Tag: finance

Mexico Warns It Is Ready To Quit NAFTA If Trump Crosses “Red Lines”

Under relentless pressure from President Donald Trump, Mexico is said to be ready to discuss changes to trade rules about a product’s country of origin to try to avoid a disruptive fight with the United States over commerce.

As the two countries begin a difficult new relationship, Mexico sees possible common ground with Trump on the “rules of origin” of the North American Free Trade Agreement (NAFTA) that binds the two countries and Canada, Reuters reported. However, as AFP adds, even before the talks started, Mexico has drawn red lines ahead of the negotiations with Trump’s administration, warning it could quit the talks and a major trade pact if the discussions hit a wall, no pun intended.

Of course, it all begins with the wall.

During his campaign, Trump vowed to make Mexico pay for a massive border wall and threatened to finance it by tapping into the $25 billion in remittances that Mexican migrants sent back home last year. Mexico does not see things that way. “There are very clear red lines that must be drawn from the start,” Economy Minister Ildefonso Guajardo told the Televisa network as he prepares to meet with US officials in Washington on Wednesday and Thursday.

Asked whether the Mexican delegation would walk away from the negotiating table if the wall and remittances are an issue, Guajardo said: “Absolutely.”  Guajardo and Foreign Minister Luis Videgaray will hold the face-to-face talks with the new US administration ahead of a meeting between Trump and President Enrique Pena Nieto on January 31.

In addition to the wall, Trump wants to renegotiate NAFTA with Mexico and Canada, warning last week that he would abandon the pact unless the United States gets “a fair deal.” The Mexican government has responded that it is willing to “modernize” the pact, which came into force in 1994 and represents $531 billion in annual bilateral trade between Mexico and the United States.

 

Some 80 percent of Mexico’s exports go to the United States, a clear indicator of the country’s dependence on the US market for its economic well-being.

But Guajardo warned on Tuesday that Mexico was also willing to use the nuclear option, and exit the 23-year-old agreement. “If we’re going for something that is less than what we have now, it doesn’t make sense to stay in,” Guajardo said.

That said, since Trump’s stated intention is ultimately dismantling Nafta, Mexico’s gambit does not sound like a very reasonable initial negotiating position.

Cited by AFP, Pena Nieto vowed on Monday that there would be “neither confrontation nor submission” in the negotiations, which will include trade, immigration and other issues. Pena Nieto also looked further north for help on Sunday as he spoke with Canadian Prime Minister Justin Trudeau by telephone to discuss ways to boost North American economic integration.

Luis de la Calle, a Mexican economist and one of the original NAFTA negotiators, said it is impossible to enter negotiations without being willing to walk away if necessary.

Trump “puts pressure in an almost extortionist manner… to get as many concessions as possible,” de la Calle told AFP. “But countries must be much smarter.”

It was not clear just how countries can be smarter if, at least in the case of Mexico, the US has enough trade leverage it could cripple 80% of Meixcan exports overnight.

Videgeray said that while the United States has “great interest” in talking about trade, Mexico wants to “talk about every issue.”

On a separate topic, Pena Nieto has called on the Trump administration to do more to stop the illegal flow of weapons from the United States into Mexico, which Mexican officials blame for fueling a brutal drug war. To this Trump has responded that Mexico has to do more to stop the illegal flow of drugs from Mexico to the United States.

Meanwhile, even as it faces tough talks with the United States, the Mexican government is setting its eyes on new trade pacts with other countries. After Trump withdrew the United States from the Trans-Pacific Partnership on Monday, Pena Nieto said his government would immediately seek to negotiate bilateral agreements with other TPP members to “diversify” his country’s trade relations.

Guajardo noted that Mexico has good relations with China and said Beijing was a “big concern” for the Trump administration. It is unclear whether China has an interest in expanding its Pacific trade partnership to include the US neighbor, and how the US would react to such an eventuality.

But Valeria Moy, director of the Mexico Como Vamos think tank, said Latin America’s second biggest economy cannot lose sight of the importance of the United States while it looks for deals elsewhere.

