Canadian Personal Bankruptcies Are Surging At Breakneck Speeds

The shock of rising interest rates isn’t just affecting the macro picture and grinding the US economy to a halt, but it is also having profound effects globally. In Canada, personal bankruptcies are on the rise as household debt lingers at, or above, all time highs and interest rates force the cost of servicing this debt even higher.

According to data from the Office of the Superintendent of Bankruptcy Canada, insolvencies climbed to 11,641 in October, a 9.2% rise compared to the year prior. Even more alarming, month over month this rise was up a staggering and somewhat inexplicable 16%, as if something “broke”, pardon the pun, in October.

Bankruptcies increased 1.2% year-over-year and an astounding 13.5% on a month over month basis. Bankruptcy proposals increased 15.8% year-over-year and an even more dramatic 18.6% sequential increase.

These year-over-year numbers are alarming but the sequential rate at which these proposals and bankruptcies are rising make it clear that even the smallest uptick in interest rates is having an immediate and dire effect. 

In Canada, annual increases were the highest in British Columbia and Prince Edward Island but there were also double digit gains in provinces like New Brunswick.

Rates in Canada are only still at 1.75% and the Bank of Canada said as recently as last Thursday that they are targeting a neutral rate “somewhere around 2.5% and 3.5%” – a tightening process which is certain to keep the insolvency and bankruptcy trend accelerating. 

Chantal Gingras, chair of the Canadian Association of Insolvency and Restructuring Professionals recently stated: “High consumer debt levels and rising interest rates have been a growing concern over the last few years and we are now starting to see this reflected in the number of insolvent Canadians filing bankruptcies or proposals.”

“Canada is in serious trouble”, we wrote back in April 2018, when we pointed out that the country’s over-reliance on its frothy, bubbly housing sector and the fact that the average Canadian household had failed to reduce its debt load would eventually come back to bite.

We look forward to the country continuing to prove us right. 

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Three Clinton Foundation Whistleblowers To Testify About Tax Fraud, Pay-For-Play

Following allegations of sloppy accounting, potential tax fraud and pay-to-play, the Clinton Foundation will be under a Congressional microscope this week after three whistleblowers have come forward and agreed to testify – one of whom secretly submitted 6,000 pages of documents to the IRS and FBI in August of 2017, and all three of whom have submitted various documents to Congressional investigators. 

Rep. Mark Meadows (R-NC), Chairman of the House Freedom Caucus, told Fox News‘s Martha MacCallum on Monday night that there are three whistleblowers who have spent the past two years investigating the Clinton Foundation, and have “explosive” allegations which they will share during Thursday testimony on Capitol Hill. 

MACCALLUM: OK. With regard to the investigation, which doesn’t get a lot of attention, into the Clinton foundation, the DOJ designated John Huber to look into this. They have 6,000 pages of evidence that they’ve gone through. The foundation raised $2.5 billion, and they’re looking into potential improprieties.

What’s next on this investigation?

MEADOWS: Well, I think for the American people, they want to bring some closure, not just a few sound bites, here or there, so we’re going to be having a hearing this week, not only covering over some of those 6,000 pages that you’re talking about, but hearing directly from three whistleblowers that have actually spent the majority of the last two years investigating this.

Some of the allegations they make are quite explosive, Martha. And as – we just look at the contributions. Now everybody’s focused on the contributions for the Clinton Foundation and what has happened just in the last year. But if you look at it, it had a very strong rise, the minute she was selected as secretary of state. It dipped down when she was no longer there.

And then rose again, when she decided to run for president. So there’s all kinds of allegations of pay-to-play and that kind of thing.

As we noted in late November, the Clinton Foundation has seen donations plummet approximately 90% over a three-year period between 2014 and 2017

While Hillary Clinton was Obama’s Secretary of State, however, the State Department authorized $151 billion in Pentagon-brokered deals to 16 countries that donated to the Clinton Foundation – a 145% increase in completed sales to those nations over the same time frame during the Bush administration, according to IBTimes

Meanwhile, John Solomon of The Hill reported on Tuesday that one whistleblower who submitted 6,000 pages of evidence through a firm composed of former federal law enforcement investigators, MDA Analytics LLC., has provided evidence of potential tax crimes as well as a “culture of noncompliance.”  

That submission made with the IRS, and eventually provided to the Justice Department in Washington and to the FBI in Little Rock, Arkansas, alleges there is “probable cause” to believe the Clinton Foundation broke federal tax law and possibly owes millions of dollars in tax penalties. That submission and its supporting evidence will be one focus of a GOP-led congressional hearing Thursday in the House.

The foundation strongly denies any wrongdoing. But it acknowledges its own internal legal reviews in 2008 and 2011 cited employee concerns ranging from quid pro quo promises to donors, to improper commingling of personal and charity business. –The Hill

In some instances the Clinton Foundation appears to have misled the IRS, or lied when filling out forms. For example, the Foundation retracted a bid to conduct fundraising in Utah after they refused to correct a filing error which state officials would not allow. 

When contacted for comments, the Clinton Foundation admitted their errors, but told Solomon they were akin to “minor traffic violations.” 

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Behold Chaos: Two Months Of Market Headlines

Feel like you are losing grip of a market which appears to be entirely under the control of headline-scanning algos and CTAs? You are probably not alone. Below we have pulled a little over two months of Bloomberg summary headlines from the Bloomberg Macro Squawk Wrap starting with October 2, just before Chair Powell’s speech declaring that the neutral rate is “a long way off” and continuing through today.

