Category: zerohedge

78% Of US Workers Are Living ‘Paycheck-To-Paycheck’ & 71% Of Them Are In Debt

Authored by Michael Snyder via The Economic Collapse blog,

Are you living paycheck to paycheck?  If so, you are just like most other hard working Americans.

As you will see below, 78 percent of full-time workers in the United States say that they are living paycheck to paycheck.  That is the highest figure ever recorded, and it is yet more evidence that the middle class is under an increasing amount of stress.  The cost of living is rising at a much faster pace than our paychecks are, and more families are falling out of the middle class with each passing month.  Unfortunately, this is something that the mainstream media really doesn’t want to talk about these days.  Instead, they just keep having us focus on the soaring financial markets which are being grossly artificially inflated by global central banks.

When I came across the numbers that I am about to share with you I was actually quite stunned.  I knew that things were not great in “the real economy”, but I didn’t expect that the number of Americans living paycheck to paycheck would actually be rising.  But that is precisely what a brand new survey that was just released by CareerBuilder is saying…

Seventy-eight percent of full-time workers said they live paycheck to paycheck, up from 75 percent last year, according to a recent report from CareerBuilder.

 

Overall, 71 percent of all U.S. workers said they’re now in debt, up from 68 percent a year ago, CareerBuilder said.

 

While 46 percent said their debt is manageable, 56 percent said they were in over their heads. About 56 percent also save $100 or less each month, according to CareerBuilder.

The first thing that we want to note about this survey is that it only includes full-time workers.  So the unemployed, part-time workers, those that work for themselves and those that are independently wealthy were not included.

The second thing that we want to note is that these numbers have gotten worse since last year.

That certainly does not fit with the narrative that we are being fed by the mainstream media, but it does fit with the reality that most people are living on a daily basis.

Most Americans work extremely hard, but they can never seem to get ahead.  Most of us are in debt, and a couple of weeks ago I wrote about how the elite use debt as a tool of enslavement.  As we work endless hours to “pay the bills”, we are steadily enriching those that are holding our debts.

In addition, the cost of living is steadily going up, and most U.S. families are just barely scraping by from month to month as a result.  Just a couple days ago I wrote about how Obamacare was causing health insurance premiums to skyrocket, and today I came across another example of someone that has seen their annual premiums more than double during the Obamacare era…

For some lower-income people in Obamacare, the rising premiums President Donald Trump has talked so much about will barely be felt at all. Others, particularly those with higher incomes, will feel the sharp increases when insurance sign-ups begin Wednesday.

 

Richard Taylor is one of the people on the wrong end. The 61-year-old, self-employed Oklahoman has meticulously tracked his medical costs since 1994. In 2013, he signed up for an Affordable Care Act plan for the law’s first year offering coverage to millions of Americans.

 

Four years ago, annual premiums for a mid-level “silver” plan to cover his family totaled $10,072.44. For 2017, they were $21,392.40—up 112 percent.

Who can afford $21,000 a year for health insurance?

I know that I can’t.

And rates are supposed to go up substantially again in 2018.  We must repeal Obamacare, and we must do it now.

In addition to financial stress, most Americans are also deeply concerned about the future of this country.  Just consider the following numbers from a poll that was released this week…

Almost two-thirds of Americans, or 63 percent, report being stressed about the future of the nation, according to the American Psychological Association’s Eleventh Stress in America survey, conducted in August and released on Wednesday.  This worry about the fate of the union tops longstanding stressors such as money (62 percent) and work (61 percent) and also cuts across political proclivities. However, a significantly larger proportion of Democrats (73 percent) reported feeling stress than independents (59 percent) and Republicans (56 percent).

I certainly can’t blame the Democrats for being stressed out.  Donald Trump is in the White House and pro-Trump forces are taking over the Republican Party.  And if a large wave of pro-Trump activists goes to Congress in 2018, we are going to take this nation in a completely different direction.

That same survey referenced above also discovered that 59 percent of Americans consider this “to be the lowest point in our nation’s history that they can remember”…

A majority of the more than 3,400 Americans polled, 59 percent, said “they consider this to be the lowest point in our nation’s history that they can remember.” That sentiment spanned generations, including those that lived through World War II, the Vietnam War, and the terrorist attacks of Sept. 11. (Some 30 percent of people polled cited terrorism as a source of concern, a number that’s likely to rise given the alleged terrorist attack in New York City on Tuesday.)

That number seems very strange.

Yes, I can understand that those on the left are very pessimistic now that Trump is in the White House, but this is definitely not the lowest point in recent history.

Have people totally forgotten the financial crisis of 2008?

What about 9/11?

The JFK assassination, the Vietnam War, the deep recession during the Carter years and the entire Obama era are also examples of very low points in recent history.

Yes, great challenges are coming, but for the moment the economy is relatively stable, much of the world is at peace, and at least Hillary Clinton is not in the White House.

There is so much to be thankful for, and if people out there think that this is the “lowest point” in recent American history, how are they going to feel when a real crisis comes along?

*  *  *

Michael Snyder is a Republican candidate for Congress in Idaho’s First Congressional District, and you can learn how you can get involved in the campaign on his official website. His new book entitled “Living A Life That Really Matters” is available in paperback and for the Kindle on Amazon.com.

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Corey Feldman Names Names: Accuses Former Co-Star Of Molesting Him

Corey Feldman has apparently taken Matt Laur's advice and has decided to reveal the name of one of six Hollywood figures who molested him during the late 1980s and early 1990s.

During an apperance on the Dr. Oz show, he disclosed that the actor in question is none other than John Grissom.

The “Goonies” actor named Grissom just moments before calling law enforcement officials to report the allegations.

“That is him,” Feldman said as host Mehmet Oz held up a photo of Grissom on his phone. “That is the guy.”

