Category: zerohedge

After a month of constant verbal gymnastics (and diarrhea from financial pundit sycophants who can’t think creatively or originally and merely parrot their echo chamber) by the Fed that the recent launch of $60 billion in T-Bill purchases is anything but QE (whatever you do, don’t call it “QE 4”, just call it “NOT QE” please), one bank finally had the guts to say what was so obvious to anyone who isn’t challenged by simple logic: the Fed’s “NOT QE”, is really “QE.”

In a note warning that the Fed’s latest purchase program – whether one calls it QE or NOT QE – will have big, potentially catastrophic costs, Bank of America’s Ralph Axel writes that in the aftermath of the Fed’s new program of T-bill purchases to increase the amount of reserves in the banking system, the Fed made an effort to repeatedly inform markets that this is not a new round of quantitative easing, and yet as the BofA strategist notes, “in important ways it is similar.”

But is it QE? Well, in his October FOMC press conference, Fed Chair Powell said “our T-bill purchases should not be confused with the large-scale asset purchase program that we deployed after the financial crisis. In contrast, purchasing Tbills should not materially affect demand and supply for longer-term securities or financial conditions more broadly.” Chair Powell gives a succinct definition of QE as having two basic elements: (1) supporting longer-term security prices, and (2) easing financial conditions.

Here’s the problem: as we have said since the beginning, and as Bank of America now writes, “the Fed’s T-bill purchase program delivers on both fronts and is therefore similar to QE,” with one exception – the element of forward guidance.

The upshot to this attempt to mislead the market what it is doing according to Bank of America, is that:

1. the Fed is continuing to “ease” even though rate cuts are now on hold, which is supportive of growth, higher interest rates and higher equities, and
2. the Fed is loosening financial conditions by increasing the availability of, and lowering the cost of, leverage, which broadly supports asset prices potentially at the cost of increasing systemic financial risk.

Putting the Fed’s “NOT QE” in context: so far the Fed has purchased $66bn of Tbills and may purchase $60bn per month through June 2020, which could result in an increase in the Fed’s Treasury holdings by about $500bn.

While we have repeatedly written in the past why we think the Fed’s latest asset purchase program is, in fact, QE, below we present BofA’s argument why we are right.

As Axel writes, there are two basic mechanisms how T-Bill purchases support longer-term security prices: the increase in cash assets and deposit liabilities on bank balance sheets, and the reduction of funding risk for leveraged buyers of Treasuries, MBS and other financed securities.

For those who have forgotten how the “asset reflation” pathway works, recall that the Fed either buys T-bills from investors such as money market funds, or from primary dealers who do not hold T-bills, but can buy them at auction to sell to the Fed. Buying from investors converts their T-bill holdings into new Fed cash, which in turn winds up on deposit in the banking system. If instead a primary dealer buys a Tbill at auction and sells it to the Fed, the transaction results in new Fed cash placed in the Treasury’s cash account, while the dealer balance sheet is unchanged, and the banking system balance is also unchanged. But once the Treasury spends the new Fed cash on a social security payment or a medical insurance bill, etc, the cash enters the banking system and increases the aggregate balance sheet of banks.

Either way, bank balance sheets expand and banks will need to (1) hold more HQLA (high quality liquid assets) against those deposits, and (2) put some of their new cash to work in longer-term securities such as mortgage-backed securities (or even stocks)? Although banks can be flexible in how they deploy the new cash, it is likely that a portion of it will go into bonds similar to what banks already hold (currently $1.8TN in MBS securities and $770bn in Treasuries, according to Fed H.8 data). And once bonds are bid, other investors have no choice but to reach for even riskier securities, such as stocks.

Meanwhile, while the Fed does not directly lend to leveraged investors, some of the increased cash on hand at banks will likely go into repo markets to fund overnight loans to potential buyers of long-term securities in Treasuries and mortgages. This, as BofA explains, is how the increase in reserves is designed to calm repo markets. The amount of bank lending in repo has increased by about 50% since the end of 2017.

Focusing just on the increasingly more important repo channel, which is one ingredient within overall financial conditions, is becoming more important as reliance on overnight funding and leverage continues to rise. This is because, as BofA shows in its “chart of the day”, while banks and security brokers have greatly reduced reliance on overnight funding as a result of Dodd-Frank, the rest of the market has approximately doubled its reliance on overnight funding since the 2008 crisis.

And while one can argue that the proper metric is repo funding as a percentage of Treasuries and MBS outstanding, the bigger picture is that if repo markets stopped functioning today, the amount of Treasury and MBS securities held outside of banks-dealers requiring liquidation (for lack of funding) would be about twice as large as 2008, and as BofA warns, “with today’s surprisingly low levels of liquidity in the “liquid markets” the impact could be massive.” In this context, BofA views the Fed’s purchase program as integral to the promotion of easy financial conditions and supportive of asset prices, which as Chair Powell himself admitted, is the second key criterion for QE.

At this point it is worth considering a critical, if tangential question: Why is the Fed so concerned about not signaling QE, and why are so many Fed fanboys desperate to parrot whatever Powell is saying day after day?

