Month: December 2018

Authored by Patrick Buchanan via Buchanan.org,

Is it coincidence or contagion, this malady that seems to have suddenly induced paralysis in the leading nations of the West?

With lawyer-fixer Michael Cohen’s confession that he colluded with Donald Trump in making hush money payoffs to Stormy Daniels and Karen McDougal, America’s stage is set for a play that will run two years.

As Democrats test the waters for a presidential run by savaging Trump, the establishment Trump detests and defeated in 2016 will use every weapon in its considerable arsenal to break and bring him down, as it did half a century ago to Richard Nixon.

By spring 2019, Americans will be unable to escape the vitriol on cable and social media. And the outside world will see America again as a house divided. Our politics will be even more poisonous than now, and it is not easy to see what would bring our warring tribes together again.

Consider, then, the situation of our old ally Great Britain.

Prime Minister Theresa May was just forced to pledge that she would not lead her party in the next election — to survive a no-confidence vote in Parliament. A third of all Tory members voted to throw her out.

The no-confidence vote was called after May had to cancel a vote on the Brexit plan she had negotiated with the EU, when it was evident that a coalition of Tories and Labor would vote to kill her plan.

May has been humiliated. Yet her humiliation solves nothing. The clock is running toward a March deadline for concluding a Brexit deal. And no plan acceptable to both Parliament and the EU is on the table.

The possibility exists that Britain could simply crash out of the EU, causing severe economic damage to both.

Realizing this, Brussels has left the door open if Britain should vote in a second referendum to remain in the EU. But calling and carrying out that referendum would be a betrayal of the 52 percent of the British people that voted to restore full national independence.

While London wanted to stay in the EU in 2016, England voted to leave. Northern Ireland wanted to stay, as did Scotland, though 45 percent of Scots had earlier voted to declare their own independence from Great Britain.

In France, after four Saturdays of anarchy, arson, looting and vandalism of her national monuments, President Emmanuel Macron capitulated to the rioters. He withdrew the fuel tax that triggered the uprisings. He agreed to have his government add $113 a month to those earning the minimum wage, and to let workers get overtime pay and Christmas bonuses tax-free, and to revoke higher social charges on modest pensions.

The cost of Macron’s retreat is estimated at $11 billion, 0.4 percent of France’s GDP. Saturday will tell us if his appeasement bought peace.

The political collapse of Macron has been extraordinary.

In 2017, he won almost two-thirds of the national vote, and his La Republique en Marche! won an absolute majority of the National Assembly.

Today, one poll puts Macron’s approval at 21 percent. The idea that he can replace Angela Merkel as the recognized leader of the EU seems ridiculous.

As for Merkel herself, hailed as leader of the West in the time of Trump, her party and coalition lost so much support in the recent election that she stepped down as leader of the CDU and pledged not to run for another term as chancellor.

Europe’s fourth-largest economy, Italy, is now led by a coalition of the populist-left Five Star Movement and populist-right Lega party. The coalition seeks greater freedom on spending than Brussels is willing to allow, and a halt to migration from across the Med.

With Poland and Hungary at odds with Brussels over alterations in their political systems, the EU has never seemed less united.

What are the underlying causes of these 21st-century crises of Western democracies?

Certainly, globalization, with its creation of ties among transnational elites at the expense of nation-states and their indigenous peoples is one. Capitals — Washington, London, Paris, Berlin — seem ever more distant from the countries they rule.

Then there is demography. The native-born of almost all Western nations are aging, shrinking and dying. Death rates exceed birth rates. While peoples of the West are living longer, they are producing fewer children to replace them.

At the same time, Western elites have welcomed foreign workers and left borders unsecured against mass migration. And the people coming in, almost all now from the Third World, are not assimilating as the children of 19th- and 20th-century European immigrants to the USA had largely done by 1960.

A consequence and related cause is the rise of tribalism, or ethno-nationalism, the search for identity and community with one’s own. Loyalties to family, tribe, neighborhood, culture and country appear paramount, rising above intellectual and political alignments.

The heart has reasons of which reason knows nothing, said Pascal. And so it does.

via RSS https://ift.tt/2Elh5jM Tyler Durden

The Dow Jones is down over 300 points, with consumer stable giant Johnson & Johnson responsible for nearly a quarter of this plunge…

… as JnJ is suffering from its worst drop since 2002…

… as the company has wiped out 10% of its valuation, or some $35BN in market cap…

… following a shocking Reuters report that from at least 1971 to the early 2000s, Johnson & Johnson knew for decades that asbestos lurked in its Baby Powder, and that its talc product “sometimes tested positive for small amounts of asbestos”, and that company executives, mine managers, scientists, doctors and lawyers were aware of the deadly threat, and “fretted over the problem and how to address it while failing to disclose it to regulators or the public.”

