Category: zerohedge

“This Could Be The Biggest Auto Scandal Since The GM Ignition Switch” – Why Tesla Is Probed Over A “Suspension Issue”

Moments ago TSLA shares slid following headlines from a Reuters report that the US Auto Safety Agency is probing an issue involving Tesla suspensions:

  • U.S. AUTO SAFETY AGENCY LOOKING AT TESLA MODEL S: REUTERS
  • TESLA MODEL S PROBE FOCUSED ON REPORTED SUSPENSION ISSUE: RTRS

What's going on here?

As it turns out, and as reported extensively on the Daily Kanban website overnight, not only has there been a chronic issue involving the safety Tesla Model S suspensions, but there are allegations that Elon Musk's company has been actively trying to cover these up.

As the website notes, "where Tesla crosses the line here is not the “crime” itself, but the coverup. If Tesla used a TSB rather than a recall to fix a safety problem, if it has an institutional bias against ordering recalls and if it uses NDAs as a matter of course to prevent owners from reporting defects, this could become the biggest auto safety scandal since the GM ignition switch affair. That’s a lot of “ifs,” but thus far the evidence indicates that these are very real possibilities. Watch this space for further developments in this troubling story."

Here is the full report from the Daily Kanban:

Tesla Suspension Breakage: It’s Not The Crime, It’s The Coverup

TeslaBallJoint

For several months now, reports have circulated in comment sections and forum threads about a possible defect in Tesla’s vehicles that may cause suspension control arms to break. Many of those reports appeared to come from a single, highly-motivated and potentially unreliable source, a fact which led many to dismiss them as crankery. But as more reports of suspension failure in Teslas have come in, Daily Kanban has investigated the matter and can now report on this deeply troubling issue.

Our investigation began in earnest upon reading a thread titled “Suspension Problem on Model S” in the Tesla Motors Club forum. The original poster (OP) in that thread described the suspension in his 2013 Model S (with 70,000 miles) failing at relatively low speed, saying the “left front hub assembly separated from the upper control arm.” Images of the broken suspension components showed high levels of rust in the steel ball joint and the OP reported being told by Tesla service center employees that the “ball joint bolt was loose and caused the wear,” which was “not normal.” Because his Tesla was out of warranty, the repair was reportedly sent to Tesla management for consideration.

According to a subsequent post by the OP, Tesla management refused to repair the broken suspension under warranty despite the “not normal” levels of wear reported by the service techs. Then, just days later, the OP reported that Tesla had offered to pay 50% of the $3,100 repair bill in exchange for his signature on a “Goodwill Agreement” which he subsequently posted here (a scan of the stock agreement can be found here). That agreement included the following passage:

The Goodwill is being provided to you without any admission of liability or wrongdoing or acceptance of any facts by Tesla, and shall not be treated as or considered evidence of Tesla’s liability with respect to any claim or incidents. You agree to keep confidential our provision of the Goodwill, the terms of this agreement and the incidents or claims leading or related to our provision of the Goodwill. In accepting the Goodwill, you hereby release and discharge Tesla and related persons or entities from any and all claims or damages arising out of or in any way connected with any claims or incidents leading or related to our provision of the Goodwill. You further agree that you will not commence, participate or voluntarily aid in any action at law or in equity or any legal proceeding against Tesla or related persons or entities based upon facts related to the claims or incidents leading to or related to this Goodwill. [Emphasis added]

This offer, to repair a defective part in exchange for a non-disclosure agreement, is unheard of in the auto industry. More troublingly, it represents a potential assault by Tesla Motors on the right of vehicle owners to report defects to the National Highway Traffic Safety Administration’s complaint database, the auto safety regulators sole means of discovering defects independent of the automakers they regulate.

The OP subsequently posted that “Tesla and I have come to terms,” and later wrote “I can not speak as to the agreement that Tesla and I signed. I can only say that this incident was reported to NHTSA and there is an ongoing investigation.” This week the OP confirmed that NHTSA is indeed investigating the defect and that

They said that the were of poor quality and failed prematurely. They are looking for other examples or samples to test, to see if it is a bad batch at the production level or a bad design.

He later posted an email he received from a NHTSA investigator in reply to his question about whether the suspension joints had been tested, which states

Yes, the joints were not good and we are looking for more examples to test.. We are in contact with Tesla requesting more information on these parts and others in the suspension. I will keep you updated …

Daily Kanban has contacted NHTSA asking for confirmation that it is indeed investigating a defect in Tesla’s suspensions and we will post the agency’s response as soon as it arrives. In the meantime, we can not speculate about the nature of this defect beyond pointing out that Tesla itself issued a Technical Service Bulletin (TSB) in March of 2015, which indicates that a “known non-safety-related condition” applied to the front lower control arm of the Tesla Model S. That TSB indicates that “greater free play than expected” can develop in the suspension’s steel ball joints, which can damage the aluminum control arm.

