Month: May 2016

Every year for the past four, Goldman started off the year with an undauntedly optimism and a bullish forecast, one which usually involved a material increase to GDP expectations and, just as importantly, rising 10Y bond yields. And every year for the past four, it took Goldman a few months before it was forced to trim both its GDP forecast and cut its expectations where the 10Y would end the year.

Moments ago 2016 became the latest year in which Goldman was forced to admit it had been too bullish if not on economic growth (that too will come) then certainly on inflation expectations, and as the bank’s Francesco Garzarelli admitted moments ago, “we are lowering our bond yield forecasts in the major advanced economies by an average 30-40bp across the forecast horizon. Specifically, we now see 10-yr US Treasuries ending 2016 at 2.40% and 2017 at 2.75%, from 2.75% and 3.30%, previously. The corresponding new forecasts for German Bunds are 0.50% and 1.00% (compared to 0.60% and 1.00% previously), and those for JGBs are 0.10% and 0.30% (from 0.30% and 0.60% before). Exhibit 13 at the end of this document summarizes the forecast changes.”

Why the cut? Because after the bank was finally forced to throw in the towel on its wrong 3 rate hike call last week, it no longer has a catalyst to push a strong inflation agenda. Here’s Goldman:

Our new projections reflect (i) a downgrade in the profile for Fed Funds rates announced by our US team last Friday (2 further hikes in the remainder of this year, followed by a further 3 next year, compared with 3 and 4 previously); and (ii) the ongoing absorption of duration risk by the ECB and particularly by the BoJ, delivered in conjunction with negative policy rates.

In other words, much slower growth than Goldman had originally expected, coupled with more central bank intervention and frontrunning of bond purchases, coupled with yield differentials between Europe and Japan where the central banks are actively soaking up all available Treasuries, and the US where for the time being there is no QE.

The forecasts conservatively assume that the current deviation from our Bond Sudoku valuation framework (between 1.5 and 2.0 standard deviations from ‘fair’) will be slowly corrected over the forecast horizon to one standard deviation over the next 6-9-months and close to half a standard deviation by end 2018. We reiterate our view that yield levels below 1.75% in 10-yr US Treasuries (a two standard deviation event) are unlikely to be sustained unless the macro outlook deteriorates materially.

Translation: expect the 10Y to drop below 1.75% on very short notice.

Of course, Goldman does not want to admit that it is wrong (as in the case of its EURUSD parity call), but rather that the market is, well, broken, and provides the following chart to explain why that is the case:

US Treasuries Are Close to 2 Standard Deviations Expensive Relative to Their Fair Value

Well, if they are so “expensive” maybe central banks should stop buying them and further distorting the market? Just a thought.

Ironically, even Goldman now admits that central banks have broken the bond market:

The policy stance of the ECB and the BoJ is shifting away from cuts in policy rates into deeper negative territory towards ‘credit easing’ measures, which should revive final domestic demand (rather than help export-oriented sectors via a lower exchange rate). This shift is important because our analysis suggests that the combination of negative short rates and outright purchases of long-term debt put in place by these two central banks have largely contributed to depressing the bond premium globally. If official rates are close to their effective lower bound, and asset purchases are spread over a broader pool of assets, financial conditions are likely to ease and this could lead to a rebuild in inflation premium.

JGBs Have Pulled Down Global Long-Term Rates

 

And then the following even more surprising admission:

Last but not least, the starting point for bond valuations is extremely stretched, in our view. In the US, our survey-based measure of the bond premium and the term premium estimates produced by the New York Fed are now back to the lowest level since the European financial crisis. Our global measure of the bond premium is also very depressed. We attribute this largely to the distortions in long-dated yields stemming from the ECB and BoJ QEs, and their spillover effects.

Premium on US Treasuries Lower than During the GFC

 

But the most surprising comment from Goldman is the following warning, which is the first time we have seen Goldman do:

On the policy front, all three major central banks can create financial turbulence if not careful in managing investors expectations. The Fed is tightening with very few hikes priced – a historical anomaly – increasing the odds of a ‘rate shock’. The ECB and the BoJ are distorting the price of duration (and in Europe, sovereign credit) through their asset purchase programs. Any unanticipated shift in their behaviour could have magnified effects on asset prices. Consider that in 6-months time, there will be only three left to go until the end of ECB QE. We think that purchases will be extended for longer, but this will be a passage that the market will need to navigate.

And so here we stand, 7 years after “the end of the Great recession“, and Goldman has just given its most dire warning that if central banks withdraw their support, or even fail to properly manage investor expectations, they could crush the already broken bond market, leading to a “rate shock”, one which would result in “financial turbulence” and have dramatic consequences on all asset prices.

