Month: March 2016

Submitted by Gail Tverberg via Our Finite World blog,

Wage inequality is a topic in elections around the world. What can be done to provide more income for those without jobs, and those with low wages?

Wage inequality is really a sign of a deeper problem; basically it reflects an economic system that is not growing rapidly enough to satisfy everyone. In a finite world, it is easy for an economy to grow rapidly at first. In the early days, there are enough resources, such as land, fresh water, and metals, for each person to get a reasonable-sized amount. Each would-be farmer can obtain as much land as he thinks he can work with; fresh water is readily available virtually for free; and goods made with metals, such as cars, are not expensive. There are many jobs available, and wages for most people are fairly similar.

As population grows, and as resources degrade, the situation changes. It is still possible to grow enough food, but it takes large farms, with expensive equipment (but very few actual workers) to produce that food. It is possible to produce enough water, but it takes high-tech equipment and a handful of workers who know how to use the high-tech equipment. Metals suddenly need to be lighter and stronger and have other characteristics for the high tech industry, thus requiring more advanced products. International trade becomes more important to be able to get the correct mix of materials for the advanced products needed to operate the high-tech economy.

With these changes, the economic system that previously provided many jobs for those with limited training (often providing on-the-job training, if necessary) gradually became a system that provides a relatively small number of high-paying jobs, together with many low-paying jobs. In the United States, the change started happening in 1981, and has gotten worse recently.

What Happens When An Economy Doesn’t Grow Rapidly Enough?

If an economy is growing rapidly enough, it is easy for everyone to get close to an adequate amount. The way I think of the problem is that as economic growth slows, the “overhead” grows disproportionately, taking an ever-larger share of the goods and services the economy produces. The ordinary worker (non-supervisory worker, without advanced degrees) tends to get left out. Figure 2 is my representation of the problem, if the current pattern continues into the future.

The reason for the workers’ declining share of the total is that we live in a finite world. We are using renewable resources faster than they replenish and continue to use non-renewable resources. The workarounds to fix these problems take an increasing share of the total output of the economy, leaving less for what I have called “ordinary workers.” The problems we encounter include the following:

• Pollution control. Pollution sinks are already full. Continuing to use non-renewable resources (including burning fossil fuels) adds increased pollution. Workarounds have costs, and these take an increasing share of the output of the economy.
• Energy used in energy production. When we started extracting energy products, the cheapest, easiest-to-extract energy products were chosen first. The energy products that are left are higher-cost to extract, and thus require a larger share of the goods the economy produces for extraction.
• Water, metals, and soil workarounds. These suffer from deteriorating quantity and quality, leading to the need for workarounds such as desalination plants, deeper mines, and more irrigated land. All of these take an increasingly large share of the output of the economy.
• Interest and dividends. Capital goods tend to be purchased through debt or sales of stock. Either way, interest payments and dividends must be made, leaving less for workers.
• Increasing hierarchy. Companies need to be larger in size to purchase and manage all of the capital goods needed to work around shortages. High pay for supervisors reduces funds available to pay lower-ranking employees.
• Government funding and pensions. Government programs grow in size in good times, but are hard to cut back in hard times. Pensions, both government and private, are a particular problem because the number of elderly people tends to grow.

It should be no surprise that this type of continuing pattern of eroding wages for ordinary workers leads to great instability. If nothing else, workers become increasingly disillusioned and want to change or overthrow the government.

It might be noted that globalization also plays a role in this shift toward lower wages for ordinary workers. Part of the reason for globalization is simply to work around the problems listed above. For example, if pollution becomes more of a problem, globalization allows pollution to be shifted to countries that do not try to mitigate the problem. Globalization also allows businesses to work around rising the rising cost of oil production; production can be shifted to countries that instead emphasized coal in their energy mix, with much lower energy used in energy production. With increased globalization, people who are primarily selling the value of their own labor find that wages do not keep up with the rising cost of living.

Studies of Previous Economies that Experienced Declining Wages of Ordinary Workers

Researchers Peter Turchin and Surgey Nefedov analyzed eight civilizations that collapsed in detail, and recorded their findings in the book Secular Cycles. According to them, the typical economic growth pattern of civilizations that collapsed was similar to Figure 3, below. Before the civilizations began to collapse (Crisis Stage), they hit a period of Stagflation. During that period of Stagflation, wages of ordinary workers tended to fall. Eventually these lower wages led to the downfall of the system.

