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Who would have thought that all it would take for banks to turn from raging permabulls to cautious bears is just a modest 10% drop in the stock market from all time highs.

And yet, in a note today, that’s roughly the metamorphosis that Ritesh Samadhiya of BofA’s underwent when in a note to client, he puked all over the bank’s broader, and bullish economic and market outlook, and instead said that “we think the risk is that nominal global growth SLOWS a lot more than consensus believes.” To be fair, Ritesh had been warning about the threat of deflationary forces for a while, so at least since January, his caution has been spot on.

Here are the details:

What we think – slower growth, little inflation

We are NOT buyers of the tight labor markets-higher wages-higher inflation-higher bond yields story (check out insignificant wage growth in Japan and Australia – both with very tight labor markets with very high labor force participation rates as examples of the weakening link between unemployment and wage growth).

We think the microfoundations of the wage setting process are not properly appreciated by macro investors/analysts. (If you work for an industry with just a few, large names, try asking your boss for a substantial bonus.)

We think the risk is that nominal global growth SLOWS a lot more than consensus believes – Three Chinese leading indicators are falling – the Bloomberg China Monetary Conditions index (CHBGMCI)…

… the China credit Impulse 12-month Change (CHBGREVA)…

… and the China Marshallian K (gap between M2 growth and nominal GDP growth).

Global economic surprises are falling, and so are some leading indicators in the US. Asset prices that reflect global growth are stalling (Dr Copper, Dr Halliburton, Dr. Sotheby’s etc).

We disagree with the bearish bond consensus.

And now we wait for other internal BofA groups to follow in Ritesh’ footsteps, eventually spilling over to other banks who will then be forced to cut their S&P targets, which however may take a while especially since Wall Street “thought leader” Goldman still expects 3 more rate hikes in 2018, a forecast which is imploding before our very eyes with every percent drop in the S&P.

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Authored by Ana Alexandre via CoinTelegraph.com,

A Dutch court classifies Bitcoin as a “transferable value” after the court ruled in favour of a plaintiff who was owed 0.591 Bitcoins (BTC), according to a court document published March 20.  

image courtesy of CoinTelegraph

The claim was filed in a Dutch court by Mr. J.W. de Vries on 2 February 2018 against Koinz Trading BV, a non-public company, which was previously ordered by a lower court of Midden-Nederland to pay mining proceeds in the amount of 0.591 BTC owed to the petitioner, or a penalty payment up to a €10,000 maximum.

As a consequence of the company’s failure to comply with its obligations to pay the required volume in BTC, the court ordered that the company either pay up or be declared insolvent.

The court judgement explicitly states that Bitcoin demonstrates all the characteristics of a “property right”, and hence a claim to transfer BTC under property rights is legitimate:

“Bitcoin exists, according to the court, from a unique, digitally encrypted series of numbers and letters stored on the hard drive of the right-holder’s computer.

Bitcoin is ‘delivered’ by sending bitcoins from one wallet to another wallet.

Bitcoins are stand-alone value files, which are delivered directly to the payee by the payer in the event of a payment. It follows that a Bitcoin represents a value and is transferable.

In the court’s view, it thus shows characteristics of a property right. A claim for payment in Bitcoin is therefore to be regarded as a claim that qualifies for verification.”

The court found that there was an undisputed contract between Mr. Vries and Koinz Trading BV: since the obligations were taken in BTC, the amount should also be paid back with the same currency. The court considers the legal relationship as a civil obligation to pay. 

While the Dutch court may be making gradual steps toward crypto being recognized as a currency, other organizations do not recognize it as such. The G20 Financial Stability Board (FSB) released a document March 20, in which it is implied that the FSB considers cryptocurrency to be assets, rather than currency. The document claims that cryptocurrencies, “lack the traits of sovereign currencies.”

Last month, Governor of the Bank of England Mark Carney said that, “It [cryptocurrency] has pretty much failed thus far on… the traditional aspects of money. It is not a store of value because it is all over the map. Nobody uses it as a medium of exchange.”

