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America is a nation built by (legal) immigrants, and on the premise that anyone can make it to the top. While that may be true, most new arrivals find themselves starting at the bottom of the pile. As HowMuch.net details, right across the country, households headed by persons born outside the U.S. earn less than households run by native-born Americans. But that wage gap varies widely per state, from close to $20,000 to less than $1,000. And in some places, the gap is even reversed, in favor of the immigrant households.

In five states, shown in pink on this map, immigrant households out-earn households led by someone born in the U.S. The Census Bureau's American Community Survey shows that the average income of a family headed by someone born outside the U.S. is higher in Virginia, West Virginia, Mississippi, Delaware and Michigan.

The gap is biggest in Virginia, where immigrant family income is $7,935 higher. Second is West Virginia, with a wage gap of $6,792 to the advantage of immigrant families; followed by $1,582 in Mississippi, $1,299 in Delaware and $1,249 in Michigan. Each of those states is scaled to reflect the size of the wage gap.

The same goes for the other 45 states, the sizes of which also reflect the gap in household incomes between families headed by persons born inside and outside the U.S. Except that in these blue-colored states, it is the native-born families that out-earn the immigrant ones. On average, the worst state to be an immigrant head of a household, financially speaking that is, is Wyoming: the median annual income of a family headed by a person born in the U.S. is $59,689 – more than $19,500 over the median for families led by someone born outside the States: $40,145.

The wage gap runs into five digits in no less than 17 states, with North Dakota, Nebraska, Utah, Rhode Island, Colorado, New Mexico and California also showing a discrepancy greater than $15,000. In Minnesota, it's just over $14,000 and in Iowa, South Dakota, Texas, Arizona and Hawaii it's all around $13,000. In Connecticut, the wage gap is around $12,500 to the advantage of households headed by a native-born American, while in Massachusetts and Alaska, the difference runs in the $11,000s.

On the other end of the spectrum, the wage gap is below $5,000 in a further 17 states, with New Hampshire, Washington, North Carolina, Oregon and Pennsylvania above $4,000; South Carolina, Montana, Louisiana, D.C. and Alabama between $3,000 and $4,000; and Maryland, Kentucky, Ohio and Missouri in the $1,000 to $3,000 band.

The wage gap between families headed by immigrants and native-born Americans dips below four digits in only three states: Georgia ($957), Arkansas ($825) and Vermont ($702). Of course, the wage gap is relative and does not reflect the absolute size of incomes – for either category. Immigrant households earn most in Maryland ($73,723), even though it is not one of the five states where median immigrant incomes are higher than native ones, and its ‘blue’ wage gap ($2,522) is higher than in six other states. The lowest median annual income for households headed by a person not born in the U.S. is in New Mexico ($31,725), even though it is only seventh in the ranking of states with the biggest wage gap to the advantage of native-born households.

While this map shows that households run by people born outside the U.S. are much more likely to earn less – and sometimes a lot less – than those run by native-born Americans, the great variation in the width of that gap also speaks to the hard work and effort with which the newly-arrived are working to achieve their American Dream. And in at least five states, at least on average, it seems they have achieved it.

via http://ift.tt/2n4qhAn Tyler Durden

The Fed has completely backed itself into a corner.

The truth that no one wants to admit, is that the Fed should have raised rates in 2012. Instead Bernanke “gifted” QE 3 to the Obama admin to help its re-election bid. The Fed finally got around the hiking rates for the first time in seven years at the end of 2015.

Fast-forward to today and the Fed is now facing stag-flation: a situation in which inflation is developing while the economy is weak.

To whit: ALL four of the Fed’s inflation measures are at or above their targets. And the economy is rolling over hard with the Fed’s own GDP now clocking in sub-1% growth (down from a forecast 3.5% a mere 40 days ago).

Janet Yellen knows the Fed is screwed which is why when a reporter cornered her yesterday as to why the Fed is hiking rates during a GDP collapse she claimed GDP is a “noisy indicator.”

