Tag: finance

For all the talk about the surging yen as the biggest threat to Japan’s embattled economy, the truth is that there is another soaring currency (and asset) that is far more troubling for Shinzo Abe.

Gold.

While in past decades, the natural instinct of Japanese savers when faced with financial uncertainty has been to rush into the “safety” of cash (after all why allocate funds to government bonds that yield almost, or less, than nothing) as we recently showed in Safes Sell Out In Japan and Demand For Big Bills Soars As Japan Stuffs Safes With 10,000-Yen Notes, now something has changed. That something is increasing loss of faith in Japan’s currency.

Take the case of Tetsushi Kudo, a 50-year-old office worker, who as Bloomberg writes, bought a one-ounce gold coin this month for the first time. With stocks slumping and zero percent interest on savings, he says it won’t be the last.

“I want to buy gold every year as a birthday present for my daughter,” Kudo said at a store in Tokyo’s posh Ginza district where he made the 162,000 yen ($1,600) purchase. “She will thank me for the gift when she grows up because gold will have value wherever she goes.”

What a delightful epiphany: if ordinary, 50-year-old Japanese citizens can get it why not Nobel-prize winning economists? 

Ignore that please.

Individual investors like Kudo drove a 60% jump in sales of the precious metal in June from May at Tanaka Holdings Co., the operator of Japan’s largest bullion retailer, as the yen’s rebound against the dollar made it more affordable. Why the surge into gold? Because far behind the glitzy facade of Abenomics, which is really just the BOJ intervening daily in the USDJPY via trust banks, and manipulating the Nikkei to give the impression that all is well, the people have checked out. According to Bloomberg, while Prime Minister Shinzo Abe’s ruling party scored a convincing victory in July 10 upper house elections, confidence in his economic policies is crashing. A July 2-3 Asahi newspaper poll showed 55% of those surveyed support a new direction versus 28% for maintaining course.

While both gold and the Yen have soared in 2016, it has been for oddly similar reasons. The yen’s 20% gain this year, slightly less than that of USD-denominated gold, has been a reflection of Japanese investors fleeing from overseas markets due to pessimism about global growth rather than confidence in their own economy. As for the reason why Japanese interest in gold has soared, it is an even simpler one: fear that the days of the Yen as a stable currency are numbered.  Gold in yen terms has risen 7.5% this year, compared with the 28% jump in the dollar-based price of the metal

Gold sales more than tripled at Tanaka’s shops on June 24, when the Japanese currency jumped to an almost three-year high against the dollar after the U.K. decided to exit the European Union. Japan’s Topix stock gauge dropped the most in five years the day after the Brexit referendum, while 10-year sovereign bond yields tumbled further below zero.

“For investors, buying gold is similar to casting a no-confidence vote,” saidItsuo Toshima, 68, an investment adviser and former regional manager for the World Gold Council in Tokyo. “Gold is the unprintable currency, unlike the yen. The yen’s appreciation in spite of the adoption of the negative-rate policy has kindled skepticism about the policy’s benefits. It’s also led to investors seeking to protect their assets in case Abenomics fails.”

Another traditional lament said about gold is that it pays no dividend. Well, when the return on other “safe assets” is negative – as it the case in Japan – gold does have a relative real return. Indeed, gold’s lack of yield isn’t a big draw-back for investors at a time when almost 90% of Japanese government bonds have yields below zero, according to Eiichiro Kato, a general manager at Tanaka’s precious metals retail department. The benchmark 10-year JGB yield was at minus 0.28 percent on Monday.

And then there are the philosophical questions.

“We don’t know who will take responsibility for reducing Japanese government debt,” said Akihiro Morishige, a senior economist at Mitsubishi Research Institute.

What reduction in Japanese government debt?

“If trust in Japan’s fiscal policy decreases, Japanese long-term interest rates may soar towards 5 percent by 2030.”

Make that 500%.

What makes Japan’s gold rush more unique than in most countries is that many are not only buying gold as protection against a crash, they are storing it abroad as protection against confiscation as we reported last week.  Japanese buyers of gold to store in Switzerland jumped 62% in the first six months from the second half of 2015 because of negative interest rates and concern the yen will eventually weaken, according to BullionVault Ltd., an online trading and storage company. Also: due to fears that Abe will pull an “Executive Order 6102”, and force gold confiscation from the population.

Meanwhile, as they flood into gold, Japanese investors are retreating from riskier assets as the nation’s shares plunge. Households’ holdings of equities decreased 9.9% from a year earlier at the end of March and investment trusts fell 3.7 percent while their cash and bank deposits rose 1.3 percent to 894 trillion yen, the second-highest amount on record, according to BOJ data.

“Gold is attractive because its prices don’t move much, compared with other assets,” said Kudo, the buyer of the coin in Ginza. “I may lose lots of money if I buy stocks without doing much research on them.”

Come to think of it, he is 100% right; making things worse, he may – and likely will – lose lots of money even if he buys stocks having done lots of research on them.

The good thing about gold: no sellside research required.

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Authored by Nomi Prins, via TomDispatch.com,

“Establishment: A group in a society exercising power and influence over matters of policy, opinion, or taste, and seen as resisting change.” — Oxford Dictionary

Early on in his presidential bid, Donald Trump began touting his anti-establishment credentials. When it worked, he ran with it. It was a posture that proved pure gold in the Republican primaries, and was even, in one sense, true. After all, he’d never been part of the political establishment nor held public office, nor had any of his family members or wives.

His actual relationship to the establishment is, however, complex in an opportunistic way. He’s regularly tweeted his disdain for it. (“I wish good luck to all of the Republican candidates that traveled to California to beg for money etc. from the Koch Brothers. Puppets?”) And yet, he clearly considered himself part of it and has, at times, yearned for it. As he said early on in his run for the presidency, “I want the establishment — look, I was part of the establishment.  Let me explain. I was the establishment two months ago. I was like the fair-haired boy. I was a giver, a big giver. Once I decided to run, all of a sudden I’m sort of semi-anti-establishment.”

An outsider looking to shake up the government status quo? An insider looking to leverage that establishment for his own benefit?   What was he?  He may not himself have known.

