Month: January 2020

A stunning and unusual incident played out as cameras rolled while Pope Francis greeted the crowd in St. Peter’s Square ahead of New Year’s Eve celebrations.

A visibly shocked and angry Pope Francis is seen frantically slapping a woman’s hand after she lunged from the crowd to grab his hand and yank the pontiff toward her.

Disgruntled Pope Francis pulls himself free from a woman’s clutch in Vatican City https://t.co/2nap3R0iQ4 pic.twitter.com/f87A9belnn

— Reuters (@Reuters) December 31, 2019

The Pope’s Swiss Guard, which is a papal ‘secret service’ protection unit of sorts, does not appear nearby at the moment the bizarre incident went down. The Pope walks away visibly flustered and angry.

According to Reuters, Pope Francis had been making a visit to the large traditional Nativity scene at the center of St. Peter’s sprawling esplanade. As is customary, he was greeting and blessing some of the pilgrims along the way, and that’s when all hell broke loose:

After reaching out to touch a child, the pope turned away from the crowd only for a nearby woman to seize his hand and pull her toward him. The abrupt gesture appeared to cause him pain and Francis swiftly wrenched his hand free.

The woman had made the sign of the cross as the pope had approached. It was not clear what she was saying as she subsequently tugged him toward her.

The video immediately went viral once it hit the web, with conflicting reactions as Francis’ supporters were relieved he survived the apparently crazed or deeply in-need woman’s violent grasp, while others took the 83-year old bishop of Rome to task for what appeared to be him hitting back.

Predictably, the contentious hot takes analyzing the tense encounter began inundating the web:

Pope John Paul II met with the man who shot him and nearly killed him, held his hand, and prayed with him. Pope Francis slapped a woman for grabbing his hand. Two different people.

— John of Westeros (@JohnofWesteros) December 31, 2019

The clip shows him angrily slapping her hand until she releases her grip. 

WATCH: Pope Francis was greeting people in St. Peter’s Square on New Year’s Eve when he had to pull himself away from a woman who grabbed the Pope’s hand and pulled him toward her. pic.twitter.com/eeafEU6mGi

— CBS Newspath (@cbsnewspath) December 31, 2019

An embarrassed Pope issued a public apology the next day for his angry reaction. 

The New York Times described that he “apologized on Wednesday for the flash of anger — or self-defense — that he exhibited while greeting the faithful around the Vatican’s giant Nativity scene after a New Year’s Eve liturgy the evening before.”

“Many times we lose our patience,” Francis said. “I do, too, and I’m sorry for yesterday’s bad example.”

Regardless, it was a rare moment in which a flash of rage was captured by cameras on the part of the man propped up by the media as “the people’s Pope”.

Authored by Tyler Brandt via The Foundation for Economic Education,

“The 2010s have been the best decade ever. The evidence is overwhelming.”

Those are the words of Cato Institute senior fellow Johan Norberg, penned in an op-ed for the Wall Street Journal.

Norberg’s words seem hyperbolic at first glance, but he may be right. In many ways, the world is getting better every day, and at an explosive rate. This is contrary to mainstream sentiment, where pundits clamor about democracy falling apart, climate catastrophe threatening our very existence, and capitalism failing us.

Yet, the proof is in the pudding, as they say. Data show the past decade has been a story of human flourishing and progress. Here are 6 facts about human progress that give us reason to be optimistic heading into 2020:

1. Extreme Poverty Is Plummeting

Extreme poverty rates—defined as living on less than $1.90 per day—are falling and continue to fall. From 1990 to 2015, the global extreme poverty rate fell from 36 percent to 10 percent. In 2018, it fell to 8.6 percent. This means more than 137,000 people escape extreme poverty every day.

2. More Than Half the World Is Middle Class

This might not shock you at first, but consider that September 2018 was the first time in human history that more than 50 percent of the global population was considered middle class, which amounts to about 3.8 billion people. One huge benefit of this is the demand the middle class places on the global economy, resulting in more entrepreneurial opportunities and increased commerce.

