- "We're Going To War" – Oliver Stone Fears The Dangerous Extremism Of Neocon Hillary Clinton
Submitted by Mike Krieger via Liberty Blitzkrieg blog,
When fear becomes collective, when anger becomes collective, it’s extremely dangerous. It is overwhelming… The mass media and the military-industrial complex create a prison for us, so we continue to think, see, and act in the same way… We need the courage to express ourselves even when the majority is going in the opposite direction… because a change of direction can happen only when there is a collective awakening… Therefore, it is very important to say, ‘I am here!’ to those who share the same kind of insight.
— Thich Nhat Hanh, Buddhist Monk, The Art of Power
Oliver Stone has penned a powerful and emotional takedown of Hillary Clinton, focusing on her insane neocon foreign policy chops in a piece published in the Huffington Post titled, Why I’m for Bernie Sanders.
What follows are just a few paragraphs, I suggest reading the entire thing:
We’re going to war — either hybrid in nature to break the Russian state back to its 1990s subordination, or a hot war (which will destroy our country). Our citizens should know this, but they don’t because our media is dumbed down in its “Pravda”-like support for our “respectable,” highly aggressive government. We are being led, as C. Wright Mills said in the 1950s, by a government full of “crackpot realists: in the name of realism they’ve constructed a paranoid reality all their own.” Our media has credited Hillary Clinton with wonderful foreign policy experience, unlike Trump, without really noting the results of her power-mongering. She’s comparable to Bill Clinton’s choice of Cold War crackpot Madeleine Albright as one of the worst Secretary of States we’ve had since … Condi Rice? Albright boasted, “If we have to use force it is because we are America; we are the indispensable nation. We stand tall and we see further than other countries into the future.”
Hillary’s record includes supporting the barbaric “contras” against the Nicaraguan people in the 1980s, supporting the NATO bombing of the former Yugoslavia, supporting the ongoing Bush-Iraq War, the ongoing Afghan mess, and as Secretary of State the destruction of the secular state of Libya, the military coup in Honduras, and the present attempt at “regime change” in Syria. Every one of these situations has resulted in more extremism, more chaos in the world, and more danger to our country. Next will be the borders of Russia, China, and Iran. Look at the viciousness of her recent AIPAC speech (don’t say you haven’t been warned). Can we really bear to watch as Clinton “takes our alliance [with Israel] to the next level”? Where is our sense of proportion? Cannot the media, at the least, call her out on this extremism? The problem, I think, is this political miasma of “correctness” that dominates American thinking (i.e. Trump is extreme, therefore Hillary is not).
This is why I’m praying still for Bernie Sanders, because he’s the only one willing, at least in the name of fiscal sanity, to cut back on our foreign interventions, bring the troops home, and with these trillions of dollars no longer wasted on malice, try to protect the “homeland” by actually rebuilding it and putting money into its people, schools, and infrastructure.
Albert Camus, talking about the doomed Spanish Civil War in the 1930s wrote, “Men of my generation have had Spain in our hearts. It was there that they learned … that one can be right and yet be beaten, that force can vanquish spirit, and that there are times when courage is not rewarded.” It’s true the light was extinguished for generations in Spain. America was sleeping, but it finally did the right thing and went to war against Fascism. I believe Fascism is still our greatest enemy and its face is everywhere in our so-called “democracies.” It was always about the moneyed interests that had the power. That is what Fascism is and that is the danger we are in now. Sanders talks about money, listen to him. He talks cogently about money and its power to distort. He’s the only one who has raised his voice against the corruption in our politics. Clinton has embraced this corruption.
Of course, Google told us all we needed to know several months ago:
For more on Hillary and her neocon foreign policy agenda, see:
Bernie Sanders to Hillary Clinton – “I’m Proud to Say Henry Kissinger is Not My Friend”
Not a Joke – War Criminal Hillary Clinton is Now Running on Her Foreign Policy “Strengths”
“We Came, We Saw, He Died” – Revisiting the Incredible Disaster That Is Libya
The Forgotten War – Understanding the Incredible Debacle Left Behind by NATO in Libya
- Visualizing The Automation Potential Of U.S. Jobs (Fast-Food Workers & Truckers Beware)
We noted last week that 1.3 million industrial robots would be installed between 2015 and 2018, and this would more than double the stock of active robots around the world.
While many of those robots will be used in the automotive and electronics sectors, VisualCapitalist's Jeff Desjardins notes that there are many other roles that robots will be filling in the future. Surprisingly, according to global consultant McKinsey & Co, not all of these jobs are low-skill, low-wage jobs, either.
Mckinsey ran a comprehensive study of nearly 800 different jobs in the United States, ranging from CEOs to fast food workers. Between these roles, they found 2,000 individual work activities, and assessed them against 18 different capabilities that could potentially be automated. In their analysis, they found that 45% of work activities representing $2 trillion in wages can already by automated based on proven technology that currently exists. A further 13% of work activities in the U.S. economy could be automated if the technologies used to understand and process human language were brought up to the median human level of competence.
(click image for fully interactive version)
WHO’S IN, WHO’S OUT?
The interactive visualization above charts specific careers on their automation potential (out of 100%) along with the hourly average wage of the job.
What is most interesting about the analysis is that automation potential doesn’t correlate with low-skill, low-wage jobs as much as one may think. While it’s true that the three million fast food workers across the country have an automation potential of 74%, and that heavy truck driving activities can be 69% automated, there are also great counter-examples: for example, only 7% of manual labor and 22% of janitorial activities could be automated.
Likewise, high-paying jobs are not necessarily robot-proof.
Doctors (23%), nurses (29%), and even CEOs (25%) all have significant amounts of their jobs that can be automated with current technology. Almost half (47%) of what pharmacists do can be done by a robo-pharmacist, and 72% of commercial pilot activities can be done through computers.
Not interested in having a robot fill your shoes? Mckinsey notes at the end of their analysis that both creativity and sensing emotion are extremely difficult to automate. Focus on building skills and competencies in these categories, and you’ll be just fine (for now, at least).
- The Rebellion Will Not Go Away
Authored by Gaius Publius via DownWithTyranny.com,
The Sanders- and Trump-led (for now) political rebellion is not going to go away. There are only two questions going forward:
- Will it remain a political rebellion, one that expresses itself through the electoral process, or will it abandon the electoral process as useless after 2016?
- Will it be led by humanitarian populism from the left, or authoritarian populism from the right?
Why is this rebellion permanent, at least until conditions improve? Because life in the U.S. is getting worse in a way that can be felt by a critical mass of people, by enough people to disrupt the Establishment machine with their anger. And because that worsening is seen to be permanent.
Bottom line, people are reaching the breaking point, and we're watching that play out in the 2016 electoral race.
Yes, It Is a Rebellion
There's no other way to see the Sanders and Trump surges except as a popular rebellion, a rebellion of the people against their "leaders." If one of them, Sanders or Trump, is on the ballot in November running against an Establishment alternative, Sanders or Trump, the anti-Establishment candidate, will win. That candidate will cannibalize votes from the Establishment side.
That is, Sanders will attract a non-zero percentage of Trump-supporting voters if Cruz or Paul Ryan runs against him, and he will win. By the same token, Trump will attract a non-zero percentage Sanders-supporting voters (or they will stand down) if Clinton runs against him, and she will lose to him.
(In fact, we have a good early indication of what percentage of Sanders supporters Clinton will lose — 20% of Sanders primary voters say they will sit out the general election if Clinton is the candidate, and 9% say they will vote for Trump over Clinton. By this measure, Clinton loses 30% of the votes that went to Sanders in the primary election.)
If they run against each other, Sanders and Trump, Sanders will win. You don't have to take my word for it (or the word of any number of other writers). You can click here and see what almost every head-to-head poll says. As I look at it today, the average of the last six head-to-head polls is Sanders by almost 18% over Trump. In electoral terms, that's a wipeout. For comparison, Obama beat McCain by 6% and Romney by 4%.
Note that Sanders is still surging, winning some states with 80% of the vote (across all states he's won, he averages 67% of the vote), while Trump seems to have hit a ceiling below 50%, even in victory. The "socialist" tag is not only not sticking, it's seen positively by his supporters. And finally, just imagine a Trump-Sanders debate. Sanders' style is teflon to Trumps', and again, I'm not alone in noticing this.
Whichever anti-Establishment candidate runs, he wins. If both anti-Establishment candidates face off, Sanders wins. The message seems pretty clear. Dear Establishment Democrats, you can lose to Sanders or lose to Trump. Those are your choices, and I'm more than happy to wait until November 9 to find out what you chose and how it turned out. Not pleased to wait, if you choose wrongly, but willing to wait, just so we're both aware of what happened.
The Rebellion Is Not Going Away
I won't be happy with you though, Establishment Democrats, if you choose badly. And I won't be alone. Because even if you succeed with Clinton, Establishment Democrats, or succeed in giving us Trump in preference to giving us Sanders, the rebellion is not going away.
If you look at the Trump side, it's easy to see why. Are wages rising with profits? No, and Trump supporters have had enough. (They don't quite know who to blame, but they're done with things as they are.) Will they tolerate another bank bailout, the one that's inevitable the way the banks are continuing to operate? They haven't begun to tolerate the last one. They already know they were screwed by NAFTA. What will their reaction be to the next trade deal, or the next, or the next? (Yes, it's not just TPP; there are three queued up and ready to be unleashed.)
Trump supporters, the core of them, are dying of drugs and despair, and they're not going to go quietly into that dark night. The Trump phenomenon is proof of that.
On the Sanders side, the rebellion is even clearer. Sanders has energized a great many voters across the Democratic-independent spectrum with his call for a "political revolution." But it's among the young, the future of America, that the message is especially resonant. For the first time in a long time, the current generation of youth in America sees itself as sinking below the achievements of their parents.
The Guardian:
US millennials feel more working class than any other generation
Social survey data reveals downshift in class identity among 18-35s, with only a third believing they are middle class
Millennials in the US see themselves as less middle class and more working class than any other generation since records began three decades ago, the Guardian and Ipsos Mori have found.
Analysing social survey data spanning 34 years reveals that only about a third of adults aged 18-35 think they are part of the US middle class. Meanwhile 56.5% of this age group describe themselves as working class.
The number of millennials – who are also known as Generation Y and number about 80 million in the US – describing themselves as middle class has fallen in almost every survey conducted every other year, dropping from 45.6% in 2002 to a record low of 34.8% in 2014. In that year, 8% of millennials considered themselves to be lower class and less than 1% considered themselves to be upper class.
Of course, that leads to this:
The large downshift in class identity among young adults may have helped explain the surprisingly strong performance in Democratic primaries of the insurgent presidential candidate Bernie Sanders, who has promised to scrap college tuition fees and raise minimum wages.
