Vote Third Party!: New at Reason

Is this the year of the third party? They may be the only serious choice, writes J.D. Tuccille:

This year, the likely presidential candidates of the major political parties are two of the less savory individuals ever to run for office in a country whose Wikipedia entry doesn’t feature periods of military rule. The Republicans seem poised to give us a crony capitalist who admires authoritarian foreign governments, views constitutional safeguards with contempt, and encourages his followers to stomp opponents. The Democrats are ready to coronate an authoritarian former secretary of state who fairly reeks of influence-peddling and is the subject of an FBI probe into the mishandling of classified information that passed through a private email server she set up to avoid freedom of information inquiries.

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S&P Futures Jump As Rebound In Commodities Helps Defense Of Key Support Trendline

After yesterday’s last hour selloff sent the S&P to the very edge of the critical support trendline which, as shown yesterday, meant 1980 had to be defended at all costs…

 

… so far the support has held, and in overnight trading European stocks have managed to rebound on the back of more levitation in oil, while US equity futures have ignored a drop in the USDJPY which touched 112.20 in morning trading, and have jumped by 0.5% as of this moment, up 10 points to 1,990.

It is worth noting that China opened on the wrong foot, with the Yuan feeling the pain of the recent abysmal trade data, however, after dropping as much as 3%, Chinese stocks managed to crawl back to the highs of the day following another dramatic intervention by the Chinese government’s “National Team”:

With China’s Plunge Protection Team having intervened and set a positive spin on another poor session, traders put declines in Asia behind them as European markets rose along with U.S. index futures and commodities. European shares advanced for the first time in three days on speculation the region’s central bank will ramp up monetary stimulus on Thursday. A gauge of raw materials rebounded from its biggest selloff in a month, buoyed by gains in oil and copper. Furthermore, the previously noted selloff in Japanese government bonds – one which triggered circuit breakers and which some speculated may have been precipitated by the BOJ itself – dragged Treasuries and German bunds lower, gold fell a second day and the euro dropped versus most of its major peers.

Because the last thing the market needs is negative follow through the day after Jeff Gundlach says that the rally is ending and the the risk/return profile of the S&P is currently 2/20.

To be sure, everyone’s attention will be focused on tomorrow’s ECB, where Draghi will either provide a major upside surprise, or will disappoint massively to the downside: just like in December, there is no middle ground. “We think a 10bp cut and a EU10b top-up in QE purchases won’t do much to extend the equity rally, namely because it’s already priced in. A very generous macro add-on to the two-tiered system would possibly help lenders in the very short term, but realistically, it’s only the threat of credit purchases, corporate and/or financial, that can get the market excited at this point. Even if Draghi pulls another rabbit, the fundamental picture for European banks will remain extremely challenging given the grim outlook for back-end yields,” Ben Camara, head of European strategy at Vanda Securities, writes in note.

Others are just as skeptical: “There’s talk of rates cuts, increasing the size of the asset-purchase program, and expanding the range of products that the ECB will buy,” said Daniel Murray, the London-based head of research at EFG Asset Management. “Let’s see tomorrow how good Draghi is at playing the market: he has built up expectations before and found them hard to meet.”

So while we await the week’s key event, here is where we stand currently.

Market Wrap

  • S&P 500 futures up 0.5% to 1990
  • Stoxx 600 up 1.0% to 341
  • FTSE 100 up less than 0.5% to 6155
  • DAX up 0.5% to 9744
  • German 10Yr yield up 2bps to 0.2%
  • Italian 10Yr yield down less than 1bp to 1.42%
  • Spanish 10Yr yield down less than 1bp to 1.57%
  • MSCI Asia Pacific down 0.3% to 125
  • Nikkei 225 down 0.8% to 16642
  • Hang Seng down less than 0.1% to 19996
  • Shanghai Composite down 1.3% to 2863
  • S&P/ASX 200 up 1% to 5157
  • US 10-yr yield up 5bps to 1.88%
  • Dollar Index up 0.13% to 97.34
  • WTI Crude futures up 1.5% to $37.04
  • Brent Futures up 1.7% to $40.33
  • Gold spot down 0.5% to $1,253
  • Silver spot up 0.1% to $15.37

Top Global News

  • Sanders Stuns Clinton with Michigan Upset: Even with loss, Clinton was able to go to sleep Tuesday with a bigger overall lead than she had when she woke up; Trump Sweeps Republican Primaries in Mississippi, Michigan
  • Swiss Re Said to Be in Talks to Buy Prime Reinsurance From Citi: Deal may value the subsidiary at ~$500m.
  • SunEdison Faces Lawsuits, Cash Crunch After Vivint Cancels Deal: Now that deal has fallen apart, fallout may be significant.
  • Carmike’s Biggest Holder Opposes AMC Buyout Terms as Too Low: Co. responded that it’s pressing ahead with proposed deal.
  • Berkshire Said to Market Euro Bonds Following Biggest Debt Sale: Co. offering 4, 8, 12-yr maturities, partly to help pay off loans used in acquisition of Precision Castparts.
  • IBM Snips Potential Share Buyback Benefits for CEO Compensation: Co. to strip out effects of “unplanned” repurchases from oper. EPS when it assesses CEO’s performance.
  • India Startup Cut Off From Facebook After U.S. Rival’s Protest: FB pulled plug on Houzify page after Sequoia Capital-backed Houzz Inc. complained of trademark infringements.
  • Copper Demand to Overtake Supply in 2017: Freeport Official: Demand will increase slightly over 2%/year on average through 2020.
  • Chipotle Closes Mass. Restaurant After Workers Get Sick: Location in Billerica, outside Boston, was closed for a full cleaning.
  • Google AI Wins First Match Against Korean Go Game Champion:

