Jan 06

Today’s News 6th January 2017

  • Silver Dumps, Peso Jumps As Mexican Central Bank Intervenes (Again)

    If at first you don't succeed, intervene again! For the second time today (at midnight ET), Banxico officials confirmed the central bank entered the market to sell US dollars in an attempt to strengthen the peso. Now we await the next Trump tweet to take the peso back down…

    As Bloomberg reports, according to a Banxico official who asked not to be identified, the central bank is looking to strengthen Mexican peso.

    For now the move is far less impressive – which is odd given the lack of liquidity and an irrational peso buyer…

    We have one other question… Is Banxico dumping its silver to receive dollars to sell to buy pesos?

    Around $200mm notional of Silver was dumped in those few minutes.

    As we noted at their earlier attempt, we can't really blame Banxico for intervening: with the local population, of which over half lives in poverty, angry and protesting the recent "Gasolinazo", or 20% increase in the price of gas, the crashing currency is sure to send many other prices, especially of imported goods, through the roof while sending much of the population over the edge. Which is why Goldman's Alberto Ramos agrees that the central bank had to do something:

    "In our assessment, some FX market intervention at this juncture is justified since market liquidity conditions became somewhat tighter, the MXN entered overshooting territory (excessively undervalued) and from current levels, significant additional exchange rate weakness, while making exporters even more competitive, can threaten two valuable public goods: price and local financial market stability. A very weak currency can have significant medium-term costs for the broader economy as it is likely to add pressure on inflation and wages (which would over time reduce the cost-competitiveness of the Mexican exporters) and prompt to a tighter monetary stance. Overall, higher inflation/wages and higher rates would be a clear negative shock to the non-tradable sectors of the Mexican economy, for they would not enjoy the exporters (tradable sectors) benefit of a weak currency.

    So much for a "brave new world" in which global trade imbalances can be resolved without central bank intervention. If anything, the events from the first 4 days of 2017, in which we first saw a dramatic indirect intervention by the PBOC which sent the overnight CNH deposit rate to the highest ever in a desperate attempt to crush shorts, and then the Mexican direct intervention, have confirmed that 2017 will be very much like 2016 when it comes to central bank intervention, if not more so.

    However, as Goldman admits, Banxico made one mistake which explains why virtually the entire post-intervention move has been faded:

    In our assessment, if the MXN remains under pressure the authorities should entertain the possibility of using different intervention instruments, such as USD Dollar swaps, for they are not a direct claim on reserves and offer valuable FX hedging protection to the market in a period of significant uncertainty but no large spot market outflows.

    There is a problem with using reserves to fight a currency war, one which China is very familiar with:

    On the other hand, using USD swaps is precisely what the PBOC shifted to late in 2015 (perhaps as advised by Goldman then too) when it too realized that using reserves was a very rudimentary (if effective) attempt at intervention. The only problem is that it eventually catched up to the central bank, and just like in the case of China which used swaps for about 3-4 months even as the capital outflows persisted, it ultimately had to return to draining reserves for a full blown intervention.

    Ironically, even that has failed, and as we have documented extensively in the past 2 months, the PBOC is now scrambling with intraday gimmicks like crushing shorts using deposit rates. That too only works for a while.

    Meanwhile, Mexico is caught between a rock and a hard place, because while the currency is depreciating, and the "MXN is now visibly undervalued versus theoretical fundamental fair-value under any of the three model metrics we use" Goldman warns that any further depreciation can undermine the inflation backdrop and/or risk unleashing destabilizing financial forces.

    Which is all Trump needs: a several economic crisis just south of the border.

    Actually, there is another thing Trump "needs": Mexico launching an all out currency war against the US, whether through reserve draining (which would hit US assets) or USD swaps. Should the central bank intervene on a few more occasions to offset today's failed revaluation attempt, which the market is now openly mocking, we eagerly await the barrage of tweets that will be launched by the Trump account as the president-elect, having slammed the occasional stock, shifts to FX.

    Trump aside, what happens next? Once today's intervention fails, the Peso is looking at a lot more downside, and as Rabobank's Christina Lawrence writes,the MXN could fall as far as 23, as there "is little room for MXN relief as Banxico is highly unlikely to provide any lasting support for peso as market is too liquid and Mexico’s reserves will start to evaporate very quickly." Putting trading volumes in context, MXN is the 10th most liquid currency globally with an average daily volume in the spot market of $43b and $112b when including options.

    Rabo says that it “expects volatility to rise further and for the skew to continue moving to the right as market participants move to protect themselves from further USD/MXN upside”

    Finally, the real message here is that the Banxico’s intervention "may also be seen as sign of greater underlying problems." Bingo.

  • DNC Refused FBI Access to Its Servers … Instead Gave Access to a DNC Consultant Tied to Organization Promoting Russia Conflict

    CNN reports:

    The Democratic National Committee "rebuffed" a request from the FBI to examine its computer services after it was allegedly hacked by Russia during the 2016 election, a senior law enforcement official told CNN Thursday.

     

    "The FBI repeatedly stressed to DNC officials the necessity of obtaining direct access to servers and data, only to be rebuffed until well after the initial compromise had been mitigated," a senior law enforcement official told CNN. "This left the FBI no choice but to rely upon a third party for information.

     

    ***

     

    The FBI instead relied on the assessment from a third-party security company called CrowdStrike.

