- Will Thursday's Final TLTRO Finally Spark Carry Trades?
By Nick Kounis of ABN Amro
Euro Rates Watch – Will the TLTRO spark carry trades?
- The last of the ECB’s TLTRO-II operations is expected to have a big take up, with the market expecting EUR 125bn, and some forecasts as high as EUR 300bn
- From a rates perspective, what matters is whether these funds will trigger flows into the bond or swap markets as banks set up carry trades
- Carry trades have certainly looked attractive and currently there is a possible spread of around 80bp between the rate on the TLTRO and similar maturity peripheral bonds
- However, there is little evidence that banks have used TLTRO-II funds for carry trades over the last few months
- Eurozone bank government bond holdings have actually fallen sharply since the first TLTRO-II…
- …while a very small proportion of banks said they would use the funds to buy assets in the ECB’s Bank Lending Survey
- Finally, there was no discernible impact on government bond curves around the time of the TLTROs…
- ….and only a temporary impact on swap spreads in one of the three operations
- Overall, we doubt the last of the TLTRO’s will have a major lasting impact on bond or swap markets
The impact of TLTRO-II on the eurozone rates market
On Thursday, the ECB will hold its fourth tender under the TLTRO-II (Targeted Long-Term Refinancing Operations) programme. A large take-up is expected. A poll published by Reuters had a median forecast of EUR 125bn net borrowing (EUR 141bn gross given banks will repay EUR 16.74bn), with estimates as high as EUR 300bn. From a rates perspective, what matters is whether these funds will trigger flows into the bond or swap markets as banks set up carry trades. Certainly, carry trades can be attractive. At the time of past operations there has been a possible spread of around 40bp between the rate on the TLTRO and similar maturity peripheral bonds. Currently this spread has risen to around 80bp, given the rise in peripheral yields. In this note we assess how likely it is that we will see a major impact on bond and swap markets by looking at the impact of the first three tenders, which saw a cumulative net take up of EUR 138bn. We first take a look at what banks have said about the uses of TLTRO funds in the ECB’s Bank Lending Survey. We go on to look at bank bond holdings. Finally, we analyse price movements in the bond and swap markets around the time of the TLTROs.
Only a very small proportion of banks say they used TLTRO to buy assets
The ECB’s Euro area Bank Lending Survey of January 2017 (see here) asked 134 banks about their participation in past TLTRO-II operations and the upcoming tender. In addition, the banks were questioned on their planned use of the funds (see charts below). Of the banks, 37% said they participated in the third TLTRO-II operation, which was lower than in the second tender (see graphs below). Meanwhile, 26% said they intended to participate in the upcoming TLTRO-II tender, while 42% was undecided and 32% indicated that they did not plan to participate. It is likely that more banks now intend to participate given it is final tender and market expectations of interest rate hikes have risen (see appendix). For the use of past TLTRO-II liquidity, banks revealed that they would use the cheap liquidity for granting loans (60%), to refinance other funding sources (24%), while only a very modest proportion said they intended to buy assets (9%). For tomorrow’s tender, a slightly higher proportion of the banks said they would engage in carry trades (13%).
Eurozone government bond holdings have fallen
The banks’ responses in the ECB survey appear to be corroborated in data on eurozone banks’ non-MFI bond holdings (see charts below). Eurozone banks’ bond holdings fell significantly between June of last year and January of this year. Total bond holdings fell by EUR 153bn (-9.6%), while domestic bond holdings fell by EUR 124bn (-10.6%). The large absolute falls were seen in Spain and Italy, followed by France and Germany. If banks had initiated carry trades by using TLTRO-II funds to invest in bonds, their bond holdings would have been expected to rise. Rather, a large buyer – the Eurosystem central banks – seems to have crowded them out of the market.
Little discernible impact on bond or swap markets
Finally, we find no major or sustained impact on bo nd or swap markets in the day surrounding the TLTRO-II operations. In the charts below, T is the TLRO-II settlement day for the various operations, and we show movements in swap and bond markets 5 days before and 5 days after. Carry trades would be expected to induce steepening as they would support the segment around 4-years. The left hand chart shows 5s10s ASW swap spreads. There was only temporary steepening around the time of the first TLTRO-II in June, while there was no visible impact in the September and December editions. In the run-up to this month’s TLTRO-II, we do see some steepening, as there appears to be some front running. But it is too early to say it trend will be sustained, given the experience of the swap market behaviour in the first three tenders. The right hand chart shows the average 4s8s spreads of Italian and Spanish government bonds. There is little evidence of bull steepening around any of the operations.
No major sustained impact expected from last TLTRO-II
The last of the TLTRO-II operations will probably see a large net take up of EUR 100bn or more. As discussed above, it would seem very attractive to invest TLTRO proceeds into especially peripheral government bonds or to conduct carry trades by entering receiver swaps of similar maturities to the tender. However, there is little evidence that banks have done so up until now, even though it has always been relatively attractive. One potential reason for this is that (especially peripheral) bank holdings of government bonds were already very large at the start of the TLTRO-II operations. They may feel uncomfortable adding to those holdings. Another reason is that by investing in assets, banks increase their balance sheets. This could be accompanied by higher regulatory costs which would make carry trades less profitable. Furthermore, there have been initiatives in Europe to risk-weight banks’ domestic government bond holdings. At the same time, investors have recently become more concerned about the fundamentals of certain sovereigns in the periphery, especially once QE ends. Overall, we doubt the last of the TLTRO’s will have a major lasting impact on bond or swap markets
- Economics Of The Standoff Between Turkey And The Netherlands
Authored by Altay Atli via The Strategic Culture Foundation blog,
As the diplomatic squabble between Turkey and the Netherlands continues to fester, concerns are raised about whether — and to what extent — the tensions will harm bilateral relations, particularly in economics where the two countries have robust trade and investment connections.
