Month: March 2017

Wall Street Scrambles To Change The Trump Narrative Again

Until yesterday, the prevailing Wall Street consensus was that in the absence of specifics from President Trump on his economic and fiscal plans, the market would be disappointed, and proceed to slide. It did not, in fact quite the opposite.

As a result, the world’s best paid strategists have again – just like after the election – revised the “Trump narrative” after the fact, and now the prevailing analyst sentiment is that markets will like Trump’s address to Congress as he cooled his rhetoric and likely gained political capital. As Bloomberg adds, the reflation trade, which has been boosting financials, held, even as the speech was short on details, forcing the U-turn in the plotline. Still, while turning tactically bullish overnight, there is an agreement that efforts on tax reform and infrastructure spending are likely a long, uphill slog, as those priorities may get squeezed by other agenda items, like health care.

Here is a recap of some of the most prominent notes flying around this morning, virtually none of which to Mark Cudmore chagrin, suggest – if only for now – that the “emperor is naked.”

KBW (Brian Gardner)

  • Markets likely to react positively to Trump’s less confrontational, more optimistic tone; may like cooler rhetoric on trade; speech may play well among voters outside of Trump’s base, buying him some political capital
  • Possible to read speech as implicit endorsement of border adjustment tax (BAT), though will be “uphill fight” to include BAT in tax reform even with Trump’s support
  • No direct impact on financials as didn’t mention Dodd-Frank or changes to financial regulations; seemed warmer to legal immigration, which may be good for sectors that rely on immigrant labor, like homebuilders; infrastructure spending may get “squeezed out” by competing agenda items like health care, tax reform

COMPASS POINT (Isaac Boltansky)

  • Speech was positive market signal, though presidential honeymoon is “very nearly over,” must be legislative progress in next 60 days to “sustain and swell” market optimism
  • Watch for health care progress by March 15; tax reform language by April 10 recess; deal avoiding April 28 govt shutdown
  • Top takeaways:
    • Trump comments “intellectually supportive” of BAT; Compass Point sees BAT as “central pillar” of tax reform effort, with far more staying power than market reflects
    • “Notable” Trump highlighted Harley-Davidson given its deep roots in Speaker Paul Ryan’s home state of Wisconsin
    • Trump’s call for $1t infrastructure spending probably won’t translate into legislative language in 2017 amid political, procedural hurdles
    • Implied support for health care tax credits is “mile marker” as House GOP hardliners worried about swapping ACA subsidies for new tax credits; turns down the heat on ideological schism
    • Didn’t address Dodd-Frank or mortgage finance reform

COWEN (Jaret Seiberg)

  • Speech serves as a reminder to bank, housing investors that White House will devote political capital in 2017 to “other fights”
  • Means regulators will need to help banks and housing; watch personnel choices over next 16 months to assess how much regulatory relief Trump team may deliver
  • No surprise Fannie, Freddie didn’t make speech as GSE reform isn’t top priority; Congress will likely drive housing finance reform; Treasury Secretary Steven Mnuchin probably won’t put Trump priorities at risk by pushing unilateral action on FNMA, FMCC; may focus on advancing infrastructure spending, limiting banking/housing efforts
  • Separately, Cowen’s Chris Krueger writes Trump offered more optimism, less detail in “sequel” to “American Carnage” inaugural; likely to receive a polling boost to ~50%+ approval; “trench-warfare” on Capitol Hill remains stalemate as clock ticks, everyone waits for “the next tweet”

FBR (Edward Mills)

  • Speech gave “strong but subtle” signals in favor of policies that divide Republicans, like BAT, infrastructure stimulus, while largely mirroring predecessors’ State of The Union addresses
  • Democrats “body language” showed it will be tough for Trump to get anything done that requires 60 votes in Senate
  • Comments on health care (including period of stability for those on ACA, tax credits for insurance) “largely positive”  for pharmaceutical industry, although Trump mentioned drug prices
    Trump Says He Wants to Speed Up FDA Approval of Medicines; Calls for ‘Stable’ Obamacare Transition, Lower Drug Prices

CREDITSIGHTS (Peter Petas)