    As first reported by George Eliason, CrowdStrike's Chief Technology Officer and Co-Founder Dimitri Alperovitch – who wrote the CrowdStrike reports allegedly linking Russia to the Democratic party emails published by Wikileaks – is a fellow at the Atlantic Council … an organization associated with Ukraine, and whose main policy goal seems to stir up a confrontation with Russia.[1]

    The Nation writes:

    In late December, Crowdstrike released a largely debunked report claiming that the same Russian malware that was used to hack the DNC has been used by Russian intelligence to target Ukrainian artillery positions. Crowdstrike’s co-founder and chief technology officer, Dmitri Alperovitch, told PBS, “Ukraine’s artillery men were targeted by the same hackers…that targeted DNC, but this time they were targeting cellphones [belonging to the Ukrainian artillery men] to try to understand their location so that the Russian artillery forces can actually target them in the open battle.”

    Dmitri Alperovitch is also a senior fellow at the Atlantic Council.

     

    The connection between Alperovitch and the Atlantic Council has gone largely unremarked upon, but it is relevant given that the Atlantic Council—which is funded in part by the US State Department, NATO, the governments of Latvia and Lithuania, the Ukrainian World Congress, and the Ukrainian oligarch Victor Pinchuk—has been among the loudest voices calling for a new Cold War with Russia. As I pointed out in the pages of The Nation in November, the Atlantic Council has spent the past several years producing some of the most virulent specimens of the new Cold War propaganda.

     

    It would seem then that a healthy amount of skepticism toward a government report that relied, in part, on the findings of private-sector cyber security companies like Crowdstrike might be in order.

    The Atlantic Council is also funded by the U.S. military and the largest defense contractors, including:

    • United States Army
    • United States Navy
    • United States Air Force
    • United States Marines
    • Lockheed Martin
    • Raytheon
    • Northrop Grumman
    • Boeing

    [1]  Here's an example of the Atlantic Council's bellicose rhetoric from July 2016:

    Poland should announce that it reserves the right to deploy offensive cyber operations (and not necessarily in response just to cyber attacks).  The authorities could also suggest potential targets, which could include the Moscow metro, the St. Petersburg power network, and Russian state-run media outlets such as RT.

  • Turkey Threatens To Block US From Using Incirlik Airbase

    In the immediate aftermath of the failed Turkish “coup” of July 2016, the immediate concern to the US was not the fate of the Erdogan regime, but whether the US would maintain access to Incirlik Air Base, a strategic output for the US airforce, allowing it fast and easy access to most of the Middle East and part of Russia even in the immediate absence of an aircraft carrier. It explains why when Erdogan said he felt snubbed by the US, he cut off the power to the US troops stationed at the airbase, and kept them in the dark for a considerable period of time, perhaps to remind Washington that in Turkey he is the boss.

    Fast forward to this week, when on Wednesday, Turkish officials again made a veiled threat to ground U.S. warplanes at Incirlik Air Base over the U.S. denial of air support for the Turkish military inside Syria. The officials questioned the value of having the U.S. fly missions out of Incirlik in southeastern Turkey against ISIS targets in Syria and Iraq while Turkish forces are struggling to take the ISIS-held Syrian town of El Bab.

    “This is leading to serious disappointment in Turkish public opinion,” Turkish Defense Minister Fikri Isik said, adding that “this is leading to questions over Incirlik,” Turkey’s Anadolu news agency reported.

    He then once again treatened the US, when he said that to avoid repercussions that could affect Incirlik operations, the Defense Minister called on the U.S. to “start to provide the aerial support and other support that the [Turkish military] needs” to take El Bab, which would also drive a wedge between Syrian Kurdish militias supported by the U.S. in actions against the Islamic State of Iraq and Syria.

    U.S. Air Force Col. John Dorrian said Wednesday than any actions by Turkey to shut down or limit U.S. air operations out of Incirlik would be disastrous for the U.S. anti-ISIS campaign now focused in Syria on the drive by a mixed Syrian Kurdish and Arab force against Raqqa, the self-proclaimed ISIS capital. What he meant to say is that it would disastrous for the U.S., period, as it would deprive the US of one of its most critical military outputs in the MENA region.

    12 F-15s from RAF Lakenheath, UK are deployed to Incirlik AB, Turkey, November, 2015

    “It’s absolutely invaluable,” Dorrian, a spokesman for Combined Joint Task Force-Operation Inherent Resolve, said of Incirlik. “Really, the entire world has been made safer by the operations that have been conducted there.” Well, that or precisely the opposite – it all depends on one’s point of view.

    Turkey briefly closed its airspace to U.S. operations out of Incirlik last July and cut off power to the base during the failed military coup against the government of President Recep Tayyip Erdogan when suspicions ran high among Turkish officials that the U.S. may have supported rebels within the military.  As the coup attempt failed, a high-ranking Turkish officer walked across the Incirlik airfield and tried to turn himself into the U.S. military to seek asylum. His request was rejected, and he was arrested by Turkish authorities.

    On Wednesday, Turkish Foreign Minister Mevlut Cavusoglu said, “The U.S. is a very important ally for us. We have cooperation in every field, but there is the reality of a confidence crisis in the relationship at the moment” over Incirlik and the El Bab offensive, which Turkey has named Operation Euphrates Shield. “Our people ask, ‘Why are they [the U.S. and coalition warplanes] using the ?ncirlik air base’ ” if they won’t back up Turkish forces against ISIS and the Kurdish militias considered terrorists by Turkey? “What purpose are you serving if you do not provide aerial support against [ISIS] in the most sensitive operation for us?”