“If you have the world’s biggest market next door to you, that’s the market you need to take care of, period,” Moy said. “What we can diversity is who we buy from.” And since that is not the US, one can see why Trump is confident he has all the leverage ahead of this particular round of trade talks which will be closely followed by the rest of the world, as it sets the stage for similar bi- and multi-lateral talks with other nations around the globe all vying for the wallet of America’s overindebted consumer.

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Here Is The List Of Donald Trump’s “Priority” Infrastructure Projects

With the topic of infrastructure investing dominating today’s newsflow after the NYT report that Democrats would support Trump if he endorsed their propsed list of some $1 trillion in infrastructure projects, which would create as many as 15 million jobs, the Kansas City Star and The News Tribune have compiled a presentation – based on internal White House documents – of about 50 infrastructure projects nationwide which comprise the “priority list” for US infrastructure projects in the coming years.

As McClatchy reports, the documents, circulated within the congressional and business communities, offer a first glimpse at which projects around the country might get funding if Trump follows through on his campaign promise to renew America’s crumbling highways, airports, dams and bridges.

Among the potential projects are a new terminal for the Kansas City airport, upgrades to Interstate 95 in North Carolina and the construction of a high-speed railway from Dallas to Houston. The document obtained by the Star proposes funding the projects as public-private partnerships, with half the money coming from private investment.

The priority list of “Emergency & National Security Projects” was put together by the Trump team, a senior congressional aide told Kansas City Star. It includes cost estimates and job impact numbers. According to the source, it is not clear whether that document is a draft or a final version.

The National Governors Association circulated a similar list as a spreadsheet among state officials in December, requesting further suggestions. All but two projects on both lists are the same. Some projects that governors suggested — in California and Washington state in particular — do not yet appear on either list. The governors’ association has received 43 responses from states and territories so far, said Elena Waskey, a spokeswoman for the association.

“The total number of projects is more than 300,” Waskey said. “We are working to convene information for as many states as possible that we will then forward to the administration.” The White House did not respond to a request for comment.

Among the projects listed is a $10 billion proposal to replace the nation’s radar-based air traffic control system with one called NextGen, based on satellites. The document projects the project could create 2,300 direct jobs.

For those concerned about partisan bias among the proposed projects, here are some stats: in some states, such as Missouri, more than one project is listed, while others states appear to have come up empty. Neither document lists any projects in Kansas, for example. The National Governors Association asked governors’ offices last month for input on a preliminary list of infrastructure projects compiled by the Trump team, said Jaime Smith, a spokeswoman for Washington’s Democratic Gov. Jay Inslee.

“They seek examples of priority infrastructure projects that might be incorporated into a future infrastructure investment program,” said the letter from the governors’ association, dated Dec. 16. “Specifically, the transition team is looking for 3 to 5 project suggestions from each state that they would vet for inclusion in a new program.” The letter said the vetting would be done by a bipartisan infrastructure commission overseeing investments.

“The initial spend on these projects for 2017 is expected to be $150 billion, and the transition team hopes that this type of project will be continued over the next 2 years,” according to the letter. The letter also noted that any contributions governors made would not be binding, and that this was “just an initial information-gathering request.”

Once the Trump administration officially took office, the letter said, “there will be a more formal process for states to submit information. Projects will be chosen through a more formal process as well.” The projects have to meet specific criteria:

  •  A national security or public safety “emergency.”
  • “Shovel-ready,” with at least 30 percent of initial design and engineering work complete.
  • Direct job creator.
  • Project with the potential for increased U.S. manufacturing.

The governors’ association letter included a list of projects already being vetted, with the request that governors use it as a model for submissions.

The summary list of 50 proposed projects is below:

California’s Democratic governor Jerry Brown’s office sent nine examples of big shovel-ready projects in California, including the Sacramento River Bank Protection Project and Bay Area Commuter and Freight Projects. That preliminary list appears to be similar to the document obtained by McClatchy’s Star, with two differences: The preliminary list includes the Alaska Pipeline & LNG Project instead of the Texas Central Railway and it lists the Fort Mojave Solar Project instead of the Howard Street Tunnel.

