Italy Just Bailed Out Another Failed Bank, May Use Pension Funds For Future Bank Rescues

Despite – or perhaps due to – Italy’s failed attempt to slide a state-funded €40 billion recapitalization attempt past Angela Merkel while blaming it on Brexit, and coupled with a bailout proposal to provide €150 billion in liquidity to insolvent banks, overnight we got yet another confirmation that the biggest risk factor for Europe is not Brexit but Italy, where yet another failed bank was bailed out. As the FT reports overnight, Atlante, Italy’s privately backed €5bn bank bailout fund which was created in April to stem the threat of contagion from struggling lenders and whose assets turned out to be woefully inadequate, took control of Veneto Banca after a €1bn capital increase demanded by EU bank regulators attracted zero interest.

This is good news for Veneto Banco and bad news for all other insolvent banks, because the fund, known as Atlas in English, was intended to hold up the sky for Italian banks. Instead it is now practically out of funds, having depleted more than half of its war chest after taking control of Popolare di Vicenza, another regional bank, last month.

That has left little in reserve to tackle about €200bn in non-performing loans run up during Italy’s three-year recession, of which €85bn have not yet been written down. Bad loans are weighing on bank lending and crimping an already weak recovery.

As the FT adds, Lorenzo Codogno, an economist and former treasury director-general, said: “Italian [and to a lesser extent European] banks have entered into a negative loop where they cannot ask for private capital as there is no investor appetite and without capital they cannot provision or write off NPLs.”

This means the only hope is public-funded bailouts, however that is banned by eurozone regulations.

As we reported on Monday, Renzi had hoped the turmoil touched off by the UK’s vote to leave the EU would persuade Ms Merkel to suspend state aid rules and allow Rome to lead a recapitalisation of Italy’s weakest banks . But Ms Merkel rejected the idea, saying: “We wrote the rules for the credit system. We cannot change them every two years.” The European Central Bank also opposed the idea. Benoit Couere, a board member, said suspending new rules designed to shield taxpayers from the burden of bank rescues would be the end of the single market.

Then, as we reported yesterday, in a minor concession, the European Commission signed off a separate plan on Thursday allowing Italy to help banks with short-term liquidity problems. The move is similar to arrangements already in place in several other EU countries since the 2008 financial crisis. The commission said only solvent banks were eligible for the “precautionary” scheme and that there was “no expectation” it would need to be used.

Judging by the prompt bailout of yet one more bank, the question is not if but when it will be used.

A further problem for Italy is that its debt capacity as a sovereign has now topped out, and any new debt incurred to bailout banks will promptly result in downgrades, and a threat to state solvency: “Any increase in government debt we see as a negative development,” said Ed Parker, head of Emea sovereign ratings at Fitch, which rates Italy at triple B+, two notches above junk. Colin Ellis, chief credit officer in Emea at Moody’s, said: “Italian debt stock is already high and it would be credit negative to add to that pile of debt. The big problem is the level of uncertainty in Italy and the wider eurozone right now.”

Meanwhile, a desperate Italy fully aware of what is coming, is considering increasing Atlante’s firepower by a further €5bn or more by drawing money from pension funds, the state or foreign investors, say bankers. Atlante is due to launch a second fund focused on buying NPLs next month. Authorities in Italy are racing to create a bigger cushion for the banks before publication of stress test results, expected at the end of July. Senior bankers fear Italian lenders will emerge poorly from the tests, triggering another slide in share prices.

Of course, if that is the only catalyst, there is no need to worry: there is no way that Mario Draghi will unleash the dominos that will topple the Italian banking system, when it was he himself who as Italy’s central banker allowed these banks to pile up the unprecedented amount of bad loans. As such expect all Italian banks to pass.

The real threat is if the local population wakes up to the risk of holding their savings in a financial system that is now teetering on the edge, something Renzi himself admitted when he said that he “hoped to use a liquidity backstop to contain investor panic, which could result in a run on deposits and affect banks’ liquidity.” Because even if it buys up every bond, loan and stock in the world, the ECB will not be able to fix the public’s loss of trust in fractional reserve banking.

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The Best And Worst Performing Assets In June And Q2

As DB’s Jim Reid says, June 2016 will always be remembered as the month when the UK voted to leave the EU and it’s fair to say that the overwhelming focus on the referendum dominated price action in markets from start to finish. Risk assets initially tumbled into mid-month as the leave campaign built momentum, however a swing back in favour for the remain campaign saw most major markets wipe out early month losses to go into the vote relatively flat. However with momentum favouring the remain camp and markets pricing in largely a remain outcome, the vote in favour to leave sparked a huge risk off move. This lasted for all of two days however before markets rebounded into month end. That said the magnitude of the post vote selloff was enough to see risk assets dominate the bottom of our June leaderboard.

So how did assets classes close out June?