Simply said, there are several reasons why the Fed is making a great effort to let the world know that its security purchases are not QE and are not reflective of any change in monetary policy stance. The first is the obvious issue of signaling concern around the economic outlook which would run counter to its cautiously optimistic and often upbeat assessment. After all, why do QE if the economy has “never been stronger”, and the Fed was hiking rates as recently as a December. Included here are the concerns about running out of ammunition at the zero lower bound of rate policy. With negative rates increasingly off the table – until push comes to shove of course and the Fed is forced to cut below zero – QE is meant to be reserved as dry powder for a rainy day when conventional tools are exhausted (even if QE is in fact taking place this very instant).

A less obvious concern for the Fed is connecting monetary policy to bank demand for Fed liabilities, which as BofA admits, “is not something that fits neatly within its dual mandate”: last January, the Fed made a “momentous decision” to run an “abundant reserve regime” also known as a floor system, where the central bank decided not to return to its pre-crisis days of zero excess reserves. As such, the central bank now views the proper level of excess reserves (a Fed balance sheet liability) not in terms of its dual mandate for inflation and employment, but in terms of how banks prefer to meet regulatory liquidity requirements and how this preference impacts repo and other markets.

In short, the Fed’s dual mandate has been replaced by a single mandate of promoting financial stability (or as some may say, boosting JPMorgan’s stock price) similar to that of the ECB.

Here BofA adds ominously that “by deciding to dynamically assess bank demand for reserves and reduce the risk of air pockets in repo markets, we believe the Fed has entered unchartered territory of monetary policy that may stretch beyond its dual mandate.” And the punchline: “By running balance-sheet policy to ensure overnight funding markets remain flush, the Fed is arguably circumventing the most important brake on excess leverage: the price.“

So if NOT QE is in fact, QE, and if the Fed is once again in the price manipulation business, what then?

According to BofA’s Axel, the most worrying part of the Fed’s current asset purchase program is the realization that an ongoing bank footprint in repo markets is required to maintain control of policy rates in the new floor system, or as we put it less politely, banks are now able to hijack the financial system by indicating that they have an overnight funding problem (as JPMorgan very clearly did) and force the Fed to do their (really JPMorgan’s) bidding.

While it is likely that beyond year-end, the additional tends of billions in reserves will have the required soothing effect, what is less clear is that the Fed can make sure the bank repo lending footprint is resilient to dips in the bank credit cycle.

And this is where BofA’s warning hits a crescendo, because while repo is fully collateralized and therefore contains negligible counterparty credit risk, “there may be a situation in which banks want to deleverage quickly, for example during a money run or a liquidation in some market caused by a sudden reassessment of value as in 2008.”

Got that? Going forward please refer to any market crash as a “sudden reassessment of value”, something which has become impossible in a world where “value” is whatever the Fed says it is… Well, the Fed or a bunch of self-serving venture capitalists, who pushed the “value” of WeWork to $47 billion just weeks before it was revealed that the company is effectively insolvent the punch bowl of endless free money is taken away.

Going back to repo, in such a crashy, pardon, “sudden value reassessmenty” environment, it seems implausible to expect banks to maintain their level of repo lending. And if repo lines were drawn down far enough and for long enough in time, it could lead to deleveraging at institutions that were otherwise healthy, precisely what happened during the financial crisis when the lock up of Lehman’s various overnight funding lines instantly cascaded across the financial system, resulting in an overnight paralysis of the US shadow banking system, and resulting in the near- bankruptcy of the largest US bank. 

Therefore, to Bank of America, this new monetary policy regime actually increases systemic financial risk by making repo markets more vulnerable to bank cycles. This, as the bank ominously warns, “increases interconnectedness, which is something regulators widely recognize as making asset bubbles and entity failures more dangerous.“

Think of this as Europe’s infamous doom loop, only in the US and instead of sovereign debt, it uses repo as a risk intermediary to keep the system functioning.

In short, not only is the Fed pursuing QE without calling it QE, but by doing so it is implicitly raising the odds – more so than if it simply did another QE and rebuilt reserves to abour $4.5 trillion or more by purchasing coupon bonds – of another market crash.

It is, however, BofA’s conclusion that we found most alarming: as Axel writes, in his parting words:

“some have argued, including former NY Fed President William Dudley, that the last financial crisis was in part fueled by the Fed’s reluctance to tighten financial conditions as housing markets showed early signs of froth. It seems the Fed’s abundant-reserve regime may carry a new set of risks by supporting increased interconnectedness and overly easy policy (expanding balance sheet during an economic expansion) to maintain funding conditions that may short-circuit the market’s ability to accurately price the supply and demand for leverage as asset prices rise.“

In retrospect, we understand why the Fed is terrified of calling the latest QE by its true name: one mistake, and not only will it be the last QE the Fed will ever do, but it could also finally finish what the 2008 financial crisis failed to achieve, only this time the Fed will be powerless to do anything but sit and watch.

