Hamas Says Planned Israeli Annexation A “Declaration Of War” While IDF Vows ‘We’re Ready’ Tyler Durden
Fri, 06/26/2020 – 18:05
In late April Israeli Prime Minister Benjamin Netanyahu shocked the region in declaring he expects that by middle of summer Israel would move to annex broad swathes of the West Bank, including the Jordan Valley, as part of Trump’s “deal of the century” peace plan. The date consistently referenced in Israeli media reports is July 1st.
“President Trump pledged to recognize Israeli sovereignty over the Jewish communities there and in the Jordan Valley,” Netanyahu said. And just this week, Secretary of State Mike Pompeo responded to an urgent United Nations appeal not to go through with it ahead of the July 1 target date by saying the matter issolely up to Israel to decide.
This as senior Trump aides reportedly met this week to hash out the matter of whether the administration should give the final “green light” – given it appears Tel Aviv is awaiting the moment of unambiguous backing before annexation. This is because it is sure to spark conflict on the ground. Hamas on Thursday said that annexation will be “a declaration of war”.
Hamas file image: AFP
Hamas military spokesperson Abu Obeida vowed that Israel will “bitterly regret” such a provocative decision and act of aggressive, Fox News reports. He called it a “declaration of war against the Palestinian people” in a video message directed both at Israel and for supporters. He vowed his Ezzedine al-Qassam Brigades will fight as a “loyal guard in defending the Palestinian people and their lands and holy sites.”
Previously senior Hamas officials also said any hope for political dialogue or settlement would be forever destroyed. “Palestinians would not accept these plans at all. They are going to resist these plans by all means available. Gaza is not excluded from this,” another official, Basem Naim, said.
Already the planned annexation has resulted in large protests this week in West Bank cities and towns.
It also appears the Israeli Defense Forces (IDF) are making ready: “The upcoming events can develop into fighting in Gaza,” IDF Chief of Staff Aviv Kohavi said as Israel braces for a possible new intifada. The IDF has essentially said ‘we’re ready to go’.
Former Army Chief of Staff Benny Gantz and Prime Minister Benjamin Netanyahu have formed a power sharing unity government. Image: JTA-Wikimedia
“I suggest that Hamas leaders remember that they will be the first to pay for any aggression,” Israeli Defense Minister Benny Gantz stated Thursday. Gantz is also serving as ‘alternate PM’ as part of the power-sharing agreement with Netanyahu. He further underscored that Israel “will not accept threats”.
The Palestinians from the start have rejected the Trump peace plan, given it allows Israel to annex up to 30% to 40% of the West Bank, including all of East Jerusalem, and further the Palestinian Authority (PA) has claimed it was never ultimately invited to the table as an equal part to negotiations, but that Israel has gotten everything it wants without sacrificing anything.
via ZeroHedge News https://ift.tt/385qnNC Tyler Durden
The recent economic downturn has created the environment for a new round of bailouts by the government and the Fed. Last time they did this they told us it would be the last one, but anyone who knows our history knew that was not going to stand. Now we are told again that this is an exceptional situation and we must bail out businesses in trouble so that the economy can restart again as quickly as possible. But this is the same argument the government has always made when pushing for a bailout. What is more, every time the government has bailed out businesses, they have promised us that this will not create moral hazard.
Moral hazard here refers to the ability to take risk without fear of suffering the consequences. As I show below, businesses profit by making bad short-term decisions, and when these bad decisions bring them to the brink of bankruptcy, they are bailed out by taxpayers. So, the owners of these firms and their CEOs benefit from the upside, and taxpayers foot the bill on the downside. In what follows, I review the history of bailouts in the US and argue that we must consider bringing an end to bailouts if we want to have the real and sustainable economic growth we desperately need.
Financial Institutions Bailouts 1.0 and 2.0
After the savings and loan (S&L) industry had struggled for many years, government finally came to the rescue. The federal government, at the time under the leadership of President George H.W. Bush, passed a bailout that cost taxpayers $124 billion ($264 billion in today’s dollars). It is important for our purpose here to keep in mind that in the lead-up to this many of these firms had taken advantage of the booming housing market. Many of these companies lent too much money, and when the economy weakened they could not keep up with the losses. This led L. William Seidman, former chairman of the Federal Deposit Insurance Corporation (FDIC) and the Resolution Trust Corporation, to say that “The banking problems of the ’80s and ’90s came primarily, but not exclusively, from unsound real estate lending.” Hence, these companies were not prudent during the good times and did not plan for a downturn.
This was not the last time financial institutions were bailed out. Banks, along with the artificially low interest rates, were the main cause of the Great Recession. History repeated itself as the federal government stepped in and bailed them out again. We were told that the banks and AIG (American International Group) were “too big to fail” and could not be allowed to go bankrupt because the harm to the economy would be enormous. These bailouts—for AIG, the banks, Fannie Mae, and Freddie Mac—cost the taxpayers $621 billion in today’s dollars, or more than twice the previous bailout. But, aren’t the banks stronger now? one could ask. This is a fair question, yet the banks would be strong if we let them liquidate the parts of their companies that were hit the most. Had we done this we would have a stronger banking system and no moral hazard for the rest of the economy.
