Month: July 2017

UN Ambassador Haley Warns – America’s “Done Talking About North Korea…”

Just hours after showing "lethal, overwhelming force" with a 'drill' sending two B-1 bombers over the Korean Peninsula, US ambassador to the UN, Nikki Haley, appears to ratcheted up the warmongering to '11' with her latest tweet…

She also retweeted a report about the bomber jet drills…

It appears Haley has moved on from her anti-Assad rages and found an easier-to-accept target.

This latest escalation in rhetoric – getting increasingly close to 'red line' from the so-called "warmonger extraordinaire" follows her comments earlier this month that…"Today is a dark day – it is a dark day because yesterday's actions by North Korea made the world a more dangerous place."

Antonius Aquinas had some less than complementary comments about the UN ambassador recently…

That Haley was even chosen to become part of the Trump Administration has been odd from the beginning, but as things have unfolded quite telling.  Haley was a vociferous critic of the future president.  She, and the likes of another war-monger and Russophobe, Lindsey Graham, were consistently attacking candidate Trump for being “soft” on Russia and his immigration stance especially his wildly popular border wall proposal.  To Haley and Graham, Donald Trump was out of step with the Republican Party’s values such as diversity as represented by Haley who, herself, is of Indian heritage.

Yet, despite all of the vitriol heaped at candidate Trump, the newly elected president, in a surprising and ominous move, decided to make the South Carolina governor, UN ambassador.  This, and a number of other selections to foreign policy posts, signaled that President Trump would abandon his promises and vote-garnering campaign talk of peaceful coexistence with Russia, a reduction of US presence in the Middle East, and in other hot spots across the globe.

While Haley has been an ardent warmonger from the start, President Trump did not have to select her for the post.  There were other more competent and surely less belligerent candidates available.  More than likely, the choice was probably a nod to his “advisor” daughter Ivanka, to curry favor among feminists.

While President Trump’s pick of Haley was an implicit betrayal of a large segment of his base, his foreign policy actions since becoming chief executive have been an explicit rejection of putting America first which he spoke of at his inaugural.  From escalating tensions with puny North Korea, dropping the mother-of-all-bombs on Afghanistan for no apparent reason, to making multi-billion dollar armament deals with the despots of Saudi Arabia among other troubling endeavors, Trump’s foreign policy is little different than his infamous predecessors.

While it looks like President Trump may have won the war, at least temporary, over the press and the anti-Trump Congressional forces about the fake Russian election involvement, he and his bellicose UN ambassador are now using the same underhanded methods to instigate a conflict to depose President Assad.  While the alternative media rightly showed how the mainstream press and politicos made up and manipulated stories to undermine President Trump, it should now be intellectually honest and call out the president and his UN ambassador for what they are doing in Syria.  In doing so, it may prevent the outbreak of WWIII.

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Explosion Rocks Caracas, Injures Cops As Venezuela Votes

With opposition parties boycotting what they call a rigged election, Reuters reports the streets of Caracas were deserted on Sunday as a minority of Venezuelans trickled to the polls to elect a constitutional super-body that unpopular leftist President Maduro vowed would begin a new era of combat in the crisis-stricken nation. That is good news as, following the death of two people yesterday, shortly after a large group of motorbikes sped through the city, and explosion hit, reportedly injuring a number of police officers.

A number of police officers were injured in Venezuela's capital Caracas after an explosion during an anti-government protest decrying a vote for a constituent assembly on Sunday, according to a Reuters witness.

Further details were not immediately available.

The moment of the explosion…

Social media is awash with clips of injured (it is uncertain if this is from the explosion)…

For now, the fire from the explosion continues…

As a reminder, Reuters reports, Maduro, widely disliked for overseeing an economic collapse during four years in office, has pressed ahead with the vote to create the all-powerful assembly despite the threat of further U.S. sanctions and months of opposition protests in which more than 115 people have been killed. Opposition parties are boycotting what they call a rigged election. Their sympathizers planned protests on highways across the South American country and scuffles were already reported in the provinces – raising the prospect of violent clashes with tens of thousands of troops deployed to safeguard the vote.

Authorities confirmed there were two deaths on Saturday, including the killing of a candidate to the assembly during a robbery, while the opposition put the total death toll in Saturday's protests at five.