Authored by Charles Hugh Smith via OfTwoMinds blog,

The anti-social carnage unleashed by Corporate America’s “lock-in” / negative network effects has no real limits.

Here’s the U.S.economy in a nutshell: Corporate America is an anti-social Black Plague, gorging on cartel-monopoly profits reaped from negative network effects running amok, enriching the few at the expense of the many and concentrating political power in the hands of the most rapacious, anti-democratic corporate sociopaths.

Let’s start with network effects: the conventional definition is “When a network effect is present, the value of a product or service increases according to the number of others using it.”

So for example, when telephone service was only available to a few users, its value was limited. As more people obtained telephone service, the value of the network increased to both its owners and to users, who could reach more people and conduct commerce more easily as a result of having telephone service.

In the conventional analysis, negative network effects occur from “congestion,” i.e. the network is adding new users so quickly that “more users make a product less valuable.”

But this superficial analysis misses the fatally anti-social consequences of corporate negative network effects, a dynamic described by analyst Simons Chase in this essay. Here is an excerpt:

Even the most imaginative and far-reaching narratives about non-obvious economic fragility and off balance sheet risks are mere rants without constructive ideas about causes and solutions.

Consider network effects, the popular economic construct applied to market concentration and increasing returns for strategies pursued by some leading tech companies. This dynamic economic agent is also known as demand side economies of scale.

W. Brian Arthur, the economist credited with first developing the theory, described the condition of increasing returns as a game of strategic positioning and building up a user base to the point where ‘lock in’ of dominant players occurs. Companies able to tap network effects have been rewarded with huge valuations and highly defensible businesses.

But what about negative network effects? What if the same dynamic applies to the U.S.’s pay-to-play political industry where the government promotes or approves of something through a policy, subsidy or financial guarantee due to private sector influence.

Benefits accrue only to the purchaser of the network effects, and consumers, induced by the false signal of large network size, ultimately suffer from asymmetric risk and experience what I’m calling a loss of intangible net worth for each additional member after the ‘bandwagon’ wares off.

If this were the case, then you would see companies experience rapid revenue growth (out of line with traditional asset leverage models), executives accumulating huge fortunes and political campaign coffers swelling.

But the most striking feature would be the anti-social outcomes, the ones not available without the instant critical mass of government-supported network effects, the ones that, at scale, monetize a society’s intangible net worth.

Some products tied to these metrics include: prescriptions drugs, junk food targeting children, mortgages, diplomas, and social media. The list of industries that are likely to have gained through the purchasing of network effects in D.C. maps closely to the decay that is visible in U.S. society.

The loss of intangible capital and other manifestations of non-obvious economic fragility (to use Simons’ apt phrase) is the subject of my latest book, Will You Be Richer or Poorer? Profit, Power and A.I. in a Traumatized World, in which I catalog the anti-social consequences of negative network effects and other forces eroding our nation’s intangible capital.

Consider Facebook, a classic case of negative network effects running amok, creating immensely anti-social consequences while reaping billions in profits: Facebook isn’t free speech, it’s algorithmic amplification optimized for outrage (TechCrunch.com).

The full social cost of social media’s negative network effects are difficult to tally, but studies have found that loneliness and alienation are correlated to how many hours a day individuals spend on social media. (An Internet search brings up dozens of reports such as NPR’s Feeling Lonely? Too Much Time On Social Media May Be Why.)

Facebook is trying to leverage its social media “lock-in” to issue its own global currency and both Facebook and Google are trying to offer banking services without any of the pesky regulations imposed on legitimate banks. (Will $10 million in lobbying do the trick? How about $100 million? We’ve got billions to “invest” in corrupting and controlling public agencies and political power.)

Once Corporate America locks in cartel-monopoly power, i.e. you have to use our services and products, the corporate sociopaths use their billions in market cap and profits to buy the sociopaths in government. Pay-to-play is the real political machinery; “democracy” is the PR fig-leaf to mask the private sector “lock-in” (monopoly) and the public-sector “lock-in” (regulatory influence, anti-competitive barriers to entry, the legalization of corporate fraud, cooking the books, embezzlement, etc.)

Consider Boeing, an effective monopoly which used $12 billion in profits to buy back its own shares and “invested” millions in buying political influence so it could minimize public-sector oversight.

Rather than spend the $12 billion designing a new safe aircraft, Boeing cobbled together a fatally flawed design dependent on software, as described in The Case Against Boeing (The New Yorker) to maximize the profitability of its “lock-in”.

Google is running amok on so many levels, it’s difficult to keep track of its anti-social “let’s be evil, it’s so incredibly profitable” agenda: Google’s Secret ‘Project Nightingale’ Gathers Personal Health Data on Millions of Americans (Wall Street Journal). The goal, of course, is to reap more billions in profits for insiders and corporate sociopaths.

The anti-social carnage unleashed by Corporate America’s “lock-in” / negative network effects has no real limits. Consider the essentially limitless private and social damage caused by Big Tech: Child Abusers Run Rampant as Tech Companies Look the Other Way (New York Times).