For Turkey, the Netherlands offers a large and expanding export market. Trade between the two countries has roots in the 17th century when the Ottomans exported wool and cotton (later tobacco as well) to the Netherlands and imported clothes and linen in return. Commerce between the two countries remained strong into modern times; in 2016 the bilateral trade volume was US$6.6 billion.
The Netherlands is the 10th largest export destination for Turkey, and perhaps more importantly from the Turkish perspective, it is also a fast-growing market. Last year Turkish exports to the Dutch market amounted to $3.6 billion, against $3 billion in imports. And while the annual increase in imports was 3.4%, exports expanded much faster, at 13.8%. For the Turkish economy, which is suffering an acute current-account deficit, the increasing trade surplus with the Dutch is a precious commodity.
On the other side of the equation, Turkey is and has always been a favored destination for Dutch investment. A process that started in 1930 when the Dutch company Philips set up shop in the newly established Republic of Turkey has reached new levels since then, making the Netherlands by far the largest source of foreign direct investment in Turkey today. According to data by the Turkish Central Bank, Dutch investment stock in Turkey was $22 billion in 2016, compared with $11.2 billion in US investments in second place, and $9.8 billion from Austria in third place.Turkey is home to 2,700 companies funded by Dutch capital. This figure includes those transnational companies registered in the Netherlands for legal and tax-related purposes. This sizeable Dutch involvement in the Turkish economy benefits both sides. For Dutch multinationals such as Unilever, ING Bank, Philips, Perfetti, Royal Dutch Shell and Philip Morris, Turkey is not only a favorable production base but also a lucrative market and a trading and logistics hub for access to the Middle East and North Africa, Balkans, Caucasus and Central Asia. More Dutch investment is set to come to Turkey, such as the recent purchase by Vitol Group of the Turkey-based fuel products distribution company Petrolofisi for $1.47 billion. Investment needs a stable political climate, and the diplomatic spat between Turkey and the Netherlands doesn’t help.
It is also worth nothing that while the amount of Turkish investment in the Netherlands is considerably smaller, there are several large Turkish firms that have set up subsidiaries enabling access to the larger EU market.
For the past week, Dutch pundits have been commenting that Turkey is more dependent on the Netherlands, so possible sanctions imposed by Ankara would only mean “shooting themselves in the foot.” Turkish authorities have imposed political sanctions over the Dutch government’s refusal to allow Turkish ministers to meet with members of the Turkish diaspora there, including halting high-level political discussions between the two countries and the closing of Turkish airspace to Dutch diplomats. But Ankara has carefully ruled out economic sanctions. Turkey’s economics minister, Nihat Zeybekçi said: “If we take these steps, both sides would be hurt.” Ömer Çelik, minister of EU affairs said the Dutch business community, which is “investing in Turkey, doing commerce and generating employment” is “certainly not a part of this crisis,” and “Dutch investment in Turkey is by no means under risk”.
Economic sanctions between Turkey and the Netherlands don’t seem likely at the moment, but longer-term threats remain.
First, even if no sanctions are imposed, the significant loss of confidence caused by recent events will take a toll on bilateral economic relations for some time.
Second, the sizeable Turkish diaspora in the Netherlands, as well as the relatively smaller Dutch community living in Turkey, will face uncertainty, and this will have an economic impact too. An estimated 400,000 Turks live in the Netherlands, according to a diaspora association, and there are 25,000 businesses with Turkish owners, most of them smaller enterprises. Many of these companies are doing business with Turkey, and they are negatively affected by the current dispute between the two governments. So is the much smaller Dutch community in Turkey. But it is equally active in the economy, especially in the tourism sector. Declining tourist numbers will hurt Turkish and Dutch operators alike, and it might take some time to recover to pre-crisis levels of business.
Third, the diplomatic spat is likely to have a negative effect on efforts to revise the Turkish-EU Customs Union. The union, which took effect in 1996, is outdated, failing to catch up with the requirements of today’s global trade. Ankara and Brussels had begun talks to improve the deal, but the current circumstance is likely to overshadow attempts based on economic rationality.
This week Turkish football team Be?ikta? played the Greek side Olympiakos in the European cup. The Turks won 4-1 helped by two goals from Ryan Babel, the Amsterdam-born Dutch striker. Turkey and the Netherlands have links that are closer than many realize, and it will benefit both to keep them intact.
- Hysteria on the Left Over Russia Has Reached a Fevered Pitch
We first need to remember where this all started — nearly a hundred years ago Trotsky was exiled from Russia; he packed his bags and headed for Mexico to start what is known today as the neocon movement. Their stated goal was to spread a brand of government via military means — remaining in a state of revolution at all times. They are, essentially, communists masquerading as capitalists and they co-opted the republican party. Today, the children of the original neocons, like Bill Kristol, have hard-ons for Russia — because it’s in their blood. They can’t help themselves.
Now the left were always fans of the Soviet Union — because communism appealed to them. If you recall, Ted Kennedy actually reached out to the Russians in the 80’s to broker a deal with them in exchange for their help in undermining Reagan. It failed and Reagan ended up being the best leader since JFK.
But ever since communism ended in Russia, the left have been very sore with them and have merged ideologies with the neocons to foment strife with them. Events transpiring in the Ukraine was the first excuse for these sleeper cells in our government to activate — trying to lure Putin into an escalation. When Putin went into Syria, to defend his only deep water port in the Mediterranean and take out ISIS, who we armed and permitted to run wild about the region, we had Turkey shoot down their fighter jet followed by Secretary Kerry requesting that we send troops into Syria to support the ‘rebels’ — who were/are terrorists.