Let that sink in for a moment. The Fed claims that the single most important measure of economic activity that it tracks… is “noisy” or unclear.

This is what happens when you put political posturing above sound economic sense: you end up making a complete fool of yourself… and possibly blowing up the the debt markets.

On that note, it’s worth noting that over $555 trillion in derivatives trade based on interest rates. And with the junk bond market already showing signs of serious duress. We’ve broken out of a bearish rising wedge pattern. If HYG does not reclaim that lower line NOW, then Yellen has a REAL problem on her hands.

On that note, we are already preparing our clients for this with a 21-page investment report titled the Stock Market Crash Survival Guide.

In it, we outline the coming collapse will unfold…which investments will perform best… and how to take out “crash” insurance trades that will pay out huge returns during a market collapse.

We are giving away just 99 copies of this report for FREE to the public.

To pick up yours, swing by:

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Best Regards

Graham Summers

Chief Market Strategist

Phoenix Capital Research

 

via http://ift.tt/2nfaoI0 Phoenix Capital Research

Authored by Derrick Broze via TheAntiMedia.org,

“Who will build the roads?” The question is a common response to the proposition that human beings can coexist peacefully in the absence of a government or even the concept of a State altogether. Anarchists often claim that in the absence of an institutionalized State, people will voluntarily organize and discover solutions to the problems they face, including the construction and maintenance of roads. One such group of anarchists decided to put their beliefs into action by repairing potholes in Portland, Oregon.

A Facebook page called “Portland Anarchist Road Care” claims PARC is an anarchist organization dedicated to putting “the state of the roads of PDX into the hands of the people.” The group’s page says they “believe in building community solutions to the issues we face, outside of the state.” They say they are working to change the stereotype of anarchists as road blockers and window smashers. PARC also accuses the city of Portland of failing to repair roads in a timely manner and failing to provide adequate preventative care for winter storms.

“Portland Anarchist Road Care aims to mobilize crews throughout our city, in our neighborhoods, to patch our streets, build community, and continue to find solutions to community problems outside of the state,” their Facebook page reads.

Dylan Rivera, a spokesman for the Portland Bureau of Transportation, told Anti-Media he can empathize with those who are frustrated. “We have a backlog of more than 1000 pothole requests,” Rivera said over the phone. “That work has been frustrated by a wet spring, with very few dry days for potholes.”

Rivera says the city has held a “Patch-a-thon” where they quadruple their staff working on potholes. He stated that during a recent “Patch-a-thon,” the city had 29 crews fix more than 900 potholes. In contrast, The Portland Mercury reports that PARC has patched five potholes in Portland. While those differences may seem stark, it is worth mentioning that the anarchists fixed the potholes via voluntary direct action while the city of Portland is using money stolen from the local community via taxation.

Rivera warned that Portlanders who choose to privately maintain the city streets without the approval of the government are doing so at their own risk. “Portlanders maintaining city streets is not safe and it’s not allowed,” Rivera stated. “It’’s not safe for the people doing the fixes because they are working in traffic and they are not trained to have the right procedures, barricades, and that sort of thing, to have a safe work zone.” Rivera also warned that individuals who choose to fix the roads could face potential civil liability if someone’s car is damaged. The irony is that, currently, if an individual’s vehicle is damaged due to government inaction on potholes, the government is rarely held accountable.

Whether Portland Anarchist Road Care will continue to fix potholes and eventually outcompete the City of Portland remains to be seen, but one thing is certain: the community is a shining example of what a determined group of individuals can do when working together on a common goal.

Portland Anarchist Road Care’s profile picture on Facebook.

Even more so, they are a powerful example of how the people can accomplish both mundane tasks like building and maintaining roads, and more complex issues like how to organize our lives in the absence of the State. The beauty is that we each have the power to be an example of what a world without theft, institutionalized violence, and force can look like. We can choose to live lives that do not rely on the force of government and instead use our individual power to work towards collective liberation.

via http://ift.tt/2mVbK9T Tyler Durden

As we reported on Wednesday evening, something interesting took place on Thursday morning in Beijing: in a case of eerie coordination, China tightened monetary conditions across many of the PBOC’s liquidity-providing conduits just 10 hours after the Fed raised its own interest rate by 0.25% for only the third time in a decade.