In other words, everything is fine.

Ah, the joys of central-planning and micromanaging the world by a few academics locked inside marble buildings.

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One week ago, when SolarCity was trading around $30, prompted by Jim Chanos’ bearish take on the company we wrote a piece asking if “SolarCity is the next SunEdison“ in which we presented the Full Bear case as noted by Axiom’s Gordon Johnson, who incidentally had the only “sell” rating on the company ahead of last night’s earnings debacle (at which point there were also 12 Buys and 9 Holds), which has resulted in the company plunging 25% overnight, and is about 40% lower than when we first prompted readers to pay attention to Elon Musk’s solar venture.

Today, Gordon gives ZH readers an exclusive look at five points why the pain for SCTY has only just begun, and why – as we speculted – SolarCity may indeed be the next unfortunate bankruptcy in the sector.

Courtesy of Gordon Johnson:

Point 1:

So… they are saying they are going to be cash flow positive this year. Why? Simply put… their installation growth has slowed materially, due to: (a) competition (both from other solar companies and banks), (b) weaker freebies (i.e., incentives) from the US government, (c) less demand from consumers (who are making a lot less) for expensive solar panels, and (d) a saturated US market – see the figures below, and also notice, as per the last figure, that SCTY’s share in CA is down materially in Feb. vs. Jan. and 2015.

So… what do they do? They tell investors they are moving from being a growth-based company to being a value-based company. How they defined being a value-based company was by telling investors they would be cash-flow positive in 2016. However, this is where it gets interesting. Based on the accounting 1 class I took as a freshman in college, cash-flow positive is either defined by: (1) operating-cash-flow being positive, (2) operating-cash-flow ? CAPEX = free-cash-flow being positive, or (3) EBITDA being positive. But… this is not how SolarCity defines cash-flow. No, no… of course not. The way they define it is: free-cash-flow + any financing in the quarter = free-cash-flow.

Stated differently, you can run a company that burns $100s of millions of dollars in cash, yet take on massive amount of debt/leverage, and include this in your definition of free-cash-flow, and Abracadabra you’re a good business. At best this is financial illusion, and at worst outright deception (i.e., trying to get investors to accept a new definition for free-cash-flow). I guess, in this world where central bankers are solving massive leverage problems with even more leverage, perhaps SolarCity feels no one will call them out for this. But, I think it’s a very important dynamic to focus on as the narrative the company is telling people is built on an assumption of free-cash-flow which, at its core, is based on an improper definition.

* * *

Point 2:

SCTY has restated the way it calculates its cost/watt (i.e., the key metric that derives their costs); and, in each quarter they’ve restated, their newly reported costs are lower. Their specific verbiage, as detailed below, is: “cost calculation methodology has been updated to exclude costs associated with operating the PowerCo portfolio that are now included and presented in our Recurring Cash Generation of PowerCo memo and to include cancellation costs that had not been previously included”. There are a number of other items that have been restated since we started covering this company (and, in each case, they are restated to SCTY’s benefit) – just this quarter, in addition to the change in the way they report costs, the way they report revenues and COGS were changed/revised. It’s almost as if the company is making it up as they go.

* * *

Point 3:

A lot of people want to give SolarCity value for renewals in their portfolio (i.e., the assumption that after their 20yr solar contracts with customers are up, customers will renew those contracts using the same panels that were installed 20yrs ago). While we are assuming a value for SCTY’s “renewal portfolio”, which, again, assumes 20yrs into the future, 100% of the SCTY customers with SCTY systems on their roof will opt to renew the contracts with SCTY at prices that will be above (when adding in the escalators ingrained in SCTY’s contracts) the prices of technology 20yrs into the future (yes, you heard that right); stated differently, it’s the equivalent of assuming you will buy a computer from 1996 today for more than you would pay for a 2016 model? Probably not… thus, in reality the renewal value is not worth much, if anything – it’s an option.

* * *

Point 4:

They had talked about a 4.5% blended cost of debt 4 months ago – rates have barely moved – and now, their capital costs are much, much higher at about 8.23%… if rates go up, then what happens?

* * *

Point 5:

Last year, SolarCity burned over $800mn on 870MW of installs, or $0.92/W; this, or a loss on installations, is not being included in anyone’s cost calculations.

Overall, SolarCity is a company that perpetually burns OCF, FCF, and generates grossly negative EBITDA, with $2.4bn in net debt and business model predicated on perpetual capital issuance/needs (they buy solar systems, then lease them out to you/me over a 20yr period collecting cash over the lifetime of the project [which is why they perpetually burn money – it’s simply an asset vs. liability duration mis-match]).

