Netflix Hikes Prices Up To 18% For 58 Million US Subscribers

For the fourth time in its history (the last hike came in 2017), Netflix is raising prices by 13-18% – its biggest price-hike since launching 12 years ago.

AP reports that Netflix’s most popular plan will see the largest hike, to $13 per month from $11. That option offers high-definition streaming on up to two different internet-connected devices simultaneously. The price for the cheapest plan is going up to $9 per month. A premium plan offering ultra-high definition will jump to $16 per month from $14.

Even at the higher price, that plan is still a few dollars cheaper than HBO, whose streaming service charges $15 per month, but Amazon offers a streaming service as part of its Prime shipping program for $13 per month.

This is the first time that higher prices will hit all 58 million U.S. subscribers

The new prices will immediately affect all new subscribers and then roll out to existing customers during the next three months.

“We change pricing from time to time as we continue investing in great entertainment and improving the overall Netflix experience,” the company said in a statement.

The stock is up on this news – surging 6% ahead of the open – as it seems the market believes Netflix viewers are entirely price inelastic…

Additionally, this price-hike comes as the company burned through about $3 billion last year and is expecting to do so again this year. To offset the negative cash flow, Netflix has been borrowing heavily to pay for programming. accumulating nearly $12 billion in debt before borrowing another $2 billion in an October bond offering.

NFLX is now up 30% year-to-date…

We’ll see, as the economy slows.

 

 

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In Retaliatory Travel Advisory, China Warns Of “Arbitrary Detention” In Canada

One day after the Canadian government finally caved in to demands from conservative lawmakers and issued a travel advisory warning its citizens about the “arbitrary enforcement of laws” on the mainland – a warning that was apparently prompted by a local court handing down a death sentence to a Canadian citizen convicted of trafficking drugs – China has hit back with a tit-for-tat travel advisory of its own.

According to the South China Morning Post, a notice by the Chinese Foreign Ministry urged Chinese citizens to be aware of the risks of being “arbitrarily detained at the request of a third nation” in Canada, and urged caution when making travel plans – an obvious reference to the arrest of Huawei CFO Meng Wanzhou, who was arrested in Vancouver last month at the behest of the US.

Canada

In addition to the death sentence handed down to Schellenberg, a ruling that many accused of being politically influenced due to the suspiciously swift appeal and hearing, China has arrested two Canadians, a former diplomat and a businessman, on vague “National Security” charges.

Meanwhile, Canadian Prime Minister Justin Trudeau said after the death sentence was handed down that Canada was prepared to intervene on Schellenberg’s behalf.

“It is of extreme concern to us as a government, as it should be to all our international friends and allies, that China has chosen to begin to arbitrarily apply [the] death penalty…as in this case facing a Canadian,” Trudeau said.

The Chinese government and the local court where Schellenberg’s re-sentencing took place defended the verdict, saying the rule of law had been followed.

The local court in Dalian, Liaoning Province, which delivered the verdict, said on Tuesday that it had “rigorously enforced” the relevant laws in Schellenberg’s case “without any procedural violations.”

It said the Liaoning Higher Court had ordered a retrial after Schellenberg appealed against his initial 15-year sentence, adding that it “followed the law in accepting the case” and had carried out the necessary processes.

Hua Chunying, a spokeswoman for China’s foreign ministry, also insisted that the rule of law had been followed in Schellenberg’s case.

“The Canadian government should remind its citizens not about facing threats in China, but to never come to China to commit serious offences such as smuggling or trafficking drugs,” she said in a daily briefing.

“Those who commit these serious offences in China will definitely face serious consequences.”

But observers said the case bore all of the hallmarks of a politically sensitive issue.

Scott McKnight, managing editor of the China Open Research Network at the University of Toronto, said the sudden change and increased coverage in Chinese media was a “clear indication to us that the Chinese government is eager to politicise this specific case in its broader diplomatic spat with Canada.”

“The Chinese government, in choosing to escalate this stand-off, is showing that it’s immune – or simply doesn’t care – about the damage it is doing to its reputation, so long as it somehow helps to get Mrs Meng back to China,” he said.

Earlier this month, the US stepped up its own travel advisory about China, where it also warned US citizens about the arbitrary enforcement of laws in China.

