Month: May 2017

Back in August 2014, we first reported that in what appeared a suspicious attempt to boost the pool of eligible, credit-worthy mortgage and auto recipients, Fair Isaac, the company behind the crucial FICO score that determines every consumer’s credit rating, “will stop including in its FICO credit-score calculations any record of a consumer failing to pay a bill if the bill has been paid or settled with a collection agency. The San Jose, Calif., company also will give less weight to unpaid medical bills that are with a collection agency.” In doing so, the company would “make it easier for tens of millions of Americans to get loans.”

Then, back in March of this year, in the latest push to artificially boost FICO scores, the WSJ reported that “many tax liens and civil judgments soon will be removed from people’s credit reports, the latest in a series of moves to omit negative information from these financial scorecards. The development could help boost credit scores for millions of consumers, but could pose risks for lenders” as FICO scores remain the only widely accepted method of quantifying any individual American’s credit risk, and determine how much consumers can borrow for a new house or car as well as determine their credit-card spending limit

Stated simply, the definition of the all important FICO score, the most important number at the base of every mortgage application, was set for a series of “adjustments” which would push it higher for millions of Americans.

 

 

The outcome of these changes was clear for the 12 million people impacted: it “will make many people who have these types of credit-report blemishes look more creditworthy.“

Now, as the Wall Street Journal points out today, efforts to rig the FICO scoring process seems to be bearing some fruit.  The average credit score nationwide hit 700 in April, according to new data from Fair Isaac Corp., which is the highest since at least 2005.

Meanwhile, the share of consumers deemed to be riskiest, with a score below 600, hit a new low of roughly 40 million, or 20% of U.S. adults who have FICO scores, according to Fair Isaac. That is down from 20.5% in October and a peak of 25.5% in 2010.

 

Of course, to be fair, we are also reaching that critical 7-year point where the previous wave of mortgage foreclosures start to magically disappear from the FICO scores of millions of Americans. 

Mortgage foreclosures stay on credit reports for up to seven years dating back to the missed payment that resulted in the foreclosure. Foreclosure starts, the first stage in the process, peaked in 2009 at 2.1 million, according to Attom Data Solutions. They totaled nearly 1.8 million in 2010 and remained above one million during each of the next two years.

 

Personal bankruptcies are more complicated and can stay on credit reports for seven to 10 years.

 

Consumers who filed in 2007 for Chapter 7 protection—the most common type of bankruptcy, in which certain debts are discharged and creditors can get paid back from sales of consumers’ assets—are now starting to see those events fall off their reports. Some 500,000 Chapter 7 bankruptcy cases were filed in 2007, a figure that swelled to nearly 1.1 million in 2010, according to the Administrative Office of the U.S. Courts.

 

Chapter
13 bankruptcies, in which consumers enter a payment plan with creditors, usually stay on reports for at least seven years. Those filings reached a recent peak of nearly 435,000 in 2010 and are set to start falling off reports this year.

 

All of which, as the WSJ points out, will help to “boost originations of large-dollar loans for cars and homes.”  Which is precisely what the average, massively-overlevered American household needs…more debt.

Fresh starts for credit reports are likely to help boost originations of large-dollar loans for cars and homes. Consumers have a greater chance of getting approved for financing if they apply for loans after negative events fall off their reports, in particular from large banks that have stuck to strict underwriting criteria, says Morgan Whitacre, who oversees consumer-loan underwriting at Bank of America Corp.

 

Credit-card lending, already on the rise, could increase further as a result of fresh starts. Consumers who have one type of bankruptcy filing removed from their credit report experience a roughly $1,500 increase in spending limits and rack up $800 more in credit-card debt within three years, according to the Federal Reserve Bank of New York.

So maybe that auto lending bubble has a little room left to run afterall…

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Authored by Mike Shedlock via MishTalk.com,

Fed Chairs Ben Bernanke and Janet Yellen re-blew the Alan Greenspan initiated housing bubble.

However, the trend towards higher and higher home prices started well before that dynamic trio made a mess of everything.

The following picture shows the true origin of escalating home prices.

Median Home Prices 1963-Present

To be fair, homes have gotten larger, with more features, better windows, etc.

However, it is safe to say the explosion in credit that started when Nixon closed the gold window, ending convertibility of dollars for gold accounts, coupled with inane policies of the last three Fed Chairs accounts for nearly all of the price acceleration.

Real Homes of Genius

Dr. Housing Bubble provides an excellent example in Real Homes of Genius, including pictures of tiny homes listed for close to $500,000 in the Los Angeles area.

Today we salute you Los Angeles with our Real Homes of Genius Award. When half a million dollars isn’t worth moving a trash bin:

 

 

3525 Portola Ave, Los Angeles, CA 90032
2 beds 1 bath 572 sqft
This place is tiny. 572 square feet.

 

I actually like the trash can being left in the picture overfilled with crap to show you a better perspective on how small this place is. The ad is written in beautiful prose that really makes your heart jump with joy:

 

“Why Rent when You Can Buy! This House Features 2 Bedrooms and 1 bathroom with lots of potential especially for a First Time Home Buyer. Great Location close to Downtown Los Angeles, centrally located near Schools, Parks and Shopping. This house has been nicely upgraded.”

 

So let us take a Google Street View here:

 

 

More trash cans! One trash can looks like it is crossing the road or gearing up to strike a pose for another realtor’s ad. Now some might say “hey, this is a working class neighborhood!” And to that I would say, of course it is! That is why it is so mind numbing to see this tiny place listed at $470,000.

Explaining Balance of Trade

Total Credit Market Debt Owed

“Our Currency but Your Problem”

Starting in 1971, credit soared out of sight to the benefit of the banks, CEOs, the already wealthy, and the politically connected.

The source of global trading imbalances, soaring debt, escalating median home prices, declining real wages, and the massive rise of the 1% at the expense of the bottom 90% is Nixon closing the gold window.

At that time, Nixon’s Treasury Secretary John Connally famously told a group of European finance ministers worried about the export of American inflation that the  “dollar is our currency, but your problem.”

Balance of trade issues, soaring debt, declining real wages, and the demise of the US middle class are now our problem.

The Fed, ECB, Larry Summers, Paul Krugman, Donald Trump, and economists in general cannot figure out the real problem.