So for those who feel nostalgic and want to relive the past 10 weeks, feel free to count the various verbs – such as wither, snap, fall, bounce, drop, gain, sag, fluctuate, surge, rally, falter, hammer, waffle, sputter, trample, and so on, describing the daily market action since the start of October in the below summary headlines.

  • 12/11 Stocks Wither, Trump Threatens Govt Shutdown: Macro Squawk Wrap
  • 12/10 Stocks Snap Back as Tech Gains; Pound Slumps: Macro Squawk Wrap
  • 12/07 Stocks Fade Despite Kudlow as Outlook Sours: Macro Squawk Wrap
  • 12/06 Stock Selloff Accelerates, OPEC Zaps Crude: Macro Squawk Wrap
  • 12/03 Risk Rallies on Trade Truce, Pitfalls Remain: Macro Squawk Wrap
  • 11/21 A Thanksgiving Breather for Stocks and Crude: Macro Squawk Wrap
  • 11/20 Oil Slump and Trade Tensions Weigh on Stocks: Macro Squawk Wrap
  • 11/19 Stocks Sag on Trade After Pence China Speech: Macro Squawk Wrap
  • 11/16 Stocks Fluctuate, Trump Cools China Tensions: Macro Squawk Wrap
  • 11/15 Stocks Flip, Lighthizer Says Levies on Hold: Macro Squawk Wrap
  • 11/14 Stocks Mixed, May Gets Backing on Brexit Plan: Macro Squawk Wrap
  • 11/13 Stocks Fall, Kudlow Talks Up China Trade: Macro Squawk Wrap
  • 11/12 Stocks Drop, USD Gains as Oil Rally Fades: Macro Squawk Wrap
  • 11/09 Havens Gain, China Says Global Growth Waning: Macro Squawk Wrap
  • 11/08 Stocks Waffle, Markets Reverse Midterm Boost: Macro Squawk Wrap
  • 11/07 Stocks Surge After Elections, FOMC Up Next: Macro Squawk Wrap
  • 11/06 Stocks Climb, Markets Tiptoe Into Elections: Macro Squawk Wrap
  • 11/05 Stocks Mixed, Risk Shunned Ahead of Elections: Macro Squawk Wrap
  • 11/02 Markets Whipsaw With China Trade Deal Hopes: Macro Squawk Wrap
  • 11/01 Stocks and EM Surge on Trump Tweet, USD Falls: Macro Squawk Wrap
  • 10/31 Stocks Surge, Fitch Trounces Mexico’s Peso: Macro Squawk Wrap
  • 10/30 Equity Rally Falters, USD Gains as GBP Fades: Macro Squawk Wrap
  • 10/29 Equity Rally Fades Amid Tariff Talk, EM Lower: Macro Squawk Wrap
  • 10/26 S&P 500 Bounces; Unscheduled Meeting in Japan: Macro Squawk Wrap
  • 10/24 Stocks Hammered; Dollar Breakout, Bonds Gain: Macro Squawk Wrap
  • 10/23 Stocks Drop, CAT Hit as Tariffs Impact Felt: Macro Squawk Wrap
  • 10/22 Stocks Waffle, China Tax Plan Stimulus Fades: Macro Squawk Wrap
  • 10/19 Stocks Mixed, U.K. Drops Key Brexit Demand: Macro Squawk Wrap
  • 10/18 Stocks Sputter; Trump Warns on Mexico Border: Macro Squawk Wrap
  • 10/17 Stocks Waffle, Fed Debated Rates Past Neutral: Macro Squawk Wrap
  • 10/16 Earnings Fuel Equity Gains, EM Assets Rally: Macro Squawk Wrap
  • 10/12 Stock Rally Fades, Treasuries and Dollar Gain: Macro Squawk Wrap
  • 10/11 Stocks Drop in Late-Session Tumble, USD Falls: Macro Squawk Wrap
  • 10/10 Stocks Trampled, China Ups Trade War Ante: Macro Squawk Wrap
  • 10/09 Tech Stocks Waffle, GBP Gains on Brexit Hopes: Macro Squawk Wrap
  • 10/08 Treasury Concerned About China’s Currency: Macro Squawk Wrap
  • 10/04 Stocks, EM Drop as China Hack Weighs on Trade: Macro Squawk Wrap
  • 10/02 Stocks Mixed, Metals Surge While Italy Weighs: Macro Squawk Wrap

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Polio-Like Disease Spreads; Record Number Of Cases Reported As Children Suffer Paralysis

2018 has seen a record number of cases of a polio-like illness which paralyzes children, according to US health officials

Experts still have no idea what’s causing children across the country to lose the ability to move their arms, legs, face, heck, or back – around a week after patients are diagnosed with a fever and respiratory illness. The rare disease which starts off like the common cold affects the nervous system, “specifically the area of the spinal cord called gray matter, which causes the muscles and reflexes in the body to become weak,” according to the CDC

Around half of the children diagnosed were admitted to hospital intensive care units – with many requiring breathing machines. Officials also have no idea why some children recover from the illness, while others are left paralyzed.

Traced back to 2012, the mystery illness known as Acute Flaccid Myelitis (AFM) has struck 158 people across 36 states this year, while 311 reports are still being evaluated. Texas has had the most cases at 21, while Colorado came in second at 15. 