In local currency terms it is equity markets that occupy the bottom. The worst performer during the month was European Banks (-18%), followed closely by the peripheral markets (Athex -15%, FTSE MIB -10% and IBEX -9%). The Nikkei (-10%) is also wedged in their which suffered with a 7% rally for the Yen. The Stoxx 600 and DAX were down -5% and -6% respectively during the month while the S&P 500 (+0.3%) just finished in positive territory on the last day of the month. The other notable underperformer during the month was unsurprisingly Sterling which tumbled just over 8%. As a result however the FTSE 100 (+5%) held in well in local currency terms, although this translates to a -4% decline and so one of the more notable underperformers when we look in USD terms.

At the top end of the leaderboard top two spots go to Silver (+17%) and Gold (+9%) which were the main beneficiaries from the risk-off moves at the end of the month. In USD terms the Bovespa actually occupies top spot however (+20%) as a result of the rally in the BRL during the month. Rates markets get an honourable mention too following the big rally in bonds in the last week. Gilts returned +6% (however -3% in USD terms) while Treasuries and other European bond markets were up between +1% and +3% (with the core outperforming the periphery). Credit markets were a bit more mixed however. In line with the wider risk off moves, higher beta credit underperformed with Eur HY and Fins Subs up to -1% lower. US HY (+1%) just stayed in positive territory while US all Corps (+2%) and Non-Fins (+3%) outperformed their EUR equivalents (+1% and +2%). GBP credit saw a similar picture with HY (-1%) and Fins subs (-1%) down but all Corps (+3%) and Non Fins (+3%) still under-performing gilts but holding in better. The latter two markets were helped by a +1.5% rally in the last week or so. It’s worth highlighting that EM bonds (+4%) and equities (+4%) had a relatively strong month all things considered.

The end of June also marks the end of Q2 and as you can see in the graphs it is commodity markets which occupy the top spots with WTI (+26%) in particular taking the top spot. Following the huge rally in June, Silver (+21%) creeps into second with Brent (+19%) and Gold (+7%) also having a strong quarter. The Yen (+9%) has continued to extend its remarkable rally. European banks (-11%) take up last spot, with Wheat (-9%), FTSE MIB (-8%), Nikkei (-7%) and Sterling (-7%) also near the bottom. 30 assets actually concluded the quarter with a positive return in cross section while 12 finished in negative territory. All credit indices finished in positive territory (in a 1-5% range) with US credit outperforming EUR indices although when we look at this in USD terms EUR credit indices actually closed slightly negative for the quarter as a result of the weaker Euro.

Source: DB

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Dow Tops 18,000: Erases Nearly All Brexit Losses (As Bond Yields Hit Record Lows)

See, Brexit was nothing… just like every establishment despot told us…right?

Just as we sarcastically noted earlier…

Following the panic-bid into the close last night, this morning sees every one and their pet rabbit piling into high-beta momo (Trannies and Small Caps ripping)…

 

In a non-stop, volumeless, VIX-crushing (over 26 to 14 handle in 4 days), short-squeezing rally, US equity markets have managed to erase almost every memory of Brexit and its potentially catastrophic consequences…

 

11 more Dow points and Brexit is a thing of the past…

And the reason is simple… central banks.

This is the best week for the S&P since October 2014's Bullard Bounce idiocy… when he also mentioned QE4.

We do note that futures are still off their pre-Brexit highs…

 

So there is another target for the machines to hit.

Finally there's this…

 

With Gold, Silver, Bonds, and Stocks all soaring, it appears the market is betting on QE4 coming soon… but that won't happen unless stocks crash??!!

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Bob Janjuah Explains All That Is Wrong With The Financial System (And Remains Bearish)

In the latest update from Nomura’s Bob Janjuah, the traditionally bearish strategist justified his nickname, and when previewing his exposure to the market, says that “I generally want to be long bonds, especially long US duration, I want generally to be long the USD (as the least bad), and I generally want to be flat/short equities as equity valuations are not in my view supported by growth or earnings but rather only through heavily distorted markets/policy and financial engineering of EPS.”

But before laying out his full note, here is a segment which he hope all central bankers in the world will some day read as it explains everything that is wrong with both the global economy and financial system today:

