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Pennsylvania Subsidized Creed II With $16 Million in Tax Breaks, Even Though It Mostly Takes Place in California

Pennsylvania taxpayers helped subsidize the filming of Creed II with $16 million in tax credits, despite the fact that the movie relocates its main characters (and perhaps the future of the long-running, iconic Rocky series) from Philadelphia to Los Angeles.

It’s an apt metaphor for film tax credit programs in general—which are sold as a way to create local jobs in the movie business or as a way to get a state’s top tourist destinations featured on the big screen—but mostly end up benefitting Hollywood production companies.

Creed II, released earlier this month, is the sequel to 2015’s Creed, a spin-off of the Rocky series that sees a now-aged Rocky Balboa (Sylvester Stallone) training up-and-coming boxer Adonis Creed (Michael B. Jordan). Adonis is, of course, the son of Apollo Creed, the antagonist from the first two Rocky films who later becomes a close friend of Rocky’s before being killed in Rocky IV. The second Creed film pits Adonis against the son of Ivan Drago, the Russian heavyweight who killed his father—yeah, there’s a lot of father-son stuff happening.

Those who watched the first Creed may recall that Adonis hailed from Los Angeles. He relocated to Philadelphia to train with Balboa and to find love—and, let’s be honest, so the movie could feature yet another training montage featuring Philadelphia icons like the art museum steps made famous by the series’ original entry.

This time around (minor spoilers follow), Adonis and his Philadelphia-born fiance Bianca Taylor (Tessa Thompson) decide to return to the West Coast. After a few early scenes in and around Philadelphia, much of the the rest of the movie in set in California (except for some scenes set in eastern Europe). Creed and Taylor have a luxury L.A. apartment, the mandatory training montage takes place in the middle of the California desert, and even Rocky himself is eventually convinced to decamp from Philly to L.A.

The move makes sense, for the story. “He came to Philly with a purpose, and sought out Rocky, and while we were mindful of that tradition of making Philadelphia a character in the films, we also wanted to do justice to Adonis by making the story follow his true path as well,” Jordan told The Philadelphia Inquirer earlier this month. But as a $16 million ad for Pennsylvania, it fails.

If Pennsylvanians aren’t unhappy about the decision to take Rocky out of Philly, maybe they should be unhappy about having to help pay for it. As the Inquirer‘s Laura McCrystal explains, Creed II got more than $16 million in tax breaks because the film met the requirement of having at least 60 percent of it’s production costs incurred in Pennsylvania. That’s really the only requirement, and it doesn’t mean that 60 percent of the movie has to be set in Pennsylvania—the tax credit functions as a 25 percent rebate on practically any expense connected to filming in Pennsylvania, from catering lunch for production crews to buying camera equipment.

Pennsylvania hands out $60 million in tax credits each year to lure movie and television productions to the Keystone State. Some state lawmakers are pushing to remove that annual cap, McCrystal reports, so the state could soon be giving away even more.

Since creating the tax credit program under Gov. Ed Rendell in 2004, Pennsylvania has subsidized films that turned into major hits (Silver Linings Playbook got $4.4 million) and laughable flops (After Earth, Will Smith’s disaster that was supposed to launch his son’s career, got more than $20.4 million). The list includes critically-acclaimed films (Foxcatcher, a 2015 Oscar nominee, got $5.4 million) and movies that you’d only see if someone was paying you to do it (like M. Night Shyamalan’s The Last Airbender, a movie probably best remembered for the controversy surrounding Shyamalan’s decision to cast white actors as Japanese characters, which got $36 million in tax credits from the state).

Lots of states have similar programs, of course, but the incentives are basic crony capitalism with little economic benefit.

A 2016 study published in the American Review of Public Administration concluded that neither transferrable nor refundable film tax credit programs “affected gross state product or motion picture industry concentration. Incentive spending also had no influence.” In Virginia, a 2017 state legislative study found that film tax credits had “a negligible benefit to the Virginia economy” and returned about 20 cents on the dollar.

“The film industry claims that they create jobs for local residents, but the most serious study of this issue found that out-of-state specialists—actors, writers, cinematographers, and so on—reap a disproportionate share of the benefits,” wrote Robert Tannenwald, a professor of economics at Brandeis University, in a 2011 report for Center for Budget and Policy Priorities, a progressive think tank where he was a senior fellow at the time. “Residents get relatively low-paying jobs that disappear once a shoot is finished and the producer leaves town.”

