• French Bond Investors Skeptical That Election Risk Is Over

  Bond investors are far from convinced that the risks surrounding the French election are over despite the broader market exuberance following the outcome of the first round.

  French 2Y yields have only corrected about half of the risk premium over German 2Y yields since the election (and in fact are widening out today)

  

   

  Furthermore, as Bloomberg details, open interest, a measure of the number of contracts outstanding, has dropped only 10 percent so far this week even as French government bond futures surged after the race for presidency narrowed to Emmanuel Macron and Marine Le Pen.

  

  A decline in open interest amid a rally in an asset typically suggests short-covering rather than new positions being added… but the modest size of the drop suggests few investors are relieved enough to pile back into 'still cheap' OATs.

  

  

• Will Your Savings Get Caught In Government Shutdown Crossfire?

  Via Birch Gold Group,

  Donald Trump and the GOP face a major hurdle as their first budget test looms next week, along with several problematic issues that could prevent an agreement and trigger a government shutdown.

  The potential shutdown would put a hiccup in federal bureaucracy for a few weeks, but that’s not the real reason Americans should be worried. Turns out, there may be an unseen economic danger that could affect you and your savings.

  Shutdown Dejavu?

  We’ve been down this road before, haven’t we?

  Back in 2013, federal legislators failed to reach an agreement on funding appropriation, and there were some serious consequences. This time the fallout could be just as bad, or even worse.

  The political mechanics of why are a little confusing, so let’s break it down piece-by-piece.

  There’s a sensitive relationship between the debt ceiling and the federal budget. Both require congressional approval, and big problems arise if either gets blocked.

  Here’s where things get complicated…

  In negotiations of the federal budget, the majority party (in this case, Republicans), can hold the debt ceiling “hostage,” so to speak as a way to influence the president — plus legislators from the opposing party.

  Republicans have to be careful not to overplay their hand, though. If they do, it could result in a shutdown, which nobody wants – each group for their own reasons.

  That said, why should Americans care? What are the risks? And why could this shutdown be worse than the last?

  Why the Stakes Are So High

  On March 15, the debt ceiling expired, and the Treasury (acting on behalf of the president) was forced to start using “extraordinary measures” to keep the U.S. from defaulting on its debt.

  If Congress doesn’t act briskly, we could see another credit downgrade or worse. And a government shutdown caused by budgetary squabbles would dramatically increase the chances of that happening.

  However, there’s one thing that makes this shutdown particularly special, not to mention uniquely risky.

  According to data from LPL Financial, analyzed and reported on by Ryan Vlastelica at MarketWatch, there have only been a handful of government shutdowns under one party’s control. But those few shutdowns have historically been the most economically damaging.

  Vlastelica writes (emphasis added):

  “A shutdown during a united government could underline the difficulty of major legislation getting passed, something investors are particularly attuned to right now. The rally that was sparked by Trump’s election started to unravel when a health-care reform bill was pulled because it didn’t have the votes to pass. The post-election rally largely occurred because investors viewed Trump’s economic agenda on taxes, infrastructure and regulation to be positive for growth. The prospect of those initiatives not coming to fruition has raised questions that the market’s robust move was unwarranted.”

  So not only could this potential shutdown put the U.S.’s creditworthiness at risk of taking another hit (and causing a repeat of all the negative economic consequences Americans were forced to suffer last time), but it could be a big downward trading signal for equities markets as well.

  But in the meantime, your savings could easily get caught in the crossfire while federal politicians duke it out.

  How to Keep Another Shutdown from Touching Your Wealth

  The last time there was a government shutdown, then-President Obama acted like a petulant child by shutting down national parks and even fencing off national monuments and posting armed guards to keep people out. This was intentionally designed to cause conflict so that Congress would raise the debt ceiling faster — illustrating how desperately the president needs Congress to act on it.

  This time the president is facing off against his own party, and throwing up roadblocks to the negotiation like border wall funding.

  Trump is calling Republicans’ bluff, most likely because the all-important 100-day mark of his presidency is quickly approaching. Fearing scorn from media and the public for compromising his plans, Trump is increasing the chances of another shutdown (and consequently another debt ceiling crisis) to avoid losing face.

  Obviously, it’s not the end of the world if certain non-essential functions of government don’t have money to operate for a week or two… so what’s there to worry about?

  Well, the biggest risk is another downgrade to the U.S. credit rating, which could crash both bonds and stocks…

  On top of that, a shutdown under single-party rule sends a message to market makers that Trump’s many proposed policies for the economy — the ones responsible for the rally in stocks we’ve seen over previous months — aren’t as likely to come true as previously hoped, which could send markets down even further.

  However, such a scenario would cause an equal and opposite reaction in another type of investment that Americans could take advantage of. Essentially, it would send investors flocking to safe haven investments like gold and silver, which would drive metal prices through the roof.

  This shutdown could send a huge ripple effect throughout the global economy, affecting financial markets across world. Securing your wealth yet with gold could be a crucial step toward ensuring your safety.