  • “America First, details second” speech showed reflation trade is intact, with focus on tax reform, deregulation, infrastructure spending, call for Congress to act quickly
  • Lack of specifics backs those questioning execution timing, potential for protracted legislative conflicts; notes continued protectionist trade rhetoric, economic nationalism that’s periodically shaken the markets; most worrying aspect from market’s perspective may be seeming endorsement of BAT
  • Other risks: Negative growth impacts of immigration, trade, tax choices; European elections; Chinese economy; also wary of equity “correction,” trend to larger, more transformative M&A deals

EVERCORE ISI (Terry Haines)

  • Speech unfolded “as advertised”; policy details due in coming weeks
  • Broad-themed remarks were aimed at political/voter audience, not markets; designed to make case to Congress, public for top priorities of jump-starting the economy, fixing ACA, improving national security
  • Investors who were looking for a clear statement of Trump priorities and resolve got what they sought; investors who wanted policy detail may be disappointed

BMO (Ian Lyngen)

  • Lack of details about tax plans, legislative priorities means address didn’t provide much support to risk or much pressure on Treasuries
  • Notes 10Y yields were within 2bps-3bps range during speech; passage means one less headline risk for Treasuries in Fed-heavy week

RBC (Michael Yee)

  • Trump’s commentary around drug pricing “unspecific and vague;” rhetoric around drug pricing “less noisy” compared to last year
  • Investors aren’t “buying” Medicare price negotiations as realistic outcome; generalist investors may return to biotech through 2017
  • Presence of Amicus Therapeutics CEO, daughter and Trump comments around need to “slash restraints” at FDA and elsewhere may help FOLD, and bode well for agency decision on BioMarin’s experimental therapy for Batten’s disease

MORGAN STANLEY (Brian Essex)

  • Address left BAT option on the table, which may be a risk for IT services sector
  • See earlier story: IBM, CSC Best Positioned in IT on Trump Speech

Source: Bloomberg

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Bonds & Bullion Battered On Heavy Volume As Dow Nears 21,000

The moves in markets have acelerated notably in the last few minutes with a few billion dollars of notional gold being dumped, silver down, and Treasury yields exploding higher as The Dow pushes to open at 21,000…

Gold is being monkey-hammered…

 

Silver holding for now…

 

But bonds are worse for now…30Y at 3.07%

 

The peso is being dumped as Dow Futures push to 21,000

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How We Got Here In One Sentence

Via John Rubino of DollarCollapse.com,

In every annual budget debate since the 1980s, one side figures out that the way to get what it wants – which is higher spending – is to frame the request in a particular, ingenious way: We have to borrow and spend way more now if we want to borrow and spend way less later. History has of course proven this argument to be idiotic, but because it moves the pain of living within our means into the indefinite future, it always manages to attract enough votes to win the day.

The following article, published today by a major news outlet, spells it out in one sentence, in the title no less:

Why federal debt may have to explode before it shrinks

(CBS) – On Tuesday night, President Donald Trump will address a joint session of Congress for the first time. For a country still suffering from bitter political divisions after a contentious election, it’s doubtful his speech will heal still-raw emotions. Especially since Mr. Trump has hinted that he’ll discuss his budget plan, including a big statement on infrastructure spending and sharp cuts to federal agencies.

 

No matter what you think of President Trump — whether you see him as a buffoon, a wannabe despot or the savior who’ll finally Make America Great Again — here’s one big reason you should have some sympathy for him: He faces the worst fiscal outlook of any recent president.

 

He has taken office with the national debt nearing $20 trillion and debt held by the public above $14 trillion. According to the Committee for a Responsible Federal Budget (CRFB), debt is at a higher levels as a share of the economy than for any incoming president since Harry Truman in 1945 (chart below). Yet unlike Truman, who was handed an economy demobilizing from the fight against the Japan and Nazi Germany, the national debt is expected to continue to rise during Trump’s presidency and beyond.

 

 

Moreover, federal spending on entitlements and interest payments represents a larger share of the budget than under any other president, leaving Mr. Trump with far less room on the “discretionary” side of the budget. Adding a sense of urgency to all of this, three federal trust funds — covering highways, Social Security Disability and Medicare Hospital Insurance — are headed for insolvency over the next eight years, with a fourth set for depletion in 2030 (Social Security Old-Age Trust).

