Month: February 2017

By EconMatters

We discuss the weak price action of the market, and we think the market is about to roll over and test the 2180-2200 area, we want to stay short into these levels, and see how stocks and the financial markets react to these levels from a stops evaluation basis. But this is our initial target, and markets oftentimes overshoot in both directions at key technical levels. Therefore we want to let the market tell us when to take profits on these trades.

But there has been a massive run-up since the Trump election, most of the big companies have reported earnings and frankly the run-up into earning`s doesn`t justify these moves in the market for most stocks. There are a lot of “Dogshit” companies that have benefited or were moved up into this rally that don`t belong at these levels, and investors don`t want to hold these stocks at these price levels in their portfolios.

And we haven`t gotten to the fact that the real market downside risk events are coming down the pike in the next couple of months, call it March with the Debt Ceiling Debate, and European Election News Cycle, not to mention Donald Trump has managed to single handedly alienate half the American and Global population in just his first two weeks in office, just wait until he tries the border tax, and starts a global trade war.

Frankly, this is a pretty easy short here in my opinion, and a rather conservative retest area relative to where markets could fall to under multiple Trump scenarios that potentially could play out this year. This is just the low hanging fruit in our opinion. In short, the Market appears tired, and about to roll over to the downside over the next couple of weeks.

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The specter of global stagflation is looming ever larger as inflation across the world is beating analysts’ forecasts (even before the potential effect from Donald Trump’s economic policies) but economic growth expectations remain stagnant.

As Bloomberg notes, the global Citi Inflation Surprise Index, which measures price surprises relative to market expectations, is at the highest in more than five years.

The reading turned positive in December — meaning inflation data were higher than expected — for the first time since 2012.

However, in its Keynesian-Krushing way, economic growth expectations are not tracking higher – flashing red warnings signs for global stagflation.

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Submitted by Nick Giambruno via InternationalMan.com,

I recently sat down with my friend Jason Burack from Wall St for Main St.

Jason and I had an in-depth discussion on the decline of globalism, the War on Cash, and more.

I think you’ll enjoy our conversation.

*  *  *

Jason Burack: It seems that globalism may be on the retreat. What’s your opinion about that, in light of Brexit, Donald Trump winning, and the Italian referendum failing?

Nick Giambruno: I think you’re right, Jason. Right now globalism is on the decline. But let’s define “globalism” before I explain why. This word gets thrown around a lot. But most people don’t really know what it means.

It’s very simple. Globalism is the centralization of power into a couple of global institutions: the EU, the United Nations, the IMF, the World Bank, NAFTA, NATO, and so on. It’s really just a polite way of describing world government, or what George H.W. Bush termed the New World Order.

I think globalism and the centralization of power is always a bad thing. People who value individual freedom and economic freedom… really, freedom in general, should oppose it.

It’s an interesting moment in history. Those three things you just mentioned—Brexit, Trump, and the failure of the Italian referendum—are clear signs that globalism is losing steam.

Whether it’s a sort of one step back, two steps forward thing or the ideology of globalism is really on its way out remains to be seen.

Jason: Look at what’s going on with Brexit. The elites in London and Brussels are still fighting it. You had your boots on the ground in Italy. How angry were the people you talked to there about the referendum? Are they actually serious about leaving the EU?

Nick Giambruno: Well, here’s the thing. Most Italians didn’t know what the referendum was about. They just knew a “Yes” vote was a vote of confidence in Matteo Renzi’s pro-EU, pro-globalist government.

In short, the referendum was about taking power away from Italy’s regional and city governments and concentrating it more in the country’s central government. So it was worth opposing on that basis alone.

Most Italians didn’t understand the complex and arcane constitutional changes written into the referendum. So it took on a life of its own when Matteo Renzi promised to resign if it failed. That’s a vote everyone can understand.

When Renzi made that promise, he thought it was a safe bet. It’s similar to what happened to David Cameron with the Brexit vote.

