Tag: finance

Submitted by Daniel Mitchell via The Foundation for Economic Education,

I don’t like tax increases, but I like having additional evidence that higher tax rates change behavior. So when my leftist friends “win” by imposing tax hikes, I try to make lemonade out of lemons by pointing out “supply-side” effects.

• Such as the big drop in soda purchases after a tax on sugary drinks was imposed in Berkeley.
• Such as the big drop in home sales after a tax was imposed in Vancouver on purchases by foreigners.

I’m hoping that if leftists see how tax hikes are “successful” in discouraging things that they think are bad (such as consumers buying sugary soda or foreigners buying property), then maybe they’ll realize it’s not such a good idea to tax – and therefore discourage – things that everyone presumably agrees are desirable (such as work, saving, investment, and entrepreneurship).

Though I sometimes worry that they actually do understand that taxes impact pro-growth behavior and simply don’t care.

But one thing that clearly is true is that they get very worried if tax increases threaten their political viability.

This is why Becket Adams, in a column for the Washington Examiner, is rather amused that Mayor Kenney of Philadelphia has been caught with his hand in the tax cookie jar.

Philadelphia Mayor Jim Kenney fought hard to pass a new tax on soda and other sugary drinks. He won, and the 1.5-cents-per-ounce tax is now in place, affecting both merchants and consumers, because that’s how taxes work. Businesses pay the levies, and they offset the cost by charging higher prices. That is as basic as it gets. The only person who doesn’t seem to understand this is Kenney, who is now accusing business owners of extortion. “They’re gouging their own customers,” the mayor said.

Yes, consumers are being extorted and gouged, but the Mayor isn’t actually upset about that.

He’s irked because people are learning that it’s his fault.

Philadelphians are obviously outraged by the skyrocketing cost of things as simple as a soda, which has prompted some businesses to post signs explaining why the drinks are now so damned expensive. Kenney said that this effort by businesses to explain the rising cost is “wrong” and “misleading.” The mayor apparently thought the city council could impose a major new tax on businesses, and that customers somehow wouldn’t be affected.

In other words, it’s probably safe to say that Mayor Kenney has no regrets about the soda tax. He’s just not pleased that he can’t blame merchants for the price increase.

Even the IMF is Skeptical of High Taxes

The International Monetary Fund, by contrast, may actually have learned a real lesson that higher taxes aren’t always a good idea. That bureaucracy is infamous for blindly supporting tax increases, but if we can believe this story from the Wall Street Journal, even those bureaucrats don’t think additional tax hikes in Greece would be a good idea.

IMF officials have said Greece’s economy is already overtaxed. New taxes that came into affect on Jan. 1 are squeezing household incomes further. Economists say even-higher income taxes—in the form of lower tax-free income allowances—could add to a mountain of unpaid taxes. Greeks currently owe the state €94 billion ($99 billion), equivalent to 54% of gross domestic product, and rising, in taxes that they can’t pay.

Here are some stories to illustrate the onerous tax system in Greece, starting with a retired couple that will probably lose their house because of a new property tax.

…the 87-year-old former economist and his 81-year-old wife are unable to repay the property tax imposed on their 70-year old house, a family inheritance. The annual tax is around ‎€33,000, but Mr. Kokkalis’s pension—already cut by half—is €28,000 a year. The couple borrowed money when the tax was imposed, initially as a temporary austerity measure in 2011. But they are already behind on nearly €200,000 of tax payments and can’t borrow more. Mr. Kokkalis says the state is calculating tax based on outdated property prices that have since collapsed, and that if he tried to sell the house now, nobody would be interested. “They impose taxes on an imaginary value,” Mr. Kokkalis says. “This is confiscation.”

I’ve already written about this punitive property tax. The good news is that property taxes generally are transparent, so people know how much they’re paying.

The bad news is that the tax in Greece is far too onerous.

And I’ve also noted that small businesses are being wiped out in Greece as well. The WSJ has a new example.

Tax increases under previous rounds of austerity have put a middle-class lifestyle beyond reach for many. “Our only goal now is survival,” says arts teacher Mimi Bonanou. Until recent years she also made a living as a practicing artist, selling her works in Greece and abroad. But increasingly heavy taxes that self-employed Greeks must pay at the start of each year, based on the state’s often-ambitious forecast of their incomes, have forced her to rely on teaching alone.

All things considered, Greece is a painful example that a country can’t tax its way to prosperity (though some politicians never learned that lesson).

Moreover, it’s nice to have further evidence that even the IMF recognizes that Greece is on the wrong side of the Laffer Curve.

And if a left-leaning bureaucracy is now willing to admit that excessive taxation can lead to less revenue, maybe eventually the Republicans on Capitol Hill will install people at the Joint Committee on Taxation who also understand this elementary insight.

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

Two months ago, when looking at the monthly Evestment hedge fund fund flow report, we reported that investors had redeemed a net $14.2 billion from the industry in October, the fourth consecutive month of redemptions, bringing Year-to-date HF outflows to a net $77 billion removed from the industry. The breadth of redemption pressure in October was the industry’s largest in 2016 with 61% of reporting funds estimated to have net outflow during the month. Two months later it has only gotten worse, but before we get into the details, here is a quick summary of just why, courtesy of JPMorgan.