When John Podesta’s emails were released, it was a massive embarrassment to the DNC and Hillary Clinton. Rumors of a child-pedo ring were running rampant and weird things started to happen — such as the death of Seth Rich. Following Trump’s victory, this narrative that Russia somehow hacked Podesta’s emails and then delivered them to Wikileaks was energized to the tenth degree by the mercenary media, neocons, and the left. They’ve been using this feeble and easy to disprove narrative to undermine President Trump — because he represents everything the establishment hates. They’re impugning the honor and integrity of a military giant, one with advanced nuclear weaponry — because their childish behavior demands it.
Would you want your son drafted into a war to fight and die in Moscow because John “I don’t need pizza now” Podesta’s email box was hacked? Get the fuck out of here with these lunatics.
I clipped this from the Russian ‘echo-chamber’ Infowars — who did a good job documenting some of the more outlandish statements made by the left — regarding Russia. These are not the actions and words of stable people.
Content originally generated at iBankCoin.com
- Davos For Democrats: DNC Mega Donors Meet At Mandarin Oriental Hotel To Plot "The Resistance"
Authored by Mike Krieger via Liberty Blitzkrieg blog,
The Daily Beast just published an article previewing what should be referred to from this day forth as Davos for Democrats; a big-money infused orgy of wealthy donors telling their political puppets what to do as they mingle at one of the most luxurious hotel chains in the world.
Clearly learning absolutely zero lessons from their recent election pummeling, the Democratic Party is simply doubling down on its hopelessly failed strategy. Namely, a focus on more cash, even more donor influence and an absence of any new or interesting ideas that could actually get frustrated and struggling American voters excited. The post referenced below reads like something out of The Onion and would be downright hilarious if it wasn’t so pathetic and deranged.
From the article, Democratic Donors Gather in D.C. to Plot the Resistance:
The Democratic Party’s top officials will meet with some of their wealthiest donors in Washington, D.C., this week to plot the Trump resistance, according to documents obtained by The Daily Beast.
The chairs of the Democratic National Committee and the party’s House and Senate campaign arms will huddle with activists, operatives, and deep-pocketed Democratic financiers at a biannual conference hosted by the Democracy Alliance, a leading left-wing donor collaborative at Washington’s ritzy Mandarin Oriental hotel.
They will discuss strategy for immediate opposition to President Donald Trump’s policies, begin laying the groundwork for Democratic campaigns in next year’s midterm elections, strategize future efforts for congressional redistricting, and promote an agenda focused on the state level, where Democrats still retain some power and hope to build a model for national progressive victories. And perhaps most importantly, map out how to fully fund their opposition to all things Trump.
The Alliance brings together high-dollar liberal donors—individuals, labor unions, and charitable foundations—that pledge to give at least $200,000 annually to a suite of left-wing organizations. Through its “partners,” as the donors are known internally, the Alliance in 2015 raised $75 million for its supported organizations, an annual record for the group.
A lot of good that $75 mill did. Encouraging to see the solution is just throw more donor money at the problem.
Those include the Center for American Progress, a liberal policy shop that has turned its 501(c)(4) arm into an anti-Trump “war room,” and Media Matters for America, a media-focused rapid response group that has recently retooled its efforts toward “fake news” and pro-Trump disinformation.
Dumb and Dumber.
And on Friday, the Alliance will host what it describes as “the first in a regular series of off-the-record dialogues between progressive political donors and Democratic Party officials about the future.”
A regular series of off-the-record meetings between donors and Democratic officials. You can’t make this stuff up.
Donors in attendance will include Michael Vachon, a top aide to billionaire hedge fund manager George Soros; health care technology mogul Paul Egerman; Dallas philanthropist Naomi Aberly; Susan Sandler, the daughter of subprime mortgage pioneer Herb Sandler; and Ian Simmons, the husband of Hyatt hotel fortune heiress Liesel Pritzker Simmons.
The Alliance’s donors have recently had to step up their financial commitments as the group retools its mission from policymaking by way of an allied White House to opposition to Republican dominance at all levels of government.
In addition to their annual contribution thresholds, Alliance partners must chip in to support the donor collaborative’s operations. Partner dues increased by between $5,000 and $10,000 this year to support the Alliance’s revamped mission, BuzzFeed News reported in January.
Long on money, short on ideas. That’s the Demcoratic Party for you.
That dovetails with recent Alliance strategy, which has focused on reversing dramatic Democratic losses at the state level ahead of the 2020 census and redistricting process. The Alliance considers a Democrat-friendly round of redistricting essential to future progressive policy gains.
A focus on redistricting. Again, no ideas.
Another event, featuring Planned Parenthood president Cecile Richards, will examine the “opportunity, spurred by the enormous energy of ordinary people taking grassroots action, to oppose the Trump agenda and how to channel this energy for a change in the nation’s political direction, starting with building back power and winning critical state elections in 2017 and 2018.”
This article is just so telling about the priorities of the donor-controlled Democratic Party. They remain focused on money, redistricting and “channeling energy” (i.e. manipulating voters), as opposed to ideas. The party has nothing to offer Americans other than Trump opposition and Russia conspiracy theories.
The first of those break-out sessions will plot “strategy and plans to protect the safety net for low-income families and individuals.” Among its attendees will be the director of US Programs for Soros’s Open Society Foundations.
Perhaps getting the opinions of actual poor people might be useful, as opposed to listening to the operatives of billionaires.
That discussion will be held at Washington’s elite Cosmos Club, whose members—which have included three U.S. presidents, two vice presidents, and 12 Supreme Court justices—pay annual dues of about $2,000.
How grassroots of them.
Meanwhile, did you watch the clip of Nancy Pelosi being asked by Anderson Cooper who the leader of the party is?
Obama and Hillary Clinton.
This party is an absolute joke, and the quicker we admit this and create something else, the better. It hasn’t changed, and it’s not going to.
