Apr 07

Today’s News 7th April 2016

  • Blast From the Past – Hillary Clinton vs. Bernie Sanders on Panama

    Submitted by Michael Krieger of LibertyBlitzkrieg

    Blast From the Past – Hillary Clinton vs. Bernie Sanders on Panama

    Unlike most politicians, Bernie Sanders becomes increasingly impressive the more you learn about him. Forget for a moment whether you think the tax dodging strategies popularized by the Panama Papers are ethical or not, it’s important to note that Bernie Sanders publicly warned about an expansion in such behavior all the way back in 2011. On the other hand, Hillary Clinton and Barack Obama pushed for legislation that made such controversial strategies easier, under the guise of “free trade” with Panama.

    First, here’s what Senator Sanders had to say on the matter in 2011:

    The man’s prescience is remarkable. As his votes against the Patriot Act, Iraq War and banker bailouts demonstrate, Bernie Sanders has been on the right side of history on all the major issues of the 21st century. In contrast, Hillary Clinton has been on the wrong side of history on pretty much everything.

    For some additional insight on the Panama situation, let’s turn to the International Business Times:

    Years before more than a hundred media outlets around the world released stories Sunday exposing a massive network of global tax evasion detailed in the Panama Papers, U.S. President Barack Obama and then-Secretary of State Hillary Clinton pushed for a Bush administration-negotiated free trade agreement that watchdogs warned would only make the situation worse.

     

    Soon after taking office in 2009, Obama and his secretary of state — who is currently the Democratic presidential front-runner — began pushing for the passage of stalled free trade agreements (FTAs) with Panama, Colombia and South Korea that opponents said would make it more difficult to crack down on Panama’s very low income tax rate, banking secrecy laws and history of noncooperation with foreign partners.

     

    Even while Obama championed his commitment to raise taxes on the wealthy, he pursued and eventually signed the Panama agreement in 2011. Upon Congress ratifying the pact, Clinton issued a statement lauding the agreement, saying it and other deals with Colombia and South Korea “will make it easier for American companies to sell their products.” She added: “The Obama administration is constantly working to deepen our economic engagement throughout the world, and these agreements are an example of that commitment.”

     

    Critics, however, said the pact would make it easier for rich Americans and corporations to set up offshore corporations and bank accounts and avoid paying many taxes altogether.

     

    “The FTA would undermine existing U.S. policy tools against tax haven activity,” warned consumer watchdog group Public Citizen at the time, saying the agreement would encourage corporations to thwart any U.S. efforts to combat financial secrecy. The group also noted that U.S. government contractors, as well as major financial firms supported by taxpayer bailouts, stood to gain from the trade deal’s provisions that could make it harder to crack down on financial secrecy.

     

    Despite the warnings from watchdog groups, some Democratic lawmakers urged the Obama administration to aggressively push for the Panama agreement. According to a 2009 email sent to Clinton by her top State Department aide, high-ranking then-Sen. Max Baucus, D-Mont., was pushing for passage of the Panama and Colombia free trade pacts, and Rep. Charles Rangel, D-N.Y., said “the president had to lend his star power to pushing them through.” Obama ultimately did just that, hosting Panama’s president at a 2011 Oval Office event touting the proposed trade pact.

    Beyond once again illuminating stark differences between Hillary and Bernie, this episode also demonstrates how dishonest politicians like Obama and Clinton frequently use “free trade” language to push forward crony legislation that has little to do with trade.

    You’ve been warned.

  • Does Not Compute: The Market Is The "Most Overbought Since 2009" Yet "Most Short Since 2008"

    Yesterday we first reported something unexpected: when looking at the constituents of the record short squeeze that started two months ago, and still continues, traders had largely maintained kept single-name shorts, and instead covered short ETF exposure.

     

    This followed a previous observation showing that when it comes to NYSE short interest, it is near the record highs (in absolute terms, if not as a % of market cap) reached during the financial crisis.

     

    Furthermore, as we have been reporting for the past 2 months, the “smart money” clients of BofA have been consistently selling this rally, and as of this last week, have sold shares for 10 consecutive weeks,with the selling actually accelerating, and in the last week, during which the S&P 500 was up 1.8%, BofA clients sold a total of $4 billion, the largest since September, and the fifth-largest in BofA history.

     

    Bloomberg summarized all of this overnight in a note discussing the well-known short overhang, amounting to $1 trillion in total short interest.

    Amid its biggest about-face in nine decades, a funny thing has happened in the U.S. stock market, where rather than loosen their grip bears have grown ever-more impassioned. They’ve sent short interest to an eight-year high and above $1 trillion, by one analyst’s math. Position reports from the Commodity Futures Trading Commission show mutual fund managers are more skeptical now than any time since at least 2010.

     

    “There’s an enormous demand coming,” said Thomas J. Lee, managing partner at Fundstrat Global Advisors LLC., in an interview with Bloomberg TV . “Retail investors are about to put a lot of money into the equity markets because they’re trend followers and the S&P has had two positive quarters in a row. Funds can’t keep a trillion short position, larger than March ’09.”

     

    It started in August, when bearish investors sent bets against U.S. stocks above 4 percent of available shares for the first time in six years. They haven’t backed off since. By the end of February, the ratio climbed to 4.4 percent, the highest since 2008, according to exchange data compiled by Bloomberg. As of March 15, that level was 4.3 percent, equivalent to a short position just under $1 trillion.

    So, supposedly the market is the most short since 2008.

    Which is odd because according to a report released this morning by UBS, while there are allegedly record shorts, the market is somehow, at the very same time, the most overbought since 2009. Here are technicians Michael Riesner and Marc Muller:

    With the SPX hitting a new reaction high on Wednesday we were obviously too early in expecting the SPX to top out last week. However, our base case has not changed. The SPX continues to trade in the time window of our late March/early April top projection. The market is still in its most overbought position since 2009 and together with the internal momentum starting to deteriorate we see the SPX in a final extension instead of starting a new breakout, and in this context we are sticking to our recent comment and would not chase the market on current levels.

     

     

    So, at the very same time, this market is the “most overbought since 2009” and “most shorted since 2008“…

    No Wonder Morgan Stanley chief equity strategist Adam Parker lost it this week, and is seeing nothing but cockroaches.

     

  • Millionaires Are Fleeing Chicago In Record Numbers

    Recently, we’ve shown where wealthy people reside within the US, and where they’re fleeing from (here, and here). We now present to you the US city that is winning the race to drive out their wealthiest taxpayers. 

    As the Chicago Tribune reports, that city is none other than Chicago, Illinois. 

    Millionaires are leaving Chicago more than any other city in the United States on a net basis, according to a report by New World Wealth.

    About 3,000 individuals with net assets of $1 million or more (not including their primary residence) moved from the city last year, representing about 2% of the city’s high net worth individuals.  It is unclear where they went: cities in the United States that saw a net inflow of millionaires included Seattle and San Francisco. One thing is certain: they couldn’t wait to get out. 

    Among the reasons cited for leaving their former home town, many said rising racial tensions and worries about crime as factors in the decision.

    The gun violence part we get. Over the weekend, when we penned that “Chicago Disintegrates – Gun Shootings Soar An Unprecedented 89%: “It’s The Struggling Economy” we broke out the stunning statistics within America’s very own warzone:

    “Gun violence in the windy city is on track to post its worst year in the 21st century, the result of an unprecedented surge in gun deaths in the first three months of the year.  By March 31, 141 people had been killed, according to the Chicago Police Department.

     

    The 141 deaths in the first three months of the year mark a 71.9% jump from the same period in 2015, when 82 people were killed. It’s the worst start to a year since 1999, when 136 people died in the first three months the year, according to the Chicago Tribune.

     

    At that pace – an average of three killings every two days – Chicago would have 564 homicides by the end of the year. That would eclipse the 468 killings recorded in 2015 and 416 in 2014.“

     

    Still, at least for the time being, these mass shooting sprees are largely isolated to poor neighborhoods of the windy city. As such, it is difficult to see millionaires be directly impacted by what happens in inner city ghettos.

    Which probably explains why while the article touches on crime and racial tensions as reasons people are leaving, there is also another little, or rather big, matter that is driving the people away: taxes. 

    According to the Tribune, Illinois Comptroller Leslie Munger recently had this to say about the mounting unpaid bills and budget concerns that the state continues to face.

    “We can’t go bankrupt and we can’t print money. Taxpayers are going to have to pay this bill.”

    Actually it can go bankrupt.

    Recall that just two weeks ago we reported that the “Countdown To Insolvency Begins For Chicago Pensions As State Supreme Court Rejects Reform Bid“, in which we wrote that following a controversial Supreme Court decision, “there will be no legislating away pension benefits – even if doing so is the only realistic way for officials to ensure that state and local governments can continue to pay out any benefits at all going forward. That is, even if long-run insolvency is certain, benefits will be paid out in full up to and until the day of reckoning finally comes and it will be up to lawmakers to figure out how to rescue the system in the meantime. If that means raising taxes and/or going into further debt, then that’s what it means.”

    And although they may not be able to print money, we can’t help but wonder if the organization that can, will begin to take on the state insolvency issue in the future to prevent that from happening. After all, the bailout tour must continue to roll on.

    For now however, Chicago’s future is bleak, and when the hammer finally does hit, it will do so without Chicago’s wealthiest present.

    Finally, it may not come as a surprise that of all cities around the globe, Chicago was only third in millionaire exodus rankings.

    Which was first? Paris, France.

    A Rolls-Royce is displayed Feb. 11, 2016, at the Chicago Auto Show. 3,000
    millionaires moved out of Chicago in 2015, it is unclear what cars they drove

  • Buying Dollar Bills For $1.10

    The following research was jointly produced by: J. Brett Freeze, CFA of Global Technical Analysis and 720 Global

    Buying Dollar Bills For $1.10

    720 Global has written four articles to date on stock buybacks and the harm these actions will likely have on future corporate growth rates and the economy. To better gauge the effect of buybacks we join forces with Brett Freeze to present a unique analysis on the S&P 100.

    As we have previously noted, a large majority of companies, including 94 of the S&P 100, have actively repurchased shares since 2011. These companies often announce and execute share repurchases without providing a rationale to shareholders. As a fiduciary of shareholder’s capital, managements’ core responsibility is to act in the best interest of its shareholders. Unfortunately, we believe the majority of current repurchase activity is dictated by management’s self-serving desire – temporarily inflating the current market-value of company stock, while enriching themselves through the exercise and sale of equity-based incentive compensation.

    There are two conditions that should be met when a company engages in a stock buyback. 1) The shares should be trading below intrinsic value 2) there are no investment opportunities available that would allow the company to continue to grow at a desirable rate. If both conditions can be met a case may be made for share buybacks.

    This article solely focuses on the first aforementioned condition– intrinsic value. For more information on the second condition, please read “In Yahoo, Another Example of the Buyback Mirage” by Gretchen Morgenson of the New York Times. In her recent article, which quoted 720 Global, she demonstrates how Yahoo weakened future earnings growth rates and corporate value through questionable stock buybacks.

    Intrinsic value is not the market price or market capitalization of a company or its stock, but a theoretical value formulated through analysis of the balance sheet and income statement of the company. Conceptually, investors should seek companies whose share prices trade below intrinsic value and shun those trading above intrinsic value. This logic equally applies to corporate management executing buybacks.

    When shares are purchased below intrinsic value, the company has added value. It is equivalent to buying a dollar bill for fifty cents. Conversely, share repurchases executed at a premium to intrinsic value destroy intrinsic value. Existing shareholders who sell are rewarded by the share-repurchase program, but those who hold are irreparably damaged. In the words of Warren Buffett from his assault on buybacks – “Buying dollar bills for $1.10 is not good business for those who stick around.”

    For this analysis we evaluate share repurchase activity and intrinsic values for the companies in the S&P 100 Index. Our measure of intrinsic value for non-financial companies was calculated using Global Technical Analysis’s proprietary discounted cash-flow model. For each non-financial company, 20-years of estimated forward cash flows were discounted by the weighted-average cost of capital (energy company data was normalized, when necessary). For financial companies, our measure of intrinsic value was calculated using Global Technical Analysis’s proprietary residual income model.

    The following table provides a glimpse of the value being reduced by share buybacks of five widely-held companies.

