Tag: finance

Authored by Jan Bauer via SafeHaven.com,

Russia and China may be the first to come to mind in reference to violating sanctions against North Korea, but the list is actually a bit longer, and fairly more complicated – and the end of the day, our out-of-control vanity has led to a boom in fake eyelashes that have been helping to prop up the North Korean government.

In late January, California-based cosmetics company ELF agreed to pay a nearly US$1m fine to settle civil liabilities for importing fake eyelashes containing materials from North Korea in breach of sanctions.

The U.S. Treasury Department said that between 2012 and 2017, the company imported 156 shipments of false eyelash kits, valued at $4.43 million from two suppliers located in the People’s Republic of China that contained materials sourced by North Korean suppliers.

ELF (eyes, lips, face), with annual revenues of $295 million, faced more than $40 million in penalties, but the treasury took mitigating circumstances into account; namely, the small amount involved and the fact that the company itself reported the sanctions violation after a self-audit of third-party suppliers.

“This enforcement action highlights the risks for companies that do not conduct full-spectrum supply chain due diligence when sourcing products from overseas, particularly in a region in which North Korea as well as other comprehensively sanctioned countries or regions, is known to export goods,” the Treasury said.

“Until January 2017, ELF’s compliance program and its supplier audits failed to discover that approximately 80 percent of the false eyelash kits supplied by two of ELF’s China-based suppliers contained materials from the DPRK,” it added.

On top of that, the company’s stock has lost 51 percent of its value since it was first floated in September 2016. Based on its latest results, sales are down 11 percent compared to the same period last year.

Beyond eyelashes, North Korea has proven quite resources at evading sanctions, with indications that it’s mastered smuggling.

A recent UN report notes that sanctions against North Korea were “ineffective,” with authorities there still able to acquire illegal shipments of oil products, sell banned coal and violate the arms embargo.

The report also said that despite the imposed sanctions, North Korean financial institutions continue to operate in at least five countries, while the country’s diplomats help their country evade sanctions by controlling bank accounts in multiple countries.

The UN experts who compiled the report detailed violations across several countries, including Bulgaria, China, Germany, India, Myanmar, Poland, Russia, Singapore, Tanzania and Uganda.

On the lower level of sanctions-busting, other luxury goods that have made it to North Korea including sparkling wine and spirits from Germany, wine and vermouth from Italy, and perfume and cosmetics from Bulgaria.

A Singapore-based company has been stocking department stores in Pyongyang, the capital, with luxury items from Japan and Europe.

Last year, the US government published guidance for US companies to detect certain of North Korea’s “deceptive” practices in avoiding U.S. sanctions.

While the sanctions are enforced by the prosecution or sanctioning companies that do business with North Korea, outsourcing the production and supply chains can be hard to spot—as with ELF’s fake eyelashes.

A Wall Street Journal report from December last year explains that many U.S. banks and companies are unwillingly participating in a network in which North Korea uses proxies with hidden government ties across the globe to facilitate payments and transactions.

U.S. companies outsource production to Asian companies, but even they exploitlow labor and material costs in jurisdictions like North Korea where manufacturers can save up to 75 percent.

The Trump administration has led the drive at the United Nations to impose a series of tough economic sanctions on North Korea in response to its nuclear tests and missile launches in 2017.

via ZeroHedge News http://bit.ly/2USOlnC Tyler Durden

Last week, we reported that Jeff Bezos’ investigation into who leaked steamy text messages exchanged between himself and his mistress, former “So You Think You Can Dance?” host Lauren Sanchez, had zeroed in on a likely – if unfortunate – source: Sanchez’s brother, Hollywood manager Michael Sanchez. Sanchez supported President Trump during the 2016 race, and at the time, sources from within Bezos’ camp were saying that they believed Sanchez had leaked the texts for “political” reasons.

Well, one week later, and the story of the investigation has been blown wide open by Bezos’ publication of emails exchanged between lawyers for AMI and the lead attorney for his investigators, where not only did AMI detail the contents of the unpublished texts (which apparently included what millennials would call a “dick pic” sent by the world’s richest man), but Bezos accused the owner of the National Enquirer of trying to blackmail him into dropping his investigation, as well as walking back allegations that the Enquirer’s campaign was politically motivated (either by its allegiance to Trump, or the Saudi government).