- China 'Shadow Banks' Crushed As Liquidity Costs Hit Record High
During the so-called Chinese Banking Liquidity Crisis of 2013, the relative cost of funds for non-bank institutions spiked to 100bps. So, the fact that the 'shadow banking' liquidity premium has exploded to almost 250 points – by far a record – in the last few days should indicate just how stressed Chinese money markets are.
While interbank borrowing rates have climbed across the board, the surge has been unusually steep for non-bank institutions, including securities companies and investment firms. They’re now paying what amounts to a record premium for short-term funds relative to large Chinese banks, according to data compiled by Bloomberg.
The premium is reflected in the gap between China’s seven-day repurchase rate fixing and the weighted average rate, which, by Bloomberg notes, widened to as much as 2.47 percentage points on Wednesday after some small lenders were said to miss payments in the interbank market. Non-bank borrowers tend to have a greater influence on the fixing, while large banks have more sway over the weighted average.
"It’s more expensive and difficult for non-bank financial institutions to get funding in the market," said Becky Liu, Hong Kong-based head of China macro strategy at Standard Chartered Plc. “Bigger lenders who have access to regulatory funding are not lending much of the money out.”
Without access to deposits or central bank liquidity facilities, many of China’s non-bank institutions must rely on volatile money markets. As Bloomberg points out, The People’s Bank of China has been guiding those rates higher in recent months to encourage a reduction of leverage, while also stepping in at times to prevent a liquidity crunch.
"The PBOC is allowing smaller lenders to miss payments in order to force financial institutions to de-leverage," said Harrison Hu, chief greater China economist at Royal Bank of Scotland Group Plc in Singapore.
"But it will keep a fine balance. It doesn’t want the pressures to become out of control. There’s a possibility that the PBOC will directly inject funds in smaller banks, if the cash shortage continues.”
As Goldman noted, the rate surge reflects a combination of:
- A tightening bias by the PBOC. The central bank has shifted policy stance since autumn last year, but the clearer interbank rate rise in recent days suggests that the hawkish bias has stepped up further.
- Diminished clarity of the role of interbank rates in the PBOC’s policy framework. Since mid-2015, interbank rates had been kept largely steady, partly reflecting the PBOC’s efforts to build up a policy rate framework centering on interbank rates. The PBOC has also introduced SLF (standing lending facility), which is understood as a tool to keep volatility in interbank funding conditions low. However, in a signal that deviates from these previous efforts, the PBOC last Thursday tried to dissociate interbank rates from “policy rates”, which the PBOC said should mean benchmark bank lending and deposits rates. The comment appeared to open up a bigger scope for the PBOC to allow interbank rates to move higher (with the possible intention to avoid conflict with its official “stable and neutral” policy stance or potential pushback from other policy authorities).
- The SLF mechanism appears to have not functioned effectively in recent days. There have been occasional breaches of the general 7-day repo rate above the SLF rate (3.35% per PBOC’s official communication, although it was reportedly raised to 3.45% last week). This suggests that SLF has not effectively fulfilled its supposed function of imposing a ceiling to interbank rates. One possible reason is that SLF is accessible only by banks, and much of the spikes of the general 7-day repo rate have been a result of liquidity scramble by NBFIs (which have no SLF access), while banks' interbank funding cost (as measured by DR007; Exhibit 1) has remained more moderate and still below the SLF rate (note that the 7-day repo fixing rate is partly based on funding cost of NBFIs as well). Nevertheless, the apparent lack of effectiveness of SLF in suppressing interbank rate volatility might have weakened the anchoring of the market’s rate expectations in the near term, and such uncertainty could have compounded the liquidity squeeze.
- Continued high interbank repo borrowing by funds. The wide gap of R007-DR007 reflects continued stress imposed by NBFIs, likely particularly funds, on the funding market. Indeed, as of end-Feb, interbank repo borrowing by funds remained high at over 30% of the interbank repo borrowing (Exhibit 2) despite the increased pressure on the commercial viability of repo trades (borrowing via interbank repo to finance long-dated bond holdings).
- Regulatory impact. The PBOC has tightened the prudential requirements (particularly on the growth of banks' balance sheet) under its MPA examination, which is to be conducted at quarter-end. This has likely further contributed to, and amplified the impact of, a tightening in the interbank market.
In total, the interbank rate volatility may remain quite high in the coming days, especially in light of the near-term consideration of MPA examination at quarter-end and the PBOC's apparent deviation from the previous monetary policy framework. Alternatively, today's plunge in the dollar may have had a secondary purpose of easing Chinese financial conditions, where the ongoing dollar rally has pushed the local financial sector to the brink of illiquid collapse.
- Is This The Sound Of The Bottom Falling Out Of The Auto Industry?
Authored by Wolf Richter via WolfStreet.com,
Not quite, not yet, but it’s not good either.
Let’s hope that the problems piling up in the used vehicle market – and their impact on new vehicle sales, automakers, $1.1 trillion in auto loans, and auto lenders – is just a blip, something caused by what has been getting blamed by just about everyone now: the delayed tax refunds.
In its March report, the National Association of Auto Dealers (NADA) reported an anomaly: dropping used vehicle prices in February, which occurred only for the second time in the past 20 years. It was a big one: Its Used Car Guide’s seasonally adjusted used vehicle price index plunged 3.8% from January, “by far the worst recorded for any month since November 2008 as the result of a recession-related 5.6% tumble.”
The index has now dropped eight months in a row and hit the lowest level since September 2010. The index is down 8% year over year, and down 13% from its peak in 2014.
The price decline spanned all segments, but it hit the two ends of the spectrum — subcompact cars and the luxury end — particularly hard. The list shows the change in wholesale prices from January to February in vehicles up to eight years old:
NADA blamed three factors:
- The surge in new vehicle incentive spending. Automakers, drowning in unsold inventories on dealer lots and desperate to move the iron and keep their plants running, increased incentive spending by 18% to the highest level in over a decade. This made new vehicle more competitive with late-model used vehicles. So this would be on the demand side.