Like Adonis Creed returning to L.A., most of the money from Pennsylvania’s film tax credit program also ends up out of state. In an exhaustive report published in 2016, Pittsburgh-based watchdog Public Source found that 99 percent of all film tax credits end up being transferred to “companies that have nothing to do with film or TV,” essentially turning the film tax credit into “a backdoor tax break for some of the largest corporations and utilities operating in Pennsylvania.”

In 2014, Pennsylvania’s auditor general dinged the state agency that oversees the film tax credit program for not having clear metrics for evaluating the program’s cost effectiveness, noting that the agency could not provide “evidence that metrics even exist.”

But even by those low standards, making your residents subsidize a movie about a character who gets rich and successful in Philadelphia and then decides to move away seems to send an interesting message. Don’t blame Adonis Creed for Pennsylvania’s declining population and the decreased political clout that comes with it. Blame the people running the state who still think film tax credits are a worthwhile use of public resources.

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Explosion Rips Through Chemical Plant In Chinese Host City For 2022 Olympics

A massive overnight explosion at a chemical plant rocked the northeastern Chinese city of Zhangjiakou on Wednesday, which is one of the sites to play host to the 2022 Beijing Winter Olympic Games. 

The blast occurred just after midnight at a loading dock area at a plant owned by the Hebei Shenghua Chemical Industry Co. Ltd. and claimed at least 23 lives while destroying dozens of vehicles. About two dozen more were injured in the explosion and resulting fire which ripped across about 50 transport trucks and 12 passenger cars, according to a statement by the Zhangjiakou city government.

First images of the overnight explosion at an industrial complex in Zhangjiakou city.

While it’s unclear whether industrial chemicals or dangerous gases have been released, local authorities are telling residents to stay away from the impact and clean-up site: “We request that citizens do not go to the site to watch in order to avoid disrupting recovery efforts,” according to a statement.

Some 50 transport vehicles had been in the process of delivering chemicals and other goods in the vicinity of the industrial zone when the blast ripped through the area, according to Chinese news reports. 

Though little is till known at this point as to the exact cause, and Chinese authorities have been notoriously skittish about confirming details related to what has become a string of deadly accidents over the past few years in the country’s vast and rapidly growing industrial sector, the New York Times described the following based on local sources: 

An industrial safety official who gave only his surname, Wu, told The Paper, a news website in Shanghai, that one of the trucks lined up outside the plant to deliver chemicals had exploded, setting off a chain reaction that engulfed the other vehicles.

Xinhua, the official Chinese news agency, said that the truck that triggered the blast was delivering acetylene to an energy technology factory. But an unnamed official from the Zhangjiakou industrial safety office warned that it was too early to draw firm conclusions, the Beijing News reported.

An ABC News report, citing public company information, found that chemicals present at the plant included chlorine, PVC resins, caustic soda, hydrochloric acid, oxygen, dissolved acetylene, and water treatment chemicals as well as new building materials.

We’ve previously detailed a series of giant chemical explosions in China since 2015 in what is a dangerous trend in Chinese industrial safety, or lack thereof. In 2015 a plant explosion which was caused by improperly stored chemicals had killed at least 173 in Tianjin, located an hour east of Beijing. Only a week following, a separate power plant blast had occurred in eastern Shandong province.

And a year after the Tianjin disaster which left the area looking like a war zone, an explosion at a chemical plant in Dangyang, located in central China, resulted in 21 people killed and 5 wounded. More recently in early November of this year, 52 people were sicked by a chemical leak in Fujian province when about 7 tons of the chemical additive C9 spilled out of barrels while they were being loaded onto a ship.

First images and video footage of Wednesday’s massive chemical plant explosion: 

Zhangjiakou, Hebei Province, where Wednesday’s chemical plant tragedy occurred, is several hours drive northwest of Beijing and is to be a key ski and winter sporting events venue of the 2022 Beijing Olympics, which was selected by IOC vote in 2015. It will be the first time that Beijing has ever hosted the Winter Olympics.

Among the Chinese population winter sports are not popular, and one recent report citing Beijing officials said the government has embarked on an ambitious plan to invest at least $160bn by 2025, and looks to build more than 800 ski resorts built by 2022 as part of the publicity associated with the Olympic games. 