Bernanke proposes a “savings glut”, and Larry Summers proposes “secular stagnation”.

My challenge to the Secular Stagnation Theory of Summers has gone unanswered.

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The stabilization of oil prices in the $50-60/bbl range was meant to have one particular, material impact on Saudi finances: it was expected to stem the accelerating bleeding of Saudi Arabian reserves. However, according to the latest data from Saudi Arabia’s central bank, aka the Saudi Arabian Monetary Authority, that has not happened and net foreign assets inexplicably tumbled below $500 billion in April for the first time since 2011 even after accounting for the $9 billion raised from the Kingdom’s first international sale of Islamic bonds.

As the chart below shows, according to SAMA, Saudi net foreign assets fell by $8.5 billion from the previous month to $493 billion the lowest in six years, bringing the decline this year to $36 billion. Over the past three years, Saudi foreign reserves have dropped by a third from a peak of more than $730 billion in 2014 after the plunge in oil prices, prompting the IMF to warn that the kingdom may run out of financial assets needed to support spending within five years, according to Bloomberg.

Analysts were puzzled by the ongoing sharp decling in Saudi reserves, especially since Saudi authorities recently embarked on a very public and “unprecedented” plan to overhaul the economy and repair public finances.

Quoted by Bloomberg, Mohamed Abu Basha, a Cairo-based economist at EFG-Hermes said that he “didn’t really see any major driver for such a huge drop, especially when accounting for the sukuk sale.” He added that even if the proceeds from the sale weren’t included, “the reserve decline remains huge.”

Adding to the confusion, the pace of the decline in reserves this year “has puzzled economists who see little evidence of increased government spending, fueling speculation it’s triggered by capital flight and the costs of the kingdom’s war in Yemen.” Of course, the recent purchase of $110 billion in US weapons will be an even greater drain on Saudi finances, and begs the question whether the Saudis can even afford it.

Ironically, the reserve decline has continued even after the introduction of sharp austerity measures, designed to reduce the budget deficit, which have weighed on the economy and brought non-oil growth to a halt last year. According to Bloomberg data, loans, advances and overdrafts to the private sector declined 0.6 percent in April compared with the same month a year earlier, central bank data show. Furthermore,  GDP growth in the world’s biggest oil exporter will likely drop to just barely above contraction, and is expected to grow by just 0.6% this year from 1.1% in 2016.

Meanwhile, local authorities disagree with the consensus and say growth will exceed 1%, in part because of a plan to launch a four-year, 200 billion-riyal ($53 billion) stimulus package targeting the private sector. Additionally, Finance Minister Mohammed Al-Jadaan said in April that the government didn’t withdraw from its central bank reserves during the first quarter. He said the decline could be attributed to local contractors paying overseas vendors after the government settled its arrears.

Adding to the variables, last year Saudi Arabia revealed it is carrying out the biggest economic shakeup in the kingdom’s history to reduce its reliance on oil revenue. The measures include reducing subsidies and selling government stakes in several companies, including Saudi Arabian Oil Co., or Aramco, which has been the other main driver behind Saudi insistence on keeping oil prices higher even if it means losing market share to US shale producers, a stark change from its strategy at the end of 2014 when it hoped to put low-cost producers out of business. In an attempt to boost its funds, the kingdom also allowed qualified institutional investors from outside Gulf Arab states to trade Saudi stocks directly from June 2015, and introduced additional changes this year to attract more funds.

Taking the other side of the argument, speaking to Bloomberg, BofA’s Hootan Yazhari said that the continued drawdown was something “he had been expecting” even though he expects continue lacklustre growth and predicts that 2017 will be a very difficult year for Saudi banks.

Whatever the reason, one thing is becoming clear: if Saudi Arabia is unable to stem the reserve bleeding with oil in the critical $50-60 zone, any further declines in oil would have dire consequences on Saudi government finances. In fact, according to a presentation by Sushant Gupta of Wood Mackenzie, despite the extension of the OPEC oil production cut, the market will be unable to absorb growth in shale production and returning volumes from OPEC producers after cuts until the second half of 2018. Specifically, the oil consultancy warns that due to seasonal weakness in Q1 for global oil demand, the market will soften just as cuts are set to expire in March 2018.

Additionally, below we present some further critical perspectives from a reader on what the continued decline in Saudi reserves means:

Saudi Arabia is in big turmoil. One third of GCC is now quasi- junk rated (Oman and Bahrain both are now BB rated) which is effectively a junk rating.

 

Oman is already siding with Iran due to business (new ferries, 2 new China Dragon malls, all trade going via Oman instead of Dubai ports, more flights and opening of the first bank in the world from Oman, inside Iran, are just a few signals aside from all Iranian conferences being held in Oman and the first trip of President of Iran to Oman).

 

Now Qatar wants to side with Iran which is having massive repercussions (cancelling of OSN Saudi subscriptions by Qatari’s, blocking Al Jazeera TV in Saudi and UAE, war of words by UAE and Saudi Ministers but most importantly the call between Iran President and Qatari Emir yesterday etc).

 

One third of GCC is now actively siding with Iran. To say there is a crisis in the GCC is an understatement! This is bound to escalate.

 

This is occurring at a time when reserves are plunging at a rapid speed, despite issuing bonds in mega sizes of tens of billions per annum!

 

Saudi has lost one third of it’s reserves in less than 3 years!

 

If Saudi lost 11% of their reserves in 2014, 11% reserves in 2015 and 11% in 2016, can you guess how much reserves will Saudi lose in 2017? Total Saudi reserves are now at USD 493bn which will drop another 11% to USD 438bn or lower maybe closer to USD 400bn by the end of 2017!

 

All remaining assets are typically in hard assets like long term investments, oil and other assets overseas, real estate (towers around the world), all of which are not at all easy to sell. As I have predicted that GCC currency peg should break. My target of 2018 remains.  It may begin with Oman and Bahrain buckling under pressure first. If they depeg or depreciate, then others must follow because all business will only go those 2 countries otherwise due to being “cheaper”.

 

The rationale being the oil plunge in June 2014. First 2 years, GCC could use it’s reserves. Next 2 years until until end of 2017 they can keep borrowing by issuing the bonds. The pressure escalates dramatically when they start getting downgraded due to excessive borrowings (as has happened both to Oman and Bahrain as well as Saudi but they are not yet junk, just Single A rated).