The oddly matched rate hikes, prompted Bloomberg to think back to the mysterious “Shanghai Accord” of February 2016, which took place during the peak days of last year’s global capital markets crisis, and whose closed-door decisions – to this day kept away from the public – prompted the market rally that continues to this day. As Bloomberg wrote, the coordinated “response suggests that pledges by the Group of 20 economies a little over a year ago in Shanghai to “carefully calibrate and clearly communicate” policies may not have been hollow after all.”

That said, it was not the first time the People’s Bank of China has acted on the heels of a Fed move. At the peak of the financial crisis, the PBOC cut lending rates after six of its counterparts, including the Fed, had announced a simultaneous rate cut. That October 2008 move enhanced China’s emerging reputation as a global player on the international economic-policy circuit. “Growth divergence is morphing into growth synchronization,” said Chua Hak Bin, a Singapore-based senior economist with Maybank. “Policy divergence was also a narrative for those expecting a strong dollar, but that is moving now to policy synchronization.”

Coordinated or not, as of last night financial conditions in China, like in the US, have become incrementally tighter even if both the Chinese and US stock markets failed to respond accordingly.

So, for those curious what China did – after all the days of shotgun Interest rate or RRR moves appear to be on hibernation for the time being – here is a convenient primer from SocGen’s Wei Yao explaining not only the mechanics, but the reason why.

As Yao notes, the PBoC followed the Fed closely, at least timing-wise, and raised the rates on its major liquidity management tools by 10bp across the curve today, earlier than many had expected. After the hikes, the rate on the 7D reverse repo operations – the most critical of all – is now at 2.45%.

 

The central bank, in its press release, stressed that these interbank rate hikes simply follow the market’s development, thus not true policy rate hikes, and only hikes of benchmark lending and deposit rates count. Nevertheless, it also listed four classical rate-hike reasons for the interbank rate changes: the economic recovery, rising inflation (particularly that of housing), strong credit growth and Fed’s rate hikes.

SocGen’s interpretation of this statement is:

1. The PBoC is responding to the fundamentals of growth, inflation and financial stability. And it is looking through the low food prices, which have suppressed CPI, and paying due attention to domestic asset bubbles and credit growth.
2. But it still prefers a tightening approach so as to match its neutral stance, which means that adjusting interbank liquidity and interbank rates will likely remain the main actions. This may be because the headline CPI is muted after all, or because it has to change its policy rates from benchmark deposit/lending rates to interbank-linked rates sooner or later and so better start practicing now. In any case, it does not want the market to get ahead itself and price in too much tightening, just like the Fed.
3. Fed’s policy and US-China interest rate differentials do play a role in PBoC’s consideration. It may not be a very big role, as offering 10bp for every 25bp from the Fed is at best half-hearted help to the RMB. However, the Fed’s action offered the PBoC a timing to make the move, appearing to support the argument that the interbank rate hikes are “following the market”.

Given PBoC’s latest move and our view that growth stability will stay until the end of 2017, SocGen now expects further interbank rate hikes: 20bp in 2Q, 10bp in 3Q and no change in 4Q.

The equally critical development to watch is the evolution of interbank market rates as resulted from PBoC’s daily liquidity management. The trend of these market rates leads the changes of rates on PBoC’s instruments, thus a more timely indication of PBoC’s intention. Before today’s moves, the 28-day moving average of the 7d repo was already 50bp above the low back in August 2016.

Finally, while China has traditionally shied away from criticizing the Fed using conventional channels, in a surprising editorial in the Economic Information Daily, the authors said that China should be wary of a “spillover effect” from the Fed rate hikes, warning that “selfish” US interest rate policies have historically triggered crises in many other nations, the newspaper says in its front-page commentary. Finally, it warned that frequent Fed rate hikes may have “serious impact” on global economy.