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‘Senior Trump Official’: “I Hope A Long Shutdown Smokes Out The Resistance”

President Trump just retweeted the following ‘anonymous’ op-ed from The Daily Caller saying it is “worth the read.”

The Daily Caller is taking the rare step of publishing this anonymous op-ed at the request of the author, a senior official in the Trump administration whose identity is known to us and whose career would be jeopardized by its disclosure. We believe publishing this essay anonymously is the only way to deliver an important perspective to our readers. We invite you to submit a question about the essay or our vetting process here.

As one of the senior officials working without a paycheck, a few words of advice for the president’s next move at shuttered government agencies: lock the doors, sell the furniture, and cut them down.

Federal employees are starting to feel the strain of the shutdown. I am one of them. But for the sake of our nation, I hope it lasts a very long time, till the government is changed and can never return to its previous form.

The lapse in appropriations is more than a battle over a wall. It is an opportunity to strip wasteful government agencies for good.

On an average day, roughly 15 percent of the employees around me are exceptional patriots serving their country. I wish I could give competitive salaries to them and no one else. But 80 percent feel no pressure to produce results. If they don’t feel like doing what they are told, they don’t.

Why would they? We can’t fire them. They avoid attention, plan their weekend, schedule vacation, their second job, their next position — some do this in the same position for more than a decade.

They do nothing that warrants punishment and nothing of external value. That is their workday: errands for the sake of errands — administering, refining, following and collaborating on process. “Process is your friend” is what delusional civil servants tell themselves. Even senior officials must gain approval from every rank across their department, other agencies and work units for basic administrative chores.

Process is what we serve, process keeps us safe, process is our core value. It takes a lot of people to maintain the process. Process provides jobs. In fact, there are process experts and certified process managers who protect the process. Then there are the 5 percent with moxie (career managers). At any given time they can change, clarify or add to the process — even to distort or block policy counsel for the president.

Saboteurs peddling opinion as research, tasking their staff on pet projects or pitching wasteful grants to their friends. Most of my career colleagues actively work against the president’s agenda. This means I typically spend about 15 percent of my time on the president’s agenda and 85 percent of my time trying to stop sabotage, and we have no power to get rid of them. Until the shutdown.

Due to the lack of funding, many federal agencies are now operating more effectively from the top down on a fraction of their workforce, with only select essential personnel serving national security tasks. One might think this is how government should function, but bureaucracies operate from the bottom up — a collective of self-generated ideas. Ideas become initiatives, formalize into offices, they seek funds from Congress and become bureaus or sub-agencies, and maybe one day grow to be their own independent agency, like ours. The nature of a big administrative bureaucracy is to grow to serve itself. I watch it and fight it daily.

When the agency is full, employees held liable for poor performance respond with threats, lawsuits, complaints and process in at least a dozen offices, taking years of mounting paperwork with no fear of accountability, extending their careers, while no real work is done. Do we succumb to such extortion? Yes. We pay them settlements, we waive bad reviews, and we promote them.

Many government agencies have adopted the position that more complaints are good because it shows inclusion in, you guessed it, the process. When complaints come, it is cheaper to pay them off than to hold public servants accountable. The result: People accused of serious offenses are not charged, and self-proclaimed victims are paid by you, the American taxpayer.

The message to federal supervisors is clear. Maintain the status quo, or face allegations. Many federal employees truly believe that doing tasks more efficiently and cutting out waste, by closing troubled programs instead of expanding them, “is morally wrong,” as one cried to me.

I get it. These are their pets. It is tough to put them down and let go, and many resist. This phenomenon was best summed up by a colleague who said, “The goal in government is to do nothing. If you try to get things done, that’s when you will run into trouble.”

But President Trump can end this abuse. Senior officials can reprioritize during an extended shutdown, focus on valuable results and weed out the saboteurs. We do not want most employees to return, because we are working better without them. Sure, we empathize with families making tough financial decisions, like mine, and just like private citizens who have to find other work and bring competitive value every day, while paying more than a third of their salary in federal taxes.

President Trump has created more jobs in the private sector than the furloughed federal workforce. Now that we are shut down, not only are we identifying and eliminating much of the sabotage and waste, but we are finally working on the president’s agenda.