But after I spent a few weeks in Italy—I’m also an Italian citizen—it was clear the referendum was no slam dunk. That’s why I predicted it would fail, and that Renzi would resign, months in advance.

Jason: So, what happens next, now that Renzi’s government has collapsed?

Nick Giambruno: There’s a rising populist party in Italy called the Five Star Movement. It’s actually led by a comedian. The party basically started out as a joke a few years ago.

Italians are so frustrated with so-called “mainstream” political parties that they’ve deserted them en masse for the Five Star Movement and other anti-establishment populist parties like the Lega Nord. The Five Star Movement is basically leading the polls as the most popular party in Italy.

All of Italy’s populist parties want a referendum on ditching the euro for Italy’s old currency, the lira. I think it would pass.

Italy hasn’t had any real economic growth since it joined the euro in 1999. That’s pretty profound. The Italian economy is in the same place it was 17 years ago. A lot of that is because the euro makes Italy uncompetitive with countries like Germany.

The next Italian government could be a coalition of anti-EU populist parties. If that happens, there’s an excellent chance Italy could leave the euro.

Keep in mind that Italy is a core member of the euro. If it leaves, France would probably leave, too. And if that happens, the euro is finished.

Jason: Without the euro, what’s left holding the EU together?

Nick Giambruno: Almost nothing. The euro is the main glue. Without it, the whole EU could unravel.

We’re still early in the process. But it doesn’t look good for the globalists and the Eurocrats. I think historians will look back at the failure of the December 4 Italian referendum as a crucial tipping point.

With globalism failing, I’m not sure what happens next. No one does.

We could see a rise of nationalism, which wouldn’t be a good thing. Or political power could diffuse even further, which would be a better outcome. Decentralization is good for individual and economic freedom.

So, instead of a rise of nationalism—which would strengthen the existing nation-states—European countries could split apart. Italy, for example, has only been a “country” since the mid-1800s. There are a number of serious secessionist movements in Italy and other European countries. I think there’s a very good chance some European nation-states will break apart—not just in our lifetimes, but in the intermediate future.

Jason: If Italy returns to the Italian lira, do you think it would prevent bailouts of the troubled Italian banks?

Nick Giambruno: The Italian banking system is a mile-high house of cards that’s getting wobblier by the day. As I mentioned, the Italian economy has stagnated for years. It hasn’t really grown since it joined the euro. This has translated into big problems for Italy’s banking system.

Italian banks have made hundreds of billions of dollars’ worth of loans to Italian individuals and businesses—loans that have soured along with the economy. They’re like an insatiable black hole that’s swallowing all the capital in Italy’s banking system.

Returning to the lira wouldn’t herald an era of sound economics. It just means the Italian government could recapitalize the banking system by turning on the printing press. It can’t do that with the euro.

On a somewhat related note, this example relates to the seemingly eternal inflation/deflation debate. I think it shows that ultimately, in a fiat money system where the government can create as many new currency units as it wants, deflation will always lose out to inflation.

Things are very different than they were in the 1930s. Back then, the last remnants of the gold standard meant most governments couldn’t print money to bail out failing banks. This limited their ability to create new currency units. Of course, that’s not the case today.

It’s completely predictable what any government with its back against the wall will do. They always choose the easy option, the option that preserves their own power… money printing on a massive scale.

That’s why inflation always wins out in the end.

Jason: That brings me to my next point. It seems like the elites are really pushing for a cashless society. Do you think Donald Trump is able to or would even want to stop this?

Nick Giambruno: I think the War on Cash is directly related to the world’s unsound banking systems. Thanks to the magic—or more accurately, institutionalized fraud—of fractional reserve banking, most banks only keep a small fraction of their depositors’ money on hand. It’s a very unstable, shaky situation.

One of the biggest mistakes the average person makes is thinking the money he puts in his bank account is his. It’s not.

Once you deposit money in the bank, it’s no longer your property. It belongs to the bank. What you own is a promise from the bank to repay you. Technically, you’re an unsecured creditor. That means you’re on the bottom of the totem pole if the bank goes bust. And you’re very likely to get burned if the bank gets in trouble.

