Month: September 2017

Submitted by Lance Roberts of Real Investment Advice

Almost a full year after the election of Donald Trump to the White House, one of the key promises made to voters was the largest “tax cut” since Ronald Reagan was in office. As President Trump stated in Indiana yesterday:

“This is a revolutionary change, and the biggest winners will be middle-class workers as jobs start pouring into our country, as companies start competing for American labor, and as wages continue to grow. This will be the lowest top marginal income tax rate for small and mid-size businesses in more than 80 years.”

Here are the major points as summed up by BI.

Business tax changes:

• A 20% corporate tax rate. This is the first time Trump has publicly backed down from one of his earliest campaign promises: a 15% corporate tax rate. The budget math required for a 15% rate was too difficult, so the somewhat higher rate is the opening bid. The current statutory federal rate is 35%.
• A 25% rate for pass-through businesses. Instead of getting taxed at an individual rate for business profits, people who own their own business would pay at the pass-through rate. The plan also says it will consider rules to prevent “personal income” from being taxed at this rate. Mnuchin previously suggested there may be limitations on what types of businesses get this rate — it could apply only to goods producers and not service-oriented companies to prevent people from creating limited-liability corporations to store their assets and receive a lower rate.
• Elimination of some business deductions, industry-specific incentives, and more. There are few details, but the plan includes language regarding the “streamlining” of business tax breaks.
• A one-time repatriation tax. All overseas assets from US-owned companies would be considered repatriated and taxed at a one-time lower rate — this is designed to bring corporate profits back from overseas. Illiquid assets like real estate would be taxed at a lower rate than cash or cash equivalents, and the payments would be spread out over time. While there is no precise number in the plan, officials have indicated the rate could end up somewhere around 10%.

Personal tax changes:

• A bottom individual tax rate of 12%. The plan specifies three tax brackets, with the lowest rate being 12%. That would represent a slight bump in the bottom bracket, which is now 10%. People currently in the 15% marginal tax bracket would most likely be included here.
• A middle tax bracket of 25%. The incomes in this bracket aren’t specified.
• The top individual tax rate of 35%. The current top rate is 39.6%.
• The possibility of a fourth, higher bracket. Because of Trump’s insistence that taxes for the wealthiest Americans not decrease, the plan proposes the possibility of a fourth tax bracket at a rate higher than 35% if the tax-writing committees wish. “An additional top rate may apply to the highest-income taxpayers to ensure that the reformed tax code is at least as progressive as the existing tax code and does not shift the tax burden from high-income to lower- and middle-income taxpayers,” the plan reads.
• A larger standard deduction. To avoid raising taxes on those currently in the 10% tax bracket, the standard deduction for all taxes would increase to $12,000 for individuals (up from $6,350) and $24,000 for married couples (up from $12,700). These are slightly less than the doubled deductions expected and the idea this would save people money may be misleading.
• Eliminates most itemized deductions. The only deduction preserved explicitly in the plan is for charitable gifts and home-mortgage interest.
• Increases the size of the child tax credit. A pet project of Ivanka Trump, the proposal is to make the first $1,000 of the child tax credit refundable and increase the income level at which the credit would phase out.
• Vague promises on retirement savings and other deductions. Sections of the plan refer to retirement savings and other “provisions,” but details are sparse.
• Elimination of the state and local tax deduction. The so-called SALT deduction allows people to deduct what they pay in state and local taxes from their federal tax bill. Most of the people who take this deduction are wealthier Americans in Democratic states — about one-third of the beneficiaries are in New York, New Jersey, and California.
• Elimination of the estate tax. Called the “death tax” in the plan, this applies only to inherited assets totaling $5.49 million or more in 2017. Very few households pay the estate tax, but it has long been a target for Republicans.

Devil In The Details

As in always the case, there are some important points to remember. This is just a proposal. This will have to go through several drafts, negotiations, and tweaking before a final bill is voted on by the House. It will then go to Senate for changes and a vote. IF, and that is a big if, it is passed by the Senate the bill returns to the House where the bill will be reconciled before it is passed onto the President for his signature.
The bill, as proposed today, will likely look very different by the time it is actually voted on. 

However, as is always the case, the “devil is in the details.”

First, as the Committee for a Responsible Federal Budget lays out:

“Tax cuts shouldn’t be handed out like Halloween candy. To grow the economy, they must be paid for, and the details of this plan appear to come up $2 to 2.5 trillion short.

 

Deficit-financed tax cuts are a recipe for a short-term economic sugar high followed by sluggish long-term growth.

 

Without sufficient details on how or even if these tax cuts will be fully paid for, this outline is nothing more than a fiscal fantasy.

 

Tax reform remains one of the most important national objectives. Fiscally responsible tax reform would not only improve simplicity and fairness, but can actually grow the economy and help to improve the dangerous fiscal situation we face.