And now, the Daily Beast, which has led the pack on scoops related to Bezos’ investigation, has seemingly confirmed that investigators’ initial suspicions about the source of the leak were correct: According to several AMI insiders, Sanchez was in fact the tabloid’s source.

The brother of Jeff Bezos’ mistress, Lauren Sanchez, supplied the couple’s racy texts to the National Enquirer, multiple sources inside AMI, the tabloid’s parent company, told The Daily Beast. Another source who has been in extensive communication with senior leaders at AMI confirmed that Michael Sanchez first supplied Bezos’ texts to the Enquirer.

AMI has previously refused to identify the source of the texts, but a lawyer for the company strongly hinted at Sanchez’s role during a Sunday morning interview on ABC. “The story was given to the National Enquirer by a reliable source that had given information to the National Enquirer for seven years prior to this story. It was a source that was well known to both Mr. Bezos and Ms. Sanchez,” attorney Elkan Abramowitz told ABC’s George Stephanopoulos.

Asked directly whether Sanchez was the source, Abramowitz said, “I can’t discuss who the source was. It’s confidential within AMI.” An AMI spokesperson declined to comment for this story. Asked directly more than a half-dozen times whether or not he supplied the texts to the Enquirer, Sanchez declined to do so.

The report also suggests that, to Bezos, at least, this isn’t news: A source from within AMI said that Bezos’ team had likely already identified the source of the leak, and that Sanchez didn’t steal the texts, but obtained them by some other, likely legitimate, means.

Sanchez is reportedly close with several Trumpworld figures, including Roger Stone and pro-Trump pundit Scottie Nell Hughes (whose private emails were once leaked to AMI). 

His tweets indicate that Sanchez has also been a vocal supporter of the president:

For anyone too stupid or too bitter to admit Mueller’s pack of @POTUS-hating @TheDemocrats is leading an out-of-control witch hunt, read about @jerome_corsi.

Muellerism = McCarthyism@realDonaldTrump @AlanDersh @JudgeJeanine @TuckerCarlson@CNN @FoxNews @MSNBC @RTAmericaNews pic.twitter.com/OhkArB7dBF

— Michael Sanchez (@mikey2go) December 4, 2018

Though he also denied the allegations that he was the source of the leak:

Gavin de Becker, @JeffBezos right hand man, spreads fake, unhinged conservative conspiracy theories, “dog whistle” smears, with on-the-record quotes to trashy tabloids; all while his boss owns @washingtonpost & @Amazon. Huh? Remind me, who was in charge of security? #Truth pic.twitter.com/Idg2osaPfP

— Michael Sanchez (@mikey2go) February 1, 2019

Whether it’s true or not, this will likely make for an awkward Thanksgiving in the Sanchez household this year.

Now, we wait to learn how Bezos and his mistress are going to handle this stunning betrayal…

via ZeroHedge News http://bit.ly/2WSJlRw Tyler Durden

Submitted by Joseph Carson, former director of global economic research, Alliance Bernstein

It has long been observed that inflation is a monetary phenomenon. The foundation for this observation was developed decades ago when accelerating and decelerating rates of consumer price inflation were associated with similar patterns of growth in money. Nowadays, the concept of money itself is under constant refinement, and money growth is no longer part of the Federal Reserve objectives, which raises an important question, is there a new working theory of inflation?

I raise this question for the simple reason that structural changes in the financial markets coupled with regime changes in the conduct of monetary policy have altered the transmission process of monetary policy in a way that inflation is no longer predictable based solely on money growth nor limited to the standard price measures.

In the past several decades, the US has experienced two fundamentally different types of inflation (or price) cycles, with one associated with fast growth in money while the other form was not, and yet each cycle proved to be a monetary-driven event with similar outcomes.

