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Zimbabwe is once again at the brink of economic collapse, making a mockery of President Emmerson Mnangagwa’s claim that the country is open for business.

As Bloomberg reports,  many shops and factories have shut their doors because of a lack of customers and those that continue to trade are open to haggling over prices to secure hard currency. At an appliance shop in the capital, Harare, a salesman whispers that a Whirlpool Corp. washing machine priced at about $5,000 if paid for electronically will sell for $1,500 in cash, while at a nearby electrical warehouse, a $600 invoice is whittled down to $145 for payment in dollar bills.

But, as OilPrice.com’s Tsvetana Paraskova reports, Zimbabwe is on a three-day nationwide strike and protests are erupting in the streets after the government of the southern African country doubled fuel prices, making gasoline sold in Zimbabwe the most expensive gasoline in the world.  

Zimbabwe is in the midst of an economic crisis and a shortage of foreign exchange, which has led to fuel and bread shortages, and many companies have stopped working because they can’t import raw materials.

Following hyperinflation in 2009, Zimbabwe abolished its own currency and has been using the U.S. dollar and South African rand instead.

But the economic crisis and foreign currency shortages has prompted the government to say over the weekend that it would introduce a new currency of its own in the next 12 months.

However, the policy that really sparked protests and calls for a national stay-away was the sharp increase of fuel prices over the weekend.

According to Zimbabwe’s President Emmerson Mnangagwa – who succeeded the president of 38 years Robert Mugabe in November 2017 – the doubling of the fuel prices would help ease fuel shortages. 

In a post on his official Facebook page, Mnangagwa wrote on Sunday:

“Following the current shortfall in the fuel market, we have chosen to act, and act decisively. The shortage, attributable to increased fuel usage in the growing economy, and compounded by rampant illegal currency and fuel trading activities, is unsustainable and Government has today decided on the following measures:

• A fuel pump price set at $3.11 per litre for diesel, and $3.33 per litre for petrol.”

The gasoline price of $3.33 per liter is now the world’s highest.

According to data from GlobalPetrolprices.com, as of January 7, 2019, the world’s average gasoline price was $1.08 per liter, or $4.09 per gallon. The most expensive gasoline in the world before the Zimbabwean price hike was in Hong Kong where a gallon of gas goes for $7.71.

In Zimbabwe, the trade unions and the main confederation of industries called for the three-day strike and say it has been a success so far.

“So far the stay-away has been effective,” Peter Mutasa, president of the Zimbabwe Congress of Trade Unions, told Bloomberg on the phone.

The Confederation of Zimbabwe Industries said in a letter to the Industry Ministry that “The house is burning,” as many businesses are collapsing or on the verge of collapsing due to the lack of foreign exchange funds and economic chaos.

According to Bloomberg, here’s what Zimbabweans have to deal with on a daily basis:

• The official inflation rate stands at 31 percent, well short of 2008 levels but still high enough to drive consumers to the black market or import their own food and other basics.

• Goods paid for electronically cost as much as four-and-a-half times more than if cash were used. Retailers have resorted to a dual-pricing policy and offering cash discounts, defying the government’s threats to act against them.

• Supermarkets have stopped selling a number of goods and stock outages of everything from bread to coffee are commonplace. Zimvine, a Facebook group, is being used to request and share information on where to find food, fuel and other goods and how to contact lawyers specializing in immigration.

• The head of Zimbabwe’s main industry body has warned that many companies that continue operating will shut this month due to the currency shortage.

• The city authority in Harare has scaled back refuse removal and other services because it can’t access diesel for its trucks.

• Doctors staged a six-week strike to demand improved working conditions and that their salaries be paid in cash. While the labor action was called off on Jan. 10, it could take months to clear operation backlogs.

• Teachers and other state workers have warned that they’ll down tools unless the government pays them in cash.

No yellow vests? Maybe they can’t afford them?

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Ahead of the government shutdown in December, one bank after another – desperate to defend their bullish takes on the economy – predicted that the government shutdown would barely have an adverse impact on the US economy. However, now that the shutdown has entered its 25th day, extending the longest shutdown on record…

… it appears that economists are starting to change their mind, and now none other than the Trump administration itself now estimates that the cost of the government shutdown will be twice as steep as originally forecast.