With this latest and other potential future industrial accidents, Chinese authorities will likely attempt to tightly control media exposure and inquiry, especially looking ahead to the Olympic spotlight. The NYT concludes of this “media sensitivity” in connection with this latest chemical plant explosion: 

While the Communist Party authorities emphasize improvements in industrial safety, they remain extremely sensitive about the potential for social unrest. Over recent years, grassroots movements have brought thousands onto the streets in cities across the country to protest plans for chemical plants, garbage incinerators and other projects deemed harmful to the environment.

“On-site search and rescue work and investigation of the cause of the accident are still under way,” the Zhangjiakou city government said. They further confirmed that factories in the area of the blast impact had ceased production.

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Trigger Warnings Aren’t Confined to College Campuses: Here Are 3 Unusual Places They Appeared

SignThe existence of trigger warnings in university classrooms has attracted much media attention, but they were never just a campus phenomenon. In fact, they first appeared in online forums and blogs, well before their mandatory inclusion in the curriculum became a common demand of student activists.

Even so, trigger warnings are now showing up in some unusual places. Perhaps more concerning, they often cover a much broader range of expression—content that doesn’t seem very worthy of forewarning. Here are three examples.

First, there was a New York Times article last week about trigger warnings appearing at the theater.

“Please be advised,” warned a sign posted outside the door to a stage in Denver. “This production contains: Strobe lighting effects. Sudden loud noises. Theatrical fog/haze. Scenes of violence. Adult language. Sexual situations. Adult humor and content.” A venue in Brooklyn warned theatergoers about “moments of darkness and violence” in a play. “This production may trigger an adverse reaction,” read a sign at a theater in Baltimore. A Philadelphia-based theater company even offered to direct uncomfortable audience members to a safe space in the lobby.

“We’re all just trying to find the line between setting people’s expectations and not treating them like children and not giving away the core of the story,” artistic director Chris Coleman told the Times.

If paying customers really want to be forewarned about troubling material, then theater owners are bound to accommodate them. But I wonder whether many customers actually feel misled—or frightened, or triggered—if they see a play that isn’t completely predictable. And while I understand why some customers would want to be warned, for physical reasons, about strobe lighting effects, “adult humor” and “moments of darkness” seem like another category altogether.

Consider another case: an online forum for a book club. Bob, an academic whose real name I have omitted, posted on a discussion forum for scholars hosted by Mastodon, a competitor to Twitter. His post was a very brief announcement regarding his book club’s next reading, the nonfiction Twitter and Tear Gas: The Power and Fragility of Networked Protest. In response, an administrator asked him to revise the “toot” (that’s Mastodon’s version of a tweet) by adding a content warning. Bob complained that this was unnecessary, but the administrator persisted.

“Using Content Warnings allows other users to consent before engaging with the topics listed on our Community Standards,” wrote the administrator. “I’m going to have to ask you to delete and re-draft this post at some point over the next day or so and add a CW for U.S. politics.”

The required content warning was for tech companies and violence. The administrator wanted to hide the post—which was just the book’s title, plus a link to Bob’s book club—beneath this note of caution, as if merely reading the words “Twitter” or “tear gas” would be disturbing.

“I pointed out that those words are, in fact, the title of an academic book, and that this was a discussion forum for academia,” wrote Bob. “No dice. I had to add a content warning or else.”

Third, a personal anecdote: A woman named Mira Lazine—who provides “a queer socialist perspective on the local politics of northeastern Pennsylvania,” according to her Twitter bio—criticized The Daily Beast for “regularly publishing” my work. (Note: I haven’t written anything for The Daily Beast in quite a while.) She wrongly accused me of “blatantly defending blackface” and provided a link to a representative offending column—with a content warning, of course. A subsequent tweet, which linked to another one of my columns, provided an equally inaccurate content warning for “queerphobia, ableism, and much more.”

It certainly seems like the trigger warning phenomenon is spreading—and is being used to warn people about speech that isn’t intrinsically disturbing, except for the very easily unnerved. As long as such practices are voluntary, as most classroom trigger warnings are, then this isn’t a free speech problem. But I do worry it becomes more difficult to talk to one another if the speaker always assumes fragility on the part of the listener. People really shouldn’t need a content warning before they read the words “tear gas.”