 

Sovereign fund assets in global equities have dropped 18% between 2014 and 2016. Expect decline to rise to 31% and drop from their peak sovereign fund assets in 2014 at USD 3,256 billion and should be down to USD 2,200 billion by end of 2017!

 

VAT is coming in 2018 to GCC along with corporate taxes. Do not be surprised if Oman or Bahrain CANCEL VAT. If they do so, they will get more business that will compensate for lost revenues but will be the end of GCC union as well.

 

Saudi and UAE are already dealing with China actively and Saudi King made a historic visit to China 2 months ago. Most likely a timeline has been set when China will be able to pay Saudi and UAE in Chinese Yuan instead of US dollars (which China pays to Nigeria, Iran, Russia, Venezuela etc already for buying oil from them). 

 

That event will bring USD to it’s knees and also be the end of the US petrodollar system and the end of GCC peg or at least a massive depreciation.

 

Trump has done a massive coup by taking hundreds of billions dollars away from Saudi and possibly also from UAE soon to provide them with “security”. This will cause a further massive dip in their reserves over the next 1 year.

 

So expect monetary, fiscal and real turbulence in the months ahead. And yeah, more taxes or fees or fines too!

Finally, there is the possibility that as sov-wealth funds seek to liquidate to boost liquidity, a repeat of the inverse petrodollar episode observed in 2015 emerges once again:

• Sovereign-wealth funds could pull another $404 billion out of stock market
• Sovereign funds pull $18.4 billion from global markets in first quarter 2017
• Low Oil Price is Testing GCC Commitment to Currency Pegs

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Authored by Nick Cunningham via OilPrice.com,

The OPEC deal will lead to an ongoing tightening of the crude oil market, putting a floor beneath crude prices in the $50s per barrel in the second half of 2017, according to Helima Croft of RBC Capital Markets. She said that prices should ultimately “grind higher into the $60s” by the fourth quarter, with an average price for WTI expected at $61. Political and economic pressure surrounding Saudi Aramco’s IPO and Russian elections – both of which are slated for 2018 – will ensure that OPEC and non-OPEC does “whatever it takes” to keep oil prices stable and on the rise.

But there are a lot of factors outside of OPEC’s control. High up on that list is the role of China, a country that has received little attention in the oil world as of late amid all the furor over the OPEC vs. U.S. shale debate. But China could make or break the oil market this year and next, depending on what happens with its economy. "If you wanted to know where the downside risk is, it is not in OPEC's decision or in U.S. driving demand or in global inventories rebalancing. I think China is the big source of concern," Prestige Economics President Jason Schenker told CNBC.

Moody’s Investors Service downgraded China’s credit rating on May 24 to A1 from Aa3, explaining that the Chinese government might try to juice the economy with higher spending levels, which will lead to ballooning debt. The decision from Moody’s is ominous as it is the first credit downgrade for China in nearly three decades. Moody’s expects economic growth to continue to slow in China, putting a heavier burden on government stimulus when debt has already started to become a concern.

"It's really the size of the leverage, the trends in leverage as well as the debt servicing capacities of the institutions that have that debt. When growth slows, then that points toward slower revenue growth, probably slower profitability and somewhat weaker debt servicing capacity," Marie Diron, senior vice president for Moody's sovereign rating group, said on CNBC's “Street Signs.”

Credit downgrades themselves can add costs as debt finance becomes more expensive. "Downgrade(s) by rating agencies could potentially erode the financial soundness of China, creating the risk of a negative feedback loop," ANZ wrote in a research note.

A softer Chinese economy has enormous implications for the oil market. China is the largest crude oil importer in the world and it is expected to account for one of the largest sources of demand growth this year – the IEA expects Chinese oil demand to expand by 400,000 barrels per day to 12.3 million barrels per day (mb/d). With worldwide demand growth estimated at 1.3 mb/d this year, China will essentially account for nearly one-third of the global increase. If it falters, demand scenarios go out the window. "Without China, the oil market cannot survive," Fereidun Fesharaki, founder of FGE, told CNBC.

At the same time, if China surprises with a stronger economic performance going forward, it could also boost momentum to a tightening oil market. Not only is China expected to post strong demand figures – assuming its economy doesn’t slow too much – but its domestic production is falling. That means it will need to import more crude to make up for the shortfall. China’s state-owned oil companies preside over expensive, aging and depleting oil fields. The collapse of oil prices three years ago put them in a bind, forcing them to cut back on investment and even shutter older fields that are no longer worth the trouble. China’s oil production fell by 300,000 bpd in 2016 and the IEA sees output dipping by an additional 185,000 bpd this year.

The end result will likely be much steeper imports from China – a bullish trend for oil. A rather aggressive forecast comes from FGE’s Fesharaki, which expects imports to rise by 900,000 bpd this year compared to 2016.

There is a great deal of uncertainty surrounding these figures, but they highlight the fact that China really will make or break the oil price rally this year.

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While visiting Australia, outspoken warmonger Sen. John McCain told ABC TV that Russia is a bigger security threat than Islamic State, based on its willingness to challenge the democratic foundations of the U.S. by interfering in elections.

The visit to Australia by the chairman of the Senate Armed Services Committee was part of an Asia tour to outline a blueprint for the U.S. to invest nearly $8 billion bulking up its military presence in the region by upgrading infrastructure, conducting additional exercises and deploying more forces and ships. Mr. McCain’s visit also was aimed at reassuring allies about U.S. willingness to remain engaged in Asia, both as a check against China’s increasing assertiveness in the South China Sea and on North Korea’s nuclear program.

As The Wall Street Journal reports, McCain, who was in Australia to discuss Asia-Pacific security issues, said Russian President Vladimir Putin was the “premier” challenge to American security.

“I think ISIS can do terrible things and I worry a lot about what is happening with the Muslim faith,” he told Australian ABC state television Monday.

 

“But it’s the Russians who tried to destroy the very fundamental of democracy, and that is to change the outcome of an American election.”

It seems the arch-neocon just cannot get his story straight as McCain recently walked back comments that the controversy surrounding investigations into potential collusion between associates of President Donald Trump and the Russian government had reached “Watergate size and scale,” saying he had seen no evidence Russia had succeeded in swaying the U.S. presidential-election process.