    U.S. officials have confirmed they are withholding airstrikes from the El  Bab offensive while maintaining overall support for Turkey’s anti-ISIS efforts inside Syria, aimed at sealing off border areas. On Tuesday, Pentagon Press Secretary Peter Cook said that U.S. aircraft flew near El Bab on Monday but did not conduct any strikes. In a briefing from Baghdad to the Pentagon on Wednesday, Dorrian suggested that weather and poor intelligence on the disposition of friendly forces may have been a factors in the decision not to attack.

    “The cardinal rule of air support is to do no harm,” Dorrian said, adding that the aircrews may not have had “good fidelity” on enemy positions. The result was “a show of force that was conducted at the request of Turkish forces operating on the ground,” he said.

    Quoted by Military.com, Dorrian said that “there were ongoing discussions at higher levels “to increase the support and operations” by the U.S. military to back Turkish forces, but “I can’t get ahead of those discussions. I don’t have the details to offer you about what the way forward will be in El Bab. But I do know there has been some good discussion on that, and Turkey is aware of that discussion,” he said.

    The loss of Incirlik air base would be a tremendous hit to US influence in the region.

    The U.S. Army Corps of Engineers began construction in 1951 of what was to become Incirlik Air Base, and U.S. and Turkish air forces signed an agreement in 1954 for joint use of the base. Incirlik long served as a deterrent to the then-Soviet Union and as a staging base for U.S. operations in the Mideast.

    Despite recurring reports that US nuclear weapons are store in the base, the U.S. Air Force will neither confirm nor deny. About 5,000 U.S. service members, mostly Air Force, are based at Incirlik; they are currently confined to the base because of unrest in the region. The U.S. last year withdrew military families from Turkey, and the State Department has also sent home non-essential personnel.

    The tensions over El Bab and Incirlik have only added to the downward spiral of relations between the U.S. and NATO ally Turkey, marked by Erdogan’s new alliance with Russian President Vladimir Putin to bring about a ceasefire and peace talks to end Syria’s nearly six-year-old civil war. As reported last week, the U.S. was not invited to a Moscow meeting last month of the foreign ministers of Russia, Turkey and Iran that led to Putin’s announcement last week of the ceasefire and possible peace talks later this month in Astana, Kazakhstan, with rebel groups.

    Turkey has also been angered by what it sees as U.S. foot-dragging on its extradition request for exiled Muslim cleric Fethullah Gulen, now living in Pennsylvania. Erdogan has blamed Gulen for fomenting the July coup attempt. In addition, Erdogan has bridled at U.S. support for the Syrian Kurdish militia known as the YPG, or People’s Protection Units. The YPG has proven to be the most effective fighting force against ISIS in Syria, but Erdogan considers it an arm of the Kurdish PKK, or Kurdistan Workers Party, which has been branded a terrorist group by the U.S. and Turkey.

    A senior U.S. military official, speaking on background last month, told Military.com that the Turks “hate that we support” the YPG.

    Erdogan and other Turkish officials have charged that the U.S. is supplying weapons to the YPG. The U.S., while acknowledging support for the YPG, has denied giving them recent supplies of weapons.

  • Trump Aims To Cut The Neocon Deep State Off At The Knees

    Submitted by Charles Hugh-Smith via OfTwoMinds blog,

    The Neocon-Neoliberals must be fired and put out to pasture before they do any more harm.

    I have long held that America's Deep State–the unelected National Security State often referred to as the Shadow Government–is not a unified monolith but a deeply divided ecosystem in which the dominant Neocon-Neoliberal Oligarchy is being challenged by elements which view the Neocon-Neoliberal agenda as a threat to national security and the interests of the United States.

    I call these anti-Neocon-Neoliberal elements the progressive Deep State.

    If you want a working definition of the Neocon-Neoliberal Deep State, Hillary Clinton's quip–we came, we saw, he died–is a good summary: a bullying, arrogance-soaked state-within-a-state pursuing an agenda of ceaseless intervention while operating a global Murder, Inc., supremely confident that no one in the elected government can touch them.

    Until Trump unexpectedly wrenched the presidency from the Neocon's candidate. The Neocon Deep State's response was to manufacture a mass-media hysteria that Russia had wrongfully deprived the Neocon's candidate (Hillary Clinton) of what was rightfully hers: the presidency. (The Neocons operate their own version of the divine right of Political Nobility.)

    The Neocon-Neoliberals' strategy was to delegitimize Trump's victory by ascribing it to "Russian Hacking," a claim that remains entirely unsubstantiated. Now that this grasping-at-straws Hail Mary coup attempt by a politicized C.I.A. and its corporate media mouthpiece has failed, the Neocon Deep State is about to find out the Progressive Deep State finally has a president who is willing and able to cut the Neocon-Neoliberals off at the knees.

    Trump Is Working On A Plan To Restructure, Pare Back The CIA And America's Top Spy Agency.

    If you want documented evidence of this split in the Deep State–sorry, it doesn't work that way. Nobody in the higher echelons of the Deep State is going to leak anything about the low-intensity war being waged because the one thing everyone agrees on is the Deep State's dirty laundry must be kept private.

    As a result, the split is visible only by carefully reading between the lines, by examining who is being placed in positions of control in the Trump Administration, and reading the tea leaves of who is "retiring" (i.e. being fired) or quitting, which agencies are suddenly being reorganized, and the appearance of dissenting views in journals that serve as public conduits for Deep State narratives.

    I have also long held that Wall Street's political dominance is part and parcel of the Neocon-Neoliberal ideology, and the progressive elements in the Deep State also want to (finally) limit the power of the big banks and the rest of the Wall Street crowd.

    Is the Deep State Fracturing into Disunity? (March 14, 2014)

    The split in the Deep State is a reflection of the profound political disunity that is occurring in the U.S. In other words, it isn't just disunity in the masses or the political elites–it's a division in all levels of our society.