 

 

 

 

Feldman, who has been a fixture on the daytime talk show circuit since first revealing in the mid-2006 that he and his friend Corey Haim were the victims of a Hollywood pedophilia ring. Feldman said he wanted to name Grissom in his 2013 memoir Coreyography, but his lawyers warned him not to.

Feldman has said the men repeatedly molested him, while Haim was repeatedly raped – a trauma that Feldman said contributed to Haim’s death by drug overdose.

Of course, Feldman’s claims are receiving new attention amid the deluge of accusations of sexual assault and abuse that have been levied against many powerful figures in the entertainment and media industries. Actor Kevin Spacey saw Netflix cancel his series “House of Cards” after actor Anthony Rapp said Spacey molested him in the 1980s.

Feldman has previously identified former child talent manager and convicted sex offender Marty Weiss as one of his former abusers. During his appearance on Today, Laur tried to goad Feldman into naming names live on air by questioning his credibility.

The “Stand By Me” actor encouraged Grissom on Thursday to turn himself in to police.

“Now is your time,” Feldman said Thursday. “Be a man for the first time and come forward yourself. … Let it be known and you will be dealt with in a much more tolerant way, I’m sure. However, if you do not, we are coming for you.”

Grissom appeared in the 1980s movies “License to Drive” and “Dream a Little Dream,” which both starred Feldman.

As the Huffington Post pointed out, Feldman hinted at Grissom’s identity in a series of tweets published in March.

 

 

 

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Yield Curve Crushed To 10 Year Lows As Stocks Signal Trump-Tax-Plan Won’t Pass

The bond market's reaction to the Trump Tax Plan…

 

Bonds and Bullion were immediately bid and stocks and the dollar sank on the Trump Tax plan release – but as Europe closed, gold was 'managed' down, leaving bonds outperforming on the day… And stocks back to unchanged as the market realized there is little chance of this bill passing… (So Bonds price out a little more growth hope and stocks flat on status quo and Powell)

 

The immediate reaction in stocks to the release of the Trump Tax plan was disappointment – sending stocks lower and VIX higher – but that was quickly met by the machines crushing VIX back to a 9 handle…

 

And as it became clearer that this bill was a non-starter, stocks roared back…

 

Some of the bigger reactions to the Tax Bill were homebuilders…

 

And Private Equity shops (Apollo, KKR, KW)… though there did not appear to be anything in the tax bill

 

And TSLA kept falling (not helped by lower EV credits in the tax bill), tumbling back below $300…

 

Finally, Bank stocks outperformed the market… as the yield curve crashed…

 

High yield bonds did not love the tax plan…

 

Treasury yields were down across the board having fallen in the early European session then legged lower on the Trump Tax plan release…

 

10Y seems to bid in Europe…

 

With the 'growth'-related 5s30s curve slumping to new cycle lows…

 

Breaking down to new cycle lows – flattest since 2007…

 

The Dollar Index ended lower on the day but was whipsawed around quite a bit… like the other markets, FX seemed to signal no hope for the tax bill passing…

 

 

Crude rallied on the day but copper, silver, and gold ended unchanged after jumping on the tax plan…

 

 

The bottom line from the reaction by markets seems to be traders are not expecting this bill to pass at all… and bonds are signaling the recent reflation exuberance is now fading fast.

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Coinbase Adds A Record 100,000 Bitcoin Traders In One Day

Back in the summer of 2015, one tracked the euphoria of the Chinese stock market bubble by the number, usually in the hundreds of thousands, of new brokerage accounts that were opened on any one given day.

And while that bubble has long since burst, the tradition of measuring new account openings has remained, and nowhere more so than in the biggest momentum instruement of the day, bitcoin.

Following a 7x increase in the price of bitcoin this year alone, which earlier today topped $7,000 for the first time ever (before sliding as much as $600) the broader public is now truly on board, and as one of the world’s biggest US cryptocurrency exchanges reports in its daily usage update, there were 11.9 million Coinbase users as of November 1, shortly after the CME announced it would introduce bitcoin futures by the end of 2017.

This number is notable because according to data collected by Alistair Milne, an investor in the Atlanta Digital Currency fund…

… the number of users was 11.8 million yesterady, meaning that in one day Coinbase added a record 100,000 users, i.e., bitcoin traders.

Such a parabolic shift into bitcoin will likely raise some eyebrows, not least because as Bloomberg reports, Coinbase’s GDAX platform drew scrutiny from the CFTC last month over the June 21 flash crash that erased most of the value of ether, the second-largest cryptocurrency, in a matter of milliseconds.

Another consideration: Fundstrat’s Tom Lee, who has previously called for bitcoin to hit $6,000 by the middle of 2018 and $25,000 by 2022, today turned cautious after the recent rally “on contemporaneous fundamentals.” The uberbitcoinbull says the 60% surge in the past month to over $7,000 is a result of multiple factors, including the CME announcement to offer bitcoin futures and Amazon acquiring crypto domains. As a result he recommends waiting for a pullback, and buying bitcoin in the $5,500 range. He is less concerned about the long-run, however, and sees the cryptocurrency hitting $25,000 by 2022.

Ironically, it was none other than Lloyd Blankfein who had some interesting observations on the value of bitcoin. Speaking to Bloomberg today, the Goldman CEO said that he while he doesn’t hold any investments in the digital coin, he can see a world in which bitcoin is a form of currency.

“I read a lot of history, and I know that once upon a time, a coin was worth $5 if it had $5 worth of gold in it,” Blankfein said in an interview Thursday with Bloomberg TV. “Now we have paper that is just backed by fiat…Maybe in the new world, something gets backed by consensus.”

 

“I’ve learned over the years that there’s a lot of things that workout pretty well that I don’t love,” he said today. Bitcoin certainly has been doing well in 2017, rising more than 600 percent since the start of the year and surpassing $7,000 for the first time.

