The Civil War Of “The Right”

Submitted by Patrick Buchanan via,

The conservative movement is starting to look a lot like Syria.

Baited, taunted, mocked by Fox News, Donald Trump told Roger Ailes what he could do with his Iowa debate, and marched off to host a Thursday night rally for veterans at the same time in Des Moines.

Message: I speak for the silent majority, Roger, not you, not Megyn Kelly, not Fox News. Diss me, and I will do fine without Fox.

And so the civil-sectarian war on the right widens and deepens.

And two questions arise: Will the conservative movement and Republican Party unite behind Trump if he is the nominee? And will the movement and party come together if Trump is not the nominee?

A breakdown of the balance of forces in this civil-sectarian war finds most of the media elite of the right recoiling from Trump, while Trump leads by a huge margin in Middle America.

National Review, Commentary, The Weekly Standard, Wall Street Journal, and the conservative and neocon columnists on the op-ed pages at The Washington Post and The New York Times have almost all come out viscerally against Trump.

He, in turn, has trashed several by name. Wounds have been inflicted that will not soon be forgiven or forgotten.

But while columns and magazines appear in print twice weekly, weekly, biweekly and monthly, millions listen to talk radio every hour of every day. And though websites might be updated daily, radio, more than print, is a medium that moves people.

Among the top talkers, Trump gets more than a fair hearing. Some of the talk shows with the largest audiences are sympathetic, others are supportive. And the Drudge Report, the daily newspaper of Middle America, tracks Trump’s every move.

In the media battle, then, the media elite are being swamped by Trump. And Trump is winning the political battle as well. According to almost every poll, state or national, Trump is ahead of all rivals, with his closest challenger trailing by 10 or more points. Among the populist and Tea Party right, Trump has lapped the field, and he is now competitive among Evangelicals.


How will the civil war on the right end?

Because the differences are not simply about personalities and politics, but principles and policies, it may not end with this election.

There is talk of having the anti-Trump conservatives unite behind the one establishment candidate — Jeb Bush, Marco Rubio, John Kasich, Chris Christie — who emerges strongest after New Hampshire, to storm through the later primaries and take down Trump.

Yet such a scenario seems implausible.

That audience of 24 million that tuned in to the first Fox News debate and the 22 million that tuned in to the CNN debate were drawn to Trump, and Ben Carson, Ted Cruz and Rand Paul, because these men seemed to represent real change.

Democrats who support Bernie Sanders and Republicans who support Trump may disagree on where America should go, but both agree on the need for America to radically change direction.

Yet, if this battle for the GOP nomination should yield another establishment Republican, would not all the fire and energy of the campaign of 2015-2016 soon disappear?

Consistency not being their long suit, some among the conservative elites who denounced Trump’s walkout from the debate, threaten to walk out of the party should Trump win.

But walkout is an option open to populists as well. And if, after the rise of the Tea Party, the capture of Congress in 2014, the Trump-Cruz-Carson rebellion, the GOP offers the silent majority yet another establishment candidate, will populists and Tea Party types rally to him?

Perhaps. One recalls that, after the Revolution of 1789, the march on Versailles, the guillotining of Louis XVI, the rise of Robespierre, and the Era of Napoleon, the French got the Bourbon Restoration — Louis XVIII, brother of the beheaded king, sitting on the old throne.

Still, if the populist-conservative struggle of the last five years, to put behind them the days of Bush 41 and Bush 43, produces Bush 45, or his moral equivalent, how many would shoulder arms and march for him?

And, again, the argument over the acceptability of Trump aside, there is a deeper conflict within the GOP and conservative movement that may be irreconcilable. Millions of conservatives and independents believe it was the Republican policies of the recent past that also failed America.

The Bush-Clinton-Obama trade policies produced the $12 trillion in trade deficits, which measures the net export of U.S. factories and manufacturing jobs, which explain the wage stagnation.

The Republican-neocon foreign policy of intervention and nation building is a primary cause of the present disasters in Afghanistan, Iraq, Libya and Yemen.

The immigration policies championed by Bush Republicans as well Clinton and Obama Democrats produced the immigration crisis that propels the Trump campaign.

In short, it will be difficult for populists to unite with Beltway conservatives in 2016, when the former see the latter as part of the problem, not the solution.

via Zero Hedge Tyler Durden

WalMart “Absolutely Shafted” Washington DC; Here’s How

It’s been nearly a year since a grinning Doug McMillon recorded a video message to the world in which he explained that WalMart was set to raise the minimum wage for its lowest paid employees.

After all, McMillon said, “it’s our people that make the difference.”

11 months later, those “people” (the lowly shelf stockers and cashiers) aren’t materially better off than they were before, because handing someone $10/hour instead of $9 is such a small concession that you might as well have done nothing. In other words, $10 is no more of a “living wage” than $9 is.

But while the impact on the retailer’s legions of hourly employees has been minimal, the consequences for the company have been nothing short of dramatic.

As we’ve explained on any number of occasions, you can’t very well just implement an across-the-board wage hike if you’re WalMart without making up for it somewhere. Why? Because the business model runs on razor thin margins and because WalMart is determined to maintain “everyday low prices” which means the cost of the raises can’t be passed on to the consumer.

First WalMart tried squeezing the supply chain by asking vendors to pass along savings to Bentonville and by charging a variety of storage fees. When that didn’t work, the company started firing people and cutting hours. Here’s how that works:

Some of the cuts came at the home office in Bentonville, meaning that the move to put a few extra pennies in the pockets of hourly workers resulted in the loss of hundreds of breadwinner jobs.

Finally, in October, WalMart threw in the towel and announced a shocking guidance cut that prompted the stock to plunge by the most in 17 years.

Earlier this month WalMart doubled down on the wage hike debacle by promising to raise wages for employees higher up the corporate ladder (something we predicted would happen last year). The retailer announced the new wave of raises just days after saying it would close 269 stores and fire 16,000 people.

Apparently, the good folks in Bentonville are oblivious to the connection between the closures and previous wage hikes.

Also oblivious are policy makers who have pushed for wage hikes without thinking through the consequences.