Then there’s the opioid epidemic, whose casualties run into the hundreds of thousands, an epidemic that was entirely a creature of Corporate America seeking to maximize “lock-in” profits by buying regulatory approval and pushing false claims that the corporate products were safe and non-addictive.

Note the media sources of these reports: these are the top tier of American journalism, not some easily dismissed alt-media source.

What does this tell us? It tells us the anti-social consequences are now so extreme and so apparent that the corporate media cannot ignore them. Once Corporate America locks-in market, financial and political power, it acts as a virulent Black Plague on the social order, legitimate democracy, and an entire spectrum of intangible social capital including the rule of law.

As Simons put it: 

“The ethical dimension underpinning the whole system is this: what’s moral is what’s legal and what’s legal is for sale.” Where does this Black Plague pathology take us? To a collapse of the status quo which enabled it, cheered it, and so richly rewarded it.

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My recent books:

Will You Be Richer or Poorer? Profit, Power and A.I. in a Traumatized World (Kindle $6.95, print $11.95) Read the first section for free (PDF).

Pathfinding our Destiny: Preventing the Final Fall of Our Democratic Republic ($6.95 (Kindle), $12 (print), $13.08 ( audiobook): Read the first section for free (PDF).

The Adventures of the Consulting Philosopher: The Disappearance of Drake $1.29 (Kindle), $8.95 (print); read the first chapters for free (PDF)

Money and Work Unchained $6.95 (Kindle), $15 (print) Read the first section for free (PDF).

*  *  *

If you found value in this content, please join me in seeking solutions by becoming a $1/month patron of my work via patreon.com.

It was just over a month ago that we reported on a Tesla accident in Austria that resulted in firefighters needing to use a special container to transport the remains of the vehicle and the battery at the scene of the accident. 

Now, the owner of the vehicle is having trouble finding someone who will properly recycle his wrecked car and its battery. It’s been sitting in one place since the accident and Tyrol reports that “nobody wants to burn their fingers to dispose of the car with its unpredictable 600kg lithium ion battery”. 

The owner, Dominik Freymuth, says he feels “abandoned by the manufacturer”. Every morning he passes by the wreckage of his old vehicle, a stark reminder of being pulled out of his burning vehicle before it was charred to the ground, he says. 

To try and get the car taken care of after the wreck, he reached out to Tesla’s Austrian disposal partner ÖCAR Autoverwertungs. Tesla’s website says “ÖCAR Automobile Recycling has a large network of authorized recycling and disposal partners fully licensed by the Department of the Environment.”

But ÖCAR reportedly has “no permission” to take over Tesla models, according to a spokeswoman for the company. She stated: “I can not give you any information because we have no authorization for Tesla.”

Many disposal companies don’t want to deal with the Tesla batter, because its a “fire hazard” and because you “do not remember where the battery starts and where it stops” – especially after a wreck. 

Martin Klingler, waste disposal expert at the Schwaz environmental company DAKA, said (translated):

“Such a large lithium battery can not be taken over by his company, since one does not even know the mix of dangerous substances inside them. The electric vehicle manufacturers kept the composition of their elixirs top secret so as not to lose their competitive edge. The liquid in which the accident car was cooled by the Walchsee is a dangerously poisonous brew, but now a coveted drop. The Montanuniversität Leoben has already secured samples of it in order to discover the secret of its content.”

Roland Pomberger, chair for a waste utilization technology in Leoben, when asked on how to deal with a Tesla battery, simply said: “I don’t know.” 

He continued: “That falls into the producer responsibility, and the Walchsee Tesla show that the manufacturer has probably not thought too much about it. Here one has failed to think from cradle to stretcher.”

And the fiasco has Freymuth rethinking ever buying a Tesla again: “I will not buy any more, now that I know the time bomb I am sitting on,” he said. 

Recall, Freymuth lost control of his Tesla and crashed into a tree, after first hitting a guardrail. It was then that the vehicle caught fire. 

People passing by the scene of the accident took the man out of the vehicle and called emergency services, we reported last month.

In order to put out the fire, the street had to be closed and fire authorities had to bring in a container user to cool the vehicle. The container held 11,000 liters (11 tons) of water and was designed to eliminate the risk of the battery catching fire.

We noted in October that some 11,000 liters of water are needed to finally extinguish a burning Tesla but an average fire engine only carries around 2,000 liters of water.

Fire brigade spokesman Peter Hölzl was worried after the accident that the car could still catch fire for up to three days after the initial fire. 

The container used is said to be suitable for all common electric vehicles. It measures 6.8 meters long, 2.4 meters wide and 1.5 meters high, it is (obviously) waterproof and weighs three tons.

At this point, we can’t even say that we’re surprised that Tesla’s “disposal partner” in Austria doesn’t have the licenses or the desire to handle Tesla vehicles. We just hope that the EPA and other environmentalist do-gooders will take an interest in just how “green” the disposal of Tesla’s batteries winds up being. But we’re sure they won’t.

Hey, maybe we can start burying Teslas at the bottom of the ocean, like nuclear waste!