He once rejected the idea of taking establishment (or Super PAC) money, only — more recently — to seek it; he rebuffed certain prominent establishment players, only to hire others to help him (and fire yet more of them).  He’s railed against the establishment, then tried to rally it to his side (even as he denounced it yet again). Now, with the general election only four months away, it turns out that he’s going to need that establishment if he is to have a hope in hell of raising the money and organizing the troops effectively enough to be elected. There, however, is the rub: power brokers don’t suffer the slings and arrows of “outsider” scorn lightly.

As a result, if he now needs the establishment more than he’d publicly admit, it may not matter.  He may find himself ostracized by the very party he’s set to represent.

Once upon a time not so long ago, making America great again involved a bankroll untainted by the Republican political establishment and its billionaire backers. There would, The Donald swore, be no favors to repay after he was elected, no one to tell him what to do or how to do it just because they had chipped in a few million bucks.  But for a man who prides himself on executing only “the best” of deals (trust him) this election has become too expensive to leave to self-reliance.

One thing is guaranteed: Donald Trump will not pony up a few hundred million dollars from his own stash.  As a result, despite claims that he would never do so, he’s finally taken a Super PAC or two on board and is now pursuing more financial aid even from people who don’t like him. Robert Mercer and his daughter Rebekah, erstwhile influential billionaire backers of Ted Cruz, have, for instance, decided to turn their Make America Number 1 Super PAC into an anti-Hillary source of funds — this evidently at the encouragement of Ivanka Trump.

In the big money context of post-Citizens United presidential politics, however, these are modest developments indeed (particularly compared to Hillary's campaign).  To grasp what Trump has failed to do when it comes to funding his presidential run, note that the Our Principles Super PAC, supported in part by Chicago Cubs owners Marlene Ricketts and her husband, billionaire T.D. Ameritrade founder J. Joe Ricketts, has already raised more than $18.4 million for anti-Trump TV ads, meetings, and fundraising activities. (On the other hand, their son, Pete, Republican Governor of Nebraska, has given stump speeches supporting Trump.)

To put this in context, that $18.4 million is more than the approximately $17 million that all of Trump’s individual supporters, the “little people,” have contributed to his campaign.  (He is no Bernie Sanders who raised $220 million from individuals in the 2016 campaign season.) Even with all his wealth, Trump is in a funding nightmare, lacking the confidence of the Republican party and its most generous loyalists.

To be sure, other establishment billionaires have expressed support for Trump, like funding kingpin Sheldon Adelson who said he’d fork over $100 million to the Trump cause. It’s just that he hasn’t done that yet. Chris Christie is similarly trying to help raise funds for the campaign.  But the man-who-would-be-veep hasn’t had much luck. So far, at least, Trump’s biggest establishment supporters have been more talk than action.

The Trump Team

In addition to the usual money not flowing in from the usual crowd, there’s the issue of actually preparing to staff a future administration with the usual people, not to speak of the seasoned set of advisers that normally surround presidential candidates. Increasingly, it seems that they may not be available or have already left the proverbial building — and that’s a problem.

Trump has vowed to fill his administration with “the best people.” (In a perfect world, they would, of course, be his clones.) Yet so far, he’s been pursuing what he has characterized as a “lean” strategy, which means that few are yet on board and it’s getting late in the game to fake it.

Usually by this time in the election cycle, nominees have pulled together their inner circle, mostly from well-known or rising establishment players, including policy wonks by the bucketful.  He hasn’t.  According to Vin Weber, a D.C.-based partner at Mercury, which bills itself as a global, high-stakes public strategy firm, who crafted Mitt Romney’s “policy shop” in 2012, the lack of infrastructure is unprecedented. Romney’s policy shop was first formed 18 months before the 2012 election and fine-tuned in January 2012. We’re in July 2016 and from Trump on this score — nothing. Nada. “Nobody in Washington that I know of,” Weber says, “is assembling a staff for an incoming Trump administration.”

Given his public war with his party, Trump may find himself without anyone left to fire.  It’s one thing to cut back on government, another to have no one around to do anything.

Maybe winging it on national policy and disparaging those who might someday make such policy is endearing in The Donald, but not to the Washington establishment.  Whatever the case, it might be useful before the Republican convention, which already promises to be a bizarre spectacle, to consider who Trump’s “best people” are — and aren’t — at the moment. Who are his most loyal advisers and supporters? Who would take a political bullet for him or put that bullet in him?

For the answers to such questions, it’s necessary to consider three categories: blood, money, and power. In the land of Trump (and Clinton), of course, blood — that is, family — comes first; financial interests, second; and the political power-elite (a.k.a. the establishment), last.

For Trump, family is foremost; general election finances are still remarkably lacking; and that final group remains infinitesimal, given how big the Washington establishment actually is.  And do note that this has not been because The Donald hasn’t tried to broaden his establishment support. He just seems congenitally unable to succeed at it.  It’s a deal he can’t broker. His supporters may think of him as one of them, but his outsider status has come about by default, not by strategic choice, and it shows.

Trump’s most loyal support comes from his family who make up his core “board of advisers.”  They are anything but inside-the-Beltway types.  If, however, he were to make it to the Oval Office, they could certainly be the new Clintons, the latest bloodline in Washington.

So from family to finances to establishment, here’s a rundown on key players in Trump World, who’s up and who’s down, who’s in and who’s out.

Trump’s Establishment Gets on Board

Ivanka Trump, Campaign Adviser

Omnipresent in his campaign, daughter Ivanka is the executive vice president of development and acquisitions in the Trump Organization. She “actively participates in all aspects of both Trump® and Trump branded projects.” The presidency is, of course, the ultimate branded project and were the economy to fall off a cliff one Trumpian day, the White House might make the perfect Trump luxury condo building.

For all practical purposes, Ivanka, not wife Melania, is Trump’s “first lady” (in waiting). She appeared on the presumptive board of The Apprentice and Celebrity Apprentice.  It was widely rumored that she was the one who had the clout to get Corey Lewandowski, the campaign manager who lifted Trump to victory in the primaries, fired. Put another way, the “establishment apprentice” got the shaft because he crossed the person with the real power in Trump’s campaign.