For example, from the early 1960s to the early 1980s the US economy experienced successive periods of relatively fast gains in consumer prices and all were associated (fueled) with fast gains in money. And, from the mid-1990s to today, the US economy has experienced consecutive cycles of unprecedented gains in asset inflation, fueled by relatively low interest rates, easy credit conditions assisted in part by growth of non-bank banks, and more recently with additional monetary accommodation via the expansion of the Fed’s balance sheet.

Although of a different form, the inflation (or price) cycles had a number of common characteristics. For example, all cycles proved to be persistent as each one had a self sustaining feature as the more and more prices rose it led to the expectations of more price gains, creating an inflationary (or speculation) mindset that was hard to break in the real economy or in the minds of investors.

Also, inflation cycles created market distortions, such as allocating too much capital towards inflation-benefiting industries (i.e. commodities) or conversely sending too much capital towards asset-price benefiting industries (finance and housing). Yet the important common feature was that all inflation cycles ended with a bad outcome (recession); although the jury is still out on the current asset-price cycle.

Policymakers confront traditional inflation cycles because inflation feeds in part on itself, creating uncertainty and distortions in the economy and the flow of capital, depriving the economy of reaching its potential and eventually forcing a substantial tightening of financial conditions and a recession to unwind the destabilizing forces. Yet, asset inflation cycles also feeds in part on itself, triggering unbalanced capital flows, wealth inequality, ultimately leading to costly real and financial imbalances that eventually unravel driving the economy into recession.

If both forms of inflation cycles have like outcomes shouldn’t monetary policy view them similarly as they relate to the Fed’s mandates of financial stability, maximum employment and price stability?

Many questions remain unanswered, but perhaps the most important question has already been answered in that asset price inflation has become a new permanent feature of the transmission of monetary policy. Part of this is due to regime shifts in the conduct of monetary policy as policymakers moved from targeting money to targeting real interest rates (consumer prices less official rates) and now directly targeting consumer price indices. Real and financial asset prices are not part of the published prices so their price cycles have been able to run free of monetary oversight. Also, the new policy tool, the expansion of the Fed’s balance sheet, is intended to work through the portfolio channel, directly lifting the price of a broad range of assets.

The new working theory of inflation is that it is still a monetary phenomenon but today’s inflation form is shaped by how monetary policy is implemented. The new targeting regimes has let the real cost of credit for real estate and equity purchases to remain too low for too long, driving fast asset price cycles. Admittedly, asset prices are determined by many factors other than monetary policy, but recent perceived shifts in monetary liquidity (first tighter and then looser) followed by abrupt declines and sharp reversals in equity prices illustrate how closely linked the asset price cycle is to expected shifts in the stance of monetary policy. Policymakers should not ignore these price signals as history has shown that there is nothing unique about asset markets being able to permanently absorb overly stimulative monetary policy without leading to costly adverse macroeconomic consequences.

via ZeroHedge News http://bit.ly/2MWJdMi Tyler Durden

America’s richest people aren’t the “idle rich” – jumping off diving boards into giant vaults full of coins and taking off for adventures with their nephews.

According to A new working paper co-authored by members of Princeton University, US Berkeley, Chicago’s Booth School of Business, and the US Treasury Department, the top 0.1 percent, or those earning more than $1.6 million per year, are the working rich. 

Using tax data linking 11 million firms to their owners, the paper found that entrepreneurs – such as doctors, lawyers, financial professionals, car dealers and beverage distributors (?) are driving income inequality. 

Business owners in the top 1 to 0.1 percent making between $390,000 and $1.6 million annually included physicians, professional and technical workers, dentists, specialty trade professionals, and those in legal services. Owners in the top 0.1 making over $1.6 million included physicians, dentists and other skilled professionals as well as financial investors, automobile dealers and oil and gas extractors. –Princeton.edu

“We set out to understand what has been driving top incomes in recent years, and that upended some previous findings about the rich,” says co-author Owen Zidar, assistant professor of economics at Princeton University’s Woodrow Wilson School of Public and International Affairs. “People are earning a lot of dollars through private businesses, and that’s important evidence that should influence the debate around taxing millionaires.” 