  

  

• Tiny Trump Hands Deliver Teeny Tiny Tax Plan, US Stocks Collapse in Despair

  The following article by David Haggith was published on The Great Recession Blog:

  

  The big announcement of the really, really big Trump Tax Plan with the “biggest tax cuts in history” came out bigly on Wednesday, as Trump promised. Treasury Secretary Steven Mnuchin and National Economic Council Director Gary Cohn, Trump’s latest tax team, beamed proudly as they presented their baby. The stock market took a deep breath, then  looked at their brainchild and completely petered out.

  First, let me say, I clearly have nothing to recant from my earlier predictions about Trump’s tax plan. The plan that came out looks almost exactly as I thought it would — the only difference being that it is far more pathetic.

  Some news organizations, getting a little ahead of themselves, talked about the US stock market taking off because of the Trump tax plan when the market first got wind that the plan had been released and heard some of the key points:

   

  Once again, investors appear to be placing the bet that Good Donald Trump will be great for the market and that Bad Trump won’t be all that horrible. That was on display on Tuesday. The Dow Jones Industrial Average soared more than 230 points after it was reported that the White House’s tax plan, whose broad outlines will be announced on Wednesday, will propose cutting corporate tax rates to 15 percent, a Trump campaign pledge that many thought the president was backing away from. (Newsmax)

   

  Ah, but that was this afternoon, and now it is the evening after the market plunged as steeply as it soared (and twice as far) to finish the day with the Dow slightly down from its pre-tax open — a sign of a mercurial market that was, for an instant pleased, until it started to feel a little indigestion from consuming its dinner too quickly. At that point, it barfed up all its gains for the day and went to bed sour.

  What the White House billed in its release as “the biggest tax cut in history” rapidly turned into digestive gas. As I speculated earlier in the day, no real plan was released. Just gas. Once again the Trumpet blew his horn loudly (probably from his back side) as he released the big plan, and then his team turned out a summary statement, devoid of any details or calculations.

   

  Here is my own summary of the Greatly Trumped-up Tax Plan:

   

  • The plan will eliminate estate taxes, which only the wealthiest Americans now play, helping Trump and family considerably in the future, but most of you not one iota. (This is a cut 100% for the rich, but it makes things equitable.)
  • The White House compensates for this by saying some other tax breaks that help the rich will be eliminated so that the plan would largely help the middle class; only, as usual, it doesn’t specify what those “other” current tax breaks are that will be eliminated. (So, read that as, “Just trust us on this one.”)
  • The new, new New Trump Tax Plan contains no math to show how much of a deficit the new plan will create, but co-creator Cohn offers assurances that the tax cuts “will pay for themselves” through economic growth and that the president knows we have to “be good stewards.” (“Just trust us on that one.”)
  • The plan comes with Cohn’s personal assurance that the president “will get this done for the American people.” (I feel better knowing that assurance is still being offered as it was in past months. I do note, though, that missing their stated and revised schedules during those months now leaves them simply assuring us it will still get down, but without anymore undoable deadlines.)
  • Corporate taxes will fall from 36.9% to 15%. (That will include closely held businesses and limited partnerships, like legal firms, construction companies in the oil industry, and … real-estate companies, where business income largely passes through to the owners (sometimes the family) so the business does not pay the tax but the owner does when the money passes through. (In other words, the bulk of Trump’s income tax — and his children’s — will drop from 35% to 15%, except that the plan comes with a footnote that this will be done in such a way as to insure that wealthy Americans do not exploit the change. So, we’re good!)
  • The plan reduces the number of tax brackets to three simple levels (10, 25, and 35 percent), and states the tax rate of each bracket. (Unfortunately, it omits stating what income levels will apply to each bracket.)
  • The plan comes with a note that details will be hashed out with the House of Representatives and the Senate in coming weeks. (Maybe months? Like the Obamacare repeal details got hashed out … of existence?)
  • “We know this is difficult,” Cohn said. “We know what we’re asking for is a big bite.” (That’s a plus because with Obamacare, “who could have thought it would be this difficult?” At least, now they’ve learned it is difficult. They have learned something on the job, so we can feel good about having a smarter team.)
  • It does help some of the middle-class by doubling the standard deduction for married couples, and it maintains the allowance for charitable deductions, and it says it will allow tax relief for childcare expenses (though, again, without any details).
  • The plan promises to alienate anyone who lives in a state with high state income taxby making state income tax no longer deductible. (No help if you’re not in such a state, and a bite in the butt if you are; but the plan softens this news by noting that this effects higher income people the most — well, yeah, the ones unlike Romney and Trump who have been known to pay no state income tax.)
  • The plan simplifies tax code (albeit it doesn’t tell us how, just that it WILL). This will presumably happens when congress actually sits down to create the plan with laws under Trump’s instruction that the laws be more simple. (Trust us on that one, even though everything we’ve simplified so far has been ruled unconstitutional in a court of law or died in debate.)
  • Repatriated corporate profits will get a one-time major tax reduction, but all profits made overseas after that will be completely tax free for years to come! (That’s a glory-hallelujah! Well, except for the detail that the tax rate for repatriation is omitted. But, hey, at least they’re thinking about it! And they’re gonna do something! Those cuts will be the “biggest in history!” We just don’t get to know how big until they figure that out. Details.)
  • One thing that is NOT mentioned in the Trumped-up Tax Plan is capital gains tax. If the lack of mention means there will no longer be a special capital-gains tax rate, the elimination of that gift, which goes largely to rich stock and real-estate speculators who can pay to play in that realm, is something I will like. (But the plan doesn’t say one way or another, and you can be sure Republicans will insist on putting that objectionable trickle-down part in as details are “hashed out.”)