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The Cost Of Insurance Is About To Jump

Authored by John Rubino via DollarCollapse.com,

The argument over whether we’re in for global warming or global cooling and whether what’s coming is natural or human-made is fun but totally irrelevant from a financial perspective. The fact is that for whatever reason and in whatever direction, the climate is getting more aggressive. Monster snowstorms and apocalyptic fires are clearly becoming more common:

Combine the rising number of bad things nature is throwing our way with the fact that millions more people are choosing to live in places with the highest propensity for those bad things, and you get yet another addition to the average family’s cost of living: soaring insurance premiums.

Phil’s Stock World recently published an analysis by University of Michigan professor Andrew Hoffman that expands on the connection between nature and insurance:

Rising insurance costs may convince Americans that climate change risks are real

One of the great challenges of tackling climate change is making it real for people without a scientific background. That’s because the threat it poses can be so hard to see or feel.

In the wake of Hurricanes Florence and Michael, for example, one may be compelled to ask, “Was that climate change?” Many politicians and activists have indeed claimed that recent powerful storms are a result of climate change, yet it’s a tough sell.

What those who want to communicate climate risks need to do is rephrase the question around probabilities, not direct cause and effect. And for that, insurance is the proverbial “canary in the coal mine,” sensitive to the trends of climate change impacts and the costly risks they impose.

In other words, where scientists and educators have had limited success in convincing the public and politicians of the urgency of climate change, insurance companies may step into the breach.

Steroids and climate change
Dr. Jane Lubchenco, an environmental scientist who oversaw the National Oceanic and Atmospheric Administration from 2009 to 2013, offers a clever analogy to convince people of the connection between the destruction wrought by a single hurricane and climate change. It involves steroids and baseball.

Her analogy goes like this. If a baseball player takes steroids, it’s hard to connect one particular home run to his drug use. But if his total number of home runs and batting averages increase dramatically, the connection becomes apparent.

“In similar fashion, what we are seeing on Earth today is weather on steroids,” Lubchenco explains. “We are seeing more, longer lasting heat waves, more intense storms, more droughts and more floods. Those patterns are what we expect with climate change.”

And those weather patterns come with a cost.

Someone has to pay for these damages
In 2017, for example, Hurricanes Harvey, Irma and Maria and other natural disasters like Mexican earthquakes and California wildfires caused economic losses of US$330 billion, almost double the inflation-adjusted annual average of $170 billion over the prior 10 years.

Estimated costs from Hurricane Florence, which struck the Carolinas in September, range as high as $170 billion, which would make Florence the costliest storm ever to hit the U.S.

More broadly, total economic losses from wildfires in the U.S. in 2017 – the third-hottest year on record, behind 2016 and 2015 – were four times higher than the average of the preceding 16 years and losses from other severe storms were 60 percent higher.

This led me and others to realize that we should be more focused on insurance companies, society’s first line of defense in absorbing these costs, making their industry arguably the one most directly affected by climate change.

For example, the insurance industry paid out a record $135 billion from natural catastrophes in 2017, almost three times higher than the annual average of $49 billion. That’s not to mention the uninsured losses that were also incurred – uninsured losses from 2012’s Hurricane Sandy were 50 percent of the total $65 billion in losses, a staggering tab picked up by individual citizens and the taxpayer.

Insurers will eventually adjust to this emerging reality. And with it will come changes in our economy, including higher costs that will affect everyone’s pocketbook.

A whole new ballgame
The International Association of Insurance Supervisors, a respected international standard-setting body for the insurance sector, recently published a report calling climate risk a strategic threat for the insurance sector. It cautioned against relying on annual adjustments to manage climate risks as physical risks can change suddenly and in “non-linear ways.”

Recognizing this threat, many insurers are throwing out decades of outdated weather actuarial data and hiring teams of in-house climatologists, computer scientists and statisticians to redesign their risk models.

In response, insurances premiums will increase and coverage will decrease.

The take-away? It’s going to become increasingly hard for people living in disaster-prone areas to insure their stuff. And this trend might not be gradual. Note the term “non-linear” a couple of paragraphs above. This refers to the tendency of markets in times of stress to suddenly jump to dramatically higher or lower price ranges. For homeowners insurance, that could mean Floridians or Californians paying two or three times more than just a few years earlier – at a time when property taxes are also rising due to clean-up costs of past disasters.

This is the kind of inflation that people feel keenly, and it’s the kind that ultimately leads to government bailouts in the form of taxpayer-funded subsidies or even the nationalization of industries. Which makes it just one more portent of financial instability and, ultimately, an epic currency reset.

