Tag: finance

Authored by Simon Black via SovereignMan.com,

I’ve been talking a lot about the looming pension crisis…

My short thesis is, if you’re depending on a pension for your retirement, it’s time to start looking elsewhere.

Pensions are simply giant funds responsible for paying out retirement benefits to workers.

And today, the nation’s 1,400 corporate pension plans are facing a $553 billion shortfall. And, according to Boston College, about 25% will likely go broke in the next decade.

Think about that… A full one-quarter of US, non-government employees expecting a pension to fund their retirement will likely get zilch.

And it’s even worse for the government…

According to credit-rating agency Moody’s, state, federal and local government pension plans are $7 trillion short in funding.

The reason for this crisis is simple – investment returns are too low.

Pension funds invest in stocks, bonds, real estate, private equity and a host of other assets, hoping to generate a safe return.

But with interest rates near their lowest levels in human history, it’s been difficult for these pensions to generate a suitable return without taking on more and more risk.

And that’s another big problem with pensions – their investment returns are totally unrealistic.

Most pension funds require a minimum annual return of about 8% a year to cover their future liabilities.

But that 8% is really difficult to generate today, especially if you’re buying bonds (which is the largest asset for most pensions). So pensions are allocating more capital to riskier assets like stocks and private equity.

And so far it’s working.

The California State Teachers’ Retirement System (CalSTRS) and California Public Employees’ Retirement System (CalPERS) both earned more than 8% for the second fiscal year in a row. CalPERS is the largest public pension in the US. And, together, the two funds manage $575 billion for 2.8 million public workers and retirees.

Two 8%+ years isn’t the norm. Over the past 10 years ending June 30, CalSTRS returned an annualized 6.3% a year – well below its target. And CalPERS has returned a dismal 5.1% over the same period.

And that’s been with the tailwind of one of the longest equity and fixed-income bull markets in history.

It’s clear these inflated gains can’t last.

And the two California pension giants are even admitting the game is up.

No, no more 8% target return, as we teeter on the edge of what could be the largest market correction of our lifetime.

CalSTRS is making the bold move to drop its future goal to… 7%.

And CalPERS is ratcheting down its return goals in steps to… wait for it, 7% by 2021.

Listen, it’s a nice gesture for these big funds to lower their expected returns and admit things are tough out there.

But 7% is still totally unrealistic. And that’s not even taking into account the tough times I see ahead for markets. Pensions haven’t been able to hit a 7% return in the best of times.

As of June 2017, the 10-year annualized median return for all public pensions tracked by the Wilshire Trust Universal Comparison Service was 5.57%.

That’s nearly 250 basis points below the 8% target.

But there’s another way pensions make money… they collect funds from active workers and taxpayers.

When these funds drop their return expectations, it has real life implications. With a lower, projected return, a pension fund needs more cash to pay out its future liabilities.

For example, CalPERS, which is dropping its expected return to 7% by 2021, said the state and school districts paying into the pension will have to pay at least $15 billion more over the next 20 years once the 7% target kicks in.

So, people depending on a pension not only likely won’t get the money owed to them in the future… but they’ll also get stuck paying more into the system today. It’s a true lose/lose.

Our goal at Sovereign Man is to put our readers in a position of strength.

And if you’re expecting a pension to pay for your retirement, you need a contingency plan today.

Last month, I outlined a series of steps you can take, right now, to improve your financial situation – like improving investment returns and alternative retirement account structures.

Personally, I’ve been selling assets to raise cash. In fact, I’m sitting on more cash than at any other point in my life.

I’m sitting on cash because I’m worried we could see another recession very soon.

And being liquid at a market bottom is one of the best ways to get really rich – you can buy the world’s best assets for pennies on the dollar.

But here’s the best part… I’ve structured my cash holdings so I’m still earning a solid return – better than a lot of these pension funds. But I’m remaining liquid and taking on very little risk.

If you want to know more about what I’m doing with my own money, and why I’m sitting on so much cash, just click here…

via RSS https://ift.tt/2O9iUTv Tyler Durden

Elon Musk has joined the ranks of infamous CEOs who have pursued, or at least threatened, legal action against prominent critics (in addition to threatening shorts in his stock with “untold carnage“). That is the latest revelation in  a statement  by well-known Tesla bear Montana Skeptic.

Montana Skeptic took to Seeking Alpha today to release what he said would be his final statement. He confirmed our report yesterday – claiming that Elon Musk did in fact call his boss yesterday – without making an attempt to first contact him directly – and that he told a colleague of his he would “engage counsel and sue” if he did not stop writing about Tesla.

The text of the letter, as posted on Seeking Alpha, states the following:

Yesterday, July 23, I decided to cease writing about Tesla (TSLA) here at Seeking Alpha web site. I also deactivated my Twitter account, where I was @MontanaSkeptic1. Here is what prompted those decisions.

Yesterday afternoon, the principal of the family office in which I am employed received a communication from someone purporting to be Elon Musk. Doubtful that Elon Musk could actually be attempting to contact him, my employer asked one of my colleagues to investigate and respond.