Will those voters, so many of them self-described "independents," return to the Democratic Party? Only if the Party offers them a choice they actually want. If the Party does not, there will be hell to pay on the Democratic side as well. America is making them poorer — Establishment Democratic policies are making them poorer — and they're done with it. The Sanders phenomenon is proof of that.
Will the Very Very Rich Stand Down?
The squeeze is on, and unless the rich who run the game for their benefit alone decide to stand down and let the rest of us catch our breath and a break, there will be no letting up on the reaction. What we're watching is just the beginning. Unless the rich and their Establishment enablers stand down, this won't be the end but a start, and just a start.
I'll identify the three branches to this crossroad in another piece. It's not that hard to suss out those three paths, so long as you're willing to look a few years ahead, into the "middle distance" as it were. The ways this could play out are limited and kind of staring right at us.
But let's just say for now, America faces its future in a way that hasn't happened since the Great Depression, another period in which the Constitution was rewritten in an orderly way (via the political process). Which means that for almost every living American, this is the most consequential electoral year of your life.
I know. I'm not happy about that either.
- Did Trump Just Commit A Major Error: Why Renouncing Republican Pledge Could Cost Him 50 Delegates
As of this moment, Donald Trump has 736 delegates and is (mostly) smoothly sailing to the nomination with Ted Cruz almost 273 behind him at 463. However, there is suddenly an all too real chance that 273 lead can melt to as little as 173 with Trump’s delegate count dropping by 50 as a result of what happened during this week’s CNN townhall meeting when as previously reported, Trump reneged on his pledge to support the GOP candidate. The reason is that by doing so, he may have jeopardized his hold on South Carolina’s 50 delegates.
As Time reports, the Palmetto State was one of several that required candidates to pledge their loyalty to the party’s eventual nominee in order to secure a slot on the primary ballot. Though Trump won all of the state’s 50 delegates in the Feb. 20 primary, anti-Trump forces are plotting to contest their binding to Trump because of his threat on the pledge Tuesday.
The loyalty pledge is nothing new in South Carolina, where it has been required for decades, but took on new focus in light of Trump’s public musings about a third party run or withdrawing his support from the eventual nominee if he is stopped at a contested convention.
As a reminder, when asked about if he still would pledge to support the eventual Republican nominee during a town hall Tuesday with CNN’s Anderson Cooper, Trump said “No. I don’t anymore,” adding that he has been “treated very unfairly.”
As Time adds, while Trump has been hiring staff to ensure he hangs on to delegates in what could be a messy convention fight, the latest threat appears to be an error on his part.
South Carolina Republican Party Chairman Matt Moore gave credence to the anti-Trump claims: “Breaking South Carolina’s presidential primary ballot pledge raises some unanswered legal questions that no one person can answer,” he told Time. “However, a court or national convention Committee on Contests could resolve them. It could put delegates in jeopardy.”
More from Time:
When Trump filed for the ballot in South Carolina he signed a pledge stating to “hereby affirm that I generally believe in and intend to support the nominees and platform of the Republican Party in the November 8, 2016 general election.”
South Carolina has yet to select delegates to the convention and it is a state where Trump may already be on the defensive with delegates. South Carolina delegates to the national convention must have been delegates or alternates to the state’s 2015 GOP convention, a requirement that benefits candidates who appeal to the establishment.
Those delegates would be bound to Trump on the first ballot according to state and RNC rules. The challenge, which could only be filed once delegates are selected, would seek to allow them to be free-agents on the first ballot, thereby keeping Trump further from the key 1,237 figure he needs to secure the nomination. Similar challenges could also be filed in other states that added loyalty pledges.
The news of the potential loss of delegates came as Trump met with RNC chairman Reince Priebus Thursday. Trump said afterward he had a “nice meeting” to talk about party unity with RNC Chairman Reince Priebus. “Looking forward to bringing the party together,” Trump said on Twitter. “And it will happen!”
Priebus said the meeting was scheduled days ago and included a discussion about the process heading into the party’s July convention in Cleveland. “We did talk about unity and working together and making sure when we go to Cleveland, and come out of Cleveland, that we’re working in the same direction,” Priebus told the Fox News Channel.
That said, Priebus will surely be delighted by the prospect of Trump losing 50 votes and making a convention that much more likely.
Then again, if Trump is about to lose his delegates for reneging on his South Carolina pledge, then what about Ted Cruz whose response when asked if he would support Trump was that he “is not in the habit of supporting someone who attacks [his] wife and family.” That sounds like a no to us. Or how about Kasich who said “if the nominee is somebody who’s hurting the country and dividing the country I can’t stand behind him“, which is another no.
Or is this just one more of those times when Trump does not do the “political thing” and gives an unequivocal answer to a question to which everyone else implicitly responded the same way, and will now have to deal with the fall out. The answer, most unequivocally, is yes.
- AsiaPac Data Deluge: China Good, South Korea Bad, Japan Ugly
An avalanche of data from AsiaPac tonighht was a very mixed bag…
South Korean trade data continued to shrink:
- *SOUTH KOREA MARCH EXPORTS FALL 8.2% Y/Y
- *SOUTH KOREA MARCH IMPORTS FALL 13.8% Y/Y
And deflation is wahing ashorer…
- *SOUTH KOREA MARCH CONSUMER PRICES FALL 0.3% M/M
* * *
Japanese data was a disastrophe…Every single aspect of the Tankan survey missed expectations – from Large manufacturing business outlooks to small service business current conditions…
But Finance Minister Aso had some helpful things to say…
- *ASO: CAN SEE SOME WEAKNESS IN ECONOMIC SENTIMENT IN TANKAN (umm, yeah!)
- *ASO: OVER LONGER TERM, AM VERY COMFORTABLE REGARDING ECONOMY (oh ok then, we won't worry)
So rest easy my friends, Japan is safe to take leveraged long bets on for one more day. Oh one more thing, that whole NIRP, low rates, encourage lending, transmission mechanism thing… FUBAR!!
FinMin Aso had some comments on that too..
- *ASO: BANKS HAVE MONEY, DON'T HAVE ANYONE TO LEND IT TO
So the entire Keynesian model just hit the endgame of debt saturation? That explains why he said this….
- *ASO: MONETARY EASING, FISCAL STIMULUS HAVE LIMITS
Which directly contradicts Kuroda who just yesterday said…
- *KURODA: DON’T THINK THERE IS LIMIT FOR BOJ EASING NOW
So Limits or No Limits? Who cares – just buy moar stuff… because Japanese Manufacturing PMI just collapsed to its lowest since records began in Feb 2013…
Moar easing or else… and that will merely anger the Chinese further into retaliation.
* * *
And then came China…
Cheers were heard from around the world as China's Services PMI jumped off 7 year lows (from 52.7 to 53.8), however this is still below January's levels – not exactly an exuberant bounce after a trillion of fresh credit injections…
- *CHINA NON-MANUFACTURING PMI AT 53.8 IN MARCH
And then Manufacturing hit with a big bounce back into expansion…
- *CHINA MANUFACTURING PMI AT 50.2 IN MARCH
This is a major problem for Janet, because if China is back in recovery, then The Fed no longer has to worry about China's economy when deciding on the next rate hike.
Of course what all this means is that Caixin's China PMI (due in 30 minutes) will be a miss to baffle everyone with bullshit.
The reaction is "buying" of course…
But China hates it…
And just as predicted…
- *CHINA MARCH CAIXIN MANUFACTURING PMI 49.7; EST. 48.3
The highest since Feb 2015…
And the market realizes that "good" China news is a disaster as it removes a major Fed excuse for not hiking…
- 2016: The End Of The Global Debt Super Cycle
Submitted by Etai Friedman via Palisade-Research.com,
After the stock market crash of 1987, The Federal Reserve embarked on a path that led to the biggest debt bubble in the history of the world. The day after the 1987 crash (Oct. 20, 1987) Alan Greenspan, Chairman of the Fed, announced to the world that The Fed stood ready to provide whatever liquidity was needed by the banking system to prevent the crash from turning into a systemic financial crisis. That was the day the Fed “put” was born.
A put is an option that allows its owner to sell a specified amount of a particular asset at a predetermined price by a specific date. As an example, if an investor had a February 90 put on Apple’s stock that investor would have the right to sell 100 shares at 90 a share until the third Friday in February when the option expired. An investor would only exercise that put if Apple’s stock price dropped below 90 a share before expiration. As it stands Apple’s stock price is 94.02 as of Friday’s close so no rational investor would exercise that put. But if on Monday Apple’s stock crashed and was trading 60 a share than the investor would exercise his put and gladly sell his stock at 90 a share to the person who sold him the put. So in effect after 1987 The Fed was acting as a giant put for the financial markets, a role it had heretofore not played.
In September of 1998 Long Term Capital Management, a highly leveraged high profile hedge fund, sustained losses that threatened its solvency. The fund with a few billion in equity had $80 billion in assets and all of its trades were going against the firm. LTCM’s equity was going to be wiped out within days. Warren Buffet and a consortium of investors offered to bail out the fund by paying fire sale prices for the assets and shutting down the fund. LTCM’s management balked and looked to The Fed for a better solution. The Fed engineered a bailout by numerous banks that left LTCM’s management in place with some of their wealth to spare. Once again, The Fed intervened in a market calamity and this time bailed out an extremely reckless hedge fund that should have been allowed to fail. The Fed’s put engendered moral hazard in the hedge fund community by allowing reckless and destabilizing behavior to go unpunished.
In December of 1999, The Fed injected enormous amounts of liquidity into the banking system to fend off any potential problems from the Y2K problem. If you recall, The Fed was worried that banking computer systems might erroneously register 1900 as the year on January 1, 2000 due to perceived deficiencies in banking software. To avert any panic, The Fed stuffed money into the banking system to make sure no calamities ensued. The stock market which was already in the midst of a mania in the tech sector effectively had kerosene poured on the fire. The extra banking liquidity found its way into the stock market and sent the tech bubble into overdrive. After the new year passed without so much as a hiccup The Fed withdrew the excess liquidity and the tech bubble peaked in March 2000 and then collapsed.
