- Chipotle Mexican Grill Stock Analysis 5-2-2016 (Video)
By EconMatters
We look at this one time momentum stock from a mini case study perspective regarding some of the issues this company faces in trying to recover from the food safety issues of recent memory, and move forward as a growth stock for the next decade.
© EconMatters All Rights Reserved | Facebook | Twitter | YouTube | Email Digest | Kindle
- Obamacare To Unveil "Price Shock" One Week Before The Elections
The writing was on the wall long before the largest US insurer, UnitedHealth, decided to pull the plug on Obamacare in mid April. Then, just a week later, Aetna’s CEO said Thursday that his company expects to break even, but legislative fixes are needed to make the marketplace sustainable.
“I think a lot of insurance carriers expected red ink, but they didn’t expect this much red ink,” said Greg Scott, who oversees Deloitte’s health plans practice. “… A number of carriers need double-digit increases.”
It gets better.
One week ago Marilyn Tavenner, who until January 2015 ran the federal Centers for Medicare and Medicaid Services, aka the massive Federal agency that oversaw the rollout of Obamacare and the disastrous implementation of HealthCare.gov and who is now as an insurance lobbyist, said she sees big jumps in Obamacare insurance premiums.
Translation: insurers are not making money, and they need to make money or Obamacare is doomed. Which means even more dramatic rate hikes are about to be unveiled. However, it’s not the what but rather the when that is the shock. And, as Politico reports, the timing could not possibly come at a worse time for Democrats.
“Proposed rate hikes are just starting to dribble out, setting up a battle over health insurance costs in a tumultuous presidential election year that will decide the fate of Obamacare.”
The headlines are likely to keep coming right up to Election Day since many consumers won’t see actual rates until the insurance marketplaces open Nov. 1 — a week before they go to the polls.
That’s right: just one week before the election date, Americans will be served with what now appears will be double (if not more) digit increases in their insurance premiums. Politico is spot on in saying that “the last thing Democrats want to contend with just a week before the 2016 presidential election is an outcry over double-digit insurance hikes as millions of Americans begin signing up for Obamacare.”
They will have no choice: following years of actual delays to avoid a major public backlash on the critical mandate, this time the hammer is set to fall and it will do so at the worst possible time for Hillary Clinton.
“Any reports of premium increases will immediately become talking points on the campaign trail,” said Larry Levitt, senior vice president for special initiatives at the nonprofit Kaiser Family Foundation. “We’re in an election where the very future of the law will be debated.” Democrats say they will mount a vigorous defense of a law that has provided 20 million people with coverage — and point to Republicans’ failure to propose any coherent alternative to Obamacare.
Which is another way to say Democrats are near panic.
“The Republicans will try to make Clinton own the higher prices, but the problem is that Republicans have no alternative or answer,” said Anna Greenberg, a Democratic pollster. “They are in the position of taking away insurance if they repeal Obamacare.”
Somehow we doubt that would be such terrible news for all those millions of Americans whose mandatory “tax” (thank you Supreme Court) subsidies keep the program alive. We also doubt that anyone among America’s middle class will shed a tear if Obamacare is gone.
Which brings us to the key question: just how much of a shocker will be unveiled days before the election? According to Politico, and here we disagree as we have seen price increases in the high double digit ragne, “average rate hikes have been modest in the past despite apocalyptic predictions: premiums increased by an average of 8 percent this year, according to an administration analysis. That report “debunks the myth” that Obamacare customers experienced double-digit rate hikes, said Department of Health and Human Services spokesman Ben Wakana.”
Where we do agree with Politico is that “there are reasons to think the next round may be different.” Blue Cross and Blue Shield plans, which dominate many state exchanges, saw profits plummet by 75 percent between 2013 and 2015, according to an analysis by A.M. Best Co. A chief reason for the financial woes: “the intensity of losses in the exchange segment.”
“I have to raise prices because I have to assume the worst,” said Martin Hickey, CEO of New Mexico Health Connections, one of the surviving co-ops, which expects to increase prices by roughly a third for 2017. “Whether it stabilizes or not, we can’t take the risk.”
Even New York-based Oscar, the much ballyhooed, tech-savvy startup bankrolled with billions in venture capital dollar, is sputtering. Medical costs for Oscar’s individual customers in New York, where it has the most customers, outstripped premiums by nearly 50 percent last year, according to financial filings.
“In some cases the hole is getting deeper rather than getting better,” said Deloitte’s Scott.
In short: expect majour double-digit percent increases in premium prices, and not just because Obamacare is fatally flawed, but for two key reasons we warned about years ago when Obamacare was being rolled out: i) not enough participants to make it economically scalable and ii) those who did sign up are so sick that they promptly soaked up all the externalities.
From Politico:
One big reason is lower-than-expected enrollment of younger, often healthier people who balance the costs of those who require more costly care. Roughly 12.7 million Americans signed up for Obamacare plans during the most recent open enrollment period. That’s far below the 22 million projected by the Congressional Budget Office, and it’s certain to decline as some drop out.
“The pool is far less healthy than we forecast,” said Brad Wilson, CEO of Blue Cross Blue Shield of North Carolina, which says it lost $400 million on its exchange business during the first two years and is weighing whether to compete for Obamacare customers in 2017. “That’s an issue not just here in North Carolina, but all over. … We need more healthy people in the pool.”
Then again, the healthy people have no incentive to sign up and would rather pay the penalty charge instead of spending far more to subsidize those who are not healthy. Sure enough, as with all epically flawed government projects, the cracks in Obamacare became apparent with time.
There’s a growing realization the financial penalty for failing to obtain coverage is an insufficient cudgel to convince younger Americans to enroll. The fee for 2016 is $695, or 2.5 percent of income, whichever is higher. Just 28 percent of HealthCare.gov customers for 2016 were between the ages of 18 and 34, significantly below the 35 percent threshold typically considered necessary for a balanced marketplace.