My colleague then spoke by phone with Elon Musk (it was indeed him). Mr. Musk complained to my colleague about my writing at Seeking Alpha and on Twitter. Mr. Musk said if I continued to write, he would engage counsel and sue me.

My colleague then spoke with me about the phone call. We both agreed that Mr. Musk’s phone call and threatened lawsuit were actions that would tend to involve our employer in matters in which he has had no part. To avoid such a consequence, I offered to immediately cease writing at Seeking Alpha and to deactivate my Twitter account.

How did Mr. Musk learn my identity, and that of my employer? It appears to me his information came thanks to the doxing efforts of some of his followers on Twitter.

Neither Mr. Musk nor Tesla has ever attempted, at any time, to contact me. Instead, Mr. Musk determined to go directly to my employer.

I do not know what Mr. Musk’s precise complaints are about me. I do not believe he has any valid legal claim, and I would have no trepidation in defending myself vigorously were he to bring such a claim. My response to his threats were simply to protect my employer and preserve my employment.

And so, you might say, Elon Musk has won this round. He has silenced a critic. But he has many, many critics, and he cannot silence them all, and the truth will out.

I am proud of everything I wrote at Seeking Alpha, and have immensely appreciated the extraordinary support of so many SA members and contributors.

As a reminder, yesterday we first reported the story that Musk had reportedly called the employer of this well-known critic in order to complain about his negative takes and analyses on Telsa. Montana Skeptic has been one of the most vocal critics of Tesla and Elon Musk for the better part of the last couple of years. So when he disappeared from Twitter yesterday without explanation, it set off red flags to many Tesla skeptics.

That was until this Twitter post from Quoth the Raven, who has hosted Montana Skeptic several times on his podcast. He tweeted:

Guys – I’m beside myself & before you ask, this is NOT a joke – I just got off the phone with Montana Skeptic. He told me that he voluntarily deleted his Twitter account after Elon Musk personally called his boss to complain. I asked for Montana’s permission to Tweet this. $TSLA

— Quoth the Raven (@QTRResearch) July 23, 2018

The “skeptic” recently appeared on the Quoth the Raven Podcast to voice his skepticism of the company in a debate with HyperChange TV’s Galileo Russell, a well known Tesla bull and investor in the company:

Skeptic has also written a multitude of articles on Seeking Alpha covering the story from a bearish standpoint. Naturally, he has disclosed numerous times that he is short Tesla by owning long-term puts in the name.

As we stated yesterday, this behavior brings fresh attention to Musk’s emotional state and (in)ability to handle criticism.  His conduct is totally unbecoming that of a CEO of a $50 billion company and in light of recent grumblings by TSLA shareholders, this move – more appropriate of a Chinese fly-by-night fraudcap CEO – may lead to more harm than good.

via RSS https://ift.tt/2uOieL3 Tyler Durden

Authored by Fergus Hodgson via The Epoch Times,

The Argentine peso has lost a third of its value relative to the U.S. dollar in the space of three months, and locals have been to this rodeo before. For seven decades, Argentina has addressed her social and economic problems with massive state interventionism and deficit spending, funded by the printing press. The result has always been the same: economic stagnation and inflation.

Now, Argentina has one of the least free economies in the world and some of the world’s most complicated and highest taxes. Further, the hidden inflation tax has been brutal, at 50 percent annually between 1934 and 2012.

As the Economist magazine has written, “the problem with saviors is that, sooner or later, countries have to try to save themselves from them.” Argentina has to save herself from Peronism, the legacy of the former president, military general, and “savior” Juan Domingo Perón (1895–1974). Other people may also call him a national socialist, or a fascist.

Since Argentina never became part of international socialist movements and the statism and interventionism always had a national rather than an international bent, this is what Argentina needs to save herself from.

The alternative to ridding Argentina of Peronism is more of the same. Argentine people will suffer under a gridlocked economy, and they will face more humiliation as they beg the International Monetary Fund for loans.

The Essence of Peronism

Defining Peronism can be difficult, since it stems from a politician rather than a political philosophy. It is a peculiar mix of social justice, isolationism, and deficit-driven political patronage. Perón traveled in the 1930s to Italy—then a fascist dictatorship—and learned from Benito Mussolini. On the home front, as both a minister and then as president, he formed alliances with labor unions and doled out an immense number of government jobs.

The two major manifestations of Peronism, therefore, are union dominance of the economy and a politicized central bank. In addition, centrally planned trade has jammed the ports, leading to Argentina’s score of 0.29 out of 10 for trade openness, according to KPMG. Try to send anything to Argentina and you will soon see the arbitrary delays and exorbitant import duties.

Worker strikes, often violent and paralyzing, are a national sport in Argentina – after soccer, of course – as I witnessed during my year in Patagonia. Argentina leads Latin America for the number of strikes – 1,235 in 2015 alone – and the percentage of the population that participate.

The Independent Review, a journal of political economy, has published a lengthy critique of the Central Bank of the Argentine Republic. The coauthors, Nicolás Cachanosky and Adrián Ravier, note its counterproductive mandate for “social fairness” and the “fact that the [central bank] is unable or unwilling to efficiently manage the supply of currency is—or should be—undisputed.”

