Month: December 2016

Hello Bill,

I’ve followed GATA and LeMetropoleCafe since 1999. Following the work of you, Chris and GATA contributors has been most interesting. I follow a lot of media, including many sites not under the control of the Russian government, such as the Wall Street Journal. For an American who is not an insider GATA is the single best source news and analysis of the economy and financial markets. GATA is a free service and the Café has a modest annual fee. Anyone interested in learning about the Café can sign up for a two-week trial subscription. When referring to ‘GATA’s web site” I mean both gata.org and lemetropolecafe.com.

Glenn Reynolds, a law professor, wrote a book called An Army of Davids that discusses the role small web sites have in checking the power of big institutions. In Reynolds thinking the little web sites are modern Davids taking on a range of Goliaths.

People who follow GATA are very few in numbers. GATA has about 9,400 in its subscription list while the Café numbers 1,500 followers. Those tiny numbers are in a world of 7.3 billion people. That is the equivalent of about 400 Americans reading GATA dispatches (which are free) and only about 100

American subscribers to the Café. Given that the USA has about 323 million people, GATA is the smallest David and it is taking on the largest and most criminal Goliaths in the world (the Gold Cartel and Money Interest).

As small and obscure as it may be, GATA is the most important and influential web site in the history of the Internet. Years ago Bill Murphy and Chris Powell threw a wrench in the machinery of global crime and set in motion a process of cleansing the world economy and political system. At this point the process is irreversible and when it comes to fruition the world will be a better place for GATA’s work.

As stated previously, GATA’s web site went on line in 1999.  In 2003, the GATA folks had three conference calls with the Chinese sovereign wealth fund. After the Chinese were satisfied they told Bill Murphy that China was in the market buying gold (through intermediaries, of course).

I wasn’t involved in those conference calls so I’m just applying common sense to what happened. The Chinese government is very standoffish to outsiders, especially obscure American web sites. They don’t return phone call or emails to unknown folk who are pushing causes, ideas or products. We can’t know how GATA came to the attention of the Chinese government. But once it happened the Chinese would have studied the work on the GATA web site and called around to their numerous contacts to research the character of the GATA principals. Only after deciding GATA was on the level would they have reached out to GATA.

What followed were three conference calls with an important branch of the Chinese government. Both sides would have gone into the first call having done their homework. The GATA folks gathered their documentation and martialled their arguments. The Chinese would have prepared their questions. During the first call views were exchanged, documentation was offered and questions answered. The Chinese went away to do more research and come up with additional questions for the next session. After the third conference call their issues were resolved. We know that, as a fourth call did not take place. This alone is probably unprecedented in the history of the Internet.

On the Chinese side probably more departments than merely the sovereign wealth fund were listening in. People from Treasury, intelligence services, military and more would have listened in. After each conference call ended all the Chinese actors would have conferred and attempted to verify GATA’s thesis and evidence. Not just one department but the flower of the Chinese government would have listened to and analyzed GATA’s arguments.

Something similar happened on the American side. US citizens were talking to Chinese government officials on an open telephone line. In all such cases operatives from the NSA listen in. That is just how things work, and every reader knows this is true. And that is a fortunate thing as it means at least since 2003 that the US government knew the US government was manipulating gold.

In June 2004 the London Bullion Market Association (LBMA) held a conference in Moscow. Oleg V. Mozhaiskov, Deputy Director of the Central Bank of Russia delivered the keynote address.  The speech was in Russian except for four words in English—Gold Anti-Trust Action Committee. That surprised the GATA folks, as they never had contact with any Russians who were in or out of the government.

GATA asked the LBMA for a copy of the speech but they declined to provide it. So GATA got the address of the of the Russian official and contacted him directly. He wrote back that he sent his speech to a Russian bank in London, asked them to translate it and send a copy to GATA. A copy of that speech and the correspondence from the Russian official is posted at the GATA web site. (A)

Mr. Mozhaiskov’s response to GATA’s request follows:

“Dear Sir,

Re: Your fax message of June 20, 2004

I thank you for your interest to my speech at the Moscow LBMA Forum in early June. Since it was made in Russian it can hardly be of use to you unless translated in English. My friends in Moscow Narodny Bank, London, promised to do the translation within a reasonable time. As soon as it is completed you will received the text by E-mail. After you get it you will let me know whether you wish to carry on the dialogue.

With best regards

Oleg V. Mozhaiskov” (B)

I added the emphasis. This is how a high-ranking person at Russia’s Central Bank treated Chris Powell, Secretary/Treasurer of GATA. Chris usually doesn’t get that kind of respect from the Western media nor at gold conferences in the USA and Canada. However, whose opinion is more credible and valuable: that of Mr. Mozhaiskov or GATAs critics? This knowledgeable and important Russian official all but asked for further dialogue with GATA! Where have you ever heard of that? Obviously, the Deputy Chairman of the Central Bank of Russia would never deal with GATA in such a respectful manner unless he was certain GATA had the goods. And Mr. Mozhaiskov has better sources of information and intelligence that any of GATA’s critics.

If anyone reading this post has another example of an obscure web site getting such a response from an important institution, either in the USA or abroad, please email Bill Murphy so he can report it on his blog.