Both the preliminary list and the more detailed document obtained by the Star include a new terminal for Kansas City International Airport. The detailed document says the project would cost $972 million and generate 1,000 jobs.  The Kansas City airport is one of three airport projects on the Trump team’s document. The others are expansions of the Lambert-St. Louis International Airport and the Seattle-Tacoma International Airport.

“The business case for a new terminal was bolstered after Southwest and the other airlines told the City Council on April 26 that they would finance the nearly $1 billion new terminal, to be built where Terminal A is now,” reads the document’s description for KCI, which lifts word-for-word a passage in a June 24 article in The Star. In North Carolina, the I-95 project would provide urgent improvements to one of the oldest sections of the busiest interstate in the nation, according to the document. The cost is listed at $1.5 billion, and the project would produce an estimated 5,400 jobs, the document says.

The 250-mile high-speed railway in Texas would enable commuters to travel between Houston and Dallas/Fort Worth in less than 90 minutes, according to the document. It is a $12 billion proposal that would create 40,000 direct jobs, the document says.

Other proposals include I-395 reconstruction in Florida and a Cadiz Valley Water Conservation, Recovery and Storage Project designed to conserve billions of gallons of renewable groundwater in California’s Mojave Desert.

The full presentation of 50 proposed projects is below (link)

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The US Navy: A History Of Waste And Corruption

Submitted by Matthew McCaffrey via The Mises Institute,

The growth of US military power has rarely, if ever, been the result of legitimate concerns about defensive strategy, let alone about the national welfare. Instead, it’s more often a consequence of a waste, corruption, and imperial ambition that together have produced the modern military-industrial complex. This history receives some well-deserved attention in Paul Pedisich’s book Congress Buys a Navy: Politics, Economics, and the Rise of American Naval Power, 1881-1921, which offers an in-depth look at the history of Congressional involvement with the US Navy. I’ve written a more general review of the book for those interested (here), but in this post I want to focus on some of the economic implications of US naval history over these four decades.

The main emphasis of the book is on a series of Congressional battles over appropriations for the Navy, and how these disputes influenced its growth and change. This process, Pedisich argues, was not driven by strategic questions of national security, but by a wide range of political interests. Pedisich provides a wealth of information about Congressional voting blocs and committees, as well and the personal and professional ties between politicians, the Navy, and the war industries. These consisted most often of conventional rent-seeking: members of Congress wanted appropriations channelled to their own constituencies, and the Navy’s budget provided an excellent opportunity for those states that stood to gain from the Congressional spoils system (pp. 28-29, and throughout).

Shockingly, the Navy consistently recommended its own expansion, and eventually focused on becoming the dominant seagoing force in the world. For a long time, however, this goal remained out of reach. Typically, its suggested appropriations far outstripped what Congress was willing to allow, and competing factions in the Legislative Branch fought viciously for control over funding decisions. Coastal states lobbied for shipyards and other naval installations, while landlocked states tended to favor other public spending programs that would benefit them more directly.

However, political ambitions for the Navy were not limited to narrow pork politics: they also had global implications. Throughout the decades leading up to the First World War, the US began to cast its eye on numerous foreign territories with a view to building an empire. Naval experts theorized that this required a strong fleet (p. 77), but the concept of a more powerful Navy was a tough sell for the public. It was especially difficult in peacetime, when there were no obvious threats to US commercial or political interests to justify building a Navy with an international reach. To get the Navy it wanted, Congress opted for deception: for years it concealed its true intentions by funding the construction of long-range armored battleships while referring to them in official reports as “coastline” vessels, implying defensive uses even though they were offensive vessels (pp. 80, 131).

Eventually this trick became unnecessary, and the Navy grew more rapidly during the Progressive Era. This was especially the case during periods of crisis and war, when government power increased significantly across many margins through what Robert Higgs refers to as the “ratchet effect.” The Navy’s growth was justified to the public on grounds of national security and the need to protect international commerce. Yet the real goal of expansion was to keep up with the (British and French) Joneses and thereby establish the US as a global, imperial naval power (pp. 75-76, 79).

