Month: April 2016

Submitted by Wolf Richter via WolfStreet.com,

“Negative interest expense” or some such absurdity yet to be coined.

“For now, the effect of negative interest rates is very strong, so we’d like to steadily proceed with this policy,” Bank of Japan Governor Haruhiko Kuroda told parliament today, to reassure the nervous politicians that the economy was on the right track under his fearless and wise leadership.

Alas, the BOJ’s “tankan” survey, released on Friday, showed that confidence plunged among manufacturers to the lowest point since 2013, while inflation expectations weakened further. The economy in the January-March quarter is likely to shrink again, after having already shrunk in the prior quarter, to form another technical recession. Despite government and BOJ exhortations, wage increases remain elusive, now an imperceptibly small 0.4% from a year ago.

But just in case the BOJ’s scorched-earth policies of negative interest rates and asset purchases – mostly Japanese Government Bonds, Japanese REITs, and equity ETFs – haven’t accomplished the desired miracles yet, the BOJ would be willing to accelerate the same failed policies, such as pushing interest rates deeper into the negative, and try some new things too, such as diving into riskier assets, he said.

But it won’t be predictable. The BOJ could mix and match the next policy steps, depending on the economy, prices, and “market moves, particularly those in Japan,” he said. At least, he’s admitting that the BOJ is slave to the financial markets.

“We won’t necessarily choose a rate cut just because it’s easier to do so,” he said. It could be anything.

Turns out, Japan Inc., which has been coddled and favored by Abenomics even more so than by prior administrations, is not investing enough in Japan despite tax incentives for investments, but instead is focusing capital investments on its projects in other countries. Capital expenditures in Japan, which would boost the economy, are lagging.

So the BOJ has kicked off yet another way to coddle and favor Japan Inc. with a special incentive: another stock market pump-up scheme that is now coming to fruition.

Back in December it promised to buy shares of ETFs that would have to be created for just this purpose. They would incorporate shares of companies that follow the BOJ’s dictum: boost wages, employment, and capital spending.

So Daiwa Asset Management in partnership with index provider MSCI will develop a special stock index for these anointed companies. Nomura Asset Management and other firms in the Nomura group plan to put their own index together. It’s up to them to decide which companies are doing what the BOJ wants them to do to the extent that they deserve being included. And the special ETFs will track those indices.

Nomura Asset Management and Daiwa Asset Management have now completed setting up their ETFs that fit this mold. On April 1, both asset managers filed applications with the Tokyo Stock Exchange for listing these ETFs. They’re expected to make their debut on the TSE in mid-May. Nikko Asset Management, DIAM, and Mitsubishi UFJ Kokusai Asset Management are also working on ETFs to that effect.

Once they start trading, the BOJ will buy shares of these newfangled ETFs at a rate of ¥300 billion ($2.7 billion) a year with the explicit goal of driving up the stock prices of the companies in the ETF. If it works out that way, which is doubtful since practically nothing in the Japanese stock market has worked the way the BOJ had planned, it would be the reward for those companies that asset managers deem obedient to the BOJ’s wishes.

So just how helpful is all this?

Stocks tanked, again. There’s a reason why the Japanese stock market has become a hedge-fund hotel, and why Japanese retail investors try to stay away from it. The Nikkei dropped 2.4% today to 15,733. It has plunged 24.6% from its recent peak in June and is sinking deeper into its bear-market mire.

One thing is clear: While the BOJ has failed in propping up stocks, it has totally succeeded in suffocating the once vast Japanese Government Bond market by buying up every JGB that isn’t nailed down. It’s a marvel, actually. The BOJ’s primary dealers buy the JGBs when the government issues them at a negative yield, knowing that they will soon sell them to the BOJ at an even greater negative yield and thus make a guaranteed profit on the difference.

The 10-year JGB yield is -0.07%. Pension funds, insurance companies, banks, and money managers have begun to unload their JGB holdings. Only the BOJ is buying.