    The entire analysis is presented below by S&P Sector. Within each sector, companies are ranked by cumulative share repurchases relative to Q1 2011 outstanding shares. The final column of data shows the effect of share repurchase activity on intrinsic value. This column reveals the positive or negative effect that buybacks have had on the intrinsic value of each respective company.

    The results of our analysis confirm our beliefs regarding share repurchases. Approximately two-thirds of the S&P 100 destroyed intrinsic value, by an average amount of 12.03%, as a result of their share-repurchase programs.

     

    ***Corporate names have been withheld from this presentation. A full analysis can be acquired by contacting the authors.

  • Which American States Have The Most Billionaires

    Yesterday’s news that New Jersey may be headed for fiscal peril now that the state’s wealthiest resident, hedge fund billionaire David Tepper is headed for warmer (and more tax receptive climes), caught many by surprise. Not his departure that is, but just how much of New Jersey’s tax revenue was contingent on just this one person. As Bloomberg reported, “New Jersey relies on personal income taxes for about 40% of its revenue, and less than 1% of taxpayers contribute about a third of those collections. A one percent forecasting error in the income-tax estimate can mean a $140 million gap.”

    This means that a potential billionaire exodus from states such as CT and NJ (or any other), is emerging as one of the bigger fiscal threats to state budgets.

    So which states are most at risk? For the answer we used the latest Forbes data listing the states with the most billionaires.  According to the magazine, there are “540 billionaires in the United States, with a combined net worth of $2.399 trillion. That’s more billionaires and more combined net worth than any other nation in the world.“

    This is where they live across the U.S.:

    For the sake of California’s fiscal stability, we hope governor Jerry Brown has better ideas of how to retain the 124 billionaires (with a cumulative net worth of over half a trillion dollars) currently calling the Golden State home than by merely continuing with his minimum wage hike bonanza. As we reported yesterday, California has already seen an exodus of state residents departing for other places in the US like Texas. If the all important billionaires were to depart, it would get very ugly for the state whose budget is already on edge.

    Source

  • Dutch Referendum May Have Unleashed European "Continental Crisis"

    In early January, European Commission President Jean-Claude Juncker warned that a Dutch advisory referendum, which took place today, on the bloc’s association agreement with Ukraine could lead to a “continental crisis” if voters reject the treaty.

    In an interview in January for Dutch daily NRC Handelsblad, Juncker said Russia would “pluck the fruits” of a vote in the Netherlands against deepened ties between the European Union and Ukraine. “I want the Dutch to understand that the importance of this question goes beyond the Netherlands,” NRC quoted Juncker as saying. “I don’t believe the Dutch will say no, because it would open the door to a big continental crisis.”

    The reason why Jean-Claude “when it gets serious, you have to lie” Juncker was so nervous, is that the vote, launched by anti-EU forces, is seen as test of the strength of Eurosceptics on the continent just three months before Britain votes on whether to stay in the European Union.

    Fast forward to today when the vote just took place, and based on initial exit polls, Juncker was dead wrong. According to Reuters, in a rebuke for the government, which campaigned in favor of the EU-Ukraine association agreement, roughly 64 percent voted “No” and 36 percent said “Yes”. 

    As a reminder, the political, trade and defense treaty is already provisionally in place but has to be ratified by all 28 European Union member states for every part of it to have full legal force. The Netherlands is the only country that has not done so.

    And, it appears, that in a big hit for those who had plotted the Ukraine ascension, the Dutch may have just frozen Ukraine dead in its tracks.

    Eurosceptics had presented the referendum as a rare opportunity for their countrymen to cast a vote against the EU and the way it is run – including its open immigration policies. 

    But here lies the rub. Although it is non-binding, it will be considered as an advisory referendum by the government if turnout reaches 30 percent. Otherwise it will be considered null and void and need not be taken into consideration by the government. 

    And while according to some initial exit polls, the turnout was just 28%, or below the required threshold, the most recent data has the turnout as 32%, or sufficient.

    Still, this number may change before the night is over, so keep a close eye on this otherwise insignificant vote in the Netherlands as it may have momentuous consequences for the country and the entire European project. According to a prominent Dutch pollster, the final turnout will be 31%, or an absolute nailbiter.

    The turnout, far lower than in national or local elections, reflected many voters’ puzzlement at being asked to vote on such an abstruse topic. “Yes” voters were certainly confused: “I think the people who asked for this referendum have made a huge commotion,” said Trudy, a “Yes” voter in central Amsterdam. “It’s nonsense, which cost lots of money, and it’s about something nobody understands.”

    Which, of course, is what anyone who is in the vast minority will say.

    Meanwhile, Geert Wilders, leader of the eurosceptic Freedom Party, urged voters to send a message to Europe by saying “No”. “I think many Dutchmen are fed up with more European Union and this treaty with Ukraine that is not in the interests of the Dutch people,” he told reporters. “I hope that later, both in the United Kingdom and elsewhere in Europe, other countries will follow.” 

    As Reuters adds, a clear vote against the treaty in the run-up to Britain’s June 23 referendum on whether to quit the EU could escalate into a domestic or even a Europe-wide political crisis.

    Dutch leaders say voting against the treaty would also hand a symbolic victory to Russian President Vladimir Putin.

    It is unclear if anti-Russian sentiment swayed voters nearly two years on but increasing resentment among the Dutch at the consequences of the EU’s open-border policies has propelled Wilders – who openly opposes Muslim immigration – to the top of public opinion polls.

    In many ways, Wilders is the local Donald Trump.

     

    Reuters also notes that the ballot also taps into a more deep-seated anti-establishment sentiment highlighted by a resounding rejection in 2005 of a European Union constitution, also in a referendum.

    However, just like in Greece, the gears are already set in motion to ignore the majority vote.  In parliament, Prime Minister Mark Rutte’s conservative VVD party has said it would ignore a narrow “No” vote, while junior coalition partner Labour has said it would honor it, setting the stage for a split.

    But ignoring a clear “No” would be risky for Rutte’s already unpopular government — which has lost further ground over Europe’s refugee debate – ahead of national elections scheduled for no later than March 2017.

    While we are confident that ultimately the will of the “No” voters will be ignored, just as it was in Greece, the resentment toward an oligarchic class which clearly can only operate under a non-democratic, call it despotic, regime is sure to spread. As for the Netherlands, while nothing may happen for the next 12 months, it will take some very brazen vote tampering next year to perpetuate a status quo which no longer serves the majority of its own country. 

  • McDonalds Responds To Minimum Wage Hikes, Launches McCafe Coffee Kiosk

    When it comes to jobs growth in the US, all one can say is thank god for waiters and bartenders: after all, a Starbucks barista is precisely what a recently fired oil chemical engineer making half a million dollars really wants to do with their life.

     

    However, the days of easy job gains for the BLS may be coming to an end (even if on a seasonally adjusted, goalseeked basis the trend has a long way to go).

    According to Brand Eating, fast food king McDonald’s has been spotted testing a self-serve McCafe coffee station/kiosk out in downtown Chicago. The station is located in the restaurant but apart from the counter and looks to be a theoretically more convenient way for those who just want a cup of coffee to skip the regular line (while also freeing employees from having to make each drink in the back).

    In essence, this is the company’s latest venture to make employees responsible for one less task as corporate HQ slowly but surely responds to minimum wage hikes sweeping all states, and in the process, outsource its minimum wage workers to simple machines which will never unionize or have any demands aside from being cleaned occasionally.

    As shown below, the coffee station includes a touchpad for ordering and paying (it appears to take credit card only), a beverage spout, and a dispenser for cups.

     

    According to Brand Eating, “drink options include lattes, mochas, and cappuccinos that are customizable with various flavorings, types of milk, and amount of espresso. There doesn’t seem to be an option for drip coffee. The price for the drinks is $2.99. The concept and set up is very similar to McDonald’s Create Your Taste customized ordering available at some restaurants.

    The idea makes a lot of sense seeing as, here in the U.S., the McCafe espresso and steamed milk is automatically dispensed from a machine anyway, with syrups added after accordingly. What they’ve basically done here is put the dispenser on the other side of the counter and added automation for the syrup and ordering/payment.

     

    At the very least, having a touchscreen menu to look through is much preferable to me than the video screen menu at my local McDonald’s that intermittently plays a montage of the drinks so that I have to wait through to see the menu.

    What’s next? Why more of this of course.

  • "Rotten To The Core"

    Submitted by Bill Bonner, courtesy of Acting-Man

    We live in a world of sin and sorrow, infected by a fraudulent democracy, Facebook, and a corrupt money system. Wheezing, weak, and weary from the exertion of trying to appear “normal,” the economy staggers on.

    Staggering on…., Image credit: David Sidmond

    Last week, we gained some insight into the ailment. Something in the diagnosis has puzzled us for years: How is it possible for the most advanced economy in the history of the world to make such a mess of its most basic bodily functions – getting and spending?

    By our calculations – backed by studies, hunches, and deep research – the typical American man (it is less true for women) earns less in real, disposable income per hour today than he did 30 years ago.

    He goes to buy a car or a house, and he finds he must work longer to pay the bill than he would have in the last years of the Reagan administration. How is that possible? What kind of economic quackery do you need to stop capitalism from increasing the value of workers’ time?

    What kind of policies and circumstances are required to stiffen its joints… clog up its innards… and rot its brain? Globalization? Financialization? Bad trade deals? Too much red tape? Too many cronies? Too many zombies?

    We can identify at least one source of the quackery…

    All of those things played a role. But our answer is simpler: poison money. The bigger the dose… the sicker it got. When you say you “have some money,” you usually believe that there is, somewhere, an electronic database in which it is recorded that you are the owner of some amount of currency.

    You have $100,000 in your account, right?   Does it mean that there is a little cubbyhole somewhere, with your name on it, in which you will find a stack of 1,000 Ben Franklins? Nope. Not even close. No cubbyhole. No stack of money. No nothing.

    Does it mean the bank is carefully guarding some 1s and 0s, digital information proving that it at least “stores” your money in its database? Nope again! What it means is there is a financial institution of uncertain integrity… with a complex electronic balance sheet of uncertain accuracy… listing alleged financial claims and contracts of uncertain quality…

    …and that you are one of the many thousands of entries on the debit side… with a claim to a certain number of dollars… which the institution may or may not have, each of uncertain value.

    When prolific American bank robber Willie Sutton was asked why he robbed banks, he reportedly said “Because that’s where the money is”. Not anymore, not really, Photo credit: Allan Grant

    Today, banks – and this could be said of the entire financial system – no longer have “money.” They have credits and debits. Your deposit is your bank’s liability and your asset.

    But look at the balance sheet. You don’t know how many of the claims shown on the left are right… or whether, when the other creditors get finished with it, any of the assets shown on the right are left. All you know is that the system works. Until it doesn’t.

    System Seizure

    For many months, we have urged readers to prepare themselves for problems. One day, the accumulation of contradictions, misinformation, and plain old “trash” in the system will cause a seizure. You will go to the ATM, and it won’t work.

    That day, your life could take a big turn to the downside… depending on how widespread the problem is… the cause of it… and how you prepared for it. Of course, we don’t know for sure that that day will ever come. We are always in doubt, especially about our own forecasts.

    And then, one morning…, Photo credit: sxc

    Still, the potential problem seems likely enough… and grave enough… to justify some minimal precautions. You might cross the street blindfolded without getting run down, but it is still a good idea to look both ways. Usually, we look to the right… where we see the problems inherent in a credit-based money system.

    The feds can create all the credit they want. But real people can’t pay an infinite amount of debt service. Like a junkyard dog reaching the limit of his chain, the credit cycle has a way of jerking people back to reality.

    Real Money

    But there are other potential problems coming from the left. An electronic, credit-based money system is fragile. It can be hacked by thieves. It can be attacked by terrorists. It can be shut down by accident. Even a “bug” could bring it to its knees.

    And then what? How will you get money? How will you spend it? How will you buy gasoline or food? Our advice: Keep some cash on hand. Make sure you own some gold, too – real gold, coins that you can hold in your hand and you can flip to your grandchildren.

    “Hey kid,” you say with a knowing and superior air, “take a look at this. This is real money. You don’t have to plug it in.” By the way… Gold just had its best quarter in 30 years. Do buyers know something? Maybe.