Critics say the assembly will allow Maduro to dissolve the opposition-run Congress, delay future elections and rewrite electoral rules to prevent the socialists from being voted out of power in the once-prosperous OPEC nation.

The opposition has vowed to redouble its resistance and U.S. President Donald Trump has promised broader economic sanctions against Venezuela after the vote, suggesting the oil-rich nation's crisis is set to escalate.

"Even if they win today, this won't last long," said opposition supporter Berta Hernandez, a 60-year-old doctor, in a wealthy Caracas district. "I'll continue on the streets because, not long from now, this will come to an end."

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The Feds Are Terrified Of Cryptocurrencies… But They’re Powerless To Stop Them

Authored by Josie Wales via TheAntiMedia.org,

The federal government is no match for innovation. This is something lawmakers have always known, and it is the reason state and federal regulations exist. But innovation, by its very nature, will always find a way around those regulations, resulting in the implementation of more regulations for creative minds to learn to evade — which they will. This results in the over-regulation we see in America today.

Nothing scares the government more than something it can’t control, and the Securities and Exchange Commission (SEC) revealed this week that it is terrified of cryptocurrencies — as well it should be. See, all those lawmakers and bureaucrats sitting around regulating everything depend on taxpayer money to pay their salaries so they can keep writing regulations. Since cryptocurrencies allow people to keep all of their money, this is a big problem for the lawmakers. Soon, people may even start to realize they can buy, sell, and trade freely without any government intervention. The horror.

So the SEC recently got together to write up even more regulations to try to scare people away from using cryptocurrencies and the blockchain by targeting Initial Coin Offerings, or ICOs. Initial Coin Offerings have become very popular recently as a way for crypto start-ups to raise funds for their ventures using digital tokens (cryptocurrency) like Bitcoin or Ethers. They operate on a blockchain, which is a decentralized digital ledger of publicly and chronologically-recorded cryptocurrency transactions. Investopedia gives a wonderfully detailed breakdown of how ICOs work. You can read it here or watch an explanation by technologist and author of The Internet of Money and Mastering Bitcoin Andreas Antonopoulos here.

Basically, with the birth of the ICO came the emergence of a whole new market — one with a great deal of money floating around that the federal government couldn’t take by force. Naturally, this had to be investigated, and on July 25, the SEC released a Report of Investigation under Section 21(a) of the Securities Exchange Act of 1934. The investigation zeroed in on the DAO, a distributed autonomous organization that set the record for the largest crowdfunding campaign in history, raising over $150 million in ether in 2016. According to the report published by the SEC:

“The Commission applied existing U.S. federal securities laws to this new paradigm, determining that DAO Tokens were securities.  The Commission stressed that those who offer and sell securities in the U.S. are required to comply with federal securities laws, regardless of whether those securities are purchased with virtual currencies or distributed with blockchain technology.”

Or, as crowdfunding lawyer Amy Y. Wan explains, the press release amounts to the SEC saying: 

“For those of you out there doing ICOs, we’re here to warn you that U.S. securities laws might apply. When we say might, we mean just that — sometimes securities law will apply, sometimes it won’t. It depends on the specific facts of the ICO.”

Okay, so the government wants to regulate virtual tokens, aka cryptocurrency. Good luck. As blockchain engineer Elaine Ou pointed out on Twitter, ICO’s are “Untraceable, international, [have] no central authority, [and] funds can’t be frozen. The SEC ICO warning is the best ad for ICO’s.”

So while the government can — and will — continue to make the lives of innocent people miserable using weapons like civil asset forfeiture, crypto regulations, web-provider takedowns, and the war on drugs, these are all last ditch efforts by a desperate ruling class on its death bed.

The creativity and resilience human beings possess do not exist within the jurisdiction of the government – no matter how hard it tries to convince us otherwise.

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Zombie Corporations Litter Europe, Kept Alive By ECB

Authored by Mike Shedlock via MishTalk.com,

Bank of America says 9% of European firms have subpar interest coverage. Bloomberg covers the story in its report Zombie Companies Littering Europe May Tie the ECB’s Hands for Years.

Watch out for the zombies.

 

The plethora of companies propped up by the European Central Bank will limit policy makers’ ability to withdraw monetary stimulus that’s been supporting the continent’s bond market since the financial crisis, according to strategists at Bank of America Corp. About 9 percent of Europe’s biggest companies could be classified as the walking dead, companies that risk collapse if the support dries up, according to the analysts.