“I don’t have an investment in it, but I’m not willing to pooh-pooh it and that’s why I say I’m open to it,” he concluded.

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Tesla’s Having The Worst Day Ever As GOP Tax Plan Calls For Axing Electric Car Credit

Tesla may be officially having the worst day ever.  One day after announcing its worst quarter in history, in which it burned a record $1.4 billion in cash (which is about $15.5 million every single day, btw)…

…a couple of GOP Representatives had to come along and propose a tax bill that would eliminate a key component on Tesla’s business plan: taxpayer subsidies.  As SF Gate notes, each electric vehicle purchased in the U.S. is currently eligible for a $7,500 tax credit…a credit that has long served to artificially prop up a business that would likely not exist but for the generosity of taxpayers.

Tesla Inc., General Motors Co. and other major carmakers pushing to boost U.S. electric car sales were dealt a blow by House Republicans who on Thursday proposed eliminating a $7,500 per vehicle tax credit that has helped stoke early demand for the still small segment of the U.S. auto market.

 

If adopted, the repeal would take effect after the 2017 tax year, according to a summary of the bill released Thursday by the House Ways and Means Committee as part of a sweeping overhaul of the U.S. tax code that would eliminate some deductions and cut the corporate tax rate to 20 percent. The Senate is crafting its own version.

 

Automakers from Detroit to Yokohama are betting big on an electric future with plans to spend billions of dollars on new pure-electric models to be rolled out in the coming years despite limited sales to date. Availability of the credit has been capped at the first 200,000 qualifying vehicles sold by each manufacturer. No automaker has reached that cap yet.

Elon

Of course, it’s not just Tesla that would be impacted by such a move as lower-end electric vehicles, like the Chevy Bolt and Nissan Leaf, target a consumer base that is even more dependent on tax subsidies to purchase vehicles that are not economically viable on a standalone basis and, quite ironically we might add, actually create more pollution than combustion-engine vehicles.

“That will stop any electric vehicle market in the U.S., apart from sales of the highly expensive Tesla Model S,” said Xavier Mosquet, senior partner at consultant Boston Consulting Group, who authored a study on the growth of battery powered vehicles. “There’s no Tesla 3, no Bolt, no Leaf in a market without incentives.”

 

Eliminating the credit will also impact other carmakers offering electric vehicles such as GM and Nissan Motor Co. Ltd., which according to the Alliance of Automobile Manufacturers collectively offer more than 30 electric vehicle models in the U.S. market. Carmakers are under pressure to sell vehicles in higher volumes each year under an electric car sales mandate administered by regulators in California. Ten other states also follow that policy.

 

That puts the auto industry “in the middle between contradictory government policies,” Alliance spokeswoman Gloria Bergquist said in a statement.

 

“There is no question that the elimination of the federal electric vehicle tax credit will impact the choices of prospective buyers and make the electric vehicle mandate in 10 states — about a third of the market — even more difficult to meet,”said Bergquist, whose trade association represents a dozen automakers including GM, Ford Motor Co. and Volkswagen AG.

All that said, we’re quite certain that Tesla will be able to call on the state of California to ramp up their so-called “Zero-Emission Vehicle (ZEV)” scam credits even more to help them offset this additional cash burn.

I’m referring to zero-emission vehicle, or ZEV, credits. California and several other states require that a certain proportion of the vehicles sold by an automaker emit no greenhouse gases. These cars earn the automaker credits, and if they don’t have enough to meet their quota, they can buy extra ones from someone who does. As Tesla only makes vehicles that run on batteries and emit nothing, it usually has a surplus for sale.

 

The profit margin on these is very high, perhaps 95 percent. The implied $95 million of profit equates to about 58 cents a share. Tesla reported a loss of $1.33 per share this week — beating the consensus forecast by 55 cents.

 

This isn’t the only time ZEV credits have played a big role for Tesla. Looking back to early 2013, selling credits has given Tesla’s earnings extra oomph in many quarters, likely taking them above consensus forecasts in some (on an implied basis, assuming that 95 percent margin):

But, until then…Tesla shareholders are not happy…

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Can Gradual Interest-Rate Tightening Prevent A Bust?

Authored by Frank Shostak via The Mises Institute,

Fed policy makers are of the view that if there is the need to tighten the interest rate stance the tightening should be gradual as to not destabilize the economy.

The gradual approach gives individuals plenty of time to adjust to the tighter monetary stance. This adjustment in turn will neutralize the possible harmful effect that such a tighter stance may have on the economy.

But is it possible by means of a gradual monetary policy to undo the damage inflicted to the economy by previous loose monetary policies? According to mainstream economic thinking, it would appear that this is the case.

In his various writings, the champion of the monetarist school of thinking, Milton Friedman, has argued that there is a variable lag between changes in money supply and its effect on real output and prices. Friedman holds that in the short run changes in money supply will be followed by changes in real output. In the long run, according to Friedman, changes in money will only have an effect on prices.

It follows then that changes in money with respect to real economic activity tend to be neutral in the long run and non-neutral in the short run. Thus according to Friedman,

In the short-run, which may be as much as five or ten years, monetary changes affect primarily output. Over decades, on the other hand, the rate of monetary growth affects primarily prices.

According to Friedman, the effect of the change in money supply shows up first in output and hardly at all in prices. It is only after a longer time lag that changes in money start to have an effect on prices. This is the reason, according to Friedman, why in the short run money can grow the economy, while in the long run it has no effect on the real output.

According to Friedman, the main reason for the non-neutrality of money in the short run is the variability in the time lag between money and the economy. Consequently, he believes that if the central bank were to follow a constant money rate of growth rule this would eliminate fluctuations caused by variable changes in the money supply rate of growth. The constant money growth rule could also make money neutral in the short run and the only effect that money would have is on general prices.