    The cause is not difficult to discern: the concentration of wealth and political power in the hands of the few is generating levels of inequality that threaten democracy, the social order and the vitality of the economy:

    As someone who has studied the Deep State for 40 years, I find it ironic that so many self-identified "progressives" do not understand that the U.S. military is now the Progressive element and it's the civilian leadership–the Neocon-Neoliberals– who are responsible for leading the nation into quagmires and handing the keys to the chicken coop to the wolves of Wall Street.

    When military leaders such as Eric Shinseki questioned the Neocon's insane "strategy" in Iraq–essentially a civilian fantasy of magical-thinking–the Neocons quickly cashiered him (Shinseki was a wounded combat veteran of Vietnam who rose through the ranks–the exact opposite of the coddled never-get-my-hands-dirty Elites in the civilian Neocon-Neoliberal leadership.)

    To the degree that the U.S. has become a Third World Oligarchy owned and controlled by a financial-political Elite, then the U.S. military is one of the few national institutions that hasn't been corrupted by top-down politicization and worship of Wall Street.

    Shinseki et al. did not amass a fortune from Wall Street like Bill and Hillary Clinton. The simple dictum–follow the money–maps the lay of the land rather neatly.

    The Neocon-Neoliberals have run the nation into the ground. They must be fired and put out to pasture before they do any more harm. That includes the Fake-"Progressives" and the fake-"Conservatives" alike who have enriched themselves within the Neocon-Neoliberal Oligarchy.

    If you are surprised that the Democratic Party, the C.I.A. and Wall Street are all hugging each other in the same cozy Neocon-Neoliberal Oligarchic embrace, you shouldn't be. Open your eyes.

    Could the Deep State Be Sabotaging Hillary? (August 8, 2016)

  • Payrolls Preview: Blame Weakness On Weather, Strength On Trump

    With all eyes likely on wage growth indications in the subtext of tomorrow's payrolls report (following The Fed Minutes' comments on full employment), Goldman Sachs is forecasting a better-than-expected 0.3% rebound in average hourly earnings (helped by more favorable calendar effects) and a better-than-expected 180k payrolls print (albeit with a small rise in the unemployment rate). However, they are careful to note that any downside can be blamed on "a considerable drop in temperatures."

    As Goldman Sachs details:

    We forecast that nonfarm payroll employment increased 180k in December, after an increase of 178k in November and 142k in October. On balance, labor market indicators were moderately strong in December, with improvement in the employment components of many service-sector and manufacturing surveys and a rise in consumer confidence to a 15-year high. The key labor market subcomponent of consumer confidence also hovered near its post-crisis high, despite a modest pullback from November. We also expect above-trend payroll growth in the transportation and warehousing industry, driven by elevated hiring related to strong online holiday shopping. On the negative side, initial jobless claims drifted higher and continuing claims posted the largest survey-week-to-survey-week increase in nearly a year. December’s relatively cold payroll survey week could also constrain payroll growth in weather-sensitive industries such as construction, particularly after the warmer-than-usual November.

    We do not expect the end of the election to be a major factor this month. If election-related uncertainty reduced or delayed hiring plans earlier in 2016, the end of the election could potentially catalyze a reacceleration in hiring, as we’ve documented in research studying past elections. However, the reacceleration historically tends to occur over several quarters, and perhaps more importantly, we would not characterize the post-election landscape as one of reduced uncertainty. We will study the industry composition of tomorrow’s reports for signs of an impact from the election, such as above-trend growth in energy or financial services, or below-trend growth in healthcare or import-reliant subindustries.

    Arguing for a stronger report:

    • Service sector surveys. Most of the employment components of service sector surveys improved or remained at encouraging levels in December. The Philly Fed non-manufacturing employment index rose most dramatically to an 18-month high (+5.4pt to +19.7), and the New York Fed index increased to a 9-month high (+1pt to +12.0, SA by GS). The ISM non-manufacturing employment component was disappointing, falling to 53.8 from 58.2, but remains at a level consistent with moderate growth in service-sector employment. Meanwhile, the Richmond Fed (-1pt to +12.0) and Dallas Fed (-1.4pt to +7.8) measures pulled back modestly to levels also consistent with expansion. Service sector payroll employment increased 139k in November and has increased 177k on average over the last six months.
    • Manufacturing sector surveys. The employment components of manufacturing surveys were somewhat stronger in December. The ISM manufacturing employment component rose to an 18-month high (+0.8pt to 53.1), and the Philly Fed (+9.0pt to +6.4) and Kansas City Fed (+9pt to +10) employment components both improved sharply. On the negative side, the Dallas Fed (-7.4pt to -2.9), Richmond Fed (-6pt to -1), and Empire State (-1.3pt to -12.2) employment components all declined into contractionary territory, and the Chicago PMI employment component remained flat. Manufacturing payroll employment declined by 4k in the November report, and has declined by 3.5k on average over the last six months.
    • Job availability. The Conference Board labor differential—the difference between the percent of respondents saying jobs are plentiful and those saying jobs are hard to get—declined modestly to +4.4 from a cycle high +6.6 November. Despite the pullback, this measure has risen 5pt year-over-year and remains 8pt above its 2015 average, suggestive of a strong report. The Conference Board labor differential is historically correlated with economy-wide hiring rates (JOLTS), which slowed during 2016 and have yet to rebound as of October (see Exhibit 2).
    • Transportation Jobs. Transportation and warehousing payrolls have seen elevated readings in recent Decembers (Exhibit 1), as the seasonal adjustment factors have appeared to lag the secular shift toward online holiday sales. We also note the possibility that the seasonal factors have been anchored to some extent by a particularly weak reading in December 2009 (-52k, compared to an average of -10k in the preceding three months and +12k in the subsequent three months). Given the generally positive anecdotes around online holiday shopping, we expect another year of above-trend growth in this industry, which should provide a boost to headline payrolls of roughly 10k relative to its recent trend.