“But they tried and they are still trying,” he said on Monday.

So just to clarify, Russians are worse than lawless terrorists killing hundreds of people (including 8 year old girls) in the name of their god, paid for by Qatari and Saudi funds? Far be it from us to judge – but perhaps Mr. McCain needs a perspective transplant, and stop saying utterly ridiculous things.

However, McCain was not done with his fearmongery. After North Korea fired another short-range ballistic missile off its east coast on Monday, Mr. McCain said unless something could be done to restrain Pyongyang’s ambitions, the crisis could escalate along the lines of the Cuban Missile Crisis in 1962, when the U.S. and the Soviet Union came close to nuclear conflict.

“What’s the best and easiest way [to deal with the situation]? Obviously the Chinese, because the Chinese control basically the North Korean economy,” Mr. McCain said.

 

“We have to explain to the Chinese how this is a vital issue. We need their help and cooperation.”

We are sure somehow North Korea is also Russia's fault?

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Content originally published at iBankCoin.com

Writing about McCain is like writing about Maxine Waters. Both are disconnected from reality, crooked as the day is long. Both have an agenda that runs counter to the goals of ordinary American plebs. In this case, McCain clearly has an agenda in the Ukraine. He panders to them and uses their internal struggles vs Moscow to foment anti-Russian rhetoric in the United States.

How many US marines have the Russians killed over the past 10 years?

How many public beheadings have the Russians undertaken and how much clay have they taken from Iraq and Syria?

Even suggesting that Russia is a greater threat than ISIS is absurd. But, this is John ‘Fucking’ McCain, so don’t expect normal to come out of his mouth.

Towards the end of this clip, McCain, incredulously, stated that Comey investigated Hillary based upon ‘fake news’ disseminated by the Russians. What part of Hillary’s unprotected email server and destruction of evidence fake news? Moreover, how was the then acting AG Lynch meeting with Bill Clinton on the tarmac for a secret 30 minute meeting fake news?

According to the Washington Post, the prime driver behind Comey closing the Hillary investigation was because he had received a fake document stating that AG Lynch told a Clinton staffer that the investigation wouldn’t go too far, not to worry.

Former FBI Director James Comey’s investigation into Hillary Clinton was shaped by a bogus Russian document, according to a new Washington Post report.
 
A phony Russian document influenced the way the FBI handled the investigation into Hillary Clinton’s server, according to The Washington Post.
 
During the middle of the 2016 presidential primary season, the bureau received a purported Russian intelligence document detailing an implicit deal between Clinton’s campaign and the Justice Department regarding the inquiry into her private email server, the paper said.
 
The document, obtained by the FBI, described how the Attorney General at the time, Loretta Lynch, had privately assured a Clinton campaign member that the email investigation would not go too far, the Post reported.
 
Receipt of the document then allegedly helped influence the July decision by then-FBI Director James Comey to announce on his own, without the Justice Department’s involvement, that the investigation into Clinton was finished and that no charges against Clinton would be forthcoming.
 
The public announcement set off an uproar on both sides of the political spectrum.
 
According to The Post, the FBI later determined that the document was illegitimate. It may have been a fake sent to confuse the bureau, people familiar with its contents told the paper.
 
The Americans mentioned in a purported email exchange in the document have since insisted that they don’t know each other, don’t speak to one another and never had conversations like those detailed in the document.
 
By August, the month after Comey’s public announcement, the FBI had concluded that the document was bogus, the Post said.

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Authored by Jeffrey Snider via Alhambra Investment Partners,

The essence of capitalism is not strictly capital. In the modern sense, the word capital has taken on other meanings, often where money is given as a substitute for it. When speaking about things like “hot money”, for instance, you wouldn’t normally correct someone referencing it in terms of “capital flows.” Someone that “commits capital” to a project is missing some words, for in the proper sense they are “committing funds to capital.”

Just as the focus has been removed from actual capital, and thus a distortion of capitalism, one of the effects has been to devalue the other component that actually makes it all work. Rising living standards were never the fruit of capital alone, as the real strength was in the combination of it with labor. Over the last few decades, the real capital flow has been with eurodollar finance to the offshoring of productive capacity.

By simple mathematics, businesses are no longer willing to afford labor. Before getting to that math, however, we need to be mindful that the “experts” are almost uniformly suggesting the opposite is true. Instead, we hear constantly of a labor shortage, often serious, whether due to Baby Boomers retiring, lazy Americans addicted to heroin, or the politics of immigration. The problem with all of these is wages, meaning that if there was a shortage, wages would be rising and rising rapidly.

The New York Times on Sunday published yet another of this type of account (they are becoming more frequent), blatantly headlining the piece, Lack of Workers, Not Work, Weighs on the Nation’s Economy. Focusing on anecdotes from Utah, you get all the familiar but unbacked tropes about the travails of employers who have things to do but can’t do them because they can’t find anyone.

To Todd Bingham, the president of the Utah Manufacturers Association, “3.1 percent unemployment is fabulous unless you’re looking to hire people.”

 

“Our companies are saying, ‘We could grow faster, we could produce more product, if we had the workers,’” he said. “Is it holding the economy back? I think it definitely is.”

Apologies to Mr. Bingham, but that’s just stupid. What we find out instead, buried within the article, is a separate story that actually contradicts the whole thing for the umpteenth time.

Companies in Utah, as in the rest of the country, were slow to raise wages in recent years. At first there were plenty of available workers. But by the end of 2015, a report by Utah’s Department of Workforce Services concluded that inadequate wages had become a key reason companies were struggling to find employees.

 

“It was as if employers hadn’t adjusted their approach to the labor market” as the economy recovered, said Carrie Mayne, the department’s chief economist.

Maybe for employers the economy hasn’t actually recovered. What the Times article contends instead is that somehow starting in 2016 of all times this maybe has changed. There are “signs” of wage acceleration out there, because why wouldn’t there be if the unemployment rate nationally has fallen to 4.5%? The mainstream is always seeing signs of wage growth, a condition that people long ago ignored because you can’t claim to be seeing “signs” of wage acceleration for now a fourth year running. Those aren’t then signs but delusions of clear bias. Instead, it is far more plausible employers don’t really have any ability to adjust wages.