Thus according to Friedman,

On the average, there is a close relation between changes in the quantity of money and the subsequent course of national income. But economic policy must deal with the individual case, not the average. In any case, there is much slippage. It is precisely this leeway, this looseness in the relation, this lack of mechanical one-to-one correspondence between changes in money and in income that is the primary reason why I have long favoured for the USA a quasi-automatic monetary policy under which the quantity of money would grow at a steady rate of 4 or 5 per cent per year, month-in, month-out.

In his Nobel lecture, Robert Lucas raised an issue with this. According to Lucas,

If everyone understands that prices will ultimately increase in proportion to the increase in money, what force stops this from happening right away?

Consequently, Lucas has suggested that the reason why money does generate a real effect in the short run is not so much due to the variability of monetary time lags but more bound up with whether money changes were anticipated or not. If monetary growth anticipated, then people will adjust to it rather quickly and there will not be any real effect on the economy. Only unanticipated monetary expansion can stimulate production.

Moreover, according to Lucas,

Unanticipated monetary expansions, on the other hand, can stimulate production as, symmetrically, unanticipated contractions can induce depression.

Both Friedman and Lucas are of the view, although for slightly different reasons, that it is desirable to make money neutral in order to avoid unstable and therefore unsustainable economic growth.

The current practice of Fed policy makers seems to incorporate the ideas of Friedman and Lucas into the so-called transparent monetary policy framework. This framework accepts Lucas's view that anticipated monetary policy could lead to stable economic growth. This framework also accepts that a gradual change in monetary policy in the spirit of Friedman's constant money growth rule could reinforce the transparency.

If unexpected monetary policies can cause real economic growth, what is wrong with this? Why not constantly surprise people and cause more real wealth?

Money, Expectations and Economic Growth

What is required for economic growth is a growing pool of real savings, which funds various individuals that are engaged in the build-up of capital goods. An increase in money, however, has nothing to do, as such, with this. On the contrary this increase only leads to consumption that is not supported by production of real wealth. Consequently, this leads to a weakening in the real pool of savings, which in turn undermines real economic growth. All that printing money can achieve is a redirection of real savings from wealth generating activities towards non-productive wealth consuming activities. So obviously, there cannot be any economic growth because of this redirection.

Now if unanticipated monetary growth undermines real economic growth via the dilution of the pool of real savings why is it then that one observes that rising money is associated with a rise in economic indicators like real GDP?

We suggest that all that we observe in reality is an increase in monetary spending — this is what GDP depicts. The more money that is printed, the higher GDP will be. So-called real GDP is merely nominal GDP deflated by a meaningless price index. Hence, so-called observed economic growth is just the reflection of monetary expansion and has nothing to do with real economic growth. Incidentally, real economic growth cannot be measured as such — it is not possible to establish a meaningful total by adding potatoes and tomatoes.

While unanticipated monetary growth cannot grow the economy, it definitely produces a real effect by undermining the pool of real savings and thereby weakening the real economy.

Likewise anticipated money growth cannot be harmless to the real economy. Even if the money rate of growth is fully anticipated there is always someone who gets it first. Consequently, also anticipated money growth rate will set in motion an exchange of nothing for something.

For instance, consider the individual who fully expects the future course of monetary policy. This individual now decides to borrow $1000 from a bank. The bank obliges and lends him the $1000, which the bank has created out of "thin air". Now, since this money is unbacked by any previous production of real wealth it will set in motion an exchange of nothing for something, or a redirection of real savings from wealth generators towards the borrower of the newly created $1000. This redirection and hence real negative effect on the pool of savings cannot be prevented by an individuals' correct expectation of monetary policies.

Even if the money is pumped in such a way that everybody gets it instantaneously, changes in the demand for money will vary. After all, every individual is different from other individuals. There will always be somebody who will spend the newly received money before somebody else. This of course will lead to the redirection of real wealth to the first spender from the last spender.

We can thus conclude that regardless of expectations, loose monetary policy will always undermine the foundations of the real economy while tight monetary policy will work to arrest this process. Hence monetary policy can never be neutral.

Can a Gradual Tightening Prevent an Economic Bust?

Since monetary growth, whether expected or unexpected, gives rise to the redirection of real savings it means that any monetary tightening slows down this redirection. Various economic activities, which sprang-up on the back of strong monetary pumping, because of a tighter monetary stance get now less real funding. This in turn means that these activities are given less support and run the risk of being liquidated. It is the liquidation of these activities what an economic bust is all about.

Obviously, then, the tighter monetary stance by the Fed must put pressure on various false activities, or various artificial forms of life. Hence, the tighter the Fed gets the slower the pace of redirection of real savings will be, which in turn means that more liquidation of various false activities will take place. In the words of Ludwig von Mises,

The boom brought about by the banks' policy of extending credit must necessarily end sooner or later. Unless they are willing to let their policy completely destroy the monetary and credit system, the banks themselves must cut it short before the catastrophe occurs. The longer the period of credit expansion and the longer the banks delay in changing their policy, the worse will be the consequences of the malinvestments and of the inordinate speculation characterizing the boom; and as a result the longer will be the period of depression and the more uncertain the date of recovery and return to normal economic activity.

Consequently, the view that the Fed can lift interest rates without any disruption doesn't hold water. Obviously if the pool of real savings is still expanding then this may mitigate the severity of the bust. However, given the reckless monetary policies of the US central bank it is quite likely that the US economy may already has a stagnant or perhaps a declining pool of real savings. This in turn runs the risk of the US economy falling into a severe economic slump.

