Month: April 2019

China’s “Neutron Bomb” Returns: Bad Loans Surge Most In 3 Years

The last time we did a closer look at China’s bad debt, a topic that has been particularly sensitive for an economy whose financial sector is now over $40 trillion, was in late 2015 when CLSA stumbled on what we then dubbed China’s “neutron bomb”: Chinese banks’ bad debts ratio could be as high 8.1% a whopping 6 times higher than the official 1.5% NPL level reported by China’s banking regulator!

So if one very conservatively assumes that loans are about half of China’s total asset base of $35 trillion (realistically 60-70%), and applies an 8% NPL to this number instead of the official 1.5% NPL estimate, the capital shortfall is a staggering $1.1 trillion.

Our conclusion back in 2015 was that “while China has been injecting incremental liquidity into the system and stubbornly getting no results for it leading experts everywhere to wonder just where all this money is going, the real reason for the lack of a credit impulse is that banks have been quietly soaking up the funds not to lend them out, but to plug a gargantuan, $1 trillion, solvency shortfall which amounts to 10% of China’s GDP!”

Since then, China’s bad debt fears took a back stage to even bigger Chinese problems, including capital flight, a slowing economy, a sharp decline in the country’s FX reserves, and most recently, a bitter trade war with the US which has crippled China’s manufacturing sector.

But, sadly, that did not mean that China’s bad debt problem had gone away; to the contrary, as Bloomberg reports, “China’s biggest banks are seeing bad loans grow at the fastest pace since at least 2017, as the country’s economic slowdown leaves its mark on the financial sector.“

While reporting generally strong Q1 earnings, China’s four largest lenders said in recent days that non-performing loans hit fresh multi-year highs in the latest quarter, reflecting risks to China’s banks as the government pushes them to lend more.

ICBC reported a 5.2 billion yuan ($770 million) rise in non-performing loans in the first three months, the biggest quarterly increase in almost three years. Bank of China saw its bad loans rise by 6.1 billion yuan – the most in three years – to the highest level since at least 2006. At Agricultural Bank of China Ltd., bad debt rose by 2.7 billion yuan, the biggest increase since the first quarter of 2017. China Construction Bank Corp.’s soured credit increased by 6.6 billion yuan, the most since 2016.

Even more striking: the surge in bed debt comes just as China made its biggest new credit injection ever in the first quarter, flooding the economy with 40% more total credit in 2019 compared to a year ago, and has once again saddled the local banks with even louder ticking timebombs on their balance sheets.

And while Bloomberg speculated that the increase in delinquent debt may give policy makers pause, we doubt it: after all prevailing consensus now is that China in coordinate with global central banks has launched a Second Shanghai Accord, and will not stop before the aggregate level of global inflation is comfortably high to delay the inevitable next recession by at least a few more quarters. Still, while China’s banks are seen as key to reinvigorating the economy, especially by lending to traditionally riskier smaller and private companies, some have expressed concerns that soured loans could continue to rise.

“Pressure to lend to small and micro-enterprises may gradually start to appear in bank’s NPLs,” said Shujin Chen, CFO of Huatai Secuirites. Weaker economic conditions will also impact bad loans though as a share of total lending it may remain little changed, she said.

The problem is only going to get worse: 45% of 202 bankers surveyed by China Orient Asset Management, one of four state-owned bad-debt managers, expect the nation’s bad-loan ratio to peak next year, according to the annual survey published in April.

The good news is that, for now at least, this growing bad debt problem has yet to appear in the income statement: despite concerns around bad loans, total earnings at the five biggest lenders, which control more than a third of China’s banking assets, are this year estimated to grow at the fastest pace in five years. “Banking stocks are likely to deliver both absolute and relative returns in the phase of monetary and credit easing,” China International Capital Corp. analysts led by Victor Wang said in an April 22 note to clients.

Others aren’t quite so sanguine, and as Bloomberg analyst Francis Chan writes, “ICBC and BoCom loan provisions could offset mild revenue gains, restricting earnings growth to mid-single digits in 2019. CCB may need to raise credit costs later this year. BoC earnings may get a short-term boost from robust sector loan growth, yet with full-year profit gains staying in the mid-single digits.”

Investors are similarly skeptical, as shares of China-listed banks have gained “only” 19% this year, underperforming the 23% increase in the Shanghai Composite. Among their concerns: increased lending to smaller businesses may hurt their asset quality and profitability in the longer term, and some analysts predict a turn in monetary policy to avoid over-stimulating the economy.

The big question, of course, is what Beijing will do with this data. Two Fridays ago, China’s Politburo said that the economy was better than expected in the first quarter, fueling concern that the government will dial back economic support measures. If China has indeed pulled its foot of the gas pedal, and the level of stimulus is about to drop off a (record) cliff, it’s time to quietly exit stage left, or as we put it last Sunday, just before the worst week for Chinese stocks in 2019, “If your bullish thesis to buy stocks in recent months has been anchored by the expectation of aggressive monetary easing by China reinforcing the narrative that “bad news is good news” for the market, you may consider selling.”

The Chinese did just that.

via ZeroHedge News http://bit.ly/2GRIHxS Tyler Durden

Colorado’s New ‘Red Flag’ Law Illustrates the Pitfalls of Disarming People Based on Their Future Behavior

This month Colorado became the 15th state to enact a “red flag” law that authorizes court orders forbidding gun possession by people deemed a threat to themselves or others. The new law, which has drawn strong criticism from Second Amendment advocates, including some county sheriffs, illustrates the civil liberties concerns raised by such attempts to identify and disarm people prone to suicide or homicide.