 

But the difference between tax reform that would grow the economy, and tax cuts that would grow the debt, cannot be made up for with wishful thinking or magical economic growth. And tax cuts certainly don’t pay for themselves.“

Furthermore, the CFRB picks up on a particularly important point that headlines have seemed to overlook:

“Making many assumptions about the plan – including that the brackets apply to the same income as the Trump campaign’s plan, that its 25 percent pass-through rate contains guardrails so it only applies to active business income, and that the limit on interest makes up about half the revenue lost from expensing – we estimate the plan has about $5.8 trillion over a decade of gross tax cuts and would cost $2.2 trillion on net through 2027. Given that it calls for only five years of expensing rather than permanent – a major budget gimmick – it also potentially sets the stage for an extenders package of over $1 trillion when expensing expires.”

But even before we can get to tax reform, the issue of the budget must be addressed first. As Congressman Kevin Brady, Chairman of the House Ways And Means Committee, stated during a recent interview on the “Lance Roberts Show:”

“No budget, no tax-reform.”

Without a budget for 2018, the tax bill cannot be passed using “reconciliation” which would only require a 51-vote majority versus the currently required 60-vote majority under Senate rules.

Passing a budget has been an impossible feat over the last 8-years with the government currently operating under another continuing resolution (“CR”) until December of this year. (That means spending remains at the same level as the previous budget, last  passed in 2008, with an 8% baseline increase.)

The debate over the budget will be contentious enough with threats of a Government “shutdown” now an annual event. But some GOP members, however, have suggested combining another attempt at repealing Obamacare with the tax bill for 2018 reconciliation. This will make an already difficult undertaking even more complicated.

As I stated previously:

“The issue of tax reform is not going to be an easy one. With such a deeply partisan government the probability of passing tax reform as currently proposed is extremely slim. Furthermore, while I do expect that some version of tax reform will eventually get passed, it will likely take much longer than most expect. The chart below shows the current chasm leading to the difficulty of getting anything accomplished in Washington.”

Already, Democrats are aligning to push back against the proposed legislation:

“If this framework is all about the middle class, then Trump tower is middle-class housing,” – Senator Ron Wyden (D)

“This would cost anywhere from 5 to 7 TRILLION dollars and they have no credible plan to pay for it… If they don’t pay for it, they’ll balloon the deficit and debt….” – Senator Chuck Schumer (D)

And most importantly:

“Tax reform is going to make health care look like a piece of cake,” – Retiring Sen. Bob Corker.

This is why there hasn’t been a major piece of tax legislation enacted since Ronald Reagan was in office.

Economic Outcomes Likely Disappointing

Do not misunderstand me. Tax rates CAN make a difference in the short run particularly when coming out of a recession as it frees up capital for productive investment at a time when recovering economic growth and pent-up demand require it.

However, in the long run, it is the direction and trend of economic growth that drives employment. The reason I say “direction and trend” is because, as you will see by the vertical blue dashed line, beginning in 1980, both the direction and trend of economic growth in the United States changed for the worse.

Furthermore, as I noted previously, Reagan’s tax cuts were timely due to the economic, fiscal, and valuation backdrop which is diametrically opposed to the situation today.

“Importantly, as has been stated, the proposed tax cut by President-elect Trump will be the largest since Ronald Reagan. However, in order to make valid assumptions on the potential impact of the tax cut on the economy, earnings and the markets, we need to review the differences between the Reagan and Trump eras.My colleague, Michael Lebowitz, recently penned the following on this exact issue.

 

‘Many investors are suddenly comparing Trump’s economic policy proposals to those of Ronald Reagan. For those that deem that bullish, we remind you that the economic environment and potential growth of 1982 was vastly different than it is today.  Consider the following table:’”

The differences between today’s economic and market environment could not be starker. The tailwinds provided by initial deregulation, consumer leveraging and declining interest rates and inflation provided huge tailwinds for corporate profitability growth. The chart below shows the ramp up in government debt since Reagan versus subsequent economic growth and tax rates.

Of course, as noted, rising debt levels is the real impediment to longer-term increases in economic growth. When 75% of your current Federal Budget goes to entitlements and debt service, there is little left over for the expansion of the economic growth.

The tailwinds enjoyed by Reagan are now headwinds for Trump as the economic “boom” of the 80’s and 90’s was really not much more than a debt-driven illusion that has now come home to roost.  (More discussion on this problem here, here and here)

Tax Cuts Don’t Reduce The Deficit

Senator Pat Toomey, a Pennsylvania Republican who sits on the finance committee, said he was confident that a growing economy would pay for the tax cuts and that the plan was fiscally responsible.

“This tax plan will be deficit reducing,”

The belief that tax cuts will eventually become revenue neutral due to expanded economic growth is a fallacy. As the CRFB noted:

“Given today’s record-high levels of national debt, the country cannot afford a deficit-financed tax cut. Tax reform that adds to the debt is likely to slow, rather than improve, long-term economic growth.”

The problem with the claims that tax cuts reduce the deficit is that there is NO evidence to support the claim. The increases in deficit spending to supplant weaker economic growth has been apparent with larger deficits leading to further weakness in economic growth. In fact, ever since Reagan first lowered taxes in the ’80’s both GDP growth and the deficit have only headed in one direction – lower.

As noted above, there are massive differences between the economic and debt related backdrops between the early 80’s and today.

The true burden on taxpayers is government spending, because the debt requires future interest payments out of future taxes. As debt levels, and subsequently deficits, increase, economic growth is burdened by the diversion of revenue from productive investments into debt service. 