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The global funding market crisis is getting worse and its contagion is starting to show up in assets that ‘mom and pop’ care about. Bank stocks are being battered…

Following bank credit risk’s spike…

And European High Yield risk has exploded to one-year highs…

European stress is worse than US for now, as Charlie Diebel, head of rates at Aviva Investors, notes:

“The longer it [LIBOR-OIS increase] goes on, the more pronounced the effects are going to be…

It complicates the efforts of policymakers because in Europe we still have QE (quantitative easing), but we have some sort of tightening coming at the same time.”

And Investment Grade credit risk is soaring to six-month wides in EU and US…

Simply put, LIBOR doesn’t need to blow out any more for the pain to emerge…

As one veteran credit-trader exclaimed: the bank credit pain “is baked in the cake” as the lagged reaction to short-term funding needs (and soaring costs) creeps into those so-called fortress balance sheets.

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Authored by James Howard Kunstler via Kunstler.com,

With spring, things come unstuck; an unspooling has begun.

The turnaround at the FBI and Department of Justice has been so swift that even The New York Times has shut up about collusion with Russia – at the same time omitting to report what appears to have been a wholly politicized FBI upper echelon intruding on the 2016 election campaign, and then laboring stealthily to un-do the election result.

The ominous silence enveloping the DOJ the week after Andrew McCabe’s firing – and before the release of the FBI Inspector General’s report – suggests to me that a grand jury is about to convene and indictments are in process, not necessarily from Special Prosecutor Robert Mueller’s office. The evidence already publicly-aired about FBI machinations and interventions on behalf of Hillary Clinton and against Donald Trump looks bad from any angle, and the wonder was that it took so long for anyone at the agency to answer for it.

McCabe is gone from office and, apparently hung out to dry on the recommendation of his own colleagues. Do not think for a moment that he will just ride off into the sunset. Meanwhile, Peter Strzok, Lisa Page, Bruce Ohr, have been sent to the FBI study hall pending some other shoes dropping in a grand jury room. James Comey is out hustling a book he slapped together to manage the optics of his own legal predicament (evidently, lying to a congressional committee). And way out in orbit beyond the gravitation of the FBI, lurk those two other scoundrels, John Brennan, former head of the CIA (now a CNN blabbermouth), and James Clapper, former Director of National Intelligence, a new and redundant post in the Deep State’s intel matrix (and ditto a CNN blabbermouth). Brennan especially has been provoked to issue blunt Twitter threats against Mr. Trump, suggesting he might be entering a legal squeeze himself.

None of these public servants have cut a plea bargain yet, as far as is publicly known, but they are all, for sure, in a lot of trouble. Culpability may not stop with them. Tendrils of evidence point to a coordinated campaign that included the Obama White House and the Democratic National Committee starring Hillary Clinton. Robert Mueller even comes into the picture both at the Uranium One end of the story and the other end concerning the activities of his old friend, Mr. Comey. Most tellingly of all, Attorney General Jeff Sessions was not shoved out of office but remains shrouded in silence and mystery as this melodrama plays out, tick, tick, tick.

None of this makes President Trump a more reassuring figure. His lack of decorum remains as awesome as his apparent lack of common sense. But he has labored against the most intense campaign of coordinated calumny ever seen against a chief executive and his fortitude, at least, is impressive. What is unspooling for him, and the body politic, are the nation’s finances, and the dog of an economy that gets wagged by finance. Yesterday’s 724-point dump in the Dow Jones Industrial Average is liable to not be a fluke event, but the beginning of a cascade into the pitiless maw of reality – the reality that just about everything is grossly mispriced.

There is plenty of dysfunction in plain sight to suggest that the financial markets can’t bear the strain of unreality anymore. Between the burgeoning trade wars and the adoption in congress this week of a fiscally suicidal spending bill, you’d want to put your fingers in your ears to not be deafened by the roar of markets tumbling. A 40 to 75 percent drop in the equity markets will leave a lot of one-percent big fish gasping on the beach as the tide rolls out. But the minnows and anchovies will suffer too, as regular economic activity declines in response to tumbling markets. And then the Federal Reserve will ride to the rescue with QE-4, which will very sharply drive the dollar toward worthlessness. The result: a nation with a sucking chest wound, whirling around the drain en route to political pandemonium.

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French President Emmanuel Macron and German leader Angela Merkel said Friday following a meeting of the European Council that UK Prime Minister Theresa May had shared “proof” of Russia’s involvement in the assassination attempt against former Russian spy Sergei Skripal and his daughter, the two leaders said during a joint press conference in Brussels on the sidelines of a meeting of the European Council.