“Washington, D.C., is beginning to look like a cautionary example of what can happen when bastions of liberalism throw caution to the wind in raising the minimum wage,” IBD wrote, earlier this month. “The nation’s capital is now losing about 700 jobs a year at restaurants, hotels and other leisure and hospitality sector venues, a sharp reversal from the gain of 2,000 such jobs per year the city was enjoying before it hiked the minimum wage by 27%, first from $8.25 to $9.50 an hour in July 2014 and then to $10.50 in July 2015.” Here’s more: 

Now, as D.C. employers brace for yet-another minimum-wage hike to $11.50 set for this coming July, Wal-Mart has called off two of the city’s most-prized retail developments.


Wal-Mart said it would close 154 stores in the U.S., mostly small-format locations. But even as the nation’s biggest retailer said it would keep opening supercenters, including 50 to 60 in the coming year, it told District officials that it won’t go forward with plans for two huge stores that were expected to create hundreds of new jobs in one of the city’s poorer sections.


Company officials cited the city’s coming minimum-wake hiketo $11.50 an hour as one of the reasons for its change of heart. Wal-Mart has signaled to investors that its already-narrow profit margins could shrink by one-third as it voluntarily hikes its own base wage to $10 an hour.

DC officials aren’t happy. 

“It’s an outrage,” said former mayor Vincent C. Gray, who The Washington Post notes in 2013 completed the handshake deal for the stores. “This is devastating and disrespectful to the residents of the East End of the District of Columbia.”

“I’m blood mad,” D.C. Mayor Muriel E. Bowser (D) fumed.

As WaPo went on to recount, “under the initial deal, Walmart could build stores almost anywhere in the District, as long as it opened two stores in its poorest wards and areas of the city sometimes referred to as food deserts, with few — if any — options for fresh produce and groceries.” 

While WalMart apologized and cited its own internal P&L calculations for the decision, officials say the real reason is the rising pay floor. Here’s WaPo again: 

Council member Jack Evans (D-Ward 2), head of the council’s finance committee, sat in on the meeting Friday morning with Walmart officials and Brian Kenner, Bowser’s deputy mayor for planning and economic development.


Evans said that, behind closed doors, Walmart officials were more frank about the reasons the company was downsizing. He said the company cited the District’s rising minimum wage, now at $11.50 an hour and possibly going to $15 an hour if a proposed ballot measure is successful in November. He also said a proposal for legislation requiring D.C. employers to pay into a fund for family and medical leave for employees, and another effort to require a minimum amount of hours for hourly workers were compounding costs and concerns for the retailer.

“If I were mayor, I’d get on a plane and go to Bentonville,” Gray said. “We have absolutely been shafted. They should be held accountable.” 

Yes, Mr. Gray, someone should be “held accountable” for the hundreds of jobs poor residents won’t get thanks to the city’s move to aggressively hike the pay floor. But when it comes to who should be held accountable, perhaps you should ask the city’s unemployed if they’d rather have a job with the minimum wage at $10/hour or be jobless with the minimum wage at $11.50/hour.

Once you get your answer, look inward on the whole “accountability” thing.

via Zero Hedge Tyler Durden

Did A Central Banker Just Margin Call All Other Central Banks’ Credibility?

Authored by Mark St.Cyr,

In a stunning policy move Bank of Japan Governor Haruhiko Kuroda introduced and adopted negative interest rates. The word “stunning” is fitting, for just weeks prior he stated there was no need to adopt such measures. It seems by all accounts his mind changed (or was made right?) after returning from Davos.

Whether or not this is the case one thing is certain: The Bank of Japan (BOJ) has thrown not just a monkey wrench into the financial system. He may have simultaneously made every other central bankers toolbox irrelevant, as well as incapable, to deal with the resulting damage. It’s one thing to have the right tool at the right time to tweak or fix. It’s quite another to lose grip of that tool where it falls into the running gears of the machinery. That’s when far more can (and usually does) go awry than just the original issue. (Think losing the small water pumps that keep water in a nuclear reactor as an analogy.)

No matter what anyone in the “smart crowd” would argue different. Today, both the financial world along with business in general is currently being manipulated made possible via crony capitalism as well as simultaneously being stymied by central bank policies. All occurring through the direct myriad of interventions into the capital markets globally. I believe that in no other time since the days of direct rule of Kings and Queens has such a small cabal of people had so much influence, as well as control, of global finance and business influence. Ever.

Politicians of all stripes sway or prestige are pale in comparison today as to the dictates coming from one central banking authority or another. However, with such authority comes a very heavy price. That price? It’s becoming easier to spot both the “who,” as well as the “where,” catastrophic mistakes in policies effecting societies well-being may originate from. And I don’t think many central bankers truly understand just how precarious in that position they now sit.

We were told (“we” being the business world) ad nauseam by the central bankers themselves that they knew precisely what they were doing. In 2008 as the financial markets as well as the economy came-off-the-rails the Federal Reserve stepped in and stabilized what seemed to be an out of control death spiral. Many will argue valid points on both sides whether it was good, bad, or an ugly way the tools used to stem that tide were employed. Personally I believe there was a legitimate and valid argument to step in.

However: It was the remaining “in” while supplying ever more of the very things that made the original crisis inevitable in the first place that had/has anyone with a modicum of business acumen apoplectic.

The relentless iterations of QE (quantitative easing) and an unrelenting stance to remain at the zero bound on interest rate policies for years could be seen for the ever ballooning, ticking time bomb they were. It didn’t take too much imagination and thought thru to envision just how difficult along with its disruption in both financial as well as business thing would become once the proverbial punch-bowls were taken away.

Economic theory as to explain and guide central banks through this malaise are suddenly finding themselves squarely in the line of fire of business and financial fact: They’ve created an absolute mess. And what’s worse? It may be the bankers themselves that may no longer trust their own omnipotence to deal with what’s coming. i.e., They aren’t going to wait or care any longer about coordination of moves. It’s now everyone for themselves as just witnessed by what many are now calling a “Kamikaze” bank policy move from the BOJ.

Why is this so troubling many are asking. After all, it seems that the BOJ governor’s mind changed after meeting with all the other bankers and attendees at Davos. And if one is to believe all the reports; more QE, and negative interest rates were what was being called (as well as begged) for as to help stem the tide of this current market malaise. Maybe the BOJ just decided to emulate what’s now taking place in the EU? Sounds logical right?