In August 2005 GATA held a conference at Dawson City, Canada. A Russian named Andrey Bykov attended. Mr. Bykov was a financial advisor to Vladimir Putin. After the conference Bykov said it was the finest conference he ever attended (Bykov also went to GATA’s 2011 conference in London). We can assume that Bykov then retuned to Russia where met with Mr. Putin and talked about what he learned at Dawson City. (C)

On November 23, 2005, the Moscow Times carried a story that Putin met with the media in a gold vault. He told the reporters, in effect, that Russia would be buying gold. A picture accompanied the story showing Putin holding a gold bar. Google “Putin with gold bar” and that photo will appear. (D)

Johnson’s Russia List is a web site that tracks policy and happenings in Russia. Their web site is www.russialist.com. On May 28, 2016 in a story analyzing Putin’s long-term plan for dealing with the West, it noted that Russia’s gold buying program started about January 2006. (E)

Can anyone see a pattern here? It all brings up a few points:

1) There is a direct line between the work of GATA, the picture of Putin holding a gold bar and the start of Russia’s gold buying program.

2) While we can’t know for certain how the Russian government learned about GATA we can make a reasonable assumption: the Chinese told them.

3) If, as some critics contend, the GATA people are liars, fools and charlatans would the Chinese and Russian governments have been fooled? No.

4) Who knows more about the gold market, the Chinese and Russian governments or Doug Casey and Jeff Christian? Gee, that’s a tough one. Need to give it some thought.

5) A recent dispatch from Chris Powell wondered if GATA has made a difference. In fact, GATA has made an historic difference and the people of this planet will be better off for it. When GATA began in the last century it was just Bill Murphy, Chris Powell and their band of merry non-entities like myself. Seven years later, because of GATA’s work, China and Russia were armed with information that would enable them to understand how the US government operates. The Gold Cartel and Money Interest can have their way when dealing with non-entities. However, contending with big countries armed with vast nuclear arsenals that know how the USA operates is rather more difficult.

6) Behind the scenes the USA is locked in a struggle with China and Russia for control of the gold market and to the winner goes economic dominance of the world. If the USA looses it means the American government and people will have to live by the same rules as every one else on the planet. Imagine, Americans forced to live like Canadians!

7) No other web site has done as much to bring about meaningful change and make the world a better place than GATA, the smallest David fighting the Gold Cartel and Money Interest, the ultimate Goliath.

The opinions in this essay are mine alone and, so far as I know, do not appear anywhere in GATA’s work.

Hank Fellerman

‘(A) http://ift.tt/W4zEdT

For those new to the web site www.gata.com, a column of icons resides on the left of the home screen. The second icon down is labeled Dispatches, which is a fancy word for emails. All the emails sent out since the beginning are here.

‘(B) http://ift.tt/2fRfu5h

This link to www.goldseek.com reprints of the Midas commentary from November 23, 2005. The story has has a picture of Andrey Bykov at GATA’s August 2005 conference in Dawson City along with a picture of Putin holding a gold bar. The correspondence from Mr. Mozhaiskov is also in this issue

(‘C) http://ift.tt/2gMiIeP

It may be necessary to signup for a trial subscription to http://ift.tt/XYQ5f4 to have access to this link. Mr. Bykov’s statement, “This Is The Finest Conference I Have Ever Been To” appeared in the Midas commentary of August 11, 2005.

“(D) Another source for Putin holding a gold is at the following link:

http://ift.tt/2fRa4HG…

The Moscow Times story was reported on and reproduced at the following link. In the introduction Chris Powell makes reference to “…a wonderful photograph from the Itar-Tass news agency showing President Vladimir Putin holding a big gold bar…” This is from a GATA Dispatch dated November 22, 2005.

http://ift.tt/2gMfDeN

‘(E) I’m having trouble with the link so I will copy the relevant passage. This is from Johnson’s Russia List May 28, 2016. I copied from a saved PDF file and can’t get a good copy. The strange wording below does not appear in the original. However, the reference to the importance of buying gold and the reference to January 2006 is clear.

(Paul Goble – Window on Eurasia – Staunton, May 28, 2016)

But there is an even bejer indicaDon that PuDn is planning for a long- term confrontaDon with the West: his government is buying gold. While the Russian economy is gelng worse, the government’s stockpiles of gold are growing because if the sancDons regime intensifies, Illarionov says, Moscow can always use gold to purchase what it wants.

The Russian government’s purchases of gold in the first quarter of this year, he notes, “broke all previous records.” But it is important to recognize that these purchases began not at the start of the war with Ukraine but “already in January 2006. Therefore, the strategic planning of confrontaDon with the outside world began just over a decade ago.”

These gold purchases mean, he conDnues, that “preparaDon for global confrontaDon with the surrounding world not only has not stopped but is conDnuing and its tempo, if we are to speak honestly, is increasing.” There may be periods when it appears that PuDn is easing off as now in the view of some, but there is no indicaDon that he has fundamentally changed course.

via http://ift.tt/2fRbhyr lemetropole

Last week we reported, that in an unprecedented attempt to breach the personal privacy of users of the largest bitcoin exchange in the US, Coinbase, the IRS filed papers seeking a judicial order to serve a so-called “John Doe” summons on the San Francisco-based Bitcoin platform.