As CNBC’s Steve Liesman reports, the original estimate that the partial shutdown would subtract 0.1% from growth every two weeks has now been doubled to a 0.1% subtraction every week, citing an unnamed official.

While the administration had initially counted just the impact from the 800,000 federal workers not receiving their paychecks. But they now believe the impact doubles, due to greater losses from private contractors also out of work and other government spending and functions that won’t occur, according to CNBC.

Furthermore, the admin official said that if the shutdown lasts the rest of this month, it could subtract a sizable half a percentage point from gross domestic product, which if one assumes a sharp drop in inventories as retailers are forced to liquidate unsold products – something Macy’s warned about last week – could potentially shift Q1 GDP into the red.

The subtraction from growth would add to the troubles of an economy already thought to be slowing from waning effects of tax stimulus, trade tensions and gathering global weakness.

What is curious, is that the administration’s own estimate is far more aggressive than several forecasts from Wall Street economists. Yet even those estimates which have assumed a roughly 0.1 percentage point cut to growth every two weeks, have been rising as it now looks like the shutdown would drag on for much longer than anyone had expected.

Some, such as Moody’s chief economist Mark Zandi, forecasts a half of percentage point hit to GDP if the shutdown lasts through March, which is roughly a third of the administration’s new estimate.

“We estimate (the shutdown) will reduce first quarter real GDP growth by approximately 0.5 percentage points,” Zandi wrote in a research report. “Of this, about half will be due to the lost hours of government workers, and the other half to the hit to the rest of the economy.” Zandi said his estimate could worsen if the administration can’t continue to triage the effects of the shutdown or if the administration can’t issue tax refunds.

A more ominous forecast, that from Pantheon’s chief economist Ian Shepherdson, sees the combination of the shutdown and the tendency of the first quarter to be statistically weaker than the other three potentially pushing Q1 GDP growth negative. “If the shutdown were to last through the whole quarter, we would look for an outright decline in first quarter GDP,” Shepherdson wrote in a report.

Of course, the irony is that because of the shutdown, much of the high frequency data that economists need to estimate GDP is be indefinitely delayed. Several key economic indicators are not being published because government data collectors and number crunchers have been furloughed. While labor reports are being issued, the December retail sales report — the most important of the year because it includes Christmas sales — will not be issued this Wednesday.

That also means that it is unlikely that the government will be able to issue the fourth-quarter GDP report due Jan. 30th, should the government not reopen before then. A BEA official could not say when or whether the GDP report can be issued. “There is no way for us to know until we get back and evaluate all the various data sources that go into the advance estimate of GDP,” said the official.

There is another potential complication: the Fed itself will not have access to key economic data to make a determination if the economy is indeed slowing as the market appears to suggest. Coincidentally, CNBC notes that the GDP report was to have been issued on the second day of the Federal Reserve’s first meeting of the year, where the central bank is struggling to figure out the extent of the slowdown and how to tailor interest rate policy.

But in a statement, a Fed spokesperson appeared to play down the importance of the missing data so far in the central bank’s decision-making.

“While having the full complement of government data available would be beneficial, the Federal Reserve’s staff assessment of economic conditions takes into account a wide range of information from government and private-sector sources, as well as readings on financial and international developments, and staff continue to provide a detailed economic picture for policymakers,” the statement said.

The good news for the Trump administration is that while the US economy may slide into contraction this quarter, should the shutdown persist indefinitely, there will be nobody to report that GDP is now negative. Meanwhile, the feud between Trump and Democrats over who “owns” not only the shutdown but the potential recession, escalated with every passing day.

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For the fourth time in its history (the last hike came in 2017), Netflix is raising prices by 13-18% – its biggest price-hike since launching 12 years ago.

AP reports that Netflix’s most popular plan will see the largest hike, to $13 per month from $11. That option offers high-definition streaming on up to two different internet-connected devices simultaneously. The price for the cheapest plan is going up to $9 per month. A premium plan offering ultra-high definition will jump to $16 per month from $14.