President Trump does not need Congress to address the border emergency, and yes, it is an emergency. Billions upon billions of hard-earned tax dollars are still being dumped into foreign aid programs every year that do nothing for America’s interest or national security. The president does not need congressional funding to deconstruct abusive agencies who work against his agenda. This is a chance to effect real change, and his leverage grows stronger every day the shutdown lasts.

The president should add to his demands, including a vote on all of his political nominees in the Senate. Send the career appointees back. Many are in the 5 percent of saboteurs and resistance leaders.

A word of caution: To be a victory, this shutdown must be different than those of the past and should achieve lasting disruption with two major changes, or it will hurt the president.

The first thing we need out of this is better security, particularly at the southern border. Our founders envisioned a free market night watchman state, not the bungled bloated bureaucracy our government has become. But we have to keep the uniformed officers paid, which is an emergency. Ideally, continue a resolution to pay the essential employees only, if they are truly working on national security. Furloughed employees should find other work, never return and not be paid.

Secondly, we need savings for taxpayers. If this fight is merely rhetorical bickering with Nancy Pelosi, we all lose, especially the president. But if it proves that government is better when smaller, focusing only on essential functions that serve Americans, then President Trump will achieve something great that Reagan was only bold enough to dream.

The president’s instincts are right. Most Americans will not miss non-essential government functions. A referendum to end government plunder must happen. Wasteful government agencies are fighting for relevance but they will lose. Now is the time to deliver historic change by cutting them down forever.

The author is a senior official in the Trump administration.

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Wells Just Reported The Worst Mortgage Number Since The Financial Crisis

When we reported Wells Fargo’s Q3 earnings back in October, we drew readers’ attention to one specific line of business, the one we have repeatedly dubbed the bank’s “bread and butter“, namely mortgage lending, and which as we then reported was “the biggest alarm” because “as a result of rising rates, Wells’ residential mortgage applications and pipelines both tumbled, sliding just shy of the post-crisis lows recorded in late 2013.”

Well, unfortunately for Wells, despite the sharp drop in yields in Q4 which many had expected would boost mortgage lending or at least refi activity for the bank that was until recently America’s largest mortgage lender, the decline in mortgage activity has continued,  because buried deep in its presentation accompanying otherwise unremarkable Q4 results (modest EPS best; sizable revenue miss), Wells just reported that its ‘bread and butter’ is once again missing, and in Q4 2018 the amount in the all-important Wells Fargo Mortgage Application pipeline shrank again, dropping to $18 billion, the lowest level since the financial crisis.

Meanwhile, Wells’ mortgage originations number, which usually trails the pipeline by 3-4 quarters, was just as bad, dropping a whopping $12BN sequentially from $46 billion to just $38 billion, and effectively tied for the lowest print since the financial crisis.  Putting this number in context, just six years ago, when the US housing market was actually solid, Wells was originating 4 times as many mortgages, or about $120 billion.

And since this number lags the mortgage applications, we expect it to continue posting fresh post-crisis lows in the coming quarter especially if rates resume their rise.

Going back to the headline numbers, here is a recap of the key metrics:

  • 4Q adj. EPS $1.21, est. $1.19
  • 4Q revenue $20.98 billion, Exp. $24.7BN
  • 4Q net interest income $12.64 billion
  • 4Q loans $953.11 billion vs. $942.3 billion q/q
  • 4Q mortgage non-interest income $467 million
  • 4Q residential mortgage originations $38 billion
  • 4Q margin on residential held-for-sale mortgage originations 0.89%
  • 4Q non- performing assets $6.95 billion
  • 4Q net charge-offs $721 million, estimate $736.8 million (BD)
  • 4Q total avg. deposits $1.27 trillion

There was more bad news for Wells, whose Net Interest Margin managed ended its recent streak of increases, and was unchanged at 2.94% resulting in $12.644 billion in Net Interest Income, and missing expectations of an increase to 2.95%. This is what Wells said: “NIM of 2.94% stable LQ as a benefit from higher interest rates and favorable hedge ineffectiveness accounting results were offset by the impacts of all other balance sheet mix and lower variable income.