In an effort to analyze the effect of the 2017 tax reforms on small businesses and other pass-through entities, the paper studies the effect of similar tax reforms under President Reagan – which raised corporate taxes and lowered them on individuals, making pass-through entities far more attractive. 

They found the median number of owners of a pass-through company was two, and they hit their peak income in their 50s. Around 93 percent of these owners were actively engaged in the business. Most top earners are not getting their income from labor; 75 percent comes from human capital income. For example, most top income is derived from active service provision as well as the personal network, reputation, and recruiting prowess of entrepreneurs, not from idle ownership of financial assets. –Princeton.edu

 “It’s common to wonder whether business owners grew the pie, or simply extracted more money from workers,” said Zidar. “It looks like both are important, but growing the pie may be more significant.”

Effects of an owner’s death

In order to determine whether top owners were simply collecting checks or actually contributing to their businesses, the researchers analyzed what happened to businesses after an owner died or retired. In both cases, profits plummeted by over 80% and did not recover. 

“We show that if you look and decompose this income, a lot of it comes from these pass-through businesses, and that activity more closely resembles labor than the idle rich,” said Zidar. “Our results suggest that educating the country’s next generation of innovators may be more important than tax incentives.”

via ZeroHedge News http://bit.ly/2I55ZD2 Tyler Durden

Two weeks after California’s largest utility PG&E filed for bankruptcy protection (marking its second bankruptcy in 20 years), Bloomberg is sounding the alarm that California’s two other large electric utilities are just one wildfire away from bankruptcy filings of their own – a fact that was underscored last month when S&P slashed their credit ratings to near-junk status.

And to the chagrin of California residents, Gov. Gavin Newsom has done nothing to ease these anxieties, leaving large swaths of the largest state in the union without solvent utility companies (a situation that would likely lead to massive rate hikes on California’s already heavily taxed consumers).

The two utilities in question are Edison International’s Southern California Edison Co. and Sempra Energy’s San Diego Gas & Electric Co. Both utilities have begged California lawmakers to reconsider the state’s view on the legal concept of inverse condemnation. Put simply, this legal principle allows utilities to be held liable for any wildfires caused by their equipment – even if the utilities have followed every safety rule. But so far, their pleas have fallen on deaf ears (for the record, the changes being requested wouldn’t affect the distribution of liability if the utilities are found to be negligent).

“This is a really serious issue that could absolutely impair the health of utilities in this state,” Pedro Pizarro, Edison’s chief executive officer, said in an interview. “I don’t want to speculate about bankruptcy, but this is serious. And the current approach is just not sustainable.”

But as Bloomberg points out, there are several easy solutions that wouldn’t be difficult for the legislature and governor’s mansion to pursue. The legislature has the power to change the standard. But so far, they have opted to do nothing.

Here’s a rundown of the options (text courtesy of Bloomberg):

Legislation

California lawmakers spent much of last year hunting for a solution. In August, they passed a bill designed to help utilities cover liabilities from a wave of fires in 2017. But it doesn’t offer aid for 2018 fires, a critical issue after November’s Camp Fire, the deadliest in state history. With PG&E’s equipment seen as a possible ignition source, the company estimated it was facing $30 billion in wildfire liabilities when it filed for bankruptcy.

California’s new governor, Gavin Newsom, assembled an advisory panel and told them to fast-track their efforts; he wants a report before July. Utilities and legislators are all offering ideas, but there’s no guarantee they’ll find a solution that will help the power companies without becoming a financial burden to the state, or raise the ire of ratepayers and voters.

The inverse condemnation doctrine is rooted in California’s constitution, so any direct changes would require a constitutional amendment, according to the state’s legislative counsel office. An amendment would need to win two-thirds majorities in both the state Assembly and Senate, and then be approved by voters. Given the public anger at PG&E, that avenue is closed, legislators say.

“There’s no sense of anyone planning to do that, at least in the Democratic caucus,” said state Senator Jerry Hill.