It’s as if the people who write these articles and even the economists who stand them up have no conception of revenue and expenses. Anyone will take all the cheapest possible labor they can get, but it takes an actually growing economy with widespread, plausibly sustainable gains to give employers an impetus to actually pay market-clearing rates. That is the simple, small “e” economics left off the pageviews. “We could produce more product” has never in the past stopped businesses from paying up for labor, but it does now because there is no actual economic growth.

GDP is positive, to be sure, but that is linear thinking that leads to all these misconceptions. The newspapers all say the economy is growing, and yet all these contradictions exist (including social and political unrest) as if it was not. Growth is not merely the positive sign in front of some statistic, even GDP. As stated above, the math is incredibly simple:

Businesses have been maintaining, nationally, at best steady cash flow by not paying more for wages or workers; they simply cannot.

When in 2008 they initially responded to the Great “Recession” by laying off Americans at the most devastating pace since the 1930’s, they did so to retain as much cash flow as possible. That part was as of every recession in economic history. Where it all went off course was in what followed, which by any objective standard was not a recovery.

Opportunity is the lifeblood of recovery, and following even the most devastating recession there is usually widespread opportunity. The two, in fact, go hand in hand, the economic equivalent of the old market adage to buy when there is blood in the streets. What really happened in 2009 and after?

Is may seem like a chicken and egg problem, but it really isn’t. By that I mean, do businesses hire more workers so that they can buy more things (including services), or must consumers, who are workers, buy more things first so that businesses hire more workers who are consumers? What if neither do either? That’s what this “recovery” has been, a grave reluctance on every side because at its most basic level the Great “Recession” was not a recession. Economists may finally know it now after ten years, but on an individual level that is how both businesses and consumers had been behaving all along. Simply calling it a recovery as every official has done does not merely make it so.

Thus, the lack of wage growth is simple mathematics, the economic equivalent of low interest rates. It is the “tight money” of the real economy where lack of wage growth, tremendous labor slack, and this unassailable business reluctance are all varying degrees of liquidity preferences. Why bump up wages to a market-clearing level when economic growth, meaning opportunity, is so conspicuously missing no matter how hard (particularly before 2016) the mainstream emphasizes it isn’t.

There is, of course, more nuance to this aggregate picture, broken down across several cross sections like business size (there was something like a recovery for large businesses, but absolutely nothing like one for small firms). In whatever case, the idea that “things are better” requires both gradation as well as qualification. Where you could in the past just say things are better, you cannot today make that statement. Better than what, 2009? That’s a meaningless comparison now, just as it would have been in 2011. 2007? Even that is debatable when after ten years the economy today should be nothing like the one then, and yet it many ways it has still to catch back up (think about what it was like in 1997 as compared to 1987).

In the end, all this confusion exists because the wrong measurements are employed starting with the wrong linear perspective. GDP was never meant to quantify shrinking; in fact, nothing is, which is why we have such difficulty measuring just how badly the economy has performed during a decade otherwise clearly lost. Some people see the 4.5% unemployment rate and expect it to mean 4.5% unemployment. And yet, there are only signs that wages maybe at some point might want to possibly accelerate. Such convolution just isn’t necessary when simple math will do.

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While hardly a novel claim – in the past many have warned that Australia’s housing and stock market are massive asset bubbles (which local banks were have been forced to deny as their fates are closely intertwined with asset prices even as the RBA is increasingly worried) – so far few if any have gone the distance of putting their money where their mouth was. That changed, when Australian asset manager Altair Asset Management made the extraordinary decision to liquidate its Australian shares funds and return “hundreds of millions” of dollars to its clients according to the Sydney Morning Herald, citing an impending property market “calamity” and the “overvalued and dangerous time in this cycle”.

“Giving up management and performance fees and handing back cash from investments managed by us is a seminal decision, however preserving client’s assets is what all fund managers should put before their own interests,” Philip Parker, who serves as Altair’s chairman and chief investment officer, said in a statement on Monday quoted by the SMH.

The 30-year investing veteran said that on May 15 he had advised Altair clients that he planned to “sell all the underlying shares in the Altair unit trusts and to then hand back the cash to those same managed fund investors.” Parker also said he had “disbanded the team for time being”, including his investment committee comprising of several prominent bears such as former Morgan Stanley chief economist and noted bear Gerard Minack and former UBS economist Stephen Roberts.

Altair chairman and chief investment officer Philip Parker.

Parker said he wanted “to make clear this is not a winding up of Altair, but a decision to hand back client monies out of equities which I deem to be far too risky at this point.”

“We think that there is too much risk in this market at the moment, we think it’s crazy,” Parker said with a candidness few of his colleagues are capable of, at least when still managing money.

“Valuations are stretched, property is massively overstretched and most of the companies that we follow are at our one-year rolling returns targets – and that’s after we’ve ticked them up over the past year. Now we are asking ‘is there any more juice in these companies valuations?’ and the answer is stridently, and with very few exceptions, ‘no there isn’t’.“

Parker outlined a list of “the more obvious reasons to exit the riskier asset markets of shares and property”. These include:

• the Australian east-coast property market “bubble” and its “impending correction”;
• worries that issues around China’s hot property sector and escalating debt levels will blow up “later this year”;
• “oversized” geopolitical risks and an “unpredictable” US political environment;
• and the “overvalued” Aussie equity market.

But, to Parker, it was the overheated local property market that was the clearest and most present danger. “When you speak to people candidly in the banks, they’ll tell you very specifically that they are extraordinarily worried about the over-leverage of the Australian population in general,” he said. He flagged how exposed the country’s lenders were to a correction.

“If they get a property downturn anything similar to 1989 to 1991 then they are going to have all sorts of issues,” Parker said.

Parker’s decision comes after a robust year of double-digit gains on the ASX. Not only that, but he is acting on his convictions by returning money to clients and abandoning the fees attached to a $2 billion advisory agreement.

Parker, however, displayed little nervousness about making such a significant decision. In fact, he said he has never been more certain of anything.

“Let me tell you I’ve never been more certain of anything in my life,” Parker said. “I am absolutely certain we are in a bubble in this property market. Mortgage fraud is endemic, it’s systemic, it’s just terrible what’s going on. When you’ve got 30-year-olds, who have never seen a property downturn before, borrowing up to 80 per cent to buy three and four apartments, it’s a bubble.”