But although the evidence was purportedly convincing – and all three leaders are in agreement that Russia was the only reasonable culprit, and that they would help support an investigation into the matter – the EC opted not to take any immediate action against Moscow, TASS reported.

In a statement, the EC said it “agrees with the United Kingdom government’s assessment that it is highly likely that the Russian Federation is responsible and that there is no plausible alternative explanation.”

“The European Council condemns in the strongest possible terms the recent attack in Salisbury, expresses its deepest sympathies to all whose lives have been threatened and lends its support to the ongoing investigation.”

“The use of chemical weapons, including the use of any toxic chemicals as weapons under any circumstances, is completely unacceptable, must be systematically and rigorously condemned and constitutes a security threat to us all. Member States will coordinate on the consequences to be drawn in the light of the answers provided by the Russian authorities. The European Union will remain closely focused on this issue and its implications,” the document said.

As a sop to the Russia hawks, the gathering of EU leaders agreed to bolster cooperation with NATO to strengthen its resilience to chemical, biological, radiological and nuclear-related risks, and hybrid threats, including in the areas of cyber, strategic communication and counter-intelligence.

The European Council invited the European Commission and the High Representative to take this work forward and report on progress by the June European Council.

After arriving Thursday in Brussels, May told reporters and her fellow European leaders “it is clear that the Russian threat does not respect borders and indeed the incident is Salisbury was part of a pattern of Russian aggression against Europe and its near neighbors from the western Balkans to the Near East.”

During a joint press conference, Merkel and Macron said they’d been given evidence by the UK to support its claims. Merkel said the reports were “well grounded,” RT reported.

“[UK Prime Minister] Theresa May has provided us with some results [of the investigation],” German Chancellor Angela Merkel said at the joint press conference with French President Emmanuel Macron in Brussels on Friday. She added that the two countries will follow the British probe into the poisoning of the former Russia-UK double agent “closely” and are “convinced” that the conclusions that were made by the investigators so far are “already well-grounded.”

Meanwhile, Macron said “there is no… plausible explanation” to the Salisbury incident other than Russia being behind the attack. He added that “all EU member states agree” on that allegation.

* * *

During a separate meeting earlier this week, EU foreign ministers expressed solidarity with the UK, but also declined to take any further action against Moscow – although there was disagreement between nations.

German foreign minister called Russia “a difficult partner” but also noted that “dialogue” with Moscow ought to continue. London and Moscow should sift through the evidence “bilaterally” Maas said.  Austrian Foreign Minister Karin Kneissl argued the accusations against Russia were premature, and refused to back London, per  Strategic Culture.

Spain’s Alfonso Dastis stressed the need for more evidence before reaching conclusions. He believes the EU should wait until the OPCW conducts a thorough examination of all elements involved.

At the same time, representatives from Warsaw – who have recently proven eager to attack Moscow given even the thinnest of pretexts – expressed solidarity with London.

Skripal, 66, and his 33-year-old daughter have been in critical condition since the March 4 attack, when they were found unconscious on a bench outside a shopping center in Salisbury. Skripal had worked as a double agent for the UK intelligence agency MI6 and was jailed in Russia in 2006 for spying for Britain. He was later freed as part of a spy swap in which Russia released four spies in exchange for 10 Russian agents.

Russia has repeatedly denied its involvement and rejected UK demands to issue an explanation for how the Soviet-era nerve agent – known as Novichok – made its way to London.

However, the EU did agree to withdraw its ambassador to Moscow, saying the envoy will return to Brussels “for consultations” as several member states ponder whether to follow the UK’s lead and expel their diplomats. The UK expelled 23 Russian diplomats in response to the attack, prompting a proportional response from Moscow.

Ireland, Denmark, Lithuania and the Czech Republic are also considering further measures, including the expulsion of diplomats, CNN reported.

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Authored by Nick Cunningham via OilPrice.com,

President Trump is about to escalate the brewing global trade war with another round of tariffs, although he appears to be narrowing his sights on just China.