In many instances, a growth cycle started when a group of individuals discovered a way that they could grow more food for their group. Perhaps they cleared trees from a large plot of land so that they could grow more food, or they found a way to irrigate an area that was dry, again leading to sufficient food for more people. A modern analogy would be discovering how to use fossil fuels to grow more food, thus allowing population to rise.

At first, population grew rapidly, and incomes tended to grow as  well, as the size of the group expanded to the carrying capacity of the improved land. Once the economy got close to the carrying capacity of the land, a period of Stagflation took place. There no longer was room for more farmers, unless plots of land were subdivided. Would-be farmers were forced to take lower-paying service jobs, or to become farmers’ helpers. In this changing world, debt levels rose, and food prices spiked.

To try to solve the many issues that arose, there was a need for more elite workers–what we today would call managers and high-level government officials. In some cases, a decision would be made to expand the army, in order to try to invade other countries to obtain more land to solve the problem of inadequate resources for a growing population. All of these changes led to a higher needed tax level and more high-level managers.

What tended to bring the system down was the growing wage inequality and the resulting low wages for ordinary workers. Governments needed ever-higher taxes to pay for their expanding services, but they had difficulty collecting sufficient tax revenue. If they raised taxes to an adequate level, workers found themselves without sufficient money for food. In their weakened state, workers became subject to epidemics. Governments with inadequate tax revenue tended to collapse.

Sometimes, rather than collapse, wars were fought. If the wars were successful, the resource shortage that ultimately led to low wages of workers could be addressed. If not, the end of the group might come through military defeat.

Today’s Fundamental Problem: The World Economy Can No Longer Grow Quickly

Because of our depleted resources and because of the world’s growing population, the only the way the world economy can now grow is in a strange way that assigns more and more output to various parts of “overhead” (Figure 2), leaving less for workers and for unemployed individuals who want to be workers.

Automation looks like it would be a solution since it can produce a large amount of goods, cheaply. It doesn’t really work, however, because it doesn’t provide enough employees who can purchase the output of the manufacturing system, so that demand and supply can stay in balance. In theory, companies that automate their operations could be taxed at a very high rate, so that governments could pay would-be workers, but this doesn’t work either. Companies have a choice regarding which country they operate in. If a tax is added, companies can simply move to a lower-tax rate jurisdiction, where no tax is required for automation.

The world is, in effect, reaching the end of the Stagflation period on Figure 3, and approaching the Crisis period on Figure 3. The catch is that the Crisis period is likely to be shorter and steeper than illustrated on Figure 3, because we live in a much more interconnected world, with more dependence on debt and world trade than in the past. Once the interconnected world economic system starts to fail, we are likely to see a rapid drop in the total amount of goods and services produced, worldwide. This will produce an even worse distribution problem–how does everyone get enough?

The low oil, natural gas, and coal prices we are now seeing may very well be the catalyst that brings the economy to the “Crisis Period” or collapse. Unless there is a rapid increase in prices, companies will cut back on fossil fuel production, as soon as 2016. With less fossil fuel production, the total quantity of goods and services (in other words, GDP) will drop. Most economists do not understand that there is a physics reason for this problem. The quantity of energy consumed needs to keep rising, or world GDP will decline. Technology gains and energy efficiency improvements provide some uplift to GDP growth, but this generally averages less than 1% per year.

Are There Political Strategies to Solve Today’s Wage Inequality Problem?

Unfortunately, the answer is probably, “No.” While some strategies look like they might have promise, they risk the possibility of pushing the economy further toward financial collapse, or toward war, or toward a major reduction in international trade. Any of these outcomes could eventually bring down the system. There also doesn’t seem to be much time left.

Our basic problem is that the world economy is growing so slowly that the ordinary workers at the bottom of Figure 2 find themselves with less than an adequate quantity of goods and services. This problem seems to be getting worse rather than better, over time, making the problem a political issue.