 

That complicates the tax reform effort the president championed on the campaign trail and touted again recently, saying his tax plan would be something “phenomenal,” with details to come within weeks. What we already know: Mr. Trump and Republicans in Congress want a simplification of the tax code and a cut in overall tax rates for households and corporations.

 

A tax cut will surely worsen the deficit over the near term. Yet it could also be necessary for invigorating the economy and quickening the growth needed to fix the long-term fiscal outlook. However, the efficacy of a tax cut providing fiscal stimulus is a matter of intense debate, to put it lightly, with economists evenly split on the subject according to a recent survey.

 

For Mr. Trump, perhaps the only way out of this fiscal bind is by worsening it temporarily, mixing a well-designed tax reduction and reform plan with targeted spending cuts and entitlement reform. No easy task. But a survey of the literature, including this 2014 paper from the Brookings Institution, suggests benefits can result from simplifying the tax code, lowering rates, and cutting “unproductive” federal spending.

 

According to Deutsche Bank economist Joseph LaVorgna, although the current economic expansion has been feeble and is now in its eighth year, there “remains considerable room for cyclical gains in consumption.”

 

With the unemployment rate below 5 percent, LaVorgna doesn’t believe job growth alone can do the trick. But a combination of personal tax cuts and wage inflation — driven by corporate tax reforms like full expensing that encourages capital spending and labor productivity gains — could do it.

Notice how the analysis begins by acknowledging the problem of soaring debt in order to soften up fiscal conservatives for the big reveal: That even right-wing think tanks and major banks agree on the need to generate “wage inflation” and “cyclical gains in consumption” via much higher government borrowing.

Since growth is always seen as anemic by those who crave higher tax revenues, this is an ever-green argument that always seems to fit the times and so always ends up being enacted, not just in the US but pretty much everywhere.

Which explains how, 40 years in, we find ourselves here:

Global sovereign debt to hit new all-time high – S&P

(Reuters) – Worldwide sovereign debt is set to reach a new record high of $44 trillion this year despite a slight reduction in governments’ annual borrowings, an estimate from credit ratings agency S&P Global said on Friday.

 

The United States at $2.2 trillion and Japan at over $1.8 trillion, will again be the most prolific borrowers this year, accounting for 60 percent of the total, followed by China, Italy, and France. Britain’s post-Brexit double downgrade will mean the percentage of world debt now with a top grade ‘triple-A’ rating will fall to an all-time low of just 7 percent down from around 13 percent a year ago. S&P’s calculations also showed Japan faces by far the highest debt rollover ratio this year, reaching a sum equivalent to 66 percent or two thirds of the size its economy.

The solution? More borrowing, of course — with, as always, bipartisan support.

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Real Personal Spending Crashes Most Since 2009

While the key number analysts were looking for in today's Personal Spending data was the PCE Price Index, both headline and core, which rose by 1.9% and 1.7% respectively, the latter coming in as expected, just shy of the Fed's 2.0% inflation target, the internals on US incomes and spending were just as notable.  Here, the silver lining of a rise in incomes (+0.4% MoM vs +0.3% exp) was dashed by a disappointingly slow growth in spending (+0.2% vs +0.5% prev).

 

With incomes rising more than spending, the savings rate predictably ticked up from multi year lows, rising from 5.4% to 5.5% in January.

On the income side, the increase in personal income was almost entirely from service-producing industries wages, which increased by $22.5BN, while Goods-producing was higher by just $4 billion. Additionally, Social Security transfer benefits added another $9 billion.

However, for the 'average joe', facing a rising cost of goods, real personal spending plunged 0.3% in January: the biggest drop since September 2009.

 

Finally, as a result of surging inflation, and disposable incomes suddenly unable to keep up, the real annual growth in disposable income per capita fell to just 1.5%, the weakest in over 3 years and a red flag for those calling for another renaissance for US consumers.

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“Trump Makes America Wait Again” – Why Not Everyone Was Happy With Trump’s Address

While most of America, even highly polarized democrats, was by and far satisfied – and in the case of Trump’s fervent fans, delighted – by Trump’s first address to Congress as confirmed by a CNN snap poll shortly after the speech, some were outright disappointed. Chief among them were Wall Street traders who had expected Trump to provide more details about his economic policies and some insight into how he plans on achieving his lofty goals.