Given this dubious mandate of the central bank, Argentina has one of the world’s highest inflation rates, at 32 percent annualized, as documented by the Troubled Currencies Project. To rub salt into the wound, the National Institute of Economic Census for many years fabricated official inflation rates far below the real rates.

As a countermeasure, nationally mandated price freezes leave supermarket shelves empty for many products because price ceilings make it impossible for producers to supply the product at the below-market price.

The epitome of the inflation denial came earlier this decade when Argentine officials fixed the McDonald’s Big Mac price. The Big Mac Index is a tongue-and-cheek international metric that compares international price levels by comparing the price of a Big Mac in different countries. Because Argentina wanted to look cheaper, officials just fixed the price.

But the time for denial is over, and voters and politicians alike need to recognize that inflation stems directly from deficit spending.

Change Is Possible

The good news is that change is possible, and New Zealand’s liberalization of the 1980s would be an example to follow. At that time, the former British colony faced a similar fiscal crisis but came out stronger than before.

The prescription need not be complicated. Consider what you do when you face your own fiscal crisis. You can double down and seek more credit—which delays and worsens the inevitable pain—or you can cut spending, work harder, and liquidate your assets until your debts are under control.

Argentina must do the latter.

The first step, necessary but not sufficient, is flexible dollarization, as advocated by Cachanosky and Ravier. They concur with Steve Hanke of John Hopkins University that the Argentine peso needs to go, to be replaced with the U.S. dollar or whatever currencies—or even cryptocurrencies—private businesses prefer. This sound money and low inflation policy would make it possible for businesses to plan and produce effectively again and would reign in rampant speculation and inflation arbitrage.

Ecuador has made the transition successfully, and removing the central bank would end elevated inflation and deficits funded by monetary expansion. Argentina has already experienced creeping dollarization, as people tie big-ticket items and contracts to the U.S. dollar. Bitcoin is also huge in Argentina, as it is used to evade capital controls and as a store of value.

The second crucial step is to make rapid-fire reforms, to make Argentina competitive on the world stage, and serious cuts to government spending. A critical ingredient will be the end of union monopolies for each industry and a freeing up of the labor market, since hiring someone in highly protectiveArgentina invokes responsibilities akin to adopting a child. Unions dominate political discourse, stand in the way of economic competitiveness, and dissuade foreign investment.

President Mauricio Macri has already started to implement some of these reforms, but the unions have made every step of the way difficult and the government could not resist the temptation of using the printing presses of the central bank to cover shortfalls in revenue.

“How can Argentina do what New Zealand did?” friends once asked me on the outskirts of Buenos Aires. In other words, how can this be politically feasible?

Reason for Optimism

There is reason for optimism. Embedded political classes and protected factions are the problem, not the Argentine people. In the 1990s, they supported President Carlos Menem in efforts to undo much of the Peronist legacy, even though he had earlier run as a Peronist.

However, he presented half measures and corrupt privatization deals. He gave monopoly protections and other guarantees, such as subsidies, to the new owners and even used the one-off revenue raised from privatizations to fund social programs, rather than to pay down debts. Without deregulation or competition, the purported privatizations were pure cronyism. So the people supported the right ideas, but the president didn’t deliver.

In 2015, the people voted again for change and sound economic policy with Macri of the Let’s Change coalition. He has accepted a credit line of $50 billion from the IMF, which includes limited fiscal-austerity stipulations. However, the pending question is whether he will go all the way in attacking the economy’s structural problems.

In order for Macri to succeed, Roger Douglas, former finance minister and chief architect of New Zealand’s liberalization, says “don’t blink.” There can be no exceptions or industry favorites, and the reforms must be swift and across the board. That way there can be no claims of unfairness, and the reform leaders will continue to enjoy voter approval.

If they go down the middle way or even the corrupt way like Menem, Macri’s movement will soon falter and Argentina will fall into the old patterns of financial and economic crisis again.

via RSS https://ift.tt/2uM3A78 Tyler Durden

The Denver Post published an letter from a Lakewood, Colorado resident calling President Trump a traitor, and that “Ethel and Julius Rosenberg were executed” based on less evidence than what she claims the Trump administration has done,” reports the Free Beacon. 

The letter from Suzanne Gagnon was in response to an editorial in the Post last week criticizing Senator Cory Gardner (R-CO) following Trump’s summit with Russian President Vladimir Putin in Helsinki, Finland. 

“Sen. Cory Gardner is insipid, at best,” Gagnon wrote in her letter to the editor published Saturday. “His words are always carefully chosen and, if challenged, their intent open to ‘spinning’ to his own advantage. No surprise here he didn’t call President Donald Trump out by name.

“The legislation he has proposed is weak, not tough; it’s simply more wordsmithing,” she said. “Gardner is certainly not the only politician I take issue with, but I don’t see the Denver Post championing anyone else like you champion Gardner.” –Free Beacon

Gagnon then comapres Trump to the Rosenbergs, who were tried and executed for espionage in 1953. 