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WTI Tumbles After 10th Consecutive Weekly Crude Build

After an initially confusing bounce in WTI (after API reported a bigger than expected crude build), oil prices have resumed their drop overnight ahead of this morning’s DOE data.

Notably, Bloomberg Intelligence Senior Energy Analyst Vince Piazza points out that today’s inventory data should have limited sway over sentiment, as the market looks ahead to talks between Saudi Arabia and Russia as well as broader discussions among OPEC members next month. We’re less than convinced that cuts of about 1 million barrels a day will stabilize crude benchmarks, even though recent harsh price weakness is unsustainable and is approaching extremes. Russia is incentivized to maintain output close to current levels to manage gasoline prices.

API

  • Crude +3.453mm (+700k exp) – 10th weekly build in a row

  • Cushing +1.302mm

  • Gasoline -2.602mm

  • Distillates +1.185mm

DOE

  • Crude +3.58mm (+2.53mm exp) – 10th weekly build in a row

  • Cushing +1.177mm

  • Gasoline -764k

  • Distillates +2.61mm

DOE confirmed API’s 10th consecutive weekly crude build (bigger than expected) but a big build in distillates broke the nine-week draw streak.

 

US Crude production continues at a record pace – outstripping Russia and Saudi…

“A significant production cut on the part of OPEC and its allied non-OPEC producers at their meeting next week in Vienna will thus be needed to re-balance the oil market next year and ensure that stocks do not rise any further,” said Carsten Fritsch, an analyst at Commerzbank AG in Frankfurt.

WTI is tumbling after the crude and distillates build…

The WTI contract is struggling under the pressure of another stockpile build, and fading optimism that Saudi and Russia will come together to lower 2019 production.

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Border Patrol Video Shows Central American Migrants Sneaking Through Arizona Border Gaps

Officials from the Yuma Sector Border Patrol tweeted a video of a group of migrants crossing the Arizona border into the United States, showing a gap in America’s infrastructure. The crossing took place on November 23 at around 4:15 p.m. according to officials. 

“Large groups of illegal aliens from Central America continue to exploit gaps in infrastructure along the border in to gain access to the United States.,” reads the tweet: 

The group of 31 migrants crossed the border Friday afternoon, according to Breitbart, which spoke to a Yuma Sector spokesman. Four of the migrants came from El Salvador, while the remaining 27 were from Guatemala. The majority of them asked for Asylum. 

“no intelligence at this time suggests that they were part of the caravan,” said the official. Most of the caravan migrants appear to have gathered in Tijuana. 

Two weeks ago the Arizona Sector CBP posted a video of a smuggler cutting down concertina wire at what appears to be the same crossing as above, shortly after it was installed. 

Earlier in the month, CBP Arizona apprehended 654 Central American migrants over a two-day period who were also unaffiliated with the migrant caravans. As Breitbart‘s Bob Price reported at the time, the mostly Guatemalan migrants exploited weaknesses in the older border wall infrastructure, while also crossing over the Colorado River in shallow areas. 

And on November 10, Breitbart reported on the Yuma Sector announcement that nearly 450 “mostly Central American, non-caravan, migrants exploited the old barrier by scaling over or burrowing under the outdated wall during a two-day period beginning on November 6.” 

Yuma Sector officials said the old-style “landing mat” wall design lacks the improved concrete footer found in the new prototypes tested in the San Diego Sector earlier this year. The older technology allows migrants to burrow under the fence. –Breitbart

Apprehensions in the Yuma Sector have jumped over 135 percent over the same period in October 2017, going from 1,536 to 3,613 migrants who were apprehended after crossing the border into the United States. Apprehensions in Fiscal Year 2018 are up 100% over 2017’s total.  

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Three strikes against Social Security’s already dismal batting average

[Editor’s note: While Simon is traveling today, other members of the Sovereign Man team penned today’s missive.]

This doesn’t make front page news… But it should.

Every year, cost of living adjustments increase Social Security benefits.

Over the past decade, payouts have increased by an average of 1.66% per year, according to the Social Security Administration (SSA).

But for 2019, the increase will be 2.8% to keep pace with inflation.

Seems like a trivial difference until you realize that’s 69% higher than expected.

That amounts to about $39 extra per check for the average retiree, according to the SSA.