As JPM’s equity strategist explains in a note summarizing active manager performance, 2016 was one of the most challenging years for active equity managers with only 32% of fundamental and quantitative funds outperforming their benchmarks. JPM estimates that large cap U.S. fundamental managers underperformed by a median 33 bp before fees, with Value managers outperforming (+0.77 bp vs. benchmark) and Growth managers underperforming (-79 bp vs. benchmark).

In more bad news for the buyside, JPM notes that even though (or perhaps because) the market finished up more than 9%, US equity funds saw net ~$50 billion outflows in 2016 and a record rotation from Active to Passive. Investors pulled ~$200 billion from active US equity funds. This is the single largest annual rotation out of active management. Meanwhile, passive equity funds (including ETFs) captured ~$150 billion of inflows.

• Bond funds saw $118 billion inflows in 2016 as equity funds saw $43 billion in outflows (driven by redemptions from active equity funds).
• Active equity funds lost a cumulative $198 billion in 2016 outflows as passive equity funds received $153 billion of inflows.

Meanwhile, as the chart on the left shows, gund flows highlight significant post-election rotation. The global search for yield in 2016 drove large bond fund inflows funded by equity outflows, though this trend reversed after the U.S. election. Since the election, equity funds have seen $52 billion in inflows, and bond funds $10 billion in outflows. Reflation-linked sectors saw the largest inflows while Healthcare and Discretionary experienced the largest outflows.

Still, this “rotaton” has failed to help active managers, as ETFs continue to gain market share. ETFs as a percent of US market cap grew 14% in 2016, with domestic equity ETFs currently at $1.5 trillion AUM. Within the ETF space, Smart Beta products continue to gain strong market share. Smart Beta ETFs currently represent ~$440 billion in AUM, up from ~$300 billion a year ago

* * *

So what about just hedge funds? For the answer we go back to the latest reported by Evestment, in which we find that if the above mentioned October was bad, December was, in their own words, “a fitting end to a difficult year for the industry. While the level of outflows during the month was on par with prior years (an average of $18 billion removed over the last five Decembers) it marked the sixth month of outflows in the last seven, and resulted in Q4 not only being the fifth consecutive quarter of redemptions, but also the largest quarterly outflow from the industry since Q1 2009, and the height of the financial crisis.

Here are the highlights:

• Investors redeemed an estimated $23.7 billion in December, and $43.2 billion in Q4 2016.
• For the full year 2016, investors removed a net $106.0 billion from the hedge fund industry.
• Redemptions from managed futures accelerated in December as the strategy disappointed investors in 2016.
• Investors’ allocations decisions in 2015 and 2016 proved to be unfortunate as winning strategies faced the largest redemptions and vice versa.

And the “flow” details by product group and asset class:

• Throughout 2016, investors clearly reacted to widespread underperformance from 2015, but at the same time showed a willingness to allocate to products which performed well. Nearly $180 billion was removed from underperforming products through 2016, while over $70 billion was allocated to those who were able to post gains.
• The biggest asset gainers of the year were managed futures products. Unfortunately, they also produced the worst average returns of any major strategy and December/Q4 redemptions reflect investors’ dissatisfaction. In the first nine months, investors added $20.0 billion into the strategy, but outflows emerged in October, and accelerated through December. After receiving the second largest allocations in 2015, and the largest in 2016, managed futures performance will likely be seen as the industry’s biggest disappointment of 2016.
• On the opposite side, event driven strategies lost more investor money than any other universe in 2016, and in 2015, but produced some of the industry’s best returns this year. If nothing else, the period of 2015/2016 may go down as one of the worst for investor allocation decisions on record.
• There was one fortunate decision investors made in 2016, which was to, in the face of a significant drawdown, allocate to commodity strategies. The allocation process began in mid-2015 when commodity funds were at the tail-end of a nineteen month drawdown. Commodity funds returned more than 6% in 2016.
• Distressed was another segment of the industry from which investors withdrew assets in both 2015 and 2016. All distressed funds did in 2016 in return were to be the best performing primary strategy of the  year. Investors, however have indicated a strong interest in private debt products, which may either compete with distressed hedge funds for assets, or often be offered by the same managers in place of a  hedge fund structure. In fairness, this is not an investor issue, but rather an issue of what the most appropriate approach to the best opportunities in the current market.
• After three years of being the most attractive universe in the hedge fund industry, multi-strategy funds’ large December outflows act as a question mark at the end of their first annual redemptions since 2012. The group endured poor performance at the turn of 20015/16, endured high profile fund closures due to elevated losses, and litigation against one of its largest constituents. Unlike event driven managers who produced some excellent returns in 2016, the multistrategy space has left investors facing a difficult allocation landscape. Historical track records, and transparency into internal strategy allocation process will likely be high on investors’ lists of demands before allocating back into this space.
• Macro funds may have also left investors scratching their heads, perhaps even more so had it not been for a fairly good Q4 by some larger products. In the end, the ten macro funds which lost the most investor money in 2016 gained an average of 6.5%, while those who gained the most new assets returned an average of 3.0%. For the three largest asset gainers, an average return of 11% in Q4 perhaps saved  more than just their year.