Pedisich shows in some detail that Congressional politics was responsible for the organization, composition, and growth of the Navy more than any strategic considerations. But the message we should draw is not that an inept Congress disrupted rational strategic planning by the Navy. The underlying problem is that both Congress and the Navy lacked the ability to allocate resources to their most socially valuable ends because political and military organizations suffer from the same economic calculation problems that socialist governments do (see here, here, and here).

The title of the book notwithstanding, Pedisich doesn’t devote much space to discussing economics. But many of the examples he studies do hint at the calculation problems that faced Congress and the Navy. Basically, the same story played out year after year from 1881 to 1921. Each year, the Navy would request funding specific numbers of specific types of ships, and Congress would authorize a different, smaller number of ships of other classes. It’s clear from Pedisich’s narrative that both sides adjusted their recommendations to suit their momentary political needs.

This can be seen most clearly in the frequent debates over funding for steel plate. Rather than pay a market price for steel, Congress insisted on setting the price it was willing to pay. At the same time, monopolist steel contractors tried to hold prices at artificially high levels. Without genuine market prices to rely on, neither side was able to determine a price for steel that actually reflected its value in alternative uses. The result was years of bickering about what the price of steel should be and attempts to determine the “actual cost” of its production (pp. 100-101, 103, 126-127). But of course, such costs are revealed only through economic calculation, not political negotiations.

In an effort to make its operations more efficient, the Navy even introduced “scientific management” to its shipyards (pp. 190, 193). Basically, this involved studies of the technological efficiency of different workers and production methods in order to find which ones were most useful. This method too ended in failure. The reason is that management and technical efficiency are not substitutes for market entrepreneurship. They are merely, in Mises’s words, “playing market.”

Whenever economists explain military decision-making with reference to economic calculation, someone is sure to object that this criticism is too harsh. Instead, good military strategists, unhampered by an inefficient legislature, can make wise decisions about the resources they need to complete their objectives. The trouble with this objection is that it misses the point of the calculation problem, which is not about logistics or battlefield tactics, but about production.

Underlying the practical decisions of the military are an enormous array of economic questions: where should naval shipyards be located? How many ships should be built? What should their capabilities be? Should they be made of steel alloy or some other material? Which combinations of raw materials should be used? How much is too much to spend on a new warship? There’s no way to answer these questions without understanding the true cost of each decision. And the only way to do that is to make the different choices commensurable by establishing a money price for them.

The conclusion we can draw from this is simple, but it can’t be emphasized enough: when entrepreneurs risk their own necks in the market, they help to create a flourishing commercial society. But when politicians and bureaucrats play market without bearing the consequences, they create a bloated and destructive network of economic privilege that begins with bribes and ends with bombs.

 

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Gary Cohn’s Parting Gift From Goldman: An Accelerated $124 Million

Leaving Goldman Sachs to work for the government has always been a lucrative career move: eight years ago, it allowed former Treasury Secretary Hank Paulson to sell $500 million in Goldman stock tax free, and now its the turn of Gary Cohn, Goldman’s former COO and president, who is leaving to join Trump’s cabinet, who is departing with an “accelerated” gift.

According to Bloomberg, Goldman Sachs lifted restrictions or accelerated delivery on about $123.7 million in stock and cash awards previously awarded to Gary Cohn, 56, who left last month to become President Donald Trump’s top economic adviser. Cohn was given $20 million in pay for 2016, including $18.15 million in variable compensation and a $1.85 million salary, the New York-based bank said in a regulatory filing Tuesday.

That wasn’t all: also on Monday, the bank handed over 96,572 restricted shares that were outstanding from earlier stock awards scheduled to be delivered over time. It also lifted selling restrictions on 99,909 shares that Cohn had already earned but was unable to sell. Combined, they were worth $45.9 million based on Tuesday’s closing price of $233.68 a share. About $12.8 million in additional restricted stock was included in his 2016 compensation. Cohn didn’t receive all of the restricted stock because Goldman Sachs withheld an unspecified portion of it for taxes, according to the filing.