    Exhibit 1: Online Holiday Shipments May Boost December Transportation Payrolls (Again)

    Source: Department of Labor, Goldman Sachs Global Investment Research

    • Hurricane Matthew. We also see a small amount of upside risk from continued bounce-back from Hurricane Matthew, which hit the East Coast in October. Employment across East Coast states in the three sectors that we find are most sensitive to weather– retail, construction, and leisure and hospitality – declined by a total of 17k in October, compared to an average monthly increase of 15k over the prior six months. The November rebound in these state-level industries was fairly lackluster, with +10k total gains across that state-industry grouping. Accordingly, we see a possibility of above-trend December growth (or an upward revision to November) to restore employment levels toward their pre-hurricane trend.

    Arguing for a weaker report:

    • Jobless claims. Initial claims for unemployment insurance benefits moved higher, averaging 261k during the 5 weeks between the November and December payroll survey periods, compared to 253k for the November report. Continuing claims also showed its largest survey-week-to-survey-week increase (+53k) in nearly a year (January 2016). Jobless claims can be difficult to seasonally adjust around this time of the year, and we partially discount the data accordingly. Some of the rise in initial claims may also reflect a return toward mid-year levels after especially low results in late-Q3/early-Q4.
    • ADP. The payroll processing firm ADP reported a 153k gain in private payroll employment in December, down from +215k in November and somewhat below expectations of +175k. In the past we have found minimal incremental predictive power for nonfarm payrolls in the ADP report, with the notable exception of large surprises/deviations. The new methodology ADP introduced in October creates some additional uncertainty around the translation of the somewhat softer ADP data into the outlook for tomorrow’s nonfarm payroll report. Notably, ADP’s measure of healthcare employment has slowed in recent months – even more so than official BLS estimates – and in December rose just 26k, matching the two-year low growth rate achieved last month.
    • Temperatures. The December payroll period featured few notable storms, but saw a considerable drop in temperatures following much warmer-than-usual weather in early and mid-November. Accordingly, December’s relatively cold payroll survey week could constrain job growth in weather-sensitive industries. For example, we anticipate some payback in the construction industry, which has averaged +20k payroll growth in the last three months, compared to trend monthly growth in the 10-15k range.

    Neutral Factors:

    • End of the election. We do not expect the end of the election to be a major factor this month. If election-related uncertainty reduced or delayed hiring plans earlier in 2016, the end of the election could potentially catalyze a reacceleration in hiring, as we’ve documented in research studying past elections. However, the reacceleration historically tends to occur over several quarters, and perhaps more importantly, we would not characterize the post-election landscape as one of reduced uncertainty. Payroll growth did slow during the course of 2016, consistent with the possibility that election-related uncertainty reduced or delayed hiring plans, though dwindling labor market slack represents a second viable explanation. More granular data from JOLTS show a decline in the pace of hiring since the beginning of the year, with a further meaningful drop in hiring in September and October ahead of the election (Exhibit 2). We would note that considerable policy uncertainty remains. For example, the anticipation of policy changes related to health insurance and destination-based taxation could slow hiring in the healthcare sector and in import-reliant industries such as retail, wholesale, and parts of manufacturing. Much like the policy outlook itself, the evolution of business-sector expectations and their implications for aggregate-level job growth remain open questions. In terms of short-term hiring in election-related job categories, note that the BLS makes a special adjustment to estimate and remove these effects in election years, and November payrolls showed no pronounced spike in marketing research categories or government.

    Exhibit 2: Were 2016’s Slower Hiring Rates Election-Related?

    Source: Department of Labor, Goldman Sachs Global Investment Research

    • Online job ads. The Conference Board’s Help Wanted Online (HWOL) report reversed most of last month’s decline, and stands 9% lower than levels last year (vs. -15% yoy in November). However, we put limited weight on this indicator at the moment in light of research by Fed economists that argued that the HWOL ad count has been depressed by higher prices for online job ads.
    • Job cuts. Announced layoffs reported by Challenger, Gray & Christmas after our seasonal adjustment increased by 7k to 34k in December, but the level of announced layoffs remains range-bound and not far from cycle-lows.
    • Seasonals. Since 2010, December payroll growth has surprised positively relative to consensus two thirds of the time (4/6), however the average surprise is slightly negative at -3k.

    We believe the unemployment rate most likely rebounded one-tenth to 4.7% after a 0.3pp drop last month. The unemployment rate fell 0.3pp to an unrounded 4.64% last month, but the decline was mainly driven by the participation rate, as opposed to an acceleration in household employment (which nonetheless rose a respectable 160k in the month). Sharp changes in the participation rate often reverse, and the fact that the second decimal nearly rounded up, we believe a modest rebound to 4.7% is more likely than another 4.6% reading.

    Average hourly earnings likely rose 0.3% after a 0.1% decline in November, as the December survey period ended on the 17th, a relatively late calendar that is historically associated with average or favorable earnings growth. The year-over-year rate is likely to accelerate from 2.5% to 2.8%, which would match the cycle high. Our wage tracker, which captures the broader trend in wage growth across four major indicators, stands at 2.8% year-over-year as of Q3.