Further, the way the stock is valued is very tricky (think 20yr DCF with hundreds of inputs that the company changes regularly), and not straight forward – i.e., an art, not a science. In pretty much every case like this I’ve seen in the history of investing (the most recent of which was SUNE, which we got similar emails to the ones we’re now getting on SolarCity when we turned negative on its shares around $20/share, to see it go to $0.22/share today), the stock does go to $0/share.

* * *

While we agree that it is only a matter of time SCTY becomes the next SUNE, perhaps the real question for this typical Elon Musk construct is not whether the company is the next SunEdison, but whether Tesla will be the next SolarCity…

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With the collapse of China's smoke-and-mirrors commodity bubble comes the post-mortem as the horde of Chinese gamblers flood from one government-appointed market to another as the American dream of get-rich-quick schemes appears to have been adopted by the burgeoning middle classes now disillusioned with real work. As Bloomberg reports so shockingly, from the Dutch tulip craze of 1637 to America’s dot-com bubble at the turn of the century, history is littered with speculative frenzies that ended badly for investors; but rarely has a mania escalated so rapidly, and spurred such fevered trading, as the great China commodities boom of 2016…"you have far too much credit, money sloshing about, money looking for higher returns."

As we detailed previously, the surge in commodity prices was nothing but "churn baby churn" as trading volume exploded but open-interest remained flat.

“With more speculators being let in on this secret, more money poured in the game,” Fu said. “Prices went higher and higher with explosive growth in trading volumes.”

Open interest, or the amount of outstanding contracts at the end of the day, has remained relatively unchanged throughout, indicating that the trading was short-term speculation, with traders holding positions for a few hours and cashing out before the end of the day. At the peak of the trading boom, daily aggregate volume across the contracts was more than four times open interest. It was 1.4 times by May 4.

 

What started as a logical bet – that China’s economic stimulus and industrial reforms would lead to shortages of construction materials – Bloomberg explains, quickly morphed into a full-blown commodities frenzy with little bearing on reality…

As the nation’s army of individual investors piled in, they traded enough cotton in a single day last month to make one pair of jeans for everyone on Earth and shuffled around enough soybeans for 56 billion servings of tofu.

 

Now, as Chinese authorities introduce trading curbs to prevent surging commodities from fueling inflation and undermining plans to shut down inefficient producers, speculators are retreating as fast as they poured in. It’s the latest in a series of boom-bust market cycles that critics say are becoming more extreme as China’s policy makers flood the financial system with cash to stave off an economic hard landing.

 

“You have far too much credit, money sloshing about, money looking for higher returns,” said Fraser Howie, the co-author of “Red Capitalism: The Fragile Financial Foundation of China’s Extraordinary Rise.” “Even in commodities where you could have argued there is some reason for prices to rise, that gets quickly swamped by a nascent bull market and becomes an uncontrollable bubble.”

In many ways, China’s financial landscape was ripe for another round of mania.

New credit soared to a record in the first quarter, giving individuals and businesses plenty of cash to invest at a time when several of the country’s traditional sources of return looked unattractive.

 

Government debt yields were hovering near record lows, while wealth-management products and company bonds had been rattled by a growing number of corporate defaults. Stocks were still too risky for many investors burned by last year’s crash, and moving money offshore had become harder as the government clamped down on capital outflows.

 

"I'm pretty bored at work, so I trade commodities futures for some excitement," said He, whose account swelled to as much as 700,000 yuan ($107,596) before sliding back to 400,000 yuan at the end of April. “Because I’m making investments with my friend, we can comfort each other when we are making a loss."

Nobody knows for sure how much of the trading surge has been driven by individuals, but the evidence suggests retail punters are playing a big role, and China’s response to the boom suggest authorities are worried there’s froth in the market.

Officials at the China Securities Regulatory Commission have pledged to prevent excessive speculation, while the Dalian Commodity Exchange said in a statement that “some sectors of the society still have limited understanding of the futures market.’’ Regulators including the CSRC have prepared further measures to limit price fluctuations if abnormal volatility persists, people with knowledge of the matter said last month.

"They don’t want this to turn into a speculative market in commodities," said Tiger Shi, managing partner at Bands Financial Ltd. in Hong Kong, who’s been trading commodities for two decades.

 

If China’s equity bubble is any guide, regulators may find it difficult to cool excessive speculation without triggering a collapse in prices. Domestic shares lost $5 trillion of value last summer as authorities moved to curb leveraged bets and restrain trading in the stock-index futures market, where volumes tumbled by 99 percent from their peak.

