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Submitted by Bill Blain of Mint Partners

The Ides of March, 10-yrs after Bear Stearns can it happen again? Doh!

The World is a curiously circular place. 10-years ago the collapse of Bear Stearns and its subsequent rescue by JP Morgan ushered in the panic stage of the Global Financial Crisis. The cataclysm came 6 months later when Lehman went down. Yesterday, Donald Trump appointed CNBC Commentator Larry Kudlow to Gary Cohn’s job as director of the NEC. Kudlow was chief economist of Bear when I joined the firm in the early 1990s.

I’m kind of bemused at Kudlow’s appointment, but it proves what an adaptable crow Bear alumni are. Bear was a fantastic place to work. We lacked the glib polish of Goldman Sachs, the white-shoe smoothness of Morgan Stanley, the mighty balance sheets of Citi or JP Morgan, and the depth and range of Merrill, but we were united as the smart yappy mammals snapping round the ankles of the Wall Street dinosaurs. Over the next 10 years we stole a mighty share of their lunches! We did it with aplomb, style and underlying honesty – we were brutally open with our clients: we would succeed by making their deals successful. It was the best of times, and I’m still in touch with many of my clients from these days.

When I was there, the mantra of Ace Greenburg ran the firm – absolute honesty on the trading floor and instant death to anyone skirting the rules. His “Memos from the Chairman” was classic: look after the pennies and the dollars will come, hire PSD graduates: “poor, smart and a deep desire to get rich”, and whenever you receive a paperclip in the post, save it up to send back to a client. We calculated not buying paperclips saved Bear about $100 per annum, but, heck, it worked!

The question today is could it all happen again? Bear Stearns was brought down by the same collapse in confidence caused by the mortgage shock that sank so many of other financial institutions. Back in 2007 the banks were loaded to the gills with leveraged product on the back of the “originate to sell” model – RMBS, CDOs and the many leveraged derivatives of these “toxic” investments.

Today? The world has changed.

Draconian capital regulations and the “hunt for yield”, (caused by central bank ZIRP and NIRP unconventional monetary policy), means most of the risk is more broadly spread across the whole financial environment. Ultimately all the risks laid off by banks and other originators resides somewhere – in insurance companies, hedge funds, credit funds and our pension savings. Risk does not disappear. It just gets spread around – meaning everyone hurts.

10-years of unconventional monetary policy has changed the investment equation – yields are low and spreads between risk asset classes are compressed to levels that simply don’t make risk-sense to those of us who remember the 1980s and 90s. QE has caused inflation – just not where you were looking for it. Its abundantly visible in inflated stock and bond prices. On the other hand – unconventional monetary policy in the form of QE and Low interest rates worked. It kept the financial markets functional.

Now we have synchronous global growth. Estimates all point to continued strength through the next few years. We expect 20% GNP growth over the next 5 years – in theory more than enough to justify current investment valuations. Unconventional is the watchword for the next few years – when else have you seen a nation slashing taxes at the same time as its central bank is considering hiking rates? Or when else has an economy like China successfully moved from export led to a consumption driven model? Populism – the like of which elected Trump – means fiscal policy is back in vogue – infrastructure spend even as the economy recovers?

Yet there are significant risks – liquidity is a major one. Yesterday I read that not a single JGB traded on the Japan bond market. Back when I were young we were trading trillions of yen per day. Now the BOJ owns most of the market. There is no guaranteed liquidity in any bond market – the banks don’t take market-making risk if they don’t have to. Capital can be arbitraged far more cleanly away from underwriting market risks. Once more let me remind you: the New York Stock Exchange has 27 doors saying “Entrance”. There is only one market “Exit”.

Then there is geo-politics.

While Trump is getting away with it thus far, at what point do roadblocks arise as he tries to discipline multiple countries from a USA perspective? What are the risks the Chinese stage a Treasury firesale and buyer-strike (Clue: its far less likely than feared as there is literally nowhere else to park their dosh, but its still a fear).

Then there is politics – what are the implications of populism and the long-term threat of increasing income inequality.

These are just the known threats. What about the “no-see-ums”? Every 10-yrs or so something whaps markets like a well wielded wet-kipper across the face. Maybe it’s a regional crisis, or a financial instrument class exploding, a taper-tantrum, an investment bubble like dot-coms or tulips, or a deeper than expected bear reversal. Confidence is a very fickle thing.

There are a number of known-market truths – like “countries can’t go burst” that have been brutally exposed over the centuries. Maybe it will be European Sovereign Credits? Who knows? What else is wobbling and we just ain’t aware of it yet?

What I do know is people who say: “this time its different”, are invariably wrong. I shall have a quiet toast to Bear later today.

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On Thursday, iHeartMedia – the largest radio conglomerate in the US – finally succumbed to its enormous debt burden and filed for a long-anticipated Chapter 11 bankruptcy protection (iHeartMedia Inc., 18-31274, U.S. Bankruptcy Court, Southern District of Texas) after the company and a majority of its creditors reached an agreement for a prepack deal to eliminate tens of billions in debt while the company continues to operate.

After trying to negotiate a deal with creditors since last March, the company said in a statement that it had reached an agreement in principle with investors holding more than $10 billion of its debt, along with its private equity owners. The pact, intended to give the company a framework for a speedier reorganization, would cut iHeart’s debt by more than $10 billion, it said.

“The agreement … is a significant accomplishment, as it allows us to definitively address the more than $20 billion in debt that has burdened our capital structure,” Chief Executive Bob Pittman said.

Based in San Antonio, iHeart controls 856 US radio stations and employs 17,000 workers worldwide, along with Clear Channel Outdoor Holdings, the largest billboard company in the world. iHeart’s traditional businesses – the radio stations and the Clear Channel Outdoor billboard unit – contribute the bulk of the company’s revenue. The Chapter 11 filing didn’t include the billboard unit.

iHeartMedia said it believes it has enough cash on hand, and will earn enough through regular business operations to keep its business running through the restructuring talks, although in light of the recent Toys “R” Us liquidation which took place six months after that particular Chapter 11, we doubt many existing employees will stay there long.

Given the enormity of the debt, Bain Capital and Thomas H Lee who LBOed the company on the eve of the financial crisis in a massive $27 billion deal which was troubled from the start, will surrender most of their ownership stake per the WSJ.

Recent talks had centered on a plan to hand 94% of the equity in iHeartMedia’s radio business and all of the equity in Clear Channel Outdoor to senior creditors led by Franklin Mutual Advisers Inc. The company and its creditors had been haggling for weeks over how much of the remaining 6% of equity in the radio business should go to the company’s junior bondholders and private-equity sponsors.

Equity stakes had been a key sticking point in recent talks, with creditors demanding almost all of iHeart and 100 percent of its healthy Clear Channel unit according to Bloomberg. Malone’s Liberty Media sought to break the logjam late in February by offering $1.2 billion in new loans in return for a 40% stake. JCDecaux SA, the world’s biggest outdoor-advertising agency, also has expressed interest in buying some of Clear Channel’s assets.