Colorado’s Deputy Zackari Parrish III Violence Prevention Act, which takes effect next year, is named for a 29-year-old Douglas County sheriff’s deputy who was killed in 2017 by a 36-year-old veteran with a history of psychological problems. The law allows a long list of people, including law enforcement officers, current or former household members, and people related by blood, marriage, or adoption, to seek a temporary “extreme risk protection order” (ERPO) against someone they believe “poses a significant risk of causing personal risk to self or others in the near future.” The standard of proof at this stage, when the “respondent” does not have an opportunity to respond, is a “preponderance of the evidence,” meaning he is more likely than not to pose a significant risk.

Depending on what counts as a “significant risk,” the probability that the subject of a temporary order actually would have used a gun to hurt himself or someone else may be quite low. If 10 percent is significant, for example, that probability might be around 5 percent (51 percent times 10 percent). So even if judges are weighing the evidence with such precision, they will be taking away the Second Amendment rights of people who almost certainly would not have committed suicide or murder.

In practice, judges will be inclined to err on the side of what they take to be caution. When the only evidence comes from someone who believes the respondent poses a threat, judges will rarely, if ever, decline to issue a temporary ERPO. The possible downside of rejecting a petition—the death of the respondent or someone else—will weigh heavily on the judge’s mind, while the temporary deprivation of the subject’s constitutional rights will seem trivial by comparison.

A temporary ERPO lasts for up to 14 days, at which point the judge has to schedule a hearing where the respondent finally has a chance to challenge the claims against him. The respondent has a right to a court-appointed attorney if he cannot afford legal representation or would rather not pay for it. If he does not show up at the hearing, the court can issue an ERPO without any adversarial process.

To obtain an ERPO at this stage, the petitioner must present “clear and convincing evidence” that the respondent poses a significant risk. Unlike with the temporary, ex parte order, that risk need not be “in the near future.” The judge may consider “any relevant evidence,” including, but not limited to, recent threats or acts of violence, violations of civil protective orders, violations of previous ERPOs, criminal convictions involving violence or cruelty to animals, unlawful or reckless use of firearms, a “history of stalking,” drug or alcohol abuse, recent acquisition of a firearm, a job requiring the respondent to carry a firearm, and “any available mental health evaluation or chemical dependency evaluation.” While some of these factors are clearly relevant, others, such as illegal drug use or the purchase of a firearm, may have little or nothing to do with the question of whether the subject poses a significant threat to himself or others. Furthermore, the judge is authorized to consider literally any other fact or allegation that he deems relevant.

If the judge issues an ERPO, it lasts for 364 days unless the subject seeks early termination and shows by clear and convincing evidence that he does not pose a significant threat. That case will be hard to make, especially since “significant risk” is undefined and judges will not want to take the blame should something terrible happen after they terminate an order. The petitioner has a right to seek an extension of the order before it expires, based on the same standard of proof.

Eagle County Sheriff James van Beek argues in a Facebook post that the ERPO process makes gun owners “guilty until proven innocent.” He notes that when the subject of an ERPO tries to have it terminated, “the burden of proof is not on the petitioner (the accuser), as in every other legal case, but instead, is placed on the respondent (defendant) to prove that the accusations are wrong.” He observes that “proving one’s sanity could be very difficult, as it is highly subjective.” Nor is “proving one’s sanity,” however that’s defined, enough to prevail, since a person may be considered a threat even if he does not qualify for a psychiatric diagnosis.

Van Beek also worries that “if a person is truly in a mental crisis, this aggressive approach will create even greater stress, possibly resulting in a violent overreaction, as their personal property has been taken, without a crime ever having been committed.” When police seize guns from the subject of a temporary ERPO, Van Beek notes, it happens “with no warning or ability to defend themselves against the charges.” Furthermore, he says, the possibility of that outcome may deter troubled people from seeking professional help.

The law gives the respondent a civil cause of action against someone who files a “false or malicious” ERPO petition, allowing him to recover damages, costs, and attorney fees. But knowing falsehoods or maliciousness will be difficult to prove, and in any case the more likely scenario is one in which the petitioner sincerely but mistakenly believes the respondent poses a “significant risk,” whatever that means. With everyone from ex-girlfriends and former roommates to grandparents, in-laws, and second cousins empowered to seek ERPOs, the opportunities for maliciousness or honest error are multiplied.

The basic problem, as with other “red flag” laws, is that the process is rigged against the respondent from the beginning. Once a temporary, ex parte ERPO is issued (as it probably will be), there is apt to be a bias in favor of extending it and against terminating it early, since the respondent already has been deemed a threat (even if the standard of proof was initially weak), and the possibly deadly consequences of letting him possess guns will loom large. Given that bias, the indeterminacy of “significant risk,” and the difficulty of predicting a respondent’s behavior, it seems inevitable that the vast majority of people who lose their constitutional rights under this sort of law will pose no real threat to themselves or others.

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Colorado’s New ‘Red Flag’ Law Illustrates the Pitfalls of Disarming People Based on Their Future Behavior

This month Colorado became the 15th state to enact a “red flag” law that authorizes court orders forbidding gun possession by people deemed a threat to themselves or others. The new law, which has drawn strong criticism from Second Amendment advocates, including some county sheriffs, illustrates the civil liberties concerns raised by such attempts to identify and disarm people prone to suicide or homicide.

Colorado’s Deputy Zackari Parrish III Violence Prevention Act, which takes effect next year, is named for a 29-year-old Douglas County sheriff’s deputy who was killed in 2017 by a 36-year-old veteran with a history of psychological problems. The law allows a long list of people, including law enforcement officers, current or former household members, and people related by blood, marriage, or adoption, to seek a temporary “extreme risk protection order” (ERPO) against someone they believe “poses a significant risk of causing personal risk to self or others in the near future.” The standard of proof at this stage, when the “respondent” does not have an opportunity to respond, is a “preponderance of the evidence,” meaning he is more likely than not to pose a significant risk.

