Month: January 2017

Former Speaker of the House, Newt Gingrich, once considered a front runner for a senior position in the Trump administration, continues to take jabs at the President-elect.  After being forced to apologize a few weeks back for saying that Trump no longer wishes to “Drain The Swamp” in Washington D.C., Gingrich is back with new controversial comments suggesting, yet again, that the Trump administration may ultimately cave to the demands of the far left.  Per ABC News:

Less than three weeks before the presidential inauguration, leading Trump ally Newt Gingrich said his biggest worry about the incoming administration is that they will “lose their nerve.”

 

“Look, they’re going to arrive in Washington, and for them to be successful they have to stake out positions that [Democratic National Committee Chairwoman Donna Brazile] will not like and the left will hate,” Gingrich, a former speaker of the House, said in a joint interview with Brazile and ABC News Chief White House correspondent Jonathan Karl. “I’m worried that when they realize how big the problem is, that they decide that they’re just going to do the best they can and give in.”

 

“My deepest concern is that they’re going to arrive, you’re going to have the greens going crazy” over the Environmental Protection Agency and the Department of the Interior, Gingrich said. “You’re going to have the government employees going crazy about civil service reform. You’re going to have the teachers union going crazy over school choice. And these are pretty nonnegotiable. I mean, if you’re serious about school choice, there is no agreement with the teachers union.”

 

Meanwhile, disgraced DNC Chair Donna Brazile, graciously admitted that “2016 will go down as the year where the rules were changed” because Donald Trump managed to “break the blue wall.”

“2016 will go down as the year where the rules were changed,” Brazile said of Trump’s winning states such as Wisconsin, Pennsylvania and Michigan that usually go Democratic in presidential races.

 

“[Trump] ran a nontraditional campaign. I give him credit for that,” Brazile said. “That said, you have to give credit to the campaign that had a consistent message 100 percent of the time — ‘make America great’ … a slogan that became the message that became the song. And you got a song, you got a melody.”

 

“Donald Trump broke the blue wall. He cracked it and then he broke it wide open, and then he siphoned off enough votes from disenchanted Democrats, independents and others that allowed him to win the electoral vote,” Brazile said.

While accurate, we find it even more amazing that Trump was able to “break the blue wall” given all of the conspiring that occurred behind the scenes between political operatives like Donna Brazile and the mainstream media.  It must be incredibly frustrating for Donna that her chosen candidate lost an election even after she sacrificed what little integrity she had to steal debate questions for the Hillary campaign.

Of course, now that Republicans control all 3 branches of government in Washington D.C., Brazile was also suddenly very open to collaboration between parties and suggested that Trump work with Chuck Schumer to “find common ground.”

“He has an enormous opportunity, as every president in the first 100 days does, to show that he is eager to find common ground, to meet with Democrats,” Brazile said.

 

As an example, she pointed to the incoming Senate minority leader, Democrat Chuck Schumer.

 

“I mean Chuck Schumer knows Donald Trump — both New Yorkers. Have him over for breakfast, have him over for afternoon tea, and see if you can find common ground.”

We wonder where Brazile and her “collaborative” nature was back in 2010 when Obama told Republicans they had to “sit in the back of the bus?”

via http://ift.tt/2irxDMe Tyler Durden

Submitted by Joseph Jankowski via PlanetFreeWill.com,

Former Chicago Police Superintendent Garry McCarthy on Sunday blamed the Black Lives Matter movement for causing an uptick in violent crime inside the country.

According to The Hill, McCarthy blamed protests against police brutality in cities like Baltimore, Ferguson, Mo., and Charlotte, N.C., for creating a “political atmosphere of anti-police sentiment.”

“So what’s happening, and this is ironic, is that a movement with the goal of saving black lives at this point is getting black lives taken, because 80 percent of our murder victims here in Chicago are male blacks,” McCarthy said during a radio interview with John Catsimatidis on AM 970 in New York on Sunday.

 

“Less than half of 1 percent of all the shootings in this city involve police officers shooting civilians.”

McCarthy was fired last year from his position as Police Chief over the controversy caused by a fatal police-involved shooting in October 2014 of a black 17-year-old named Laquan McDonald.

Dashcam footage released a year after the shooting showed the teenager being shot more than a dozen times while walking away from officers.

An involved officer was charged with first-degree murder.

McCarthy admitted that it was a “bad shooting” and the officer deserved punishment, but argued that the uproar over police brutality is “hamstringing” law enforcement.

“We are very clearly going down the wrong path,” he said Sunday.

McCarthy express his hopefulness that President-elect Donald Trump’s nominee for attorney general, Sen. Jeff Sessions, will do more to empower police than President Obama’s Justice Department.

“I think the Trump election quite frankly is a reaction to that,” the former Police Chief said.

 

“I think the people are tired of career politicians who’ve never really had a job telling us how we should think and how we should act.”

McCarthy’s words come just days after one of Los Angeles’ top policemen filed a restraining order against a leading Black Lives Matter activist who has allegedly been stalking him and making violent threats against him and his children.

via http://ift.tt/2j1sHOZ Tyler Durden

While Venezuela CDS suggest the country’s default odds remain well over 90%, and its currency on the black market continues to plunge into the abyss of hyperinflation, something odd happened today: Venezuela’s government issued $5 billion in dollar debt for the first time in more than five years, selling bonds in an opaque transaction to the state bank Banco de Venezuela SA and the central bank, Reuters and Bloomberg report. What makes this “unorthodox operation” particularly strange, is that the government is effectively selling debt, and raising dollar funds from itself – it owns both the Banco de Venezuela and the central bank; it is also strange in that the transaction, according to Reuters, does not immediately bring in new funds for the cash-strapped OPEC nation.

State-run Banco de Venezuela bought the dollar-denominated notes issued on December 29, which had a 6.5% coupon and mature in 2036, in local currency at a heavily subsidized exchange rate of 10 bolivars per dollar, according to a Reuters source, meaning there was no net increase in hard currency for state coffers. The country’s exchange control system sells dollars at 10 bolivars for preferential goods such as food and medicine and for 672 bolivars for other items. Dollars on the black market currently fetch close to 3,200 bolivars.

A branch of Banco de Venezuela in San Antonio del Tachira, Venezuela

Ever since Venezuela’s economy entered into a hyperinflationary tailspin over two years ago, Maduro’s government has struggled to borrow abroad because of investor concern that the country could default, sending its market-determined yields soaring and its default odds at almost 100%, which has made borrowing exceptionally expensive.

As a result, the dollar-strapped nation – struggling under triple-digit inflation, Soviet-style product shortages and low oil prices – has been forced over the past several years to reduce imports of essential items including food and medicine to stay current on its foreign debt obligations. As Bloomberg notes, In October, state oil company Petroleos de Venezuela executed a debt swap in which creditors holding $2.8 billion of bonds agreed to extend maturities after weeks of tense negotiations that included what was effectively an ultimatum from Caracas of a financial collapse should creditors hold out.

Maduro says his government is the victim of an international financial blockade and blames the country’s problems on an “economic war” led by political adversaries. He says talk of default is a smear campaign against him.

But back to Venezuela’s “mysterious” new bond issuance, about which Bloomberg admits that “few details are known” and which might be linked to Chinese lending, according to Francisco Rodriguez, the chief economist at Torino Capital in New York.

“My guess – but it’s just a guess – is that given uncertainty as to whether Venezuela would be able to deliver the oil necessary for repayment, the Chinese may have asked for the loan to be also guaranteed with a bond,” he told Bloomberg by email, adding that he had been expecting a disbursement of $5 billion related to the renewal of a loan from China.

Reuters adds some additional color, noting that Venezuela’s first sovereign issue since 2011 was underwritten by China’s Haitong Securities, according to two bond traders who had seen preliminary details of the issue. The country, meanwhile, kept the transaction under wraps: an official at the Finance Ministry, which coordinates the country’s sovereign bond issues and oversees Banco de Venezuela, said there was no one available to comment.

Adding to the mystery, a central bank official told Reuters she had seen “no evidence of the operation taking place.”

So will Venezuela see new funds emerge as a result of this deal? It appears that the answer is yes, if Banco de Venezuela were to sell the notes on the international market, though the total issue would only fetch around $2 billion due to the heavy discounts on Venezuela bonds. Currently, Venezuela’s dollar-denominated 2038 bond issue prices near 43 percent of face value, according to Thomson Reuters data.

Meanwhile, bond traders are just as confused as reporters and analysts: Russ Dallen, a managing partner at Caracas Capital, told Bloomberg that “bond markets will likely react with “befuddlement” when they open back up on Tuesday after being closed on Monday for the New Year’s holiday.

“Taking place on Dec. 29 with no approval by the National Assembly and no promulgation notice in the Official Gazette, this smells of some kind of end of the year financial shenanigan from a government that is out of cash and is desperately trying to hide it,” he said in an e-mailed response to questions.

Which is why China’s involvement is hardly surprising: recall that the last time Venezuela arranged a direct loan from China was in March of 2015, when a similar number of $5 billion was also floated.  This time it appears that both Caracas and Beijing decided to be even more opaque in how China funds its vassal oil provider, with what likely amounts to nothing more than vendor financing – China funds Venezuela by helping it to issue a few billion in debt, meanwhile it collects tens of billions in crude oil pre-sold at a price that is particularly beneficial to China.

With that assumption in place, we look forward to learning the details of just how China is now funding insolvent supplier sovereigns by the back door, and where else besides Venezuela is this arrangement in place.

 

via http://ift.tt/2iBIcwo Tyler Durden

In a time of great change; upheaval of norms and establishment status quo dissolution, there is one steadfast member of the elite that the world can rely on to never change – no matter how the facts around him do. Nobel-prize-winner Paul Krugman has begun the year as he ended the last, with a New York Times' op-ed exclaiming that "America has become a 'Stan'."

In 2015 the city of Ashgabat, the capital of Turkmenistan, was graced with a new public monument: a giant gold-plated sculpture portraying the country’s president on horseback. This may strike you as a bit excessive. But cults of personality are actually the norm in the “stans,” the Central Asian countries that emerged after the fall of the Soviet Union, all of which are ruled by strongmen who surround themselves with tiny cliques of wealthy crony capitalists.

Americans used to find the antics of these regimes, with their tinpot dictators, funny. But who’s laughing now?

We are, after all, about to hand over power to a man who has spent his whole adult life trying to build a cult of personality around himself; remember, his “charitable” foundation spent a lot of money buying a six-foot portrait of its founder. Meanwhile, one look at his Twitter account is enough to show that victory has done nothing to slake his thirst for ego gratification. So we can expect lots of self-aggrandizement once he’s in office. I don’t think it will go as far as gold-plated statues, but really, who knows?

Meanwhile, with only a couple of weeks until Inauguration Day, Donald Trump has done nothing substantive to reduce the unprecedented — or, as he famously wrote on Twitter, “unpresidented” — conflicts of interest created by his business empire. Pretty clearly, he never will — in fact, he’s already in effect using political office to enrich himself, with some of the most blatant examples involving foreign governments steering business to Trump hotels.

This means that Mr. Trump will be in violation of the spirit, and arguably the letter, of the Constitution’s emoluments clause, which bars gifts or profits from foreign leaders, the instant he recites the oath of office. But who’s going to hold him accountable? Some prominent Republicans are already suggesting that, rather than enforcing the ethics laws, Congress should simply change them to accommodate the great man.

And the corruption won’t be limited to the very top: The new administration seems set to bring blatant self-dealing into the center of our political system. Abraham Lincoln may have led a team of rivals; Donald Trump seems to be assembling a team of cronies, choosing billionaires with obvious, deep conflicts of interest for many key positions in his administration.

In short, America is rapidly turning into a stan.

I know that many people are still trying to convince themselves that the incoming administration will govern normally, despite the obviously undemocratic instincts of the new commander in chief and the questionable legitimacy of the process that brought him to power. Some Trump apologists have even taken to declaring that we needn’t worry about corruption from the incoming clique, because rich men don’t need more money. Seriously.

But let’s get real. Everything we know suggests that we’re entering an era of epic corruption and contempt for the rule of law, with no restraint whatsoever.

How could this happen in a nation that has long prided itself as a role model for democracies everywhere? In a direct sense, Mr. Trump’s elevation was made possible by the F.B.I.’s blatant intervention in the election, Russian subversion, and the supine news media that obligingly played up fake scandals while burying real ones on the back pages.

But this debacle didn’t come out of nowhere. We’ve been on the road to stan-ism for a long time: an increasingly radical G.O.P., willing to do anything to gain and hold power, has been undermining our political culture for decades.

People tend to forget how much of the 2016 playbook had already been used in earlier years. Remember, the Clinton administration was besieged by constant accusations of corruption, dutifully hyped as major stories by the news media; not one of these alleged scandals turned out to involve any actual wrongdoing. Not incidentally, James Comey, the F.B.I. director whose intervention almost surely swung the election, had previously worked for the Whitewater committee, which spent seven years obsessively investigating a failed land deal.

People also tend to forget just how bad the administration of George W. Bush really was, and not just because it led America to war on false pretenses. There was also an upsurge in cronyism, with many key posts going to people with dubious qualifications but close political and/or business ties to top officials. Indeed, America botched the occupation of Iraq in part thanks to profiteering by politically connected businesses.

The only question now is whether the rot has gone so deep that nothing can stop America’s transformation into Trumpistan. One thing is for sure: It’s destructive as well as foolish to ignore the uncomfortable risk, and simply assume that it will all be O.K. It won’t.