And with about 62 million Americans receiving Social Security, that’s an extra $2.4 billion per month… $29 billion per year.

Social Security is underfunded by $50 TRILLION. By the government’s own estimates, the Social Security fund will run out of money in 2034.

But those calculations used previous cost of living adjustments.

Keep in mind that all future cost of living adjustments will compound on top of 2019’s increase.

So even if they get back to the 1.66% average adjustments, the extra $29 billion is included in the base for future calculations.

Will Social Security really last until 2034?

Last year, they said it would last until 2035… Wrong. One year passed and insolvency came two years closer…

Before that, the Social Security Administration estimated that the funds would last until 2040… wrong again!

After Congress passed some Social Security reforms in 1983, the SSA expected the system to remain financially sound for 75 years, until 2058.

Say it with me… they were wrong.

The goal posts keep moving.

That’s strike one…

In 2006, the SSA expected the US birthrate—the number of babies each woman is expected to have in her lifetime—to be 2.01 by 2020.

Well guess what… they were WRONG. Take a sip if your playing along at home to the Social-Security-Administration-is-wrong drinking game.

The 2017 birthrate already fell to 1.8, the lowest in decades.

So just when Social Security is expected to run out of money, the fewest number of workers in decades will be entering the workforce.

Social Security depends on a ratio of 3 workers to support each retiree.

Today, there are only 2.8 workers paying into Social Security for every beneficiary collecting.

The Social Security Administration estimates that this will fall to 2 workers per retiree by 2030… surely this time their estimate is accurate…

That’s strike two.

And the economy is currently about as good as it gets.

October unemployment was 3.7% according to the Bureau of Labor Statistics. It hasn’t been this low since 1969…

There are record numbers of people in the workforce… paying into Social Security.

Yet Social Security still looks dismal, during the best economic times in decades.

What happens when a recession hits?

Or forget a recession, what happens at normal unemployment levels?

And that’s the third strike.

The Social Security Administration has been wrong on just about every projection and estimate it has made.

I’m not trying to be alarmist, but it is rather shocking that people shrug off the reality.

This data isn’t coming from me, it isn’t some wild conspiracy theory. It’s the most optimistic outlook from the Board of Trustees for Social Security.

Unfortunately, many people will do absolutely nothing with this information. It’s easier to just Instagram your way to retirement.

And these people will have their lives turned upside down—benefits cut, retirement age increased, pushed out of the system… Something has to give.

But when you see it coming, there is so much you can do.

You can take legal steps to reduce your taxes, and funnel the savings into your retirement.

Putting away an extra $1,000 per year can result in a difference of more than $100,000 when compounded over 30 years.

Or, you could establish certain self-directed IRA structures or a solo 401(k).

These dramatically increase your contribution limits and vastly expand your investment options–real estate, cryptocurrency, private equity, etc.

Or, learn how to be a better investor…

Saving an extra $2,000 per year and generating, on average, 2% more per year (i.e. 10% versus 8%), will make you an additional $610,000 over 30-years.

Just don’t let the government plan for you. They’ll give you great estimates… and as always, they will be wrong.

Source

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Traders Shocked As Largest Italian Bank Forced To Pay Six Times More Interest To Sell Bonds

In the clearest indication yet of just how severe the recent spike in Italian yields has been on the country’s financial institutions, Italy’s largest bank, UniCredit, surprised the market today when it sold $3 billion in dollar denominated five-year bonds. To find a willing buyer, the bank had to pay the equivalent of 420 basis points over the euro swap rate, which is six times more than the 70 bps over swaps it paid on five-year euro senior non-preferred bonds just this past January.

The spread on the new issue was a shock as it represented a nearly 150bps concession to current market rates, and is an indication of just how much even the strongest Italian banks have to pay up if they hope to access capital markets during the ongoing Italian political turmoil.

According to the bank, the sale will help support the Italian bank’s capital position and boost its subordination ratio by about 73 basis points.

And when we say the market was surprised, it wasn’t just by how much UniCredit had to pay, but how many buyers turned up for the sale: just one, namely the world’s largest fixed income manager, Pimco, which was the sole buyer of the bonds.

UniCredit’s decision to raise funding privately with just one investor suggests that analysts are skeptical about the wider market’s appetite for Italian bank bonds, said Jakub Lichwa, a credit strategist at Royal Bank of Canada in London: “The signal would have been far stronger if they had come to market with and built an order book at this level,” he said.