If the issue described in the TSB is what caused the suspension failure described above, it would be a major problem for Tesla Motors. The OP’s excessive ball joint wear should have been a known issue from the TSB issued over a year before. Moreover, if the issue described in the TSB can cause suspension failure, Tesla’s use of a TSB rather than a recall –the legally mandated technique for repairing defects that could affect vehicle safety– was deeply problematic. This is precisely the behavior that GM was discovered to have engaged in during the 2014 ignition switch recall scandal, and in the words of former NHTSA Administrator Joan Claybrook

“Technical-service bulletins have been recall-avoidance devices — there’s no question about that.”

We won’t know whether this is in fact the case until NHTSA makes a statement about the situation, but another troubling detail indicates that Tesla may have consciously evaded a recall during and after the GM ignition scandal. A tweet by Tesla Motors CEO Elon Musk on January 14, 2014 states

“The word ‘recall’ needs to be recalled.”

Musk’s tweet was subsequently deleted, but reference to it lives on at this Bloomberg story by Musk’s authorized biographer Ashlee Vance.

Until NHTSA publicizes the findings of its investigation, the sheer scope of Tesla’s apparent suspension defect won’t be clear. But other reports of suspension breakage are not hard to find, both in the “Suspension Problem on Model S” thread at TMC, elsewhere on that forum or around the internet. A gallery of photos apparently assembled by the hard-working Cassandra in this story shows a disturbing number of wrecked vehicles with broken suspensions. But these photos, like the two reports of Teslas driving off cliffs and other reports of inexplicable crashes, are circumstantial evidence at best. Until experienced investigators perform forensic analyses that can confirm whether suspension failure occurred before any of these crashes, these examples serve only to show the worst case scenario for Tesla.

But the most troubling aspect of this affair is not the defect itself, or even Tesla’s possible use of a TSB instead of a recall. Defects happen to every automaker, and the line between a safety-related and non-safety-related defect can be subtle. The aspect of this story that demands explanation is not the crime, but the cover-up: why did Tesla demand an NDA from an owner in exchange for repairs to a defective vehicle? Even if there is a legitimate reason for such an agreement, Tesla should have made it explicitly clear that the agreement in no way infringes on an owners right to report defects to NHTSA.

Daily Kanban has subsequently found two other examples of Tesla demanding an NDA from owners in exchange for satisfaction regarding its vehicle defects. One involves another OP from the Tesla Motors Club forum, who started a thread called “Out of warranty concerns about Tesla” describing Tesla’s out-of-warranty repair of a variety of problems with his vehicle including “the loss of control and abs, steering, traction etc.”  After directly emailing Jerome Guillen, Tesla’s Vice President of worldwide service and deliveries (currently on leave from the company), the OP quickly heard back from Tesla and later reported that extensive repairs had been made in exchange for an NDA. Unlike the OP from the “Suspension Problem” thread, the OP from “Out of warranty concerns” appears to have kept to the terms of the agreement. In any case, the defects he describes certainly seem capable of posing a threat to safety and probably should have been reported to NHTSA’s complaint database.

The third example of this practice comes from a (since-resolved) Better Business Bureau complaint against Tesla (dated 5/20/16), which alleges that the automaker demanded an owner sign an NDA in exchange for repossession of his or her defective Tesla Model X. To wit:

Tesla refuses to make me whole on its repossession of the defective vehicle sold me unless I sign a hush up agreement with $150,000 penalty violation.
Tesla sold me a defective Model X. Tesla then took back possession of the vehicle and cancelled its registration without my knowledge. Tesla is now refusing to make me whole on the monies I am out unless I sign an agreement where I can not report the defects to agencies or others or the repurchase terms. If I violate Tesla says I am liable for $150,000. Tesla now has possession of the Model X and I am not being made whole for what I am out. Vehicle was riddled with defects.

Since Tesla’s NDA forbids disclosure of the agreement itself, it’s entirely possible that there are considerably more than three instances of Tesla using NDAs to prevent the reporting of vehicle defects. In fact, given Tesla’s generally rabid fanbase it’s almost surprising that these three incidents have even come to light on the internet.

If it is indeed Tesla’s policy to demand an NDA for any goodwill out-of-warranty work, or in exchange for making a dissatisfied owner whole, there can be little doubt but that this practice chills defect reporting to NHTSA’s database. Based on this 2015 Inspector General report on NHTSA’s “inadequate data and analysis,” it’s clear that the auto safety regulator relies heavily on owner reporting as a source of data not controlled by automakers themselves. Given these circumstances, any attempt by any automaker to compromise the flow of defect reports represents a serious attack on the agency’s ability to independently regulate auto safety. Daily Kanban has requested comment from NHTSA on Tesla Motors’ apparent use of NDA’s to prevent defect disclosures, and will publish the agency’s statement as soon as we receive it.

A suspension that physically snaps while on the road is a troubling problem for any automaker to face, especially one that has touted its car as the safest ever built (although the 2013 Tesla press release touting this claim appears to have been deleted from the company’s website sometime between December 28 2014 and January 13 2015). But unless NHTSA or other investigators are able to conclusively tie a known defect to driver fatality or injury, the mere existence of a defect makes Tesla no different than any other automaker.