Automakers Bailouts 1.0 and 2.0
During the Great Recession the government bailed out the three big automakers in the US. But this was not the first time the government had bailed out a car company. Chrysler had already been bailed out in 1979, when they got $1.5 billion ($5.7 billion in today’s dollars). It is important to point out why Chrysler had needed to be bailed out. Charles Hyde, professor of history at Wayne State University and author of Riding the Roller Coaster: A History of the Chrysler Corporation, had this to say:
Well, in essence they made some very bad product choices throughout the 1970s. They decided to become specialists in large, gas-guzzling cars, and they did that right at the time there were two different Arab oil boycotts and crises with the price of gasoline. And their cars simply didn’t sell. The other problem they had were very serious quality problems. Their cars were probably the worst-built cars in any showrooms anywhere.
Chrysler emerged stronger after this; they made the necessary changes, and it seems that at least for a while they did well. But in 2008 Chrysler and GM both found themselves in trouble. This time around, the bailout was about $100 billion adjusted for inflation, which is about 17.5 times the previous one. And, again, we know these firms had made bad decisions (misallocated resources), since Ford and other car companies did not need a bailout.
The concerned reader may ask, Aren’t the bailouts the price we have to pay to save jobs? The problem is that these companies never really fixed their problems. While low interest rates have helped them, they have also made them more fragile. As I have written elsewhere, the car market is in an unsustainable bubble, and with sales going down and delinquencies that were already rising, another crash and maybe another round of bailouts seem inevitable. In fact, the Fed has already implicitly “bailed out” Ford by promising to buy the fallen angels‘ debt. So, while the bailouts may save some jobs in the short run, they will cause much more trouble in the long run.
Airline Bailout 1.0 and 2.0
Following the attack on 9/11, airline traffic suffered a big hit and the airline firms needed the government’s help “to survive.” The government at the time provided $5 billion in grants and $10 billion in loans (about $22 billion in today’s dollars). After the bailout bill was passed President George W. Bush said:
I commend the Congress for their cooperation and quick action in passing responsible legislation that will improve passenger safety, help the victims and their loved ones, and keep America’s airplanes flying while the airlines develop long-term viability plans.
But as it turns out, airline companies did not develop very good “long-term viability plans.” Recently, the US airlines were hit with the same problem they had after 9/11—a lack of passengers because of the COVID-19 crisis—and they could not have been less prepared for this. One would expect an industry that had experienced a similar situation not so long ago to be better prepared than others, but they clearly were not.
The government stepped in again and has bailed them out by allocating $25 billion in grants (30 percent of which will be repaid as a loan over ten years) and an additional $25 billion in loans.
But again one may ask, Doesn’t this save jobs? The answer to this important question is that this may save some jobs in the short run, yes, but the cost will be very high, since these jobs are not sustainable. What is more, this bailout will lead to lower economic growth, since the necessary resource reallocation will not happen.
Bailouts Lead to Lower Economic Growth
Our history of bailouts shows that we have created tremendous moral hazard. As I have argued above, some industries or firms have been repeatedly bailed out. Hence, these companies have never learned to be prudent and save for a rainy day, which shows that they are incompetent at best or simply care only for short-term profits. Take the airline industry, for instance. In the post–Great Recession period, the airline industry used 96 percent of its profits to buy back stocks and did not plan for a downturn. It is true that it was not easy to predict a situation like the current one caused by COVID-19, but many would disagree that this was ablack swan, including Nassim Taleb himself.
Hence, the bailouts have led to bad use of resources, which can explain, at least in part, the slow economic growth we have experienced post–Great Recession. The issue with bailouts is that the tradeoffs we face are higher unemployment now followed by higher and sustainable economic growth later, or lower unemployment now followed by lower economic growth later. Bailouts are directly connected to productivity, as the graph below shows. This means that the more bailouts we have the lower the economic growth. This makes sense, since economic theory tells us that when a company fails it means that they were not using resources efficiently. If the company goes bankrupt, then either some or all of the resources will be transferred to more prudent investors, which will lead to better use of these resources and higher economic growth. On the other hand, when a company is bailed out, they will continue to make bad decisions and even worse others will get the message that they will not be held responsible by the market if they make bad decisions.
The good news is that some people are starting to speak out against these huge wealth transfers from taxpayers to large corporate shareholders and CEOs. In a recent interview for CNBC, Chamath Palihapitiya argued that companies that were not prudent should be left to go bankrupt. Sadly, many people are convinced that this would lead to massive unemployment, such that we are not bailing out corporations, but are rather helping workers. That is not quite the real story. When companies file for Chapter 11 bankruptcy, it is the shareholders and the speculators who get hurt, not the workers.