*  *  *

The above is presented with little comment – sometimes it is better to just let the hypocrisy and wilful cognitive dissonance speak for itself. Of course there is the idea that "playing to your audience" is what this oracle of the truth has become but when fake news and feckless fearmongering is now the raison d'etre of this publication (or its leading 'economist'), is it any wonder the popularity of independent news media is rising exponentially?

via http://ift.tt/2hL7fvS Tyler Durden

Just over a year ago, we reported that in what was set to be a pilot experiment in “universal basic income”, Finland would become the first nation to hand out “helicopter money” in the form of cash directly to every citizen.

As of January 1, 2017, the experiment in “basic income” has officially begun, with Finland becoming the first country in Europe to pay its unemployed citizens the guaranteed monthly sum of 560 euros ($587), in a “unique social experiment which is hoped to cut government red tape, reduce poverty and boost employment.” According to Olli Kangas from the Finnish government agency KELA, which is responsible for the country’s social benefits, the two-year trial with the 2,000 randomly picked citizens who starting on the first day of the year, will receive a guaranteed income, with funds that will keep flowing whether participants work or not.

The money, which is guaranteed regardless of income, wealth or employment status, is well below the average private sector income in Finland of €3,500 per month, but is still revolutionary in its broad-sweeping approach and will be closely watched by outside economists for its social consequences.

The idea, at least in theory, is that a universal income offers workers greater security, especially as technological advances reduce the need for human labor. It will also allow unemployed people to pick up odd jobs without losing their benefits. The 2,000 lucky participants in the trial were randomly selected, but had to be receiving unemployment benefits or an income subsidy. The money they are paid through the program will not be taxed.  

According to Kangas, the scheme’s idea is to abolish the “disincentive problem” among the unemployed. Cited by AP, he said that the trial aims to discourage people’s fears “of losing out something”, adding that the selected persons would continue to receive the 560 euros even after receiving a job.

The change could also encourage more jobless people to look for work, because they won’t have to worry about losing unemployment benefits. Some unemployed workers currently avoid part time jobs because even a small income boost could result in their unemployment benefits being canceled.

In the Finnish case, recipients will not need to prove they are looking for work and the money will be given regardless of any other income the person earns.

“Incidental earnings do not reduce the basic income, so working and … self-employment are worthwhile no matter what,” said Marjukka Turunen, the head of the legal unit at Kela, Finland’s social insurance agency.

A jobless person may currently refuse a low-income or short-term job in the fear of having his financial benefits reduced drastically under Finland’s generous but complex social security system.

As a result, the Finnish government is planning to study whether the policy will recipients find work as it suspects many unemployed people are put off getting a job because they will lose unemployment benefits and therefore be worse off financially – a similar problem to that which tax credits were designed to solve in the UK.

“It’s highly interesting to see how it makes people behave,” Kangas said. “Will this lead them to boldly experiment with different kinds of jobs? Or, as some critics claim, make them lazier with the knowledge of getting a basic income without doing anything?”

The unemployment rate of Finland, a nation of 5.5 million, stood at 8.1 percent in November with some 213,000 people without a job, unchanged from the previous year.

The radical scheme in income security is part of the measures by the center-right government of Prime Minister Juha Sipila to tackle Finland’s joblessness problem. Kangas said the basic income experiment may be expanded later to other low-income groups such as freelancers, small-scale entrepreneurs and part-time workers. Ultimately, it could be expanded to include all adult Finns.

Should the Finnish experiment prove successful, it will likely be extended to other developed, and developing, nations as the idea is not unique to Finland.

Advocates point to the Italian city of Livorno, which started a guaranteed basic income for the city’s 100 poorest families in June. The scheme was extended to further 100 families starting Sunday. They are receiving €500 ($525) per month. Pilot programs are also being discussed in Canada, Iceland, Uganda and Brazil.

Last year Switzerland considered giving every adult citizen a guaranteed income of $2,500 per month, but the plan was scrapped in a nationwide referendum when more than 75% of voters were against the measure. According to the IMF and the World Bank, Switzerland is currently the second wealthiest nation in the world on a GDP per capita basis.

However, as CNN notes, the best example of a guaranteed income program might be in the state of Alaska, which has been giving out annual cash payments to all residents since the 1980s, a dividend from the state’s oil revenue.

So, as Finland begins testing out one of Milton Friedman’s favorite ideas, it is worth recalling that Friedman also realized that it wouldn’t work in the 1950s America in which he lived, so instead it became a negative income tax. Also too expensive for the time so, as Forbes notes, it became again the Earned Income Tax Credit instead: the EITC derives from Milton Friedman.

And while economists are curious about the social implications of “universal basic income”, another interesting observation from this experiment will be whether the Laffer Curve is indeed applicable in practice. How so? This is how Forbes’ Tim Worstall summarizes the Finnish experiment in the context of taxonomics:

“What I think will be a much more important lesson is that the Laffer Curve really works. No, stop, it does not mean that all tax cuts pay for themselves. It just means that there are tax rates which, if you lower them, produce more revenue, just as there are other rates which if you raise them they produce more revenue. And one of the mechanisms by which this works is that at higher wages (and wages which attract lower taxes are indeed higher to the recipient) people will work more. This idea is generally thought of as applying only to rich people–I do not, I think that it applies to human beings.

 

Thus I look at the tax and benefit withdrawal rates faced by poor people. And in my native UK it is rather shocking. Income tax kicks in around about and near the levels at which income support is withdrawn. Thus there are millions of people who face marginal tax rates of 60%, some hundreds of thousands of over 80% and tens of thousands of unfortunates of more than 100%. It’s unlikely that people will work more for only 20% of the extra wages, isn’t it?

 

This is what the unconditional part of this trial gets around. You will indeed face a rising tax rate as more is earned. But not the benefit withdrawal rate at the same time meaning that the effective marginal tax rate is lower. Thus I expect more of those on this benefit to work more hours than those on the traditional benefit system. That is, I expect us to be able to prove that high marginal taxation rates are a disincentive to work for the poor just as much as they are for the rich. This is something I believe to be true right now but it would be nice to be able to wave the evidence around.

So while economists will be delighted to watch the outcome of this particular socio-economic experiment, few are as happy at this moment as the formerly unemployed 2,000 very lucky Finnish citizens who going forward will collect an additional €560 per month for at least the next two years, with no strings attached.

Incidentally, for one reason why this experiment is likely doomed to fail, read “The Flaws In “Basic Income for Everyone”

via http://ift.tt/2i3eXPM Tyler Durden

Submitted by Soren Kern via The Gatestone Institute,

Germany's Muslim population surpassed six million in 2016 for the first time ever. Germany now vies with France for the highest Muslim population in Western Europe.

The increase in Germany's Muslim population is being fueled by mass migration. An estimated 300,000 migrants arrived in Germany in 2016, in addition to the more than one million who arrived in 2015. At least 80% (or 800,000 in 2015 and 240,000 in 2016) of the newcomers were Muslim, according to the Central Council of Muslims in Germany.

In addition to the newcomers, the rate of population increase of the Muslim community already living in Germany is around 1.6% per year (or 77,000), according to data extrapolated from a Pew Research Center study on the growth of the Muslim population in Europe.

Based on Pew projections, which were proffered before the current migration crisis, the Muslim population of Germany was to have reached an estimated 5,145,000 by the end of 2015.

Adding the 800,000 Muslim migrants who arrived in Germany in 2015, and the 240,000 who arrived in 2016, combined with the 77,000 natural increase, the Muslim population of Germany jumped by 1,117,000, to reach an estimated 6,262,000 by the end of 2016. This amounts to approximately 7.5% of Germany's overall population of 82 million.

Mass migration from the Muslim world is fast-tracking the Islamization of Germany, as evidenced by the proliferation of no-go zones, Sharia courts, polygamy and child marriages. Mass migration has also been responsible for a host of social disruptions, including jihadist attacks, a migrant rape epidemic, a public health crisis, rising crime and a rush by German citizens to purchase weapons for self-defense — and even to abandon Germany altogether.

What follows is a chronological round-up of some of the key stories about the Islamization of Germany during 2016.

JANUARY 2016

January 1. Mobs of Muslim men of "Arab or North African" origin sexually assaulted hundreds of women in Cologne and other German cities. Cologne Police Chief Wolfgang Albers called it "a completely new dimension of crime." The government and mainstream media were accused of trying to cover up the crimes to avoid fueling anti-immigration sentiment.

January 1. The Minister President of Baden-Württemberg, Winfried Kretschmann, rejected public concerns about the "alleged Islamization" of Germany. "How should Muslims, who represent a minority, Islamize our society?" he asked. Germans feel insecure, he said, because "people are afraid of strangers they do not know."

January 3. Bremen Police Union Chairman Jochen Kopelke said that migrants were attacking city police with increasing frequency: "The tone has become extremely aggressive; sometimes the police must apply massive force to get a situation under control." Bremen Senator Ulrich Mäurer added: "The excesses of violence against police officers show that these people have no respect for our constitutional order and its representatives."

January 4. A leaked police report revealed chaos "beyond description" in Cologne on New Year's Eve. Women were forced to "run a gauntlet" of drunken men of a "migrant background" to enter and exit the central train station. Police officers were unable to re-establish order. One migrant reprimanded a police officer: "I am Syrian; you have to treat me kindly! Mrs. Merkel invited me."

January 6. Former Interior Minister Hans-Peter Friedrich said it was "scandalous that it took the mainstream media several days" to report on the sexual assaults in Cologne. He said public media was a "cartel of silence" exercising censorship to protect migrants from accusations of wrongdoing.

January 9. Development Minister Gerd Müller warned that the biggest refugee movements to Europe are still to come. He said that only 10% of the migrants from the chaos in Iraq and Syria have reached Europe so far: "Eight to ten million migrants are still on the way."

January 9. A vigilante group began patrolling the streets of Düsseldorf to "make the city safer for our women." Similar groups emerged in Cologne and Stuttgart.

January 12. Frank Oesterhelweg, a politician with the ruling Christian Democrats (CDU), caused a scandal when he said that police should be authorized to use deadly force to prevent migrants from raping German women. Bild reported that many German police officers are afraid of using lethal force "because of the legal consequences."

January 17. Berlin clergyman Gottfried Martens accused German politicians and church leaders of ignoring the persecution of Christians by Muslims in German refugee shelters. He said that the Christians were facing "verbal threats, threats with knives, blows to the face, ripped crucifixes, torn Bibles, insults of being an infidel, and denial of access to the kitchen."

January 18. A 24-year-old migrant from Sudan was released after being held for questioning at a police station in Hanover. After crossing the street, the man, who receives 300 euros ($335) a month in social welfare benefits, dropped his pants, exposed himself in public and shouted, "Who are you? You cannot do anything to me. Whatever I cannot get from the state, I will steal."

January 20. Migrants invaded female changing rooms and showers at public swimming pools in Leipzig. City officials tried to keep the incidents quiet, but details were leaked to the media.

January 21. More than 200 migrants sued the German government for delays in processing their asylum applications.

January 26. In an interview with Deutschlandfunk public radio, retired public media personality Wolfgang Herles admitted that public broadcasters receive "instructions from above" when it comes to reporting the news:

"We have the problem that we are too close to the government. The topics we cover are determined by the government. But many of the topics the government wants to prevent us from reporting about are more important than the topics they want us to cover…

"We must report in such a way that serves Europe and the common good, as it pleases Mrs. Merkel. There are written instructions … today we are not allowed to say anything negative about the refugees. This is government journalism, and this leads to a situation in which the public loses their trust in us. This is scandalous."

January 28. Politicians in Kiel ordered city police to overlook crimes perpetrated by migrants. Police in North Rhine-Westphalia and Lower Saxony were also instructed to be lenient to criminal migrants.

January 28. A migrant from Sudan sexually assaulted a female police officer in Hanover as she was attempting to arrest him for theft. "Such brazen behavior towards a police officer has been unheard of until now," said public prosecutor Thomas Klinge.

January 28. Berlin's Tempelhof airport, the iconic site of the Berlin Airlift in 1948-49, became the biggest refugee shelter in Germany. Opposition politicians said the government was creating an "immigrant ghetto" in the heart of Berlin.

January 30. A gang of Afghan migrants on a Munich subway attacked two elderly men who tried to stop them from groping a woman. Although they had been denied asylum in Germany four years earlier, they were not deported because Afghanistan is "too dangerous."

January 31. ISIS sympathizers defaced more than 40 gravestones at a cemetery in Konstanz with slogans such as, "Germans out of Syria," "Christ is Dead" and "Islamic State."

The words "I HATE GERMANS" are spray-painted on a gravestone, one of more than 40 vandalized by Islamic State sympathizers at a cemetery in Konstanz, Germany. (Image source: Silvan500 video screenshot)

January 31. In an effort to silence critics of the government's open door migration policy, Vice Chancellor Sigmar Gabriel called on German intelligence to begin monitoring the Alternative for Germany (AfD), the third-largest party in Germany. The AfD is surging in popularity because of its anti-immigration platform.

FEBRUARY 2016

February 2. A total of 91,671 migrants — an average of around 3,000 migrants each day — entered Germany during the month of January 2016.

February 4. German police arrested four members of a cell allegedly planning jihadist attacks in Berlin. The ringleader — a 35-year-old Algerian who was staying at a refugee shelter in Attendorn with his wife and two children — arrived in Germany posing as an asylum seeker from Syria. He reportedly received military training from the Islamic State.