The government’s request was part of a bitcoin tax-evasion probe, and seeks to identify all Coinbase users in the U.S. who “conducted transactions in a convertible virtual currency” from 2013 to 2015. What makes a “John Doe” unique, is that it represents a special “shotgun” form of summons to look for tax evaders that allows the IRS to obtain information about all taxpayers in a group or class of people, even if the agency doesn’t know their identities. The IRS has deployed the tactic in its recent crackdown on undeclared offshore accounts, with the implication that any such broad sweep may lead to prosecution.

Coinbase executives were “extremely concerned” and vowed to oppose the government’s petition in court.

Our customers may be aware that the U.S. government filed a civil petition yesterday in federal court seeking disclosure of all Coinbase U.S. customers’ records over a three year period. The government has not alleged any wrongdoing on the part of Coinbase and its petition is predicated on sweeping statements that taxpayers may use virtual currency to evade taxes.

 

Although Coinbase’s general practice is to cooperate with properly targeted law enforcement inquiries, we are extremely concerned with the indiscriminate breadth of the government’s request. Our customers’ privacy rights are important to us and our legal team is in the process of examining the government’s petition. In its current form, we will oppose the government’s petition in court.

Coinbase head legal counsel, Juan Suarez, said that “we want to work with law enforcement — that’s generally our policy,” . “But we can’t tolerate sweeping fishing expeditions. We are very concerned about the financial privacy rights of our customers.”

We concluded our report by wishing “Good luck to Coinbase fighting the IRS: if America’s tax collector is intent on getting the identities of the biggest traders are in America’s largest bitcoin exchange, it will certainly succeed (especially if they happen to be conservatives).”

Alas, our best wishes were not enough, and yesterday a federal court in the Northern District of California ordered Coinbase to disclose what the IRS has demanded: all American user transactions from 2013 to 2015.

From the authorization:

A federal court in the Northern District of California entered an order today authorizing the Internal Revenue Service (IRS) to serve a John Doe summons on Coinbase Inc., seeking information about U.S. taxpayers who conducted transactions in a convertible virtual currency during the years 2013 to 2015.  The IRS is seeking the records of Americans who engaged in business with or through Coinbase, a virtual currency exchanger headquartered in San Francisco, California.

 

“As the use of virtual currencies has grown exponentially, some have raised questions about tax compliance,” said Principal Deputy Assistant Attorney General Caroline D. Ciraolo, head of the Justice Department’s Tax Division.  “Tools like the John Doe summons authorized today send the clear message to U.S. taxpayers that whatever form of currency they use – bitcoin or traditional dollars and cents – we will work to ensure that they are fully reporting their income and paying their fair share of taxes.”

 

Virtual currency, as generally defined, is a digital representation of value that functions in the same manner as a country’s traditional currency.  There are nearly a thousand virtual currencies, but the most widely known and largest is bitcoin.  Because transactions in virtual currencies can be difficult to trace and have an inherently pseudo-anonymous aspect, taxpayers may be using them to hide taxable income from the IRS.  In the court’s order, U.S. Magistrate Judge Jacqueline Scott Corley found that there is a reasonable basis for believing that virtual currency users may have failed to comply with federal tax laws.

One paragraph that will likely get particular scrutiny now that virtually any Bitcoin transaction in the US is open to IRS scrutiny is the following:

The IRS has issued guidance regarding the tax consequences on the use of virtual currencies in IRS Notice 2014-21, which provides that virtual currencies that can be converted into traditional currency are property for tax purposes, and a taxpayer can have a gain or loss on the sale or exchange of a virtual currency, depending on the taxpayer’s cost to purchase the virtual currency (that is, the taxpayer’s tax basis).

The order concludes by saying that the court’s order “grants the IRS permission to serve what is known as a “John Doe” summons on Coinbase.  There is no allegation in this suit that Coinbase has engaged in any wrongdoing in connection with its virtual currency exchange business.  Rather, the IRS uses John Doe summonses to obtain information about possible violations of internal revenue laws by individuals whose identities are unknown.  This John Doe summons directs Coinbase to produce records identifying U.S. taxpayers who have used its services, along with other documents relating to their virtual currency transactions.”

Despite the order, Coinbase has vowed to continue the fight: “We look forward to opposing the DOJ’s request in court after Coinbase is served with a subpoena,” a spokesman for the San Francisco-based company said in an email to Reuters.

Coinbase remains concerned with its U.S. customers’ privacy rights in the face of the government’s request, he added, although he is likely far less concerned than any people who used Coinbase from 2013 to 2015, and who may soon be getting a visit from the taxman, even if they have done nothing illegal. As for the myth that trading bitcoin by ordinary Americans provides some additional layer of privacy, that is about to be thoroughly debunked.

The executed DOJ order is below (link).

via http://ift.tt/2gS0wNp Tyler Durden

By Chris at http://ift.tt/12YmHT5

Market dislocations occur when financial markets, operating under stressful conditions, experience large widespread asset mispricing.

Welcome to this week’s edition of “World Out Of Whack” where every Wednesday we take time out of our day to laugh, poke fun at and present to you absurdity in global financial markets in all its glorious insanity.

While we enjoy a good laugh, the truth is that the first step to protecting ourselves from losses is to protect ourselves from ignorance. Think of the “World Out Of Whack” as your double thick armour plated side impact protection system in a financial world littered with drunk drivers.