Yet the federal government and the Fed are doing anything they can to keep the debt bubble going. This is nothing new, since the federal government and the Fed have brought us to the current situation in concert. The Fed’s low interest rate policy together with the implicit bailout guarantee from the federal government led corporations to borrow too much. This has made the economy so fragile that it could not even handle interest rates at half of what they were before the last crisis started. As the Fed increased interest rates in 2018, the economy started to slow down so fast that they had to reverse and start lowering interest rates in 2019. Now they effectively stand at zero. Low interest rates, along with the many programs the Fed has implemented during the COVID-19 crisis, have led corporations to borrow more than $617 billion in the last two months alone. So, the story of bailouts and low interest rates continues. But until it ends we cannot expect to have the real and sustainable economic growth we desperately need.
via ZeroHedge News https://ift.tt/3dIXx7a Tyler Durden
3,500 Mile-Long “Godzilla Dust Cloud” Will Hit US Southeast Within Hours Tyler Durden
Fri, 06/26/2020 – 17:25
A giant dust cloud which has traveled 5,000 miles from North Africa is touching down on the US Southeast this weekend, and will cause a brown haze and raising respiratory health concerns amid the coronavirus pandemic, according to Reuters.
The North African dust storm is an annual occurrence – however this year it’s the most dense it’s been in more than 50 years according to meteorologists, which some have dubbed the “Godzilla dust cloud.”
This weekend it will descend on Florida, moving west into Texas and into North Carolina through Arkansas, according to the National Weather Service (NWS).
“It’s a really dry layer of air that contains these very fine dust particulates. It occurs every summer,” according to NWS meteorologist Patrick Blood. “Some of these plumes contain more particles, and right now we expecting a very large plume of dust in the Gulf Coast.”
This year, the dust is the most dense it has been in a half a century, several meteorologists told Reuters earlier this week as it crossed over the Caribbean.
The Saharan dust plume will hang over the region until the middle of next week, deteriorating the air quality in Texas, Florida and other states where the number of COVID-19 cases has recently spiked. –Reuters
“There’s emerging evidence of potential interactions between air pollution and the risk of COVID, so at this stage we are concerned,” said Boston University School of Public Health professor of environmental health, Gregory Wellenius.
Skies in affected states are expected to be hazy with reduced visibility, along with a blanketing of dust. According to meteorologists, the dry air mass that carries the dust can suppress the formation of hurricanes and tropical storms, and can produce enhanced sunrises and sunsets.
via ZeroHedge News https://ift.tt/2YBCY8b Tyler Durden
Are you ready for this week’s absurdity? Here’s our Friday roll-up of the most ridiculous stories from around the world that are threats to your liberty, risks to your prosperity… and on occasion, inspiring poetic justice.
Today we tackle the woke…
NYC’s inspiring breakthrough in the science of contact tracing
“Contact tracing” is a tactic whereby public health officials attempt to track where you’ve been, and who you’ve been in contact with, in their efforts to contain a pandemic.
And we’ve seen a lot of contact tracing efforts lately.
New York City hired thousands of contact tracing specialists who are tasked with calling everyone who tests positive for Covid-19 and interviewing them to help identify who else they might have infected.
But now New York City’s Comrade Mayor Bill de Blasio has instructed his contract tracers to specifically NOT ask if an infected person attended a Black Lives Matter protest.
Seriously… what’s the point?
The entire idea of contact tracing is to find out who else might have been in close proximity. To deliberately NOT ask someone if they’ve been in close proximity of thousands of other people sort of defeats the purpose of the entire contract tracing program to begin with.
Naturally, New York City health officials have already said that any spike in Covid infections should be blamed on racism, and not mass gatherings of people.
And that’s what constitutes science in 2020.
This is another obvious sign of woke intersectionality.
Governments act like public health is their number one concern. They shut down the entire economy and refused to allow people to attend worship services, all to keep us safe from a strand of ribonucleic acid.
But in actuality they’re far more concerned with building political credibility with protestors, and they’re willing to completely make up science in order to do so.
Protesters destroy statues of an ex-slave, abolitionist… leave Lenin untouched
A statue in San Francisco of Miguel Cervantes, author of Don Quixote, was defaced with the word “bastard” spray painted onto it by protesters.
What protesters may not know is that the Spanish author actually spent five years as a slave after being captured off the coast of Africa.
Outside of Wisconsin State Capitol the statue of Hans Christian Heg was also toppled.
Heg was an anti-slavery activist who joined a militia that fought slave traders. Then he joined the Union Army during the Civil War, and died in battle, fighting to end slavery.
Perhaps statues in general are sinful in the new social order.
Except for the statue of Vladimir Lenin in Seattle. His statue has remained untouched.
Duluth Minnesota to delete “Chief” from town titles
The town of Duluth Minnesota decided to remove the term “Chief” from town titles.
They will rename titles such as “Chief Administrative Officer” so that it won’t be offensive to Native Americans.
The police and fire chiefs are also apparently open to taking on new titles.
Mayor Emily Larson explained that the word chief “is language that is offensive to people who are indigenous and actually offensive to a lot of people, especially when there is other language available.”