While lowering corporate tax rates will certainly help businesses potentially increase their bottom line earnings, there is a high probability that it will not “trickle down” to middle-class America.

While I am certainly hopeful for meaningful changes in tax reform, deregulation and a move back towards a middle-right political agenda, from an investment standpoint there are many economic challenges that are not policy driven.

• Demographics
• Structural employment shifts
• Technological innovations
• Globalization
• Financialization 
• Global debt

These challenges will continue to weigh on economic growth, wages and standards of living into the foreseeable future.  As a result, incremental tax and policy changes will have a more muted effect on the economy as well.

As Mike concluded in his missive:

“As investors, we must understand the popular narrative and respect it as it is a formidable short-term force driving the market. That said, we also must understand whether there is logic and truth behind the narrative. In the late 1990’s, investors bought into the new economy narrative. By 2002, the market reminded them that the narrative was born of greed not reality. Similarly, in the early to mid-2000’s real estate investors were lead to believe that real-estate prices never decline.

The bottom line is that one should respect the narrative and its ability to propel the market higher.“

Will “Trumponomics” change the course of the U.S. economy? I certainly hope so. Unfortunately, there is no evidence that such has ever been the case.

As investors, we must understand the difference between a “narrative-driven” advance and one driven by strengthening fundamentals. The first is short-term and leads to bad outcomes. The other isn’t, and doesn’t. 

Full text of Tax Reform plan below.

 

 

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Content originally published at iBankCoin.com

The liberal science community has a moral dilemma on its hands following today’s announcement that the United States is partnering with Russia on a NASA-led project to build an orbiting lunar station.

On one hand, the international base for lunar exploration will serve as a “gateway to deep space and the lunar surface,” according to NASA.

On the other hand, Russia is involved – which means they’ll undoubtedly slit our throats in space, populate the surface of the moon, build a moon cannon – having read Heinlein, and fire silicon, magnesium, and aluminum-rich moon rocks at the United States. Once we are obliterated, Russia will invade the country and enslave all surviving Americans in moon-rock crushing factories.

Pretending not to be evil, Igor Komarov – Roscosmos’s general director, stated that Russia, the United States and other participants agreed it was important to work using unified standards to avoid future problems in space, citing Sandra Bullock’s movie “Gravity” in the process.

“Roscosmos and NASA have already agreed on standards for a docking unit of the future station,” the Russian space agency said.

AFP reports:

“Taking into account the country’s extensive experience in developing docking units, the station’s future elements — as well as standards for life-support systems — will be created using Russian designs.”

NASA said it planned to expand human presence into the solar system using its new deep space exploration transportation systems, the Space Launch System rocket and Orion spacecraft.

– ‘Better to fly together’ –

Russia and the United States also discussed using Moscow’s Proton-M and Angara rockets as well as other spacecraft to help create the infrastructure of the lunar spaceport, the Russian statement said, adding that the main works were slated to begin in the mid-2020s.

“The station will be a serious platform for future research,” said Komarov – concealing his seething Red ambition, though boasting “That is a rather significant contribution.”

Igor Lisov, editor at Space News, told AFP of Russia’s potential contribution: “We are offering carriers for flights to a lunar orbiting station, we are offering our docking units or their components,” he said, adding Russia had vast experience in creating life-support systems.

Unfortunately, this will be our doom…

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Go to any large, high-density city like New York or San Francisco, and you’ll notice a difference in costs immediately.

The price you pay for groceries, dinner at the restaurant, filling up your tank, or even your daily coffee goes up substantially. With high-paying jobs, booming economies, limited space, and soaring levels of density, cities can be expensive.

DOLLAR DISPARITY

While this effect on costs is most evident in cities, Visual Capitalist's Jeff Desjardins notes that it’s actually present throughout the country.

What you can buy for your paycheck varies wildly depending on where you are, greatly impacting purchasing power and the cost of living. Sometimes even a short one-hour drive can make a difference in some cases.

Today’s two maps come from TaxFoundation.org, and they look at regional differences in purchasing power, based on information from the Bureau of Economic Analysis.

BANG FOR BUCK, BY STATE

The following map shows the buying power of $100 by state.

If the number is below, such as $90, it means money buys less than the federal average. If a state’s number is higher, such as $110, that means each dollar goes further, giving residents more purchasing power.

Generally speaking, dollars go furthest in states in the Southeast and Midwest parts of the country. Go to places like Arkansas or South Dakota, and you’ll see higher purchasing power.

Here are the five states that have the most buying power:

And here are the five with the least buying power:

BANG FOR BUCK, BY COUNTY

The state map does not tell the whole story, however.

The reality is that density makes a big difference for buying power, and large metropolitan areas tend to be more expensive. The following chart breaks it down based on county, creating a much more interesting contrast.

The above rendition makes it clear that the Bay Area, New York City, and Washington D.C. are the places where the relative value of a dollar is lowest.

Meanwhile, it also shows that metropolitan areas in some parts of the country are not too bad for the cost of living. Cities like Atlanta ($104.10), Nashville ($106.50), Phoenix ($102.90), Milwaukee ($104.50), Kansas City ($106.70), Jacksonville ($104.40), and New Orleans ($104.60) buck the trend, being cheaper than the American average.