Depending on what counts as a “significant risk,” the probability that the subject of a temporary order actually would have used a gun to hurt himself or someone else may be quite low. If 10 percent is significant, for example, that probability might be around 5 percent (51 percent times 10 percent). So even if judges are weighing the evidence with such precision, they will be taking away the Second Amendment rights of people who almost certainly would not have committed suicide or murder.

In practice, judges will be inclined to err on the side of what they take to be caution. When the only evidence comes from someone who believes the respondent poses a threat, judges will rarely, if ever, decline to issue a temporary ERPO. The possible downside of rejecting a petition—the death of the respondent or someone else—will weigh heavily on the judge’s mind, while the temporary deprivation of the subject’s constitutional rights will seem trivial by comparison.

A temporary ERPO lasts for up to 14 days, at which point the judge has to schedule a hearing where the respondent has a chance to challenge the claims against him. The respondent has a right to a court-appointed attorney if he cannot afford legal representation or would rather not pay for it. If he does not show up at the hearing, the court can issue an ERPO without any adversarial process.

To obtain an ERPO at this stage, the petitioner must present “clear and convincing evidence” that the respondent poses a significant risk. Unlike with the temporary, ex parte order, that risk need not be “in the near future.” The judge may consider “any relevant evidence,” including, but not limited to, recent threats or acts of violence, violations of civil protective orders, violations of previous ERPOs, criminal convictions involving violence or cruelty to animals, unlawful or reckless use of firearms, a “history of stalking,” drug or alcohol abuse, recent acquisition of a firearm, a job requiring the respondent to carry a firearm, and “any available mental health evaluation or chemical dependency evaluation.” While some of these factors are clearly relevant, others, such as illegal drug use or the purchase of a firearm, may have little or nothing to do with the question of whether the subject poses a significant threat to himself or others. Furthermore, the judge is authorized to consider literally any other fact or allegation that he deems relevant.

If the judge issues an ERPO, it lasts for 364 days unless the subject seeks early termination and shows by clear and convincing evidence that he does not pose a significant threat. That case will be hard to make, especially since “significant risk” is undefined and judges will not want to take the blame should something terrible happen after they terminate an order. The petitioner has a right to seek an extension of the order before it expires, based on the same standard of proof.

Eagle County Sheriff James van Beek argues in a Facebook post that the ERPO process makes gun owners “guilty until proven innocent.” He notes that when the subject of an ERPO tries to have it terminated, “the burden of proof is not on the petitioner (the accuser), as in every other legal case, but instead, is placed on the respondent (defendant) to prove that the accusations are wrong.” He observes that “proving one’s sanity could be very difficult, as it is highly subjective.” Nor is “proving one’s sanity,” however that’s defined, enough to prevail, since a person may be considered a threat even if he does not qualify for a psychiatric diagnosis.

Van Beek also worries that “if a person is truly in a mental crisis, this aggressive approach will create even greater stress, possibly resulting in a violent overreaction, as their personal property has been taken, without a crime ever having been committed.” When police seize guns from the subject of a temporary ERPO, Van Beek notes, it happens “with no warning or ability to defend themselves against the charges.” Furthermore, he says, the possibility of that outcome may deter troubled people from seeking professional help.

The law gives the respondent a civil cause of action against someone who files a “false or malicious” ERPO petition, allowing him to recover damages, costs, and attorney fees. But knowing falsehoods or maliciousness will be difficult to prove, and in any case the more likely scenario is one in which the petitioner sincerely but mistakenly believes the respondent poses a “significant risk,” whatever that means. With everyone from ex-girlfriends and former roommates to grandparents, in-laws, and second cousins empowered to seek ERPOs, the opportunities for maliciousness or honest error are multiplied.

The basic problem, as with other “red flag” laws, is that the process is rigged against the respondent from the beginning. Once a temporary, ex parte ERPO is issued (as it probably will be), there is apt to be a bias in favor of extending it and against terminating it early, since the respondent already has been deemed a threat (even if the standard of proof was initially weak), and the possibly deadly consequences of letting him possess guns will loom large. Given that bias, the indeterminacy of “significant risk,” and the difficulty of predicting a respondent’s behavior, it seems inevitable that the vast majority of people who lose their constitutional rights under this sort of law will pose no real threat to themselves or others.

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Minneapolis’ Mayor Wants to End ‘Warrior’ Training That Teaches Cops to Treat Us All Like Threats

Minneapolis Mayor Jacob Frey has had enough of with the militarized “warrior cop” who treats every interaction with citizens as though we’re a potential threat. So this month he announced that the city was going to ban police participation in “warrior-style” training that fosters paranoid overreactions and makes it more likely that innocent people will be shot.

In response, the Minneapolis Police Union has declared that Frey’s order is unlawful and is partnering with a national organization to give officers this forbidden training for free.

It’s not hard to understand why Frey would want to put the brakes on the warrior-cop mentality. This past weekend, Connecticut officials released surveillance video of two officers opening fire on an unarmed couple’s car in New Haven as the man exits the automobile with his hands up. And that’s just one recent example. A skim through our police coverage at Reason will net you story after story of officers choosing to shoot or punch or Tase people for the slightest of provocations. Even complying with police orders might not be enough to protect you, as the young man in New Haven discovered.

Fortunately, he wasn’t injured. Others have not been so lucky. In March, North Carolina police shot and killed a man who appeared to be following their orders to put down a gun. In 2017, jurors in Arizona acquitted a Mesa officer who shot and killed a man who was attempting to follow the officer’s orders to crawl down a hallway.

In the Minneapolis area Frey represents, Philando Castile’s fatal shooting at the hands of a St. Anthony police officer became a national news story. Castile was abruptly shot and killed by Officer Jeronimo Yanez at a traffic stop after telling the officer he had a gun (which he had a permit to carry). Yanez was ultimately acquitted of any charges for the shooting.