If it walks like a traitor, and talks like a traitor, and acts like a traitor … it is a traitor. Ethel and Julius Rosenberg were executed on a basis of far less evidence than is had on Trump and many in his administration. Besides being in agreement with the actions recommended in the editorial of July 19, I believe there are many more actions that can and should be taken against Trump to keep him from destroying the U.S.

If our leader doesn’t support any swift, significant pushback against Russian meddling, our votes aren’t worth much. -Suzanne Gagnon, Lakewood

Conservative nonprofit organization Compass Colorado says the editorial fits a pattern of “increasingly violent tone” coming from the left. 

“The mere fact the Denver Post would publish a letter to the editor with this type of language speaks to both the increasingly violent tone of liberals in Colorado politics and the desperation of the Post for readership,” said Compass Colorado executive director, Kelly Maher.

“This trend of violent language in Colorado is deeply concerning,” Maher said, adding “Just a few months ago the Boulder Daily Camera published a letter to the editor asking if citizens have a moral responsibility to take arms against oil and gas well workers, and the liberal group ProgressNow Colorado tweeted out a picture of Senator Cory Gardner with blood on his hands after a shooting, and now this Denver Post letter.”

“This violent and divisive rhetoric will do nothing to change hearts or minds, it’s designed to entrench and inflame,” Maher added.

The Denver Post sees no problem with the editorial, pushing back on the suggestion that it was extreme in a letter to the Beacon. 

“We would never run a letter suggesting that the president of the United States be executed,” said Megan Schrader, editor of the editorial pages. “Upon reviewing this letter, I don’t think that was the letter writer’s intent.”

“She wrote to be critical of an editorial I wrote lauding Sen. Cory Gardner’s efforts to impose sanctions on Russia and supportive of another editorial we had run that suggested actions Congress could take to respond to the Helsinki press conference,” Schrader added.

via RSS https://ift.tt/2JRmpuh Tyler Durden

Authored by Mike Shedlock via MishTalk,

The math for Democrats to win the Senate looks extremely daunting. However, I see more than a reasonable shot for them.

Heading into the mid-term elections the Real Clear Politics Battle for the Senate map suggests it it is extremely unlikely for Democrats to take control of the Senate.

The Republicans have 46 safe or not up seats, and two more likely. To take control of the Senate, Democrats would have to win all nine likely or leans, plus six of seven tossups.

The math is not as daunting as it looks. Democrats are leading in Florida, Tennessee, and Nevada. I expect those leads to hold. That Republicans were only up by 1 percentage point in Indiana looks problematic for Republicans to say the least. For the sake of argument, put that in the Democrat column.

That just gets things to 49 where things stand right now.

Base Projection

My base projection for the Democrats right now is 49-50.

Every time I make a projection like this I get accused of being a Democrat lover or worse. Here’s the deal: I voted for Trump and would do so again vs Hillary.

I make my projection on the reality that Trump’s trade policy totally sucks. I expect his policy will backfire sooner rather than later.

My complete rationale follows.

Trump Threatens to Place Tariffs on All $500B China Imports, Blasts Fed Again

On Friday, I reported Trump Threatens to Place Tariffs on All $500B China Imports, Blasts Fed Again.

Independents are likely sick of Trump already and Trump attacking the Fed will make a lot of people nervous. The man does not know how to shut up.

Housing Weakening

Housing is already weakening due to rising interest rates coupled with affordability issues. On July 18, I commented Housing Starts Unexpectedly Plunge 12.3% in June, Permits Down 2.2%.

On July 23 I wrote Existing Home Sales Decline Third Month Despite Rising Inventory.

Trump’s tariffs on steel and lumber are not helping one bit.

Finally please note that Whirlpool, a Tariff Supporter, is Now a Tariff Victim.

Hardest Hit States

CNBC has a nice chart on States Hardest Hit In Widening Trade War.

​

States Exposed to Steel Tariffs

Inquiring minds may also wish to consider How Trump’s Steel and Aluminum Tariffs Could Affect State Economies​

​

Tariffs Impact US Jobs

Even before the threat of an additional $500 billion in tariffs, Missouri, Indiana, North Dakota, and Tennessee are all in the trade limelight.

The Washington Post reports How Trump’s Tariffs on Mexico are Taking Jobs from U.S. Workers.

The article covers numerous states but let’s put a spotlight on Missouri and Mid Continent , the US’s largest nail manufacturer, about to go out of business due to Trump tariffs.

Sen. Claire McCaskill (D-Mo.), facing a tough reelection race in a state Trump won by 19 percentage points in 2016, seized on the company’s predicament, interrogating Commerce Secretary Wilbur Ross in a hearing on Capitol Hill last month. The next week, she was trailed by media outlets as she toured the company’s facilities despite blistering heat.

A spokeswoman for McCaskill’s GOP opponent, Josh Hawley, the state attorney general, said in a statement that Hawley “supports the president’s goal to get better trade deals and stop trade cheaters, like China,” but that Mid Continent “makes a good case for an exemption and we have spoken to the White House about it.”

“The result is the largest U.S. nail manufacturer with — before June 1, anyway — more than 500 employees, nearly double the workforce of five years ago. These workers are Americans. They have American families. If they lose their jobs, those jobs will be American jobs.”