February 5. Hans-Georg Maassen, the head of Germany's BfV domestic intelligence agency, revealed that more than 100 Islamic State fighters may be living in Germany as refugees, some of whom are known to have entered the country with fake or stolen passports.

February 8. German police arrested an alleged ISIS commander who was living at a refugee shelter in Sankt Johann. The 32-year-old jihadist, posing as a Syrian asylum seeker, entered Germany in the fall of 2015.

February 16. Migrants committed 208,344 crimes in 2015, according to a leaked police report. This figure represented an 80% increase over 2014 and worked out to around 570 crimes committed by migrants every day, or 23 crimes each hour, between January and December 2015.

The actual number of migrant crimes is far higher, however, because the report included only crimes that have been solved (aufgeklärten Straftaten). Statistics show that only around half of all crimes committed in Germany in any given year are solved (Aufklärungsquote). This implies that the actual number of crimes committed by migrants in 2015 exceeded 400,000.

February 16. Police raided the homes of 44 Salafists in Bremen. "It is rather apocalyptic that we have people living in the middle of our city who are prepared, from one day to the next, to participate massively in the terror of the Islamic State," said Bremen Interior Minister Ulrich Mäurer.

February 25. Afghan asylum seekers assaulted three girls at the Sophienhof shopping mall in Kiel. After posting photographs of the girls on social media, the two men were joined by at least 30 other migrants who began to harass the girls. When police arrived, the migrants verbally and physically abused the officers. Only two of the perpetrators were apprehended.

February 26. A 15-year-old German girl of Moroccan descent stabbed and wounded a police officer at the central train station in Hanover. The stabbing was the first Islamic State-inspired terrorist attack in Germany. "The perpetrator did not display any emotion," police said. "Her only concern was for her headscarf. Whether the police officer survived, she did not care."

February 29. German authorities admitted they lost track of some 130,000 migrants who entered the country in 2015. The admission was in response to a parliamentary question from the opposition Left Party. The revelation raised concerns that unaccounted migrants could include jihadists who entered the country posing as refugees.

MARCH 2016

March 1. The Schleswig-Holstein branch of Chancellor Angela Merkel's CDU announced plans to ensure that pork continues to be available at public canteens, child daycare centers and schools across the north German state. CDU politician Daniel Günther complained that canteens, nurseries and schools are removing pork from their menu in order not to offend Muslims. "The consumption of pork belongs to our culture," he said. "No one should be obliged to do so. But we also don't want the majority having to refrain from pork."

March 3. The Arriba water park in Norderstedt, one of the largest such parks in Germany, announced that males and females would be segregated after two Afghan migrants raped a 14-year-old girl at the facility.

March 4. A court in Düsseldorf sentenced Nils Donath, a 25-year-old German national, to four-and-a-half years in prison for joining the Islamic State. The court heard how Donath, a convert to Islam, received weapons training and learned how to build bombs — and how he volunteered to carry out jihadist attacks in Europe.

March 7. Police in Cologne arrested a 25-year-old German national, Shahid Ilgar Oclu S, on charges of being a member of the Islamic State.

March 24. Following a wave of sexual assaults by migrants, the Mitteldeutsche Regiobahn, a railway in central Germany, announced plans to install women-only compartments.

March 31. The German Ministry for Families designated €200 million to fight the sexual abuse of women and children in refugee shelters.

APRIL 2016

April 3. Two migrants from Afghanistan were arrested for forcing a 14-year-old boy to perform sex acts on them at a public swimming pool in Delbrück.

April 10. A 26-year-old Syrian migrant admitted to setting fire to a migrant shelter in Bingen. He also admitted to painting swastikas outside the building in order to make it look as though the fire was set by anti-immigration protesters.

April 11. Hans-Georg Maassen, the head of Germany's BfV domestic intelligence agency, expressed alarm at the growing number of radical mosques in Germany. "Many mosques are dominated by fundamentalists and are being monitored because of their Salafist orientation," Maassen said. Many of the mosques are being financed by Saudi Arabia.

April 13. Andreas Scheuer, the General Secretary of the Christian Social Union (CSU), the Bavarian sister party to Angela Merkel's CDU, called for an "Islam law" that would limit the influence of foreign imams and prohibit the foreign financing of mosques. His comments came amid reports that the Turkish government has sent 970 clerics — most of whom do not speak German — to lead 900 mosques in Germany that are controlled by the Turkish-Islamic Union for Religious Affairs (DITIB), a branch of the Turkish government's Directorate for Religious Affairs, known in Turkish as Diyanet. Critics accuse Turkish President Recep Tayyip Erdogan of using DITIB mosques to prevent Turkish migrants from integrating into German society.

April 14. Angela Merkel and her coalition partners reached a compromise deal on a new "Integration Law" to spell out the rights and responsibilities of migrants in Germany: asylum seekers must attend German language classes and integration training or have their benefits cut. Critics said the law does not go far enough because it does not threaten with deportation those migrants who refuse to integrate.

April 14. Angela Merkel acquiesced to a demand by Turkish President Recep Tayyip Erdogan that German comedian Jan Böhmermann be criminally prosecuted for reciting a poem that lampooned Erdogan. She was accused of pandering to Erdogan's autocratic government.

April 15. A 13-year-old German boy of Iraqi descent was arrested in Turkey after he attempted to join the Islamic State. Police said the boy, originally from Munich, was going to Syria to obtain combat training in order to return to Bavaria to carry out attacks there.

April 24. The Roman Catholic Cardinal of Cologne, Rainer Maria Woelki, ridiculed the Alternative for Germany (AfD) for saying that Islam is incompatible with the German constitution. "Whoever says 'yes' to church towers must also say 'yes' to minarets."

MAY 2016

May 1. The anti-immigration Alternative for Germany (AfD) adopted a manifesto calling for curbs to migration and restrictions on Islam. The document called for a ban on minarets, Muslim calls to prayer and full-face veils.

May 2. Hans-Georg Maassen, the German spy chief, revealed that around 90 "predominately Arabic-speaking" mosques in Germany are under surveillance. He said they involve mostly "backyard mosques" where "self-proclaimed imams and self-proclaimed emirs" are "inciting their followers to jihad."

May 2. A Cologne police superintendent revealed that he was ordered to remove the term "rape" from an internal police report about the mass sexual assaults in Cologne on New Year's Eve. He said that an official at the North-Rhine Westphalia Interior Ministry told him: "This is not rape. Remove this term from your report. Submit a new report." The revelation added to suspicions of a political cover-up to avoid fueling anti-immigration sentiments.

May 3. A 20-year-old Afghan migrant sexually assaulted a six-year-old boy in the changing room of a sports hall in Munich. Police said the same migrant had sexually assaulted an 11-year-old girl at a public swimming pool in 2013.

May 5. An INSA poll found that 60% of the Germans surveyed believe that Islam does not belong to Germany. Nearly half (46%) of those surveyed said they are worried about the "Islamization" of Germany.

May 9. The German branch of Open Doors, a non-governmental organization supporting persecuted Christians, reported that thousands of Christians in German refugee shelters are being persecuted by Muslims, sometimes even by their security guards. The report, which asserts that in most cases German authorities have done nothing to protect the victims, alleges that German authorities and police have deliberately downplayed and even covered up the "taboo issue" of Muslim attacks on Christian refugees, apparently to avoid fueling anti-immigration sentiments.

May 10. A German man shouting "Allahu Akbar" ("Allah is the Greatest") and "infidels must die" stabbed one person to death and slashed three others in an early morning attack at a train station near Munich.

May 11. Turkish-born Muhterem Aras, 50, became the first Muslim woman to be elected as speaker of the state parliament in Baden-Württemberg. Her election was hailed as a Muslim integration success story. Aras has been a proponent of allowing migrants without German citizenship to vote in local elections.

May 12. An appeals court in Bamberg recognized the marriage of a 15-year-old Syrian girl to her 21-year-old cousin. The court ruled that the marriage was valid because it was contracted in Syria, where such marriages are allowed according to Islamic Sharia law. The ruling effectively legalized Sharia child marriages in Germany.

May 14. A Finance Ministry document revealed that the migrant crisis could end up costing German taxpayers €93.6 billion ($105 billion) between now and 2020. About €25.7 billion would be for social spending, such as unemployment benefits and housing support. About €5.7 billion would be destined for language courses and €4.6 billion for integrating refugees into the workforce.

May 15. Nearly a dozen women between the ages of 16 and 48 reported being sexually assaulted by male migrants at a music festival in the Kreuzberg district of Berlin. The attacks at the Carnival of Cultures, where groups of men encircled the women and assaulted and robbed them, were similar to those in Cologne and other German cities on New Year's Eve.

May 16. Beatrix von Storch, the deputy leader of the Alternative for Germany (AfD), called on Germany's main Islamic associations to "explicitly distance" themselves from Islamic sharia law, something they have so far refused to do. She said the AfD was not opposed to Muslims but to political Islam, which she said contradicts the German constitution.

May 18. Migrants sexually assaulted female passersby at the Boulevard Berlin shopping mall in the Steglitz district of the capital. At least 35 teenage migrants were loitering at the mall, in part because of free access to the internet. When security guards asked them to leave the premises, the youths called for back-up and soon dozens more migrants arrived to harass the guards.

May 22. A doctor in Cologne was sued for discrimination after he declined to treat a Muslim woman who refused to shake his hand. The woman said she could not shake the doctor's hand on religious grounds. The doctor noted that the Koran does not prohibit handshakes.

May 23. A 23-year-old Iraqi asylum seeker wearing a T-shirt with the words "I'm Muslim Don't Panic" was assaulted by fellow refugees for offending Islam. He was beaten so badly that he was hospitalized.

May 23. Bavarian Interior Minister Joachim Herrmann announced a plan to recruit migrants to the police force — regardless of whether they have acquired German citizenship. He said he hoped the initiative would create a "more direct line" to people with an immigrant background by hiring those who understand their mentality.

May 26. Increasing numbers of Germans are relocating to Hungary because of Chancellor Angela Merkel's open door migration policy, according to the newsmagazine, Focus.

May 27. The head of the Protestant Church in Germany, Heinrich Bedford-Strohm, called for Islam to be taught in all German public schools as a way to prevent young Muslims from becoming radicalized. "Tolerance, freedom of religion and freedom of conscience should apply to all religions," he said. "These principles can be best taught if religion is part of the state's educational mission."

May 27. A Protestant church in Hamburg held a funeral service for a convert to Islam who was killed in Syria while fighting for the Islamic State. The funeral at the St. Pauli church was for a teenager who was born in Cameroon and raised as a Christian in Hamburg. When he was 14 he converted to Islam, became radicalized and joined the German Salafist movement. He left for Syria on a false passport. Pastor Sieghard Wilm, who organized the "interfaith" funeral, said the church should be a "place of learning for the respect of other religions."

May 29. Green party politician Stefanie von Berg called for new mosques to be built in every district of Hamburg so that the city's burgeoning Muslim population has enough space to pray. She said the construction of new mosques is necessary to integrate the Muslim community. The Heinrich Böll Foundation, a think tank linked to the Green party, estimates that there are more than 150,000 Muslims in Hamburg, the second-largest city in Germany, but fewer than 50 mosques.

May 31. Male migrants sexually assaulted at least 18 women at an outdoor festival in Darmstadt. The attacks at the Schlossgrabenfest, in which large numbers of men surrounded women and sexually assaulted them, were similar to those that occurred in Cologne on New Year's Eve.

May 31. The Dalai Lama said that Germany has accepted "too many" migrants and that they should eventually be returned to help rebuild their home countries. "Germany cannot become an Arab country," he said in an interview with the Frankfurter Allgemeine Zeitung. "Germany is Germany."

JUNE 2016

June 2. A new statistical survey of Germany showed that ethnic Turks are economically and educationally less successful than other immigrant groups. The report, produced by Destatis, Germany's official statistics agency, showed that more than one-third (36%) of ethnic Turks live below the poverty line. Only 60% complete secondary school (Hauptschulabschluss), while less than 10% of ethnic Turks between the ages of 17 and 45 earn a Bachelor's degree. Education is a determinative factor for successful integration, the report said.

June 2. Three Syrian jihadists were arrested for plotting a jihadist attack in Düsseldorf. A fourth individual was arrested in France. The plan involved two suicide bombers who would blow themselves up along the Heinrich-Heine-Allee, a busy street in the city center. Subsequently, other assassins would kill as many passers-by as possible with guns and bombs.

June 3. The head of the German police union, Rainer Wendt, said that budget cuts in the public sector made it impossible to vet all of the migrants coming into Germany. He was responding to demands that all migrants undergo immediate security checks.

June 12. Vice Chancellor Sigmar Gabriel compared members of the anti-Islam Alternative for Germany (AfD), the third-largest party in Germany, to the Nazis.

June 13. Half of the three million ethnic Turks living in Germany believe it is more important to follow Islamic Sharia law than German law if the two are in conflict, according to a survey. One-third also yearn for German society to "return" to the way it was during the time of Mohammed, the founder of Islam, in the Arabia of the early seventh century. The survey — which polled Turks who have been living in Germany for many years, often decades — refuted claims by German authorities that Muslims are well integrated into German society.

June 25. Police discovered a huge stockpile of military-grade weapons in a grocery store near a mosque in Cologne. "The danger posed by fundamentalist Salafists who are arming themselves to use violence in Germany is very great," said local politician Ismail Tipi. "This secret raid makes this more than clear."