To be sure, bankruptcy was only a matter of time: over the past five years iHeartMedia has spent more on debt payments than it earns. With more than $8 billion in debt maturing next year, the company began talks with creditors on a deal to swap a big chunk of debt for some of its equity. This isn’t the first piece of depressing news for the waning radio industry in recent months: The iHeart filing comes three months after Cumulus Media, the No. 2 radio broadcaster, filed for bankruptcy.

Meanwhile, there are questions about the company’s ultimate viability.

Radio still has enormous reach, but like print, the advent of digital advertising has siphoned off a reliable revenue stream, and left advertisers unwilling to pay the premiums they once happily accepted. iHeart’s broadcast stations still reach a staggering 265 million Americans, more than any other media company (including Google and Facebook). However, newer media such as Spotify’s streaming service and SiriusXM’s satellite broadcasts have cut into the audience and put a damper on sales. IHeart, led by Chief Executive Officer Robert Pittman, countered with its own streaming services and a live-events business offering concerts and awards shows.

iHeart’s most valuable asset – in the eyes of its creditors – is Clear Channel Outdoor Holdings, a subsidiary to focuses on billboards. Two years ago, the company rolled out a couple of on-demand subscription services to try and compete with Spotify and Apple Music, which were eating into radio’s revenues. They have not lived up to the company’s hopes.

As Variety points out, among the music companies listed as creditors on the iHeart docket are Nielsen, owed $20 million, SoundExchange, owed $6.4 million, Warner Music Group, $3.9 million, Universal Music Group, $1.3 million, and Spotify, $2.1 million. Performance-rights organizations ASCAP and BMI are each owed slightly over $1.4 million while Global Music Rights is looking at a $2 million debt.

As Bloomberg notes, the bankruptcy caps a yearlong standoff with lenders and bondholders on its latest debt-cutting plan. The deadline was extended more than 20 times as negotiators exchanged proposals and iHeart sweetened the terms. The current attempt at an accord followed at least a dozen debt revisions over the past decade.

The full bankruptcy filing is below.

via RSS http://ift.tt/2GtCAxM Tyler Durden

It is the fourth consecutive day in which global stocks have rebounded from overnight lows, seemingly ignoring growing trade tensions and breathing a sigh of relief amid a break in the recent global trade war newsflow, which  helped lift European stocks and cooled demand for safety plays.

It is also the fourth consecutive day in which S&P futures have rebounded from overnight lows, and while off session highs, remain in positive territory.

But a bigger question is whether like on the previous three days all the early gains fade and the S&P closes at or near the lows, a recent pattern which yesterday prompted Dennis Gartman to “stake his reputation” and make a “watershed call”  that the equity markets have hit a multi-year top.

Indeed, as Deutsche Bank notes this morning, “markets appear to be running out of reasons to stay optimistic this week. The White House reshuffle and concerns about a more protectionist US policy agenda is certainly at the heart of that however yesterday’s soft retail sales report also seemed to put the brakes on the ‘Goldilocks’ data scenario which was pushed after last Friday’s employment report.”

Besides the odd trading pattern, which may or may not recur, markets remain at a crossroads right now as they struggle with a number of concerns: how US trade policy will play out, broader geopolitical tensions and potentially slowing economic growth in the US. As a consequence, price action has become rather erratic as we wait for the next catalyst which as of now seems to be the Fed March 21 meeting.

“The big questions the market has is about politics in the United States at the moment and about trade policy,” said Julien-Pierre Nouen, Chief Economic Strategist at Lazard Frères Gestion. “Exporters have been a bit weak and you can see there are some worries about whether other countries will retaliate… but you really have to stick to the economic outlook and in fact we think the economic outlook remains very good.”

Aside from the usual suspects (global trade wars and President Trump’s White House staff reshuffling), two Central Bank policy meetings were also in focus, and while the SNB trimmed its inflation forecasts virtually everything else remained unchanged from the previous quarterly assessment; meanwhile the Norges Bank more than lived up to hawkish expectations by bringing forward its hike forecast to after Summer from after Autumn in December, and more precisely August or September, according to Governor Olsen.

European stocks rose in early trade in a broad rally led by tech stocks, bouncing after a two-session slide, while H&M drops after it reported stagnating sales for the first quarter. Strong results from insurance heavyweights Munich Re , Generali and Old Mutual also helped Europe’s mood. But it was mainly relief that, for now at least, Donald Trump’s trade war drum wasn’t beating any harder, although all that can change with one tweet. The Stoxx 600 is up 0.3% after losing 1.1% in the past two sessions. Europe’s benchmark index trades below both its 50-DMA and 200-DMA. The real estate sector bucks the trend, falling 0.3%. 17 out of 19 Stoxx 600 sectors rise; retail sector has the biggest volume at 114% of its 30-day average.

The 0.3 percent bounce in European stocks came after a subdued Asian session in which there were a few notable standouts such as Japan’s Nikkei, which erased early losses to finish up 0.12% despite a stronger yen and an ongoing scandal surrounding Prime Minister Shinzo Abe and Finance Minister Taro Aso. Japan’s equity market “has been holding up relatively well, but it will have to decline some more if U.S. shares deepen their losses,” said Yutaka Miura, senior technical analyst at Mizuho Securities in Tokyo.

Japan’s equity market “has been holding up relatively well, but it will have to decline some more if U.S. shares deepen their losses,” said Yutaka Miura, senior technical analyst at Mizuho Securities in Tokyo. There was also some speculation that the BOJ was aggressively buying up ETFs on Thursday.

And speaking of government intervention, there definitely was some in China where shares wiped out early losses with an afternoon turnaround that was due to Chinese state funds buying shares in the open market in the afternoon because authorities want markets to be stable during annual legislative meetings in Beijing, said Shen Zhengyang, Shanghai-based analyst with Northeast Securitie.  ChiNext Index closes up 0.4% after sliding 1.6%. The Shanghai Composite Index wipes out a 0.6% loss to end unchanged. Hang Seng Index and Hang Seng China Enterprises Index both rose 0.3%.

In macro, risk sentiment continues to look poor. The DXY dollar index barely budged at 89.698 and at $1.2364 per euro in European trading, having fallen almost 1.5 percent so far this month. Most commodity currencies and EM FX trades in the red against USD and the JPY bid overnight makes sense in this environment. Still, there are a number of outliers worth highlighting. NOK is the outperformer of the day after the Norges Bank shifted its rate hike path forward, suggesting a hike is most likely after summer 2018. RUB markets aren’t concerned about worsening UK/Russia relations while TWD may herald a new era of FX flexibility with the new central bank governor. Also outperforming was the Swedish krona, which rallied approaching the 21-DMA at 10.0809, after unemployment unexpectedly fell to 6.3% in February, compared with a Bloomberg median survey estimate of 7.0%. Sterling was at a day’s low at just under $1.40 the day after Britain said it was expelling 23 Russian diplomats over the poisoning of former Russian spy living in Britain last week. Russia’s foreign ministry spokeswoman Maria Zakharova told a news briefing that Moscow would soon retaliate.