Well yes, maybe. However, what may be far more front-of-mind for the BOJ is the current meltdown in China. Japan may try to sweep away concerns regarding contamination of any meltdown at their nuclear plants. What they can’t turn a blind eye to is the potential for contagion in any currency meltdown in the CNY. e.g., Chinese Yuan. And it seems that potential grows stronger with each passing day.

And just like the potential for radiation effects are at first unseen to the naked eye. The possible ramification of suddenly throwing one of the most heavily traded currencies (e.g., ¥Yen) into an anytime, anywhere, out-of-the-blue change in monetary pricing stability can affect carry trades across the global markets in ways far more treacherous, as well as dangerous than anyone ever considered. Especially in today’s highly levered, correlated, high frequency trading (HFT) algorithmic based market. The resulting effects are yet to be felt. After all – this all just happened Friday.

I would garner there were many a meeting across many financial houses over the weekend than will admit. For when it comes to a carry trade – any carry trade – stability of perceived pricing models is key. A change of just one fractional amount too far in the wrong direction for assumption can render a fortress balance sheet into a falling house of cards with an immediacy most never truly comprehend. One would think 2007/08 would still be well-remembered. By the way many are talking – it seems as if it was ancient history. It’s unnervingly surreal.

Today the markets are gyrating widely reminiscent of those early stage stresses and/or warning signs just prior to the first real downdraft experienced during the initial stages of the financial crisis. Back then we had one policy move, or jawboning official after another announcing plans to do this or that, sending the market into fits and starts near daily.

Many times these daily knee-jerk rises of 1% plus moves were only to be followed with subsequent selloffs erasing (and then some) any gains made prior. Sometimes with incalculable speed and disruption. Today, with an ever infected market now under near complete and utter dominance via HFT parasitic trading programs, these swings may become even more violent as well as fear induced as supposed “liquidity” vanishes and/or appears from markets faster than the laser beams can quote stuff that “liquidity” in the first place.

The problem now is: Which central banker or policy is to be believed? And more importantly: for how long? Couple that with: Who will now be trusted as having credibility both in stating what they mean, and doing what they said? As well as: doing what they said because they know what they are doing? Quite the conundrum, yes?

The issue at hand is answering the question of: just why did the BOJ do what it just did – in the way that it did it? The ramification to those questions could not be more explicit in their meaning than almost any other in my opinion. For the global markets may be in far more perilous a position than the central bankers themselves ever imagined, let alone – contemplated.

For those who never seen the movie “Margin Call” there’s a great scene as it’s then irrefutable and understood that it’s all about to fall apart where Sam Rogers (Kevin Spacey) is expressing concerns to John Tuld (Jeremy Irons) that he believes the firm is panicking in selling everything all at once, causing a possible run on everything and melting down the system. The response from Tuld is quite fitting when he states, “It’s not panicking if you’re first.”

Today, as many of the financial media and others are trying to explain away this monetary move by the BOJ as something as simple as “Kuroda has said he likes to shake things up, or be unpredictable.” I think they may be looking in the wrong direction. For what now must be considered into that equation is something that portends to far more concern than meets the eye at first blush. To wit:

Did the BOJ’s out-of-the-blue reversal on its monetary stance which was refuted just weeks prior by Mr. Kuroda himself take place because after listening to the arguments, suggestions, as well as concerns, from the participants at Davos he concluded much like what the movie “Margin Call” depicted: It was all about to unravel? And if so: is this him deciding to be “first” and considered it his only choice?

And if so, what does his actions pose for the credibility of his brethren bankers? Do they now act from a place of “Who can they trust?” And what does that mean for the rest of us? The implications are staggering when you begin to open those doors for they have the potential of making Pandora’s box seem harmless in comparison.

However, maybe this is all hyperbole and should be disregarded as over the top rhetoric from Chicken Little types with no actual central banking policy experience. Maybe we should take comfort in the unwavering hand of credibility that never saw the great financial crisis to begin with when he argued that subprime mortgages and the crisis they foretold were “contained.” Then Fed. chairman Ben Bernanke.

What does he say today? Well, when he was speaking in Hong Kong at the Asian Financial Forum as Davos was also transpiring he stated, “I don’t think China’s economic slowdown is that severe to threaten the global economy, ” along with “The U.S. and China are not as closely tied as the market thinks.”

Maybe “Margin Call” was one of the movies available on demand in the rooms at Davos, and all Mr. Kuroda is now doing is channeling his inner “Jon Tuld” moment. And why not? “It’s not panicking if you’re first.”

However, for the rest of us, we can only wait and see what happens next.

via Zero Hedge Tyler Durden

Before Huckabee’s Campaign Dies in Iowa, You See The Ring

If you didn’t catch former governor of Arkansas, Mike Huckabee’s parody of the Adele song “Hello,” you aren’t the only one. The Iowa caucus pandering ad was pulled from YouTube after Adele or her team asked for it to be taken down.

Thankfully, you can still view the horror below in a mash-up from the scary movie, The Ring:

from Hit & Run

Who Warned “Be Careful What You Wish For… If Interest Rates Go Negative”

Now that the Bank of Japan has joined other central banks such as Denmark, Sweden, the ECB, and Switzerland into pushing its rates into what until just two years ago was considered the monetary twilight zone below the zero bound, and in the process sending a record $5.5 trillion in government bond yields negative


… which quickly puts into in context all the recent warnings about physical cash being eliminated (because as a reminder negative rates and cash simply can not coexist as the latter provides a ready immunity from the former), such as the following:

Perhaps the only open question is which comes first i) Japan hinting at a cash ban, or ii) the Fed going NIRP as well.