In a rather dire forecast, Parker outlined a situation where the stock market could fall as low as 5200 points in the coming months, depending on the confluence of his identified risk factors.

“Australia hasn’t had its GFC event, we’ve been living in this fool’s paradise. But if China slows down the way the guys think it will towards the end of this year, then that’s 70 per cent of our exports [affected]. You can see already that the commodity market is turning down.”

Some speculated whether there is another motive behind the sudden shuttering, but Parker stridently denied any suggestion that there were other factors at play other than a pure investment decision. No personal issues, no position that has blown up and forced his hand. “No, God no,” he said. “We’ve sold out all of our positions at huge profits for our clients.”

“This game is all about reputation. I feel that we are right.”

For now, Mr Parker said he was happy to take some time off. “I’ve never had more than five weeks off in a row. I’m probably going to have four months in a row, and if something happens in between, I’ll think about it. Otherwise I’ll enjoy the time off.”

Come to think of it, in this “market”, that may be the smartest thing to do.

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Just a few days after the young French president made headlines for his white-knuckled, “not innocent” handshake with Donald Trump, Russian president Vladimir Putin was prepared for his first meeting with Emanuel Macron, with the result captured on the following clip.

TODAY |

Macron – Putin handshake lasted 7 second http://pic.twitter.com/7M82845MHz

— Vocal Europe (@thevocaleurope) May 29, 2017

What followed was talks in private between the two leaders in Versailles that lasted for almost three hours during which the two leaders discussed a number of topics ranging from bilateral relations to the situations in Syria, Ukraine, Libya and the Korean Peninsula, and culminated with a press conference in which Macron said the “Franco-Russian friendship” was at heart of his meeting with Putin and called for improved ties with Russia but warned he would hold tough positions on sanctions and the civil war in Syria.

“I want us to win the fight against terrorists in Syria and build together lasting political stability. We have laid the ground for that work together today.” Macron said. “I believe we’ve had an extremely frank and direct exchange. We have told each other everything.”

Macron also admitted he has “some disagreements” with his Russian counterpart, but said that the two leaders discussed them openly. The French president concede that serious international problems cannot be resolved without Moscow, as he stressed the importance of the role Russia plays in the modern world.

“No major problem in the world can be solved without Russia,” he said during the press conference, and added that France is interested in intensifying cooperation with Russia, particularly in resolving the Syrian crisis. The French leader went on to say that this issue demands “an inclusive political solution.”

Macron said that fighting terrorism and ISIS remains an “absolute priority” for France and serves as one of the reasons for the reinforcement of cooperation with Russia. He also said that the use of chemical weapons is a “red line” that should not be crossed, warning that the use of such weapons in Syria would trigger a “reprisal” from France. Previously, France demanded the removal of Syrian President Bashar al-Assad, a Kremlin ally, and accused his regime of staging a chemical attack in April that provoked a U.S. military response.

An unfazed Putin “welcomed the overtures” according to Bloomberg, while avoiding any public conflict with his French host, even over Macron’s accusation that Russian media spread lies and propaganda during the campaign, which came in response to a Russian reporter’s question. 

“They didn’t act like the media, like journalists. They behaved like deceitful propaganda,” Macron told RT France head Xenia Fedorova during the joint press conference. “I have always had an exemplary relationship with foreign journalists, but they have to be real journalists,” explained Macron, who defeated Marine Le Pen in the second round of the election, earlier this month. “All foreign journalists, including Russian journalists, had access to my campaign.”

Macron described RT and Sputnik as “organs of influence and propaganda” adding that both “produced infamous counter-truths about him.”

Putin again denied any efforts to meddle in the vote (shortly after the summit, Putin’s spokesman Dmitry Peskov said that Moscow “does not agree” with Macron’s statements about the two news organizations), and agreed that while the two leaders have some differences, he said that they assess many issues in a similar way, and that French-Russian relations could be “qualitatively” improved.

“We sought … common ground [in dealing] with key issues of the international agenda. And I believe that we see it. We are able to … at least try to start resolving the key modern problems together,” Putin said.

Putin said he outlined Russia’s position on Syria to Macron and said that terrorism cannot be defeated by destroying a host nation’s statehood. “It is impossible to fight a terrorist threat by dismantling the statehood of those countries that already suffer from some internal problems and conflicts,” he said at the joint press conference.

Putin said that Russia and France are determined to cooperate in resolving the crises in Syria, Ukraine and the Korean Peninsula, as well as to fight terrorism together. The Russian leader added that he and Macron had particularly agreed to establish a working group on fighting terrorism.

As Bloomberg adds, Macron met Putin “amid the gold and marble of Versailles and showed him around an exhibition commemorating Russian czar Peter the Great, who visited France in 1717.”

The invitation was intended to establish ties after months of strained relations during the French campaign. Putin openly supported two of Macron’s rivals, Republican Francois Fillon and then Marine Le Pen, and Macron’s team accused the Russian government of involvement in a series of cyber attacks on their systems.

 

“What’s important is that during our talks today we sensed that we look at many things in the same way, although there are some differences,” Putin said. “What we have in common gives us the reason to believe that we can not only intensify but significantly improve our cooperation.”

A full replay is available below.

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Authored by Kevin Muir via The Macro Tourist blog,

We all know Dirty Harry’s viewpoint about opinions, but I wonder what Detective Callahan would think about today’s bitcoin mania. It seems like every Tom, Dick and Harry feels obliged to weigh in about the manic action of the their favourite virtual currency, yet I am curious how many of these crack pundits have ever even transacted in bitcoin.

I am by no means an expert, but have at least owned bitcoins, mined them, and even arb’ed them across various exchanges. I use the word “I”, but in reality, it was with the help of my co-worker, the millennial computer engineer whiz kid that sits beside me. This is the story of my great bitcoin bungle, a tale painful to repeat, but should really be put to paper, so I can forever remember, what a knob I am…

But first, a trading yarn as old as the hills.

It comes from a story about a man who joined a friend down at the docks. They were working in a fish market. Their job was to “trade” fish.

 

All day long the price would change dramatically, the action was fast and furious. Buying and selling, selling, buying, etc. Making and losing large sums of money.