As Bloomberg adds, one-week implied volatility in dollar crosses climb higher as the tenor captures FOMC meeting risk, while demand further out the curve is subdued as the SNB stays in the camp of global central banks that remain cautious about unwinding stimulus.

Key FX moves via BBG:

• The euro held steady against the dollar, with the Bloomberg Dollar Spot Index little changed
• Norway’s krone surged to a four- month high against the euro after the central bank signaled it will move faster in raising interest rates, with a first increase likely after the summer of 2018; EUR/NOK dropped below 9.50 and breached the 200-DMA for the first time since April last year
• Sweden’s krona rallied, approaching the 21-DMA at 10.0809, after unemployment unexpectedly fell to 6.3% in February, compared with a Bloomberg median survey estimate of 7.0%
• The Swiss franc was little changed after the SNB kept rates on hold and said currency market still fragile and that franc remains highly valued
• The yen advanced for a second day, strengthening past 106 per dollar at times, as concern over trade protectionism and weaker-than-forecast U.S. economic data spurred demand for safer assets, with intraday clients taking cues more from stocks and stock futures than Treasuries
• New Zealand’s dollar pared losses that occurred following a 4Q GDP miss

Looking at key geopolitical developments, China’s widely-read and state-run tabloid the Global Times had added to the trade war talk overnight saying the U.S. was trying to play the victim. Germany’s economic ministry then said a trade war could “cause tangible damage”.  In an ominous sign for Trump’s Republicans eight months before national mid-term elections meanwhile, a moderate Democrat candidate looked to have won what should have been a shoo-in congressional election for Republicans in Pennsylvania.

In metals markets, safe-haven gold lost some of its appeal, with spot prices dipping 0.1 percent to $1,326.16 an ounce. Oil prices held steady though with Brent crude futures at $64.91 per barrel and U.S. West Texas Intermediate (WTI) crude futures CLc1 fractionally higher $61.05 a barrel.

The market is being supported by healthy global demand but that is being offset by a relentless rise in U.S. production that is undermining efforts led by OPEC to cut supplies and prop up prices.

Expected data include jobless claims and Empire State Manufacturing Survey. Adobe, Broadcom, Dollar General, Ulta Beauty and Turquoise Hill are among companies reporting earnings

Market Snapshot

• S&P 500 futures up 0.2% to 2,760
• STOXX Europe 600 up 0.2% to 375.80
• MSCI Asia Pacific up 0.04% to 178.69
• MSCI Asia Pacific ex-Japan down 0.02% to 588.41
• Nikkei up 0.1% to 21,803.95
• Topix up 0.02% to 1,743.60
• Hang Seng Index up 0.3% to 31,541.10
• Shanghai Composite down 0.01% to 3,291.11
• Sensex down 0.3% to 33,748.01
• Australia S&P/ASX 200 down 0.2% to 5,920.80
• Kospi up 0.3% to 2,492.38
• German 10Y yield fell 0.2 bps to 0.591%
• Euro up 0.01% to $1.2369
• Italian 10Y yield rose 2.0 bps to 1.757%
• Spanish 10Y yield fell 1.0 bps to 1.389%
• Brent futures down 0.1% $64.80/bbl
• Gold spot down 0.2% to $1,322.60
• U.S. Dollar Index up 0.1% to 89.76

Top Overnight News

• Incoming White House economic adviser Larry Kudlow signaled President Trump would support a strong dollar, pursue a second phase of his tax overhaul to make cuts permanent and take a tougher line on trade with China
• Britain steeled itself for President Putin’s reaction Thursday after Prime Minister May threw out 23 Russian diplomats in retaliation for the poisoning of a former spy and his daughter on U.K. soil
• OPEC is forecasting new oil supplies from its rivals will exceed growth in demand this year as the U.S. industry thrives. It raised expectation for supply growth from the U.S. and other producers for a fourth month, according to its market report
• Japanese Prime Minister Shinzo Abe got a warning sign that a ballooning scandal won’t go away any time soon: a rare interrogation from lawmakers from his own party
• Japanese Finance Minister Taro Aso won’t attend a gathering of global economic leaders in Argentina next week amid calls for his resignation, according to people familiar with the matter, costing him the chance to push back against U.S. tariffs and voice his views on currencies
• “We see a welcome alignment of stars against a background of robust recovery across Europe and gradual progress on inflation. There is a convergence of market views and our outlook”, Bank of France Governor and ECB Governing Council member Francois Villeroy de Galhau says on CNBC

Key Economic Developments from Bloomberg

• Canadian Prime Minister Justin Trudeau said he’s willing to accelerate Nafta talks, striking an upbeat tone on the fate of the trade pact
• Norway’s central bank signaled faster interest rate increases to come, while the Swiss national bank kept alive its threat to intervene in currency markets
• Mario Draghi’s promise to avoid surprising investors as the European Central Bank heads for the stimulus exit will require him to be clear on his plans for interest rates
• There’s more political strife in eastern Europe. Slovenian Prime Minister Miro Cerar unexpectedly resigned just months before elections. That comes after Slovak Prime Minister Robert Fico offered to resign if his party is allowed to remain in charge of the government
• President Xi Jinping’s pick to lead the People’s Bank of China will finally be announced March 19, five months after incumbent governor Zhou Xiaochuan said he’d retire “soon.” Bloomberg has short profiles of five contenders in the mix to replace Zhou, who has led the PBOC for 15 years
• Japanese Finance Minister Taro Aso won’t attend a gathering of Group of 20 finance chiefs in Argentina next week, according to people familiar with the matter, costing him the chance to push back against U.S. tariffs and voice his views on currencies
• Rural India is providing signs of a revival for the overall economy with a Bloomberg Economics indicator showing shows tractor and two-wheeler sales are up and the government is spending more

Asian markets were a subdued session in which there were a few notable standouts such as Japan’s Nikkei, which erased early losses to finish up 0.12% despite a stronger yen and an ongoing scandal surrounding Prime Minister Shinzo Abe and Finance Minister Taro Aso. Japan’s equity market “has been holding up relatively well, but it will have to decline some more if U.S. shares deepen their losses,” said Yutaka Miura, senior technical analyst at Mizuho Securities in Tokyo. There was also some speculation that the BOJ was aggressively buying up ETFs on Thursday. And speaking of government intervention, there definitely was some in China where shares wiped out early losses with an afternoon turnaround that was due to Chinese state funds buying shares in the open market in the afternoon because authorities want markets to be stable during annual legislative meetings in Beijing, said Shen Zhengyang, Shanghai-based analyst with Northeast Securitie.  ChiNext Index closes up 0.4% after sliding 1.6%. The Shanghai Composite Index wipes out a 0.6% loss to end unchanged. Hang Seng Index and Hang Seng China Enterprises Index both rose 0.3%.