Jared Kushner, Campaign Adviser-in-Law

Ivanka’s husband, real-estate developer Jared Kushner, tried to persuade one and all that his ownership of the New York Observer didn’t make the paper’s endorsement of The Donald any less objective.

Before the turn of the twentieth century, the Stillmans (bankers) married the Rockefellers (industrialists) to breed young Stillman-Rockefellers who controlled a chunk of the banking sector for decades while advising multiple presidents. Depending on the fate of Donald Trump’s presidential bid, perhaps the 2009 Jared-Ivanka merger (wedding) will someday be seen in the same light.  It was, after all, witnessed by an array of movie stars, television personalities, and politicians like former New York City Mayor Rudy Giuliani and present New York Governor Andrew Cuomo.

If Trump is elected, Kushner could wind up appointed, say, Secretary of Real Estate. (Okay, that post doesn’t actually exist — yet.) Kushner set up critical meetings between Trump and key Republican dignitaries and leaders that were meant to elevate his father-in-law’s relationship with the party establishment.

In early May, the New York Times reported that “Donald J. Trump has asked his son-in-law, Jared Kushner, to begin quietly compiling a blueprint for a transition team should he win the White House in November.” If his recent actions are a guide, Kushner will undoubtedly try to snag some significant establishment players as the race progresses.

Paul Manafort, New Campaign Manager

Manafort, a man of controversy, comfortable with wealth and luxury (though refusing any cash compensation for being on the Trump Train), has 40 years of work for the Republican Party establishment under his belt. In addition to being a former principal at the lobbying firm of Black, Manafort, Stone, and Kelly, he played a leading role in George H.W. Bush’s nomination at the 1988 convention, Bob Dole’s in 1996, George W. Bush’s in 2000, and John McCain’s in 2008.

For a campaign selling anti-establishmentism, having a manager from the inner circles of D.C. might seem like sheer Trumpocrisy, but such seeming contradictions are the essence of The Donald.

Manafort, by the way, has kept an apartment in Manhattan’s Trump Tower, which, as we know, is “one of the world’s elite luxury residences, catering to public figures, athletes, celebrities, and other affluent sophisticates.” In other words, he’s establishment with a view.

Michael Glassner, Deputy Campaign Manager

Glassner is another classic insider. An adviser to the George W. Bush campaign of 2000, he became a top adviser to Sarah Palin in the 2008 election (which may have been a recommendation in Trump’s eyes). He had also once been an adviser to Bob Dole and the Southwest regional political director for the American Israeli Public Affairs Committee. Glassner is one of the small team of Trump’s establishment guys reportedly responsible for his chaotic preparations for the Republican National Convention in Cleveland. 

Donald F. McGahn II, Chief Legal Counsel

McGahn, one of Washington’s best-connected lawyers, is legal counsel for Trump and a partner at Jones Day, the elite law firm that lists anti-trust and government regulation as its top specialties. By February 2016, the firm had already received more than $500,000 in payments from the Trump campaign.

According to MSNBC’s Zachary Roth, McGahn “was a crucial player in creating the out-of-control campaign finance system that his boss now denounces.”  He has helped connect Trump with Republican congressional leaders at his D.C. offices, further dispelling the myth that Trump is anti-establishment.

Steven Mnuchin, National Finance Chairman

Not to be outdone by Hillary’s Wall Street connections, Trump recently bagged a former Goldman Sachs partner to run his fundraising operation (the one he used to say he didn’t need). In terms of Mnuchin’s own political contributions, like the firm he once worked for, he’s spread the wealth around. He donated to both Romney and Obama. He also contributed to Hillary Clinton’s Senate and presidential campaigns. In 2012, he donated $20,000 to the Republican National Committee. Overall, Mnuchin has contributed more than $120,000 to political groups over the past two decades, slightly favoring Democrats.

Shades of Trump, according to Variety, he left Relativity Media, where he had been a co-chairman, two months before it filed for Chapter 11 bankruptcy in 2015. He also led a group of billionaire investors that took over beleaguered California bank IndyMac from the FDIC at a bargain price during the financial crisis, profiting, that is, from the pain of California's foreclosure victims.

Who’s Gone From the Trump Train?

The list of those who have jumped off or were thrown from the Trump train is also heavy on establishment types, though most weren’t exactly from its crème de la crème. Among them were:

Corey Lewandowski, Former Campaign Manager

Lewandowski developed his establishment muscle working for various Koch Brother initiatives and was legislative political director of the Republican National Committee in 2001. He had also worked for three congressional representatives and, most recently, the conservative advocacy group Americans for Prosperity, a Koch brothers-funded organization.

According to the Wall Street Journal's analysis of Federal Election Commission documents, Lewandowski was “paid $20,000 a month,” — the equivalent of an annual salary of $240,000, “or 45% more than 2012 GOP nominee and multimillionaire Mitt Romney paid his senior staffers.” He was involved in a notorious incident with a female Breitbart reporter.  It seems that, organizationally, he lost out to Paul Manafort, alienated Ivanka, and in June was fired by Trump.  He hit the tracks running — CNN promptly hired him as an on-air analyst for a reported $500,000.

Stuart Jolly, Former National Field Director

Jolly resigned on April 18th. He had previously worked at the Oklahoma chapter of the Koch brothers' flagship group, Americans for Prosperity, and also at the Education Freedom Alliance, an organization focused on expanding school choice and free-market economics.

Upon leaving he offered this advice to Trump: "My hope is that you will continue to listen to those who have propelled you to victory." However, he soon returned as a national adviser for political and fundraising activities at the pro-Trump Super PAC, Great America.

Roger Stone, Former Top Adviser

Stone, too, has been an establishment GOP operative for decades. In 1974, he left his position as staff assistant for Senator Bob Dole amid controversy over Nixon White House "dirty tricks." Five years later, he co-founded the National Conservative Political Action Committee where he developed a knack for creating negative campaign ads.  Before he resigned from the Republican Party on his blog in 2012, he had worked on 12 Republican presidential campaigns.