Money in a bank is a very different beast than cash stuffed under your mattress. Yet 99.9% of people conflate the two.

Many people think the FDIC or some government safety net will rescue them if and when their bank fails. But the FDIC has only a couple of pennies for every dollar it supposedly insures. It wouldn’t take much to wipe out all of their reserves. So it’s really a false sense of security.

The average person is not even dimly aware of the enormous risks inherent in the banking system.

Jason: How does this all relate to the War on Cash?

Nick Giambruno: The War on Cash is a prop. It forces people out of cash and into banks. So it’s no surprise the war is ramping up as banking systems deteriorate.

Then you have what Nassim Taleb would call the “Intellectual Yet Idiot” from Harvard—people like Ken Rogoff and Larry Summers who’ve made a cashless society their mission. And it all starts with eliminating the $100 bill.

These people get prominent space in the mainstream financial media. They create an echo chamber of calls for a cashless society. It’s creepy and totalitarian. I mean, what kind of a person wakes up in the morning wanting to do things that would extinguish many of our remaining liberties?

Privacy is a fundamental human right. It's necessary to protect human dignity, which is essential to a free society. But unfortunately, a lot of people have forgotten that.

Also, in a cashless society, the government can concoct an unlimited number of new ways to confiscate your wealth.

The War on Cash is a mortal threat to individual and economic liberty. I think its advocates are clearly sociopaths and enemies of the common man. Unfortunately, I don’t see the war slowing down. I see it heating up.

Just look at what happened in India recently. On the day of the US election—when the whole world was distracted—the Indian government ambushed its citizens. Instantly, and without warning, it declared certain high-value currency notes invalid.

They said, “Oh, well, tax evaders, drug dealers, and terrorists use cash so we have to get rid of it or make it harder to use.”

It’s completely ridiculous. Anybody who can think critically and independently can see right through this. It’s simply a clumsily executed power grab. It’s done nothing but create chaos and harm the Indian economy.

Yet, when I read about it in the mainstream financial media, I often come across articles praising the Indian government for its bold reforms. It’s quite strange, like we’re living in a bizarro world.

Instead of resisting, the Indian people sheepishly accepted their government’s blatant power grab. This will likely embolden other governments… and the Intellectual Yet Idiot class, of course.

It means we should expect the War on Cash to accelerate in 2017. I haven’t seen any evidence suggesting Trump would reverse any of this.

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According to a transcript obtained by AP of the phone call which took place on Friday morning between President Trump and his Mexican counterpart, Enrique Pena Nieto, and which was intended to patch things up between the new president and his Mexican peer a day after Pena Nieto called off his visit to the US, Trump threatened to send U.S. troops to stop “bad hombres down there” unless the Mexican military does more to control them itself.

The excerpt of the call did not make clear who exactly Trump considered “bad hombres,” – drug cartels, immigrants, or both – or the tone and context of the remark, made in a Friday morning phone call between the leaders. It also did not contain Mexican President Enrique Pena Nieto’s response. Nonetheless, the excerpt “offers a rare and striking look at how the new president is conducting diplomacy behind closed doors.” As AP puts it, Trump’s remark suggest he is using the same tough and blunt talk with world leaders that he used to rally crowds on the campaign trail.

“You have a bunch of bad hombres down there,” Trump told Pena Nieto, according to the excerpt seen by the AP. “You aren’t doing enough to stop them. I think your military is scared. Our military isn’t, so I just might send them down to take care of it.” The phone call between the leaders was meant to diffuse the escalating tension between Trump and Pena Nieto. The two have had a series of public spats over Trump’s determination to have Mexico pay for the planned border wall, something Mexico steadfastly refuses to agree to.

A person with access to the official transcript of the phone call provided an excerpt to The Associated Press. The person gave it on condition of anonymity because the administration did not make the details of the call public. A Mexican reporter’s similar account of Trump’s comments was published on a Mexican website Tuesday. The reports described Trump as humiliating Pena Nieto in a confrontation conversation.