There was another problem facing Buffett’s favorite bank: while NIM failed to increase, deposits costs are rising fast, and in Q4, the bank was charged an average deposit cost of 0.55% on $914.3MM in interest-bearing deposits, double what its deposit costs were a year ago.

There was a silver lining however: amid concerns over the ongoing slide in the scandal-plagued bank’s deposits, which declined 3% or $40.1BN in Q3 Y/Y (down $2.3BN Q/Q) to $1.27 trillion, in Q4 Wells finally succeeded in getting a modest increase in deposits, which rose to $1.286 trillion, if still down 4% Y/Y. This was driven by growth in Wealth & Investment Management deposits driven by higher retail brokerage sweep deposits, “partially reflecting a change in our customers’ risk appetite, as well as higher private
banking deposits.” Offsetting this were declines in small business banking deposits, partially offset by growth in retail banking consumer deposits.

And some more good news: the recent ongoing shrinkage in the company’s balance sheet appears to have finally reversed, because one quarter after average loans declined from $944.3BN to $939.5BN, the lowest in years, and down $12.8 billion YoY, average loans outstanding increased fractionally to $946.3BN, up $6.8BN, or 1% Q/Q. This rebound was entirely due to commercial loans , which were up $7.7 billion LQ on higher commercial & industrial loans. Meanwhile, consumer loans continued to decline, and were down $835 million LQ as growth in nonconforming first mortgage loans and credit card loans was more than offset by declines in legacy consumer real estate portfolios including Pick-a-Pay and junior lien mortgage loans due to run-off and sales, as well as lower auto loans.

And finally, there was the chart showing the bank’s overall consumer loan trends: these reveal that the troubling broad decline in credit demand continues, as consumer loans were down a total of $13.7BN Y/Y across most product groups.

What these numbers reveal, is that the average US consumer can barely afford to take out a new mortgage even at a time when rates are once again sliding. It also means that if the Fed is truly intent in engineering a parallel shift in the curve of 2-3%, the US can kiss its domestic housing market goodbye.

Source: Wells Fargo Earnings Supplement

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US Producer Prices Disappoint But Core Hovers At 7-Year Highs

After China’s dismal deflationary impulse (PPI/CPI slumping), US Producer Prices also disappointed, dropping 0.2% MoM – the biggest drop since Aug 2016.

Final Demand Producer Price growth YoY is at its weakest since August 2017…

However while Core PPI disappointed more, printing +2.7% YoY vs +3.0% YoY expectations (and fell 0.1% MoM against expectations of a 0.2% rise), it remains near its highest since 2011…

Finally, we note that Final Demand Consumption fell 0.2% MoM.

So disappointments but Core PPI still high – What Will Jay Powell Do?

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REAL ID Puts Personal and National Security At Risk: New at Reason

This month marks a year since a milestone in the adoption of what are effectively internal passports in the United States—a date that went unnoticed by most Americans. Starting last January, only residents of states that signed on to the federal government’s REAL ID scheme were permitted to fly or enter federal buildings using their state ID.

Because every state ultimately surrendered to federal demands and agreed to issue standardized identification (though under a façade of local design and color), the ID cards in your pocket continue to work—at least until the full program kicks in during 2020.

In his latest column, J.D. Tuccille examines the privacy and security problems of the REAL ID program.

View this article.

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Trump Warns Of New Migrant Caravan Forming In Honduras

As the battle over President Trump’s border wall drags on for its fourth week, President Trump is warning about a new migrant caravan forming in Honduras and will soon be on it way to the Southern border.

Migrants

In his tweet, Trump mocked Democratic leaders Nancy Pelosi and Chuck Schumer, warning that “a drone flying around will not stop” the advancing migrant hordes. Once the next wave arrives, “Only a Wall, or Steel Barrier, will keep our Country safe!”

Trump added that polling shows more than 50% of Americans now understand the link between immigration and crime, and that Trump’s quest to build a border wall is a “humanitarian issue.” Meanwhile, the Democrats are risking becoming the “Party of Crime” due to their opposition.

China

The issue of several migrant caravans heading to the US from Central America became a flashpoint during the days and weeks before the midterms, with Trump regularly weighing in on their progress and US media organizations monitoring their progress. On Tuesday, Fox reported that the caravan – nearly 500 strong – left Honduras on Monday.