What’s also strange is the two year cycle observed in the illness which begins in September and subsides at the end of November. 

Investigators have suspected it is caused by a virus called EV-D68. The 2014 wave coincided with a lot of EV-D68 infections and the virus “remains the leading hypothesis,” said Dr. Ruth Lynfield, a member of a 16-person AFM Task Force that the CDC established last month to offer advice to disease detectives.

But there is disagreement about how strong a suspect EV-D68 is. Waves of AFM and that virus haven’t coincided in other years, and testing is not finding the virus in every case. CDC officials have been increasingly cautious about saying the virus triggered the illnesses in this outbreak. –AP

Also a mystery – while over 17 countries have reported scattered cases of AFM, none of them have seen cyclical surges like in the United States

2014 electron microscope image of EV-D68 Enterovirus

The CDC has set up a task force in response to AFM which will investigate its causes, possible treatments, and to establish post-AFM aftercare. 

“I want to reaffirm to parents, patients, and our Nation CDC’s commitment to this serious medical condition,” said CDC Director Robert Redfield, MD. “This Task Force will ensure that the full capacity of the scientific community is engaged and working together to provide important answers and solutions to actively detect, more effectively treat, and ultimately prevent AFM and its consequences.” Redfield says AFM is the agency’s top priority. 

“We want to take advantage of all of [our] resources to figure out what is causing AFM,” said Messonnier, who said that the presence of pathogens in the spinal fluid is one of the best indicators of AFM – however that doesn’t necessarily mean that the pathogens are the cause. 

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Google Hearings Force the Question: Do We Really Want ‘Regulation by Federal and State Governments’ of ‘Today’s Disruptive Technologies’?

The most important thing about today’s appearance before Congress by Google CEO Sundar Pichai is the simple fact that it took place at all.

It’s just one more sign that the tech sector may not only be resigned to federal regulation, but possibly excited by the opportunity to help write the rules that will govern their part of the economy. In his prepared testimony, Pichai took pains to “recognize the important role of governments, including this Committee, in setting rules for the development and use of technology.” That’s as anodyne a statement as possible, but in the given political context, during which both Republicans and Democrats seem to be looking for scapegoats to explain unexpected losses in 2016 and 2018, it’s hard not to read it almost as a commitment to cooperate. On every level—political, economic, intellectual—it seems as if a consensus is building that whatever is described by vague terms such as “social media,” “the tech sector,” “the gig economy,” or whatever needs to be under some sort of control. Apple’s Tim Cook, the head of the world’s biggest company, has declared “the free market is not working” and that regulating “tech” is “inevitable.” Ash Carter, President Obama’s former defense secretary, is calling for the resurrection of the Office of Technology Assessment, a Cold War relic that would, he vows, route around partisan gridlock to assess and protect us all from the “public impact of today’s disruptive technologies” (more on that terrible idea in a moment).

Earlier this year, of course, Facebook CEO Mark Zuckerberg testified before the Senate and said that the question wasn’t whether social media should be regulated but how it should be brought to heel (he was, he said, happy to help write those rules). Earlier this fall, Google declined to send a representative when tech heavyweights Facebook (represented by COO Sheryl Sandberg) and Twitter (represented by CEO Jack Dorsey) were called to talk to the Senate Intelligence Committee about all things related to the Internet, Russian bots, trolling, shadow-banning, fake news, you name it.

In the wake of bad publicity for not showing up, Pichai did fly to Washington later in September and made the rounds, promising to appear at today’s hearing, which was titled “Transparency & Accountability: Examining Google and Its Data Collection, Use and Filtering Practices” and held by the House Judiciary Committee.

As expected (and as my colleague Robby Soave has already reported), the hearing provided many examples of members displaying general ignorance of computer-related technology. But it also included non-veiled threats of political reprisals, such as when Rep. Louis Gohmert (R-Texas) told Pichai that he was tired of bias when it comes to searching, navigating, and evaluating information found on the internet.

My problem is when the government gives its immunity from lawsuits over to a private corporation [and] the head of that corporation doesn’t even realize that there is political bias run amok in his company….for you to come in here and say “There is no political bias in Google” tells us you either are being dishonest, I don’t want to think that, or you don’t have a clue how politically biased Google is.”

Gohmert cited Google’s use of the intellectually odious Southern Poverty Law Center (SPLC) as a “trusted flagger” of dubious content at YouTube and recounted a 2012 gun attack on the Family Research Center by a shooter inflamed by the SPLC’s characterization of the Christian organization as a hate group. He also raised the SPLC’s multi-million payout to Quilliam, an anti-Muslim extremist group it incorrectly identified as a pro-jihadist organization, as a sign of “bias run amok.” Even as he was denouncing Google for partnering with a group that slimed a Muslim organization, Gohmert felt a need to say that “Christianity is really more based on love than about any other religion in history. God so loved the world, He sent His Son, His Son so loved the world, He gave His life.”

Gohmert was essentially raising the specter of eroding Section 230, the section of the Communications Decency Act that protects websites and platforms from various forms of legal liability for what users do or say on a given site or service, unless conservatives and Republicans were given what he considers a fairer shake on the various platforms operated by Google.

As Elizabeth Nolan Brown has written, Section 230 is “the law that lets most of the U.S. internet today exist as it does“:

Basically, that’s by declaring that “no provider or user of an interactive computer service” should be treated as the speaker of content created by others when it comes to assessing certain legal liabilities….