Mid Continent is Mexican owned. But it is located in the US and employs 500 people here. Thanks to Trump Tariffs, it is about to go out of business.

The Republican and the Democrat candidate both complained to Trump. The Democrat, McCaskill, is making a huge campaign issue out of it.

The Republican, Hawley, leads by two percentage points. Will that last?

Prices

If Trump follows through with his threats on all Chinese products, $500 billion in total, those tariffs will temporarily hike prices in addition to doing further damage to US jobs.

I envision a headline like “Prices Rise on 10,000 Walmart Items Due to Trump Tariffs”.

This economy is far sicker than it looks. People are falling further and further behind on wages, and they tend to take it out on the party in power.

Polls

Curiously, support for Trump hit an all time high of 45%. The starts are misleading. First, 45% is not an inspiring number. Second, it reflects increasing support from the base.

Appealing to the base is an idiotic tactic actually. Where is the base going? It’s the moderates and independents that matter.

​

Conclusion

Trump is doing everything he can to negate the tax cuts and turn what could have been a Republican blowout into a genuine horse race.

It is far too early to predict a Democrat win. But things look far better for the Democrats than most believe.

As I have noted, this is not a desire. Rather, this is an estimation as to what is happening now.

Millennials sat out the the last presidential election. The independents and Libertarians, including me, voted for Trump.

If the economy weakens substantially or the stock market dives, both of which may happen given Trump’s tariff policy and Fed rate hikes, it is not inconceivable for Democrats to take the Senate.

via RSS https://ift.tt/2uMH9P5 Tyler Durden

There was not one but two odd undercurrents in the market today: it wasn’t just the reversal of the sharp, two-day steepening in the Treasury curve (which we previewed earlier) that reversed; according to Nomura’s cross-aset guru Charlie McEliggott, the U.S. Equities landscape also flipped dramatically “under the hood” intraday and beyond the index level performance pivot, as more notably, there were some very large z-score reversals of YTD trends across the “factor” universe.

Here are the details of what McElligott observed during the trading day, which he believes may have been catalyzed by the surprising announcement of Chinese fiscal easing that hit overnight:

The reversals in questions are many — most obviously a significant “into Value, out of Growth” rebalancing dynamic today (chart below with proxy factors).  As such, “1Y Momentum” is seeing its largest drawdown in a month.  Joining “Value” in classic “late-cycle” fashion is “Quality,” also sharply reversing the YTD trend.

The market cap-based “Size” trend has also been crushed today, with Large Caps outperforming Small Caps  by ~150bps.  So too we see “rebalancing” in more diversified factors, from “Debt / Equity,” “Analyst Coverage,” “Share Buyback,” “R&D / EV,” “Cash / Assets,” R&D / Sales,” “Dollar Dependency” and “Commodities” factors (see the “Factor Categories” monitor below).  

This sort of sharp “mean-reversion” / “rebalancing” / “unwind” is always of interest, as rationally, it acts as an indicator of “performance- / trend- pain.”  

Yet this doesn’t look to be the case today, however, as my model Equities Long-Short Hedge Fund has continued to perform well throughout the session, holding gains of +80bps to +90bps or so since late morning, with my “Short” book driving nearly the majority of the positive performance today. 

So this “mean-reversion” is then “curious” in the sense that on a sector-level, we haven’t seen any sort of change of hierarchy from intraday highs in S&P to the current lows—where generally-speaking, “Cyclicals” have continued to outperform “Defensives,” as they have since the open all day.

As most Quant Strategies are run on a “sector-neutral” basis, perhaps this shows we are in-fact dealing with another “factor unwind” again…but sector-neutral “Momentum” on the day performing is “inline” with market-neutral “Momentum” on the session.  This too in strange, because our “Beta” factor is essentially “unch” on the day (just +0.1%), as is our “Sector Selection” factor strategy (just -0.1%).

In light of the recent high profile underperformance seen with some in the “market neutral quant” space, this is worth watching.  At the end of the day, the timing of this behavior could be the biggest “tell,” and it is occurring into peak Summer illiquidity and month-end timing.  Thus it’s very possible that a multi-strategy quant fund is simply performing a factor “rebalancing.”

Regardless of the source of origin, however, this is a development I am interested in, as it looks to be yet-another “signal” of a regime inflection in the market, alongside “rolling volatility events” YTD and currently spasm-ing central bank policy.  I continue to believe in the larger sense, this is due to the Fed’s “QE to QT” impact as we transition from the late-cycle “Cyclical Melt-Up” stage into the “Financial Conditions Tightening Tantrum” phase—and thus my recent “downshift” view—ESPECIALLY as the “Value” and “Quality” slant is such a “late-cycle” positioning stance.

via RSS https://ift.tt/2A8gCB1 Tyler Durden

Authored by James Rickards via The Daily Reckoning,

Is the Trump economic boom a mirage? The data say yes, but the Fed models say no. The Fed has a long track record of sticking to its model-based approach and missing major turns in the U.S. economy.

Current Fed policy will push the U.S. economy to the brink of recession later this year. When that happens, the Fed will have to reverse course and ease monetary policy. This will send the dollar crashing while gold and the euro soar.