The big driving forces we need to think about are globalisation, technological advancement, excessive indebtedness, stifling (but probably necessary) financial sector regulation and rapidly deteriorating demographics. These factors are largely deflationary and are here to stay, Brexit or no Brexit. Globalisation in particular has been wonderful at a global level as it has helped reduce global poverty greatly over the last two to three decades. But the price has been stagnant-to-falling real incomes and standards of living in the developed world, covered up by significant and still growing indebtedness. Fiscal policy options and flexibility have been severely hit by the choice policymakers took back in 2008 and the years that followed to bail out the financial sector – this fiscal spend has resulted in little, no or even negative multipliers in the last 5+ years. For sure, policymakers were faced with stark choices at the time, but I maintain the view I voiced at the time back in 2008-09, that the hit from the failure of the financial system should have been spread more among financial sector bond and equity investors rather than the policies of austerity and financial suppression which have sought to socialise the cost largely among the bottom 90% of the population. As such, fiscal policy has failed the real economy, particularly in developed markets, for nearly a decade. And by dumping the responsibility for the heavy lifting for growth on central banks, we have ended up with asset bubbles, rampant speculation, lack of investment in productivity and in the real economy, significant levels of financial engineering to artificially boost earnings, and merely the (now failed) hope that “trickle down” still works. The outcome has been almost unprecedented levels of rising inequality in the global economy. I suspect that it is this inequality that was behind a fair chunk of last week’s Brexit outcome and which has driven the rise of extremism across other important nations/blocs. History tells us that such trends can lead to adverse outcomes particularly where large numbers of the population feel disenfranchised from the political classes. Thus, Brexit!

Since we have said precisely the same for about 7 years, we agree.

His full note below

“Bob’s World – Bob’s World: Keep buying duration”

1 – This is not going to be a Brexit note. I am writing instead because one of my trigger levels based on the weekly closing level for the cash S&P500 index has been activated. In my last note I concluded by saying that once the S&P saw a weekly close above 2040, it would then trade in a narrow range of 2040 and 2136. This index, as a proxy for global risk-on/risk-off, has since early April stayed stuck in this range until last Friday, when post-Brexit it broke down below 2040.

2 – In my previous note I also highlighted my ongoing concerns with respect to weak global growth, deflation/disinflation still running rampant through the global economy, weakness in earnings, and the ongoing policy of FX wars driven by central banks (which I see as zero-sum in nature) providing merely temporary and illusory gains for individual nations/blocs at the expense of sustainable global growth. My view all year (and in fact since early 2014) has been to be long core government bond duration and short equities. Long-end bond yields are 100-150bp lower over the last 18/24 months in developed core markets. The Eurostoxx index peaked over a year ago and is now below the levels of 18/24 months ago, ditto the MSCI World index. Brexit had nothing to do with this view and has little or nothing to do with the fact that I continue to back this overall macro investment strategy for the foreseeable future. Central bankers, including the Fed, were in my view never going to embark on any serious tightening cycle and, as I mentioned in April, more easing/more attempts to devalue were to be expected (as we have seen), including a reversal by the Fed. Watch this space, but I suspect markets will be forced to park Brexit in the pending box if my concerns around potential recession and higher unemployment in the US become a reality. No doubt Brexit will be blamed for the world’s next set of growth concerns and be used to justify the next set of easings/devaluation attempts – but this ignores totally the fact that Brexit is a symptom and not a cause of the globe’s growth, earnings and deflation problems. And as such, my concern is that we pursue even more of the wrong policy choices that have been in place since 2008.

3 – The big driving forces we need to think about are globalisation, technological advancement, excessive indebtedness, stifling (but probably necessary) financial sector regulation and rapidly deteriorating demographics. These factors are largely deflationary and are here to stay, Brexit or no Brexit. Globalisation in particular has been wonderful at a global level as it has helped reduce global poverty greatly over the last two to three decades. But the price has been stagnant-to-falling real incomes and standards of living in the developed world, covered up by significant and still growing indebtedness. Fiscal policy options and flexibility have been severely hit by the choice policymakers took back in 2008 and the years that followed to bail out the financial sector – this fiscal spend has resulted in little, no or even negative multipliers in the last 5+ years. For sure, policymakers were faced with stark choices at the time, but I maintain the view I voiced at the time back in 2008-09, that the hit from the failure of the financial system should have been spread more among financial sector bond and equity investors rather than the policies of austerity and financial suppression which have sought to socialise the cost largely among the bottom 90% of the population. As such, fiscal policy has failed the real economy, particularly in developed markets, for nearly a decade. And by dumping the responsibility for the heavy lifting for growth on central banks, we have ended up with asset bubbles, rampant speculation, lack of investment in productivity and in the real economy, significant levels of financial engineering to artificially boost earnings, and merely the (now failed) hope that “trickle down” still works. The outcome has been almost unprecedented levels of rising inequality in the global economy. I suspect that it is this inequality that was behind a fair chunk of last week’s Brexit outcome and which has driven the rise of extremism across other important nations/blocs. History tells us that such trends can lead to adverse outcomes particularly where large numbers of the population feel disenfranchised from the political classes. Thus, Brexit!