June 30. A court in Ahrensburg found a 17-year-old migrant from Eritrea guilty of attempting to rape an 18-year-old woman at the Bad Oldesloe train station. After police arrived, the migrant resisted arrest and head-butted a police officer, who was hospitalized. The court gave the man a seven-month suspended sentence.

JULY 2016

July 1. A court in Bavaria ruled that a law that prohibits Muslim legal trainees from wearing headscarves is illegal.

July 3. A 24-year-old woman, raped by three migrants in Mannheim in January, admitted to lying about the identity of her attackers. Selin Gören, a Turkish-German woman, initially said that her attackers were German nationals, when in fact they were Muslim migrants. Gören said she lied because she was afraid of fueling racism against migrants.

July 4. The 30 biggest German companies have employed only 54 refugees, including 50 who have been hired as couriers by Deutsche Post, the logistics provider. The data cast doubt on Angela Merkel's promise to integrate asylum seekers into the German labor market as quickly as possible. Company executives say the main problem is that migrants lack professional qualifications and German language skills.

July 7. The German parliament approved changes to the criminal code to expand the definition of rape. Also known as the "No Means No" ("Nein heißt Nein") law, any form of non-consensual sex will now be punishable as a crime. Previously, only cases in which victims could show that they physically resisted their attackers were punishable under German law. The changes, which were prompted by the sex attacks in Cologne, were hailed as a "paradigm shift" in German jurisprudence.

July 7. More than six months after the Cologne attacks, a German court issued the first two convictions: The District Court of Cologne gave a 20-year-old Iraqi and a 26-year-old Algerian a one-year suspended sentence and then released the two men. Observers said the light sentences were a mockery of justice.

July 10. A Federal Criminal Police Agency (BKA) inquiry into the sex attacks in Cologne, Hamburg, Stuttgart, Düsseldorf and other German cities on New Year's Eve found that more than 1,200 women were victims of attacks, which were perpetrated by more than 2,000 men, most of whom are believed to be from North Africa. BKA President Holger Münch said: "There is a relationship between the attacks and the strong wave of migration in 2015."

July 13. The Platanus-Schule, a private bilingual school in Berlin, apologized to a Muslim imam after a teacher at the school called him "misogynistic" and "ill-adapted to German life" because he refused to shake her hand. Critics accused the school of endangering the principle of gender equality in Germany. The imam's lawyer said the apology was insufficient.

July 14. Ruprecht Polenz, a former secretary general of the ruling Christian Democratic Union (CDU), said that the German law which regulates name changes (Namensrecht) should be amended to make it easier for Muslim migrants in Germany who feel discriminated against to change their legal names to Christian-sounding ones.

July 15. At least 24 women were sexually assaulted at a music festival in Bremen. The attacks were similar to the attacks in Cologne on New Year's Eve. Police were able to identify only five perpetrators, all of whom are migrants from Afghanistan.

July 16. A document leaked to Der Spiegel revealed that more than 33,000 migrants who are supposed to be deported are still in Germany and are being cared for by German taxpayers. Many of the migrants destroyed their passports and are believed to have lied about their countries of origin to make it impossible for them to be deported.

July 17. An investigative report by Bavarian Radio BR24 found that deradicalization programs in Germany are failing because many Salafists do not want to become deradicalized.

July 19. A 17-year-old Afghan asylum seeker brandishing an axe and shouting "Allahu Akbar" seriously injured five people on a train in Würzburg. The assailant was shot dead by police after he charged at them with the axe. The teenager had been placed with a foster family just two weeks before the attack as a reward for being "well integrated." Green Party MP Renate Künast criticized the police for using lethal force.

July 19. The managers of a German Red Cross refugee shelter in Potsdam were accused of covering up the sexual abuse of women at the facility.

July 20. The Federal Labor Office reported that the educational level of newly arrived migrants in Germany is far lower than expected: only a quarter have a high school diploma, while three quarters have no vocational training at all. Only 4% of new arrivals to Germany are highly qualified.

July 22. Ali Sonboly, an 18-year-old Iranian-German who harbored hatred for Arabs and Turks, killed ten people (including himself) and wounded 35 others at a McDonald's in Munich.

July 23. A mob of men shouting "Allahu Akbar" barged into a nudist beach in Xanten and "insulted and threatened" the beachgoers. Police kept the incident hidden, apparently to avoid negative media coverage of Muslims "in these sensitive times."

July 24. Mohammed Daleel, a 27-year-old migrant from Syria whose asylum application was rejected, injured 15 people when he blew himself up at a concert in Ansbach. The suicide bombing was the first in Germany attributed to the Islamic State.

July 24. A 21-year-old Syrian asylum-seeker murdered a 45-year-old Polish woman and her unborn baby in a machete attack in Reutlingen.

July 24. A 40-year-old migrant from Eritrea raped a 79-year-old woman in a cemetery in Ibbenbüren. The woman, who lives in a local nursing home, was visiting the grave of her late sister at 6AM when the attack occurred.

July 25. A 45-year-old Palestinian brandishing a "Rambo knife" and shouting "Allahu Akbar" tried to behead a doctor in Bonn. The attacker's 19-year-old son had complained about the doctor's treatment for a fractured leg. The man, holding the doctor down on the floor, said: "Apologize to my son. Go down on your knees and kiss his hand."

July 25. Frank Henkel, a CDU Senator from Berlin, said: "No one should delude themselves: We obviously have imported some brutal people who are capable of committing barbaric crimes in our country. We have to say this clearly and without taboos. This also means that we must deal aggressively with Islamism. If we do not, we risk that German politics will be perceived as being detached from reality."

July 25. Interior Minister Thomas de Maizière revealed that German authorities are currently investigating 59 refugees because of the "suspicion that they are involved in terrorist structures."

July 27. Police in Ludwigsburg arrested a 15-year-old who they said was planning a mass-shooting. Police found more than 300 rounds of ammunition, as well as knives, chemicals and bullet-proof vests, during a search of the teenager's home.

July 28. Angela Merkel insisted there would be no change to her open-door migration stance: "We decided to fulfill our humanitarian tasks. Refusing humanitarian support would be something I would not want to do and I would not recommend this to Germany…. Anxiety and fear cannot guide our political decisions."

July 29. Thomas Jahn, the vice chairman of the Christian Social Union (CSU), lambasted Angela Merkel's open-door migration policy: "We need to control our borders. That is the most important thing at the moment. And we need to send the dangerous people with Islamist ideology back to the countries outside Europe and the European Union."

July 30. CSU politician Jens Spahn called for a burqa ban: "A ban on the full body veil — that is the niqab and the burqa — is overdue… I do not want to have to encounter any burqa in this country. In that sense, I am a burqaphobe."

AUGUST 2016

August 2. Amid fears of Islamic terrorism, German officials raised the possibility of deploying the military within German borders for the first time since World War II.

August 11. Muslim patrols enforcing Sharia law were seen operating in the Wandsbek and Dammtor district of Hamburg.

August 16. Asylum seekers in Lower Saxony refused to accept job offers because they were "guests of Angela Merkel."

August 19. Interior Minister Thomas de Maizière called for a partial ban on full-face veils in public. "We unanimously reject the burqa," de Maizière said. "It does not fit in our open country." North Rhine-Westphalia Interior Minister Ralf Jäger, said a burqa ban was misguided because it would require a ban on all religious garb: "Whoever forbids burqas, must also forbid people disguised as Saint Nicholas."

August 25. Police in Hamburg launched a crackdown on purse-snatchers. More than 20,000 purses—roughly 55 a day—are stolen in the city each year. According to police, 90% of the purses are stolen by young males from North Africa or the Balkans.

August 28. A 26-year-old German national shouting Allahu Akhbar stabbed a 66-year-old woman and a 57-year-old man who were picnicking in Oberhausen.

August 28. Angela Merkel urged people of Turkish origin living in Germany not to bring their conflicts to Germany.

SEPTEMBER 2016

September 3. Only 2,500 people attended a mass rally in Berlin to protest the Alternative for Germany (AfD). The organizers of the rally, including members of the Green Party, and the Left Party, had expected around 10,000 demonstrators to show up.

September 3. The Vice Chairman of the DPolG German Police Union in Hamburg, Freddi Lohse, said that many migrant offenders view the leniency of the German justice system as a green light to continue delinquent behavior. "They are used to tougher consequences in their home countries," he said. "They have no respect for us."

September 4. Angela Merkel suffered a major blow when the Alternative for Germany (AfD) surged ahead of her Christian Democratic Union (CDU) in elections in her home state of Mecklenburg-West Pomerania. With 20.8% of the vote, the AfD came in second place behind the center-left Social Democrats (SPD) (30.6%). Merkel's CDU came in third place, with 19% of the vote, the worst result it has ever had in Meck-Pomm, as the state is called for short. The election in Meck-Pomm was widely seen as a referendum on Merkel's open-door migration policy.

September 6. Migrants committed 142,500 crimes during the first six months of 2016, according to a report by the Federal Criminal Police Office (Bundeskriminalamt, BKA). This is equivalent to 780 crimes committed by migrants every day, or 32.5 crimes each hour, an increase of nearly 40% over 2015. The data includes only those crimes in which a migrant suspect has been caught.

September 7. The Kiel Institute for the World Economy (IfW) calculated that Germany will spend some €20 billion on refugees in 2016. "Particularly large portions of the expenditure involve … the initial provision of accommodation or health care services, as well as services such as the renting of accommodations," IfW said.

September 9. The German Interior Ministry, responding to a Freedom of Information Act request, revealed that 1,475 married children are known to be living in Germany as of July 31, 2016 — including 361 children under the age of 14. Most of the married children are from Syria (664), Afghanistan (157) and Iraq (100). Nearly 80% (1,152) are girls. The true number of child marriages in Germany is believed to be much higher than the official statistics suggest because many are being concealed.

September 13. Muslim fashion shops in Germany are serving as stepping stones to Islamic extremism, according to Germany's ARD public broadcaster. They are "competing" with Western socialization by helping women adopt an orthodox Islamic way of life, eventually assimilating them into Salafism and subsequently, extremist Islam.

September 13. Three Syrian jihadists were arrested in Schleswig-Holstein. They were believed to be members of an Islamic State sleeper cell waiting for further instructions to carry out attacks in Germany.

September 17. Bavarian Interior Minister Joachim Herrmann accused the Federal Office for Migration and Refugees (BAMF) of failing to root out potentially tens of thousands of fake passports. Many migrants entering Europe as Syrians are, in fact, from another country of origin. Almost 40% of all Moroccans who entered Greece falsely represented themselves as Syrians, according to one study.

September 23. A new poll showed that support for the Alternative for Germany (AfD) surged to 16%, its best result ever, and more than three times the 5% needed to win seats in the parliament. According to the poll, Angela Merkel's CDU is at 32%, while the Social Democrats, the junior partner in the ruling coalition, would get 22%. Together they would have 54%, enough for the ruling coalition to continue.

September 30. A 28-year-old migrant sexually assaulted a 27-year-old woman on a train. German media initially reported the nationality of the perpetrator but then deleted the information. "This article initially included the nationality of the offender," a statement said. "The reference was subsequently removed because it did not correspond to our editorial guidelines — that is, there is no connection between nationality and action."

OCTOBER 2016

October 1. Two migrants raped a 23-year-old woman in Lüneburg as she was walking in a park with her young child. The men, who remain at large, forced the child to watch while they took turns assaulting the woman.

October 2. A 19-year-old migrant raped a 90-year-old woman as she was leaving a church in downtown Düsseldorf. Police initially described the suspect as "a Southern European with North African roots." It later emerged that the man is a Moroccan with a Spanish passport.

October 2. Finance Minister Wolfgang Schäuble called for the development of a "German Islam" to help integrate Muslims in the country.

October 4. The 2016 Munich Oktoberfest recorded its lowest turnout since 2001. Visitors reportedly stayed away due to concerns about terrorism and migrant-related sexual assaults.

October 17. The German Press Council reprimanded the weekly newspaper, Junge Freiheit, for revealing the nationality of three Afghan teenagers who raped a woman at a train station in Vienna, Austria. The press council said the nationality of the perpetrators is "not relevant" to the case. By revealing this information, the newspaper "deliberately and pejoratively represented the suspects as second-class persons."

October 24. A YouGov poll found that 68% of Germans believe that security in the country has deteriorated due to mass migration. Nearly 70% of respondents said they fear for their lives and property in German train stations and subways, while 63% feel unsafe at large public events.

October 24. Serbian teenagers in Hamburg were allowed to walk free after gang-raping a 14-year-old girl and leaving her for dead in sub-zero temperatures. The judge said that although "the penalties may seem mild to the public," the teens no longer posed a danger to society.

October 27. Public prosecutors charged Shaas Al-M, a 19-year-old Syrian jihadist who arrived in Germany posing as a refugee, with plotting to bomb popular tourist sites in Berlin, including the Brandenburg Gate and the Reichstag, for the Islamic State.

NOVEMBER 2016

November 3. Five Somali migrants went on a rampage after the owner of a pub in Wabern asked them to pay for the alcohol they had consumed. "We are Somalis, we don't pay," the men said before smashing up the establishment.

November 11. The Military Intelligence Service (Militärische Abschirmdienst, MAD) reported that more than 20 Islamists are serving in the German armed forces, and another 60 service members are suspected of being Islamists. Some 30 veterans are known to have gone to fight in Syria and Iraq. The report raised concerns that Islamists are joining the German armed forces in order to obtain combat training.

