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With USDollar liquidity demand soaring in Europe, and Lehman-esque systemic risk concerns re-emerging from the shadows, it appears the safe haven bid for protection from the folly of politicians and central planners is alive and well…
Silver surged above $19.68 (50DMA) and gold is pushing towards $1337 (50DMA)…
Since Deutsche’s hedge fund run began, bonds & bullion are bid…
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Last week a federal judge in San Francisco dismissed a constitutional challenge to the so-called International Megan’s Law (IML), which requires special passports for sex offenders and authorizes notification of foreign governments when they travel. The lawsuit, filed last February by seven unnamed sex offenders who worry that the IML will impair their freedom to travel, argued that the law, which was enacted in February, violates the First Amendment by compelling speech, imposes retroactive punishment, violates procedural and substantive due process, and denies the plaintiffs equal protection. Phyllis Hamilton, chief judge of the U.S. District Court for the Northerrn District of California, ruled that the lawsuit was premature, since the passport provision has not been implemented yet, and in any case fails to state any valid constitutional claims.
Hamilton says the First Amendment claim is clearly erroneous, because “the information contained in a passport is unquestionably government speech.” She makes similarly short work of the lawsuit’s claim that the IML imposes retroactive criminal penalties, noting that both the Supreme Court and the U.S. Court of Appeals for the 9th Circuit (which includes California) have held that registration of sex offenders, no matter how far-reaching and life-crippling the consequences, is not punitive and therefore does not implicate the Ex Post Facto Clause. If so, Hamilton says, it cannot be punishment to pass along information about a sex offender to foreign officials, whether by means of a notice or through a “unique identifier,” even if the upshot is that he cannot travel internationally and therefore cannot see his wife, do his job, attend to his business, or claim his inheritance in Iran without risking summary execution (all concerns raised by the plaintiffs).
As for the lawsuit’s procedural due process claim, Hamilton says the plaintiffs got all the process they were due when they were convicted of the offenses covered by the IML. In her view, all the new law does is share information about those convictions with foreign authorities, who can do with it what they want. Why should the U.S. government be held responsible for the forseeable consequences of branding American citizens as pariahs, perverts, and predators, regardless of the risk they pose to public safety?
Turning her attention to the equal protection and substantive due process claims, Hamilton says the appropriate level of scrutiny would be the “rational basis” test, which is barely a test at all. “Rational basis review is ‘highly deferential,'” she writes. That is an understatement. The only question under this standard, Hamilton explains, is “whether there is some conceivable rational purpose that Congress could have had in mind when it enacted the law.” The IML is aimed at preventing “the commercial sexual exploitation of minors,” which is a rational purpose. Whether the law actually serves that purpose is beyond the scope of rational basis review. So is the fairness and wisdom of including anyone convicted of “a sex offense against a minor,” even if he never assaulted anyone and never demonstrated a propensity to visit other countries for the purpose of having sex with minors.
The law covers many such offenders, including streakers, public urinators, teenagers who have consensual sex with other teenagers, and even teenagers who take nude pictures of themselves. The passport and notification provisions apply decades after the offense, whether or not the offender currently poses a threat, and notification applies even to offenders who are no longer required to register. One of the plaintiffs, who “routinely travels to Europe and Asia for business purposes,” was convicted 25 years ago. Another plaintiff, who committed a crime minor enough that he was sentenced only to probation and was initially told he would not have to register as a sex offender, will nevertheless have to carry a special passport. A third plaintiff had his 1998 conviction expunged, was reinstated as a lawyer, and is no longer listed in California’s registry but is still covered by the IML’s notification provision.
Stigmatizing these men as a threat to children everywhere for the rest of their lives may seem irrational, but that does not mean it fails the rational basis test. “Under rational basis review,” Hamilton explains, “a law ‘may be overinclusive, underinclusive, illogical, and unscientific and yet pass constitutional muster.'” Even if the IML is poorly designed to achieve its ostensible goal, Congress says it will protect children, and that’s rational enough for government work.