Selfishly we also know that the biggest (and often the fastest) returns come from asymmetric market moves. But, in order to identify these moves we must first identify where they live.

Occasionally we find opportunities where we can buy (or sell) assets for mere cents on the dollar – because, after all, we are capitalists.

In this week’s edition of the WOW we’re covering financial repression

We all remember the GFC which scared the bejeezus out of markets, sending central banks into hyperdrive as they scrambled to contain what was the equivalent of a financial nuclear disaster. The fallout threatened to cascade across the world, bringing down financial counterparts and in the process putting Clive’s auto spares in Tulsa, Janet’s hair salon in Woolloomooloo, and Juan’s barbershop in Cordoba all out of business. It had to be stopped!

The medicine came in many formats. TARP, QE, and all its siblings to name a few but by far the most powerful tool used has been the cost of capital: the federal funds rate in the US and its equivalent in the UK, Europe, and Japan.

The idea, like so many ideas dreamt up by the intellectuals of the privileged class who are rarely forced to deal with the ramifications of their theories, is simple enough: Nudge a key short-term interest rate up to discourage borrowing and halting inflation, or nudge it down loosening credit and spurring growth and employment. Easy!

Remember “the Great Moderation”?

This was when the intellectuals declared victory in managing the business cycle. Via deft use of their enormous brains and one steady hand on the tiller of interest rate policy and the other clutching a well deserved tumbler of Chivas they achieved a panacea of equilibrium. Genius!

As it turned out the decade of “the Great Moderation” was really more like the decade of free lunches and when the market figured out that nobody had been stocking the pantry in 2007 and 2008 all hell broke loose. The intellectuals were forced to put down the Chivas and stategemize new, bigger, sparklier ways to “fix” the problem.

The results are shown in this chart:

The recession and credit crunch of 2008 dealt a staggering blow to demand, and in response central banks slashed benchmark interest rates close to zero, mistaking a lack of demand for insufficient credit. A mistake only a well groomed, manicured, and “distinguished” intellectual from the establishment class could make. Out of touch doesn’t begin to explain it.

The results have been unsurprising. Those who’ve bought financial assets have ended up with gold bathroom fittings and those who’ve not (middle and lower income) increasingly edge their way closer to those families you see on African charity ads and where kids have flies in their eyes.

And people wonder why “strong men” are being voted into power. History repeats.

When I wrote about this 4 months ago in I said:

“Since the 80’s the wealth gap has been growing consistently in most OECD countries and since the global financial crisis this inequality gap has exploded higher. Taking massive amounts of taxpayer money and doling it out to a tiny minority will do that.”

And while the inequality has risen, global growth has been stagnant or falling.

If inequality grows while at the same time global growth is rising everyone is still getting wealthier and consequently Joe Sixpack isn’t too concerned when Bartholomew Roberts Jr. the 3rd drives home in his new Bentley.

On the other hand, when the pie is shrinking and Joe Sixpack has to make the call between cutting the power and sending his daughter to school with shoes on things change.

This is how the political environment interacts with the financial economy. The two are intricately tied and can’t be viewed in isolation. They are reflexive to one another.

Now, 8 years later, the signs are there that two things are changing in the hallowed halls of the privileged:

1. Monetary policy is at a dead end: “Janet, I tell you it just isn’t working. And I just got of the phone with Super Mario and you’ll never believe this but rumours are circling that some are calling him Mario and dropping the ‘Super’.”
2. Politically the world is changing… and fast. For more on this topic go read “The Shifting Zeitgeist” and “What the Incoming “Strong Men” mean for the Global Economy”.

Next Step: Government Intervention (Financial Repression)

What am I talking about?

Financial repression is when government directly throw regulatory grit into the gears of financial dealings. Think of any policy that can capture capital and divert it to fund government debt and you’re on the right path.

Thus far we’ve seen slivers of this but it’s paled into insignificance in comparison to central bank monetary policy initiatives.

As we prepare for 2017 and what it may bring us I believe the combination of nationalism, protectionism, and “stupidism” will make for an irresistible cocktail of financial repression.

Remember folks, as I’ve been saying in these pages the rise of “strong men” comes with both a mandate and indeed a legitimacy to enact financial repression.

A Recent Example

I don’t know India particularly well, other than the fact that every time I’ve visited I’m guaranteed to pee from my bottom.

What I do know is that Prime Minister Narendra Modi is a perfect example of a “strong man”, and earlier this month he showed the world just how strong he is by banning the majority (86%) of cash in the economy.

Villagers queue outside a bank as they wait to deposit and exchange 500 and 1000 rupee notes in the northern state of Punjab (Photo by Getty Images)

Over in the US recent legal changes in the money markets has prompted capital to shift from “prime” funds, which buy short-term corporate debt, to US Treasury-issued debt. Governments can and will steer capital towards where they need it.

Historic Precedent

Few will remember it but in the 50’s and 60’s Brits weren’t allowed to take more than £50 out of the country and Americans weren’t allowed to own gold.

So what should we be on the lookout for moving into 2017?