Chief is actually an Old French word meaning principal, first, leader, or most important.
It is also related to chef, so that should also probably be deleted from the lexicon.
Today Bank of America published its eighth annual Gold and Gold industry primer, and extremely useful report chock full of information including sections on economic drivers, gold supply and demand trends, industry fundamentals and sector valuations. But the main reason why this year’s edition is remarkable, is because with gold trading at $1,770, it is just $100 away from its record hit in Sept 2011, an all time high price which even the skeptics say will be in the rear-view mirror in short notice as a result of the insanity taking place with central bank money printers.
Which is why we will have several extended articles covering some of the more fascinating BofA findings, but until then here – courtesy of BofA’s Jason Fairclough and team – are fifteen fast facts about gold:
Gold never oxidizes, never gets rusty and is shiny forever;
Gold has been mined for over 5,000 years;
Tutankhamen’s coffin contained ~1.5 tonnes of gold;
The WGC estimates that total above ground gold stocks stand at 197,576t, sufficient to satisfy global gold demand for 40+ years;
Gold is virtually indestructible. Still though, If every single ounce of this gold were placed next to each other, the resulting cube of pure gold would only measure around 21 meters on each side;
Illustrating how ductile gold is, a single ounce of gold can be stretched into a gold thread 5 miles long;
The first gold coins appeared around 700 BC;
If all the gold in the world was pulled into a 5 micron wire, it could wrap around the earth 11.2 million times;
The word “gold” comes from the Old English word “geolu,” meaning yellow;
In every cubic mile of sea water there is 25 tons of gold, equal to around 10 billion tons of gold in the oceans;
Three James Bond movies have gold in the title: GoldenEye , Goldfinger, and The Man With The Golden Gun;
The last Olympics which awarded medals made of solid gold was during summer 1912 in Stockholm;
Modern day Olympic gold medals contain a minimum of six grams of gold and with the balance roughly 92.5% silver;
There are more than 400 references to gold in the Bible; and
Gold is becoming scarcer. The WGC estimates below ground gold reserves of 54,000t, which means “peak gold” was passed many years ago.
via ZeroHedge News https://ift.tt/2B3FLhD Tyler Durden
After the 9/11 terror attacks, when our privacies were permanently revoked, and we entered into “a war which would never end in our lifetimes”, Bush II proclaimed “They hate us because of our freedoms”.
Some critics thought that was an almost nonsensical statement to make, while the credulous took it at face value. It framed whoever perpetrated the attacks as some inhuman “other”that despised happiness itself. It was unthinkable anybody could have an actual foreign-policy derived reason for doing it, and anybody who suggested as much was usually hounded out of the public eye.
However I always thought that utterance did have a kernel of truth to it. If you looked at the United States as a global empire, and that the freedoms “they” hated were not actually the ones to assemble, or worship or to vote, as Bush intimated, but rather the ones where America acted unilaterally in its own interest observing American Exceptionalism as a type of infallible axiom, then Bush would have been closer to the substance of the matter.
Here was world hegemon who claimed the freedom to overthrow governments, the freedom to bomb or invade any country it pleased, the freedom to support brutal dictators, assassinate enemies, interfere in elections and basically do whatever it wanted. Seen in that light, then yes, the 9/11 attackers did hate our “freedoms”.
But from where do those “freedoms” derive? How did the US become so powerful? The recurring theme throughout a lot of my writing has been echoing some criminally obscure writers (such as Stepehen Zarlenga and Vincent LoCascio) who have documented in their works how whoever controls a society’s monetary system, controls the society.
On the world stage it follows that whoever controls the world reserve currency, effectively controls the world.
In this era that means that under the current monetary system where the USD is the world’s reserve currency, it’s the USA by and large that controls the global stage.
As long as the USD is the global reserve currency, the USA will enjoy “freedoms” that enable it to impose its own “rules based order” on the entire world.
And it is that structure that affords every single American, a type of systemic, structural, unearned, privilege.
The most divisive privilege going is Dollar Privilege.
Dollar privilege is what enables nearly every single person in America to access a standard of living that for the majority is vastly beyond the means of their own productive or economic capability, and light years beyond what nearly half the world’s population has to maintain itself on.
It’s why zombie companies can borrow money at artificially low interest rates to buy back their own shares trading at all time highs, and why barstool prophets can follow the momo simply by plucking stock tickers out of scrabble bags.
$RTX comes out of the scrabble bag. Smush letters and buy it. Give it a try Ron, you might not bankrupt your clients. #DDTGpic.twitter.com/semLRi6yBF
Dollar privilege is why almost half of US households can receive some form of subsidy from the government and still have flat screen TVs, refrigerators, stoves, mobile phones, internet and quite possibly, cars, while the bottom half of the global population lives on less than $2.50/day.
It’s why every single congressman and senator is a millionaire.