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After pesonal spending growth slowed modestly one month ago, rising 3.8% Y/Y, in August US consumption once again disappointed, staying flat in the month, below the 0.1% expected sequential rebound, although this was offset by an upward revision to the last month’s data from 0.3% to 0.4%. On an inflation adjusted basis, as feeds into the GDP beancount, Real PCE dipped -0.1% in August, well below July’s 0.3% bounce, missing the expectation of a 0.1% rise while the Core PCE Index was inline with the 1.7% expected on a Y/Y basis.
At the same time, Personal Income was in line with expectations, rising 0.2% sequentially, half the July growth rate of 0.4%, or a nominal increase of $39 billion, down from $66 billion last month, of which wages comprised just $13.3 billion while personal current transfers, aka government benefits mostly in the form of Medicaid, contributed over $10 billion in income.
As the chart below shows, the trendline in income and spending remains fixed in its long-running channel:
And since incomes rose more than spending, the personal saving rose to $808 billion from $782 billion a month ago, resulting in another monthly pickup in the savings rate, which rose from a revised 5.6% to 5.7% in July, the highest since May, suggesting the the dramatic spending spree observed in Q1 and part of Q2 has so far to make any notable comeback.
Expect some modest downward revisions to Q2 GDP estimates as a result of today’s data.
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As the world wakes up to the fact that Deutsche Bank is not Lehman… it's massively bigger, and massively more systemic; so contagion is rapidly spreading through global funding and asset markets.
DB share price just hit single-digits…
And the expectations of a major debt haircut soar (CoCos hit record lows)
With Deutsche Bank Sub CDS now at record highs (remember Senior still supressed a little via ECB buying systemically)
And that has crushed the European banking system… (with European bank credit risk soaring, despite the ECB's bond-buying overlay)
EUR FRA/OIS spreads shot up 280bps in the last 2 weeks – from record lows! (the biggest percentage surge in counterparty risk since 2011's crisis began)
2016 and 2017 euribor contract prices underperform rest of the curve as funding pressures weigh on these contracts and broader risk-off sentiment sees deferred yields edge lower.
As demand for USD liquidity explodes to 4-year highs… at a peak of -61bps, this is the highest since July 2012, the middle of the European financial crisis)
USD funding demand also seen in CHF, JPY and GBP, with 3-mo. implied yields moving 5bps, 4bps and 3.5bps lower, amid patchy liquidity, according to a London-based trader.
Which confirms that this week's massive spike in ECB Liquidity facility usage…
Was not enough.
For now the world remains mired in the first of Kubler-Ross five stages of grief – denial! Expectations of a state bailout remain far too high given the massive political problem that would ensue – read, European mutiny – should Germany bailout its banking system while Cypriot, Greek, and Italian banks have been forced to fend for themselves, confirming the widely held impressin that Europe is being run by and for Germany.
h/t @StockBoardAsset
For example:
Next comes 'anger'… remember Monday is a bank holiday in Germany.
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The pension crisis in California isn’t so much a tsunami as slowly rising floodwaters.
Steven Greenhut writes:
President Richard Nixon’s economic adviser, the late Herbert Stein, still is knon for his dictum: “If something cannot go on forever, it won’t.” It should be the rallying cry for California’s pension reformers. The numbers don’t lie, they say. Services are being cut to pay for oversized pensions, they note. Something must be done because the debt cannot keep growing forever.
They’re right. And it won’t go on forever. It can’t go on forever. At some point, even the most dogged public-pension defenders will realize the gravy train—six-figure guaranteed lifetime pensions inflated by myriad spiking gimmicks—will end because the math must catch up with the wishful thinking.
New York and Chicago already pay for more retired cops than for officers patrolling the streets. Some cities have gone belly up, with Stockton and Vallejo the most visible California examples of what happens without adult supervision. Even healthy cities are slashing services and raising taxes to meet escalating pension bills, to pay for those who often receive far more in retirement than most residents earn during their working years.
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The world’s most entertaining, Tourette syndrome-plagued president, Philippines Rodrigo Duterte has just sparked another scandal.
As a reminder, one week ago, in his latest outburst, Duterte stunned reporters and officials when he responded to Europe’s condemnation of his government’s brutal anti-crime crackdown, when after an EU statement urged Duterte to put an end to the “extrajudicial killings” and launch an alternative campaign in line with international human rights laws, the president did not hold back in his response to Brussels and during a speech said: “I read the condemnation of the EU against me. I will tell them: ‘Fuck you.’ “You’re doing it in atonement for your sins.”