To put this in perspective, only 1.8 billion were considered middle class in 2009. That’s only 26 percent of the global population, meaning proportionally, the percentage of total global population considered middle class grew 92 percent from 2009 to 2018.

3. Global Life Expectancy Is Rising

As Norberg also states in his WSJ column,

Global life expectancy increased by more than three years in the past 10 years, mostly thanks to prevention of childhood deaths. According to the U.N., the global mortality rate for children under 5 declined from 5.6% in 2008 to 3.9% in 2018. A longer perspective shows how far we’ve come. Since 1950, Chad has reduced the child mortality rate by 56%, and it’s the worst-performing country in the world. South Korea reduced it by 98%.

4. Climate-Related Deaths Are Falling

Norberg also addresses the question, “Hasn’t this all come at the cost of a despoiled environment?” “No,” he says. “At a certain point developed countries start polluting less.” To make the point, he cites the falling rate of climate-related mortalities.

Death rates from air pollution declined by almost a fifth world-wide and a quarter in China between 2007 and 2017, according to the online publication Our World in Data.

Annual deaths from climate-related disasters declined by one-third between 2000-09 and 2010-15, to 0.35 per 100,000 people, according to the International Database of Disasters—a 95% reduction since the 1960s. That’s not because of fewer disasters, but better capabilities to deal with them.

5. Life Is Getting Better in the World’s Poorest Countries

Data from the World Bank show continued progress in the world’s poorest countries, especially in the past two decades. Access to basic drinking water has increased, as has electricity, sanitation, and clean cooking fuel. Data also show decreasing rates of poverty and childhood mortality.

6. The Cost of Starting a Business Has Plummeted in Developing Economies

Burdensome and onerous regulations can prevent individuals from starting their own business, which is one of the best ways to alleviate poverty. Not only is it tricky for the entrepreneur to navigate around excessive red tape, it also ends up costing them more. Thankfully, the cost of starting a business has drastically declined, especially in developing economies. In low- and middle-income economies, the average cost of starting a business was 141.76 percent of income-per-capita in 2004. In 2019, it is now just 30.85 percent.

P.S. Here is an infograph Norberg shared on his Twitter account.

Just one month left of the best decade in history. pic.twitter.com/XGg6mpLTNq

— Johan Norberg (@johanknorberg) November 28, 2019

Three U.S. defense officials told Fox News on Tuesday that the U.S. Army’s 82nd Airborne Division’s alert brigade has been given orders to deploy to Kuwait amid the social unrest in Baghdad. 

Even though all supporters of Iran-backed militias have withdrawn from the heavily fortified U.S. Embassy in Baghdad on Wednesday, the reinforcement of U.S. troops could be imminent. 

Defense Secretary Mark Esper said in a statement on Tuesday that 750 troops are immediately deploying to the Middle East because of the attack on the U.S. embassy. 

The US says it’s sending 750 troops to Iraq after its embassy in Baghdad was stormed by protesters.

Read more: https://t.co/iqHquUIrsA pic.twitter.com/14RUzxTYWD

— Al Jazeera English (@AJEnglish) January 1, 2020

Esper said he had authorized the deployment of an infantry battalion from the Immediate Response Force (IRF) of the 82nd Airborne Division.

“This deployment is an appropriate and precautionary action taken in response to increased threat levels against U.S. personnel and facilities, such as we witnessed in Baghdad today,” Esper said in a statement.

Apart from the rapid deployment, the three sources told Fox that approximately 4,000 paratroopers could be deployed to the region in the coming days.

There are 5,000 US troops currently stationed in Iraq supporting local forces, among the more than 60,000 troops positioned in military bases across the Middle East.

President Trump blamed Iran for the attack on the U.S. embassy in Baghdad in a tweetstorm on Tuesday.

“Iran killed an American contractor, wounding many. We strongly responded, and always will,” tweeted Trump. “Now Iran is orchestrating an attack on the U.S. Embassy in Iraq. They will be held fully responsible.”

“In addition, we expect Iraq to use its forces to protect the Embassy, and so notified!” he added.