 

“Monetary support in Europe over the last five years has allowed companies with weak profitability to continue to refinance their debt and stave off defaults,” analysts led by Barnaby Martin wrote in a note Monday. “This supports the point that our economists have been making: that the ECB will likely be very slow and patient in removing their extraordinary stimulus over the next year and a half.”

 

The strategists classify zombies as non-financial companies in the Euro Stoxx 600 with interest-coverage ratios — earnings relative to interest expenses — at 1 or less. The thinking goes that companies in this category are particularly vulnerable to rising interest rates.

 

The ECB’s dovish tone last week — pushing back the timing for a decision on the future of its bond-buying program until possibly October — confirms it will embark on a gradual pace of tightening in order to juice the economic recovery, according to Bank of America. It reckons the ECB’s taper will start in January 2018, with the first increase to the deposit rate projected in the spring of 2019, compared with consensus expectations for a hike in October 2018, according to overnight index swap contracts compiled by Bloomberg.

 

Similar studies confirm zombie firms litter the landscape across developed markets, and place the blame squarely on loose monetary policy. Last month, the Bank for International Settlements calculated businesses more than 10 years old whose earnings don’t cover interest expenses represent almost 10.5 percent of publicly listed companies across 13 advanced economies, compared with less than 6 percent pre-crisis.

Negative Progress

Right before the collapse of Lehman, about 6 percent of European companies had a coverage ratio of less than 1.

Last month, the Bank for International Settlements calculated businesses more than 10 years old whose earnings don’t cover interest expenses represent almost 10.5 percent of publicly listed companies across 13 advanced economies, compared with less than 6 percent pre-crisis.

Why Zombies Matter

Daniel Lacalle explains Why Zombies Matter

Low interest rates and high liquidity have not helped deleverage. Global debt has soared to 325% of GDP. Loose monetary policies have not helped clean overcapacity, and as such zombie companies perpetuate the glut in many sectors, driving down the growth in productivity and, despite historic low unemployment rates, we continue to see real wages stagnate.

 

The citizen does not benefit from the zombification of the economy. The citizen pays for it. How? With the destruction of savings through financial repression and the collapse of real wage growth. Savers pay for zombification, under the mirage that it “keeps” jobs.

 

Zombification does not boost job creation or buy time, it is a perverse incentive that delays the recovery. It is a transfer of wealth from savers and healthy companies to inefficient and obsolete businesses.

 

The longer it takes to clean the overcapacity -whcih stands above 20% in the OECD- and zombification of the economy, the worse the outcome will be. Because, when the placebo effect of monetary policy disappears, the domino of bankruptcies in companies that have been artificially kept alive will not be offset by the improvement in high added-value sectors. Policy makers have decided to penalize the high productivity sectors through taxation and subsidize the low productivity ones through monetary and fiscal policies. This is likely to create a vacuum effect when the bubble bursts.

Damned Either Way?

Bank of America provided the kicker: The ECB risks a big backlash if it were to tighten policy prematurely. Allowing a “credit tantrum to take hold would only pressure corporate interest costs again, and risk a rise of the zombie.”

Thank you not, central banks!

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An Angry, “Irritated” Italy Loses Patience With Macron Over Migrants, Libya

One week after the latest Ifop poll showed that French president Macron’s approval rating tumbled by 10 points in his third month, with only Jacques Chirac sliding more from his May 1995 election to July of that year according to Journal du Dimanche…

… the young president’s troubles are spilling outside France’s borders, and as VoA reports, even as Merkel’s political infatuation with Macron grows by the day, Italy is quickly falling out of love with Macron as  irritation with France’s president is mounting in Rome. At the center of the rising tensions is Italy displeasure with how Europe is handling the country’s refugee crisis: tensions have crept into diplomatic relations between France and the government of Paolo Gentiloni, prompted by Macron’s response to Italian pleas for more European assistance with the mainly sub-Saharan migrants crossing the Mediterranean in record numbers and his largely uncoordinated diplomatic intervention in the past week over the Libya crisis.

On Tuesday, Macron oversaw a meeting in Paris of the leaders of two of war-torn Libya’s rival factions to discuss a political power-sharing deal to reunite the fractured north African country.