So in light of all this monetary lunacy, we have dug up the following blast from the not so distant past, which contains several rather dire warnings about the dystopian future of a NIRP world:

  • if rates go negative, the U.S. Treasury Department’s Bureau of Engraving and Printing will likely be called upon to print a lot more currency as individuals and small businesses substitute cash for at least some of their bank balances.
  • I might even go to my bank and withdraw funds in the form of a certified check made payable to myself, and then put that check in a drawer.
  • If bank liabilities shifted from deposits to certified checks to a significant degree, banks might be less willing to extend loans, because certified checks are likely to be less stable than deposits as a source of funding.
  • As interest rates go more negative, market participants will have increasing incentives to make payments quickly and to receive payments in forms that can be collected slowly
  • if interest rates go negative, the incentives reverse: people receiving payments will prefer checks (which can be held back from collection) to electronic transfers

And the punchline:

  • we may see an epochal outburst of socially unproductive—even if individually beneficial—financial innovation

But the biggest surprise to all of the above is who the source of the warning is. First, however, here is the full text of said warning:

If Interest Rates Go Negative . . . Or, Be Careful What You Wish For


[T]his post examines some of the possible consequences. We suggest that significantly negative rates—that is, rates below -50 basis points—may spawn a variety of financial innovations, such as special-purpose banks and the use of certified bank checks in large-value transactions, and novel preferences, such as a preference for making early and/or excess payments to creditworthy counterparties and a preference for receiving payments in forms that facilitate deferred collection. Such responses should be expected in a market-based economy but may nevertheless present new problems for financial service providers (when their products and services are used in ways not previously anticipated) and for regulators (if novel private sector behavior leads to new types of systemic risk). 


Cash and Cash-like Products 


The usual rejoinder to a proposal for negative interest rates is that negative rates are impossible; market participants will simply choose to hold cash. But cash is not a realistic alternative for corporations and state and local governments, or for wealthy individuals. The largest denomination bill available today is the $100 bill. It would take ten thousand such bills to make $1 million. Ten thousand bills take up a lot of space, are costly to transport, and present significant security problems. Nevertheless, if rates go negative, the U.S. Treasury Department’s Bureau of Engraving and Printing will likely be called upon to print a lot more currency as individuals and small businesses substitute cash for at least some of their bank balances.


If rates go negative, we should also expect to see financial innovations that emulate cash in more convenient forms. One obvious candidate is a special-purpose bank that offers conventional checking accounts (for a fee) and pledges to hold no asset other than cash (which it immobilizes in a very large vault). Checks written on accounts in a special-purpose bank would be tantamount to negotiable warehouse receipts on the bank’s cash. Special-purpose banks would probably not be viable for small accounts or if interest rates are only slightly below zero, say -25 or -50 basis points (because break-even account fees are likely to be larger), but might start to become attractive if rates go much lower.


Early Payments, Excess Payments, and Deferred Collections


Beyond cash and special-purpose banks, a variety of interest-avoidance strategies might emerge in connection with payments and collections. For example, a taxpayer might choose to make large excess payments on her quarterly estimated federal income tax filings, with the idea of recovering the excess payments the following April. Similarly, a credit card holder might choose to make a large advance payment and then run down his balance with subsequent expenditures, reversing the usual practice of making purchases first and payments later.


We might also see some relatively simple avoidance strategies in connection with conventional payments. If I receive a check from the federal government, or some other creditworthy enterprise, I might choose to put the check in a drawer for a few months rather than deposit it in a bank (which charges interest). In fact, I might even go to my bank and withdraw funds in the form of a certified check made payable to myself, and then put that check in a drawer.


Certified checks, which are liabilities of the certifying banks rather than individual depositors, might become a popular means of payment, as well as an attractive store of value, because they can be made payable to order and can be endorsed to subsequent payees. Commercial banks might find their liabilities shifting from deposits (on which they charge interest) to certified checks outstanding (where assessing interest charges could be more challenging). If bank liabilities shifted from deposits to certified checks to a significant degree, banks might be less willing to extend loans, because certified checks are likely to be less stable than deposits as a source of funding.


As interest rates go more negative, market participants will have increasing incentives to make payments quickly and to receive payments in forms that can be collected slowly. This is exactly the opposite of what happened when short-term interest rates skyrocketed in the late 1970s: people then wanted to delay making payments as long as possible and to collect payments as quickly as possible. Some corporations chose to write checks on remote banks (to delay collection as long as possible), and consumers learned to cash checks quickly, even if that meant more trips to the bank, and to demand direct deposits. However, if interest rates go negative, the incentives reverse: people receiving payments will prefer checks (which can be held back from collection) to electronic transfers. Such a reversal could impose novel burdens on payment systems that have evolved in an environment of positive interest rates.




The take-away from this post is that if interest rates go negative, we may see an epochal outburst of socially unproductive—even if individually beneficial—financial innovation. Financial service providers are likely to find their products and services being used in volumes and ways not previously anticipated, and regulators may find that private sector responses to negative interest rates have spawned new risks that are not fully priced by market participants.

So who is the the source of the above critical warning about the coming global NIRP, which clearly neither ther Bank of Japan, nor the ECB, nor the SNB, nor the Sveriges Riksbank nor the Danmarks Nationalbank read?

Who Warned “Be Careful What You Wish For… If Interest Rates Go Negative”

The answer: the Federal Reserve. And this time, they will not be able to say “we never saw it coming…”

via Zero Hedge Tyler Durden

“As Goes January”… What Happens When Bullish Seasonals Fail

Yesterday, Bank of America’s technical team was kind enough to show that in the background of the dramatic intraday volatility, what the market has experienced in recent weeks has been a significant period of wholesale distribution: a concerted, behind-the-scenes offloading of risk by major market participants.


Today, we look at the market from a different technical angle, namely the calendar effect of both the infamous “as goes January…”, as well as in the aftermath of what historically is the strongest 3-month period of the year for capital markets, the time from November – January.

As BofA’s Stephen Suttmeier notes, Nov-Jan is the strongest 3-month period of the year, but…

November-January is the strongest consecutive 3-month period of the year. During this period, the S&P 500 is up 66.7% of the time with an average return of 3.35% going back to 1929. November 2015-January 2016 is down 6.50%. The S&P 500 has not followed this bullish seasonal pattern and is on a pace to have the eighth weakest November-January going back to 1929. January 2016 is down 5% on a pace to be one of the worst January going back to 1928.


…a down Nov 15-Jan 16 does not bode well for 2016:

Data going back to 1929 suggest that well-below average annual and February- December price returns follow a down or below average November-January. When the S&P 500 is down between November and January, the year is down 55.2% of the time with an average drop of 1.50%, while February-December is up 62.1% with an average rise of 0.91%. When November-January is below average, the year is down 55.0% of the time with an average drop of 0.40%, while February-December is up 57.5% of the time with an average rise of 1.44%. These are well below the 1929-2015 average returns of 7.09% for the year and 5.77% for February-December.