As Business Insider further adds, citing an interview between the Mexican news outlet Aristegui Noticias and Dolia Estevez, a journalist based in Washington, DC, who cited sources on both sides of the call, “It was a very offensive conversation where Trump humiliated Peña Nieto.”

“I don’t need the Mexicans. I don’t need Mexico,” Trump reportedly told the Mexican president. “We are going to build the wall and you all are going to pay for it, like it or not.”

Trump hinted that the US would force Mexico to fund the wall with a 10% tax on Mexican exports “and of 35% on those exports that hurt Mexico the most,” Estevez wrote in Proyecto Puente.

“He even complained of the bad role the [Mexican] army is playing in the fight against narco trafficking,” Estevez, who writes for Forbes and is close to the Mexican journalist and anchorwoman Carmen Aristegui, said during an interview with Aristegui’s eponymous news outlet. Trump “even suggested to [Peña Nieto] that if they are incapable of combatting [narco trafficking] he may have to send troops to assume this task,” she said.

 

The US president “said he would not permit the drugs coming from Mexico to continue massacring our cities,” Estevez added. She said Trump went so far as to say, “I really didn’t want to go to Mexico last August,” referring to Trump’s visit to the Mexican capital last year.

 

Peña Nieto was accompanied on the call by people from his country’s foreign ministry, while Trump was joined by “the famous son-in-law,” likely meaning senior adviser Jared Kushner, and chief strategist Steven Bannon. Kushner is reportedly close to Mexican Foreign Minister Luis Videgaray, and they were seen as the likely go-betweens for the two governments. 

 

“Before this unusual onslaught, Peña was not firm,” Estevez said. “He was stammering.”

This is where the AP’s transcript comes in to fill in the remaining blanks.

* * *

As expected, Mexico’s foreign relations department denied that account, saying it “is based on absolute falsehoods.” The reason is obvious: if accurate, it shows just how little leverage the Mexican president has, if he allows Trump to talk in such a manner.

“The assertions that you make about said conversation do not correspond to the reality of it,” the statement said. “The tone was constructive and it was agreed by the presidents to continue working and that the teams will continue to meet frequently to construct an agreement that is positive for Mexico and for the United States.”

Trump has used the phrase “bad hombres” before. In an October presidential debate, he vowed to get rid the U.S. of “drug lords” and “bad people.” “We have some bad hombres here, and we’re going to get them out,” he said. The phrase ricocheted on social media with Trump opponents saying he was denigrating immigrants.

Trump’s comment was in line with the new administration’s bullish stance on foreign policy matters in general, and the president’s willingness to break long-standing norms around the globe.

While prior to his inauguration, Trump irritated China when he spoke to the president of Taiwan, breaking long-standing U.S. policy, and his temporary ban on refugees and travelers from seven Muslim-majority countries caused consternation around the world, nothing has created the level of bickering as the border wall, a centerpiece of his campaign. Mexico has consistently said it would not pay for the wall and opposes it. Before the phone call, Pena Nieto canceled a planned visit to the United States.

The fresh fight with Mexico last week arose over trade as the White House proposed a 20 percent tax on imports from the key U.S. ally to finance the wall after Pena Nieto abruptly scrapped his Jan. 31 trip to Washington.

Trump has since tasked his son-in-law and senior adviser, Jared Kushner – a real estate executive with no foreign policy experience – with managing the ongoing dispute, according to an administration official with knowledge of the call. At a press conference with British Prime Minister Theresa May last week, Trump described his call with Pena Nieto as “friendly.”

A White House spokesman did not respond to the AP’s requests seeking a comment if Trump indeed threatened to invade Mexico.

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Submitted by Shepard Ambellas via Intellihub.com,

Officials and others unsure of what may have taken place during a massive citywide CCTV outage

Between the dates of Jan. 12 and Jan. 15, for about a 48-hour span, 70% of the CCTV cameras in Washington D.C. were rendered useless by hackers adding an element of uncertainty in regards to what may have taken place in and around D.C. just days before Donald Trump’s Inauguration.