Bulletin Headline Summary From RanSquawk and Bloomberg

  • European bourses are trading mildly higher despites risk events being in focus, most notably ECB’s Draghi speaking tomorrow after the ECB rate announcement.
  • Brent crude oil has once again reached USD 40/bbl today with WTI following slightly below at USD 37/bbl respectively despite a build in API inventories, with DOE Crude Oil Inventories expected to come in at 2000k.
  • Looking ahead: Bank of Canada Rate Decision, DOE Crude Oil Inventories and RBNZ Official Cash Rate.
  • Treasuries lower in overnight trading; equity markets mostly lower in Asia, rise in Europe before tomorrow’s ECB meeting; week’s auctions continue with $20b 10Y notes, WI 1.87% vs 1.73% in Feb., was lowest 10Y auction stop since 1.652% in Dec. 2012.
  • Current 10Y trading special in the repo market, -3.25% yesterday, a reflection of an increasing short base and shortage of the security, which the Fed cannot alleviate because it doesn’t hold much of the issue
  • Mario Draghi is having no success convincing stock investors that the ECB has the firepower to reignite growth. In the first year of quantitative easing, the Euro Stoxx 50 Index fell 17%, and volatility reached levels not seen since 2008
  • Norway’s sovereign wealth fund, the world’s biggest, hasn’t been part of a global selloff in stocks this quarter, according to its CEO, Yngve Slyngstad. The comments follow evidence that wealth funds across the Middle East and central Asia have sold assets to plug deficits amid plunging oil prices
  • U.K. industrial production posted a modest rebound in January, climbed 0.3% from December, when it declined 1.1%, as manufacturing and energy production jumped, the Office for National Statistics said in London on Wednesday
  • The Chinese stock market has once again turned into a battleground for bearish investors and state-directed funds determined to spark a rally
  • China National Petroleum won’t cut frontline oil and gas workers as it seeks to reduce costs to cope with low energy prices, according to Chairman Wang Yilin. “We are not like international oil companies where layoffs are the most convenient way to cut cost in the capitalist world”
  • Thousands of refugees piled up at the border between Greece and the Republic of Macedonia, unable to continue northward as regional authorities tightened controls before European Union leaders finalize an agreement to stem the flow of migrants
  • Donald Trump beat back a barrage of attacks led by the last Republican presidential nominee and scored major victories over his leading rival in two primaries on Tuesday, strengthening his bid to win the party’s nomination
  • Hillary Clinton was expected to sail to an easy victory in Michigan on Tuesday. Instead, she suffered a narrow yet stunning loss that has the potential to further slow her progress to the Democratic nomination
  • Sovereign 10Y bond yields mixed, mostly steady; European, Asian markets mixed; U.S. equity-index futures rise. WTI crude oil, copper rise, gold falls

US Event Calendar

  • 7:00am: MBA Mortgage Applications, March 4 (prior -4.8%)
  • 10:00am: Wholesale Inventories m/m, Jan., est. -0.2% (prior -0.1%); Wholesale Trade Sales m/m, Jan., est. -0.3% (prior -0.3%)
  • 10:00am: Bank of Canada overnight rate, est. 0.5% (prior 0.5%)
  • 1:00pm: U.S. to sell $20b 10Y notes (reopen)
  • 3:00pm: Reserve Bank of New Zealand overnight rate, est. 2.5% (prior 2.5%)
  • 3:05pm: RBNZ’s Wheeler holds news conference, attends 6:10pm parliamentary hearing

Looking at regional markets, stocks in Asia traded mostly lower following the losses on Wall St. after weakness in crude and China concerns continued to dampen sentiment. Nikkei 225 (-1.17%) and ASX 200 (+0.78%) were initially pressured by declines in the commodity-complex, although the latter recovered losses, supported by defensive stocks. Chinese markets continued to underperform with the Shanghai Comp (-1.34%) lower following yesterdays poor trade data, while today’s PBoC operation was a relatively paltry injection. 10yr JGBs declined on profit-taking following yesterdays advances with demand also subdued as participants searched elsewhere for positive yields. Further selling was also observed on resumption from the break due to disappointment from the BoJ’s buying operations which saw 10yr JGBs decline by around 1 point and caused the OSE to issue a circuit breaker. PBoC set the CNY mid-point at 6.5106 vs. last close. 6.5046 (Prey. mid-point 6.5041); 1st time PBoC weakened the fix in 5 days. (RTRS) PBoC injected CNY 15bIn via 7-day reverse repos.