 

"The worry is that as soon as the bubble bursts, it's everyone out of the door at the same time," said Paul Adkins, managing director of AZ China Ltd., a Beijing-based aluminum consultancy. "It's the last guys out the door that have the most pain."

It's not ending well at all…

China Commodities collapsed….With Iron Ore now down 22% from the meltup highs, entering a bear market…

 

And Steel Rebar down 25%, extending losses in the US session…

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Authored by Mark Cuban, originally posted at BlogMaverick.com,

I learned it from watching Dennis Rodman and Paris Hilton.  Tell the media what they need and want to hear. Give them a place and time to talk to you about it. Watch the headlines roll in.

Dennis would tell them where he would be partying, with who and something wild he would do. Paris would tell them what she would be wearing and what celebs she would be partying with. Both knew exactly how to leverage the media of the time to their advantage.

It wasn’t long after I got into the NBA I realized that every team had multiple media outlets that had to write, talk or broadcast something every day.  They craved content.  It was so easy to get them to write almost anything.

Once I started getting fined by the NBA, the national door flew wide open.  At the time, sports media, not only believed they were journalists, they actually tried to be.  They wrote stories. They tried to add some depth of coverage to even the simplest or stupidest of topics, say working at a Dairy Queen because I had gotten fined hundreds of thousands of dollars for saying the head of NBA officiating (who still works for the NBA btw), could not manage a DQ.  Media back then was incredulous that I would say the things I did.

It made for a lot of fun battles with them.  If they challenged me based on some nebulous opinion they held, I would challenge them right back.  The give and take was fun for me. Entertaining for some and amazing at brand building for me as well.

Over time media and the media changed.  I started this blog in 2004 particularly to respond to the media. Here is my first blog challenging Kevin Blackistone, here is me ripping the NYTimes 10 years ago this week . The good old days.

Around 2010 social media really started to take off and have an impact on reporting. In particular Twitter changed the sports media game.  Scoops were no longer delivered in the next newscast or web update.  Trolling for clicks was no longer enough.  You had to break stories on twitter.

The problem for political media is that they have not changed with the times. They are getting used and abused by Donald Trump in a way only those who truly understand Headline Porn, like the sports media, truly appreciate.

Donald can talk for hours and say nothing of true substance. But every few sentences he is going to spout out Headline Porn that is going to fit in 140 characters or so and unquestionably have to be discussed by “The Political Shows”. I’m not sure he realizes he is doing it. Im not sure who he reflects the most, Rodman or Hilton, but he is following in their footsteps.  There are certain things that when a celebrity says them, the media has to cover.

Donald is a never ending source of Headline Porn .  The value for Donald in this coverage isnt so much that the viewers of “the shows” become Trump supporters. Its the fact that the Porn becomes the focal point of all discussions and even when its not, its the squeaking springs lurking in the background. He prevents other candidates and “the shows” from being able to seriously discuss issues by overwhelming them. And I don’t think he even realizes it.

So where is he getting his support from ?

Mathew Ingram once had a brilliant line: “If the news is important it will find me”. Today that means it will find its way into your Facebook feed or an email/Instagram meme you get. That’s it.  

Regular people don’t spend time a year in advance analyzing political issues. Regular people don’t even know who Marco Rubio and Ted Cruz are.  Now if one of them started dating Rhianna or Adelle, that would all change.  You know how much political substance finds its way into your Facebook feed ? None in my case. How about yours  ? None there either I would bet.

But what I do see on FB feeds is screaming headlines and the inane chatter that follows it.  Political attitudes are determined far more by instagram/email memes and short videos on facebook than anything written or broadcast anywhere in traditional media.  Its the “facebookization” of headline porn.  Gain attention. Watch your friends click like or comment with in depth answers like “wow”. ” I can see that” or better yet “this could be the only way” or “my 1 year old may depend on it “, then make up your mind, for now, about who you like for President

Until the next meme comes along.

I said back in july that what Donald Trump says is irrelevant . Its how he says it that matters.  I said back then that Donald Trump has changed politics forever.  He obviously has.

Donald Trump unwittingly introduced Headline Porn  into the political process. Facebook turned it into poll respondents for him.

Whether or not it will turn them into voters remains to be seen.  But Headline Porn is here to stay.

Think Marco Rubio could start a rumor about an affair with Rhianna and Ted Cruz could start a rumor about an affair with Beyonce and a face off with Jay Z? Now that would propel them to the top of the polls for sure !

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By the SRSrocco Report,

While precious metals investors are concerned about the short-term price movements in silver, the real focus should be on this interesting silver market trend.  When the silver market data finally came out in the new 2016 World Silver Survey (released May 5th), it really surprised me.  And, it takes a lot to surprise me.