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Meet The New Brexit ‘Doomsday Preppers’: Housewives Stockpiling Food And Medicine

After months of fraught negotiations – first with the EU, then with her eurosceptics in Parliament – mere hours remain before Prime Minister Theresa May brings her Brexit withdrawal agreement up for a vote in the House of Commons on Tuesday. And with analysts and MPs alike anticipating an overwhelming defeat – the latest estimates put the margin of defeat at around 225 votes – Theresa May is under pressure to bring all of her “Project Fear” powers to bear to try and coerce MPs to back her deal, though now that MPs have wrested some of the control over the process away from the PM, her threats of “her deal, no deal or no Brexit” have largely been robbed of their bite. ‘

Brexit

But that doesn’t mean stories and images about the chaotic fallout from a ‘no deal’ Brexit can’t still stoke anxieties among the voting public.

Enter the Guardian, which published on Tuesday a story documenting the phenomenon of the newly minted Brexit doomsday prepper. A reporter for the paper traveled to different parts of the country interviewing members of Facebook groups and other social media cliques dedicated to preparing for the worst case scenario. May’s government has offered a nightmarish vision of the fallout, complete with lorries backed up at the border, bare cupboards and supermarket shelves and medicine shortages.

Dog

In an interesting twist, the Brexit preppers documented by the Guardian don’t fit the stereotype of the rugged libertarian-leaning individualist. instead, they are mostly housewives and working women worried about their children going without essential medications.

Jo Elgarf, a member of the group ‘48% Preppers’ (so named for the percentage of Britons who voted to remain a part of the European Union), told the Guardian that she had agreed to participate in the story because her doctor told her she couldn’t stock up on two essential medications that help her child avoid daily seizures.

Because it’s not just about food for Elgarf and her family. One of her four-year-old twins, Nora, who has been sitting happily on her mum’s lap as we talk, has a rare brain condition called polymicrogyria. She has lots of prescriptions, but without two of them – Epilim and Keppra – for her epilepsy, she would have multiple seizures a day. “She can’t do without them,” says Elgarf. Both Epilim and Keppra are imported.

If she could stockpile these medicines, she would. But they are controlled, and she can only get a month’s supply at a time. “It should be all right,” she has been told by doctors and the pharmacists. But when it’s your daughter’s life that’s at stake, “it should be all right” isn’t good enough.

Many of the people who join the Facebook group have concerns about medicines, Elgarf says. There are a lot of diabetics and coeliacs among them. What they need is some reassurance. “We need to know for certain they have got a proper plan in place for anybody who depends on meds.” She has heard rumours that the most critical medicines may have to be collected from central hubs, which would be stocked on the basis of lists provided by GPs.It’s clearly something she has given thought to.

Elgarf is also clear about why she is talking to me. “So come April and there’s no Epilim in the country, I’ll say:  ‘Where’s that Guardian man?’ And you guys are going to be interested because this little child you saw in January now has no meds.” Nora has fallen asleep on her mum.

Even if she never uses the supplies, most of which could be donated to a local food bank, Elgarf tried to frame her stockpile of food as a generally prudent decision. After all, in Switzerland, the government cautions residents in the Alps to always have two weeks worth of supplies stockpiled in the event of a snowstorm.

“In Switzerland, they tell people to have, I think, two weeks’ stuff,” she says. People are vulnerable there, not just because they’re more likely to get snowed in, but also because they have a hard border. Elgarf’s degree was in European studies. And she worked in the food industry; she knows how just-in-time it operates. Chris Grayling’s little lorry exercise didn’t reassure her. Nor the chief executive of the Association of the British Pharmaceutical Industry saying that a no-deal Brexit “should be avoided at all costs”.

One woman who stockpiled everything from food, to potable water to makeup said she wasn’t only prepping for herself – she was doing it for her dog as well.

Helena is not just prepping for herself. She is doing it for her dog, Charlie, too. And while she has about three months’ worth of supplies for herself, she is looking at more like a year for the dog, as she doesn’t see that pet food will be a priority. “I don’t really trust the government to look after me; I certainly don’t trust them to look after my dog,” she says. As well as dog food, there are treats and toys on the spreadsheet. Charlie is going to enjoy a hard Brexit.