That’s not all:

He also got $47 million to settle outstanding awards he received each year since 2011 under the bank’s long-term incentive program. He also received an $18 million cash payment in exchange for outstanding performance shares, according to the filing.

 

Cohn left Goldman Sachs last month after agreeing to join the Trump administration as head of the National Economic Council. He started at Goldman Sachs in 1990, becoming co-president in 2006, and then sole president. He was long seen as the heir apparent to Chief Executive Officer Lloyd Blankfein.

And since Cohn will likely vacate the post within a year or two, it means that the former COO gets to liquidate his stock holdings at a price near all time highs, without having to wait for it to vest like any other mere mortal Goldmanites. It is still unclear if he will have to pay any tax on the proceeds.

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Feds Seize $20 Million In Ponzi Scheme Cash Hidden In A Box Spring

The FBI has seized $20 million dollars of cash, literally stuffed in a mattress in Westborough, Massachusetts, linked to the infamous TelexFree pyramid scheme that reportedly raised over $1 billion from gullible participants between January 2012 and March 2014.

According to the Department of Justice, the money was found after an associate of one the scheme’s founders, Brazilian-native Carlos Wanzeler, was caught trying to launder the ill-gotten cash through Hong Kong to his boss who has been hiding out in Brazil ever since the TelexFree headquarters were raided by FBI agents back in 2014.  Unfortunately, the person chosen to help with the money laundering scheme was an FBI informant…oops.

The complaint alleges that an intermediary working on Wanzeler’s behalf contacted an associate for help transferring millions of dollars of TelexFree money – still hidden in the greater Boston area – from the United States to Brazil. The associate, who subsequently became a cooperating witness for the government, allegedly arranged with Wanzeler’s nephew in Brazil to launder the cash through Hong Kong, convert it to Brazilian reals, and transfer it to Brazilian accounts.

 

According to court documents, Rocha, acting as a courier for Wanzeler’s nephew, flew from Brazil to JFK Airport in New York City a few days ago. Yesterday, Rocha met the cooperating witness at a restaurant in Hudson, Mass., and allegedly gave him $2.2 million in a suitcase. After the meeting, agents followed Rocha to an apartment complex in Westborough, Mass., and later arrested him. That night, federal agents searched an apartment at the Westborough complex and seized a massive stockpile of cash hidden in a box spring. The cash appears to total approximately $20 million.

 

For those not familiar with the TelexFree scheme, it spread around the world like wild fire back in 2012 and 2013 before being busted in March 2014.  Like most pyramid schemes, the company made 99% of it’s money by charging gullible participants a fee for the privilege of selling its “amazing VOIP telecommunications products” and about 1% actually selling those products.  Per the DOJ:

According to the complaint affidavit, TelexFree, Inc., and TelexFree LLC (collectively, “TelexFree”) provided “voice-over-internet-protocol” (“VOIP”) telephone services, for which customers can sign up via a web site maintained by TelexFree. It is alleged that TelexFree was actually a pyramid scheme and that between January 2012 and March 2014, TelexFree purported to aggressively market its VOIP service by recruiting thousands of “promoters” to post ads for the product on the Internet. Each promoter was required to “buy in” to TelexFree at a certain price, after which they were compensated by TelexFree, under a complex compensation structure, on a weekly basis so long as they posted ads for TelexFree’s VOIP service on the Internet.

 

It is alleged that the ad-posting requirements were a meaningless exercise, in which promoters cut and pasted ads into various classified ad sites provided by TelexFree which were already saturated with ads posted by earlier participants. According to the affidavit, TelexFree derived only a fraction of its revenue from sales of VOIP service – less than 1% of TelexFree’s hundreds of millions of dollars in revenue over the last two years. The overwhelming majority of its revenue – the other roughly 99% – came from new people buying into the scheme. TelexFree was allegedly only able to pay the returns it had promised to its existing promoters by bringing in money from newly-recruited promoters.

 

On April 16, 2014, the Securities and Exchange Commission obtained a restraining order to freeze assets of Telexfree and eight related individuals. Since then, the U.S. Attorney’s Office has executed 37 seizure warrants for assets in the tens of millions of dollars.