It seems that the BOJ will not stop until it owns most of the JGBs out there. It’s paying the government the negative yield, actually paying the government to borrow money to fund its gargantuan deficits. If this farce continues long enough and more of the older JGBs are rolled over, interest expense in the Japanese budget will turn to income, called “negative interest expense” or some such absurdity yet to be coined. Someday this is going to end in tears. But not tomorrow. Kuroda knows this, hoping that the “after tomorrow” won’t be under his watch. After me the deluge!

All 11 Japanese asset managers that offer money market funds are planning to scuttle them after returning their remaining assets to investors. This marks another big accomplishment of negative interest rates. And the bitter irony? Read…  NIRP Kills Off All Money Market Funds in Japan

via Zero Hedge http://ift.tt/1SOpBXA Tyler Durden

If you ever wondered what Jamie Dimon meant by “That’s why I’m richer than you”, this summary from the Financial Times explains.    

via Zero Hedge http://ift.tt/1SOpw67 Tyler Durden

While the surge in Q1 market volatility has had a dramatic impact on asset prices, and led to some unprecedented central bank interventions to stabilize markets, one product that has seen a dramatic hit and has yet to rebound, is M&A.

According to BofA, North American M&A volumes declined again in March, falling to $107bn from $140bn in February, $157bn in January and the recent peak of $410bn in November of last year.

The implication of the above is that investment banking revenues from M&A advisory work, which had been steadily rising over the past two years, are about to see a sharp decline. And, after a year which saw a record $5 trillion in global M&A, this will be a bitter pill to swallow for the banking community. The top M&A deals of 2015 are shown below.

 

However, that may be just the beginning of bankers’ headaches.

It is no secret that over the past several years, one of the primary drivers behind M&A activity was tax inversions, which however as yesterday’s striking announcement by the US Treasury made clear, are now effectively over, and with them goes much of the impetus for companies to merge.

And while the Pfizer-Allergan $160 billion merger may be the most notable casualty of the Treasury’s decree, there are various other deals working on corporate inversion deals or who have carried out inversions in the past. They are shown in the list below, courtesy of Bloomberg:

Progressive Waste-Waste Connections

Texas-based Waste Connections Inc. agreed to buy fellow garbage-hauling company Progressive Waste Solutions Ltd. in January, and announced plans to move its tax domicile to Canada. The new company would have an effective tax rate of about 27 percent, down from the 40 percent rate that Waste Connections pays now, it said in a statement at the time.

The proposed regulations would have an impact of less than 3 percent of the new company’s adjusted free cash flow, which is expected to be more than $625 million, the companies said in a joint statement Tuesday. “The two companies remain committed to the strategic merger.”

Waste Connections shares fell as much as 7.2 percent. Progressive Waste dropped 9.3 percent.

Terex-Konecranes

Terex Corp., a U.S. crane and construction-machinery maker, agreed to combine with Finnish competitor Konecranes Oyj last year to create a group with a combined $10 billion in sales, incorporated in Finland.

While the companies described the transaction as a merger of equals, Terex stockholders would own 60 percent of the combined business.

Since then, China’s Zoomlion Heavy Industry Science & Technology Co. has made a counteroffer for Terex. Still, with the U.S. closely scrutinizing deals that put American technology into Chinese hands, that deal would have its own regulatory hurdles.
Terex shares closed 2.3 percent down in New York.

Johnson Controls-Tyco

Auto-parts maker Johnson Controls Inc.’s planned merger with Ireland-based Tyco International Plc was targeted by Hillary Clinton’s campaign ads. Clinton called the plan to move Johnson Controls’s address to tax-friendly Cork “an outrage.”

Tyco itself got a foreign tax address in the late 1990s through an inversion, as part of a takeover of the security company ADT, which was incorporated in Bermuda. Tax inversions seem to be one of the few things the presidential candidates can agree on, with Bernie Sanders, Donald Trump and Clinton all targeting the practice in their campaigns.

Tyco shares declined 3 percent in New York. Johnson Controls fell 2.2 percent.

Mylan-Meda

Drugmaker Mylan NV said Tuesday it’s “comfortable moving forward” with a $7.2 billion deal to buy Sweden’s Meda AB, in response to concerns about the impact of Treasury rules.

Mylan moved its headquarters from Pittsburgh to the Netherlands in 2015 after buying Abbott Laboratories’ generic drug business in overseas markets like Europe. In February this year, the company agreed to buy Meda.