New Standard

The utilities say another option is for the legislature to change the way inverse condemnation is applied. Instead of using a standard of strict liability, the state could instead look at whether the utility acted reasonably in running its equipment. There’s a precedent for this: a 1997 state Supreme Court ruling that used this standard in a water-district case.

“We’ve actually looked at this really closely, and we believe that under the law, yes, the legislature has the power to change that standard,” Pizarro said. “We’re not looking to get off the hook here if we’re negligent. If we’re negligent, we should be held accountable.”

However, utilities already pitched this idea to Sacramento last year, with no success. Lawmakers said electric utilities and water districts were too different to make this a plausible connection.

Compensation Fund

Some legislators are focusing on alternative ways to compensate fire victims, easing the financial pressure on utilities.

Assemblyman Chad Mayes in January introduced a bill to create a California Wildfire Catastrophe Fund. Utilities would pay into the fund annually, and a public authority would oversee it. The money would back bonds, and utilities could use the proceeds to settle wildfire claims.

Many of the details need to be worked out, Mayes said. Can utilities pass on some of the costs to customers? If so, how much? Should the state seed the fund with money from its greenhouse gas cap-and-trade program? Still, Sacramento is committed to resolving the issue, “because we’ve got to keep the lights on,” he said.

“The idea is to pre-fund the disaster, not post-fund the disaster,” said Mayes, a Republican representing desert communities around Palm Springs. With the law passed last year, “we tried to post-fund the disaster.”

But for some reason, the political will to safeguard the state’s utilities is virtually non-existent. And the only solution lawmakers and the state’s utility regulator have latched on to so far – at least as far as PG&E is concerned – is breaking up utilities found liable for the wildfires and bringing them under state control. And while the utilities have taken the brunt of the blame in the press, the fact remains that 95% of the state’s wildfires are caused by careless human errors, and amplified – not by factors linked to climate change – but by the state’s abysmal land-management policies.

via ZeroHedge News http://bit.ly/2TK8fks Tyler Durden

On Thursday morning, traders were stumped by a violent drop in 3m USD Libor, which after weeks of barely budging, saw its fixing plunge by more than 4bps, its biggest one day move since the financial crisis, prompting questions what was behind the sudden drop.

The move followed a declining trend in commercial paper yields, which banks use as one of the primary inputs in their Libor submissions.

According to Deutsche Bank’s Steven Zeng, a significant factor for the decline of commercial paper yields is the recent inflows into prime money market funds. Since December, prime money market funds have grown their assets by about 11%, with this week’s ICI data showing that total prime fund assets rose above $600bn for the first time since 2016. And as prime fund assets grow, cash is being deployed in the unsecured borrowing markets, pushing their rates lower.

So was Libor just catching up to CP?

According to Zeng there’s more to the sudden jerk lower in the world’s most important fixed income benchmark; in a Friday note, the Deutsche Banker writes that while the Fed hikes have attracted more cash into the short end, the yield-curve inversion has likely also played an important contributing role. At the moment, the Treasury curve is inverted between the 1yr and 5yr points. Furthermore, yields out to the 10yr point are at levels below the 3m Libor.

And while curve inversions are rare, inversions while the economy looks healthy and the Fed maintains that it could still possibly hike rates are even rarer. In other words, with the 3m Libor currently 21bp above the 2yr Treasury yield and 23bp above the 5yr yield, some investors are finding money market investments a much more appealing option than front-end and intermediate Treasuries.

Indeed, fund flows data corroborate this story. Over the last week, short-term government funds and intermediate government funds both experienced heavy redemptions, while bond funds that invest in higher-yielding assets, as well as money market funds, have seen larger-than-normal inflows.

Yet even after Thursday’s decline, Libor remains elevated to commercial paper yields. The gap between the 3m Libor and 90-day AA financial CP yield currently stands at 19bp, which compares to last year’s average of 13bp. This suggests to Zeng that Libor may have modest additional downside risk in the near term.

via ZeroHedge News http://bit.ly/2SlfK4C Tyler Durden

Authored by Mike Shedlock via MishTalk,

New York’s projected income tax is $2.3 billion short of estimates. Governor Cuomo cited a need for more taxes.