You can be a web publication with an explicitly ideological slant, a social platform with idiosyncratic policies on permitted speech, or a private messageboard for anarchist Amish redheads to discuss the Cubs and Section 230 doesn’t care. All that matters, for the most part, is whether a digital platform or service created whatever content is in question….

The law explicitly states that a service’s efforts to filter out illegal or undesirable content do not open it to liability. “Any action voluntarily taken in good faith to restrict access to or availability of material that the provider or user considers to be obscene, lewd, lascivious, filthy, excessively violent, harassing, or otherwise objectionable, whether or not such material is constitutionally protected,” reads 230(c)(2).

Gohmert’s comments, which parallel similar ones made by other conservatives such as Sen. Ted Cruz (R-Texas), are troubling because they essentially recast private platforms as the equivalent of government-regulated broadcast networks. As Cruz put it in a Senate debate with challenger Beto O’Rourke,

“Right now, big tech enjoys an immunity from liability on the assumption they would be neutral and fair,” the senator said. “If they’re not going to be neutral and fair, if they’re going to be biased, we should repeal the immunity from liability so they should be liable like the rest of us.”

There is little-to-no solid evidence that platforms such as Facebook are in fact screwing over people espousing political viewpoints at odds with the owners or workers there (indeed, the engagement rates for Donald Trump’s Facebook posts grew and those Bernie Sanders and Elizabeth Warren declined during the period Cruz zeroed in on). But conservatives and Republicans are convinced that they are being discriminated against, even as liberals and Democrats are convinced that “big tech” was overrun by Russian agents who stole the 2016 presidential election from Hillary Clinton.

Which brings me back to reasons to believe that a consensus is building among Republicans and Democrats that “social media” or the “the tech sector” or whatever you want to call it “needs” to be regulated. Each side has scalps it wants to claim, and Donald Trump is nothing if not a dealmaker. If Ted Cruz can boost the reach of pro-Trump duo Diamond & Silk, he’s all in. If disgruntled and mistaken Hillary fans can walk away saying that social media will never again ruin their day, so be it.

And the centrists will be able to justify it all with soothing appeals to technocratic impartiality, like the one that former Defense Secretary Ash Carter made recently in the pages of Politico. In anticipation of today’s hearing and with the spring’s Facebook hearings in mind, Carter (who worked for a Democrat but started out with a Republican!), wrote

Members seemed unbriefed on even rudimentary issues—”[H]ow do you sustain a business model in which users don’t pay for your service?” one senator asked—while Facebook founder Mark Zuckerberg seemed not to understand the gravity of his company’s public responsibilities. This was a gridlock of understanding, not partisanship, and it meant a historic opportunity was missed.

Imagine a different outcome where several options mixing self-regulation by companies like Facebook and informed regulation by federal and state governments were analyzed, debated and prepared for a vote. Imagine, too, that such bipartisan insight came directly from a body under congressional control, rather than lobbying firms, advocacy groups and think tanks, which often peddle tendentious recommendations….

Carter’s solution is to revive the Office of Technology Assessment (OTA), which lasted from 1972 to 1995. He rhapsodizes:

At one point, I worked with the makers of the Goodyear Blimp on the design of giant airships floating randomly over the United States so that they couldn’t be targeted by the Soviets—surely a crowd pleaser!

The point is that we were an expert staff that provided purely technical analysis. We looked at options, not answers. Other teams worked on a broad range of issues, including telecommunications, health and safety, agriculture and manufacturing. Though scientifically independent, OTA was no rogue agency. It worked directly for, and was supervised by, a bipartisan and bicameral group of senators and members; OTA was truly congressional.

You can read his whole case for restoring the OTA here. I find it unconvincing and risible, not because “purely technical analysis” is a chimera, or because Congress shouldn’t be better informed on all the things it shouldn’t be trying to regulate, or because there are times when non-partisanship (un-partisanship?) isn’t appealing. It’s like Sundar Pichai’s presence in Washington: The most important thing is that it exists at all. It’s a marker that one era is ending and another beginning, one that will almost certainly take regulation of the tech sector and managed capitalism for granted.

If you’re old enough to remember the fight over the Communications Decency Act, which passed Congress overwhelmingly and was happily signed into law by President Bill Clinton before being almost completely slapped down by the Supreme Court as terrible nonsense, you might remember a time when an era of unprecedented freedom, expression, and experimentation still all lay in front of us. Nobody knew how any of this stuff would work out, but we’d figure it out as we went along, right?

Time was when the dominant strain of thought was to declare independence in cyberspace (remember that phrase?) and to state bluntly, “Governments of the Industrial World, you weary giants of flesh and steel…You are not welcome among us. You have no sovereignty where we gather.” Nowadays, the giants of cyberspace are weary, battered by fickle publics and volatile markets, and are as likely as not to welcome regulation and control as long as it comes with guaranteed market share.

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The Deep State Wants Your Guns

Authored by Jose Nino via The Mises Institute,

James Bovard notes the threat to private gun ownership posed by the “deep state,” the “officials who secretly wield power permanently in Washington, often in federal agencies with vast sway and little accountability.”