   

  Fine print: “details to be determined.”

   

  Wouldn’t you know it? The one part where the devil always rests is still cloaked under a sheet to be revealed at some vague later date.

  Written on all of one side of one page, the newly Trumped-up Tax Plan looks like a scheme worked out by a couple of guys in a paneled club room, smoking cigars over whisky on the rocks and deciding what sounds “great.” That’s clearly why the US stock market plunged once the cigar smoke cleared so investors could actually see the Trumped-up Tax Plan … and the napkin it was written on. How pathetic is that plan when it gives the “biggest tax cuts in history” all aimed at pumping up the stock market, and all its coming-out accomplishes is to cause the stock market to slump in disappointment? Talk about an anti-climax.

  I think Trump announced, “We’re going to present our tax plan on Wednesday,” and his two tax boys said, “Yikes, we better get the plan laid out. Let’s meet tonight after work for drinks and draw something up, and then we’ll give it one of our secretaries to make it look nice.”

  Where we got Trumped on this plan was in thinking a plan might actually be coming out today!

  Hah! Silly us! It’s more of a promissory note, really. I’ve seen footnotes larger than this plan. What we got today was, again, nothing more than just talk! Talk about what Team Trump WILL do … whenever it is that it finally does it. They’ve managed to finish a one-page outline. I think the market rose when it heard general statements about the plan, then plunged all the way to closing when it saw that it was written with lots of white space and NO detail on one page. What the market first thought were summary statements introducing the plan, actually are the plan. Great work for your first hundred days, Boys!

  Read my last article, “You Got Trumped! Trump tax plan taxing for the maestro of negotiation?” and you’ll see I sure called this one. If there is anything that has gotten to be predictable about Trump, it’s that he’s all talk all the time. He’s appropriately named after his loud and brassy mouth. Now, if he can just get his band of merry boys to orchestrate a tune. Trump promised the plan would be beautiful, and it is that; it’s written on a lovely piece of paper — very high quality like the menu at Mar-A-Lago — in an attractive font. It’s a thing of beauty. You should see it. Really, you should see it. I think it even has a picture of chocolate cake on it!

   

  Here is the actual plan if you want to read something truly pathetic after months of waiting:

   

  It’s so full of vague platitudes or catch phrases that it’s practically a tax cliché.

   

  Goals for Tax Reform

  ? Grow the economy and create millions of jobs

  ? Simplify our burdensome tax code

  ? Provide tax relief to American families—especially middle-income families

  ? Lower the business tax rate from one of the highest in the world to one of the lowest

  Individual Reform

  ? Tax relief for American families, especially middle-income families:

  • Reducing the 7 tax brackets to 3 tax brackets of 10%, 25% and 35%

  • Doubling the standard deduction

  • Providing tax relief for families with child and dependent care expenses

  ? Simplification:

  • Eliminate targeted tax breaks that mainly benefit the wealthiest taxpayers

  • Protect the home ownership and charitable gift tax deductions

  • Repeal the Alternative Minimum Tax

  • Repeal the death tax

  ? Repeal the 3.8% Obamacare tax that hits small businesses and investment income

  Business Reform

  ? 15% business tax rate

  ? Territorial tax system to level the playing field for American companies

  ? One-time tax on trillions of dollars held overseas

  ? Eliminate tax breaks for special interests

  Process

  Throughout the month of May, the Trump Administration will hold listening sessions with stakeholders to receive their input and will continue working with the House and Senate to develop the details of a plan that provides massive tax relief, creates jobs, and makes America more competitive—and can pass both chambers.”

   

   

  

  Trumped you!

   

  In other words, it is a plan to start creating a plan!

  And you thought I was just joking about how vague and utterly deplete of details this so-called plan is! After six months of poring over the details and laboring late into the nights, this fourth rendition of Trump’s plan is not that different from what he presented during the campaign, and it’s equal in depth of thought and detail to the kind of outline you come up with after a day of brainstorming and sorting out the the most-liked ideas.

  Now that Team Trump has done all the heavy lifting, it falls to congress to turn this masterplan into months of argument and volumes of law.