In a 2011 paper co-authored with Maria Belen Sbrancia, Carmen Reinhart lists the following:

• Explicit caps or ceilings on interest rates, including caps on rates charged by the finance sector to governments,
• Indirect caps or ceilings on interest rates,
• Capital account restrictions,
• Exchange controls,
• High reserve requirements,
• Requirements to hold government debt,
• “Prudential” regulatory measures requiring that institutions hold government debts in their portfolios,
• Transaction taxes on equities,
• Prohibitions on gold transactions,
• Direct ownership of banks and other financial institutions,
• Extensive management of banks and other financial institutions,
• Restrictions of entry to the financial industry, and
• Directing credit to certain industries.

Since the topic is such a broad one I’m going to do something a little different this week.

For our World out of Whack poll I’m going to simply as the following question:

Cast your vote here and also see what others think

And then I’m going to ask you to let me know what benefits and what doesn’t benefit in such an environment. Go to the comments section and let it rip.

– Chris

“Financial repression in its many guises (with its dual aims of keeping interest rates low and creating or maintaining captive domestic audiences) will probably find renewed favor and will likely be with us for a long time.” — Carmen M. Reinhart

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via http://ift.tt/2gRUsVh Capitalist Exploits

Submitted by Christopher Westley via The Mises Institute,

Now that the presidential election is finally over, can we talk about something that actually matters?

I’m referring of course to Tobleronegate, meaning the uproar surrounding the Swiss-based (but US-owned) chocolate company, Mondolez International. The company has widened the gaps between the segments of its iconic chocolate bar, reducing its total volume by some 10 percent. Although the reaction has something of an Old Coke-New Coke air to it, one can easily see it as a sign of the inflationary times, an effect of worldwide money creation coordinated by the leading central banks, with Toblerone being just one of many victims.

The economics of the decision shouldn’t surprise an actual student of economics. Since inflation is always and everywhere a monetary phenomenon, and since the world’s central banks have been pumping new money into the global economy at unprecedented rates for several years, we should expect an upward pressure on prices. In a Facebook post, Toblerone explained that it was forced into changing its product in response to “higher cost of numerous ingredients,” adding that

…we had to make a decision between changing the shape of the bar, and raising the price. We chose to change the shape to keep the product affordable for our customers, and it enables us to keep offering a great value product.

Statements such as this cause Toblerone to become, unwittingly, a case study for how firms in competitive markets respond when monetary inflation raises their costs of production. When that happens, firms are less able to pass the cost on to consumers in the form of higher prices because if they do, they face a strong likelihood of losing market share and revenues. Instead, these firms cut back in terms of volume, size, and portions. 

We see this all the time. Have you been to a restaurant lately where the menu prices haven’t seemed to change but the portions of food on your plate has? Or opened a bag of chips that hasn’t fallen in size while the volume of chips inside has? Or consumed a product of lower quality than you remembered in less inflationary times because its producer was obligated to change ingredients to break even?

The fact is, Toblerone can’t raise its prices willy-nilly due to the many substitutes available to consumers. Critics claiming otherwise ignore this common side effect of inflation in competitive industries, a phenomenon that especially has applied to candy markets in recent years. 

That said, the public’s response to the new Toblerone ranges from the funny to the bizarre. One person photoshopped a KitKat bar from four sections to two, with a large gap in-between. Others are showing that the new Toblerone gaps can be used for makeshift filing systems suitable for toast or electronics. There is even talk that Toblerone will have to change its intellectual property strategy given that its iconic shape has been changed so drastically. IP lawyers see gold in “them thar gaps.”

Then there’s a Brexit angle base, from what I can see, on the argument that (1) some people said bad would come from Brexit, (2) Brexit happened, followed by, (3) Toblerone’s new shape, which obviously then means, (4) Brexit ruined the candy bar. Or something like that. In response, Toblerone claims the change was planned well before Brexit.

We can all agree Toblerone underestimated consumer responses to its decision to reduce the volume in one of its signature candies and this, in itself, is not a big deal. One of the reasons why the free market system isn’t perfect is because the firms that comprise it often make mistakes. Just the same, what makes this system superior to the alternatives is the ability of firms to identify and act on those mistakes, whether by themselves or their competitors. New Coke didn’t last long. GM no longer produces Hummers. Meanwhile, my local post office plugs away, unchanged from what I remember it being 25 years ago. 

Toblerone may announce it made a mistake and go back to the previous shaped candy, albeit at a higher price. Or it might revert to the previous shaped candy but at a smaller volume. Perhaps it will look for inferior ingredients, making it the Swiss chocolate equivalent of corn syrup soda. Yuck.

But wouldn’t it be great if, instead, Toblerone turned this incident into a teaching moment for its devoted customers? If it used its social media channels to remind them of the virtues of hard money and the costs of fiat money? If it helped Toblerone aficionados see the relationship between gaps in their candy to mainstream monetary fads that help bring them about?

It was rare but not uncommon for firms to make such arguments during the inflationary 1970s. It would be even more satisfying than good Swiss chocolate to see it again.

via http://ift.tt/2grRf1u Tyler Durden

RBC's head of US cross-asset strategy, Charlie McElligott wants to "bang you over the head in order to expose the tectonic shift being experienced in markets on the narrative / regime shift."

After a succinct and clarifying commentary:

We’re at a phase in this UST / developed sovereign bond trade where previously acceptable conditioning (‘buy dips’; ‘get long-er duration because it just keeps working’; ‘never-ending bond inflows will always pause selloffs’ etc) are all being reset in real-time, and this behavioral shift is painful.