While such laws were made by elected officials, it is unelected bureaucrats who are largely left in charge of enforcement, and that can cause big problems for gun owners. Just before press time for this issue, it was reported that a California farmer who was simply trying to meet the state’s ever-changing restrictive gun laws by registering his rifle is being charged with 12 felonies after the state DOJ determined his AR-15 to be “illegally modified.”

Questionable Federal Background Checks

Bovard’s observations should not come as a surprise. As government agencies — unlike lawmakers — are able to directly access databases that relate to gun ownership, the agencies themselves are often in a position to abuse this information. These databases are under the control of gigantic bureaucracies like FBI that face little to no accountability from voters.

The National Instant Background Check System (NICS) is the pillar of all background check systems for firearms purchases and was a part of the 1994 Brady Act. Any time a prospective gun owner wants to buy a gun from a federally licensed firearms dealer (FFL), they must go through a background check. Under this system, the FBI looks at certain factors such as criminal history and mental health to determine if an individual presents too much of a risk to own a firearm.

Although NICS is marketed as a speedy background check system, it comes with its own set of problems. NICS has gained notoriety for producing false positives. In other words, law-abiding citizens are mixed and matched with criminals who have the same name. In turn, these individuals are prevented from acquiring guns due to bureaucratic errors.

Particularly worrisome is the rate of initial NICS denials that turn out as false positives. Some estimates from the Crime Prevention Research Center indicate that in 2009 alone, 93 percent of initial NICS denials were false positives.

Regardless, NICS has remained intact even when evidence has shown that it is ineffective in combatting crime. For example, crime rates had already gone into steep decline by the mid-1990s, well before NICS went into effect in 1998.

Fear of Gun Registration is Warranted

Yet, the gun-control bureaucracy continues to grow. This was on full display when Fix NICS was recently signed into law— it was the largest gun expansion at the federal level since the Brady Act was enacted in 1993. Under Fix NICS, state governments are now being incentivized to share records with the federal government in order to streamline the background check process. Proponents of Fix NICS claim that these tweaks would have prevented the Charleston church and the Sutherland Springs mass shootings, in which both shooters supposedly fell through the cracks of the NICS system.

Certain gun owners worry that the federal government’s program to incentivize states to hand over their gun records could lead to the creation of a federal gun registry. And these fears are not without their merits.

After NICS came into effect in 1998, the federal government was eager to amass its own database. Even though the Brady Act prohibited the federal government from creating a gun owner registry, then Attorney General Janet Reno proceeded to keep gun owner records for 6 months — a clear violation of the Brady Act’s requirement to have all records destroyed immediately.

Bureaucracies are a Different Animal

The Reno incident shows yet again that bureaucracies have their own agendas. It is myopic to believe that bureaucracies will act in the public interest and abide by the rule of law when left unchecked.

Bovard thus raises an interesting concern:

“While such laws were made by elected officials, it is unelected bureaucrats who are largely left in charge of enforcement, and that can cause big problems for gun owners”.

Exercising control over this sort of legal abuse can be exceptionally difficult when dealing with unelected bureaucrats. In the book Bureaucracy , Ludwig von Mises contended that the “worst law is better than bureaucratic tyranny”. There is considerable truth behind this assertion. A solid citizen lobby can vote out anti-gun politicians, but they will have much more work on their plate in order to put the clamps on bureaucratic overreach. In some cases it may require a wholesale abolition or defunding of a government bureaucracy — a tall order in today’s climate of ever-expanding government.

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With Bottles Selling For $1.5 Million, The Whiskey Insurance Industry Is Booming

As we discussed recently when we covered the growing trend in cryptocurrency insurance, where there are booms (and busts), there are going to be boom-derivatives to profit off of. The high-end whiskey market is no different, and with the rarest whiskeys sometimes costing millions of dollars, insurance on these rare liquors is becoming a booming business, according to a Bloomberg article.

Ron Fiamma, head of global collections at AIG – best known for selling CDS ten years ago and now even better known for selling whiskey insurance – said that “whiskey collectors now number in the many hundreds, closing in on 1,000 individual collectors of all stripes and values. When auction houses are holding two or three whiskey auctions a year, with some whisky going for a million or half a million dollars, clearly it warranted attention.”

For proof, look no further than a 60-year-old Macallan whiskey which recently sold at auction for about $1 million in London and another Macallan that was produced in an ex-sherry oak cask that sold for $1.5 million. Both of these selling prices were twice above their high estimates.

Surpassing the return of the stock market, rare whiskeys have appreciated 140% over the last half decade according to the Vintage 50 Index compiled by Rare Whisky 101. As a result, AIG has seen a nearly ten-fold increase in applications for whiskey insurance year-over-year.

Not only is this a sign of a boom in the whiskey industry, it’s a sign of the changing landscape of alternative investments. As we noted last year, art and jewelry both continue to be popular – with both topping the list of insured collectibles at AIG currently. Watches, cars and whiskey are also moving closer to the top of the list as days go by.

Fiamma commented on this conspicuous consumption as follows: “The 90-year-old may leave a beautiful silverware collection or maybe some jewelry. The 50- or 60-year-old children are divesting themselves of those assets and purchasing whiskey, beautiful watches, Ferraris. We get to see that internally as they move from one policy to the next. It’s a fascinating look at the transfer of wealth on the collection side.”

Which is why watch policies are increasing at a clip of about 20% year-over-year. Vintage automobiles, in comparison, are trending higher by about 15% year-over-year. Fiamma says that the younger generation is attracted to collectible watches as the price points are a little bit lower. Rolex, Omega and IWC are three brands noted as sought after collectibles.

