendum on whether Italy should remain in the European Union) was the most popular political party in the country ahead of local elections scheduled for next month.
On the same day, British researchers who surveyed nine EU countries reported that 45 percent of respondents believed that their country should hold a referendum on whether to remain in the EU.
48% of Italians want to leave the EU
Reuters tried to explain that political scandals, which have undermined public confidence in current Prime Minister Matteo Renzi’s Democratic Party, affected the poll numbers. But this is Italy we’re talking about, the same country that brought us Silvio Berlusconi.
The country is no stranger to political scandals. A few instances of corruption would not be enough to make an anti-establishment party like the Five Star Movement as popular as it has apparently become.
The problem in Italy is economic. Unemployment in at least four of Italy’s southern provinces is over 18.8 percent, and in the other southern provinces, it is between 12 percent and 18.7 percent. And Italy hasn’t yet solved its non-performing loan problem.
Two simultaneous phenomena are occurring here. The first is disillusionment with the Italian government. What was an economic problem has become a political problem, and since Italy is a democracy, its leaders can be voted out of office. The next general election is not until 2018, but if developments continue to unfold in Italy, the situation is only going to get worse for mainstream political parties.
The second, deeper question is whether Italy wants to stay in the European Union. A Euroskeptic party is becoming the most popular political party in the eurozone’s third-largest economy. The rise of euroskepticism manifests itself in the polls, too—58 percent of Italians wanted a referendum on EU membership, and 48 percent would have voted to leave the EU.
In France, one of the twin pillars of the EU, 55 percent of survey respondents agreed a referendum should be called, and 41 percent said they would vote to leave.
Brexit debate adds fuel to the fire
Most debates over Brexit have revolved around potential consequences for Britain—whether Scotland might push for another independence referendum and join the EU on its own terms, or whether and how much (in terms of money and jobs) the UK would lose as a result of a decision to exit.
What was less addressed, however, is how Britain’s stand against the EU and the public debate is dividing the rest of Europe. Prime Minister David Cameron negotiated a series of exceptions early this year. Even if the UK remains, it will have a new set of understandings with Brussels, and other countries may follow its lead.
If Britain leaves and doesn’t undergo an apocalyptic depression, poll numbers might begin to trend upward—and they don’t have a long way to go to become the majority in some of the EU’s most influential states.
Germany is a ticking bomb
At the center of the European Union is Germany whose export-dependent economy is gradually falling apart. (Geopolitical Futures, in partnership with Mauldin Economics, has published a detailed study of the German economy. Click here to claim your free copy).
The German economy has thus far been able to avoid the crisis of the exporters that has affected every other major exporting country in the world – from the producers of manufactured goods like China and South Korea to commodity exporters like Russia and Saudi Arabia.
The US Treasury Department recently announced that the US would monitor China, Japan, Korea, Taiwan, and Germany for potential currency manipulation. The report noted that Germany has built up a significant bilateral trade surplus with the US, in addition to holding the second-largest current account surplus in the world, at approximately 8.3 percent of GDP.
It isn’t currency manipulation that has put Germany on this monitoring list. It is the fact that European and Chinese demand for German products has fallen. As a result, the US has become the destination for Germany’s exports in order to make up the difference. Export to the US, however, is a Band-Aid on a deeper wound.
There are a number of factors besides exports that go into Germany’s current account surplus. Germany has become a significant creditor. Its net foreign assets rose from almost zero in the 1990s to around 40 percent of GDP by the end of 2010, according to economic scholar Jörg Bibow.
Interest rates are low, and German banks are viewed as a safe haven in the European Union for stashing money. But since Germany is a creditor, many of the assets on German books are the unpaid debts of other eurozone countries. That means Germany is deeply exposed to a eurozone that still has not meaningfully recovered from the 2008 crisis.
Account surplus is usually seen as a positive. But if Germany has a surplus of 8.3 percent of GDP, why not use that surplus to stimulate domestic demand? Germany must be either unwilling or unable to use the surplus to stimulate domestic demand. This is in part because Germany is a creditor and invests abroad and in its own banks and companies.
And this gets at the root of the entire problem. Germany exports almost half of its GDP. Germany imposed austerity on the EU after 2008, which has resulted in stratospherically high unemployment rates in southern Europe.
Demand has not returned to pre-financial crisis levels. Germany has been able to skirt the crisis while most of Europe is either still suffering or is in the doldrums. There are limits to US demand and its tolerance of German exports.
All of this offers different unique prisms through which to see how the European Union’s connective tissue is fraying as the bloc’s economic logic becomes increasingly illogical.
Germany is the powerhouse of the EU and the fourth-largest economy in the world. But the truth is, the Germans are facing a profound crisis – and there's no way they can prevent it.
- "It's A Seismic Shift" – Japan's Biggest Bank To Quit As JGB Primary Dealer
Ever since the launch of Japan’s QE, and worsening in the aftermath of January’s shocking NIRP announcement, Japan’s bond market, which moments ago slid to new record lows yields across the curve, has had its share of near-death experiences: between repeated VaR shocks, to days in which not a single bond was traded, to trillions in bonds with negative yields, it has seemed that the Japanese Government Bond is on life support. That support may be ending.