The story of his fate in the Trump campaign is murky. The Donald insists he fired Stone, while Stone insists that he was the one who said, “You’re fired!”

Rick Wiley, Veteran Republican Adviser

An establishment player and a former political director for the Republican National Committee, he was removed as Trump's national political director in May 2016, two months after having been brought on board by Paul Manafort. The media cited various unnamed sources offering various reasons why.  Whatever the explanation, he was in and then he was out, because measured thinking about position selection isn’t a Trump priority.  Wiley now works for the Republican National Committee.

Who Doesn’t Want to Be Seen at Trump Station?

The list of establishment players exhibiting no interest in associating with The Donald or an absolute animus against him seems to expand by the day. It includes, of course, Mitt Romney, Jeb Bush, George W. Bush, and Lindsey Graham, among so many others — key players all in the Republican Party. Romney typically didn’t mince words, saying, “Donald Trump is a phony, a fraud. His promises are as worthless as a degree from Trump University. He’s playing the American public for suckers: he gets a free ride to the White House and all we get is a lousy hat.”

Romney might be wrong about the hat.

Meanwhile, a troop of prominent Republicans are heading for the hills, not the party’s convention. Congressional representatives are going into opposition; convention delegates pledged to Trump are restless and other delegates are muttering about revolt. A former Republican national security adviser and a former Republican treasury secretary (and former Goldman Sachs chairman and CEO) have thrown their support to Hillary and the establishment cast of characters thinking about heading for the exits continues to lengthen. 

If much of the rest of the establishment follows the present pattern and departs Trump Station, what will this election look like? If history is any guide, family is not enough in American politics, only in banking. A candidate needs a party establishment for everything from experience to organization to money.

Trump himself lacks experience in government or public service of any sort. He’s essentially at sea when it comes to what it might mean to govern this country.  In this, he is anything but typical among Republican frontrunners who became president.  William Taft was a former secretary of war. Herbert Hoover was secretary of commerce. Warren Harding was a senator. Calvin Coolidge was his vice president. Dwight Eisenhower was a decorated general. Richard Nixon was his vice president and had been in Congress for years. Ronald Reagan was, yes, an actor, but had also been the governor of California. George H.W. Bush had been a congressman, an ambassador, and director of the CIA. His son was, of course, governor of Texas.

If Trump continues to play the outsider card (as he essentially must, given what his supporters now expect) and continues to alienate ever more of the establishment, he’s likely to find himself fighting a battle of diminishing returns in his own party. And what about that establishment’s money? After all, what’s an election these days but a pile of donated money and backroom deals?

We know he raised significantly less than Jeb, Ted, and Marco and still beat them in the primaries, and that undoubtedly gave him a certain unrealistic sense of what was possible in a presidential campaign. The result: this May his campaign raised only $1.3 million to Hillary’s $42.5 million. If that’s a sign of what’s to come and his supporters, unlike those of Bernie Sanders (the only true populist in the race) don’t begin to up the ante drastically, watch out.

Unsurprisingly, establishment pockets are looking a good deal less deep these days when it comes to him, though Trump has begun to say that he might need to find up to $1.5 billion to run this race.  Key establishment money-raising figures have now visibly turned their backs on him, just as he did on them.

The Koch brothers are not atypical in refocusing the future contributions of their Super PACs on Republican races in the Senate and House. Charles Koch even signaled the possibility, however faint, of taking a further step and using his money for the other side. "We would have to believe [Hillary’s] actions would be quite different than her rhetoric. Let me put it that way," he said in an interview on ABC's This Week. When asked if it was possible that another Clinton could be better than a Republican, he added, "It's possible." (With establishment money, all things are possible.)

Outside groups — PACs and Super PACs on both sides of the aisle — have already spent a combined $34.1 million on Senate and House races, according to a Bloomberg News analysis of Federal Election Commission data. That’s nearly double the amount spent at this point in the 2012 campaign. The Freedom Partners Action Fund Super PAC, a political arm of the Koch empire, has divided nearly $10 million among four key Senate races in Wisconsin, Nevada, Pennsylvania, and Ohio. It has, however, kicked in only $36,000 for anti-Hillary efforts and not a penny for Trump.

American Crossroads, a Karl Rove Super PAC, is also opting to focus on Republicans in the Senate, though so far it has doled out just $100,000 for that effort and $135,000 against Hillary. Rove has called Trump “a petty man consumed by resentment and bitterness,” which tells you all you need to know about where he’s likely to put his outfit’s money this election season.

It’s increasingly clear that the GOP establishment is playing a different end game than The Donald. Whether Trump or Hillary wins, they want a Congress stacked in favor of their needs, and perhaps many of them are looking to a Paul Ryan run in 2020 as their saving grace.

Trump Wins

So here’s a question for that ultimate insider of outsiders: Can Donald Trump actually lose the 2016 election?  Let’s say Hillary beats him, as the polls of the moment suggest she will.  Has he lost?  Probably not.

After all, he’s brought his brand to a far broader global audience on a stage so much larger than any Apprentice imaginable. He could lose dramatically, blame the Republican establishment for being mean to him, and then expand the Trump brand into new realms, places like Russia, where he’s long craved an opening. Vladimir Putin and he could golf together bare-chested while discussing the imminent demise of the American empire. "My country could have been great again," he could sigh, "if only it had voted me in." His consolation prize: a Trump Casino in Moscow’s Red Square?

In other words, whether the establishment supports him or not, whether he wins on November 8th or not, his brand wins, which means that he triumphs.

Consider this: the Old Post Office building on Pennsylvania Avenue with views of the White House is already wrapped in blue Trump International banners as it’s being converted into a luxury hotel. Due to open two years ahead of schedule and two months before Election Day, it’s one of Ivanka’s projects.  It ensures that her father has branded the avenue regardless of whether he ends up in the White House or not. Given the property’s location and what its “presidential suite” is sure to look like, working in the Oval Office might prove to be a downgrade.