These are a few strategies that have been mentioned for fixing the problem:

1. Provide a basic income to all citizens. The intent of this strategy is to try to capture a larger share of the world’s goods and services by printing money (or borrowing money), This money would hopefully allow citizens to purchase a larger share of the goods and services available on the world market. If the pool of goods and services is pretty much fixed in total, more goods and services purchased by one country would mean fewer goods and services purchased by other citizens of other countries. I would expect that this strategy would not really work, because of changing currency relativities: the level of the currency of the country issuing the checks would tend to fall relative to the currencies of other countries. The basic problem is that it is possible to print currency, but not goods and services. There is also a possibility that printing checks for everyone will encourage less work on the part of citizens. If citizens do less work, the country as a whole will produce less. Such a change would leave the country worse off than before.
2. Lower interest rates, even negative interest rates. With lower interest rates, the interest portion of the Interest and Dividend sector shown on Figure 2 can theoretically mostly disappear, leaving more money for wages on Figure 2 and thus tending to “fix” the wage problem this way. Low interest rates also tend to reduce dividends, because companies will choose to buy back part of their stock and issue very low interest rate debt instead. If interest rates become negative, the sector can completely disappear. The ultra-low interest rates will have negative ramifications elsewhere. Banks are likely to have a hard time earning an adequate income. Pension funds will find it impossible to pay people the pensions they have been promised, creating a different problem.
3. Get jobs back from foreign countries through the use of tariffs. Some jobs might be easier to get back from foreign countries than others. For example, programming, call center operations, and computer tech support are all “service type” jobs that can be done from anywhere, and thus could be transferred back easily. In situations where new factories need to be built, and materials sourced from around the world, the transfer would be more difficult. Businesses will tend to automate operations, rather than hire locally. The countries that we try to get the business from may retaliate by refusing to sell needed devices (for example, computers) and needed raw materials (such as rare earth minerals). Or a collapse may occur in a country we try to get jobs back from, so fewer goods and services are produced worldwide.
4. Keep out immigrants. The theory is, “If there aren’t enough jobs to go around, why give them to immigrants?” In a world with sagging GDP, job growth will be slow or may not occur at all. There may be a particular point in keeping out well-educated immigrants, if there aren’t enough jobs for college-educated people who already live in a country. Of course, Europe has been doing the opposite–taking in more immigrants, in the hope that they will provide young workers for countries that are rapidly aging. (Another approach to finding more workers would be to raise the retirement age–but such an approach is not politically popular.)
5. Medicare for all. Medicare is the US healthcare plan for those over 65 or having a disability. It pays a substantial share of healthcare costs. The concern I have with “Medicare for all” is that because of the way the economy now functions, the total amount of goods and services that we can choose to purchase, for all kinds of goods and services in total, is almost a fixed sum. (Some people might say we are dealing with a zero-sum game.) If we make a choice to spend more on medical treatment, we are simultaneously making a choice that citizens will be less able to afford other things that might be worthwhile, such as apartments and transportation. The US healthcare system is already the most expensive in the world, as a percentage of GDP. We need to fix the overall system, not simply add more people to a system that is incredibly expensive.
6. Free college education for all. As the situation stands today, 45% of recent college graduates are in jobs that do not require a college degree. This suggests that we are already producing far more college graduates than there are jobs for college graduates. If we provide “free college education for all,” this offer needs to be made in the context of entrance exams for a limited number of spaces available (reduced from current enrollment). Otherwise, we sink a huge share of our resources into our education system, to no great benefit for either the students or the overall system. We are back to the zero-sum game problem. If we spend a large share of our resources on college educations that don’t really lead to jobs that pay well, more people of all ages will find themselves unable to afford apartments and cars because of the higher tax levels required to fund the program.
7. Renewables to replace fossil fuels. Despite the popularity of the idea, I don’t think that adding renewables provides any significant benefit, given the scenario we are facing. Renewables are made using fossil fuels, and they tend to have pollution problems of their own. They don’t extend the life of the electric grid, if we are facing collapse. At most, they might be helpful for a few people living off grid, if the electrical grid is no longer operating. If the economic system is on the edge of collapse already, fossil fuel use will drop quickly, with or without the use of renewables.

Conclusion

It would be really nice to “roll back” the world economy to a date back before population rose to its current high level, resources became as depleted as they are, and pollution became as big a problem as it is. Unfortunately, we can’t really do this.