It’s why American’s for the most part don’t save. Why should they? When they can borrow money to finance their lifestyles, instead of working, investing and earning in order to fund their lifestyle, and when savings pay zero or negative rates anyway, what’s the point?
Dollar privilege subsidizes Silicon Valley and every money losing unicorn in it and every money losing service each one of those unicorns “provides” on every single money-losing transaction you do with them every day. Dollar privilege is why those same companies can successfully exit via IPO and why legions of Robinhooders can make money trading them.
Dollar privilege is what enables legions of petulant, empty-headed permachilds to run up student debt at over-priced universities to study phantasmagorical non-topics like critical race theory and gender studies.
Dollar privilege is the secret sauce that every Marxist and Democratic Socialist must possess before they can bemoan capitalism from their iPhones and MacBook Pros.
Dollar privilege is what every blue check journalist on Twitter gets paid with from their woke-and-broke media outlets.
All of that is privilege, all of those unearned advantages and perks, that entire, elevated standard of living is derived from being citizens of a country who gets to mint the world reserve currency out of thin air, as much as they want, in ever escalating amounts.
USD M0 Money Supply, via TradingEconomics.com
None of this is to deny that there is injustice and vestiges of bigotry and intolerance here in the West. Rather, this is all to point out that what enables us to tear ourselves apart over it from the comparative luxury of digital communications, well stocked refrigerators within modern-day housing is this dollar privilege, the institutional ability to print “value” out of thin air, that the rest of the world then uses to backstop their entire currency systems.
Fed Balance sheet, via TradingEconomics.com
What has changed, why people are more sensitive to the consequences of privilege, is because the periphery of dollar privilege (the “Privilege Perimeter”) used to circumscribe the entire country, and we simply externalized the marginalization it caused overseas. The US military enforced the dollar supremacy globally and the rest of the world essentially traded their wealth and labour for US debt.
After the end of Bretton Woods, when Nixon closed the gold window (temporarily) in 1972 (it’s still closed), the Privilege Perimeter began an inexorable process of constricting.
It crossed a kind of Rubicon after the Dotcom crash, when the policy choice was to blow up a housing bubble, and then it entered the endgame after the 2008 GFC, when the banksters were bailed out.
None of the bailed-out financiers here at #Davos2016 who live in Greenwich & collect Lamborghinis can understand why US voters are unhappy.
— Rudy Havenstein, deleted from the Russell 3000. (@RudyHavenstein) January 21, 2016
The result is that now, in the USA, the middle class is finding themselves for the first time outside of the Privilege Perimeter. This is especially acute now that policy makers are literally picking economic winners and losers, with the winners usually being well connected, albeit often insolvent zombies, and the losers being small businesses, independents, and anybody who works for one.
The Cantillon Effect, which I’ve talked about before, of newly created money benefiting those who are closest to the spigot, turns out to have a reciprocal effect of constricting the circle of beneficiaries over time. It’s like a black hole for economic value.
Eventually black holes collapse in on themselves
Once all the economic value has been leeched away from everybody outside the Privilege Perimeter, once all future prospects have been monetized in the here and now, the blackhole of financialization begins to collapse in on itself. It doesn’t feel like a financial crisis as much as it may present as civil unrest, internecine fighting amongst competing factions of elites and external brinksmanship reminiscent of 1914 Europe, shortly before the maps went all “circles and arrows” .
It feels like that’s where we are today.
So to all of you who detest privilege and structural inequality, fear not. That era is coming to an end.
But I dare say that most of you don’t recognize the exact nature of the kind of privilege that is ending, and I think once you do understand the epochal change that is underway, you aren’t going to like it.
It means the vast majority of Americans are going to have to endure a massive reduction in their standard of living. At the same time, as long as “The Establishment” holds together, they will continue their breakaway trajectory of opulence, and wealth accumulation, plundering the last of the privilege to go around.
Eventually it will break, but it won’t be just, it won’t be fair, it won’t be inclusive or equitable.
It’ll just be ugly.
* * *
Obligatory pitch: If you don’t want to get run over by this tectonic shift in history, then save money, buy gold, earn crypto, eliminate debts, invest in income producing businesses and assets, and sign up for Out Of The Cave.
via ZeroHedge News https://ift.tt/3eDokCT Tyler Durden
Stocks & Bond Yields Plunge On COVID Surge & Fed Balance Sheet Purge Tyler Durden
Fri, 06/26/2020 – 16:00
That felt weird eh? A down week for stocks? Bad news was not good news and dips weren’t bought? Nasdaq was the least worst on the week as Dow, S&P, and Small Caps all fell in line…
That’s the second down week in the last three – WTF is happening!!!
Three reasons stand out (yes, we know the deluge of virus resurgence and China tension headlines may have catalyzed it but it’s not like that’s anything the market hasn’t completely shrugged off for two months):
First, the ‘hard data’ jobs picture refused to confirm the ‘soft data’ surveys that a V-shaped recovery is here…
Source: Bloomberg
Second, the post-June-op-ex trend was not your friend historically…
Third, and most importantly, The Fed dared to allow its balance sheet to shrink for the second week in a row!!!