“It wasn’t enough of a hammer,” said Kevin Fitzgerald, an insurance lawyer with Foley & Lardner. “You need a lot of healthy people to sign up to make the numbers work. Obviously that didn’t happen.”
Ah, we get it now: only Obamacare had “enough of a hammer” it would work like a charm.
And then there was the timing arbitrage. Health plans have complained that Obamacare’s enrollment rules are too loose, allowing people to wait until they need medical care to sign up for coverage, and then to halt payments once they’ve received treatment.
This may work for Netflix, but it is an absolute disaster when it affects a mandatory tax program that is supposed to benefit everyone.
The Obama administration is addressing some of these concerns: It has eliminated some reasons Obamacare customers can use to sign up outside the standard enrollment season. And it plans to require proof from exchange customers that they’re eligible to sign up outside the normal window because, say, they’ve moved or had a kid, which are among the most common reasons.
Alas, such “real time fixes” also never work and end up being gamed by the consumers every step of the way. Which is why health plan officials say more needs to be done to stabilize the markets, for instance, by giving them greater flexibility to sell different kinds of policies. “We have real concerns about the next year or two based on the experience so far,” said Ceci Connolly, CEO of the Alliance of Community Health Plans, which represents 22 plans. “Even for our members that are getting close to breaking even on this, they say that it’s a really challenging and unpredictable environment.”
Most health plans remain optimistic the markets will eventually stabilize. Security Health Plan, which does business in 41 Wisconsin counties, attracted three times as many exchange customers as anticipated during its first year of Obamacare business.
“Was it a financial winner? No,” said John Kelly, the health plan’s chief marketing and operations officer. “We expected to take losses and we did.”
But no more, which is why literally in the days heading up to the general election, the US population will be served a very unpleasant reminder of what happens when big state goes out of control, and that there is no such thing as “free healthcare.”
Just how much of a hit to Hillary’s election chances the “Obamacare shock” will be, we will find out on November 8.
- Don't Sleep Through The Revolution: A Graduation Message For A Dark Age
Submitted by John Whitehead via The Rutherford Institute,
“The most striking fact about the story of Rip Van Winkle is not that he slept 20 years, but that he slept through a revolution. While he was peacefully snoring up on the mountain, a great revolution was taking place in the world – indeed, a revolution which would, at points, change the course of history. And Rip Van Winkle knew nothing about it; he was asleep.”—Martin Luther King Jr., Commencement Address for Oberlin College
The world is disintegrating on every front – politically, environmentally, morally – and for the next generation, the future does not look promising. As author Pema Chodron writes in When Things Fall Apart:
When the rivers and air are polluted, when families and nations are at war, when homeless wanderers fill the highways, these are the traditional signs of a dark age.
Those coming of age today will face some of the greatest obstacles ever encountered by young people.
They will find themselves overtaxed and struggling to find worthwhile employment in a debt-ridden economy on the brink of implosion. Their privacy will be eviscerated by the surveillance state.
They will be the subjects of a military empire constantly waging war against shadowy enemies and on guard against domestic acts of terrorism, blowback against military occupations in foreign lands. And they will find government agents armed to the teeth ready and able to lock down the country at a moment’s notice.
As such, they will find themselves forced to march in lockstep with a government that no longer exists to serve the people but which demands they be obedient slaves or suffer the consequences.
It’s a dismal prospect, isn’t it?
Unfortunately, we who should have known better failed to guard against such a future.
Worse, as I document in my book Battlefield America: The War on the American People, we neglected to maintain our freedoms or provide our young people with the tools necessary to survive, let alone succeed, in the impersonal jungle that is modern civilization.
We brought them into homes fractured by divorce, distracted by mindless entertainment, and obsessed with the pursuit of materialism. We institutionalized them in daycares and afterschool programs, substituting time with teachers and childcare workers for parental involvement. We turned them into test-takers instead of thinkers and automatons instead of activists.
We allowed them to languish in schools which not only often look like prisons but function like prisons, as well—where conformity is the rule and freedom is the exception. We made them easy prey for our corporate overlords, while instilling in them the values of a celebrity-obsessed, technology-driven culture devoid of any true spirituality. And we taught them to believe that the pursuit of their own personal happiness trumped all other virtues, including any empathy whatsoever for their fellow human beings.
We botched things up in a big way, but hopefully all is not lost.
Not yet, at least.
Faced with adversity, this generation could possibly rise to meet the grave challenges before them, bringing about positive change for our times and maintaining their freedoms, as well.
The following bits of wisdom, gleaned from a lifetime of standing up to injustice and speaking truth to power, will hopefully help them survive the perils of the journey that awaits:
Wake up and free your mind. Resist all things that numb you, put you to sleep or help you “cope” with so-called reality. From the day you are born, enter school, graduate and get a job, virtually everything surrounding you is not something you entered by free will. And those who establish the rules and laws that govern society’s actions dictate what is proper. They desire compliant subjects. Those who become conscious of the chains that bind them and free their minds and decide to disagree are often ostracized and find themselves behind bars. However, as George Orwell warned, “Until they become conscious, they will never rebel, and until after they rebelled, they cannot become conscious.” It is these conscious individuals who change the world for the better.
Be an individual. For all of its championing of the individual, American culture advocates a stark conformity. As a result, young people are sedated by the flatness and predictability of modern life. “You can travel far and wide and have a difficult time finding a store or restaurant that is even mildly unique,” writes Thomas More in The Care of the Soul. “In shopping malls everywhere, in restaurant districts, in movie theaters, you will find the same clothes, the same names, the same menus, the same new films, the identical architecture. On the East Coast, you can sit in a restaurant seat identical to that you sat in on the West Coast.” In other words, the repetition that is modern life means the death of individuality.