Mylan shares fell 2.8 percent in Nasdaq trading while Meda declined 1 percent in Stockholm.

IHS-Markit

IHS Inc., which provides data analysis, agreed to buy London-based Markit Ltd. for about $5.5 billion last month with plans to relocate to the U.K. The Englewood, Colorado-based company and Markit said in a regulatory filing Tuesday that they don’t expect the merger to be subject to the new rules.

“Based on our preliminary review at this time, we also believe that the other U.S. Treasury rule changes will not impact the combined company’s adjusted effective tax rate guidance of a low to mid-twenties percentage range.”

IHS shares declined 2.6 percent in New York Stock Exchange trading while Markit declined 2.6 percent.

* * *

It remains to be seen how much of a hit on the future M&A backlog the Treasury’s announcement will have, but even if banks suffer a drop in revenue, there is one silver lining: tens if not hundreds of thousands of workers who would have been otherwise “synergized” aka laid off as part of the merger process, will keep their jobs that much longer, because instead of boosting shareholder equity and requiring the cutting of overhead to accomodate the new debt, many of the companies that would have otherwise merged will continue as standalone entities. As such they will need all the support they can get.

The chart below shows the combined employees of the top 10 M&A deals of 2015, and what our estimate is of the combined layoffs between them.

via Zero Hedge http://ift.tt/1S0Ksdc Tyler Durden

Authored by Thomas Palley,

2016 was supposed to have been the year of Jeb Bush versus Hillary Clinton: the year when the established Bush dynasty confronted the upstart rival Clinton Dynasty. But the year of the insider has turned into the year of the outsider. On both sides, voters have unexpectedly given vent to thirty years of accumulated anger with neoliberalism which has downsized their incomes and hopes.

Though the Republican rebellion has been more clear-cut in its dismissal of insider candidates, it is Bernie Sanders’ Democratic rebellion that is of potentially far greater historic significance.

The Republican rebellion is of much less significance

The Republican uprising has undoubtedly exhibited greater anger. If Donald Trump or Ted Cruz triumph in the November general election, they threaten an uglier more intolerant politics that could even become tinged with American black-shirtism.

However, absent the darkest of outcomes, the Republican rebellion is of less lasting political significance for two reasons.

First, it does not fundamentally challenge the neoliberal economic model that is the root cause of popular anger on all sides. Nationalism, racism, evangelism, and cultural atavism scratch the scapegoat itch, but they do not challenge Corporate America’s and Wall Street’s domination which sustains neoliberalism.

Second, and more importantly, the Republican rebellion does not change the party’s pre-existing political trajectory and relies on electoral forces that are peaking out.

That contrasts with Sanders’ Democratic rebellion which explicitly challenges the neoliberal economic model, and is also about defining the political character of the coming Democratic electoral majority.

Viewed in this light, the Republican rebellion is an eruption from an angry electoral base whose political power is waning, whereas the Democratic rebellion is an eruption from a rising base whose political agenda awaits definition.

Trump and Cruz are a logical extension of Republican politics

The Republican elite has been profoundly taken aback by the dismissal of Crown Prince Jeb Bush and the Boy Scout Senator Marco Rubio, but both Trump and Cruz represent a logical extension of Republican politics rather than a break.

Long ago, Richard Nixon unleashed the politics of hate with his “southern strategy”, aimed at exploiting animosity toward President Johnson’s civil rights legislation to convert the South (i.e. the Confederacy) from Democrat to Republican.

Trump and Cruz have discarded the dog whistle and explicitly articulated a level of racism and xenophobia the establishment is strategically uncomfortable with. Other than that, they have towed the line on tax cuts for the rich, and Cruz was orthodox on trade until Trump started making hay with the issue.

Despite Cruz’s odious personality, the Republican establishment prefers him as he has been more orthodox on trade and Social Security, while Trump is also loathed for humiliating Jeb Bush with his taunt of “low energy”.

That said, if Trump wins the nomination, a rapprochement is likely. For the Republican establishment, tax cuts and preserving neoliberal globalization are preeminent, and Trump is an opportunistic businessman who trumpets deal-making.