November 15. Interior Minister Thomas de Maizière banned the Salafist group, "The True Religion" (Die wahre Religion), for being unconstitutional. The group is behind a mass proselytization campaign — Project "Read!" — aimed at distributing 25 million copies of the Koran, translated into the German language, with the goal of placing one Koran into every home in Germany, free of charge. De Maizière said the campaign amounted to a "systematic infringement of our fundamental values."

November 18. Public prosecutors charged two North African migrants for setting fire to a migrant shelter in Düsseldorf. The arson attack, which injured 26 people and caused more than 10 million euros in damage, was reportedly triggered by a dispute over food. The two men were angry because they felt there were not enough sweets offered at a buffet lunch.

November 20. A 38-year-old German-Kurdish man in Lower Saxony tied his ex-wife to his car and dragged her through the streets of Hameln. The crime drew attention to the problem of Sharia justice in Germany.

November 21. The Wuppertal District Court ruled that seven Islamists who formed a vigilante patrol to enforce Sharia law on the streets of Wuppertal did not break German law and were simply exercising their right to free speech.

November 23. Bild, the largest-circulation newspaper in Germany, warned that the country was "capitulating to Islamic law."

November 27. German radio broadcaster Deutschlandradio Kultur reported that Muslim migrants enrolled in German schools are bullying their Christian counterparts. In some cases, the persecution is so great that Christian parents have moved their children to other schools.

November 29. A German intelligence officer confessed to plotting to bomb the Cologne-based headquarters of the domestic intelligence agency, the BfV. The 51-year-old convert to Islam was tasked with monitoring the German Salafist scene.

DECEMBER 2016

December 3. A 17-year-old Afghan migrant was arrested for raping and murdering a 19-year-old medical student in Freiburg. Police said she may have met her killer at the asylum shelter where she was a volunteer. Freiburg Mayor Dieter Salomon warned against making generalizations about migrants because this crime was an "isolated case."

December 6. Eyeing reelection, Angela Merkel called for a burka ban: "The full veil is not appropriate here and it should be forbidden wherever that is legally possible." In September, Merkel said she was opposed to a burka ban because it would violate "religious freedom."

December 8. The Constitutional Court in Karlsruhe, Germany's highest court, ruled that Muslim girls must take part in mixed swimming classes at school, finding against an 11-year-old pupil who had argued that even wearing a burkini, or full-body swimsuit, breached Islamic dress codes. The court rejected an appeal by the girl's parents that she should be excused from the classes because a burkini did not conform to the Islamic standard of decency.

December 13. The trial began of a 45-year-old Iraqi migrant accused of sexually assaulting a 12-year-old boy 68 times at a refugee shelter in Spandau, Berlin. The perpetrator said his actions were the result of a "love affair."

December 14. A judge in Oldenburg ruled that a 19-year-old Afghan migrant who groped two women at a festival in Bad Zwischenahn was not guilty of sexual assault. "It is quite conceivable that the young man wanted to communicate his interest for the women in this way," the judge said.

December 16. A 12-year-old German boy of Iraqi descent tried to detonate a nail bomb at a Christmas market in Ludwigshafen.

December 19. At least 12 people were killed and dozens injured after a truck rammed into a Christmas market in Berlin. The main suspect in the attack was Anis Amri, a 23-year-old migrant from Tunisia who arrived in Germany in July 2015 and applied for asylum in April 2016. Although Amri's application for asylum had been rejected in July 2016, he was not deported because he did not have a valid passport.

December 20. Frauke Petry, the chairwoman of the Alternative for Germany, said Angela Merkel bears responsibility for the attack on the Berlin Christmas market:

"The milieu in which such acts can flourish has been negligently and systematically imported over the past year and a half. Our borders, which were so irresponsibly opened, must once again be controlled. Germany is no longer safe."

December 22. Bild reported that the head of the judicial authority in Hamburg, Till Steffen, refused to allow police to release pictures of the Berlin terror suspect, Anis Amri, for more than 12 hours after the attack because he feared that sharing the images would incite racial hatred.

December 22. Underage migrants at a refugee shelter in Freising were watching Islamic State propaganda videos, creating jihadist flags and posing with the insignia of the terrorist organization in front of the camera. "Watching IS-videos or crafting an IS-flag may indicate that a radicalization process is at an advanced stage," German authorities said.

December 27. Police arrested seven migrants from Syria and Libya on charges of setting a homeless man on fire on Christmas Eve at the Schönleinstraße subway station in Berlin. Video footage captured them laughing as the man was burning on the platform. Police said all seven of the perpetrators, the youngest of whom is 15, arrived in Berlin as refugees.

December 31. Police in Cologne — who were tasked with avoiding a repeat of the mass sexual assaults that occurred in the city on New Year's Eve in 2015 — were accused of racial profiling when they questioned more than 600 migrants from North Africa.

via http://ift.tt/2iXrVyk Tyler Durden

What is Janet Yellen thinking?

The Yellen Fed raised interest rates again in December 2016.

More than this, Yellen has promised the Fed will be raising rates THREE times in 2017.

This is astounding when you consider that the Fed is promising this at a time when the $USD is at a 13-year high.

Janet Yellen is playing a very dangerous game here. There is simply no logical explanation for what she’s doing here It’s madness.

A strong $USD hurts:

1)   Corporate profits (47% of corporate sales from abroad).

2)   GDP growth.

3)   Bonds (debt deflation).

4)    Mortgages and home refinancing.

5)   US manufacturing.

And more.

Indeed, there are few if any benefits to a strong $USD in the current fiat, debt-based monetary system the Fed is managing. Pushing for three rate hikes with the $USD at 102 is like pushing your friend to drink three more beers when he’s already got alcohol poisoning.

Moreover, the Fed tried this whole “we’re going to raise rates 3-4 times in the next 12 months” scheme just one year ago. That triggered a 10% drop in stocks in just two weeks’ time.

My point is this… a strong $USD does NOTHING good for the economy, nor for the corporate sector. And it’s not like the Fed can claim ignorance of this as we went through the exact same situation this time last year!

Finally, there is the $USD denominated debt to worry about.

Globally there are over $52 TRILLION in $USD-denominated debt sloshing around. This is an amount equal to nearly 70% of GLOBAL GDP.

ALL OF THIS IS AT RISK WITH THE $USD SURGING HIGHER.

Another Crisis is brewing… the time to prepare is now.

If you've yet to take action to prepare for this, we offer a FREE investment report called the Prepare and Profit From the Next Financial Crisis that outlines simple, easy to follow strategies you can use to not only protect your portfolio from it, but actually produce profits.

We made 1,000 copies available for FREE the general public.

To pick up yours, swing by….

http://ift.tt/2ePZt1g

Best Regards

Graham Summers

Chief Market Strategist

Phoenix Capital Research

 

via http://ift.tt/2iXlaN5 Phoenix Capital Research

With 2016 still fresh in most investors’ minds, and questions about 2017 pressing, here is a summary, courtesy of Goldman’s Allison Nathan, of where Goldman believes we closed out 2016, what is in store in the coming year, and ultimately, “what keeps Goldman up at night” about 2017.

2016, and a peek at 2017

2016 was chock-full of surprises, both in markets and in politics. Ironically, though, 9 of the 12 themes we thought *might* be Top of Mind in 2016 effectively made it into our reports this year (our highest batting average yet!). We continue our year-end tradition of taking stock of our 2016 themes, updating/revisiting our favorite graphics for each issue, and highlighting what to look for in 2017.

The year began with a perfect storm of worries that had become all too familiar already in 2015. Oil prices plunged and fears of faltering growth and a sharp depreciation of China’s currency escalated, driving disruptive sell-offs in credit and other risk assets. Confidence in global growth faltered, particularly after an anemic US GDP report for Q1.

But oh, how the world has changed. Today, the price of crude oil is almost exactly double its January low in the wake of announced production cuts by OPEC and key non-OPEC producers (Russia). We expect WTI oil prices to move higher to a peak of $57.50/bbl in 1H17 as the cuts push the oil market into deficit and whittle down the current large inventory surplus. But we also expect shale producers to respond to the higher prices, implying limited upside from there.

The rebound in oil prices led to a remarkable turnaround in credit markets, with HY Metals & Mining and E&Ps returning 49% and 36%, respectively, YTD; default rates normalizing; and spreads no longer pricing recession risk. We expect a further moderate compression of spreads in 2017 given expectations of a generally positive macro environment, gradual improvement in credit fundamentals, and, of course, our somewhat rosier oil outlook.

And fears about China have generally receded into the background as Chinese policymakers continued an ambitious stimulus program that helped stabilize growth. A more dovish tilt by the Fed in response to the tightening of financial conditions caused by the Q1 sell-off also assuaged market fears. But we warn that China risk is not far from the surface. Capital outflow pressures have resumed amid the renewed strengthening in the US dollar. And policies that re-ignited growth in the short-term have just increased concerns about the future, particularly as credit growth has climbed. These potentially destabilizing trends merit watching next year, despite our mainline view of orderly currency moves and a continued bumpy deceleration in Chinese growth. (Side note: Meeting growth targets will be paramount next year amid China’s leadership transition.)

It was not long after the market left China, oil, and credit concerns in the dust that political uncertainty took center stage—a place where it has solidly remained since. Brazil had its president impeached amid one of the country’s longest recessions/depressions on record; French primaries established an unexpected presidential candidate in former Prime Minister François Fillon; and Italy will enter the new year with an interim government following the resignation of Matteo Renzi.

And we’ve not forgotten about one of the biggest political shocks of the year (decade, century?!): the UK’s vote in favor of Brexit. The now infamous Article 50, which needs to be activated to formally start the UK’s withdrawal process, still has not been triggered, and likely won’t be before March. Meanwhile, UK and EU priorities for their future relationship remain at odds, leaving market participants closely watching “soft Brexit”/”hard Brexit” swings in the headlines. That said, UK growth has proved remarkably resilient, and assets have held up with the exception of sterling, which is 10% weaker than before the referendum. Next year, we expect a formal start to Brexit talks, a moderation in UK growth, and further declines in sterling as uncertainty over Brexit sinks in.

While it was hard to trump (sorry, we couldn’t resist!) the shock of Brexit, we dare say that Donald Trump defying almost all polls and betting markets to win the US Presidential election did just that. Trump’s cabinet and policy leanings are still being sorted out, but there appears to be potential for significant change ahead, be it in taxes, or environmental policy. There is no question that the policies of the new administration and their market implications will be Top of Mind throughout 2017.

The unexpected election outcome also super-charged the narrative around two themes already in train: the global trade slowdown and reflation. Trump’s protectionist rhetoric—and the considerable executive power he will have on trade policy—do not bode well for global trade growth, which had already slowed considerably in recent years, or for some multilateral trade deals on the table (think the Trans-Pacific Partnership or TPP). Although we are keeping an eye on potential protectionist measures (a particular risk for EM Asia and Mexico, but also a likely drag on US growth), we otherwise see signs of a moderate improvement in trade ahead. Key to watch: how countries respond to the apparent shelving of the TPP (e.g., bilateral vs. multi-lateral trade talks).

On reflation, we expect fiscal expansion and some further tightening in the labor market to sustain inflationary momentum in the US alongside moderately stronger growth, with US 10- year yields expected to end 2017 at 2.75%. This should be good news for equity markets at first: We expect the S&P 500 to rise to 2400 through 1Q2017, but then see the index settling to 2300 by year-end as rates rise further and investors recalibrate their policy outlooks. We still caution that equities are vulnerable should rates move too much, too fast, given stretched valuations following years of exceptionally low rates.

Lastly, despite recent market optimism about fiscal expansion providing more stimulus, central bank policy will never be too far from investors’ minds next year. (And let’s not forget that ECB and BOJ asset purchases in fact enable more fiscal spend, so the lines between monetary and fiscal policy continue to blur.) We expect an acceleration of divergence as the Fed follows last week’s hike with three more in 2017 while the ECB and BOJ continue their asset purchases under new and apparently more sustainable parameters.

Between this divergence, Trump, China, and a number of important European elections, 2017 is sure to be yet another interesting year for markets. We provide hints on our best guesses for 2017 themes  throughout the piece (think green).