Keep a close eye on tonight’s reverse repo facility: if China is really concerned, it very well may “hike” again.

via http://ift.tt/2m7zEAd Tyler Durden

Saudi Arabia has been an interesting tap-dance for Donald Trump. During the 2016 election, Wikileaks revealed that the house of Saud heavily contributed to the Clinton Foundation, and reports surfaced that they funded 20% of Clinton’s campaign. It’s clear they had a lot riding on Hillary, some say in the hopes of co-opting the US military into an intervention in Syria to topple President Bashar al-Assad. The plan was regime change – with the goal of installing yet another Western friendly puppet government which would rubber-stamp a lucrative Saudi/Qatar pipeline through the country, exiting into the Mediterranean through Turkey – as opposed to a competing Russian / Iranian / Syrian pipeline.

Wikileaks also revealed that Saudi Arabia and Qatar funded ISIS – which then invaded Syria in an effort to co-opt the Arab spring and topple Assad. Recall that Hillary’s plan was to join ISIS in this fight, starting with the institution of a “no fly” zone which would have put the United States in direct conflict with Russia.

So it’s abundantly clear that Hillary Clinton was set to use United States military assets at the behest of Saudi Arabia – first for regime change in Syria, and then in Saudi Arabia’s confict with Yemen as the next logical target. It also emerged that Hillary’s right hand woman Huma Abedin has had ties to the Muslim Brotherhood which still haven’t been investigated. Note that turncoat shill John McCain chastised Rep. Michele Bachman (R-MN) for pointing this out – which should tell you something. In addition, a former Muslim Brotherhood member turned peace activist, Walid Shoebat said in an interview with Front Page Magazine:

The Abedins for decades were actually serving a foreign entity, the government of Saudi Arabia’s Ministry of Islamic Affairs, and not American Democracy as President Obama stated. -FrontPage

So – given the Saudi / Clinton connection, many found it surprising that Donald Trump didn’t touch on much of it during the election. Instead, he harped on the fact that the wealthy oil nation doesn’t “pay their fair share” for US troops in the region, and criticized the Saudis for not accepting Islamic Syrian refugees over concerns of terrorism. Going back to January of 2016, Trump stated that he would prefer to “protect Saudi Arabia” in order to maintain regional supremacy over Iran. So he’s either choosing the lesser evil despite his personal feelings, or Trump’s OK with the house of Saud and their deplorable treatment of women and gays.

Lo and behold, we may have our answer as to why; President Trump met with Israeli Prime Minister Benjamin “Bibi” Netanyahu in mid-February, where they discussed a coalition which included Egypt, Saudi Arabia, Kuwait, the UAE, Bahrain, Oman and Jordan- assembled to fight the Islamic State and curtail Iran’s regional ambitions. So Israel is bedfellows with less aggressive Islamic nations in order to prevent Iran from nuking Tel Aviv, and Donald Trump and the USA have been roped into it.

It would also appear that in exchange for US support – Netanyahu agreed to Israel backing off of Palestinian settlements, with Donald Trump citing the need for the Israelis to “show some flexibility.” During a joint press conference, trump mentioned a peace deal in the works – though details were scant:

But Bibi and I have known each other a long time — a smart man, great negotiator.  And I think we’re going to make a deal.  It might be a bigger and better deal than people in this room even understand.  That’s a possibility.  So let’s see what we do. –WH

This would suggest that Trump’s asking price for joining Israel’s coalition is that Israel lay off Palestine – which President Obama implicitly demanded in late 2016 when the US abstained from a veto of a UN demand that Israel cease settlements. If, as some have suggested, the United States has been Israel’s puppet for some time – these recent moves by Trump and Obama could be interpreted as rebellious acts.