We are now faced with the question of whether we can do anything to mitigate what may be a near-term crisis. At this point, it may be too late to make any changes at all, before the downward slide into collapse begins. The current low prices of fossil fuels make the current situation particularly worrisome, because the low prices could lead to lower fossil fuel production, and hence reduce world GDP because of the connection between energy consumption and GDP growth. Low oil prices could also push the world economy downward, due to increasing defaults on energy sector loans and adverse impacts on economies of oil exporters.

In my view, a major reason why fossil fuel prices are now low is because of the low wages of “ordinary workers.” If these wages were higher, workers around the globe could be buying more houses and cars, and indirectly raising demand for fossil fuels. Thus, low fossil fuel prices may be a sign that collapse is near.

One policy that might be helpful at this late date is increased focus on contraception. In fact, an argument could be made for more permissive abortion policies. Our problem is too little resources per capita–keeping the population count in the denominator as low as possible would be helpful.

On a temporary basis, it is also possible that new programs that lead to rising debt–whether or not these programs buy anything worthwhile–may be helpful in keeping the world economy from collapsing. This occurs because the economy is funded by a combination of wages and by growing debt. A shortfall in wages can be hidden by more debt, at least for a short time. Of course, this is not a long-term solution. It simply leads to a larger amount of debt that cannot be repaid when collapse does occur.

via Zero Hedge http://ift.tt/1SvbkPa Tyler Durden

For the first two months of 2016, it seemed as if a modest, if stable, rebound was finally taking place among one of the hardest hit transportation sectors of 2015, rails. Alas, like virtually everything else, this too has proven to be nothing more than a dead cat coming back to life and getting run over by a train.

As RBC writes in a recent notes, rail traffic volume declines have again intensified. “On a Y/Y basis, traffic slowed by -14% Y/Y for week 11 as all rails posted stiff volume declines and on a segment basis only Motor Vehicles carloads were higher (+7% Y/Y). Since week 7 when volumes grew by +4% Y/Y, the sharpest traffic decline has come in Intermodal carloads (from growth of +17% Y/Y for week 7 to a -12% Y/Y decline last week). Coal headwinds have also intensified in recent weeks and the segment remains the major laggard so far this quarter (-30% Y/Y QTD).”

Visually:

 

And while we have touched on some of the primary catalysts for the ongoing decline in railroad traffic, chief among which the drop off in global trade and the plunge in oil transportation, a third – just as important factor – has been the situation involving US coal power plants, where as the EIA writes, “coal stockpiles at electric generating facilities totaled 197 million tons at the end of 2015, the highest level since June 2012 and the highest year-end inventories in at least 25 years.”

 

The full details from EIA’s Today in Energy, by Tim Shear:

As coal stockpiles at power plants rise, shippers are reducing coal railcar loadings

 Source: U.S. Energy Information Administration, Electric Power Monthly and Association of American Railroads

Coal stockpiles at electric generating facilities totaled 197 million tons at the end of 2015, the highest level since June 2012 and the highest year-end inventories in at least 25 years. More than 40 million tons of coal were added to stockpiles at electric generating facilities from September through December, the largest build during that timespan in at least 15 years. In addition to relatively low overall electricity generation, largely attributable to the warmest winter on record, coal-fired electricity has recently been losing market share to electricity produced using natural gas and renewable resources.

Source: U.S. Energy Information Administration, Electric Power Monthly

Coal stockpiles typically follow a seasonal pattern in which stocks build during the lower electricity demand periods of the spring and fall and then get drawn down during periods of higher electricity demand in the summer and winter. In 2015, the stockpile build from August to December was 40 million tons, far higher than the 11 million ton average stockpile build for these months over 2001-14. Coal stockpiles typically decrease in December, averaging a roughly 3 million ton decline for the month over 2001-14. However, stockpiles this December increased by more than 8 million tons.

As stockpiles grew toward the end of 2015, shipments of coal by rail fell. Weekly coal railcar loadings averaged nearly 94,000 carloads per week from September through December 2015, 22% below average loadings for that time of year over the previous five years. Railcar loadings were even lower in the first months of 2016. Through February, weekly coal railcar loadings averaged slightly more than 75,000 carloads, 35% below the previous five-year average.