  • "My Passion Is Puppetry"

    By Ben Hunt of Salient Partners

    “My Passion Is Puppetry“

    We are supposedly living in the Golden Age of television. Maybe yes, maybe no (my view: every decade is a Golden Age of television!), but there’s no doubt that today we’re living in the Golden Age of insurance commercials. Sure, you had the GEICO gecko back in 1999 and the caveman in 2004, and the Aflac duck has been around almost as long, but it’s really the Flo campaign for Progressive Insurance in 2008 that marks a sea change in how financial risk products are marketed by property and casualty insurers. Today every major P&C carrier spends big bucks (about $7 billion per year in the aggregate) on these little theatrical gems.

    This will strike some as a silly argument, but I don’t think it’s a coincidence that the modern focus on entertainment marketing for financial risk products began in the Great Recession and its aftermath. When the financial ground isn’t steady underneath your feet, fundamentals don’t matter nearly as much as a fresh narrative. Why? Because the fundamentals are scary. Because you don’t buy when you’re scared. So you need a new perspective from the puppet masters to get you to buy, a new “conversation”, to use Don Draper’s words of advertising wisdom from Mad Men. Maybe that’s describing the price quote process as a “name your price tool” if you’re Flo, and maybe that’s describing Lucky Strikes tobacco as “toasted!” if you’re Don Draper. Maybe that’s a chuckle at the Mayhem guy or the Hump Day Camel if you’re Allstate or GEICO. Maybe, since equity markets are no less a financial risk product than auto insurance, it’s the installation of a cargo cult around Ben Bernanke, Janet Yellen, and Mario Draghi, such that their occasional manifestations on a TV screen, no less common than the GEICO gecko, become objects of adoration and propitiation.

    For P&C insurers, the payoff from their marketing effort is clear: dollars spent on advertising drive faster and more profitable premium growth than dollars spent on agents. For central bankers, the payoff from their marketing effort is equally clear. As the Great One himself, Ben Bernanke, said in his August 31, 2012 Jackson Hole speech: “It is probably not a coincidence that the sustained recovery in U.S. equity prices began in March 2009, shortly after the FOMC’s decision to greatly expand securities purchases.” Probably not a coincidence, indeed.

    Here’s what this marketing success looks like, and here’s why you should care.

    This is a chart of the S&P 500 index (green line) and the Deutsche Bank Quality index (white line) from February 2000 to the market lows of March 2009.

    Source: Bloomberg Finance L.P., as of 3/6/2009. For illustrative purposes only.

    Now I chose this particular factor index (which I understand to be principally a measure of return on invested capital, such that it’s long stocks with a high ROIC, i.e. high quality, and short stocks with a low ROIC, all in a sector neutral/equal-weighted construction across a wide range of global stocks in order to isolate this factor) because Quality is the embedded bias of almost every stock-picker in the world. As stock-pickers, we are trained to look for quality management teams, quality earnings, quality cash flows, quality balance sheets, etc. The precise definition of quality will differ from person to person and process to process (Deutsche Bank is using return on invested capital as a rough proxy for all of these disparate conceptions of quality, which makes good sense to me), but virtually all stock-pickers believe, largely as an article of faith, that the stock price of a high quality company will outperform the stock price of a low quality company over time. And for the nine years shown on this chart, that faith was well-rewarded, with the Quality index up 78% and the S&P 500 down 51%, a stark difference, to be sure.

    But now let’s look at what’s happened with these two indices over the last seven years.

    Source: Bloomberg Finance L.P., as of 3/28/2016. For illustrative purposes only.

    The S&P 500 index has tripled (!) from the March 2009 bottom. The Deutsche Bank Quality index? It’s up a grand total of 10%. Over seven years. Why? Because the Fed couldn’t care less about promoting high quality companies and dissing low quality companies with its concerted marketing campaign — what Bernanke and Yellen call “communication policy”, the functional equivalent of advertising. The Fed couldn’t care less about promoting value or promoting growth or promoting any traditional factor that requires an investor judgment between this company and that company. No, the Fed wants to promote ALL financial assets, and their communication policies are intentionally designed to push and cajole us to pay up for financial risk in our investments, in EXACTLY the same way that a P&C insurance company’s communication policies are intentionally designed to push and cajole us to pay up for financial risk in our cars and homes. The Fed uses Janet Yellen and forward guidance; Nationwide uses Peyton Manning and a catchy jingle. From a game theory perspective it’s the same thing.

    Where do the Fed’s policies most prominently insure against financial risk? In low quality stocks, of course. It’s precisely the companies with weak balance sheets and bumbling management teams and sketchy non-GAAP earnings that are more likely to be bailed out by the tsunami of liquidity and the most accommodating monetary policy of this or any other lifetime, because companies with fortress balance sheets and competent management teams and sterling earnings don’t need bailing out under any circumstances. It’s not just that a quality bias fails to be rewarded in a policy-driven market, it’s that a bias against quality does particularly well! The result is that any long-term expected return from quality stocks is muted at best and close to zero in the current policy regime. There is no “margin of safety” in quality-driven stock-picking today, so that it only takes one idiosyncratic stock-picking mistake to wipe out a year’s worth of otherwise solid research and returns.

    So how has that stock-picking mutual fund worked out for you? Probably not so well. Here’s the 2015 S&P scorecard for actively managed US equity funds, showing the percentage of funds that failed to beat their benchmarks over the last 1, 5, and 10 year periods. I mean … these are just jaw-droppingly bad numbers. And they’d be even worse if you included survivorship bias.

    Small wonder, then, that assets have fled actively managed stock funds over the past 10 years in favor of passively managed ETFs and indices. It’s a Hobson’s Choice for investors and advisors, where a choice between interesting but under-performing active funds and boring but safe passive funds is no choice at all from a business perspective. The mantra in IT for decades was that no one ever got fired for buying IBM; today, no financial advisor ever gets fired for buying an S&P 500 index fund.

    But surely, Ben, this, too, shall pass. Surely at some point central banks will back away from their massive marketing campaign based on forward guidance and celebrity spokespeople. Surely as interest rates “normalize”, we will return to those halcyon days of yore, when stock-picking on quality actually mattered.

    Sorry, but I don’t see it. The mistake that most market observers make is to think that if the Fed is talking about normalizing rates, then we must be moving towards normalized markets, i.e. non-policy-driven markets. That’s not it. To steal a line from the Esurance commercials, that’s not how any of this works. So long as we’re paying attention to the Missionary’s act of communication, whether that’s a Mario Draghi press conference or a Mayhem Guy TV commercial, then behaviorally-focused advertising — aka the Common Knowledge Game — works. Common Knowledge is created simply by paying attention to a Missionary. It really doesn’t matter what specific message the Missionary is actually communicating, so long as it holds our attention. It really doesn’t matter whether the Fed hikes rates four times this year or twice this year or not at all this year. I mean, of course it matters in terms of mortgage rates and bank profits and a whole host of factors in the real economy. But for the only question that matters for investors — what do I do with my money? — nothing changes. Stock-picking still won’t work. Quality still won’t work. So long as we hang on every word, uttered or unuttered, by our monetary policy Missionaries, so long as we compel ourselves to pay attention to Monetary Policy Theatre, then we will still be at sea in a policy-driven market where our traditional landmarks are barely visible and highly suspect.

    Here’s my metaphor for investors and central bankers today — the brilliant Cars.com commercial where a woman is stuck on a date with an incredibly creepy guy who declares that “my passion is puppetry” and proceeds to make out with a replica of the woman.

    What we have to do as investors is exactly what this woman has to do: get out of this date and distance ourselves from this guy as quickly as humanly possible. For some of us that means leaving the restaurant entirely, reducing or eliminating our exposure to public markets by going to cash or moving to private markets. For others of us that means changing tables and eating our meal as far away as we possibly can from Creepy Puppet Guy. So long as we stay in the restaurant of public markets there’s no way to eliminate our interaction with Creepy Puppet Guy entirely. No doubt he will try to follow us around from table to table. But we don’t have to engage with him directly. We don’t have participate in his insane conversation. No one is forcing you keep a TV in your office so that you can watch CNBC all day long!

    Look … I understand the appeal of a good marketing campaign. I live for this stuff. And I understand that we all operate under business and personal imperatives to beat our public market benchmarks, whatever that means in whatever corner of the investing world we live in. But I also believe that much of our business and personal discomfort with public markets today is a self-inflicted wound, driven by our biological craving for Narrative and our social craving for comfortable conversations with others and ourselves, no matter how wrong-headed those conversations might be.

    Case in point: if your conversation around actively managed stock-picking strategies — and this might be a conversation with managers, it might be a conversation with clients, it might be a conversation with an Investment Board, it might be a conversation with yourself — focuses on the strategy’s ability to deliver “alpha” in this puppeted market, then you’re having a losing conversation. You are, in effect, having a conversation with Creepy Puppet Guy.

    There is a role for actively managed stock-picking strategies in a puppeted market, but it’s not to “beat” the market. It’s to survive this puppeted market by getting as close to a real fractional ownership of real assets and real cash flows as possible. It’s recognizing that owning indices and ETFs is owning a casino chip, a totally different thing from a fractional ownership share of a real world thing. Sure, I want my portfolio to have some casino chips, but I ALSO want to own quality real assets and quality real cash flows, regardless of the game that’s going on all around me in the casino.

    Do ALL actively managed strategies or stock-picking strategies see markets through this lens, as an effort to forego the casino chip and purchase a fractional ownership in something real? Of course not. Nor am I using the term “stock-picking” literally, as in only equity strategies are part of this conversation. What I’m saying is that a conversation focused on quality real asset and quality real cash flow ownership is the right criterion for choosing between intentional security selection strategies, and that this is the right role for these strategies in a portfolio.

    Render unto Caesar the things that are Caesar’s. If you want market returns, buy the market through passive indices and ETFs. If you want better than market returns … well, good luck with that. My advice is to look to private markets, where fundamental research and private information still matter. But there’s more to public markets than playing the returns game. There’s also the opportunity to exchange capital for an ownership share in a real world asset or cash flow. It’s the meaning that public markets originally had. It’s a beautiful thing. But you’ll never see it if you’re devoting all your attention to CNBC or Creepy Puppet Guy.

  • Where One Swiss Bank Will Be Buying Gold

    While the furious rally that proppeled gold higher in the first quarter – by the most in 25 years – appears to have fizzled, it is hardly over. So for those wondering when they should add to their position, or start a new one, here is some advice from Geneva Swiss Bank, which believes that $1,180-$1,190 “may be a good level to buy gold.”

    The bull case is known to everyone by now, but here it is again, from the source:

    • We believe that gold remains a great hedge against currency debasement
    • Investors increasing doubts on the effects of central banks aggressive monetary policies will continue to be a tailwind for the only currency that machines can’t print
    • Last but not least, asset allocators are piling back into gold again.

    The result: the following chart.

  • No Turning Point: What Happens in Wisconsin Stays in Wisconsin; Hell to Pay

    Submitted by Mike “Mish” Shedlock of MishTalk

    In the wake of an expected victory in Wisconsin, Ted Cruz gave the expected victory speech.

    “Tonight is a turning point. It is a rallying cry,” said Cruz to an elated crowd of his supporters.

    Nonsense. What happens in Wisconsin stays in Wisconsin.

    Nomination Analysis

    Cruz won 36 of 42 Wisconsin delegates. In the Path to a Trump Victory, Nate Silver estimated Trump needed to win 18 Wisconsin delegates.

    Trump won six, leaving him 12 short.

    New York has 95 delegates. Silver estimates Trump needs 58 of then.

    I expect Trump will pick up 70 putting him back on track. I made that estimate on April 4 in Rumors of Trump’s Demise Overblown; Wisconsin May Not Matter if Trump Sweeps New York.

    Recent Polls

     

    Silver’s Poll’s Only Projection

    If those numbers for Trump come in, and we will find out on April 19, the momentum will clearly have shifted back to Donald Trump.

    Still on Course

    Financial Times writer Edward Luce sees things pretty much the way I do. In an article today, Luce says Donald Trump Still Just About on Course.

    Despite having self-inflicted the worst two weeks of his campaign, and provoking the opposition of almost every senior Republican in Wisconsin, Mr Trump still took more than a third of the vote — and in a state that he was likely to lose.

     

    Wisconsin’s demographics, which skew towards educated conservatives, are similar to that of Iowa, which Mr Cruz won at the start of the primary season two months ago. New York’s are closer to that of New Hampshire, which Mr Trump won handily the following week.