President Macron meets Italian PM Paolo at the Elysee Palace in Paris, May 21, 2017

Italy is furious that the meeting between the head of the U.N.-backed government of Prime Minister Fayez al-Sarraj  – which has failed to assert authority even in the Libyan capital Tripoli – and General Khalifa Haftar – a warlord who largely controls the east of the lawless country – was not coordinated with the Italian government. As a result, Gentiloni’s ministers took the unusual step of openly criticizing the French president this week, voicing frustrations with Macron’s efforts, which they argue distract from a coordinated U.N. and European Union effort to engineer a political deal in Libya between three rival governments and dozens of militias. 

“There are too many open formats in Libya, too many mediators, too many initiatives,” Italy’s foreign minister, Angelino Alfano, told the Italian newspaper La Stampa.

Alfano and other ministers have been dismissive of the progress the Elysee Palace claimed to have made in the search for a deal in Libya. According to the French government, al-Sarraj and Haftar have committed to a cease-fire as well as to a continued political dialogue in an effort to achieve national reconciliation. The Italians also believe that Macron has fallen into a trap set by General Haftar, who has refused to accept the legitimacy of Fayez al-Sarraj’s government. Italian officials complain that the Macron-brokered meeting helps to legitimize Haftar, whom they see as a warlord and a strongman-in-the-making.

Separately, officials in the Italian capital say Italy is far more of a “front-line” state when it comes to Libya and suffers more immediate impact than France when it comes to political developments on the other side of the Mediterranean, which is why they have been infuriate by France’s brash overtures to take the lead on political negotiations with the civil war-torn state, and have also accused Macron of brashness in waiving off Italian objections, arguing he’s being too high-handed.

It isn’t just Italy.

Accusations of Macron’s high-handedness were also echoed in France, on his approach to a range of issues, domestic and foreign, with one retired general, Vincent Desportes, accusing Macron of “juvenile authoritarianism.”

As VoA adds, Macron’s Libya diplomacy is just one irritant in increasingly tension-filled Franco-Italian relations, in which Macron has been also accused of duplicity and hypocrisy in his diplomatic conduct with Italy. In May, after meeting Gentiloni in Paris, Macron announced: “we have not listened enough to Italy’s cry for help on the migration crisis.” But Macron’s position since hasn’t changed much from Francois Hollande, his predecessor in the Elysee Palace, to the Italian government’s rising anger.

Aside from Libya, an even more pressing issue for Italy has been the ongoing pleas for burden-sharing when it comes to the country’s migrant wave, pelase which have so far fallen on deaf ears among other EU nations. Meanwhile, Italy’s refugee centers and shelters have reached their capacity of 200,000. So far this year nearly 100,000 asylum seekers have crossed the Mediterranean from Libya — a 17 percent increase over the same period last year — and with months more of good weather, another 100,000 asylum seekers are likely to land at Italian ports.

Pointing the finger explicitly at Paris, Italy’s deputy foreign minister, Mario Giro, this month complained, “it doesn’t seem like France wants to help us concretely.”

Italy has reason to be angry: French police have been blocking hundreds of migrants on the Italian side of the border at Ventimiglia from entering France; the French government is refusing to allow asylum seekers rescued in the Mediterranean from landing at French ports and, like nearly every other EU country, France hasn’t come anywhere near meeting its quota of migrants as agreed to under a 2015 EU refugee relocation scheme, even as the EU sues to force Poland, Hungary And Czech Republic to accept more refugees.

Adding insult to injury, earlier in July, Macron talked of distinguishing between war refugees and economic migrants, indicating that France won’t admit any asylum-seekers who are just escaping poverty and hunger. But that doesn’t help Italy as it tries to cope with a mounting influx of mainly economic migrants, who, under EU rule, it has little alternative but to admit, at least for processing and to save lives.

Paris has also scorned an Italian proposal for an EU military mission to monitor and interdict migrants along Libya’s southern border. Italians question why a large French military mission in Niger isn’t being used to disrupt migrant trafficking when it is right by the main route being used by smugglers and would-be asylum seekers traveling north.

Last month, the European Parliament’s most senior left-wing politician, Italian Gianni Pittella, launched a scathing attack on Macron after French police frogmarched back into Italy more than 100 migrants who’d crossed into France.

“The situation is shameful. Italy and the Italians are being abandoned, they’re being expected to deal with all these migrants on their own with no support,” he said.