We can thus conclude that the popular view that gradual transparent monetary policies will allow the Fed to tighten its stance without any disruptions is based on erroneous ideas. There is no such thing as a "shock-free" monetary policy any more than a monetary expansion can ever be truly neutral to the market.

Regardless of policy transparency once a tighter monetary stance is introduced, it sets in motion an economic bust. The severity of the bust is conditioned by the length and magnitude of the previous loose monetary stance and the state of the pool of real savings.

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Watch Live: President Trump Announces Jerome ‘Jay’ Powell As Fed Chair

Having been leaked to most major news organizations last night, President Trump is fully expected to announce that Fed governor Jerome "Jay" Powell is Janet Yellen's replacement as the next bank-friendly Fed chair.

Live Feed (due to begin at 1500ET)…

Jerome Powell will be the first former investment banker to become Fed Chair (and first non-economics PhD in 40 years).

Powell, a Princeton graduate, was a lawyer in New York before he joined the investment bank Dillon Reed & Co. in 1984. He stayed there until he joined the Treasury Department in 1990. After he left Treasury, he became a partner in 1997 at The Carlyle Group (CG), the private equity and asset management giant. He left Carlyle in 2005.

He will also likely be the richest Fed head ever – Powell's assets are worth between $21 million and $61 million, according to financial disclosures which require officials to give a range in the value of their various holdings.

Since Powell has served as Federal Reserve governor for the past five years, starting May 2012, he has had ample opportunities to express his views about the policies he will oversee if the Senate confirms him as the central bank’s next chairman.

For those who want a detailed breakdown of each of the 48 speeches he has given since May 12, 2012, here’s a link to a WSJ speech analyzer breaking down all of his spoken public appearances.

For those pressed for time, below are samples of what he has said on important policy issues along the way. First, we look at the big picture items, courtesy of the WSJ's David Harrison:

 
 

On Interest Rates

 

Mr. Powell, 64 years old, has backed Ms. Yellen’s policy of gradually raising interest rates if the economy improves as projected. In recent public remarks he has sounded an optimistic note, saying he expects inflation to move up to the Fed’s 2% target, economic growth to remain steady and the unemployment rate to fall further. “I would view it as appropriate to continue to gradually raise rates,” he said in June. 

 

On Shrinking the Fed’s Portfolio

 

Mr. Powell in September voted in favor of beginning the yearslong process of winding down the central bank’s $4.5 trillion portfolio. Like Ms. Yellen, Mr. Powell has said the Fed could resort to new rounds of asset purchases in another crisis if the economy needs more stimulus. Putting new assets on the Fed’s balance sheet should be an option “only in extraordinary circumstances,” he said in February.

 

On Monetary Policy Rules

 

Mr. Powell has joined several of his Fed colleagues in warning against relying too heavily on mathematical rules such as the so-called Taylor Rule to guide monetary policy. That could put him at odds with congressional Republicans who have pushed the Fed to adopt such a formula in an attempt to make Fed policy-making more transparent and predictable. “Simple policy rules are widely thought to be both interesting and useful, but to represent only a small part of the analysis needed to assess the appropriate path for policy,” he said February. “I am unable to think of any critical, complex human activity that could be safely reduced to a simple summary equation.”

 

On Fannie Mae and Freddie Mac

 

Mr. Powell has called on Congress to overhaul the housing finance system, saying he’d like to see the country’s two large mortgage-finance firms, Fannie Mae and Freddie Mac, move out from under government conservatorship. More private capital in those firms would reduce the risk of a taxpayer-funded bailout in the event of a downturn, he said in a speech in July.  Although the Fed isn’t responsible for housing finance, it supervises some of the country’s largest lenders who frequently sell their loan to the two agencies. “No single housing finance institution should be too big to fail,” he said.

Ffor a more nuanced take, also via the WSJ, here are explicit thematic summaries of his speeches on a variety of topics:

 
 

June 2013: ‘Volatility is unavoidable’

 

Mr. Powell spoke after a Fed policy meeting where officials signaled they would start cutting back a bond-buying program designed to boost the economy, which led to volatility in financial markets that became known as the “taper tantrum.” “Some volatility is unavoidable, and indeed is a necessary part of the process by which markets and the economy adjust to incoming information … I want to emphasize the importance of data over date … The path of [bond] purchases is in no way predetermined; we will monitor economic data and adjust our purchases as appropriate.”

 

March 2014: ‘As long as necessary’

 

Mr. Powell gave his views about the future of monetary policy at a Senate hearing: “Today, our economy continues to recover from the effects of the global financial crisis, unevenly and at a frustratingly slow pace. The task for monetary policy will be to provide continued support as long as necessary, and to return policy to a normal stance over time without sparking inflation or financial instability. This will require a careful balancing, as there are risks from removing monetary accommodation too soon as well as too late.”

 

June 2014: On ‘forward guidance’

 

Mr. Powell defended the Fed’s practice of using verbal guidance about the likely path of policy to affect long-term interest rates. “My view is that forward guidance has generally been effective in providing support for the economy at a time when the federal-funds rate has been pinned at its effective lower bound…To be sure, there have also been times when forward guidance and market expectations have diverged, with resulting spikes in volatility. Such situations may be difficult to avoid, given the use of new, unconventional policy tools, although we always try to communicate policy as clearly as possible.”

 

February 2015: Defending Fed emergency programs

 

With Republicans in Congress considering legislation to increase scrutiny of the Fed’s decision-making, Mr. Powell defended the Fed’s response to the financial crisis. He opposed congressional audits of monetary-policy decisions, requirements that the Fed hew more closely to a specific equation in setting policy and limits on its ability to lend to financial firms in a crisis. “The evidence as of today is very strong that the Fed’s actions generally succeeded and are a major reason why the U.S. economy is now outperforming those of other advanced nations … Given the scale of the Fed’s actions during the crisis, it has been not only appropriate but essential that these actions be transparent to the public and subject to close and careful scrutiny by the Congress. And that is exactly what happened. So it is jarring to hear it asserted that the Fed carries out its duties in secret and is unaccountable to the public and its elected representatives. The Federal Reserve is highly transparent and accountable to the public and to the Congress.”