Where Tesla crosses the line here is not the “crime” itself, but the coverup. If Tesla used a TSB rather than a recall to fix a safety problem, if it has an institutional bias against ordering recalls and if it uses NDAs as a matter of course to prevent owners from reporting defects, this could become the biggest auto safety scandal since the GM ignition switch affair. That’s a lot of “ifs,” but thus far the evidence indicates that these are very real possibilities. Watch this space for further developments in this troubling story.

Tesla Motors has not returned requests for comment on this story as of the time of publication.

 

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The Visual History Of All Market Crashes Since 1956

One month after Goldman strategists downgraded equities to neutral on growth and valuation concerns, the firm has turned up the heat on the bearish case with a report by Christian Mueller-Glissmann in which he says that equity drawdown risk “appears elevated” with S&P 500 trading near record high, valuations stretched, lackluster economic growth and yield investors being “forced up the risk curve to equities."

As Goldman notes,

"one large drawdown can quickly erase returns that were accumulated over several years."

Adding that

"since the 1950s most equity markets had several large drawdowns of more than 20%, which have taken several years to recover from. For example in the 1970s the FTSE All-Share had an 80% drawdown in real terms and the DAX declined 69% during the Tech Bubble. One of the largest equity drawdowns across markets was during the GFC, when most global equity markets lost around half their value. And not to forget, the TOPIX has still not recovered from the large drawdowns of the late1980s/early 1990s."

Goldman also points out that large drawdowns are not only relatively frequent, but becoming more global in nature.

Goldman offers several ways to manage through the looming drawdown, but of course, with the heavy hand of suppression on the throat of volatility, who knows if a decline of any sort will ever be allowed again, as Charles Hugh-Smith noted when you strip out volatility and game the system: the system loses all natural resiliency and becomes increasingly brittle and fragile. The only way to make sure it doesn't tremble and shatter into pieces is to guarantee that no decline will be allowed.

Of course then you don't have a market–you have a simulacrum market, a phony fragile shell propped up for PR purposes.

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Only Two Countries Do This Appalling Thing – And The U.S. Is One Of Them

Submitted by Nick Giambruno via InternationalMan.com,

This story may unnerve you…

It’s the story of how Eritrea, a tiny, mostly unheard-of country in East Africa, and the United States, do the same awful thing.

Extortion and Threats of Violence

Nearly every country in the world bases its tax system on residency rather than citizenship. If you’re an Italian citizen, and you leave Italy to live and work in Dubai, you don’t have to pay taxes on the income you earn abroad to the Italian government.

But Eritrea levies a 2% flat tax on its citizens who live abroad. If you’re an Eritrean citizen, you have to pay taxes to the Eritrean government, no matter where you live and work.

The media has condemned this as “extortion” and a “repressive” measure by an “authoritarian” government.

The UN has even weighed in. In Resolution 2023, the UN Security Council condemned Eritrea for “using extortion, threats of violence, fraud and other illicit means to collect taxes outside of Eritrea from its nationals.”

You might be wondering, “What’s the controversy? Eritrea is getting criticized, and rightly so.”

That brings us to the only other country on the planet with a similar tax system… the United States.

Eritrea’s Expat Tax on Steroids

The U.S. also taxes its nonresident citizens, no matter where they live or work. This is the exact same thing Eritrea does, except the U.S. does it on a much bigger scale and with absolutely draconian penalties.

Eritrea’s paltry 2% tax is a mere fraction of the top 39.6% federal tax rate that expat Americans have to pay—even if they earn that income abroad and never set foot in the U.S. (The U.S. does exempt a limited amount of foreign earned income if you meet strict requirements.)

Also, Eritrea is a poor country with a very limited ability to actually enforce its 2% expat tax. Many Eritreans who live abroad have never even heard of it. Few are frightened by it.

The U.S., on the other hand, can enforce its byzantine tax system literally anywhere in the world. When you consider its global reach and the penalties—which can only be described as cruel and unusual—it’s no surprise U.S. expats are terrified. And they should be… or they aren’t paying attention.

The U.S. government threatens American expats with prison and outlandish fines merely for not filing a litany of complex forms correctly—even if no taxes are due in the first place.

When you consider all this, it’s not actually fair to compare poor little Eritrea and its relatively modest expat tax to the monstrous U.S. system.

Eritrea is hounded, ostracized, and sanctioned for using—according to the UN—“threats, harassment and intimidation” to “extort” taxes out of its citizens living abroad. You’d think someone would offer at least a peep of criticism for the only other country doing the same thing. But, if you listen for it, you’ll only hear the crickets chirping.

Even though it’s clearly a double standard, it’s easy to understand why it exists.