Top Asian News

  • Hong Kong Plans to Uncloak Investors With New See-Through System: Watchdog plans to assign identity record to each investor trading in market.
  • The China Intervention Trade Is Back as State Funds Battle Bears: Pattern of late-day rallies returns as Shanghai Composite Index heavyweights jump.
  • China May Face Japan-Like Slump Unless Yuan Weakens, KKR Says: KKR sees currency’s ‘fair value’ at about 7 per U.S. dollar.
  • PBOC Using Stealth Intervention as Reserves Decline, Daiwa Says: Central bank may have asked wealth fund to sell foreign assets, analysts say.
  • Noble Group Said to Plan Biggest Loan Backed by Inventories: Commodities trader is seeking $2.5b in so-called borrowing base facility guaranteed by oil.
  • Aramco Mulls Indian Refinery in Plan to Boost Asia Footprint: Saudi producer also looking at China, Indonesia, Malaysia.
  • Cathay Pacific Profit Nearly Doubles as Fuel Costs Fall: Full-year net income jumps 90.5 percent from a year earlier

In Europe, participants appear somewhat on edge so far today ahead of the key ECB meeting tomorrow, however with some indications that risk on sentiment has not completely dissipated. Equities trade higher this morning (Euro Stoxx: +0.6%), with the defensive healthcare sector the session’s laggard so far and financials & materials leading the way higher. This comes as materials pare back some of the heavy losses seen yesterday. Bunds remain heavy heading into the north American cross over although off their worst levels, partly in tandem with the downside observed in USTs, which fell following somewhat lacklustre buying op by the BoJ, with profit taking and positioning ahead of supply also noted as factors behind the move.

Top European News

  • Banks Face Billions in Collateral Needs Under EU Swap Rules: May require EU buyers, sellers of swaps to set aside EU200m- EU420m once they are fully effective in 2020.
  • Draghi Stimulus Fails in Stock Market as Volatility Matches 2008: In first year of quantitative easing, Euro Stoxx 50 Index fell 17%, with volatility reaching levels not seen since 2008.
  • Norway’s Sovereign Wealth Fund Has Worst Year Since 2011: The $830b Government Pension Fund Global returned 2.7% in 2015, after rising 7.6% in 2014.
  • Credit Agricole Seeks EU4.2b Annual Profit in 2019: Co. to seek EU900m in annual gross cost savings as it streamlines some businesses, invests in others.
  • Prudential’s Pretax Profit Rises 19% as Asia Life Sales Grow: Co. will also pay special dividend of 10p.
  • Altice Defends Cablevision Purchase as in NYC’s Interest: Subscribers could sign up for broadband service as fast as 300mbps, while low-income New Yorkers can get 30mbps plan for $14.99/month.
  • Bank of France Cuts Growth Forecast as Business Confidence Falls: Sentiment among factory executives dropped to 98 in Feb. from 101 in Jan.
  • Zara Owner Cuts Store Expansion Goal in Favor of Online Growth: Co., which has over 7,000 outlets, aims to increase retail space 6-8% in coming years, vs previous target of 8-10%.
  • U.K. Industrial Output Rises on Manufacturing, Utilities: Output climbed 0.3% from Dec., vs forecasted gain of 0.4%.

In FX, there have been no big moves this morning, but notable was the fresh downturn in USD/JPY, testing the low 112.00’s to hit fresh session lows and a return into the nervy 111.00 zone. Little behind the move apart from some cross JPY flow (EUR selling contributing), with the risk mood relatively positive after yesterdays losses. Elsewhere, UK industrial and manufacturing production data was mixed, but GBP has recovered a little, with EUR/GBP dipping below .7700 to give the Cable rate a lift back into the 1.4200’s. Ahead of the ECB, we saw some early selling of EUR/USD, but this petered out pretty quickly, as the inverse correlation with USD/JPY took hold. AUD/USD is digging in to uphold the risk correlation, while the CAD is pushing higher again also as Oil resumes higher levels — WTI back through $37.0, Brent $40.0+.

In commodities, Brent crude oil has once again reached USD 40/bbl today with WTI following, slightly below at USD 37/bbl respectively with traders looking forward to the possibility of an oil producers meeting on the 20th March. Crude oil rose 1.4 percent to $37.00 a barrel in New York, after a 3.7 percent slide on Tuesday that marked its biggest loss in almost four weeks. The Energy Information Administration cut its U.S. output forecast through 2017 as drillers idle rigs to conserve cash. That helped counter an increase in inventories, which rose by 4.4 million barrels last week, the industry-funded American Petroleum Institute was said to report. Government data Wednesday is forecast to show supplies increased.

Nickel rebounded 2.6 percent after tumbling 8.5 percent on Tuesday, while copper gained 1 percent. Copper demand won’t catch up with supply until 2017, according to a senior official at Freeport-McMoRan Inc., the largest publicly traded producer of the metal. Gold fell 0.4 percent, extending Tuesday’s retreat from a one-year high. The Bloomberg Commodity Index’s rebound comes after a 1.1 percent loss in the last session. It’s dropped 21 percent in the past year.

“The IMF’s latest reading of the global economy shows once again a weakening baseline,” IMF First Deputy Managing Director David Lipton said Tuesday in Washington. “Moreover, risks have increased further, with volatile financial markets and low commodity prices creating fresh concerns about the health of the global economy.”