Top Asian News

• Chinese Lab Operator Adicon Is Said to Prepare $500 Million Sale
• Goldman Bets on Unprecedented Economic Overhaul in Saudi Arabia
• The Next PBOC Chief’s Hands May Be Tied — by Xi, BNP Says
• State Ownership Impedes Supervision of India Banks, RBI Says

In Europe, equities were broadly in the green shrugging off the subdued close in Asia and the US amid the lingering trade war concerns. Focus has been on the insurance sector this morning with strong guidance for Munrich Re lifting shares this morning, while firm financial results from Generali have also supported the sector. Elsewhere, SocGen are among the underperformers after the unexpected departure of the Deputy Chair.

Top European News

• Nestle Backs New Food-Tech Fund That’s Swapping London for Paris
• Lufthansa Sees Harder 2018 as Rivals Rush to Fill Air Berlin Gap
• ECB Gets Tougher on Bad Loans Amid Banks’ $1 Trillion Pile
• SNB Keeps Intervention Threat as Key Interest Rate at Record Low
• Norway Signals Faster Rate Increases After Price Target Shakeup

In FX, aside from the usual suspects (global trade wars and President Trump’s White House staff reshuffling), 2 Central Bank policy meetings were in focus, and while the SNB trimmed its inflation forecasts virtually everything else remained unchanged from the previous quarterly assessment. Hence, Eur/Chf was essentially static and rangebound between 1.1680-1.1700, while Usd/Chf held within a 0.9460-35 range despite broader Usd weakness (Usd/Jpy sub-106.00 and DXY still under 90.000). However, the Norges Bank more than lived up to hawkish expectations by bringing forward its hike forecast to after Summer from after Autumn in December, and more precisely August or September, according to Governor Olsen. 2018 non-oil GDP is now seen at 2.6% vs 2.3%, and the output gap closing quicker, so inflation also to target sooner (now 2% vs 2.5% prior to March 2nd). Eur/Nok duly dumped, albeit somewhat belatedly, through the 200DMA at 9.5300, then bids at 9.5000 and down to around 9.4746. Elsewhere, Eur/Usd was rangy from 1.2350-85, while Aud/Usd and Nzd/Usd are softer after the former failed to sustain 0.7900+ levels on Wednesday and following weaker than anticipated NZ GDP data overnight. Conversely, Cable fell quite sharply and abruptly, with Eur/Gbp rallying around the same time on nothing obvious, so perhaps order/flow/stop-related rather than fundamental. 

In the commodity complex, crude futures trade relatively flat with WTI trading just south of the USD 61/bbl mark. Additionally, the IEA published their monthly oil report and much like yesterday’s OPEC report, they revised higher demand forecasts, but did maintain non-OPEC supply forecasts.

Looking at the day ahead, we are due to receive March empire manufacturing, February import price index, the latest weekly initial jobless claims, March Philly Fed business outlook and March NAHB housing market index data. Brexit-related headlines will likely be a focus too with EU ambassadors wrapping up their four-day meeting, which is expected to conclude with an approval of text for the EU’s future relationship with the UK. The ECB’s Lautenschlaeger is also due to speak.

US Event Calendar

• 8:30am: Empire Manufacturing, est. 15, prior 13.1
• 8:30am: Import Price Index MoM, est. 0.2%, prior 1.0%; YoY, est. 3.45%, prior 3.6%;
• 8:30am: Export Price Index MoM, est. 0.25%, prior 0.8%; YoY, prior 3.4%
• 8:30am: Initial Jobless Claims, est. 227,500, prior 231,000; Continuing Claims, est. 1.9m, prior 1.87m
• 8:30am: Philadelphia Fed Business Outlook, est. 23, prior 25.8
• 9:45am: Bloomberg Consumer Comfort, prior 56.8
• 10am: NAHB Housing Market Index, est. 72, prior 72
• 4pm: Total Net TIC Flows, prior $119.3b deficit;

DB’s Craig Nicol concludes the overnight wrap

Markets appear to be running out of reasons to stay optimistic this week. The White House reshuffle and concerns about a more protectionist US policy agenda is certainly at the heart of that however yesterday’s soft retail sales report also seemed to put the brakes on the ‘Goldilocks’ data scenario which was pushed after last Friday’s employment report. Indeed, the S&P 500 (-0.57% yesterday) is now down -1.33% in the three days this week, having fallen each day. It’s the same for the Dow (-1.00% yesterday and -2.28% this week) while 10y Treasuries are now back to testing 2.800% to the downside after closing down 2.6bps last night. Remember that they traded as high as 2.912% post payrolls and the talk was about how the next move might be to testing 3%. It hasn’t gone unnoticed too that the curve is a lot flatter with 2s10s and 5s30s flattening each day this week. It’s not much different in Europe with the Stoxx 600 down -0.87% this week and 10y Bunds closing below 0.600% for the first time since January 24th.So, markets have certainly hit a bit of skid and with politics playing such an unpredictable role at the moment it’s also making it a difficult period to really forecast near-term direction.

Just on that retail sales data yesterday, headline sales actually ended up declining -0.1% mom in February versus expectations for a +0.3% rise. Excluding autos, sales rose less than expected (+0.2% mom vs. +0.4% expected) while control group sales (which goes into the goods spending in GDP) were a significant disappointment at just +0.1% mom (vs. +0.4% expected). In fact, the three-month average of control retail sales is now negative and as a result the Atlanta Fed have now slashed their Q1 GDP forecast to 1.9%. The forecast was actually as high as 5.4% back in early February.

Staying with the US, we also had the February PPI report yesterday which, like Tuesday’s CPI report, was largely as expected. Headline PPI rose a little more than expected (+0.2% mom vs. +0.1% expected) while excluding food and energy, prices rose +0.2% mom as expected. Combined with the CPI data the general consensus was that the data is still consistent with a pickup in core inflation, which we’ll know for sure when we get the February PCE report at the end of this month.

As for the daily Washington update, as expected Larry Kudlow was announced as Gary Cohn’s successor for the role of Trump’s economic advisor. He was quick to jump straight into the tariff debate too, saying he was “on board” with Trump’s duties and also that China has earned a “tough response” by not adhering to the rules of trade. Kudlow also said that Trump’s position on tariffs is “not what people think”, while also chimed in on the currency debate by saying he would like to see a slightly stronger dollar. Away from that, the WSJ reported that the US is pressing China to cut its trade surplus with the US by $100bn.

Overnight, the tone in Asia is a bit mixed in reaction to Kudlow’s comments with the Nikkei (+0.02%), Hang Seng (+0.15%) and Kospi (+0.25%) modestly higher, but the Shanghai Comp (-0.09%) and ASX (-0.24%) a touch lower.  There’s not been much overnight news but Canada’s PM Trudeau noted he was “very optimistic we’re going to be able to get to a win-win-win” NAFTA deal and Canada is “happy to accelerate (talks) to accommodate” upcoming elections in the US and Mexico.

Moving on. In Europe yesterday there was some focus on an ECB conference which featured several ECB officials including President Draghi. The main message from Draghi’s speech was confirmation that “adjustments to our policy will remain predictable, and they will proceed at a measured pace that is most appropriate for inflation convergence to consolidate, taking into account continued uncertainty about the size of the output gap and the responsiveness of wages to slack”. Draghi did also mention potential risks to the inflation outlook through new trade measures announced by the US. Peter Praet was a bit more interesting, saying that “our forward guidance on the path of our policy rates will have to be further specified and calibrated as appropriate for inflation to remain on the sustained adjustment path toward levels below, but close to 2%”.