In an interesting gesture of goodwill yesterday from the house of Saud, Saudi Deputy Crown Prince Mohammed bin Salman called Trump a “true friend of Muslims,” claiming that the US President’s immigration ban does not target Islam. A Trump senior advisor described the meeting as follows:

Although Washington and Riyadh had previously “undergone a difference of opinion,” the Tuesday meeting “put things on the right track, and marked a significant shift in relations.”

“Saudi Arabia does not believe that this measure is targeting Muslim countries or the religion of Islam”

Meanwhile – despite Trump and the Saudi deputy Crown Prince’s notably cordial meeting in the White House on Tuesday, in perhaps yet another act of rebellion against the Israeli / Saudi / et al. coalition, Secretary of State Rex Tillerson gave the UN an ultimatum; the US will leave the UN Human Rights Council unless they reform – kicking human rights violators such as China, Egypt, and recently added Saudi Arabia off the council. Interesting.

So on one hand the USA is now roped into a coalition with Saudi Arabia and Israel in order to keep Iran in check, and on the other hand, we are now demanding the UN punish the house of Saud by kicking them off the Human Rights Council.

Perhaps Trump is playing ball with Netanyahu in the mutual interest of crippling Iran’s ability to develop nuclear weapons? Maybe he’s using the UN Human Rights Council ultimatum as a way to protest Saudi Arabia while maintaining pressure on Iran? Or could it be that Trump knows the UN won’t kick any of the those countries off the corrupt and highly politicized Human Rights Council – giving the United States justification to completely sever ties with the organization.

Wherever the truth lies, there are several dimensions to this chess game.

via http://ift.tt/2mOrAkT ZeroPointNow

Authored by Mike Krieger via Liberty Blitzkrieg blog,

The evidence is overwhelming and indisputable at this point. Donald Trump is a phony, who has given his administration over to Wall Street crooks even more enthusiastically than his predecessors, and his predecessors were very enthusiastic.

I’ve written about this many times, and I warned throughout the campaign that my biggest fear was Trump is far too cozy with the finance industry, fake populist statements aside. His latest hire for the number two position at the Treasury Department once again proves the point.

As David Dayen reports in his excellent article at The Intercept, Donald Trump Isn’t Even Pretending to Oppose Goldman Sachs Anymore:

The continuity of Wall Street’s dominant role in American politics – regardless of what party sits in power or how reviled the financial industry finds itself across the country – was perhaps never more evident than when Jake Siewert, now a Goldman Sachs spokesperson, on Tuesday praised the selection of Jim Donovan, a Goldman Sachs managing director, for the No. 2 position in the Treasury Department under Steve Mnuchin, himself a former Goldman Sachs partner.

America will never recover until this is dealt with, and Trump has made it perfectly clear he will not deal with it.

“Jim is smart, extraordinarily versatile, and as hard-working as they come,” Siewert gushed. “He’ll be an invaluable addition to the economic team.”

 

The punch line? Siewert was counselor at the Treasury Department to Timothy Geithner, as well as a White House press secretary under Bill Clinton.

 

The ubiquity of Goldman Sachs veterans across numerous presidencies throughout history, both Republican and Democratic, has been well documented. But Donald Trump sold himself as something different, an economic nationalist determined to rankle Wall Street. He even ran campaign ads savaging bankers like Goldman CEO Lloyd Blankfein for their role in a “global power structure.”

 

That populist smokescreen is long gone now.

 

Mnuchin and Donovan are just two of five Goldman expats in high-level positions on Trump’s team. Steve Bannon spent a limited time at Goldman Sachs, but White House assistant Dina Powell, who headed the bank’s philanthropic efforts, and National Economic Council director Gary Cohn, Goldman’s former president, had higher-ranking positions for a longer period. Jay Clayton, Trump’s nominee for the Securities and Exchange Commission, was a partner for Goldman’s main law firm, Sullivan and Cromwell.

 

White House Chief of Staff Reince Priebus reportedly blocked Donovan from Treasury initially, amid fears of an image problem with too many “Goldman guys.” But Donovan got the post anyway.