 

February 2015: On activist regulation

 

In early 2015, the Fed and other regulators were cracking down on lending standards at big banks in the leveraged-loan market, where the borrowers are companies with high levels of debt. Mr. Powell supported the policy, but warily. “I believe there should be a high bar for ‘leaning against the credit cycle’ in the absence of credible threats to the core or the re-emergence of run-prone funding structures. In my view, the Fed and other prudential and market regulators should resist interfering with the role of markets in allocating capital to issuers and risk to investors unless the case for doing so is strong and the available tools can achieve the objective in a targeted manner and with a high degree of confidence.”

 

February 2016: ‘Let incoming data do the heavy lifting’

 

In December 2015, the Fed raised its benchmark interest rate for the first time in nearly a decade. Mr. Powell later explained the decision by the Federal Open Market Committee as driven by financial data. “In the statement released after its October 2015 meeting, the committee re-emphasized data dependence and focused on the importance of incoming data for the committee’s decision ‘at its next meeting,’ which led the market to increase its estimated probability of a December rate increase from 38% to 50%. The October and November nonfarm payroll reports came in strong and above expectations, raising that probability by the time of the December meeting to about 90%. In other words, the committee used modest time-based guidance to set the stage and then let incoming data do the heavy lifting.”

 

May 2016: On the risks of gradual rate rises

 

As officials talked about raising rates again, Mr. Powell advocated for moving gradually, while acknowledging the risks involved. “If incoming data continue to support [my] expectations, I would see it as appropriate to continue to gradually raise the federal-funds rate … There are potential concerns with such a gradual approach. It is possible that monetary policy could push resource utilization too high, and that inflation would move temporarily above target. In an era of anchored inflation expectations, undershooting the natural rate of unemployment should result in only a small and temporary increase in the inflation rate. But running the economy above its potential growth rate for an extended period could involve significant risks even if inflation does not move meaningfully above target. A long period of very low interest rates could lead to excessive risk-taking and, over time, to unsustainably high asset prices and credit growth.”

 

June 2016: Why low rates?

 

The following month, Mr. Powell explained why he believes the Fed is operating in a different climate than before the 2008 financial crisis. “I am often asked why rates remain so low now that we are near full employment. A big part of the answer is that, at least for the time being, the appropriate level of rates is simply lower than it was before the crisis. As a result, policy is not as stimulative as it might appear to be…I expect our economy to continue to make progress. Monetary policy will need to remain supportive of growth, as we work through the challenging global environment.”

 

November 2016: On Fed communications

 

Mr. Powell spoke last year about how members of the Fed’s policy committee should communicate with the public. “In my view, communications should do more to emphasize the uncertainty that surrounds all economic forecasts, should downplay short-term tactical questions such as the timing of the next rate increase, and should focus the public’s attention instead on the considerations that go into making policy across the range of plausible paths for the economy.”

 

January 2017: On limits of Fed power

 

He spoke in January about the limits of the Fed’s power to increase economic growth. “A period of low rates for a long time could present significant challenges for monetary policy. It could also put pressure on the business models of some financial institutions. Ultimately, the only way to get sustainably higher interest rates is to improve the broader environment for growth, by adopting policies designed to increase productivity and potential output over the long term—policies that are mainly outside the scope of our work at the Federal Reserve.”

 

February 2017: ‘Gradually tighten’

 

Mr. Powell praised the Fed’s patience and said it would be appropriate for the Fed to gradually tighten monetary policy over time. “I expect the economy to continue broadly along its current path, which implies further labor market tightening and inflation edging closer to 2%. On this path, unemployment would decline modestly below current estimates of the natural rate and remain there for some time. I see that as a desirable outcome and do not see data suggesting that we are behind the curve. In recent years, the economy has faced significant downside risks, particularly from weak global conditions. The [rate-setting Federal Open Market Committee] has been quite patient, and I believe that has served us well. But risks now seems to me to be more in balance. Going forward, I see it as appropriate to gradually tighten policy as long as the economy continues to behave roughly as expected. As always, the actual path could be faster or slower than expected and will depend on developments in the economy.”

 

February 2017: On flaws in rules-based policy

 

Mr. Powell commented on whether the Fed should follow more explicit rules when setting monetary policy. “Simple policy rules are widely thought to be both interesting and useful, but to represent only a small part of the analysis needed to assess the appropriate path for policy. I am unable to think of any critical, complex human activity that could be safely reduced to a simple summary equation. In particular, no major central bank uses policy rules in a prescriptive way, and it is hard to predict the consequences of requiring the [Federal Open Market Committee] to do so, as some have proposed. policy should be systematic, but not automatic.”

 

April 2017: Defending Wall Street regulation

 

Mr. Powell defended regulatory policies adopted after the financial crisis but left room for changing some of them. “Some aspects of the new regulation are proving unnecessarily burdensome and should be better tailored to meet our objectives. Some provisions may not need—may not be needed at all, given the broad scope of what we’ve put in place. I will support and I do support adjustments designed to enhance the efficiency and effectiveness of regulation without sacrificing safety and soundness or undermining macro-prudential goals.”

 

August 2017: The Mystery of Inflation

 

“Inflation is a little bit below target, and it’s kind of a mystery,” he said in August in a CNBC appearance. “You would have expected, given that we’re getting tighter labor markets, that we’d have a little higher inflation. I think that what that gives us is the ability to be patient.”