Helena sees it as an insurance policy. “Unless there’s enormous panic buying, I don’t think there’s going to be nothing on the shelves at Asda,” she says. “But I do think there’s a very good chance that choice is going to be limited.”

Another woman interviewed by the Guardian was an accomplished economist who said her knowledge of how supply chains worked inspired her to start stockpiling.

In Cambridge, Diane says she is also stockpiling, though she doesn’t want to go into too much detail. “I’m a bit cautious about being presented as an idiot who has a cupboard full of stuff,” she says. She’s OK about using her surname, though: she is Diane Coyle, OBE, FACSS, the economist, Bennett professor of public policy at the University of Cambridge, former adviser to the Treasury, vice-chair of the BBC Trust, member of the Competition Commission, winner of the Indigo prize…in short, really not an idiot.

“The point about supply chains,” she explains, “is that the things you buy in the supermarket today were on the road last night. Supermarkets now don’t have warehouses full of stuff. If we have a no deal and the delays go up even by 12 hours – although I see there’s a new report saying it is going to be much more – then things will stop being put on the shelves. They will run out. And it’s not just stuff we buy from the EU, and it’s not just fresh produce – it’s quite a lot of things.”

Coyle knows that she can’t get by without a cuppa and doesn’t want to run out of teabags or coffee because she didn’t get any in before a no-deal exit. “It’s things that matter to me, that we import, and it’s a bit of insurance.”

Some believe that the fallout from a ‘no deal’ Brexit could linger longer than many expect.

In north Cornwall, Nevine Mann believes we will leave the EU without a deal, and that’s what she is preparing for. “We’re expecting it to be pretty horrendous for at least a couple of months, hopefully settling down and becoming less horrendous over time,” says the former midwife. “Long term, we expect what’s available to be more expensive and different.”

But while much remains uncertain, UK citizens might enjoy some more clarity after Tuesday’s vote…

Brexit

…or they could find themselves right back at square one if it is defeated by a wider than expected margin.

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Can You Time Peak Crazy?

Authored by Mike Krieger via Liberty Blitzkrieg blog,

You don’t need me to tell you how completely crazy and distorted the financial markets have become over the last decade. Anyone reading this already knows that, which is partly why I stopped writing on the topic several years ago. I came to the conclusion there was no point in constantly screaming at the top of my lungs about what a farce the global financial system was. Instead, I decided to step back, let things play out to their predictably tragic end, and then play closer attention as the curtains started to come down. As has been made clear in my recent commentary, I think we’re now reaching that point.

I’ve begun reflecting a little more about the lessons I’ve learned over the past several years of status quo stupidity, and one particular conversation I had a while ago with a friend who was a portfolio manager at a major hedge fund came to mind. I searched my old emails to find exactly what I had written, and the response became the inspiration for the title of today’s post.

The correspondence occurred nearly four years ago, in February 2015. His initial message highlighted a FT article about the fact that Nestlé bond yields had turned negative. This was my response to his email:

Once you enter certifiably “crazy” territory it becomes almost impossible to bet against crazy until it is obvious it is all unraveling. Once in crazy territory it can easily get more crazy since crazy has already been established. 

The above is why you should never bet money against crazy simply because it’s crazy. Crazy can go on for a long time, especially when the people in charge see themselves as gods sent from the heavens to deliver the planet from the horrors of declining asset prices and lower financial industry bonuses.

But crazy always ends at some point, and the crazier the period preceding the reckoning, the more intense and disruptive the subsequent period will be.

I tend to think yes when thinking about the above, and if that’s right, then the consequences of the largest asset bubble in history would likewise be historic. At the least we’re going to have a total change to the global financial system, the sort of thing that typically happens only once a lifetime. That’s the conservative take.

The more radical assessment would be that the largest asset bubble in world history will be followed by a level of disruption and change that only happens every few hundred years. The period of time that seems most similar to this one in (sorta) recent history would be the late 18th century, when we witnessed revolutions in the 13 American colonies and in France that changed the world dramatically for centuries to come. That’s the level of change I suspect we’ll see, and even that could be conservative given the pace of technological change we’re living through.