This is where the story of the debt bubble begins. Prior interventions by The Fed promoted moral hazard and rampant speculation but up to this point they did not need to employ debt to prop up the U.S. economy. That all changed after the internet stock mania collapsed, trillions in wealth was destroyed, and the U.S. economy went into recession. The Fed was once again worried that the crash in technology stocks would cause a systemic financial crisis so they embarked on an interest rate cutting program that saw the Fed Funds Rate drop from 6.5% to 1% from 2000 to 2003. This in effect morphed the tech stock bubble into a housing bubble. Adjustable rate mortgage yields plunged in value and accelerated a housing boom already in progress. The public, encouraged by low rates and lax underwriting standards stampeded into housing sending prices through the roof. Mortgage debt exploded and home equity values skyrocketed buffeting the tech collapse induced recession. The average American increased their leverage to all-time highs. Figure 1 shows that by the fourth quarter of 2007 household debt payments as a percentage of disposable income hit a record 13.2% up from 10.5% just 15 years earlier.
Figure 1
The Fed meanwhile did not normalize rates until 2005 when the Fed Funds Rate was back up to 4% on its way to 5.25% by 2006, the year the housing boom peaked. Total debt in the U.S. went from $18 trillion in 2001 to $30 trillion by 2007. Comparatively speaking it took 35 years for total debt in the U.S. to go from under $1 trillion to $4 trillion. As we all know the collapse in housing prices revealed that trillions in mortgage backed securities were not actually AAA rated and the collapse in value of these securities almost took the financial system with them.
Large investment banks, like Bear Stearns and Merrill Lynch, became insolvent and were forced to merge with better capitalized banks. Lehman Bros. was allowed to fail and brought the global financial system to its knees. The Fed, now headed by Ben Bernanke, went into overdrive slashing the Fed Funds rate to zero percent and essentially backstopping all financial institutions and depositors’ cash and near cash investments.
A new tool was introduced by The Fed, called Quantitative Easing, which allowed The Fed to purchase mortgage backed securities and other long dated debt to push down long term interest rates and encourage lending. Rates at both the front end and the back end of the yield curve plunged to historic lows with the hope that people and businesses would begin to borrow again and get the economy growing. These extreme measures stopped the free fall in financial assets and began a six-year expansion that was both meager and debt fueled.
During and following The Global Financial Crisis consumers in some developed countries deleveraged but the rest of the economy, namely governments and businesses, leveraged up. From the first quarter of 2008 to the second quarter of 2015 total debt in the U.S. increased from $30 trillion to $40 trillion. Globally, total debt grew from $142 trillion in the fourth quarter of 2007 to $200 trillion in the second quarter of 2014, an increase of $58 trillion. Total global debt as a percentage of global GDP grew from 269% in 2007 to 286% in 2014. The massive central bank intervention during The Global Financial Crisis prevented a deleveraging of the global economy and actually encouraged more leverage to stimulate growth. Once again the planet was borrowing from future growth to propel current growth. This was indeed a short sighted solution to an existential crisis faced by the world. Kicking the can down to 2016 has now come to its logical end.
During 2015 the strength of the global economy began to be questioned as commodity prices collapsed, Chinese economic growth slowed, and global trade slowed. For the first time since the European Sovereign Debt Crisis credit spreads began to widen and low rated corporate debt and leveraged loans began declining in value. As seen by Figure 2 Corporate Net Debt to Ebitda rose to record levels while Ebitda began to decline.
Figure 2
Declining oil prices crushed low rated high yield energy debt. Figure 3 shows that prices of CCC rated debt collapsed in the fourth quarter of 2015.
Figure 3
Also in the first quarter of 2016 low rated commercial real estate debt plunged in value as seen in Figure 4.
Figure 4
The credit markets are signaling that the debt fueled expansion that began in 2010 is turning to bust. This is the most precarious moment in financial market history because as the world slides into recession global central banks have no ability to soften the oncoming recession with debt creation. Globally interest rates are close to zero and even negative in Europe and Japan. Long term government bond yields are also extremely low. This is sending a very clear and ominous signal that the world cannot service more debt and in fact needs to deleverage and get on more solid financial footing.
The last time the world deleveraged was during The Great Depression. The defining quality of The Great Depression was the destructive deflation that gripped the economy. Deflation destroys financial asset values like stocks and corporate bonds and hard assets like real estate. It also lowers incomes while making debt more expensive to service as debt to income ratios rise. The world economy is on the precipice of another Great Depression.
This state of affairs demands a dramatic repositioning of investment portfolios. Investors who choose to remain passive but want to preserve their wealth need to liquidate their investments in stocks and corporate bonds and hold cash only. Investors who are more opportunistic can hold a combination of cash and U.S. government bonds. U.S. government bonds have already begun to rally so buying at current levels is not quite as attractive as it was a month ago but we expect negative interest rates to eventually visit America so there is still considerable upside. Figure 5 shows that inflation expectations continue to plunge even as The Fed erroneously is raising interest rates.
Figure 5
The more aggressive investor can find opportunities to earn high returns employing strategies that will benefit from a financial collapse and a severe, deflationary recession. These strategies include shorting stock index futures, getting long VIX futures, etfs, and options, getting long stock index option volatility via index etfs, and on a limited basis shorting individual company stocks whose business plans will be acutely affected by economic developments.
We would not simply be short financial assets every day because we recognize that the markets will initially be quite volatile which means sharp bear market rallies in between dramatic declines in financial assets. We would initially be positioned to benefit from this two-way volatility and as the declines become more severe and investors begin to throw in the towel the fund will be more short oriented.
We recognize that The Fed will not sit idly by as this bear market intensifies. However limited their options they will employ them and they may provide brief respite from the bear market. We believe The Fed will stop raising interest rates and begin cutting them in 2016 taking them into negative territory. We also believe The Fed will embark on QE4, although it is not clear what assets they will purchase. What is clear is that rate cuts and QE4 will offer brief pauses in financial asset declines but will not ultimately arrest those declines.
Major fiscal policy adjustments will be needed and this will depend on who takes the White House in 2017. A Democratic win would be a negative while a Republican win by certain candidates may pave the way for major fiscal policy changes. For instance, Ted Cruz’s flat tax would be particularly beneficial and soften the blow of the economic contraction as more money will be directly put into Americans’ hands.
We also believe the next President needs to strip The Fed of their dual mandate of price stability and full employment. The Fed should no longer be tasked with ensuring full employment and debt creation should be disincentivized through changes to the tax code.
Lastly, we would like to highlight we take no pleasure in what we see coming to pass in the financial markets and simply wants to offer investors the opportunity to earn high returns in what otherwise will be an environment devoid of financial opportunities and of declining employment.
- Hong Kong Retail Sales Crash Most Since 1999 As Stocks Soar 14%
The last few weeks have seen Hong Kong's Hang Seng index surge over 14% which – if one believes the mainstream media – must mean renewed confidence in world economic growth and that everything is awesome. However, that narrative just got destroyed as Hong Kong retail sales in February just crashed by the most since 1999 as fewer Chinese tourists visited the city during the Lunar New Year holiday and as one analyst warned, sales will "continue to fall for the rest of 2016 as all the negative factors won’t be solved in the near term."
As Bloomberg details, retail sales dropped 21 percent in February to HK$37 billion ($4.8 billion) year on year, according to a statement from Hong Kong’s statistics department. Combining January and February, sales fell 14 percent.
The monthly decline is the worst since January 1999 when sales were also down 21 percent.
“Apart from the severe drag from the protracted slowdown in inbound tourism, the asset market consolidation might also have weighed on local consumption sentiment,” a government said in a statement on Thursday. “The near-term outlook for retail sales will still be constrained by the weak inbound tourism performance and uncertain economic prospects.”
Chow Tai Fook Jewellery Group Ltd., the world’s largest-listed jewelry chain, and Sa Sa International Holdings Ltd. reported slumping sales over the holiday when mainland Chinese tourists to the territory dropped 12 percent during Feb. 7-13. The stock market rout and a slowing Chinese economy have affected consumer sentiment for luxury goods, Chow Tai Fook has said.
Sales of jewellery, watches and clocks, and valuable gifts dropped 24 percent, while those of electrical goods and photographic equipment plunged 27 percent, according to Thursday’s statement.
The government will monitor closely its repercussions on the wider economy and job market, it said, but as Bloomberg adds,
Mainland China tourists “are unlikely to come back in the short term,” said Forrest Chan, an analyst at CCB International Securities Ltd. Hong Kong residents are also consuming less due to stagnant property values and the weak stock market, he said.
“Hong Kong’s retail market will continue to fall for the rest of 2016 as all the negative factors won’t be solved in the near term,” Chan said in a telephone interview.
- Worst Case Scenario: 73% Down From Here
Submitted by Jim Quinn via The Burning Platform blog,
As the stock market gyrates higher and lower in a fairly narrow range, the spokesmodels and talking heads on CNBC breathlessly regurgitate the standard bullish mantra designed to keep the muppets in the market. They are employees of a massive corporation whose bottom line and stock price depend upon advertising revenues reaped from Wall Street and K Street. They aren’t journalists. They are propagandists disguised as journalists. Their job is to keep you confused, misinformed, and ignorant of the true facts.
Based on the never ending happy talk and buy now gibberish spouted by the pundit lackeys, you would think we are experiencing a bull market of epic proportions and anyone who hasn’t been in the market has missed out on tremendous gains. There’s one little problem with that bit of propaganda. It’s completely false. The Fed turned off the QE spigot at the end of October 2014 and the market has gone nowhere ever since.
QE1 began in September 2008, taking the Fed balance sheet from $900 billion to $2.3 trillion by June 2010. This helped halt the stock market crash and drove the S&P 500 up by 50% from its March 2009 lows. QE2 was implemented in November 2010 and increased the Fed balance sheet to $2.9 trillion by the end of 2011. This resulted in an unacceptable 10% increase in the S&P 500, so the Fed cranked up their printing presses to hyper-speed and launched the mother of all quantitative easings, with QE3 pushing their balance sheet to $4.5 trillion by October 2014, when they ceased their “Save a Wall Street Banker” campaign.
As Main Street dies, Wall Street has been paved in gold.
The S&P 500 soared to all-time highs, with 40% gains from the September 2012 QE3 launch until its cessation in October 2014. Like a heroine addict, Wall Street has experienced withdrawal symptoms ever since, and begs for more monetary easing injections. Yellen and her gang of central bank drug dealers keep the patient from dying by continuing doses of ZIRP and psychologically comforting dialogue designed to cheer up Wall Street bankers.
QE3 ended 17 months ago and shockingly the S&P 500 is exactly where it was 17 months ago. How many bull markets go flat for 17 months? As John Hussman accurately points out, we are experiencing a topping formation in the third and biggest bubble of the last 16 years. It’s a long way down from here.
With the S&P 500 Index at the same level it set in early-November 2014, and the broad NYSE Composite Index unchanged since October 2013, the stock market continues to trace out a massive arc that is likely to be recognized, in hindsight, as the top formation of the third financial bubble in 16 years.