 

It is further alleged that in 2013, TelexFree reported sales of $1.016 billion, while known sales of the TelexFree VOIP product represented less than 0.1% percent of TelexFree’s total revenues.

Here is a great tutorial explaining exactly how the scheme worked:

 

There is a saying that “a fool and his money are soon parted”…here is an excellent visual representation of that proverb:

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President Trump Continues to Troll the Left Over Inaugural Crowd Size

For reasons beyond the scope of rational thinking, during confirmation hearings today for The Office of Management and Budget, Senator Jeff Merkley, shill from Oregon, produced a photograph from Obama’s 2008 inauguration and compared it to a sparsely populated Trump one — which was taken in the morning before the crowd had filled in, and asked Mick Mulvaney which crowd size was larger.

Much to the delight of the chimped out media on the left, Mulvaney said Obama’s crowd appeared to look larger.

Ben Wehl from Politico was practically masturbating to the thought of Obama’s crowd size in an article published today about the ordeal.

Politico

Alas, Trump, the consummate troller in Chief that he is, had to fuck with them — twisting the knife inside of their soulless bodies — ever so slowly, divinely, taking to Twitter to thank a photographer for sending him a picture of the inauguration — which clearly showed a much larger crowd than the one being shilled around by the media-fags.

Crowd

The media’s response to being checkmated in such a glorious fashion was to nitpick over a small oversight by the photographer.
Media

Shills have to shill. They haven’t a choice.

Can we simply get this behind us, for the sake of unity, and admit that Trump did, indeed, have a much larger crowd than Obama?

 

 

Content originally generated at iBankCoin.com

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Free Trade Versus “Free Trade”

Submitted by Peter Klein via The Mises Institute,

NPR featured an unintentionally funny piece this week on Donald Trump's views toward the EU and free trade. The guest, former US ambassador to the EU Anthony Gardner, rightfully criticized the president's view that "protection will lead to great prosperity and strength," and called for continued global engagement by US companies and consumers. But he revealed, perhaps inadvertently, what political actors mean by "free trade."  

Specifically, Gardner expressed great skepticism towards the prospect of the US striking a bilateral free-trade deal with the UK, supposedly one of Trump's top objectives in his upcoming meeting with new Prime Minister Theresa May. Free-trade agreements are complex, Gardner informed us, and negotiating one will be neither easy nor quick. 

Why? To economists, free trade means the absence of government interference with trade: no tariffs, quotas, subsidies, or other interventions, explicit or implicit.

To politicians, "free-trade" means a complex set of managed trade policies (Gardner even referred to the solemn obligation to "write the rules for global trade," which in his mind is something either our government does or a foreign government does). Which imports will be taxed, and at what rates? Which exports will be subsidized, and at what levels? How will labor, environmental, and social policies be enforced by domestic and foreign governments? For government officials, countries are engaged in "free trade" when they agree on a complex package of explicit and implicit taxes and subsidies such that neither has a special advantage over the other, nor is disadvantaged relative to some other trading partner (however such advantages are defined).

As Murray Rothbard once wrote, 

If authentic free trade ever looms on the policy horizon, there’ll be one sure way to tell. The government/media/big-business complex will oppose it tooth and nail.

 

We’ll see a string of op-eds “warning" about the imminent return of the 19th century. Media pundits and academics will raise all the old canards against the free market, that it’s exploitative and anarchic without government “coordination.”

 

The establishment would react to instituting true free trade about as enthusiastically as it would to repealing the income tax.

"In truth," as Rothbard noted, "the bipartisan establishment’s trumpeting of 'free trade' since World War II fosters the opposite of genuine freedom of exchange." The Bretton Woods organizations (the World Bank and IMF) and modern trade agreements are based on the mercantilist ideas that exports make a country wealthy, imports make it poorer. (Indeed, Gardner in the interview above worried specifically that a collapse of the EU would make it harder for US manufacturers to sell their goods in Europe, but said nothing about the advantages to US and European consumers of a reduced supra-national government). That's why governments have little interest in genuine free trade.