According to Nikkei, and confirmed by Bloomberg, Japan’s biggest bank, Bank of Tokyo-Mitsubishi UFJ, is preparing to quit its role as a primary dealer of Japanese government bonds as negative interest rates turn the instruments into larger risks, a fallout from massive monetary easing measures by the Bank of Japan. While the role of a Primary Dealer comes with solid perks such as meetings with the Finance Ministry over bond issuance and generally being privy to inside information and effectively free money under POMO, dealers also are required to bid on at least 4% of a planned JGB issuance, which as the Nikkei reports has become an increasingly heavy burden for BTMU.
In other words, one of the key links that provides liquidity and lubricates the Japanese government bond market has just decided to exit the market due to, among other thinks, lack of liquidity entirely due to the policy failure of Abenomics in general, and Kuroda’s disastrous monetary policies in particular. One could, of course, ask just how does BTMU plan on also exiting the Japanese economy itself, if and when the country’s $8 trillion bond market implodes, but we doubt the bank will ever be able to answer that.
The ministry is expected to let the bank resign.
Japan has 22 primary dealers including megabanks and major brokerages. Several foreign brokerages had pulled out before as part of restructuring efforts at home or for other reasons, but BTMU will be the first Japanese institution to quit.
In a revolutionary shift, one created by the Bank of Japan itself, banks, once the biggest buyers of JGBs, see little appeal in sovereign debt today. The bonds have very low yields, and a rise in interest rates could leave banks with vast unrealized losses. Private-sector banks held just over 229 trillion yen ($2.13 trillion) in JGBs at the end of 2015, nearly 30% less than at the end of March 2013, before the BOJ launched massive quantitative and qualitative easing measures.
Negative rates introduced this year by the BOJ reinforced the trend. The highest bid yield on benchmark 10-year JGBs sank to a record low of negative 0.092% on Thursday. BTMU was the fifth-largest buyer of Japanese government bonds among the 22 primary dealers until spring 2015, but ranked 10th or lower between October 2015 and March 2016 as shareholders turned up their nose on government debt.
Ironically, the same NIRP that was supposed to save Japan’s economy is now set to kill Japan’s bond market: Japan’s three megabanks halved their JGB holdings to a total of 54 trillion yen in the three years through March. They get little benefit from building up their positions on negative-yield bonds, which result in a loss when held to maturity.
Meanwhile, Peter Pan Kuroda and his merry monetary lunatics, continue continue to crowd out the entire market, purchasing 100% of gross issuance, or a whopping 80 trillion yen in JGBs annually, and last year its holdings surpassed that of commercial banks in 2015 for the first time in about 40 years.
For now, Japan’s increasingly fragile bond market appears stable thanks to the central bank’s massive intervention, however the irony is that the more the BOJ intervenes the more it will have to intervene to sustain the illusion that there even is a bond market. That will not last long, and now that the Primary Dealer exodus has begun, what little liquidity there was in JGBs will evaporate completely.
For now, few expect immediate turmoil from BTMU ceasing to be a primary dealer. But a drop in private-sector interest could undercut the market in the medium to long term. Actually replace “could” with “will.”
Analysts, while slow to pick up on the news, are waking up to a changed world for the world’s second largest government bond market. According to Chotaro Morita, chief rates strategist at SMBC Nikko Securities, news that Japan’s largest banks may return its primary-dealer license signals a “seismic change” in Japan’s govt bond market, initially triggered by BOJ’s QQE.
Trying to downplay the impact of this shocking move, Morita said that the short-term impact on JGB market may be limited given BOJ’s purchases, however he adds that “if other large banks follow this move, it’s hard to say there will be no impact.”
According to the Nikkei that’s precisely what is about to happen: Sumitomo Mitsui Financial Group and Mizuho Financial Group also may consider quitting like BTMU.
As a reminder, according to the BIS, Japan had a little over $8 trillion in government debt as of 2015.
- Ali Is Dead, Fear Is Alive & Free Speech Is Being Dealt A Knock-Out Punch
Submitted by John Whitehead via Rutherford.org,
“What are the defenders of free speech to do? The sad fact is that this fundamental freedom is on its heels across America. Politicians of both parties want to use the power of government to silence their foes. Some in the university community seek to drive it from their campuses. And an entire generation of Americans is being taught that free speech should be curtailed as soon as it makes someone else feel uncomfortable. On the current trajectory, our nation’s dynamic marketplace of ideas will soon be replaced by either disengaged intellectual silos or even a stagnant ideological conformity. Few things would be so disastrous for our nation and the well-being of our citizenry.”—William Ruger, “Free Speech Is Central to Our Dignity as Humans“
As a nation, we have a tendency to sentimentalize cultural icons in death in a way that renders them non-threatening, antiseptic and easily digested by a society with an acute intolerance for anything controversial, politically incorrect or marred by imperfection.
This revisionist history—a silent censorship of sorts—has proven to be a far more effective means of neutralizing radicals such as Martin Luther King Jr. than anything the NSA, CIA or FBI could dream up.