* * *

To summarize, redemptions in 2016 were the industry’s largest since 2009, and the third year on record where investors removed more than they allocated.

And while the industry is not going to disappear any time soon, with hedge fund assets ending 2016 at $3.042 trillion, or an increase of $13.9 billion, the performance gains of $119.9 billion offset investor outflows which surpassed $100 billion.

The report’s conclusion will only add to the sleepless night for active managers and hedge fund CIOs, dreading the next redemption notice:

Investor flows for 2016 resembled an industry in crisis. They were similar to mid-2011 and 2012 in persistence, but dwarfed outflows seen during the European sovereign crisis in magnitude. They were below the levels seen during the aftermath of the great financial crisis, but have been much more persistent. It’s clear a swath of investors are uncertain how to best utilize the industry’s available talent. It’s also clear there are pockets within the industry, even at its seemingly most saturated point, where those talented at finding and realizing valuation anomalies, and those able to create sophisticated systematic  processes, are still able to shine. The quandary for the largest investors is to find a role for this industry within portfolios. Does one treat it as a group that as whole is able to produce steady aggregate return streams with relatively low volatility, or should individual managers who excel in specific asset classes find a place alongside traditional managers, as a holistic approach to specific markets? What 2016 has shown us is there is talent in this industry, what 2017 will show us is how investors decide to take advantage of it.

And so, to all the smartest guys in the room, good luck.

 

Photo credit Bloomberg

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Submitted by Charles Hugh-Smith via OfTwoMinds blog,

Rather than being the bad guys, as per the usual Liberal world-view, the Armed Forces may well play a key role in reducing the utterly toxic influence of neocon-neoliberals within the Deep State.

Suddenly everybody is referring to the Deep State, typically without offering much of a definition.

The general definition is the unelected government that continues making and implementing policy regardless of who is in elected office.

I have been writing about this structure for 10 years and studying it from the outside for 40 years. Back in 2007, I called it the Elite Maintaining and Extending Global Dominance, which is a more concise description of the structure than Deep State. Going to War with the Political Elite You Have (May 14, 2007).

I've used this simplified chart to explain the basic structure of the Deep State, which is the complex network of state-funded and/or controlled institutions, agencies, foundations, university research projects, media ties, etc.

The key point here is you can't separate these network nodes: you cannot separate DARPA, the national labs (nukes, energy, etc.), the National Science Foundation, DoD (Department of Defense), the National Security State (alphabet soup of intelligence/black budget agencies: CIA, NSA, DIA, etc.), Silicon Valley and the research universities: they are all tied together by funding, information flows, personnel and a thousand other connections.

For the past few years, I have been suggesting there is a profound split in the Deep State that is not just about power or ideology, but about the nature and future of National Security: in other words, what policies and priorities are actually weakening or threatening the long-term security of the United States?

I have proposed that there are progressive elements within the sprawling Deep State that view the dominant neocon-neoliberal agenda of the past 24 years as a disaster for the long-term security of the U.S. and its global interests (a.k.a. the Imperial Project).

There are also elements within the Deep State that view Wall Street's dominance as a threat to America's security and global interests. (This is not to say that American-based banks and corporations aren't essential parts of the Imperial Project; it's more about the question of who is controlling whom.)

So let's dig in by noting that the warmongers in the Deep State are civilians, not military. It's popular among so-called Liberals (the vast majority of whom did not serve nor do they have offspring in uniform–that's fallen to the disenfranchised and the working class) to see the military as a permanent source of warmongering.

(It's remarkably easy to send other people's children off to war, while your own little darlings have cush jobs in Wall Street, foundations, think tanks, academia, government agencies, etc.)

These misguided souls are ignoring that it's civilians who order the military to go into harm's way, not the other way around. The neocons who have waged permanent war as policy are virtually all civilians, few of whom served in the U.S. armed forces and none of whom (to my knowledge) have actual combat experience.

These civilian neocons were busily sacking and/or discrediting critics of their warmongering within the U.S. military all through the Iraqi debacle. now that we got that straightened out–active-duty service personnel have borne the brunt of civilian planned, ordered and executed warmongering–let's move on to the split between the civilian Central Intelligence Agency (CIA) and the DoD (Department of Defense) intelligence and special ops agencies: DIA, Army Intelligence, Navy Intelligence, etc.