The Trump administration announced a suite of tariffs that could affect $60 billion worth of Chinese products, a move intended to step up pressure on what the administration argues is China’s efforts at intellectual property theft. The Washington Post reported that after President Trump’s aides brought him a package of $30 billion worth of tariffs on China, he told them to double the figure.

The move will likely spark retaliation, and it would come shortly after the administration imposed steel and aluminum tariffs, which affect much more of the world than just China.

In the U.S., the steel tariffs have been vociferously opposed by the oil and gas industry. Pipelines, platforms, drilling rigs, processing facilities – the entire oil supply chain relies on steel. Oil and gas pipelines import about three-quarters of the steel used to build projects in the U.S.

A few days ago, the Commerce Department published details on a process that certain industries could use to apply for exemptions; the agency said that exemptions would be granted to companies that could not find enough steel supply in the U.S., which would presumably apply to oil and gas.

The American Petroleum Institute said they “expect the department will acknowledge various market realities and take into consideration the complex supply chains of the U.S. oil and natural gas industry and the need for specialty steel not available domestically for many of its projects.” And since the API just met with White House officials last week, it seems reasonable to assume that the Trump administration will grant them what they want.

Still, industry trade groups are concerned that the exemptions will be on a per-product basis, rather than a waiver applied to the whole sector. Haggling on a per-product basis, oil and gas companies say, would create uncertainty and red tape.

Moreover, with the next round of tariffs on the way, this time aimed at China, the trade war is not going away. Even if the U.S. oil and gas industry can avoid the worst with the steel tariffs, the measures targeting China could also result in blowback

For instance, the new tariffs on Chinese goods could derail the investment case for new LNG projects because they typically require long-term commitments from buyers, often at fixed prices. That provides the financial certainty for developers as they head into what is typically a multi-year, multibillion-dollar project. Without commitments, LNG developers tend not to greenlight new LNG terminals.

China is expected to be the largest source of demand growth going forward for LNG, and China is one of the main reasons why LNG markets have tightened quite a bit more than expected over the past year. China is gobbling up as many LNG cargoes as it can in order to help fuel its aggressive coal-to-gas switch. Because of the horrific air quality issues in many Chinese cities, the government has been trying to shut down older coal-fired power plants and also move many Chinese households off of coal for heating. The campaign has been so successful that China ran into some gas shortages this winter.

China’s gas consumption jumped by nearly 15 percent last year, and its LNG imports surged by 50 percent, wildly exceeding expectations.

That makes China the obvious destination for a lot of new LNG cargoes. But American tariffs could complicate the picture for LNG exporters on the U.S. Gulf Coast. “Contracts with Chinese buyers may be off the table for the next wave of projects,” said Katie Bays, an energy investment analyst at Height Capital Markets, according to the Houston Chronicle.

While there are around a dozen massive LNG projects proposed for the Gulf Coast, the Houston Chronicle notes, very few have been given the greenlight. A trade war with China could close the door on a lot of them.

More broadly, such a trade war could act as a drag on the global economy. China could retaliate with tariffs on U.S. soy or aircrafts, according to the Washington Post. If the spat affects economic growth, it will put downward pressure on oil prices.

Meanwhile, even as a trade conflict with China appears likely at this point, there is still uncertainty over the U.S. approach to the rest of the world. The Trump administration originally wanted to severely limit any exemptions from the steel tariffs, fearing that doing so would render them ineffective, but the outcry has been loud and many countries have been clamoring for exemptions.

The EU had been threatening retaliatory measures against U.S. products if it had not been granted an exemption. The Trump administration seemed to bow to the pressure, granting a long list of exemptions to the EU, Argentina, Australia, Brazil and South Korea, while Canada and Mexico had previously been granted exemptions, pending NAFTA renegotiations.

Taken together, the Trump administration has both narrowed its trade war to focus mostly on China, rather than much of the world, while also significantly raising the stakes.

Oil prices had rallied this week on geopolitical concerns related to Iran and Venezuela, combined with a surprise crude inventory stock draw in the U.S. Yet prices fell back on Thursday as Trump stepped up U.S. economic confrontation with China. The Dow Jones Industrial Average fell 3 percent; oil prices were off more than 1 percent and energy stocks also posted strong declines.

The financial markets are clearly betting that Trump’s trade war is bad news for global economic growth, which in turn will drag down oil prices.

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