He continued: “They’re fun. You can use them, look at them, carry them with you.”

The collectible vehicle industry has also noticed its demographic getting younger. This year was the first that business from millennials and Generation X was more than business from baby boomers.

Jonathan Klinger, vice president of public relations at car insurer Hagerty, said “a few years ago when this started, it was first-generation Broncos and Toyota Land Cruisers that were popular. As interest has grown [in those vehicles], the values go up. And as more people have gotten priced out, the interest has grown in the 1980s or 1990s variances of those vehicles.”

Staying up-to-date on the value of your collectibles is extremely important, according to a spokesman from AIG. Insurance coverage is often tailored specifically to meet the value of products and is constantly reworked and re-watched according to the dynamic value of whatever the object in question is. 

“In the whiskey sector it’s about constantly following sales,” noted Fiamma.

Generally, for spirits, the rule of thumb is to check your collection every 3 to 5 years. However, everything is done on a case-by-case basis with insurers.

He concluded: “While obviously everything we insure is important to our clients—homes, cars—it’s the collections that they are overwhelmingly passionate about. These are often things that they spend their lives accumulating, curating, and selecting. There’s a tremendous amount of emotional attachment to them.”

We’ll drink to that.

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Fed Report Says Millennials Are Poorer Than Other Generations…But Fed Policies Made It Happen

Authored Ryan McMaken via The Mises Institute,

One of the challenges in looking at income and wealth data is getting a sense of how different demographic groups are affected.

It’s relatively easy to find median income and wealth data over time for the entire population, for example. But then problems of interpretation immediately present themselves. For example, if the data is household data, what are we to make of things if the household compositions has changed over time?

And what if the demographics of the individuals within the households themselves have changed? For example, if a larger proportion of all households are now younger households, perhaps that could have an effect on the income and wealth data overall.

After all, younger heads of household tend to have lower incomes and less wealth than older heads of households.

This problem of measuring workers and incomes over time has been the challenge that presents itself to anyone trying to figure out if so-called millennials are richer or poorer — as a group — than other age cohorts.

To do this, researches must find some way to estimate wealth and incomes for different age cohorts at similar ages or at similar points in their careers. Otherwise, characteristics we think we are attributing specifically to Millennials may really be characteristics that are just common to people of a certain age.

Last week, the Board of Governors of the Federal reserve released a new report that attempts to address the issue of whether or not Millennials really are worse off at the same point that other age cohorts have been at similar ages.

This will no doubt be the first of many that attempt to answer this question. At this early stage, however, we can say that the data leans toward concluding that yes, Millennials are, in fact, less wealthy, and are lower-income than previous cohorts.

Some conclusions in the report include:

  • “Specifically, the real average full-time labor earnings of a millennial male household head in 2014 were about the same as those for a comparable male Generation X household head in 1998 and over 10 percent lower than those for a comparable male baby boomer household head in 1978.”

  • “For female heads of all households, real average full-time labor earnings increased moderately between 1978 and 1998 and between 1998 and 2014, reflecting, in part, rising female educational attainment. However, the median labor earnings of female millennial household heads in 2014 were about 3 percent lower than those of comparable female Generation X household heads in 1998.”

  • “[A]verage real labor earnings for young male household heads working full time are 18 percent and 27 percent higher for Generation X and baby boomers, respectively, than for millennials after controlling for age, work status, and a n umber of demographic variables. For young female heads of household working full time, these generational gaps in labor earnings are in the same direction but somewhat smaller—12 percent and 24 percent, respectively. For family income, the regression shows that Generation X and baby boomer households have a family income that is 11 percent and 14 percent higher, respectively, than that of demographically comparable millennial households.”

A popular narrative around Millennials has been that they have higher debt loads. The Fed report, however, concludes Millennial debt levels are slightly lower:

The real average total debt balance was around $49,000 for Generation X members in 2004 and about $44,000 for millennials in 2017.

Moreover, according to the report, “millennials also have significantly less credit card loans and miscellaneous other debt.”

The problem we encounter here, though, is that the debt the Millennials do have is not connected to assets. For example, fewer Millennials have mortgages, which, given lower homeownership rates, suggests Millennials have less home equity as part of their net worth totals:

In 2004, 28 percent of Generation X members had a mortgage, well above the 19 percent share of millennials that had one in 2017. … That said, the median mortgage balance for millennial mortgage borrowers in 2017 was somewhat higher than for Generation X mortgage borrowers in 2004 ($105,000 versus $94,000), reflecting, in part, the net in crease in real house prices during the same period.

Instead, debt seems to be more connected to student loans and to auto debt. For example:

For auto loans, contrary to the stories in the popular press th at millennials have a more subdued demand for cars than members of earlier generations, the Equifax/CCP data show that 40 percent of millennials had an auto loan in 2017, compared with 36 percent of Generation X members in 2004. The mean outstanding balances on auto loans in the two cohorts are similar at about $5,200.

And, as many suspected, student debt is higher for Millennials:

One loan category for which millennials in 2017 had a notably higher average balance than Generation X members in 2004 was student loans. While only 20 percent of Generation X members had a student loan balance in 2004, more than 33 percent of millennials had one in 2017. Moreover, the median balance among student loan borrowers was substantially higher for millennials in 2017 than for Generation X members in 2004 (over $18,000 versus $13,000). … Accordingly, the average student loan balance for millennials in 2017 was more than double the average loan balance for Gene ration X members in 2004. The rise of student loan borrowing among young consumers reflects, in part, the rising real cost of higher education, the increase in college enrollment due to the Great Recession, and the increasingly limited capacity of parental contribution.