Trump said, “….Iran will be held fully responsible for lives lost, or damage incurred, at any of our facilities. They will pay a very BIG PRICE! This is not a Warning, it is a Threat. Happy New Year!”

It appears that Trump isn’t pulling out of the Middle East after all, but rather a massive surge in troops into the region could be seen in the coming days. Is conflict with Iran nearing? 

 

Authored by Mike Shedlock via MishTalk,

In contrast to Hussman, Jim Bianco, at Bianco Research says the Fed’s repo actions are QE.

Earlier today I posted, Hussman Sides with Powell: It’s Not QE4.

If Hussman convinced you the Fed was not conducting QE, I will give you a chance to change your mind again.

“Not QE” Looks a Lot Like Y2K

This is a guest post by permission from Jim Bianco

Jim Bianco at Bianco Research says “Not QE” Looks a Lot Like Y2K

We would argue the special lending facility that started in late 1999 to support the feared Y2K computer glitch offers a historical analogy to the current period.

Stories 20 years ago sound like they are describing what is happening today:

Dow Jones News Service – (December 28, 1999) CASH IS FLOWING LIKE CHAMPAGNE FOR Y2K
The volume of cash that the Federal Reserve has temporarily given to banks to avert potential Year 2000 strains is rising to dizzying levels. Including nearly $20 billion it gave to the banking system in the form of term “repurchase” agreements Monday, the Fed has almost $100 billion in hard currency loans outstanding to banks. That’s the most money lent out through repurchase agreements ever, said Peter Bakstansky, spokesman for the New York Federal Reserve. For some perspective, the Fed had $23 billion in outstanding “repos” in December 1998, and around $9 billion in December 1997.

The Y2K special lending facility had a similar effect on the Fed’s balance sheet. It was also done for “plumbing reasons.”

And, as the [Champagne] story points out, the Fed supplied record amounts of repo never before seen at the time.

Fed Supplied Repo to the Market During Y2K

In fact, the amount of repo the Fed supplied in late 1999 was significantly more than on 9/11 and on par with the support offered during the financial crisis.

It was not until September 2019 that the Fed’s repo operations finally saw a meaningfully higher level.

Y2K Special Lending Starter Oct 7, 1999

Note that the Y2K special lending facility ran from October 7, 1999, to April 7, 2000. And what did stocks do during this period? Below is the NASDAQ.​

The Nasdaq went on a tear rarely seen in American finance, starting literally the day the Fed opened its Y2K lending facility. It crashed 25% the week the facility closed (April 7, to April 14, 2000).

2019 Repo Rally

How does this analogy currently compare? The Fed announced it would start buying T-bills on October 11, 2019. Stocks have gone a tear since (clearly the magnitude of the NASDAQ returns above were larger, but the timing of the bottom in each case is similar).

Conclusion

There is no such thing as a one-factor model to explain the stock market. Metrics such as the Fed’s balance sheet, repo, etc. cannot explain the stock market’s movements in isolation.

That said, when the Fed injects money, funds generally flow to the best-returning market. During the financial crisis, it was the bond market. Today, as was the case in 1999, it is the stock market.

There have been indications of how important the Fed’s balance sheet is to financial flows in the recent past.

During the Fed’s Dec 19, 2018 presser, the stock market collapsed when Powell said the balance sheet was on “automatic pilot.” It soared almost a 1,000 DJIA points on January 4 when he said the Fed would be “patient and flexible.” On June 4, when he said the Fed would “act as appropriate,” stocks continued higher. Again, no single measure can predict the stock market, but these were clear signs that the size of the Fed’s balance sheet and policy matter.

The following table highlights this. Through June 5, half the gains to that point came on the two days Powell commented on policy.

Powell PUTs are Half This Year’s Gains

Another 9% of the stock market’s gains came after October 11, when the Fed announced its T-bill purchase problem. So, a big part of this year nearly 30% stock market gain has come on the heels of Fed moves, much like last year’s 20% decline was coincident with the Fed’s hawkish rhetoric.

Given all this, the big question is, what happens when the Fed ends T-bill purchases and repo support in Q2 (the current projected end date)? Will the April 2000 analogy apply?