Though we have to be careful not to paint a very large agency with one brush, it's fair to say that the civilian leadership of the CIA (and of its proxies and crony agencies) has long loved to "play army". The CIA has its own drone (a.k.a. Murder, Inc.) division, as well as its own special ops ("play army" Special Forces), and a hawkish mentality that civilians reckon is "play army special forces" (mostly from films, in which the CIA's role is carefully managed by the CIA itself: How the CIA Hoodwinked Hollywood (The Atlantic)

Meanwhile, it's not exactly a secret that when it comes to actual combat operations and warfighting, the CIA's in-theater intelligence is either useless, misleading or false. This is the result of a number of institutional failings of the CIA, number one of which is the high degree of politicization within its ranks and organizational structure.

The CIA's reliance on "analysis" rather than human agents (there's a lot of acronyms for all these, if you find proliferating acronyms of interest), and while some from-30,000-feet analysis can be useful, it's just as often catastrophically wrong.

We can fruitfully revisit the Bay of Pigs disaster, the result of warmongering civilians in the CIA convincing incoming President Kennedy that the planned invasion would free Cuba of Castro's rule in short order. There are many other examples, including the failure to grasp Saddam's willingness to invade Kuwait, given the mixed signals he was receiving from U.S. State Department personnel.

Simply put, if you are actually prosecuting a war, then you turn to the services' own intelligence agencies to help with actual combat operations, not the CIA. This is of course a sort of gossip, and reading between the lines of public information; nobody is going to state this directly in writing.

As I have noted before:

If you want documented evidence of this split in the Deep State–sorry, it doesn't work that way. Nobody in the higher echelons of the Deep State is going to leak anything about the low-intensity war being waged because the one thing everyone agrees on is the Deep State's dirty laundry must be kept private.

As a result, the split is visible only by carefully reading between the lines, by examining who is being placed in positions of control in the Trump Administration, and reading the tea leaves of who is "retiring" (i.e. being fired) or quitting, which agencies are suddenly being reorganized, and the appearance of dissenting views in journals that serve as public conduits for Deep State narratives.

Many so-called Liberals are alarmed by the number of military officers Trump has appointed. Once you realize it's the neocon civilians who have promoted and led one disastrous military intervention (either with U.S. Armed Forces or proxies managed by the CIA) after another, then you understand Trump's appointments appear to be a decisive break from the civilian warmongers who've run the nation into the ground.

If you doubt this analysis, please consider the unprecedentedly politicized (and pathetically childish) comments by outgoing CIA director Brennan against an incoming president. Even if you can't stand Trump, please document another instance in which the CIA director went off on an incoming president– and this after the CIA spewed a blatant misinformation campaign claiming a hacked Democratic Party email account constituted a successful Russian effort to influence the U.S. election–a surreal absurdity.

Let me translate for you: our chosen Insider lost the election; how dare you!

A number of observers are wondering if the CIA and its Deep State allies and cronies will work out a way to evict Trump from office or perhaps arrange a "lone gunman" or other "accident" to befall him. The roots of such speculations stretch back to Dallas, November 1963, when a "long gunman" with ties to the CIA and various CIA proxies assassinated President Kennedy, an avowed foe of the CIA.

Setting aside the shelfloads of books on the topic, both those defending the "lone gunman" thesis and those contesting it, the unprecedented extremes of institutionally organized and executed anti-Trump campaigns is worthy of our attention.

Given my thesis of a profound disunity in the Deep State, and the emergence of a progressive element hostile to neocons and neoliberalism (including Wall Street), then it's not much of a stretch to speculate that this rogue Deep State opposed to neocon-neoliberalism has Trump's back, as a new administration is pretty much the only hope to rid the nation's top echelons of the neocon-neoliberal policies that have driven the U.S. into the ground.

Rather than being the bad guys, as per the usual Liberal world-view, the Armed Forces may well play a key role in reducing the utterly toxic influence of neocon-neoliberals within the Deep State.

If you have wondered why academics like Paul Krugman and the CIA are on the same page, it's because they are simply facets of the same structure. Krugman is a vocal neoliberal, the CIA is vocally neocon: two sides of the same coin. I invite you to study the chart above with an open mind, and ponder the possibility that the Deep State is not monolithic, but deeply divided along the fault lines of Wall-Street-Neocons-Neoliberals and the progressive elements that rightly view the dominant neocon-neoliberals as a threat to U.S. national security, U.S. global interests and world peace.

We can speculate that some of these progressive elements view Trump with disdain for all the same reasons those outside the Deep State disdain him, but their decision tree is simple: if you want to rid America's Deep State of toxic neocon-neoliberalism before it destroys the nation, you hold your nose and go with Trump because he's the only hope you have.

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As President Obama held his last press conference this afternoon, basking in the warm afterglow of an over-sampled poll showing his favorability near record highs, it would appear he (and the press corps) forgot to mention that for most Americans – the 80% in production and nonsupervisory roles – this morning's data showed real wages actually dropping for the first time since 2013.

Bloomberg's Vincent Cignarella notes "Costs are rising, while pay isn’t: is the U.S. on the road to stagflation?" Disposable income for U.S. consumers, as measured by real average earnings, took another turn lower in December as we noted earlier with headline inflation rising above 2% for the first time in more than two years.

As The Wall Street Journal reports, for several years now, wages have become a key barometer not only on the recovery, but on how much of the recovery is filtering down to the working class.