On today’s US calendar, the only releases of note are the January wholesale inventories and trade sales data with modest declines expected for both

DB’s Jim Reid concludes the overnight wrap

The weaker sentiment has continued during the Asia session this morning where risk assets continue to remain under pressure. It’s China which is leading the way with the Shanghai Comp -2.04%, tumbling into the midday break (although we note that this time yesterday saw the index rally back post the break) while the Hang Seng (-0.34%) and Nikkei (-0.74%) are also struggling. Only the ASX (+0.66%) is up while credit markets are 2 to 4bps wider generally. With little in the way of data, some of the focus has also been on the latest in the US Presidential race where Trump has been victorious in both the Mississippi and Michigan Republican primaries, and thus cementing further his control in the race, while Clinton has defeated Sanders in the Mississippi race with the outcome from the Michigan primary much closer. US equity futures are little changed this morning.

Back to Oil briefly, yesterday our commodities and US fixed income colleagues published an interesting note looking at the impact of the Oil price decline not just in HY credit (where they go into further detail on current and projected default rates and recovery values) but across much of the wider credit spectrum. The note touches on the extent to which CLO’s and CMBS have been affected as an asset class, while also looking at how energy price declines have had a positive impact for consumer ABS and aviation debt.

In truth, aside from the China numbers and focus on moves in commodity markets there wasn’t a whole lot of new news in yesterday’s session. That said some of the more interesting moves were in rates markets where global bond yields moved materially lower. It was Japan where the rally was most evident, helped to a large degree by a record low yield set at the 30y JGB auction yesterday with demand for the bonds the highest since May 2014. That resulted in 30y JGB’s rallying 22bps to a record low 0.468%, an unprecedented rally considering we started the year at 1.265%. Meanwhile 10y JGB’s dived deeper into negative territory at -0.108% (-5.3bps) with the curve now negative up until the 12.5y maturity mark. Yields in Europe followed suit with 10y Bunds in particular down 4.2bps to 0.181% (although still off the low print of last Monday) while similar maturity Treasuries closed down 7.7bps at 1.830%.

With regards to the economic dataflow yesterday, in the US the only release of note was the NFIB small business optimism print for February which was down a disappointing 1pt relative to the prior month to 92.9 (vs. 94.0 expected) and a two-year low. The most significant surprise was reserved for Germany however where industrial production in January was up a much greater than expected +3.3% mom (vs. +0.5% expected) with the December reading revised up nine-tenths also. Our European Economics colleagues cautioned that the data was likely overstated by mild winter weather and one-offs, but that being said it should help put concerns that Germany is at the brink of recession at bay. Away from this there was no change in the second revision of Q4 GDP for the Euro area at +0.3% qoq.

Before the day ahead and anniversary performance review, the latest HY monthly is now out. In the note we highlight the recent outperformance of USD HY vs. EUR HY. This has largely been driven by the improvement in oil/commodity prices, with the Oil & Gas and Basic Materials sectors seeing strong returns. We also take a look at issuance trends and pose the question of whether the lack of supply in European HY is acting as a positive technical support or actually more of a headwind for the market. It seems clear to us that the lack of issuance has probably meant growing investor cash balances, however we argue that performance might actually be supported by a more active primary market at the moment. The lack of new deals and sometimes lack of success in bringing new deals to market may actually be weighing on sentiment. We’ve also provided an update of our table looking at the YTD performance of the largest issuers in the EUR HY market. Email Nick for a copy.

Looking at the day ahead, the calendar is fairly thin on the ground data-wise again today. This morning in the European session the main data of note will be the industrial and manufacturing production reports out of the UK covering the January month (expected at +0.4% mom and +0.2% mom respectively), while the French business sentiment survey is also expected. Over in the US this afternoon the only releases of note are the January wholesale inventories and trade sales data with modest declines expected for both. Away from this the BoE’s Bailey is expected to speak this morning, while central bank wise we’ll get the Bank of Canada decision this afternoon (no change expected).


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9 Problems With Marijuana Rules Proposed by Massachusetts Legislators

In an op-ed piece published yesterday, Massachusetts Gov. Charlie Baker, Attorney General Maura Healy, and Boston Mayor Martin Walsh urged voters to reject a marijuana legalization measure that is expected to appear on the state ballot in November. Meanwhile, state legislators released a 118-page report that assumes marijuana will be legalized and makes recommendations about how it should be regulated. Their answer: more strictly than envisioned by the ballot initiative, which is known as the Regulation and Taxation of Marijuana Act (RTMA). Here are some of the ways in which the Special Senate Committee on Marijuana wants to make restrictions on the production, distribution, and consumption of cannabis more onerous:

1. Home cultivation. The RTMA allows adults 21 or older to have up to six plants and 12 seedlings at home. The committee wants to “prohibit home growing” or at least “impose a temporary moratorium.” If home cultivation were eventually allowed, growers would have to register with the state to make the enforcement of limits easier.

2. Possession. The RTMA allows possession of up to an ounce in public and up to 10 ounces at home, plus whatever is produced by homegrown plants. The report calls for a one-ounce limit in all settings, meaning people would be allowed to buy no more than one ounce minus whatever they had at home. 

3. Taxes. The RTMA calls for a 3.75 percent excise tax and allows local governments to impose special sales taxes of up to 2 percent. The committee recommends “an excise tax of between 5-15%,” plus “a marijuana-specific sales tax of 10-20%” and local taxes up to 5 percent. Elsewhere in the report, the authors say “the black market is likely to persist”; they seem determined to make that prediction come true.