* * *

CHINA RIPPLE EFFECTS

Where we stand now:

• Broader concerns about China risk derailing global growth and markets proved somewhat short-lived. After the S&P 500 hit its low for the year on February 11, two days after we published, better economic data and a sense that the Fed would react to global concerns—confirmed by the dovish March FOMC meeting—helped improve market sentiment. Political events in the western hemisphere have since broadly taken center stage in global markets, leaving China concerns in the background. But the reality is that growth—on some level—did take a hit; for example, US GDP growth came in at an anemic 1.1% annualized in 1H2016, owing in part to weakness in the industrial sector and energy-related activity but largely due to tighter financial conditions primarily in the wake of China concerns. China growth itself also remained relatively weak in 1H as measured by the GS China Current Activity Indicator, which declined towards 4% in 1Q and began to climb slowly thereafter.
• Stabilizing growth in China has helped push China to the background of investor concerns. In order to stabilize growth and meet official GDP targets, China’s policymakers continued to pursue an ambitious stimulus plan begun in early 2015 that entailed pausing fiscal reforms, sharply cutting interest rates, loosening housing policies, and increasing credit growth. The result: GDP growth looks set to meet the target of 6.5%-7% for 2016, and producer prices are rising after years of deflation.
• But policies that re-ignited growth in the short-term just increase concern about the future, especially in terms of credit. We estimate that total credit growth adjusted for muni bond issuance accelerated from 13% yoy in 1Q15 to 17% yoy as of 2Q16, and to 20% yoy when including shadow lending not captured in official statistics. In short, the potential credit problems in China have not receded, and indeed have likely grown given the very fast pace of credit expansion.
• Policymakers have taken note of these potentially destabilizing dynamics and have refocused on risk management; indeed, China’s recent Central Economic Work Conference to plan for next year’s economic policy included strong statements on controlling financial risks. Risk management measures employed in recent months include increasing short-term repo rates, reining in off-balance sheet exposures such as wealth management products, and rolling out measures to try to curb home price appreciation. Fiscal policy also seems likely to tighten at least slightly in coming months. But any  tightening will likely prove short-lived given that meeting growth targets will remain critical in 2017—a year of leadership transition.
• Our RMB view has also become more negative, presenting risk to the US dollar and S&P 500. When we published at the height of market anxiety around China, we were relatively constructive on the RMB, arguing that a large, one-off devaluation was unlikely and envisioning only a “mild” trade-weighted depreciation (against the CFETS basket, the CNY has depreciated 4.5% since then). But capital outflow pressures have remained, particularly in the context of US dollar strength. Despite the government’s official focus on a trade-weighted currency basket, higher $/CNY fixings are still a powerful signal that can easily re-ignite capital flight, as households and firms anticipate a faster pace of depreciation. Indeed, the PBOC’s FX reserves fell US$69bn to US$3,052bn in November, the largest decline since January. The US election has reinforced these dynamics given the strengthening dollar and potential for trade frictions, motivating tighter restrictions on capital flows. Global markets have so far taken these developments in stride, but the risk of a repeat of related equity market volatility remains, which could impact the pace of Fed tightening and dollar strength.

What to look for in 2017 (and beyond):

• A potential resurgence in Chinese growth fears early next year, but more broadly, a continued bumpy deceleration. We expect sequential GDP growth to decelerate into 1Q17 to c.5.5% annualized on recent tightening measures. But we expect a rapid pivot back to stimulus should the growth target look at risk, especially given next year’s leadership transition.
   
• Continued concerns about China credit growth. Although policymakers have introduced tightening measures to reduce the risk of asset price bubbles, China’s reliance on credit growth, which undermines financial stability, remains a key risk.
• RMB downside, posing potential risk to the stronger US dollar and global stock markets. We forecast a $/CNY fix of 7.00, 7.15 and 7.30 in 3, 6 and 12 months, respectively, and long $/CNY is one of our 2016 Top Trades. The pace of capital outflows and the evolution of the fix warrant monitoring; in our view, as long as the fix simply offsets dollar strength and capital outflows are contained, global risk appetite should hold up.
• China remains a key risk to watch.

Update: RMB weaker, but with less fear

* * *

CREDIT TREMORS

Where we stand now:

• US credit markets staged a remarkable turnaround after the turbulent start to 2016. US IG and HY spreads currently stand in the 56th and 31st percentiles since 1985, compared to 88th and 87th at the end of February, just before we published. With spreads no longer pricing high risk of recession, credit is now mostly a carry play.
• Commodity-exposed sectors, which were at the center of investor concerns, have outperformed sharply. HY Metals & Mining and Energy have returned 49% and 36%, respectively, this year, compared with a -2% and -15% return as of late February. We remain tactically bullish on HY Energy; given the GS forecast for WTI oil prices to rise to $57.50/bbl 1H17, we expect the sector to generate excess returns, although we are likely in the latter stages of this trade. In contrast, we do not think the outperformance of HY Metals & Mining can be sustained given tight valuations and challenging fundamentals.
• Credit markets have generally moved “over the commodities hump” that was driving defaults and technicals.
  • HY defaults appear to be normalizing, driven by improvement in commodity-exposed sectors. Our central thesis fordefaults earlier this year was “what happens in commodities stays mostly in commodities.” Indeed, there has been little contagion from Energy and Metals & Mining to the broader credit markets. The 12-month trailing issuer-weighted HY default rate rose from 3% at the start of 2016 to 5.6% as of the end of the October—but ex-Oil & Gas and Metals & Mining, it has hovered near post-crisis lows at around 1.9%. HY defaults have shown tangible signs of improvement in recent months, with a decline in the dollar amount of defaulted bonds and a change in composition toward non-commodity-related sectors.
  • Similarly, downgrades have slowed and shifted away from commodities. Of the $1.3 tn of bonds downgraded in 2016, 42% were in Energy and Metals & Mining, with the lion’s share occurring in Q1. However, within the most vulnerable rating buckets today, Energy and Metals & Mining issuers have no bonds outstanding on downgrade watch. Instead, the biggest pocket of downgrade risk is currently in retail.
• After a disappointing first quarter, the trend in credit quality appears to be slowly improving. IG and HY net leverage has stabilized, although it remains high by historical standards, and interest coverage ratios have remained healthy, especially when excluding Energy and Metals & Mining. Moreover, ROAs and revenue growth have rebounded slightly from the recession-like levels reached in Q1; while far from spectacular, this is nonetheless a welcome development

What to look for in 2017 (and beyond):

• Moderate compression of spreads, with US IG and HY cash spreads tightening by end-2017 to 111 and 430bp, respectively. We see a generally positive macro environment for credit going forward, with the top-down drivers of credit risk appetite remaining fairly supportive while bottom-up balance sheet fundamentals continue to gradually improve.
• Further declines in default rates and downgrades. We expect the HY default rate to fall to 4% by end-2017.
• Further improvement in leverage, earnings, and revenue growth. Watch US tax reforms, as a lower statutory corporate tax rate would be a tailwind for earnings and credit quality.
• More dispersion across sectors driven by the incoming administration’s policy agenda. We are constructive on IG Banks and Energy as well as HY Building Products (key beneficiaries of easier fiscal policy); neutral on IG and HY Healthcare and Pharma and IG Cable/Media; and negative on HY Media, HY and IG retail, HY and IG Technology, and HY Metals and Mining.
• The risk of an inflation shock. While our base case is for credit spreads to resist rising rates, as they did in previous hiking cycles, this will depend on a credit-friendly mix of growth and inflation. With the US economy already effectively at full capacity, the risk that high inflation dominates the growth impulse from easier fiscal policy merits watching.
• No inflection in the credit cycle yet. Although market participants will likely shift their attention from commodity exposure to the potential for a negative turn in the credit cycle, we do not expect an inflection in 2017. Key to this view is the strong “business cycle” component in the behavior of HY defaults coupled with low US recession risk. When the cycle does eventually inflect, we expect credit losses to mean revert faster than in the 2001/2002 and 1990/1991 cycles, given higher levels of interest coverage today relative to those periods

* * *

POLICY STIMULUS: RUNNING ON EMPTY?

Where we stand now:

• We have seen little evidence that central banks (CBs) are “running on empty” but considerable evidence that they are recalibrating their policies to make them more effective and sustainable.
  • Asset purchase programs: Both the ECB and BOJ have effectively begun to reduce or position themselves to reduce their pace of asset purchases, apparently with an eye to increase the sustainability/longevity of QE, leaving the market scratching its head on whether these shifts constitute a “taper” (although both CBs deny that they are):
    • ECB: On December 8, the ECB announced a nine-month extension of the Asset Purchase Programme (APP) until end-2017 (from March 2017) at a reduced pace of €60bn a month (from €80bn a month), which is lower than we expected. But the ECB emphasized that it sought to maintain “a sustained market presence” and suggested the APP could continue longer if necessary. The ECB also introduced greater flexibility in the pace of purchases, but said reducing the monthly pace below €60bn is “far, far away.”
    • BOJ: On September 21, the BOJ announced QQE with Yield Curve Control, whereby it would target 0% for 10-year JGB yields. The BOJ is maintaining a ¥80tn/year expansion of asset purchases for now, although it effectively abandoned its previous monetary base target, which could be construed as “stealth tapering” required to increase QQE’s sustainability.
  • Negative interest rates: Japan and all of the European economies that had negative policy rates have left them unchanged (so no forays into deeper negative territory). We think the ECB is likely to resist pushing rates more negative, whereas any further accommodation by the BOJ would likely take the form of rate cuts in the absence of better choices.
• The focus on outright monetary financing, aka, “helicopter money,” has ebbed as governments have maintained an outwardly cautious stance on the slippery slope of financing deficits with money creation. In particular, the market’s hope for explicit monetary financing in Japan, where we argued it could be effective and mechanically easier to implement than in the Euro area, were dashed when the BOJ’s September “Comprehensive Assessment” included no hint of it.
• But the line between monetary and fiscal policy remains blurred as fiscal expansion gains ground, often with the help of CB policies. Fiscal easing is now in train in almost every major developed country (see here and here) and of course potentially super-charged in the US under Donald Trump. There is increasing conviction that CB asset purchases have provided headroom for fiscal expansion via lower debt servicing costs, although concerns about rising deficits remain.

What to look for in 2017 (and beyond):

• Monetary policy divergence: Still-easy monetary policy in Europe and Japan, and more rate hikes in the US.
  • ECB: We maintain that the ECB will continue its APP through 2018, progressively reducing the pace of purchases from €60bn per month after December of next year. We do not expect a rate hike until end-2019, later than the market expects.
  • BOJ: We believe that the BOJ is unlikely to ease further in 2017 unless it needs to counter sharp yen appreciation.
  • Fed: We forecast three hikes during 2017, putting the funds rate range at 1.25-1.50% by the end of next year.
• Further fiscal expansion (in some cases substantial), which will support growth.
  • Euro area: We expect a fiscal easing of 0.5% of GDP in 2017 and 0.2% of GDP in 2018, driven by greater fiscal space from improving budget balances (i.e., low interest payments and positive growth) and the ECB’s APP. Political considerations ahead of elections in France and Germany may also play a role. Growth impact in 2017/2018: 0.4pp/0.2pp, respectively.
  • Japan: We expect to see spending under the economic stimulus package announced this summer to come into play from 2017. Growth impact in 2017: 0.4pp.
  • US: We expect a scaled-down version of the fiscal proposals of President-elect Trump and the Republican House leadership, with a net easing of $200bn per year or 1% of GDP, consisting mostly of individual and corporate tax cuts. Growth impact in 2017/2018: 0.3pp/0.5pp, respectively.
• Outright helicopter money still not taking off; but the very blurred line between monetary and fiscal policy persisting.

* * *

FINANCIAL CONDITIONS

Where we stand now:

• Financial conditions—the state of financial variables such as interest rates, equity prices, and credit spreads—have eased in much of the world since Q1, as markets stabilized from the sharp sell-off in risk assets in early 2016.
  • In the US, the easing through mid-year was considerable; even after the recent sharp rise in bond yields and the resumption of dollar strength, our US Financial Conditions Index (FCI) remains roughly 100bp easier than its tightest level in January.
  • Other developed markets have experienced significant easing as well, driven largely by currency moves—specifically, sterling depreciation following the UK’s referendum on EU membership in June and sharp yen depreciation against the dollar since the US election.
  • In emerging markets (EM), financial conditions remain easy by historical standards.
• Financial conditions have in turn become a boost to growth rather than a drag, in line with our expectations. Indeed, we think the improvement in recent sequential growth indicators—both global GDP and our Current Activity Indicator (CAI)—reflects in large part the improved FCI impulse. In developed economies, the impulse has turned from very negative (-1.5pp) in 1H16 to slightly positive today. In EM, the impulse has stayed positive and is currently contributing roughly 1pp to growth. This positive impulse is a key reason for our improved outlook for global growth in 2017.
• In the absence of sharp risk-off moves in global markets, the Fed’s focus has shifted from financial conditions and international developments back to US inflation and unemployment. In its December post-meeting statement, the FOMC indicated that its 25bp rate hike was justified by “realized and expected labor market conditions and inflation.”

What to look for in 2017 (and beyond):

• Further support to global growth from the FCI impulse—provided financial conditions remain around current levels. (Recall that the FCI impulse depends primarily on the year-on-year change in financial conditions rather than the current level of the FCI.)
• How central banks outside the US insulate themselves from rising US rates and the resulting tightening in financial conditions. We expect continued easy policy from both the ECB and the BOJ.
• Risks from rising yields, a stronger dollar, and a potential shift in risk sentiment.
  • While we expect bond yields to rise more gradually from here (reaching 2.75% by end-2017), we are forecasting a roughly 7% appreciation of the trade-weighted dollar over the same period. Aside from tightening US financial conditions, a stronger dollar poses noteworthy risks to EMs: EMs with fixed exchange rates will find themselves effectively importing tighter financial conditions from the US, while those with flexible exchange rates could struggle with the rising value of their dollardenominated debt.
  • Financial conditions could also tighten if the recent rally in US equities—driven by optimism about growth and policy under the incoming Trump administration—fades mid-year as we expect.
• China’s influence on global financial conditions. As we have highlighted, prior “China risk” episodes tightened US financial conditions enough to shift the Fed in a more dovish direction. As the dollar appreciates, China will have to fix $/CNY higher to keep the trade-weighted CNY stable, which in the past caused capital flows to pick up amid global risk-off sentiment. Our base case is for the forthcoming dollar appreciation to be orderly, but an escalation of China fears and a spillover into risk sentiment are key risks to that view.