Meanwhile Villeroy noted that “what we see now is a welcome alignment of the stars: against the economic background of a robust expansion with gradual progress on inflation, there is a broad convergence of market expectations with the views within our Governing Council”.

Meanwhile, there was a confusing few hours in Italy yesterday following comments from Matteo Salvini, leader of the Northern League. Initially, Salvini said that a government with the Five Star Movement is “possible” and that he was  open to all possibilities of forming a majority party aside from with the Democratic Party. The market would envisage some form of Northern League/Five Star alliance as the least market friendly outcome so this obviously got some attention however a short time later Salvini appeared to somewhat walk back on his comments by saying that he wouldn’t break with his centre-right partners for a deal with Five Star. That left the market suitably confused and the FTSE MIB, which had already tumbled on the initial headline, closed last night -1.05%. BTP yields also rose 1.9bps which was in contrast to the rest of Europe which was generally speaking 2-3bps lower. In fact, the 10y BTP-Bund spread is now back to the highest (142bps) since mid-January so clearly there is some risk premium being priced in.

Over in Germany, Ms Merkel noted she “cannot predict” whether the EU will win exemptions from the US tariffs. She added negotiations are the preferred course to resolve trade disputes but the EU “is ready to act if talks fail”. Elsewhere on Brexit, there appears to be more support from German industry groups for a customs union between Germany and the UK. The GM of Germany’s BDI industry federation Joachim Lang noted the ideal outcome for German companies is if the UK remains “within a customs union” post Brexit while EU leaders should commit to a transition period soon “otherwise some companies will be forced to activate their emergency plans”. Similarly the GM of the VDMA, Mr Brodtmann, noted “a customs union between the EU and Britain would ease much of the horror of Brexit”.

Staying with the UK, the main non-Brexit story (Bloomberg) yesterday was UK PM Theresa May announcing that she was ejecting 23 Russian Diplomats out of Britain and will freeze some Russian state assets in response to the poisoning of the former spy along with his daughter. On the other side, the Russian Foreign Ministry noted “…our response measures will not be long in coming”. The rising diplomatic tension has likely added to the flight to safety with Gilts slightly outperforming (10y yields -5.0bp vs. Bunds -2.7bp).

Over in the US, the Senate has voted 67-31 to roll back some of the Dodd-Frank Act impacts on smaller lenders, with one of the changes including raising the asset threshold for banks to be designated as systemically important financial institutions from $50bn to $250bn, while banks with assets less than $10bn will be exempt from the Volcker rule. The draft bill now goes to the lower House.

Before we take a look at today’s calendar, we wrap up with other data releases from yesterday. In the US, the January business inventories print was in line at +0.6% mom. The Euro area’s January IP fell more than expected at -1.0% mom (vs. -0.5% expected) leading to an annual growth rate of +2.7% yoy (vs. +4.4% expected), weighted down by a -6.6% mom decline in energy production as well as weaker production of consumer and intermediate goods. Elsewhere, the final reading for Germany’s February CPI was confirmed at +0.5% mom and +1.2% yoy.

Before we wrap up and look at the day ahead, a quick mention that we have the third speaker in DB’s Professional Speaker Series next Thursday with DB’s Chief EMEA Economist Elina Ribakova outlining the case for Emerging Markets in 2018. The event is open to all clients subscribing to DB research and should you wish to attend, place click here to register your details.

Looking at the day ahead, the final February CPI revisions in France are due. Across the pond in the US, we are due to receive March empire manufacturing, February import price index, the latest weekly initial jobless claims, March Philly Fed business outlook and March NAHB housing market index data. Brexit-related headlines will likely be a focus too with EU ambassadors wrapping up their four-day meeting, which is expected to conclude with an approval of text for the EU’s future relationship with the UK. The ECB’s Lautenschlaeger is also due to speak.

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There was a time when the phrase “cooperation payments” evoked images of burly, muscle-bound goons, walking around town, sometimes armed with a baseball bat but usually relying only on their reputation of being able to extract cold hard cash from local merchants in exchange for “protection”. This morning in Japan, it appears nothing has changed.

According to Japanese press this morning, Amazon Japan is being investigated by the country’s antitrust regulator on allegations of asking vendors for a percentage of their sales revenue.

As the Nikkei reports, the Japanese arm of the U.S. e-commerce giant whose name had already appeared increasingly in discussions of market monopolies and anti-trust violations, began requesting its vendors contribute “cooperation payments” from around 2017, claiming that the contributions would be used for system upgrades and other improvements. The requested payments ranged from a few percent to well over 10% of sales prices. The company is also alleged to have requested vendors help absorb the costs of discounting goods.

Surprisingly, Nikkei adds that Amazon Japan has been struggling with rising shipping and other operational costs.

What is more notable, however, is that in its first direct encounter with the monopoly busters, the Japan Fair Trade Commission conducted an on-site investigation at Amazon Japan’s office on Thursday on suspected violation of the Antitrust law.

The watchdog suspects the company of using its dominant position in the country’s e-commerce market to pressure suppliers, making it virtually impossible to refuse the request.

The regulator intends to clarify the details of the payment procedures, while Amazon Japan said on Thursday that it is “fully cooperating” with the investigation.

In February, Nikkei reported that Amazon Japan was seeking payments from its suppliers to cover the cost of sales system upgrades and other expenses. Amazon is reportedly already using a similar system in the U.S.

Amazon Japan has previously been the subject of investigations surrounding the so-called most-favored nation clause, which required vendors on its website to offer the same or better prices and product lineups than what they offer on rival marketplaces. The regulator closed the investigation in June 2017 after Amazon Japan agreed to delete the clause.

Meanwhile, there was no indication that the US version of Amazon was in anti-trust regulators’ crosshairs. Yet.

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A bipartisan bill which would relax restrictions placed on the financial industry during the credit-crisis has cleared the Senate with a vote of 67-31, on the 10-year anniversary of the collapse of Bear Stearns – but not before several changes to the original legislation were made, which would benefit big banks. 

“A bill that began as a well-intentioned effort to satisfy some perhaps legitimate community bank grievances has instead mushroomed, sparking fears that Washington is paving the way for the next financial meltdown,” writes David Dayen of The Intercept.

Key Provisions

• Relaxes a host of reporting requirements for small – medium banks, and to a smaller extent, large banks
• Eliminates a reporting requirement introduced by Dodd-Frank designed to avoid discriminatory lending
• Relaxes stress testing requirements intended to show how banks would survive another financial crisis
• Raises the threshold for banks which are not subject to enhanced liquidity requirements, stress tests, and enhanced risk management, from $50 billion to $250 billion – exempting several institutions which could pose systemic risks down the road.
• Allows megabanks such as Citi to count municipal bonds as “highly liquid assets” that could be used towards the “liquidity coverage ratio,” – assets which can be quickly liquidated during a crisis. 
• Calls for a report on the risks and benefits of algorithmic trading within 18 months

Introduced by Idaho Republican Mike Crapo and co-authored by North Dakota Democrat Heidi Heitkamp and several other Democrats, S.2155 was originally intended to relax regulations on community banks, credit unions, and so-called custodial banks – institutions which do not primarily make loans, but instead keep assets safe. In addition to relaxed reporting and disclosure requirements, the bill reduced the supplementary leverage ratio (SLR) – or how much equity they must have on hand compared to total assets (such as loans). As it was first written, the SLR modification would have benefitted just two U.S. banks; State Street and Bank of New York Mellon. 