Source: U.S. Energy Information Administration, Electric Power Monthly

* * *

What is most surprising is that the near record high coal stockpile levels at the end of 2015 come despite a reduction in coal-fired generation capacity. From 2010 to 2015, total U.S. coal generating capacity declined 10%, falling by nearly 33 gigawatts (GW) to 285 GW. One way of measuring coal stockpiles while accounting for the overall change in generating capacity is to calculate days of burn. This calculation considers the current stockpile level at each generator and its estimated consumption (burn) rates in coming months, based on the average consumption rates for those months over the past three years. This measure approximates how many days the generator could run at historical levels before depleting its existing stockpile.

This means that just as oil inventories hit all time highs at the end of 2015 and into 2016, the same was taking place at US power plant coal stockpiles; worse, since much electricity production has been shifted to other, cleaner forms of electric generation, the excess coal capacity in the market is so vast, that it will take pervasive, acute bankruptcies to reset some semblance of equilibrium. It also means that the Peabody bankruptcy will be only the start, and that tens of thousands more hard-working Americans will soon lose their jobs.

via Zero Hedge http://ift.tt/1LYkmoP Tyler Durden

Last week, National Bank’s Peter Routledge did some “back of the envelope” calculations and determined that Chinese buyers might well have accounted for one-third of all real estate purchased in Vancouver during 2015. Here’s how he came to that rather startling conclusion:

“The NAR estimates that buyers from China invested US$28.6 billion in U.S.-domiciled residential real estate properties over the 12 months ending March 31, 2015. The results of a multiple choice survey the Financial Times solicited from 77 high net worth and affluent individuals from China (admittedly not a statistically significant sample size) [show that] of those who had purchased residential real estate outside China, 33.5% had done so in the United States, 11.7% in Vancouver, and 8.3% in Toronto. From this survey data, one could hypothesize that for every three high net worth investors from China who purchase a U.S. residence, one purchases a residence in Vancouver. One can then apply these ratios to the NAR’s estimate of US$28.6 billion in U.S. residential real estate investment made by buyers from China. From this, we hypothesize that, in 2015, homebuyers from China invested ~US$9.9 billion / Cdn$12.7 billion in Vancouver residential real estate; this amounts to 33% of total purchase volume.

If that’s even close to accurate, it would confirm what we and others have been saying for quite a while: namely that capital flight from China is driving the explosion of housing prices in red hot markets like London, Hong Kong, and yes, Vancouver.

Persistent CAD weakness made Canadian homes look particularly attractive to Chinese buyers who had traded in their RMB for USD. The same dynamic – combined with the allure of a burgeoning tech industry – also drove outsized gains in Toronto, Waterloo, and other markets across the country.

But Alberta wasn’t so lucky. Situated at the heart of Canada’s dying oil patch, the province was the only territory where real GDP contracted in 2015. While manufacturing sales across Canada rose 2.3% in January, Y/Y sales plunged 13.2% in Alberta, the sixth decline in seven months and a sure sign that the oil slump has spilled over into the rest of the economy. Provincial manufacturing sales dropped 16% last year.

The dire outlook for the provincial economy has weighed on the housing market in places like Calgary. Have a look, for instance, at the following chart which we’re fond of presenting.

As you can see, one of those three markets is not like the others.

Underscoring just how bad things truly are in Alberta, Toronto’s “condo king” Brad Lamb is putting the brakes on two condo projects planned for Alberta. “The 36-storey Jasper House and 45- storey North will be delayed at least a year,” The Calgary Herald reports. Here’s more:

“The situation in Alberta is worse than 2008,” said Brad Lamb, known as Toronto’s condo king and for his humorous billboard ads depicting his face on a sheep’s body. “This is a unique event that is annihilating anywhere in the world that produces oil.” Executives at Fortress Real Developments Inc., which partnered with Lamb on the projects, declined to comment.

 

Lamb is pulling back as condo sales in Calgary and Edmonton posted the steepest decline in 2015 since the financial crisis. Sales of condos fell 38 percent in Calgary, Alberta’s biggest city, and declined 56 percent in Edmonton, according to Altus Group Ltd.

 

 

Prices for Calgary apartments have been among the hardest hit in the housing market, sliding 8.7 percent to $279,697 in January, while the average Edmonton condo declined 10 percent to $227,052 over the same period, according to the real estate boards for those cities.