     

    It is anybody’s guess what Mr Trump will say, or tweet. His capacity for self-destruction can never be underestimated. But it takes a leap of faith to believe he will be defeated on his home turf by a Texan conservative who denigrates “New York values”.

     

    Wisconsin does not drastically alter the bigger picture. Republicans are probably heading towards a contested convention in Cleveland in which they will confront a choice between Mr Trump and Mr Cruz.

    Contested Convention

    It’s a bit premature to come to the conclusion a contested convention is the odds-on-favorite, but it is increasingly likely.

    In January, I stated the only likely way Trump could be stopped was a contested convention. That was long before media glommed onto the idea. Today the notion of a contested convention is mainstream.

    Hell to Pay

    It remains to be seen if we do have a brokered convention but a Talking Points Memo accurately says there will be Hell to Pay, if we do. Emphasis is mine.

    I certainly knew that election night was not the end of the delegation selection process in most states – especially in caucus states. But I confess I did not realize how many states do not allow a candidate any direct control over who ‘their’ delegates even are. So Donald Trump could win all the delegates in a particular state but have party functionaries pick the actual people who will serve as ‘Trump’s’ delegates. So they’re bound on the first ballot but actually there to support Cruz or Kasich or some other unicorn candidate.

     

    I think many people imagine a raucous and wild scene where the Trump delegates walk out of the hall after the convention gives Mitt Romney or maybe Jeb Bush’s son ‘P.’ the nomination. But in fact there may be no Trump supporters there to walk out. Now, obviously there will be some. But maybe not that many.

     

    The ‘Trump delegates’ who agree to vote for someone else on the second ballot may not be former Trump supporters. They may be Cruz supporters or just party regulars.

     

    All of this is why this is bounding toward a wildly destructive conflagration in Cleveland. Elections of all sorts rest not fundamentally on rules and bylaws but on legitimacy. An RNC national committeeman recently complained that the press had given people the wrong impression that voters decided who the nominee was rather than the party. By the rules, he may be right. But good luck sailing that ship across any body of water.

     

    TPM Readers know, because it’s been one of the site’s core perennial issues for 15 years, that people’s right to their vote gets disregarded all the time. But it is by definition almost always the votes of the marginalized and those lacking power, almost always those most loosely tied to the political system. And usually it either does not or cannot be proven to swing an actual election. It is quite another thing, under the bright lights of intense national press scrutiny to take the win away from the guy who unambiguously won the most votes.

     

    Trump’s constituency is the part of the electorate which Republican politicians have been marinating in grievance and betrayal politics for decades. Only it’s not coming from Al Sharpton or Hollywood elites or limousine liberals or Feminazis. It will be coming from their supposed protectors, their party.

     

    It won’t go down well. There will be hell to pay.

    Hell to pay indeed!

    This is precisely why Trump feels marginalized to the point he may not support the Republican candidate if he doesn’t win.

    And why should he?

    Can Cruz Beat Hillary?

    Can Cruz or some alternative “hand-picked” candidate defeat Hillary?

    It seems dubious, at best. To win the election, the Republican nominee will have to pick up votes from some independents and some traditional Democrats.

    What votes can Cruz pick up? Anything? I challenge anyone to explain what inroads Cruz, Kasich, or any other hand-picked Republican Neanderthal can deliver from either Democrats or Independents.

    Appealing to the core is the road to ruin, and Trump proves it.

    And if Trump runs on a third party ticket, it will be next to impossible for Cruz or any other Republican candidate win.

    Can Trump Beat Hillary?

    Despite the talk, Trump will retain nearly all of the traditional Republican vote. Sure, some may vote Hillary or sit the election out. But the strong anti-Hillary sentiment will overcome almost all of that.

    On the plus side, Trump will pick up votes from anti-war Democrats, anti-war independents, anti-establishment independents, anti-Fed independents, and most importantly – angry white Democrats who blame China and Mexico for our problems.

    On the minus side, Trump has offended a lot of people. However, there will be some time for him to make amends and sound more presidential.

    Destructive Republican Party Breakup

    Whether Trump wins the nomination or it is stolen from him, a destructive breakup of the holier-than-thou, war-mongering, neocon pseudo-conservative hypocrites running the Republican party is potentially at hand.

    For that we can all thank Trump, whether you like the guy or not. It’s time to rebuild the Republican party, and this is a good start.

    If the nomination is stolen from Trump, he can finish the job with a third-party candidacy.

  • Before Trump, Sen Bulworth Spoke Truth To Power

    Submitted by Douglas Herman

        “The majority of men are not capable of thinking, but only of believing and are not accessible to reason but only to authority.”

        -­ Arthur Schopenhauer
     
    Voting is like bungee jumping: it’s for people who like big jerks. If the 2016 US Presidential election seems like a manufactured media circus, perhaps we can blame Hollywood. More precisely, we can blame fictional Senator Jay Billington Bulworth and his bluster for providing the blueprint.

    In books and movies, Life often imitates Art. I know from personal experience, having penned a historical fiction novel, The Guns of Dallas, that apparently came true two years after publication. When an old CIA operative named E. Howard Hunt made a deathbed confession to Rolling Stone magazine about the JFK Assassination, he echoes a similar confession my protagonist made in my novel a couple years before.

    But they give no prizes for such prescience.  Instead they give Pulitzer Prizes and Nobel Prizes to liars and war criminals. They give Presidential Medals of Freedom to corrupt, incompetent or deceitful career public servants who do a huge disservice to the public and endanger the Republic. They give Oscars and Emmys and glowing accolades to filmmakers who create violent movies based on fantasies and fabrications that prop up the deep state. But they give no awards for speaking truth to power. Often only a bullet awaits those who do.

    Long before Donald Trump uttered his first shocking statement, a fictional Hollywood politico named Senator Bulworth spoke truth to power and shocked a nation. So much so that the movie lost money, was critically panned and may have gotten the iconic actor and producer, Warren Beatty, blacklisted from Hollywood.

    Why? Truth is a dangerous weapon. More dangerous than a thousand light sabers. But sadly, Truth is the First & Last Casualty in America’s Penultimate War.

    * * *

    Some people think that truth is relative. At least my relatives do. Try telling your friends and family that all truth passes through Three Stages, from ridicule to violent opposition to eventual acceptance, according to that guy Schopenhauer again, who must have been a lot of fun at parties. My friends and family remain at stage one.

    In an essay called Bulworth In 2013, artist Jim Kirwan remarked: “Warren Beatty made Bulworth in 1998 to warn America about what this country had become . . . The film is about a disillusioned Senator who tires of the lies and begins to tell it like it is.  No other major filmmaker has dared to produce, much less chosen to put these topics before the public.”

    Bulworth quickly insults or provokes everyone he meets, from Black civic leaders to Jewish movie moguls to a roomful of the Senator’s corrupt corporate donors.  While on a fundraiser, Senator Bulworth visits the home of some Hollywood heavyweights and is asked bluntly by one of them: “Senator, do you think those of us in the entertainment business need government help in determining limits on sex and violence in today’s films and television programs?”

    Bulworth replies: “You know the funny thing is, how lousy most of your stuff is. You make violent films, you make dirty films, you make family films, but just most of them are not very good, are they? Funny that so many smart people could work so hard on them and spend so much money on them and, I mean, what do you think it is? It must be the money, huh. It must be the money, it turns everything to crap you know. Jesus Christ how much money do you guys really need?”

    And that is how you get black-listed from Hollywood, despite all the Oscars you have won in the past. Talk truth to power and damn if they don’t try to ruin you.

    Bulworth continues on in his suicidal mission. Warren Beatty is masterful and marvelous, like Trump on truth serum or steroids. Intoxicated with his candor, Senator Bulworth begins to rhyme, to a roomful of stunned corporate backers. “And over here, we got our friends from oil/ They don’t give a shit how much wilderness they spoil/ They tell us they are careful, we know that it’s a lie/ As long as we keep driving cars, they’ll let the planet die/ Exxon, Mobil, the Saudis and Kuwait, if we still got the Middle East, the atmosphere can wait/ The Arabs got the oil, we buy everything they sell/ But if the brothers raise the price, we’ll blow them all to hell.”

    Imagine Trump saying something like THAT?

    So ask yourself this, dear reader: When has ONE candidate managed to provoke and then UNITE the hysterical Left liberals and the entrenched, super rich & powerful oligarchs of the Extreme Right against him? Not to mention uniting the puppets and pundits of the mainstream media? Has that ever happened in American history? Before Bulworth? Before Trump?

    Consider the growing list of powerful, special interests arrayed against Donald Trump. Billionaire corporate heads oppose Trump. Dozens of them flew down to Sea Island, Georgia to devise ways to remove Trump from the Republican ticket. “”What we see at Sea Island is that, despite all their babble about bringing the blessings of democracy to the world’s benighted, AEI, Neocon Central, believe less in democracy than in perpetual control of the American nation by the ruling Beltway elites,” wrote Patrick Buchanan. “If an outsider like Trump imperils that control . . . the elites will come together to bring him down, because behind party lines, they’re soul brothers in pursuit of power.”

    Speaking of soul brothers, another billionaire, and self-confessed Nazi collaborator, George Soros backs BlackLivesMatters.  Soros provided in excess of $30 million in “seed” money to BLM.  Tweeted top BLM activist and rapper Tef Poe: “ If Trump wins, young niggas such as myself are fully hell bent on inciting riots everywhere we go.”
     
    Billionaires bankrolling ghetto brothers to burn and riot? And NO outcry from the American media, naturally.
     
    Soros also backs unlimited immigration with his Open Borders group, the same people responsible for blocking a state highway in Arizona. Again not a peep from the mainstream media. But a cabal of connected newspaper columnists, who style themselves “National Security Leaders,” many who pimped for the endless wars in the Middle East, including such aptly named warmongers as Max Boot, Charles Krauthammer, Michael Chertoff and Robert Kagan oppose Trump.  Likewise billionaire Jewish movie moguls, many of whom have donated millions to Hillary Clinton, oppose Trump. Billionaire Chinese oligarchs and manufacturers, with factories filled with low-paid workers and fearful that tariffs may curtail their obscene profits, oppose Trump. Pop political celebs such as Elizabeth Warren and RINO relics Mitt Romney and John McCain oppose Trump and urge voters to reject him.
     
    Every one of these outspoken opponents of Trump was represented in the Bulworth movie in some fashion, especially the network talking heads. In the movie, Bulworth finally confronts the media. The American mainstream media hates and fears Trump, I mean Bulworth. He knows exactly what kind of prostitutes they are. But the media realizes Bulworth is hot news. So they have to cover him. They are forced to cover him, against their will. Exactly as they are forced to cover Trump.

    * * *

    “You know the guy in the booth who’s talking to you in that tiny little earphone,” says Bulworth to some bimbo who reminds me of Meagan Kelly. “He’s afraid the guys at network are gonna tell him that he’s through/ If he lets a guy keep talking like I’m talking to you/ Cause the corporations got the networks and they get to say who gets to talk about the country and who’s crazy today/ I would cut to a commercial if you still want this job/ Because you may not be back tomorrow with this corporate mob/ Cut to commercial, cut to commercial, cut to commercial. Okay Okay I got a simple question that I’d like to ask of this network/ That pays you for performing this task/ How come they got the airwaves? They’re the peoples aren’t they?/ Wouldn’t they be worth 70 billion to the public today?/ If some money-grubbin Congress didn’t give them away?”

    Bulworth, like Trump nearly 20 years later, seems to present the people, the voters,  with a fresh perspective. Even if the apparent fresh perspective is a fraud or a mirage. But to the Powers-That-Be, any courageous man who speaks truth to power presents a fearful challenge: How to rein in this dangerous man, before he does any more damage? Easy enough. Whether a Bulworth or a Trump, similar wild card candidates who have suddenly become the newest darling of the public, they must be taught to toe the party line, or be removed from the picture. Simple.

    How? Assassination or electoral fraud.

    In the movie, Bulworth is eventually removed, at the height of his fame and popularity with the voters. In reality, so is anyone else who dares to challenge the status quo. JFK and RFK most recently. I imagine the powerbrokers are devising a scenario as I write this. Perhaps a disgruntled bus boy with three names, a troubled sort who keeps a diary and owns a handgun will ambush Trump. Naturally the media presstitutes will gloat in private but pretend a somber sorrow. And Hillary will be selected, or someone suitable to Wall Street and the police state. Hardly matters who.