4 – Regarding Brexit I will let others provide the detailed coverage and analysis. For my part, I believe good sense and compromise will prevail over time and I really do believe that all of Europe – whether in the EU or not, or in the eurozone or not – will be better off as a result of Brexit and (hopefully) the ensuing sensible negotiations. The core eurozone federalists (and the only sustainable eurozone in the long run is one with fiscal, political and banking, as well as monetary union) can proceed unimpeded by the UK, and Europe will as a whole survive as an open trading zone, albeit with changes. None of this will be easy or risk-free. It will take time, and we will likely see plenty of conflicting headlines (just think about the eurozone and Greece over the past five years!) over the coming weeks and months, but pragmatic compromise is a common mutual trait among most people in Europe. In markets we must remember that the eurozone and the EU have shown over the last 5+ years a willingness to talk tough and draw many “lines in the sand” but ultimately, after listening to the many interested parties, pragmatism tends to prevail. I expect the UK to be “punished” publicly and lots of talk about cast iron principles, but I also expect compromises by all. An EU which attempts to punish the UK will be shooting itself in the foot, and it seems that the real leaders of Europe understand this and for the need for the EU to change. The concept of Mutually Assured Destruction (MAD) is alive and well. But equally the UK can’t expect to get everything for nothing. Hence, I expect compromise and pragmatism, even if some media headlines suggest otherwise. It is also very encouraging to see that, after the initial tantrum, which was largely driven by the excessive run-up in markets in the 48/72 hours before the results pointing the other way became clear, markets have behaved quite calmly and rationally. Of course, one thing we need to remember is that “expert” opinion needs to be taken with a pinch of salt. Just ask yourself how many times experts at the big global institutions and central banks have told us over the last 5/10 years that growth was about to take off, that inflation and thus higher policy rates were on their way, that there would be no bailouts, that there would be no monetisation, that there would be no defaults. I have never seen myself as an expert but the “pinch of salt” warning applies as much to me as anyone! The truth is that at best we tend to make educated guesses and tend to seek comfort in the herd (including the contrarian herd), even if it proves to be spectacularly wrong. And just to clarify, I think both sides of the Brexit debate were over-hyped. The aim of the next few months and years is to avoid mutual destruction and thus to seek pragmatic compromise. I fully understand the post-Brexit concerns about growth, about the financial services sector, about the need for FDI flows to offset the current account deficit. But surely for the last few years in the UK growth has been a concern, over-concentration in financial services (and excessive inequality) has been a concern and we have been told for years that the UK needs to manufacture and export more and import/consume less. Who knows, but over time maybe Brexit will turn out to be the jolt the UK needs. Equally, the UK will need to remain an open global economy and a place where people want to live and invest. So we come back to those words – pragmatism and compromise. Divorces tend to be grounded in some reality but can sometimes generate excessive levels of hatred, anger, angst, depression and vilification at some point during the actual process. But most divorces end with compromise, a feeling that neither side won/lost overall, that the right thing should be done for the kids, and by and large better relationships in the long run. Most times people get remarried, even sometimes to a former spouse!

5 – So from here, how to be positioned? Shorter-term headline risk will be significant and lead to lots of volatility and bouts of fear and greed. Sharp ratios are set to deteriorate on average over the next few months. To me it seems like a day-trader’s market at best. Whether thinking about markets, Brexit negotiations, US Presidential hopeful Donald Trump, global growth weakness or what policymakers can/will do next it will not be easy to deliver consistent returns on a daily, weekly or even monthly basis for the balance of 2016. So I prefer to take a longer-term view, which remains unaltered by Brexit. I generally want to be long bonds, especially long US duration, I want generally to be long the USD (as the least bad), and I generally want to be flat/short equities as equity valuations are not in my view supported by growth or earnings but rather only through heavily distorted markets/policy and financial engineering of EPS. Specifically relating to tactical equity trading in the immediate short term, if the cash S&P500 index does not close over 2026 this Friday I would lean into risk-off. A close above 2040 would suggest more caution against being too risk-off too early and tactically suggest to me to be long stocks for another run up to 2100/2135, although this would be a low conviction recommendation. And a weekly close in between would force me to the sidelines to assess news flow and price action. More broadly, I expect 10yr and 30yr UST yields to trade down to 1.25% and 2% respectively over Q3, and I’d treat equities as an occasional tactical trading asset, where weekly S&P500 closes below 2040 and above 2136 define the core range around and within which to trade this asset class.

By way of conclusion, globally the trends I saw pre-Brexit are still with us. Policymakers globally need to move fast and get aggressive with properly targeted fiscal policy instead of poorly targeted monetary policy to help the real economy – relying on trickle down from the top 10% who have seen the biggest wealth gains is a failed policy. We need real fiscal policy aimed at investment, particularly in productivity, and at fairer redistribution. Otherwise extremism and resentment will keep growing everywhere, not just the UK If this requires big central banks to explicitly monetise debt stocks as well as debt flows, then so be it – if everyone does it together markets will find it hard to punish any one participant. In the context of the UK and the EU, my core view is one which ultimately sees pragmatic compromise, with changes on both sides, as both sides can see that collapsing the UK economy will serve nobody well, least of all the EU and in particular the eurozone. But contradictory headline risk and expert opinion will abound and markets will gyrate on these headlines. So for markets, in the short term I’d focus on being as flat/as close to benchmark as possible and trade intra-day volatility. On a multi-quarter basis, being long duration, especially in USTs but also quality credit (incl. EM) is still my preferred position.