- The growing flood of used vehicles going through auction. Over the first two months this year, volume of vehicles up to eight years old rose by about 5% year-over-year. Volume of late-model vehicles – the supply from rental car companies and lease turn-ins – jumped 10%. So that’s on the supply side.
- The IRS tax refund fiasco. Restaurants, retailers, and others are already blaming various February debacles on these delayed tax refunds. After the IRS was hit with millions of fake e-filed tax returns last year that claimed the Earned Income Tax Credit and the Additional Child Tax Credit, Congress required the agency to delay sending out refunds this year.
It’s big money. According to the IRS, refunds issued through February 10 plunged 69% from the same period a year ago. That’s $65 billion that didn’t make it into consumers’ bank accounts. But then the money was unleashed. In the week ending February 17, the IRS sent out a record $74 billion in refunds. By the week ending February 24, refunds were down only 10%, or $15 billion, year-over-year. So most of the problem was resolved by the end of February.
That might explain part of the problem on the demand side, at least at the lower end of the scale. But it’s hard to explain the plunge in prices at the luxury end. Also, these are wholesale prices. They don’t react instantly to a brief consumer cash crunch caused by tax-refund delays, now resolved. Something else appears to be going on.
The report, in attempting a forecast, cautioned:
February’s unusually soft showing makes pinpointing where used prices will go over the next few months a bit more challenging. However, given the slower than usual rollout of federal tax refunds, it’s assumed prices will be somewhat stronger in March and April than originally anticipated.
The Used Vehicle Index by Manheim, the world’s largest wholesale auto auction, didn’t pick up a massive drop in used vehicle prices over the past few months, though it too is showing some weakness. The index edged down 0.2% in February. The report pointed out that, “given a sharp decline in pricing in February of last year, the Manheim Index now shows a year-over-year gain of 1.1%.”
The index has dropped in six of the past seven months (chart), but in small increments, and as it says, “stability remains the watchword.” It too acknowledge headwinds for the market, including the “heavy new vehicle inventory and incentives,” and “a crazy tax refund season.”
Why are used vehicle wholesale prices important?
For one, they matter to lenders. Used vehicle wholesale prices determine the value of the collateral for $1.11 trillion in auto loans that have boomed on higher prices, higher unit sales, longer maturities (the average hit a new record of 66.5 months in Q4), and higher loan-to-value ratios (negative equity):
Dropping wholesale prices increase loan losses for lenders as recovery is lower. Declining wholesale values of lease turn-ins, if the trend persists, impacts how finance companies structure the lease terms, thus raising the costs for the customers and putting a damper on leasing activity.
All this puts pressure on new vehicle sales, further pushing automakers to pile on even larger incentives in order to move the units, grapple with inventories, and keep plants open. This works for a while – there’s nothing like big-fat incentives to bring out reluctant buyers. But incentives, when everyone is doing them, are front-loading sales. This is ultimately self-defeating and gets very costly even as sales begin to decline. It was a contributor in the collapse of the industry during the Financial Crisis.
And there are well-established patterns of customers switching between new vehicles and late-model used vehicles. Large incentives by automakers put pressure on late-model used vehicles. In turn, falling prices on the used vehicle side cannibalize sales from the new vehicle side. In other words, they compete with each other, often on the same dealer lot. Especially if demand is lackluster despite the incentives, these patterns can trigger a downward spiral that is difficult to get out of.
First oil & gas, then construction, then new vehicle sales. Read… How Auto Sales Are Getting Crushed in Houston
- BOMBSHELL: CIA Whistleblower Leaked Proof Trump Under "Systematic Illegal" Surveillance Over Two Years Ago: FBI Sat On It
The same day House Intelligence Committee chairman Devin Nunes gave a press conference disclosing that President Trump had been under “incidental surveillance,” Attorney and FreedomWatch Chairman, Larry Klayman, sent a letter to the House Committee on Intelligence imploring them to pursue the claims and evidence presented under oath at a Washington DC FBI Field Office by his client – CIA / NSA Whistleblower Dennis Montgomery – who Klayman claims “holds the keys to disproving the false claims… …that there is no evidence that the president and his men were wiretapped”
When Montgomery attempted to deliver this information through the appropriate channels two years ago, the former CIA and NSA contractor wasn’t given the time of day:
[W]hen Montgomery came forward as a whistleblower to congressional intelligence committees and various other congressmen and senators, including Senator Charles Grassley, Chairman of the Senate Judiciary Committee, who, like Comey, once had a reputation for integrity, he was “blown off;” no one wanted to even hear what he had to say.
As a result, Montgomery went to attorney and FreedomWatch founder Larry Klayman – who then approached the FBI:
Under grants of immunity, which I obtained through Assistant U.S. Attorney Deborah Curtis, Montgomery produced the hard drives and later was interviewed under oath in a secure room at the FBI Field Office in the District of Columbia. There he laid out how persons like then-businessman Donald Trump were illegally spied upon by Clapper, Brennan, and the spy agencies of the Obama administration.
Montgomery left the NSA and CIA with 47 hard drives and over 600 million pages of information, much of which is classified, and sought to come forward legally as a whistleblower to appropriate government entities, including congressional intelligence committees, to expose that the spy agencies were engaged for years in systematic illegal surveillance on prominent Americans, including the chief justice of the Supreme Court, other justices, 156 judges, prominent businessmen such as Donald Trump, and even yours truly. Working side by side with Obama’s former Director of National Intelligence (DIA), James Clapper, and Obama’s former Director of the CIA, John Brennan, Montgomery witnessed “up close and personal” this “Orwellian Big Brother” intrusion on privacy, likely for potential coercion, blackmail or other nefarious purposes.