Not only did physical Silver Bar & Coin demand hit a new record in 2015, it did so in a huge way.  Physical Silver Bar & Coin demand jumped 24% in 2015 versus the prior year reaching a record 292.3 million oz (Moz).  Part of the reason for the higher record was the addition of “Private Bars & Rounds” to the statistics.

I had mentioned in prior articles that I had an email exchange with the GFMS Team at Thomson Reuters about the Private Bars & Rounds figure.  The GFMS Team stated that they were working on including this amount, but I thought it would be in the next few years.  However, they updated all their past Silver Bar & Coin demand to include Private Bars & Rounds in the 2016 World Silver Survey.

For example, the GFMS Team revised North American Silver Bar demand in 2014 from 10.8 Moz to 42.2 Moz, due the addition of private bars & rounds.    The revision was even higher in 2015 as Official Silver coin sales were in severe shortage from July to October.  When the GFMS Team first put out their 2015 Silver Interim Report in November 2015, they had estimated total Silver Bar & Coin demand to be 206 Moz:

Thus, the GFMS Team revised Silver Bar & Coin demand for 2015 by an additional whopping 86 Moz.  Of course, not all of the revision was due to private silver bars and rounds, but I would imagine at least half of it was.

If you would like to get your copy of the 2016 World Silver Survey, you can but it isn’t cheap.  Just click on the link and you can order a copy for yourself.  While I realize all the data in this report may not be accurate or some might say, “manipulated”, I think it’s the best source in the market.  I highly recommend it over Jeff Christian’s CPM Group 2016 Silver Yearbook.

So, why is this increase of Silver Bar & Coin demand so interesting??  Let’s look at the following chart:

Here we can see that the other three segments of the silver market either grew only slightly or declined in the industrial sector.  While Silver Bar & Coin demand surged by 24% in 2015, Silverware placed a distant second by increasing only 4%, Jewelry came in third at 1% and total industrial demand fell 4%.

These next three charts show the actual change in Silverware, Jewelry and Industrial demand:

As I have stated over and over again, I see a continued decline of industrial silver demand in the future.  Even though Solar PV silver demand increased in 2015, overall industrial demand will continue to decline going forward.  This is the reason analysts need to focus on Silver Bar & Coin demand rather than industrial demand for forecasting price in the future.

Now, why should investors focus more on the fundamental trend shown in the chart below than short-term silver price movements?  Because the trend will only get stronger as the financial system becomes weaker.

This is the amazing trend I was referring to in the title of the article.  Prior to the first collapse of the U.S. Housing and Financial System in 2008, Silver Bar & Coin demand was only 8% of global industrial consumption…. ONLY 8%!!  As we can see from the chart, it has been trending higher and hit a record 50% in 2015.  Investors consumed half of total world industrial silver consumption in 2015 in physical bar and coin.  This is astonishing to say the least.

Okay… I can just hear it.  Some readers are probably saying, “So, what.  The price of silver is still in the toilet.”  While this is true, humans have a long lifespan.  Thus, many Americans have been investing in their paper retirement plans for 3-4 decades.  Those who have retired now are lucky enough to get some benefit.  However, this will not be the case for the majority going forward.

THIS IS THE REASON TO ACQUIRE SILVER BAR & COIN!!

Forget about the short-term price movements.  Instead focus on the continued disintegration of the U.S. and global financial system and economies.  Also, keep an eye on the silver market fundamentals as shown in the chart above.

I will be putting out several articles about the data from the 2016 World Silver Survey over the next two weeks.  I will also be publishing some EYE-OPENING information on the Energy Market that I recommend you reading.  Those who fail to educate themselves on the energy situation are making a BIG MISTAKE.

The Death of WALL STREET is coming and the overwhelming reason is the decline of U.S. oil production and Falling EROI – Energy Returned On Invested.

Lastly, if you haven’t checked out my new PRECIOUS METALS INVESTING page, I highly recommend you do.

Check back for new articles and updates at the SRSrocco Report. 

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Every year it’s the same: some legacy mainstream media mouthpiece muses on how great Obama’s recovery would be… if only it wasn’t for stingy US consumers refusing to spend like the drunken sailors of days gone by. Last June, it was the WSJ’s Jon Hilsenrath who actually wrote a letter to American consumers, confused by their unwillingness to spend and explicitly accused them of being “stingy” even as the “Federal Reserve was counting” on them to spend, spend, spend. For those who have forgotten this absolute pearl, here it is again:

Dear American Consumer,

 

This is The Wall Street Journal. We’re writing to ask if something is bothering you.