*  *  *

The above was a guest post generously provided by James Bianco.

It was part of his proprietary research.

I asked Bianco if he would make that post public, and he did.

Free Trial

Those wishing a Free Trial to Bianco Research can click on that link.

Final Thought

Although the point about Y2K is clear, I asked Jim explicitly if this was QE.

He replied:

By saying it is “Not QE” they are arguing it is not impacting financial markets. By detailing the Y2K “Not QE” episode, I’m arguing that not only is is QE, but we also have a historical example of how it has worked previously.

In retrospect, it is not important how one labels this.

My friend Pater Tenebrarum at the Acting Man Blog pinged me with this comment on Hussman’s thoughts.

Who cares what it is called, the result is an explosive increase in the money supply!! And it’s not bank lending that’s behind that, because bank lending growth continues to slow down. So the economic effect is exactly the same as with “QE”. It walks like a duck, quacks like a duck, guess what: it’s a duck!

Thanks to all for the discussion.

In the end, calls for a second “Benghazi” proved grossly unfounded.

An attempt by supporters of Iran-backed militias to storm the heavily fortified US Embassy in Baghdad went into retreat Wednesday, as American troops reinforced the besieged compound and as protesters withdrew from the area after their leadership ordered the suspension of a violent challenge to American troop presence in Iraq (where US troops have been stationed for nearly two decades).

The retreat was instigated by paramilitary leaders from the Popular Mobilization Forces, which is part of the Iraqi security apparatus and an umbrella body for dozens of militia groups including factions aligned with Iran. The PMF said protesters demanding the expulsion of American troops from Iraq had delivered their message to the US.

According to the WSJ, dozens of protesters who had camped overnight on New Year’s Eve near the gates of the U.S. Embassy began to dismantle their tents following the PMF’s call to withdraw. Earlier, they had appeared to be in for the long haul, setting up portable bathrooms and a podium. The PMF said the protest site would be moved to the other side of the Tigris River, which bisects Baghdad—still within sight of the embassy. Meanwhile, Iraqi security forces took up positions around the embassy.

The withdrawal was intended “to preserve the authority of the state” and “out of respect for the government’s decision” protesters should move away from the embassy, according to the PMF, which ordered the crowds at the embassy to withdraw, claiming that their “message has been heard.”

Separately, President Trump spoke to Iraqi Prime Minister Adel Abdul-Mahdi overnight and declared the embassy safe, saying the Iraqi government had “stepped up.” He blamed the assault on the U.S. outpost on Iran.

Footage from Ruptly showed protesters with Hezbollah flags withdrawing in their vehicles. It was not immediately clear from the video how many have remained at the scene of clashes, where tear gas and stun grenades were reportedly fired again on Wednesday.

“We decided to leave after our superiors received an urgent request from [Prime Minister] Abdul-Mahdi himself asking us to because… there is a lot of pressure on him now,” said a senior member of Kataib Hezbollah who declined to be named.

“Abdul-Mahdi is on our side and has been helping us a lot, so we don’t want to harm him or cause him problems,” he added.

A day earlier, supporters and members of Kataib Hezbollah and other Iran-backed militias attempted to violently force their way into the US Embassy compound located inside the heavily fortified Green Zone, but failed to break in. Enraged by Sunday’s US airstrikes against the Kataib Hezbollah militia, the crowd lit fires and pelted the embassy with stones. Shortly after, a contingent of US Marines arrived on Tuesday night to bolster security. The attack prompted the U.S. to deploy military reinforcements and exposed the power of Tehran’s allies in Iraq.

Kataib Hezbollah, which the U.S. sees as a terrorist group and a proxy for Iran, left its yellow flag flying over an outer entrance to the embassy compound on Wednesday, having earlier said it wouldn’t back down.

Earlier on Wednesday, U.S. troops fired tear gas to disperse militia supporters crowding outside the embassy for a second day as Apache helicopters flew overhead.

“We will never stop demanding to kick the Americans out of Iraq,” said a cleric from the podium in front of the embassy before the withdrawal. “We demand the Parliament approve the law of expelling the Americans.”