Here’s another look – this time with an interactive map that allows you to hover over individual metro areas:

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Authored by Daniel Mitchell via The Foundation for Economic Education,

Back in 2015, I mocked Venezuelan socialism because it led to shortages of just about every product. Including toilet paper.

But maybe that doesn’t matter. After all, if people don’t have anything to eat, they probably don’t have much need to visit the bathroom.

The Washington Post reports that farmers are producing less and less food because of government intervention, even though the nation is filled with hungry people.

Venezuela, whose economy operates on its own special plane of dysfunction. At a time of empty supermarkets and spreading hunger, the country’s farms are producing less and less, not more, making the caloric deficit even worse. Drive around the countryside outside the capital, Caracas, and there’s everything a farmer needs: fertile land, water, sunshine and gasoline at 4 cents a gallon, cheapest in the world. Yet somehow families here are just as scrawny-looking as the city-dwelling Venezuelans waiting in bread lines or picking through garbage for scraps.

 

 …“Last year I had 200,000 hens,” said Saulo Escobar, who runs a poultry and hog farm here in the state of Aragua, an hour outside Caracas. “Now I have 70,000.” Several of his cavernous henhouses sit empty because, Escobar said, he can’t afford to buy more chicks or feed. Government price controls have made his business unprofitable…the country is facing a dietary calamity. With medicines scarce and malnutrition cases soaring, more than 11,000 babies died last year, sending the infant mortality rate up 30 percent, according to Venezuela’s Health Ministry.

 

…Child hunger in parts of Venezuela is a “humanitarian crisis,” according to a new report by the Catholic relief organization Caritas, which found 11.4 percent of children under age 5 suffering from moderate to severe malnutrition… In a recent survey of 6,500 Venezuelan families by the country’s leading universities, three-quarters of adults said they lost weight in 2016 — an average of 19 pounds. This collective emaciation is referred to dryly here as “the Maduro diet,” but it’s a level of hunger almost unheard-of… Venezuela’s disaster is man-made, economists point out — the result of farm nationalizations, currency distortions and a government takeover of food distribution. …The price controls have become a powerful disincentive in rural Venezuela. “There are no profits, so we produce at a loss,” said one dairy farmer.

Here’s where we get to the economics lesson. When producers aren’t allowed to profit, they don’t produce.

And when we’re looking at the production of food, that means hungry people.

Even the left-wing Guardian in the U.K. has noticed.

Hunger is gnawing at Venezuela, where a government that claims to rule for the poorest has left most of its 31 million people short of food, many desperately so.

 

…Adriana Velásquez gets ready for work, heading out into an uncertain darkness as she has done since hunger forced her into the only job she could find at 14. She was introduced to her brothel madam by a friend more than two years ago after her mother, a single parent, was fired and the two ran out of food. “It was really hard, but we were going to bed without eating,” said the teenager, whose name has been changed to protect her.

 

…Venezuela’s crisis has deepened, the number of women working at the brothel has doubled, and their ages have dropped. “I was the youngest when I started. Now there are girls who are 12 or 13. Almost all of us are there because of the crisis, because of hunger.” She earns 400,000 bolivares a month, around four times the minimum wage, but at a time of hyperinflation that is now worth about $30, barely enough to feed herself, her mother and a new baby brother.

This is truly sad.

Our leftist friends like to concoct far-fetched theories of how prostitution is enabled by everything from low taxes to global warming.

In the real world, however, socialism drives teenage girls (or even younger) to work in brothels.

That’s such a depressing thought that let’s shift the topic back to hunger and toilet paper.

Especially since Venezuela’s dictator is bragging that the nation’s toilet paper shortage has been solved!

This is definitely a dark version of satire.

But Venezuela is such a mess that it’s hard to know where to draw the line between mockery and reality.

For instance, here’s another “benefit” of limited food. If you don’t eat, it’s not as necessary to brush your teeth.

And in the socialist paradise of Venezuela, that makes a virtue out of necessity since – surprise – there’s a shortage of toothpaste.

The Washington Post has the grim details.

Ana Margarita Rangel…spends everything she earns to fend off hunger. Her shoes are tattered and torn, but she cannot afford new ones. A tube of toothpaste costs half a week’s wages.

 

“I’ve always loved brushing my teeth before going to sleep I mean, that’s the rule, right?” said Rangel, …“Now I have to choose,” she said. “So I do it only in the mornings.” …The government sets price caps on some basic food items, such as pasta, rice and flour.

 

…those items can usually be obtained only by standing in lines for hours or by signing up to receive a subsidized monthly grocery box from the government… Since 2014, the proportion of Venezuelan families in poverty has soared from 48 percent to 82 percent…

 

Fifty-two percent of families live in extreme poverty, according to the survey, and about 31 percent survive on two meals per day at most.

Isn’t socialism wonderful! You have the luxury of choosing between two meals a day, or one meal a day plus toothpaste!

By the way, the central planners have a plan.

Though it won’t make Bugs Bunny happy.

Rabbit is now on the menu! Here are some excerpts from a CNN report.

Let them eat rabbits. That was basically the message from President Nicolas Maduro to Venezuelans starving and struggling through severe food shortages… 

 

The Venezuelan leaders…recommend that people raise rabbits at home as a source of food.