Yanez had taken 20 hours of training in a program called “The Bulletproof Warror“—the kind of program Frey wants to stop. It encouraged the officer to treat all encounters as potential threats to his safety. By contrast, Yanez received all of two hours of training in de-escalation tactics.

The “warrior cop” mentality has also led to the use of violent, dangerous SWAT raids to execute basic search warrants in situations where they’re not called for, often in the perpetuation of the drug war. This mimicking of “shock and awe” military-style raid tactics have led to innocent people—even children—hurt or killed.

And then, when the justice system attempts to hold officers responsible for these deadly overreactions, the training itself is invoked in court to justify these actions. One psychologist who teaches officers to see every encounter as a potential threat then presents himself as an expert witness on the stand, where he tells juries that it was reasonable for cops to fear for their lives regardless of whatever actions the citizens around them were taking. Yes, even if it turns out they’re unarmed and completely innocent of any criminal behavior.

So Frey should be commended for trying to bring about an end to this sort of training. But the Minneapolis Police Union doesn’t agree. The Minneapolis Star Tribune reports:

Lt. Bob Kroll, president of the police union, was undeterred on Wednesday, saying in an interview that he consulted with the union’s attorneys, who said Frey’s directive was unlawful. Kroll also defended the training, saying, “It’s not about killing, it’s about surviving.”

Frey said in a statement that the city attorney’s office was consulted during the drafting of the policy, and, “They are confident in its legal position.”

Frey says that any officer taking this training in violating of the city’s policy will be disciplined.

On Friday it looked like the two sides had come to an agreement, and Frey said that the union had “come around” and accepted the ban. But the union then put out a statement that said they had not come to such an agreement, and that the mayor and city had in fact agreed that no officer would be punished for going to any sort of off-duty training.

It’s not entirely clear how Minneapolis could stop police officers from taking these courses on their own time, as long as they’re not using any city resources and they’re not getting paid for doing so, but perhaps we’ll see.

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Minneapolis’ Mayor Wants to End ‘Warrior’ Training That Teaches Cops to Treat Us All Like Threats

Minneapolis Mayor Jacob Frey has had enough of with the militarized “warrior cop” who treats every interaction with citizens as though we’re a potential threat. So this month he announced that the city was going to ban police participation in “warrior-style” training that fosters paranoid overreactions and makes it more likely that innocent people will be shot.

In response, the Minneapolis Police Union has declared that Frey’s order is unlawful and is partnering with a national organization to give officers this forbidden training for free.

It’s not hard to understand why Frey would want to put the brakes on the warrior-cop mentality. This past weekend, Connecticut officials released surveillance video of two officers opening fire on an unarmed couple’s car in New Haven as the man exits the automobile with his hands up. And that’s just one recent example. A skim through our police coverage at Reason will net you story after story of officers choosing to shoot or punch or Tase people for the slightest of provocations. Even complying with police orders might not be enough to protect you, as the young man in New Haven discovered.

Fortunately, he wasn’t injured. Others have not been so lucky. In March, North Carolina police shot and killed a man who appeared to be following their orders to put down a gun. In 2017, jurors in Arizona acquitted a Mesa officer who shot and killed a man who was attempting to follow the officer’s orders to crawl down a hallway.

In the Minneapolis area Frey represents, Philando Castile’s fatal shooting at the hands of a St. Anthony police officer became a national news story. Castile was abruptly shot and killed by Officer Jeronimo Yanez at a traffic stop after telling the officer he had a gun (which he had a permit to carry). Yanez was ultimately acquitted of any charges for the shooting.

Yanez had taken 20 hours of training in a program called “The Bulletproof Warror“—the kind of program Frey wants to stop. It encouraged the officer to treat all encounters as potential threats to his safety. By contrast, Yanez received all of two hours of training in de-escalation tactics.

The “warrior cop” mentality has also led to the use of violent, dangerous SWAT raids to execute basic search warrants in situations where they’re not called for, often in the perpetuation of the drug war. This mimicking of “shock and awe” military-style raid tactics have led to innocent people—even children—hurt or killed.

And then, when the justice system attempts to hold officers responsible for these deadly overreactions, the training itself is invoked in court to justify these actions. One psychologist who teaches officers to see every encounter as a potential threat then presents himself as an expert witness on the stand, where he tells juries that it was reasonable for cops to fear for their lives regardless of whatever actions the citizens around them were taking. Yes, even if it turns out they’re unarmed and completely innocent of any criminal behavior.

So Frey should be commended for trying to bring about an end to this sort of training. But the Minneapolis Police Union doesn’t agree. The Minneapolis Star Tribune reports:

Lt. Bob Kroll, president of the police union, was undeterred on Wednesday, saying in an interview that he consulted with the union’s attorneys, who said Frey’s directive was unlawful. Kroll also defended the training, saying, “It’s not about killing, it’s about surviving.”

Frey said in a statement that the city attorney’s office was consulted during the drafting of the policy, and, “They are confident in its legal position.”

Frey says that any officer taking this training in violating of the city’s policy will be disciplined.

On Friday it looked like the two sides had come to an agreement, and Frey said that the union had “come around” and accepted the ban. But the union then put out a statement that said they had not come to such an agreement, and that the mayor and city had in fact agreed that no officer would be punished for going to any sort of off-duty training.

It’s not entirely clear how Minneapolis could stop police officers from taking these courses on their own time, as long as they’re not using any city resources and they’re not getting paid for doing so, but perhaps we’ll see.

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Low Inflation Is Boosting Markets For The Wrong Reasons

Authored by Komal Sri-Kumar, op-ed via Bloomberg.com,

Investors can play the greater fool theory and ride the rally, but a safer approach is warranted.