January is typically a bullish month but not in 2016

Seasonal data going back to 1928 suggest that January is typically a bullish month. January is the fourth best month of the year with an average return of 1.19%. January 2016 is down 7.37% MTD and bucking this bullish seasonal pattern.


January Barometer set up for bearish signal in 2016

Barring an S&P 500 close today above 2043.95 (December 31, 2015 close), 2016 will begin with a down January. Going back to 1928, the year is down 57.6% of the time with an average decline of 1.82%, while February-December is up 57.6% of the time with an average rise of 2.10%. This is also a combined first five days of January down andmonth of January down signal, which has occurred 18  times since 1928. After this combined weak signal, the year is down 61.1% of the time with an average drop of 2.21%, while February-December is up 50% of the time with an average rise of 1.54%. These are all well below average. See our Chart Blast: 11 January 2016 for more on the January Barometer.


Combined Jan & Nov-Jan Barometer is bearish for 2016

When both the November-January period and the month of January are down, which has happened 20 times going back to 1929, the S&P 500 is down 65% of the time with an average decline of 4.72%, while February-December is up 60% of the time but shows an average decline of 0.27%. Having a down January appears to magnify the downside risk after a weak November-January period.


* * *

And while all of the above calendar effects clearly hint at further market weakness and bearishness, never prior to 2008 in the history of the “January effect” or any other calendar effect, did central banks go “all in” on proping up stocks with QE and, as was the case last week, with desperation such as the BOJ’s QE, making a mockery of all technical analysis and self-fulfillling chart propehcies. In retrospect, this time it really is different, and one can comfortably throw the almanac at least until we find out just how this doomed experiment in central planning ends.

via Zero Hedge Tyler Durden

What A Cashless Society Would Look Like

Submitted by Erico Matias Tavares of Sinclair & Co., and reposted from the original as of May 19, 2015 in light of the recent decision by the Bank of Japan to launch negative interest rates.

What A Cashless Society Would Look Like

Calls by various mainstream economists to ban cash transactions seem to be getting ever louder, while central bankers have unleashed negative interest rates on economies accounting for 25% of global GDP, with $5.5 trillion in government bonds yielding less than zero. The two policies are rapidly converging.

Bills and coins account for about 10% of M2 monetary aggregates (currency plus very liquid bank deposits) in the US and the Eurozone. Presumably the goal of this policy is to bring this percentage down to zero. In other words, eliminate your right to keep your purchasing power in paper currency.

By forcing people and companies to convert their paper money into bank deposits, the hope is that they can be persuaded (coerced?) to spend that money rather than save it because those deposits will carry considerable costs (negative interest rates and/or fees).

This in turn could boost consumption, GDP and inflation to pay for the massive debts we have accumulated (leaving aside the very controversial idea that citizens should now have to pay for the privilege of holding their hard earned money in a more liquid form, after it has already been taxed). So at long last we can finally get out of the current economic funk.

The US adopted a policy with similar goals in the 1930s, eliminating its citizens’ right to own gold so they could no longer “hoard” it. At that time the US was in the gold standard so the goal was to restrict gold. Now that we are all in a “paper” standard the goal is to restrict paper.

However, while some economic benefits may arguably accrue in the short-run, this needs to be balanced in relation to some serious distortions that could rapidly develop beyond that.

Pros and Cons

To be most effective, banning cash would most likely need to be coordinated between the US and the EU. Otherwise if only one of the two Western economic blocks were to do it, the citizens of that block might start using the paper currency of the other, thereby circumventing the restrictions of this policy. Can’t settle your purchase in paper euros? No problem, we’ll take US dollar bills.

This is just one aspect that can give us a glimpse of the wide ranging consequences this policy would have. Let’s quickly consider some pros and cons, as we see them:


  • Enhance the tax base, as most / all transactions in the economy could now be traced by the government;
  • Substantially constrain the parallel economy, particularly in illicit activities;
  • Force people to convert their savings into consumption and/or investment, thereby providing a boost to GDP and employment;
  • Foster the adoption of new wireless / cashless technologies.


  • The government loses an important alternative to pay for its debts, namely by printing true-to-the-letter paper money. This is why Greece may have to leave the euro, since its inability or unwillingness to adopt more austerity measures, a precondition to secure more euro loans, will force it to print drachma bills to pay for its debts;
  • Paper money costs you nothing to hold and carries no incremental risk (other than physical theft); converting it into bank deposits will cost you fees (and likely earn a negative interest) and expose you to a substantial loss if the bank goes under. After all, you are giving up currency directly backed by the central bank for currency backed by your local bank;
  • This could have grave consequences for retirees, many of whom are incapable of transacting using plastic. Not to mention that they will disproportionately bear the costs of having to hold their liquid savings entirely in a (costly) bank account;
  • Ditto for very poor people, many of whom don’t have access to the banking system; this will only make them more dependent, in fact exclusively dependent, on government handouts;
  • We wonder if the banks would actually like to deal with the administrative hassle of handling millions of very small cash transactions and related customer queries;
  • Illegal immigrants would be out of a job very quickly – a figure that can reach millions in the US, creating the risk for substantial social unrest;
  • If there is an event that disrupts electronic transactions (e.g. extensive power outage, cyberattack, cascading bank failures) people in that economy will not be able to transact and everything will grind to a halt;
  • Of course enforcing a government mandate to ban cash transactions must carry penalties. This in turns means more regulations, disclosure requirements and compliance costs, potentially exorbitant fees and even jail time;
  • Banning cash transactions might even propel the demise of the US dollar as the world’s reserve currency. The share of US dollar bills held abroad has been estimated to be as high as 70% (according to a 1996 report by the US Federal Reserve). One thing is to limit the choices of your own citizens; another is trying to force this policy onto others, which is much harder. Foreigners would probably dump US dollar bills in a hurry and flock to whichever paper currency that can offer comparable liquidity.

In light of the foregoing does banning cash transactions make sense to you? Aren’t the risks at all levels of society just too large to be disregarded?

Unintended Consequences

Paper money can be thought of as a form of interest-free government borrowing and therefore as a saving to the taxpayer. Given the dire situation of Western government finances, probably the very last thing we should do right now is to ban cash transactions.