4. Local bans. The RTMA requires local voters to approve bans on marijuana businesses in particular cities or counties. The committee thinks a vote by local legislators should be enough.

5. Stoned driving. The RTMA does not change current state law concerning driving under the influence of marijuana, which does not include any threshold based on THC blood levels. The committee, even while conceding “there is no well-accepted standard for determining driver impairment from marijuana intoxication,” recommends “establishing a legal limit for THC blood concentration that would support at least a permissible inference standard in court.” That is the standard used in Colorado, where a jury is permitted (but not required) to find a defendant guilty of DUI based on nothing more than a blood test showing a THC level above the arbitrary cutoff of five nanograms per milliliter.

6. Marijuana edibles. The RTMA does not specify any restrictions on the types of edibles that merchants may sell. The report says legislators should “prohibit the manufacture and sale of marijuana products that are particularly appealing to youth and may be mistakenly consumed by children, such as candy bars or gummy bears.” That ban potentially would cover a wide range of candies, snacks, and baked goods that have proven highly popular with adults in Colorado.

7. Marijuana concentrates.  While the RTMA envisions the sale of concentrates, the committee says legislators should ban home production and “consider setting an upper limit on potency that would apply to all marijuana products,” which would effectively ban the commercial production of concentrates as well.

8. Advertising. The RTMA calls for “reasonable restrictions on signs, marketing, displays and advertising with respect to marijuana, marijuana products and marijuana accessories, including prohibiting marketing or advertising designed to appeal to children.” Here is what the committee considers reasonable: “strict limits on marijuana marketing, advertising, and promotion in order to limit commercialization and youth appeal”; a ban on television, radio, print, Internet, billboard, or other ads “that may be viewed by youth”; a ban on “advertising that may be seen out of state” (except for Internet ads). The legislators implicitly concede that the regulations they want would be blatantly unconstitutional if marijuana were not still banned by the Controlled Substances Act. They argue that federal prohibition means they don’t have to worry about the First Amendment’s “free speech protections.” That may or may not be true, but they seem to be forgetting about the state constitution, which also guarantees freedom of speech.

9. Banking. The report notes the barriers to banking created by the federal marijuana ban but nevertheless says legislators should “require evidence of a banking relationship as part of the licensure process for a marijuana-related business.”

From the perspective of consumers and entrepreneurs, all of these purported improvements are worse than the rules preferred by the ballot initiative’s backers. On the brighter side, the report’s authors wisely recommend that legislators neither require nor prohibit vertical integration, and they do not rule out the cannabis cafés that would be allowed by the RTMA, saying only that alcohol sales should not be permitted there. 

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Sudden Plunge In Japanese Government Bonds Triggers Circuit Breaker, Halts Market For 30 Seconds

It was just yesterday when we observed the record collapse across the Japanese curve when first the 10Y JGB plunged to an all time low -0.10%, followed promptly by 30Y yields dropping 21bps – the biggest absolute drop in over 3 years and biggest percentage drop ever – to a record low 47bps following Japan’s 30Year auction on Monday night. As we further noted, since Kuroda unleashed NIRP, the entire JGB curve has been crushed and the Monday night rush for long duration debt flattened the curve to record lows.

 

What a difference a day makes.

Just 24 hours later trading of Japan’s government bond futures was halted for less 30 second after the price of the contracts dropped as much as 0.6 percent. As Bloomberg reports, the dynamic circuit breaker on the Osaka Securities Exchange was activated at 12:32 p.m. and was applied to March contracts according to Masaki Takahashi, who works in the market management department at the Osaka Securities Exchange.

The website of the OSE parent Japan Exchange’s website said the circuit breaker is triggered “to temporarily halt trading in order to allow investors to calm down when the market is overly volatile.”

The reason for the trading halt is that a day after sliding to the lowest yield on record, on Wednesday the benchmark 10-year bond tumbled, pushing yields up eight basis points to minus 0.015 percent as of 2:51 p.m. Yields rebounded after dropping more than five basis points to a record minus 0.1 percent Tuesday. The selloff was triggered after an increase in selling into the BOJ’s POMO when the bid-to-cover ratio for debt with 10 to 20 years to maturity rose to 3.58 from 2.93 last week, indicating stronger investor demand to sell, and that investors were looking to offload inventory to the BOJ.

“Weak outcome of BOJ’s bond purchase, especially 10y-25y tenor, spurs selling JGBs given that yesterday’s rally was excessive move,” says Takenobu Nakashima, quantitative strategist at Nomura Securities.

The BOJ’s bond operation result spurred JGB selling “given that yesterday’s rally was excessive,” Nakashima said.

Here is the dramatic surge in yields, the biggest jump since February 12.

 

And here is the moment the price collapsed triggering the circuit breaker.

 

And so the market chaos even among the “safest” of securities, the result of central bank intervention, continues. Bloomberg’s Richard Breslow summarized it best:

Even with QEs creating what look an awful lot like bubbles, it’s been fair to say, those distortions reflected the reaction function of how central bankers interpreted the state of play. Yield levels, let alone negative rates, and volatility are making these guideposts increasingly questionable.