After a vociferous protest by Citigroup CFO John Gerspach, among others, the language in the bill was vastly changed – along with the definition of a custodial bank so as to include virtually any large financial institution, such as Citigroup. 

“Citi is making a very aggressive effort,” according to one bank lobbyist who asked The Intercept not to be named because he’s working on the bill. “It’s a game changer and that’s why they’re pushing hard.”

Aside from the gifts to Citigroup and other big banks, the bill undermines fair lending rules that work to counter racial discrimination and rolls back regulation and oversight on large regional banks that aren’t big enough to be global names, but have enough cash to get a stadium named after themselves. In the name of mild relief for community banks, these institutions — which have been christened “stadium banks” by congressional staff opposing the legislation — are punching a gaping hole through Wall Street reform. Twenty-five of the 38 biggest domestic banks in the country, and globally significant foreign banks that have engaged in rampant misconduct, would get freed from enhanced supervision. –The Intercept

“Community banks are the human shields for the giant banks to get the deregulation they want,” said an angry Senator Elizabeth Warren (D-MA) who has donned her war paint for an ill-fated fight against the legislation. “The Citigroup carve-out is one more example of how in Washington, money talks and Congress listens.”

Relaxed reporting, relaxed leverage ratios, relaxed disclosures

One of the biggest giveaways is relaxed reporting requirements. Currently, banks with over $50 billion are subject to enhanced regulatory standards introduced by Dodd-Frank – which include additional capital and liquidity requirements, stress tests, and enhanced risk management. The new bill raises that threshold to $100 billion immediately, and to $250 billion in another 18 months. 

This would primarily benefit so-called “stadium banks,” as explained by a Senate aide: “If you can get naming rights to a stadium, you’re not a community banks.” 

The relaxed rules would benefit 25 of the 38 largest banks in the United States, including Citizens Bank (Philadelphia Phillies), Comerica (Detroit Tigers), M&T Bank (Baltimore Ravens), SunTrust (Atlanta Braves), KeyBank (Buffalo Sabres), BB&T (Wake Forest University), Regions Bank (AA baseball’s Birmingham Barons), and Zions Bank (Salt Lake City’s Real Monarchs of Major League Soccer).

While smaller banks don’t pose much systemic risk in the event of another banking crisis – banks in the $250 billion range may be a different story.

“The last crisis proved that three banks in the $100 to $250 [billion] range were shown to be systemic, because regulators had to arrange a quick emergency bailout or sale,” said George Washington University law professor, Arthur Wilmarth. 

National City was a $145-billion bank and a major subprime originator when it failed and was sold to PNC. The financing arm of General Motors, GMAC, had $210 billion in assets when it received $17.2 billion in bailout money and another $7.4 billion in guarantees after crumbling under the weight of bad loans. And Countrywide, once America’s biggest subprime lender, had $200 billion in assets when it was sold under duress to Bank of America. Going back further, if you adjusted Continental Illinois’ size for inflation when it received a federal bailout in 1984, it would fall in the $100 to $250 billion range. –The Intercept

That said, the Fed will still have the discretion to regulate systemically risky banks. 

Title II of S.2155 also allows banks with under $10 billion in assets to avoid several reporting requirements, along with the Volcker rule’s restriction on market trading with their own deposits – as long as their simple leverage ratio is between 8 and 10 percent.

This may benefit community banks at the expense of consumers, as it allows the smaller lenders to issue high-risk loans without various disclosures and “ability-to-pay” rules across the country, as long as the loans are maintained within the bank’s portfolio. 

The theory is that small banks with “skin in the game” won’t take imprudent risks. “I’ve got an S&L crisis that says otherwise,” wrote Georgetown Law professor and former CFPB adviser Adam Levitin in a blog post. He believes the provision will encourage community banks to load up on high-cost, toxic loans, setting them up to fail if economic conditions shift. –The Intercept

Other relaxed regulations include not requiring appraisals in rural areas and eliminating escrow account requirements. “You can tell they’re not technical fixes because they all push against consumers,” said Mike Konczal of the Roosevelt Institute.

Discriminatory lending?

Critics of the bill have pointed to section 104, which exempts banks and credit unions which make fewer than 500 loans per year from the Home Mortgage Disclosure Act (HMDA) – which requires that lenders report credit scores, debt-to-income ratios, LTV ratios and other information in order to ensure that banks are not engaging in discriminatory lending practices. This would affect around 85% of all banks and credit unions. 

“HMDA data is a crucial tool to make sure every American has access to opportunity,” said California congressional candidate and mortgage industry expert Katie Porter. “Discrimination in lending has an ugly history in the U.S. This would make the data unreliable.” And the data are the building blocks of any lending discrimination case; you can’t enforce fair housing laws without the facts.

Critics fear that S.2155 would enable smaller banks to overcharge black and Latino borrowers, or deny them financing altogether. 

According to the Center for Responsible Lending, blacks and Latinos had the highest rate of foreclosures per 10,000 loans to owner-occupants originated between 2005-2008.

In response to the controversial provision, Sen. Tim Kaine (D-VA), offered an amendment to kill the HMDA reporting requirements – however when asked about it he admitted: “I don’t need my amendment to pass” to support the underlying bill. “I think the bill is solid as it is.”

The bill now moves to the House, where Republicans have been pushing a more aggressive rollback of financial regulations enacted during the credit crisis. 

Rep. Jeb Hensarling (R-Texas), chairman of the House Financial Services Committee, has said that House Republicans will want to alter the Senate bill to reflect their priorities. But that could drive away the Senate Democrats needed to pass the legislation, and so the House will face significant pressure to accept the Senate legislation with few, if any, changes. –WaPo

Recall that nearly 20 years ago Congress and Bill Clinton repealed Glass Steagall – which allowed banks to take on massive risks, shortly before Barney Frank pushed banks to extend subprime and “liar” loans to under-qualified applicants, which were then packaged into AAA paper and leveraged into oblivion. 

And once again, history repeats itself…

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Authored by Judith Bergman via The Gatestone Institute,

On March 1, The European Commission — the unelected executive branch of the European Union — told social media companies to remove illegal online terrorist content within an hour, or risk facing EU-wide legislation on the topic. The ultimatum was part of a new set of recommendations that will apply to all forms of “illegal content” online, “from terrorist content, incitement to hatred and violence, child sexual abuse material, counterfeit products and copyright infringement.”