Even at the higher price, that plan is still a few dollars cheaper than HBO, whose streaming service charges $15 per month, but Amazon offers a streaming service as part of its Prime shipping program for $13 per month.

This is the first time that higher prices will hit all 58 million U.S. subscribers

The new prices will immediately affect all new subscribers and then roll out to existing customers during the next three months.

“We change pricing from time to time as we continue investing in great entertainment and improving the overall Netflix experience,” the company said in a statement.

The stock is up on this news – surging 6% ahead of the open – as it seems the market believes Netflix viewers are entirely price inelastic…

Additionally, this price-hike comes as the company burned through about $3 billion last year and is expecting to do so again this year. To offset the negative cash flow, Netflix has been borrowing heavily to pay for programming. accumulating nearly $12 billion in debt before borrowing another $2 billion in an October bond offering.

NFLX is now up 30% year-to-date…

We’ll see, as the economy slows.

 

 

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One day after the Canadian government finally caved in to demands from conservative lawmakers and issued a travel advisory warning its citizens about the “arbitrary enforcement of laws” on the mainland – a warning that was apparently prompted by a local court handing down a death sentence to a Canadian citizen convicted of trafficking drugs – China has hit back with a tit-for-tat travel advisory of its own.

According to the South China Morning Post, a notice by the Chinese Foreign Ministry urged Chinese citizens to be aware of the risks of being “arbitrarily detained at the request of a third nation” in Canada, and urged caution when making travel plans – an obvious reference to the arrest of Huawei CFO Meng Wanzhou, who was arrested in Vancouver last month at the behest of the US.

In addition to the death sentence handed down to Schellenberg, a ruling that many accused of being politically influenced due to the suspiciously swift appeal and hearing, China has arrested two Canadians, a former diplomat and a businessman, on vague “National Security” charges.

Meanwhile, Canadian Prime Minister Justin Trudeau said after the death sentence was handed down that Canada was prepared to intervene on Schellenberg’s behalf.

“It is of extreme concern to us as a government, as it should be to all our international friends and allies, that China has chosen to begin to arbitrarily apply [the] death penalty…as in this case facing a Canadian,” Trudeau said.

The Chinese government and the local court where Schellenberg’s re-sentencing took place defended the verdict, saying the rule of law had been followed.

The local court in Dalian, Liaoning Province, which delivered the verdict, said on Tuesday that it had “rigorously enforced” the relevant laws in Schellenberg’s case “without any procedural violations.”

It said the Liaoning Higher Court had ordered a retrial after Schellenberg appealed against his initial 15-year sentence, adding that it “followed the law in accepting the case” and had carried out the necessary processes.

Hua Chunying, a spokeswoman for China’s foreign ministry, also insisted that the rule of law had been followed in Schellenberg’s case.

“The Canadian government should remind its citizens not about facing threats in China, but to never come to China to commit serious offences such as smuggling or trafficking drugs,” she said in a daily briefing.

“Those who commit these serious offences in China will definitely face serious consequences.”

But observers said the case bore all of the hallmarks of a politically sensitive issue.

Scott McKnight, managing editor of the China Open Research Network at the University of Toronto, said the sudden change and increased coverage in Chinese media was a “clear indication to us that the Chinese government is eager to politicise this specific case in its broader diplomatic spat with Canada.”

“The Chinese government, in choosing to escalate this stand-off, is showing that it’s immune – or simply doesn’t care – about the damage it is doing to its reputation, so long as it somehow helps to get Mrs Meng back to China,” he said.

Earlier this month, the US stepped up its own travel advisory about China, where it also warned US citizens about the arbitrary enforcement of laws in China.

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President Trump just retweeted the following ‘anonymous’ op-ed from The Daily Caller saying it is “worth the read.”

Worth the read.