Companies have been reluctant to invest in their business without clearer signs of consumer demand, the key ingredient in crafting a organically strong economy. Wages and consumer demand trends underlie every valuation bet being placed in the markets right now. Understanding what is and isn’t happening is critical.

 

The inflation numbers get netted out against wage growth, to produce the “real,” or inflation-adjusted, wage rates. Average hourly wages, as per the December jobs report, rose 2.9% from a year ago. So, if you just compare that number to the inflation number, real average hourly earnings rose 0.8%.

 

A deeper dive, though, reveals that for many Americans, their wages are not outpacing inflation at all. For all production and nonsupervisory employees – a group that comprises 80% of all jobs in america – total average weekly earnings in December rose to $732.48 (about $38,000 a year) from $718.79 – up 1.9%. That rate is below this morning’s inflation numbers.

 

So, again according to the BLS, average weekly earnings fell 0.1%.

That’s right. For 80% of American workers, their weekly paycheck, adjusted for inflation, fell in 2016.

This could be trouble for the Federal Reserve and lead to a more dovish stance, especially if Trump’s economic promises come up short.

As Bloomberg's Cignarella notes, if the Fed cuts its rate hike expectations because of stagnant wages as inflation keeps accelerating, it could continue to erode real U.S. earnings and lead to a lower dollar as it has in the past.

 

This decline in disposable income may be the reason retail sales, while generally positive, have been trending lower during the same period.

This could lead to slower economic growth, while prices continue to rise: stagflation.

The Trump reflation trade may be the only thing that stands in the way, but details are scant.

Lack of clarity on fiscal spending will continue to restrain capital spending, which some argue has been restricted by excess regulation. A reluctant consumer along with miserly business investment would certainly change the Fed’s rate hike projections.

The overall story remains, there is excess supply and mild demand.

With capital expenditure new orders trending sideways and retail sales and real wages declining, the ground for stagflation has already been laid.

* * *

Not exactly the rosy picture of economic growth being spun by the media as Obama transitions to Trump.

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Like a nagging case of “pneumonia” that brings with it random, yet inevitable, bouts of full-body paralysis, the rumors/threats of Hillary tossing her hat in the ring for the New York City Mayoral race simply won’t go away.  The latest example comes from a Quinnipiac University Poll which analyzed a hypothetical head-to-head match-up between Clinton and New York’s current mayor, Bill de Blasio.  Unfortunately for de Blasio, the poll found that, while he would beat almost everyone else whose name has been mentioned as potential contender, he would almost certainly be crushed by Hillary. 

In a very hypothetical race for New York City Mayor, Hillary Clinton, running as an independent, tops incumbent Bill de Blasio, running as a Democrat, 49 – 30 percent, according to a Quinnipiac University poll released today.

 

“New Yorkers aren’t in love with Mayor Bill de Blasio, but they seem to like him better than other possible choices – except Hillary Clinton, who probably is an impossible choice,” said Tim Malloy, assistant director of the Quinnipiac University Poll.

 

“None of the possible contenders has made any real noise or spent any money, so this race still could get interesting.”

 

In the Clinton – de Blasio matchup, Clinton leads 61 – 29 percent among Democrats and 45 – 31 percent among independent voters. Republicans back de Blasio 28 – 18 percent. She leads among men and women and black, white and Hispanic voters. She also leads in every borough except Staten Island, which goes to de Blasio 28 – 22 percent.

And here is a full break down of the results:

 

Of course, these perpetual rumors continue to circulate despite recent comments from the ever-candidate Neera Tanden to CNN that Hillary would never “run for any elected office again.”

Hillary Clinton confidante Neera Tanden says she doesn’t expect Clinton to run for New York mayor — or anything else, ever again.

 

“I think she’s going to figure out ways to help kids and families. That’s been what she’s been focused on her whole life, and a lot of issues that are affecting them, over the next couple of years,” Tanden told CNN’s Jake Tapper on “State of the Union” Sunday.

 

“But I don’t expect her to ever run for any elected office again,” she said.

 

Tanden, a close Clinton ally and the head of the liberal think tank Center for American Progress, was shooting down reports of chatter in New York political circles that Clinton could run against incumbent Democratic Mayor Bill de Blasio.

 

“I don’t expect her to run for this and I don’t expect her to run for other office,” Tanden said. “I think her job is to — what she’s thinking about right now is how to help those kids and families as she has her whole life.”

And while a run may be unlikely, with a mainstream media that just can’t process a world without the Clintons in it, we doubt we’ve heard the last mention of this topic.

And here are the full results:

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Submitted by Martin Armstrong via ArmstrongEconomics.com,

Kenneth Rogoff is a Professor of Public Policy and Economics at Harvard University.

Rogoff calls critics of negative interest rates “ignorant” despite the fact that negative interest rates have been used since 2008 without any success.

He had the audacity to say that people should not look at their short-term personal losses, but rather look at the long-term vision of the central banks. He is such an elitist. I cannot find words appropriate to describe how this academic, who has zero experience in the real world, is incapable of comprehending that his Marxist style intervention is creating the next crisis.