Which is ironic considering that even with a 150bps concession to market, the bank was still unsure it would find willing buyers.

Ironically, UniCredit said that the transaction “demonstrates UniCredit’s ability to access the market in all conditions,” which, of course, is precisely the opposite of what happened as the bank was forced to not only massively overpay, but also to approach just one buyer amid fears it would be rebuked by a broader syndicate.

UniCredit’s surging funding costs are indicative of the problem faced by most of its peers as the rift between Rome and Brussels over the country’s budget has driven up debt yields and widened the spread between Italian bonds and benchmark German equivalents. Banks are also set to lose low-cost funding as long-term loans from the European Central Bank come due, while overnight ECB sources indicated that no new TLTRO will be forthcoming, perhaps as a bargaining chip to make sure Rome concedes to Brussels in the ongoing deficit debate which threatens to blow out yields far higher.

Commenting on the surprise “drive by” bond sale, ABN Amro NV strategist Tom Kinmonth wrotes that the possibility that Italy’s sovereign debt may be downgraded further may justify doing the bond sale now. While the price, far above the market rate, will impact the UniCredit’s profitability “it has placed the bank in a better position on capital for a prolonged period of time.”

As for why Pimco was UniCredit’s sole buyer, Bloomberg notes that the Newport Beach-based firm was one of two buyers that took control of an unprecedented $20 billion package of non-performing loans sold by the bank earlier this year. Also, at the end of 2016, Pimco was among a handful of investors that were offered the bank’s riskiest bonds, people with knowledge of the matter said at the time.

And while UniCredit was successful in its directly negotiated, and massively overpriced, sale to Pimco, others have not been so lucky, with Italian banks issuing only €60.5 billion ($68 billion) of bonds so far this year, the least since 2013.

Which is why should the Italian political standoff with the EU not reach a favorable resolution soon, Italian banks – and their rising funding needs – will be first in line, especially once “lo spread” crosses 400bps, which the Italian government had made clear previously, is the “red line” before all hell breaks loose.

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GM Shares Slide As Trump Hints At Car Tariffs

As traders around the world scanned for the next morsel of news about trade talks between the US and China ahead of this weekend’s dinner meeting between President Trump and President Xi Jingping, a German newspaper sent stocks in Europe and the US spiraling lower on Tuesday when it reported that the White House could impose auto tariffs on all countries except Canada and Mexico as soon as next week, which the market swiftly interpreted as a sign that there was little justification for optimism for the G-20 meeting, and that the US would press ahead with its protectionist policies. 

Though that report was swiftly denied by European officials, who said that a purported planned meeting with EU trade negotiator Cecilia Malmstrom and US Trade Rep Robert Lighthizer had never been scheduled, President Trump hinted in a tweet Wednesday morning that he was leaning toward tariffs, sending shares of European and US automakers modestly lower.

And despite the fact that GM has repeatedly warned that Trump’s trade war would force it to close factories and shed jobs, Trump claimed that the lack of auto tariffs in the US was what prompted GM’s decision – because if the US had higher trade barriers, more of the cars sold in the US would be built in the US. Trump also claimed that the reason small trucks in the US are “such a go to favorite” is because we have a 25% tariff on small trucks. In perhaps his strongest hint that the long-feared auto tariffs could be on the way, Trump said these issue are “being studied now!”

The Commerce Department has until February to finish a report on whether auto tariffs would be warranted, but reports that the White House has started reviewing findings in a draft report have circulated over the past week. The news sent shares of GM back into the red:

stock

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New Home Sales Crash In October – Biggest Plunge Since 2011

Following the small MoM blip higher in existing home sales (though dismal YoY plunge), new home sales were expected to rebound in October (after plunging 5.5% MoM in September) but instead they utterly collapsed – crashing 8.9% MoM.

New home sales have now missed expectations for seven consecutive months

The drop in purchases was led by a 22.1 percent slump in the Midwest, and an 18.5 percent decrease in the Northeast. The South had a 7.7 percent decline while the West fell 3.2 percent.

Tumbling a massive 12% YoY – the biggest drop since April 2011…

And just for good measure, the median price tumbled to $309.7K from $321.3K, lowest since Feb 2017.

And supply is soaring…

But, but, but… Homebuilder valuations are back at their weakest since the great recession…

Buying opportunity?

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