Yes, “it’s worse than 2008,” and any locale where the economy depends at least partly on crude has been “annihilated.”

Lamb insists that the two postponed projects will eventually be completed. Construction on Jasper House, for instance, will begin in 2017. In the meantime, if you should happen to own a Toronto condo and want to take advantage of the soaring prices made possible by the billions upon billions fleeing China…

…don’t hesitate to give Brad a call…

via Zero Hedge http://ift.tt/1MR8W0X Tyler Durden

To let CNN tell it, Donald Trump has women problems.

And we don’t mean in the sense that he has trouble finding an attractive dinner date:

Following a patently absurd spat with Ted Cruz that began when a supposedly unaffiliated anti-Trump group ran an ad featuring a GQ spread of Melania Trump and promptly ended when Trump publicly “schlonged” Cruz by re-tweeting a head-to-head beauty comparison between Melania and Heidi Cruz, some in the media are looking to rekindle the fire Megyn Kelly started last year when, at the first GOP debate, the Fox anchor asked the Republican frontrunner if he thought it was befitting of a presidential candidate to call women “disgusting animals.”

“Trump’s negatives among female voters are climbing,” Kellyanne Conway, a Republican pollster who runs the pro-Cruz super-PAC “Keep the Promise” says.

Conway is referring to a CNN poll from last week that shows 73% of women hold an unfavorable view of the billionaire. “The attrition is most striking among married and suburban female Republicans,” she remarked, adding that “They [women] can tolerate a snide remark or witty snark here or there, but draw the line at personal insults in place of policy prescriptions.”

Yes, “they draw the line at personal insults.” “Insults” like these (note the finale at 0:41):

That’s an ad bought and paid for by Our Principles PAC, a group run by staffers from Jeb Bush’s miserable failure of a campaign.

While Trump has thus far shaken off suggestions that comments he’s made in the past are alarmingly misogynistic, he seems to be making an attempt to mend some fences ahead of the Wisconsin primary. “After a week that found Trump launching attacks on Texas Senator Ted Cruz’s wife, Heidi Cruz, and tossing barbs at Fox News anchor Megyn Kelly, the billionaire front-runner on Monday attempted to play down his degrading comments about women, saying they were made in jest,” Bloomberg writes.

“I never knew I was going to be running for office. And you joke, and you kid and say things, but you’re not a politician so you never think anybody cares,” Trump told Wisconsin’s FOX 11 in a phone interview.

Needless to say, Trump’s detractors don’t think “I never thought I would be running for President” is a good excuse for disparaging women.

“[You have problems with] conservative women who are repelled by your attitude and your treatment of females,” Wisconsin-based conservative radio host Charlie Sykes told the frontrunner yesterday. “[I’ve] hired tremendous numbers of women,” Trump responded. “I have been better to women than any of these candidates, frankly.” Here’s what Trump had to say on Twitter:

The media is so after me on women Wow, this is a tough business. Nobody has more respect for women than Donald Trump!

— Donald J. Trump (@realDonaldTrump) March 26, 2016

“@pattiandsammi: @gullakhta99 @realDonaldTrump @Tytan01 @CNN WOMEN LOVE TRUMP. TRUMP’S EXECS PREDOMINANTLY FEMALE. #WOMEN4TRUMP“

— Donald J. Trump (@realDonaldTrump) March 26, 2016

Be that as it may, it’s not just CNN whose polls show that Trump may have trouble with women voters – especially if he ends up squaring off against Hillary Clinton in the national election. A recent NBC/WSJ poll shows some 70% of women give Trump a negative rating while a Reuters poll conducted March 1-15 showed half of American women view the billionaire in a “very unfavorable” light (up 10 points from last autumn). In case that’s in any way unclear, NBC made a giant red graphic with a long line of womens’ restroom symbols on the bottom to illustrate the point:

“Some GOP strategists fear Trump would alienate women voters in historic numbers as the nominee, particularly if he faces Democratic front-runner Hillary Clinton, who hopes to become the first female president and hasn’t been shy to call out sexism in her primary battle against Bernie Sanders,” Bloomberg continues.