Resist the corporate state. Don’t become mindless consumers. Consumption is a drug. It makes us unaware of the corruption surrounding us. As Chris Hedges writes in Empire of Illusion:
Corporations are ubiquitous parts of our lives, and those that own and run them want them to remain that way. We eat corporate food. We buy corporate clothes. We drive in corporate cars. We buy our fuel from corporations. We borrow from, invest our retirement savings with, and take our college loans with corporations and corporate banks. We are entertained, informed, and bombarded with advertisements by corporations. Many of us work for corporations. There are few aspects of life left that have not been taken over by corporations, from mail delivery to public utilities to our for-profit health-care system. These corporations have no loyalty to the country or workers. Our impoverishment feeds their profits. And profits, for corporations, are all that count.
Realize that one person can make a difference. If we’re going to see any positive change for freedom, then we must change our view of what it means to be human and regain a sense of what it means to love one another. That will mean gaining the courage to stand up for the oppressed. In fact, it’s always been the caring individual—the ordinary person doing extraordinary things—who has made a difference in the world. Even Mahatma Gandhi, who eventually galvanized the whole of India, brought the British Empire to its knees, and secured freedom for his people, began as a solitary individual committed to the idea of nonviolent resistance to the British Empire.
Help others. We all have a calling in life. And I believe it boils down to one thing: You are here on this planet to help other people. In fact, none of us can exist very long without help from others. This is brought home forcefully in a story that Garret Keizer recounts in his insightful book Help: The Original Human Dilemma. Supposedly in hell the damned sit around a great pot, all hungry, because the spoons they hold are too long to bring the food to their mouths. In heaven, people are sitting around the same pot with the same long spoons, but everyone is full. Why? Because in heaven, people use their long spoons to feed one another.
Learn your rights. It’s easy to complain, throw up your hands and just accept the way things are. Unfortunately, for all the moaning and groaning, very few people take the time to change the country for the better. Yet we’re losing our freedoms for one simple reason: most of us don’t know anything about our freedoms. Lest we forget, America is a concept. You have to earn the right to be an American, and that means taking the time to learn about your history and the courageous radicals who fought and died so that you and I could live in a free country. At a minimum, anyone who has graduated from high school, let alone college, should know the Bill of Rights backwards and forwards. However, the average young person, let alone citizen, has very little knowledge of their rights for the simple reason that the schools no longer teach them. So grab a copy of the Constitution and the Bill of Rights, and study them at home. And when the time comes, stand up for your rights.
Speak truth to power. Don’t be naive about those in positions of authority. As James Madison, who wrote our Bill of Rights, observed, “All men having power ought to be distrusted.” We have to learn the lessons of history. People in power, more often than not, abuse that power. To maintain our freedoms, this will mean challenging government officials whenever they exceed the bounds of their office.
Don’t let technology be your God. Technology anesthetizes us to the all-too-real tragedies that surround us. Techno-gadgets are merely distractions from what’s really going on in America and around the world. As a result, we’ve begun mimicking the inhuman technology that surrounds us and lost sight of our humanity. If you’re going to make a difference in the world, you’re going to have to pull the earbuds out, turn off the cell phones and spend much less time viewing screens.
Give voice to moral outrage. As Martin Luther King Jr. said, “Our lives begin to end the day we become silent about the things that matter.” There is no shortage of issues on which to take a stand. For instance, on any given night, over half a million people in the U.S. are homeless, and half of them are elderly. There are 46 million Americans living at or below the poverty line, and 16 million children living in households without adequate access to food. Congress creates, on average, more than 50 new criminal laws each year. With more than 2 million Americans in prison, and close to 7 million adults in correctional care, the United States has the largest prison population in the world. At least 2.7 million children in the United States have at least one parent in prison. At least 400 to 500 innocent people are killed by police officers every year. Americans are now eight times more likely to die in a police confrontation than they are to be killed by a terrorist. On an average day in America, over 100 Americans have their homes raided by SWAT teams. Since 9/11, we’ve spent more than $1.6 trillion to wage wars in Afghanistan and Iraq. It costs the American taxpayer $52.6 billion every year to be spied on by the government intelligence agencies tasked with surveillance, data collection, counterintelligence and covert activities.
Cultivate spirituality. When the things that matter most have been subordinated to materialism, we have lost our moral compass. We must change our values to reflect something more meaningful than technology, materialism and politics.
Standing at the pulpit of the Riverside Church in New York City in April 1967, Martin Luther King Jr. urged his listeners:
[W]e as a nation must undergo a radical revolution of values. We must rapidly begin the shift from a “thing-oriented” society to a “person-oriented” society. When machines and computers, profit motive and property rights are considered more important than people, the giant triplets of racism, materialism, and militarism are incapable of being conquered.
We didn’t listen then, and we still have not learned: Material things don’t fill the spiritual void.
Unfortunately, our much-vaunted culture of consumerism and material comforts has resulted in an overall air of cynicism marked by a spiritual vacuum, and this generation of young people is paying the price. For example, at least one in 10 young people now believe life is not worth living. A survey of 16- to 25-year-olds by the Prince’s Trust found that for many young people life has little or no purpose, especially among those not in school, work or training. More than a quarter of those polled feel depressed and are less happy than when they were younger. And almost half said they are regularly stressed and many don’t have anything to look forward to or someone they could talk to about their problems. Equally alarming is a recent report by The Washington Post indicating that the U.S. suicide rate has increased sharply since the turn of the century, particularly among women.
No wonder many young people have such a pessimistic view of the future. But that can change. As King said, we have to start putting people first.