Source: Bloomberg
Do you still want to play the game?
Here are the main headlines that sparked the moves today:
1000ET *TEXAS GOVERNOR ORDERS TAVERNS TO CLOSE IN RESPONSE TO VIRUS
1050ET *CHINA MESSAGES THAT U.S. PRESSURE COULD JEOPARDIZE PURCHASES OF U.S. EXPORTS
1100ET *HARRIS COUNTY, TX, TO DECLARE TOP-LEVEL EMERGENCY ON COVID-19
1120ET (Bullish) – *KEY FAA TEST FLIGHT OF BOEING‘S 737 MAX JET EXPECTED NEXT WEEK
1130ET *FLORIDA SUSPENDS CONSUMPTION OF ALCOHOL AT BARS STATEWIDE
1145ET *EU MOVES TOWARD RECOMMENDING A BAN ON ENTRY TO U.S. TRAVELERS
1220ET *SAN FRANCISCO MAYOR BREED: TO DELAY REOPENINGS PLANNED FOR MONDAY
The Dow broke below 25k, testing down to its 50DMA…
S&P Futs broke below 3,000 while the cash S&P tested its 200DMA all day and they even wheeled out Mnuchin and Kudlow in the last hour to try and stabilize things…
1510ET *KUDLOW SAYS EVERY NUMBER IS SHOWING V-SHAPE RECOVERY FOR U.S.
1515ET *MNUCHIN: WILL GO BACK TO CONGRESS NEXT MONTH FOR MORE TOOLS
It didn’t work at first but then came the panic bid in the last 15 minutes to close it back above the 200DMA
Nasdaq’s largest companies are on the verge of completing a comeback that has taken more than 17 years to unfold. As Bloomberg reports, the turnaround is based on the ratio between the Nasdaq-100 and S&P 500 indexes, which plunged as much as 69% from a March 2000 record through September 2002.
The ratio rose above the record as U.S. exchanges opened Thursday, only to come up short by the close. “This incessant demand for all things internet and tech” is behind the Nasdaq-100’s rebound, Troy Bombardia, a former hedge-fund manager, wrote Thursday in a post on the SentimenTrader blog.
Interestingly, it appears institutions finally capitulated on their shorts this week (this data is as of Tuesday’s close, which may explain the early week surge)
Source: Bloomberg
FANG Stocks had a tough week, not helped by the FB boycott…
Source: Bloomberg
Banks had an ugly day after the stress test restrictions last night…
Source: Bloomberg
The dollar managed a big roundtrip on the week to end very marginally higher…
Source: Bloomberg
Bitcoin was lower on the week, but found support around $9,000 once again…
Source: Bloomberg
Bonds were bid on the week with the long-end outperforming…
Source: Bloomberg
With 30Y back to its lowest since May…
Source: Bloomberg
Quite a gap to fill…
Source: Bloomberg
Oil was lower on the week as gold and silver gained. Copper outperformed (on Chilean production concerns)…
Source: Bloomberg
WTI ended the week below $40…
Silver’s late-week outperformance of gold pushed the gold/silver ratio back below 100x…
Source: Bloomberg
And finally, we wonder if this may be the 4th reason for recent vol? With The Fed balance sheet’s growth no longer erasing every fear, the surge in probabilities of a Democrat win in November seems to have spooked the market…
Source: Bloomberg
via ZeroHedge News https://ift.tt/2Vm6Svb Tyler Durden
Study Finds Gap Widening Between Rich Pets And Poor Americans Tyler Durden
Fri, 06/26/2020 – 15:50
Highlighting the consequences of decades of U.S. policies that have contributed to rising economic inequality, a new study released Tuesday by Stanford University’s Center on Poverty and Inequality found a widening gap between the nation’s rich pets and poor citizens.
“Our data shows a rapidly increasing disparity between Americans living in poverty and the top 1% of Americans’ pets,” said study co-author Madeline Greggs, adding that from access to high-quality food and stable housing to consistent medical care, the average pet of a rich American family had a significantly higher quality of life than a vast majority of low-income Americans.
“Since the 1970s, economic growth has slowed for all but a tiny fraction of Americans and their pets, such that not only are the vast majority of luxury goods much more available to these purebred dogs, cats, and chinchillas than the average person, rich pets enjoy lavish lifestyles that many U.S. citizens could only dream of.”
The report concluded by suggesting that the most viable path to prosperity for low-income Americans was becoming a wealthy family’s pet.
It didn’t take long. Over the last several years, we have discussed the risk of excessive monetary policy inflating a bubble in a variety of assets from debt, to real estate, to stocks. In March, it appeared as if the bubble had finally popped. However, the Fed’s quick response and massive monetary interventions ceased the asset bubble’s deflation and reinflated it.