And even as he loses the support of Europe’s periphery, and certainly the nation which recently surpassed Germany as the largest sovereign debtor in Europe, for now Macron’s precarious political stance is propped up – if only in the diplomatic arena – by Angela Merkel’s (so far) unquestioned admiration and support. Should Macron lose that, however, it may be time to start worrying about the next French presidential election.

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A Stronger Euro Will Ruin The QE Taper Plans

Just like any good (or mediocre) telenovela, the plot twists at the central banks all over the world aren’t only very predictable, it’s also laughable how the presidents and chairman of the respective banks try to ‘guide’ the market by using specific words.

In just the past few months alone, we have seen several central banks making bold statements only trying to walk them back a few weeks later. An example? The Fed which was expected to hike the benchmark interest rates once again in September and to reduce the size of its balance sheet by winding down the trillions of ‘investments’ in securities.

The ECB followed suit, and Mario Draghi sounded extremely ambitious as he was already hinting at ‘normalizing the interest rates’ and to reduce the buyback rate of the securities. However, the recent ‘crash’ of the US Dollar versus the Euro might have some serious consequences for the Eurozone, and more specifically for the ECB.

Source: stockcharts.com

In 2010, the OECD published a report discussing the impact of several economic (mini-) shocks on the GDP levels of several first-tier economic countries and areas. Based on the evidence from the next three charts, we would argue the ECB is still lightyears away from hiking the benchmark interest rate to a ‘normalized’ level.

Argument 1: the stronger Euro. In its 36-pager, the OECD has investigated the impact of a 10% depreciation of the US Dollar. According to its calculations, the recent 10% depreciation would have an impact of 0.1% on the inflation rate in the first year, increasing to 0.3% from Y3 on.

Source: OECD

Argument 2: A sustained increase of 1% of the US benchmark interest rate (which has almost been reached) would only have a minimal impact on the inflation rate in the Eurozone. Whilst a negative impact of 0.1% might indeed seem to be negligible, but a 0.2% reduction of the Eurozone’s GDP is nothing to sneeze at either.

Source: OECD

Argument 3: an increase of the Eurozone’s interest rates would only make things worse. The impact on the Eurozone GDP would be -0.7% from year five on, and the inflation in the Eurozone would actually DECREASE, as more people will want to save cash to take advantage of the higher interest rates. In fact, we would think this effect might even be underestimated because then the OECD made its calculations, it didn’t take into consideration consumers would be coming out of a prolonged period of NIRP and ZIRP policies. This could result in consumers being relieved to receive ‘anything’ on their savings accounts, further building up their equity to get a decent interest income.

Source: OECD

So, taking all these parameters into account, there’s only one parameter the ECB has an influence on and that’s its own benchmark interest rate. It won’t really be able to actively steer the Euro-Dollar ratio (not unless it pumps more cash in the system) and it definitely won’t be able to do or say anything to rewind the rate hikes of the Federal Reserve.

The three parameters currently on the table would reduce the inflation rate by 0.6%, and have a negative impact on the GDP of approximately 1.6%. This could be dramatic as it’s could reduce the GDP growth rate of the Eurozone to zero.

>>> Click HERE to read our Guide to Gold <<<

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With The Drought Over, “Gold Fever” Grips California

The heavy rains that pummeled California this year ended the state’s historic drought in spectacular fashion, saving the state’s farming and tourism industries from an uncertain future. But the return of rainfall has had other less obvious economic ramifications, including, as the Los Angeles Times reports, the revival of an activity that’s been associated with the state for more than 150 years: Prospecting for gold.

Thanks to the rain, the yellow metal is once again being found in the state’s riverbeds for the first time since a judge’s controversial ruling prohibited the use of pumps and other equipment that were once required to extract gold from the state’s rivers.

Russ Tait

And now that word has spread, the possibility of discovering immense riches underfoot is inspiring entrepreneurial Californians of a variety of ages and backgrounds to venture to the state’s rivers and creeks in search of the shiny yellow metal, sometimes equipped with little more than a pan, as they hope to collect gold fragments buried in the muck under the water, according to the LAT.

Many have also taken to prospecting to suppliment their incomes, as wages in the US have stagnated and more than 90 million Americans aren't working.

Russ Tait, an elderly man who spoke with the LAT, insists om venturing down to Eagle Creek in Central California – not far from where the Detwiler fire broke out in Northern Mariposa County.

“Tait has bone cancer, so getting down to the creek isn’t easy. But even if his days are numbered, he isn’t above dreaming. He peers into the murky solution, hoping to glimpse something shiny.