Pitch in and do your part to make the world a better place. Don’t rely on someone else to do the heavy lifting for you. As King noted, “True compassion is more than flinging a coin to a beggar; it comes to see that an edifice which produces beggars needs restructuring.” In other words, don’t wait around for someone else to fix what ails you, your community or nation. As Gandhi urged: “Be the change you wish to see in the world.”
Finally, you need to impact the government, be part of the dialogue on who we are and where we’re going as a country. It doesn’t matter how old you are or what your political ideology is. These are just labels. If you have something to say, speak up. Get active, and if need be, pick up a picket sign and get in the streets. And when civil liberties are violated, don’t remain silent about it. Take a stand!
The only way we’ll ever achieve change in this country is for this generation of young people to say “enough is enough” and fight for the things that truly matter.
I shall end as Dr. King ended his commencement address to the graduates of Oberlin College in June 1965:
Let us stand up. Let us be a concerned generation. Let us remain awake through a great revolution. And we will speed up that great day when the American Dream will be a reality.
- China Manufacturing PMI Disappoints – In Contraction For 14th Straight Month
Despite a trillion dollars of credit spewed into the Chinese ‘economy’ speculative finance channels, Manufacturing remains in a slump as April’s China PMI tumbled to 49.4 after a brief bounce back up to 49.8 (from the 48.0 low in Feb). This is the 14th month in a row of contraction.
As Caixin reports, relatively weak market conditions and muted client demand contributed to a further solid decline in staff numbers, which seems to put a nail in the coffin of anyone who believes recent price action in industrial commodities is anything but speculative fervor.
Commenting on the China General Manufacturing PMI data, Dr. He Fan, Chief Economist at Caixin Insight Group said:
“The Caixin China General Manufacturing PMI for April came in at 49.4, down 0.3 points from March’s reading. All of the index’s categories indicated conditions worsened month-on-month, with output slipping back below the 50-point neutral level. The fluctuations indicate the economy lacks a solid foundation for recovery and is still in the process of bottoming out. The government needs to keep a close watch on the risk of a further economic downturn.”
- Ben Tanosborn: How Blacks & Latinos Will Lose The Election For The Democratic Party In 2016
Forget about the number of superdelegates; or the several undemocratic manipulations by the Democratic National Committee (DNC). The reality that stands out loud and clear at the end of April, with almost two-thirds of the primary-caucus vote having been cast, is that Hillary Clinton is commandingly leading Bernie Sanders in the democratically-chosen delegate count by a tally of 55 percent against 45 for the senator.
How the remaining primary vote goes through mid-June, unless some transformational event or revelation take place, is not likely to change quantifiably or selectively the fact that the former first lady is irrefutably poised to receive, by acclamation in Philadelphia one guesses, the Democratic nomination to vie for a long term lease – 4-years with a conditional renewal for another 4-years – of the White House and its more celebrated political dependencies. And her scoundrel spouse, William Jefferson Clinton, smilingly, will be at the convention willing and able to receive all the political accolades he undoubtedly feels his multiple talents deserve.
But… unfortunately for the Democratic Party and the Clinton legacy, their future, as well as the White House might be forever lost. For all of the Scoundrel’s political savvy, he will finally appear, past the November election, in all its naked glory for history to judge: an articulate and charismatic American emperor who, although never wearing clothes, had much of the country seeing him through a deceitful sartorial kaleidoscope.
Let us reasonably, and logically, look at the repercussions as April is ending and Indiana gets ready to vote and apportion its 92 Hoosier Democratic delegates. Does it make any sense that Hillary Clinton is receiving an inordinately, and questionably undeserving, high percentage of the Latino and Afro-American vote? That, while Bernie Sanders is garnering the same Pyrrhic vote as that which the Latino-Black folks are predicted to give Donald Trump in the general election? Go figure such illogical behavior!
Loyalty you say? Is Bernie just another unknown white-face, long on promises and short on their delivery… perhaps the rationale which reigns in many or most L&A minds? Whichever reasons are chosen, whether those or multiple others, it is obvious that leaders of the many social, business, religious and political groups are playing that fictional Hamelinian role leading their people to the precipice and asking them to jump; or, a contemporary, real example dating back to 1978 when Jim Jones offered “salvation” to his near-1000 followers in Jonestown by asking them to drink a cyanide-laced little cup of Kool-Aid.
If the chosen parallel of Luciferian Jim Jones and African-American and Latino leaders seem farfetched… our intention is not to vilify anyone, nor to diminish these leaders’ best and noble intentions. Our sole intent is to point out the possible, no, the probable unintended consequences that Hillary Clinton’s nomination could bring to the entire nation… and more specifically to these two minorities that jointly comprise 31 percent of the “legal” US population – Hispanic/Latino 18 and Black 13 – without any regard or consideration for 10-20 million undocumented or illegals, overwhelmingly Latino.
The mantle of qualifications vested on Hillary Clinton is weaved with nothing but the thread of exposure, more often used in the world of politics than in the real, business world… where lots of experience, if consistently associated to bad decision-making, do not qualify but actually disqualify someone from attaining more responsible positions. If Hillary’s sum total decisions, or adherence to decisions, were to be tallied in good and bad decision columns, from her start with Goldwater half century ago to her stint as Secretary of State for Barack Obama – and her lack of vision when offering crucial advice to him, she would not receive a passing grade; not when bluntly failing the most critical and valuable attribute for a decision-maker: good judgment.
Qualifications and judgment aside, there is another variable in this particular election that has not been properly addressed. It has to do with those who “felt the bern” and are unlikely to vote for Hillary even if Bernie himself pleads them to vote for her. Many of the millennials probably won’t bother to cast their vote… and another just-as-important and decisive group: that of poor white workers, who saw Bernie as the leader in their economic struggle might seek a Hillary-alternative as will many pacifists who see Clinton as hawkishness personified.