 

There was a great speculation, and the price of fish rose to levels that did not justify fundamentals. Eventually, the market collapsed, and our new trader found himself long way too many cans of sardines. The man was hungry so he opened one of the fish containers he had been trading and took a bite. “Hey”, he exclaimed, “these fish are rotten!”.

 

“Those aren’t eating sardines”, his friend explained, “they are TRADING sardines”.

Back to my bitcoin story. I can’t remember the exact date. I think it was early 2012, but that’s not the point. What is important, is that it was well before most anyone on Wall Street had ever heard of bitcoin. My millennial co-worker, who I refer to affectionately as the “kid”, had just discovered an exciting new technology, and was keen to share it with me.

“I was reading this subreddit programmer thread, and there is a new virtual currency called bitcoin that many computer guys are getting real excited about. It’s basically a decentralized currency unit. Transactions occur peer-to-peer, with no bank or government getting in the middle” he told me.

 

“But who controls it?” I asked.

 

“That’s the beauty of the technology, no one” the kid responded.

 

“If no one controls it, how do you know when a transaction occurs? How do you stop from being ripped off?”

 

“Well, there are a network of computers that are building a distributed transaction ledger, using a system based on cryptography to ensure a consensus is reached,” he explained.

 

“I don’t get it. So you basically have a ledger in the sky, that is controlled by no one. Yet we are going to use this as currency?” I asked incredulously.

 

“Yeah,” the kid responded with a big grin on his face, “it’s beautiful. No one controls it, so no one can screw with it. It’s like a libertarian’s wet dream. We should really buy some.”

 

“What? Are you f’ng kidding me?” I barked back.

 

“Yeah, maybe just take $10,000 on a punt. Who knows, it probably won’t work, but the technology is incredible. It has the power to change the world…”

At this point, I shook my head in disbelief.

“You want us to take $10,000 and buy… bits in the sky?”

 

“It’s really ground breaking stuff. It might not work, but if it does…”

 

“That is the dumbest idea I have heard in ages,” I said as I ended the conversation.

That day the price of bitcoin was around $4. In my opinion, about 390 cents too high. Over the years I have gotten a lot of things wrong in my life, but my bitcoin call takes the cake.

And it’s not like the Market Gods didn’t give me another chance.

A year later, the kid brought it up again.

“Remember that crypto currency I mentioned last year? Well, it’s moved up. Actually, it’s moved up a lot. It’s now at $30 and it’s getting some real buzz. I really think this technology is catching on. We should have a look at it.”

To which I replied, like an idiot, “that’s just a short term bubble. People will wise up and realize they are buying nothing but bits in the cloud, and that fad will be over before you know it.”

Well, I couldn’t have been more wrong…

In the next few months, the price of bitcoin started to accelerate. Before I knew it, it was $80 and no longer just some theoretical nerd experiment, but a currency people were using to transact. Granted, much of it was for clandestine illegal goods or services, but hey, the great alcoholic beverage conglomerates of today started out as bootleggers.

To my credit, at this point, I realized if it was $80, it could be $200, or $2,000. I had seen enough bubbles in my day to know that fundamental value means jackshit.

So I asked the kid to teach me all about bitcoins. I created a wallet. I bought some bitcoins. We transferred them between ourselves. I learned what it was like to actually use this technology.

And I hated it. The transactions took forever to commit to the blockchain. The process was confusing. You needed a computer science degree to actually use bitcoins. It did little to convince me that this was anything more than a fad.

But money is all the same colour, so we pressed on.

We started with some simple mining using an extra computer we had laying around the office. The kid quickly became somewhat of a bitcoin expert, and convinced us to buy these specialized computers from butterfly labs that were much more efficient at mining bitcoins. We spent a bit of bread, ordered a couple of these computers, and plugged them in. I couldn’t bring myself to outright buy bitcoins, but if we could mine a bunch, then I was happy to ride a long position after taking out our cost.

In the meantime, the price of bitcoin was exploding higher. Next thing we knew, the value of our mining was rising so quickly, the computers were paying themselves off in a matter of a couple of weeks. So we ordered more computers, each time worried the price of bitcoin would collapse and make our mining payback period unreasonably long, but the decline didn’t come.

$100, $110, $120, $140, $160, $200… the price of bitcoin kept rising.

Then bitcoin became a little more mainstream. I was introduced to RealVision TV’s Raoul Pal in November of 2013 when I came across a piece written about bitcoin – Valuing BTC Using a Macro Framework. Suddenly, the Wall Street guys were coming for it, and the price started gapping higher.

No longer was it rising by $10 a night, but bitcoin went parabolic and starting skidding 50 or a 100 handles higher in a blink of an eye.

What had started out as a bit of a joke had suddenly turned into a real business. I was scared to death the price wouldn’t hold, but gosh darn it, it was beginning to make us some real money.

And here is where the story gets more interesting. Not content to simply mine bitcoins, we started trading them.

You can mine all the bitcoins you want, but eventually, to lock in your profit, you need to sell them. For people in the financial industry, we take it for granted that when you execute a transaction, you will get your money. Send in the stock certificate to your broker, execute the sale on the exchange, collect your money. Easy peasy.

But government regulation makes sure that process flows smoothly. Brokers are regulated. There are safeguards.

Back then, bitcoin exchanges were like the wild west. It was like depositing money in a freshly opened Montana bank in the early 19th century. Yeah, it might be perfectly legit, but the recourse if one of these banks might fail was limited.

We had noticed that amongst all the exchanges, there were a couple of persistent arbitrage opportunities. Mt. Gox, a Japanese exchange, in particular seemed to consistently bid bitcoins at prices that were above the offers at other exchanges (eventually Mt.Gox would go bankrupt and bitcoin traders would lose almost everything).

In terms of my collaboration with the kid, I didn’t bring much, but this is where my extra years on this earth shone through. Realizing that these exchanges were nothing more than shoe string technology companies in some guy’s parents’ basement, I insisted we tread carefully.

Mt. Gox was obviously out of the question, something was wrong there, it didn’t take a genius to see that. But how would we know which exchanges were legit?

So we went about testing them. We transferred small bitcoin positions, made a trade, then requested the money. We timed how long it took to get our cheque or wire. The longer the delay, the less likely we were to trade with that exchange.