 

The sun shined in April and you didn’t spend much money. The Commerce Department here in Washington says your spending didn’t increase at all adjusted for inflation last month compared to March. You appear to have mostly stayed home and watched television in December, January and February as well. We thought you would be out of your winter doldrums by now, but we don’t see much evidence that this is the case.

 

You have been saving more too. You socked away 5.6% of your income in April after taxes, even more than in March. This saving is not like you. What’s up?

 

We know you experienced a terrible shock when Lehman Brothers collapsed in 2008 and your employer responded by firing you. We know stock prices collapsed and that was shocking too. We also know you shouldn’t have taken out that large second mortgage during the housing boom to fix up your kitchen with granite countertops.  You’ve been working very hard to pay off this debt and we admire your fortitude. But these shocks seem like a long time ago to us in a newsroom. Is that still what’s holding you back?

 

Do you know the American economy is counting on you? We can’t count on the rest of the world to spend money on our stuff. The rest of the world is in an even worse mood than you are. You should feel lucky you’re not a Greek consumer. And China, well they’re truly struggling there just to reach the very modest goal of 7% growth.

 

The Federal Reserve is counting on you too. Fed officials want to start raising the cost of your borrowing because they worry they’ve been giving you a free ride for too long with zero interest rates. We listen to Fed officials all of the time here at The Wall Street Journal, and they just can’t figure you out.

 

Please let us know the problem. You can reach us at any of the emails below.

 

Sincerely,

 

The Wall Street Journal’s Central Bank Team

 

-By Jon Hilsenrath

In retrospect, we can’t help but chuckle at the part about “Fed officials want to start raising the cost of your borrowing because they worry they’ve been giving you a free ride for too long with zero interest rates.”

That said, one year later, it’s the turn of that other administration mouthpiece (owned no less by the man who has converted US consumerism into a business empire, Amazon’s Jeff Bezos) the Washington Post, to dwell on precisely the same topic: why are Americans so paralyzed from fears over a recession that ended so long ago, that instead of spending, American consumers are rushing to save in the process preventing Obama’s wonderful recovery from blooming.

While it does not go so far as Hilsenrath in explicitly accusing consumers of being “stingy”, it does so indirectly when the author of what appears to be a hit piece aimed at the US middle class, or all those who no longer believe in maxing out their credit card, Robert Samuelson says that the real drag in the US economy is “us“, by which he means all those Americans refusing to go out and buy “stuff” (well, maybe not Samuelson: we are confident Samuelson is well compensated by Jeff Bezos to inspire even more AMZN bottom-line boosting consumerism). As a result, “American consumers aren’t what they used to be …. and that helps explain the plodding economic recovery.“

You see, dear American consumers, it’s all your fault. Not soaring, record rents, not spiking health insurance premiums that are eating away at your last disposable dollar, not that the so many of the “jobs created” in recent years have been part-time or minimum wage, not the fact that under ZIRP you can’t generate any interest income and are forced to save even more for retirement, not that as a result of central bank policy pension and retirement funds are unveiling cuts to retiree benefits,  not that real disposable incomes have gone nowhere in the past decade, not even that a third of US households can no longer even afford the basics of food, rent and transportation…

It’s your unwillingness to spend; it is – in the words of the WaPo author – “the surge in saving that is the real drag on the economy.“

Really. Here is the full article:

American consumers aren’t what they used to be — and that helps explain the plodding economic recovery. It gets no respect despite creating 14 million jobs and lasting almost seven years. The great gripe is that economic growth has been held to about 2 percent a year, well below historical standards. This sluggishness reflects a profound psychological transformation of American shoppers, who have dampened their consumption spending, affecting about two-thirds of the economy. To be blunt: We have sobered up.

 

This, as much as any campaign proposal, may shape our economic future. There’s an Old Consumer and a New Consumer, divided by the Great Recession. The Old Consumer borrowed eagerly and spent freely. The New Consumer saves soberly and spends prudently. Of course, there are millions of exceptions to these generalizations. Before the recession, not everyone was a credit addict; now, not everyone is a disciplined saver. Still, vast changes in beliefs and habits have occurred.

 

A Gallup poll shows just how vast. In 2001, Gallup began asking: “Are you the type of person who more enjoys spending money or who more enjoys saving money?” Early responses were almost evenly split; in 2006, 50 percent preferred saving and 45 percent favored spending. After the 2008-2009 financial crisis, the gap widened spectacularly. In 2016, 65 percent said saving and only 33 percent spending.

 

What’s happening is the opposite of the credit boom that caused the financial crisis. Then, Americans skimped on saving and binged on borrowing. This stimulated the economy. Now, the reverse is happening. Americans are repaying old debt, avoiding new debt and saving more. Although consumer spending has hardly collapsed, it provides less stimulus than before. (A conspicuous exception: light-vehicle sales, which hit a record 17.4 million in 2015).