Echoing the same reports from yesterday that sparked a brief panic, The FT reports that Trump administration officials concede original target date may slip but deny reports of setback.

And stocks tumbled…

Will they BTFD again?

Bonds ain’t buying it…

Source: Bloomberg

 

Authored by Simon Black via SovereignMan.com,

In early 1940s as World War II raged in Europe and the Pacific, the most powerful person in the world was NOT Adolf Hitler. Nor Franklin Roosevelt. Nor Winston Churchill. Nor Josef Stalin.

Not even close.

The most powerful person in the world was a Nobel Prize winning physicist named Arthur Compton.

Compton had been tasked by the US government to lead a group of scientists in developing a plutonium-based nuclear weapon– the same one that would be used to bomb Japan in 1945.

No one had even detonated a nuclear device or even controlled a nuclear reaction. It was all theoretical.

In fact, Plutonium had only been discovered in 1940. The entire field was brand new.

At a certain point in the project’s development, the scientists realized there was a chance that nuclear detonation could ignite the Earth’s atmosphere and annihilate all life on the planet.

Compton was head of the project, so it was up to him to decide whether or not to proceed.

Every living creature in the world – every plant, every animal, every German, every American – had a pretty serious interest in Compton’s decision.

Yet almost nobody knew his name. Or that such a decision was even being made.

Arthur Compton was not an elected official. Nobody voted whether he should have the authority to put the entire planet at risk in order to advance US interests.

Compton gave the green light, so the project went ahead as planned. And they thankfully didn’t ignite the atmosphere.

But the safe outcome was far from certain.

Even right up until the morning of July 16, 1945– the day of the first nuclear detonation in New Mexico– scientists jovially took bets with each other whether the atmosphere would ignite.

I thought about this story yesterday as the chairman of the Federal Reserve testified in front of Congress yesterday about US monetary policy.

Very few people know his name or realize that he is one of the most powerful people in the world.

That’s because, as chairman of the Fed, he heads a committee that wields dictatorial control over US interest rates and the supply of US dollars.

The US dollar is still the world’s dominant reserve currency, so the committee’s decisions directly affect the prices and values of assets, goods, and services everywhere on the planet.

EVERYTHING– from your monthly salary, investment portfolio, value of your home and interest rate on your car loan, to the price of oil in Saudi Arabia, to the inflation rate in Bangladesh– is influenced by their decisions.

That’s an enormous amount of power.

Yet just like Arthur Compton and his fellow scientists, none of these people has been elected.

The decisions they make are based solely on what’s best for the United States… even though the consequences affect nearly everyone on the planet.

And they also acknowledge they’re in uncharted waters.

The Fed Chairman told Congress yesterday that economic conditions are totally unprecedented, and that his committee has “significant humility” because so many of their basic assumptions have been wrong.

He also acknowledges that what they’re doing right now has never been tried before.

By many historic measures, the US economy has never been better.

The US unemployment rate is below 4%. GDP is growing. The stock market is at an all-time high.

These are all great signs.

Yet the Fed has cut interest rates three times this year (including a 0.25% cut just two weeks ago), and they’re printing up to $80 billion per month in new money to inject into the economy.

Those are things that a central bank does when an economy is weak.

It’s like administering a strong dose of a powerful, experimental medicine to a healthy individual; there’s not much reason to do it, and you have no idea what the reaction is going to be.

Arthur Compton and his colleagues relied on theoretical physics to make a final determination that the nuclear detonation would be safe.

The Federal Reserve’s Open Market Committee relies on theoretical economics– untested and unproven ideas– in deciding that printing trillions of dollars and slashing interest rates to historically low levels will be consequence free.

But to be frank, the Fed doesn’t have the best track record in predicting the financial crises and economic downturn that they help create.

For example, they totally missed the 2008/2009 Great Recession.

Even when the warning signs were obvious in late 2007, just months before the crash, the Fed Chairman at the time insisted that there would be no recession.

They helped engineer that crisis with their unprecedented, experimental interest rate policy during the early 2000s. And they failed to see the warning signs.

Compton turned out to be right about nuclear detonation. And we can certainly hope that the Fed gets it right this time too.

But you might want to think about owning a bit of gold and silver… just in case these guys ignite the atmosphere.

Ford is expected to reveal a new electric sport utility vehicle (SUV) for customers in the US, Canada, and Europe on Sunday.

Called the Mustang Mache-E, the “Mustang-inspired” SUV will debut at the 2019 Los Angeles Auto Show on Sunday, Nov. 17.

Specifications of the Mache-E are still limited, including the price and overall design. Ford has recently hinted that the SUV will have the same range as the Tesla Model Y.

The SUV will be part of a collection of about a dozen all-electric vehicles Ford plans to launch by 2022 as it shifts away from gasoline and diesel engines.

Several photos have emerged on social media showing the SUV wrapped in a camouflage vinyl material as it was tested on open roads.