One such critic was Mark Cudmore, a former FX trader who writes for Bloomberg, and who wrote a note overnight titled “Still No Details as Trump Makes America Wait Again.” Cudmore’s point is that while the market may be surging this morning on a sugar high combination of the Trump’s “presidential-sounding” address, the recent hawkish deluge by some prominent FOMC doves chief among them Bill Dudley, he believes this will not sustain as eventually the market will be forced to ask the tough questions: how does Trump get from point A to point B.

Here is his full note:

The longer the market has to process Trump’s speech, the less impressed it’ll be. It was rhetoric packed with hopes and dreams, but light on details and concrete plans. 

 

Sadly, it feels like this outcome was all too predictable. Although, the possibility that he could have surprised us all means that the market has not yet fully priced in today’s disappointment.

 

Trump did manage to sound presidential and statesmanlike, and avoid getting bogged down in partisan or petty attacks. This is a positive.

 

It’s also supportive that infrastructure returned to the core of the agenda. Although, it seemed a resurrection of vague plans from three months ago rather than a step further along the path to implementing a program.

 

Financial bubbles, most notably the dotcom era, have proven that hopes and dreams can keep the market irrational longer than most of us can remain solvent.

 

At some point though, reality catches up. And 40 days in to Trump’s administration, there’s little sign that he’ll deliver much of a boost to the U.S. economy on any imminent horizon.

 

Optimistic soundbites from the speech don’t have the ability to drive the market higher on a sustainable basis. As analyst notes flow in to investors’ inboxes during the next 24 hours, asset prices may start reflecting a far more negative outcome. 

 

Beware downside moves in the dollar, in U.S. yields, and even in equities. At some point, traders may realize the new emperor has no clothes.

While Cudmore may be proven correct ultimately, for now the first analyst note to flow in was that from Bank of America which not only did not reflect a potential negative outcome, but raised its year-end S&P price target from 2,300 to 2,450.

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Moral Outrage Is Self-Serving, Say Psychologists

When people publicly rage about perceived injustices that don’t affect them personally, we tend to assume this expression is rooted in altruism—a “disinterested and selfless concern for the well-being of others.” But new research suggests that professing such third-party concern—what social scientists refer to as “moral outrage”—is often a function of self-interest, wielded to assuage feelings of personal culpability for societal harms or reinforce (to the self and others) one’s own status as a Very Good Person.

Outrage expressed “on behalf of the victim of [a perceived] moral violation” is often thought of as “a prosocial emotion” rooted in “a desire to restore justice by fighting on behalf of the victimized,” explain Bowdoin psychology professor Zachary Rothschild and University of Southern Mississippi psychology professor Lucas A. KeeferMotivation and Emotion. Yet this conventional construction—moral outrage as the purview of the especially righteous—is “called into question” by research on guilt, they say.

Feelings of guilt are a direct threat to one’s sense that they are a moral person and, accordingly, research on guilt finds that this emotion elicits strategies aimed at alleviating guilt that do not always involve undoing one’s actions. Furthermore, research shows that individuals respond to reminders of their group’s moral culpability with feelings of outrage at third-party harm-doing. These findings suggest that feelings of moral outrage, long thought to be grounded solely in concerns with maintaining justice, may sometimes reflect efforts to maintain a moral identity.

To test this guilt-to-outrage-to-moral-reaffirmation premise, Rothschild and Keefer conducted five separate studies assessing the relationships between anger, empathy, identity, individual and collective guilt, self perception, and the expression of moral outrage.

For each study, a new group of respondents (solicited through Amazon’s Mechanical Turk program) were presented with a fabricated news article about either labor exploitation in developing countries or climate change. For studies using the climate-change article, half of participants read that the biggest driver of man-made climate change was American consumers, while the others read that Chinese consumers were most to blame. With the labor exploitation article, participants in one study were primed to think about small ways in which they might be contributing to child labor, labor trafficking, and poor working conditions in “sweatshops”; in another, they learned about poor conditions in factories making Apple products and the company’s failure to stop this. After exposure to their respective articles, study participants were given a series of short surveys and exercises to assess their levels of things like personal guilt, collective guilt, anger at third parties (“multinational corporations,” “international oil companies”) involved in the environmental destruction/labor exploitation, desire to see someone punished, and belief in personal moral standing, as well as baseline beliefs about the topics in question and positive or negative affect. Here’s the gist of Rothschild and Keefer’s findings:

  1. Triggering feelings of personal culpability for a problem increases moral outrage at a third-party target. For instance, respondents who read that Americans are the biggest consumer drivers of climate change “reported significantly higher levels of outrage at the environmental destruction” caused by “multinational oil corporations” than did the respondents who read that Chinese consumers were most to blame.
  2. The more guilt over one’s own potential complicity, the more desire “to punish a third-party through increased moral outrage at that target.” For instance, participants in study one read about sweatshop labor exploitation, rated their own identification with common consumer practices that allegedly contribute, then rated their level of anger at “international corporations” who perpetuate the exploitative system and desire to punish these entities. The results showed that increased guilt “predicted increased punitiveness toward a third-party harm-doer due to increased moral outrage at the target.”
  3. Having the opportunity to express outrage at a third-party decreased guilt in people threatened through “ingroup immorality.” Study participants who read that Americans were the biggest drivers of man-made climate change showed significantly higher guilt scores than those who read the blame-China article when they weren’t given an opportunity to express anger at or assign blame to a third-party. However, having this opportunity to rage against hypothetical corporations led respondents who read the blame-America story to express significantly lower levels of guilt than the China group. Respondents who read that Chinese consumers were to blame had similar guilt levels regardless of whether they had the opportunity to express moral outrage.
  4. “The opportunity to express moral outrage at corporate harm-doers” inflated participants perception of personal morality. Asked to rate their own moral character after reading the article blaming Americans for climate change, respondents saw themselves as having “significantly lower personal moral character” than those who read the blame-China article—that is, when they weren’t given an out in the form of third-party blame. Respondents in the America-shaming group wound up with similar levels of moral pride as the China control group when they were first asked to rate the level of blame deserved by various corporate actors and their personal level of anger at these groups. In both this and a similar study using the labor-exploitation article, “the opportunity to express moral outrage at corporate harm-doing (vs. not) led to significantly higher personal moral character ratings,” the authors found.
  5. Guilt-induced moral outrage was lessened when people could assert their goodness through alternative means, “even in an unrelated context.” Study five used the labor exploitation article, asked all participants questions to assess their level of “collective guilt” (i.e., “feelings of guilt for the harm caused by one’s own group”) about the situation, then gave them an article about horrific conditions at Apple product factories. After that, a control group was given a neutral exercise, while others were asked to briefly describe what made them a good and decent person; both exercises were followed by an assessment of empathy and moral outrage. The researchers found that for those with high collective-guilt levels, having the chance to assert their moral goodness first led to less moral outrage at corporations. But when the high-collective-guilt folks were given the neutral exercise and couldn’t assert they were good people, they wound up with more moral outrage at third parties. Meanwhile, for those low in collective guilt, affirming their own moral goodness first led to marginally more moral outrage at corporations.

These findings held true even accounting for things such as respondents political ideology, general affect, and background feelings about the issues.

Ultimately, the results of Rothschild and Keefer’s five studies were “consistent with recent research showing that outgroup-directed moral outrage can be elicited in response to perceived threats to the ingroup’s moral status,” write the authors. The findings also suggest that “outrage driven by moral identity concerns serves to compensate for the threat of personal or collective immorality” and the cognitive dissonance that it might elicit, and exposes a “link between guilt and self-serving expressions of outrage that reflect a kind of ‘moral hypocrisy,’ or at least a non-moral form of anger with a moral facade.”

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Trump Says He Wants to Stop Drugs Flowing Over the Border. Marijuana Legalization Would Do That

If Donald Trump want to stop the flow of drugs into the United States from Mexico—as he said he did during his address to a joint session of Congress on Tuesday night—then there is one proven way to do it: let more states legalize marijuana.

That’s not what Trump proposed, of course. His supposed solutions are all about building walls, growing the power of the federal government’s drug enforcement arms, and continuing a failed policy of prohibition.

“We will stop the drugs from pouring into our country and poisoning our youth,” Trump said. He later claimed that our current un-walled borders allow “drugs to pour in at a now unprecedented rate.”