  I knew it was going to be pathetic; I didn’t know it was going to be deplorable.

  

• Paul Craig Roberts Warns "Trump Now A Captive Of The Deep State"

  Authored by Paul Craig Roberts,

  When the gullible and insouciant American public and the presstitutes who participate in the deceptions permitted the Deep State to get away with the fairy tale that a few Saudi Arabians under the direction of Osama bin Laden, but without the support of any government or intelligence agency, were able to outwit the entirety of the Western Alliance and Israel’s Mossad and deliver the greatest humiliation in history to “the world’s only superpower” by making the entirety of the US government dysfunctional on September 11, 2001, Washington learned that it could get away with anything, any illegal and treasonous act, any lie. The gullible Western populations would believe anything that they were told.

  Not only insouciant Americans, but much of the world accepts any statement out of Washington as the truth despite the evidence. If Washington said it, Washington’s vassals in Germany, France, UK, Canada, Australia, New Zealand, Netherlands, Belgium, and Japan assent to the obvious lie as if it were the obvious truth. So do the CIA purchased media of these vassal states, a collection of whores who prefer CIA subsidies to truth.

  When Obama inherited the Deep State’s agenda from George W. Bush, he set up Syria’s Assad for regime change by repeating for many months that if Assad used chemical weapons in the “civil war” that Washington had sent ISIS to conduct, Assad would have crossed the “Red Line” that Obama had drawn and would, as the consequence, face an invasion by the US military, just as Iraq had been invaded based on Washington’s lie about “weapons of mass destruction.”

  Having burnt this idea into the feeble minds of the Western populations, Obama then arranged for a chemical weapon to be exploded in Syria and blamed it on Assad. Thus, the Red Line had been crossed, the insouciant West was told, and America would now invade.

  The UK prime minister, the usual piece of Washington-owned garbage, rushed to the support of the American invasion, promising British support. But the British Parliament voted NO. The MPs said that the UK was not going to support another American war crime justified by obvious lies. Only in Britain does democracy still have any teeth, as we saw a second time with the Brexit vote. All the rest of the West lives in vassalage and slavery.

  The Russian government also took a firm stand, admitting that Russia stupidly trusted America in Libya, but no more. We, said the Russians, will ourselves remove any and all chemical weapons from Syria and turn them over to Western “civilization” to be destroyed, which the Russians did.

  What did Western “civilization” do with the weapons? They gave some of them to ISIS. This gave Washington a second chance to accuse Assad of using chemical weapons “against his own people.”

  And so Washington has rolled out this hoax a second time. During a Syrian air force attack on an ISIS position, a chemical weapon exploded, or so it is alleged. Instantly Washington said that Assad had used “Sarin gas against his own people.” Trump was shown photos of dead babies and stupidly ordered a US military strike against Syria.

  This was the first time that Washington had engaged in an unambigious war crime without any cover. Trump had no UN resolution, not even one that could be stood on its head as in Libya. Trump had no NATO participation, no George W. Bush “coalition of the willing” to give cover to the war crime with the support of other governments.

  There are no skirts for Trump to hide behind. He stupidly let himself be pushed into commiting an unambigious war crime.

  Now all his opponents—the Deep State, the military/security complex, the CIA, the Hillary Democrats, the warmonger Republicans—have the New White House Fool under their control. If Trump doesn’t do as they want, they will impeach him for his war crime.

  Meanwhile the risk of war with the Russian/Chinese/Iranian/Syrian alliance grows closer. The US shows every intention of provoking this war. Washington has imposed sanctions on 271 employees of Syria’s Scientific Studies and Research Center for, in Washington’s lying words, responsibility “for developing and producing non-conventional weapons and the means to deliver them.”

  In order to make this false charge stick, Washington prevented any investigation whatsoever into the facts of the alleged chemical weapon associated by Western propaganda, not by any known fact, with a Syrian air attack on ISIS. If Washington is so certain that Syria is responsible, why does Washington block an investigation? If Washington is right, an investigation would prove Washington’s case. But as Washington is again lying through its teeth, an investigation would prove the contrary. And that is what Washington fears and is the reason Washington blocked an investigation.

  Why do Western peoples believe the US government, a well proven liar, who blocks an investigation and asserts that everyone must believe Washington or else be put on a list of Russian agents?

  Here is the lie, the raw propaganda, that the US government has no qualms about issuing: https://www.treasury.gov/press-center/press-releases/Pages/sm0056.aspx It comes from the US Department of the Treasury in which I once served honorably. But honor no longer exists in the US Treasury.

  Are Western populations intelligent enough to understand that the only reason for Washington to block an investigation of the alleged use by Syria of a chemical weapon is that the facts clearly do not support Washington’s lie? No, they are not.

  Theodore Postol, a scientist at MIT, has concluded from his investigation that the chemical weapon was not dropped from the air but was set off on the ground and that it was not Sarin gas as Sarin lingers and the alleged aid workers who were immediately on the scene were unprotected by gloves or masks or by anything. If the gas were Sarin, they would be dead also.