I’m A Senior Trump Official, And I Hope A Long Shutdown Smokes Out The Resistance https://t.co/6ahfOlyl5K via @dailycaller

— Donald Trump Jr. (@DonaldJTrumpJr) January 14, 2019

The Daily Caller is taking the rare step of publishing this anonymous op-ed at the request of the author, a senior official in the Trump administration whose identity is known to us and whose career would be jeopardized by its disclosure. We believe publishing this essay anonymously is the only way to deliver an important perspective to our readers. We invite you to submit a question about the essay or our vetting process here.

As one of the senior officials working without a paycheck, a few words of advice for the president’s next move at shuttered government agencies: lock the doors, sell the furniture, and cut them down.

Federal employees are starting to feel the strain of the shutdown. I am one of them. But for the sake of our nation, I hope it lasts a very long time, till the government is changed and can never return to its previous form.

The lapse in appropriations is more than a battle over a wall. It is an opportunity to strip wasteful government agencies for good.

On an average day, roughly 15 percent of the employees around me are exceptional patriots serving their country. I wish I could give competitive salaries to them and no one else. But 80 percent feel no pressure to produce results. If they don’t feel like doing what they are told, they don’t.

Why would they? We can’t fire them. They avoid attention, plan their weekend, schedule vacation, their second job, their next position — some do this in the same position for more than a decade.

They do nothing that warrants punishment and nothing of external value. That is their workday: errands for the sake of errands — administering, refining, following and collaborating on process. “Process is your friend” is what delusional civil servants tell themselves. Even senior officials must gain approval from every rank across their department, other agencies and work units for basic administrative chores.

Process is what we serve, process keeps us safe, process is our core value. It takes a lot of people to maintain the process. Process provides jobs. In fact, there are process experts and certified process managers who protect the process. Then there are the 5 percent with moxie (career managers). At any given time they can change, clarify or add to the process — even to distort or block policy counsel for the president.

Saboteurs peddling opinion as research, tasking their staff on pet projects or pitching wasteful grants to their friends. Most of my career colleagues actively work against the president’s agenda. This means I typically spend about 15 percent of my time on the president’s agenda and 85 percent of my time trying to stop sabotage, and we have no power to get rid of them. Until the shutdown.

Due to the lack of funding, many federal agencies are now operating more effectively from the top down on a fraction of their workforce, with only select essential personnel serving national security tasks. One might think this is how government should function, but bureaucracies operate from the bottom up — a collective of self-generated ideas. Ideas become initiatives, formalize into offices, they seek funds from Congress and become bureaus or sub-agencies, and maybe one day grow to be their own independent agency, like ours. The nature of a big administrative bureaucracy is to grow to serve itself. I watch it and fight it daily.

When the agency is full, employees held liable for poor performance respond with threats, lawsuits, complaints and process in at least a dozen offices, taking years of mounting paperwork with no fear of accountability, extending their careers, while no real work is done. Do we succumb to such extortion? Yes. We pay them settlements, we waive bad reviews, and we promote them.

Many government agencies have adopted the position that more complaints are good because it shows inclusion in, you guessed it, the process. When complaints come, it is cheaper to pay them off than to hold public servants accountable. The result: People accused of serious offenses are not charged, and self-proclaimed victims are paid by you, the American taxpayer.

The message to federal supervisors is clear. Maintain the status quo, or face allegations. Many federal employees truly believe that doing tasks more efficiently and cutting out waste, by closing troubled programs instead of expanding them, “is morally wrong,” as one cried to me.

I get it. These are their pets. It is tough to put them down and let go, and many resist. This phenomenon was best summed up by a colleague who said, “The goal in government is to do nothing. If you try to get things done, that’s when you will run into trouble.”

But President Trump can end this abuse. Senior officials can reprioritize during an extended shutdown, focus on valuable results and weed out the saboteurs. We do not want most employees to return, because we are working better without them. Sure, we empathize with families making tough financial decisions, like mine, and just like private citizens who have to find other work and bring competitive value every day, while paying more than a third of their salary in federal taxes.

President Trump has created more jobs in the private sector than the furloughed federal workforce. Now that we are shut down, not only are we identifying and eliminating much of the sabotage and waste, but we are finally working on the president’s agenda.