He even claimed that these spy agencies had manipulated voting in Florida during the 2008 presidential election, which illegal tampering resulted in helping Obama to win the White House.
Given the fact that the FBI had Montgomery’s testimony and evidence for over two years, Klayman traveled to Washington DC last Thursday to meet with Committee Chairman Devin Nunes in the hopes that he would ask FBI Director Comey why the FBI hadn’t pursued Montgomery’s evidence. When Klayman arrived to speak with Nunes, he was “blown off” and instead shared his information with committee attorney Allen R. Souza – who Klayman requested in turn brief Nunes on the situation.
During my meeting with House Intelligence Committee counsel Allen R. Sousa I politely warned him that if Chairman Nunes, who himself had that same day undercut President Trump by also claiming that there is no evidence of surveillance by the Obama administration, I would go public with what would appear to be the House Intelligence Committee’s complicity in keeping the truth from the American people and allowing the FBI to continue its apparent cover-up of the Montgomery “investigation.”
And, that is where it stands today. The big question: will House Intelligence Committee Chairman Nunes do his job and hold FBI Director Comey’s feet to the fire about the Montgomery investigation?
Klayman has detailed all of this in a NewsMax article, followed up with an official letter to Chairman Nunes today, requesting that he question Comey on Montgomery’s evidence. Perhaps this explains Nunes’ impromptu press conference today admitting that Trump’s team was under “Incidental Surveillance” before making his way to the White House to discuss with the President.
So – we know that evidence exists from a CIA / NSA contractor turned whistleblower, detailing a massive spy operation on 156 judges, the Supreme Court, and high profile Americans including Donald Trump. See the letter below:
Judicial Watch bombshell letter to Rep. Devin Nunes1/4 https://t.co/CZ4haCVauK pic.twitter.com/h73gN2iqAS
— ZeroPointNow(@ZeroPointNow) March 23, 2017
Judicial Watch bombshell letter to Rep. Devin Nunes 2/4 https://t.co/CZ4haCVauK pic.twitter.com/qjxoHcWcOj
— ZeroPointNow (@ZeroPointNow) March 23, 2017
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Judicial Watch bombshell letter to Rep. Devin Nunes3/4 https://t.co/CZ4haCVauK pic.twitter.com/ehw04e1ROw
— ZeroPointNow(@ZeroPointNow) March 23, 2017
Judicial Watch bombshell letter to Rep. Devin Nunes 4/4 https://t.co/CZ4haCVauK pic.twitter.com/ccrMz7zU19
— ZeroPointNow (@ZeroPointNow) March 23, 2017
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- Mexico's Finance Minister Warns Mexican Companies "Not To Participate In Construction Of The Wall"
As Trump seeks proposals for an impenetrable, yet “aesthetically pleasing”, 30-foot border wall, Mexico’s government on Tuesday warned Mexican companies that it would not be in their best “interests” to participate in the project even though there will be no explicit legal restrictions or sanctions to stop them if they tried. Per Reuters:
“We’re not going to have laws to restrict (companies), but I believe considering your reputation it would undoubtedly be in your interest to not participate in the construction of the wall,” said Mexican Economy Minister Ildefonso Guajardo.
“There won’t be a law with sanctions, but Mexicans and Mexican consumers will know how to value those companies that are loyal to our national identity and those that are not,” Guajardo added.
His comments echo those of Mexico’s foreign minister Luis Videgaray, who said on Friday that Mexican companies that see a business opportunity in the wall should “check their conscience” first.
Despite the warnings, Cemex, one of the world’s largest cement producers, has said it is open to providing quotes to supply the raw materials for the border wall and competitor Grupo Cementos de Chihuahua has also signaled a readiness to work on the project.
Meanwhile, the only Mexican company, out of some 720 in total, to put its name down on the U.S. government’s website for business opportunities as an interested vendor for the wall construction, is a small, four-member concern from the central city of Puebla that wants to provide LED lights that it imports mostly from China.
Ildefonso Guajardo Villarreal, Mexico’s Economy Minister
Of course, while the Mexican government offers up warnings without any real teeth, in the Communist country of California, politicians have actually introduced legislation to ban its pension funds from investing in companies that provide their services to build the wall…because who care about fiduciary duties? From our post yesterday:
A new piece of legislation recently introduced in California, Assembly Bill (AB) 946 or the “Resist the Wall Act,” would require the California Public Employee Retirement System (CalPERS) and the California State Teachers Retirement System (CalSTRS) – the nation’s first and second largest pension funds – to liquidate within 12 months any investments in companies involved in the construction of President Trump’s “Wall of Shame”. The bill also requires the two pension funds to report to the Legislature and the Governor by January 1, 2019 with a list of companies from which they have liquidated investments or plan to do so.
Not surprisingly, the legislation was penned by a trio of Cali democrats including Assemblymembers Phil Ting (D-San Francisco), Lorena Gonzalez Fletcher (D-San Diego), and Eduardo Garcia (D-Coachella).
Californians build bridges not walls. AB 946 asks PERS and STRS to #resist the wall and divest from its builders. https://t.co/373fnOfaue pic.twitter.com/JHWDnRip8p
— Phil Ting (@PhilTing) March 20, 2017
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In a press release posted to his website, Ting said that “Californians build bridges not walls” and declared for all of California that they want no part of Trump’s “Wall of Shame.”
“Californians build bridges not walls. This is a wall of shame and we don’t want any part of it. Immigrant stories are the history of America and this is a nightmare,” said Ting. “Asian Americans know the pains of being blocked from immigrating to the United States. We endured that indignity under an act of Congress for decades. We must stand together and fight this wall because it symbolizes weakness and hate to the world.”