In life, King called for Americans to rise up against a government that was not only treating blacks unfairly but was also killing innocent civilians, impoverishing millions, and prioritizing the profits of war over human rights and dignity. This was a man who went to jail over racial segregation laws, encouraged young children to face down police dogs and water hoses, and who urged people to turn their anger loose on the government through civil disobedience. King actually insisted that people have a moral responsibility to disobey unjust laws.
In death, however, King has been reduced to a face on a national monument and a national holiday, neither of which even hint at the true nature of the man: fiery, passionate, single-minded in his pursuit of justice, unwilling to remain silent in the face of wrongdoing, and unafraid of offending those who might disagree with him.
A contemporary of King’s, heavy-weight championship boxer Muhammad Ali followed a different path as a social activist and “breaker of boundaries.” Like King, Ali didn’t pull any punches when it came to saying what he believed and acting on it. Yet already, in the wake of Ali’s passing, we’re being treated to a sentimentalized version of the heavy-weight boxer.
In life, Ali was fast-talking, fast-moving and as politically incorrect as they come. He became an early convert to the Nation of Islam, a black separatist religious movement whose membership at one time included Malcolm X and Louis Farrakhan. He denounced his “slave name” (Cassius Marcellus Clay) and refused to be the “white man’s Negro.”
He was stripped of his boxing title, arrested and threatened with five years in prison and a fine of $10,000 after refusing to be drafted into the Army as a conscientious objector to the Vietnam War. “My conscience won’t let me go shoot my brother, or some darker people, or some poor hungry people in the mud for big powerful America,” declared Ali. “And shoot them for what? They never called me nigger, they never lynched me, they didn’t put no dogs on me, they didn’t rob me of my nationality, rape and kill my mother and father. … Shoot them for what? How can I shoot them poor people? Just take me to jail.”
As First Amendment scholar David L. Hudson Jr. notes, “Ali’s remarkable career and life placed him at the vortex of these First Amendment freedoms… Ali freely exercised his religious faith. He regularly spoke provocatively on a variety of topics. The press was abuzz with coverage and criticism. Thousands assembled in support of him, and the champion himself took part in rallies, parades and marches. Some petitioned the government to redress the injustice of his conviction for refusing military service, which resulted in his being exiled from the boxing ring for his beliefs.”
It took a legal battle all the way to the U.S. Supreme Court for Ali’s religious objections to serving in the Army to be given credence and his First Amendment arguments to prevail. The case was Clay v. United States.
That was in 1971.
Forty-five years later, Ali is dead, fear is alive, and free speech is being dealt one knock-out punch after another.
Indeed, talk-show celebrity Piers Morgan has been soundly trounced and roundly censured for daring to suggest that Ali—a champion of the First Amendment who liberally peppered his speech with words (nigger and Uncle Tom) and opinions (“the white man is the Devil“ and “I’m sure no intelligent white person watching this show … want black boys and black girls marrying their white sons and daughters“) that would horrify most of his politically correct fans—made more “inflammatory/racist” comments than Donald Trump.
Speaking of Trump, in Fresno, California, a third-grader was ordered to remove his pro-Trump “Make America Great Again” hat because school officials feared for his safety. The 9-year-old boy refused, citing the First Amendment.
That was the same argument—a concern for safety—officials used in 2010 when they ordered several high school students to remove their t-shirts emblazoned with the American flag. The concern: wearing the flag on Cinco de Mayo, a Mexican day of celebration, might offend Hispanic students attending the school. The U.S. Supreme Court agreed with the school’s logic. Coincidentally, that same week, the high court also ruled against Confederate flag license plates on the grounds that they constituted government speech and might be offensive to African-Americans.
For those of us who came of age in the 1960s, college campuses were once the bastion of free speech, awash with student protests, sit-ins, marches, pamphleteering, and other expressive acts showing our displeasure with war, the Establishment and the status quo.
Today, on college campuses across the nation, merely chalking the word “Trump” on the sidewalk is enough to have student groups crying foul and labeling it as hate speech in need of censorship. Under the misleading guise of tolerance, civility, love and political correctness, college campuses have become hotbeds of student-led censorship, trigger warnings, microaggressions, and “red light” speech policies targeting anything that might cause someone to feel uncomfortable, unsafe or offended.
As I point out in my book Battlefield America: The War on the American People, this doesn’t even begin to touch on the criminalization and surveillance of various forms of speech that the government deems to be hateful, anti-government, extremist, bullying, dangerous or inflammatory.
One could say that we have allowed our fears—fear for our safety, fear of each other, fear of being labeled racist or hateful or prejudiced, etc.—to trump our freedom of speech and muzzle us far more effectively than any government edict could.
Ultimately the war on free speech—and that’s exactly what it is: a war being waged by Americans against other Americans—is a war that is driven by fear.