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US Manufacturing ISM Surges To 16-Month Highs (as Construction Spending Crashes)

US Manufacturing PMI fell back very modestly from its flash reading but rose MoM to 51.3 as Markit warns "producers are struggling in the face of the strong dollar, the energy sector decline and presidential election jitters." But, ISM Manufacturing surged full of hope to 53.2, above the highest analyst estimate (a 4 standard deviation beat of expectations). Every subcomponent rose aside from Prices Paid as it appears – as opposed to everything we have seen in earnings and chatter – that Brexit, election uncertainty has done nothing at all to dampen 'hope'. In the face of this seasionally-adjusted exuberance, construction spending has plunged almost 3% in the last 2 months – the biggest drop since Feb 2011.

 

Anothewr miracle of seasonal adjustment…

 

Sending Manufacturing ISM to 16 month highs…

 

ISM Components – all up but Prices Paid…

  • New orders rose to 57 vs 55.7
  • Employment rose to 50.4 vs 49.2
  • Supplier deliveries rose to 55.4 vs 54.1
  • Inventories rose to 48.5 vs 45.0
  • Customer inventories rose to 51.0 vs 50.0
  • Prices paid fell to 60.5 vs 63.5
  • Backlog of orders rose to 52.5 vs 47.0
  • New export orders rose to 53.5 vs 52.5
  • Imports rose to 52.0 vs 50.0

Thanks to the miracle of seasonal-adjustments… New Orders worst since Feb but adjusted to best since March…

And respondents were decidedly mixed…

"We are gaining new customers through better sales management." (Food, Beverage & Tobacco Products)

 

"Slower shipments because of weather related flooding." (Chemical Products)

 

"Conditions have remained steady from [the] past month and are in line with our forecast." (Computer & Electronic Products)

 

"Very good start of summer for business levels/orders." (Fabricated Metal Products)

 

"Business is steady with some signs of increase." (Machinery)

 

"Business is still strong, but slowing slightly." (Transportation Equipment)

 

"Business conditions are good, production and demand are stable." (Miscellaneous Manufacturing)

 

"Orders are slowing from China. American customers still steady." (Primary Metals)

 

"Demand continues to be robust." (Plastics & Rubber Products)

 

"Business is still slower than expected." (Nonmetallic Mineral Products)

However, as Markit notes,

Producers are struggling in the face of the strong dollar, the energy sector decline and presidential election jitters. With companies craving certainty, heightened tensions between the UK and the European Union are likely to unsettle the global business environment further in coming months, and therefore risk dampening growth in the US and export markets. The data flow in the next two months will therefore be critical to policymakers in gauging the appropriate outlook for interest rates.”

While that is all very exciting, it appears the construction industry just hit a wall…

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Lending Club’s Biggest Fund Slammed With Redemptions For 58% Of Assets, Posts First Ever Negative Month

We first warned that the Peer-2-Peer lending industry is poised for major trouble in May of 2015, when we predicted that not only are write-off rates set to surge, but that as the resulting struggling lenders seek to entice new borrowers they would have to push rates higher eating up profitability, as demand for future loans slides and as the firm is forced to remark the value of existing loans. This was confirmed in February of this year when the now infamous, and recent frontrunner in the space, LendingClub announced write-offs had surged, doubling forecasts as US consumers were struggling with repaying loans. We don’t have to remind readers about the subsequent scandal that engulfed LendingClub in early May when as a result of an unexpected exit of former CEO Renaud Laplanche , the stock crashed and suddenly everyone else gave the P2P model a much closer, second look.

What they have found is troubling.

As the WSJ reports, a five year old fund managed by LendingClub that invests in the company’s online consumer loans and which is the largest in-house portfolio run by LendingClub unit LC Advisors LLC and has regularly returned about 0.5% a month or more, just hit a brick wall: it is now expected to report its first-ever negative month, after 63 consecutive months of positive returns. As Peter Rudegeair adds, “the unusual result shows how a confluence of negative trends is hitting performance for the unsecured personal loans held in LendingClub’s Broad Based Consumer Credit (Q) Fund. Performance for the roughly $800-million fund in June “is likely to be negative,” LendingClub CEO Scott Sanborn wrote in a letter to investors Tuesday.”

What caused this unprecedented shift? The very same factors we warned about first over a year ago: “the fund has been under pressure as defaults have risen and LendingClub has taken steps to manage them. In March,the fund returned only 0.05%, following a 0.13% gain in December.”

The CEO added in the letter to investors Tuesday that the June returns have been weighed down by a series of increases on borrower interest rates designed to entice new investments. Although the higher rates will ultimately lead to higher yields for fund investors, under accounting rules LC Advisors must mark down the value of existing loans the fund holds that carry lower coupons.”