About fifteen years ago I was part of a delegation of US officials on a fact-finding mission to Singapore, in advance of a potential US-Singapore bilateral free-trade agreement. (We all have skeletons in our closets.)

One of our tasks was to interview US businesspeople operating in Singapore to see if they thought the Singaporean government was unfairly subsidizing local companies at their expense. The idea was to use this as a bargaining chip: "If you don't stop subsidizing your domestic manufacturers, we won't stop subsidizing ours." (Turns out the Singaporean government wasn't doing much to help its own companies, so the point became moot.)

 

It didn't seem to occur to anyone that, even if the Singaporean government were protecting its own firms, at the expense of its own consumers, the US would not be better off by subsidizing its own exports to Singapore, as mercantilist theory claims. The idea that the US should simply refrain from interfering in peaceful exchanges between US-based and Singapore-based entrepreneurs, investors, and consumers — i.e., support for free trade — was simply too crazy to contemplate.

 

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Trump To Sign Executive Order Restricting Immigration From Seven Muslim Countries

Having taken on the Keystone pipeline and America’s struggling manufacturing sector in a flurry of executive actions on Tuesday, moments ago Reuters reported, citing several congressional aides and immigration experts briefed on the matter, that on Wednesday at the U.S. Department of Homeland Security, Donald Trump will sign several executive orders restricting immigration.

Trump’s orders are said to involve restricting access to the United States for refugees and some visa holders from seven mostly Muslim nations including Iraq, Iran, Libya, Somalia, Sudan, Syria and Yemen.

Developing.

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Cab Industry On Verge Of Collapse? Capital One’s Taxi NPL Rate Soars Above 50%

Having abandoned its venture to lend out roughly $1 billion to legacy Taxi “Medallion” drivers and businesses some two years ago, and shifting its backing over to Uber resulting in many unhappy drivers as well as a handful of lawsuits, Capital One has nonetheless provided a useful spotlight into the troubled state of the traditional “yellow cab” industry by breaking out the details of its runoff commercial taxi medallion loan portfolio in its quarterly reports.

And according to the latest, just released report (in which COF incidentally missed both the top and the bottom line, reported EPS and revenue of $1.45 and $6.60 billion, both below expectations), the US taxicab industry must be on the verge of collapse, because in COF’s Q4 report, the company reported that while the size of its runoff Medallion “held for investment” loans tumbled by $83 million from $773MM to $690MM, it was the surge in the nonperforming loan rate that was the stunner: surging from 38.8% in Q3 to a whopping 51.5% in Q4, it suggests that legacy cab drivers in the US are not only barely making money, but are in financial dire straits.

Of course, the irony is that the Medallion industry’s biggest nemesis, Uber, is likewise burning through billions in venture capital cash every year in hopes of putting its legacy competitor out of business. And, if these Capital One numbers are any indication, it may soon succeed.

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Central Bankers, Politicians, & Why Frank Zappa Was Right

Submitted by Paul Brodsky via Macro-Allocation.com,

Politics & Investing

Frank Zappa said politics is the entertainment branch of industry. We have noted that unprincipled centrists pose a threat to sustainability and have offended all by suggesting conservatives can be as economically impractical as progressives. That may not be how to win friends and influence people, but it does leave us free to objectively analyze political influences over economies and markets.

Central Banks

They say politics is about making choices, and so the debate about whether central banks are political is a non-starter. They are. Central banks ultimately exist to ensure the safety and soundness of banks by avoiding credit deflation. They are primarily charged with the task of maintaining economic liquidity, which all political parties endorse. The question of whether they have partisan leanings is less important.

Central bank policies are meant to steer broader populations towards popular perceptions they feel will sustain economies and asset prices – asset prices used to collateralize liabilities (i.e., bank assets). This modus operandi necessarily harms a portion of the population. For example, targeting inflation harms savers that do not want to risk their wealth in the markets and financial repression harms retirees living on fixed income. Crafting and executing monetary policy is a political act, choosing one constituency over another. Thus, central banks are political bodies and make choices that prioritize special interests over broad populations, in order of importance: 1) bank profits; 2) pleasing legislative authorities that maintain their charters; 3) abiding by economic mandates constructed to please the first and second priorities, and; 4) promoting the economic hopes, dreams and wherewithal of the broad population.