Probable end result when subtracting from the potential Democratic vote disenchanted millennials, economic-revolutionaries, and doves could easily bury any and all hope for the Clintons to return to the White House. Many millennials won’t vote; and many impoverished whites in the Democratic Party will feel forced to switch their anti-establishment allegiance from Bernie to Donald Trump, as incongruent as that may seem, hoping for a better economic future and/or a more constructive, less confrontational hawkish attitude internationally.
And that brings us to the conclusion that for all the antipathy that might exist between African-American and Latino “super-minorities” and Donald Trump, it is these major minority voting blocks that appear to be clearing the path for this Demeaner-in-Chief to exchange his ostentatious quarters in Trump Plaza for the more modest ceremonial trappings of the White House.
Ironic we might add, since a 50 percent vote for Bernie in the primaries by Blacks and Browns (which is far less than he might deserve given his past history and lofty principles), would have switched the percentage in delegate count from the current 55-45 percent favoring Hillary to a remarkable same 55-45, but this time favoring Bernie (the math is rather simple).
And the story in all probability ends here, “How Blacks and Browns Lost the Election for the Democratic Party in 2016,” without the need for a guru-performed political autopsy.
No, Jane (Sanders), there won’t be a miracle on Pennsylvania Avenue in 2017, just as there wasn’t one on 34th Street for Kris Kringle in 1947, even if in our fantasy we went ahead and fictionalized one.
- Are Central Banks Running the Oil Market or Just the World?
The question begs for conspiracy theories to satisfy it, but one might more aptly say that central banks beg for conspiracy theories to explain them, since they operate in the shadows while being given charge of all the financial systems of all the world’s greatest economies. Central bankers have the unchaperoned power to create the greatest fortunes ever known to mankind at will and to invest it wherever they want. With trillions of dollars at their disposal and trillions more whenever they want to conjure it into existence, what is to stop them from cornering every market on earth?
Capitalist central banks have become ultimate central planners
Why would we even think central banks wouldn’t manipulate all markets to the benefit of their own member banks when two Fed officials have stated that by intention the Fed’s FOMC was front-running the stock market to create a “wealth effect”? (Apparently the “wealth effect” is to make the wealthy vastly wealthier because that’s what happened; I certainly haven’t seen any wealth trickling into my bank account as a result of this overt manipulation of markets.)
We used to have regulations that prevented banks from investing in stocks (and thereby central banks from indirectly manipulating the stock market by giving money to their member banks to invest). Next, the Fed will be deciding what companies to favor. Maybe they already do.
What if another corporation like GM that is too big to fail is failing? Is there any reason this time around that central banks should tell us they are going to bail it out by buying up its stocks now that central-bank intervention is standard procedure? (The Fed would argue to congress, “It was important we did that quickly and secretively so as not to create a massive market scare that could have jeopardized the recovery.”)
Anything is justifiable if it necessary for “the recovery.” The Fed, of course, wouldn’t buy those stocks directly; but will it’s member banks suddenly start sweeping up some company’s stocks with money the Fed creates as it nudges them to spend the money in that direction?
How would we know? Nudges that happen between major bankers at Federal Reserve board meetings are unseen as they are not a part of corporate reports that would explain why a large national bank suddenly bought a great deal of one company’s stock. “It just looked like a good investment for us.”
Through the decades-long process of deregulating, we removed those important barriers and have created a free-for-all between banks and markets. Central banks have the power to create unlimited amounts of money in a single day, based solely on their own discretion, with no supervision by any other entity as to what they are doing. They create that money as deposits ex nihilo in banks that know where the money is intended to go. (Where the money should go can be agreed upon as gentleman and gentlelady over a martini and cigar with no public record other than “met to discuss corporate default problems.”)
Central banks run their national economies unsupervised by anyone
Seriously? You think they’re supervised? By whom? Certainly not by congress here in the US. Congress merely asks the head banker some questions and then lets the Federal Reserve continue on with whatever its bankers were doing. We audit corporations, and government even audits the government; but the largest financial institution on earth runs audit-free year after year, decade after decade, as congress grandstands in feigned outrage at times and at other times listens in awe, but always defaults to merely trusting the Federal Reserve. Always.
If you were corrupt, wouldn’t you naturally try to get on the board of the largest financial institution on earth that never gets audited and has the power to create as much money as it wants to out of thin air to give to your bank with one the provisos that it keep inflation in check and keep jobs looking halfway respectable?
There is nothing to stop the Fed — nor probably most central banks — from deciding to create $100 billion in the accounts of its member banks, saying, “We’ll deposit this money when you show us you’ve purchased that much in oil from companies being hit the worst.” There is no risk for the bank or the Fed because it was all free money anyway. They just suddenly own lots of oil.
If there are any barriers still standing to that sort of thing, how would we or congress ever know if those barriers were being respected when congress never audits the Fed and accepts anything it says as sufficient for congressional oversight? It is in that sense that I say there is really nothing to stop central banks from soaking up all the oil for sale in the oil market right now. How would anyone ever know if they bought oil through corporate banking proxies or through other central banks who used their own proxies?
That is exactly what the Fed overtly did with US government bonds, so why not oil? They were front-running the bond market by saying to their member banks, “If you buy these government bonds, we’ll buy them directly from you the next day. That way we are not breaking the law by directly buying the government’s debt, and then we’ll create as much money in your reserve account as what you spent on the bonds plus half a percent.”
What a joke! How is that simpleton’s shell game not directly buying the government debt? As soon as you start telegraphing to banks that you will buy government bonds off of them overnight for a half a percent profit to the bank (called front running the bond market) on a no-risk deal for the banks, you know banks are going to leap to do that.