Yes, negative interest rates lower deficits. But who will buy the negative debt besides central banks? Why borrow money at all and compete against the private sector? Interest rates are negative to punish savers for saving. He wants them to spend their money. Fine – stop government borrowing altogether and just print what is needed for the expense of government. Stop this elitist Marxist concept that people like Rogoff can play the role of emperor and manipulate society to do whatever they believe is appropriate.

Just before his death in 1946, John Maynard Keynes (1883-1946) told Henry Clay, a professor of Social Economics and adviser to the Bank of England, that he hoped that Adam Smith’s invisible hand would help Britain out of its economic hole.

 “I find myself more and more relying for a solution of our problems on the invisible hand which I tried to eject from economic thinking twenty years ago.”

Economists such as Rogoff are still basking in the ideas of Karl Marx that government can and should manipulate society to achieve the public policy dreams of those in power. Rogoff is not willing to even think about what he has done to the pension system and how we are looking at states like Illinois becoming broke.

In California, less than four years have passed since it fought to achieve a balanced budget by raising taxes to the highest level in the nation. Politicians cannot manage the economy and negative interest rates are destroying pensions. There is no long-term gain, for Rogoff cannot imagine the next step. The central banks are trapped and can never resell what they have bought under Quantitative Easing. We are rapidly approaching the point of no return or no bid. That is when government tries to sell its debt to pay off the last chunk and there is no bid. Oops! Checkmate!

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It’s official: after months of speculation that the Feds and other US intelligence agencies are probing whether Trump has any connections to the Kremlin, financial or otherwise, this afternoon McClatchy confirmed that indeed, the FBI and five other intelligence and law enforcement agencies have collaborated for months on an investigation into whether Russia’s government secretly helped President-elect Donald Trump win the election, including whether money from the Kremlin covertly aided President-elect Donald Trump.

The agencies involved in the inquiry are the FBI, the CIA, the National Security Agency, the Justice Department, the Treasury Department’s Financial Crimes Enforcement Network and representatives of the director of national intelligence.

According to McClatchy sources, the US investigators are examining how money may have moved from the Kremlin to covertly help Trump win. One of the allegations involves whether a system for routinely paying thousands of Russian-American pensioners may have been used to pay some email hackers in the United States or to supply money to intermediaries who would then pay the hackers, the two sources said. Considering that this method was first suggested by the former MI6 agent Chris Steele who was hired to develop politically damaging and unverified research about Trump, the pieces are slowly starting to fall into place. Yet according to the unsourced report, the inter-agency working group began to explore possible Russian interference last spring, long before the FBI received information from the former British spy, suggesting he may not have been the spark that launched the probe.

While the origin of the investigation remains a mystery for now, what is known is the key mission of the six-agency group: it is to examine who financed the email hacks of the Democratic National Committee and Clinton campaign chairman John Podesta, both of which were released by WikiLeaks last summer and in October. McClatchy adds that the working group is scrutinizing the activities of a few Americans who were affiliated with Trump’s campaign or his business empire and of multiple individuals from Russia and other former Soviet nations who had similar connections.

While they have provided zero evidence for public consumption to date, U.S. intel agencies not only have been unanimous in blaming Russia for the hacking of Democrats’ computers but also have concluded that the leaking and dissemination of thousands of emails of top Democrats, some of which caused headaches for the Clinton campaign, were done to help Trump win.

Meanwhile, Trump and Republican members of Congress have said they believe Russia meddled in the U.S. election but that those actions didn’t change the outcome. However, Democratic Sen. Dianne Feinstein of California, a former chair of the Senate Intelligence Committee, said Sunday on NBC’s “Meet the Press” that she believes that Russia’s tactics did alter the election result. The Senate Intelligence Committee has opened its own investigation into Russia’s involvement in the campaign. That panel will have subpoena power.

Additionally, the BBC previously reported that the FBI had obtained a warrant on Oct. 15 from the highly secretive Foreign Intelligence Surveillance Court allowing investigators access to bank records and other documents about potential payments and money transfers related to Russia. One of McClatchy’s sources confirmed the report.

Susan Hennessey, a former attorney for the National Security Agency who is now a fellow at the Brookings Institution, said she had no knowledge that a Foreign Intelligence Surveillance Act warrant had been issued. However, she stressed that such warrants are issued only if investigators can demonstrate “probable cause” that a crime has been committed and the information in Steele’s dossier couldn’t have met that test.

Yet ironically, while Trump has yet to say whether FBI Director James Comey will be retained, the rest of Trump’s newly appointed intelligence and law enforcement chiefs will inherit the investigation, whose outcome could create national and international fallout, should the FBI “conclude” that Russia indeed funded a hacking effort.

The emergence of this informal probe just one day prior to Trump’s inauguration will likely lead to even greater opposition to the Trump presidency, and while we hope it does not, may lead to violence on Friday. It is unclear if Trump’s arrival in the Oval Office will be sufficient to put an end to such ongoing probes into Russian funding of Trump, or if the risk of an intelligence agency “coup” to topple Trump remains.