“At GMO, we dealt with three major events before this crisis, and rightly or wrongly, we felt ‘nearly certain’ that we would be right sooner or later. We exited Japan 100% in 1987 at 45x and watched it go to 65x (for a second, more significant than the U.S.) before a downward readjustment of 30 years and counting. In early 1998 we fought the Tech bubble from 21x (equal to the previous record high in 1929) to 35x before a 50% decline. Through 2007 we led our clients relatively painlessly through the housing bust.
In all three, we felt we were nearly sure to be right. Japan, the Tech bubbles, and 1929, which sadly I missed, were not new types of events. They were merely extreme cases akin to South Sea Bubble investor euphoria and madness. The 2008 event was also easier if you focused on the U.S. housing euphoria, a 3-sigma, 100-year event, or, simply, unique. We calculated that a return trip to the old price trend and a typical overrun in those extreme house prices would remove $10 trillion of perceived wealth from U.S. consumers and guarantee the worst recession for decades. All these events echoed historical precedents. And from these precedents, we drew confidence.
But this event is unlike all those. It is new, and there can be no near certainties, merely strong possibilities. Such is why Ben Inker, our Head of Asset Allocation, is nervous. and this is why you are worried or should be.”
Don’t Blame The Pandemic
While much of the media points to the pandemic as the “cause” of the economic problems, it isn’t.
COVID-19 was merely the “pin the pricked the bubble.” If the pre-pandemic economy were as strong as previously reported, it would have weathered the blow better. However, the 5-year average growth of wages, productivity, and real economic growth tells the story.
Consequently, the surge in the stock market over the last decade gave an “illusion” of prosperity, that “prosperity” was relegated to a relatively small portion of the broader economy. As noted recently, the Fed’s policies are responsible for the “wealth gap.”
“This isn’t surprising. A recent research report by BCA confirms one of the causes of the rising wealth gap in the U.S. The top-10% of income earners own 88% of the stock market, while the bottom-90% owns just 12%.”
Reliance On Debt To Solve A Debt Problem
The reliance on debt, or what the Austrians refer to as a “credit induced boom,” has reached its inevitable conclusion. The unsustainable credit-sourced boom, which led to artificially stimulated borrowing, created diminished investment opportunities. Those diminished investment opportunities lead to widespread malinvestments, which we saw play out “real-time” in subprime mortgages in 2008 and excessive “share buybacks” over the last few years.
Now companies are struggling to take on more debt just to survive the economic downturn. Even as balance sheets are levering up, stock buybacks, a main supportof the stock market over the last decade, are dropping sharply.
The Problem Of Debt
Unfortunately, given the Fed stopped the “debt reversion process” with the latest rounds of monetary interventions, nearly $4.00 of debt are required to create $1 of economic growth. This all but guarantees that future economic growth will be further retarded.
“Before the “Financial Crisis,” the economy had a linear growth trend of real GDP of 3.2%. Following the 2008 recession, the growth rate dropped to the exponential growth trend of roughly 2.2%. Instead of reducing the debt problems, unproductive debt, and leverage increased.”
“The ‘COVID-19’ crisis led to a debt surge to new highs. Such will result in a retardation of economic growth to 1.5% or less. While the stock market may rise due to the Fed, only the 10% of the population owning 88% of the market will benefit. Going forward, the economic bifurcation will deepen to the point where 5% of the population owns virtually all of it.
That is not economic prosperity. It is a distortion of economics.
Bubbles, Bubbles, Bubbles
Jerome Powell clearly understands this risk. After a decade of monetary infusions and low interest rates, the Fed has created the largest asset bubble in history. However, trapped by their own policies, any reversal leads to almost immediate catastrophe as seen in 2018, and again in 2020.
“In the U.S., the Federal Reserve has been the catalyst behind every preceding financial event since they became ‘active,’ monetarily policy-wise, in the late 70’s.”
Not surprisingly, after the market correction in March, the immediate response stopped the correction from becoming a full-fledged bear market. However, this only forestalled the inevitable as we have seen a sharp rise in “speculative fervor” ever since. Investors, and the financial media, continue to assume there is investment risk due to the Fed. To quote Dr. Irving Fisher:
“Stocks have reached a permanently high plateau.”
Instability
It is imperative for the Fed that market participants, and consumers, “believe” in their actions. With the entirety of the financial ecosystem more heavily levered than ever, the “instability of stability” remains the most significant risk.
“The ‘stability/instability paradox’ assumes that all players are rational, and such rationality implies avoidance of complete destruction. In other words, all players will act rationally, and no one will push ‘the big red button.’”
The Fed had hoped they would have time, after a decade of the most unprecedented monetary policy program in U.S. history, to navigate the risks built up in the system. Unfortunately, they ran out of time, and the markets stopped “acting rationally.”
By not letting the system correct, letting weak fail, and allowing valuations to revert, the Fed has trapped itself into an even bigger bubble. One way to view this problem is by looking at the Nasdaq 100 versus the S&P 500 index. That ratio is now at the highest level ever.
Furthermore, that rise was not a function of a broad number of companies participating due to stronger economic growth and profits, but rather just 5-companies driving the surge.