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Piling on to Italy’s growing mountain of worries, this evening the IMF itself warned that Europe’s third largest economy would grow by less than 1% this year and only marginally faster in 2017, slashing its previous forecasts of 1.1% and 1.25% growth for the next two years, mostly as a result of the most convenient scapegoat available in Europe at the moment: Brexit (which has become to Europe as “cold weather” has been to the US for the past two years).

Christine Lagarde’s organization said Italy was “recovering gradually from a deep and protracted recession”, but said the healing process was likely to be “prolonged and subject to risks”. It used its article IV consultation – an annual economic and financial health check – to stress that Italy was vulnerable to a cocktail of threats that could have knock-on effects for the rest of Europe and the world.

The IMF dour outlook may be overly generous. While economists have been racing to downgrade Italy’s outlook since the British referendum, Italy’s own employers’ lobby Confindustria now sees growth of just 0.8% this year dropping further to 0.6% in 2017.  Italy, long one of Europe’s most sluggish economies, will struggle to close the gap with its peers even if recent reforms are fully implemented, the IMF report said.

The punchline: only by around 2025 will Italian output return to its 2008 peak before the global financial crisis, according to the IMF. In the same period, growth among Italy’s euro zone partners is expected to rise by 20–25% above their pre-crisis levels. In other words, Italy is now in the middle of what will end up being a two-decade recession.

“The authorities thus face a monumental challenge. The recovery needs to be strengthened to reduce high unemployment faster and buffers need to be built, including by repairing strained bank balance sheets and decisively lowering the very high public debt,” the report said.

“Downside risks arise from delays in addressing bank asset quality, intensified global financial market volatility – including from Brexit, the global trade slowdown weighing on exports, and the refugee influx and security threats that could further complicate policymaking,” said the IMF. “If downside risks were to materialise, regional and global spillovers could be significant, given Italy’s systemic weight.”

And speaking of Italy’s weakest links, the banks, the IMF said that “risks are tilted to the downside,” listing a raft of issues including the poor asset quality of Italy’s banks, financial market volatility and the impact of a global trade slowdown on exports.

“If downside risks were to materialize, regional and global spillovers could be significant given Italy’s systemic weight,” it said.

In an assessment that will hardly help Italian bank stocks, the IMF said that the country’s banks, which are saddled with some 360 billion euros of bad loans and whose share prices have fallen by more than 50 percent this year, are a particular threat to the economic outlook, the IMF said. “Unless asset quality and profitability problems are addressed in a timely manner, lingering problems of weaker banks can eventually weigh on the rest of the system,” it warned.

Finally, in keeping with the tradition of having political involvement, Lagarde sided with the side of Renzi and against Merkel and Dijsselbloem, both of whom have denied Italy’s repeated pleas for a bailout, saying that If EU-wide stress tests show that financial stability is at risk, there is scope for Italy to use public money to recapitalize its banks, the head of the IMF’s mission to Italy, Rishi Goyal, said in a conference call.

To what extent this could be done without triggering losses to investors under newly adopted “bail-in” rules would depend on negotiations between Italy and the EU, Goyal said.

It was also unclear just who would determine what conditions would define a financial system under stress.

Italy’s public debt, the highest in the euro zone after Greece’s, will not fall this year as targeted by the government of Prime Minister Matteo Renzi, the IMF said. In a forecast made before the UK referendum, the IMF said Italy’s debt would edge up to a new all-time peak of 132.9 percent of gross domestic product from 132.7 percent last year.

Italy’s finance minister, Pier Carlo Padoan, vows there is not banking crisis.

Still, all of this may be moot if various unconfirmed rumors of Italian cashless ATMs end up being true. What is most troubling, however, if past is prologue is the desperate plea by Italy’s finance minister, Pier Carlo Padoan, to restore some confidence in Italy’s banks, to wit:

• PADOAN SAYS THERE’S NO LOOMING BANKING CRISIS IN ITALY

Traditionally, it is such “political” (and futile) statements such as that one – especially when everyone knows they are false – which do precisely the opposite of their intended goal, and emerge just days before the worst case scenario becomes a reality.

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Just hours after Kimberly-Clark, the consumer-products giant that owns Kleenex and Huggies, said it will shutter its Venezuela operations after years of grappling with soaring inflation and a shortage of hard currency and raw materials, Venezuela retaliated by announcing it would seize the factory.

Over the weekend, Kimberly-Clark said that the South American nation’s deteriorating economic situation had made “it impossible to continue our business at this time.”  The company had made a number of hard-to-find staples in Venezuela such as diapers and face tissues.

As Bloomberg adds, the decision will likely to add to shortages that have gripped Venezuela for the past few years after the ruling socialists capped the price on many consumer basics below production costs.” As we have documented repeatedly, desperate shoppers now routinely spend long hours in front of stores to purchase essential products ranging from toilet paper to rice. At the same time, companies face hefty losses on price-controlled goods, while the products are often flipped on the black market for many times their sticker price.

So in retaliation, Venezuela’s government announced it had seized the factory.  Labor Minister Owaldo Vera said Monday that the socialist government took the action at the request of the 971 workers at the factory that the company decided to shutter. The seizure follows a similar takeover from 2014 when Clorox announced it was closing its doors.

“Kimberly-Clark will continue producing for all of the Venezuelans,” Vera said in a televised statement from the factory surrounded by workers chanting pro-government slogans. That statement was not exactly true: former workers of the company would continue producing under the observation of government management. We doubt this “forced restructring” will survive more than a few months.

Maduro’s socialist government accused Kimberly-Clark of failing to properly notify the government of its plans. The Irving, Texas-based company did not comment Monday about Venezuela’s actions.

Kimberly-Clark joins Bridgestone, General Mills, Procter & Gamble and other multinational corporations in scaling back operations in Venezuela amid its economic crisis. More will follow.

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Just hours after Kimberly-Clark, the consumer-products giant that owns Kleenex and Huggies, said it will shutter its Venezuela operations after years of grappling with soaring inflation and a shortage of hard currency and raw materials, Venezuela retaliated by announcing it would seize the factory.

Over the weekend, Kimberly-Clark said that the South American nation’s deteriorating economic situation had made “it impossible to continue our business at this time.”  The company had made a number of hard-to-find staples in Venezuela such as diapers and face tissues.