Trump and Cruz accelerate Republicans’ demographic destiny

The rise of Trump and Cruz has merely accelerated Republicans’ date with demographic destiny. The party of dog whistle racism and immigrant bashing always faced a difficult future because of demographic trends making minorities an increasing share of the electorate.

Republicans hoped to postpone that difficult future by a combination of voter suppression policies (e.g. making voter registration difficult; reducing polling booth access; and excluding minority voters via “new Jim Crow” laws denying voting rights to convicted felons) and gerrymandering congressional districts in states like Texas, Wisconsin and Michigan. That has already given Republicans control of the House of Representatives despite receiving far fewer total votes.

The undemocratic construction of the US constitution, which gives two Senate seats to both small states like Wyoming (population 580k) and large states like California (population 38.5 million), also means Republicans have remained competitive in the Senate. That is because of their relative strength in the comparatively under-populated interior states.

These features could delay electoral developments, but the prognosis was always an outlook in which Republicans were going to be increasingly uncompetitive nationally. Trump’s and Cruz’s hate politics has simply accelerated and cemented that prognosis.

Wall Street will need a new senior political partner: Democrats for sale?

That electoral prospect implies Republicans can no longer reliably deliver for Corporate America and Wall Street, which means Corporate America and Wall Street need to find another sure political partner. Therein lies the greater significance of the Sanders – Clinton contest.

Over the last thirty years, Wall Street has had little difficulty working with and funding Democrats, and the Clintons have been especially cooperative. For many years, Goldman Sachs has been happy to split its political contributions, sending 55% to the Republicans and 45% to the Democrats. Now, Goldman can make a small recalibration and send a little bit more to the Democrats.

If Hillary Clinton wins, the Democratic Party will remain squarely within the orbit of Wall Street and Corporate America. The Democrats will become the ruling party, but their rule will substantially continue what we have had, perhaps supplemented by an extra spoonful of compassionate economic policy.

If Sanders wins, there is a chance the Democratic Party can rediscover its modern roots of New Deal social democracy via expanded Social Security, single payer health insurance, debt-free college, the end of neoliberal trade policies, and reining in of corporate power.

The Democrats: party of identity politics or party of New Deal social democracy?

These features mean it is the choices of Democrats that will set the political course for the next generation. Demographics imply Democrats will be the majority of the future, but the party’s political identity and agenda is up for grabs.

If the Clinton vision prevails, the Democratic Party stands to become a party of neoliberal economics, headlined by identity politics. A Clinton-led Democratic Party will also continue President Obama’s tactical appeals to “bi-partisanship”. The goal would be to enlist moderate upper-middle class Republican-leaning professionals into a corporate controlled Democratic Party franchise.

If the Sanders vision prevails, the Democrats will pivot toward their New Deal social democratic roots. In that case, economic solidarity and inclusion become the headline. And the party again aspires to be a mass movement rather than an awkward stitching together of corporate money, social liberals, and minority voters.

The curse of money

However, as long as unlimited money is allowed in politics, there is a perennial danger of a backdoor Wall Street takeover. That is because a New Deal Democratic Party would still need money to compete in elections, leaving an opening for Corporate America and Wall Street to take back control.

That is why limits on money contributions and repealing the Citizens United decision are so important. It also explains why Sanders has made that the central focus of his political revolution, while Clinton has persistently sought to diminish the issue.

via Zero Hedge http://ift.tt/23f8piP Tyler Durden

When the 2016 race kicked kicked off last year, few pundits would have predicted Wisconsin’s April primary might be a game changer on both sides of the aisle. But the Badger state, which heads to the polls today, could be key in determining if the Republicans head to a contested convention and if Bernie Sanders retains momentum after five straight victories.

Polls close at 9 p.m. EDT. Results could be known shortly after the polls close.

Before we show what’s at stake, here is a reminder of what the current delegate breakdown looks like.

First the Democrats:

 

And the GOP:

 

Ahead of tonight’s primary, Trump has 737 of the 1,237 delegates needed to sew up the Republican nomination, and Mr Cruz 475. Clinton has 1,243 delegates to Mr Sanders’ 980, with 2,383 required for the Democratic nomination.