If you don’t think this is important, I suggest you re-read Bob Farrell’s Rule #7:
“Markets are strongest when they are broad and weakest when they narrow to a handful of blue-chip names.”
Bubbles Aren’t About Price
“Market bubbles have NOTHING to do with valuations or fundamentals.”
As we discussed last week,the market is now trading nearly 90% above multiple long-term valuation measures.
“One thing I had hoped for in 2018-2019 is a correction large enough to revert some of the excessive valuation levels which existed. Such would provide higher future returns over the next decade. Such would allow investors to reach their investment goals.
Instead, the Fed’s actions halted the correction. Subsequently, the ‘clearing process’ was not allowed to occur. The outcome has been increased levels of corporate leverage, and valuations remain grossly elevated on many different levels.”
Since stock market “bubbles” are a reflection of speculation, greed, emotional biases, valuations are only a reflection of those emotions.
It’s Elementary
Bubbles can exist even at times when valuations and fundamentals might argue otherwise. Let’s look at an elementary example. The chart below is the long-term valuation of the S&P 500 going back to 1871.
Notice that except for 1929, 2000, and 2007, every other major market crash occurred with valuations at levels LOWER than they are currently.
Secondly, market crashes have been the result of things unrelated to valuation levels. Such as liquidity issues, government actions, monetary policy mistakes, recessions, and inflationary spike, or even a “pandemic.”Those events were the catalyst, or trigger, which started the “reversion in sentiment” by investors.
Market crashes are an “emotionally” driven imbalance in supply and demand. Such has nothing to do with fundamentals. It is strictly an emotional panic, which is ultimately reflected by a sharp devaluation in market fundamentals.
That is what started in March.
The Fed’s actions have only temporarily halted its inevitable completion.
“The current belief is the Fed will implement QE at the first hint of a more protracted downturn in the market. However, as suggested by the Fed, QE will likely only be employed when rate reductions aren’t enough.”
Credit markets’ implosion made rate reductions completely ineffective and has pushed the Fed into the most extreme monetary policy bailout in the history of the world.
So far, the Fed was able to inflate another asset bubble to restore consumer confidence and stabilize the credit market’s functioning. The problem is that since the Fed never unwound their previous policies, current policies are likely to have a more muted long-term effect.
However, with 50+ million unemployed, wage growth declining, bankruptcies on the rise, and banks tightening lending standards, the Fed’s attempt to inflate another bubble to offset the damage from the deflation of the last bubble, will work.
It has taken a massive amount of interventions by Central Banks to keep economies afloat globally over the last decade. There is little evidence that growth will recover following this crisis to the degree many anticipate.
Problems QE Can’t Fix
There are numerous problems which the Fed’s current policies can not fix:
A decline in savings rates
Aging demographics
Heavily indebted economy
Decline in exports
Slowing domestic economic growth rates.
Underemployed younger demographic.
Inelastic supply-demand curve
Weak industrial production
Dependence on productivity increases
The lynchpin in the U.S., remains demographics, and interest rates. As the aging population grows, they are becoming a net drag on “savings,” the dependency on the “social welfare net” will explode as employment and economic stability plummets, and the “pension problem”has yet to be realized.
While the current surge in QE has been successful in inflating another bubble, there is a limit to the ability to continue pulling forward future consumption to stimulate economic activity. There are only so many autos, houses, etc., that consumers can purchase within a given cycle.
Unfortunately, extremely high levels of unemployment, lack of incomes, and a slow economic recovery will likely undermine those hopes.
One thing is for certain. The Federal Reserve will never be able to raise rates or reduce monetary policy ever again.
The only question is, what will the Fed do if “all the king’s men can’t put Humpty Dumpty back together again?”
via ZeroHedge News https://ift.tt/2BdxLuo Tyler Durden
House Democrats Approve Bill To Make Washington DC 51st State Tyler Durden
Fri, 06/26/2020 – 15:05
The Democrat-controlled House voted on Friday to make Washington D.C. the country’s 51st state and rename it “Washington, Douglass Commonwealth,” replacing Italian explorer Christopher Columbus with Maryland-born abolitionist Frederick Douglas.
Precisely zero House Republicans voted for the bill, which passed 232 to 180. Democratic Rep. Collin Peterson (MN) – who voted against impeaching President Trump, voted no along with the Republicans, as did independent Rep. Justin Amash.
The bill is expected to die in the Senate, while Trump also opposes the move which would likely grant the new state two Democratic senators.
On Thursday, Joe Biden(‘s handlers) tweeted: “DC should be a state. Pass it on,” adding to a long chain of Democrats ‘passing it on’ which was started by Ilyse Hogue, president of pro-choice organization NARAL.
Keep in mind that House Democrats – who just weeks ago appeared for a choreographed ‘kneeling’ while dressed in African attire – know the DC statehood vote has no chance of passing, and is therefore yet another giant virtue signaling circlejerk.
via ZeroHedge News https://ift.tt/2YzRM7e Tyler Durden