Curiously, the last time shares of the drugmaker came under this much pressure was due to asbestos concerns back in February, after traders circulated a blog post focused on worries about what might be uncovered during litigation Bloomberg reports. The shares fell as much as 11% that day, even as Wells Fargo – who else – called the concerns overblown. Analyst Lawrence Biegelsen said at the time that approximately 5,500 talc cases nationwide could create a total liability to the drugmaker of just $1.5 billion.

Fast forward to today when as noted above, the intraday move has wiped out $35 billion in market value, although as Susquehanna litigation analyst Tom Claps said “today’s Reuters story about JNJ’s talc litigation is not ‘new news.'” In July, a jury ordered the company to pay $4.69 billion to women who claimed asbestos in the products caused them to develop ovarian cancer

“JNJ has been facing talc/asbestos litigation for years,” Claps wrote in response to questions. He said there have been a number of trials where plaintiffs showed evidence suggesting the company knew and concealed the risks. “Interestingly,” he said, “JNJ’s stock has taken a bigger hit today than it did after that $4.7B verdict.”

And while it is debatable if the company’s talc problems are “news”, Bloomberg Intelligence litigation analysts Aude Gerspacher and Holly Froum estimate that the New Brunswick, NJ-based company could be on the hook for as much as $10 billion to $20 billion in settlements from an estimated 11,000 pending talc cases.

For now the market is even more skeptical and is hitting the AAA/Aaa rated company (a rating higher than that of the US itself) to nearly double that potential payout and resulting in broad pain for the Dow Jones as well.

via RSS https://ift.tt/2LhEDHD Tyler Durden

We were surprised it took President Trump this long to gloat at the weakness in Chinese economic data, but in his latest tweet, he took a shot:

“China just announce the there economy is growing much slower than anticipated because of our Trade War with them…

They have just suspended U.S. Tariff Hikes. U.S. is doing very well. “

However, China is not that much worse than US economic data, so be careful whoi you gloat at…

Of course, what really matters to Trump is the market – which has been ugly this morning – and so he offered the algos some ‘red meat’ to buy:

“China wants to make a big and very comprehensive deal. It could happen, and rather soon!”

TRUMP SAYS CHINA DEAL `COULD HAPPEN, AND RATHER SOON!’

Translation: dear algos, please buy something

— zerohedge (@zerohedge) December 14, 2018

But for now, they are ignoring him…

via RSS https://ift.tt/2Cd1Sjt Tyler Durden

While the market’s frenzied attention has lately shifted to the cracks appearing in the leveraged loan market, which as we reported last night is seeing the “wheels come off” following record outflows, a collapse in loan prices, massive original issue discounts, pulled deals, banks retaining loans on their books unable to find buyers and a general sense that the market is about to freeze, one should not forget the original bogeyman that many believe will be the cause of the next credit crisis when the upcoming recession finally hits: a wholesale downgrade of investment grade (or BBB) rated companies into the junk space as rating agencies finally wake up to the reality of what the combustible mix of record debt, declining cash flows and a contracting economy mean for US corporations.

And it is here that things are once again moving from bad to worse.

Recall that just two weeks ago we reported that no less than $90 billion in A-rated bonds had been downgraded to the lowest investment grade rating, BBB, below which companies become “fallen angels” as they move from investment grade to high yield, resulting in forced liquidations as countless vanilla funds are simply not permitted by their mandate to retain junk on their books.

Fast forward to today when Goldman reports that just two weeks after our original report, the number of A to BBB downgrades has doubled to a whopping $176 billion in the fourth quarter, just shy of the all time high hit in Q4 2015, and with several more weeks still left this quarter, it is likely that a new downgrade record will soon be hit.

As Goldman’s Lotfi Karoui writes overnight, there are good and bad news in the recent data.

The good news is that in the credit strategist’s opinion, the downgrade risk is higher among A-rated issuers than it is among their BBB-rated peers.

The bad news is that Goldman may have been “too” correct, as this view has continued to play out through 4Q2018, and “quarter to date, over $176 billion of debt has migrated into BBB territory from the A bucket; the highest amount since 4Q2015, which was a period characterized by a heavy wave of commodity-related “fallen angels”.