    As our empire erodes, and overseas tyranny evolves into full moral meltdown at home, and the economy becomes a series of bubbles, the sociopaths in charge resort to more inventive and draconian measures. Trump is neither the solution nor the answer but more like another symptom. A long simmering effect of a longer lingering cause. The cause and effect of bad governance, of corruption without any consequences.

  • Governor Of Puerto Rico Set To Impose Capital Controls

    Yesterday, in the latest plot twist surrounding the inevitable Puerto Rico default, we observed that after the commonwealth island’s Senate passed a surprising bill to impose a debt moratorium on any future debt repayment, its bonds – predictably – tumbled.

     

    We also noted that the legislation addressed the Government Development Bank, or GDB, which is facing speculation that it’ll lapse into insolvency. The bank’s receivership process, liquidity and reserve requirements and payment obligations would be suspended indefinitely, according to an analyst’s read of the bill, which also seeks to split the entity into a “good bank” and “bad bank.”

    Hedge funds holding debt in the GDB sued on Monday to stop the bank from returning deposits to local government agencies as it faces a growing cash shortage. The funds, which include affiliates of Brigade Capital Management, Claren Road Asset Management and Solus Alternative Asset Management, accused the bank of seeking to “prop up” local agencies at the expense of other creditors. The GDB has a $422 million debt-service payment due May 1.

     

    The Government Development Bank serves the dual purpose of providing financial support to local governments and acting as a financial adviser to the commonwealth. The funds, which say they hold a “substantial amount” of almost $3.75 billion in the bank’s outstanding debt, blamed the entity’s deteriorating condition on a “hopeless conflict” between loyalties to Puerto Rico and to creditors.

    Fast forward to today, when Puerto Rico Governor Alejandro García Padilla signed a measure into law Wednesday that would enable him to declare a moratorium on the commonwealth’s debt payments, mere hours after it cleared the Legislature amid concerns of securing enough support in the lower chamber and a full-court press by creditor lobbyists demanding changes to the bill.

    What was more troubling is that in a move similar to what we have seen in Greece, only this time a voluntary one on behalf of the island and not its vassal owners (as happened with Greece), the newly signed Puerto Rico Emergency Moratorium & Financial Rehabilitation Act also empowers the governor to order the financially battered Government Development Bank (GDB) to restrict the outflow of cash in a bid to stabilize its dwindling liquidity levels, which stood at roughly $560 million as of April 1, according to the bill.

    In other words, capital controls.  

    This, incidentally, confirms what we said yesterday, when we concluded that “the situation is getting messier by the day with a compromise deal now seemingly impossible – absent a US government bailout – and meanwhile Puerto Rico’s money is running out, which will ultimately be the decisive catalyst that leads to the next step in the crisis.“

    That moment may have just arrived.

    As Caribbean Business writes, García Padilla plans to sign an executive order to this effect immediately following the enactment of the moratorium legislation, sources said.

    Several sources told Caribbean Business the urgency to enact the bill stems from concerns that municipalities and other public entities will request the withdrawal of funds each entity holds in the bank, which would further jeopardize the GDB’s operations.

    Acting under the Puerto Rico Constitution’s police powers, the law allows the governor to declare a moratorium on the commonwealth’s entire debt, as well as a stay against any litigation that may result. The measure amends, or “modernizes,” the receivership process of not only the GDB, but also of the Economic Development Bank. If the GDB is placed under the new receivership process, a temporary “bridge” bank could be created to carry out some of the GDB’s functions and honor deposits.

    The law also creates a new entity, called the Puerto Rico Fiscal Agency & Financial Authority, that essentially takes over the GDB’s roles as the island’s fiscal agent and financial adviser. The entity’s board consists of only one member, and in addition to its fiscal agent duties, will take charge of the commonwealth’s debt-restructuring efforts.

  • Rothschild Humiliates Obama, Reveals That "America Is The Biggest Tax Haven In The World"

    In his speech yesterday, following the Treasury’s crack down on corporate tax inversions, Obama blamed “poorly designed” laws for allowing illicit money transfers worldwide. Since the speech came at a time when the entire world is still abuzz with the disclosure from the Panama Papers, Obama touched on that as well: “Tax avoidance is a big, global problem” he said on Tuesday, “a lot of it is legal, but that’s exactly the problem” because a lot of it is also illegal.

    There is one major problem with that: of all the countries in the world, it is none other than the country of which Obama is president, the United States, that has become the world’s favorite offshore “tax haven” destination.

    As Bloomberg, which first broke the story about Nevada’s use as a prominent tax haven early this year, writes, “Panama and the U.S. have at least one thing in common: Neither has agreed to new international standards to make it harder for tax evaders and money launderers to hide their money.”

    Over the past several years, amid increased scrutiny by journalists, regulators and law enforcers, the global tax-haven landscape has shifted. In an effort to catch tax dodgers, almost 100 countries and other jurisdictions have agreed since 2014 to impose new disclosure requirements for bank accounts, trusts and some other investments held by international customers — standards issued by the Organization for Economic Cooperation and Development, a government-funded international policy group.

    In short: while Obama is complaining about corporate tax avoidance and slamming Panama, he is encouraging it in the U.S.

    Places like Switzerland and Bermuda are agreeing, at least in principle, to share bank account information with tax authorities in other countries. Only a handful of nations have declined to sign on. The most prominent is the U.S. The other ona is, of course, Panama, and we just saw what happened there.

     

    The latest reporting “underscores the secrecy in Panama,” said Stefanie Ostfeld, the acting head of the U.S. office of the anti-corruption group Global Witness. “What’s lesser known, is the U.S. is just as big a secrecy jurisdiction as so many of these Caribbean countries and Panama. We should not want to be the playground for the world’s dirty money, which is what we are right now.”

    For Obama, however, it is important to not let facts get in the way of a good speech, or welcoming the dirty, laundered money of the world’s uber wealthy, be they criminals or not, as they transfer their wealth from Panama to Nevada, Wyoming and other tax sheltering destinations in the U.S.

    To be sure, the US has taken steps to keep track of US assets abroad, but not of foreign assets in the US.

    In 2010, Congress passed the Foreign Account Tax Compliance Act, or Fatca, as the U.S. Justice Department began prosecuting Swiss banks for enabling tax evasion. Fatca forces certain financial firms to disclose to the Internal Revenue Service any foreign accounts held by U.S. citizens.

     

    Fatca doesn’t, however, bind banks to provide information on foreigners with U.S. accounts to regulators abroad. The U.S. has entered into agreements with some other countries requiring such exchange with foreign regulators, but tax planners say they are considered relatively easy to avoid.

     

    That’s where the OECD came in, with its own international take on Fatca that the U.S. declined to sign.

    Panama has been one country which has done everything in its power to delay and dilute its compliance with OECD regulations.

    In a January interview, an official at Trident Trust Co., a big provider of offshore vehicles, said it was seeing a large number of accounts moving into Panama because of its weak commitment to the OECD regulations. “The Panama office was extremely overworked, because a lot of people are re-domiciling to Panama from BVI and Cayman,” said Alice Rokahr, a Trident official based in South Dakota. In late February, OECD officials said publicly that Panama had been “removed from the list of committed jurisdictions” that agreed to share information.

     

    The latest coverage of shell companies created by a Panamanian law firm could give the OECD new ammunition to put pressure on the country to sign onto the information-sharing agreements, some tax experts said.

    But while one can criticize Panama, and with cause, for enabling tax evasion, at least its leaders don’t pretend to be saints, who do precisely what they condemn. Far less can be said about Obama.

    “The U.S. doesn’t follow a lot of the international standards, and because of its political power, it’s able to continue,” said Bruce Zagaris an attorney at Berliner Corcoran & Rowe LLP who specializes in international tax and money laundering regulations.  “It’s basically the only country that can continue to do that. Others like Panama have tried, but Panama can’t punch as high as the U.S.“

    And confirming just that, in a statement issued Monday by OECD secretary general Angel Gurria, the OECD said “Panama is the last major holdout that continues to allow funds to be hidden offshore from tax and law-enforcement authorities.”

    The statement didn’t mention the U.S., which is the OECD’s largest funder.

    And there it is: the US, simply because it is the biggest – and wealthiest – bully in the yard, can dispense morality all day long, but just don’t ask it to practice what it preaches.

    Meanwhile, advisers around the world are increasingly using the U.S. resistance to the OECD’s standards as a marketing tool – attracting overseas money to U.S. state-level tax and secrecy havens like Nevada and South Dakota, potentially keeping it hidden from their home governments.

    Advisors such as Rothschild, profiled initially by Bloomberg’s Jesse Drucker.

    Rothschild, the centuries-old European financial institution, has opened a trust company in Reno, Nev., a few blocks from the Harrah’s and Eldorado casinos. It is now moving the fortunes of wealthy foreign clients out of offshore havens such as Bermuda, subject to the new international disclosure requirements, and into Rothschild-run trusts in Nevada, which are exempt.
     
    * * *
     
    For financial advisers, the current state of play is simply a good business opportunity. In a draft of his San Francisco presentation, Rothschild’s Penney wrote that the U.S. “is effectively the biggest tax haven in the world.” The U.S., he added in language later excised from his prepared remarks, lacks “the resources to enforce foreign tax laws and has little appetite to do so.”

    And that is all you need to know.

  • Guest Post: Why Hillary Clinton’s Paid Speeches Are Relevant

    By Eric Zuesse, originally posted at strategic-culture.org

    On the fake-‘progressive’ (actually conservative-Democratic-Party) website that’s run by a longtime CIA asset Markos Moulitsas, “Daily Kos,” there was posted on February 24th an article by “motocat”, headlined, “I have personally been to a closed door corporate Clinton speech. This is what I experienced.” This person, he or she, didn’t indicate what the speech said, other than “how disappointing the whole thing was,” and, that it was a speech by Bill Clinton, not Hillary Clinton, and “It made me feel sort of sad to see how old and feeble he looked. The last time I had seen Bill speak was when he was running for his first term as President. He looked like a different man.”

    Then the author went into speculation about what might be in Hillary Clinton’s speeches:

    “Everyone wondering what Hillary possibly could have said in 30 minutes that was worth 250K is missing the point. These people are celebrities. They are booked to deliver paid speeches, because it benefits those who book them in some way. You might as well ask what Kanye West could possibly say in 45 minutes at Madison Square Garden that would be worth 250K to the promoter.

    I have no doubt that Hillary does not want to release the transcripts of those speeches because those pouring through them for a gotcha news story or to prove a point, will surely find praise for the institutions she was speaking on behalf of. In this political climate, that would be a bad news cycle for her. I also have no doubt that she also showered glowing praise on the countless colleges whose commission speeches she spoke at, as well as praised the accomplishments of whatever non-profit she spoke on behalf of. Does anyone really think her speech to the US Green building council in 2013 was fair and balanced about negative aspects of what the Green building council has done? No. These are performances for a purpose.

    Personally, I am surprised she just doesn’t come out and say the following.

    ‘For many years I worked as a paid speaker. I gave speeches to many different organizations in many different industries, who all paid me very well. It was my job, and part of my job was to be inspiring, encouraging, and flattering to those people in the audience and those who paid me.’

    I’m not sure what people expect to find in these corporate event speeches she gave dozens of throughout the year. Backroom promises? Revelations about how she plans to screw the middle class? Confessions of cardinal sins? No company or speaker would be so stupid as to include that sort of thing in a corporate event speech anyway.

    There are many important issues to be focusing on right now in this race and debate, but this isn’t one of them.”

    There were over a thousand reader-comments to that idiotic article, as of April 1st, and then it said: “Comments are closed on this story.” The readers who had gotten through the article and were sufficiently struck by it to enter a comment to it were generally debating each other, via comments such as “What makes the diarist think that a pubic [that person’s perhaps Freudian misspelling of ‘public’] event selling tickets has any comparison to the intimate and closed door speeches given by the Clintons to the upper echelon of high finance?” versus (responding to that one): “or the private intimate talks by Bernie and with his supporters. How doe [that person’s misspelling of ‘do’, of course] we know Bernie has not promised something.” In other words: a foolish article elicited over a thousand comments from foolish readers, at that Democratic-Party propaganda site. They’re just the Democratic Party equivalent of Rush Limbaugh’s Republican-Party fools – no different, except for the labels they give themselves.