 

In the micro, on top of the oil explosion yesterday (taking inflation expectations with it), we saw further pile-on from the incoming administration which idiosyncratically weighed further on the long-end.  Trump’s Treasury Secretary nominee Steven Mnuchin’s “mention” of the possibility of issuing ultra-long bonds (50Y, 100Y) to extend the maturity of the debt certainly isn’t helping the already overwhelmed and under-water duration trade.  RBC Rates Strategist Mike Cloherty with some quality tactical thoughts: "While we think that 50s or 100s would be a uniquely bad idea for the Treasury, we'd assign 50-50 odds on it happening. If we get ultras, we would expect the volatility of that ultra-long to spill down into the 30yr sector. Higher 30yr vol would make extending from 10s to 30s look like a worse trade from a Sharpe ratio perspective. The potential for issuance changes is another thing that makes the recent flattening of 10s30s seem like it has gone too far."

 

Haha, I’d say so – look at the USTs curves today, with 2s30s +6bps, 2s10s +5bps.

 

So add:

 

1) larger and longer (maturity) sovereign borrowing needs to the list of bond paper-cuts too.  In conjunction with the ‘already in motion’…

2) inflation impulse (energy ‘base effect’ and wage growth in US);

3) global growth ‘pick-up’ (G10 economic surprise index at 3 yr highs, global manufacturing PMI index at 2.5 yr highs);

4) pro-growth domestic US policies from the new administration (tax cuts, deregulation THEN infrastructure in that order);

5) new administration ‘more hawkish’ tilt;

6) general fiscal stimulus shift and data escape velocity driving an accelerated normalization period;

7) the global CB / political shift from monetary policy to fiscal policy (flatter to steeper); and finally

8) outright lazy legacy / crowded positioning (driven by the ‘old CB regime’) which has to be unwound…

 

And these factors are now forming a ‘fact pattern’ which is helping crystalize the concept of a “paradigm shift” towards a “new normal” markets regime / construct.

 

The fact that it is ‘getting sticky’ with regards to price-action is obviously ‘spooking’ many in the market who simply are not positioned for said ‘new world order.’  Unfortunately for them, as the aforementioned ‘old conditioning’ ceases to work, the cynicism has come at the expense of portfolio duress.

 

We have operated in a world since the crisis which saw the narrative set at ‘deflation,’ ‘secular stagnation,’ ZIRP / NIRP and QEternity, which collectively had conspired to drive rates lower / flatter in perpetuity…or so it was assumed.  The lazy positioning we’ve discussed for a year now with regards to ‘long duration,’ or strategy constructs based upon leveraging ‘low volatility’ assets like bonds (when built during a 30-year bond bull market!) are too being reset.  “Slow growth / slow-flation was the reality—how could you own cyclicals / value / high beta equities?” was the muscle-memory.  Retail investors and their wealth management folks lapped-it-up: ‘up’your fixed-income / bond allocation, and lever that up with ‘low vol’ equities—INCOME AT ALL COSTS! 

 

Obviously things went peak insanity this year off the back of the failed NIRP experiment, forcing “the world’s real $”–asset liability managers—to pile into duration for ‘funding survival.’  The whole picture peaked in July with the ‘yield grab’ at its max-bizarro: equities for yield / income, fixed income for capital appreciation.

 

That is why this is a move that will take longer than weeks to ‘wash out,’ as the slower-moving mega allocators within the global investment community has to position for reflation and growth.  It just happened too violently for them to have moved yet.

 

This shift in rates—and knock-ons into inflation (under-owned), credit (loans and HY over IG), FX (EM issues but there are carry opportunities) and equities (rotation to cyclicality) has room to run.

McElligott unleashes his chartfest exposing the way the world has changed in the last 3 weeks…

G10 ECONOMIC DATA SURPRISE INDEX AT 3 YEAR HIGHS:

 
G10 INFLATION SURPRISE INDEX AT 4+ YEAR HIGHS:
 

 
REFLATING–GLOBAL MANUFACTURING PMI INDEX AND U.S. 10Y BREAKEVEN YIELDS: This was already in motion before Trump…it’s now just accelerating on top due to the fiscal stim shift.  
 

 
ATLANTA FED WAGE GROWTH TRACKER = JAMMIN’:
 

 
RANGE ON THE BOND BULL MARKET (BACK TO ’86) IS NEARING A ‘TEST’: 10Y UST yield (quarterly) bumping up at the extremes.
 

 
EURODOLLAR FUTS 6-10 CURVE BREAKOUT HOLDS:
 

 
UST 10Y YIELD TREND LINE GOES ‘BYE-BYE’:
 

 
UST 5Y BREAKS FOUR YEAR RESISTANCE:
 

 
LONG DURATION GOODNIGHT: From +31% YTD at start of July to now down on the year.
 

 
GOLD AND DURATION / ‘REAL RATES’: Gold suffering under the weight of higher real rates / the duration beat-down, which simply makes it an unattractive asset to hold in a world where yield has suddenly reappeared.  
 

 
YUAN DEVALUATION AND THE DESTRUCTION OF THE 30Y UST GO HAND-IN-HAND: But signs of a decoupling after PBoC potential interventions prior to touching the 7.00 level.
 