  The Russian explanation is that the Syrian air force attack hit a storage facility, conveniently arranged by Washington, that contained chemical weapons. I have seen reports that Washington, or Washington’s vassals such as Saudi Arabia, have provided ISIS with chemical weapons. President Putin of Russia says the reason Washington has delivered chemical weapons to ISIS is that there can be more orchestrated instances of their use that can be blamed on Assad.

  I think I can say in complete confidence that this is what is happening: Washington intends to wear Russia down with orchestrated chemical attack after chemical attack, portraying Russia as an inhuman defender of Assad’s alleged chemical attacks, in order to more thoroughly isolate Russia and in order to provoke opposition to Putin’s government, especially among the US and German financed NGOs that Russia stupidly permits to operate in Russia and in the Russian media. Washington’s goal is to force by the weight of world opinion Putin to abandon Assad to Washington.

  US Secretary of State Tillerson, another gigantic disappointment to those who hoped for peaceful relations between the US and Russia/China/Iran/Syria, has said that the US still intends regime change in Syria. Tillerson has advised Russia to get out of Washington’s way and to “consider carefully their support for Bashar al-Assad.”

  Russia cannot abandon Assad, because if Syria falls to Washington, Iran will be next, and then the Washington-financed jihadists will be set upon the Muslim populations of the Russian Federation and China.

  This is Washington’s game plan. I am certain Putin is aware of it, and I think the Chinese are, despite their inordinate focus on making money.

  The questions before us could not be any clearer: Will Russia and China break and give in to Washington? If not, will Washington become a good world citizen for the first time in America’s history, or will Washington issue more threats, thereby convincing Russia and China that their alternative is to wait for Washington’s preemptive nuclear strike or deliver one themselves?

  This is the only question that the world faces that is worth our attention. I spent a quarter century in Washington. The evil that is in control there at the present time is unprecedented. I have never seen anything like it.

  Can the world survive the evil that is concentrated in Washington, evil that has the support of the governments of the Western world?

  

  

• Massive Explosion Reported Near Damascus International Airport In Syria

  In what is believed, but has not been confirmed, to be an Israeli air strike, moments ago the area around the Damascus International Airport in Syria was rocked by at least one massive explosion.

  Explosion around #Damascus airport now pic.twitter.com/ZNsZs0BY3L

  — Armies And Weapons (@ArmiesWeapons) April 27, 2017

  //platform.twitter.com/widgets.js

  Video showing the explosion in #syria #Damscus international airport pic.twitter.com/Y4R22MyT3Q

  — Armies And Weapons (@ArmiesWeapons) April 27, 2017

  //platform.twitter.com/widgets.js

  #BREAKING: Huge explosion reported near Damascus International Airport in Syria pic.twitter.com/FrND1p1WFd

  — People’s Daily,China (@PDChina) April 27, 2017

  //platform.twitter.com/widgets.js

  #Syria #Damascus Bunch of #Syrian Activist Saying a Huge Explosion from the countryside Shaked #Damascus. & No Info on what it was yet

  — Ivan Sidorenko (@IvanSidorenko1) April 27, 2017

  //platform.twitter.com/widgets.js

  #Syria #Damascus A #Syrian Reporter is now Saying the Sound of HUGE EXPLOSION came from Vicinity of Damascus International Airport. pic.twitter.com/K9iLZcmful

  — Ivan Sidorenko (@IvanSidorenko1) April 27, 2017

  //platform.twitter.com/widgets.js

  If confirmed, it would be the second Israeli attack on Syria in the past week: on Sunday, Israeli forces bombed a camp for pro-government forces killed three fighters near the Golan Heights on Sunday according to AFP. Two fighters were also wounded in the attack on the Al-Fawwar camp near Quneitra in southwestern Syria, adding that it was unclear whether the damage was inflicted by an air strike or shelling.

  Israel’s army declined to comment Sunday on the attack. On Friday the army said it targeted positions inside Syria in retaliation for mortar fire that hit the northern part of the Golan Heights.

  Syria’s official news agency SANA said Israel had struck a Syrian army position in the province of Quneitra on the Golan plateau, “causing damage”. The Syrian government labels rebel groups and jihadists fighting the regime as “terrorists” and accuses Israel of backing them.

  One thing is certain: the party behind today’s attack on Syria was not the US – otherwise CNN would be blasting it in real time – although with Russia having withdrawn half of its warplanes and with the Syrian army eager to avoid further airborne confronations, it is easy to imagine why the IDF can now enter the sovereign territory unopposed and without fear of reprisals.

  

  

• Visualizing Exter's Liquidity Pyramid (In Physical $100 Bills)

  All the money and all the assets in the world, shown in physical cash form, in one graphic.