    Hillary Clinton’s paid speeches (which none of those fools knew anything about – not even the article’s writer did) are not relevant because of anything that they said (which was public to all attendees; her meaningful comments might have been made privately to the executive who had hired her for the speech), but because the organizations that paid typically $225,000 to her, for each of them, were paying a servant, for extremely valuable services that that servant is being expected to provide to the owners and top executives of that organization if that servant becomes the U.S. President (or, in the case of her husband Bill) for valuable services that already were provided by that servant when he was a President. They’re pay-offs, for services that are anticipated, or else that have already been provided. They are not (such as the author was assuming) for “the speech.”

    The fools who had read that article weren’t commenting about how atrocious and stupid it was; they were debating with each other, on the basis of their ignorance and stupidity, which enabled that article to hold their interest and then to engage comments from them upon other idiots’ comments about it.

    This is how enough of such self-characterizing ‘liberal’ voters become suckered into voting for a far-right (except on ‘social’ issues) candidate who is as atrocious and unqualified to serve as President as is Hillary Clinton.

    However, if her speeches are relevant as prospective, and/or retrospective, pay-offs to her, then who and what are these groups that have been providing these pay-offs to her: Here’s the complete list, as it was tabulated and posted online in March by the lawyer Paul Campos (then copied without credit to him, by several others). And, as you can see, they are anything but “the countless colleges whose commission speeches she spoke at, as well as praised the accomplishments of whatever non-profit she spoke on behalf of.”

    —

    http://www.lawyersgunsmoneyblog.com/2016/03/you-get-what-you-pay-for

    DATE EVENT LOCATION FEE

    • March 19, 2015 American Camping Association Atlantic City, NJ $260,000.00
    • March 11, 2015 eBay Inc. San Jose, CA $315,000.00
    • February 24, 2015 Watermark Silicon Valley Conference for Women Santa Clara, CA $225,500.00
    • January 22, 2015 Canadian Imperial Bank of Commerce Whistler, Canada $150,000.00
    • January 21, 2015 tinePublic Inc. Winnipeg, Canada $262,000.00
    • January 21, 2015 tinePublic Inc. Saskatoon, Canada $262,500.00
    • December 4, 2014 Massachusetts Conference for Women Boston, MA $205,500.00
    • October 14, 2014 Salesforce.com San Francisco, CA $225,500.00
    • October 14, 2014 Qualcomm Incorporated San Diego, CA $335,000.00
    • October 13, 2014 Council of Insurance Agents and Brokers Colorado Springs, CO $225,500.00
    • October 8, 2014 Advanced Medical Technology Association (AdvaMed) Chicago, IL $265,000.00
    • October 7, 2014 Deutsche Bank AG New York, NY $280,000.00
    • October 6, 2014 Canada 2020 Ottawa, Canada $215,500.00
    • October 2, 2014 Commercial Real Estate Women Network Miami Beach, FL $225,500.00
    • September 15, 2014 Cardiovascular Research Foundation Washington, DC $275,000.00
    • September 4, 2014 Robbins Geller Rudman & Dowd, LLP San Diego, CA $225,500.00
    • August 28, 2014 Nexenta System, Inc. San Francisco, CA $300,000.00
    • August 28, 2014 Cisco Las Vegas, NV $325,000.00
    • July 29, 2014 Corning, Inc. Corning, NY $225,500.00
    • July 26, 2014 Ameriprise Boston, MA $225,500.00
    • July 22, 2014 Knewton, Inc. San Francisco, CA $225,500.00
    • June 26, 2014 GTCR Chicago, IL $280,000.00
    • June 25, 2014 Biotechnology Industry Organization San Diego, CA $335,000.00
    • June 25, 2014 Innovation Arts and Entertainment San Francisco, CA $150,000.00
    • June 20, 2014 Innovation Arts and Entertainment Austin, TX $150,000.00
    • June 18, 2014 tinePublic Inc. Toronto, Canada $150,000.00
    • June 18, 2014 tinePublic Inc. Edmonton, Canada $100,000.00
    • June 10, 2014 United Fresh Produce Association Chicago, IL $225,000.00
    • June 2, 2014 International Deli-Dairy-Bakery Association Denver, CO $225,500.00
    • June 2, 2014 Let’s Talk Entertainment Denver, CO $265,000.00
    • May 6, 2014 National Council for Behavorial Healthcare Washington, DC $225,500.00
    • April 11, 2014 California Medical Association (via Satellite) San Diego, CA $100,000.00
    • April 10, 2014 Institute of Scrap Recycling Industries, Inc. Las Vegas, NV $225,500.00
    • April 10, 2014 Let’s Talk Entertainment San Jose, CA $265,000.00
    • April 8, 2014 Marketo, Inc. San Francisco, CA $225,500.00
    • April 8, 2014 World Affairs Council Portland, OR $250,500.00
    • March 24, 2014 Academic Partnerships Dallas, TX $225,500.00
    • March 18, 2014 Xerox Corporation New York, NY $225,000.00
    • March 18, 2014 Board of Trade of Metropolitan Montreal Montreal, Canada $275,000.00
    • March 13, 2014 Pharmaceutical Care Management Association Orlando, FL $225,500.00
    • March 13, 2014 Drug Chemical and Associated Technologies New York, NY $250,000.00
    • March 6, 2014 tinePublic Inc. Calgary, Canada $225,500.00
    • March 5, 2014 The Vancouver Board of Trade Vancouver, Canada $275,500.00
    • March 4, 2014 Association of Corporate Counsel – Southern California Los Angeles, CA $225,500.00
    • February 27, 2014 A&E Television Networks New York, NY $280,000.00
    • February 26, 2014 Healthcare Information and Management Systems Society Orlando, FL $225,500.00
    • February 17, 2014 Novo Nordisk A/S Mexico City, Mexico $125,000.00
    • February 6, 2014 Salesforce.com Las Vegas, NV $225,500.00
    • January 27, 2014 National Automobile Dealers Association New Orleans, LA $325,500.00
    • January 27, 2014 Premier Health Alliance Miami, FL $225,500.00
    • January 6, 2014 GE Boca Raton, FL $225,500.00
    • November 21, 2013 U.S. Green Building Council Philadelphia, PA $225,000.00
    • November 18, 2013 CME Group Naples, FL $225,000.00
    • November 18, 2013 Press Ganey Orlando, FL $225,000.00
    • November 14, 2013 CB Richard Ellis, Inc. New York, NY $250,000.00
    • November 13, 2013 Mediacorp Canada, Inc. Toronto, Canada $225,000.00
    • November 9, 2013 National Association of Realtors San Francisco, CA $225,000.00
    • November 7, 2013 Golden Tree Asset Management New York, NY $275,000.00
    • November 6, 2013 Beaumont Health System Troy, MI $305,000.00
    • November 4, 2013 Mase Productions, Inc. Orlando, FL $225,000.00
    • November 4, 2013 London Drugs, Ltd. Mississauga, ON $225,000.00
    • October 29, 2013 The Goldman Sachs Group Tuscon, AZ $225,000.00
    • October 28, 2013 Jewish United Fund/Jewish Federation of Metropolitan Chicago $400,000.00
    • October 27, 2013 Beth El Synagogue Minneapolis, MN $225,000.00
    • October 24, 2013 Accenture New York, NY $225,000.00
    • October 24, 2013 The Goldman Sachs Group New York, NY $225,000.00
    • October 23, 2013 SAP Global Marketing, Inc. New York, NY $225,000.00
    • October 15, 2013 National Association of Convenience Stores Atlanta, GA $265,000.00
    • October 4, 2013 Long Island Association Long Island, NY $225,000.00
    • September 19, 2013 American Society of Travel Agents, Inc. Miami, FL $225,000.00
    • September 18, 2013 American Society for Clinical Pathology Chicago, IL $225,000.00
    • August 12, 2013 National Association of Chain Drug Stores Las Vegas, NV $225,000.00
    • August 7, 2013 Global Business Travel Association San Diego, CA $225,000.00
    • July 11, 2013 UBS Wealth Management New York, NY $225,000.00
    • June 24, 2013 American Jewish University University City, CA $225,000.00
    • June 24, 2013 Kohlberg Kravis Roberts and Company, LP Palos Verdes, CA $225,000.00
    • June 20, 2013 Boston Consulting Group, Inc. Boston, MA $225,000.00
    • June 20, 2013 Let’s Talk Entertainment, Inc. Toronto, Canada $250,000.00
    • June 17, 2013 Economic Club of Grand Rapids Grand Rapids, MI $225,000.00
    • June 16, 2013 Society for Human Resource Management Chicago, IL $285,000.00
    • June 6, 2013 Spencer Stuart New York, NY $225,000.00
    • June 4, 2013 The Goldman Sachs Group Palmetto Bluffs, SC $225,000.00
    • May 29, 2013 Sanford C. Bernstein and Co., LLC New York, NY $225,000.00
    • May 21, 2013 Verizon Communications, Inc. Washington, DC $225,000.00
    • May 16, 2013 Itau BBA USA Securities New York, NY $225,000.00
    • May 14, 2013 Apollo Management Holdings, LP New York, NY $225,000.00
    • May 8, 2013 Gap, Inc. San Francisco, CA $225,000.00
    • April 30, 2013 Fidelity Investments Naples, FL $225,000.00
    • April 24, 2013 Deutsche Bank Washington, DC $225,000.00
    • April 24, 2013 National Multi Housing Council Dallas, TX $225,000.00
    • April 18, 2013 Morgan Stanley Washington, DC $225,000.00

    — 

    None of the 91 speeches was to a college, nor to any other such type of organization.

    At zerohedge, the payments for all the speeches were totaled to: $21,667,000.

    Here are some of the other routes through which she is also preparing for her ultimate retirement (and her and Bill’s bequest to daughter Chelsea): arms deals, oil and gas (and here), and donors.

    Anyone who would presume that Hillary Clinton gets paid those types of fees for “her speeches,” because she’s a “celebrity,” needs to go back to elementary school. (But, of course, since the aristocracy are in control of the country, the elementary schools aren't even teaching about such matters – nor are the high schools, which should be.)

    In other words: her paid speeches are just a part of the legal graft she’s in politics for. “You might as well ask what Kanye West could possibly say in 45 minutes at Madison Square Garden that would be worth 250K to the promoter.” No, it’s not like that, at all.

    Hillary Clinton is no Kanye West. She makes her money in a very different way. Serving a far wealthier clientele. What she serves them, is us.

    After all: how else would you get a wealth-distribution that’s like this?

    It requires lots of lies, and lots of suckers for them, to make them believe in “the system.”

    To produce the meat, shepherds are needed; and people such as Hillary Clinton are specialized in doing that type of job.

    Hello, meat; this is the farm.

     

  • Panama Tax Haven Scandal: The Bigger Picture

    A Huge Leak

    The “Panama Papers” tax haven leak is big …

    After all, the Prime Minister of Iceland resigned over the leak, and investigations are taking place worldwide over the leak.

    But Why Is It Mainly Focusing On Enemies of the West?

    But the Panama Papers reporting mainly focuses on friends of Russia’s Putin, Assad’s Syria and others disfavored by the West.

    Former British Ambassador Craig Murray notes:

    Whoever leaked the Mossack Fonseca papers appears motivated by a genuine desire to expose the system that enables the ultra wealthy to hide their massive stashes, often corruptly obtained and all involved in tax avoidance. These Panamanian lawyers hide the wealth of a significant proportion of the 1%, and the massive leak of their documents ought to be a wonderful thing.

     

    Unfortunately the leaker has made the dreadful mistake of turning to the western corporate media to publicise the results. In consequence the first major story, published today by the Guardian, is all about Vladimir Putin and a cellist on the fiddle. As it happens I believe the story and have no doubt Putin is bent. 

     

    But why focus on Russia? Russian wealth is only a tiny minority of the money hidden away with the aid of Mossack Fonseca. In fact, it soon becomes obvious that the selective reporting is going to stink. 

     

    The Suddeutsche Zeitung, which received the leak, gives a detailed explanation of the methodology the corporate media used to search the files. The main search they have done is for names associated with breaking UN sanctions regimes. The Guardian reports this too and helpfully lists those countries as Zimbabwe, North Korea, Russia and Syria. The filtering of this Mossack Fonseca information by the corporate media follows a direct western governmental agenda. There is no mention at all of use of Mossack Fonseca by massive western corporations or western billionaires – the main customers. And the Guardian is quick to reassure that “much of the leaked material will remain private.”