It was only a few months ago that the U.S. Federal Reserve was intent on continuing to increase interest rates. But now, some policy makers are even hinting that the next move may be a rate cut, and they may even pursue other forms of policy easing despite equities reaching record highs again. If that is the message Fed Chairman Jerome Powell will provide at his press conference Wednesday following a two-day meeting with policy makers, it would spur equities to even greater heights and drive yields on Treasury securities even lower.

To see why this is a likely scenario, it helps to understand why the move toward further policy easing may occur. Maintaining healthy employment and stable inflation are the twin objectives of Fed policy. Since the 2008 financial crisis, three Fed chairs have attempted without success to reach and sustain a 2 percent inflation goal. They rationalized that near-zero interest rates and three bouts of quantitative easing would take the economy toward that target. But despite the Fed’s balance sheet having more than quintupled from $800 billion in late 2008 to a peak of $4.5 trillion by 2015, inflationary pressures have remained dormant.

The inflation numbers for the first quarter released Friday showed a further easing of inflationary pressures. The core personal consumption deflator that excludes food and energy fell from an already low 1.8 percent in the final quarter of 2018 to 1.3 percent in the first three months of 2019. Inflation this low could quickly turn into deflation, as has been Japan’s experiencesince the early 1990s. Negative inflationary expectations become self-sustaining since they encourage consumers and investors to postpone spending, further deepening a downturn.

Federal Reserve Bank of Chicago President Charles Evans told the Wall Street Journal this month that if the core inflation rate held at around the 1.5 percent area for a few months, he “would definitely be thinking about taking insurance” by cutting rates. Robert Kaplan, head of the Federal Reserve Bank of Dallas, also indicated that if inflation persisted at low levels, he would have to take that into account in setting rates.

Even if Powell suggests at his May 1 press conference that such a move could occur within a few months, that may not be the end of the easing cycle. The Fed is unlikely to succeed in raising the inflation rate now any more than it has been able to do in the past decade. Even if a rate cut is accompanied by an announcement that the Fed would resume bond purchases, that may not pressure inflation higher.

Low inflation in recent years has been the result of an aging U.S. population that tends to consume less, Trump administration policies that have discouraged immigration of young workers who could have contributed to spending, and a labor force participation rate that is still below pre-crisis levels. These issues are structural and do not respond to monetary stimulus measures. Furthermore, if rates are reduced, low- and middle-income workers will find themselves losing out on interest income as they did in the years after the crisis. This too will curb consumption and hold back inflation.

Under these circumstances, the Fed will likely double up on policies that don’t work, sending financial asset prices even higher; failure may only breed further efforts in the same direction. This expectation is borne of experience. When the Fed deemed that the first effort at quantitative easing that was announced in late 2008 was not sufficient to spark faster inflation and put economic growth at an acceptable pace, it introduced second and third versions of bond purchases, providing a backstop to financial assets for several years.

How then would the rally end? A few more rounds of lower rates and putting more cash in the hands of investors may eventually send valuations to unsustainable levels. At some point, perhaps by mid-2020, further Fed easing may only increase the anxiety level in markets regarding what bad news central bankers are aware of that investors are not privy to. That would be the time when even the Fed may not be able to support markets.

Of course, in such a scenario, investors can play the greater fool theory and go with the upward market momentum and ride the rally. A safer approach would be to gradually reduce their presence in risk assets over the coming months.

via ZeroHedge News http://bit.ly/2LaDYLR Tyler Durden

Leader Of New Mexico Border Militia To Appear In Court 

The leader of a New Mexico militia which has been detaining border crossers is expected to appear in an Albuquerque court on Monday to face federal weapons charges, according to Reuters. 

Larry Hopkins, leader of the United Constitutional Patriots, was charged with being a felon in possession of a firearm after the FBI claims it found guns during a 2017 visit to his home. 

The 69-year-old was arrested by the FBI on April 20, several days after his militia was accused by the ACLU of illegally detaining migrants – prompting New Mexico’s Democratic Governor Michelle Lujan Grisham to call for them to stop. 

Hopkins in 2017 allegedly boasted of training volunteers to kill former President Barack Obama, former Secretary of State Hillary Clinton and financier George Soros, an FBI agent said in court papers.

The United Constitutional Patriots has helped the U.S. Border Patrol, which has been overwhelmed by record numbers of Central American families seeking asylum, detain some 5,600 migrants in New Mexico in the last 60 days, the group said. –Reuters

Hopkins’ defense attorney, Kelly O’Connell, says that the charges are unrelated to the militia’s actions at the border, and stem from an October 2017 report that a militia was being run out of Hopkins’ home in Flora Vista, New Mexico, according to FBI Special Agent David Gabriel. 

The United Constitutional Patriots (UCP), meanwhile, have been patrolling the border with rifles and camouflage uniforms which beat the group’s eagle insignia. They have posted dozens of videos on YouTube depicting UCP members detaining migrant families, who are then made to sit and wait at gunpoint until Border Patrol agents arrive. 

Upon entering Hopkins’ home, agents collected nine firearms ranging from rifles to pistols – which Horton was illegally in possession of due to at least one prior felony conviction, according to the complaint. 

A federal grand jury has returned an indictment charging Hopkins with being a felon in possession of firearms, the same charged he faced in the original complaint, the U.S. Attorney’s Office said in a statement on Friday. The indictment allows prosecutors to avoid a preliminary hearing in the case. –Reuters

The UCP leader faces a maximum of 10 years in prison if convicted. 

via ZeroHedge News http://bit.ly/2V4ogpZ Tyler Durden

This asset class has maintained its value for thousands of years

At the peak of its power in 1350 BC, thousands of years ago, ancient Egypt was like nothing ever seen before.

The great Kingdom was thriving under an efficient system of agricultural production and trade with foreign nations.