The damage control followed promptly: “It is important to remember that these markdowns are not reflective of the expected cash flow performance of underlying loans held by the Fund,” Sanborn wrote. Of course, what the fund expects and what actually happens are as of this moment unknown, with the company forced to dramatically change strategy.

A just as signficiant problem for Lending Club is that as of June 17, the credit fund had received $442 million in redemption requests, or 58% of its overall assets. As a result LendingClub gated investor withdrawals and said it would consider a potential wind-down of the fund, The Wall Street Journal reported earlier this week.

The flurry of redemptions was unleashed when LendingClub said in a recent filing that LC Advisors had not followed standard accounting rules when it was determining the value of the loans in its portfolio as well as their monthly returns, leading to further questions about the company’s “projections.” Before his departure, Mr. Laplanche served on the investment policy committee of LC Advisors along with LendingClub Chief Financial Officer Carrie Dolan and General Counsel Jason Altieri. Ms. Dolan and Mr. Altieri remained at the company.

Sanborn said in an interview this week that the company is considering a plan for LC Advisors over the next two months that will be in the best interest of investors that want to stay as well as those that want to leave. “The issue this revolves around is confidence in LendingClub and that’s what we need to rebuild,” he said. “The asset itself is continuing to perform and it’s my belief we can rebuild that confidence over time.”

Who knows, maybe some clueless Chinese investors will swoop in and bailout the company’s troubled shareholders, buying up what little assets the company has left in the ongoing Chinese rush to disguise outbound capital flight as offshore M&A.  They better do it fast.

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S&P Slashes US Economic Growth Outlook, Blames Brexit

Is this even allowed? It appears S&P has joined the cynical, skeptical ranks of fiction-peddlers and has axed its economic outlook for the US economy.

“All told, we expect the repercussions from Brexit to weigh somewhat on U.S. GDP,” says S&P’s U.S. Chief Economist Beth Ann Bovino. “Combining this with lower-than-expected first quarter growth leads to the lowering of our forecast for growth this year and next.”

Furthermore, while S&P is dovish on 2016…

The Fed will now likely stay on the sidelines until the December FOMC meeting then will likely raise rates by 25 basis points

They go full hawkish on The Fed’s next few years…

  • S&P SEES FED RAISING RATES 3 TIMES IN ’17, 3 MORE TIMES IN ’18

As S&P details,

We expect growth of about 2.0% this year following 2.4% in 2015. During 2017-2018, we expect real GDP growth to average about 2.3%. This growth rate is supported by an ongoing improvement in both the housing sector and the labor market, with steady job gains putting unemployment at 4.7% in May.

 

The decline in shale energy investment stemming from lower global oil prices has weighed on both investment and near-term growth. However, that should reverse eventually given the removal of the export ban on U.S. oil exports. In addition, we expect continued competitiveness gains in manufacturing because of competitive labor costs and the lower cost of natural gas stemming from increased shale gas production. Also, deleveraging in the U.S. household sector is more advanced than it is for European sovereigns, and the U.S. banking system has bolstered its financial strength more through raising capital than deleveraging.

 

We also expect the moderation in fiscal drag at the federal, state, and local government levels (together, the general government) in 2014 and 2015 to continue to support growth given some near-term relaxation of the sequester caps following the Bipartisan Budget Act of 2015 (BBA2015).

Will the ratings agency get sued again?

Of course, S&P is still above consensus for 2016…

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Police Called To Elementary School After 3rd Grader Makes ‘Racist’ Comment About A Brownie

Submitted by Mike Krieger via Liberty Blitzkrieg blog,

Before this week, 14-year-old Ella Fishbough had never been in trouble at school.

 

The cheerful, curly-haired eighth-grader’s undoing came when she learned that a male friend was having a bad day. As consolation, Ella put her arms around him in a hug.

 

“It was literally for a second,” the eighth-grader told Click Orlando. But that moment earned her a morning in detention — as well as a blemish on her formerly spotless disciplinary record.

 

It is at each principal’s discretion to determine what kind of touching is inappropriate. According to WFTV Orlando, hugging was banned altogether at Jackson Heights this year, in addition to holding hands, linking arms and kissing.

 

– From last year’s post: Nanny States of America – Parents Arrested for Letting Kids Play on Beach, Girl Given Detention for Hugging Friend

So this really happened. Via Philly.com:

On June 16, police were called to an unlikely scene: an end-of-the-year class party at the William P. Tatem Elementary School in Collingswood.

 

A third grader had made a comment about the brownies being served to the class. After another student exclaimed that the remark was “racist,” the school called the Collingswood Police Department, according to the mother of the boy who made the comment.

 

The boy’s father was contacted by Collingswood police later in the day. Police said the incident had been referred to the New Jersey Division of Child Protection and Permanency. The student stayed home for his last day of third grade.

 

Dos Santos said that her son was “traumatized,” and that she hopes to send him to a different Collingswood public school in the fall.