One Twitter user has allegedly posted schematics of the new electric car, saying, “The body for Ford’s Mustang-inspired Mach-E has surfaced online ahead of its premiere on Nov. 17. Power will reportedly be sourced from a dual-motor, all-wheel-drive powertrain and it will have over 300 miles of electric range.”
*tweet

Additional information on the Mach-E will be published on Ford’s website after the unveiling at the Los Angeles Auto Show.

Ford has taken a page from Elon Musk and will start accepting $500 deposits for the electric vehicle as early as Monday, with delivery dates expected for sometime in 2020.

 

 

Elizabeth Warren was sorely mistaken if she thought she could get away with attacking prominent billionaires without repercussions, she was sorely mistaken.

After flipping out on Warren Wednesday night for not knowing “who the f**k she’s tweeting,” billionaire investor Leon Cooperman told CNBC’s ‘Halftime Report’ on Thursday that Warren’s proposed wealth tax “makes no sense,” adding “It would lead to unnatural acts, be near impossible to police, and is probably unconstitutional.”

“In my opinion, she represents the worst in politicians as she’s trying to demonize wealthy people because there are more poor people (than) wealthy people,” said Cooperman, adding “if this lady wins, [this country’s] in big trouble.“

“How can a college professor and politician gain an $18mm net worth?” he also asked.

Oh my!! Lee Cooperman goes all in–Hyman Roth!!!!

— Jim Cramer (@jimcramer) November 14, 2019

Cooperman was joined in his criticism by Goldman Sachs CEO Lloyd Blankfein, who was also featured in the Massachusetts Senator’s ad.

“Surprised to be featured in Sen Warren’s campaign ad, given the many severe critics she has out there,” Blankfein tweeted on Thursday. “Not my candidate, but we align on many issues. Vilification of people as a member of a group may be good for her campaign, not the country. Maybe tribalism is just in her DNA.”

Surprised to be featured in Sen Warren’s campaign ad, given the many severe critics she has out there. Not my candidate, but we align on many issues. Vilification of people as a member of a group may be good for her campaign, not the country. Maybe tribalism is just in her DNA.

— Lloyd Blankfein (@lloydblankfein) November 14, 2019

Warren’s proposal would levy a 2% tax on household net worth over $50 million and a 6% tax on those with over $1 billion.

Cooperman says he will support fellow billionaire Mike Bloomberg if he formally enters the 2020 race and maintains moderate policy positions, according to CNBC.

The son of a Bronx plumber who became one of Wall Street’s most successful investors, Copperman started the Omega Advisors hedge fund in 1991. Last year, he returned outside investor money and converted Omega into a family office. His net-worth is estimated at more than $3 billion. Prior to starting Omega, he spent 25 years at Goldman Sachs.

Cooperman has also been a major philanthropist. He has signed The Giving Pledge, created by Bill Gates and his wife Melinda Gates and Warren Buffett. The Giving Pledge invites the ultra-wealthy to give away more than half of their fortunes to help society. –CNBC

Watch Warren’s ad below:

Authored by Michael Muharrey via SchiffGold.com,

Fiscal 2020 started just like fiscal 2019 ended – with a massive federal budget deficit. And that has Federal Reserve Chairman Jerome Powell worried. In an ironic bit of political theater, Powell lectured Congress about the spending he helps facilitate.

The budget shortfall last month was 34% higher than the October 2018 deficit, coming in at $134.5 billion, according to the latest Treasury Department report. That starts fiscal 2020 off on track to eclipse a $1 trillion deficit.

The October deficit continues a well-established trend. The FY2019 deficit was $984 billion and ranked as the largest budget shortfall since 2012. The federal deficit has only eclipsed $1 trillion four times, all in the aftermath of the 2008 financial crisis.

The FY2019 deficit was 26% higher than FY2018’s massive budget shortfall.

Uncle Sam continues to spend enormous amounts of money. In October alone, the Federal government blew through $380 billion. That was an 8% increase over October 2018.  Federal outlays were higher for defense, education, healthcare and Social Security.

Meanwhile, federal receipts fell 3% year-on-year.

During testimony before Congress, Powell called the federal debt “unsustainable.”

Over time, this outlook could restrain fiscal policymakers’ willingness or ability to support economic activity during a downturn.”

Powell is concerned that with federal spending already through the roof, Congress may not be willing or able to bring large amounts of economic stimulus to the table in the event of a recession. And the Fed chair knows that the central bank’s inability to “normalize” interest rates after the Great Recession leaves very little ammunition in its own arsenal, as he warned Congress.

Nonetheless, the current low-interest-rate environment may limit the ability of monetary policy to support the economy.”

The Fed is operating from a position of fear as Powell’s remarks reveal. Although he insists the economy is strong, the Fed is already engaging in extraordinary monetary policy. The central bank just cut interest rates for the third time and has launched a new round of quantitative easing – that it emphatically refuses to call quantitative easing.

As Peter said in a recent podcast, the central bank has no intention of normalizing monetary policy.