Egyptians had learned to adapt to the natural irrigation of the Nile river to produce surpluses of food, which supported a larger population, trade specialization and social and cultural development.

Mineral exploitation in the surrounding areas gave Egyptians great resources with which to trade with foreign empires – and led to great wealth for the kingdom.

New technologies were invented at an astonishing pace: there are records of discoveries in medicine, construction, and mathematics dating from Ancient Egypt that we still use today (yes, that’s how they built the Pyramids).

Ancient Egypt also gave us the first peace treaty ever, and new forms of literature.

Nefertiti, the wife of the Pharaoh Akhenaten, led a religious revolution away from a common belief in several gods, to the worship of just one – the Sun god – the first instance of monotheism ever recorded.

And famously, Egypt’s art scene thrived.

Monuments, sculptures, masks, statues, amulets – you name it. Egyptians were great craftsmen, and their art was widely circulated around the world.

Today, most of the world’s major historical art museums carry some form of Egyptian art.

So it should come as no surprise that despite the more than 3,000 years that have passed, antiquities from Ancient Egypt have tremendously grown in value.

This week, a granite statue from ca. 1350 BC will be on auction sale in New York for a starting price of $4.5 million.

And a Scarab amulet will start at $80,000.

I don’t know about you, but I’m interested in anything that holds value with that kind of longevity.

That’s one of the reasons why gold is such a sensible asset to hold: it’s scarce, portable, and has been valuable since ancient times.

Egyptian art is even more scarce. No one can go back in time and create more of it.

So as a means to preserve wealth over the long-term, it makes sense to consider owning some rare, collectible assets as part of a larger strategy… rather than having 100% of your savings in fundamentally flawed paper currencies.

That is why this past weekend, I held an event for our Total Access members (our highest level of membership at Sovereign Man) to learn about some of the most compelling collectible assets.

We had some of the world’s foremost experts teaching us. It was 100% educational… there was absolutely nothing to buy and sell.

And we learned about so many different types of assets– rare coins, antique firearms, vintage cars, works of arts, Swiss watches, comic books, etc.

We even arranged for one of the most prominent museums in the country to shut down for our group, where we enjoyed cocktails and a private tour with the curator and a handful of talented artists.

Collectible assets, just like anything else, derive value from supply and demand.

And supply is all about scarcity.

Again, you can’t go back to Ancient Egypt and make another amulet. You can’t ask Leonardo da Vinci to paint another masterpiece. You can’t go back in time to 1952 and print another Mickey Mantle rookie card.

In addition to scarcity, quality is another important factor: collectibles in better condition will typically be stronger stores of value.

For example, a ‘mint condition’ Mickey Mantle rookie baseball card is worth millions of dollars, whereas one with just a bit of wear and tear is worth around $800,000.

Similarly, rare coins in flawless condition will hold value better than the same coin with scratches and scuffs.

Demand with collectible assets tends to be strongest with brands, or historical events, that have the widest following.

Beatles and Elvis memorabilia, for instance, has far greater appeal than, say, Roy Orbison, simply because their worldwide fan bases are so much larger.

There are far more World War II or American Civil War aficionados than there are for the War of 1812. So there is far more demand for World War II and Civil War artifacts.

Historical documents (another category of collectible assets) signed by Abraham Lincoln, George Washington, or Winston Churchill have far greater demand than those from Grover Cleveland or Arthur Balfour.

They’re more expensive, but the extra premium you pay will most likely hold its value (and grow) in the years and decades to come.

Collectibles are also quite interesting because they’re so portable. You could walk across a border with a single rare coin in your pocket that’s worth over $1 million… which also makes collectibles a very private way to store wealth.

Another benefit is estate planning. At some point, each of us is going to pass away. And a collection of coins or artwork is a LOT easier to pass along to your heirs than traditional financial assets (like bank accounts and stocks).

Most of all, collectibles can really be fantastic assets. We discussed this weekend that, for the past several decades, a number of different collectible categories ranging from vintage Ferraris to Andy Warhol paintings have vastly outperformed the stock market over the past few decades.

It’s not to say you should run out and by an $80,000+ Egyptian artifact. It’s important to first find something that appeals to you, and learn as much as you can about it.

And a lot of highly desired collectibles can be had for just a few thousand dollars, so the entry point can be quite low.

But at a time when central banks continue to debase their currencies and western governments are drowning in debt, it makes sense to consider ‘forever assets’ that can hold their value for generations to come.

Source

from Sovereign Man http://bit.ly/2UNFRO7
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Boomers Are Facing A Financial Crisis

Authored by Lance Roberts via RealInvestmentAdvice.com,

There is a “crisis” brewing in America which will affect more Americans than the subprime crisis in 2008.

What is it?

It’s the pension and retirement crisis.

According to a recent report from the National Retirement Planning Week the three “legs” of the retirement “stool” are Social Security, private pensions and personal savings. None are in great shape.

  • The average Social Security check is $14,000 a year, hardly a cushy retirement.

  • 23% of boomers ages 56-61 expect to receive income from a private company pension plan; and,

  • 38% of older boomers expect a pension.

  • 45% of boomers have ZERO savings for retirement.

I previously discussed the pension issue in the “Unavoidable Pension Crisis.” To wit:

“Using faulty assumptions is the lynchpin to the inability to meet future obligations. By over-estimating returns, it has artificially inflated future pension values and reduced the required contribution amounts by individuals and governments paying into the pension system.”

This is a critically important point to understand as it is why a vast majority of Americans are trapped in the same “quicksand” as pension funds and don’t realize it.

For years, Wall Street has espoused the “myth of compounded average returns.” This is the same myth which has not only infected pension funds, but has led to the same false sense of future financial security in personal retirement planning nationwide. An article from IBD further perpetuates this myth:

“J.P. Morgan says ‘enough’ means the nest egg is big enough to have at least an 80% chance of surviving 30 years in retirement.’ 