America is in the midst of an epidemic of historic proportions. The contagion being spread like wildfire is turning communities into battlegrounds and setting Americans one against the other. Normally mild-mannered individuals caught up in the throes of this disease have been transformed into belligerent zealots, while others inclined to pacifism have taken to stockpiling weapons and practicing defensive drills.This plague on our nation—one that has been carefully cultivated and spread by the powers-that-be—is a potent mix of fear coupled with unhealthy doses of paranoia and intolerance, tragic hallmarks of the post-9/11 America in which we live.
Everywhere you turn, those on both the left- and right-wing are fomenting distrust and division. You can’t escape it. We’re being fed a constant diet of fear: fear of terrorists, fear of illegal immigrants, fear of people who are too religious, fear of people who are not religious enough, fear of the government, fear of those who fear the government. The list goes on and on.The strategy is simple yet brilliant: the best way to control a populace is through fear and discord. Confound them, distract them with mindless news chatter and entertainment, pit them against one another by turning minor disagreements into major skirmishes, and tie them up in knots over matters lacking in national significance. Most importantly, keep the people divided so that they see each other as the enemy and screaming at each other so that they drown out all other sounds. In this way, they will never reach consensus about anything or hear the corporate state as it closes in on them.
This is how a freedom-loving people enslave themselves and allow tyrants to prevail.This Machiavellian scheme has so ensnared the nation that few Americans even realize they are being manipulated into adopting an “us” against “them” mindset. Instead, fueled with fear and loathing for phantom opponents, they pour millions of dollars and resources into political elections, hoping for change that never comes. All the while, those in power—bought and paid for by lobbyists and corporations—move their costly agendas forward, and “we the suckers” get saddled with the tax bills.
We have been down this road before.
A classic example is the fear and paranoia that gripped the country during the 1950s. Many huddled inside their homes and fallout shelters, awaiting a nuclear war. It was also the time of the Red Scare. The enemy this time was Communist infiltration of American society.Joseph McCarthy, a young Republican senator, grasped the opportunity to capitalize on the popular paranoia for personal national attention. In a speech in February 1950, McCarthy alleged having a list of over 200 members of the Communist Party “working and shaping the policy of the U.S. State Department.” The speech was picked up by the Associated Press, without substantiating the facts, and within a few days the hysteria began.
McCarthy specialized in sensational and unsubstantiated accusations about Communist infiltration of the American government, particularly the State Department. He also targeted well-known Hollywood actors and directors, trade unionists and teachers. Many others were brought before the inquisitional House Committee on Un-American Activities for questioning. Regarded as bad risks, the accused struggled to secure employment. The witch hunt ruined careers, resulting in suicides, and tightened immigration to exclude alleged subversives.
“McCarthyism” eventually smeared all the accused with the same broad brush, whether the evidence was good, bad or nonexistent. McCarthy, like many do today, appealed to the low instincts of envy, paranoia and dislike for the intellectual establishment.
“The real scoundrel in all this,” writes historian David Halberstam, “was the behavior of the members of the Washington press corps, who, more often than not, knew better. They were delighted to be a part of his traveling road show, chronicling each charge and then moving on to the next town, instead of bothering to stay behind and follow up. They had little interest in reporting how careless McCarthy was or how little it all meant to him.”
However, on March 9, 1954, Edward R. Murrow, the most-respected newsman on television at the time, broke the ice. He attacked McCarthy on his weekly show, See It Now. Murrow interspersed his own comments and clarifications into a damaging series of film clips from McCarthy’s speeches. Murrow ended the broadcast with one of the greatest news commentaries of all time, also a warning.
We will not walk in fear, one of another. We will not be driven by fear into an age of unreason, if we dig deep in our history and our doctrine; and remember that we are not descended from fearful men. Not from men who feared to write, to speak, to associate, and to defend causes that were for the moment unpopular.
This is no time for men who oppose Senator McCarthy’s methods to keep silent, or for those who approve. We can deny our heritage and our history, but we cannot escape responsibility for the result. There is no way for a citizen of a republic to abdicate his responsibilities. As a nation we have come into our full inheritance at a tender age. We proclaim ourselves, as indeed we are, the defenders of freedom, wherever it continues to exist in the world, but we cannot defend freedom abroad by deserting it at home. The actions of the junior Senator from Wisconsin have caused alarm and dismay amongst our allies abroad, and given considerable comfort to our enemies. And whose fault is that? Not really his. He didn’t create this situation of fear; he merely exploited it—and rather successfully. Cassius was right. ”The fault, dear Brutus, is not in our stars, but in ourselves.”
Whether you’re talking about free speech, surveillance, police misconduct or some other symptom of a government that has grown drunk on its own power, the answer is always the same: “we the people.”
We need to reject fear as our guiding principle, and restore freedom to its rightful place at the center of our republic.
As William Ruger writes in a powerful editorial for Time:We must vigorously re-make the case for free speech. We must recur to its great defenders from ages past and reintroduce their ideas to our fellow Americans. The wisdom of John Milton, John Locke and John Stuart Mill—not to mention that of Americans like George Mason and Justice Louis Brandeis—is as true today as it was in their times. We just have to remember it… we must transmit an understanding of the value of free speech to today’s Americans in order to ensure that it is protected for future generations. And perhaps even more importantly, we need to demonstrate a vigorous commitment to free speech. America’s success depends on whether we continue to embrace this fundamental freedom.