As a reminder, yesterday Vladimir Putin warned that he sees attempts in the United States to “delegitimize” Trump using “Maidan-style” methods previously used in Ukraine, and slammed the creators of the Trump report, saying “people who order fakes of the type now circulating against the U.S. president-elect, who concoct them and use them in a political battle, are worse than prostitutes because they don’t have any moral boundaries at all.”  While the organizers behind this ongoing effort to deligitimize Trump remain unknown, his suggestion that Trump could be the target of a Ukraine-like coup is troubling.

Earlier today Russian Foreign Minister Sergey Lavrov turned the table on the ongoing Russian witch hunt, and lashed out at the US election scapegoating campaign, saying that leaders and top officials from the UK, Germany, and France have “grossly interfered” in US internal affairs, “campaigned” for Hillary Clinton, and openly “demonized” Donald Trump. Lavrov said his angry outburst was because Moscow “is tired” of accusations it meddled in the US election. At this rate, Russia will be even more tired over the coming weeks and months as the “informal” probe picks up pace.

Lavrov also said that it is time to “acknowledge the fact” that it was the other way around. “US allies have grossly interfered in America’s internal affairs, in the election campaign,” Lavrov said, quoted by RT. “We noticed that Angela Merkel, Francois Hollande, Theresa May, and other European leaders” did so. He added that official representatives of some of the European countries did not mince words, and essentially “demonized” Donald Trump during the election campaign.

For now, the covert war between US intel and Democrats on one hand, and Donald Trump and, well, Russian, shows no signs of slowing down.

via http://ift.tt/2jMKlU3 Tyler Durden

Via ConvergEx's Nicholas Colas,

Want to know why US stocks feel so fragile?  Perhaps we can blame Wall Street analysts.  Even after two months of market buzz about lower taxes, infrastructure spending and less regulation juicing investor expectations for better earnings growth, they refuse to bump their revenue or earnings estimates for 2017.

 

 

Our monthly look at revenue expectations for the companies of the Dow shows Street analysts still cutting their numbers for Q1 – Q3 of 2017.  About the only bright spot: they do expect revenue growth of 4.0% this year.  As far as earnings expectations go, there is still no change to “Bottom up” earnings expectations for the S&P 500 of $133/share.  That’s right where it’s been since before the election.  Nearer term, analysts are still cutting their earnings expectations for Q1 2017.  Now, markets are often happy to discount changes in Street expectations before they occur.  Current valuations of 17x – high by historical standards – may be a ceiling on equity prices until both buyside and sellside have more confidence in incremental earnings growth.  Next week – Trump’s first days in office – will be important in building that case.  First impressions matter, after all…

With just three days to go before the inauguration, we still don’t know very much about what will come after January 20th.  That uncertainty is creating the churn we’re seeing in capital markets.  After the year end 2016 run-up for risk assets, everything seems to have hit a wall.  On the other side of the barrier: a new administration that has made a lot of promises and will, naturally, want to start delivering just as soon as the clock strikes noon on Friday.

The largest unknown is just how President Elect Trump will prioritize and then negotiate the various pieces of his agenda.  And since Mr. Trump has no track record in government and a very unconventional approach to communicating his thoughts, investors have less information and more questions about the incoming administration than any prior transition.  It’s only a mild stretch to say that “Nobody knows nothing”, at least for a few more days.

Over the years we have written about two off beat personality indicators – digit ratios and birth order – and at this point we might as well toss those into the analytical bucket and see what they might tell us about Donald Trump and how he will adapt to his new job as the 45th President of the United States.

Here is some color on each:

Digit ratio is the relative length of a person’s second (pointer) to fourth (ring) finger. Feel free to look at your own hand right now. Is your ring finger longer than your pointer, or vice versa?  (Men tend to have longer ring fingers than pointers, and women the opposite, but many other factors play a role.)

 

Researchers have spent years looking at this ratio in the context of human behavior and found that people with longer fourth fingers than second fingers are more prone to risk taking than those with the opposite arrangement.  Here is an article on the topic if you want to read more.

 

There is even one study (cited +250 times in other academic papers) that correlates stock trading abilities with digit ratios.  It found that higher fourth/second finger ratios point to better performance.  You can read the paper here.

 

Donald Trump, for what it’s worth, has second/fourth fingers of almost identical length, meaning that by this measure he is not naturally inclined to risk taking.  You may recall some discussion of his hands during the primaries, and as a result there are many pictures of them available online.  There is also a hand print at Madame Tussaud’s in Times Square.  The evidence is clear: his second and fourth fingers are of roughly equal length.

 

Birth order. Are you an only child?  A first born? A later born?  The answer may help explain a lot of your personality traits.  First borns, for example, tend to feel comfortable supporting the status quo.  Growing up, after all, they had the more privileges than later-born children in the same family.  Conversely, later-born kids may end up revolting against established societal rules since in childhood they felt disadvantaged relative to their older siblings.