Meanwhile, as shown by Exhibit 2, $12 billion worth of bonds rated A- remain on downgrade watch, and while Goldman believes that this is a relatively modest number, “we think it is worth bearing in mind that downgrades can – and often do – occur when a rating has a stable outlook.”

Putting these trends in context, Goldman writes that over the long term, “we continue to believe the risk of negative rating action in the high end of IG remains elevated, more so than in the BBB bucket” and highlights one recent example from this week in which the announcement of a debt-funded share buyback – and the related deterioration in leverage – served as the catalyst for a downgrade into BBB territory.

We do not view this as a unique example. As we discussed recently, the willingness of many highly-rated IG firms to utilize their ample debt capacity for maintaining (or increasing) shareholder returns and pursuing M&A opportunities in 2019 is strong.

So yes, Goldman may be right, and it is likely that the even bigger risk of a “fallen angel” avalanche is the downgrade of A-rated names to BBB. But while rating agencies are clearly adding to the pre-fallen angel camp, there is no denying that the big threat is what happens if and when the BBB downgrade deluge begins. As Deutsche Bank calculated last month, when looking at those bonds most at risk of getting junked, $150bn of the $736bn of BBB- bonds are currently on negative watch/outlook with at least one rating agency, and in danger of imminent “junking.”

And while Goldman remains clearly complacent about the BBB space at least until a recession hits, as Deutsche Bank warned last week, even before we get to an economic slowdown – some time in 2020 – or even before the market start pricing the slowdown in, “it feels like the tide might be turning and we start to see fallen angels outpace rising stars over the next year.”

So there you have it: for those who believe a recession is either imminent or will soon be priced in, keep shorting the BBB space. Meanwhile, those who think it will take some more time before the rating agencies filter out the noise, the best place to be short is those “pre-fallen” A bonds which will first become BBBs, before they too join the deluge into the junk space, some time around late 2019/early 2020.

via RSS https://ift.tt/2Lfiytg Tyler Durden

France is set to deploy tens of thousands of police and gendarmes across the country on Saturday, including 8,000 in Paris, to deal with a fifth weekend of Yellow Vest protests – just days after three people were killed and 13 injured after a mass shooting in the eastern city of Strasbourg.

Paris police chief Michel Delpuech said authorities are on watch for “violent groups” infiltrating the protests, and that riot officers will protect landmarks such as the Arc de Triomphe and the presidential palace, reports Reuters.

“We need to be prepared for worst-case scenarios,” Delpuech told RTL radio, who added that he doesn’t expect businesses in the capital to suffer the same level of disruption as they have over the past three weeks, when major stores and hotels suffered a dramatic drop in business as tourists avoided the area. 

This weekend’s Yellow Vest protests, nicknamed “Acte V” – mark the fifth week of anti-government outrage which began over opposition to an announced fuel-tax designed to pay for climate change policies. 

Interior Minister Christophe Castaner said it was time for the Yellow Vests to tone down their protests and acknowledge that they had achieved their goals after French President Emmanuel Macron rolled out a series of economic and tax incentives, including a minimum wage hike, no tax on overtime pay, tax-free year-end bonuses, and a six month delay to the fuel tax. 

While most French people polled by Odoxa said they found Macron’s proposal “satisfactory,” 59% of those polled say they were “not convinced” by the measures. 

54% of those surveyed said the Yellow Vest protests should continue. 

Many of the Yellow Vests have flat-out rejected Macron’s proposals, according to European-Views.

He is trying to do a pirouette to land back on his feet but we can see that he isn’t sincere, that it’s all smoke and mirrors,” said Jean-Marc, a car mechanic as a gathering of some 150 Yellow Vests in the southern town of Le Boulou.

“It’s just window dressing, for the media, some trivial measures, it almost seems like a provocation,” said Thierry, 55, a bicycle mechanic.

“All this is cinema, it doesn’t tackle the problems of substance. “We’re really wound up, we’re going back to battle,” he told AFP before taking part in blocking the Boulou turnpike on the French-Spanish border.

“Maybe if Macron had made this speech three weeks ago, it would have calmed the movement, but now it’s too late. For us, this speech is nonsense,” said Gaetan, 34, one of the “Rennes Lapins Jaunes” (Yellow Rabbits of Rennes).

One 35-year-old French official said that Macron “is being held hostage so he drops some crumbs.” 