He accused the bloc of hypocrisy, saying a rudimental check of the history books showed European countries had killed thousands of people in the past. “He added: And then the EU has the gall to condemn me. I repeat: “Fuck you.”
Fast forward one week, when Duterte compared himself to Adolf Hitler on Friday, and said he would “be happy” to exterminate three million drug users and peddlers in the country.
In yet another rambling, disjointed speech on his arrival in Davao City after a visit to Vietnam, Duterte told reporters that he had been “portrayed to be a cousin of Hitler” by critics. Explaining that Hitler had murdered millions of Jews, Duterte said: “There are three million drug addicts (in the Philippines). I’d be happy to slaughter them.
“If Germany had Hitler, the Philippines would have…,” he said, pausing and pointing to himself. “You know my victims. I would like (them) to be all criminals to finish the problem of my country and save the next generation from perdition.”
Duterte was voted to power in a May election on the back of a vow to end drugs and corruption in the country of 100 million people, which so far he has certainly been effective at, even if using rather unorthodox – and lethal – methods. He took office on June 30 and over 3,100 people have been killed since then, mostly alleged drug users and dealers, in police operations and in vigilante killings.
This is not the first time comparisons between Duterte and Hitler have sprung up. Just before the Philippines election earlier this year, outgoing President Benigno Aquino had warned that Duterte’s rising popularity was akin to that of Hitler in the 1920s and 1930s. “I hope we learn the lessons of history,” Aquino said in widely reported remarks. “We should remember how Hitler came to power.”
A veritable fire hydrant of verbal diarrhea, Duterte has been scathing about criticism of his anti-drugs campaign and has insulted the United Nations and the European Union, as well as Obama, at various times in recent weeks. On Friday, reacting to critical comments on his war on drugs by U.S. Senators Patrick Leahy and Benjamin Cardin, Duterte said: “Do not pretend to be the moral conscience of the world. Do not be the policeman because you do not have the eligibility to do that in my country.”
Confirming that relations between the US and its long-time Pac Rim ally have soured substantially, Duterte also reiterated there will be no annual war games between the Philippines and the United States until the end of his six-year term, placing the longstanding alliance under a cloud of doubt. It also may make Washington’s strategy of rebalancing its military focus towards Asia in the face of an increasingly assertive China much more difficult to achieve.Still, U.S. Defence Secretary Ash Carter, speaking before the latest remarks from Duterte, said Washington had an “ironclad” alliance with Manila.
The US, however, ignored his remarks and remained in denail about what may be a major geopolitical strategic shift: a senior U.S. defense official, also speaking earlier, told reporters that the United States had a long enduring relationship with the Philippines regardless of who was president. “It’s going to continue to survive based on what we think are strong U.S.-Philippines common security interests, so we’ll be engaging President Duterte further,” the official said.
Malcolm Cook, a senior fellow at Singapore’s ISEAS Yusof Ishak Institute, said the U.S-Philippines alliance was not necessarily at risk, but Washington could seek to focus on ties elsewhere in the region. “We are all in some sense becoming, by necessity, desensitized to Duterte’s language,” he said. “Diplomatically, the U.S. would say they’ll continue to work with him and the alliance is strong. But it’s whether they’ll continue to strengthen that alliance or not.”
Some, however, have not been desensitized: Duterte’s latest comments were quickly condemned by Jewish groups. Rabbi Abraham Cooper, head of the Simon Wiesenthal Center’s Digital Terrorism and Hate project, called them “outrageous”.
“Duterte owes the victims (of the Holocaust) an apology for his disgusting rhetoric.” The Anti-Defamation League, an international Jewish group based in the United States, said Duterte’s comments were “shocking for their tone-deafness”.
“The comparison of drug users and dealers to Holocaust victims is inappropriate and deeply offensive,” said Todd Gutnick, the group’s director of communications. “It is baffling why any leader would want to model himself after such a monster.”
And just like that the ADL has guaranteed that Duterte’s next outburst will feature some very colorful language involving Jews.