As Bloomberg adds, the decision will likely to add to shortages that have gripped Venezuela for the past few years after the ruling socialists capped the price on many consumer basics below production costs.” As we have documented repeatedly, desperate shoppers now routinely spend long hours in front of stores to purchase essential products ranging from toilet paper to rice. At the same time, companies face hefty losses on price-controlled goods, while the products are often flipped on the black market for many times their sticker price.

So in retaliation, Venezuela’s government announced it had seized the factory.  Labor Minister Owaldo Vera said Monday that the socialist government took the action at the request of the 971 workers at the factory that the company decided to shutter. The seizure follows a similar takeover from 2014 when Clorox announced it was closing its doors.

“Kimberly-Clark will continue producing for all of the Venezuelans,” Vera said in a televised statement from the factory surrounded by workers chanting pro-government slogans. That statement was not exactly true: former workers of the company would continue producing under the observation of government management. We doubt this “forced restructring” will survive more than a few months.

Maduro’s socialist government accused Kimberly-Clark of failing to properly notify the government of its plans. The Irving, Texas-based company did not comment Monday about Venezuela’s actions.

Kimberly-Clark joins Bridgestone, General Mills, Procter & Gamble and other multinational corporations in scaling back operations in Venezuela amid its economic crisis. More will follow.

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With the market just shy of all-time highs, it would be reasonable for one to assume, looking at nothing else, that the American economy is wonderful. One may even wish to ponder the joyous thought of a younger generation living better than their parents. The problem is that the youth of America are saddled with debt and the university they took on the debt to attend left them with a lacking skill-set after graduation.

So what's an American youth to do? Aside from perhaps investing it in a Ghost Skyscraper.

Call Provident Loan Society of New York and pledge your family heirlooms for rent money.

That's how all great economies work right? The New York Post reported earlier that Provident's chief of marketing Scott Watson spoke with Post reporter Lisa Fickenscher and said his firm, which secures microloans with valuable jewelry, has seen volumes increase 8% this year. He added that most of his clients are in their mid-thirties.

Provident Loan Society of New York – a nonprofit that provides microloans secured by valuable jewelry – reports that the number of new customers applying for loans is up 8 percent year-to-date compared with 2015.

 

“These are people who have inherited jewelry and might have a shortfall on their rent or a medical bill,” Scott Watson, chief marketing officer, told our Lisa Fickenscher. Upper East Side-based Provident was founded by J.P. Morgan and Cornelius Vanderbilt in 1893.

 

 

Provident is holding an auction on July 12 at Doyle New York of baubles belonging to borrowers who either couldn’t pay off their loan or chose not to.

 

Among the items is an 18-karat gold Bulgari bracelet with 24 diamonds for an estimated $5,000.

Not shocking in lieu of what we said one month ago, almost to the day:

According to CLSA economists, who have updated an analysis we first did in the summer of 2010, if the participation rate stayed at the levels before the financial crisis, the unemployment rate would be 9.6%, more than double what it is today.

But hey, as long as we're not clear on what data we're "data dependent" on, reality is whatever you want to make it be but when the bills comes due and you can't afford it, you may be asking Do I Need A Roomate?

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Submitted by Gary via Notes From The Rabbit Hole blog,

“If I had a world of my own, everything would be nonsense. Nothing would be what it is, because everything would be what it isn’t. And contrary wise, what is, it wouldn’t be. And what it wouldn’t be, it would. You see?” –Alice in Wonderland

Silver out performs gold as both rise with Treasury bonds, which are in turn rising with stocks, as Junk bonds hit new recovery highs while USD remains firm as inflation expectations are out of the picture. This is highly atypical, maybe even unprecedented.

Some, deeply dug into their particular disciplines and biases, might say it is dysfunctional, as this backdrop simply does not make sense using conventional methods of analysis. Why again did I name this service Notes From the Rabbit Hole?

When the S&P 500 was robo rising month after month, year after year as it did from 2011 to 2015, you did not need the market report with the funny name because all was linear and as it should be. The same actually, could be said for gold. It was linear and as it should be in its relentless downtrend. Casino patrons simply ride the trends!

But today things are making sense simply because we don’t have a need to make them make sense as linear thinkers would do; we go with the indicators and charts.

As I watch the macro burp up all kinds of paradoxes and inconsistencies, I can’t help thinking back to the day that the ‘Hero’ announced Operation Twist, which in turn got me announcing “they are painting the macro”. When Ben Bernanke took the bold step into the great unknown of extreme and unconventional policy I felt the markets had been disconnected from commonly accepted wisdom maybe not for good, but for as long as the system and its current modes of operation are in effect.

To review, Operation Twist forced changes upon the macro because it “sanitized” (the Fed’s actual word for it) inflation expectations right out of the picture. The mechanics of this sanitization were the Fed selling short-term Treasury bonds (putting upward pressure on short-term yields) while simultaneously buying long-term Treasury bonds (putting downward pressure on long-term yields). The yield curve was changed from out of control (up) to in control (and down trending). From the Calculated Risk blog (http://ift.tt/IiXOKI)…

September 21, 2011: “Operation Twist” announced. “The Committee intends to purchase, by the end of June 2012, $400 billion of Treasury securities with remaining maturities of 6 years to 30 years and to sell an equal amount of Treasury securities with remaining maturities of 3 years or less.”

Commodities (led by silver) blew off in early 2011 amid gold bugs’ and inflationists’ mantras like ‘Helicopter Ben is causing hyperinflation!!!’, and gold blew off later, into the time frame of Op/Twist’s announcement as the world knee jerked into the metal during the acute phase of the Euro Crisis. Talk about dysfunction.

Well, he showed ‘em but good that he was not “Helicopter Ben” but rather, the bringer of a deflationary phase that has lasted until this day (judging by ‘inflation expectations’, which remain slammed to the mat).

Bernanke, the “hero” actually gave his own country something better; while much of the rest of the world had to deal with deflation, the US, a largely consumer driven economy, leveraged its strong currency to “service itself”, as I have often written after Payrolls reports showing Healthcare Services, Leisure & Hospitality Services and Professional Services, etc. leading the employment picture.