    Tomorrow’s employment report will be accompanied by the annual revision to the household survey, with potential revisions to the last 5 years of seasonally adjusted household data. Annual revisions to the establishment survey – as well as the incorporation of updated population estimates from the Census into the household survey – are scheduled for February 3rd. The revisions to the household survey accompanying the December report are usually minor, and last year’s revisions did not result in a change to any of the monthly unemployment rates for 2015.

    *  *  *

    And Ransquawk details the potential market reaction:

    As ever with the NFP release, the headline is likely to garner much of the initial focus with algorithms and fast money moves jumping on any large discrepancies, participants must be aware that moves could be exacerbated and choppy trade likely due to the beginning of January's historic thin trading conditions.

     

    If there is an overwhelmingly strong report, the USD will strengthen across the board however, as the dollar index continues to ramp many analysts consider the dollar upside to be limited and the possible move to lookout for is a poor report, negatively affecting the USD.

     

    As focus detatches from the Fed and interest rates, equity markets are likely to be a much cleaner trade than recent months. Furthermore, with whispers of a reversal in equity markets and many participants still long the market an overwhelming poor report may prove to be a slight catalyst in a bearish push. In terms of technical levels in the S&P 500, November's high at 2214.10 can prove to be some support on the downside and there is an internal downtrend line which originates on 23/08/16 to the next lower high on the 07/09/16 and support likely at 2158.20.

     

    Gold and treasury markets are likely to act in tandem with classic price action in regards to the NFP likely to be evident in flight to safety asset classes, with a strong report likely to cause some risk on sentiment resulting in weakness in both gold and treasury markets and vice versa for a weak report. Participants are likely to keep an eye on fixed income markets, with tight trading ranges evident across the curve throughout December and any discrepancy in either direction could result in some traction.

    And if that fails Buy The Fucking Payrolls Dip no matter what…

  • Ruled by DC: Get The Feds Out Of Western Lands

    Submitted by Ryan McMaken via The Mises Institute,

    In the final days of his administration, President Obama has decided that with the stroke of pen, he shall further consolidate direct federal control over lands within Western states. Specifically, Obama created the Bear Ears National Monument and the Gold Butte National Monument in Utah and Nevada, respectively. The Obama Administration claims that Obama's unilateral edict was necessary because Congress had not passed any legislation on the matter.

    Indeed, the Obama-appointed Interior Secretary stated that "protecting the area using legislation would have been preferable" but that in the absence of legislation, it was necessary to simply declare the lands to be National Monuments. 

    In other words, the democratic, constitutional process of Congressional lawmaking was inconvenient for the President. So, he decided to rule by proclamation instead, giving the Governor of Utah barely an hour's notice before the proclamation was made public. 

    It's Not About Conservation — It's About Federal Control

    Now, we should first note that the overwhelming majority of lands newly designated as National Monument lands were already federal lands to begin with, and have been controlled largely by the US Bureau of Land Management and the Forest Service.

    Moreover, it is not the case that opponents to the new designation are mostly people who want to privatize the land or make it easier to mine or develop the land. In fact, many opponents of the designation oppose it because they fear Monument status will lead to greater development of the area as a tourist mecca.

    In other cases, members of Indian tribes object to making sacred lands part of a federally-controlled National Monument area.

    And, of course, throughout Western states, public lands continue to be a lucrative source of tourist dollars and eco-tourism. The old caricature of pro-conservationist leftists and strip-mining conservatives has long been just that: a caricature.

    The reality is that nowadays many private firms and local governments depend on public lands for their livelihood and revenue, and these groups have quite a bit of influence at the state legislatures in question. Preserving natural spaces from development can mean big business and Western-state politicians know it:

    It is not at all clear that markets or local governments would prefer that land be used for agricultural purposes as opposed to other purposes. For example, were Rocky Mountain National Park to become a locally-controlled park or state park, there is, realistically speaking, zero chance that it would be handed over to ranchers or miners. The park is far too valuable to the local economy as part of the recreation and tourism industries. To turn the park into range land would devastate the economies of the local communities, many of which contain wealthy and influential voters.

     

    But, say that the park were broken up into parcels and sold to a number of private owners. (We're in the realm of pure fantasy at this point.) It would make little sense to use the land for mining or ranching even in this case. Given the infrastructure in place and the relative closeness to a major metropolitan area, the lands in and around the Park are likely far more lucrative for recreational purposes than for mining or ranching. 

    There is little doubt, however, that much of the controversy over the site will be framed like this: on one side are the conscientious environmentalists and others who want to preserve these pristine lands from destruction. On the other side are oil executives who want to strip-mine the land.

    The real debate here, however, isn't over strip mining vs. conservation. It's about whether or not a president thousands of miles away can — with the stroke of a pen — dictate how millions of acres in a faraway state can be used, and do so over the protestations of the state legislature.

    Nor can it be demonstrated that federal agencies are better custodians of lands than are states. Indeed, the federal government has routinely been more inclined to allow overgrazing on federal lands while subsidizing ranchers at taxpayer expense. It is the states that have demonstrated more prudent stewardship of resources.

    Moreover, The Denver post in a 2014 editorial noted other cases in which the federal government hapless mismanaged fish and wildlife issues:

    One has only to look at the great elk management debacle in Rocky Mountain National Park. When populations grew out of control in the park, federal decision-makers chose to pay significant sums to bring in contract killers to thin the herd. A proposal by Colorado wildlife managers to use well-trained hunters and donate the meat to struggling families was cast aside.