 

“I guess you call it gold fever,” he says. “You get out there, and there’s times where you get tired and you don’t want to quit.”

Even in the middle of the drought, Tait, a longtime prospector, and several friends would venture down to the river looking for gold, only to return empty handed. The reason? Back in 2009, a state judge temporarily blocked prospectors from using motorized equipment near the state’s rivers after environmental groups complained that they could damage fish habitats. The ruling was meant to be temporary pending a study, but to this day, no final ruling has been made.

"The equipment was once necessary to separate gold from the slowing rivers. But now with water gushing forth from the state’s mountains, the motorized equipment isn’t needed.  

Now prospectors hunt for “irregularities” in rivers that could create “a backward eddy” that would allow the gold to drop to the water’s floor.

 

Excessive ria severe flooding, and very nearly the failure of the Oroville dam in Northern California, has changed that.

 

Geological gumshoes, they search for ancient rivers, for rounded boulders tumbled together, for orange soil tainted by rusted iron and veins of quartz hiding gold.

 

They read streambeds, imagining how the current flowed during floods, hunting for any irregularity — a riffle, a ledge, a waterfall — that could create a backward eddy for the gold to escape the water’s momentum and drop to the floor."

One prospector named Robert Guardiola helped organize an outing of nearly 40 miners to the Golden state's “Mother Lode." Guardiola and company are wearing waders and knee pads and equipped with pans and cradles.

“Late afternoon, after nearly an hour in the water, Guardiola totes two five-gallon buckets up from the creek. One contains trash collected from the shallows: a spark plug, a shotgun shell, a square-headed nail, a spatula and part of a car door.

 

The other contains his concentrates, less than a cup of dark sand sloshing about in water.

 

Panning it, he separates the lighter material from the heavier to reveal a few gold specks, each no bigger than a fat flea.”

As the LAT explains, the “Mother Lode,” which runs along the Sierra Nevada mountain range, was the epicenter of the 1848 gold rush, which saw $2 billion in gold extracted from the area in less than five years. For Guardiola, prospecting has become a second career of sorts.

“Guardiola, 52, purchased the right to mine these 20 acres in 2001. When he first walked out on this property, he knew he could be happy here. Ten deer, two bucks and fawns browsed beneath the oaks. A stream — Grizzly Creek — cut through the property, which already had two mines on it, always a good sign.

 

Seven years later, after losing his equipment rental store in Modesto to a broken plumbing pipe and a slow insurance claim, he began to work the claim more seriously.

 

Prepped for the cold — insulated waders, booties, wool socks and sneakers — Guardiola wades into a pool of 55-degree water as deep as his thighs.

 

“We’ll see if Mother Nature was kind and restocked my bank,” he says.

According to the LAT, the stream was dry during the worst days of the drought. Last year it became a trickle. Then this year, the winter brought a torrent of water as well as two feet of new rock and gravel deposits known in the profession as “overburden.”

For the amateur prospectors, the hobby has brought with it a kind of hope.

“As long as I’m not sure what’s in the bucket,” says Tom Mutschelknaus to the LAT, “there’s hope.”

Mutschelknaus prospects near the South Fork of Stanislaus River, a few miles from where one lucky miner pulled nearly 800 ounces out of the ground. Many prospectors have been following gold’s climb this year, excited that an amount that would almost fill a lipstick case is worth more than $1,200.

While the LAT doesn’t touch on the parallels between the gold miners and cryptocurrencies like Bitcoin and Ethereum, often referred to as “digital gold,” Shannon Poe, 55, described prospecting in similar terms to the techno-libertarians who represent bitcoin’s most hardcore users.

“In his company, gold mining seems less a get-rich-quick scheme than a libertarian impulse, an exercise in independence and self-determination as much a part of the American heritage as the rights guaranteed by the Constitution.

 

Ask him what his political party is, and he’ll say he is neither a Republican nor a Democrat.

 

“We are more constitutionalists than anything else,” he says.

With this framing in mind, the rush of amateur prospectors is hardly surprising. Since bitcoin first entered the public consciousness in 2013 thanks to stories of hobbyists becoming newly minted millionaires overnight, Americans everywhere are looking for the next easy score. In that respect, similar impulses appear to be behind both trends. But at least with prospecting, the only thing hobbyists are risking is their time.