The European Commission said, “Considering that terrorist content is most harmful in the first hours of its appearance online, all companies should remove such content within one hour from its referral as a general rule”.

While the one-hour ultimatum is ostensibly only about terrorist content, this is how the European Commission motivated the new recommendations:

“The Juncker Commission made security a top priority from day one. It is the most basic and universal of rights to feel safe in your own home or when walking down the street. Europeans rightly expect their Union to provide that security for them – online and offline. The Commission has taken a number of actions to protect Europeans online – be it from terrorist content, illegal hate speech or fake news… we are continuously looking into ways we can improve our fight against illegal content online. Illegal content means any information which is not in compliance with Union law or the law of a Member State, such as content inciting people to terrorism, racist or xenophobic, illegal hate speech, child sexual exploitation… What is illegal offline is also illegal online”.

“Illegal hate speech”, is broadly defined by the European Commission as “incitement to violence or hatred directed against a group of persons or a member of such a group defined by reference to race, colour, religion, descent or national or ethnic origin”.

The internet companies have three months to deliver results and the European Commission will then decide whether it will introduce legislation. Incidentally, the three-month deadline, in May 2018, coincides with the deadline that the European Commission gave itself in 2017 on deciding whether the “Code of Conduct on countering illegal online hate speech” should be made into legislation.

In May 2016, the European Commission and Facebook, Twitter, YouTube, and Microsoft, agreed on a “Code of Conduct on countering illegal online hate speech” (Google+ and Instagram joined the Code of Conduct in January 2018). The Code of Conduct commits the social media companies to review and remove within 24 hours content that is deemed to be, “illegal hate speech”. According to the Code of Conduct, when companies receive a request to remove content, they must “assess the request against their rules and community guidelines and, where applicable, national laws on combating racism and xenophobia…” In other words, the social media giants act as voluntary censors on behalf of the European Union.

The European Commission has been regularly monitoring the implementation of the Code of Conduct. It recently found that “Under the Code of Conduct on Countering Illegal Hate Speech Online, internet companies now remove on average 70% of illegal hate speech notified to them and in more than 80% of these cases, the removals took place within 24 hours”.

The European Commission’s announcement on the new recommendations, specifically the one-hour rule, was heavily criticized. EDiMA, an industry association that includes Facebook, YouTube, Google and Twitter, said it was “dismayed” by the Commission’s announcement:

Our sector accepts the urgency but needs to balance the responsibility to protect users while upholding fundamental rights — a one-hour turn-around time in such cases could harm the effectiveness of service providers’ take-down systems rather than help… EDiMA fails to see how the arbitrary Recommendation published by the European Commission, without due consideration of the types of content; the context and impact of the obligation on other regulatory issues; and, the feasibility of applying such broad recommendations by different kinds of service providers can be seen as a positive step forward.

Joe McNamee, executive director of European Digital Rights, described the Commission’s proposal as “voluntary censorship”:

“Today’s recommendation institutionalizes a role for Facebook and Google in regulating the free speech of Europeans,” he said in a statement. “The Commission needs to be smart and to finally start developing policy based on reliable data and not public relations spin.”

Facebook, on the other hand, said that it shares the European Commission’s goal:

“We have already made good progress removing various forms of illegal content,” the company said in a statement. “We continue to work hard to remove hate speech and terrorist content while making sure that Facebook remains a platform for all ideas.”

There appears to be a huge disconnect here between the EU’s professed concern for keeping Europeans safe — as expressed in the one hour rule — and the EU’s actual refusal to keep Europeans safe in the offline world. The result is that Europeans, manipulated by an untransparent, unaccountable body, will not be kept safe either online or off.

Only a few months ago, EU’s Commissioner for Migration, Home Affairs and Citizenship, Dimitris Avramopoulos wrote, “We cannot and will never be able to stop migration… At the end of the day, we all need to be ready to accept migration, mobility and diversity as the new norm and tailor our policies accordingly”.

The enormous influx of migrants into the EU, especially since 2015, is closely linked to the spike in terrorism, as well as the current and future Islamization of the continent. ISIS terrorists have returned to Europe or entered the continent disguised as migrants, and several have perpetrated terror attacks. According to Gilles de Kerchove, EU Counterterrorism Coordinator, there are now more than 50,000 jihadists living in Europe. In 2017, one terrorist attack was attempted every seven days in Europe, on average. When Jean-Claude Juncker, President of the European Commission, gave his State of the Union Address to the European Parliament in September 2017, he admitted a hugely embarrassing fact:

“We still lack the means to act quickly in case of cross-border terrorist threats. This is why I call for a European intelligence unit that ensures data concerning terrorists and foreign fighters are automatically shared among intelligence services and with the police”.

After the ISIS attacks in Paris in November 2015, the Brussels attacks in March 2016, the Nice attack in July 2016, the Berlin Christmas Market attack in December 2016, and the Manchester attack in May 2017 — and those are just the most spectacular ones — should the “intelligence unit” for which Juncker calls not have been the very highest priority for the European Commission? After all, it claims that security is its “top priority”. Yet, Europeans are supposed to believe that removing “terrorist content” within one hour is going to protect them against future terrorist attacks?

Moreover, as long as you are claiming that security is a “top priority”, if President Juncker so readily admits to lacking “the means to act quickly in case of cross-border terrorist threats”, would the logical consequence not be to close those borders, at least until you have acquired those means?

 

European Commission President Jean-Claude Juncker. (Photo by Sean Gallup/Getty Images)

 

European intelligence authorities have repeatedly stated that with the ongoing migration, Europe is “… importing Islamic extremism, Arab anti-Semitism, national and ethnic conflicts of other peoples, as well as a different understanding of society and law”.

These are all factors contributing to the current spikes not only in the terror threat to Europe, but also in the crime waves sweeping countries such as Sweden and Germany, including the surge in rapes.

Regardless of these facts, including that women can no longer exercise their freedom to walk in safety in many neighborhoods of European cities, the EU has staunchly refused to stop the influx of migrants. It is, therefore, difficult to take seriously in any way the European Commission’s claim that the security, offline and online, of EU citizens is a “top priority”. If that were true, why does not Europe simply close the borders? Stopping terrorists at the borders would be infinitely more efficient at reducing the terrorist threat than requiring tech companies to remove “Illegal online content”. Instead, the EU actually sues EU countries — Poland, Hungary and the Czech Republic — who refuse to endanger their citizens by admitting the quota of migrants that the EU assigns for them.

These EU ultimatums also fail to take into account what a recent study showed: that the second most important factor in the radicalization of Muslims, after Islam itself, is the environment, namely the mosques and imams to which Muslims go and on which they rely. Although the internet evidently does play a role in the radicalization process, the study showed that face-to-face encounters were more important, and that dawa, proselytizing Islam, plays a central role in this process. Perhaps the EU should obsess less over inconsequential time frames — last year the European Commission talked about a two-hour time frame for removal — and worry more about what is being preached inside the thousands of mosques scattered around its membership countries, so many of them financed by Saudi Arabia and Qatar?

Recent experience with Germany’s censorship law shows that a company is likely to err on the side of caution — censorship. And what if the content in question, as has already occurred may be trying to warn the public about terrorism?