 

If you look at the yield curves of much of the world, you’d be hard pressed not to conclude we are very much still experiencing a severe global recession. Central bankers may strongly disagree, yet Japanese 10-year JGBs haven’t seen 2% this century. German bunds have backed up to 21bps. Both are likely to increase QE. The U.S. is tightening (?) and 10- year yields are still down 42bps on the year

 

The Fed wants to raise rates but insists on re-investing the take on its massive portfolio. They act like fund managers protecting their AUM.

 

The Osaka Stock Exchange had to invoke circuit breakers today on the March JGB future for excessive volatility. Buying panic yesterday to front-run today’s QE buying led to panic selling today into BOJ bids 22 bps through Monday’s close. Oh, and did I mention, ahead of an auction tomorrow. The take-away is mayhem, not analysis.

And now we look forward to an even greater surge in volatility first ahead of tomorrow’s ECB meeting, and then first the Fed and BOJ next week, who – just like everyone else – have no idea what is going on any more.


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Brickbat: Sound Advice

A new federal regulation that officials claim will protect investors could silence financial media personalities such as Dave Ramsey and Suze Orman. Because they receive compensation from book sales and from the stations that broadcast their programs, the rules would seem to bar them from offering advice to individuals regarding specific investments.

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Libertarian Lite: New at Reason

Some libertarians say libertarians can win if they surrender some of their ideas. John Stossel writes:

In this year’s Republican presidential primaries, Sen. Rand Paul got little traction. In 2012, his father failed. That year, the Libertarian Party candidate, former New Mexico Gov. Gary Johnson, got just 1 percent of the vote.We libertarians must be doing something wrong. Maybe our anti-government message is too radical, says Jerry Taylor. Maybe we should soften our approach.

“Libertarians need to be more realistic,” Taylor told 500 young people at a taping of my TV show at last week’s International Students for Liberty conference. In electoral politics, he said, finding libertarians is “like trying to find a daisy in Hiroshima” after the nuclear blast.

Taylor, a smart libertarian who runs a think tank called the Niskanen Center, says to become more popular, we libertarians ought to change our views.

View this article.

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New Video Shows Agents Began Shooting at LaVoy Finicum Before Alleged Reach for a Gun Said to Justify the Kill

Various FBI agents involved in the January shooting and killing of LaVoy Finicum, one of the participants in the Malheur National Wildlife Refuge occupation, are under investigation for possible misconduct involving that killing, reports The Oregonian today.

The paper has some newly released video, appended at the end of this post, that syncs external video with video shot from inside the truck Finicum was driving with four other passengers, chronicling the last minutes of Finicum’s life.

We see and hear when first stopped by agents—both FBI and Oregon state troopers were involved—that Finicum wanted to continue on to the city of John Day in Grant County for a planned community meeting which he seemed to think would involve the sheriff there.

He tells the officers who first stopped them that that’s what he intends to do and invites them to either follow him there or to just kill him right now. “You want a bloodbath, it’s going to be on your hands…I’m either going to be laying down here on the ground with my blood on the street or I’m going to see the sheriff,” he said.

He drives off around 4:30 of the video below until hitting the roadblock that leads him to zoom offroad to the left.

This newly released video, shot from inside Finicum’s vehicle, does indeed, for those who want to blame Finicum for what happened, literally show him telling the agents that they might as well “go ahead and shoot me” when he’s out of the car and right before they fire the shots that kill him.

But the most interesting and damning thing the video makes clear is that agents started shooting at him, twice, before any of the “appearing to reach in his pocket for a gun” that supposedly justified the kill shots. See starting around 5:30 of the video.

So, there is something for the “narrative” for everyone: those who insist Finicum basically wanted to be shot have his reckless behavior and his shouted goading to the agents.

Those who insist the cops were illegitimately out to kill him from the start have the evidence that they began shooting him just as he exited the vehicle and long before any apparent “reaching for a gun.”

If you want to hear frightened people praying for their life in a truck as cops keep shooting at them, both gas rounds and what seem to me to be bullets, watch/listen to the whole video below.

Recall these people knew they were being shot at from the start, and that their friend who left the truck was shot dead, if you ask why they didn’t just peacefully exit the truck.

And as the Oregonian reports, even Justice Department officials grant now there was very possibly something untoward about the whole process:

An FBI agent is suspected of lying about firing twice at Robert “LaVoy” Finicum and may have gotten help from four other FBI agents in covering up afterward, authorities revealed Tuesday.

The bullets didn’t hit Finicum and didn’t contribute to his death, but now all five unnamed agents, part of an elite national unit, are under criminal investigation by the U.S. Justice Department. Inspector General Michael Horowitz is leading the independent inquiry….

Investigators gave no details to explain why the one FBI agent, a member of the Hostage Rescue Team, wouldn’t report the two shots. They also didn’t indicate what his four colleagues on the team did to warrant investigation other than saying it was related to conduct after the shooting.

CNN’s choice of headline for today’s revelations is, let’s say, an interesting experiment in burying the lede that anyone other than a cop lickspittle would care about: “Shooting death of LaVoy Finicum justified, necessary, prosecutor says.”

The video. Very disturbing to the humane.

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The Financial System Is A Larger Threat Than Terrorism

Authored by Paul Craig Roberts,

In the 21st century Americans have been distracted by the hyper-expensive “war on terror.” Trillions of dollars have been added to the taxpayers’ burden and many billions of dollars in profits to the military/security complex in order to combat insignificant foreign “threats,” such as the Taliban, that remain undefeated after 15 years. All this time the financial system, working hand-in-hand with policymakers, has done more damage to Americans than terrorists could possibly inflict.