Thus, it’s not surprising when the report concludes that Millennials have a lower net worth than other age cohorts at the same stage:

Turning to net worth, which puts together the asset and debt comparisons described above, we find that millennials in 2016 have substantially lower real net worth than earlier cohorts when they were young. In 2016, the average real net worth of millennial households was about $92,000, around 20 percent less than baby boomer households in 1989 and nearly 40 percent less than Generation X households in 2001.

The median total assets held by millennials in 2016 is significantly lower than baby boomers in 1989 and only half as big as Generation X members in 2001.

Overall, the report paints a picture of younger workers who have fewer assets, lower incomes, and more student debt.

A common response in the media has been to blame Millennials for buying “too much avocado toast,” or for having too many other luxury tastes that render them incapable of building wealth. That may be true of the minority of Millennials who spend much of their lives on Instagram, but the Fed report itself concludes that the consumption patterns of Millennials are not significantly different from those of other groups when incomes and other factors are taken into account.

In other words, Millennials are not any more profligate than the Baby Boomers or Gen Xers who came before them.

The Role of Modern Monetary Policy

The report does not attempt to answer questions as to why Millennials might be unable to build wealth as quickly as those who came before.

But there is something different about today’s younger workers: they mostly started their careers in the post-Great Recession world and have thus lived their working lives in the shadow of what Brendan Brown calls the Great Monetary Experiment.

First of all, these workers had to deal with the fall-out of the Great Recession itself which was widespread unemployment for a period of years. This meant slower income growth in the first several years of employment, which can have a long-term effect on wealth accumulation. Economists and other observers have been pointing this out since at least 2011, when it became clear that job markets and incomes were not going to just bounce back as many assumed they would at the time. Indeed, it has only been in the past few years that most measures of incomes and wages have returned to the levels we saw back in 2007.

And Millennials appear to have been hit especially hard by this, as noted in this report from the St. Louis fed.

All of this, of course, happened on the Fed’s watch, and was just the latest example of how the myth of Fed-engineered economic stability has always been a myth.

So, we have a group of workers who start out their careers in a bad labor market, brought on by more than 20 years of money-pumping by Volcker (later in his term), Greenspan, and Bernanke. 

But once those Millennials were able to get jobs, they then were faced with a world that was particularly hostile to saving, home purchases, and investment for lower-income workers.

Our current situation is marked by endless monetary activism marked of near-zero interest rates and asset inflation which rewards those who already own assets, and have the means to access higher-risk investment instruments that offer higher yields. 

Meanwhile, banking regulations have been re-jiggered by federal politicians and regulators to favor established firms and the already-wealthy.

This was explored in some detail recently by banking-industry researcher Karen Petrou who concluded that thanks to post-2007 federal regulations, “it’s basically impossible for banks to make mortgage loans to anyone but wealthy customers.”

Meanwhile, basic methods of saving, like savings accounts, offer interest rates that don’t even keep up with inflation.

Combine this with rapidly climbing home prices, and we have a formula for an economic system where being an ordinary worker — who needs to build wealth from scratch — is facing low yields, less accessible debt, high housing prices, and lower incomes.

This, not surprisingly, has led to greater inequality, and its likely that as we look at growing  inequality statistics, part of what we’re seeing is a growing gap between younger workers and older ones — a growing gap that was not as wide before.

In this environment, doing what the Baby Boomers did, or doing what the Gen Xers did, just isn’t going to work very well. It may very well be that the only way for Millennials to get ahead in the current economy will need to either inherit wealth or engage in “extreme frugality” in which the Millennials will need to adopt a drastically lower standard of living compared to their elders.

This was not nearly as essential for previous generations. Of course, for those Millennials who do decide to go the route of extreme frugality, they’ll then be attacked for ruining the economy by “not spending enough.” The smart ones won’t care.

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Kremlin To Release US-Russia Communications On Election Meddling If Trump Agrees

Russia will declassify all correspondence with the United States regarding election meddling in the 2016 US election if the US agrees to it, according to state owned RT, citing a senior official of the Cyber Threats Response Center.

We are ready to make public all correspondence if the US side gives its consent to it,” said deputy director of the FSB-run CTRC, Nikolai Murashov, in a Tuesday statement to reporters. He added that the files are currently classified. 

Washington’s cooperation in probing the Democratic National Committee (DNC) hacking attacks was limited, the official said. Moscow had only received a number of messages “containing technical information about the hack,” Murashov explained.

Russian cyber security experts examined it even before Donald Trump’s inauguration. An exhaustive response was then sent to the American side.”

The US, for its part, is reluctant to collaborate with Russia on ensuring the security of cyberspace, he said, adding Washington “unilaterally blocked” bilateral efforts. –RT

A Russian hacking group affiliated with the Kremlin, Fancy Bear, was identified by cybersecurity firm Crowdstrike as the culprit behind a hack of the Democratic National Committee. Founded by Russian expat and Atlantic Council member Dmitri Alperovitch and funded with $100 million raised by Google, Crowdstrike was forced by the Ukrainian government to retract a report that their artillery had been hacked by Russia. 