We began the counter-cyclical Macrocosm theme a year ago but using the Greenspan era blueprint, we can watch to see if it to morphs to ‘inflationary growth’.

But might inflation actually get out of control this time? Might deflation reemerge with a vengeance and liquidate the system? Or might disparate market signals simply coexist on occasion (like now) due to dysfunction by policy?

The point I am trying to make is that while I probably get a little aggressive in critiquing lazy, linear thinkers (especially in the gold bug camp) predicting the end of the world all the time, I keep a tin foil hat in my office as well. When I wrote about Bernanke “painting the macro” with Op/Twist and posted those Outer Limits “sit quietly and we will control all that you see and hear” posts, it was firmly affixed and blocking the government’s mind control and scanning activities.

The macro has been painted by US policy and increasingly and aggressively now, by global policy. Bonds, the instruments that used to be gauges of economies, valuations and inflation are little more than tools, manipulated at will by US and global policy makers. So the tin hat is on, but please put the lie to this statement if you can.

So why is silver out performing gold, yet Uncle Buck is holding steady? Why is risk ‘off’ gold rising along with the most risk ‘on’ asset on the planet, Junk bonds (see an interesting clue in the Macro Indicators segment below)? We are in uncharted waters and open minds are what’re needed. With the world huddling in post-Brexit deflation mode, we should just continue to follow the indicators and the charts while realizing that in due time, the macro fundamentals will emerge. Even though the stimulus is dysfunctional, some semblance of normal trends will emerge just as they did post Op/Twist.

But if the current situation is a close out to the 2011-2015 ‘Twist’ period, when dysfunction morphed to commonly accepted economics, what’s to say that we will not resolve to a new sort of dysfunction; an unexpected dysfunction?

This chart was created years ago to illustrate what I thought was in progress, which was a “close out” of fear and hysteria as marked by the gap up in gold vs. SPX in January of 2008. That gap (actually two of them) was the first step to the acute phase of the US financial crisis, which was ultimately the trigger for the unprecedentedly unconventional policy that followed and remains in effect today.

While I originally expected that the new phase (as indicated by Gold-SPX) would involved a deflationary counter-cycle, recent data points (including the Semi Equipment sector) indicate the opposite condition may yet emerge. Again, the indicators will tell.

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By Mark Perry of the Foundation for Economic Education

Following Minimum Wage Increases, Unemployment Spikes among Black Male Teensas

Perhaps one of the more interesting data points from last week’s Employment Report is displayed in the graph above, which shows that the jobless rate for black male teens (aged 16-19 years) increased to 40.1% in June from 28.1% in May. Except for a slightly higher increase of 12.2 percentage points during the aftermath of the Great Recession, the 12 percentage point increase in June was the highest monthly increase in history going back to 1972 when the BLS starting keeping records for this series. One possible explanation for this spike would be the “midyear burst of minimum-wage increases on July 1” outlined in a recent WSJ article:

On July 1, 14 U.S. cities, states and counties, plus the District of Columbia, will raise their minimum wage in a mid-year burst that reflects the legislative momentum to boost pay floors across the country while federal legislation stalls. In total, the minimum wage will rise in 15 places: two states – Maryland and Oregon, plus Washington, D.C., Los Angeles County, Calif., and 11 cities. That includes Chicago, eight cities in California and two in Kentucky, according to a new analysis by the right-leaning Employment Policies Institute.

As we learned from Milton Friedman many years ago:

The minimum wage law is most properly described as a law saying that employers must discriminate against people who have low skills. That’s what the law says. The law says that here’s a man who has a skill that would justify a wage of $5 or $6 per hour (adjusted for today), but you may not employ him, it’s illegal, because if you employ him you must pay him $7.25 per hour. So what’s the result? To employ him at $7.25 per hour is to engage in charity. There’s nothing wrong with charity. But most employers are not in the position to engage in that kind of charity. Thus, the consequences of minimum wage laws have been almost wholly bad. We have increased unemployment and increased poverty.

Moreover, the effects have been concentrated on the groups that the do-gooders would most like to help. The people who have been hurt most by the minimum wage laws are the blacks. I have often said that the most anti-black law on the books of this land is the minimum wage law.

MP: As I commented when I posted the minimum wage chart today on Twitter: “Will a $15 an hour minimum wage make it easier or harder for this group to find a job? Progressives, please discuss.”

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Authored by Peter Schweizer, originally posted at Politico.com,

The past few weeks have brought a myriad of revelations about the private server Hillary Clinton used while she was secretary of state. First, there was the State Department inspector general’s devastating critique of the former secretary’s email practices. Then came sworn testimony of two key Clinton aides about how the server was set up and how the system worked (or didn’t). Just this weekend, Clinton met with the FBI to discuss her email arrangements. And on Tuesday, FBI Director James Comey announced that the agency would not recommend criminal charges over the handling of these emails, while at the same time offering a brutal assessment of how poorly Team Clinton handled classified information.

But, when it comes to Clinton’s correspondence, the most basic and troubling questions still remain unanswered: Why are there gaps in Clinton’s email history? Did she or her team delete emails that she should have made public?

The State Department has released what is said to represent all of the work-related, or “official,” emails Clinton sent during her tenure as secretary—a number totaling about 30,000. According to Clinton and her campaign, when they were choosing what correspondence to turn over to State for public release, they deleted 31,830 other emails deemed “personal and private.” But a numeric analysis of the emails that have been made public, focusing on conspicuous lapses in email activity, raises troubling concerns that Clinton or her team might have deleted a number of work-related emails.

We already know that the trove of Clinton’s work-related emails is incomplete. In his comments on Tuesday, Comey declared, “The FBI … discovered several thousand work-related e-mails that were not in the group of 30,000 that were returned by Secretary Clinton to State in 2014.” We also already know that some of those work-related emails could be permanently deleted. Indeed, according to Comey, “It is also likely that there are other work-related e-mails that [Clinton and her team] did not produce to State and that we did not find elsewhere, and that are now gone because they deleted all emails they did not return to State, and the lawyers cleaned their devices in such a way as to preclude complete forensic recovery.”