 

“I’m not comfortable with the administration [at Tatem]. I don’t trust them and neither does my child,” she said. “He was intimidated, obviously. There was a police officer with a gun in the holster talking to my son, saying, ‘Tell me what you said.’ He didn’t have anybody on his side.”

 

The incident, which has sparked outrage among some parents, was one of several in the last month when Collingswood police have been called to look into school incidents that parents think hardly merit criminal investigation.

 

Superintendent Scott Oswald estimated that on some occasions over the last month, officers may have been called to as many as five incidents per day in the district of 1,875 students.

 

This has created concern among parents in the 14,000-resident borough, who have phoned their elected officials, met with Mayor James Maley, blasted social-media message boards, and even launched a petition calling on the Camden County Prosecutor’s Office to “stop mandated criminal investigation of elementary school students.”

 

The increased police involvement follows a May 25 meeting among the Collingswood Police Department, school officials, and representatives from the Camden County Prosecutor’s Office, where school officials and police both said they were told to report to police any incidents that could be considered criminal, including what Police Chief Kevin Carey called anything “as minor as a simple name-calling incident that the school would typically handle internally.”

 

The police and schools were also advised that they should report “just about every incident” to the New Jersey Division of Child Protection and Permanency, Carey said.

 

Previously, the school district, following the state’s Memorandum of Agreement Between Education and Law Enforcement Officials, had only reported incidents it deemed serious, like those involving weapons, drugs, or sexual misconduct. Both Carey and School Board President David Routzahn described the protocol set forth after that May meeting as a significant change in procedure.

 

Several parents said they consider the recent police involvement not only ridiculous but harmful.

 

Megan Irwin, who has two daughters who have attended Collingswood public schools and who teaches first grade in Pennsauken, said the police had been called to deal with behavior the schools could easily have handled.

 

“Some of it is just typical little-kid behavior,” Irwin said. “Never in my years of teaching have I ever felt uncomfortable handling a situation or felt like I didn’t know how to handle a situation.”

As an elementary school teacher, isn’t dealing with these sort of incidents a key part of the job? Why are school administrators taking such tasks away from where they belong, with the teachers?

And Pam Gessert, a Collingswood resident who works as a school counselor in Burlington County, said that because teachers have the best relationships with students, they are most qualified to determine what happened in a particular incident.

Let’s discuss how ridiculous this is from a couple of angles. First off, we don’t even know what the kid said, and if it was in fact racially offensive. According to the article, “another student exclaimed that the remark was racist,” so what was actually said? Did the teacher actually hear the comment? It’s possible one kid merely decided to call it racist knowing the other kid would get in trouble. I’m not saying this is what happened, but it’s happened before.

For example, recall the case of Ethan Chaplin as highlighted in the 2014 post, New Jersey Threatens to Take 13-Year-Old Student From His Father Due to “Non-Conforming Behavior”:

This is the story of Ethan Chaplin, who back in April was twirling a pencil in his seventh grade classroom in Vernon, NJ. One of the class bullies saw an opportunity to be a jerk and yelled: “He’s making gun motions, send him to juvie.”

Rather than demonstrating any sort of common sense, the teacher apparently had a panic attack and reported him, which resulted in a two-day suspension.

 

Amazingly, the saga manages to get even worse. Just today, we find out that New Jersey is threatening to take Ethan away from his father. Incredibly, the state is claiming that the prior psychological evaluation wasn’t sufficient and more testing needs to be done. Since his father Michael is pushing back, the loss of custodianship has been threatened. Absolutely insane.

It’s interesting that both these incidents occurred in New Jersey, but I digress. The sort of thing that happened to Ethan Chaplin is bound to happen when kids recognize that adults will have a panic attack if anyone purportedly says something racist or twirls a pencil in a threatening manner. That’s what little kids do from time to time, but let’s move on.

Let’s assume this nine year old did indeed make a racially charged comment about a brownie. Why in the world should the police ever be involved in something like this. Teachers are now so scared about losing their jobs if they don’t call 911 for every little incident, they are forced to treat toddlers like prison inmates.

It’s absolutely mind-boggling that this could actually happen. Did the school administrators not think about the kind of long-term psychological damage this sort of thing might do to the children? The only lesson these kids learned is that for everyday mischief little kids have engaged in since the beginning of time, a person with a gun, badge and ability to lock you away in a cell is just a phone call away. All because a nine year old made a comment about a brownie.

Any society that puts up with this crap for long is doomed to irrelevance.

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Recusal? Loretta Lynch ‘Removes’ Herself From FBI Probe Of Hillary Emails

On Monday evening US Attorney General Loretta Lynch conveniently just happened to meet up with Bill Clinton for a private meeting on her plane on a Phoenix airport tarmac.

Despite Lynch promising everyone that the only things that were discussed were Bill's golf game and grandchildren, conservative watchdog Judicial Watch requested that the DOJ's Office of the Inspector General investigate the meeting. As The Hill reports, pressure is intensifying on Attorney General Loretta Lynch to hand off oversight of the federal investigation connected to Hillary Clinton’s private email server…

Calls for Lynch to step aside — which had already been simmering for months — appeared primed to boil over Thursday following the attorney general’s unscheduled, private meeting with Clinton’s husband, former President Bill Clinton.