A Wisconsin victory for Cruz, who is leading in the polls, would raise the odds of the Republican nomination being wrested from Mr Trump in a contested convention, which could tear the party apart. Trump would need to elevate his game and reap 57% of remaining delegates to win outright before July’s party conference, according to the Associated Press.

The Real Clear Politics polling average put Cruz ahead of Trump, 35 percent to 32 percent, while Kasich trailed wilth 23 percent. On the Democratic side, Clinton led in the poll average, 48 percent to 47 percent.

Trump unleashed his wife Melania in Milwaukee on Monday as he sought to shore up his support among female voters. “No matter who you are, man or a woman, he treats everyone equal,” said 45-year-old Mrs Trump in a rare speech.

Among the Democrats, former Secretary of State Mrs Clinton is saddled with persistent questions about her honesty and trustworthiness.

Grassroots enthusiasm for Mr Sanders remains high, but the self-proclaimed democratic socialist needs to win at least 60% of all remaining delegates.

Both Clinton and Trump look likely to perform better in New York’s upcoming primary and five northeastern states that vote on 26 April. Wisconsin is the first of several midwestern and northeastern states voting in April. New York holds its primary on April 19.  Connecticut, Delaware, Maryland, Pennsylvania and Rhode Island hold their primaries on April 26.

Cruz and Mr Trump are calling for Ohio Governor John Kasich, the only other Republican still hanging on in the race, to drop out. But he has refused.

Raising the stake for Trump is that according to a just released Reuters/Ipsos poll Cruz has pulled into a statistical dead heat with front-runner Donald Trump.  Cruz received 35.2 percent of support to Trump’s 39.5 percent, the poll of 568 Republicans taken April 1-5 found. The numbers put the two within the poll’s 4.8 percentage-point credibility interval, a measure of accuracy. Cruz and Trump were also briefly in a dead heat on March 28.

Trump has led almost continually in national Reuters/Ipsos polling since last July. Ohio Governor John Kasich, the only other Republican still in the race for the party’s nomination, placed third in Tuesday’s Reuters/Ipsos poll, with 18.7 percent.

* * *

Here’s a rundown of everything at stake today:

GOP

State voting: Wisconsin

Delegates up for grabs: 42

Delegate Allocation explained: Of the 42 delegates, 24 are in Congressional districts, (3 in each of the 8 districts) and 18 are at-large delegates. The at-large delegates are winner-take-all and based on the statewide vote. Whoever wins the statewide vote gets all 18 delegates. The Congressional districts are winner-take-all based on district. So, for example, if Ted Cruz wins one Congressional district, he will get all 3 of the delegates there. If he wins all 8 districts, he will get all 24 delegates.

Why it matters: The setup makes it possible for the winner to sweep all 42 delegates, and makes it even more likely they will amass a majority. This presents an ideal opportunity for Cruz and John Kasich, who are trying to stop Donald Trump from clinching the 1,237 delegates needed for the nomination. The latest Marquette University Law School poll showed Cruz with 40-30 lead over Trump. Trump leads Cruz by 262 delegates, but Trump still needs to win 57 percent of the remaining delegates to get to 1,237. If Cruz wins big in Wisconsin, he makes Trump’s path to that number more complicated. And if John Kasich manages to win one or 2 congressional districts, that would set Trump back even further.

However, Trump does have one advantage: Wisconsin is an open primary, where he tends to perform better than in caucuses and closed primaries.

DEMOCRATS

State voting: Wisconsin

Delegates up for grabs: 86 pledged, and 10 superdelegates, former and current Democratic leaders and elected officials, who can select the candidate of their choosing, wherever they want and whenever they want, and can switch at any time.

Delegate Allocation explained: As is standard for the Democrats, both candidates have to get a minimum of 15 percent of the vote to amass any delegates. Both Clinton and Sanders are virtually certain to hit that threshold.