President Trump does not need Congress to address the border emergency, and yes, it is an emergency. Billions upon billions of hard-earned tax dollars are still being dumped into foreign aid programs every year that do nothing for America’s interest or national security. The president does not need congressional funding to deconstruct abusive agencies who work against his agenda. This is a chance to effect real change, and his leverage grows stronger every day the shutdown lasts.

The president should add to his demands, including a vote on all of his political nominees in the Senate. Send the career appointees back. Many are in the 5 percent of saboteurs and resistance leaders.

A word of caution: To be a victory, this shutdown must be different than those of the past and should achieve lasting disruption with two major changes, or it will hurt the president.

The first thing we need out of this is better security, particularly at the southern border. Our founders envisioned a free market night watchman state, not the bungled bloated bureaucracy our government has become. But we have to keep the uniformed officers paid, which is an emergency. Ideally, continue a resolution to pay the essential employees only, if they are truly working on national security. Furloughed employees should find other work, never return and not be paid.

Secondly, we need savings for taxpayers. If this fight is merely rhetorical bickering with Nancy Pelosi, we all lose, especially the president. But if it proves that government is better when smaller, focusing only on essential functions that serve Americans, then President Trump will achieve something great that Reagan was only bold enough to dream.

The president’s instincts are right. Most Americans will not miss non-essential government functions. A referendum to end government plunder must happen. Wasteful government agencies are fighting for relevance but they will lose. Now is the time to deliver historic change by cutting them down forever.

The author is a senior official in the Trump administration.

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When we reported Wells Fargo’s Q3 earnings back in October, we drew readers’ attention to one specific line of business, the one we have repeatedly dubbed the bank’s “bread and butter“, namely mortgage lending, and which as we then reported was “the biggest alarm” because “as a result of rising rates, Wells’ residential mortgage applications and pipelines both tumbled, sliding just shy of the post-crisis lows recorded in late 2013.”

Well, unfortunately for Wells, despite the sharp drop in yields in Q4 which many had expected would boost mortgage lending or at least refi activity for the bank that was until recently America’s largest mortgage lender, the decline in mortgage activity has continued,  because buried deep in its presentation accompanying otherwise unremarkable Q4 results (modest EPS best; sizable revenue miss), Wells just reported that its ‘bread and butter’ is once again missing, and in Q4 2018 the amount in the all-important Wells Fargo Mortgage Application pipeline shrank again, dropping to $18 billion, the lowest level since the financial crisis.

Meanwhile, Wells’ mortgage originations number, which usually trails the pipeline by 3-4 quarters, was just as bad, dropping a whopping $12BN sequentially from $46 billion to just $38 billion, and effectively tied for the lowest print since the financial crisis.  Putting this number in context, just six years ago, when the US housing market was actually solid, Wells was originating 4 times as many mortgages, or about $120 billion.

And since this number lags the mortgage applications, we expect it to continue posting fresh post-crisis lows in the coming quarter especially if rates resume their rise.

Going back to the headline numbers, here is a recap of the key metrics:

• 4Q adj. EPS $1.21, est. $1.19
• 4Q revenue $20.98 billion, Exp. $24.7BN
• 4Q net interest income $12.64 billion
• 4Q loans $953.11 billion vs. $942.3 billion q/q
• 4Q mortgage non-interest income $467 million
• 4Q residential mortgage originations $38 billion
• 4Q margin on residential held-for-sale mortgage originations 0.89%
• 4Q non- performing assets $6.95 billion
• 4Q net charge-offs $721 million, estimate $736.8 million (BD)
• 4Q total avg. deposits $1.27 trillion

There was more bad news for Wells, whose Net Interest Margin managed ended its recent streak of increases, and was unchanged at 2.94% resulting in $12.644 billion in Net Interest Income, and missing expectations of an increase to 2.95%. This is what Wells said: “NIM of 2.94% stable LQ as a benefit from higher interest rates and favorable hedge ineffectiveness accounting results were offset by the impacts of all other balance sheet mix and lower variable income.“

There was another problem facing Buffett’s favorite bank: while NIM failed to increase, deposits costs are rising fast, and in Q4, the bank was charged an average deposit cost of 0.55% on $914.3MM in interest-bearing deposits, double what its deposit costs were a year ago.