     

    What do you expect? The leak is being managed by the grandly but laughably named “International Consortium of Investigative Journalists”, which is funded and organised entirely by the USA’s Center for Public Integrity. Their funders include

     

    Ford Foundation
    Carnegie Endowment
    Rockefeller Family Fund
    W K Kellogg Foundation
    Open Society Foundation (Soros)

     

    among many others. Do not expect a genuine expose of western capitalism. The dirty secrets of western corporations will remain unpublished.

     

    Expect hits at Russia, Iran and Syria and some tiny “balancing” western country like Iceland. A superannuated UK peer or two will be sacrificed – someone already with dementia.

     

    The corporate media – the Guardian and BBC in the UK – have exclusive access to the database which you and I cannot see.

    They are protecting themselves from even seeing western corporations’ sensitive information by only looking at those documents which are brought up by specific searches such as UN sanctions busters. Never forget the Guardian smashed its copies of the Snowden files on the instruction of MI6. 

     

    What if they did Mossack Fonseca database searches on the owners of all the corporate media and their companies, and all the editors and senior corporate media journalists? What if they did Mossack Fonseca searches on all the most senior people at the BBC? What if they did Mossack Fonseca searches on every donor to the Center for Public Integrity and their companies?

     

    What if they did Mossack Fonseca searches on every listed company in the western stock exchanges, and on every western millionaire they could trace?

     

    That would be much more interesting. I know Russia and China are corrupt, you don’t have to tell me that. What if you look at things that we might, here in the west, be able to rise up and do something about?

     

    And what if you corporate lapdogs let the people see the actual data? 

    Indeed, Wikileaks comments:

    Washington DC based Ford, Soros funded soft-power tax-dodge “ICIJ” has a WikiLeaks problem https://twitter.com/ChMadar/status/717395684207550467 …

    And:

    Putin attack was produced by OCCRP which targets Russia & former USSR and was funded by USAID & Soros.

    U.S. Companies Use Foreign Tax Evasion

    American companies are big users of foreign tax havens.  For example, we pointed out in 2014:

    American multinationals pay much less in taxes than they should because they use a widespread variety of tax-avoidance scams and schemes, including …  Pretending they are headquartered in tax havens like Bermuda, the Cayman Islands or Panama, so that they can enjoy all of the benefits of actually being based in America (including the use of American law and the court system, listing on the Dow, etc.), with the tax benefits associated with having a principal address in a sunny tax haven.

     

    ***

     

    U.S. Public Interest Research Group notes:

    Tax haven abusers benefit from America’s markets, public infrastructure, educated workforce, security and rule of law – all supported in one way or another by tax dollars – but they avoid paying for these benefits. Instead, ordinary taxpayers end up picking up the tab, either in the form of higher taxes, cuts to public spending priorities, or increases to the federal debt.

    USPIRG continues:

    The United States loses approximately $184 billion in federal and state revenue each year due to corporations and individuals using tax havens to dodge taxes. On average, every filer who fills out a 1040 individual income tax form would need to pay an additional $1,259 in taxes to make up for the revenue lost.

    • Pfizer, the world’s largest drug maker, paid no U.S. income taxes between 2010 and 2012 despite earning $43 billion worldwide. In fact, the corporation received more than $2 billion in federal tax refunds. In 2013, Pfizer operated 128 subsidiaries in tax haven countries and had $69 billion offshore and out of the reach of the Internal Revenue Service (IRS).
    • Microsoft maintains five tax haven subsidiaries and stashed $76.4 billion overseas in 2013. If Microsoft had not booked these profits offshore, they would have owed an additional $24.4 billion in taxes.
    • Citigroup, bailed out by taxpayers in the wake of the financial crisis of 2008, maintained 21 subsidiaries in tax haven countries in 2013, and kept $43.8 billion in offshore jurisdictions. If that money had not been booked offshore, Citigroup would have owed an additional $11.7 billion in taxes.

    Al Jazeera reports:

    Rich individuals and their families have as much as $32 trillion of hidden financial assets in offshore tax havens, representing up to $280bn in lost income tax revenues, according to research published on Sunday.

     

    ***

    “We’re talking about very big, well-known brands – HSBC, Citigroup, Bank of America, UBS, Credit Suisse – some of the world’s biggest banks are involved… and they do it knowing fully well that their clients, more often than not, are evading and avoiding taxes.”

     

    Much of this activity, Christensen added, was illegal.

    So the Panama Papers stories haven’t focused on it, but U.S. corporations are hiding huge sums of money in foreign tax havens.

    Obama and Clinton Enabled Panamanian Tax Evasion Havens

    Of course, Obama and Hillary Clinton enabled and supported Panama’s ability to act as a tax evasion haven.

    So it’s a little disingenuous for them now to say we should “crack down” on tax havens.

    US and UK – Not Panama – Biggest Tax Havens for Money Laundering Criminals and Tax Cheats

    But the bigger story is that America is the world’s largest tax haven … with the UK in a close second-place position.

    The Guardian noted last year:

    The US has overtaken Singapore, Luxembourg and the Cayman Islands as an attractive haven for super-rich individuals and businesses looking to shelter assets behind a veil of secrecy, according to a study by the Tax Justice Network (TJN).

    Bloomberg  headlined in January, The World’s Favorite New Tax Haven Is the United States:

    After years of lambasting other countries for helping rich Americans hide their money offshore, the U.S. is emerging as a leading tax and secrecy haven for rich foreigners. By resisting new global disclosure standards, the U.S. is creating a hot new market, becoming the go-to place to stash foreign wealth. Everyone from London lawyers to Swiss trust companies is getting in on the act, helping the world’s rich move accounts from places like the Bahamas and the British Virgin Islands to Nevada, Wyoming, and South Dakota.

     

    “How ironic—no, how perverse—that the USA, which has been so sanctimonious in its condemnation of Swiss banks, has become the banking secrecy jurisdiction du jour,” wrote Peter A. Cotorceanu, a lawyer at Anaford AG, a Zurich law firm, in a recent legal journal. “That ‘giant sucking sound’ you hear? It is the sound of money rushing to the USA.”

     

    Rothschild, the centuries-old European financial institution, has opened a trust company in Reno, Nev., a few blocks from the Harrah’s and Eldorado casinos. It is now moving the fortunes of wealthy foreign clients out of offshore havens such as Bermuda, subject to the new international disclosure requirements, and into Rothschild-run trusts in Nevada, which are exempt.

     

    The U.S. “is effectively the biggest tax haven in the world” —Andrew Penney, Rothschild & Co.

     

    ***

     

    Others are also jumping in: Geneva-based Cisa Trust Co. SA, which advises wealthy Latin Americans, is applying to open in Pierre, S.D., to “serve the needs of our foreign clients,” said John J. Ryan Jr., Cisa’s president.

     

    Trident Trust Co., one of the world’s biggest providers of offshore trusts, moved dozens of accounts out of Switzerland, Grand Cayman, and other locales and into Sioux Falls, S.D., in December, ahead of a Jan. 1 disclosure deadline.

     

    “Cayman was slammed in December, closing things that people were withdrawing,” said Alice Rokahr, the president of Trident in South Dakota, one of several states promoting low taxes and confidentiality in their trust laws. “I was surprised at how many were coming across that were formerly Swiss bank accounts, but they want out of Switzerland.”

     

    ***

     

    One wealthy Turkish family is using Rothschild’s trust company to move assets from the Bahamas into the U.S., he said. Another Rothschild client, a family from Asia, is moving assets from Bermuda into Nevada. He said customers are often international families with offspring in the U.S.

    Forbes points out that the U.S. is not practicing what it is preaching:

    A report by the Tax Justice Network says that the U.S. doesn’t even practice what it preaches. Indeed, the report ranks America as one of the worst. How bad? Worse than the Cayman Islands. The report claims that America has refused to participate in the OECD’s global automatic information exchange for bank data. The OECD has been designing and implementing the system to target tax evasion. Given the IRS fixation on that topic, you might think that the U.S. would join in.

     

    However, it turns out that the United States jealously guards its information. The Tax Justice Network says the IRS is stingy with data. Of course, with FATCA, America has more data than anyone else. FATCA, the Foreign Account Tax Compliance Act is up and running. The IRS says it is now swapping taxpayer data reciprocally with other countries. The IRS says it will only engage in reciprocal exchanges with foreign jurisdictions meeting the IRS’s stringent safeguard, privacy, and technical standards.

    The Tax Justice Network report blasts the U.S. for being a one-way street:

    The United States, which has for decades hosted vast stocks of financial and other wealth under conditions of considerable secrecy, has moved up from sixth to third place in our index. It is more of a cause for concern than any other individual country – because of both the size of its offshore sector, and also its rather recalcitrant attitude to international co-operation and reform. Though the U.S. has been a pioneer in defending itself from foreign secrecy jurisdictions, aggressively taking on the Swiss banking establishment and setting up its technically quite strong Foreign Account Tax Compliance Act (FATCA) – it provides little information in return to other countries, making it a formidable, harmful and irresponsible secrecy jurisdiction at both the Federal and state levels. (Click here for a short explainer; See our special report on the USA for more).”

    The Washington Post writes:

    One of the least recognized facts about the global offshore industry is that much of it, in fact, is not offshore. Indeed, some critics of the offshore industry say the U.S. is now becoming one of the world’s largest “offshore” financial destinations.

     

    ***

     

    A 2012 study in which researchers sent more than 7,400 email solicitations to more than 3,700 corporate service providers — the kind of companies that typically register shell companies, such as the Corporation Trust Company at 1209 North Orange St. — found that the U.S. had the laxest regulations for setting up a shell company anywhere in the world outside of Kenya. The researchers impersonated both low- and high-risk customers, including potential money launderers, terrorist financiers and corrupt officials.

     

    Contrary to popular belief, notorious tax havens such as the Cayman Islands, Jersey and the Bahamas were far less permissive in offering the researchers shell companies than states such as Nevada, Delaware, Montana, South Dakota, Wyoming and New York, the researchers found.

     

    ***

     

    “In some places [in the U.S.], it’s easier to incorporate a company than it is to get a library card,” Joseph Spanjers of Global Financial Integrity, a research and advocacy organization that wants to curtail illicit financial flows, said in an interview earlier this year.

     

    ***

     

    Too often, however, shell companies are used as a vehicle for criminal activity — disguising wealth from tax authorities, financing terrorism, concealing fraudulent schemes, or laundering funds from corruption or the trafficking in drugs, people and arms.

     

    ***

     

    The Organization for Economic Co-operation and Development, a group of 34 advanced countries, drew up its own tough tax disclosure requirements, called Common Reporting Standards, and asked roughly 100 countries and jurisdictions around the world to approve them. Only a handful of countries have refused, including Bahrain, Vanuatu and the United States.

    Bloomberg reports:

    Advisers around the world are increasingly using the U.S. resistance to the OECD’s standards as a marketing tool — attracting overseas money to U.S. state-level tax and secrecy havens like Nevada and South Dakota, potentially keeping it hidden from their home governments.

    Salon notes:

    Several states – Delaware, Nevada, South Dakota, Wyoming – specialize in incorporating anonymous shell corporations. Delaware earns between one-quarter and one-third of their budget from incorporation fees, according to Clark Gascoigne of the FACT Coalition. The appeal of this revenue has emboldened small states, and now Wyoming bank accounts are the new Swiss bank accounts. America has become a lure, not only for foreign elites looking to seal money away from their own governments, but to launder their money through the purchase of U.S. real estate.

    And the UK is a giant swamp of tax evasion and laundering as well …

    The Independent reported last year:

    The City of London is the money-laundering centre of the world’s drug trade, according to an internationally acclaimed crime expert.

     

    ***

     

    His warning follows a National Crime Agency (NCA) threat assessment which stated: “We assess that hundreds of billions of US dollars of criminal money almost certainly continue to be laundered through UK banks, including their subsidiaries, each year.”

     

    Last month, the NCA warned that despite the UK’s role in developing international standards to tackle money laundering, the continued extent of it amounts to a “strategic threat to the UK’s economy and reputation”. It added that the same money-laundering networks used by organised crime were being used by terrorists as well.