Except, no. Drugs aren’t pouring into the country at an unprecedented rate (neither, too, are immigrants, but that’s another story). In fact, border agents are reporting that flow of drugs has been slowed, even reversed, by the legalization of marijuana in a handful of American states.

The Washington Post reported last year that “marijuana seizures along the southwest border tumbled to their lowest level in at least a decade.”

“Agents snagged roughly 1.5 million pounds of marijuana at the border, down from a peak of nearly 4 million pounds in 2009,” the Post reported. “The DEA has even found evidence that the flow of illegal marijuana is starting to reverse, with some cases of U.S. marijuana being smuggled into Mexico.”

A marijuana grower in Mexico described a similar economic phenomenon in December 2014 to NPR News, and blamed the legalization of marijuana in some parts of the United States.

“Two or three years ago, a kilogram of marijuana was worth $60 to $90,” the anonymous grower told NPR. “Now they’re paying us $30 to $40 a kilo. It’s a big difference. If the U.S. continues to legalize pot, they’ll run us into the ground.”

Trump’s plans to funnel more money into the War on Drugs, and perhaps even to crack down on states where marijuana has been legalized, are a gift to the drug cartels, which benefit from higher prices created by prohibition in the United States.

“It’s important to understand that the Drug War created the cartels, not the other way around,” David Bienenstock, the head of content at High Times and a reporter with 15 years of experience covering marijuana markets and the federal government’s war on those markets, told me in an interview last month. “We’ve been wasting trillions of dollars for nearly 50 years on wholly ineffective, and even counterproductive, efforts to stop the flow of drugs into the United States, and those efforts have only made the cartels bigger, stronger, and more dangerous.

Trump should know that. “You have to legalize drugs to win that war,” Trump said at a luncheon hosted by the Miami Herald in 1990. “You have to take the profit away from these drug czars.”

Failing to understand—or perhaps failing to remember—how the economics of the drug trade work is another example of how Trump’s economic policy is setting the country up to fail. His address on Tuesday night was the most “presidential” moment of his brief time in office, but it might have accomplished little more than normalizing policy ideas that will reverse the limited progress achieved by some states on ending drug prohibition, leaving Americans less free and drug cartels more powerful than ever.

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30Y Yields Tops 3% As March Rate Hike Odds Spikes Above 80%

An avalanche of hawkish Fed speakers appear to have got their way as March rate-hike odds have extended yesterday's move to 82% this morning. As stocks soar after a more presidential Trump, bond yields are also rising, catching up to stocks after diverging for two weeks.

From 24% to 82% in 3 weeks… did the economic data shift that much?

 

Umm no…

 

Stocks are soaring…

 

But while bond yields are higher – 30Y above 3.00% – though the move is fading now…

 

2Y Yields are the highest since 2009. The yield curve has collapsed to its flattest since 2008…

 

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German Inflation Jumps 2.2%, Surpassing ECB Target And Highest Since 2012

Following a series of “hot” inflation prints from Germany’s states, moments ago German inflation rose more than expected, printing at 2.2% above the 2.1% consensus estimate, up from 1.9% in January and surpassing the ECB’s target of a rate just under 2 percent for the first time in more than four years.

With Germany headed for federal elections in September, the inflation figures will add more fuel to the debate about an end to the European Central Bank’s loose monetary policy.

Earlier on Wednesday, preliminary data from several German states showed that consumer price inflation accelerated across the country, mainly driven by higher food, energy and transportation costs. In the most populous state, North Rhine-Westphalia, annual inflation rose to 2.3 percent from 1.9 percent in January. It reached 2.5 percent in Hesse, 2.2 percent in Baden-Wuerttemberg, 2.1 percent in Bavaria, 2.0 percent in Brandenburg and 2.4 percent in Saxony.

The state readings, which are not harmonised to compare with other euro zone countries, fed into the just as hot nationwide inflation print released moments ago. 

Yet not everyone was convinced Germany’s blistering headline inflation would be a hindrance to the ECB. Cited by Reuters, Capital Economics analyst Jennifer McKeown said the state readings supported the forecast, but German core inflation, which strips out volatile energy and food costs, was likely to remain weak in the coming months.  “This should encourage the ECB to implement its asset purchases as planned,” McKeown said.