The financial firm’s number crunchers also assume that, before retirement, you keep kicking in 10% of your income each year to your nest egg. In addition, they assume that your retirement portfolio grows an average of 6% a year before retirement and 5% a year in retirement.“

And there it is.  The biggest mistake you are making in your retirement planning by buying into the “myth” that markets “compound returns” over time.

They don’t. They never have. They never will.

The chart below shows a compounded return rate of at 4-8% with $5000 annual dollar cost averaging (DCA) contributions made monthly (as noted above 10% of $50,000 which is roughly the median wage), and using variable rates of return from current valuation levels. (Chart assumes 35 years of age to start saving and expiring at 85)

Just as with “pension funds,” the issue of using above average rates of return into the future suggests one can “save less” today because the “growth” will make up for the difference.

Unfortunately, it just doesn’t work that way.

Financial Insecurity

While we can argue about market returns, compounding rates, etc., in order for any of that to matter we have to assume Americans have money, or savings, to invest to begin with.

A new report by Forbes states that 23% (nearly one in four) Americans are saving not even one penny from their paychecks.

As part of its 2019 Savings Survey, First National Bank of Omaha examined Americans’ habits, behaviors, and priorities when it comes to saving, monthly spending, and retirement planning. The findings showed that nearly 80% of Americans live paycheck to paycheck.

The 2018 Planning & Progress Study gathered data in an online survey from over 2000 Americans over the age of 18. In that survey, they found:

  • 78% said they were “extremely” or “somewhat” concerned about affording a comfortable retirement.

  • 66% said there was some likelihood of outliving retirement savings.

  • 21% have no retirement savings at all

    • 33% of baby boomers have between $0 and $25,000 of retirement savings

  • 46% admitted to taking no steps to prepare for the likelihood they could outlive their retirement.

Medium reported that:

“According to a survey from Gallup, 43 percent of adults between the ages of 50 and 64 expect to rely on Social Security during retirement. This number has been steadily increasing since 2001. However, only 24 percent of respondents in the 2018 Planning & Progress Survey believe it’s extremely likely that Social Security will even be available when they plan to retire.”

That fear is likely not so misplaced as Reason noted:

“Social Security will be insolvent and unable to pay the full value of promised benefits by 2035—that’s one full year later than previously expected—and Social Security’s costs will exceed its income by 2020, according to a new report published Monday by the program’s trustees.

At the end of 2018, Social Security was providing income to about 67 million Americans. About 47 million of them were over age 65, and the majority of the rest were disabled. If nothing changes, the Social Security Trust Fund will be fully depleted by 2035 and the program would impose across-the-board cuts of 20 percent to all beneficiaries.”

Meanwhile, demographics are blowing up the basic premise of how Social Security is funded. There were 2.8 workers for every Social Security recipient in 2017. That’s down from 3.3 in 2007, and that’s way down from the 5.1 workers per beneficiary that existed in 1960.

Furthermore, the two programs function mostly as a giant conveyor belt to transfer wealth from the young and relatively poor to the old and relatively rich, allowing the average person (who now lives to be 78) more than a decade of taxpayer-funded retirement. As  I have shown previously, welfare now makes up the highest percentage of disposable personal incomes in history despite record low unemployment, rising wage growth, and the longest economic expansion in U.S. history.

Those entitlement programs are also the primary drivers of our national debt, which just hit $22 trillion, and the deficit, despite tax reform is now pushing in excess of $1 Trillion, which has never been seen during an economic expansion.

Won’t Or Can’t

Asking people to save “more” really isn’t an option.

The lack of savings, of course, is directly related to the rising cost of living versus the lack of wage growth over the last 35-years which led to a massive surge in debt to maintain the standard of living.

Fidelity provided some further insights into the savings problem which shows it permeates Boomers, Generation X’ers, and Millennials:

“Generation X is squarely in middle age and beset on all sides by bills. Many in Generation X have dependents at home—84% in the survey said they have at least one. They may also still be paying off their own student debts—just more than one in four survey respondents from Generation X says he or she is still paying for his or her own education. 

There are all kinds of money problems, but the solutions are generally the same: Save more, spend less, or find a higher-paying job—or maybe all three. But this is easier said than done.”

The massive shortfall in “savings” is going to be a problem in the future.

But everyone saves money in their 401k plan?

A report from the non-profit National Institute on Retirement Security which found that nearly 60% of all working-age Americans do not own assets in a retirement account.

Here are some additional findings from the report:

  • Account ownership rates are closely correlated with income and wealth. More than 100 million working-age individuals (57 percent) do not own any retirement account assets, whether in an employer-sponsored 401(k)-type plan or an IRA nor are they covered by defined benefit (DB) pensions.
  • The typical working-age American has no retirement savings. When all working individuals are included—not just individuals with retirement accounts—the median retirement account balance is $0 among all working individuals. Even among workers who have accumulated savings in retirement accounts, the typical worker had a modest account balance of $40,000.
  • Three-fourths (77 percent) of Americans fall short of conservative retirement savings targets for their age and income based on working until age 67 even after counting an individual’s entire net worth—a generous measure of retirement savings.

The Unsolvable Problem

A survey from Bankrate.com touched on the issue.

“13 percent of Americans are saving less for retirement than they were last year and offers insight into why much of the population is lagging behind. The most popular response survey participants gave for why they didn’t put more away in the past year was a drop, or no change, in income.”

The cost of living has risen much more dramatically than incomes. According to Pew Research:

“In fact, despite some ups and downs over the past several decades, today’s real average wage (that is, the wage after accounting for inflation) has about the same purchasing power it did 40 years ago. And what wage gains there have been have mostly flowed to the highest-paid tier of workers.”