 
DOW JONES INDUSTRIAL AVERAGE AND EMERGING MARKET BOND ETF:
 

 
U.S. EQUITIES THEMES FOR NOVEMBER % RETURN—LOL: Value > Growth, Cyclicals > Defensives, High Beta > Low Beta.  REFLATION.  
 

 
EQUITY FACTOR MKT NEUTRAL PERFORMANCE SHOWS ENORMOUS DISPERSION AND ACTIVE MANAGEMENT OPPORTUNITIES ABOUND: Make Active Management Great Again!

via http://ift.tt/2gFa66R Tyler Durden

Emboldened by his “victory” with Carrier Corp, which agreed to keep 1,100 workers in the US instead of outsourcing them to Mexico in exchange for $7 million in tax incentives over 10 years, as part of his victory tour in Indiana, Donald Trump on Thursday warned that U.S. companies will face “consequences” for outsourcing jobs overseas.

“Companies are not going to leave the United States any more without consequences. Not going to happen,” the President-elect said on a visit to a Carrier Corp plant in Indianapolis cited by Reuters.

U.S. President-Elect Donald Trump speaks at event at Carrier HVAC plant in
Indianapolis, Indiana.

Trump, did not elaborate just what the consequences would be but during the election campaign he frequently threatened U.S. firms that his administration would put a 35% import tariff on goods made by American manufacturers who moved jobs offshore. As part of his “Make America Great Again” campaign, Trump has made keeping jobs in the US one of the main aspirations of his election campaign and frequently slammed Carrier for planning to move production to Mexico as he appealed to blue-collar voters in the Midwest.

Trump said his negotiation with Carrier would serve as a model for how he would approach other U.S. businesses that are tempted to move jobs overseas to save money – which likely means providing further tax concessions in exchange for keeping workers in the US.

In laying out the “carrot”, Trump also pledged to create a healthy environment for business via lower taxes and fewer regulation: “I just want to let all of the other companies know that we’re going to do great things for business. There’s no reason for them to leave any more,” Trump said.

Should the carrot fail however, there is a “stick” and Trump warned that If that approach did not work, there would be penalties.

U.S. President-elect Donald Trump and Vice-President Elect Mike Pence tour the
Carrier factory in Indianapolis

The Carrier deal marked a quick, and high profile win for Trump, who has spent most of his time since the Nov. 8 election in New York building his team ahead of the handover of power from President Barack Obama.

Arriving early in the afternoon, Trump toured the plant in Indianapolis and shook hands with workers on an assembly line. Some workers yelled out “Thank you Mr. Trump” and “Thanks Donald” as he greeted them. Carrier confirmed that Indiana agreed to give the company $7 million in tax incentives. A source briefed on the matter said the tax incentives are over 10 years and the company has agreed to invest $16 million in the state, which is run by Governor Mike Pence, Trump’s vice president-elect.

Donald Trump greets a worker as he tours a Carrier factory with Greg Hayes,
CEO of United Technologies in Indianapolis, Indiana, U.S., December 1, 2016.

Trump’s victory however was not without blemishes: Carrier still plans to move 600 jobs from the plant to Mexico, the Wall Street Journal said. Reuters reported earlier this week Carrier also still intends to close a factory in Huntington, Indiana, that employs 700 people making controls for heating, cooling and refrigeration and move the jobs to Mexico by 2018.

* * *

And while Trump was enjoying the first stop of his victory parade, he was slammed by Bernie Sanders who, in a WaPo op-ed, warned that the Carrier deal is incomplete and leaves the incoming Trump administration open to threats from companies, echoing a concern we noted last night.

Sanders’ concerns were actually quite valid, by highlighting the shift in the negotiating calculus between corporations and the new administration. In the very worst case, Sanders is right that companies will now feel empowered – with a vivid case study – to demand concessions in order to keep jobs in the US.

“Trump has endangered the jobs of workers who were previously safe in the United States. Why? Because he has signaled to every corporation in America that they can threaten to offshore jobs in exchange for business-friendly tax benefits and incentives,” Sanders wrote in a Washington Post opinion piece on Thursday. He is not wrong. Sanders also noted that Trump had originally said he would save 2,100 jobs that Carrier planned to move to Mexico.

“Let’s be clear: It is not good enough to save some of these jobs,” Sanders said although it was unclear what his alternative – if any – would be to keep jobs in the US.

Sanders wasn’t the only one to slam the Trump deal. Moments ago, Reuters reported that according to a senior Mexican state official, Trump’s intervention to stop jobs at a plant in Indiana going to Mexico “is typical of what happens in countries that Americans call “banana” republics.”

Trump’s deal with Carrier created an “uncomfortable” situation for the company, and went beyond politicians’ remit, Fernando Turner, economy minister for Nuevo Leon, said in an interview. “It’s not our job. It’s up to companies to take their own decisions, not politicians; that’s what’s done in Latin American countries that they call banana (republics) in the United States,” he said, laughing.

“It’s not something that was done up until now in the United States. But anyway, things change.”

Turner also said that Mexico had not been a winner from NAFTA. The trade deal had both failed to lift Mexican economic growth and had cost the country millions of jobs, he argued. In that case, we can only add, since both the US and Mexico are against NAFTA it should probably be scrapped immediately.