As the world’s sole superpower and issuer of the premier reserve currency, the U.S. is not accountable to anyone. It’s a heck of a lot easier to push around some small, impoverished African country than it is to stand up to the U.S. juggernaut.

Just ask Canada.

Canadian Confusion

A few years ago, the Canadian government took the drastic step of expelling the head of the Eritrean consulate in Toronto because he’d been involved in levying the 2% expat tax on Eritreans living in Canada.

It seems Canada doesn’t like foreign governments shaking down Canadian residents. That is, unless the foreign government is the United States.

Somehow I don’t expect the Canadian government to give any U.S. officials the boot… even though they regularly shake down far more Canadian residents for much more money.

Curiously, Canada’s reaction to the U.S. expat tax is the exact opposite of its reaction to Eritrea’s. Rather than taking action to prevent the U.S. government from harassing U.S. persons living in Canada, the Canadian government facilitates it by complying with the odious FATCA law—even though it contradicts Canadian law.

The Uncomfortable Truth

It’s always better to face reality than to ignore ugly truths. And the story of Eritrea’s expat tax highlights a big one: Americans live under one of the worst tax systems in the entire world.

The government treats its citizens like milk cows… to be milked until the last drop to pay for welfare, warfare, and other untold waste.

For Americans, there’s almost no escaping the tax farm. I call it the “new feudalism.”

It’s ironic, when you look at U.S. history. In not much time, Americans went from revolting over a comparatively small tax on tea to thoughtlessly submitting to an ever-growing tax monster.

Still, don’t hold your breath for positive change. As long as the U.S. dollar remains the world’s premier reserve currency, no other country will stand up to the U.S. forcing its abhorrent tax policies on the rest of the world.

Positive change through the U.S. political system is just as unlikely. Most Americans passively accept the current tax system as “normal.” And, insofar as they want change, many Americans want more people to “pay their fair share.”

Bottom line: it’s simply not possible to stop this tsunami. You can only build your house on higher ground.

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Watch As The World’s Most Powerful People Arrive At The 2016 Bilderberg Meeting

As reported previously, starting today politicians, bankers, influential leaders, chiefs of major global businesses, even actors and pundits will meet at the 64th Bilderberg meeting, set to take place over the next three days at the Taschenbergpalais Hotel in Dresden, Germany, where the official agenda will be quite different from what will really be discussed (read this for a full breakdown).

Former US Secretary of State Henry Kissinger is set to rub shoulders with disgraced ex-CIA (and current KKR director) Director David H. Petraeus, Philip M. Breedlove, former Supreme Allied Commander Europe, Dutch Prime Minister Mark Rutte, Belgian Prime Minister Charles Michel, ex-British MI6 chief John Sawers and IMF boss Christine Lagarde at the

The conference, surrounded by tight hundreds of heavily armed guards and concrete blocks, is notoriously secretive in its discussions which take place under Chatham House rules (nothing can be revealed), and regularly attracts demonstrations against what critics describe as a global meeting of western capitalists, politicians and academics who wield great power behind the scenes.

No journalists are allowed to report on proceedings, however it will be attended by Richard Engel, chief Foreign Correspondent, NBC News, John Micklethwait, Editor-in-Chief, Bloomberg LP and Zanny Minton Beddoes, Editor-in-Chief of The Economist, which is owned by Rothschild, a name which figures intimately in all Bilderberg events.

Other visitors are certainly not welcome at the premises:

Daniel Estulin, author of “The True Story of the Bilderberg Group” describes the meetings as “a shadow world government…. [threatening] to take away our right to direct our own destinies (by creating) a disturbing reality. “Imagine a private club where presidents, prime ministers, international bankers and generals rub shoulders, where gracious royal chaperones ensure everyone gets along, and where the people running the wars, markets, and Europe (and America) say what they never dare say in public.”

As reported yesterday, among the dozens of guests included this year are Eric Schmidt, Executive Chairman, Alphabet Inc., which owns Google; Michael O’Leary, CEO, Ryanair; Thomas de Maizière, German Minister of the Interior; Col. Chris Hadfield, Astronaut; and Thomas Enders, CEO, Airbus Group.

And while there is no way to report from inside the hotel, courtesy of social media we at least managed to get a glimpse of the world’s richest and most powerful people as they made their way to the inner sanctum.

The traffic jam:

 

The limos arrive:

 

As do the private jets:

 

There were some confiscations and arrests…

 

But nothing to write home about, and certainly nothing to derail the procession which saw the following special arrivals:

Former Fannie Mae CEO, prominent Democrat and Goldman board member, James Johnson:

 

Henry Kissinger:

 

Thomas Enders; Airbus CEO:

 

Ben van Beurden; Shell CEO:

 

Jack Black

 

Niall Ferguson

 

Alex Karp, CEO of Palantir, Economist director:

 

Libertarian Peter Thiel:

 

Eurocrat Jose-Manuel Barroso:

And even the “token black guy”, Vernon Jordan:

Finally, in video format:

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FedSpeak – Lost In Translation

Submitted by Danielle DiMartino Booth via DiMartinoBooth.com,

Bill Murray, who has never been one to be stumped for words, is considered to be a veritable master of improvisation. Few appreciate that the star comedian and accomplished actor has also proven himself to be a fair philosopher.