Secret Service and city officials said that cyber attackers used ransomware to infect nearly 130 of 187 network storage devices linked to the city’s closed-circuit camera network, disallowing the storage of any incoming imagery data also while simultaneously requesting a ransom to be paid.

According to the city’s Chief Technology Officer official Archana Vemulapalli, the attack prompted city officials to willingly take the entire CCTV network offline by removing all related software, later forcing a reboot of each site independently, which left at least a 48-hour window of opportunity for criminal activity to take place without being recorded.

Although city officials claim that the hack appeared to be a “localized” extortion attempt, one must question what group or agency is actually responsible and what attackers intentions really were.

Vemulapalli said that on the day of Jan. 12 D.C. Metro Police noticed that four camera pods were not properly functioning and reported their findings to the technology office (OTCO), who later identified the devices to be infected with ransomware thus prompting a “citywide sweep,” as reported by the Washington Post.

Police Chief fill-in Peter Newsham addressed the hack publically and said that there was ‘no known significant impact’ as a result of the hack, but an active open investigation may suggest otherwise as it was admitted that city officials took the cameras offline themselves, ultimately creating a window of opportunity for illicit activity to occur undetected which also dovetails with the stand down ordered on police body cameras during the Inauguration, as reported by Intellihub on Jan. 18.

Furthermore, a report by TendMicro.com details how “Ransomware is a type of malware that prevents or limits users from accessing their system, either by locking the system’s screen or by locking the users’ files unless a ransom is paid. More modern ransomware families, collectively categorized as crypto-ransomware, encrypt certain file types on infected systems and forces users to pay the ransom through certain online payment methods to get a decrypt key.” Additionally, ant to point out that ransomware prices can be set to any amount and are often requested in cryptocurrencies such as Bitcoin.

1RedDrop.com reports:

The most alarming part about all this is that ransomware is now being sold under the ransomware-as-a-service model, similar to a lot of cloud computing offerings. Under this model, ransomware can be purchased and deployed even by people with no hacking experience. The buyer then commits to give the seller a percentage of the “take”, usually set at 40%.

 

One of the most active ransomeware groups today is Cerber, which actually offers a “ransomware for dummies” type of package that provides the buyer with all the resources they need. That makes Cerber potentially far more dangerous than any other hacking group, including Locky, which operates with just one person, or threat actor, and doesn’t sell or share its methods with anyone.

The Herjavec Group published a report titled “Hackerpocalypse: A Cybercrime Revelation” which maintains that by the year 2021 “cybercrime will cost the world in excess of $6 trillion annually” and is growing rapidly.

The report mentions how “Cybersecurity Ventures predicts global annual cybercrime costs will grow from $3 trillion in 2015 to $6 trillion by 2021, which includes damage and destruction of data, stolen money, lost productivity, theft of intellectual property, theft of personal and financial data, embezzlement, fraud, post-attack disruption to the normal course of business, forensic investigation, restoration and deletion of hacked data and systems, and reputational harm.” All of which will create a vast market for individuals, corporations, and governments to defend against cyber crime which is “projected to exceed $1 trillion over the next five years.”

D.C. authorities are currently investigating the matter and all ransomware has been removed from the entire system.

h/t @Tabertronic

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Back in March 2016, Trump trashed the current H-1B visa system, saying “The H-1B program is neither high-skilled nor immigration; these are temporary foreign workers, imported from abroad, for the explicit purpose of substituting for American workers at lower pay.”

MY POSITION ON VISAS#MakeAmericaGreatAgain #Trump2016https://t.co/JGmOd5gr5z http://pic.twitter.com/OLg6N3Ug9U

— Donald J. Trump (@realDonaldTrump) March 4, 2016

 

Now, a draft of a new Trump executive order related to the issuance of H-1B visas, viewed by Axios, reportedly directs the Secretary of Homeland Security to consider ways to “make the process of H-1B allocation more efficient and ensure the beneficiaries of the program are the best and the brightest.”