You’re creating the market for the bonds. You’re not just soaking up the banks’ bonds. The fact that you passed the bond through someone else’s hands is no different than money laundering. It’s bond laundering. “NO, we didn’t finance the government. We bought up some old government bonds that some of our banks no longer wanted.” Yeah, right.
This the Fed did overtly for years.
What a charade … and no one cared … other than a few readers of The Great Recession Blog, Zero Hedge, and other similar sites. Most didn’t bat an eye. The same thing was happening with stocks for the entire past seven years (and still is happening as the Fed reinvests its money). Even though the Fed originally denied it was pumping up the stock market; recently two major Fed board members admitted the Fed was front-running the stock market, and still few cared. It’s no surprise to anyone because most people knew that is where much of the Fed’s free money was going.
Are central banks manipulating the oil market?
Therefore, it should not seem like any big conspiracy theory, when you see total nonsense pricing (bad news is good news) in the oil market to ask, are central banks now moving on to doing the same thing in the oil market?
Why wouldn’t they? 1) What’s to stop them? 2) Clearly US banks that are members of the Federal Reserve System are being hurt by the oil price war, so the Fed can justify this as another “intervention” they need to do to save their own banks from collapsing due to bad loans throughout the oil industry.
Two more oil company’s declared bankruptcy this week. Week by week, a storm surge is building up against banks that are heavily invested in this industry:
The bankruptcies are continuing fast and furious across the energy sector.With the ill-effects spreading beyond just the oil and gas business — evidenced by major renewables firm SunEdison filing for Chapter 11 last month.
But the U.S. E&P [exploration and production] sector still remains one of the biggest unknowns when it comes to bad loans. With numerous observers having recently warned about a big wave of defaults coming in this space.
And a new data point late last week suggests we may be reaching a tipping point.
That came from leading American investment bank JPMorgan. Which said in an SEC filing Friday that its holdings of potentially bad loans took a major jump over the past quarter. JPMorgan reported on its holdings of “criticized” loans — a term used in the banking industry to refer to “substandard or doubtful” debts … leapt by 45 percent over the last quarter — to $21.2 billion as of March 31. (Oilprice.com)
Over twenty billion of bad debts — most of it in oil companies! That number beats many of the big bankster bailouts during the worst of the Great Recession for size. That’s just one major bank, and those are only the loans the banks is showing as bad. How many other loans does JPMorgan have that are not in some stage of default but that are with oil production companies that are sinking fast?
How bad is the pinch on other banks that invested in the oil sector? Read the “panic index”:
Little-reported but extremely critical data point for the oil and gas industry emerged yesterday. With insiders in the debt business saying that risk levels in the sector have risen to unprecedented levels.
That came from major ratings service Moody’s. With the firm saying that one of its proprietary indexes of credit problems in the oil and gas sector has hit the highest mark ever seen.
That’s the so-called “Oil and Gas Liquidity Stress Index”. A measure of the number of energy companies that are facing looming credit problems because of overextended debt…. In fact, that level is now considerably worse than seen during the last recession…. “This progression signals that the default rate will continue to rise as the year progresses.” (Pierce Points)
You may recall there was a commodities crash in energy prices running into the Great Recession, too. In other words, the pain is just beginning. The squeeze will get tighter.
What better way to keep some of these companies out of default (and thereby keep the banks who financed them out of trouble) than by getting the price of oil back up a little? So, would the Federal Reserve become proactive to support these American companies that are pressing major US banks into perilous situations, now that it is accustomed to massive interventions and financial inventions as daily procedure?
Might that explain why the price of oil goes up, regardless of what happened at Doha?
Maybe that is exactly what the surprise, “expedited” meetings of the Federal Reserve were about shortly before the Doha meeting and what the Fed’s rushed closed-door meeting with the president and vice president was about — what to do when Doha failed (as they knew it would, given Saudi Arabia’s overt statements). As anyone knew it would if they were willing to see straight.
If not the Fed, then why not some other central bank in some country where a major bank is being crippled by the oil price crush? A bank that could fall on others and create a domino effect if it fell.
Central banks are so grossly out of control with no elected oversight and unlimited financial power to create money and decide where it goes, that I have to ask, is it possible that there are no honest markets left anywhere? How would we know? No one ever gets to see inside the central bank’s inner workings to know. Just how completely have the banks taken control of every aspect of the economy — or, at least, of every aspect they care to control?
But you cannot manipulate markets forever
Suppose some central bank somewhere decided to buy up oil through proxies to keep the price rising, in spite of all risks, in order to keep a few of its major member banks from going bankrupt due to exposures even more extreme than the one known about and admitted above.
As a result, the producers keep producing because someone keeps buying. The price keeps bubbling upward, which saves some companies and their banks for the time being; but also entices more producers to come back on line. Prices keep going up, regardless, and even though Saudi Arabia and Russia actually increase production, too.
In such a situation, you might expect to see headlines, such as the following:
“Oil Rallies On As Traders Ignore Red Flags”
No matter how much crude oils stocks around the world rise, prices keep rising because of the price intervention. Oil tankers stack up at sea, but the prices keep going up. You start to wonder if the market is rigged. Why are so many speculators betting that the price of oil can go up forever? You start to think of the US housing market in early 2007 when everyone thought housing could defy gravity and climb forever.
Then one day you read a headline like …
“Rotterdam Tanks are Full: All tankers being sent back out to sea”
A week later, you read the same thing in Oklahoma and other parts of the world.
Sooner or later reality butts in. Price manipulation causes distorted markets and only accelerates the problem because falling prices didn’t result in supply correction. Instead, the prices themselves, get corrected, and supplies follows the money … until it the money had nowhere left to go. You cannot buy oil at any price — regardless of how low — if you have nothing to put it in.