Why does this matter? Because Clinton signed documents declaring she had turned over all of her work-related emails. We now know that is not true. But even more importantly, the absence of emails raises troubling questions about the nature of the correspondence that might have been deleted.

Based on the emails the State Department released, Clinton sent or received an average of 21 work emails per day during her tenure—including on her numerous trips overseas, when email must have been a lifeline for communication. But there are numerous odd low-traffic days in the email record during her foreign travel. For example, from July 17-23, 2009, Clinton made a high-profile visit to India and Thailand. She not only issued a pivotal joint statement with the Indian government on nuclear technology, she also met with Indian billionaires at the start of her visit. On July 22, she met with Russian Foreign Minister Sergei Lavrov in Thailand to discuss arms control. And yet, if you look at what she claims is her complete email record released by the State Department, on July 18 and July 20 of this trip, she did not send or receive a single email that was deemed work-related.

Could it be that Team Clinton avoided email while she was traveling as a security precaution? Her pattern during other travels doesn’t support that possible explanation. During her 2010 visit to Ukraine on July 1-2, for example, she sent and received 38 emails over both days. During her June 27-29, 2012, visit to St. Petersburg, Russia, she sent and received 65 emails over those three days.

Could it be that her BlackBerry didn’t work in certain countries? No. The server back in Chappaqua would still be receiving emails whether the BlackBerry was connected or not. Short of the server going down, for which there is no evidence, there is no technological explanation for this gap.

There are other anomalies. The email traffic for the secretary of state seems for the most part to be event-driven. For example, during Muammar Qadhafi’s removal from power in Libya, on Aug. 22, 2011, Clinton received 133 work-related emails, way more than average. However, there are some important events with virtually no corresponding email traffic. One useful approach in determining what emails might be missing is to overlay the Clinton emails with State Department cables that were released via WikiLeaks. As one might expect, the volume of cables and the volume of emails about specific events tend to rise and fall together. (Obviously, we cannot account for emails redacted prior to public release.) Consider these examples: the earthquake and rebuilding of Haiti, the Copenhagen climate treaty, the military coup in Honduras and diplomatic matters concerning the Lisbon Treaty. As we demonstrate below, the number of State Department cables and Clinton emails either sent or received that mention these matters rise and fall together.

 

But then there is an instance where the State Department cable traffic rises and there are few if any Clinton corresponding emails. It’s the case of Rosatom, the Russian State Nuclear Agency: Clinton and senior officials at the State Department received dozens of cables on the subject of Rosatom’s activities around the world, including a hair-raising cable about Russian efforts to dominate the uranium market. As secretary of state, Clinton was a central player in a variety of diplomatic initiatives involving Rosatom officials. But strangely, there is only one email that mentions Rosatom in Clinton’s entire collection, an innocuous email about Rosatom’s activities in Ecuador. To put that into perspective, there are more mentions of LeBron James, yoga and NBC’s Saturday Night Live than the Russian Nuclear Agency in Clinton’s emails deemed “official.”

 

What could explain this lack of emails on the Russian Nuclear Agency? Were Clinton’s aides negligent in passing along unimportant information while ignoring the far more troubling matters concerning Rosatom? Possibly. Or, were emails on this subject deleted as falling into the “personal” category? It is certainly odd that there’s virtually no email traffic on this subject in particular. Remember that a major deal involving Rosatom that was of vital concern to Clinton Foundation donors went down in 2009 and 2010. Rosatom bought a small Canadian uranium company owned by nine investors who were or became major Clinton Foundation donors, sending $145 million in contributions. The Rosatom deal required approval from several departments, including the State Department.

Equally bizarre is the absence at certain times of basic logistical emails pertaining to Hillary Clinton’s husband, former President Bill Clinton. In general, Bill gets plenty of mention in the official emails released by the State Department, emails covering everything from travel logistics to press releases about Clinton Foundation work. But there’s an email silence in June 2010, when Hillary Clinton was in South America for a series of high-level meetings. According to her memoir, “by coincidence” Bill was in Bogota, Colombia, apparently for Clinton Foundation work, at the same time she was in the country. Also there with Bill was Frank Giustra, one of the Clinton Foundation’s largest contributors. Bill, Hillary and Giustra reportedly had dinner together, and the next morning, Bill met with Colombia’s President Alvaro Uribe, followed immediately by Hillary’s meeting with Uribe. In the weeks that follow, Giustra’s companies scored concessions from the Colombian government on matters ranging from oil to timber.

The State Department released plenty of emails concerning Bill Clinton during other foreign trips when Hillary and Bill were traveling together, including dining recommendations, travel schedules and records of Bill’s daily activities. And yet there is not a single email in the public Clinton email trove about Bill’s presence in Colombia, the couple’s dinner with Giustra or the fact that Bill and Hillary met separately and back-to-back with Uribe.

These omissions could come down to Clinton’s definition of “personal.” Clinton and her team have claimed that the only emails that were deleted pertained to personal matters, or as she put it, “emails about planning Chelsea’s wedding or my mother’s funeral arrangements, condolence notes to friends, as well as yoga routines, family vacations, the other things you typically find in inboxes.” But the system by which this sorting took place was highly arbitrary, and was undertaken not by objective government officials but by lawyers and close aides. Keep in mind that those lawyers have used a more expansive term than Clinton to describe what was deleted. They called them “private, personal records.” By this definition, “private, personal records” doesn’t just have to apply to wedding planning; that term could involve anything related to the Clinton Foundation or Bill’s commercial activities. But the world has a right to know if and when Hillary Clinton’s State Department work overlapped with the Clinton Foundation’s agenda—and what resulted from such blurring of lines.

The media has spent a lot of time parsing through the Clinton emails that already have been released—compiling lists, looking for specific names or discussion of particular issues. But they ought to pay more attention to the holes. Bob Woodward has declared that Hillary Clinton’s email scandal “reminds me of the Nixon tapes.” He’s right. In that case and here, it’s not what’s in the record that’s most troubling. It’s what’s not there.

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