    We could further examine the sad case of game fish being electrocuted and buried on the Yampa River in northwest Colorado at the insistence of the U.S. Fish and Wildlife Service to preserve the pikeminnow, while the same pikeminnows are slaughtered and dumped in Washington state to preserve the wild salmon. All of this, in a never-ending nightmare of bureaucratic red tape with no firmly stated goals or objective in sight, by design.

    Moreover, federal lands can be manipulated for political purposes putting local communities at risk.

    Perhaps the most memorable recent example of this occurred in 2013 when the federal government shut down national parks and other federal lands as part of the usual "government shutdown" ploy. The federal government dispatched federal agents armed with assault rifles who forcibly ejected visitors from the allegedly “public lands.” Meanwhile, nearby towns that rely on tourists for the local economy were powerless to open the parks themselves. State officials, who are far more sensitive to local economic needs than members of Congress or the White House, were also powerless to do anything.

    Eventually, after much political pressure was applied, the federal government kindly allowed states to pay millions to the federal government to open the parks again.

    These are just some of the reasons why Utahns of various interests have opposed greater federal power over lands in their states. 

    Federal Lands Are the Problem

    This Obama Administration's move with Bear Ears is the latest "screw-you" to Utah in an ongoing effort by the State of Utah to exercise more control over federal lands. For years now, the Utah legislature and the state's delegation in Congress have been exploring ways to limit federal control over lands within the borders of Utah.

    What is steadfastly ignored in the debate however, is the questionable legitimacy of federal control over so many immense swaths of land. 

    Today, the feds control 640 million acres (not counting the far larger federally-owned areas of coastal sea floor). And in most Western states, the Federal government owns more than a third of all the land. In the case of Utah and Nevada, where the two new monuments are created, the federal government owns 65 percent and 85 percent of all land, respectively.

    This means that these lands are ultimately controlled by politicians thousands of miles away who are not citizens of those states. In the case of Utah, for example, federal lands are controlled by executive-branch bureaucrats — few of whom are from Utah — or they are controlled by Congressional laws passed by a Congress composed of 529 non-Utahns and 6 Utahns.

    The fact that lands in Utah should be largely controlled by Californians, Texans, and New Yorkers — many of whom have never even set foot in Utah — should strike reasonable people as both objectionable and bizarre.

    At the same time, if those lands are truly sacred sites, as some groups contend, then those sites should be Tribal lands and neither federal or state lands. (See "Why Indian-Tribe Sovereignty Is Important.")

    Repeal the Antiquities Act?

    Other observers of the Obama Administration's many executive orders on federal lands have called for the abolition of the Antiquities Act of 1906 which empowers the president to designate federal lands as National Monuments. The Act allows presidents to act unilaterally without any consent from Congress as to how these lands might be designated. Moreover, as critics of the Act note, the Act was supposed to protect small areas of archeological or geographical interest. But, the Act has been abused in order to make many thousands of acres into areas similar to National Parks. 

    Repealing the acts would be a step in the right direction, but it fails to tackle the larger problem of federal lands. After all, if federal lands were not so expansive to begin with, the Antiquities Act would be far more limited in its scope. And, even if Congress were the body designating Monument status, that would only be a tiny improvement. It's true that giving a single person in the Oval office the ability to control lands in faraway states is a problem. However, giving that same control to 535 people in a building down the street form the Oval Office isn't exactly a significant improvement.

     

  • China Prepares For Trade War With Trump

    Having warned U.S. President-elect Donald Trump yesterday, through Chinese state media, that he’ll be met with "big sticks" if he tries to ignite a trade war or further strain ties, China’s central government has reportedly "compiled possible countermeasures" against "well-known U.S. companies or ones that have large Chinese operations."

    As Bloomberg reports, China is prepared to step up its scrutiny of U.S. companies in the event President-elect Donald Trump takes punitive measures against Chinese goods and triggers a trade war between the world’s two biggest economies after he takes office, according to people familiar with the matter.

    The options include subjecting well-known U.S. companies or ones that have large Chinese operations to tax or antitrust probes, the people said, asking not to be identified because the matter isn’t public. Other possible measures include the launch of anti-dumping investigations and scaling back government purchases of American products, according to the people.

     

    The move illustrates how the fallout from escalating tensions between the two nations could spread to companies. Trump has made China a frequent target of his attacks and nominated trade-related officials that the Communist Party’s Global Times newspaper said would form an "iron curtain" of protectionism.

     

    While specific details of China’s options weren’t immediately clear, the retaliatory measures could affect companies related to agriculture, pharmaceuticals, technology and consumer industries, according to the people.

     

    China’s central government compiled the possible countermeasures after collecting opinions from various departments, the people said. The punitive steps would only be carried out if the U.S. acts first and after senior Chinese leaders sign off on them, they said.

     

    Representatives at China’s Ministry of Commerce, National Development and Reform Commission, State Administration of Taxation and General Administration of Customs either didn’t respond or couldn’t immediately comment to Bloomberg queries.

     

    Representatives at Trump’s transition team didn’t respond to a request for comment.

    Today's comments were much more directly aimed than yesterday's more prosaic langauge…

    "There are flowers around the gate of China’s Ministry of Commerce, but there are also big sticks hidden inside the door — they both await Americans," the Communist Party’s Global Times newspaper wrote in an editorial Thursday in response to Trump’s plans to nominate lawyer Robert Lighthizer, who has criticized Beijing’s trade practices, as U.S. trade representative.

    For now China appears to have fallen off Trump's radar (as maybe he is letting them blow themselves up with massive spikes in Yuan and overnight depoist rates as liquidity freezes), and instead over the past few days the president-elect has been focusing on the ongoing Russian hacking fiasco, crashing the Mexican peso, and slamming "head clown" Chuck Schumer for the mess that is Obamacare.