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The Perfect Crash Indicator Is Flashing Red

Authored by John Rubino via DollarCollapse.com,

What’s the last big toy you buy when things have been good for a really long time and you already have all the other toys? An RV, of course. A dubious thing to own if you already have a house, but when the good times seem likely to roll on forever, why the hell not?

And what’s the first thing you sell when you lose your job and your stocks are tanking? That very same RV. Which makes new RV sales a useful indicator of our place in the business cycle.

What does it say now? Here you go:

Notice the mini-spike in the late 1990s and the major spike in mid-2000s, both of which were followed by corrections. Now note the mega-spike from 2010 and 2016.

And how are things going so far this year? Well, the space is on fire:

‘The RV space is on fire’: Millennials expected to push sales to record highs

 

(CNBC) – RV shipments are expected to surge to their highest level ever, according to a forecast from the Recreation Vehicle Industry Association.

 

It would be the industry’s eighth consecutive year of gains.

 

Thor Industries and Winnebago Industries posted huge growth in their most recent earnings report.

 

Those shipments are accelerating, and should grow even more next year, the group said. Sales in the first quarter rose 11.7 percent from 2016.

 

Much of the growth can be attributed to strong sales of trailers, smaller units that can be towed behind an SUV or minivan, which dominate the RV market. The industry also is drawing in new customers.

 

As the economy has strengthened since the Great Recession, and consumer confidence improved, sales have picked up, said Kevin Broom, director of media relations for RVIA.

 

Two of the major players in the industry, Thor Industries and Winnebago Industries, both manufacturers of RVs, reported huge growth in their most recent earnings report. Thor saw sales skyrocket 56.9 percent to $2.02 billion fromlast year. Winnebago’s surged 75.1 percent last quarter to $476.4 million.

 

Gerrick Johnson, an analyst at BMO Capital Markets, attributed much of that growth to acquisitions. Thor bought Jayco, then the No. 3 player in the industry, last June; Winnebago bought Grand Design in October.

 

Thor stock has experienced strong growth over the past year of almost 40 percent. Winnebago tells an even better story: Its shares are up 56 percent over the past 12 months.

 

“They’ve done massively well because they’ve made massively creative acquisitions,” said Johnson. “Wall Street didn’t realize how creative those deals were. Each quarter they came through. The RV space is on fire, and the demand metrics are quite positive.”

What we have here is another classic short. During the past couple of recessions, RV stocks plunged as everyone came to their senses and stopped buying $60,000 motel rooms. Based on the above chart that’s a pretty good bet to repeat going forward. Let’s revisit this play in a couple of years.

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Goldman’s Clients Are Confused About Inflation: Here’s Why

In his latest weekly kickstart, Goldman's chief equity strategist David Kostin (who has maintained his year end S&P price target of 2,400 of -3% from current levels), says that the one topic most confusing (and important) to Goldman's clients in the past week, was what happens to inflation next: "the US inflation outlook and its equity investment implications were key topics of discussion during recent visits with clients in Boston, Chicago, and New York. Core Personal Consumption Expenditures (PCE) data released [on Friday] showed a year/year inflation rate of 1.5% in 2Q. Wednesday’s Fed statement acknowledged that inflation was running “below” its 2% target, a revision from the “somewhat below” description used previously."

Kostin points out that while fixed income managers have always had to take a view on inflation, now that the Fed's "reaction function", to use an IMF-ism, is entirely driven by concurrent and future inflation expectations, and as a result "equity investors must also take a stand and position portfolios accordingly. The anticipated path of inflation is an important determinant of the trajectory of Fed policy tightening. Bond yields will be affected in turn via expectations of future hikes and the term premium, and stock prices by extension will be influenced through the equity risk premium."

As for why Goldman's clients are "confused", Kostin points out something we have discussed on several occasions recently: depending on what indicators one uses, inflation can be expected to rise, drop, or stay the same: 

"Looking forward, will the rate of inflation in 2018: (a) decelerate, (b) accelerate, or (c) stay about the same? The answer depends on the information source. Treasury Inflation Protected Securities (TIPS) imply inflation will decelerate; Goldman Sachs economics forecasts an acceleration (to 1.9%); while corporate pricing varies both across and within industries. For example, branded pharmaceutical prices are rising by 9% (offset partially by rebates) while generic drug prices are falling by 9%."