On July 25, 1980, exactly three months and 10 days after Jean Paul Sartre’s death, the comedy classic Caddyshack premiered. It was then that moviegoers nationwide first experienced Murray’s amazing gift for that renowned improvisation. It took all of six days for his character’s role to be filmed. One scripted line notwithstanding, every word Murray’s groundskeeper character Carl Spackler uttered was off the cuff. In one particularly memorable scene, Spackler came eye to eye with an infuriatingly fond and furry rodent and warned:   “In the immortal words of Jean Paul Sartre: ‘Au revoir, gopher.’”

When asked in a 1984 interview about his uncanny ability to think in front of the camera, Murray waxed perfectly philosophical: “I don’t believe that you can give the same performance every take. It’s physically impossible, so why bother? If you don’t do what is happening at that moment, then it’s not real. Then you’re holding something back.” Over 50 feature films later, the world is a better place for his never having held anything back.

At the opposite end of the spectrum lie Federal Reserve speakers, most of whom appear to be suffering from an inability to contain themselves to the detriment of their audiences. So damaging is FedSpeak, so to speak, that it’s become the Fed’s greatest liability, chipping away at what little credibility monetary policymakers have left in reserve.

Perhaps what is most disturbing about today’s stretch of FedSpeak is how it parallels with the months preceding the Great Recession. Over the last few weeks, Fed officials appear to be mystified at the tea leaves staring back at them from the bottoms of their cups despite there being no question of ambiguity.

The most recent spate of broadcast obliviousness began shortly before Memorial Day. San Francisco Fed President John Williams, Yellen’s protégé and confidante, remarked that he anticipated that 2016 would likely resemble 2015 with, “strong domestic growth, especially in the service sector (with) some subtraction from growth because of the strong dollar and weakness abroad.”

Williams’ Council on Foreign Relations interview ended with his opining that quantitative easing could be deployed once again in the event of recession as it had been successful in, “improving financial conditions and boosting the economy. So we could go back to that.” (The stock market must be woefully disappointed he won’t vote again until 2018.)

Next up, in a perfectly timed CNBC interview taped the Thursday before the May jobs report, Charles Evans, Chicago Fed’s resident uber-dove, observed that timing was not of the essence with respect to future rate hikes. As for the possibility of a ‘Brexit,’ he played it down: “I’m not sure it plays an important role in our policy making beyond us just monitoring the U.S. data and general global financial conditions and having confidence that things are still on a good track.”

Among the gems voiced in the wake of the disastrous data, Boston Fed President assured a Finnish audience that it was his, “expectation that economic conditions will continue to gradually improve, which in turn would justify further actions to normalize policy, continuing a gradual return to a more normal rate environment.”

As for the Chair herself, in the weeks that preceded the payroll report, Janet Yellen pushed up market expectations for a June 15th rate hike to 34 percent from 28 percent with assurances that it would be reasonable to raise interest rates in, “the coming months.”

Then, in what can only be described as a quick flip, Yellen summarily dismissed the specificity of a time frame conceding that the jobs report left policymakers “wrestling” with fresh doubts: “Is the markedly reduced pace of hiring in April and May a harbinger of a persistent slowdown in the broader economy?”

Step back for a moment and ask yourself one question: What data are this army of 1,000-plus PhDs studying?

There is nothing subtle in the marked deceleration in the run rate of job creation. Two years ago, monthly job gains averaged 260,000. By the time 2015 had ended, that average had slid to 221,000. Narrow it down to the last twelve months and gains slow to 200,000. And over the last six months? 170,000. Last three? 116,000 dragged down by downward revisions of 59,000 positions in February and March. As for the merry month of May, that would be 78,000 including the striking Verizon workers. P.S. Temporary jobs fell by 21,000 last month.

Set aside all of the unemployment rates in their various forms; they’re beyond misleading given the unreliability of the denominator used to calculate them, as in the ever shrinking and decidedly un-dynamic labor force. A rudimentary observation of monthly job creation tells you everything you need to know, no existential crisis necessary, no grappling gray area to wrestle. Period.

The alarming lack of acuity in gleaning trends confoundingly reaches much deeper when you consider the leading indicator data to which all Fed economists have access. It’s not as if they’re cut off from the same information that helps their private sector peers guide their clientele.

Take AIG’s Jonathan Basile. He’s a unique economist among economists in that it’s his express mandate to detect trends, as opposed to the dreaded one-month aberration, before they emerge onto the scene. As Head of Business Cycle Research, Basile literally dissects the entrails of data releases for relationships and signals. One would have to presume (hope?) that the Fed too had such an individual, perhaps even a few, also directed to detect emergent economic developments.