That said, a sustained rebound in German inflation would give Bundesbank President and ECB rate setter Jens Weidmann more grounds to argue for a reduction in the ECB’s bond-buying programme, a scheme that he has often criticised. The German central bank has warned that homes in large German cities are 15 to 30% overpriced, in a message that stoked further fears about the side-effects of the ECB’s stimulus.

The inflation rate for the entire euro zone is expected to rise to 2.0 percent in February from 1.8 percent in January, economists polled by Reuters said. Those figures are due on Thursday.

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Art Market Bubble Bursting – Gauguin Collapses 74% To $22 Million

Art Market Bubble Bursting – Gauguin Collapses 74% To $22 Million

– Art Market Bubble Bursting?
– Russian Billionaire Takes 74% Loss On “Investment”
– $85 Million Gauguin Bought By Dmitry Rybolovlev in 2008
– Christie’s auctioned the work at its evening sale in London
– Global art sales plummet, but China rises as ‘art superpower’
– China soon to dominates global art and gold market
–  Art price volumes doubled since 2009
– As currencies debase super rich seek out stores of value
– Gold remains accessible store of value for all
– Stocks, bonds and many assets at record prices
– Gold half it’s real price in 1980

Te Fare by Paul Gauguin – Source: Christie’s

Russian billionaire Dmitry Rybolovlev paid €54 million or $85 million for a landscape by Paul Gauguin in a private transaction in June 2008. Yesterday, he incurred a whopping 74% loss on his store of value “investment” as reported by Bloomberg:

Gauguin’s 1892 landscape “Te Fare (La Maison)” fetched 20.3 million pounds ($25 million), including commission, at Tuesday evening’s sale of Impressionist and modern art at Christie’s in London. Rybolovlev will net about $22 million based on the hammer price. The auction house had estimated the value at $15 million to $22.4 million. The buyer was a client of Rebecca Wei, president of Christie’s Asia.

The Gauguin was one of four Rybolovlev pieces offered for sale on Tuesday. Another work, a Mark Rothko painting, will be auctioned March 7.

Rybolovlev — with a fortune of about $9.8 billion according to the Bloomberg Billionaires Index — invested about $2 billion in 38 works, from Leonardo da Vinci to Pablo Picasso. They were procured privately by Swiss art dealer Yves Bouvier, known for creating a network of tax-free art storage warehouses in Singapore and Luxembourg.

Two years ago, Rybolovlev sued Bouvier, alleging he was overcharged by as much as $1 billion, Bloomberg reported. Since then the Russian fertilizer magnate has been unloading works he acquired, some at record prices. He has already sold three for a loss totaling an estimated $100 million. The five works at Christie’s, all estimated below their purchase prices, were expected to deepen the loss.

The art industry is closely watching the London auctions running this week and next as the year’s first test of the global market following a significant contraction in 2016. Christie’s sales fell 17 percent to $4 billion pounds ($5.4 billion) last year, while Sotheby’s reported a 27 percent decline to $4.9 billion. Both houses saw steep declines in their two biggest categories: Impressionist and modern art, and postwar and contemporary art.

In May 2015, we warned about the bubble in the the fine art “investment market or indeed the Hyperinflation in Art Investment Market after a Picasso sold for $179 million.

William Banzai

At the time, we pointed out that ultra high net worth and family office buyers may be viewing the fine art market as a form of super safety deposit box and as a way to protect their wealth from market crashes, systemic risk and the risk of bail-ins and deposit confiscation today.

Since then global art sales plunged in 2016 as the number of high-value works of art sold dropped by half, while China regained its status as the world’s top market according to an annual report recently released by Artprice. Art auctions worldwide totalled $12.5 billion (11.8 billion euros) last year, down 22 percent from $16.1 billion in 2015, the report said.

The world’s biggest database for art prices and sales, working with Chinese partner Artron, attributed the drop to a plunge in the number of works worth more than $10 million each – from 160 in 2015 to just 80 last year. “On all continents, sellers are choosing a policy of ‘wait-and-see,’” Artprice CEO Thierry Ehrmann said.

In recent years, very wealthy art buyers may have believed art was less risky than holding increasingly debased digital currencies in banks that may be subject to deposit bail-ins.