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With Miss Peregrine’s Home for Peculiar Children, Tim Burton delivers his most winningly crafted fantasy film in years. The movie has lots of digital imagery, but little of the visual bombast of his overstuffed Alice in Wonderland. Burton does fabricate some outsize monsters—towering, tentacle-mouthed horrors called Hollowgasts—but for the most part he deploys CGI in the service of gorgeous scenes and memorable images. The movie is a bit overextended, but it’s always great to look at, writes Kurt Loder.
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Overnight Media Digest
WSJ
– Qualcomm Inc is in talks to buy NXP Semiconductors NV in a deal that could cost more than $30 billion, accelerating a consolidation rush in the semiconductor industry. http://on.wsj.com/2dvNIzR
– Dunkin’ Brands Group Inc said it would launch bottled Dunkin’ Donuts coffee in U.S. early next year, which will be produced and distributed by Coca-Cola Co. http://on.wsj.com/2dvOj4J
– Nissan Motor Co Ltd may scrap an investment in the United Kingdom without more clarity on the country’s plans for post-Brexit trade relations with the European Union, Chief Executive Carlos Ghosn said. http://on.wsj.com/2dvNw3z
– Salesforce.com Inc said it would ask regulators in the US and EU to block Microsoft Corp’s $26.2 billion acquisition of LinkedIn Corp, saying the deal would hurt competition. http://on.wsj.com/2dvOAo3
FT
Nissan Motor Co Ltd wants Britain to pledge compensation for any tax barriers resulting from its decision to leave the European Union, or the Japanese automaker could scrap a potential new investment in the country’s biggest car plant in Sunderland, Chief Executive Carlos Ghosn said on Thursday.
The Association of British Insurers in a new submission to government called for a regulatory environment that “is appropriate for the UK market”, in the biggest hint yet that it will push for changes to the Solvency II capital rules following Britain’s vote to leave the EU.
Telenor ASA has warned a UK regulator that pursuing a “legal separation” of BT Group Plc and its Openreach unit is a “dead end”, according to a letter sent by the Norwegian telecom’s boss to Ofcom Chief Executive Sharon White.
A planned reform of global banking rules being discussed by the United States, Europe, Japan and other major economies risks negatively affecting European banks and needs to be changed, the EU financial services commissioner said on Thursday.
NYT
– Harvard has brought in a new manager from Columbia University to run its $36 billion endowment, the largest of any university. N. P. Narvekar, 54, was appointed president and chief executive of Harvard Management Company, the university said in a statement on Thursday. http://nyti.ms/2dbOan8
– Nutanix Inc priced its $238 million initial public offering, with a valuation of $2.18 billion – slightly higher than the one it received in the private markets two and a half years ago. http://nyti.ms/2dE7tkL
– Federal auditors ruled on Thursday that the Obama administration had violated the law by paying health insurance companies more than allowed under the Affordable Care Act in an effort to hold down insurance premiums. http://nyti.ms/2dr8YkS
– The Obama administration, in its latest effort to update workplace policies it says have lagged far behind the realities of Americans’ lives, will require federal government contractors to provide paid sick leave to their workers. http://nyti.ms/2daEXYS
Canada
THE GLOBE AND MAIL
** Ontario, Quebec and California environment ministers met in Toronto Thursday and discussed Ontario’s plan to join the Western Climate Initiative, which is dominated by the U.S. state whose population is double that of the two provinces. http://bit.ly/2dJJC6i
** At least two unexplained cases of sudden, partial paralysis in young children have been confirmed in Canada, and doctors believe the cases could be linked to the return of a virus that in 2014 sent hundreds of North American children to hospital with severe respiratory illness. http://bit.ly/2d0MRCa
** Enbridge Inc will sell a key Saskatchewan pipeline system for $1.075 billion as it looks for financial room to help it proceed with its massive takeover of Houston-based Spectra Energy Corp. The deal announced late Thursday will see private midstream firm Tundra Energy Marketing Ltd buy Enbridge’s South East Saskatchewan pipeline system. http://bit.ly/2dwoxZE
NATIONAL POST