* * *

POLITICAL UNCERTAINTY

Where we stand now:

• Political uncertainty reached new highs with the UK’s vote to leave the EU and the election of Donald Trump. The UK Economic Policy Uncertainty (EPU) Index, a news-based measure, spiked to a record 1,142 in July, more than 8.5x the average since the creation of the index (1997) through 2015. (Our own measure of uncertainty also spiked, but to lower levels.) US EPU rose sharply in November to 255, the highest level on record outside of September 11th and the 2011 debt ceiling crisis.
• Uncertainty has weighed less than expected on UK activity. The UK economy has proved remarkably resilient, with any weakening related to the referendum confined to narrow areas of the economy (and offset by momentum in other sectors, notably consumer-facing ones). We had lowered our 2016 UK growth forecast to 1.5% after the vote but now expect growth of 2.1%. In the US, significant uncertainty over the president-elect’s future policies and governing style has failed to weigh on market sentiment, as risk assets have rallied on the expectation of greater fiscal stimulus and tax reform.
• Spikes in equity volatility around political events have been fairly short-lived. After the UK referendum, the VIX closed at 25.8, in the 84th percentile since 1990, but by mid-July it had stabilized in the 12-13 range. The VIX reached 22.5 prior to the US election—about five points higher than the typical level around past presidential elections—but has since receded to 11.7.
• There has been no shortage of political risks elsewhere, particularly in Europe.
  • Established parties failed to establish a parliamentary majority in Spanish national elections in June. Center-right PP was ultimately able to form a minority government, keeping Prime Minister Mariano Rajoy in office, but its coalition with the liberal Ciudadanos party holds only 169 of 350 seats. Spain’s larger political risk, Catalonia, remains unresolved.
  • French center-right primaries resulted in a win for former Prime Minister François Fillon against expectations and polling predictions. Fillon advocates strict controls on immigration and heightened national security, which should help erode support for the Eurosceptic Front National. On the left side of the political spectrum, President François Hollande has chosen not to seek reelection, while Manuel Valls has resigned as Prime Minister to run. The left-wing parties appear increasingly divided, raising the odds that the Front National reaches the second round in next year’s elections.
  • In Germany, despite reduced popularity, Angela Merkel has confirmed her intention to seek a fourth term as Chancellor. The right-wing populist Alternative fur Deutschland (AfD) has made a strong showing in recent German regional elections.
  • In Italy, voters rejected constitutional reforms in a referendum on December 4, prompting Matteo Renzi to resign as Prime Minister (former Foreign Minister Paolo Gentiloni has since been appointed in Renzi’s place). The “no” camp achieved a larger-than-expected majority, particularly in regions where the anti-establishment 5 Star Movement had previously gained ground. However, the high turnout suggests that the share of the Italian electorate that supports Renzi remains high, increasing the chances of elections in 2017.

What to look for in 2017 (and beyond):

• Heightened political risk during a busy European election season. Elections set for 2017 include the general election in the Netherlands (March 15), the presidential election in France (second round on May 7), and the federal election in Germany (September)—all countries where right-wing populist political movements have recently gained in popularity.
  • In France, we expect François Fillon to face off and defeat Front National leader Marine le Pen in the second round.
  • We think the German elections will result in a repeat of the “grand coalition” among mainstream parties, given that other parties do not consider AfD an acceptable partner.
  • In Italy, we expect the government to focus on domestic issues including the approval of a new electoral law and the banking system recapitalization in 1H17. As such, we expect elections no sooner than June; when they do take place, we expect to see Renzi compete against the 5 Star Movement.
• Continued policy uncertainty around the world. Market participants will seek clarity on Brexit negotiations as well as the new US administration’s policies (see pgs. 18 and 24). China will undergo a leadership transition next year, with a majority of the Politburo and Standing Committee expected to step down. And, amid ongoing tensions between Spain’s national government and Catalonia, the region has promised to hold an independence referendum in September.

* * *

“BREXIT MEANS BREXIT”

Where we stand now:

• The start of UK-EU negotiations remains on hold pending UK Prime Minister Theresa May’s activation of Article 50, which she has said she will do before the end of March 2017. The UK Supreme Court is currently determining whether May needs parliamentary approval (i.e., via primary legislation) to proceed. Parliament recently voted in favor of triggering Article 50, but the decision was on a non-binding motion (whereas the Supreme Court ruling may require a piece of primary legislation). European leaders have confirmed that no negotiations will be held until the article is triggered.
• UK and EU priorities for Brexit remain at odds, leading market participants to acknowledge the risk of a “hard Brexit.” In May’s speech at the Conservative Party conference in October, she emphasized (1) controlling immigration and (2) excluding the UK from the jurisdiction of the European Court of Justice. In our view, these priorities are incompatible with single market membership. Indeed, Michel Barnier, the EU Commission’s chief Brexit negotiator, recently reiterated the EU’s pledge to the “four freedoms”—free movement of goods, persons, capital, and services—of the single market.
• Against expectations, growth in the UK has remained remarkably steady at around 2.0% yoy. Activity has weakened in some relatively narrow areas of the economy, like commercial real estate and construction, but this has been offset by other sectors, particularly consumer-facing ones that have benefitted from the easing in financial conditions.
• The BOE has faced a challenging tradeoff between supporting growth and containing inflation. The bank eased policy in August with a 25bp rate cut, a reactivation of QE, and a term funding program for banks. By November, however, the BOE had dropped its easing bias out of caution about an inflation overshoot. CPI inflation has so far averaged 1.0% yoy in Q4.
• Even after recent support to the trade-weighted sterling, the currency remains 10% weaker than before the referendum. This depreciation has reflected—in our view—expected deterioration in the UK’s access to foreign export markets, as well as the effects of uncertainty on investment spending. Sterling remains sensitive to Brexit-related headlines.
• The impact of the referendum has not yet stymied the performance of UK equities. In fact, the FTSE 100 has been the best-performing European index year-to-date in local currency, and has performed in line with Euro STOXX 50 in common currency. Much of this is due to the FTSE 100’s large share of companies with international sales exposure, which have benefitted from sterling’s fall. As expected, our basket of UK domestic stocks (GSSTUKDE) has underperformed sharply.

What to look for in 2017 (and beyond):

• An official start to negotiations, though uncertainty on timing and tone remains high. Our base case is for May to activate Article 50 by the end of 1Q17. Legal and political uncertainties, however, skew the risks toward a later date. For example, if the Supreme Court rules that Parliament must approve Article 50’s activation, May could call a spring election in order to solidify her mandate, likely delaying the activation until June or July. Ultimately, we expect the negotiations to result in a UK-EU FTA that applies to goods but not services, and a loss of the UK’s rights to financial passporting.
• A moderation of UK growth to 1.4% in 2017 and 2018 owing to the effect of uncertainty on business investment and a deterioration in the UK’s terms of trade, which will erode consumers’ real incomes through rising import prices and higher consumer price inflation. (We forecast CPI inflation averaging 1.7% yoy for 2017 and 2.9% for 2018.) All told, we expect the level of UK GDP to be around 2.2% lower in three years’ time than it would have been without Brexit.
• Complementary support from UK monetary and fiscal policy, as BOE QE enables a slower fiscal adjustment than otherwise. We expect the BOE to resist upward pressure on bond yields by adding to its stock of asset purchases by £50bn (most likely later in 2017 rather than as an uninterrupted extension of the current QE program, which expires in February). Given slower growth and looser fiscal policy, we forecast the UK’s current account and fiscal deficits to narrow gradually, from around 5% of GDP in 2016 to around 4% in 2018 for the current account and from 3.9% to 3.0% for the fiscal deficit.
• Further sterling depreciation. We maintain that sterling is not yet “cheap” and will likely fall further on the political uncertainty tied to the Brexit process. We forecast GBP/$ at 1.20, 1.18, and 1.14 in 3, 6, and 12 months, respectively.
• Continued pressure on UK domestic-facing stocks, as a weaker currency and higher import prices harm their margins.

* * *

TRADE TRENDS

Where we stand now:

• The election of Donald Trump has amplified concerns about a rollback of free trade, particularly given US presidential discretion over trade policy. As president, Trump will have the authority to withdraw from bilateral and multilateral trade agreements, and to raise tariffs without congressional approval. In past statements, Trump has called for imposing tariffs on imports from Mexico and China of 35% and 45%, respectively. The Trump administration will likely face pressure to move policy in this direction, though the exact measures it will take remain uncertain.
  • News reports have indicated that Trump intends to grant his nominee for Secretary of Commerce, Wilbur Ross, greater responsibility for trade policy (which is normally handled by the US trade representative or USTR). Ross expressed support for the Trans-Pacific Partnership (TPP) in 2015 but has since criticized the deal. Trump has yet to appoint the head of USTR.
• More broadly, progress on several free trade agreements has been difficult, and the TPP looks all but dead.
  • Japan’s parliament approved the TPP in November, but the deal cannot come into force without US participation. Leaders in Congress confirmed after the US election that they would not consider it during the lame-duck session, a period previously viewed as the TPP’s last chance for approval for the foreseeable future. Given the limited and gradual boost to US and Japanese growth from TPP, we do not expect shelving the deal to have a major impact on the outlook for either economy.
  • The EU and Canada signed the Comprehensive Economic and Trade Agreement (CETA) in October, though not without significant obstacles; after seven years of talks, CETA nearly failed due to opposition from the parliament of Belgium’s Wallonia region, and parts of it still need approval before entering into force. The deal removes nearly all import duties on bilateral trade, grants EU firms access to Canadian investment markets, and allows EU bidding on Canadian public contracts.
• The US and EU concluded a 15th round of talks on the Trans-Atlantic Trade and Investment Partnership (TTIP) in October; progress has been slow-going, to say the least.
• Beyond politically-motivated trade trends, recent industrial transport indicators suggest an acceleration of growth in container grade (i.e., trade in manufactured goods). For example, recent sea- and air-freight data are showing positive volume growth and momentum. China-outbound container load factors in November were the highest since 2Q10/1Q12 and air cargo is growing in the high single digits in the EU/US/Asia.
• However, we maintain that structural headwinds are likely to continue to hold back the growth in global trade more broadly (though we do not find much evidence for the argument of “peak trade”).

What to look for in 2017 (and beyond):

• Concrete steps on trade by the incoming US administration. We think any tariff increases are unlikely to be applied across the board, as goods trade flows differ significantly by country and product.
• The effects of US tax policy on importers, exporters, and trade flows. The House Republicans’ tax proposal includes a destination-basis cash flow tax, which would reduce the tax rate for net exporters and increase it for net importers. In theory, this would make US imports less competitive (reducing demand for imports) and US exports more competitive (increasing demand for exports). Dollar appreciation would likely provide only a partial offset to this effect, leading to higher net US exports (among other consequences). We think Congress is more likely to ultimately move away from the proposal.
• Pursuit of bilateral and regional trade agreements, particularly as an alternative to the TPP. In particular, the Regional Comprehensive Economic Partnership (RCEP) being promoted in Asia by China looks set to gain momentum. In contrast, the TPP will likely remain shelved, while the busy European election calendar makes much progress on the TTIP unlikely.
• China’s push for market-economy status under the WTO, which would limit other countries’ use of tariffs in anti-dumping cases against China. The US and EU have resisted the change to China’s status.
• Signs of improvement in global trade—with upside in services trade and a continued recovery in container trade— although the potential for increased trade barriers poses downside risks to these views.

* * *

CENTRAL BANK CHOICES AND CHALLENGES

Where we stand now:

• Central banks in the major developed economies have continued to shift the parameters of their easing programs, apparently in an effort to address both sustainability issues and concerns about some costs associated with their policies (e.g., the impact on the financial sector).
  • As noted on pg. 10, on December 8 the ECB announced an extension of its Asset Purchase Programme (APP) and a reduction in its pace of purchases, thereby increasing the program’s sustainability/flexibility. It also announced that from January 2017, the shortest residual maturity of bonds eligible for purchase will be lowered to one year, relative to two years previously. Also, Euro area members’ national central banks will be allowed to purchase bonds yielding below the deposit rate (currently -40bp) if they deem it appropriate. We expect these changes to encourage steepening of the EUR yield curve.
  • In some ways, the ECB’s moves echoed the BOJ’s shift earlier this fall to QQE plus Yield Curve Control in an effort to prolong its program and reduce the negative impacts of a flattened yield curve on the banking system. The BOJ has since managed to keep 10-year yields around its 0% target, but had to intervene in the market in mid-November to maintain the steepness in the curve it desires (via offering unlimited purchases of 2 and 5-year bonds at fixed rates) amid the sharp global bond sell-off in the wake of the US election.
• The outright or implied reduction in asset purchases, increased flexibility regarding QE programs, and global bond sell-off have all but eliminated concerns about scarcity of German bunds (for now), and reduced them for JGBs. On our estimates, the combined impact of the ECB’s aforementioned policy changes will allow the German Bundesbank to continue purchasing German government securities at least until the end of 2018. For JGBs, the story has not changed as much, but the shift to targeting 10-year yields has afforded the BOJ more flexibility to respond to market conditions and redistribute purchases accordingly. The increase in bond yields has also helped lessen concerns about JGB scarcity, but could of course reverse.
• The increase in bond yields has begun to lessen concerns about pressure on bank margins and, in turn, lending incentives, from depressed long-dated rates and flatter curves. Although higher yields are exactly the reverse of what central bank policies were trying to achieve, as long as they are driven by more optimistic views on growth, this is generally viewed as a positive development. Indeed, the outlook for banks has grown substantially more optimistic if stock prices are any indication; the S&P 500 financial sector index is up 26% since June 30.
• The increase in bond yields has also reduced the other major concern about central banks’ easing programs: the asset-liability mismatch for long-duration investors. For example, the increase in German  yields since the July trough has reduced pension deficits in the Europe STOXX 600 by an estimated $US215 bn.