- ISIS Taxes Sockless Women & Beardless Men In Desperate Attempt To Raise Cash
As we have detailed in the past, the dramatic reduction in cash flow from oil sales has taken a tremendous toll on ISIS. A shortage of oil revenues has led to ISIS becoming so desperate for cash that it has even killed its own fighters in order to sell their organs. Now, it appears that another method is being tried to raise funds, this time by taking a page out of the standard government playbook: when you run out of cash, simply find ways to raise taxes on everyone.
RT is reporting that ISIS has now enacted new taxes on those that live in territories under the group's control (which has dropped from 9 million to 6 million people over the past year), and each tax is more bizarre than the next.
For leaving a door open, $100. If one were to fail a random Sharia test, $20 per wrong answer. For women, $30 for not wearing socks, and $25 if a cloak is too tight – for men, a quick trimming of the beard will get you hit with a $50 tax. And if someone is a non-sunni muslim or used to work for the government, then there is a special "repentance" certificate that needs to be paid for, and that will cost anywhere from $200 to $2,500.
"There are fewer people and business activities to tax, the same applies to properties and land to confiscate." Said Columb Strack, senior analyst at IHS. "This is a big indicator of the group's financial difficulties. Taxation makes up about 50 percent of the Islamic State's monthly revenue sources and encompasses almost every aspect of the population's life" added Ludovico Carlino, also of the IHS.
Speaking of every aspect of the population's life, there are even taxes related to livestock. For example, if a bell is found around a sheep's neck, that's a $10 fine for the owner, and the animal will be confiscated.
As ISIS is under pressure in both Iraq and Syria, it may lose even more territory. If and when that happens, who knows what kind of outlandish scheme the group will come up with at that point.
* * *
Bonus: Here is drone footage showing the Syrian army advancing on Raqqa, the de facto capital of the Islamic State.
- Mapping The Cost Of "Sin" Across America
As spring heads into summer across the United States, many Americans may be enjoying a frosty adult beverage. And associated with the purchase of that alcohol, Americans will pay a hefty tax. The taxes collected from so-called sin taxes serve as a major source of revenue for some states. Sin taxes can cover activities from tobacco and alcohol to casino and racing gambling.
HowMuch.net decided to visually break down the amount of revenue that states generate from sin taxes on a total tax revenue basis, as well as examining the amount of revenue generated by the category of "sin taxes". States collected over $32 billion in sin taxes in 2014. As political pressure mounts to keep income and property taxes low, state legislatures have often turned to sin taxes to generate more revenue. Experts note that states have raised taxes on tobacco products 111 times between 2000 to 2015.
Eleven states collected over $1 billion from sin taxes. These states are identified by the darkest color on the visualization above. Pennsylvania led the way with $2.7 billion in sin tax revenues. The Keystone state generated over $1 billion from tobacco revenue alone, one of only three states to do so. This was followed by revenue from racino in excess of $770 million and casino revenue of $575 million.
Pennsylvania is closely followed by New York with around $2.65 billion in sin tax revenue. Close behind in third was Texas with $2.51 billion in sin taxes. The other eight states in excess of $1 billion were Nevada, Indiana, Illinois, Ohio, Michigan, New Jersey, Florida and California.
At the bottom end of the scale, Wyoming had the lowest amount of "sin tax" revenue with only $26 million. North Dakota was in second place with only $41 million.
Taxes on tobacco products is a major source of sin tax revenue. As stated previously, only three states generated in excess of $1 billion in revenue from tobacco. New York took in the largest amount of tobacco taxes with $1.446 billion, in a virtual dead heat with Texas who also took in $1.446 billion. Pennsylvania generated the third largest amount of tobacco revenue at $1.028 billion. On the lower side of the scale, Wyoming only collected $24.4 million in tobacco. South Carolina was the second lowest with only $25 million generated from taxes on tobacco.
Another major category of sin taxes is alcohol. As shown by the visualization, Texas was the only state to generate over $1 billion in revenue from alcohol. The next closest state in a distant second was Florida with $452 million. New York was third far behind Florida with only $250 million in alcohol tax revenue. Wyoming saw the lowest amount of revenue with only $1.8 million from alcohol.
Only certain states allow casinos, thus geographically limiting the amount of revenue generated in this category. Not surprisingly, Nevada led the country in casino taxes with $912 million. The home of Las Vegas, casino revenue is a major source of income for the state. Pennsylvania was in second with $575 million in casino tax revenue. West Virginia was lowest in the category and only saw limited casino revenue of $3.8 million.
Another category with limited participants is revenue from Racinos. The combination of race tracks and casinos generated $937 million for New York, first in the category. This was followed by Pennsylvania with $770 million. Rhode Island followed in third with $318 million. Oklahoma was in last place with only $20 million in racino tax revenue.
The final category of sin taxes is revenue from video-gaming/pari-mutuel activities, generating fairly low revenue overall. West Virginia led the country in this category with $204 million collected. This was followed by Louisiana with $182 million. Illinois was in third with $152 million.