The chart below shows monthly bars for the S&P 500 since 1995. It’s difficult to imagine that the current situation will end well, but it’s quite easy to lose a full-cycle perspective when so much focus is placed on day-to-day fluctuations. The repeated speculative episodes since 2000 have taken historically-reliable valuation measures to extremes seen previously only at the 1929 peak and to a lesser extent, the 1937 peak (which was also followed by a market loss of 50%). Throughout history, at each valuation extreme – certainly in 2000, 2007 and today – investors have openly embraced rich valuations in the belief that they represent some new, modern and acceptable “norm”, failing to recognize the virtually one-to-one correspondence between elevated valuations and depressed subsequent investment outcomes.
So we’ve had the stock market going nowhere for 17 months, with valuations at obscene levels based on all historical precedents, corporate profits falling for three straight quarters, real wages of working people stagnant at 1988 levels, and home prices soaring to unreachable heights due to hot money from China, Wall Street hedge funds, and the ever resilient and late flipper class. Consumer spending, which accounts for 67% of our economy, is dead in the water as Obamacare, soaring rents, rising food costs and 0% interest on savings accounts drain the life out of middle class households. The average person (not Wall Street bankers, government apparatchiks, or other parasites of the establishment) is experiencing and has been experiencing a recession for years.
Low interest rates and double talk from clueless academic Federal Reserve lackeys cannot and will not prop up the stock market forever. Corporate buybacks, financed with cheap debt, by insanely greedy CEOs is the last leg in this wobbly stool. This will come to a screeching halt as profits collapse and the market goes south.
Stocks always fall during a recession and we have entered a recession, whether it is broadcast by the corporate controlled media or not. The last 17 months have offered the public an opportunity to exit near the top. Anyone who hasn’t taken advantage of this opportunity will be regretful in the not too distant future. With valuations twice historical norms, there is no place to go but down. Hussman understands history better than the brainless twits on CNBC.
Wall Street analysts talk endlessly on financial television about low interest rates “justifying” current valuations, without completing the story that even if this were true, these rich valuations still imply predictably dismal future returns on stocks, particularly on a 10-12 year horizon.
Every bear market in history, including those that completed recent cycles, has taken valuations to the point where expected long-term returns approached or exceeded 10% annually. This is also true for bear markets prior to the 1960’s when interest rates regularly hovered at levels similar to the present.
On a combined set of historically-reliable measures, we presently estimate that valuations are more than twice their historical norms; twice the level that has routinely been pierced to the downside in even the most run-of-the-mill market cycle completions across a century of history, regardless of the level of interest rates.
Warren Buffett’s favorite valuation method for the market (Market Cap/GDP), which he has disregarded now that he has sold out to the crony capitalist establishment, is at extreme levels only seen at historic market tops (1929, 2000, 2007). Based upon basic mathematical equations and history, according to Hussman, the S&P 500 will be no higher in 2028 than it is today. I wonder how many financial advisors have put that in their neat little investment models? How many Boomers and Gen Xers can handle a 0% return over the next 12 years?
With the S&P 500 still within a few percent of its record 2015 high, investors have a critical opportunity here to understand the difference between a run-of-the-mill outcome and a worst-case scenario. The present ratio of MarketCap/GDP is about 1.2, which we fully expect to be followed by nominal total returns in the S&P 500 of about 2% annually over the coming 12 years. Given the current dividend yield on the S&P 500 actually exceeds 2%, the historically run-of-the-mill expectation from current valuations is that the S&P 500 Index itself will be below current levels 12 years from today, in 2028.
The arrogant ego maniacal pricks, who inhabit the upper echelons of the Wall Street towers of babel, confidently disregard facts, history, and basic risk management concepts as they are about to inflict the third market collapse in sixteen years upon the unsuspecting public. Hussman‘s projections in 2000 were right and his projections today will be proven right.
I realize that a projection like this seems preposterous. Unfortunately, this just reflects objective evidence that has remained reliable over a century of market cycles. Recall that our real-time projection for 10-year S&P 500 total returns in 2000 was correctly negative even on the basis of optimistic assumptions. The basic arithmetic was the same.
Now for the kicker. Throughout history the stock market has experienced secular bull and bear markets where valuations go from extremely overvalued to extremely undervalued. The secular bear market from 1966 until 1982 was followed by a secular bull market from 1982 until 2000. In 2008/2009 we were headed towards a secular low, but the Fed intervened in order to save their Wall Street owners from bankruptcy. The system was not purged of its excesses. The chaff was not separated from the wheat. Therefore, the secular lows have not happened yet.
Using basic mathematical relationships which have held for over 100 years of stock market performance, Hussman concludes a run of the mill reversion to the mean will result in a 50% stock market loss. In order to reach a secular low in valuations, we would experience a 73% loss from here. That seems inconceivable to a population of normalcy bias blinded, iGadget distracted, math challenged CNBC believers. Will you let cognitive dissonance rule your decision making or will you use reason to understand the peril directly ahead?
Notice that expected market returns of about 6% have historically been associated with a MarketCap/GDP ratio of 0.8. The historical norm associated with 10% equity returns has been about 0.6. The secular lows of 1949 and 1982 hit ratios about 0.33. So a rather minimal completion of the current cycle would take the market down by about -33% from here (=0.8/1.2-1), a run-of-the-mill cycle completion would be about -50%, and a truly worst-case scenario would take the market down by about -73% to a secular valuation low in the current market cycle. One can’t rule anything out given reckless monetary policy, fragile European banks, excessive covenant-lite lending and so forth, but I don’t expect more than a run-of-the-mill cycle completion here.
I’m afraid the lesson of history is that people never learn from the lessons of history. It’s always different this time. People will ignore the facts until it is too late. Every historically accurate statistical valuation method proves we are in the mother of all bubbles, created by Federal Reserve sociopaths. Every reliable economic indicator is flashing red for recession. There is absolutely no doubt this market is going to crash. It’s just a matter of when and by how much. If you think you can get out in time, be my guest and buy some more Amazon, Google, and Facebook on margin. Or you can heed the lessons of history as laid out by John Hussman. Your choice.
The central lesson to be learned from market history – and particularly from yield-seeking bubbles – is not that valuations are irrelevant, nor that central bank intervention is capable of sustaining bubbles permanently. Rather, the lessons are: 1) market internals, and the investor risk-preferences they convey, are the hinge between overvalued markets that remain elevated and those that collapse, and 2) unlike prior market cycles, even extreme “overvalued, overbought, overbullish” conditions were insufficient to derail speculation in the face of reckless monetary policy since 2009 – one had to wait until market internals deteriorated explicitly before adopting a hard-negative market outlook.
If one learns those hard-won lessons about the importance of investor risk-preferences and market internals over portions of the market cycle, one need not fall prey to the delusion that easy money can support stocks once risk-aversion sets in (recall 2000-2002 and 2007-2009), and one need not make the mistake of discarding the essential lessons that valuations have taught in complete market cycles across a century of history.
- Olympics In Doubt As Brazil Sports Minister Quits, Rio Governor Says "This Is The Worst Situation I've Ever Seen"
In less than five months, Brazil is expected to host the Summer Olympics.
If you follow LatAm politics, you know that that is an absolute joke. Last summer, the country descended into political turmoil and the economy sank into what might as well be a depression. Nine months later, inflation is running in the double digits, output is in freefall, and unemployment is soaring. On Wednesday, the government reported its widest primary budget deficit in history and less than 24 hours later, the central bank delivered a dire outlook for growth and inflation.
Meanwhile, VP Michel Temer’s PMDB has split with Dilma Rousseff’s governing coalition, paving the way for her impeachment and casting considerable doubt on the future of the President’s cabinet.
On Thursday, we learn that sports minister George Hilton has become the latest casualty of the political upheaval that will likely drive Rousseff from office in less than two months. “Brazil’s sports minister is resigning four months before the country hosts the Olympics, amid continuing uncertainty over the fate of six other cabinet ministers,” The Guardian wrote this afternoon, before noting that earlier this month, “Hilton left his party in an apparent bid to hold onto his job.”
Hilton had been sports minister for just over a year and although we’re sure any and all Brazilian cabinet positions come with lucrative graft opportunities, we imagine Hilton won’t end up regretting his decision to distance himself from the government and from this year’s Summer Olympics.
After all, there are quite a few very serious questions swirling around the Rio games. For instance: Will the water be clean enough for athletes to compete in? Will there be enough auxiliary power to keep the lights on? And, most importantly, will the games take place at all?
Millions of Brazilian citizens have recently taken to the streets to call for Rousseff’s ouster and to protest the return of former President Luiz Inacio Lula da Silva to government. It’s exceedingly possible that if House Speaker Eduardo Cunha can’t manage to get the impeachment job done, the populace will simply march on the Presidential palace.
How any of the above is compatible with hosting the largest sporting event in the history of the world is beyond us and George Hilton apparently has reservations himself. As does Francisco Dornelles, acting governor of Rio de Janeiro. “This is the worst situation I’ve seen in my political career,” Dornelles said this week, referencing the state’s finances. “I’ve never seen anything like it.” Here’s more from AP:
Dornelles didn’t provide numbers, but he said plunging tax income is behind the state’s financial crisis.
Much of Rio’s tax income comes from the Petrobras oil company, which is embroiled in a big corruption probe that has snared several top politicians and businessmen. Last week, Petrobras reported a record quarterly loss of $10.2 billion due to a large reduction in the value of some assets amid lower oil prices.
Dornelles said that it would take a “large effort” for the state to meet all its obligations and that it was looking for credit and other measures to add to diminishing revenues. He suggested that selling state property was one option.
Yes, it will take “a large effort” for Rio to get back on track. Which probably means it’s going to take a similarly “large effort” for Brazil to figure out how to fund the already over budget Olympic Games in August amid an outright economic collapse. Indeed, the country doesn’t even have any idea who the President is going to be when the Olympic torch is lit in August.
At this juncture, the only thing we can say is that we hope the lawyers for all of the advertising partners who just spent a total of $1 billion with NBC’s executive vice president of advertising sales Seth Winter took a good look at the fine print before signing on the dotted line and cutting the checks.
- John McCain Linked Nonprofit Received Million Dollar Donation From Saudi Arabia
Submitted by Mike Krieger via Liberty Blitzkrieg blog,
Qaddafi on his way out, Bashar al Assad is next.
— John McCain (@SenJohnMcCain) August 21, 2011
Former Democratic Sen. Bob Graham, who in 2002 chaired the congressional Joint Inquiry into 9/11, maintains the FBI is covering up a Saudi support cell in Sarasota for the hijackers. He says the al-Hijjis’ “urgent” pre-9/11 exit suggests “someone may have tipped them off” about the coming attacks.