Some more details behind these perplexing numbers:

  • The TIPS market implies inflation will average 1.3% annually during the next two years and 1.8% annually through 2027. As a result, fed funds futures currently imply just a 50% probability the FOMC will hike once more by year-end 2017 and expect just two hikes in total through the end of 2018.
  • In contrast, Goldman Sachs economics believes underlying inflation will trend towards the Fed’s 2% objective. Specifically, our economists forecast core PCE will reach 1.6% by year-end 2017 and climb to 1.9% by the end of 2018. The trend in inflation will prompt steady policy tightening starting with a 25 bp hike in December followed by four hikes in each of 2018 and 2019 that will lift the funds rate to 2.4% and 3.4%, respectively.

In a humorous swipe at his own economics team, Kostin writes that "we have met no equity investors who subscribe to this forecast."  So much for Goldman's legendary ability to shape investor sentiment. 

Then there are the government's own measurements of inflation:

The components of measured PCE inflation are split 25% in Goods and 75% in Services. The goods category has shown consistent deflation for several years and our economics team forecasts that trend will persist in 2017 and 2018 (see Exhibit 5). A leading driver of disinflation has been the Video, Audio, and Computer category where prices dropped by 5% in 2015, by 10% in 2016, are declining at an average pace of 7% YTD, and we forecast will fall by 4% and 7% in 2017 and 2018, respectively.

 

 

However, Services PCE inflation is the more important category and the trends are mixed, which is why market participants have such divergent views on the underlying pace of inflation. The four largest Services categories account for 65% of core PCE inflation and include Medical Services (19%), Housing (19%), and Financial Services (9%).

Separately, what inflation information can investors glean from corporations and the equity market?

Confirming what the latest Census data showed last week, namely that asking rents across the nations just fresh all time highs…

… Goldman flags that apartment owners suggest rental inflation remains above the Fed’s overall inflation target of 2%. Six public apartment REITs own 357,000 multifamily units (AVB, ESS, EQR, AIV, CPT, UDR). Same-store rental growth in REITs has been a leading indicator of the change in owner’s equivalent rents (OER) in the government’s housing inflation measure (Ex. 3).

Average rental growth for these REITs equaled 5.6% in 2015 and 4.8% in 2016. More notably, Kostin writes that "because analysts forecast rental growth will slow to 2.9% this year and 3.1% in 2018, housing inflation represents a fading tailwind to core PCE inflation." To be sure that would be great news to a middle class that has never had to pay more out of pocket for the monthly rent…

On the other hand, a conflicting picture emerges from the deflation observed in certain parts of Financial Services. The Investment Company Institute (ICI) reports that average fees for active equity management have dropped from 108 bp in 1996 to 82 bp today, although we doubt that one can seriously claim with a straight face that there is delfation because millionaire LPs are paying not 2 and 20 any more but 1 and 10 or less.

Meanwhile, inflation and interest rates affect equity valuations. The gap between the S&P 500 earnings yield and ten-year Treasury yield represents a short-hand measure of the equity risk premium. The gap in the “Fed Model” currently equals 320 bp (5.5% less 2.3%), below the average of the past 10 years (460 bp) but above the average of the past 40 years (250 bp).

Which brings us to Goldman's summary: based on all the initial assumptions, Kostin's S&P 500 price target of 2400 suggests the yield gap will narrow to 300 bp by the end of 2017. The yield gap has narrowed by 300 bp since February 2009.

Our economists forecast the Treasury yield will rise by 50 bp to 2.75% at year-end. Higher interest rates coupled with a slightly lower risk premium is consistent with our S&P 500 year-end target of 2400 (-3%). However, if inflation remains subdued and the bond yield hovers near the current level, the Fed Model would imply a S&P 500 fair value of 2650 (+7%) (see Exhibit 4).

Finally, and going back to the original underlying confusion, Goldman concludes that "whether they are bullish, bearish, or neutral, every equity investor is implicitly or explicitly taking a view on the inflation outlook." That… or simply taking a view that no matter how this latest inflation vs deflation debate plays out, the Fed and central banks will always be there, ready to bail out the wealth effect that they have so carefully cultivated over the past 9 years with $15 trillion in liquidity injections, and which nobody seriously thinks they will let go to waste just to make a statement that the market can levitate on its own without constant central bank manipulation.

via http://ift.tt/2v8R3MC Tyler Durden