The purpose of the Federal Reserve and US Treasury’s policy of zero interest rates is to support the prices of the over-leveraged and fraudulent financial instruments that unregulated financial systems always create. If inflation was properly measured, these zero rates would be negative rates, which means not only that retirees have no income from their retirement savings but also that saving is a losing proposition. Instead of earning interest on your savings, you pay interest that shrinks the real value of your saving.

Central banks, neoliberal economists, and the presstitute financial media advocate negative interest rates in order to force people to spend instead of save. The notion is that the economy’s poor economic performance is not due to the failure of economic policy but to people hoarding their money. The Federal Reserve and its coterie of economists and presstitutes maintain the fiction of too much savings despite the publication of the Federal Reserve’s own report that 52% of Americans cannot raise $400 without selling personal possessions or borrowing the money

Negative interest rates, which have been introduced in some countries such as Switzerland and threatened in other countries, have caused people to avoid the tax on bank deposits by withdrawing their savings from banks in large denomination bills. In Switzerland, for example, demand for the 1,000 franc bill (about $1,000) has increased sharply. These large denomination bills now account for 60% of the Swiss currency in circulation.

The response of depositors to negative interest rates has resulted in neoliberal economists, such as Larry Summers, calling for the elimination of large denomination bank notes in order to make it difficult for people to keep their cash balances outside of banks.

Other neoliberal economists, such as Kenneth Rogoff want to eliminate cash altogether and have only electronic money. Electronic money cannot be removed from bank deposits except by spending it. With electronic money as the only money, financial institutions can use negative interest rates in order to steal the savings of their depositors.

People would attempt to resort to gold, silver, and forms of private money, but other methods of payment and saving would be banned, and government would conduct sting operations in order to suppress evasions of electronic money with stiff penalties.

What this picture shows is that government, economists, and presstitutes are allied against citizens achieving any financial independence from personal saving. Policymakers have a crackpot economic policy and those with control over your life value their scheme more than they value your welfare.

This is the fate of people in the so-called democracies. Any remaining control that they have over their lives is being taken away. Governments serve a few powerful interest groups whose agendas result in the destruction of the host economies. The offshoring of middle class jobs transfers income and wealth from the middle class to the executives and owners of the corporation, but it also kills the domestic consumer market for the offshored goods and services. As Michael Hudson writes, it kills the host. The financialization of the economy also kills the host and the owners of corporations as well. When corporate executives borrow from banks in order to boost share prices and their performance bonuses by buying back the publicly held stock of the corporations, future profits are converted into interest payments to banks. The future income streams of the corporations are financialized. If the future income streams fail, the companies can be foreclosed, like homeowners, and the banks become the owners of the corporations.

Between the offshoring of jobs and the conversion of more and more income streams into payments to banks, less and less is available to be spent on goods and services. Thus, the economy fails to grow and falls into long-term decline. Today many Americans can only pay the minimum payment on their credit card balance. The result is massive growth in a balance that can never be paid off. It is these people who are the least able to service debt who are hit with draconian charges. The way the credit card companies have it now, if you make one late payment or your payment is returned by your bank, you are hit for the next six months with a Penalty Annual Percentage Rate of 29.49%.

In Europe entire countries are being foreclosed. Greece and Portugal have been forced into liquidation of national assets and the social security systems. So many women have been forced into poverty and prostitution that the hourly price of a prostitute has been driven down to $4.12.

Throughout the Western world the financial system has become an exploiter of the people and a deadweight loss on economies. There are only two possible solutions. One is to break the large banks up into smaller and local entities such as existed prior to the concentration that deregulation fostered. The other is to nationalize them and operate them solely in the interest of the general welfare of the population.

The banks are too powerful currently for either solution to occur. But the greed, fraud, and self-serving behavior of Western financial systems, aided and abeted by governments, could be leading to such a breakdown of economic life that the idea of a private financial system will become as abhorent in the future as Nazism is today.


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Donald Trump’s Victory Speech Is a Reminder That He’s the Ultimate Scam Pitchman

Donald Trump had a very good day at the polls.

He won primaries in Michigan and Mississippi by decisive margins. And he crushed Marco Rubio, the target of his ire and mockery over the last week, by huge margins. Rubio finished in fourth place in both states, failing to get to double digit support in either state.

At this point, the Florida senator is no longer even winning the expectations game. Rubio, the Republican establishment’s last great hope, looks increasingly like a lost cause.

Trump converted his electoral victories into an extended, nationally televised victory speech and press conference. For the most part it was pretty standard stuff: He touted himself as the most conservative candidate, railed against trade, offered a lengthy read of his polls (Trump is obsessed with his polls, and talks about them in detail; he often seems like a tour guide at the Museum of Donald Trump Polls), and trashed his rivals and critics—Mitt Romney, Lindsey Graham, and, of course, Marco Rubio.

He also took the opportunity to hawk Trump-branded products. The event was stocked with Trump wine, Trump water, Trump rose, and even, reports said, Trump steaks. Yes, Trump was literally offering red meat to his supporters.