Above all, the one-hour rule, with the threat of legislation behind it, looks more like a diversion created for public relations and for sneaking even more authoritarian censorship — plus the ignorance that goes with it — into the lives of its EU citizens.

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Since garnering more mainstream attention, the rise of Bitcoin has been debated openly by government officials, financial institutions, and mass media outlets. A segment on Bitcoin was even recently broadcast to millions of viewers on the popular The Ellen DeGeneres Show.

But as Visual Capitalist’s Jeff Desjardins notes, while Bitcoin remains the undisputed bellwether for digital currencies, it’s also fair to say that the entire crypto landscape has been changing dramatically over the last year. New coin and token offerings have raised billions of dollars, innovative ideas are capturing the attention of investors, and there are now 20+ cryptocurrencies that have at least $1B in market capitalization.

Bitcoin may be in the public spotlight, but there’s a lot happening behind the scenes.

MOST NOTABLE CRYPTOCURRENCIES

Today’s visualization comes to us from Nick Young, and it shows the 25 most notable cryptocurrencies on the market using data from March 5, 2018.

Courtesy of: Visual Capitalist

In the graphic, the 25 cryptocurrencies are organized by market capitalization, inception date, 30-day trade volume, and also the type of function that each coin or token has. It’s also worth noting that relative comparisons are done on a log scale for easier viewing.

Here are the top five cryptocurrencies by market capitalization, according to the graphic:

Note: Cryptocurrencies are volatile and have large swings in value, so these numbers can change quickly.

And here is the top five cryptocurrencies by 30-day volume, as well:

Bitcoin’s journey to $10,000 in late 2017 caught the attention of many people in the media and investing world, catapulting the currency into the mainstream. At the same time, however, it’s also clear that the rest of the cryptocurrency landscape is flourishing as a strong supporting cast, making for a more diverse, interesting, and efficient ecosystem overall.

Exactly a year ago, Bitcoin made up over 80% of the market capitalization of the cryptocurrency space. Today, with many altcoins gaining traction (and the Bitcoin hard forks taking place), the share held by Bitcoin is closer to 42%.

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Authored by Charles Benavidez via SafeHaven.com,

The UK-based Tax Justice Network’s new Financial Secrecy Index estimates that the ultra-wealthy are hiding up to $32 trillion in tax havens around the world, and while Switzerland gets the top spot on the new list, the U.S. is a not-so-distant second.

Not even major global scandals such as the Panama and Paradise papers have been able to slow the rise of the bigger and better tax havens, as global industry growth has billion-dollar asset owners looking for the ultimate haven to stow away gains. 

These are the top 10 tax havens in 2018, according to FSI:

#1 Switzerland

(Click to enlarge)

Switzerland, a global leader in asset management cornering 28 percent of the market share, is holding an estimated $6.5 trillion, more than half of which comes from abroad.

The attraction is a low tax base coupled with a top-notch banking system.

Switzerland is the ‘grandfather’ of global tax havens, and the world leader in cross-border asset management.

As FSI notes: “…the Swiss will exchange information with rich countries if they have to, but will continue offering citizens of poorer countries the opportunity to evade their taxpaying responsibilities.”

And it’s more secretive than the No 2 tax haven…

#2 The Unites States of America

(Click to enlarge)

The U.S. is on a tear on the competition for the top tax haven spot, rising for the third time in five years, and now capturing the number two slot. In 2015, the U.S. was in third place, and in 2013, it was in sixth.

Between 2015 and 2018, U.S. market share of global offshore financial services rose 14 percent, from 19.6 percent to 22.3 percent.

Delaware, Nevada and Wyoming are the most aggressive tax havens, often described as ‘captured states’.

When it comes specifically to offshore financial services, then, the U.S. now has the largest market share, rivalled only by the City of London, according to FSI, which notes that foreign country elites use the U.S. “as a bolt-hole for looted wealth”.

The baggage is piling up. Take the Delaware tax haven, for instance. It’s housing a company in “good standing” that is used for trafficking children for sex but can’t be shut down because it doesn’t have a physical presence in the state, according to Quartz.

#3 Cayman Islands

Third place go to this overseas territory of the United Kingdom, holding $1.4 trillion in assets managed through 200 banks. With more than 95,000 companies registered, this country is the world leader in terms of hosting investment funds.  Related: What Does A Strong Euro Mean For Gold Prices?

It’s a lot more “upmarket” today than it used to be in its heyday as a hotspot for drug smuggling and money-laundering. Now it deals with some of the world’s biggest banks, corporations and hedge funds.

On the FSI secrecy index, it ranks a 71, right between Switzerland and the U.S.

#4 Hong Kong

While one of the newer tax haven’s—it’s already hit fourth place and is managing some $2.1 trillion in assets (as of the close of 2015), along with $470 billion in private banking assets. It helps that it’s home to the third-largest stock exchange in Asia.

And when it comes to ultra-high-net-worth individuals, Hong Kong leads the pack, with 15.3 per 100,000 households.

The attraction is that companies incorporated in Hong Kong pay tax only on profits sourced in Hong Kong and the tax rate is currently at 16.5 percent. So in all likelihood, they’re paying zero taxes.  

In terms of secrecy, it ranks 71 alongside Cayman.

#5 Singapore

This country is the favorite offshore center servicing Southeast Asia (as opposed to Hong Kong, which caters to China and North Asia).

As of the end of 2015, Singapore was estimated to be holding $1.8 trillion in assets under management, 80 percent of which originated outside of the country.

It has a secrecy ranking of 67.

#6 Luxembourg

This is a tiny state in the European Union that packs a massive tax haven punch. Despite its size, it is said to control 12 percent of the global market share for offshore financial services. The FSI estimates that its 143 banks are managing assets of around $800 billion.

Luxembourg has a secrecy ranking of 58.

#7 Germany

Major tax loopholes and lax enforcement have bumped Germany to number seven on the FSI’s list, despite being one of the world’s biggest economies and not intentionally focusing on global financial services. It corners about 5 percent of market share in the sector, and ranks 59 in terms of secrecy. 

#8 Taiwan

This is the first year Taiwan has made the Top 10 list, bumping off Lebanon, which now sits in 8^th place.

Beijing’s “One China” policy is largely responsible for Taiwan’s ascendancy on the tax haven scene because it managed to fly under everyone’s radar, not participating in International Monetary Fund (IMF) statistics thanks to Chinese pressure.

And no one’s entirely sure how much offshore money is flowing through here.

#9 United Arab Emirate of Dubai

Dubai, servicing massive regional oil wealth, gets the highest secrecy rating of them all, at 84. Its offshore facilities are exceedingly complex and offers a low-tax environment and lax enforcement.

It’s also recently been the target of an EU tax haven blacklist.

#10 Guernsey

This small tax haven jurisdiction in the English Channel has risen seven places on the list since 2015, and accounts  for 0.5 percent of the global trade in offshore financial services. Essentially, this is nothing more than a ‘captured state’ with a high secrecy rating of 72.

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