What to look for in 2017 (and beyond):

• A continuation of ECB asset purchases through 2017 followed by a gradual taper. To the degree that German bund scarcity becomes an issue, we see a soft move away from capital-key-weighted purchases to allow for a smooth implementation of the purchase program.
• Potential difficulty for the BOJ in sustaining the 0% target on 10-yr bond yields, especially if 10-year US Treasury yields rise above 3% (our forecast is 2.75%). Look for (1) the BOJ to try to stick with the target in 2017, allowing deviation of more than 10bp (the market’s current view) from the target and adjusting asset purchase operations as needed; and (2) broader questions to arise on whether longer-dated yields can and should be controlled.
• Ongoing concerns about asset-liability mismatch, though these should diminish as bonds yields rise.
• A continuation of cautious optimism on banks given the run-up in rates and steepening yield curve.

* * *

US PRESIDENTIAL PROSPECTS

Where we stand now:

• In his own words, election forecaster (and interviewee in our piece) Larry Sabato saw his “crystal ball shattered”: Republicans swept the presidency and Congress. Despite national polls and betting markets favoring Hillary Clinton heading into Election Day, Donald Trump secured 306 electoral votes to Clinton’s 232. At the same time, Clinton won the popular vote, 48.3% to Trump’s 46.2%. Republicans held majorities of 52-48 in the Senate and 241-194 in the House.
• Exit polls confirmed the importance of demographics to the election outcome. As expected, non-white voters voted overwhelmingly for Clinton, while Trump carried the non-college-educated white vote by a margin of 66% to 29%. Far more surprising, however, was that a majority of college-educated whites also voted for Trump—48% to Clinton’s 45%—despite pre-election polling averages indicating an 8pp lead with this demographic in Clinton’s favor.
• As expected, the focus has swung sharply to Trump’s cabinet appointments. You don’t need us to list them all here, but many of the key appointments come from the business world (think Steven Mnuchin for Treasury Secretary, Wilbur Ross for Commerce Secretary, and Gary Cohn for Director of the National Economic Council, not to mention Rex Tillerson for Secretary of State).
• Policy priorities have also become a key focus. Top on the list seem to be healthcare, taxes, and infrastructure, although trade policy could also see some changes.
  • Reform of the Affordable Care Act (ACA) looks more likely than a repeal. Reform might include a continuation of tax-creditbased subsidies to purchase insurance in the individual market and a continuation of increased Medicaid expenditures.
  • Tax reform could include changes in the treatment of capital investment and the deductibility of corporate interest expense, taxation of foreign income, and statutory tax rates.
  • An infrastructure spending program could be financed as part of tax reform, or by new financing schemes involving tax credits, tax-preferred debt, loan guarantees, or other mechanisms to incentivize public-private partnerships.
  • Trade policy could potentially involve more protectionist measures, though any tariff increases are unlikely to be applied across-the-board, and would likely target “usual suspect” sectors or countries/products with the largest trade imbalances.
• So far, US risky assets like what they see. An initial sharp sell-off in risk markets on election night lasted a nano-second, as investors quickly re-focused on the growth prospects under a Trump administration. The S&P 500 is up about 6% since just prior to the election, and cyclicals have strongly outperformed defensive/bond-proxy stocks. Rates have sold-off, meanwhile, as investors have digested the prospect of higher inflation as a result of a likely fiscal expansion as well as potential trade tariff increases. Ten-year Treasury yields stand today at 2.5% versus 1.8% just prior to the election, while the US  dollar has reached the highest levels (on a trade-weighted basis versus G10 currencies) in nearly 14 years.
• EM assets took a hit amid the appreciation of the US dollar and rise in core bond yields. EM investors are now closely watching whether stronger US growth and inflation bring about more Fed tightening and the degree to which protectionist policies are implemented by the new administration.

What to look for in 2017 (and beyond):

• Policy clarifications, announcements, and implementation. We expect the first 100 days to be focused on confirmation of presidential nominees, repeal/reform of the ACA, and fiscal policy (tax and infrastructure).
• Some tailwinds to growth and inflation in 2017, but more in 2018 as the lagged effects of eventual tax and spending legislation take hold. However, trade restrictions could provide an offset to this boost. We expect US growth of 2.2% in 2017 and 2018, and US core PCE of 2.0% and 2.1% in 4Q17 and 4Q18, respectively.
• Whether recent market optimism will wane. We expect optimism around Trump will push the S&P to 2400 through 1Q17 before settling to 2300 by year-end as investors recalibrate policy outlooks.
• Continuation of the US dollar “reset” as divergence in activity and inflation reinforced by the election drives rate differentials in favor of the dollar. We forecast the USD TWI to appreciate 7% versus G10 currencies in the next 12 months.
• EM assets continuing to recover. The risk of protectionism is most acute for EM Asia and Mexico, but look for opportunities to position in the high-yielding commodity countries.

* * *

OPEC AND OIL OPPORTUNITIES

Where we stand now:

• OPEC delivered a bullish announcement on November 30 that included OPEC and non-OPEC cuts.
• OPEC agreed to cut 1.2 mmb/d from October levels to 32.7 mmb/d for six months starting in January. The deal achieved a broad consensus with exemptions for Libya, Nigeria, and Indonesia, a reported modest growth allowance for Iran, and a 4.6% cut across other producers. Saudi Arabia said it would step up even further than its agreed cut if necessary. (This is in line with our view that it is in Saudi Arabia’s interest to cut production in order to manage the near-term inventory surplus, but not to try to increase prices, which would likely prove futile in the New Oil Order; more on this below…)
• Non-OPEC producers announced on December 11 an agreement to reduce their 1H17 output by c.560 mb/d, slightly smaller than the 600 mb/d cut announced on November 30. Although Russia is expected to contribute 300 mb/d of this cut, details suggest Russia’s share will be closer to 200 mb/d, implying that the agreement will only reduce non-OPEC production in 1H17 by c. 460 mb/d, (and technically 100 mb/d less than that because some of these “cuts” are natural decline rates).
• Oil prices have surged. Brent crude oil prices currently stand at about $55/bbl, nearly 18% above their level of roughly $46/bbl shortly before OPEC’s November 30 announcement.
• We maintain that a potential ramp up in Libyan production and a stronger dollar will likely limit further near-term price upside. There will be little evidence of production cuts until mid-to-late January, which we believe will be the next catalyst for another upside move in prices, to a peak of $59.00/bbl for Brent crude oil, and 57.50/bbl for WTI crude oil.
• Further, shale production already seems to be responding to higher prices. At the current US horizontal oil rig count, US shale production is already on track to sequentially grow from 1Q17 onward. New rig activity continues to rise, with a total of 194 oil rigs added since late May and 12 horizontal oil rigs added in the week ended December 16 alone.
• “Shale scale winners” in the US Exploration & Production (E&P) space still look well positioned. Our updated productivity analysis for FY 2015 data and wells drilled in 1Q16 shows productivity gains are trending at or above our 3%-10% range in the Permian Basin (TX/NM), Bakken (ND), and DJ Basin (CO) and modestly below expectations in the Eagle Ford (TX). We continue to believe shale productivity gains allow for substantial US production growth at oil prices of $50-$60/bbl and that E&P companies reaping these production gains are not being sufficiently rewarded.

What to look for in 2017 (and beyond):

• Brent crude oil prices peaking at $59.00/bbl in 1H17 as cuts are implemented, pushing the market into deficit in 1Q17, which should shift the market into backwardation by the summer. Given that the expected backwardation should boost commodity index returns, we have shifted to an overweight commodities allocation for 3 and 12 months.
  • Key: OPEC compliance to cuts and whether non-OPEC delivers on its contribution. We expect 84% compliance to the 1.6 mb/d country level announced cuts (which are lower than the 1.8 mb/d headline cuts) from October 2016 IEA crude production levels given that compliance to cuts outside of Gulf Cooperation Council (GCC) producers (Saudi, Kuwait, UAE, Qatar, Bahrain and Oman) has historically been poor. We expect Russia will freeze production at current levels. Greater-than-expected compliance to the announced cuts, or more Saudi cuts than announced, pose upside risk to our forecast (full compliance = $6/bbl upside to our forecast).
• Limited oil price upside beyond the high-$50/bbl range, as prices in this range lead to increased production from US shale and other lower-cost producers, and as legacy projects continue to ramp up.
  • Key: Shale production growth in 2017. We expect US shale production to decline by 80 kb/d in 2017 (but increase 100 kb/d if we assume the well backlog is gradually tapped). Should greater compliance to OPEC/non-OPEC result in the upside to oil prices described above, the higher prices would likely bring on more shale, presenting upside risk to our production forecast, which could offset the cuts. In short, the New Oil Order lives.
• A continuation of lower correlation between oil prices, the US dollar and risky assets. The breakdown of the dollar/oil correlation will remain important in breaking the vicious cycle between a stronger dollar, weaker commodity prices and pressure on EM.

* * *

THE RETURN OF REFLATION

Where we stand now:

• Since we just published on December 7, not much has changed!
• The FOMC raised the fed fund rates by 0.25% at its December meeting to a range of 0.50-0.75%, acknowledging the rise in realized inflation and noting that inflation expectations in the bond market had increased “considerably.”
• US PPI inflation came in firmer than expected, but CPI core inflation the reverse. We estimate that the CPI and PPI reports imply an increase of just +0.05% (mom) in core PCE inflation in November, to be reported later this week. The relatively moderate gain in core inflation may temper concerns that Fed policy has fallen behind the curve.
• Bond yields have continued to edge higher, with ten-year Treasury yields at 2.5%. Ten-year breakeven inflation stands at about 1.9%.

What to look for in 2017 (and beyond):

• US inflation reaching the Fed’s target. We expect both core and headline PCE inflation to reach 2.0% by year-end 2017. Rising wages and healthcare costs are expected to lead the pick-up, while rent inflation could moderate. However, we expect Euro area inflation to remain muted, with core CPI inflation of 0.7% in 2017, and inflation remaining below the ECB’s target at least through the end of our forecast period in 2020.
• Three further rate hikes from the Fed in 2017 as inflation continues to rise in a tight labor market, putting the funds rate range at 1.25-1.50% by the end of the year. In light of the low level of the unemployment rate and with the prospect of fiscal easing, we expect the FOMC to see more balanced risks to the outlook compared to 2016.
• Policies under the new administration that could affect inflation trends, namely, the magnitude of fiscal expansion (we assume a fiscal package worth 1.0% of GDP) and any protectionist trade measures (we estimate a 10% increase in US tariffs on average would add 0.6pp to the level of core PCE).
• Higher US Treasury yields and inflation breakevens. We expect US 10-year yields to end 2017 at 2.75%, and we suggest long US and Europe inflation as a Top Trade for 2017.
• Outperformance of cyclicals versus defensives (at least in the early part of the year). More specifically, in Europe, we expect an outperformance of banks and underperformance of consumer staples. And in the US, we favor domestic-facing cyclicals, including financials and transportation (for investors concerned about rising inflation we also suggest they buy stocks with low labor costs (GSTHLLAB) and sell stocks with labor costs (GSTHHLAB). And if bond yields continue to rise alongside inflation expectations, weak balance sheet stocks (GSTHWBAL) may underperform strong balance sheet stocks (GSTHSBAL).
• Weaker equity valuations on rising bond yields. After years of exceptionally low interest rates pushing up equity valuations, these valuations are now vulnerable to rising yields. Although some rise in bond yields in conjunction with growth could prove positive for equity returns, there is a limit. We maintain that the tipping point when rising bond yields turn negative for stock returns may be when US 10-year yields surpass 2.75% or 10-year German Bund yields rise to 0.75- 1.00%.The vulnerability of valuations is a key reason why we continue to expect “fat and flat” equity returns in Europe and see an expected rise of the S&P 500 (to 2400 through 1Q17 and down to 2300 by year-end) to be driven by higher earnings rather than multiple expansion.

via http://ift.tt/2iw2Sne Tyler Durden

President-elect Trump appears unwavering in his assault on the mediocrity of the media and the ‘patheticness’ of the punditry as he unleashes another triple-whammy tweet exposing their incapacity for correctness…

Various media outlets and pundits say that I thought I was going to lose the election. Wrong, it all came together in the last week and…..

@CNN just released a book called “Unprecedented” which explores the 2016 race & victory. Hope it does well but used worst cover photo of me!

— Donald J. Trump (@realDonaldTrump) January 2, 2017

I thought and felt I would win big, easily over the fabled 270 (306). When they cancelled fireworks, they knew, and so did I.

— Donald J. Trump (@realDonaldTrump) January 2, 2017

I thought and felt I would win big, easily over the fabled 270 (306). When they cancelled fireworks, they knew, and so did I.

— Donald J. Trump (@realDonaldTrump) January 2, 2017

We are sure this will mean another tit-for-tat reaction by the establishment. It is clear that Trump is not responding well to calls for him to tone it down as he continues to mock his opponents (which by now includes all the mainstream media). One question remains – how long until Jack Dorsey blocks ‘Real Donald Trump’ from Twitter for his anti-establishment ‘hate-speak’?

via http://ift.tt/2hI5XOP Tyler Durden