 

…The agriculture minister argued that rabbits easily reproduce and are a source of protein. He also recommended citizens consider raising and growing other animals and vegetables at home. It’s just the latest attempt to try and solve the food shortage problem. The government forces citizens to pick up groceries on certain days of the week depending on social security numbers.

Gee, isn’t this wonderful. The government cripples markets so they can’t function and then advocates people live like medieval peasants.

Maybe there should be price controls on clothing, along with having the government in charge of distribution. That will wreck that market as well, so people can make their own clothes out of rabbit pelts.

I wonder whether a certain American lawmaker is rethinking his praise of Venezuelan economic policy?

Based on what he said as recently as last year, the answer is no.

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The same firm that ‘assured’ us all back in 2006 that RMBS, CDOs, synthetic CDOs and CDO-squared structures were all very safe products and well deserving of their AAA ratings would now like for you to know that they’ve “stress tested” subprime auto ABS facilities and found that they’re “very stable.” 

According to the Auto Finance News, the assurances were given by S&P’s senior director, Amy Martin, at the recent ABS East conference in Miami.  Apparently Martin is undeterred by the fact that subprime ABS “losses are going up from 2015 and 2016 [vintages], even approaching recessionary levels” during a period in which employment levels continue to improve.

While rising losses have caused some concern in the industry, S&P Global Ratings found that subprime auto loans bundled in securitizations are still well positioned to weather an economic downturn.

 

“Losses are going up from 2015 and 2016 [vintages], even approaching recessionary levels,” Amy Martin, S&P’s senior director, told Auto Finance News during a meeting at ABS East, noting that unemployment is the lowest it’s been since 2001. “But you have to look at it relative to what’s happening with the ratings, and the ratings are very stable.”

 

The company ran a stress test to see how these securitizations would react under a Better Business Bureau stress scenario, which simulates another 2008 economic crisis event: lower used-vehicle values, 10% unemployment, and rising debt levels. The test found that subprime losses would rise 1.67 times higher than S&P’s baseline economic projections. That would be a large jump because it’s a large macro economic shift, but ultimately AAA and AA rated subprime auto deals would not fall by more than one category over their life under that scenario. That’s “well within” S&P’s criteria, which stipulates that AAA and AA ratings can’t move by more than one category in one year, and can’t move below investment grade in three years.

 

Furthermore, all of the subprime deals that S&P rates fared better than expected when compared to stress tests performed when the securitizations were first issued.

Well, if S&P has confirmed it then it must be true.

Of course, even though S&P is absolutely positive that their AAA ratings on subprime auto ABS structures are solid, they do admit it can be difficult to account for things like “lower recovery rates, regulatory scrutiny from state attorneys general, and higher interest rates.”

However, there are some weaknesses to watch, such as lower recovery rates, regulatory scrutiny from state attorneys general, and higher interest rates.  “Some companies won’t be able to offset rising borrowing costs because the annual percentage rates on their loans may already be at or close to the maximum state usury limits,” Martin said in a September report. “Also, the newer subprime auto finance companies started during a benign economic environment with low-interest rates and rising employment, so their ability to survive a rising interest rate environment has not been tested.”

Do they mean “lower recovery rates” like the 50% drop in used car prices that Morgan Stanley recently said was possible in their downside scenario?

No, we’re sure that, just like all the confirmations we got from the mortgage ‘experts’ in 2006 that home prices in America could simply never fall, Ms. Martin would be happy to assure us all that used car prices could simply never fall that much…until they do, of course.

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Authored by Per Bylund via The Mises Institute,

 

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The Centers for Disease Control just released their latest study on sexually transmitted diseases and provided yet another reason why Congress has a lower approval rating than that last paper cut you got that you could have sworn nearly sliced your finger completely off.

As the charts below illustrate, the miscreants who run our federal government, in between their extramarital affairs of course, apparently helped Washington D.C. to “dominate” the CDC’s state-by-state rankings for STDs in 2016. With respect to Chlamydia outbreaks, for example, Washington D.C.’s reported cases exceeded the national average by 118% and the next closest state of Alaska by 40%. 

In 2016, a total of 1,598,354 cases of Chlamydia trachomatis infection were reported to the CDC, making it the most common notifiable condition in the United States. This case count corresponds to a rate of 497.3 cases per 100,000 population, an increase of 4.7% compared with the rate in 2015. During 2015–2016, rates of reported chlamydia increased in all regions of the United States.

Winning…

But it’s not just Chlamydia, our political elites “dominated” across the board in 2016 when it came to reported cases of STDs with the outbreak of Gonorrhea in our nation’s capital reaching a staggering 230% above the national average.

In 2009, the national rate of reported gonorrhea cases reached an historic low of 98.1 cases per 100,000 population. During 2009–2012, the rate increased slightly each year to 106.7 cases per 100,000 population in 2012 and has increased steadily during 2014–2016. In 2016, 468,514 gonorrhea cases were reported for a rate of 145.8 cases per 100,000 population, an increase of 18.5% from 2015.

Meanwhile, Syphilis outbreaks in D.C. exceeded the national average by just over 175%.