Despite the fact that the economic data is deteriorating. Despite the fact that corporate earnings are falling, it is the Fed that is pushing this market to new highs by cutting interest rates, by indicating to the markets that they don’t have to worry about rate hikes no matter what happens with inflation. The Fed’s not going to raise interest rates. Oh, and by the way, they’re doing quantitative easing, and they’re going to print as much money as they have to keep the markets going up and to keep the economy propped up.”

Powell lecturing Congress about spending is ironic given that the Fed’s low interest rate policies and debt monetization make the spending possible. The whole reason the Fed is buying Treasury bonds in this “not QE” program is to allow the spending and borrowing to continue without pushing up interest rates. This is basically the drug dealer lecturing the junkie about his habit.

Source: Bloomberg

Peter summed it all up in a tweet.

Powell pretends that the trend of falling interest rates despite rising government deficits has nothing to do with Fed policy. It’s entirely due to Fed policy, and because an accommodative Fed has enabled the debt to grow so large, the Fed owns the coming debt and dollar crisis!”

Google and its parent Alphabet have become embroiled in so many legal disputes with regulators pertaining to the company’s handling of private user data, it’s become difficult to keep track. Just yesterday, the public learned about a federal investigation into Google’s “Project Nightingale” (a deal with a large hospital group to build out a new cloud-storage system for patient’s sensitive medical data, effectively placing that extremely valuable data in Google’s hands).

And back in September, Ireland’s data regulator launched an investigation into whether Google’s online advertising exchange illegally taps into sensitive personal information about Internet users. That investigation stemmed from a complaint made by an executive at a much-smaller rival search company called Brave.

In response to all this scrutiny, Google has repeatedly tweaked its practices (sometimes by allowing users access to its data cache with the ability to delete data they don’t want Google to have) and announced big changes to how it handles data. And on Thursday, Google announced a major change to its digital advertising business that critics complained would give Google far more power in the industry.

Google said it made the change after the Irish data regulator launched an investigation into whether the company illegally tapped into sensitive personal information, like their race, health and political leanings.

According to the FT, Google allows advertisers bidding on space to see the categories of web pages or apps where the ads will be displayed. Categories range from broad things like cars and music, to more specific categories like substance abuse or kosher food. But come February, Google will end this practice, limiting the insights that advertisers have while they’re participating in the auctions.

This decision will “help avoid the risk that any participant in our auctions is able to associate individual ad identifiers with Google’s contextual content categories,” the company said.

Translation: Google wants to make sure that any data it allows clients can’t be used to identify a specific individual.

Johnny Ryan is the executive at Brave who filed the complain against Google with the Irish regulators, and he’s quoted in the FT criticizing Google’s decision as “cosmetic”, and claiming that it won’t do much to help protect user privacy.

Johnny Ryan, chief policy officer at Brave, said Google’s change was not sufficient to protect the privacy of users. “It appears Google will still broadcast bid requests that contain things like URL, approximate location and data to link these over time, to countless companies, billions of times a day. These data contain personal and special category data so this appears to be a cosmetic change,” he said.

He elaborated on this criticism in a series of tweets (and for those who are unfamiliar with the argot of the digital advertising industry, “RTB” stands for “Real-Time Bidding”).

As I told The Financial Times @FT, Google removing categories from RTB bid requests does not stop the biggest data breach in history.
Google RTB will still broadcast what you are reading, watching, or listening to, and where you are, to countless companieshttps://t.co/9zd4E38UxD pic.twitter.com/AVtITmvVwr

— Johnny Ryan (@johnnyryan) November 14, 2019

Remember, the original RTB complaint from September 2018 that triggered @DPCIreland‘s statutory inquiry into Google’s RTB business did not go into detail on content categories. https://t.co/XpGeDmGIJN

— Johnny Ryan (@johnnyryan) November 14, 2019

In fact, I only submitted evidence about (IAB and Google) content categories in late January 2019. https://t.co/RnqSAgnY9G

— Johnny Ryan (@johnnyryan) November 14, 2019

Front page news.
Google’s announcement today vindicates the work of I, @Brave, @RaviNa1k, @jimkillock, @mikarv, @szymielewicz and our many allies in 16 European countries.
But it does not fix to the problem. pic.twitter.com/9LQuT7jPvQ

— Johnny Ryan (@johnnyryan) November 14, 2019

Bingo! https://t.co/tirqbZ0RQv

— Johnny Ryan (@johnnyryan) November 14, 2019

Ryan isn’t the only critic. Jason Kint, chief executive officer of Digital Content Next, a lobbying group for online publishers, said Google’s decision to cut off access to this valuable “third party” data will make “first party” data – i.e. data users enter directly into websites (like a Google search)- more valuable. That benefits nobody, except Google.

“This decision will at least enhance value of first-party data and Google Search is the most dominant place for first party data, so it will hurt everyone except Google,” he said.

Big brands and ad agencies have long been alarmed over the control Google and other big tech groups hold over customer data and the power this gives them as a channel for advertising.

While the revisions reflect the increasing regulatory scrutiny of data transfers, senior figures suspect one side effect will be tightening Google’s grip over data, and potentially driving more business to its search advertising arm. One advertising chief executive said a restriction of data would simply mean “more power to Google.”