As states continue to grapple with ever-tightening budgets, it is nearly certain that state legislatures will continue to raise sin taxes. Sin taxes are an easy way for states to increase revenue without running into significant political opposition. However, the benefit of ever increasing sin taxes is questionable. Some academic studies have pointed to sin taxes as having limited revenue growth and high costs to enforce. The debate over sin taxes is certain to continue during the election year.
- The US Is Dumping Hazardous Electronic Waste Into Asia
US exports of goods and services may be decreasing, but one export that appears to be hanging in there is hazardous electronic waste.
According to a recent investigation conducted by the Seattle-based e-waste watchdog group Basel Action Network (BAN), much of the hazardous electronic waste discarded in America is not being recycled properly – and by not recycled properly he means dumped in a junkyard in southeast Asia.
Jim Puckett who leads BAN said that "most of the public still thinks that they're going to recycle e-waste right there in America. They have the right to know where their stuff goes."
Last year the investigation inserted GPS tracking devices inside 200 discarded computers, printers and TV's. The devices were dropped off at donation centers, recyclers, and electronic take-back programs across the country. What the investigation found was that about a third of the items were illegally exported from the US, generally ending up in independent shops and junkyards in southeast Asia.
Using a mapping app on an iPad, Puckett tracked several of the items, including one left with Dell Reconnect, to the outskirts of Hong Kong.
From Sputnik
Puckett's investigation led him to a site on the outskirts of the city of Hong Kong, where workers without protective gear, wearing aprons dusted with extremely poisonous toner ink, were dismantling, and in some cases simply smashing, large piles of old printers.
The salvage locations were littered with the broken white fluorescent tubes used to illuminate LCD flat-screen monitors on the printers. When broken, these items release highly-toxic mercury vapor. Through his translator, Puckett learned that the workers were not made aware that they were dealing with toxic materials, or that their health was at risk.Another device mounted with a Puckett GPS locater was found in a nearby abandoned field, amid scattered pieces of LCD and CRT monitors, camcorders and keyboards. Hong Kong bans the import of hazardous e-waste from the US, and Puckett believes many of these operations are illegal.
The Hong Kong Environmental Protection Department said "On the whole, Hong Kong has been effective in combating hazardous waste shipments", also adding that at least 21 cargo loads of e-waste have been sent back to the US in the past three years.
Ultimately, BAN's tracking investigation revealed that 65 US recyclers illegally shipped e-waste to China, Thailand, Pakistan, Taiwan, Mexico, and Kenya. Of the 28 electronic GPS-monitored devices dropped off by Puckett with Dell Reconnect, six went abroad, to Hong Kong, Taiwan, China, and Thailand.
In response, Beth Johnson, the head of Dell's producer responsibility program said the company is interested in finding out how the tracked electronics ended up overseas. "If there is something that did not follow the system, we would certainly want to know about it and certainly take corrective action."
Well, now Dell knows that it's been dumping hazardous electronic waste into Asia – let's see if it updates the website to say: "plus you'll be helping to protect the environment and benefit your community at the same time – all while dumping all of the hazardous shit into Asia!"
- The New "Hope"
Submitted by Ben Hunt via Salient Partners' Epsilon Theory blog,
A policy-controlled market, whether it’s today’s investment environment or the 1930s or the 1870s, places enormous pressure on investors … for yield and consistent return, to be sure, but even more so for a resurrection of the investment beliefs that held sway in “normal times”, for an escape from the prison of extraordinary monetary policy and its grip on market behavior. Pressure and time. That’s all it took for the Shawshank Redemption and that’s all it takes for our modern market redemption. Or it least that’s all it takes for the hope and the escape attempt. Let’s see if we’re as successful as Andy Dufresne.
When suitably crystallized, an investment hope takes on a different form. It becomes an investment theme. Today the investment hope that has crystalized into an investment theme is the notion that soon, just around the corner now, perhaps as a result of the next mystery-shrouded meeting of the world’s central bankers, perhaps as a result of the U.S. election this November, we will enjoy a coordinated global infrastructure spending boom. Of course, this isn’t deficit spending or another trillion dollar layer of debt, but is “investment in our crumbling infrastructure.” This isn’t a mirror image of China’s massive over-build in empty cities or of Obama’s shovel-ready infrastructure projects from 2009-2010, but is “really a free lunch“, to quote Larry Summers, where there’s never a Bridge-to-Nowhere or an Airport-of-One. Or so the Narrative goes.
A Narrative theme is a theme of hope, pure and simple. And because hope can and will emerge without any evidence or support from the real world, a Narrative theme can work from an investment perspective even if it’s a non-event in the real world or, stranger yet, an abject failure in the real world. In exactly the same way that you can invest alongside central bank efforts to prop up markets and drive asset prices higher without believing in your heart-of-hearts that anything these bankers say is even remotely true, so can you invest alongside a Narrative theme without believing a single word of the Narrative itself.