 

“Considering the ongoing criminal investigation of Hillary Clinton, this secret meeting between the Attorney General and Bill Clinton shows an astounding lack of judgment by Loretta Lynch,” House Majority Whip Steve Scalise (R-La.) said in a statement on Thursday calling for Lynch to recuse herself.

 

“Given the culture of unaccountability in the Obama Administration, it is unlikely that Attorney General Lynch will heed the growing calls for her resignation,” he said. “But at a minimum, Lynch should immediately recuse herself from the Justice Department's criminal investigation into Hillary Clinton’s unlawful activities, and appoint a special prosecutor to handle the case, so the American people can know the truth about this secret meeting and finally rest assured the criminal investigation of Hillary Clinton is being conducted fully and impartially, without even the appearance of corruption.”

And, now, as AP reports, a Justice Department official said that Loretta Lynch intends to accept whatever recommendation career prosecutors and federal agents make in the investigation into Hillary Clinton's use of a private email server.

"The Attorney General expects to receive and accept the determinations and findings of the Department's career prosecutors and investigators, as well as the FBI Director," the official said, speaking on condition of anonymity because of the ongoing probe.

 

Lynch was expected to discuss the matter further at a summit Friday in Aspen, Colorado.

 

This revelation comes amid a controversy surrounding an impromptu private discussion that Lynch had aboard her plane on the tarmac at a Phoenix airport on Monday with Clinton's husband, former President Bill Clinton. That get-together has been criticized as inappropriate by Republicans and some Democrats at a time when the Justice Department has been investigating whether classified information was mishandled through Clinton's exclusive use of a private email server while she was secretary of state.

 

Lynch told reporters that she did and Bill Clinton did not discuss the email investigation during the encounter.

 

The announcement also appeared intended to assuage concerns, particularly among Republicans, that Lynch — a Democratic appointee — might overrule recommendations from the agents and prosecutors who have worked on the case. Disputes on charging decisions between the FBI and the Justice Department are not uncommon, particularly in national security cases, though many legal experts see any criminal prosecution in this matter as exceedingly unlikely.

 

Decisions on whether to charge anyone in the case will be made by "career prosecutors and investigators who have been handling this matter since its inception" and reviewed by senior lawyers at the department and the FBI director, and Lynch will then accept whatever recommendation comes, the official said.

* * *

So by releasing this statement does that mean that Lynch routinely overrides other case recommendations from the FBI and DOJ staff? Also, based on the fact that the FBI may very well leak the facts of the case if the DOJ doesn't follow its recommendation, we will be able to learn whether or not Lynch is telling the truth. We won't hold our breath.

"I did not have email-probe-relations with that man"

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Silver Breaches Key Resistance, Soars To 21-Month Highs Against Gold

Silver is up over 11% in the last 6 days (the most since Aug 2013) since Britons decided to leave the sinking ship, pushing the white metal above the key $19.50 level – back to its highest since September 2014. Gold has been in great demand also, heading for its 5th straight weekly gain after its best start to a year since 1980 as one analyst noted “gold will remain one of the major beneficiaries in the current backdrop, as heightened volatility and lingering uncertainty will keep investors’ risk appetite in check.” Silver’s recent surge has seen it play catch up to gold, now back at its ‘richest’ to gold since September 2014.

As Reuters reports,

“It seems that investors are pushing both equities and gold higher simultaneously. One of these will eventually have to give, but for the moment, they each seem to be trading on their own dynamics,” said INTL FCStone analyst Edward Meir.

 

ANZ analyst Daniel Hynes said bullion’s upward rise was just a continuation of its movement following the Brexit vote.

 

“The shock has actually passed but expectations of a rate hike by the U.S. Federal Reserve for the short term has actually fallen quite significantly in combination with the apparent loosening of the monetary policy in Europe driving investor demand,” he added.

 

Societe Generale on Thursday raised its gold price forecasts on fears over the ongoing political, financial and economic fallout of Britain’s vote last week to leave the European Union.

 

“Looking ahead, it seems that gold will remain one of the major beneficiaries in the current backdrop, as heightened volatility and lingering uncertainty will keep investors’ risk appetite in check,” the bank said in a note.

With Silver catching up to Gold’s run…With Silver bursting above $19.50 for the first time since Sept 2014 (before the end of QE3)

 

“Gold has been on an uptrend and silver tends to catch up,” said Brian Lan, managing director at Singapore-based gold dealer GoldSilver Central.

Leaving Gold at its ‘cheaspest’ to silver since September 2014…

 

And finally, it’s not just gold and silver, platinum and palladium both rose to their highest since mid-May and were up 1.1 percent and 0.5 percent respectively.

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