And that’s just it: Google is doing the bare minimum to meet regulators’ demands, while ensuring that it will become an increasingly dominant player in the digital advertising space, as Google, Facebook and now Amazon play a global game of real-life “Monopoly”.

Via DataTrekResearch.com,

Federal Reserve Chair Jay Powell seemed quite comfortable today during his testimony in front of the US Congress’ Joint Economic Committee. His prior public appearances this year have not always gone as smoothly, of course. But his prepared remarks were clear and he managed the Q&A session reasonably well.

Markets endorsed his comments, signaling that they believe Fed policy is well calibrated to their expectations of the near-term US economic environment:

• Just after Powell’s session wrapped up, Fed Funds Futures for December tightened up even further around the belief that the Fed will not move rates at the next meeting. The odds now (96.3%) versus yesterday (95.6%) show almost complete conviction on this point.

• Looking out through Q1 2020, Fed Funds Futures put 74.3% odds that the Fed will not move rates through this period, up from 71.9% yesterday.

• The same message of “no further Fed action” even holds through Q2 2020, with futures now pricing 65.7% odds of rates remaining unchanged from today. Yesterday, they were 61.9%.

• You have to go all the way to November/December 2020 to find essentially coin-flip odds that the Fed will cut rates (49% in each month).

• Even 2-year Treasuries mirror this sentiment that rates are “just right”, with a yield of 1.63% that sits right on top of today’s effective Fed Funds rate of 1.55%.

Three issues during Chair Powell’s testimony did, however, perk up our ears:

#1: A question about the relationship between rising US industrial concentration and slower than expected wage growth at this late point in an economic cycle. We have been highlighting the work of NYU professor Thomas Philippon on rising industry concentration. This is an important and growing political narrative, and not just tied to “Big Tech” companies.

Chair Powell said rising industry concentration may be one explanation, but other factors also play important roles. Specifically, he cited:

• Lower US worker productivity

• Remaining slack in the labor market, as evidenced by still-rising participation

• The effects of rising levels of automation and globalization

• Lower unionization levels

• Neutral interest rates that may be lower than where the Fed thinks they are

Takeaway: the issue of industry concentration is clearly top of mind in DC, with lawmakers/regulators concerned that the US economy’s “commanding heights” have too few occupants.

#2: There were 2 questions about a recent Columbia University paper about “Inflation Inequality”. Chair Powell said he was familiar with the work. Here is a brief summary (paper link at the end of this section):

• Poverty rates use the Consumer Price Index to adjust for inflation over time. This has been the approach to determine household need for programs like Medicaid and the Supplemental Nutrition Assistance Program (SNAP, aka “food stamps”) for decades.

• The CPI, however, may not accurately reflect the change in prices for the basket of goods and services consumed by lower-income households. One academic paper (Jaravel 2019) calculated that CPI under-reported inflation for this cohort by 0.44 points annually from 2004 – 2015.

• By extension (but not in the paper), the Fed’s symmetrical 2% inflation target may serve to exacerbate income inequality, since those at the bottom of the income scale are seeing larger price increases than more affluent demographic cohorts.

Takeaway: while this issue is unlikely to change the Fed’s dual mandate, Chair Powell seems keenly aware that future political independence will require the central bank to be responsive to social issues like income inequality. At the margin that means Fed policy could drift more dovish than neutral, for reasons we explain in the next point.

#3: Chair Powell mentioned several times that the US has lower levels of labor force participation (LFP) among prime-aged (25 -54 year old) workers than most wealthy economies. This is quite true, as data from the OECD shows (link below for more):

• The US prime aged LFP was 82.1% in 2018.

• Among the G-7 countries, only Italy is lower at 77.9%.

• Other major economies all show higher levels that are 4 – 6 points higher: UK (86.3%), Japan (87.4%), Germany (87.7%) and France (88.1%).

Takeaway: like the prior point, this is another spot where social issues intersect with how the Fed considers its policy mandates. Chair Powell constantly reiterates what seems to be his key observation from recent “Fed Listens” events: that a “hot” economy pulls workers into the labor force, and that’s a desirable outcome. By comparing the US LFP rates to other wealthy economies, his implicit message is that as long as inflation remains contained the Fed will focus on improving US labor force participation.

Summing up: for the first time in what seems like years the market and the Federal Reserve agree that current interest rate policy is correct. Yes, there is some bias in Fed Funds Futures to believing the next move will be a cut. But that’s more likely to come in the second half of 2020 rather than at the next few meetings. Given Chair Powell’s more expansive view of what constitutes “full employment” and the lack of general price inflation, assuming the Fed remains in “stealth dove” mode is reasonable.

Sources:

Columbia paper on inflation inequality: https://groundworkcollaborative.org/wp-content/uploads/2019/11/The-Costs-of-Being-Poor-Groundwork-Collaborative.pdf

OECD Labor Force Participation Data: https://data.oecd.org/emp/labour-force-participation-rate.htm