And to be clear, my personal belief is that Larry Summers and the rest of the “public infrastructure projects are great investments!” crowd are sniffing glue. You’re pulling forward future economic activity, that’s all. Read the latest from Howard Marks if you don’t believe me. I’m not saying that government spending is bad — on the contrary, government spending is absolutely necessary to preserve life, liberty, and the pursuit of happiness, and there’s certainly a societal “return on investment” from government spending — but don’t tell me that there’s this huge productivity-enhancing, non-quotation-marked economic return on investment generated by the government building stuff that the private sector doesn’t want to build. Don’t tell me that what China is doing with their infrastructure is “mal-investment”, but that if we do it … well, that’s different, because, you know, our infrastructure is “crumbling” instead of “gleaming” the way it is in … umm … China. Yes, LaGuardia is a miserable airport. So stipulated. But there are infinitely greater productivity gains to be had from changing our insane TSA regulations and reducing security lines than by building a new Terminal B. If you want a massive Keynesian deficit spending program on top of our massive current debt … fine, make the argument. There’s an argument to be made. But don’t put a specious “investment” wrapper around it.
But it’s exactly that specious wrapper — the Narrative — that makes all of this work as an investment theme. If a massive public works program were couched in its traditional Keynesian or neo-socialist form (you don’t see Bernie Sanders talking about the economic ROI of his infrastructure proposals), it wouldn’t have a chance with the Wall Street Journal crowd. But, hey, if a public works program is “a smart investment” … never mind that this is about as smart an investment as Moonbase Alpha (yes, I had the Space: 1999 lunchbox) or perhaps a gigantic hole in the ground … well, then, let’s muster up the usual suspects at CNBC and the Wall Street Journal op-ed staff to get behind this, and let’s convince ourselves that Donald Trump wouldn’t be a nut job president, even though every shred of evidence and plain common sense screams the contrary, because he’s, you know, a “builder.”
It’s all based on hope for real economic growth and an escape from policy-controlled markets, a hope that springs in every investor’s heart given enough pressure and enough time. It’s a hope that, as Sir Francis Bacon said, makes for a good breakfast but a bad supper. We’re in the breakfast phase of this Narrative theme still, as Missionaries (to use the game theory term) like Larry Kudlow beat the drum louder and louder for a big infrastructure spend, and it’s a drumbeat that will continue to grow until there’s a reality check or a powerful Missionary creating Common Knowledge to knock it back. That will be the dinner portion of this Narrative theme, and it will be an unpleasant meal. But I don’t see dinner being served until well after the U.S. election, no matter who takes the White House or how the balance of power shifts in Congress, and it might be a year or two later before the thin gruel of dashed hopes is served up to markets.
So even though I think this U.S. public infrastructure build has barely a whiff of merit from an economic policy perspective, even though I think its net effect once implemented will be to make the ultimate debt reset that much more horrific, I also think it’s a highly investable idea. Because that’s the way you play the Common Knowledge Game.
Common Knowledge is information that everyone believes everyone has heard. It’s why executions were once held in public, not so a big crowd can see the guy getting hanged, but so the crowd can see the crowd watching the guy getting hanged. It’s why political debates are filmed in front of a live audience. It’s why sitcoms have laugh tracks. It’s how a relatively small but highly televised protest in Cairo’s Tahrir Square toppled Mubarak. It’s why the Chinese government still cracks down on media pictures of the Tiananmen Square protests, now more than 25 years old. Common Knowledge is the game theoretic concept behind the irresistible power of the crowd watching the crowd, and as a result Common Knowledge construction by governments, corporations, and yes, central bankers is one of the most potent instruments of social control on Earth.
The Common Knowledge Game is the game of markets, and it’s been internalized by good traders for as long as markets have existed. What you think about the market doesn’t matter. What everyone thinks about the market (the consensus) doesn’t matter. What matters is what everyone thinks that everyone thinks about the market, and the way you get ahead of this game is to track the “Missionary statements” of politicians, pundits, and bankers made through the four media microphones where the Common Knowledge of markets is created: The Wall Street Journal, The Financial Times, Bloomberg, and CNBC. It’s what Keynes called The Newspaper Beauty Contest, and it drove the policy-controlled markets of the 1930s exactly as it drives markets today. Is it an easy game to play? Nope. But you don’t have to be a professional poker player to avoid being the sucker at your local game. You don’t have to be a wizard trader to be aware that the Common Knowledge Game is being played, and that it’s driving market outcomes.
Red and Andy survived more than 20 years in Shawshank prison because they never lost hope. But they were smart about the concept of hope. They didn’t let hope consume them to take stupid chances. In Red’s words, they never let hope drive them insane. That’s the same balancing act we all need to adopt here in Central Bank prison. Hope is a good thing. Hope is a human thing. But hope is also a social construct that is used intentionally by others to shape our behaviors, in markets as in life. That’s the awareness we need to be hopeful survivors here in the Silver Age of the Central Banker, and that’s the awareness I’m trying to create with Epsilon Theory.
- 7 Charts One Hedge Fund Is Watching
Fasanara Capital’s Francesco Filia sends over the following list of things he is watching, as well as the following seven charts he believes will show the upcoming key inflection points.