But the problem isn’t just the cost of living due to inflation, but the “real” cost of raising a family in the U.S. has grown incredibly more expensive with surging food, energy, health, and housing costs.

  • Researchers at Purdue University recently studied data culled from across the globe and found that in the U.S., $132,000 was found to be the optimal income for “feeling” happy for raising a family of four. 

  • Gallup also surveyed to find out what the “average” family required to support a family of four in the U.S. (Forget about being happy, we are talking about “just getting by.”) That number turned out to be $58.000.

The chart below shows the “disposable income” of Americans from the Census Bureau data. (Disposable income is income after taxes.)

So, while the “median” income has broken out to all-time highs, the reality is that for the vast majority of Americans there has been little improvement. Here are some stats from the survey data which was NOT reported:

  • $306,139 – the difference between the annual income for the Top 5% versus the Bottom 80%.

  • $148,504 – the difference between the annual income for the Top 5% and the Top 20%.

  • $157,635 – the difference between the annual income for the Top 20% and the Bottom 80%.

If you are in the Top 20% of income earners, congratulations. If not, it is a bit of a different story.

Assuming a “family of four” needs an income of $58,000 a year to just “make it,” such becomes problematic for the bottom 80% of the population whose wage growth falls far short of what is required to support the standard of living, much less to obtain “happiness.” 

The “gap” between the “standard of living” and real disposable incomes is more clearly shown below. Beginning in 1990, incomes alone were no longer able to meet the standard of living so consumers turned to debt to fill the “gap.” However, following the “financial crisis,” even the combined levels of income and debt no longer fill the gap. Currently, there is almost a $3200 annual deficit that cannot be filled.

This is why we continue to see consumer credit hitting all-time records despite an economic boom, rising wage growth, historically low unemployment rates.

The mirage of consumer wealth has not been a function of a broad increase in the net worth of Americans, but rather a division in the country between the Top 20% who have the wealth and the Bottom 80% dependent on increasing debt levels to sustain their current standard of living.

With the vast amount of individuals already vastly under-saved and dependent on social welfare, the next major correction will reveal the full extent of the “retirement crisis” silently lurking in the shadows of this bull market cycle.

For the 75.4 million “boomers,” about 26% of the entire population heading into retirement by 2030, the reality is that only about 20% will be able to actually retire.

The rest will be faced with tough decisions in the years ahead.

The good news is that if Alexandria Ocasio-Cortez is correct, none of this will be a problem if climate change kills everyone in the next 12 years.

via ZeroHedge News http://bit.ly/2GIm1Pq Tyler Durden

Measles Cases Highest In 25 Years…And It’s Only April

As more than 1,000 students have been quarantined in California and New York State has begun issuing expensive summons to at least 12 unvaccinated people who have dared to defy its mandatory vaccination order, the CDC on Monday confirmed that the number of measles cases documented in the US since the beginning of the year has climbed to 704 cases in 22 states, the largest number of cases documented in a single year since 1994…and it’s only April.

The outbreaks are a huge setback for public health officials in the US, who had declared that measles had been eliminated back in 2000.

Measles

The worst outbreaks have been documented in Orthodox Jewish communities in Brooklyn and New York’s Rockland County. Some 88% of cases have been associated with these religious communities. To combat the outbreak, NYC has instituted a policy of mandatory vaccinations, and Rockland County has threatened a $2,000-a-day fine for any unvaccinated individuals who mix with the general public.

In a statement Monday, Health and Human Services Secretary Alex Azar underscored the seriousness of the outbreaks: “We have come a long way in fighting infectious diseases in America, but we risk backsliding and seeing our families, neighbors, and communities needlessly suffer from preventable diseases. We are very concerned about the recent troubling rise in cases of measles. Vaccine-preventable diseases belong in the history books, not in our emergency rooms. The suffering we are seeing today is completely avoidable. Vaccines are safe because they are among the most studied medical products we have.”

Currently, the US leads the developed world in the number of unvaccinated children.

Infographic: Measles: Unvaccinated Children in Developed Countries | Statista You will find more infographics at Statista

Outside New York, the worst outbreaks have been documented in California, Washington and Michigan.

Billion

Here are key facts about measles:

  • Public health officials blame the measles resurgence on the spread of misinformation about vaccines. A vocal group of parents opposes vaccines, believing that ingredients in them can cause autism. Social networks have resorted to censorship to prevent the spread of any related postings.
  • The largest outbreaks are concentrated in Orthodox Jewish communities in New York City’s Williamsburg neighborhood, where some 390 cases have been confirmed, and Rockland County north of New York City, which has recorded 201 cases. Those figures include infections from last year and are not directly comparable to the CDC numbers.
  • Other outbreaks have been reported in Washington state, New Jersey, California’s Butte County and Michigan.
  • The disease is highly contagious and can be fatal, killing one or two of every 1,000 children who contract it, according to the CDC. It can also cause permanent hearing loss or intellectual disabilities. It poses the greatest risk to unvaccinated young children.
  • The United States’ 2000 declaration that measles was eradicated meant that the disease was no longer present in the country year round. Measles remains common in some countries in Europe, Asia and Africa, and unvaccinated travelers to those countries can bring it back to the United States. The current outbreaks are believed to trace back to visits to Israel and Ukraine.
  • New York City officials said some 21,000 people have received the measles-mumps-rubella vaccine in affected areas since the outbreak began in October. The city has begun fining unvaccinated adults.
  • Lawmakers in Oregon, California and Washington state are considering bills to eliminate nonmedical exemptions that allowed unvaccinated children to attend public schools.
  •  In order to achieve herd immunity that protects those unable to get the measles vaccine, such as infants and people with compromised immune systems, 90% to 95% of the population needs to be vaccinated.

via ZeroHedge News http://bit.ly/2J3Fdd0 Tyler Durden