There was a silver lining however: amid concerns over the ongoing slide in the scandal-plagued bank’s deposits, which declined 3% or $40.1BN in Q3 Y/Y (down $2.3BN Q/Q) to $1.27 trillion, in Q4 Wells finally succeeded in getting a modest increase in deposits, which rose to $1.286 trillion, if still down 4% Y/Y. This was driven by growth in Wealth & Investment Management deposits driven by higher retail brokerage sweep deposits, “partially reflecting a change in our customers’ risk appetite, as well as higher private
banking deposits.” Offsetting this were declines in small business banking deposits, partially offset by growth in retail banking consumer deposits.

And some more good news: the recent ongoing shrinkage in the company’s balance sheet appears to have finally reversed, because one quarter after average loans declined from $944.3BN to $939.5BN, the lowest in years, and down $12.8 billion YoY, average loans outstanding increased fractionally to $946.3BN, up $6.8BN, or 1% Q/Q. This rebound was entirely due to commercial loans , which were up $7.7 billion LQ on higher commercial & industrial loans. Meanwhile, consumer loans continued to decline, and were down $835 million LQ as growth in nonconforming first mortgage loans and credit card loans was more than offset by declines in legacy consumer real estate portfolios including Pick-a-Pay and junior lien mortgage loans due to run-off and sales, as well as lower auto loans.

And finally, there was the chart showing the bank’s overall consumer loan trends: these reveal that the troubling broad decline in credit demand continues, as consumer loans were down a total of $13.7BN Y/Y across most product groups.

What these numbers reveal, is that the average US consumer can barely afford to take out a new mortgage even at a time when rates are once again sliding. It also means that if the Fed is truly intent in engineering a parallel shift in the curve of 2-3%, the US can kiss its domestic housing market goodbye.

Source: Wells Fargo Earnings Supplement

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After China’s dismal deflationary impulse (PPI/CPI slumping), US Producer Prices also disappointed, dropping 0.2% MoM – the biggest drop since Aug 2016.

Final Demand Producer Price growth YoY is at its weakest since August 2017…

However while Core PPI disappointed more, printing +2.7% YoY vs +3.0% YoY expectations (and fell 0.1% MoM against expectations of a 0.2% rise), it remains near its highest since 2011…

Finally, we note that Final Demand Consumption fell 0.2% MoM.

So disappointments but Core PPI still high – What Will Jay Powell Do?

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As the battle over President Trump’s border wall drags on for its fourth week, President Trump is warning about a new migrant caravan forming in Honduras and will soon be on it way to the Southern border.

In his tweet, Trump mocked Democratic leaders Nancy Pelosi and Chuck Schumer, warning that “a drone flying around will not stop” the advancing migrant hordes. Once the next wave arrives, “Only a Wall, or Steel Barrier, will keep our Country safe!”

A big new Caravan is heading up to our Southern Border from Honduras. Tell Nancy and Chuck that a drone flying around will not stop them. Only a Wall will work. Only a Wall, or Steel Barrier, will keep our Country safe! Stop playing political games and end the Shutdown!

— Donald J. Trump (@realDonaldTrump) January 15, 2019

Polls are now showing that people are beginning to understand the Humanitarian Crisis and Crime at the Border. Numbers are going up fast, over 50%. Democrats will soon be known as the Party of Crime. Ridiculous that they don’t want Border Security!

— Donald J. Trump (@realDonaldTrump) January 15, 2019

Trump added that polling shows more than 50% of Americans now understand the link between immigration and crime, and that Trump’s quest to build a border wall is a “humanitarian issue.” Meanwhile, the Democrats are risking becoming the “Party of Crime” due to their opposition.

The issue of several migrant caravans heading to the US from Central America became a flashpoint during the days and weeks before the midterms, with Trump regularly weighing in on their progress and US media organizations monitoring their progress. On Tuesday, Fox reported that the caravan – nearly 500 strong – left Honduras on Monday.

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