Game over … just as it was for housing in the last half of 2007.
Bonds, stocks, the oil market — they all look as rigged right now as the Arizona Republican Convention where Trump, who won the vast majority of votes in the Arizona primary, got almost none of the delegates. The party will make sure their guy wins no matter what in order to protect the party establishment from the rogue. And “the establishment” is largely Wall Street — mostly banks.
That’s why it is is time to, above all else, vote against the establishment in either party, top to bottom.
Exxon, Chevron, PetroChina, Conocophillips, all reported heavy losses. Who are they banking with? Are they simply too big to fail?
- “Nightmare” Mistake: Visa Free Travel For 80 Million Turks Coming Up
Submitted by Mike "Mish" Shedlock of MishTalk
“Nightmare” Mistake: Visa Free Travel For 80 Million Turks Coming Up
Of all the inane, self-serving, deals German Chancellor Angela Merkel made with Turkey, visa-free travel for 80 million Islamic Turks tops the list.
“This is all a nightmare,” said one diplomat charged with making the deal work.
Nightmares aside, Brussels Prepares Legal Groundwork on Visa-Free Travel for Turks.
Brussels will this week propose visa-free travel to Europe for 80m Turks but says Ankara still needs to meet several politically explosive reform conditions within weeks, including overhauling its terrorism laws and party funding rules.
The enhanced travel rights were Turkey’s main windfall from a landmark EU deal in March, in which Ankara helped dramatically cut migrant flows to Europe by agreeing to take back all migrants arriving on the Greek islands.
On Wednesday the European Commission will legally recommend Turks should be granted short-term visa-free travel to the Schengen area. But it will point out that up to nine of the 72 eligibility conditions required of Turkey remain incomplete, according to people familiar with the proposal.
The stage is now set for a stand-off before the June visa deadline, with far-reaching consequences for the migration crisis, domestic politics across Europe and Turkey’s long-term relations with the bloc. Decisions on visa rights for Ukraine, Georgia and Kosovo are set to be taken at the same time.
“This is all a nightmare,” said one diplomat involved in talks. Another European diplomat described the Turkey-EU deal as carrying “the seeds of its own destruction”.
It is a gamble some senior EU officials fear “is a big mistake” and will backfire. “This will be the perfect get-out for the Dutch, French and Germans, who are facing major domestic problems and suffering from buyer’s remorse since the Turkey deal,” the official said. “And the European Parliament will just not accept a political fudge, the Turks won’t be able to ram it through.”
Appropriate Terms (in Order of Occurrence)
- Windfall to Turkey
- Short-Term
- Stage Set for Standoff
- Nightmare
- Seeds of its Own Destruction
- Big Mistake
- Backfire
- Political Fudge
Political fudge, seeds of its own destruction, and nightmare are my three favorite descriptions.
A strong argument can be made for “short-term” given the massive long-term problems should this deal actually go through.
- Ron Paul: Drafting Women Means Equality In Slavery
Submitted by Ron Paul via The Ron Paul Institute for Peace & Prosperity,
Last week the House Armed Services Committee approved an amendment to the National Defense Authorization Act requiring women to register with Selective Service. This means that if Congress ever brings back the draft, women will be forcibly sent to war.
The amendment is a response to the Pentagon’s decision to allow women to serve in combat. Supporters of drafting women point out that the ban on women in combat was the reason the Supreme Court upheld a male-only draft. Therefore, they argue, it is only logical to now force women to register for Selective Service. Besides, supporters of extending the draft point out, not all draftees are sent into combat.
Most of those who opposed drafting women did so because they disagreed with women being eligible for combat positions, not because they opposed the military draft. Few, if any, in Congress are questioning the morality, constitutionality, and necessity of Selective Service registration. Thus, this debate is just another example of how few of our so-called “representatives” actually care about our liberty.
Some proponents of a military draft justify it as “payback” for the freedom the government provides its citizens. Those who make this argument are embracing the collectivist premise that since our rights come from government, the government can take away those rights whether it suits their purposes. Thus supporters of the draft are turning their backs on the Declaration of Independence.
While opposition to the draft is seen as a progressive or libertarian position, many conservatives, including Ronald Reagan, Barry Goldwater, and Robert Taft, where outspoken opponents of conscription. Unfortunately, the militarism that has led so many conservatives astray in foreign policy has also turned many of them into supporters of mandatory Selective Service registration. Yet many of these same conservatives strongly and correctly oppose mandatory gun registration. In a free society you should never have to register your child or your gun.
Sadly, some opponents of the warfare state, including some libertarians, support the draft on the grounds that a draft would cause a mass uprising against the warfare state. Proponents of this view point to the draft’s role in galvanizing opposition to the Vietnam War. This argument ignores that fact that it took several years and the deaths of thousands of American draftees for the anti-Vietnam War movement to succeed.
A variation on this argument is that drafting women will cause an antiwar backlash as Americans recoil form the idea of forcing mothers into combat. But does anyone think the government would draft mothers with young children?
Reinstating the draft will not diminish the war party’s influence as long as the people continue to believe the war propaganda fed to them by the military-industrial complex’s media echo chamber. Changing the people’s attitude toward the warfare state and its propaganda organs is the only way to return to a foreign policy of peace and commerce with all.
Even if the draft could serve as a check on the warfare state, those who support individual liberty should still oppose it. Libertarians who support violating individual rights to achieve a political goal, even a goal as noble as peace, undermine their arguments against non-aggression and thus discredit both our movement, and, more importantly, our philosophy.