Graham has been working with a 14-member group in Congress to urge President Obama to declassify 28 pages of the final report of his inquiry which were originally redacted, wholesale, by President George W. Bush.
“The 28 pages primarily relate to who financed 9/11, and they point a very strong finger at Saudi Arabia as being the principal financier,” he said, adding, “I am speaking of the kingdom,” or government, of Saudi Arabia, not just wealthy individual Saudi donors.
Sources who have read the censored Saudi section say it cites CIA and FBI case files that directly implicate officials of the Saudi Embassy in Washington and its consulate in Los Angeles in the attacks — which, if true, would make 9/11 not just an act of terrorism, but an act of war by a foreign government.
– From the post: The New York Post Reports – FBI is Covering Up Saudi Links to 9/11 Attack
For just and obvious reasons, it’s illegal under U.S. law for foreign governments to finance individual candidates or political parties. Unfortunately, this doesn’t stop them from bribing politicians and bureaucrats using other opaque channels.
A perfect example is the shady, influence peddling slush fund known as The Clinton Foundation, which entered the public consciousness last year and was the central topic of multiple posts here at Liberty Blitzkrieg. Although they remain the reining champions of cronyism, being a shameless, corrupt fraud isn’t limited to the Clintons. It shouldn’t surprise anyone that a John McCain linked nonprofit has been found accepting million dollar contributions from the most barbaric, backwards nation on planet earth: Saudi Arabia. Naturally, the absolute monarchy remains a very close ally of the U.S. government.
Bloomberg reports:
A nonprofit with ties to Senator John McCain received a $1 million donation from the government of Saudi Arabia in 2014, according to documents filed with the U.S. Internal Revenue Service.
The Arizona Republican has strictly honorary roles with the McCain Institute for International Leadership, a program at Arizona State University, and its fundraising arm, the McCain Institute Foundation, according to his office. But McCain has appeared at fundraising events for the institute and his Senate campaign’s fundraiser is listed in its tax returns as the contact person for the foundation.
Forget John McCain for a moment. How appropriate is it for so-called “institutions of higher learning” to be accepting million dollars contributions from an absolute monarchy where women can’t drive and with obvious ties to 9/11?
Though federal law strictly bans foreign contributions to electoral campaigns, the restriction doesn’t apply to nonprofits engaged in policy, even those connected to a sitting lawmaker.
This law/loophole obviously needs to be changed.
Groups critical of the current ethics laws say that McCain’s nonprofit effectively gives Saudi Arabia — or any other well-heeled interests — a means of making large donations to politicians it hopes to influence.
“Foreign governments are prohibited from financing candidate campaigns and political parties,” Craig Holman, the government affairs lobbyist for ethics watchdog Public Citizen, said. “Funding the lawmakers’ nonprofit organizations is the next best thing.”
The Saudi donation to the McCain Institute Foundation may be the first congressional instance of that trend coming to light.
“The extent of this practice is difficult to gauge, of course,” Holman said, “because we only know about it when a nonprofit or foreign government voluntarily reveals that information.”
While it’s commendable that the McCain Institute Foundation came clean in this instance, the law should definitely be changed to make disclosure a requirement. The last thing this country needs are additional channels for special interests to bribe politicians.
The institute didn’t originally disclose the 2014 donation from the Royal Embassy of Saudi Arabia. After an inquiry from Bloomberg News, the website was updated to note that the institute received more than $100,000 from the Saudi embassy. Documents filed with the IRS state that the donation totaled $1 million.
Since its launch in 2012, the institute has been “guided by the values that have animated the career” of McCain and his family, its mission statement says. It focuses on advancing “character-driven global leadership,” and runs an internship program, a debate series and hosts events on national security, human trafficking and other issues.
“Guided by the values that have animated the career of McCain and his family?” Let’s take a look at a few of these “values.”
Video of the Day – John McCain Threatens Protesters with Arrest, Calls them “Low-Life Scum”
Incredible Tweets from John McCain on Libya and Syria from 2009 and 2011
Saudi Arabia Sentences Journalist to Five Years in Prison for Insulting the Kingdom’s Rulers
The New York Post Reports – FBI is Covering Up Saudi Links to 9/11 Attack
Saudi Arabia Sentences Poet to Death for “Renouncing Islam”
Saudi Arabia Prepares to Execute Teenager via “Crucifixion” for Political Dissent
The institute’s executive director is Kurt Volker, a former ambassador to the North Atlantic Treaty Organization who also serves as a senior international adviser to lobbying firm BGR Group. BGR Group’s clients include Chevron, Raytheon Co. and the Center for Studies and Media Affairs at the Saudi Royal Court. Its nonprofit arm, the BGR Foundation, also donated at least $100,000 to the institute, according to its website.
It’s starting to make sense now isn’t it.
“It’s only natural that a longtime and vocal supporter of the Saudi-U.S. alliance might be embraced by them this way,” said David Andrew Weinberg, a senior fellow with the conservative think tank Foundation for the Defense of Democracies. Weinberg estimates that Persian Gulf countries alone have contributed more than $100 million to presidential libraries and charities promoted by former presidents.
Nothing to see here. Move along peasants.
But such contributions usually don’t have to be disclosed, so it’s unclear how much money from the Saudi embassy or other foreign sources has gone to groups with ties to current and former U.S. officials or lawmakers.
But the foundation did receive its initial funding — about $8.6 million — from money left over from McCain’s 2008 presidential run, in a transaction permitted under campaign finance laws.
McCain has appeared at events for the institute, including its fundraising efforts and its annual, invitation-only conference held in Sedona, Arizona. The annual conference has also featured Vice President Joe Biden and a 2014 appearance by Clinton before she was officially a presidential candidate. CEOs from GE, Chevron, Wal-Mart, Freeport and FedEx — all of whose companies or charitable arms have contributed more than $100,000 to support the institute — have also spoken.
Some of the institute’s larger donors, including hedge fund manager Paul Singer and investor Ron Perelman, also contributed $100,000 to Arizona Grassroots Action PAC, a super-PAC that’s supporting McCain as he seeks his sixth term in the Senate.
Paul Singer, John McCain and the Saudis. Sure makes you feel all warm and fuzzy.
- China Unveils 'Trumpian' Tariffs On All Foreign Goods
Having glad-handed with President Obama just this morning, and complained of a "sluggish global economy," that ironically his credit-fuelled mal-investment maelstrom enabled via its deflationary forces, Chinese President Xi appears to have moved on from currency wars to protectionism as WSJ reports China is tightening its grip on cross-border e-commerce, imposing a new tax system on all overseas purchases. While Trumpian tariffs are dismissed as crazy talk by America's establishment, it seems China took first-mover advantage to boost "Made-in-China" products at the expense of the rest of the world.
As The Wall Street Journal reports,
The changes, announced by the Finance Ministry last week, include raising the so-called parcel tax that is currently imposed on overseas retail products that e-commerce firms ship into China. On top of that, such goods sent directly to consumers will now be treated as imports and will be subject to tariffs and value-added and consumption taxes, whose rates vary depending on the type and value of goods.
The ministry said the changes, which become effective April 8, are intended to put foreign and domestic products on an equal footing. But industry analysts said the move seems designed to give a boost to “made-in-China” products and could dent a small, but growing market for foreign goods sold by Alibaba Group Holding Ltd., JD.com Inc. and other e-commerce players.
…
The new levies could dampen some demand, just as an increasing number of retailers world-wide are hoping to sell into China, says Charles Whiteman, senior vice president of client services for MotionPoint, a technology company that helps international retailers sync their e-commerce websites across languages and currencies.
“Increases in prices always have the effect of driving demand down,” but the effect will be “modest,” Mr. Whiteman said. “It probably won’t be too noticeable for branded products,” which consumers are willing to pay a premium for.
The changes in taxes come as the Chinese economy is slowing down and the deceleration is crimping tax revenues. Tax revenues grew 4.8% last year, compared with 7.8% in 2014. Beijing is looking for new sources of growth and revenue, and is trying to guide the economy to rely more on consumption and less on investment and industry. At the same time, Beijing is anxious to build up domestic businesses to provide jobs.
Calculating the impact of the changes on merchandise is difficult given that different categories of goods carry different rates. A company that sells infant formula milk, for example, will pay nearly 12% more in taxes if the sale is under 500 yuan because previous exemptions don’t apply, according to Mr. Tan, the analyst.
Luxury goods like jewelry will see extra taxes between 9% and 17%, while some levies on personal-hygiene and cosmetic products could fall since the changes rescind the previous heavier parcel tax on those products.
So President Obama – what will you do now? Perhaps Mr. Trump is worth talking to for some ideas?
- The Reason Anbang Pulled The Starwood Offer: It Couldn't Prove It Has The Funds
Several days ago, we explained how China’s bizarro M&A scramble was nothing more than a rushed attempt to park as much capital in the US (and offshore) as possible before Beijing gets wise enough and cracks down on this latest loophole to evade Chinese capital controls, we had this to say about the farcical, and now pulled, $14 billion Anbang offer for Starwood, owner of the W Hotels, Sheraton and St Regis brands:
Seen in this light the recent deal in which a Chinese insurer is seeking to buy one of the world’s biggest hotel chains makes all the sense in the world: big Chinese investors are not seeking to actually generate profits on future M&A, they are merely looking to preserve capital and are doing so by overpaying for acquisitions around the globe.
As such the biggest question, and wildcard in this, and all other Chinese megadeals in the recent record splurge for US assets, was what is the source of financing: after all the last thing Anbang and peers was for the government to start cracking down on just how they were funnelling funds offshore.
As the FT reported moments ago, “Wu Xiaohui, Anbang’s chairman, this week brushed away questions about the source of his funding and warnings from the Chinese insurance regulator by assuring Caixin, a respected Chinese business publication, that Anbang had Rmb1tn in assets.“
Furthermore, Anbang’s pursuit of Starwood came into question last week after a Chinese news outlet reported the country’s insurance regulator may invoke a rule that restricts domestic companies from investing more than 15 per cent of their total assets abroad.
That may have been the gamechanger.
And, as was announced late this afternoon, Anbang unexpectedly pulled its Starwood offer, and for a very specific reason. According to the FT, an investor consortium led by China’s Anbang Insurance has lost the bidding war for Starwood Hotels & Resorts, after failing to demonstrate that it had the financing in place to back up its latest $14bn offer, according to a person directly involved.
This means that either the entire hostel (sic) bid was a sham from the beginning, or Anbang’s chairman Wu Xiaohui and his various “related party” co-owners got a tap on the collective shoulder from the government who told it the jig was up.
Worse, this means that not only is Anbang out of the game and that Starwood has to go back crawling to Marriott hoping the terms of the latest purchase proposal are still valid, but that suddenly China’s M&A spree may be over as fast as it started.