“The state’s contracting and investment practices should reflect the values of our state,” said Gonzalez Fletcher. “It’s clear the people of California don’t want to invest in the hateful values that the Trump wall represents.”
“It is counterproductive to invest in projects that will not serve the best interest of all Californians. It is the responsibility of the legislature to safeguard our values and create opportunities for economic growth, rather than to bar them,” stated Garcia. “We cannot build up our dreams if our resources are being used to build a wall.”
Shockingly, Villarreal did not provide an update on how/where Mexico will source the $15-$20 billion in funds required to pay for the wall during his comments.
- Doug Casey Has "Never Seen Anything Like This"
Nick Giambruno: Doug, what do you think is the root problem of the US economy and financial system?
Doug Casey: There are several, including incompetence, corruption and, of course, just plain stupidity. But there's not much you can do about those things; they're intrinsic to government. But perhaps something can be done about ignorance, which starts in school: What, for instance, do most people learn about economics and finance? Very little. As Mark Twain said, "It's not what people know that's the problem, it's what they think they know that just ain't so."
All of the economics that's taught in the schools—what little that is taught—is completely backward. Plus, almost everything you hear on television is conventional, unsound, and wrong.
I'd like to believe anybody that's reading this right now that has at least heard of the "Austrian school of economics," understands the value of gold, and knows a bit of basic economic theory and history. Without at least some fundamentals, people stand to suffer a huge drop in their standard of living if the economy goes sideways.
When the current financial crisis started, in 2007, it was the leading edge of the huge financial hurricane that hit in earnest in 2008 and 2009. Now we're in the eye of this hurricane, but we're going into the trailing edge of the storm, and it's going to be much worse and much different than what happened in '08 and '09. Or, for that matter, in the 1930s. So hold onto your hat.
Nick Giambruno: Can President Trump fix this mess?
Doug Casey: Everybody is talking about Donald Trump. He's a complex individual. I actually made money bets that he would win the election. But that’s not the only reason I’m glad he won.
Is Trump a good thing or a bad thing? They say, "Oh he's a racist." "Oh he's a sexist." "Oh he's a homophobe." "Oh he hates Muslims." Frankly we should analyze those things, but I think they're basically all lies. In fact, he's just a businessman, flying by the seat of his pants. He doesn't have a core philosophy.
What's going on in the US now is a culture clash. The people that live in the so-called "red counties" that voted for Trump—which is the vast majority of the geographical area of the US, flyover country—are aligned against the people that live in the blue counties, the coasts and big cities.
They don't just dislike each other and disagree on politics; they can no longer even have a conversation. They hate each other on a visceral gut level. They have totally different world views. It's a culture clash.
I've never seen anything like this in my lifetime. There hasn't been anything like this since the War Between the States, which shouldn't be called "The Civil War," because it wasn't a civil war. A civil war is where two groups try to take over the same government. It was a war of secession, where one group simply tries to leave.
We might have something like that again, hopefully nonviolent this time. I don't think the US should any longer remain as one political entity. It should break up so that people with one cultural view can join that group and the others join other groups. National unity is an anachronism.
Nick Giambruno: What would that look like?
Doug Casey: Well look, my ideal situation politically is this… right now the world is divided into about 220 different nation states, different countries. That's a very bad idea, because almost all of these nation states are trying to weld together people of different views, philosophies, languages, religions, ethnicities, and races, and it doesn’t work.
This is a major reason why Africa—which I'm pretty familiar with—just hasn't gone anywhere. Every one of those countries, as well as every one of the countries in the Mid-East, Central Asia, and I'll include India, they're not real countries. They were put together arbitrarily in the boardrooms of Europe in the 19th century, and they have no internal consistency. So different groups in those countries try to take over the government so they can use it to steal.
Instead of 220 nation states we should ideally have about seven billion. Everybody should be a sovereign individual.
Nick Giambruno: What does Trump mean for the stock market?
Doug Casey: Trump is associated with the free market, even though he understands nothing about economics. He's not really a free market guy, he's an authoritarian, not a libertarian. And he has some disastrous economic ideas—like putting up import barriers and replacing Obamacare. He's trying to run the country as if it were his privately owned company.
He also has some good economic ideas. Cutting regulations, wonderful, and he's doing it. Cutting taxes, fantastic. This is very good.
But he appears to want a weak dollar: What he's really doing is destroying American savings and making imported goods more expensive. This is horrible. I mean this could actually be the straw that breaks the camel's back. A Smoot-Hawley tariff lookalike.
I applaud the fact he also despises Progressives, Cultural Marxists, Social Justice Warriors, the media, academics, and the like. But, again, he's no libertarian.
Nick Giambruno: Where do you think the stock market is headed?
Doug Casey: Well, anything is possible. I really believe that. So will the Dow go to 40,000? Yeah, it's possible, but it's highly unlikely.
I wrote Strategic Investing back in 1982. At the bottom of the bond market, when rates were 15%. When the Dow was under 1,000. I wrote, "The Dow's going to 3,000," and everybody said, "You're completely insane, that's a triple of the Dow." Well it went to 3,000, and then it went to over 20,000 over the next generation.
All I can say about the stock market is, by any traditional parameters of value—price-earnings ratio, price-to-book ratio, dividend yields—it's now very overpriced. And bonds aren't just in a bubble. They're in a hyperbubble.
The economy itself is head-over-heels in debt. What does "debt" mean? It means that some people borrowed money and owe it to other people who are going to want it back. When you borrow money two things usually happen. First, you're taking capital that others saved in the past, and are probably using for consumption, not to create more wealth. And second, you're mortgaging your future, which makes you a serf when you have to pay it back. All that debt is a ticking bomb.
So my feeling is the economy can collapse, and with it earnings on the stock market, and with it prices of stocks. So I want no part of the stock market right now.
Nick Giambruno: What do you want to buy right now?