  (click image for huge legible version)

  

  Source: Demonocracy

  The Liquidity Pyramid was created for visualizing the organization of asset classes in terms of risk and size. As Demonocracy explains, the Liquidity Pyramid was created during the time in United States, when each dollar was backed by Gold. Gold forms the small base of most reliable value, and asset classes on progressively higher levels are more risky. The larger size of asset classes at higher levels is representative of the higher total worldwide notional value of those assets. While Exter's original pyramid placed Third World debt at the top, today derivatives hold this dubious honor.

  As financial risk increases, money tends to move from the more risky assets (Derivatives), to the least risky assets (to physical cash and then gold). Nothing is without risk, but risk is relative.  The issue is that there is very little physical cash and even less Gold compared to the more risky assets, this makes for a crowded trade in times of high risk when everyone wants to jump into cash and gold, pushing up the price.

  The little yellow rectangle on the left front is all the gold in the world in physical form.

  

  Source: Demonocracy

  All the gold in the world is NOT all in "financial investment grade" form. World Trade Center, Empire State & bunch of too-big-to-fail Bank HQ buildings are in the background to help illustrate the size. You are eye-level to the WTC top floors. The $1 Quadrillion Derivatives cash wall fades into the distance, because $1 Quadrillion is an estimation by the best analysts and truth is no one really knows the true size of the Derivatives Market.

  

  

• Prepare To Be Put To Sleep By Draghi: Full ECB Preview

  With the ECB set to announce its latest monetary policy decision in less than 12 hours, one can summarize in one word what the market expects: nothing. Sure, there are some nuances – the central bank may wax philosophical about Europe’s better growth prospects, and maybe even set the stage for a small signal as early as June about an eventual reduction of stimulus, but don’t count on it. After all, there is a reason – or rather two – why markets are where they are today, and it has to do with central banks creating a record $1 trillion in new money out of thin air. The ECB has been responsible for half and Mario Draghi knows it.

  Which is why the former Goldmanite will to point to still-weak inflation, muted wage growth and an uncertain outlook to argue that easing off the accelerator now could unravel years of work that have consumed much of the ECB’s firepower, a Reuters poll showed. That won’t stop him however from acknowledging the euro zone’s “solid growth momentum”, surging consumer and business confidence, and receding political risk after the first round of France’s presidential vote put a pro-euro centrist in pole position. After all, Jean-Claude Trichet dud just that in 2011 when he, too, mistook a burst of exported Chinese inflation for “recovery.” We all know what happened after: first he hiked by 25 bps, and a few months later the Fed had to bail out Europe with unlimited swap lines.

  In any case, for those who need a more erudite assessment of why Draghi will say nothing at all of consequences tomorrow, here is BofA’s Gilles Moec who says that “we do not expect hard decisions or communication changes from the ECB this week” howver “policy debate may get fierce from June.” What happens then: “we expect very slow QE tapering in 2018 and no policy rate hike before well into next
  year, if at all.” As for the market, rates traders will focus on any mention of bond scarcity and exit sequencing.

  From Moec’s full note “No Need to Rush”:

  No need to rock the boat yet

  Given the recent focus on political developments, we think it is easy to forget the ECB’s Governing Council is due to meet on Thursday. Our sentiment is that there is a consensus at the Governing Council to leave the current stance and communication largely unchanged for now, even if we think this consensus does not extend on which decisions to make, when the time comes. This means that while we do not expect any hard decision or any significant communication surprise this week, we also believe the policy conversation could be quite fierce from June.

  We continue to think that in the face of a still subdued inflation outlook, prudence will prevail and the ECB will opt for small changes to forward guidance in June, slow tapering in 2018 and no policy rate hike before well into next year. Still, the hawks – and some centrists – at the ECB appear to be tired of extraordinary measures, meaning the market could price a more aggressive stance in the second half of this year.

  

  Peace in our (short) time

  In our opinion, most Governing Council members in March were not expecting their tiny move on forward guidance to trigger such an impressive market reaction. After engaging in concerted damage mitigation in the two weeks before the Easter break, we think they will be looking for some peace and quiet at the April meeting. We note in particular that even some hawkish hardliners, such as Governing Council Hansson, have recently stated that the ECB is “looking at the data,” which suggests that even this block of the Council is not after an immediate policy discussion. At the same time, Board member Coeure was keen to say the ECB was “very, very serious about forward guidance,” which did not sound like having another go at this essential part of their communication was on their wish list.

  We think there are several reasons behind this truce.

  • First, the data provides fodder for hawks, who will focus on strong surveys pointing to swift output gap reduction, and doves, who continue to worry about weak core inflation and hard data, which do not fully live up to the surveys’ promise.
  • Second, the March episode, with the market hastily pricing depo rate hikes, will remind Council members that moving market expectations is more art than science, with significant risks of overreaction.
  • Third, the political context–the ECB meets between the two rounds of the French presidential elections– goes against making big moves.