“Tax the rich, tax the rich, tax the rich. We did that. God forbid the rich leave,” said New York Governor Cuomo. Well they did leave and his solution, of course, is to raise taxes.

Please consider Andrew Cuomo’s Tax Epiphany

New York Gov. Andrew Cuomo was on the road to Albany when a light flashed before him. Lo, said a voice from the light, progressive taxes are driving out high earners and damaging the state budget.

Some miracle like that must have happened because on Monday Mr. Cuomo awakened from his first eight years as Governor and according to the Buffalo News declared, “Tax the rich, tax the rich, tax the rich. We did that. God forbid the rich leave.”

Mr. Cuomo delivered this testimony from the Book of Tax Revelation while announcing Monday that New York state’s income tax revenue over the last two months was $2.3 billion below projections. “That’s as serious as a heart attack,” he said.

The top 1% of New York taxpayers pay 46% of state income taxes. Revenues vacillate with capital gains—a problem that is compounded in New York because bonuses in the finance industry are often tied to trading revenue. Markets were especially volatile during the last quarter amid uncertainty about trade and interest rates.

The bigger problem seems to be geographic tax arbitrage. Mr. Cuomo notes in a PowerPoint presentation that “anecdotal evidence suggests that high income taxpayers are considering changing their residence and that financial industry firms are looking at real estate outside of New York.” While the Governor blames the GOP tax reform, high earners have been decamping for years, as E.J. McMahon of the Empire Center has chronicled.

According to IRS data we’ve examined, New York state lost $8.4 billion in income to other states in 2016 (the latest available data), up from $4.6 billion annually on average during the prior four years. Florida raked in the most New York wealth. Mr. Cuomo says that “a taxpayer in Florida would see no increase, or a decrease” under the GOP tax reform and “Florida also has no estate tax.” New York’s 16% estate tax hits assets over $10.1 million.

During his 2010 campaign, Mr. Cuomo promised to let New York’s tax surcharge on millionaires expire. But he has extended it again and again and now wants to renew it through 2024 because he says the state needs the money. Meantime, he warns that a wealth exodus could force spending cuts for education and higher taxes on middle-income earners.

Sadistic Maneuvers

Cuomo blame the Trump tax cut for this. “It literally restructured the economy to help red states at the cost of blue states,” he groused. “It was a diabolical, political maneuver.”

Excuse me for pointing out the latest data on moving is from 2016 and that’s when the wealthy started leaving in droves. Keep the 16% estate tax and more will leave.

But Cuomo wants to keep it because they “need the money“.

Moody’s Warns Illinois About Tax Hikes

Illinois is in the same situation just as Moody’s Warns Illinois Governor: New Taxes Might Make Illinois Residents Flee.

So, go ahead and tax the rich. Then keep doing it until there are no rich left to tax.

via ZeroHedge News http://bit.ly/2BuaHUZ Tyler Durden

One month after various Yen, Lira and Pound cross flash-crashed in the aftermath of Apple’s shocking guidance cut, moments ago the Swiss franc was the latest currency to flash crash when the haven currency sold off sharply against dollar and yen and euro just after 5pm EDT, as dealers took advantage of the non-existent holiday liquidity (japan is closed) to execute a stop-loss run, according to Asia-based FX traders quoted by Bloomberg.

As a result, the USD/CHF soared as much as 0.9% to 1.0096 before paring move to be up 0.4% at 1.0045; the CHFJPY slumped 0.4% to 109.22 while the EURCHF surged as much as 1.14081 before paring gains.

However, as so often happens, moments after the initial crash, BTFDers emerged and all of the pairs are now stronger on the day, as the pile up extends this time to the opposite direction.

via ZeroHedge News http://bit.ly/2I7ju55 Tyler Durden

Last week, when discussing the trajectory of the market, Nomura‘s Charlie McElligott said that the fate of the rally, or lack thereof, depends on two main things: where the dollar goes from here, and what happens to inflation.