“(Trump) is sending a message to (U.S.) workers, to unions that they don’t need to change, that everything is fine, that Mexico is the problem. But the problem is not Mexico,” Turner added. “They’re barking up the wrong tree.” 

Still, Turner said Trump was “intelligent” and his ambition to grow the U.S. economy would benefit Mexico if it came off. “Trade between Mexico and the United States did not begin with NAFTA,” he said.

* * *

While it remains to be seen how Trump will deal with Mexico – whose ambassador to the US Carlos Manuel Sada Solana told the Arizona Republic that “we have said time and again Mexico is not paying for the wall” – Trump may have to to resolve other domestic issues first: despite Trump’s deal, employers elsewhere in Indiana are laying many more thousands of workers because of foreign competition. If Trump is indeed serious about them facing “consequences”, we may soon find out just what these will be.

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Newsweek’s political editor, Matthew Cooper, looked as though he’d had a rough month when he appeared on the Tucker Carlson show last night to discuss the “Madam President” debacle.  While the printing and distribution of the erroneous “commemorative edition” magazine was embarrassing enough, Cooper also revealed that no one at Newsweek wrote the Hillary article or even bothered to proofread it before it was shipped off to stores around the country. 

Frankly, it’s difficult to discern between fact and fiction with this story, but, given the quality of the writing, we suspect Cooper had little choice but to distance himself and his team completely from the magazine.  Here is a small excerpt in which Trump’s supporters are again referred to as “deplorables” who “called to repeal the 19th amendment.”  Oddly, we covered the election pretty thoroughly and don’t recall anyone calling for a repeal of the 19th amendment…guess we totally missed that one.

“…as the tone of the election grew darker and more bizarre by the day, President-Elect Hillary Clinton ‘went high’ when her opponent went even lower.  No stranger to trudging through the mire of misogyny in her career as first lady, senator, and secretary of state, President-Elect Clinton continued to push for an issues-based campaign even as a handful of Trump’s most deplorable supporters, seeing the wide margins Clinton held among female voters, called to repeal the 19th amendment.  On election day, Americans across the country roundly rejected the kind of fear and hate-based conservatism peddled by Donald Trump and elected the first woman in U.S. history to the presidency.  The culminating election of a career in politics spanning 3 decades and arguably more experience than any other incoming president, 2016’s was not an easy race to watch, comment on or be a part of–but when the dust cleared it revealed a priceless moment in American history.  The highest glass ceiling in the Western World had [been shattered]…”

Of course, in distancing himself from the magazine Cooper noted that the “writing in this is, shall we say, was not up to the editorial standards of Newsweek.”

So, as Zero Hedge and others come under attack from the mainstream media for reporting “fake news”, we now have a concrete example of an establishment “news” source admitting that it printed and distributed fake news under it’s corporate brand that it neither wrote nor even bothered to read, yet no one, other than Fox News, says a word?

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While America avoided having another Redneck (or in honor of Bill Clinton should we say ‘HillBilly’ ) in the White House, there’s big Redneck karma for America as millions of Rednecks went out and voted for Trump, many of whom never voted before in their lives, many of whom can’t read.  Certainly this didn’t alone get Trump elected, but it didn’t hurt.  And they sho feel praud!

With a Trump president and a Republican President second, the government will generally cut back on entitlement programs.  Rednecks shouldn’t be worried about this, it’s just time to get creative!  Study this guide, you’ll need it to invest if you don’t meet the ECP requirements to qualify for any decent managed investments.  As we explain in our book Splitting Pennies – in the case of Forex, rules have made investing in Forex strategies that never lose and other good strategies, nearly impossible for the average investor (try, $5 Million minimums).

1) FREE TROLLING (Not “Freefallin”)

Troll for freebies, giveaways, free product samples, free books, free ebooks, free money!  There’s a number of places to start, such as a site like this that lists places you can simply get stuff for free:  http://ift.tt/2grNFV0  

Try as a strategy – ask vendors for free stuff!  Just a small author experience, was in the Asian Market and the checkout guy (looked like the owner, but hard to tell in such places) gave me a free “Chinese Tomato.”  Yes, there is such a thing as a FREE LUNCH – especially in Forex trading.

2) Join contests & sweepstakes

Often when you buy products, they will enter your chance to win $2,000 or something.  But if you read the fine print, there’s no purchase necessary!  There’s literally thousands of contests, se

If you ARE going to do this, beware of scams, spam, and other junk associated with it.  Here’s a good article as a starting point.

3) Free products for product reviews

This takes some time to get setup but when it works, it works good!  You’ll need an Amazon account (free) and you will need some activity.  Many new sellers will give away their products simply for a fair and honest review.  You can contact Amazon sellers if they will do this or have a program.  What they will want in return, is your fair and honest review, and you must state at the end of the review, that you received this product in exchange for the review.  (read the entire review below, see the part about ‘I received this fabulous portfolio free for testing and review.)  You can find such products on Amazon.com just look for any product with many reviews, look the 5 star reviews.

In case you didn’t catch them, checkout part 2 and part 1 of our series, Redneck Investin’ – for those who can’t afford a 401k, we explain what is ‘401 keg.’

Get your free-on, at http://ift.tt/2grNFV0

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