Back on March 29th of this year, Basile heard an alarm bell ringing in the distance. It had been seven months since survey respondents had indicated that jobs were easier to get than in the prior month. The next three to six months would thus present a test to the economy that could well be on the precipice of recession. His warning: “We’re going to get a downside surprise in nonfarm payrolls in the next few months, something in the double digits.”

In late April, Basile worried that something would have to give seeing as jobless claims were at the lowest level since Nixon was in office while expectations for rising unemployment, which have since receded a bit, were at a 26-month high. At the time, he added that the number of mergers being called off, coupled with the rolling over in announced deal size could well validate concerns about a rise in joblessness. “OK, so we haven’t seen a better streak of low jobless claims since 1973,” Basile concurred. “The way I see it though, the only way for jobless claims to go from here is up.”

And then we got the bombshell of consumer credit increasing by $30 billion in March led by households tapping their credit cards at the fastest pace since 2001. I raised the data point with Basile at the time, which in turn set off yet another alarm bell sending him back to a relationship that hadn’t flared up since the onset of the last recession. A quick look at the data verified that households’ income expectations six months out and credit card usage had indeed begun to move in opposite directions, a telltale sign of budgetary stress.

In mid-May, Basile noted a shift in the “pain trade” in jobless claims. Beginning in January 2015, energy states had been in the unfortunate position of suffering the largest annual change in jobless claims. But that run finally ended in May, leaving Michigan in the dismal driver’s seat though Michigan is hardly alone. Some 24 states showed initial jobless claims were higher than a year ago leading Basile to quip, “We haven’t smelled breadth this bad in some time.”

The final straw came down on June 1st with the release of the Conference Board’s May data on Help Wanted Online ads. After a flat March and April, May suffered a sizeable falloff in online job openings, which slid by 285,800 to 4.8 million, the largest decline since the Great Recession. The Conference Board’s chief economist Gad Levanon said that May continued, “a pattern of weaker demand in 2016,” adding that, “we are now seeing some clear signs of softness in labor demand.”

Corroborating the Michigan move, the data showed losses were widespread across all states and major metropolitan areas. The March and April weakness would also be subsequently confirmed by the downward revisions announced to March and April payroll gains. And finally, companies have stopped reposting help-wanted ads, a sign their balance sheets can no longer withstand the additional labor costs that they could have just a few months back, as clear an inflection point as any.

“More and more I’m convinced the Fed wants to raise rates so it has water in the tank to put out the next fire,” Basile worries. “That said if the Fed raises rates this summer, it will be a policy mistake.”

Add it all together and Yellen’s favored “kitchen sink” labor market indicator, the Labor Market Conditions Index (LMCI), says it all. The index of 19 job market gauges fell to -4.8 in May, sliding by the most since the 2009 recession. Meanwhile, March and April were – you guessed it – revised downwards, further into negative territory.

Do you see any gray area? Or do you instead worry that Fed officials are willfully blind when they run their mouths as if everything is going to be just right.

In an effort to describe how beyond clueless Fed speakers seem to be of the destructive power of FedSpeak, one can once again borrow from Bill Murray’s screen moments. To quote his Ghostbuster character Peter Venkman, “Why worry? Each of us is wearing a nuclear accelerator on his back.”

“With respect to the potential response from the Fed, we are seeing writ large how much they have bungled the exit from their extraordinary experiment,” warned Bookmark Advisors’ Peter Boockvar. But it goes beyond bungling. Not only has the Fed failed to act, its policies have actually created the very impediments to growth the economy now faces.

In the real words of Bill Murray from a 2012 interview, “It’s extremely powerful to say no; it’s really the most powerful thing to say.” It would be nice to be on the other side of Fed officials having long ago harnessed the power of the word ‘no’ rather than staring down the barrel of an abundance of acquiescence.

To borrow one more line from Murray, this time from his Lost in Translation character who finds himself struggling with the foreign culture of Tokyo’s nightlife, “What kind of restaurant makes you cook your own food?”

My slight variation on this question to Fed officials who remain woefully out of touch with the damage their policies have inflicted is, “What kind of central bank doesn’t have to eat its own cooking?”

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“Crooked” Hillary Has 3 Simple Words For Donald Trump

Shortly after Obama’s endorsement, Donald Trump took to Twitter…

And it did not take long for Hillary to reply…

Seems a little ironic for Hillary to be using the “delete” word!!

Are you not entertained?

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Yes, There Are Safe Havens (If You Want Them)

A warped manifestation of the fear and greed trade-off that used to characterize investor behavior has developed, according to Bloomberg's Richard Breslow. Asset managers are exhibiting the manic depressive drive to simultaneously throw caution to the wind, ignoring all risk metrics while plaintively bemoaning the lack of safe havens.

 

Fear and greed was a continuum, allowing for an ebb and flow with continuous price discovery and availability. What we have now is pedal to the metal front-running of central banks and the nagging fear that when the fun ends there won’t be a bid anyway, so why bother being prudent.

A big part of this problem is investors have fooled themselves into believing there are desperately few viable answers to, “where else is there to invest?”