  • Rand Paul Goes Off On Republican Party Over New Budget Resolution

    Submitted by Joseph Jankowski via PlanetFreeWill.com,

    On Wednesday afternoon, one day after reintroducing his Federal Reserve Transparency Act, Senator Rand Paul (R-KY) took to the Senate floor to slam his fellow Republicans for the $9.7 trillion of debt that a newly introduced budget resolution will tack on to the country's already out of control debt total.

    Senate Budget Committee Chair Michael Enzi (R-WY) introduced a budget resolution on Tuesday that is being touted as the first step the newly sworn in congress is taking to repealing Obamacare. The legislation includes “reconciliation instructions” that would allow congress to dismantle the health care law as part of reconciling taxes and spending with the budget blueprint.

    According to Paul, “there is a time and a place to debate Obamacare” but this new piece of legislation is a budget and he is unwilling to support the debt it will accumulate.

    “Republicans won the White House. Republicans control the Senate. Republicans control the House. And what will the first order of business be for the new Republican majority?” Paul asked.

     

    “To pass a budget that never balances,” the Kentucky Senator answered his own question. “To pass a budget that will add $9.7 trillion dollars of new debt in tens years.”

    “Is that really what we campaigned on?” Paul asked on. “Is that really what the Republican party represents?”

    After stating that he is with his fellow Republicans for the repeal of Obamacare, Senator Paul went on to ask “why should we vote on a budget that doesn’t represent our conservative view?”

    “I’m not for it,” Paul said of the potential new debt. “That’s not why I ran for office. That’s not why I’m here. That’s not why I spend time away from my family and from my medical practice. It’s because debt is consuming our country.”

     

    “There is a time and place to debate Obamacare, and I’m more than willing to debate that but this is a budget,” Paul exclaimed.

    The Senator from Kentucky said he will put forth an opposition to the Republican majority’s resolution with his own budget that will freeze spending and create balance over a 5 year period.

    “I will continue to bring up to the American people that it is important not to add more debt,” Paul said.

     

    “At the appropriate time, I will introduce an amendment that will strike and replace this budget and in it’s place I will put forward a conservative vision for the country,” the Senator said. “A vision of a balanced budget that balances within 5 years.”

    Senator Paul has not only made headlines for his opposition to Obamacare as of late, he has also been stirring things up with his recent reintroduction of his Federal Reserve Transparency Act, widely known as the ‘Audit the Fed’ bill.

     

    “No institution holds more power over the future of the American economy and the value of our savings than the Federal Reserve,” Paul said on Wednesday, “yet Fed Chair Yellen refuses to be fully accountable to the people’s representatives.” 

    “The U.S. House has responded to the American people by passing Audit the Fed multiple times, and President-elect Trump has stated his support for an audit. Let’s send him the bill this Congress.”

  • California Farmers Fret Over Labor Shortages As Trump Vows To Deport Their Work Force

    Unbeknownst to most Americans, the Central Valley of California is an agricultural powerhouse producing nearly 50% of all fruits and vegetables grown in the United States, including over 90% of popular items like almonds, carrots and table grapes.  But producing all those fruits and vegetables is extremely labor intensive requiring up to nearly 500,000 laborers each year.  The problem is that those jobs are extremely seasonal (see chart below) and extremely difficult requiring hours of back-breaking work in the 100-degree California sun.

    California Farmworkers

     

    Needless to say, America’s snowflakes have no interest in such “back-breaking” work and so California farmers have grown reliant on migrant labor from Mexico to grow and harvest their crops.  Which is why Trump’s deportation vows have California’s farmers a bit concerned.

    As one farm labor contractor told the Associated Press, farmers are growing increasingly concerned that there won’t be enough labor for the 2017 season.

    “Our workers are scared,” said Joe Garcia, a farm labor contractor who hires up to 4,000 people each year to pick grapes from Napa to Bakersfield and along the Central Coast. “If they’re concerned, we’re concerned.”

     

    Since Election Day, Garcia’s crews throughout the state have been asking what will happen to them when Trump takes office. Farmers also are calling to see if they’ll need to pay more to attract people to prune the vines, he said.

     

    Garcia tells farmers not to panic. They’ll learn how many return from Mexico after the holidays. “We’ll plan around what we have,” he tells them. “That’s all we can do.”

    But some farmers are planning for the worst and investing additional capital now to make their operations more labor efficient.  Fresno farmer Kevin Herman said he’s heard too many stories of workers that don’t plan to return from their holiday trips to Mexico for the 2017 ag season.

    Days after Donald Trump won the White House vowing to deport millions of people in the country illegally and fortify the Mexican border, California farmer Kevin Herman ordered nearly $600,000 in new equipment, cutting the number of workers he’ll need starting with the next harvest.

     

    Herman, who grows figs, persimmons and almonds in the nation’s most productive farming state, said Trump’s comments pushed him to make the purchase, larger than he would have otherwise.

     

    Plus, Herman said, he’s heard too many workers question whether they’ll return from their holiday trips to Mexico. “It’s stories like that that have motivated me to become efficient and upgrade my equipment,” Herman said.

     

    “No doubt about it,” Herman said. “I probably wouldn’t have spent as much or bought as much machinery as I did.”

    Of course, there is a clearing labor price for America’s snowflakes to take these jobs provided Americans are willing to pay double for their tomatoes and carrots.  That said, we suspect moving production to Mexico and importing food to U.S. supermarkets, even with Trump’s 35% tariff, is the more economical solution.

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