** Loyal BlackBerry fans may still be able to get their thumbs on a last new, in-house designed handset despite the company’s decision to stop developing hardware internally by the end of its fiscal year. BlackBerry Ltd CEO John Chen is in the midst of testing a handset prototype – it sounds like it features the beloved keyboard – that was already in the works when the company decided to give up hardware development to focus on software, he told reporters at a round-table discussion at the Waterloo headquarters on Wednesday. http://bit.ly/2dEDqcy
** Bank branch closures and staff cuts aren’t new to the financial services industry as it adjusts to customer demands for more online and mobile services, and competition from fintech rivals. But Laurentian Bank of Canada’s announcement late Thursday that 50 branches will be merged, eliminating around 300 employees in the process, was particularly bold, says Rob Sedran, an analyst at CIBC World Markets. http://bit.ly/2cQe7pk
** The Competition Bureau is going after the Vancouver Airport Authority for restricting competition among in-flight catering companies. An investigation by the bureau found that the airport authority has “refused” to give new in-flight catering suppliers access to the Vancouver International Airport, even though the airlines that use the airport want more choice in suppliers. http://bit.ly/2dEEuxc
Britain
The Times
British Steel will be capable of making profits of £150 million ($194.46 million) a year if it gets the right government support, Roland Junck, the company’s executive chairman said. (http://bit.ly/2dbg3M3)
Jeremy Corbyn and Labour MPs are edging towards a “coalition agreement” that would allow members of the parliamentary party to choose who fills some shadow cabinet posts. (http://bit.ly/2dbllHl)
The Guardian
London Mayor Sadiq Khan is planning to launch the UK’s most comprehensive inquiry into the impact of foreign investment flooding London’s housing market. (http://bit.ly/2dbhgmA)
The European head of Airbnb has denied claims that the company is driving up property prices and perpetuating London’s housing crisis. (http://bit.ly/2dbhiL7)
The Telegraph
Commerzbank, the second-biggest bank in Germany, has suspended its dividend and revealed more than 9,000 job losses. (http://bit.ly/2dbiBK0)
Sky News
Two of Europe’s biggest web hosting service providers, Strato and Hellman & Friedman, are teaming up with private equity groups in a bid to win control of a British-based Host Europe. (http://bit.ly/2dbimic)
Government ministers and stakeholders from the UK, France and China have attended a ceremony to officially agree the £18bn Hinkley Point C nuclear power station. (http://bit.ly/2dbjmTB)
The Independent
Vitol, the world’s biggest oil trader, faces a potential scandal over claims it ripped off the people of impoverished Mozambique for critical fuel by at least $80 million last year. (http://ind.pn/2dbjJgY)
Deutsche Bank came under mounting pressure after it emerged that some hedge funds worried about its financial strength had started to trim their exposure to the troubled lender. (http://bit.ly/2dbkVAP)
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One day after Germany’s second largest lender confirmed reports of a massive restructuring when it announced it would lay off nearly 10,000 employees, or about 20% of its entire workforce while slashing the bank’s dividend for the rest of the year, the Dutch newspaper Het Financieele Dagblad reported that ING Groep, the largest Netherlands lender, will announce thousands of job cuts at its investor day on Monday.
The reorganization will result in more central management and may generate billions of euros in savings, the paper said cited by Bloomberg. Raymond Vermeulen, a spokesman for the Amsterdam-based bank, declined to comment on the report. The bank employs about 52,000 people, according to its website.
ING sees opportunities in Belgium, the Netherlands, Germany and Poland, Het Financieele Dagblad said. The lender has doubts about its presence in Turkey, where it lacks scale, according to the report.
Chief Executive Officer Ralph Hamers has transformed ING into a bank focused on Europe and is seeking to expand lending to consumers and companies outside its home market as record-low interest rates and regulatory demands to bolster capital threaten to erode profit.
With all European banks struggling to generate profits under Europe’s NIRP policy which makes net interest margin-based revenue virtually non-existent, we expect many more banks will be forced to lay off tens of thousands of more high paying jobs in the months ahead, leading to further declines in consumption, which in turn will pressure Europe’s deflationary forces, even though earlier today Eurostat reported that inflation in the European Union rose to 0.4% in September, in line with expectations, and the highest since 2014.
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