And still, the US intelligence community has uncritically relied on Crowdstrike’s conclusion as the foundation of the Russian hacking narrative – despite credible evidence that the “hacked” DNC emails were copied locally at speeds highly unlikely over the internet – much less from halfway around the world. 

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Snyder: The Rise And Fall Of Netflix

Authored by Michael Snyder via The Economic Collapse blog,

Netflix originally had a truly disruptive business model and they fundamentally changed the way that Americans consume media, but now they are heading for the same fate as Blockbuster. 

For years, Netflix was really the only game in town, but now content costs are spiraling out of control and new competitors with even deeper pockets threaten to become the dominant players in the industry.  Of course Netflix is not going to die overnight, but the writing is on the wall.  In fact, Netflix stock has already been crashing over the last several months as investors have begun to realize that the future is not bright for the company.  Back in the middle of the summer, the stock price peaked at $423.21, and as I write this article it is currently at $269.70.  That is an astounding collapse, and here are 5 reasons why Netflix is headed for so much trouble…

#1 The Loss Of Key Content

At one time Netflix boasted the most impressive lineup of television shows and movies in the entire world by a wide margin, but those days are long gone.  The steady loss of content threatens to become an avalanche over the next two years as Disney, Fox and WarnerMedia all pull key content from the service…

Disney is launching its own Netflix-style subscription VOD service next year — dubbed Disney+ — so Netflix will be losing Disney-owned content starting next year. Disney is acquiring 20th Century Fox, so expect more of Fox’s content to leave Netflix, as well. AT&T’s WarnerMedia had pegged Q4 2019 for its own broad-focused SVOD entry, so it’s also going to be pulling back its own stuff from Netflix.

#2 Disney+ Looks Like A Netflix Killer

If you are going to sign up for a streaming service for your family, would you want the one with Disney movies, the Marvel universe, Star Wars, Pixar and ESPN or would you want the one without all of those things?

Disney already has the best content, and they have much deeper pockets than Netflix does.  As Stephen McBride has noted, it is going to be very difficult for Netflix to compete with that…

Disney will launch its own streaming service called “Disney+” next year. It’s going to pull all its shows and movies off Netflix and put them on Disney+ instead.

This is a huge problem for Netflix because Disney has the world’s best content by a long shot. It owns household brands like Marvel… Pixar Animations… Star Wars… ESPN… ABC… X-Men… not to mention all the traditional characters like Mickey Mouse and Donald Duck.

#3 Amazon Prime Is Ramping Up Their Spending On Original Shows

Amazon is willing to spend billions on original content, and they have already been gobbling up market share.  Though still behind Netflix, Amazon has shown a willingness to do whatever it takes to become a major player.

For example, at one time you could watch Downton Abbey on Netflix, but now that entire series is exclusively found on Amazon Prime.

And when Amazon announced that it was going to spend 5 billion dollars on original content next year, that freaked out Netflix so much that they increased their planned spending on original content to 12 billion dollars

In February, Amazon (AMZN) announced it would spend $5 billion developing original shows and movies this year. In response, Netflix upped its spending by 50%.

Netflix had planned to spend $8 billion on shows and series this year… now it’ll spend roughly $12 billion. It now invests more in content than any other American TV network.

#4 Netflix Cannot Win A Content Arms Race Because They Are Already Drowning In Debt

Netflix subscribers may appreciate all of the new content that the company has been churning out, but it has come at a very great cost.

Netflix was already drowning in debt prior to 2018, and that debt has shot up by 71 percent to $8.3 billion so far this year.

Meanwhile, two competitors with much deeper pockets will be able to outspend the company very easily in future years

According to content spending numbers reported by research firm Ampere Analysis, Disney and Fox are projected to spend $22 billion per year on both original and acquired content. Similarly, Comcast and Sky are expected to spend $21 billion in 2018.

#5 The Cost Of Licensed Content Is Getting Out Of Control

Netflix has been heavily promoting their own original content, but 63 percent of the content that their subscribers consume is still from other sources…

Original content accounted for 37% of Netflix’s U.S. streams in October 2018, up from 24% a year earlier (and just 14% in January 2017), per video-measurement firm 7Park Data. But that means the majority (63%) of Netflix’s viewing is still from licensed content.

And that licensed content is becoming prohibitively expensive.  For example, Netflix just made a deal to renew streaming of “Friends” for another year for 100 million dollars

Warner Bros.-owned “Friends” stood at No. 3 — with its ongoing popularity helping to explain why Netflix was motivated to ink a one-year renewal for the ’90s-era sitcom, in a deal reportedlyworth $100 million.

It absolutely amazes me that millions of Americans are still willing to tune in to old reruns of that show, but apparently it is happening.

But there is no way that deal makes any economic sense whatsoever.

At this point, Netflix is bleeding cash at a rate that is staggering.  It has been projected that Netflix’s free cash flow will be negative 2.79 billion dollars in 2018, which will be the worst year that it has ever experienced.

Looking forward, Netflix will be steadily losing key content and subscribers to competitors, and it is inevitable that their borrowing costs will go up quite a bit.

Without sufficient revenue to service their exploding debt, it is only a matter of time before Netflix flames out and is forced to surrender.

Netflix shares are still worth $269.70 at the moment, but that won’t last for long.  Eventually the company is going to zero, and no amount of irrational optimism will stop that from happening.

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