 

Consider the personal savings rate: the difference between Americans’ after-tax income and their spending. If a household has income of $50,000 and spends $45,000, its savings rate is 10 percent. Here are actual figures. From 1990 to 2005, the savings rate dropped from 7.8 percent to 2.6 percent. Since then, the savings rate has risen; it was 5.1 percent in 2015.

 

Federal Reserve figures on debt tell a similar story. From 1999 to 2007, household borrowing (mainly home mortgages and credit card debt) increased nearly 10 percent annually, far faster than income gains. People mistakenly believed that they could safely borrow against the inflated values of their homes and stocks. Now, borrowing is subdued. In 2015, household debt of $14 trillion was unchanged from 2007. While many consumers borrowed, others repaid or defaulted.

 

The surge in saving is the real drag on the economy. It has many causes. “People got a cruel lesson about [the dangers] of debt,” says economist Matthew Shapiro of the University of Michigan. Households also save more to replace the losses suffered on homes and stocks. But much saving is precautionary: Having once assumed that a financial crisis of the 2008-2009 variety could never happen, people now save to protect themselves against the unknown. Research by economist Mark Zandi of Moody’s Analytics finds higher saving at all income levels. 

 

In theory, it’s easy to replace lost consumer demand. In practice, it’s not so easy. Businesses could build more factories and shopping malls. But with weaker consumer spending, do we need them? More exports would help, but economies abroad are weak.

 

Government policies are also frustrated. The Fed’s low interest rates don’t work if people don’t want to borrow. Ditto for tax cuts. During the Great Recession, Congress enacted several temporary tax cuts to boost consumer spending. The effect was modest, as studies by Shapiro and his collaborators found. Take the case of the two-percentage-point suspension of the Social Security payroll tax in 2011 and 2012. Two-thirds of the tax cut went to saving and repaying debt — not spending.

The horror…

There is more but we’ll cut off here, wondering why the WaPo article did not have a disclaimer that it is owned by the world’s largest retailer by market capitalization, and will instead add to the scorn.

Yes, dear broke American consumers which once made up the world’s most vibrant middle class: please stop being such a nuisance and source of confusion to nice Op-Ed columnists at the WaPo, the WSJ and, of course, the Fed and their $4.5 trillion in direct injections into the offshore bank accounts of America’s wealthiest 1%, and instead go ahead and splurge all your savings on trinkets, gadgets and gizmos you don’t need.

Only that way will Obama’s recovery be truly complete.

via http://ift.tt/1T9lvtk Tyler Durden

Submitted by Judith Bergmann via The Gatestone Institute,

The European Union is hell-bent on forcing member states to take "their share" of migrants. To this end, the European Commission has proposed reforms to EU asylum rules that would see enormous financial penalties imposed on members refusing to take in what it deems a sufficient number of asylum seekers, apparently even if this means placing those states at a severe financial disadvantage.

The European Commission is planning sanctions of an incredible $290,000 for every migrant that recalcitrant EU member states refuse to receive. Given that EU countries such as Hungary, Poland, the Czech Republic, Slovakia and Austria have closed their borders to migrants or are in the process of doing so, it is not difficult to discern at whom the EU is aiming its planned penalties.

The EU may yet come to realize, however, that this latest ill-concealed jab at the Central- and Eastern European members of the European Union — if it passes muster by most member states and members of the European parliament — may just signal the beginning of the unraveling of the European Union, an event which, considering the authoritarian structure of the organization, might be a good thing. The EU's authority comes, undemocratically, from the top down, rather than from the bottom up; it is non-transparent, unaccountable and there is no mechanism for removing European Commission representatives.

The migrant crisis has revealed a deep and seemingly irreconcilable rift between those countries that roughly two decades ago still found themselves on the wrong side of the Iron Curtain and have not forgotten it, and Western European countries spared from a merciless Soviet totalitarianism. The soft Western Europeans, instead, developed politically correct credos of "diversity" and "multiculturalism," which they intractably push down the throats of those recently released from captivity, refusing to show the tolerance of which they themselves purport to be high priests.

In September, European Commission Vice President Frans Timmermans said,

"We should know more about Central European history. Knowing that they were isolated for generations, that they were under oppression by Moscow for so long, that they have no experience with diversity in their society, and it creates fear in the society.

 

…

 

"Any society, anywhere in the world, will be diverse in the future — that's the future of the world. So [Central European countries] will have to get used to that. They need political leaders who have the courage to explain that to their population instead of playing into the fears as I've seen Mr Orbán doing in the last couple of months."