In 2000 and 2001, the national rate of reported primary and secondary (P&S) syphilis cases was 2.1 cases per 100,000 population, the lowest rate since reporting began in 1941. However, the P&S syphilis rate has increased almost every year since 2001. In 2016, 27,814 P&S syphilis cases were reported, representing a national rate of 8.7 cases per 100,000 population and a 17.6% increase from 2015. During 2015–2016, the P&S syphilis rate increased among both men and women in every region of the country; overall, the rate increased 14.7% among men and 35.7% among women.

While we joke, as the CDC points out, the growth in STD’s in the U.S. has been staggering over the past 16 years…

It is estimated that there are 20 million new STDs in the U.S. each year, and half of these are among young people ages 15 to 24 years. Across the nation, at any given time, there are more than 110 million total (new and existing) infections.  These infections can lead to long-term health consequences, such as infertility; they can facilitate HIV transmission; and they have stigmatized entire subgroups of Americans.

 

Beyond the impact on an individual’s health, STDs are also an economic drain on the U.S. healthcare system. Data suggest the direct cost of treating STDs in the U.S. is nearly $16 billion annually.  STD public health programs are increasingly facing challenges and barriers in achieving their mission. In 2012, 52% of state and local STD programs experienced budget cuts. This amounts to reductions in clinic hours, contact tracing, and screening for common STDs. CDC estimates that 21 local health department STD clinics closed that year.

…and is reaching epidemic levels among teenagers and young adults.

All of which we assume can be tied back to Trump’s relentless attacks on Obamacare and/or cuts to various federally-funded education and outreach programs…certainly it can’t have anything to do with the gradual and systematic destruction of the American family.

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Take a look at the volume of stocks listed vs. indexes listed going all the way back to the days of bellbottoms, loud hair, and orange wallpaper.

Since 1995, the supply of stocks, particularly in the US, has been shrinking faster than Trump’s approval ratings. At the same time, the number of indexes have exploded like one of Kim’s shiny new missiles.

Why?

In a falling interest rate environment, the twin pressures of reduced returns and relative cost pressures have meant that investors, in order to make a buck, have flooded into the low fee structures offered by passive strategies. These include indexing, ETFs, and those truly insane creatures I’ve written about before: low volatility ETFs.

But what about those alpha generating hedge funds? Aren’t they meant to be smart and able to beat the market… any market?

Those alpha generating hedge funds have things called LPs. And though LPs may be smarter, and certainly wealthier than Joe Sixpack, they’re no less human. And human attention span and patience level has been in decline… correlated no doubt with the rise of social media and the Kardashian crowd. Like a virus, it infects everything.

As performance from hedge funds has been poor relative to the benchmarks, a self reinforcing situation where hedge funds, in order to ensure LPs don’t redeem, have landed up hugging the indexes.

This is the exact opposite of what hedge funds were meant to do, of course. In many cases, they themselves are simply buying the indexes, trying desperately to figure out how the hell they’re going to survive through the next quarter but determined simply NOT to underperform the index. It’s a losing strategy no matter how you slice and dice it.

For those hedge funds who refuse to chase the indexes… Well, they are now fighting the tidal wave of capital that has been shifting into passive investments, which forces those passive investments even higher.

This, in turn, leaves active hedge funds who refuse to get sucked in with increasingly substandard returns. They can explain until they’re blue in the face why certain indexes make no sense but when those indexes just keep rising day after day, month after month, it becomes a very tough stance to keep. Redemptions follow, and so by doing the right thing, they’re punished. And by doing the wrong thing (following the mob), they may get to stay alive just a little longer and this is what many have resorted to.

We all know that at some point there are no new buyers available to enter the market and hoo boy, do we then have a problem.

So… you either join the party or you leave the party.

The last to leave the party is Hugh Hendry and his baby Eclectica.

Hugh Hendry Murders His Hedge Fund

Og aye, tis tae tough

Hugh follows Eton Park and Perry Capital to name but a few more.

Paul Singer of Elliot Management fame put it well in his July investor letter to stakeholders.

“In a passive investing world, small shareholders have little-to-no voice and no realistic possibility of banding together, while the biggest shareholders have no (repeat, no) skin in the game so long as the money manager does not underperform the index.”

Make no mistake, the rise of passive indexing is a bubble in dumb money.

We have a situation where the market is becoming completely lopsided and increasingly so at a blistering pace.

If it gets anymore lopsided, it’s going to be upside down. What’s more, the market participants have no interest or even determination of valuations.

An index doesn’t give an isht what the P/E ratio of any stock included in the index is, and the investors buying it have even less idea. It doesn’t care if the aggregate of stocks sitting inside its womb are over or indeed undervalued. It’s just a dumb bloody index, and you can’t blame it anymore than I can blame my dog for not understanding Shakespeare.

Those investing in passive have done so partly due to relative fee differentials, partly due to performance. But now also dangerously so… due to increasing inflows, which have continued to push values higher.

Now, having markets or sectors get silly is obviously as normal as a peanut butter sandwich, and provided you’re aware of it, we’ve little to worry about.

But what’s more frightening than the Kardashians in skinny pants is that as capital has fed into passive, the usual countering forces (active managers) of the market have been leaving the party, which has left the passive world to increasingly swell like a neglected infected wound.