And while the dollar persistently refuses to drop despite – or rather in spite of – Wall Street’s top consensus trade for 2019 being a lower dollar now that the Fed has reversed dovishly, the bigger question is with the unemployment rate now below most estimates of full employment for a couple of years, why is inflation still below target?

Needless to say, with the FOMC now highlighting “muted inflation pressures” as a reason to remain patient, this question has taken on renewed importance, especially since asset prices have shown a heightened sensitivity to inflationary spikes.

However, according to Goldman, the main answer is that “there just isn’t that much of a puzzle to begin with” and in a note from the bank’s chief economist, Jan Hatzius writes that “The Phillips curve has flattened over the decades to the point where an unemployment rate 1pp below the full employment rate tends to raise inflation by just 0.1-0.2pp. With the unemployment rate about ½pp below our estimate of full employment, the state of the labor market alone implies inflation should be at most a tenth above the 2% target, or two-tenths above the current 1.9% rate of core PCE inflation.”

As the bank then shows in the chart below, the health care services category — which accounts for roughly 19% of the core — is the main reason that inflation has run a bit softer than the pre-recession average. The left panel shows that health care services inflation was in line with broader core services inflation before the recession but is now much softer, at least according to the BLS’ hedonically adjusted measurement and whether or not heathcare inflation is indeed that low in the “real world” is an entirely different matter, while other core services and core goods prices have grown at roughly normal rates.

Assuming the BLS’ measure is accurate, Goldman then notes that much of the prolonged softness in health care services inflation in recent years reflects the direct and indirect effects of legislation and sector-specific trends. And while at this point, the direct effects of the Affordable Care Act (ACA) on public-payer healthcare costs are likely behind us – which allegedly depresses healthcare service costs, even if many Americans have a diametrically different take of what Obamacare has done to their healthcare spending – the after-effects have lingered in a couple of ways.

And since the Fed only cares about what the the BEA reports in its core PCE, and any “real world” anecdotes are promptly dismissed, the fact that according to “empirical” analysis the culprit for sticky low inflation is Obamacare, it has significant bearing on both readings of inflation and the Fed’s monetary policy, which is why Goldman’s take actually matters.

And speaking of Goldman’s take, Hatzius writes that in the bank’s estimates, ACA-mandated Medicare cuts continue to have sizeable disinflationary spillover effects on private-sector prices, as shown in the next chart below.

In addition, Goldman claims that ACA and other ongoing cuts to government reimbursement rates have reportedly led to an increased focus on cost discipline and disinflationary efficiency gains, adding that “these effects can’t last forever, but they have been a persistent disinflationary force in recent years and are likely to fade only gradually.” Needless to say, we find this “analysis” to be laughable in light of unprecedented drug price increases observed in recent years, which while a critical political talking point for years now somehow fails to ever trigger any inflation model.

Meanwhile, outside of the health care sector, Goldman claims that the other components of the core PCE index that usually follow a cyclical pattern have accelerated roughly as they should. In fact, according to an analysis by the bank’s economists, inflation in these categories is only very slightly below the expected level. Exhibit 3 illustrates this by scaling the chart’s axes in line with the regression results.

So how is it that whereas inflation in asset prices is rampant, with many openly warning of a new asset bubble, price increases in the real economy are so low as to allow the Fed to stay “patient” indefinitely, thus perpetuating the stock bubble?

Here Goldman’s findings above reinforce what past inflation research has also found.

• First, the Phillips curve is alive but flatter, meaning that changes in slack now have more moderate effects on inflation.
• Second, non-cyclical factors—from health care policy changes and measurement changes on the downside to new taxes or tariffs on the upside—can have relatively large effects on inflation.

But it is Goldman’s third observation that is most stunning because according to the bank’s economists, the first two findings “reinforce that the inflation puzzle is exaggerated—inflation is simply not that reliable a cyclical indicator. As former Fed Chair Janet Yellen put it, “such ‘surprises’ should not really be surprising.”