Why it matters: Sanders has proven he can play in the Midwest, beating Clinton in Michigan and coming in close behind her in Missouri and Illinois. According to a recent Marquette University Law School poll, he has a four point lead over her. Clinton leads Sanders by 263 pledged delegates, and her lead widens to 701 delegates when incorporating the superdelegates who have committed to her. Even if Clinton loses in Wisconsin, Sanders is unlikely to make a dent in that delegate lead; If the race is as close as the polls are forecasting, the Vermont senator is unlikely to gain many more delegates. And while Clinton needs to win 42 percent of the remaining pledged delegates, Sanders needs to win 57 percent. When factoring in superdelegates, Clinton need to win 36 percent and Sanders needs to win 73 percent.

But while math may be on her side, a loss in Wisconsin would mean Clinton heads into her adopted home state of New York having lost six states in two weeks — a fact Sanders is well aware of.

“I don’t want to get Hillary Clinton any more nervous than she already is,” he said at a campaign stop Monday in Wisconsin. “So don’t tell her this, but we win here, we win in New York State, we are on our way to the White House.”

via Zero Hedge http://ift.tt/1oAdlPr Tyler Durden

When the 2016 race kicked kicked off last year, few pundits would have predicted Wisconsin’s April primary might be a game changer on both sides of the aisle. But the Badger state, which heads to the polls today, could be key in determining if the Republicans head to a contested convention and if Bernie Sanders retains momentum after five straight victories.

Polls close at 9 p.m. EDT. Results could be known shortly after the polls close.

Before we show what’s at stake, here is a reminder of what the current delegate breakdown looks like.

First the Democrats:

 

And the GOP:

 

Ahead of tonight’s primary, Trump has 737 of the 1,237 delegates needed to sew up the Republican nomination, and Mr Cruz 475. Clinton has 1,243 delegates to Mr Sanders’ 980, with 2,383 required for the Democratic nomination.

A Wisconsin victory for Cruz, who is leading in the polls, would raise the odds of the Republican nomination being wrested from Mr Trump in a contested convention, which could tear the party apart. Trump would need to elevate his game and reap 57% of remaining delegates to win outright before July’s party conference, according to the Associated Press.

The Real Clear Politics polling average put Cruz ahead of Trump, 35 percent to 32 percent, while Kasich trailed wilth 23 percent. On the Democratic side, Clinton led in the poll average, 48 percent to 47 percent.

Trump unleashed his wife Melania in Milwaukee on Monday as he sought to shore up his support among female voters. “No matter who you are, man or a woman, he treats everyone equal,” said 45-year-old Mrs Trump in a rare speech.

Among the Democrats, former Secretary of State Mrs Clinton is saddled with persistent questions about her honesty and trustworthiness.

Grassroots enthusiasm for Mr Sanders remains high, but the self-proclaimed democratic socialist needs to win at least 60% of all remaining delegates.

Both Clinton and Trump look likely to perform better in New York’s upcoming primary and five northeastern states that vote on 26 April. Wisconsin is the first of several midwestern and northeastern states voting in April. New York holds its primary on April 19.  Connecticut, Delaware, Maryland, Pennsylvania and Rhode Island hold their primaries on April 26.

Cruz and Mr Trump are calling for Ohio Governor John Kasich, the only other Republican still hanging on in the race, to drop out. But he has refused.

Raising the stake for Trump is that according to a just released Reuters/Ipsos poll Cruz has pulled into a statistical dead heat with front-runner Donald Trump.  Cruz received 35.2 percent of support to Trump’s 39.5 percent, the poll of 568 Republicans taken April 1-5 found. The numbers put the two within the poll’s 4.8 percentage-point credibility interval, a measure of accuracy. Cruz and Trump were also briefly in a dead heat on March 28.

Trump has led almost continually in national Reuters/Ipsos polling since last July. Ohio Governor John Kasich, the only other Republican still in the race for the party’s nomination, placed third in Tuesday’s Reuters/Ipsos poll, with 18.7 percent.

* * *

Here’s a rundown of everything at stake today:

GOP

State voting: Wisconsin

Delegates up for grabs: 42

Delegate Allocation explained: Of the 42 delegates, 24 are in Congressional districts, (3 in each of the 8 districts) and 18 are at-large delegates. The at-large delegates are winner-take-all and based on the statewide vote. Whoever wins the statewide vote gets all 18 delegates. The Congressional districts are winner-take-all based on district. So, for example, if Ted Cruz wins one Congressional district, he will get all 3 of the delegates there. If he wins all 8 districts, he will get all 24 delegates.