What we need to think about is that increasingly there is no active market to stabilise this. It’s akin to having a 5-year-old’s party, inviting a troop of the critters, and then promptly sending all the parents down to the pub for a few hours.

Just as short sellers provide a balance to a market so, too, active management (who incidentally typically have skin in the game) have always provided a stabiliser to the overall market. What happens when the stabilisers all leave the room?

We can see this manifesting itself in the volatility index. As more capital enters at a steady pace so, too, the volatility falls.

And here’s the thing. The algos constantly feed back the daily data to recalculate their probabilities (read this article on VAR shocks). Risk? Nah!

At the extreme of the passive world sits volatility.

Selling volatility works really well. Just ask Neiderhoffer who has made godawful amounts doing it over the years.

Look closely, though, and you notice that even Neiderhoffer, who knows what game he’s playing, blows himself up spectacularly from time to time… and I mean complete armageddon wipeout stuff. Until that blow up comes, though, you just keep plugging away at it day after day and it just keeps paying you… day after day. You make money, make money… and then, well…

It all turns to isht and blows up in your face.

My friend Mark Yusko from Morgan Creek Capital places capital with the smartest strategies and hedge funds – active capital.

Who’s willing to bet with me that over the next decade being long smart active strategies and short passive (low volatility ETFs) will be a winning trade?

Cast your vote here and also see what others think

– Chris

“What could be more advantageous in an intellectual contest – whether it be bridge, chess, or stock selection than to have opponents who have been taught that thinking is a waste of energy?” – Warren Buffett, 1985 Berkshire Hathaway Letter to Shareholders

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Liked this article? Then you’ll probably like my other missives on

this topic as well. Go here to access them (free, of course).

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via http://ift.tt/2wVDdPr Capitalist Exploits

Authored by Stephen Roach via Project Syndicate,

A decade after the onset of the global financial crisis, it seems more than appropriate for central bankers to move the levers of policy off their emergency settings. A world in recovery – no matter how anemic it may be – does not require a crisis-like approach to monetary policy.

Three cheers for central banks! That may sound strange coming from someone who has long been critical of the world’s monetary authorities. But I applaud the US Federal Reserve’s long-overdue commitment to the normalization of its policy rate and balance sheet. I say the same for the Bank of England, and for the European Central Bank’s grudging nod in the same direction. The risk, however, is that these moves may be too little too late.

Central banks’ unconventional monetary policies – namely, zero interest rates and massive asset purchases – were put in place in the depths of the 2008-2009 financial crisis. It was an emergency operation, to say the least. With their traditional policy tools all but exhausted, the authorities had to be exceptionally creative in confronting the collapse in financial markets and a looming implosion of the real economy. Central banks, it seemed, had no choice but to opt for the massive liquidity injections known as “quantitative easing.”

This strategy did arrest the free-fall in markets. But it did little to spur meaningful economic recovery. The G7 economies (the United States, Japan, Canada, Germany, the United Kingdom, France, and Italy) have collectively grown at just a 1.8% average annual rate over the 2010-2017 post-crisis period. That is far short of the 3.2% average rebound recorded over comparable eight-year intervals during the two recoveries of the 1980s and the 1990s.

Unfortunately, central bankers misread the efficacy of their post-2008 policy actions.

They acted as if the strategy that helped end the crisis could achieve the same traction in fostering a cyclical rebound in the real economy. In fact, they doubled down on the cocktail of zero policy rates and balance-sheet expansion.

And what a bet it was. According to the Bank for International Settlements, central banks’ combined asset holdings in the major advanced economies (the US, the eurozone, and Japan) expanded by $8.3 trillion over the past nine years, from $4.6 trillion in 2008 to $12.9 trillion in early 2017.

Yet this massive balance-sheet expansion has had little to show for it. Over the same nine-year period, nominal GDP in these economies increased by just $2.1 trillion.

That implies a $6.2 trillion injection of excess liquidity – the difference between the growth in central bank assets and nominal GDP – that was not absorbed by the real economy and has, instead been sloshing around in global financial markets, distorting asset prices across the risk spectrum.

Normalization is all about a long-overdue unwinding of those distortions.

Fully ten years after the onset of the Great Financial Crisis, it seems more than appropriate to move the levers of monetary policy off their emergency settings. A world in recovery – no matter how anemic that recovery may be – does not require a crisis-like approach to monetary policy.

Monetary authorities have only grudgingly accepted this. Today’s generation of central bankers is almost religious in its commitment to inflation targeting – even in today’s inflationless world. While the pendulum has swung from squeezing out excess inflation to avoiding deflation, price stability remains the sine qua non in central banking circles.

Inflation fixations are not easy to break. I can personally attest to that. As a staff economist at the Fed in the 1970s, I witnessed first-hand the birth of the Great Inflation – and the role played by inept central banking in creating it. For years, if not decades, after that experience, I was convinced that renewed inflation was just around the corner.

Today’s generation of central bankers has dug in its heels at the opposite end of the inflation spectrum. Wedded to a “Phillips curve” mentality conditioned by the presumed tradeoff between economic slack and inflation, central bankers remain steadfast in their view that an accommodative policy bias is appropriate as long as inflation falls short of their targets.