“In 2012 Mitt Romney won white women by 14 points according to exit polls – 56% to 42% for President Barack Obama,” NBC goes on to say, reinforcing the supposed threat to the GOP’s chances in the national election. “But in the latest NBC/WSJ poll white women go to Hillary Clinton in a hypothetical general election matchup by 10 points, 48% to 38% [which would be] an enormous 24-point swing in the white women vote between 2012 and 2016.”

Of course if all of this is completely accurate, one wonders how it is that Trump holds such a commanding lead over the rest of the GOP field. Were there no female Republican voters in Florida? Or in Arizona? Or in New Hampshire?

In any event, Trump was apparently surprised to learn that anyone still cares about this. “I thought this was actually a dead issue until I just spoke to you,” he told Sykes.

And it probably was. But the establishment has to do something (anything) to derail this freight train, lest Trump should get to 1,237 before July and dash any hope Republicans had of denying him the nomination. And if you thought Megyn Kelly had “blood coming out of her eyes” at the debate in September, just wait until you see the establishment if Trump becomes the nominee.

*   *   *

Bonus: Apparently not all women have an unfavorable view of the billionaire

via Zero Hedge http://ift.tt/1RGlpsA Tyler Durden

“So there we were, me and John on one side of the table, Putin and Lavrov on the other. Putin says ‘We’re not leaving Syria,’ so I look him right in the eyes and then I make this face!”

“Michelle was there. Show ’em how I did it Michelle.”

via Zero Hedge http://ift.tt/1WVKBwv Tyler Durden

The “short energy” trade worked great for a while and then, as we first warned in late January, just as everyone jumped onboard leading to record WTI (and oil and gas equity) shorts, it very suddenly stopped working in early February when oil proceeded to soar by 50% in the month ahead, leading to the biggest short squeeze on record and crushing all those who had recently gotten on the short bandwagon (as well as most other shorts).

The result of this mega-squeeze has been a significant revulsion to shorting oil directly or indirectly, either by way of the underlying commodity or energy stocks, many of which have soared in tandem.

And yet the shorts remain, and continue to press their bets on the troubled energy sector. However, instead of directly shorting crude and various first-derivative oil and gas companies, short sellers – burned by the recent squeeze – have changed their strategy and shifted their sights to secondary exposure, namely those regional banks that do business with the industry. These are the same banks which, as we laid out previously, have the highest exposure to the very troubled energy sector, as laid out either by S&P:

 

… Or Raymond James:

 

It is these regional banks that Bloomberg finds are the object of shorts’ latest affection, as bearish bets have shot up 35% on average this year among the 10 most-shorted stocks in the KBW Regional Banking Index, and nowhere more so than at Cullen/Frost Bankers Inc. and Prosperity Bancshares Inc. in Texas, which have seen short interest surge about 60 percent.

The reason why shorts’ attention has been redirected to energy banks is well-known to our readers as we have been covering the banks’ exposure to energy since January: “as oil prices plunged, concern over energy companies’ ability to pay back loans drove investors to unload or bet against financial stocks judged to have the most at stake in the sector. So far, the rebound that pushed oil to around $40 a barrel has done little to dilute that speculation. Stubbornly low interest rates are also squeezing profits in a group that trades at a premium of almost 40 percent to their larger brethren.”

“It’s generally a very tough environment,” said Stephen Moss, a New York-based analyst at Evercore ISI. “Beyond oil and the yield curve, we have seen signs of credit softening overall. So going forward, it feels like you are going to have incrementally higher credit costs, which obviously will pressure earnings.”

The details are also mostly familiar, but here is a quick recap from Bloomberg:

Energy loans account for 15 percent of Cullen/Frost’s portfolio, while they make up 4 percent of Prosperity’s, according to Moss. Of the 10 most shorted regional banks, the majority do business in states like Texas, Oklahoma and Arkansas, centers of the drilling industry. Banks that have exposure higher than 4 percent to energy in their loan portfolios have slumped 22 percent since late 2014, Morgan Stanley’s Ken Zerbe wrote in a report earlier this month.

 

Bigger banks have also increasingly lured bears this year. Short interest makes up 6.2 percent of Zions Bancorporation’s shares outstanding and 4.5 percent percent of Comerica Inc. Seven percent of Zions’ loan portfolio is exposed to energy companies, and 6 percent of Comerica’s, according to Zerbe.