  Fire beneath the ice

  Still, the debate is going on underground. We think Benoit Coeure – who in his role of “market man” at the board is probably quite sensitive to the need to provide investors with sufficient visibility – is trying to gently move the communication toward a very slow “Exit strategy”. This week he stated that the balance of risks to growth is now neutral: the council statement kept it “tilted to the downside” last month. He has been very candid on the direction of travel for the ECB since December, e.g., in his speech at the end of last year about the need for governments to prepare for higher interest rates, so he is probably keen to prepare the market for a gradual removal of QE.

  Peter Praet–the chief economist, i.e., more focused on macro developments–for his part continues to insist on the weakness in inflation and last week stuck to the negative balance of risks.

  More profoundly–those are limited divergences we think–hawks are probably still ready to argue for a swift decommissioning of the ECB’s unconventional arsenal as soon as the political situation allows it.

  Baseline and risks

  In our baseline, the statement does not change this week. In June, the assessment of the balance of risks would move to neutral, while the most dovish part of the forward guidance–the notion that rates could fall further–would be removed (a cheap bone to throw to the hawks, in our opinion).

  Then in September the Council would start preparing the market to slow tapering in 2018 (eg, going first at EUR40bn for six months before gradually moving to zero by the end of 2018) while the forward guidance on rates would be more thoroughly changed; dropping the notion that there would be a long delay before the end of QE and the first hikes, while opening the door to some “technical tweaks” to the depo rate, which would not materialize before well into next year. In our baseline, the ECB would still be a net purchaser of securities at the end of 2018 (to be clear, would stop by December 2018).

  It seems to us the market tends to focus on a hawkish alternative to this, with fast tapering and quicker rates. We agree that is what the noises from the hawks and centrists suggest. But we also continue to believe core inflation will disappoint the ECB. That is what motivates our belief in a very, very slow and considered exit.

  

  

• US Consumers Tap Out: Credit Card Defaults Surge To 4 Year High And It's Getting Worse

  Two weeks ago, when JPMorgan launched Q1 earnings season, we noted that while the results were generally good, one red flag emerged: the company’s credit card charge offs rose to just shy of $1 billion, the highest in four years.

  

  It wasn’t just JPM: all other money-center banks reported similar trends, so we decided to look into it.

  What we found was not pretty. According to the latest data from the S&P/Experian Bankcard Default Index, as of March 2017, the default rate on US credit cards had jumped to 3.31%, an increase of 13% from a year ago, and the highest default rate since June 2013.

  

  This is how S&P/Experian explained the recent 5 consecutive month surge in bank card default rates:

  The bank card default rate recorded a 3.31% default rate, up nine basis points from February. Auto loan defaults came in at 1.00%, down five basis points from the previous month. The first mortgage default rate came in at 0.75%, up one basis point from February and reaching a one-year high.

   

  The National bank card default rate of 3.31% in March sets a 45-month high. When comparing the bank card default rate among the four census divisions, the bank card default rate in the South is considerably higher than the other three census divisions. Upon further analysis to the South’s three census regions, East South Central – comprised of Kentucky, Tennessee, Alabama, and Mississippi – has the highest bank card default rate. 

  

  “Currently the debt service ratio for consumer credit – the percentage of disposable income required to service consumer credit debt – is 5.58%, up from its recent low of 4.92% in 2012 but lower than the 6.01% peak seen shortly before the financial crisis.  The higher interest rates that most analysts expect over 2017-2018 are likely to combine with continued growth in consumer credit to push the debt service ratio back towards the 6% level,” said David M. Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices

  Making matters worse, based on the latest credit card data reported overnight from pure-plays Discover and CapitalOne, the deteriorating trends are rapidly accelerating (resulting in the stock of both DFS and COF getting slammed).

  

  

  Add to this what CoreLogic warned earlier in the day, namely that that stalwart of any viable business cycle, mortgage performance, has finally started to deteriorate…

  While loan performance improved across various loan types throughout the first five years of the expansion, over the last year three of the four major types of loans began experiencing a deterioration in loan performance. The exception to the deterioration in credit performance was real estate, which continues to improve. However, a closer look reveals performance is deteriorating, albeit from pristine levels of performance.

   

  … While performance for the 2016 vintage is still very good from relative to the last two decades, it is beginning to worsen. Historically, when the mortgage credit cycle begins to deteriorate it continues to do so until the economy bottoms and the credit cycle begins to improve again.

  … and it is becoming clear that the US consumer, responsible for 70% of US economic growth, has finally rolled over.

  

  

• Trump Tax Cuts To Add As Much As $7 Trillion In Debt

  While today’s “tremendously” vague one-page summary of Trump’s tax plan had barely any detail – it did not even include the income ranges for the three personal income tax brackets – it did contain enough information for the CRFB to be able to score it, and calculate how much it would cost, or in other words assuming little or no offsetting revenues, this is how much additional debt it would add to the existing upward trajectory in US national debt.