This is today’s biggest risk. Normalization should not be viewed as an inflationdependent operation. Below-target inflation is not an excuse for a long and drawnout normalization. In order to rebuild the policy arsenal for the inevitable next crisis or recession, a prompt and methodical restoration of monetary policy to pre-crisis settings is far preferable.

A failure to do this was, in fact, precisely the problem during the last pre-crisis period, in the early 2000s. The Fed committed the most egregious error of all. In the aftermath of the bursting of the dotcom bubble in early 2000, and with fears of a Japan scenario weighing heavily on the policy debate, it opted for an incremental normalization strategy – raising its policy rate 17 times in small moves of 25 basis points over a 24-month period from mid-2004 to mid-2006. Yet it was precisely during that period when increasingly frothy financial markets were sowing the seeds of the disaster that was shortly to follow.

In the current period, the Fed has outlined a strategy that does not achieve balancesheet normalization until 2022-2023 at the earliest – 2.5-3 times as long as the illdesigned campaign of the mid-2000s. In today’s frothy markets, that’s asking for trouble. In the interest of financial stability, there is a compelling argument for much speedier normalization – completing the task in as little as half the time the Fed is currently suggesting.

Independent central banks were not designed to win popularity contests. Paul Volcker knew that when he led the charge against raging inflation in the early 1980s. But the approach taken by his successors, Alan Greenspan and Ben Bernanke, was very different – allowing financial markets and an increasingly asset-dependent economy to take charge of the Fed. For Janet Yellen – or her successor – it will take courage to forge a different path. With more than $6 trillion of excess liquidity still sloshing around in global financial markets, that courage cannot be found soon enough.

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

Facebook founder Mark Zuckerberg has just responded to a Trump tweet from earlier this morning which suggested that Facebook, among other media outlets, were “always anti-Trump” from the beginning (we noted the Trump tweets here). 

In his response, Zuckerberg finally managed to interject some logic into the Left’s latest, and most entertaining “Russian collusion” narrative which continues to allege that $100,000 (one hundred thousand) worth of ad buys on Facebook managed to sway the outcome of the entire U.S. election. 

After acknowledging that he has recently found himself in the uncomfortable position of coming under attack by both the Left and Right for “helping” the other side, Zuckerberg pointed out, as have we on numerous occasions, that “campaigns spent hundreds of millions advertising online” which was “1000x more than any problematic ads we’ve found.”

I want to respond to President Trump’s tweet this morning claiming Facebook has always been against him.

 

Every day I work to bring people together and build a community for everyone. We hope to give all people a voice and create a platform for all ideas.

 

Trump says Facebook is against him. Liberals say we helped Trump. Both sides are upset about ideas and content they don’t like. That’s what running a platform for all ideas looks like.

 

Campaigns spent hundreds of millions advertising online to get their messages out even further. That’s 1000x more than any problematic ads we’ve found.

Of course, we made a similar point recently by charting how the $50,000 that ‘MAY‘ have been purchased by Russian-linked accounts to run ‘potentially politically related’ ads compared to the roughly $1 billion in political ad revenue that Facebook generated in the U.S. over the same time period… 

 

Frankly, we’re shocked that any Silicon Valley tech billionaire would have the ‘courage’ to prioritize truth over relentlessly toeing the party line.

Of course, we also imagine that his efforts to spread the truth, rather than a carefully crafted media narrative approved by the Democratic party, will prove to be somewhat troublesome for him and/or his business at some point in the not so distant future.

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Here is the full text of Zuckerberg’s post:

I want to respond to President Trump’s tweet this morning claiming Facebook has always been against him.

 

Every day I work to bring people together and build a community for everyone. We hope to give all people a voice and create a platform for all ideas.

 

Trump says Facebook is against him. Liberals say we helped Trump. Both sides are upset about ideas and content they don’t like. That’s what running a platform for all ideas looks like.

 

The facts suggest the greatest role Facebook played in the 2016 election was different from what most are saying:

 

– More people had a voice in this election than ever before. There were billions of interactions discussing the issues that may have never happened offline. Every topic was discussed, not just what the media covered.

 

– This was the first US election where the internet was a primary way candidates communicated. Every candidate had a Facebook page to communicate directly with tens of millions of followers every day.

 

– Campaigns spent hundreds of millions advertising online to get their messages out even further. That’s 1000x more than any problematic ads we’ve found.

 

– We ran “get out the vote” efforts that helped as many as 2 million people register to vote. To put that in perspective, that’s bigger than the get out the vote efforts of the Trump and Clinton campaigns put together. That’s a big deal.

 

After the election, I made a comment that I thought the idea misinformation on Facebook changed the outcome of the election was a crazy idea. Calling that crazy was dismissive and I regret it. This is too important an issue to be dismissive. But the data we have has always shown that our broader impact — from giving people a voice to enabling candidates to communicate directly to helping millions of people vote — played a far bigger role in this election.

 

We will continue to work to build a community for all people. We will do our part to defend against nation states attempting to spread misinformation and subvert elections. We’ll keep working to ensure the integrity of free and fair elections around the world, and to ensure our community is a platform for all ideas and force for good in democracy.

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