Switzerland has always been the go-to option, but they’ve lost tolerance for hot money. Negative rates, too.

 

The train wreck that’s Japan really only works if you’re Japanese. And no one can be sure what they’ll look like at the end of this tunnel.

 

Gold is the capitulation choice.

 

There are good alternatives right under our noses, or in the case of the U.S., right above our heads, that deserve a lot more consideration.

O Canada, where have you been all of my life?

 

Stable, democratic government with a popular premier. A real fiscal policy that’s beginning to be implemented. Stable monetary policy. A yield curve that has positive rates over its entire length.

 

Too much reliance on energy, but oil’s looking pretty healthy on the charts, folks. As is the Canadian dollar, now back through 1.30.

 

Throw in a solid banking system, freely tradable markets and no capital controls in or out. Hint, hint, look who are the buyers of Vancouver real estate.

In truth, there are plenty of prudent places to invest if you look in the right places. And countries doing sensible things, too

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Thank You Mr. Trump, Part 1

Authored by StraightLineLogic's Robert Gore via The Burning Platform blog,

December 2014, SLL posted an article: “Can’t Wait For That Next Election.” The article argued the positions of the two front-runners at that time—Jeb Bush and Hillary Clinton—were virtually indistinguishable.

Other than which campaign contributors get paid off, there would be very little difference between the potential presidencies of Jeb and Hillary. Commentators and opinion organs masquerading as news outlets will champion their guy or gal, and hyperventilate about perceived sins of the other side’s gal or guy, but when you get right down to actual policies, there has been little difference between Republicans and Democrats for many years; they are both the parties of government. It gets bigger, spends more, piles new programs on top of failed old ones, sticks its nose anywhere on the planet it sees fit, makes more promises, and goes deeper in debt. None of that is going to change—Jeb or Hillary—and the permanent Washington oligarchy and its dependents are fine with either one.

The first of the article’s two closing sentences was spot on, the second dead wrong.

The prospect of a Jeb-Hillary election should put the body politic in the same frame of mind as a restless teenager, ready to do something rash, dangerous, and destructive, just to relieve the tedium. That, unfortunately, is giving the body politic far too much credit.

A year-and-a-half later, critics denigrate Donald Trump as restless teenagers’ car keys and beer. Even those more sympathetic to Trump’s candidacy have identified emotional factors as the primary basis of his support (see “Much More Than Trump,” SLL, and “‘Dilbert’ Creator’s 6 Reasons Why Trump Will “Win In A Landslide” In November,” by Scott Adams). That’s not incorrect, but Trump has dramatically altered the terms of debate on the playing field that all right-thinking, civic-minded Americans believe that elections should be waged: the issues. Support or oppose him, Trump has performed a public service, mentioning the unmentionables that our minders and keepers would rather avoid (for the good of the people, of course).

Immigration has been a blessing for America. Seeking an opportunity to build better lives for themselves and their families, millions have flocked to this country and helped make America great. A substantial number of immigrants to this country today are similarly motivated, but some are not. Since the Industrial Revolution heyday of immigration, the US has erected a welfare state, conducted a futile war on drugs, and intervened extensively in Latin American political affairs. Currently, some immigrants come for the freebies, some to ply the drug trade and engage in criminal acts, and some to escape turmoil and intolerable conditions in their own countries.

A nation going broke providing freebies to its own citizens cannot afford them for non-citizens. A nation that criminalizes drugs creates an economic risk premium for dealing in those drugs, which is especially attractive for the relatively impoverished in Latin America. A nation that helps make conditions intolerable in other countries may be confronted with escaping refugees (as Europe has discovered). Those are simple, indisputable facts.

There has been no shortage of commentators pointing out these facts—for years, even decades—but by definition, even if their audiences were in the millions they were “fringe.” Back in late 2014, immigration reform—a “path to citizenship,” de facto amnesty, and meaningless promises of tighter border security—was the prevailing mantra, chanted by both parties’ candidates, endorsed by all right-thinking pundits as necessary to secure the increasingly important Latino vote (support from Republicans was paradoxical—most immigrants vote for Democrats). There would be no immigration issue because dissenting views were marginalized or suppressed, and the “solution” to the problem was a done deal regardless of who was elected.

Then Donald Trump called Mexican immigrants rapists and proposed building a wall at the border, funded by Mexico. The epithet and proposal were outrageous, but the concerns of millions of Americans had been ignored or dismissed as racist and xenophobic. It took something outrageous to get those concerns on the table and force the Cloud People to pay attention. They did so not out of any solicitude for the unwashed, the Dirt People, but because Trump jumped to the top of the polls. Immigration will be a front burner issue through the general election, and attacks on Trump supporters by Mexican-flag-waving thugs will only help his cause. He doesn’t even have to say: “What did I tell you?” It’s implied.