Think about it. If the government prints bills and coins to settle its debts, rather than issuing bonds, it does not add to its snowballing debt obligations. Of course the counterargument is that this might result in significant inflation once politicians put their hands directly on the printing press. But isn’t this what the mainstream economists are so desperately trying to do to avoid deflation?

And it’s not like people in the West have tons of cash under the mattress. Let’s do the math. If only 30% of US paper money is held by residents, this is only about 2% of GDP, and probably unevenly distributed. It is therefore very dubious that any boost to economic activity will be that significant. In fact there is no empirical evidence that demonstrates this policy will work as intended (not that this has ever stopped a mainstream economist)

Moreover, an economy’s ability to create money would be even more impaired if its banking system were to crash – exactly at the time when it would need it the most. In reality it could be hugely deflationary because there would be no other currency alternatives. Talk about unintended consequences.

As to who could replace the US in providing paper liquidity to the world, we don’t need to think too hard. China will surely not ban cash transactions given that almost a billion of its citizens are still quite poor and most have no access to banking services (plus it seems that their own economic advisors are much more sensible). Replacing the US in offshore cash transactions would create substantial demand for the Chinese yuan, at that stage without any real competition from other major economies as presumably none would be using paper.

It is therefore doubtful that US political leaders would ever endorse such a policy; they would be effectively giving up on an incredible advantage – the US dollar ATM, to the benefit of their main geopolitical competitors. However, given the considerable influence of mainstream economists in financial and political circles this cannot be ruled out, especially during a crisis.

And it would be just the latest in a set of unprecedented economic policies:

“A depression is coming? Let’s put interest rates at zero. The economy is still in trouble? Let’s have the central bank print trillions in new securities. The banks are not lending? Let’s change the accounting rules and offer government guarantees and funds. People are still not spending? Let’s have negative interest rates. The economy is still in the tank? LET’S BAN CASH TRANSACTIONS!”

More Central Planning

The problem is that central planners never know how and where to stop. If a policy doesn’t work, they just find a way to tinker somewhere else – and with more vigor. Devolving the initiative back to the private sector is never an option.

Micromanagement of every single detail of our economic lives thus seems to be inevitable. And at that point there will be no more free markets. As pointed out by Friedrich von Hayek, “the more the state plans the more difficult planning becomes for the individual.”

Banning cash transactions seems like yet another excuse to postpone implementing real solutions to our financial problems. How can we have sustainable growth in the economy if:

  • The banks are not solid enough to lend?
  • Consumers are not solid enough to borrow?
  • Overindebted municipalities, states and governments seek ever more tax revenues?
  • An already overburdened private sector is underwriting the cost of every policy error?

The guys and gals who generate real wealth and employment need encouragement and support, not more penalties on how they choose to go about their business.

A cash ban does not address any substantive issues. What is needed is a sensible economic proposal and above all political courage to implement it, which so far seems to be lacking.

There are no free lunches in economics. A cashless society is promising to have very tangible costs to our liberties and future prosperity.

via Zero Hedge Tyler Durden

“Time To Panic”? Nigeria Begs World Bank For Massive Loan As Dollar Reserves Dry Up

Having urged "don't panic" just 4 short months ago, it appears Nigeria just did just that as the global dollar short squeeze forces the eight-month-old government of President Muhammadu Buhari to beg The World Bank and African Development Bank for $3.5bn in emergency loans to help fund a $15bn deficit in a budget heavy on public spending amid collapsing oil revenues. Just as we warned in December, the dollar shortage has arrived, perhaps now is time to panic after all.

In September, Nigerian central bank Governor Godwin Emefiele ruled out a naira devaluation on Thursday and told people not to panic about a government order which risks draining billions of dollars from the financial system.

In an interview with Reuters, Emefiele said he was ready to inject liquidity if needed into the interbank market, which dried up this week following the directive to government departments to move their funds from commercial banks into a "Treasury Single Account" (TSA) at the central bank.


The policy is part of new President Muhammadu Buhari's drive to fight corruption, but analysts say it could suck up as much as 10 percent of banking sector deposits in Africa's biggest economy – playing havoc with banks' liquidity ratios.


With global oil prices tumbling, banks and companies are already struggling with the consequences of a dive in Nigeria's energy revenues that has hit the naira currency and triggered flows of capital out of the country.


Then JP Morgan kicked Nigeria out of its influential Emerging Markets Bond Index last week due to restrictions that the central bank imposed on the currency market to support the naira and preserve its foreign exchange reserves.


Since taking office in May, Buhari has vowed to rein in Nigeria's dependency on oil exports which account for 90 percent of foreign currency earnings. However, he has faced criticism from investors for failing to appoint a cabinet yet or outline concrete policies.

Amid confusion over the implementation of the single account policy, overnight interbank lending rates spiked to 200 percent, but Emefiele denied the policy had provoked a liquidity crisis.

"There is no shortage of liquidity," he said, pointing to an oversubscribed sale of treasury bills on Wednesday. "A spike is a momentary action. It's sentiment."


"I do not think there is any need for anybody to panic," he added.

But with CDS markets now implying a drastic devaluation (and capital controls already in place), it seems the time to panic has come…


We warned of the looming dollar shortage in March of last year, and most recently in December we warned that Africa was bearing the brunt as some of continent’s largest economies, including Nigeria, Angola, Ethiopia and Mozambique, restricted access to the greenback to protect dwindling reserves.

But, as The FT reports, it seems time is up for Nigeria, as the troubled nation has asked the World Bank and African Development Bank for $3.5bn in emergency loans to fill a growing gap in its budget in the latest sign of the economic damage being wrought on oil-rich nations by tumbling crude prices.

Nigeria’s economy is Africa’s largest and has been hit hard by the fall in crude prices — oil revenues are expected to fall from 70 per cent of income to just a third this year. 


Finance minister Kemi Adeosun told the Financial Times recently that she was planning Nigeria’s first return to bond markets since 2013. But Nigeria’s likely borrowing costs have been rising alongside its budget deficit. A projected deficit of $11bn, or 2.2 per cent of gross domestic product, had already risen to $15bn, or 3 per cent, as a result of the recent turmoil in oil markets.



The country’s financial buffers are also eroding. The central bank’s foreign exchange reserves have nearly halved to $28.2bn from a peak of almost $50bn just a few years ago. A rainy-day fund that had $22bn in it at the time of the 2008-09 global financial crisis now has a balance of $2.3bn.