Being a smaller, regional bank instead of a TBTF, money-center bank means just that: “regional banks are more sensitive to the trajectory of interest rates, as a bigger proportion of their revenue stems from deposits and lending. The Federal Reserve scaled back its forecast for tighter policy on March 16, citing weaker global growth. That translates to lower-for-longer short-term rates, which crimp what local banks can charge on loans.”

But more so than the flat yield curve, the immediate catalyst are questions about the banks’ solvency if and when client O&G companies file bankruptcy, straddling the lenders with billions in bad debt.

Evercore ISI’s Moss said even if the Fed speeds up interest rates increases, a stronger dollar would hurt manufacturers, which in turns affects lenders. “You’ve seen hints from banks signaling that things are getting tough on that front,” he said. Alternatively, if the Fed remains dovish, it means yields on the long end will remain painfully low and make it next to impossible for energy companies to generate profits, leading to a lose-lose outcome, which is precisely what the shorts are betting on.

Not everyone is as concerned, however. While shorts are boosting bearish bets, other investors are taking the opposite view and loading up on shares. Gary Bradshaw, a Dallas-based fund manager for Hodges Capital Management said his firm recently increased its position in Cullen/Frost.

“I am looking at low price-to-book, good earnings and what I think will be a higher energy price,” said Bradshaw. “I don’t think interest rates are going to go up dramatically, and that will be the headwind for banks. But at the same time, some of the regional players will benefit more from higher energy prices.”

Still, with little updated information on bank exposure ahead of the spring borrowing base redetermination season, many would rather not risk it: “There is some uncertainty on how significant these oil credits are going to mean to the credit costs for these banks going forward,” said Daniel Werner, an analyst at Chicago-based Morningstar Inc. “Investors are right to be cautious with names in the Texas and Oklahoma area. That’s a fair assessment by investors until we figure out what’s going on with oil.”

What is going on is nothing good, and we expect fundamental impairments, charges and reserve increases to continue for the conceivable future. However, the right trade here is not to pile on in what is becoming the next bandwagon trade, but to think one step ahead, the same step which we said is inevitable in the oil trade in late January – the imminent, and massive, short covering squeeze, which has the added benefit that forced buyers are completely price indiscriminate when the market is ripping in their face, and will pay any price beyond the moment of max pain just to get out of a trades which, at least in theory, have unlimited downside.

As such we sit back and look forward to the inevitable regional bank “rip your face off” short squeeze, one which is inevitable especially since as Yellen showed today, the Fed will do anything and everything to reflate asset prices, consequences and most certainly credibility be damned.

via Zero Hedge http://ift.tt/1RIOn7T Tyler Durden

Following last week’s major surge in crude inventories, API reported a 2.6mm build (against expectations of a 3.1mm build) – 7th week in a row – which briefly jumped crude prices higher. A 319k draw at Cushing combined with draws in Gasoline (6th week in a row) and Distillates left oil pushing back to late-day highs.

 

API Details:

• Crude +2.5mm (+3.1mm exp.)
• Cushing -319k (confirming Genscape
• Gasoline -1.94m
• Distillates -95k

For now, it seems the market is being driven by gasoline so tomorrow’s DOE report on implied demand will be critical

 

The reaction in crude – after a volatile day..

 

Charts: Bloomberg

via Zero Hedge http://ift.tt/22LYUe1 Tyler Durden

Submitted by Mike Krieger via Liberty Blitzkrieg blog,

Wall Street is counting its winnings from seven years of easy money.

 

The results represent a clear victory for Wall Street over Main Street, according to the team of Michael Hartnett, BofA’s chief investment strategist.

 

“Zero rates and asset purchases of central banks have, thus far, proved much more favorable to Wall Street, capitalists, shadow banks, ‘unicorns,’ and so on than it has for Main Street, workers, savers, banks and the jobs market,” the BofA team wrote.

 

– From the post: Bank of America Admits – Central Bank Policy Enriched Wall Street While “Steamrolling” Main Street

Recently, Vanity Fair sat down with well known venture capitalist Chamath Palihapitiya to get his take on the state of affairs in unicorn land.

Here’s some of what he had to say:

via Zero Hedge http://ift.tt/22LYRip Tyler Durden