The assault on the U.S. Embassy however, was condemned by some Iraqi politicians, including a Sunni block that described it as a “dangerous development” that risked isolating Iraq. Parliament Speaker Mohammed al-Halbousi also said the incident was “unacceptable” and damaging to Iraqi interests.

The attack strained relations between Washington and Baghdad and revived calls for a vote in Parliament on the expulsion of U.S. troops, which returned to Iraq in 2014 to fight Islamic State.  Despite their retreat from the embassy area, Iran’s allies are expected to keep pressing for a parliamentary vote on the withdrawal of U.S. troops, further undermining the U.S.’s influence in the country. Tehran, meanwhile, has shown that its allies in Iraq are stronger than the government of which they are a part.

Washington blamed Iran for orchestrating the embassy riots, and for directing militias like Kataib Hezbollah to attack its forces in Iraq. Meanwhile, Tehran has denied all responsibility, with Iranian Supreme Leader Ayatollah Ali Khamenei telling Trump that “your crimes in Iraq, Afghanistan… have made nations hate you.”

As the Iraq embassy showdown turned into yet another proxy battle between Iran and the US, Iraqi Prime Minister Adel Abdul Mahdi sought to balance relations with both sides. The PM called the US airstrikes a “vicious assault that will have dangerous consequences,” but warned protesters against any aggression towards foreign embassies.

On Tuesday, Secretary of State Mike Pompeo the assault on the U.S. Embassy “should not be confused with the legitimate efforts of the Iraqi protesters who have been in the streets since October working for the people of Iraq to end the corruption exported there by the Iranian regime.”

Luxury assets of the ultra-wealthy, if that were expensive wine, fancy diamonds, and rare antique cars all had a down year as the stock market ramped to new highs, reported The Wall Street Journal.

In the last decade, luxury assets performed exceptionally well as central bankers handed out free money to the elite class to hoard assets of their liking. And naturally, these people, with exceptional taste, bought things that the common man has only seen on television.

Now, these luxury assets are underperforming – have been for the last several years – and is a symptom of late-cycle distress.

“The froth has gone out of the market. People have realized you can’t just buy stuff and expect the value to go up,” said Andrew Shirley, a partner at Knight Frank and editor of the group’s Wealth Report.

The Journal blames the underperformance on the global slowdown and the lack of Asian demand. Chinese buyers account for 33% of global luxury goods sales.

“There is a lot of uncertainty in Chinese markets and the riots in Hong Kong didn’t make it easy for people to come spend money in Hong Kong,” said Eden Rachminov, chairman of the board at the Fancy Color Research Foundation.

Colored diamonds in 2019 lost about 1% in the first three quarters.

Fine wine was also another losing asset through Nov., lost 3.6%, according to the Liv-ex 1000 index.

And the biggest loser on the year were classic cars, lost 5.6%, according to Historic Automobile Group International’s (HAGI) Top Index.

HAGI founder Dietrich Hatlapa said the classic car market has been cooling following a massive rise in price after the 2008-09 financial crisis. He said classic car prices saw double-digit gains after the recession, rallying 50% Y/Y through 2013. “We are at the tail-end of a big bull market,” Hatlapa warned.

What’s becoming evident is that ‘Not QE’ and other monetary gimmicks deployed by central banks are failing to raise asset prices of some luxury goods in 2019. Perhaps the world is stumbling into a period where toolkits of central banks are becoming less responsive to stimulate asset price inflation, and if that is the case, then everyone will figure out that prices of luxury goods have been hyperinflated over the last decade with nothing but hot air.

Just three days after China quietly cut rates by 20bps when it ordered banks to switch from the traditional Benchmark 1 year rate to the new Loan Prime Rate (aka China’s LIBOR) as the reference rate for new short-term loans, effectively lowering the prevailing rate from 4.35% to 4.15% (in the process further pressuring bank net interest margins), on the first day of the new 2020, the PBOC unveiled widely expected another boost for the slowing Chinese economy: the central bank announced that starting Jan 6, it will lower the required reserve ratio (RRR) – or the amount of money banks are required to have on hand – by 50bps for commercial lenders, in the process releasing about 800 billion yuan ($115 billion) in liquidity from the cash-strapped financial system.