Like open immigration, free trade has been distorted beyond recognition by governments. In a free world, a decision either to migrate or trade across the artificial construct known as a border would be recognized as an act of self-interest that should not be hindered. Today’s decidedly unfree world means that so-called free trade arrangements augment the power and wealth of governments and their cronies at the expense of everyone else, just as “open immigration” expands welfare states with resultant political and economic advantages for the few.

Again, with rhetoric and proposals designed to roil the elite and agitate the electorate, Trump has exposed the sham of “free” trade. Real free trade among two or more countries would not be negotiated in secret and add thousand-page agreements, plus thousands more pages of implementing regulations, to a world already drowning in laws and regulations. A real free trade agreement would reduce laws and regulations—tariffs and trade barriers—and there would be no need to negotiate it in secret.

Real free trade increases the US’s economic well-being. By definition, two parties don’t engage in voluntary trade unless both parties benefit. However, present trade agreements have facilitated outsourcing of manufacturing and jobs. David Stockman persuasively argues that they are part of a one-two punch, the other punch being anti-deflationary monetary policies, that have frozen real incomes for decades (see his four-part series, “Losing Ground in Flyover America.”

Trump has broken through the mainstream narrative, highlighting the ongoing deterioration of the American economy and resonating with the millions who have been living through it. SLL has argued that since 2000, we’ve been in the midst of a Humungous Depression, an argument not confirmed by Wall Street’s and Washington’s statistic mills, but which finds support in Trump’s ascent. (Interested readers are referred to the linked article and SLL’s Debtonomics Archive.) Trump has struck a chord with his criticism of the economy, and by implication, statistic mills, equity markets, and the media that paint a much rosier picture than the one his supporters see.

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President Obama To Endorse Hillary “She’ll Say Anything & Change Nothing” Clinton

An hour after Bernie left the building, President Obama, according to The Washington Post, will offer his formal endorsement of Hillary Clinton with a video to be released later today. The president plans to campaign with the former secretary of state in Wisconsin next week.

Frenemies?

 

Hillary Endorsement Video…

As The Washington Post reports,

The swift endorsement comes after the president met with Sen. Bernie Sanders at the White House earlier Thursday as the Vermont senator mulls his options about exiting the Democratic nominating battle.

 

Sanders is under pressure to stand down and help to unify the party after a long and contentious battle with Clinton for the nomination. Obama’s endorsement will add to that pressure, although most party leader, including the president, have urged that he be allowed to decide on his future plans on his own timetable.

 

The president’s decision to move quickly to give his public support for Clinton is an indication of his desire to begin to play a more active role in making the case against presumptive Republican nominee Donald Trump as unqualified to be president and to try to rally those who have backed Sanders behind Clinton’s candidacy.

 

Bernie Sanders said Thursday that he looks forward to working with Hillary Clinton to defeat presumptive Republican nominee Donald Trump in the fall, striking a conciliatory note as he emerged from a White House meeting with President Obama.

We leave it to David Stockman to sum it all up: "we just can't handle four more years of Hillbama… Obamacare is a ticking timebomb.. and foreign policy is a disaster…"

Awkward…

 

Dear Mr. Trump, you're welcome…

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It Took $10 In New Debt To Create $1 Of Growth In The First Quarter

When the Fed unexpectedly stopped reporting the data for Total Credit Market Instruments in September 2015, the most comprehensive series of total credit in the US economy, there were many screams of disappointment and frustration from US debt watchers. However, this was unnecessary, as all the Fed did was break up the series into its two constituent components: total debt (found here) and total loans (found here).

So today we had a chance to update the total US credit following the release of the Fed’s Flow of Funds (Z.1) statement, which is usually parsed for its tracking of changes to household wealth. And while it showed that in  the first quarter the net worth of US residents, mostly the wealthy ones as the bulk of financial assets is held by a small fraction of the total population, rose by $837 billion to $88 trillion mostly as a result of a change in real estate holdings, we were more interest in the aggregate picture.

It wasn’t pretty.

As a reminder, according to the latest BEA revision, nominal Q1 GDP was $18.23 trillion, an increase of just $65 billion from the previous quarter or an annualized 0.7% rate, the question is how much credit had to be created to generate this growth. Well, according to the Z.1, total credit rose to a new record high $64.1 trillion. This was an increase of $645 billion from the previos quarter. It means that in the first quarter, it “cost” $10 in new debt to generate just $1 in new economic growth!

 

And here are the two other key charts: the first, showing total credit (debt and loans) vs GDP growth since 1950. The trend is hardly anyone’s friend, except for those who create the debt out of thin air to pocket the ever lower cash flows associated with it (and await the next inevitable bailout):

 

More importantly, on a leverage ratio basis, the US economy is now at a level of 352% total credit/GDP, the highest since Q1 2013, and a level which has been relatively flat since it peaked at 380% just before the crash. One way to read this chart perhaps is that the “carrying debt capacity” of the US economy is roughly 380% at which point something “unexpected” happens. At the current rate of surging credit relative to slowing GDP, the US economy should be there in the not too distant future.

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