At first, the claim that the Trump economic boom is nothing special seems contrary to the happy-talk headlines coming from CNBC, Fox Business, Bloomberg and other mainstream business media outlets.

Those economic cheerleaders recite the stimulative effects of the Trump tax cuts and point to the Atlanta Fed forecast that second-quarter GDP will be 3.9% (as of the July 11 update).

The Atlanta Fed estimate of 3.9% is in line with forecasts from National Economic Council head Larry Kudlow, Art Laffer (proponent of the eponymous Laffer curve), Steve Moore and others that say Trump’s programs will produce persistent trend growth of 3–4% or higher.

Such growth would break decisively with the weak growth of the Obama years. It would also make the U.S. debt burden, currently at 105% of GDP, more sustainable if GDP were to grow faster than the national debt.

There’s one problem with the happy talk about 3–4% growth. We’ve seen this movie before.

In 2009, almost every economic forecaster and commentator was talking about “green shoots.” In 2010, then-Secretary of the Treasury Tim Geithner forecast the “recovery summer.” In 2017, the global monetary elites were praising the arrival (at last) of “synchronized global growth.”

None of this wishful thinking panned out. The green shoots turned brown, the recovery summer never came and the synchronized global growth was over almost as soon as it began.

Chart 1 below illustrates the fact that any signs of trend growth are strictly temporary (basically moving growth from one quarter to another through inventory and accounting quirks) and are quickly followed by weaker growth. In the first quarter of 2015, growth was 3.2%, but by the fourth quarter that year growth had fallen to a near-recession level of 0.5%.

In the third quarter of 2016 growth was 2.8%, but it fell quickly to 1.2% by the first quarter of 2017. In the third quarter of 2017 growth was 3.2% but then returned to 2.0% by the first quarter of 2018, about the average for the past nine years.

This pattern of temporarily strong growth followed by weak growth has been characteristic of the entire recovery that began in June 2009 and entered its 10th year last month. In fact, we’ve seen even more extreme reversals in the recent past.

In the third quarter of 2013, growth was 4.5%, even higher than the Atlanta Fed forecast for the most recent quarter. But by the first quarter of 2014, just six months later, growth was actually negative, -2.1%, comparable to some of the worst quarters in recent recessions. Growth was 5.0% in the third quarter of 2014, but then fell off a cliff and was barely positive, 0.2%, in the first quarter of 2015.

You get the point. Strong quarters have been followed by much weaker quarters within six months on six separate occasions in the past nine years. There’s no reason to believe the second quarter of 2018 will be any different.

The longer-term view of the entire recovery is more revealing. The recovery is currently 107 months old, the second-longest since the end of the Second World War. The average recovery since 1980 (a period of longer-than-average expansions) is 83 months.

So this expansion has been extraordinarily long — 30% longer than average — indicating that a recession should be expected sooner rather than later.

But the current expansion has also been the weakest recovery on record. Average annual growth during this expansion is 2.14%, compared with average annual growth for all expansions since 1980 of 3.21%. That 3.21% figure is what economists mean by “trend” growth.

The current expansion does not even come close to that trend. The “wealth gap” (the difference between 3.2% trend growth and 2.1% actual growth) is now over $4 trillion. That’s how much poorer the U.S. economy is due to its inability to achieve sustainable trend growth.

As for the Trump bump, growth in the first quarter of 2018 was 2.0%, slightly below the average since June 2009. Growth for all of 2017, Trump’s first year in office, was 2.6%, slightly above the 2.14% average in this recovery but not close to the 3.5% growth proclaimed by Trump’s supporters.

In short, growth under Trump looks a lot like growth under Obama, with no reason to expect that to change anytime soon. In fact, the head winds caused by the strong dollar, the trade wars and out-of-control deficit spending may slow the economy and bring future growth down below the average of the Obama years.

Into this mix of weak growth comes the Federal Reserve, which is tightening monetary policy, reducing the base money supply and supporting a strong dollar. All of these policies are associated with slower growth ahead, an inverted yield curve and a high probability of recession.

The Fed is explicitly on a path of raising interest rates by 0.25% every March, June, September and December like clockwork unless one of three “pause” factors appears (disorderly markets, weak job creation or disinflation).

Since none of the pause factors are apparent now, the Fed should be expected to raise rates in September and December 2018 and beyond.

Simultaneously, the Fed is reducing its balance sheet (destroying base money) at an annual tempo that will reach $600 billion per year by end of 2018. This policy is completely unprecedented in the 105-year history of the Fed, so its economic effects are unknown.

My estimate, and that of others, is that this balance sheet reduction policy is equivalent to four 0.25% rate hikes per year on top of the four already planned. The combined effect is the same as the Fed raising rates 2% per year off a near-zero rate base as recently as December 2015.

Bearing in mind that monetary policy works with a 12–18-month lag, this extraordinary tightening policy in a weak economy is almost certainly a recipe for a recession.

Why is the Fed tightening if the economy is fundamentally weak and the probability of a recession is so high?

There are two reasons.