“I think we all agree that Nigeria is facing significant external and fiscal accounts challenges from the sharp fall in . . . oil prices, as of course are all oil exporters,” Gene Leon, the IMF’s representative in Nigeria, told the FT. But he added that Nigeria was not in immediate need of an IMF programme. “We are not in that space at all.”


…the new government is also facing questions about its handling of the economy. Capital controls introduced last year have weighed on growth and the IMF has called for Mr Buhari to pursue alternatives.


The central bank introduced the first controls before Mr Buhari took office last May, but many new measures have been imposed since and the president has repeatedly voiced his support for them.

During a January visit Christine Lagarde, the IMF’s managing director, urged the government to allow the naira to trade more freely so that it could help absorb economic shocks.

“It can also help avoid the need for costly foreign exchange restrictions, which we don’t really support," she said in an address to parliament.

But Mr Buhari and his government are likely to resist a full IMF rescue programme.

The former military ruler butted heads with the IMF while leading the government in the 1980s and many observers believe he would be reluctant to invite the fund in again.

The question is – will the $3.5bn loan be used to keep social unrest from exploding on the streets or to further attempt to sustain an unsustainable peg?

As we previously warned, defending one's currency is a losing game as not only Argentina most recently, but the Swiss National Bank most infamously, will admit.

"As African central banks place restrictions on access to their dollars, while burning through these reserves to support their currencies, they are also storing up longer-term troubles. “Few investors will want to put money into a country at an official exchange rate that is not set by the market and which is not seen as sustainable in the long run,“ said Charles Robertson, global chief economist at investment bank Renaissance Capital."

For now Africa has avoided the "hyperinflation monster", the result of an all too predictable scarcity of dollars, however the countdown is on and with every passing day that oil prices do not rebound, the inevitability of a full-on continental currency collapse, with hyperinflation and social unrest to follow, becomes increasingly more likely.

Worse, Africa is just the start: while the manifestations will differ, the mechanics of the dollar shortage, which we recently quantified in the trillions of dollars, are universal, and should the Fed's rate divergence path with the rest of the world continue pushing the USD ever higher, soon this USD-shortage will escape the confines of the world's poorest continent and make landfall somewhere where it will be far more difficult to ignore the adverse consequences of the global commodity collapse and the Fed's monetary policy.

via Zero Hedge Tyler Durden

The Last (Policy-Induced) Gasp Of Speculative Excess

Excerpted from Doug Noland's Credit Bubble Bulletin,

“Shock and awe” is not quite what it used to be. It still carries a punch, especially for traders long the Japanese yen or short EM and stocks. The yen surged 2% against the dollar (more vs. EM) Friday on the Bank of Japan’s (BOJ) surprising move to negative interest rates. BOJ Governor Haruhiko Kuroda has a penchant for startling the markets. Less than two weeks ago he stated that the BOJ would not consider adopting negative rates. It wasn’t all that long ago that central bankers treasured credibility.

For seven years, I’ve viewed global rate policies akin to John Law’s (1720 France) desperate move to hold his faltering paper money and Credit scheme (Mississippi Bubble period) together by devaluing competing hard currencies (zero and now negative rates devalue “money”). It somewhat delayed the devastating day of reckoning. Postponement made it better for a fortunate few and a lot worse for everyone else.

Last week saw dovish crisis management vociferation from the ECB’s Draghi. Now the BOJ adopts a crisis management stance. The week also had talk of some deal to reduce global crude supply. Meanwhile, the Bank of China injected a weekly record $105 billion of new liquidity. Nonetheless, the Shanghai Composite sank 6.1% to a 13-month low. There was desperation in the air – along with a heck of a short squeeze and general market mayhem.

Markets these days have every reason to question the efficacy of global monetary management. It’s certainly reasonable to be skeptical of OPEC – too many producers desperate for liquidity. The Chinese are flailing – conspicuously. As for the BOJ’s move, it does confirm the gravity of global financial instability. It as well supports the view that, even within the central bank community, confidence in the benefits of QE has waned.

After three years of unthinkable BOJ government debt purchases, Japanese inflation expectations have receded and the economy has weakened. Lowering rates slightly to negative 10 bps (for new reserve deposits) passed by a slim five to four vote margin. With the historic global QE experiment having badly strayed from expectations, there is today no consensus as to what to try next.

Kuroda remains keenly focused on the yen. After orchestrating a major currency devaluation, there now seems little tolerance for even a modest rally. The popular consensus view sees BOJ policymaking through the perspective of competitive currency devaluation, with the objectives of bolstering exports and countering deflationary forces. I suspect Kuroda’s (fresh from Davos) current yen fixation is more out of fear that a strengthening Japanese currency risks spurring unwinds of myriad variations of yen “carry trades” (short/borrowing in yen to finance higher-yielding securities globally) – de-leveraging that is in the process of wreaking havoc on global securities markets.

Notable Bloomberg headlines: (Thursday) “S&P 1500 Short Interest Is at Its Highest Level in Three Years.” (Friday): “Hedge Funds Boost Yen Bets to 4-Year High Days Before BOJ Shock.”

Bearish sentiment is elevated. Recent global tumult has spurred significant amounts of hedging across the financial markets. And, clearly, betting on “risk off” has of late proved rewarding (and gaining adherents). Draghi and Kuroda retain the power to incite short squeezes and the reversal of risk hedges. And central bankers can prod short-term traders to cover shorts and return to the long side. Yet the key issue is whether global central banks can propel another rally such as the 12% multi-week gains experienced off of August lows. Can policy measures resuscitate bull market psychology and reestablish the global Credit boom?

Subtly perhaps, yet the world has changed meaningfully in the five short months since the August “flash crash”. After exerting intense pressure and direct threats – not to mention the “national team’s” hundreds of billions of market support – Chinese equities traded this week below August lows. It’s worth noting that Hong Kong’s Hang Seng China Financials Index now trades significantly below August lows.

Bank stock weakness is anything but an Asian phenomenon. European bank stocks this week dropped to three-year lows. Even with Friday’s 2.7% rally, U.S. bank stocks (BKX) declined 12.6% in January (broker/dealers down 15.3%). European banks were hit even harder. The STOXX Europe 600 Bank Index has a y-t-d loss of 14.6%. This index is 31% below August highs and about 11% below August lows.