You know it’s bad when Reince thinks there are too many Goldman baby squids around.

Even in areas where populist sentiment was seen as pre-eminent, Trump has reportedly succumbed to the Wall Street advance. A dramatic piece in the Financial Times described a “civil war” within the White House over trade, pitting Trump’s hard-liners like Bannon and trade policy adviser Peter Navarro against the likes of Cohn. It stated that Navarro was being sidelined, with Cohn taking a larger role in the negotiations over NAFTA, and with foreign leaders working through the National Economic Council rather than Navarro in trade talks. AFL-CIO official Thea Lee said in the story, “It appears the Wall Street wing … is winning this battle.”

 

At the NEC, Cohn hired Andrew Quinn, a chief negotiator for the Trans-Pacific Partnership, to coordinate international trade and development. A stewing Breitbart News called Quinn “the enemy within.”

Drain the swamp baby.

Banks have celebrated since Trump’s election, composing the lion’s share of the “Trump bump” in stock prices. Goldman Sachs shares have risen from $181.92 on Election Day to around $250 today, an increase that accounts for as much as one-fifth of the total rise in the Dow Jones Industrial Average over that period.

It’s now completely obvious that the Trump administration has been hijacked by Wall Street, so where’s the resistance? When it comes to the self-proclaimed leaders of this “resistance,” the corporate media and the Democratic Party, the resistance is nowhere to be found. They’re simply too busy focusing on invented Russia conspiracy theories to deal with the provable conspiracy right in front of their faces. I find that quite curious.

It doesn’t take much critical thinking to immediately discover why. Russia fear-mongering is the perfect way to superficially oppose Trump, without actually opposing him. Corporate media and Democrats don’t dare focus on Trump’s Wall Street embrace because Wall Street owns their asses too. That’s the dirty little secret here.

While that’s bad enough, the only reason Trump is actually able to get away with such an obvious betrayal and lack of swamp drainage, is because his supporters allow him to. His power resides in his base, and if his base shrugs as he sticks a knife in their backs, then he’ll continue to stick the knife in. As I mentioned on Twitter yesterday.

I'm not surprised that Trump is a fraud, I'm surprised at how much of a fraud he is.

— Michael Krieger (@LibertyBlitz) March 15, 2017

More important point, like Obama before him, the only reason Trump can get away with his con are his pathetic, cheerleading supporters.

— Michael Krieger (@LibertyBlitz) March 15, 2017

Trump could lock half his supporters in a cage in the basement of Trump Tower for a year and they'd love him for it.
He's getting the pedos!

— Michael Krieger (@LibertyBlitz) March 15, 2017

Trump’s core supporters have a lot more to lose than I do if he continues along this path. Get angry or get screwed over, the choice is yours.

Unfortunately, I’m not hopeful. As we should all know by now: “It’s easier to fool people than to convince them that they have been fooled.”

via http://ift.tt/2n4qy6s Tyler Durden

Students at Temple University in Philadelphia, or perhaps their parents, are getting a great lesson today on the real life economic consequences of liberal political policies run amok.  Courtesy of Philly’s new 1.5 cent per ounce ‘soda tax’, Temple has been forced to hike it’s 2017-2018 boarding costs by $400,000, or roughly 4.8%.  Per Philly.com, Temple’s CFO said they will roll back the planned $400,000 meal plan hike if the soda tax is repealed.

Board rates will rise an additional 4.8 percent for 2017-18 solely because of the 1.5-cent-per-ounce sweetened-beverage tax, which went into effect this year, the university said. The tax was enacted to help fund parks, recreation centers, and early childhood education. Heated debate over it continues, with PepsiCo having announced planned layoffs and retailers reporting steep losses.

 

The total impact of the new tax is estimated to be $400,000 per semester, said Ken Kaiser, Temple’s chief financial officer. The university will roll back the board increase if the tax is repealed, he said.