Exactly because central Europeans were subjected to a totalitarian ideology for half a century, they are rather unenthusiastic about submitting to a new, increasingly totalitarian ideology, especially one which seeks to impose itself as the "only truth," and in its intolerance is averse to any nonconformity — as Timmermans' comments make condescendingly clear.

The European Union's vision of an ideal "multicultural" and "diverse" society seems to be viewed by the central Europeans as humbug, perhaps because they have correctly observed that the "multiculturalism" on display in Western Europe is largely a monoculture of the Islamic variety.

If there is anything at which the Central Europeans became experts during their Soviet internment, it was deciphering the doublespeak of communist apparatchiks, which may account for their adeptness at deciphering the doublespeak coming from Eurocrats such as Timmermans. As the Hungarian Prime Minister's spokesman, Zoltán Kovács, said in September, "… multi-culturalism in Western Europe has not been a success in our view. We want to avoid making the same mistakes ourselves."

The magic that the European Union once held for Central European countries, which rushed to join the organization after the demise of communism — believing it to be the very antithesis of what they had just experienced under communist rule — is fast evaporating.

In February, Czech Prime Minister Bohuslav Sobotka said that, "If Britain leaves the EU, we can expect debates about leaving the EU in a few years too." Three-fifths of Czechs say that they are unhappy with EU membership, and according to an October 2015 poll by the STEM agency, 62% said they would vote against it in a referendum.

In March, after the Brussels terrorist attacks, Polish Prime Minister Beata Szyd?o said, "I see no possibility at this time of immigrants coming to Poland."

"Until procedures to verify the refugees are put in action, we cannot accept them," Rafa? Bochenek, a government spokesman, told reporters.

"The priority of the government is the safety of Poles … We understand the previous government … signed commitments which bind our country. We cannot allow a situation in which events taking place in the countries of Western Europe are carried over to the territory of Poland."

In Poland, 64 percent of Poles want the country's borders closed to migrants.

The European Commission, led by Jean-Claude Juncker and Frans Timmermans (left), is hell-bent on forcing member states to take "their share" of migrants. In March, Polish Prime Minister Beata Szyd?o (right) bluntly stated: "I see no possibility at this time of immigrants coming to Poland."

In Hungary, Prime Minister Viktor Orban's spokesman, Zoltán Kovács, stated:

"Mr. Timmermans is right that we have not had the same experience as Western Europe, where countries such as Holland, Britain and France have had mass immigration as a result of their colonial legacies. But we would like to deal with our problems in a way that suits us. And we especially do not like it when people who have never lived in Hungary try to give us lectures on how we should cope with our own problems. Calling us racists or xenophobes is the cheapest argument. It's used just to dodge the issues."

Even among those Eastern European countries still waiting to be admitted to the EU, the enthusiasm for the EU seems to have dwindled. "The EU that all of us are aspiring to, it has lost its magic power," Serbian Prime Minister, Aleksander Vucic said in February, "Yes we all want to join, but it is no longer the big dream it was in the past."

The reactions of countries such as Poland and Hungary are the normal, healthy reactions of nations who wish to remain prosperous, sovereign and safe for the sake of their own citizens. In addition, entertaining no illusions about "multiculturalism," they appear to have a justifiable apprehension about the detrimental effects of the current migration crisis on national security and finances.

It is not only the newest members of the EU that have begun to realize that is a bad idea to defer decisions about borders and national security to an unelected supranational entity, which appears completely oblivious to the concerns of its member states.

In Norway, the government announced that it will not accommodate any more migrants beyond the 1500 that the country has already agreed to take during the next two years, as part of the EU's refugee relocation scheme. "We have set a quota for refugees from the EU. Increasing it is not of current interest," Immigration Minister Sylvi Listhaug said in April. Norway, in fact, has begun paying asylum seekers to return to their own countries.

In Austria, the government is imposing border controls at the Brenner Pass, the main Alpine crossing into Italy, and erecting a barrier between the two countries.

In the face of such resistance from member states, the European Commission's plan to penalize them for not accepting "their share" of migrants could not possibly be more ill-timed and out of touch. It comes across as a desperate attempt by the EU's executive body to force its way of handling the migrant crisis onto disobedient EU member states, like an authoritarian parent disciplining its unruly children. There is, however, such a thing as bending something until it snaps. By persisting in pushing their agendas on EU member states that still consider themselves sovereign and not merely provinces of the European Union, Timmermans and his European Commission bureaucrats may just have given the European Union its kiss of death.

via http://ift.tt/1XjC9tj Tyler Durden