As a diversification, art has some merit as it is not correlated with financial assets, but only as a very small part of an overall portfolio.

Given the scale of risks facing investors and savers today we are advising clients to increase allocations to gold from the standard 5% to 10% allocation to higher allocations of as much as 25% to 30%.

Most investors and savers cannot afford a Picasso or a Gauguin but the proven, timeless store of value that is physical gold remains accessible.

gold-inflation-adjusted-2017Gold in USD Adjusted for Inflation 1970-2017 – Macrotrends.net

Not only is it accessible but it remains relatively cheap from a long term perspective, at nearly less than half its real price high of $2,200 price in 1980 when adjusted for the considerable inflation of the last 37 years.

Gold is also relatively cheap compared to most stock, bond and property markets, many of which are at all time record highs. These highs are in large part due to quantitative easing (QE), zero and negative percent interest rates and global currency debasement on a scale never seen in history.

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Gold and Silver Bullion – News and Commentary

Gold down on hawkish comments by Fed officials, dollar pressure (Reuters)

U.S. Mint gold coin sales at 14-month low in February (Reuters)

Number of distressed U.S. retailers at highest level since Great Recession (Marketwatch)

Showdown in Indonesia brings world’s biggest gold mine to standstill (CNBC)

Online channels shine with gold-backed financial products (China.org)

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“We Will See Gold Go Higher For Sure” – Citigroup (Bloomberg)

FCStone Is Betting on Tech Transforming Physical Gold Market (Bloomberg)

Is Donald Trump extremely crafty or just plain thick?  (Moneyweek)

Treasure hunters find earliest ever discovered gold in farmer’s field  (Telegraph)

Student Loan Debt In 2017: A $1.3 Trillion Crisis (Forbes)

Gold Prices (LBMA AM)

01 Mar: USD 1,246.05, GBP 1,007.18 & EUR 1,182.50 per ounce
28 Feb: USD 1,251.90, GBP 1,006.90 & EUR 1,180.79 per ounce
27 Feb: USD 1,256.25, GBP 1,011.16 & EUR 1,187.41 per ounce
24 Feb: USD 1,255.35, GBP 1,000.89 & EUR 1,185.18 per ounce
23 Feb: USD 1,237.35, GBP 992.97 & EUR 1,173.13 per ounce
22 Feb: USD 1,237.50, GBP 994.21 & EUR 1,178.22 per ounce
21 Feb: USD 1,228.70, GBP 988.86 & EUR 1,166.16 per ounce

Silver Prices (LBMA)

01 Mar: USD 18.33, GBP 14.89 & EUR 17.40 per ounce
28 Feb: USD 18.28, GBP 14.70 & EUR 17.24 per ounce
27 Feb: USD 18.34, GBP 14.77 & EUR 17.33 per ounce
24 Feb: USD 18.27, GBP 14.56 & EUR 17.23 per ounce
23 Feb: USD 18.00, GBP 14.42 & EUR 17.06 per ounce
22 Feb: USD 18.00, GBP 14.47 & EUR 17.14 per ounce
21 Feb: USD 17.89, GBP 14.41 & EUR 16.97 per ounce


Recent Market Updates

– Interview about Gold – Value, Weight, Beauty, Rarity, Peak Gold and Secure Storage
– Oscars Debacle – Movies More Costly As Dollar Devalued
– Gold Up 9% YTD – 4th Higher Weekly Close and Breaks Resistance At $1,250/oz
– The Oscars – Worth Their Weight in Gold?
– Gold To Benefit from Rising Inflation and Higher Than “Official” China Gold Demand
– Russia Gold Buying Is Back – Buys One Million Ounces In January
– Gold The “Ultimate Insurance Policy” as “Grave Concerns About Euro” – Greenspan
– Sharia Standard May See Gold Surge
– Gold Price To 2 Month High As Fiery Trump Declares World Order
– Gold’s Gains 15% In Inauguration Years Since 1974
– Turkey, ‘Axis of Gold’ and the End of US Dollar Hegemony
– Gold Up 5.5% YTD – Hard Brexit Cometh and Weaker Dollar Under Trump
– Bitcoin and Gold – Outlook and Safe Haven?

Interested in learning more about physical gold and silver?
Call GoldCore and speak with a Gold and Silver Specialist today!

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