FT adds that the end of Anbang’s pursuit of Starwood “marks the sharpest setback for Chinese bidder who have accounted for a record share of global merger and acquisition activity in 2016.”
It also risks reviving long-held questions in the minds of sellers and their advisors about the seriousness of some Chinese suitors. Anbang’s consortium had shared no details in public about the sources of its financing, and offered no comment on Thursday about whether it had fully funded its offer.
We now know it had no financing in place whatsoever, and either it was the government that stepped in, or Starwood’s stakeholders said they do not accept suitcases full of recently laundered cash as a form of payment.
In any event, those eight items we listed last night in “8 Things The Chinese Are Scrambling To Buy In America“, are now 7, and may soon be 6, 5, 4 and so on.
* * *
There is, of course, a far simpler explanation why Anbang pulled the deal: the entire company is a fraud, as the following NYT profile of its shady internal dealing strongly hints:
He is often compared in the media to Warren E. Buffett. Like the American billionaire, he is leveraging his control of an insurance company to become one of the biggest names in global finance. Like Mr. Buffett, he looks to be acquiring an immense personal fortune. But that is where the comparisons between Wu Xiaohui, the chairman of the Anbang Insurance Group of China, and Mr. Buffett come to a halt.
Mr. Wu has links to some of the most powerful families in China. He married Zhuo Ran, the granddaughter of Deng Xiaoping, China’s former paramount leader in the 1980s and much of the 1990s. That name, uncommon in Chinese, appears in corporate records tied to at least two of the 37 holding companies.
His exact holdings in Anbang are not clear. A close examination of Anbang’s shareholding structure shows that the 37 companies control more than 93 percent of Anbang, while two Chinese state-owned companies own the rest. The 37 shareholders are linked by common phone numbers, email addresses and interlocking ownership, according to company records filed with the Chinese government and available online.
* * *
One Anbang shareholder — a coal mining company in China’s western region of Xinjiang — is owned by another mining company, Zhongya Huajin, that listed a Zhuo Ran as its first legal representative, though that person has since resigned.
Zhongya Huajin shares an official website address with a different Anbang shareholder, a Beijing real estate company. Collectively, those companies own nearly 4.6 billion shares of Anbang, or more than 7 percent. The companies could not be reached for comment, and their common website now contains only links to pornography and gambling services.
Five shareholders list the same legal email address in government filings. Phones at those companies rang unanswered, and a message to that address was not returned.
Calls to Anbang’s listed phone number were not answered. Nobody replied to a list of questions delivered to its Beijing headquarters, with its enormous lobby — the size of several basketball courts — and its large chandelier. An Anbang employee said the company did not answer media questions.
But aside for China’s “legitimate” financial mega-companies being borderline fraud, the country with the $35 trillion in bank “assets” has everything else under control. We promise.
- Maybe You're Confused By The Fed – But Wall Street Isn't
As I type this the “markets” are once again sprinting higher to the highest levels of 2016. At the rate they are going it’s theoretically possible we could take out the all time high by lunch. After all – “it’s a great time to buy stawks,” no?
Everyone seems to have been caught off guard by Janet Yellen’s speech at the Economic Club of New York™. Why this is so alludes me. The reason? This is a gathering of “her” people. i.e., Wall Street. Too think she would intone anything of a hawkish nature at this highly publicized event was ludicrous. Especially after her comments at the latest FOMC presser where she defensively professed prudence in choosing inaction – as action, once again.
However, there was one striking change in both tone and demeanor from that conference of only a few weeks ago to this one: The palpable ebullience displayed by all..
The difference was absolutely striking. Lots of grins and smiles everywhere which also included not only the Chair woman herself, but especially from her colleague N.Y. Fed. president William Dudley who introduced her. Again, don’t take my word. Find a rerun on-line in your search engine of choice and see for yourself. One thing is very, very, very, (did I say very?) apparent. There wasn’t a dry eye in the house. I’d wager tears of joy flowed like the cocktails: freely and frequent.
The dulcet tones that caused such bliss? I believe there were two verses followed by a table thumping chorus that stood out far above any others. (and if not for cameras the participants attending might have stood up on the tables and danced in unison.)
The first verse contained the words everyone with a month ending quarter wanted to hear when it came to where the Fed. stands on raising further (if at all) “proceed cautiously.” The second was a reiteration of “international developments” was first and foremost. “Data dependent” not so much. However, it was the chorus, that too my ears was really the highlight for Wall Street. It’s when Ms. Yellen stated:
“Financial market participants appear to recognize the FOMC’s data-dependent approach because incoming data surprises typically induce changes in market expectations about the likely future path of policy,…” (You can read the transcript in its entirety here. And I suggest you do as to draw your own conclusions)
Why would such be as I implied “a thumping chorus?” Here’s how I put it in a recent article that many brushed aside as coincidence not causation. To wit:
“The “markets” and its real players (i.e., HFT’s along with their headline reading algo’s and stop running programs etc., etc.) not only know this. I believe – they now know how to front run it with deadly efficiency.”
Now some will say “It was a private event, you can’t compare the two! You’re just nitpicking.” And that’s fine, it’s a fair response. However, being someone who has made speeches for a living, and, has had to be the bearer of bad news or directives that many participants in the audience were surely not going to want to hear (even if they had too.) I can tell you from first hand experience participants have quite the clue on what the tenor and tone of what you’re about to say before you ever hit the podium. And my speeches aren’t released beforehand unlike the Chairwoman’s was with a released transcript prior. (And the markets took off higher in unison precisely when that transcript was released. Coincidence? Or HFT, headline reading algorithmic front running causation? You be the judge.)
Don’t let that point be lost, for it is a very subtle yet important insight for those looking for clues. Do you think that audience would have been all smiles and laughter before, during, or after had she been there to reiterate any of the “hawkish” commentary coming out of subsequent Fed. officials at other venues over the past week or so? Again, truly ponder that point for it’s not as trivial of an insight as it may seem at first blush.
(On an aside. For those wondering if I’m trying to be coy when using my own example inferring they were probably the local bridge club, as opposed to, some conference or meeting on par with the participants at some “Economic Club” as to negate my thesis. All I’ll say is at one in particular that fit that bill, the “participants” in attendance were the C-suite of many a national brand; with global reach and markets; with annual sales in the multi-billion dollar club. I say this only for clarification – nothing more. So take it as you will.)
I’ve heard analysts and many others of late comment how this Fed. official, or that Fed. official has said this, when they just did that! Hawkish tones from this one, dovish tones from that one. I’m sorry, there shouldn’t be any more confusion. If you’re up around 2050ish SPX you’re going to hear “chirps” to give an illusion that maybe, just maybe, the Fed. might move towards normalization. i.e., As I’ve stated previously “fortitude central.” So expect it. However: At 1810ish SPX? Welcome to that other term I coined “capitulation central.” Here is where the only thing you’ll hear is how good (green) the Fed. is going to turn all that bad (red) with its toolbox of __________(fill in the blank.) Rinse – repeat.
However, I will say there has been one defining point from The Chair she first iterated at the latest FOMC presser, and reiterated once again at this latest speech. Personally I felt this would remain an unspoken truth rather, than openly admitted to. This point and moment was when Ms. Yellen, in fact, set the tone as for anyone who was truly listening (and Wall Street was all ears!) that the Federal Reserve has decided via its own directive and initiative: to put its U.S. congressional mandated directives (e.g., employment and inflation) secondarily to “international developments” whenever it decides. And it has decided that time is now.
To my ears – this was brazenly breathtaking in its implied scope and reach, with implication that are now truly up for grabs in everything we once took or believed to have known in both free markets, as well as capitalism itself.
This is not some misunderstanding or confused inference on my part. This point has been realized (and the list is growing) by many with far more gravitas in the world of finance than I have. If you now listen, read, or watch many a financial pundit, what you are now hearing is their own astonishment at the realization Ms. Yellen declared by both current policy direction, and implied statements: the Fed. is now “Central Bank of the world.” And that is the phrase they are using – not me implying.
“International developments” everyone now knows and takes as central bank parlance to mean: China. And the chairwoman in her speech made it quite clear “international developments” are what now drives Fed. policy action. Again, don’t take my word for it. You can find a transcript or watch the speech for yourself and draw your own conclusions.
Besides, if this is not the case; then how does one square the circle of the Fed’s mandate? For all intents and purposes the congressional mandated raison d’ être have now been reached within any tolerant measurement. The U.S. stock market is once again within spitting distance of it’s never before seen in human history high. So: how is it that all this “good” causes not even the modest of follow through as implied via the December 2015 rate hike decision with its explanations and certitude. But rather: the normalization schedule (inferred via the Dot Plot) in-turn gets reduce by half only 3 months later? And…the Chair herself implies that to may be too many? Something doesn’t square here if we’re doing so well does it.
That said: there is an inherent, overarching, problem within this now stated “international development” meme that I’m not sure the Fed. has really thought through. And it’s this…
If “international developments” (i.e. China) have now taken first position over U.S. data, one can only summarize that the Fed. is now following, as well as, instituting a policy as the self-anointed mop-up team for the sins and/or consequences of spill over of a communist run economy.
Capitalism, free markets, and everything else associated with it such as U.S. savers, insurance companies, bond holder, etc., etc., will take a back seat: Not lead. Nor – do anything that may hurt or foster any harmful effects caused by the mal-investment or debt crisis inherent caused by a nation following communistic policies and interventions within its own market, economy, and currency.
In other words: China will continue to be allowed to make a mess. The Fed. will play “janitor” of the monetary policy world. Talk about “leading from behind.” Actually, don’t talk about it: That’s not good for Wall Street. As if you were still confused.
Now there may be no more confusion as to exactly where the Fed. now stands. But confidence they can actually manage all this with positive consequential follow through? Without it all turning into some iteration resembling the Sorcerer’s apprentice? That’s a whole ‘nother matter entirely.
- Trump Nomination Odds Tumble As 'Brokered Convention' Bets Soar
Update: The latest poll from left-leaning Publi Policy Polling found that Cruz leads with 38 percent support, with Trump right behind at 37 percent — within the margin of error.
Amid campaign-manager-assault-gate and the abortion fiasco, Donald Trump appears to be facing his own Waterloo. Polls show Cruz up by 10 points in Wisconsin and that has sent the odds of a brokered convention soaring to almost 70% and pushed Trump's odds of gaining the nomination down to 50%.
Interestingly, Paul Ryan's odds are surging…
Of course some context shows that Trump is merely back to mid-February levels of support (from the bettors) but still this trend is not the friend of the disenfranchised in America.