Why it matters: The setup makes it possible for the winner to sweep all 42 delegates, and makes it even more likely they will amass a majority. This presents an ideal opportunity for Cruz and John Kasich, who are trying to stop Donald Trump from clinching the 1,237 delegates needed for the nomination. The latest Marquette University Law School poll showed Cruz with 40-30 lead over Trump. Trump leads Cruz by 262 delegates, but Trump still needs to win 57 percent of the remaining delegates to get to 1,237. If Cruz wins big in Wisconsin, he makes Trump’s path to that number more complicated. And if John Kasich manages to win one or 2 congressional districts, that would set Trump back even further.

However, Trump does have one advantage: Wisconsin is an open primary, where he tends to perform better than in caucuses and closed primaries.

DEMOCRATS

State voting: Wisconsin

Delegates up for grabs: 86 pledged, and 10 superdelegates, former and current Democratic leaders and elected officials, who can select the candidate of their choosing, wherever they want and whenever they want, and can switch at any time.

Delegate Allocation explained: As is standard for the Democrats, both candidates have to get a minimum of 15 percent of the vote to amass any delegates. Both Clinton and Sanders are virtually certain to hit that threshold.

Why it matters: Sanders has proven he can play in the Midwest, beating Clinton in Michigan and coming in close behind her in Missouri and Illinois. According to a recent Marquette University Law School poll, he has a four point lead over her. Clinton leads Sanders by 263 pledged delegates, and her lead widens to 701 delegates when incorporating the superdelegates who have committed to her. Even if Clinton loses in Wisconsin, Sanders is unlikely to make a dent in that delegate lead; If the race is as close as the polls are forecasting, the Vermont senator is unlikely to gain many more delegates. And while Clinton needs to win 42 percent of the remaining pledged delegates, Sanders needs to win 57 percent. When factoring in superdelegates, Clinton need to win 36 percent and Sanders needs to win 73 percent.

But while math may be on her side, a loss in Wisconsin would mean Clinton heads into her adopted home state of New York having lost six states in two weeks — a fact Sanders is well aware of.

“I don’t want to get Hillary Clinton any more nervous than she already is,” he said at a campaign stop Monday in Wisconsin. “So don’t tell her this, but we win here, we win in New York State, we are on our way to the White House.”

via Zero Hedge http://ift.tt/1oAdlPr Tyler Durden

Authored by Bill Bonner of Bonner & Partners (annotated by Acting-Man.com's Pater Tenebrarum),

Leaning Into the Wind

During our lifetime, three Fed chiefs have faced a similar challenge.

Each occupied the chairman’s seat at a time when “normalization” of interest rates was in order.

Recently, we remembered William McChesney Martin, head of the U.S. Fed under the Truman, Eisenhower, Kennedy, Johnson, and Nixon administrations. Today, we compare Martin with two of his successors, Mr. Paul Volcker and Ms. Janet Yellen. We allow you to draw your own conclusion.

 

Punchbowl theft alert!

In 1951, the Fed and the Treasury clashed over “normalizing” interest rate policy after almost 10 years of tight control. In 1942, after the U.S. entered World War II, and at the request of the Treasury, the Fed pegged interest rates at a low level to make it easier for the government to finance the war. Come peacetime, it had to finesse a return to market-set rates.

Of course, the Fed can never fully shirk its responsibilities or ignore its influence. Its voting committee, the Federal Open Market Committee (FOMC), has the ultimate say on setting short-term rates. But its hand on the controls can be heavy… or light. It can allow the market to express itself. Or it can shut the market up and do the talking itself.

After the troops came home, Martin developed two metaphors to describe his views on central banking. The first was that the central bank should neither set rates high nor low, but instead “lean into the wind.” The idea was to moderate market forces by exerting a little counter-cyclical pressure.

If the economy were running hot, the central bank would maintain its funds rate a little higher than usual. If the economy were cooling off, it would aim for a slightly lower rate. That brings us to the second of Martin’s metaphors.