That, for lack of a better word, is idiotic considering that with unemployment now largely meaningless and only inflation the gating factor to Fed monetary policy, for Goldman to say that “inflation is simply not that reliable a cyclical indicator” when it is the only thing that is greenlighting the Fed recent stunning dovish reversal, is outrageous, and has staggering policy consequences, as it means that the Fed is now relying on an overtly broken indicator to adjust the cost of money, and in the process is blowing even greater asset bubbles, even as the “unreliable” inflation indicator that is inflation continues to be depressed for purely political reasons.

In any case, Goldman concludes that its findings also shed some light on the inflation outlook for 2019, and notes that the “disinflationary pressures on health care inflation that account for much of the remaining softness should diminish somewhat, while the cyclical pressures that appear to be operating fairly normally should intensify somewhat.”

This should take core inflation from a bit below 2% to a bit above—not a drastic change, but likely enough to sway policymakers in favor of a rate hike later this year.

Unless of course this does not happen, and “later this year” Goldman is forced to trot out another essay explaining why “inflation is simply not that reliable a cyclical indicator”, even though the Fed clearly is delighted to use it as a cyclical indicator if it means continuing to blow the biggest asset bubblein history.

via ZeroHedge News http://bit.ly/2DtzdWq Tyler Durden

Minnesota Senator Amy Klobuchar has officially announced her campaign to seek the 2020 Democratic nomination on Sunday during a speech in Minneapolis’s frigid Boom Island Park.

With her announcement, Klobuchar has become the fifth Senate Democrat to announce her presidential bid, joining Kamala Harris, Cory Booker, Elizabeth Warren and Kirsten Gillibrand.

Having served in the Senate since 2007, Klobuchar is reportedly hoping to establish herself as a bastion of centrism. She easily won re-election to a third term last year. Though her record in recent months has been more mixed, with the Senator focused on lower prescription drug prices (while being non-commital about Medicare for All), she supported Trump’s farm bill and plans for increased election security. But also endorsed Alexandria Ocasio-Cortez’s “Green New Deal.”

Minnesota Democratic Sen. Amy Klobuchar jumped into the crowded field of Democrats running for president in 2020, pledging to “lead from the heart” during a snowy announcement in Minneapolis. https://t.co/xUQ4OhF0g4 pic.twitter.com/oGPZW8ARQd

— Badr Alsiri (@b2d9r) February 10, 2019

And though it has been long expected, the rollout is happening against a backdrop of scandal, following the publication earlier this week of an expose into her alleged chronic mistreatment of those in her employ. Buzzfeed described Klobuchar of running an office where her staff were subjected to “bouts of explosive rage and regular humiliation.”

Amy Klobuchar has laid the grounds for a presidential run on an image of “Minnesota nice.”

But behind the doors of her Washington, DC, office, the Minnesota Democrat ran a workplace controlled by fear, anger, and shame, according to interviews with eight former staffers, one that many employees found intolerably cruel. She demeaned and berated her staff almost daily, subjecting them to bouts of explosive rage and regular humiliation within the office, according to interviews and dozens of emails reviewed by BuzzFeed News.

That anger regularly left employees in tears, four former staffers said. She yelled, threw papers, and sometimes even hurled objects; one aide was accidentally hit with a flying binder, according to someone who saw it happen, though the staffer said the senator did not intend to hit anyone with the binder when she threw it.

“I cried. I cried, like, all the time,” said one former staffer.

Which of course cuts against Klobuchar’s image as a progressive Senator who is embodies the spirit of what it means to be “Minnesota nice.” Her reputation as a boss is so bad, that three potential staffers reportedly declined to take jobs on her campaign staff.

While some former staffers went on the record with Buzzfeed to defend their former boss (after being referred to Buzzfeed by Klobuchar’s office for the story), the fact remains that her office has one of the highest turnover rates on Capitol Hill – at 36% annually.

But even her detractors conceded that she “gets sh*t done” for Minnesota, and she has continued to enjoy enormous popularity in her home state, even in its more conservative reaches.

But though she is planning to run as a moderate, as the Democratic field becomes increasingly crowded, while tilting further and further to the left, how long until Klobuchar joins the competition for who can come up with the best tax policy to “soak the rich?”

via ZeroHedge News http://bit.ly/2DwDzMS Tyler Durden