It appears once again The Establishment is winning… even as The Hill reports, the GOP is at a breaking point…
"This race is kind of at its boiling point," said Matt Mackowiak, a GOP strategist and contributor to The Hill. "As ugly as it is now, the two losing candidates at the convention are going to feel even worse."
Instead of helping to unify the GOP behind a candidate, as the primary process typically does, the race has instead created deep wounds between the candidates that are unlikely to heal.
The antagonism has been heightened by a particularly vicious stretch of campaigning involving allegations of adultery and pictures of the candidates’ wives.
"I believe that we're beyond the point in the campaign where we feel we can unify. There’s been too much bad blood that's been created," said GOP strategist David Payne, who said he would like to see Cruz win the nomination before the convention.
Finally, it seems the American public is starting to get fed up with the constant mainstream media coverage of Trump's very utterance or mean glance… Most GOP voters (63%), incl. 33% of Trump supporters, say too much press coverage of Trump.
- "There Are No More Hotel Beds At All": Sweden's Tourism Industry Collapses As Resorts Become Refugee Centers
“Whichever way we slice the data, the growth in working age population stands out as a key driver of economic growth for most countries. A healthy dependency ratio, a skilled workforce, together with strong institutions and an absence of major resource imbalances is usually the formula for country-level success. But with most DMs weighed down by ageing populations, a key question is this – can people inflows counter challenging demographics? The short answer is yes.”
That’s what Goldman said last autumn as Europe’s refugee crisis began to spiral out of control. We’re not sure if it had occurred to the bank just how large the people flows into Western Europe would end up being because the implication in the excerpted passage above is that the influx of people may actually be a good thing economically speaking if it ameliorates negative demographic shifts.
Of course Goldman may be proven right in the long-run, but in the short-term the mass migration is straining Western Europe’s resources and now looks set to drive up the unemployment rate in Germany.
“German joblessness was unchanged in March, snapping a run of five consecutive declines, in a sign that Europe’s largest economy may be struggling to absorb a wave of refugees,” Bloomberg wrote, earlier today, adding that “Germany admitted more than 1 million migrants in 2015 alone [which] increased the pool of potential workers.”
A new report from Berlin’s labor agency suggests that it will likely be years before the country experiences any benefit from the migration wave. “It can be expected that the labor supply will expand because of migration and the number of unemployed refugees will rise,” as it will take time for migrants to master the language and obtain the qualifications they’ll need to join the labor force.
Meanwhile, in Sweden, the toursim industry is being choked off by the migrant flows. According to SvD Naringsliv, the Swedish Migration Board’s move to transform tourist facilities into asylum centers means they’ll be no more room for vacationers – literally.
(Astrid Lindgren is running short on accommodations – its guest house and hostel will house refugees this summer)
“In some municipalities, there will be no hotel beds at all,” Lena Larsson, CEO at Smaland Tourism said. Here’s more (Google translated):
For example, expected the large visiting goal Astrid Lindgren stand without quality accommodation when both the guest house and hostel continues to be asylum facilities in the summer.
The players in the tourism industry looks understood the seriousness of the background of the war in Syria, but several highlights that the consequences of the Migration Board’s procurement for the tourism industry in Sweden “must be clarified.”
It is so big changes to Visit Småland now has to scan the entire range. It is very uncertain how it will be this summer, says Lena Karlsson.
Another example can be found on the west coast. There, says Lars-Eric Fields, president of Södra Bohuslän tourism, the impact on summer tourism is likely to be so big that you have to take stock of the range of partners throughout western Sweden. According Fields also affected touristic prime locations, which Socialite House “Batellet” on the island of Marstrand and city hotel in Lysekil which are both refugee accommodations in the summer.
Another sample can be collected by Vänern. Where does the Migration Board’s shops to tourist nights in the spa town Lundsbrunn replaced by 870 asylum places, which admittedly can quickly raise the plant’s own turnover to about SEK 100 million per year, but which also affects the district’s normal tourism. Clearly, fewer tourist beds provide less surface for ancillary tourism – for example from Tarnaby mountain village reported that the chairlift can no longer be operated for lack of tourist beds.
The situation is thus similar in many areas. Oland Tourism says, however, that all cabin accommodation falls away in the summer, as Boda Baden, Mölltorp and Littorinabyn.
Uncertainty about the summer tourism is also noticeable in the Swedish Tourist Association where 15 hostels during the winter has served as places of asylum, including Farosund. Now in the end requires the STF decision from the franchisees if they remain in the tourism or remain
Immigration Service asylum accommodation. One who decided Maria Karlsson, who owns the hostel in Skåne Hammenhög where the resort now count to five asylum accommodation.
So there you have it, folks. An industry that brings in around $32 billion per year (and that doesn’t count the $12 billion tourists spend on food, entertainment, and transportation) is about to disappear entirely thanks to the housing needs of Mid-East migrants.
If you want to get a good idea of just how important tourism is to Sweden’s economy, have a look at the following graph which shows employment growth in tourism versus the overall labor market trend:
And here is the final insult: Sweden’s toursim industry employs around 160,000 people. The number of refugees Sweden took in from the Mid-East in 2015 was… drumroll… 160,000.
- Copper Continues To Crumble Amid Record China Inventories
Having bounced miraculously off the early January lows – despite no significant fundamental shift – scrambling all the weay up to its 200-day moving-average, copper prices have been tumbling for the last 7 days, the longest losing streak since early Jan. “Worries over Chinese demand is still weighing on the market,” warns one analyst and rightly so as, just like the oil complex, copper inventories (in China) just hit a record high.
Miracle ramp…
Is fading now as stockpiles soar…
Rising supply of late-cycle commodities, including copper and aluminum, together with uncertain Chinese demand may continue to weigh on metal prices this year, according to Bloomberg Intelligence analyst Zhu Yi. Copper inventories tracked by the Shanghai Futures Exchange are at a record.
“Worries over Chinese demand is still weighing on the market,” Robin Bhar, an analyst at Societe Generale SA in London, said by phone.
Of course much of this ‘inventory’ is collateral for China’s crazy CCFDs enabling smaller players to get loans and stay alive considerably longer than they should. If any liquidation occurs of these zombies then prices will accelerate lower as CCFDs are unwound.
- For Canada's Banks This Is "The Next Shoe To Drop", And Why It Will Drop This Spring
Roughly around the time the market troughed in early February, we asked “After The European Bank Bloodbath, Is Canada Next?” The reason for this question was simple: we said that “when compared to US banks’ (artificially low) reserves for oil and gas exposure, Canadian banks are…not.”
Stated otherwise, we warned that the biggest threat facing Canada’s banking sector is how woefully underreserved it is to future oil and gas loan losses.
We added that unlike their US peers, “Canadian banks like to wait for impairment events to book PCLs rather than build reserves, in effect throwing the entire process of reserving for future losses out of the window.”
We then cited an RBC analysis according to which a 7% loss reserve would be sufficient to offset loan losses in what is shaping up as the biggest commodity crash in history. We disagreed:
We wish we could be as confident as RBC that this is sufficient, however we are clearly concerned that if and when Canada’s banks finally begin to write down their assets and flow the impariments though the income statement, that things could go from bad to worse very quickly, and not necessarily because Canada’s banks are under or over provisioned, but for a far simpler reason – once the market focuses on Canadian energy exposure, it will realize just how little information is freely available, and if European banks are any indication, it will sell first and ask questions much later if at all.
However, indeed assuming a worst case scenario, one in which the banks will have to “eat” the losses and suffer impairments, then the question emerges just how much capital do these banks truly have, which in turn goes back full circle to our post from the summer of 2011 which led to much gnashing of teeth at the Globe and Mail.
We wonder what its reaction will be this time, and even more so, what its reaction will be if the market decides that when it comes to “the next domino to fall”, it was indeed Canada which courtesy of a generous global central bank regime which flooded the world with excess liquidity, and which China is now actively soaking up, allowed Canada’s banks to quietly skirt under the radar for many years; a radar that has finally registered a ping.
We were, of course, referring to the Globe and Mail’s reaction to our post from 2011 that despite the sterling facade, Canadian banks are really woefully undercapitalized.
And while we still await for the G&M to note this ping, here is Canada’s Financial Post, confirming everything we said almost a month ago, and explaining what the “next shoe to drop” for Canadian banks will be. The Post’s answer: “Relatively low oil loan provisions.”
Sounds familiar?
Here are the FP’s details which are already well known to our readers.
Canadian banks are taking lower provisions for oil and gas related credit losses than their U.S. counterparts, prompting observers to dig into the reasons behind the trend.
Reserves related to oil and gas loans held by U.S. banks are four to five times higher than those held by the Canadian banks, according to analysts at TD Securities, who believe accounting treatments and interpretations are, at least in part, behind the striking difference.
In a note Tuesday, the TD analysts led by Mario Mendonca said loan quality within the portfolios could also be another reason, with historical loss trends suggesting Canadian banks are more conservative lenders. Still, they said there is more to than that, including how aggressive each country’s regulators are, and interpretations under two different accounting regimes: U.S. Generally Accepted Accounting Principles (GAAP), and IFRS.
A close reading “reveals what we view as a material difference in loss recognition,” the analysts wrote.
It appears Canadian banks are… different.
Under U.S. GAAP, they said, a loan is impaired when it is probable a credit will be unable to collect on all amounts due, based on current information and events. IFRS accounting considers a loan impaired based on “objective evidence” surrounding a financial asset or group of financial assets.
“We believe that either there is a very significant difference in the two accounting regimes or the standards are being interpreted in very different ways,” the TD analysts wrote.
In addition, they said U.S. banks are more likely than their Canadian counterparts to use a special form of provisioning known as a collective allowance because there is a greater acceptance in the United States of releasing these reserves in the future if conditions improve.
Like, in the case of a global financial system bailout. Of course, nothing prevents Canadian banks to release these reserves too. The problem is that one has to take them first, and doing so would soak up so much capital it may expose the bank’s balance sheet as a hollow sham.
That said, now that everyone is finally pointing the finger at their gaping reserve holes, Canadian banks have begun to increase provisions for credit losses, reflecting the early impact of low oil prices.
It is too late.
The TD analysts said they expect “the next shoe to drop” in Canada when second-quarter results are posted this spring. “Despite the recent move in oil, futures are flat year-to-date and prices are still down materially since the fall 2015 determinations,” they wrote. “This should result in further pressures on borrowing bases and the potential for covenant breaches.”
Combined with expected “prodding” from the Office of the Superintendent of Financial Institutions (OSFI), Canada’s key bank regulator, “we expect impairments and credit losses to climb,” the analysts said.