Once we had figured out which exchanges were (somewhat) trustworthy, we went about creating automated programs to arbitrage between the two exchanges. Don’t forget, on stock exchanges, brokers are not allowed to lock the market (offer at the price another exchange is bidding). In bitcoin, there are no rules, so there were not only locked markets, but often straight arbs (where you could buy on one exchange and immediately sell it on another exchange, locking in a profit).

For a few wild months, we mined, arb’d, and speculated on bitcoins. During that period, the price of bitcoin soared from $150 to almost $1,200. We had bought so many computers that office became so hot, we were forced to move them to an cold, Canadian un-heated garage.

When the price spiked, and then sold off, I figured the mania was over. It was like gold at $800 in the late 1970’s. Not only that, but the media attraction to bitcoin had made mining and arbitrage much more difficult. We sold the last of our XBT, and retired our mining computers.

Again, my prediction of the demise of bitcoin was completely off base.

Sure, bitcoin got quiet and drifted lower. Two years later it was $250 again. Yet, then Xi into power with anti-corruption regulatory drive. The Chinese government clamped down on capital flows, and gave bitcoin a second life I never expected.

Since the end of 2015, the price of bitcoin has gone parabolic. Not only has it surpassed the 2013 high, it has exploded to almost $3,000.

A lot has changed since our early days of bitcoin mining and trading. It has become much more professional. It is no longer simply a currency to buy illegal goods on Silk Road, but a real alternative to fiat government currencies.

Yet I feel my experience gives me a better filter in which to judge the recent bitcoin mania. I am not some bitter old man yelling at the kids to get off my lawn. When it comes to bitcoin, I can objectively say I have used it, and understand the pluses and minuses of the new technology.

But make no mistake, I have not changed my view. I am still a big bitcoin bear. And let me walk you through my reasoning.

Let me start with my main complaint.

Although I understand the supply of bitcoins is finite, the supply of virtual currencies is infinite. There is nothing stopping another virtual currency from coming along and supplanting bitcoin as the main currency. In fact, in case you didn’t think I was enough of a mope, the kid actually told me about Ethereum way ahead of the recent price rise. He highlighted the fact that Ethereum could be a better system, and might eclipse bitcoin.

Today it is Ethereum, tomorrow it could be another new virtual currency. The supply of bits in the sky is infinite. I understand the network affect, but do you really want to own something that is reliant on it maintaining popularity?

Even if you are the biggest virtual currency bull in the world, you might get the macro picture correct, but miss the micro decision by picking the incorrect eventual winner. How many technologies have seen the original incumbent eventually go bankrupt, while another company ends up dominating the industry? Is anyone using their Rio MP3 player anymore? Yet they were way ahead of Apple.

And let’s face it, bitcoin’s network is far from robust. As it is currently implemented, it can handle a theoretical maximum of about 7 transactions per second. Seriously? That’s laughably low.

The energy required for these transactions is also staggeringly high. It has been estimated that a single bitcoin transaction takes at least a thousand times more energy than a VISA transaction.

Yeah, I know… VISA is part of the banking system, and bitcoin’s genius is that it lies outside the financial system. Efficiency is not driving bitcoin’s popularity – anonymity and decentralization is.

I understand bitcoin’s attraction. But many of these individuals using bitcoin are doing so through exchanges. These transactions are by no means anonymous. To think governments are not going to get involved in regulating these exchanges is naive.

And I don’t buy the argument that the network makes bitcoin immune to government regulation. At the end of the day, the internet is run by corporations that answer to governments. Sure, bitcoin’s decentralized technology makes it much more difficult. But what if governments outlaw bitcoin exchanges? Or at least heavily regulate them?

Virtual currencies could prove a legitimate threat to government fiat currencies. No doubt about it. Everyone assumes that the virtual currency technology that exists up in the internet cloud makes bitcoin, and their ilk, free from government tinkering. Desperate governments, do desperate things. I would be scared to have any real worth tied in a currency that is such a threat to governments. Especially when that currency is based in a computer internet network that the government ultimately regulates.

Which brings me to gold. Isn’t gold an equal threat to governments? Yes, any alternative currency that might replace government fiat is a threat. But gold hasn’t seemed to capture the public’s imagination. It is difficult to store and transact in. The exact opposite of bitcoin, which has zero storage cost and is easily transferable (at least when compared to gold).

So yes, I understand why bitcoin is exploding higher versus gold. And this next tweet made me laugh because it hit so close to home.

Can’t say that I don’t feel a little tinge of a bitter sting. I have long attempted to find an asset that is impervious to Central Bank bat-shit crazy balance sheet expansion. I was handed the answer with bitcoin, well before most others, and completely whiffed. Not only that, but I have been early with my gold purchases, so I suffer from the double insult of being offside with my gold investment. I might as well get a face tattoo with the word MOPE on my forehead.

But I can’t bring myself to give up on my barbaric yellow rock. Nothing sums up my attitude about the differences between bitcoin’s ledger entry store of value versus gold’s physical presence better than this picture from Roman times:

Not sure, but I think that today even the most ardent virtual currency supporter would take the gold coin over the ledger entry debt.

Over the long run, owning a physical asset that is dependent on no one, is gold’s greatest strength. It has been a store of value for thousands of years, and I don’t think bitcoin or any other virtual currency will replace it.

During the past few years, it has become fashionable to proclaim many different asset classes bubbles. Probably no asset more so than equities.

I have seen bubbles, and they have never been low volatility grinds higher. Nope, they have been exponentially rising, high volatility affairs, filled with emotion and talk of new paradigms. Do stocks or bitcoin fill that bill better?

One of my favourite twitter traders shared this insight the other day.

And lest you think this sort of rise is sustainable, look at these anecdotes.

This is the stuff of bubbles. No doubt about it.

So far, I have been lucky enough to take some money out of bitcoin, but my forecasts have all been completely wrong. I understand if you want to ignore my warnings.

Yet I worry the public is climbing aboard a technology many don’t fully understand, with little regulation and way too much hype. In the coming months, we will hear stories of people being ripped off. I suspect when it is all done, we will look back on this period and shake our heads.

But what do I know? I am the idiot who left over $5.5MM on the table from a simple $10k investment. The only solace I take is that at least I am not the guy who paid for 10,000 bitcoins for two pizzas in 2010. That’s some expensive pizzas…

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