The first is that the Fed is using badly flawed models including the Phillips curve and a stochastic equilibrium macro model called FRB/US (or “Ferbus”). These models do not correspond to reality, but the Fed follows them anyway, which is why the Fed has never accurately forecasted a recession in its history.

The second reason is that the Fed knows a recession will happen sooner rather than later and is desperate to acquire some dry powder (in the form of higher rates and a reduced balance sheet) so it can deploy rate cuts and QE when the time comes. The problem, of course, is that by pursuing these policies, the Fed will cause the recession it is preparing to cure.

The single most important factor in my analysis is that when the Fed realizes its mistake of tightening into economic weakness, it will have to turn on a dime and shift to an easing policy. Easing will come first through forward guidance and pauses in the rate hike tempo, then possibly actual rate cuts back to zero and finally reversing their balance sheet reductions by expanding the balance sheet through QE4 if needed.

When that happens, the dollar will crash and alternative currencies such as gold, silver and the euro will soar.

Jay Powell seems determined to continue rate hikes on an aggressive path and possibly to accelerate the hikes. But he might be in for a severe case of whiplash when he has to make a hard pivot to easing. But by then, the damage will have been done.

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Back in March, we brought you the story of Keith Raniere, who was the co-founder and leader of a secretive self-help cult called NXIVM, who was arrested by the FBI in Mexico and charged with sex trafficking. Raniere was arrested in Mexico in March and charged with sex trafficking, conspiracy and forced labor and is being held without bail.

Raniere allegedly created a “secret society” within the organization in 2015 that recruited women from within the group to serve as “slaves” overseen by “masters,” according to prosecutors. Prosecutors allege Nxivm operated like a pyramid scheme, charging participants thousands of dollars for courses while encouraging them to sign up for more and recruit others.

While NXIVM described itself as a self-help business that has helped thousands of people “reach their potential” through various courses, the women’s-only “inner sanctum” led by Raniere is known as ‘DOS’, which stood for “dominus obsequious sororium” – Latin for “master over the slave women”. Once they are a member – or “slave” – they are allegedly encouraged to recruit new women into their “slave pods”, stop dating, and be on call 24 hours a day to their “master”.

As a reminder, DOS required female members to give their recruiter – or “master,” naked pictures or other compromising material which could be used as blackmail before being branded with Raniere’s initials below the hip using a cauterizing iron. 

Smallville actress Allison Mack who played Chloe Sullivan is (or was) allegedly a “master” in the cult, and required to obey orders from Raniere – including finding women to sleep with him. 

Mack would require that prospective “slaves” place compromising collateral into a Dropbox account — one of whom was India Oxenberg, the daughterr of Dynasty actress Catherine Oxenberg – who met with prosecutors in New York and presented evidence against Raniere. 

Fast forward to today when Bloomberg reports that an heiress to the Seagram fortune was arrested today in the widening probe of the “self-help organization” that prosecutors now say operated as “a secretive cult that branded its victims and forced them to participate in sexual acts.“

Clare Bronfman, the daughter of former Seagram chairman Edgar M. Bronfman, was one of four women charged Tuesday in connection with the investigation of Nxivm, an Albany, New York-based multi-level marketing company founded by Keith Raniere, according to John Marzulli, a spokesman for the Brooklyn U.S. Attorney.

Smallville actress Allison Mack, an actress who allegedly recruited slaves for Raniere, was apprehended shortly after Raniere was arrested in Mexico in March and charged with similar crimes. Both have pleaded not guilty.

According to the indictment, the four arrested women – Bronfman, Kathy Russell, Lauren Salzman and Nancy Salzman – were members of Raniere’s “inner circle” along with Mack, and recruited and groomed sexual partners for him. Bronfman is one of seven children of her father, a second-generation heir who captained Seagram’s expansion during his years leading the company.

Recruits were expected to provide “collateral” before joining – including damaging information about friends and family, nude photographs and rights to assets – that could be used against them if they revealed the existence of the organization or tried to leave, prosecutors said.

The four women are scheduled to appear in federal court in Brooklyn and Albany later Tuesday.

The court filing is below:

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After last week’s surprise crude build, expectations were for a draw once again and API delivered with a bigger than expected draw of 3.16mm barrels, which sent WTI/RBOB prices higher.

“What we’ve been seeing in the crude stock numbers is increased volatility,” said Bill O’Grady, chief market strategist at Confluence Investment Management LLC in St. Louis. “The reality is this is high gasoline demand season. They’re going to keep refineries operating pretty strongly until after Labor Day.”

API

• Crude -3.16mm (-3.1mm exp)

• Cushing -808k (-900k exp)

• Gasoline -4.87mm

• Distillates -1.32mm

After last week’s shock build, API reports a more seasonally-‘normal’ draw, but inventories fell across all cohorts…

“The basic backdrop is bullish,” Jeff Currie, head of commodities research at Goldman Sachs Group Inc., said in a Bloomberg television interview. Still, “the market’s rotating back and forth, between being slightly balanced, slightly in a surplus, slightly in a deficit.”