January 28 – Bloomberg (Sonia Sirletti and John Follain): “Banca Monte dei Paschi di Siena SpA led a slump in Italian banking shares after Italy’s long-sought deal on bad debts with the European Union disappointed investors. Monte dei Paschi, bailed out twice since 2009, fell 10%… in Milan trading, bringing losses this year to 45%. The eight biggest decliners among the 46 members of the Stoxx Europe 600 Banks Index were Italian lenders on Thursday. The agreement struck with the EU, which allows banks to offload soured loans after buying a state guarantee, is unlikely to clean up the financial system as fast as some in the markets had hoped, investors said. The plan stops well short of the cleanups organized in Spain and Ireland during the financial crisis. ‘The uncertainty in the Italian banking system will persist,’ said Emanuele Vizzini, who manages 3.5 billion euros ($3.8bn) as chief investment officer at Investitori Sgr in Milan. ‘The deal may help banks to offload part of their bad debt, but for sure doesn’t solve the problem, in particular for the weakest banks, which may need recapitalization.’”

Even with Friday’s 3.3% rally, the FTSE Italia All-Shares Bank index lost 22.8% in January. UniCredit, Italy’s largest bank, has a y-t-d decline of 31%. One is left to ponder where Italian sovereign yields would trade these days without Draghi.

When market optimism prevails and the world is readily embracing risk and leverage, the greatest speculative returns are amassed playing “at the margin.” “Risk on” ensures the perception of liquidity abundance, along with faith in the power of central banks and their monetary tools. In a world where liquidity is flowing, Credit is expanding and markets are bubbling, European securities markets provide attractive targets. And booming markets feed the perception that Europe’s economic recovery is sound and sustainable. It all became powerfully self-reinforcing.

But when cycles shift it’s those operating “at the margin” – i.e. junk bonds and high-beta stocks; leveraged companies, industries, economies and regions; leveraged financial institutions – that have the rug is so abruptly yanked out from under stability.

The thesis is that a momentous inflection point has been reached in a multi-decade global Credit cycle. A Monday Bloomberg headline: “So Yes, the Oil Crash Looks a Lot Like Subprime.” Others have noted the recent tight correlations between crude and equities prices. Let me suggest that the oil market provides the best proxy for the global Credit cycle. And it’s faltering global Credit that has been weighing harshly on commodities, equities and corporate Credit, while the bullish consensus bemoans that stocks have been way overreacting to modest economic slowdowns in the U.S. and throughout Europe.

A few months back the global bull market still appeared largely intact. Markets remained confident in central bankers and their monetary tools. Debt issuance was booming and the Credit Cycle seemed to sustain an upward trajectory. The global banking industry enjoyed an outwardly robust appearance – and was even to benefit from rate normalization in the U.S. and elsewhere. “Risk on” was secure, or so it appeared.

But it was the last (policy-induced) gasp of speculative excess, a “blow off” top that enticed more “money” into “developed world” stocks and corporate Credit. Meanwhile, finance was fleeing commodities, high-yield, China and EM even more aggressively. In reality, the Credit Cycle had turned – QE, negative rates, China “national team,” “whatever it takes” Draghi and a dovish Fed notwithstanding.

In newfound global Credit Cycle realities, highly leveraged China is an unfolding pileup. Vulnerability has precipitously emerged throughout the global banking system. European banks – luxuriating so popularly “at the margin” until recently – again appear acutely fragile. Recalling 2012, the European periphery is back in the crosshairs. A “bad bank” plan for the troubled Italian banking sector – that seemed doable back during “risk on” – seems less than workable with a backdrop of “risk off,” speculative de-leveraging and faltering global Credit.

Italy’s financial institutions and economy are acutely susceptible to weak securities markets and tightened Credit conditions. Italy is not alone. Greek yields surged 180 bps this month. Portuguese 10-year yields jumped 34 bps. For more than three years, “whatever it takes” monetary management has inflated securities market Bubbles. In the process, Bubble Dynamics have work surreptitiously to inflate financial and economic vulnerabilities.

It’s worth noting that Italian equities dropped 2.0% this week. Friday from Bloomberg: “Eighth Week of Europe Corporate-Debt Outflows Shows Limits of QE.” According to the article (Selcuk Gokoluk), $3.5 billion flowed out of investment-grade funds the past week. There is also heightened concern for the German economy’s exposure to China, not to mention the pressing immigrant issue and attendant political instability. There is as well increased focus on European financial and economic exposure to EM. European bank stock performance has been telling. Of the behemoth European banks, Deutsche Bank lost almost 26% of its value in January. BNP Paribas was down 16%, Credit Agricole 15%, Barclays 18%, Societe Generale 17% and Royal Bank of Scotland 17%.

This week saw 10-year bund yields sink to one-year lows. UK Gilt yields dropped to 10-month lows. It’s also worth noting the equities markets benefitting the most from Kuroda’s surprise and speculative dynamics. Brazilian equities gained 6.2% this week, with Mexico up 4.8%, Russia 3.9% and Turkey 4.6%. In the currencies, the beneficiaries were Brazil (up 2.3% this week), Mexico (2.8%), Russia (3.3%), South Africa (3.5%) and Malaysia (3.4%). It would appear that all the big gainers had oversized short positions.

I have been programmed over the years to take every short squeeze seriously. They often take on a life of their own. But back to the pressing issue: Can policy measures resuscitate bull market psychology and reestablish the global Credit boom? I do not expect either a resurgent bull market or a reemerging Credit boom. In truth, negative rates are a feeble tool in the face of global de-risking/de-leveraging dynamics. They are not confidence inspiring.

Dovish policy surprises do still afford a capable weapon to clobber those positioning for “risk off,” in the process somewhat restraining the forces of market dislocation. However, inciting squeezes and administering market punishment are not conducive to market stability or confidence. There’s a strong argument to be made that such a backdrop only compounds the challenge for the struggling global leveraged speculating community. Mainly, negative rates in theory are a tool to spur flows into risk assets and supposedly bolster securities markets. The irony is that negative rates are damaging to bank profitability. And as the Credit downturn gathers momentum, banking profits – and solvency – will be a pressing systemic issue.

via Zero Hedge Tyler Durden