     

    ***

     

    Interviewed by The Independent on Sunday, Mr Saviano said of the international drugs trade that “Mexico is its heart and London is its head”. He said the cheapness and the ease of laundering dirty money through UK-based banks gave London a key role in drugs trade. “Antonio Maria Costa of the UN Office on Drugs and Crime found that drug trafficking organisations were blatantly recycling dirty money through European and American banks, but no one takes any notice,” he said. “He found that banks were welcoming dirty money because they need cash, liquidity during the financial crisis. The figures are too big to be rejected …. Yet there was no reaction.”

    (Background.)

    In a separate article, the Independent wrote:

    Billions of pounds of corruptly gained money has been laundered by criminals and foreign officials buying upmarket London properties through anonymous offshore front companies – making the city arguably the world capital of money laundering.

     

    The flow of corrupt cash has driven up average prices with a “widespread ripple effect down the property price chain and beyond London”, according to property experts cited in the most comprehensive study ever carried out into the long-suspected money laundering route through central London real estate, by the respected anti-corruption organisation Transparency International.

     

    ***

     

    Any anonymous company in a secret location, such as the British Virgin Islands, can buy and sell houses in the UK with no disclosure of who the actual purchaser is. Meanwhile, TI said, estate agents only have to carry out anti-money-laundering checks on the person selling the property, leaving the buyers bringing their money into the country facing little, if any scrutiny.

     

    ***

     

    Detective Chief Inspector Jon Benton, director of operations at the Proceeds of Corruption Unit, said: “Properties that are purchased with illicit money, which is often stolen from some of the poorest people in the world, are nearly always layered through offshore structures.

     

    ***

     

    Companies set up in the Crown Dependencies and British Overseas Territories such as Jersey, British Virgin Islands and Gibraltar are the preferred option for concealment of corrupt property purchases.

     

    More than a third of company-owned London houses are held by effectively anonymous firms ….

    TruePublica notes:

    The consequence of its operations is that money laundering is now at such levels and so widespread that the authorities have recently admitted defeat in its battle of attrition by stating openly it has been completely overwhelmed and lost control. Keith Bristow Director-General of the UK’s National Crime Agency said just six months ago that the sheer scale of crime and its subsequent money laundering operations was “a strategic threat” to the country’s economy and reputation and that “high-end money laundering is a major risk”.

    Indeed:

    TJN  [the Tax Justice Network] says the UK would be ranked as the worst offender in the world if considered along with the three Crown Dependencies (Jersey, Guernsey and the Isle of Man) and the 14 Overseas Territories (including notorious tax havens such as Bermuda, the Cayman and Virgin islands).

     

    In their 2015 Index, TJN state: “Overall, the City of London and these offshore satellites constitute by far the most important part of the global offshore world of secrecy jurisdictions.”

    For background on the Isle of Jersey, see this Newsweek article.

    Agence France-Press points out:

    "London is the epicentre of so much of the sleaze that happens in the world," Nicholas Shaxson, author of the book "Treasure Islands", which examines the role of offshore banks and tax havens, told AFP.

     

    ***

     

    "Tax evasion and stuff like that will be done in the external parts of the network. Usually there will be links to the City of London, UK law firms, UK accountancy firms and to UK banks," he said, calling London the centre of a "spider's web".

     

    "They're all agents of the City of London — that is where the whole exercise is controlled from," Richard Murphy, professor at London's City University, said of the offshore havens.

     

    ***

     

    "When the British empire collapsed, London swapped being the governor of the imperial engine to being an offshore island and allowing money to come with no questions asked," he added.

     

    With public pressure mounting, Murphy said Britain had the power to legislate directly on its overseas territories, but the lobbying power of the financial sector and worries about upsetting the jewel in Britain's economic crown were holding back efforts.

     

    "The City of London seems to believe that without these conduits, then it would not have the competitive edge that it needs," he said.

     

    "The financial institutions have become like wild animals," added Shaxson.

  • Stocks Soar On Oil Ignition, Biotech Bonanza

    In what was shaping up to be a low-volume snoozer of a day, things changed dramatically at 10:30am when the DOE confirmed last night’s API data according to which US crude inventories had their biggest weekly decline since January even as distillates and gasoline stocks rose. That headline sent WTI soaring by 5.4%, the most since March 16.

     

    The crude spike was all the “momentum ignition” that futures needed to stage a dramatic surge, soaring from 2035, jumping as much as 20 points higher to 2055 before the slightly more hawkish than expected FOMC Minutes reported pushed ES lower by 10 point. And then, out of nowhere, a massive buying program emerged out of nowhere, and sent the E-mini tofresh highs.

     

    It wasn’t just oil: an even more notable notable move took place in the biotech sector, which surged by over 5%, its biggest intraday gain since November 2011, and accounted for nearly half of the S&P500’s gain. The reason was the collapse of the Valeant-Allergan deal. No really: while talking on CNBC, Brent Saunders said that now that the deal has been pulled, Allergan could weigh deals. That is all the slgos needed to hear and unleashed a massive frontrunning spree, buying up every N/M PE company they could find.

     

    To be sure, as equity algos were scrambling into risk, the VIX was getting crushed, and while it was a last second VIX slam that prevented the S&P from closing red for the year yesterday, today’s the selling started early, and from 16 the VIX was back at just around 14 at last check.

     

    Not everyone was rushing into a Risk On mode, however: while the 10Y sold off modestly, it was at 1.75%, back to Monday’s levels.

     

    But that didn’t stop the S&P500 from closing at the day highs, some 1.1% higher, while the Nasdaq raked in 1.6%, just 80 points away from the “psychological 5000 level” and the highest of 2016, on hope the biotech bubble may be rekindled.

    All this took place as the dollar tumbled from overnight highs, sending the JPY and the EUR surging, and resulting in even more headaches for Kuroda and Draghi, with the latter now once again forced to think how to create another Bund “hit” like last May as the yield on the 10Y Bund is almost at all time lows.

    The USDJPY plunged below the critical support of 110, sliding as low as 119.30, and at last check was trading around 109.70, virtually assuring that the BOJ will have to do something in the coming weeks to push the Japense currency weaker once again.

     

    The bulk of the sector moves were summarized by Credit Suisse as follows:

    • Biotech outperforms as investors try and find what companies PFE targets next…and what AGN does next with the $30bn they get from TEVA –likely keeps M&A interest in biotechs, especially smid caps alive
       
    • Asset Managers outperform – DOL Fiduciary Standards less burdensome (Longer phase in time through April 2018…Grandfathering for existing plans …Disclosure requirements were relaxed) – WETF, LPLA, RFJ, SF etc
    • Ferts holding in despite weak MON #s; some debate about whether they would have to update guidance again today (on FX and/or glyphosate) so maybe relief no further guide down but I don’t think many expected a change
    • Energy ripping — Crude at day’s high and Oil E&P, Oil Servs and most subgroups all rallying.  We highlighted Dislocation between HY cash and energy prices this morning – most thought it read bearish for HY (as opposed to bullish for energy) but maybe not
    • Lighting plays hit on CREE (-19% on warning) …ETN read thru
    • Paper names down on BAML call –initiates KS at UP and downgrades UFS to UP
    • Banks underperform;  Several street downgrades (brokers #s continue to get cut)
    • German bunds near record lows on a flight to safety
    • Industrial short cycle names hit on MSM read thru; March Sales being worse than February is driving conversations with clients about “short cycle trends weakening sequentially” as a potential sign that the rally we have seen in short cycle stocks can’t be sustained
    • Casinos weak on WYNN #s – Macau just below expectation

    Finally, some observations from CS on what to look forward to as we are about to enter the prime of earnings season: here’s what stands out

    One of our favorite ways to gauge sentiment around earnings at the sector and industry group level is by tracking the pace of upward EPS estimate revisions.  At the sector level, revisions weakness has been broad based, with no sectors seeing more than 50% of revisions to the upside in the past 13 weeks. However, two of the weakest sectors – Materials and Industrials – have started to rebound off of post financial crisis lows. Consumer Discretionary revisions trends have also seen an uptick in recent weeks.  Revisions in many defensive oriented sectors – Staples, Telecom and Utilities – had been in decline but have recently begun to show signs of improvement. Banks, Diversified Financials and Real Estate have seen revisions trends fall to levels near or below past lows (post ’09), but the latest data shows signs of an uptick so we are watching for a bottom. Banks in particular recently saw revisions hit extreme lows.  Pharma/Biotech revisions have fallen to post ’09 lows, with no signs of a bottom emerging as of yet.

    So it’s all really bad news (but thankfully there are buybacks, and non-GAAP adjustments, and multiple expansion, and of course, the Fed) but because the terrible is becoming a little less terrible for a few companies, just BTFD.

    And now we sit back and watch what crazy things Peter Panic may do tonight to offset the collapse in the USDJPY to levels not seen in one and a half years, which have made a total mockery out of Japan’s QQE and NIRP.

  • U.S. Oil Production Continues to Drop in Latest EIA Report (Video)

    By EconMatters

     

     

    We had nearly a 5 Million drawdown in Oil Inventories during what is technically still the building season for Oil Stocks.  

     

    Read: Oil Saw Biggest Inventory Draw Since January (Zero Hedge)



     

     

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  • How Much Of S&P Earnings Growth Comes From Buybacks

    Having pounded the table on buybacks as the only marginal source of stock purchasing since some time in 2013, we were delighted one month ago when Bloomberg finally got it, writing an article titled “There’s Only One Buyer Keeping S&P 500’s Bull Market Alive.” The answer: corporate stock repurchases of course.

    This is what it found:

    Demand for U.S. shares among companies and individuals is diverging at a rate that may be without precedent, another sign of how crucial buybacks are in propping up the bull market as it enters its eighth year. Standard & Poor’s 500 Index constituents are poised to repurchase as much as $165 billion of stock this quarter, approaching a record reached in 2007. The buying contrasts with rampant selling by clients of mutual and exchange-traded funds, who after pulling $40 billion since January are on pace for one of the biggest quarterly withdrawals ever.

     

    “Anytime when you’re relying solely on one thing to happen to keep the market going is a dangerous situation,” said Andrew Hopkins, director of equity research at Wilmington Trust Co., which oversees about $70 billion. “Over time, you come to the realization, ‘Look, these companies can’t grow. Borrowing money to buy back stocks is going to come to an end.”’

    But, when you have the ECB backstopping purchases of corporate bonds, giving companies a green light to issue debt at will and use the proceeds to buyback even more stock, it won’t end just yet.

    However, now that it is common knowledge that over the past several years the market has been conducting the most elaborate acrobatic example of pulling itself up by its bootstraps, by conducting a slow motion LBO in which just over 1% of the S&P has been purchased with incremental leverage, another question which bears answer is how much of S&P EPS growth comes from buybacks?

    This is important because with Q1 earnings season starting and expected to post the worst, -8.5% drop in EPS since the financial crisis, and one in which collapsing energy and financial will be routinely ignored, we asked what would happen to “earnings” if one also excluded the benefit from buybacks.

    Here is the answer courtesy of Deutsche Bank:

    About 25% of S&P 500 EPS growth comes from buybacks on average since 2012. The S&P 500 companies on aggregate pay out 2/3 of their earnings through dividends & buybacks.

     

     

    Buybacks are an important part of the earnings payout and a significant driver of total shareholder return and EPS growth in a slow sales world. However, the complexities in correctly measuring buyback payout ratios, buyback yields and buyback flows cause investor confusion. Just as option expense shouldn’t be excluded from EPS or from any FCF measures used for valuation, it should not be neglected in net buyback activity measures. Buyback yield estimates should reflect the continuous issuance of stock to employees at option exercise prices that are well below the market price at which shares are repurchased. This is why we estimate buyback yield as: (net dollars spent on buybacks less option expense) / market cap. This is because although companies report net dollars spent on buybacks, they spend more per share repurchased than what they receive per share issued.

    In other words, since the financial world now openly excludes everything it does not agree with, if one were to exclude the contribution of buybacks to Q1 earnings, the S&P would be down not 8.5% but double digits. And, more troubling, if excluding energy and buybacks, then Q1 EPS would be not only negative (7 of 10 sectors are projected to decline in Q1, so energy and 6 others), but even more negative. We expect this to be addressed by the mainstream media some time in 2018.

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