An apolitical central bank would not have economic policies or mandates, but rather would exclusively oversee bank soundness and safety. This would imply central banks would have to occasionally limit bank balance sheet expansion (facetiously, what used to be called “restricting credit”). As bank and non-bank balance sheets became chock full of debt, they discovered that falling asset prices contemporaneously threatens output growth, credit deflation and bank solvency.

The credit crisis forced central banks to execute the first two priorities to the limit by re-liquefying their banking systems and giving cover to politicians otherwise at risk of taking the blame for it. The third and fourth priorities could no longer be met by dropping interest rates further or by creating more base money, so they resorted to emphasizing “communications”. Countless econometric models published by behavioral political economists and central bankers are based on the idea that growth and inflation are mostly derived from the expectation of them. Accordingly, central banks sought to increase capital spending and consumption by targeting inflation, which in turn diminishes the propensity to save. This benefitted investors and widened wealth and income gaps. Again, choices. It all seems political to us.

Politicians

The most visible form of politics that affects economies and markets comes directly from elected officials through promises of fiscal and regulatory initiatives and, occasionally, actual policy follow-through. Given the waning efficacy of the Fed’s economic influence, Donald Trump’s election could not have been better timed for equity investors. Confidence stemming from his ability to reduce regulations and taxes and enact fiscal growth initiatives produced a stock market rally. Let’s look at perception and reality.

One of Mr. Trump’s stated goals is to increase the US manufacturing base. Yesterday, he met with CEOs of manufacturing companies and asked for suggestions to increase revenues and US jobs. The result of his efforts may ultimately be legislation that reduces corporate taxes and increases import tariffs, which could improve manufacturing conditions in the US. But would his success be enough to move the needle?

The graph below shows the growth of real output in the manufacturing sector since 1987. It grew in the 1980s during the first leg of the great secular leveraging period and even accelerated in the 1990s when emerging economies like China and the former Soviet bloc began participating in global trade. Two major dynamics brought about this growth: 1) the leveraging of household balance sheets, which gave US consumers increasing disposable income, and; 2) the ability of US manufacturers to use their rising stock prices and strong dollar as currency to buy cheap plant, equipment and labor abroad.

It is interesting that since 1999, and especially since 2012, US manufacturing growth has struggled amid extraordinary globalization. We would argue this is because it is bumping up against the global cost structure of production, which includes lower cost economies with which the US cannot compete.

The graph below puts a finer point on this. It shows the trend of US manufacturing as a percentage of US GDP. Since 2005, the contribution of manufacturing to the US economy has dropped from 13.1% to 11.7%. It is unclear whether we should be more concerned with the declining trend of manufacturing or the absolute low contribution level of manufacturing within the US economy.

US real GDP is about $17 trillion of which manufacturing is about $2 trillion. Doubling the manufacturing base to $4 trillion would be great on its own, but there are other considerations. First, total US dollar denominated debt is upwards of $60 trillion. Annual interest on that debt is about $3 trillion. Are we to believe that increasing the manufacturing base through deficit-funded fiscal initiatives and restrictive trade policies would increase real output? The excitement from renewing a sentimental part of the American narrative is politically compelling, but growing US manufacturing revenue and jobs would, at best, be small potatoes as an economic driver.

President Trump’s initial emphasis on renewing the US manufacturing base is largely symbolic. Even if his administration were to successfully use tax incentives, protectionist measures and immigration policies to re-patriate factories and labor, and even if government were to spend big on fiscal stimulus, it still would not solve the structural leverage problem facing the US economy.

In fact, we think the process of bringing the US manufacturing base back through job-centric policies would actually reduce global trade and lower US GDP over time.

Zappa was right, but a fresh approach to confidence-based politics that does not address major structural issues does not provide the basis for investor optimism.

via http://ift.tt/2k0rMhU Tyler Durden