But contrary to his claims, possibly not his own, Trump-branded red meat. Trump Steaks were discontinued shortly after their introduction in 2007, joining many other Trump businesses in failure. This is not exactly surprising, given the reviews. Although Trump billed them as the “world’s greatest steaks,” reactions were generally dismal, with one buyer saying the meat had “no redeeming qualities.”

Trump opened his victory event tonight by touting his various products, including his magazine, which he proudly displayed for the cameras. Never mind that many of these products were long gone, business failures of the kind that have dogged Trump, whose businesses have gone bankrupt on multiple occasions, throughout his life. That includes Trump steaks. The red meat he served tonight was not his own product—which probably would have been rancid by now—but, some un-discarded wrappers suggested, Bush Brothers steak. Bush Brothers! Now that is some nuclear strength irony.

In any event, Trump’s speech tonight was a reminder that he does not really distinguish between his candidacy and his brand, and that he is not really a businessman, a real, practical expert in the art of making deals, but a glorified infomercial pitchman, selling scam products to the gullible based on his name. And his main product in 2016 is own Trump-branded candidacy—his biggest scam of all.

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Sweden Warns Women Not To Go Out Alone After Dark: “This Is Serious”

As you might have noticed, Europe is falling apart.

Some manner of ambiguous “deal” with the Turks notwithstanding, the EU is going to collapse under the weight of the millions of asylum seekers that have inundated the bloc over the past 12 months.

At this juncture, the so-called Balkan Route has for all intents and purposes been closed (Angela Merkel’s protestations aside). This has left Greece in a terribly precarious situation. Tens of thousands of migrants are stuck now that Macedonia has sealed its borders, and barring some kind of dramatic breakthrough, Alexis Tsipras is going to watch as his country descends into chaos for the second time in 18 months.

But while multiple countries have now suspended the bloc’s beloved Schengen in an effort to “stop the madness,” as it were, it’s too late to stop the chaos. As we’ve documented extensively, Europe was remarkably resilient in the wake of the Paris attacks, but after New Year’s Eve, when (rightly or wrongly) adult male Mid-East asylum seekers garnered a reputation for sexual assault, sentiment soured. Markedly.

Since then, the entirety of the EU has been on high alert. Not for terrorists, but for sexual predators of “foreign origin.”

One particularly divisive issue is the extent to which officials have tended to “blame the victim”, so to speak. For instance, Cologne mayor Henriette Reker drew sharp criticism for suggesting that it was German womens’ duty to prevent assaults by keeping would-be assailants “at arm’s length.”

Then there was the now infamous case of the 17-year-old Danish girl who faced a fine from police after she allegedly used “illegal” pepper spray to deter an attacker.

Well, in the latest example of authorities suggesting that Europeans should adapt to threats rather than compelling authorities to protect citizens, police in Östersund advised women not to walk around by themselves at night, during at press conference on Monday.

“Women in a town in northern Sweden have been warned not to walk alone at night in the wake of a spike in violent assaults and attempted rapes,” The Daily Mail writes. “Police in Östersund made the unusual move to ask women not to go out unaccompanied after dark, after reports of eight brutal attacks, some by ‘men of foreign appearance’, in just over two weeks.” Here’s more:

It is extremely unusual for Swedish authorities to make such warnings, and it has not been well received in Sweden, a country proud of its progress in gender equality and women’s rights.

 

All incidents have taken place in Östersund since the 20th of February, and involved outdoor attacks where the perpetrators have been unknown to their female victims.

 

(Östersund)


A police spokesperson added that in addition to the increased frequency, the attacks are also conspicuous as – despite being carried out late at night – none of the perpetrators were drunk.

Yes, sober potential rapists! Now that is alarming. 

“What stands out is also that none of these perpetrators have been under the influence,” regional police chief Stephen Jerand told Sveriges Television.

No, Stephen, what “stands out” is that there are gangs of men raping unaccompanied women in the streets of Östersund. Whether they are drunk or not is entirely irrelevant.

In any event, Swedes weren’t happy with the suggestion that women should stay off the streets at night. Here’s The Local

The force’s recommendation that women should avoid being alone at night swiftly prompted criticism in Sweden, a nation that prides itself on promoting gender equality.

 

“The solution can never be to not go out because of such a warning. We have very many women who work in home and social care at night for example. What are they supposed to do?” the city’s mayor Ann-Sofie Andersson told Swedish broadcaster SVT.

 

The politician, who represents the government’s Social Democrat party at a regional level, said she wished police had told her about their intentions before issuing the warning.

 

“It’s wrong if it calls on women to adapt to the criminals. It risks leading people the wrong way, if the victims must adapt to the perpetrators,” he said.

Fair enough, but police say their warning was taken out of context. 

“We are not limiting anyone’s freedom. This is purely factual information,” the police chief told the TT news agency. “This is serious, we care about the protection of women and that is why we are going out and talking about this.”

Essentially, the police are admitting that they are essentially powerless to stop this. Is it better that they come clean and warn the populace or pretend that they can protect the citizenry when they in fact cannot?

And who here, ultimately, is at fault? It’s certainly not the Swedes and it’s probably not the Östersund police who can’t possibly be expected to cope, on short notice, with what’s happening to the country. You could fault Angela Merkel for adopting the “open-door” mirgrant policy, but really, if you want to trace the roots, you might want to ask yourself who destabilized Syria in the first place…



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