THINGS TO WATCH
- Yields are reaching new lows: the average German government bond yield is now below zero for the first time in history. 10yr Bunds are testing April ’15 lows (at +7bps). Curve may flatten from here.
- Negative yields putting pressure on the banking sector: historically, the European banking index tends to underperform when interest rates drop and the curve flattens. So far in the last month, banks are over-performing yields. Over-performance may fade from here.
- Within Europe, Italian banks are getting particularly hit: they started to underperform at the beginning of May and the Italian Banks index has now hit new YTD lows.
- We keep a close eye on the other risk factors:
- USD/CNH is surprisingly grinding higher, despite weak NFP, dovish Yellen, weak broad US Dollar, EUR & JPY strengthening.
- Oil and Base Metals decoupled in May: this relation is to be closely monitored, we look at Oil gyrations as short-term heavy volatility, within a long-term downward trend.
CHARTBOOK:
The GERMAN AVERAGE GOVERNMENT BOND YIELD now below zero for the first time in history
‘Umlaufrendite’ dived below zero for the first time last Friday after weak US NFP numbers. Now 10trn$ worth of govies globally trade negatively
GERMAN 10yr and 30yr YIELDS keep falling, curve may flatten further from here
10yr BUND yield already at all-time lows, 30yr BUXL is still ~30bps above historical lows
Banks over-performed yields recently, gap may narrow from here
RATIO of EU BANKS / EUROSTOXX vs. 10yr BUND YIELD. Historically, the relative performance of European banks over the Eurostoxx correlates well with European yield curves. Banks have over-performed recently. The gap is likely to narrow from here: relatively, yields may rise more than bank equities or fall less than bank equities.
Italian banks underperformed the EU banking sector in May by most in 2016
Italian Banks hit new YTD lows this week. Their underperformance vs the EU banking sector is now evident, whereas they had moved broadly in tandem during January/February sell-off. Negative news flows (Veneto Banca, recent local elections) might be the driver of the move. Trend to monitor.
BTP vs. BUND & FTSEMIB vs. EUROSTOXX: Italian underperformance is visible also in the fixed income and broader equity market
The yield spread between 10yr BTPs and 10yr Bunds kept widening since mid-March, while the FTSEMIB underperformed the Eurostoxx even more visibly (10% since January)
USD/CNH grinding higher, despite broad US Dollar weakness
CNH is nearing the psychological level of 6.60, and fixed at its weakest since2011, despite post-NFP broad US Dollar weakness and good China FX reserve depletion numbers just released.
OIL and BASE METALS decoupled in May
While the Oil price kept rising and moved to 50$, base metals fell off a cliff and descended below March lows. A trend to monitor closely for clues on who is right of the two.
- World's "Safest" Market Suffers Worst Volatility Since 2009
As Fed credibility collapses in a pile of failed communications, Bloomberg notes that the $1.5 trillion market for U.S. Treasury bills, known as an oasis of stability for investors worldwide, is experiencing the most volatility since the financial crisis.
Since September's farcical Fed fold, T-Bill yields have seen a visibly notable increase in volatility – extra- and intra-day…
As Bloomberg reports, the gyrations underscore how it’s a precarious time for investors in bills and other instruments in the money market, which the Fed uses to implement policy changes. Asset managers looking to park cash in the short-term securities have to navigate officials’ efforts to normalize interest rates while also adapting to post-crisis rules.
Skepticism toward the Fed’s plans to boost its overnight target, following liftoff from near zero in December, is fueling the volatility. Futures assign a 2 percent chance of an increase at officials’ June 14-15 gathering, and the probability doesn’t exceed a coin toss until December.
“The Fed has hiked once already, so we are in a tightening cycle, but there is enough uncertainty about what that will look like,” said William Marshall, an interest-rate strategist in New York at Credit Suisse Group AG, one of the Fed’s 23 primary dealers.
“The other big uncertainty, where there is still a lot of debate, is what is going to be the end state for front-end demand once the money-fund reforms go into effect.”
While this huge market is the so-called "safest" place to park cash in the world, based on the average daily range swings, T-Bills have not been this 'risky' since 2009…
Regulatory changes are also driving the volatility…
On Oct. 14, Securities and Exchange Commission rules take effect that may lead investors to shift into money-market funds focused on government debt, from prime funds, which typically buy commercial paper. The new regulations mandate that institutional prime funds report prices that fluctuate, rather than sticking to $1 per share. The measures also allow fund companies to use steps such as redemption fees to prevent runs in times of panic.
Amid all the changes, which have already led many money-market companies to alter their offerings, institutional investors may pull about $400 billion from prime funds, JPMorgan Chase & Co. predicted in the first quarter.
The combination of fluctuating Fed bets and purchases of bills related to regulatory changes will spur volatility, said Jerome Schneider, head of short-term portfolio management at Newport Beach, California-based Pacific Investment Management Co., which oversees $1.5 trillion.
“Until these stimuli become reconciled and resolved, we may continue to see relative repricing a normal event in this sector,” he said.
So, as with everything else The Fed touches – stocks are at their lowest volatility in years (amid the highest valuations ever) and T-Bills are the riskiest in 7 years
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