 

Now, this is a controversial theory, with plenty of research work done both to support and disprove the idea.  The best thing you can say about it is that (with few exceptions) everyone is an only, an older, or a younger child in a family.  Draw your own conclusions about what that might mean.

 

Donald Trump is the fourth of five children, with nine years between the oldest born and his spot in the birth order.  The first born in the family is Maryanne Trump Barry, now a retired Federal judge.  Next in line was Fred Jr, a gregarious airline pilot who died at a young age from alcoholism.  Elizabeth comes next in the birth order, followed by Donald.  Last in the queue is Robert, best known in NYC circles for an incredibly messy divorce in 2009 from then-wife Blaine.

 

Does that make Donald Trump a natural revolutionary?  Perhaps.  Birth order theory is still a work in progress.  You can read more about it here.

Shifting back to the relative terra firma of capital markets, we can say that even if Donald Trump had been a first born with a longer ring finger investors would still want the next few days to fly by as quickly as possible.  If “Buy the rumor, sell the news” is a long held Wall Street aphorism, it still doesn’t address what you should do between the first and second parts of that saying.  And that’s the position we find ourselves in now.

One problem with the post-election rally is that US equity markets have run out ahead of the earnings expectations.  Every month we look at what brokerage analysts have in their financial models for revenue growth inside the 30 companies of the Dow Jones Industrial Average as well as what FactSet’s data is showing about sales/earnings expectations for the S&P 500 companies. Our data is below…

The latest FactSet Earnings Insight report is available here.

A few points here:

• Analysts are clearing waiting for specifics about incoming President Trump’s agenda, and how Congress responds, before changing any of their financial models.
• FactSet’s data shows that Wall Street analysts haven’t really budged off their $133/share earnings number for the S&P 500 for 2017. That is essentially the same number they had in October of last year, although it declined slightly to about $132.50/share in mid-November before bouncing back at the end of last year. (Page 20 of the report we cite above.)
• FactSet also shows that analysts are still cutting their Q1 2017 estimates even as consumer confidence has taken a bit of a post-election bounce and overall Q4 2016 estimates remained static. (also Page 20)
• As compared to estimates from September 30, FactSet reports that analysts are slightly less optimistic about 2017 earnings growth now versus then (11.4% versus 11.5%), even though they are a bit cheerier about potential revenue growth (5.9% then, 6.0% now). (Page 17)
• Our own data from Street estimates for the 30 Dow names shows a similar trend. Analysts are cutting their revenue expectations, most recently to 4.0% on average.  This compares to almost 5.0% expected growth just before the election last October.
• The same trend is in evidence for Q1 and Q2 2017, where analysts now expect just 5.7%/3.7% growth versus +8%/+4% last October.

Now, capital markets are not always beholden to what Wall Street analysts print in their models.  If investors believe in future revenue and earnings growth they are happy to run out ahead of the Street.  The problem here may well be as simple as valuations.  At 17x earnings, US stocks already discount some improvement in earnings (most of which was expected no matter which candidate won the presidency).

It may well be that markets simply need to see what happens after the clock strikes noon on Friday.  The bright spot is that none of what President Elect Trump has promised/proposed is yet in any Wall Street numbers.  As those measures come into tangible existence, equities should respond.

via http://ift.tt/2jytw1J Tyler Durden

Speaking at his final press conference from the White House, Obama decided to tackle the prickly topic of “voter fraud” saying that the notion that “there are a whole bunch of people out there who are not eligible to vote and want to vote” is just “fake news”.

“This whole notion of voting fraud, this is something that has constantly been disproved.  This is ‘fake news’.” 

 

“The notion that there are a whole bunch of people out there who are not eligible to vote and want to vote.  We have the opposite problem.  We have a bunch of people who are eligible to vote, who don’t vote.”

 

Which would be true, if not for the inconvenient fact that numerous Democratic operatives, including Bob Creamer, a “consultant” who visted the White House 200 times during Obama’s administration, are on film admitting to mass voter fraud. 

“It’s a very easy thing for Republicans to say, “Well, they’re bussing people in.” Well, you know what? We’ve been bussing people in to deal with you fucking assholes for fifty years and we’re not going to stop now, we’re just going to find a different way to do it.”

 

“When I do this I think as an investigator first – I used to do the investigations. I think backwards from how they would prosecute, if they could, and then try to build out the method to avoid that.”

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Following last week's surge in crude and product inventories, API reported a much bigger than expected drawdown in crude inventories ( versus -1mm expectations). While this spiked WTO prices, they fell back amid massive builds in gasoline (9.75mm) and distillates.

 

API

• Crude -5.042mm (-1mm exp)
• Cushing -1.01mm (-500k exp)
• Gasoline +9.75mm
• Distillates +1.17mm

Another massive build in gasoline inventories offsets the exuberant price action from a big draw in crude and cushing… (though notably there is a seasonal norm here)

 

WTI had slipped to a $51 handle before the NYMEX close today on USD strength, and whipsawed wildly on the API print…

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