  While it is in a way amusing that after 8 years and $10 trilion in debt accumulated under the Obama administration, US sovereign debt suddenly matters, we admit that the CRFB’s findings are troubling. This is how the CRFB phrased it: “the White House released principles and a framework for tax reform today. We applaud the President’s focus on tax reform, but the plan includes far more detail on how the Administration would cut taxes than on how they would pay for those cuts. Based on what we know so far, the plan could cost $3 to $7 trillion over a decade– our base-case estimate is $5.5 trillion in revenue loss over a decade. Without adequate offsets, tax reform could drive up the federal debt, harming economic growth instead of boosting it.“

  The framework proposes a number of specific changes including: consolidating and reducing individual income tax rates to 10, 25, and 35 percent; doubling the standard deduction; cutting the business tax rate to 15 percent on both corporations and pass-through businesses; repealing the Alternative Minimum Tax (AMT) and estate tax; repealing the 3.8 percent investment surtax from the Affordable Care Act (“Obamacare”); moving to a territorial tax system; and imposing a one-time tax on money held overseas.

   

  The plan also includes some vaguer proposals, including “providing tax relief for families with child and dependent care expenses” and eliminating “targeted tax breaks that mainly benefit the wealthiest taxpayers.” Although the framework itself is vague on the latter, at their press conference Secretary of the Treasury Steven Mnuchin and National Economic Director Gary Cohn seemed to imply it meant repealing all individual deductions unrelated to savings, charitable giving, or mortgage interest (revenue would come mostly from repealing the state and local tax deduction).

  While the CRFB admits that even with the detailed portions of the plan, there are not enough parameters specified to provide a certain revenue estimate of the tax plan, the agency said that “making some assumptions based on prior proposals, our best rough estimate suggests the specified parts of the plan would cost $5.5 trillion. Assuming tax break limits only apply only to higher earners, that cost could be as high as $7 trillion; assuming credits and exclusions are eliminated as well as deductions, it would cost $3 trillion.“

  

  The conclusion: adding interest costs, a $5.5 trillion tax plan would be enough to increase debt to 111 percent of Gross Domestic Product (compared to 89 percent of GDP in CBO’s baseline) by 2027.

  That would be higher than any time in U.S. history, and no achievable amount of economic growth could finance it.

  Here we go back to our original cynical observation: suddenly, after years and years and trillions of new debt, the experts – especially those on the left – are suddenly so very concerned about it. That aside, at 77 percent of GDP, debt is currently higher than at any time in history outside of World War II and its aftermath. Even under current law, debt will rise to 89 percent of GDP by 2027. Based on the details of what has been put forward by the Trump Administration so far, debt could rise to 111 percent of GDP by 2027 – a new historical record. In dollar terms under this estimate, debt held by the public would total $31 trillion in 2027 and gross debt would total $36 trillion.

  

  Of course, one look at the chart above – assuming Trump does not come up with offsetting revenue measures, which so far he has not proposed – means that it has a snowball’s chance in hell of passing Congress. As Reuters more politely puts it, “Trump’s proposal may be unpalatable to party fiscal hawks. It lacks plans for raising new revenue and could potentially add billions of dollars to the federal deficit.”

  Finally, here are some analysts quoted by Reuters, on the opinion of the proposed plan.

  GREG MCBRIDE, CFA, BANKRATE.COM CHIEF FINANCIAL ANALYST, WEST PALM BEACH, FLORIDA:

  “In the eyes of financial markets, apparently all the concerns about North Korea, Syria, etc have been vanquished as the euphoria about tax reform has taken over. Wake me when something actually gets signed into law.”

  DAVID LEFKOWITZ, SENIOR EQUITY STRATEGIST AT UBS WEALTH MANAGEMENT AMERICAS IN NEW YORK:

  “A lot to digest on the tax side and to be honest we don’t have a lot of details at this point aside from just a few bullet points from the press conference. The key question really is what is doable from a budgetary and political perspective in Congress and this is going to be a bit of an uphill fight to get this plan enacted into law. But it is early innings, early days and the White House is going to have to try to convince a lot of people this is the right way to go.”

  MICHAEL PURVES, CHIEF GLOBAL STRATEGIST AT WEEDEN & CO, IN NEW YORK:

  “There’s no question that lower taxes means higher earnings and stronger balance sheets. From a market perspective its a positive. From an economic perspective for the country its much more complicated.
  “There’s a long way to go between now and a done deal. The fact the market has gone nowhere today is telling you something.

  JOE MANIMBO, SENIOR MARKET ANALYST AT WESTERN UNION BUSINESS SOLUTIONS IN WASHINGTON DC:

  “The lack of specificity with regard to the tax announcement offered little for dollar bulls to get excited about. If anything, it dimmed the spotlight on Europe and it put the focus back on ‘Trumponomics’ that could ultimately benefit the dollar. I think the market still has a bad taste in its mouth for how the healthcare reform went, so there’s a degree of skepticism in how soon we could see tax relief.”

  

  

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