Currently the required reserve ratio is 13% for large banks and 11% for small banks. The cut, which is the first since September, will bring the blended reserve ratio for Chinese banks to the lowest level since October 2007.

The 50bps RRR cut is meant to help banks reduce their lending rate to businesses, the PBOC said in a separate statement, which is ironic because while on one hand the PBOC pressures commercial banks by ordering them to lower the amount of interest they can charge customers by 20bps (with the benchmark rate recalibration), on the other it boosts systemic liquidity to offset the adverse effects of its first action, something we predicted would happen earlier this week, to wit:

… with more than half of China’s banks failing a recent central bank stress test, the only guaranteed outcome from this weekend’s effective rate cut is that, paradoxically, it will only accelerate the rate of failure of China’s already cash strapped, and in many cases insolvent, banks. As such we expect that the PBOC will promptly follow through with another RRR cut to offset the adverse side-effects of this particular rate cut, by injecting more liquidity in the banking system.

Of course, it wasn’t just us predicting an imminent RRR reduction: the cut was first signaled by Chinese premier Li Keqiang in December 2019. It’s also in line with market expectations that the PBOC will increase funding to the financial system in January to ease a liquidity crunch caused by rising local government debt sales and increasing cash demand during the Spring Festival holidays.

As a reminder, two weeks ago we warned that China is facing a potentially destabilizing “liquidity hole” of 2.8 trillion yuan ($400 billion) in January as people across the nation will withdraw cash for the Lunar New Year holiday, which this year falls on Jan 25. China’s most important annual holiday is a time when companies and individuals typically need large amounts of cash on hand to pay bonuses, clear debts and cover other expenses. In addition to seasonal cash needs, China’s bond market also faces a major maturity deluge, as more than 2 trillion yuan in notes mature in early 2020, and fresh debt to refinance the borrowing thus shoring up economic growth will probably start hitting the market soon.

Sure enough, in addition to offsetting the reduced net interest margin, the PBOC said that the injection will be offset as banks provide more cash to the public before the Spring Festival, and the overall liquidity level at banks will be kept stable. “Prudent monetary policy stance remains unchanged,” it added.

It was fears about an impending liquidity shortfall that sent China’s 1Month SHIBOR to the highest level in one year, briefly touching 3% a few days ago.

However, now that China is engaged in a delicate balancing act, on one hand reducing the amount of cash banks can earn by lending money to customers, and on the other releasing systemic liquidity, the question is whether the PBOC’s latest efforts to stimulate the economy will destabilize the banking sector further.

Addressing just this, the PBOC said the planned reduction will save about 15 billion yuan in funding costs for banks in a year, indicating that the benchmark loan prime rate will likely be lowered as banks reduce their submissions for the rate’s calculation in late January, which in turn will force the PBOC to cut the RRR further, resulting in an even lower loan prime rates and so forth, which brings to mind a recent striking op-ed published in the Global Times, which predicted that China would be the next major country to cut rates to zero. 

And while Xinhua quoted an unidentified central bank official as saying that Wednesday’s move does not presage a large-scale government stimulus program, noting that “the stance of prudent monetary policy has not changed” and ruling out the possibility of a “flood-like” flow of fresh money, Beijing may have no choice, even if food inflation is now far higher than 2011, when the RRR was just shy of 22%.

“Looking ahead, there’s still room for more reserve ratio cuts in 2020” to mitigate the impact of deleveraging at small banks, wrote CICC economist Eva Yi. “Should economic growth show more signs of stabilization and recovery after the cut, it’s likely the central bank will slow down the pace of further reserve ratio cuts.” Then again, since China’s economic slowdown had little to do with the trade war and everything to do with its massive debt load, accelerating bank failures, record debt defaults and record bad debts, we have a feeling that if there is a change to the pace of RRR cuts it will be the opposite of “slowing.”