Doug Casey: You want to buy when things are cheap; very little is cheap. People don't have a sense of history—they don't realize how cheap things can get. I mean, the Dow Jones in the past, at times its yield has been 6%, 8%, 10%. At the bottom of the last depression, after dividends were cut significantly, it yielded 13%.
I watch a lot of international stock markets. I remember in the mid-1980s, three stock markets—Hong Kong, Belgium, and Spain—the indices were all yielding 12% to 15% in current dividends. They were selling for two times earnings and half of book value. Now that's when you buy stocks. You don't buy them at the nosebleed levels where they are right now.
Nick Giambruno: Switching gears to the War on Cash. Why are governments working to phase out cash?
Doug Casey: It's all the governments of the world. This is not just happening in India, which is basically a primitive country where half the people still live on a dollar or two a day—as unbelievable as that sounds. But in advanced countries, in Europe, especially Sweden and Finland, even in backward Uruguay they're trying to get rid of cash.
They say, "Well, drug dealers use cash. Criminals use cash." Yes, of course, and free men use cash, because money equals freedom. Money equals all the things you want to have for yourself and provide for other people. You don’t want the State in control of your money.
They say, "Well, that's okay, you just have to cycle money through your bank account." But when money has to go through your bank account, then that's the only way that you can buy or sell anything. The government controls your bank account. If you become politically unpopular, for whatever reason, they can shut off your bank account. And they know exactly what you’re doing, what you have, and what you like.
The thing is, without cash you're completely under the control of your rulers, and that is not acceptable to a free man. These people aren’t angels. In fact, you don’t get the best people in government—you get some of the worst people.
Look, we shouldn't be using the dollar to start with. It used to be the dollar was just a name for a certain amount of gold, 1/20th of an ounce. Then people forgot that the dollar represented something. Now the dollar is just a floating abstraction.
It's an insane idea. It's a criminal idea. It's anti-human.
But the average person who's got a smartphone thinks, "Oh that would be convenient. I won't have to worry so much about somebody sticking me up for the dollars in my wallet." But even that's wrong; phones are stolen, and accounts are hacked. There are zero advantages to a cashless society—except to the State.
Nick Giambruno: What are your thoughts on bitcoin?
Doug Casey: I'm of two minds about bitcoin. Aristotle in the Fourth Century B.C. gave the five characteristics of anything that can be used as good, reliable money.
It has to be durable, which is why we don't use wheat as money.
It has to be divisible, which is why we don’t use artwork as money. You can't divide the Mona Lisa into pieces.
It has to be convenient, which is why we don't use lead as money. It takes too much to be of value.
It has to be consistent, which is why we don’t use real estate as money. Every piece is different from every other.
Last, it has to have value in and of itself, which is why we shouldn't use paper as money.
So the problem with bitcoin is that its only value, as far as I can determine, is as a transfer mechanism. If you want to send money to somebody on the other side of the world right now you've got to go through the SWIFT system in your banks. It's expensive. It's inconvenient. It's not private.
But with bitcoin—assuming that the person on the other side of the world can find somebody that wants to accept bitcoin—you can do it instantly and for no cost. That's the value of bitcoin. It's a great transfer mechanism.
If the dollar starts losing value at 15%, 20%, 25% per year—which is entirely possible over the next few years—people might go to these cryptocurrencies just to get out of dollars. The government can't easily control them, they're limited in amount, and there will be more confidence in them.
Right now they're interesting speculative vehicles for capital gains, not just bitcoins, but some of these new ones that have different characteristics, as well. They're like buying penny stocks, interesting. A speculative bubble could easily develop in them.
Nick Giambruno: Why do economists spend so much time trying to decipher what the Fed will do next?
Doug Casey: Well there's a whole class of talking heads that make a living out of predicting what the Fed is going to do. It's absurd.
Let me say something radical: The Fed has no right to exist. It serves no useful purpose. It should be abolished. It's worse than unnecessary. The Federal Reserve is destructive.
So I don't try to second-guess what these idiots are going to do. But the last thing that they should be doing—nothing they do is good—is controlling interest rates. That's for the market to control. Setting the price of money is as stupid as the government trying to set the price of candy bars in a store. It's equally ridiculous, but much more destructive.
Nick Giambruno: What do you think is going to happen to the US dollar?
Doug Casey: This is very important. When you work and produce you're paid in dollars, and if you want to get ahead in life you save those dollars. The problem is, after you've saved dollars—what happens if those dollars lose value overnight? Everything you've worked and planned for vanishes with the dollars. This has happened numerous times in other countries with other currencies.
The problem with the dollar is it's the unsecured liability of the US government, which is bankrupt. In the years to come that's going to become very obvious, with catastrophic consequences for the average American.
How can you get ahead in the world when you have to save a depreciating asset? That's why in these third world countries the average guy keeps falling further and further behind, because all he can save is the local currency, and the currency consistently turns into toilet paper, so he's always behind the eight ball.
The same is going to happen in the US on a much grander scale. It's going to be much more serious, because even in all these countries smarter people try to save dollars, they don't save pesos or kwacha or ringgit, they don't save these horrible currencies. They try to get hold of US dollars. When the dollar is devastated, they're going to blame Americans for their currency losing value. This has all kinds of bad consequences.
The dollar is going to cease being the world's reserve currency sometime in the next decade; I'm confident of that. The Chinese are making a lot of progress with the yuan. The euro, however, is going to cease to exist. The European Union is going to break up. Europe has all kinds of problems.
Now that's the bad news, but the good news is that during a time of financial chaos most of the real wealth in the world will still exist. It's just going to change ownership. You want to be one of the people on the winning side of that equation.
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Widespread economic chaos is coming. But you don't need to fear it. Doug Casey and his team recently released this time-sensitive video with all the details. Click here to watch it now.
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