Source: WSJ

 

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Insider Trading Inc: Beat The Market, Work For The SEC

It’s often said in financial markets that correlation does not mean causation. On some occasions, however, denying the causation seems so outlandish to be, frankly, preposterous. As a case in point, Institutional Investor (II) discovered a newly published academic work investigating the investment returns of SEC employees. It turns out those guys are surprisingly good.

According to II, employees at the Securities and Exchange Commission may benefit from divesting companies ahead of investigations, research shows.

Employees at the U.S. Securities and Exchange Commission earn investment returns similar to the insider traders they prosecute, according to new research from Columbia University and Arizona State University.

Why aren’t we surprised. No matter, II continues…

A portfolio mimicking trades made by SEC employees between 2009 and 2011 earned excess risk-adjusted returns of about 4 percent a year for all securities, with abnormal gains jumping to 8.5 percent when only stocks of firms based and registered in the U.S. were tracked, found Shivaram Rajgopal, a professor of accounting and auditing at Columbia’s business school, and Roger White, an assistant professor at Arizona State University’s W.P. Carey School of Accountancy, in a paper published this month.

 

Rajgopal and White said the excess returns seemed to be primarily due to employees selling stocks ahead of bad news revelations. SEC employees, they explained, are required to divest their holdings in companies they are assigned to investigate.

 

“We are concerned that such a policy is tantamount to forcing employees to sell stock on non-public information given that virtually all investigations initiated by the SEC are private,” the authors wrote…

 

By comparison, a portfolio mimicking U.S. corporate insider trades earns lower risk-adjusted abnormal returns of about 6 percent a year, according to the research paper.

Hold on a minute…let’s recap.

SEC employees do twice as well by trading domestic stocks that happen to be located in their jurisdiction and the main source of these gains results from employees being forced to sell stocks they are investigating.

Firstly, we doubt there’s much “forcing” occurring. In fact, we’d love to be privy to some of the conversations around the inverse Chinese Walls water coolers at the SEC.

 

Secondly, are we meant to believe that, in general, individual SEC employees are running portfolios where performance benefits significantly from selling long positions in companies that, by a strange quirk of fate, they subsequently find themselves investigating?

 

Thirdly, when the report discusses selling, does that include shorting?

When II called, the SEC press department, the latter “didn’t immediately provide comment”. Probably nothing. Anyway, back to the report and II remarks on the difference in performance between buy and sell trades put on by the SEC’s trading gurus.

The study was based on trading data for 3,500 SEC employees provided by the regulator to the authors under a Freedom of Information Act request. Although these employees earned abnormal returns from selling stocks, Rajgopal and White said they “seem no different from naïve individual investors in terms of the securities they pick to buy” — suggesting excess returns were not the result of investment skill. “If SEC employees are simply good stock pickers, given their background and experience, we would expect to observe abnormal returns on their buys as well,” they wrote in the paper.

“Naïve” is something we suspect these people are not. But what do these seeming correlations mean? II comments on Shivaram and White’s conclusions.

Though Rajgopal and White acknowledge there is not sufficient evidence to conclude that abnormal returns are the result of SEC employees trading on non-public information, they argued that the current trading policy for employees should be reassessed. “Even an appearance of financial impropriety potentially undermines the credibility of the SEC with its stakeholders,” they wrote, suggesting that the issues they highlighted could be solved by prohibiting employees from trading in individual stocks. “While potentially draconian, such a policy is the simplest way to abrogate the concerns of even the most cynical observer,” they said.

So, there you have it, insufficient evidence of causation.

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Is Saudi Arabia’s Oil Strategy Working?

Authored by Nick Cunningham via OilPrice.com,

The IMF estimated that Saudi Arabia will need oil prices to trade at about $70 per barrel in 2018 for its budget to breakeven, a dramatic improvement from the $96.60 per barrel it needed just last year. Saudi’s improvement is the most dramatic out of all the Middle Eastern oil producers, and it also suggests the combination of austerity, cuts to wasteful subsidies, new taxes and economic reforms are starting to bear fruit.

The improvement is all the more important because Saudi Arabia and its fellow OPEC members are restraining output as a way to boost oil prices. Selling fewer barrels means less revenue, although that is offset by the coordinated production cuts through the OPEC deal, which has helped raise prices.

Nevertheless, there is something glaring about Saudi Arabia’s breakeven price: It is still far higher than the current oil price, which means Riyadh is still feeling the economic and fiscal pressure from low crude prices. “The reality of lower oil prices has made it more urgent for oil exporters to move away from a focus on redistributing oil receipts through public sector spending and energy subsidies,” the IMF said in its report. Saudi Arabia and other Middle East oil producers “have outlined ambitious diversification strategies, but medium-term growth prospects remain below historical averages amid ongoing fiscal consolidation,” the IMF added. In other words, austerity might help narrow the budget deficit to some degree, but it can also be self-defeating if it slows growth.

Saudi Arabia may have posted the largest drop in its breakeven price, but several of its peers have even lower budgetary thresholds. Iran, Iraq, Kuwait and Qatar all breakeven at $60 per barrel or less in 2018, meaning they will likely avoid a fiscal deficit.

Saudi Arabia, on the other hand, will take much longer to balance its budget, the IMF warned. It is expected to post a $53 billion deficit this year. That means it will likely have to continue to turn to international and domestic debt markets to plug its budgetary gap, while also burning through cash reserves. Last year, Saudi Arabia issued $17.5 billion in international debt, the largest debt issuance ever sold in emerging markets. Earlier this year it sold $9 billion sukuk, or Islamic bonds.

In September, Riyadh sold another $12.5 billion in bonds, the largest global debt sale in 2017.

It also has burned through over $200 billion in cash reserves since it hit a peak a few years ago.