A military draft is one of — if not the — worst violations of individual rights committed by modern governments. The draft can also facilitate the growth of the warfare state by lowing the cost of militarism. All those who value peace, prosperity, and liberty must place opposition to the draft at the top of their agenda.
- Every Time This Has Happened, A Recession Followed
Three months ago the Fed released its Fourth Quarter “Senior Loan Officer Opinion Survey on Bank Lending Practices”, which revealed something ominous. It showed that in Q4, lending standards tightened for the second consecutive quarter. This was a problem because as Deutsche Bank pointed out at the time two consecutive quarters of tightening Commercial & Industrial loan standards “has never happened before without it signalling an eventual move into recession and a notable default cycle. Once we have 2 such quarters lending standards don’t net loosen again until the start of the next cycle.”
As of today, we now have three consecutive quarters of tightening lending standards. In fact, based on the latest survey, net lending standards tightened even more than during Q4 as shown in the chart below, and are now the tightest on net since the financial crisis. Needless to say, if a recession and a default cycle has always followed two quarters of tighter lending conditions, three quarters does not make it better.
This is what the Fed said:
On balance, a moderate net fraction of banks reported a tightening of lending standards for C&I loans to large and middle-market firms over the past three months. Meanwhile, only a modest net fraction of banks reported tightening lending standards for C&I loans to small firms. Banks reported that they tightened some C&I loan terms for large and middle-market firms: A moderate net fraction of banks reported that they had increased premiums charged on riskier loans, a modest net fraction of banks reported that loan covenants had tightened, and most other terms to such firms remained basically unchanged on net. Banks reported mixed responses regarding changes in loan terms for small firms. A majority of the domestic respondents that tightened either standards or terms on C&I loans over the past three months cited a less favorable or more uncertain economic outlook as well as a worsening of industry-specific problems affecting borrowers as important reasons. Meanwhile, a significant net fraction of foreign respondents reported a tightening of lending standards for C&I loans.
In other words, credit availability is bad and getting worse, and may explain why the ECB had no choice but to shock the credit pipeline into action when Draghi announced that the ECB would monetize corporate bonds (and soon enough, junk bonds).
And while our focus looking at this data is on the implied probability (based on historical precedented, now at 100%) of a recession, Bank of America’s high yield strategist Michael Contopoulos is looking at the implications of continued lending tightness on the credit market, where he has been uncharacteristically gloomy for many moths. This is what he said:
Banks tightening their grip on lending
Today’s Senior Loan Officer Opinion Survey on Bank Lending Practices confirmed several of our concerns from last year; that in the face of deteriorating corporate fundamentals, a weak economic outlook, industry specific woes in the commodity space and global markets that have been volatile, banks would pull back the reins on lending. Below we highlight some of the details of the report that we think are relevant when considering the durability of the post February 11th high yield rally.
- The two best predictors of the US default rate are C&I lending and the proportion of downgrades to upgrades within high yield. With both deteriorating over the last several quarters our model now suggests a default rate over the next 12 months of 5.4%. We note, however, that the model this time last year forecast a 2.7% default rate yet with the high degree of Energy defaults, we have actually realized a 5.3% rate as of April 30th. It stands to reason, then, that our model, usually highly accurate in its calculation, could be understating the actual default rate over the next 12 months. We think there is upside to our forecast of 5-6% this year, and caution investors that non-commodity defaults are also likely to rise absent a complete opening of capital markets.
- The survey noted that banks tightened their lending standards on C&I and commercial real estate loans while enforcing material adverse changes clauses or other covenants to limit draws on existing Energy credit lines. Late last year and earlier this year we wrote that one of our fears was that regional banks in areas hit hard by the energy rout would be less willing to lend than before the collapse in oil. Our theory has been that as banks set aside reserves for their Energy exposure, they will tighten lending standards in other areas. Sure enough, the survey noted that “on balance, banks indicated a spillover from the energy sector onto credit quality of loans made to businesses and households located in energy-sector-dependent regions.” As these areas of the US experience further hardship, we expect the quality of borrower to deteriorate and lending standards further tighten in these regions. This likely means the one area of lending strength, the consumer, could begin to realize tightening later in the year.
- Demand also waned for C&I loans, as large and middle market firms in particular noted decreased investment in PPE and a decline in financing needs for M&A, accounts receivable and inventories. In our mind, a lack of demand could prove to be indicative of an economy that has not only stalled, but one in which corporate CEOs and CFOs lack confidence in. Additionally, with little capex to cut, deteriorating assets, a labor market that is both tight and unproductive, and a bank lending environment that is becoming harder to leverage, we wonder how long it will be before corporates begin to cut headcount.
The survey noted that a “majority of the domestic respondents that tightened either standards or terms on C&I loans over the past three months cited a less favorable or more uncertain economic outlook as well as a worsening of industry-specific problems affecting borrowers” as the reason for tightening. As we read this statement, our first thought is that the problems are not just an Energy story any longer.
What all of the above means is simple: either lending standards will ease or the Fed will have no choice but to do what the ECB has done, and jam the credit channel open by actively backstopping bond – and loan – issuance. Either that, or the central banks will have to engage in more coordinated commodity manipulation attempts, since at the very core of the deteriorating lending standards is the collapse in the oil price which in turn has forced banks to collapse revolver availability and halt future issuance until they have some visibility on where the price of oil stabilizes. Perhaps instead of monetizing loans, Yellen will covertly greenlight whoever is the global activist central bank du jour, with a mission to monetize enough oil to push it another $10-20 higher. At that point we will eagerly look forward to Saudi Arabia’s response as crude above $50 will mean virtually the entire shale patch is back online.
On the other hand, if just like the BOJ last week the Fed does nothing , we have little reason to doubt the historical precedent in which case the countdown to the next recession can officially begin.
Digest powered by RSS Digest
Saving...