All of this could have been avoided if Canada’s banks did not try to be just a little “too clever.” Instead, now they have a bleak future to look forward to, one where, in just a few months, the European bank bloodbath will shift over, as we first warned nearly two months ago, to Canada, something which both the mainstream media and “respected” analysts now admit.
- Fed Levitation & The Looming Liquidity Trap
Submitted by Lance Roberts via RealInvestment Advice.com,
Fed Levitation
What is going on at the Federal Reserve? On Tuesday, Janet Yellen comes out and announces that despite inflation being on the rise and employment below 5%, she is not going to raise the Fed Funds rate 4-times this year, nor even two times this year, but rather most likely none. Of course, this “one and done” scenario is what I suggested back in December following the first rate hike given the ongoing deterioration in the underlying economic backdrop.
However, on Wednesday, Chicago Federal Reserve President Charles Evans comes out and suggests he would support another interest rate increase in June.
So what is it? Are we “data dependent” or are we more concerned about “global economic weakness?” Or, is this just part of the Fed’s careful orchestration to support asset markets?
I think it may just be the latter as the Fed comes to the realization they have gotten themselves caught in a “liquidity trap.” Here is their dilemma?
- Low interest rates have failed to spark organic economic growth which would lead to an inflationary pressure build.
- While QE programs fueled higher asset prices, the “wealth effect” did not transfer through the real economy as the programs acted as a “wealth transfer” from the middle-class.
- The Fed cannot afford to have a major reversion in asset prices which would crush consumer confidence pushing the economy into a recession.
- The unintended consequence of announcing rate hikes was a surge in the U.S. dollar, as discussed earlier this week, as foreign funds chased higher yields. This surge in the dollar crushed corporate profits and oil prices putting a further strain on economic growth.
- Further monetary policy accommodations would risk a surge in asset prices that expands the current over-valuation of markets and magnify the eventual reversion.
The Federal Reserve has carefully orchestrated a very balanced messaging process to support asset markets but taper enthusiasm by sending contradictory messages. Yellen suggests ongoing “accommodation” which pushed liquidity into “risk” assets. That excitement is immediately tapered by a contradictory message that “less accommodation” is still likely.
The Federal Reserve is trying very clearly to accomplish several goals through their very confusing “forward guidance:”
- Keep asset prices above the recent lows to avoid triggering a rash of potential “margin calls” that would fuel a more rapid price reversion in the markets.
- Talk down the “dollar” to provide a boost to exports (which makes up roughly 45% of corporate profits) and commodity prices. The Fed-assisted boost in oil prices also gives TBTF banks the room necessary to off-load bad energy-related debt exposure before the next price decline and run of defaults.
- The Fed also realizes they cannot allow market prices to overheat to the upside and, therefore, use offsetting language to quell expectations.
It’s genius.
Like the “little Dutch boy,” the Fed currently has a finger stuck in every hole of the dike. The only question is how long is it before the Federal Reserve runs out of “fingers” to plug the next leak?
Employment Not All That It Seems
A couple of weeks ago, I hosted a presentation for a packed ballroom discussing the outlook for the markets and economy over the rest of the year. (I will be posting the video next week.)
Since all eyes are on the “employment report” tomorrow, I thought I would share with you two slides from that presentation on the real state of employment in the U.S.
For example, take a look at the first slide below.
This chart CLEARLY shows that the number of “Births & Deaths” of businesses since the financial crisis have been on the decline. Yet, each month, when the market gets the jobs report, we see roughly 200k plus jobs created as shown in the chart below.
Included in those reports is an “ADJUSTMENT” by the BEA to account for the number of new businesses (jobs) that were “birthed” (created) during the reporting period. This number has generally “added” jobs to the employment report each month.
The chart below shows the differential in employment gains since 2009 when removing the additions to the monthly employment number though the “Birth/Death” adjustment. Real employment gains would be roughly 4.43 million less if you actually accounted for the LOSS in jobs discussed in the first chart above.
The chart above assumes that ZERO jobs were created through the start of new businesses since 2009. However, as both Gallup and the data above show, we have been LOSING roughly 70,000 jobs a year due to “deaths” outnumbering “births” making the numbers above even worse.
Think about it this way. IF we were truly experiencing the strongest streak of employment growth since the 1990’s, should we not be witnessing:
- Surging wage growth as a 4.9% unemployment rate gives employees pricing power?
- Economic growth well above 3% as 4.9% unemployment leads to stronger consumption?
- A rise in imports as rising consumption leads to demand for goods.
- Falling inventories as sales outpace production.
- Rising industrial production as demand for goods increases.
None of those things exist currently.
The issue lies with the “seasonal adjustment” factors which run through the entirety of economic data published by the various government agencies. Many of these seasonal adjustments have been skewed since the financial crisis due to the economic ramifications following the crash. Furthermore, due to El Nino and La Nina, winter weather patterns have swung from extremely warm (2012 and 2015) to extremely cold (2013 and 2014) which have wrecked havoc with reporting.
All of these seasonal adjustment factors have led to an overstating of headline economic data. Unfortunately, when digging below the surface, the truth is ultimately revealed.
Is it intentional? Probably Not. Is it relevant? Absolutely.
The Savings Rate Conundrum
Interesting take from Tom McClellan on the savings rate:
“When money market funds were created in the mid-1970s, Americans were suddenly confronted with the opportunity to earn a more appropriate reward for deferring their compensation, and for instead saving their money. But curiously, Americans did not do as B.F. Skinner would have suggested they would do.
They did not increase their savings behavior in response to the greater reward for doing so. Instead, they started a long downward trend in the savings rate, saving less and less of their income even though they could earn more in real terms for doing so. And that downward trend in the savings rate just happened to coincide with a secular bull market for stock prices.
But since 2005 we are seeing the monthly savings rate data show an upward trend. This change in behavior makes complete sense. Baby Boomers are facing imminent retirement, and thus they are mounting a last-minute campaign to save up enough to live off of without eating cat food, or turning to their formerly helicoptered children for support. At the same time, the “Millennials” or “Echo-Boomers” are just now moving out of their parents’ basements, and have not yet become a major economic force. So the Echo-Boomers are not yet making up in consumption for what their parents are saving.”
“One problem is that episodes of this behavior of people saving more tend to be associated with negative growth rate periods for stock prices. That’s a bummer for stock market bulls. So what you should do as a prudent bullish rat is to save your own food pellets while simultaneously encouraging your neighbors to eat all of theirs, and thus make the stock market indices rise. Good luck with that plan.”
Tom is correct in his assessment about what is currently happening with savings. However, he missed one very important component about what happened in the 80-90’s as savings fell – the rise in consumer leverage.
Savings rates didn’t fall just because consumers decided to just spend more. If that was the case economic growth rates would have been rising on a year-over-year basis. The reality, is that beginning in the 1980’s, as the economy shifted from a manufacturing to service-based economy, productivity surged which put downward pressure on wage and economic growth rates. Consumers were forced to levered up their household balance sheet to support their standard of living. In turn, higher levels of debt-service ate into their savings rate.
The problem today is not that people are not “saving more money,” they are just spending less as weak wage growth, an inability to access additional leverage, and a need to maintain debt service restricts spending. For Millennials, yes, they may be emerging from their parents basements, but they are also tasked with trying to pay-off student loan debt with a low-wage-paying service job.
It is indeed a “new economy.”
Just some things to think about.
- Q1 2016: Gold Glows Amid The Greatest Stock Market Comeback In The History Of Investing
He does it again pic.twitter.com/VxemrcowNf
— zerohedge (@zerohedge) March 31, 2016
The market ended red today…
But The Dow and The S&P ended Q1 in the green after a yuuge drop…
In fact this was the greatest comeback in the history of stocks… (Q1 2016's 11.3% drawdown is the biggest on record for a quarter that ended green)
While US stocks managed to scramble back into the green for Q1, European stocks (and especially banks) ended down hard despite Draghi's unleashing more buying…
But the Aug-Dec analog remains in place as we just dipped and ripped…
And breadth is playing the same unimpressed game as it did in Oct 2015…
This looks familiar…
But Gold (and Silver) are the biggest winners in Q1…
While stocks had a huge bounce their Q1 performance was meh, except Trannies
- Dow Transports +5.9% – Best quarter since Q4 2014
- HYG (High Yield bonds) +1.4% – Best Quarter since Q1 2014
- Energy Sector +2.7% – Best quarter since Q2 2014
- Treaasury Bond Index +2.95% – Best quarter since Q2 2012
- Gold +16.1% – Best quarter since Q3 1986
- USD Index -4.1% – Worst quarter since Q3 2010
- Copper +2.4% – Best quarter since Q2 2014
Utes were the best sector in Q1 but Financials and Healthcare (biotechs) were battered…
Treasury yields end the quarter lower with the belly down a stunning 55bps and 30Y -40bps… not exactly what The Fed had in mind in Dec…
Having held steady for January, The USD Index tumbled in feb and further in march led by JPY strength, Cable was weakest in Q1 of the majors…
Crude remains red for the year in Q1 despite the USD plunge but copper managed to creep into the green. Gold and Silver soared…
* * * * *
March was an epic month of extremes…
- S&P +6.99% in March – 2nd best month since Oct 2011
- Financial Stocks +6.6% – Best month since March 2012
- USD Index -3.7% in March – 2nd worst month since Sept 2010
- WTI +14.1% in March – 2nd best month since Oct 2011
- Treasury Index -0.1% in March – worst month since Nov 2015
- Gold -0.4% in March – worst month since Nov 2015
- HYG +2.2% in March – 2nd best month since June 2012
March equity performance is stunningly similar across all indices, with Trannies fading off their highs…
With Energy and Financials soaring…
Treasury yields end the month on a tear with 2Y lower and the rest of the curve modestly higher (despite the soaring stock market)…
The USDollar Index had a tough time in March. led by AUD strength (and JPY ended flat)..
Crude was the biggest winner in March (but fading as the short-squeeze ended) with gold unchanged…
* * *
On the week so far…
Post-Yellen, Stocks standalone as Crude, Gold and Bonds are practically unchanged…
VIX had its biggest monthly drop since Oct 2015…
While on the topic of VIX, we note that VXX shares outstanding has been soaring (since TVIX stalled amid 6 month highs NAV premiums)…
Treasury yields are collapsing into month-end…
The US Dollar index continued its slide today…
Copper and Crude slid today despite weaker USD but PMs were bid into month-end…
Crude soared 60% off its mid-Feb lows and is back in the green for the quarter. This was driven by the biggest surge in net spec longs (as shorts covered) since 2011. The last time this happened… oil fell 35% in the following 4 months…
Charts: Bloomberg
Bonus Chart: S&P is over 70 points rich to The Fed balance sheet currently…
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