WTI/RBOB roundtripped a lot of the day’s gains into the close and flatlined into the API print and then jumped on the bigger than expected draw…

“The market seems to be obsessed with the idea that there’s oversupply, for whatever reason, and so financial investors have rushed to the exits,” said Carsten Fritsch, an analyst at Commerzbank AG in Frankfurt.

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Authored by Michael Snyder via The Economic Collapse blog,

Despite all of the other crazy news that is happening all around the world, the top headlines on Drudge on Monday evening were all about the record heatwave that is currently pummeling the Southwest. 

Of course it is always hot during the summer, but the strange weather that we have been witnessing in recent months is unlike anything that we have seen since the Dust Bowl days of the 1930s.  At this moment, almost the entire Southwest is in some stage of drought.  Agricultural production has been absolutely devastated, major lakes, rivers and streams are rapidly becoming bone dry, and wild horses are dropping dead because they don’t have any water to drink.  In addition, we are starting to see enormous dust storms strike major cities such as Las Vegas and Phoenix, and the extremely dry conditions have already made this one of the worst years for wildfires in U.S. history. 

What we are facing is not “apocalyptic” quite yet, but it will be soon if the rain doesn’t start falling.

Large portions of Arizona, New Mexico, Colorado and Utah are already at the highest level of drought on the scale.  In Arizona, things are so bad that wild horses have been dropping dead by the dozens, and now authorities are trying to save those that are left…

For what they say is the first time, volunteer groups in Arizona and Colorado are hauling thousands of gallons of water and truckloads of food to remote grazing grounds where springs have run dry and vegetation has disappeared.

Federal land managers also have begun emergency roundups in desert areas of Utah and Nevada.

‘We’ve never seen it like this,’ said Simone Netherlands, president of the Arizona-based Salt River Wild Horse Management Group. In May, dozens of horses were found dead on the edge of a dried-up watering hole in northeastern Arizona.

It is being projected that this will be the hottest week of the year so far for much of the Southwest, and on Monday the city of Waco, Texas actually set a brand new all-time record high temperature…

Monday was the hottest day on record for Waco as temperatures climbed to 114 degrees just after 5 p.m., according to the National Weather Service.

“Officially and by two degrees, this is the hottest it has ever been in Waco,” National Weather Service meteorologist Dennis Cain said.

Please keep in mind that a record was not just set for that particular date.

114 degrees was the hottest that it has been in the city of Waco ever.

Of course residents of Phoenix are probably scoffing when they read that, because it was even hotter there…

Temperatures approached 120 degrees in parts of the U.S. Southwest on Monday, and forecasters said this week could bring the region’s hottest weather of the year.

Phoenix reached a sweltering 115 degrees (46 Celsius), which broke the previous daily record, according to the National Weather Service.

Without air conditioning, Phoenix would not be a viable city.  During this time of the year the air conditioners run extremely hard, and authorities have issued an “excessive heat warning” until Wednesday…

From Monday, July 23 to Wednesday, July 25, Phoenix will be under an Excessive Heat Warning. During this time, residents are recommended to stay indoors.

With the temperatures rising and ACs on, APS expects record numbers for energy usage.

Over in California, the big concern is whether the power grid will hold up or not.

On Monday, ISO authorities ordered Californians “to conserve electricity”…

California’s power grid operator on Monday issued an alert to homes and businesses to conserve electricity on Tuesday and Wednesday when a heat wave is expected to blanket the state.

The California Independent System Operator (ISO), the grid operator, said it issued the so-called “Flex Alert” due to high temperatures across the western United States, reduced electricity imports into the state, tight natural gas supplies in Southern California and high wildfire risk.

And that followed a similar alert that was put out by Southern California Gas.  It will be very interesting to see if California can get through this current heatwave without any substantial disruptions.

In the past, heatwaves have come and gone, but things are different this time.  Unusual heat has been hammering the Southwest for an extended period of time, and nobody knows when it will end.  For example, experts tell us that the U.S. experienced the hottest month of May ever recorded…

The USA is sweltering through what will likely be its hottest May on record, according to a preliminary analysis of weather data.

National Weather Service meteorologist Victor Murphy said May 2018 should break the record set in May 1934 during the Dust Bowl.

Of course it isn’t just the U.S. that is being affected.  Over the past 12 months, we have seen an endless string of record high temperatures being set all over the world.

But what should deeply alarm those of us living in the United States in particular is the return of Dust Bowl conditions to the Southwest.  Just within the past couple of days, we have seen massive dust storms hit Phoenix and Las Vegas.  Very few of us were alive back in the 1930s, but we have heard about the immense devastation that occurred as much of the Southwest was literally transformed into a desert.

The Stratosphere observation tower is seen through a dust storm on Saturday, July 21, 2018.

Well, now it is happening again.

Scientists tell us that the Southwest has been unusually wet for the past several decades.  For most of human history, the Southwest United States was a bleak, barren desert, and it appears that those conditions may be attempting to return.

If Dust Bowl conditions continue to intensify, it won’t just be Arizona, New Mexico, Colorado and Utah that are affected.  Agricultural production will be devastated in Kansas, Oklahoma, Texas and other Midwest states as well, and that would have profound implications for the U.S. economy and for the future of our society.

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