While that directive could be accomplished in a variety of ways, one likely solution would be to replace the current lottery system with one that prioritizes visas for those earning the highest salaries.  And while such a solution will have wide-ranging impacts on various companies and industries seeking foreign workers, one key takeaway is that it will pit India’s large IT-staffing firms against Silicon Valley’s tech giants.

Per the graphic below, large Indian consulting firms are by far the largest users of the H-1B visa program.  That said, most of the jobs created by those companies tend to have lower salaries than those created by the likes of Microsoft, Google and Facebook.  

Tech industry insiders expect Trump will direct DHS, which runs the H-1B visa lottery system, to start a rule-making to re-prioritize the visa allocation to give preference to higher-paying firms. This pits tech firms against the Indian IT-staffing firms.

 

In theory, prioritizing by salaries means visas for more senior, higher-paying jobs will be granted first, and visas for lower-paying jobs (such as those being filled by Indian IT services firms) would fall to the back of line, perhaps not getting allocated at all if demand for the high-wage job visas is strong.

 

California House members Darrell Issa, a Republican, and Zoe Lofgren, a Democrat, are pushing bills that would raise salary requirements for H-1B visa holders. Tech companies generally support those efforts to de-prioritize Indian outsourcers that they claim “clog up” the oversubscribed lottery system with bulk applications.

 

Of course, given their dependence on low-paid foreign workers to fill low-skilled IT positions, Indian IT firms would be expected to get hit hard by a new policy prioritizing H-1B visas for higher paying jobs…an expectation that has already taken its toll on the stocks of Infosys and Wipro. 

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In what could become an ideological paradox for Donald Trump, according to the ECRI, the president would have no choice but to allow a substantial number of immigrants into the US if he wishes to reach his goal of adding 25 million jobs over the next 8 years as his administration has promised.

As the ECRI calculates without a dramatic surge in immigration – or the number of women joining the labor force – it will be virtually impossible to add 25 million jobs in the next eight years – one of the bedrock economic growth promises of the Trump administration. This is because a key measure of economic health, the number of people participating in the work force (LFPR), that showed positive trends in the 20th century, has been going in the wrong direction largely because fewer women are participating.

The vast majority of baby boomers attained adulthood in the 28 years between the end of President Truman’s last term and the end of President Carter’s term, when male and female populations both grew at about 1.7% per year, on average. But in the next 20 years, until the beginning of the 21st century, the male population grew at only three-quarters of that pace and the female population grew at only two-thirds of that pace. In the 21st century, population growth slowed a bit further (not shown). The point that many appreciate is that overall population growth is well below what it used to be through the waning years of the Carter administration.

But drilling down to gender-related data shows a much more troubling story. Following the end of World War II, almost seven-eighths of the over-16 male population and nearly one-third of the over-16 female population were in the labor force (see chart). However, the LFPR for men has fallen continuously ever since, with the decline speeding up between the mid-1950s and the mid-1960s, then slowing somewhat until the eve of the Great Recession, around which time it took another step down, ending up at 69%.

In sharp contrast, the LFPR for women kept rising throughout the second half of the 20th century, converging quickly with the male LFPR, and rising rapidly between the mid-1970s and early 1980s — essentially the Carter years and early Reagan years. The pace of increase in the LFPR for women slowed in the 1980s and 1990s, and then peaked just above 60% around the end of the 20th century.

In effect, this convergence between the LFPRs for men and women, which was a critical feature of the 20th century job market, ended in the late 1990s. Only in the wake of the Great Recession did the two LFPRs come a bit closer, but that was just because the men’s participation rate fell even faster than women’s.

Furthermore, with the rising role of technological replacement and obsolescence of unskilled and semi-skilled menial laborers, the natural rate of job creation could be even slower.

As a result, with both the participation rate continuing to decline, to a big extent due to population demograhics, as well as due to a slowdown in the natural growth rate of the organic US population, Trump may have no choice but to open the floodgates to foreigners if he hopes to hit his 25 million bogey.

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