(Click to enlarge)

The slated IPO of Saudi Aramco should be viewed in this context. It will provide the government with an injection of cash, which it hopes to use to further develop parts of the economy unrelated to oil. Saudi officials have hyped the IPO, boasting that it could lead to $100 billion in proceeds, assuming a $2 trillion valuation of Aramco. Independent analysts have argued that the actual figure will likely be far lower.

Saudi Arabia’s determination to boost the oil prices is also directly related to its fiscal problems. While there are tradeoffs to such an approach – voluntarily restraining output is an enormous sacrifice – there is no doubt that Saudi officials fear another oil price downturn. While it has taken a lot longer than they thought, the OPEC/non-OPEC production cuts have helped erase a large chunk of the global oil surplus, and oil prices are now at their highest level in nearly two and a half years. Now is not the time to take the foot off the gas. The deputy crown prince recently voiced his support for an extension of the OPEC deal at the upcoming meeting on November 30. With Russian support likely, an extension is all but a done deal.

That should help to continue tighten the market, which could ultimately lead to gradual increases in oil prices. There are rumors that Saudi Arabia might abandon its Aramco IPO, or keep it on its domestic exchange, but higher oil prices might ease concerns about the offering.

Still, the IMF – as well as a long line of oil analysts – don’t see oil prices returning to $70 per barrel anytime soon. That means that Riyadh will have to redouble its efforts to cut down on its deficit. But it will likely be years before the Saudi budget breaks even.

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Here’s How Much Hillary Clinton And The DNC Paid For The Trump Dossier

Last week we learned the Hillary’s law firm, Pekins Coie, was paid a total of roughly $12 million in fees by Hillary’s campaign and the DNC.  And while Hillary’s General Counsel, Marc Elias, admitted that some portion of that $12 million went to fund the now infamous Trump Dossier, what we didn’t know, until now, was precisely how much. 

Now, according to Reuters, we learn that a total of just over $1 million was paid to Fusion GPS for their “opposition research,” of which $168,000 was sent to British spy Christpher Steele.

A Washington research firm paid a former British spy’s company $168,000 for work on a dossier outlining Russian financial and personal links to Donald Trump’s 2016 election campaign, the U.S. firm said in a statement on Wednesday.

 

Although it was public knowledge that Fusion GPS paid for the work, the amount had not been disclosed. Fusion GPS hired former MI6 officer Christopher Steele to collect information about Trump and his advisers.

 

Fusion GPS’ statement said it had told Congress about how $168,000 was paid last year to Orbis Business Intelligence, Steele’s company.

 

The money paid to Orbis was taken from $1.02 million it received in fees and expenses from the Perkins Coie law firm, the statement said. The law firm represented the Democratic National Committee and Hillary Clinton’s presidential campaign, although initial research by Fusion into Trump and other Republican primary candidates was commissioned by a conservative website.

Of course, while this incremental information is interesting, the far more important question is how much of the $1.02 million made it’s way into the hand of various Russian operatives on which Steele admittedly relied to collect facts for his salacious report? 

As we’ve noted before, most of the sources listed in the dossier were based in Russia and include a “senior Kremlin official” as well as other “close associates of Vladimir Putin.”  Moreover, as CIA Deputy Director Michael Morell noted recently, it’s highly likely that some portion of the funds paid to Perkins Coie by the DNC and Hillary campaign made it’s way into the pockets of those “senior Kremlin officials” as compensation for their services.

In the dossier, Steele cites numerous anonymous sources, many of which work in the upper echelons of the Russian government.

 

The first two sources cited in the dossier’s first memo, dated June 20, 2016, are “a senior Russian Foreign Ministry figure” and “a former top level Russian intelligence officer still active inside the Kremlin.”

 

A third source is referred to as “a senior Russian financial official.” Other sources in the dossier are described as “a senior Kremlin official” and sources close to Igor Sechin, the head of Russian oil giant Rosneft and a close associate of Vladimir Putin’s.

Hillary

As we also pointed out last week, Hillary’s efforts to hide the payments to Fusion GPS by routing them through her law firm, prompted the Campaign Legal Center (CLC) to file a complaint with the Federal Election Commission (FEC) alleging the Democratic National Committee (DNC) and Hillary Clinton’s 2016 campaign committee violated campaign finance law by failing to accurately disclose the purpose and recipient of payments for the dossier of research alleging connections between then-candidate Donald Trump and Russia.  The CLC’s complaint asserted that by effectively hiding these payments from public scrutiny the DNC and Clinton “undermined the vital public information role of campaign disclosures.”

On October 24, The Washington Post revealed that the DNC and Hillary for America paid opposition research firm Fusion GPS to dig into Trump’s Russia ties, but routed the money through the law firm Perkins Coie and described the purpose as “legal services” on their FEC reports rather than research. By law, campaign and party committees must disclose the reason money is spent and its recipient.

 

“By filing misleading reports, the DNC and Clinton campaign undermined the vital public information role of campaign disclosures,” said Adav Noti, senior director, trial litigation and strategy at CLC, who previously served as the FEC’s Associate General Counsel for Policy. “Voters need campaign disclosure laws to be enforced so they can hold candidates accountable for how they raise and spend money. The FEC must investigate this apparent violation and take appropriate action.”

 

“Questions about who paid for this dossier are the subject of intense public interest, and this is precisely the information that FEC reports are supposed to provide,” said Brendan Fischer, director, federal and FEC reform at CLC. “Payments by a campaign or party committee to an opposition research firm are legal, as long as those payments are accurately disclosed. But describing payments for opposition research as ‘legal services’ is entirely misleading and subverts the reporting requirements.”

After a full year of mainstream media hysteria over alleged Trump-Russia collusion, wouldn’t it be supremely ironic if the Hillary campaign were the only one ultimately found to have funneled some portion of $1 million in cash to “Kremlin operatives” in return for political dirt…

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