The job of the Fed, he said, was to “take away the punch bowl just as the party gets going.” In other words, raise interest rates just when the economy starts to enter an unsustainable boom.

 

Times Change

Mr. Martin was not necessarily less intelligent than those who succeeded him. But times change. Fashions evolve. Today, Truman’s appointee as Fed chief might as well be wearing spats.

In February 1951, the annual consumer price index, or CPI – the most common measure of inflation – was running at almost 8% a year. President Truman summoned the entire FOMC to the White House – with Martin as the principal negotiator – to extract a pledge from them to keep interest rates pegged at low levels.

But the Fed dug its heels in and refused to “maintain the existing situation.” Martin then announced that he would allow interest rates to rise. And rise they did. From just under 1% when Martin took over as Fed chief, short-term rates stood at almost 4% at the start of the 1960s.

 

Frontal Assault

The next challenge came at the end of the 1970s. Paul Volcker, appointed by Jimmy Carter, was the man for the job. When Volcker took over the Fed, in August 1979, short-term rates and the CPI were somewhere north of 11%. And he aimed to bring both down to more normal levels.

But then as now, inflation had its friends. And everyone knew that bringing it under control would be painful. In 1980, Mr. Volcker spoke directly to the challenge:

After decades of inflation, many of us, more or less comfortably, have adapted our business and personal lives to the prospect of more inflation.

 

We count on capital gains from inflating house and land values as a substitute for real savings. We assume our competitors will match our aggressive pricing policies, and will also accede to high wage demands. We take comfort in our purchases of precious metals, art, and more exotic “collectibles” – or envy those who did buy – and are tempted to project essentially speculative price movements into the great beyond.

 

But none of this sense of accommodation to inflation can be a valid excuse for not acting to deal with the disease.

 

Anguish alert!

 

Getting inflation under control meant taking away not only the punch bowl, but also the entire buffet and open bar of money and credit on which the markets feasted.

But Volcker did not back away. He said what he meant and meant what he said. In June 1981, he dosed the economy with a 19.1% federal funds rate; in a few months, the fever was broken.

 

No Return to Normal

And now, we have Ms. Janet Yellen at the Fed’s helm, her firm grip on the wheel… her steely eye on the horizon. The situation is nothing like that which Mr. Volcker faced. Instead of a CPI in double-digits, today, the Fed is worried that consumer prices are not going up fast enough.

“An important concern about persistently low inflation,” is how Fed governor Lael Brainard described what was disturbing her sleep. And $7 trillion of developed-country government debt now trades at yields below zero – providing governments around the world with free money.

Getting back to normal is never easy, especially when you don’t want to get there. On March 27, 2015, Ms. Yellen spoke to her challenge.

 

The creature from the punchbowl!

Photo credit: Pablo Martinez Monsivais / Keystone / AP

 

“Normalizing Monetary Policy: Prospects and Perspectives” was the title of her speech. But both the content and the consequences were very different from those of either Mr. Volcker or Mr. Martin.

Where Mr. Martin had insisted that dictating interest rates was “inconsistent with… a private enterprise system,” Ms. Yellen saw no inconsistency at all. Where Mr. Martin saw the need in a great emergency – World War II – to depart from market-set interest rates, Ms. Yellen is ready to leave the market behind at the drop of the Dow.

And where Mr. Martin and Mr. Volcker both went resolutely about their work, Ms. Yellen seems unsure. A year ago, she said she would normalize rates “only gradually”… and that, although she had the “macro-prudential regulatory and supervisory tools” to do the job, investors should not expect miracles.

Nor did they receive any. In the 12 months that have gone by since her speech, only 25 basis points (even sparrows refuse to bend to pick up such trivial morsels) is the total of her niggardly gift to savers. As for “normal”… it is still nowhere in sight.

via Zero Hedge http://ift.tt/1TAyaY9 Tyler Durden

via Zero Hedge http://ift.tt/1oA5HVm williambanzai7

The infamous Microsoft help paperclip makes a timely appearance, providing options for all of your year-end tax planning needs.

h/t @ebitdad

via Zero Hedge http://ift.tt/1RMus99 Tyler Durden