We’ve already seen the warning shots, as the social and political structures of many countries are already pretty far along the path of major transformation. Trump’s election, Brexit, the Yellow Vest and the Italy’s elections, just to name a few. Significantly, many of these things went down while the financial market bubble was still propped up and inflating. What will happen on the social and political level when the market cycle really turns is anybody’s guess, but you can be assured it won’t be business as usual.

So what should you do? I think the worst thing you can do is look at the current world and try to do all the things conventional wisdom tells you to do. Rather, look around, think about what’s terminally broken around you and think about how things could be different in the future. If you’re particularly motivated and talented, don’t just think about these problems, try to come up with the most conscious, beneficial and revolutionary solutions you can and then give it a shot.

Not everyone can be Satoshi Nakamoto, but you get the point.

*  *  *

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JPM Reports Huge Trading Miss As FICC Revenue Plunges To Lowest Since Financial Crisis

To anyone who carefully read yesterday’s dismal Citi earnings report, which was a major disappointment in virtually every way and especially in the bank’s FICC group, with the exception of Citi’s core lending business which traders decided to focus on and push Citi’s stock price 4% higher, today’s disappointing JPMorgan results should not come as a surprise.

Actually, JPMorgan Q4 results were even worse than Citi’s as they were a disappointment across the board, with both reported revenue of $26.1BN and “managed” revenue of $26.8BN missing consensus expectations of $26.9BN, while EPS of $1.98 was not only well below the $2.20 consensus, but was also the first JPM earnings miss in nearly five years.

While JPM also posted a modest increase in Net Interest Income, which rose $1.2BN Y/Y to $14.5BN, noninterest income for the largest US bank declined $0.1BN to $12.3BN Y/Y and also declined $1.5BN Q/Q.

JPMorgan also reported 4Q compensation expenses $7.81 billion, right on top of the estimate $7.81 billion; while the 4Q provision for credit losses of $1.55 billion was surprisingly higher than the estimate $1.31 billion. The bank also reported a firmwide net reserve build of $15mm – net build in Consumer of $54mm and net release in Wholesale of $39mm.

But while the top and bottom-line miss were hardly what the market was expecting, what has slammed JPM stock this morning is the huge miss in the bank’s trading group, with 4Q FICC sales & trading revenue of just $1.86 billion, down $361MM from a year ago (and $1.0BN from Q3) and far below the estimated $2.29 billion. And while equity sales & trading revenue was in line, printing at $1.32 billion or right on top of the estimate $1.32 billion (if also down $278MM from Q3), the FICC plunge stole the show with the worst Q4 FICC trading revenue since the financial crisis.

Elsewhere in the bank’s investment bank group, 4Q investment banking revenue of $1.72 billion also missed estimates of $1.77 billion, virtually unchanged from a year ago.

Commenting on these disappointing trading results, JPM said that markets revenue of $3.2B was down 6% YoY, or down 11%YoY adjusted for the impact of tax reform and a loss on a margin loan in the prior year. Adjusted, Fixed Income Markets revenue was down 18% YoY, and Equity Markets revenue was up 2% YoY.

Surprisingly, JPM also reported a $243MM Credit Adjustments loss “reflecting higher funding spreads on derivatives.” We hope to learn more on what this was for during the earnings call.

Meanwhile, even as trading revenue tumbled, JPM reported Ibanking expense of $4.7B, up 3% YoY reflecting investments in the business and higher volume-related transaction costs, which however were offset by lower FDIC charges and lower performance-based compensation.

While the rest of the earnings were generally uneventful, it is worth noting (especially with Wells about to report) that JPM’s Q4 mortgage origination volume was $18.7BN in Q4, down 30% from $26.6BN in Q4 2017 as mortgage activity continues to collapse across the industry.

And in another potential warning sign, home Lending numbers were also unexpectedly weak, with net revenue down 8 percent to $1.3 billion, “driven by lower net production revenue on margin compression and lower volumes.”

 

Not surprisingly after what was easily the worst earnings report for JPM in over four years, the stock has tumbled.

And as we await Wells Fargo’s earnings due out shortly, here is JPM’s full earnings presentation.

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