Meanwhile, over 700 police officers were redeployed to Strasbourg for a manhunt following Tuesday’s mass shooting at a popular Christmas market. The gunman was shot dead in an exchange of gunfire Thursday evening. Castaner said it was time for the yellow vests to give police officers a break. 

“I’d rather have the police force doing their real job, chasing criminals and combating the terrorism threat, instead of securing roundabouts where a few thousand people keep a lot of police busy,” said the interior minister. 

via RSS https://ift.tt/2QzCAor Tyler Durden

Authored by Jan-Patrick Barnert and Michael Msika via Bloomberg,

The EU300 Billion Race to the Bottom of Europe: Taking Stock

As we approach the end of a dismal year for European stocks, the question is: which sector had the worst year of them all?

With a few trading sessions left before the end of 2018, banks and autos are in a tight race to the bottom. As of Thursday’s close, lenders are the biggest losers, with a quarter of their market value down the drain, a wipeout of roughly 300 billion euros in shareholders’ money.

Banks haven’t seen such a bad year since the heat of the euro-zone sovereign debt crisis in 2011.

As the final ECB meeting of the year confirmed, the central bank will keep rates unchanged at least until next summer and the grim outlook for the sector highlighted in one of our earlier Taking Stock columns remains valid.

Any attempt by the sector to break out from its downward trend in 2018 has so far failed.

Perhaps it’s not a surprise as banks face a wall of worry from investors and nothing seems to be able to help them move forward. Repeated calls from some analysts that the sector is cheap hasn’t triggered any significant buying. A good example is Credit Suisse’s buyback and dividend announcement on Wednesday. That didn’t even raise investors’ interest with the stock hovering near its low. While any return of capital to shareholders is welcome, the dark clouds over its investment banking outlook seemed to weigh more.

Here’s the grim silver lining:

…it doesn’t matter much to the rest of the market: Since the financial crisis a decade ago, the influence of banks over the broader European gauge has fallen dramatically, to a point where they now barely move the Stoxx 600.

So what could help the shares regain their vigor? Although merger talk seems to find fruitful (speculative) ground, large cross-border deals remain a fantasy. But domestic love stories might be one theme to keep an eye on next year. Most prominent is the ongoing chatter about Deutsche Bank and Commerzbank, the worst and third-worst performing stocks in the Stoxx 600 Banks index. While any merger is far from certain, market reaction shows that investors, or at least algos and punters, are betting on any consolidation as the last resort to improve bottom-lines.

Italy’s banks have also been very much in the spotlight this year as the country’s new populist government and its fight with the European Union over its deficit target, pushed up the country’s yields. The FTSE Italia All-Share Banks Index is down 26 percent since the start of the year with the nation´s largest lenders, UniCredit and Intesa, down 30 and 23 percent respectively.

“Top-down factors remain the biggest share price drivers for Italian banks (and ‘calling’ the political outlook remains tough),” Jefferies analyst Benjie Creelan-Sandford, said in a note earlier this month.

“To the extent that bottom-up drivers are taken into account, the focus has been on read-across to capital and funding positions from weaker sovereign sentiment.”

Concessions from the Italian government about the budget, coupled with a shift in focus toward France’s potential target-breaching deficit next year, may be the catalyst Italian banks needed to regain investors’ favor.

While some may view the sector as cheap, it still seems that being bullish on banks is a contrarian view. This made Deutsche Bank’s recent strategist call even bolder. They forecast a 15 percent outperformance for European banks by the end of the first quarter of 2019, as euro-area PMIs improve and Bund yields rise. Yet after the ECB President Mario Draghi said risks to the euro-area economy are worsening, 2019 isn’t likely to start on the most optimistic note.

And if you are gloating at the “fortress balance sheet” US banks, as BMO’s Brad Wishak notes, price and time are playing a familair hand in US bank stocks…

Finally, BofAML strategists summed it all up very succinctly this week:

“What we learned in 2018: That central banks trump everything, when global liquidity peaked in Q1, markets peaked; that we remain in a deflationary world which cannot handle a 10-year Treasury yield above 3%; That investors have no satisfactory answers to the existential questions of ‘If not stocks, what?’, ‘If not tech, what?’ ‘If not the U.S. dollar, what?'”…

via RSS https://ift.tt/2A0qkTq Tyler Durden

Back in June 2017, we wrote that if one had to follow just one macro indicator that impacts virtually every aspect of the global economy, that would be the Chinese credit impulse. Not surprisingly, the article was titled “Why The (Collapsing) Credit Impulse Is All That Matters.”

Today, almost a year and a half later, the world is once again on the verge of a recession, with China – whose recent economic data has been a disaster – closely watched as the spark that could light the next global economic and financial conflagration. And not surprisingly, it is again all about the Chinese credit impulse, which – it should come as no surprise – has dropped to just shy of a fresh post-crisis low (note how it was China’s record credit impulse burst in 2009 that dragged the world out of a global recession).

Which brings us to the latest Chinese data overnight, which as we discussed yesterday showed that activity has further disappointed with Industrial Production missing and consumption/retail sales slowing, a message consistent with what we heard yesterday from global central banks, as the global slowdown forced both the ECB and SNB to lower 2019 growth- and inflation- estimates, along with the Bundesbank today cutting the German growth projection as well (while the latest PMI data showed German private sector expansion dropped to a four year lows)—all corresponding with the Fed’s own “dovish pivot.”

So with attention focusing on China, Nomura’s Ting Lu’s this morning reiterates his view on the sequencing of China’s economic data, and expects the front-loading of exports to continue over the 90-day truce period, which will help support production in December however this benefit will be somewhat offset by weakening external demand, and thereafter into 1H19 (esp Q2), data will show significant slowdown, as the pull-forward around the tariff front-loading will fade in conjunction with the negative impacts of the cooling housing sector and the overall credit down-cycle.

As a result, Ting believes it will be in 2Q19 when Beijing is forced to escalate policy easing/stimulus measures as the data negativity hits “breaking point,” with RRR cuts, infrastructure spending, VaT cuts, RMB depreciation and deregulation in large city property sectors, which will eventually drive a bottoming-out in the data thereafter.

How does all of this feed into China’s credit impulse? Well, as Charlie McElligott writes this morning, echoing our favorite macro theme, the Chinese credit impulse, with its negative “flow”, continues to dictate thematic macro themes such as: weaker inflation, weaker growth, the collapsing “cyclicals/defensives” ratio, fading industrial metals and, most importantly, forcing speculative positioning in 10Y Treasuries to cover their record short.

All this is shown in the thematic flow chart below, which begins (and ends) with the rate of change in China’s credit impulse.

via RSS https://ift.tt/2QumeNH Tyler Durden

Authored by Mac Slavo via SHTFplan.com,

A vast majority of chief financial officers in the United States say that the economy will sink into a recession by the end of President Donald Trump’s first term in 2020, and about half say it will happen next year.  Many are predicting a recession in 2019 and an all-out market crash in 2020.

According to an article by Newsweek,  almost half of corporate CFOs  (49 percent) say that the U.S. economy’s decade-long growth streak is set to collide with worsening debt woes. And that will manifest with the country facing a recession by the end of next year. Corporate finance leaders are preparing for the recession to hit within 18 months, and 82 percent of CFOs interviewed in the latest quarterly Duke University/CFO Global Business Outlook survey expect the U.S. to slide into a recession by 2020.

This survey was completed on December 7 of this year and consisted of responses gathered from more than 500 CFOs, including 226 from North American companies.

“The end is near for the near-decade-long burst of global economic growth,” said John Graham, a finance professor at Duke University’s Fuqua School of Business and director of the survey, in a statement.

“The U.S. outlook has declined; moreover, the outlook is even worse in many other parts of the world, which will lead to softer demand for U.S. goods.”

The CFOs, who appear to be increasingly pessimistic about the U.S.’s economy, say thatseveral economic markers have only worsened since the Great Recession a decade agoand that they now predict earnings growth, capital spending, and research and development investment to fall. The CFOs said most growth will occur at the beginning of next year, which still gives the government time to “soften the fall,” Graham pointed out.

“All of the ingredients are in place: a waning expansion that began in June 2009, almost a decade ago; heightened market volatility; the impact of growth-reducing protectionism; and the ominous flattening of the yield curve, which has predicted recessions accurately over the past 50 years,” said Campbell Harvey, the founding director of the Duke/ CFO survey.

Economists have repeatedly issued warnings in the past several years about skyrocketing global debt caused by central banks flooding national economies with cheap money. In 2008, global debt was only $177 trillion, compared with $247 trillion today. In the U.S. economy, household debt has dramatically worsened, automobile loans are far exceeding their 2008 peaks, and unpaid credit card balances are just as high as the period preceding the Great Recession. -Newsweek

via RSS https://ift.tt/2Gj8ros Tyler Durden