 

“This is another example of the damaging impact this tax is having on Philadelphia families,” said Anthony Campisi, a spokesman for Ax the Philly Bev Tax Coalition, made up of a number of Philadelphia businesses and residents, many of them involved in the soda industry. “It’s ironic that a tax the mayor sold on the basis of expanding educational access is now going to be making higher ed less affordable for students.”

 

Of course, Philadelphia’s Mayor, who has come under fairly constant attack for the controversial tax, said that Temple is simply using his legislation as a scapegoat to “pay for their ever-growing administrative salaries and new, expensive buildings and amenities.”

“The beverage tax is becoming a popular scapegoat for unpopular decisions,” said spokeswoman Lauren Hitt. “Universities across the country have been raising meal-plan fees because families are increasingly chafing at tuition increases, and universities still want to pay for their ever-growing administrative salaries and new, expensive buildings and amenities.”

 

“Temple’s own administration staff has grown by 40 percent in recent years; they are planning to build a multimillion-dollar stadium; their new 24-story dorm includes flat screen TVs; and, sure enough, they have a history of raising their meal-plan fees to cover those costs – by 2.5 percent in 2015 and 4.3 percent in 2014.”

As we pointed out a couple of weeks ago, when Philadelphia became the first US city to pass a soda tax last summer, city officials were eagerly looking forward to the surplus-tax funded windfall to plug gaping budget deficits (and, since this is Philadelphia, the occasional embezzlement scheme). Then, after the tax went into effect on January 1st we showed the tax applied in practice: a receipt for a 10 pack of flavored water carried a 51% beverage tax. And since  PA has a sales tax of 6% and Philly already charges another 2%, the total sales tax was 8%. In other words, a purchase which until last year came to $6.47 had overnight become $9.75.

 

Then came the layoffs as soda sales slumped as much as 40% forcing Pepsi to lay off 80 to 100 workers at three distribution plants that serve Philly. And since Pepsi only employed 423 people in the city, it meant that as much as 20% of its employees were suddenly out of a job due to a disastrous ordnance that was meant to provide additional municipal funding and instead will now lead to an increase in unemployment, coupled with a general decline in consumption, not to mention tax revenues for the city of Philadelphia.

A spokesman for Pepsi said “The layoffs come in response to the  beverage tax, which has cut sales by 40 percent in the city…Unfortunately, after careful consideration of the economic realities created by the recently enacted beverage tax, we have been forced to give notice that we intend to eliminate 80 to 100 positions, including frontline and supervisory roles.”

But not to worry, we’re sure Philly students can just take out more student loans to cover these increased costs…we certainly wouldn’t want them to have to divert any portion of their student loans that they’ve already set aside for Cancun.

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

By Chris at http://ift.tt/12YmHT5

Market dislocations occur when financial markets, operating under stressful conditions, experience large widespread asset mispricing.

Welcome to this week’s edition of “World Out Of Whack” where every Wednesday we take time out of our day to laugh, poke fun at and present to you absurdity in global financial markets in all its glorious insanity.

While we enjoy a good laugh, the truth is that the first step to protecting ourselves from losses is to protect ourselves from ignorance. Think of the “World Out Of Whack” as your double thick armour plated side impact protection system in a financial world littered with drunk drivers.

Selfishly we also know that the biggest (and often the fastest) returns come from asymmetric market moves. But, in order to identify these moves we must first identify where they live.

Occasionally we find opportunities where we can buy (or sell) assets for mere cents on the dollar – because, after all, we are capitalists.

In this week’s edition of the WOW: global real estate

Ever since anyone can remember, global real estate prices have been going up. Pretty much doesn’t matter which country you’re from (unless, of course, it’s Syria, or Iraq… or Fuhggedistan): if you bought something in the last 2 to 3 decades, it’s like the ceilings were insulated with helium. Even when the 2008 crisis hit and we had Captain Clever ensuring the world that things were just peachy:

“At this juncture, however, the impact on the broader economy and financial markets of the problems in the subprime market seems likely to be contained. In particular, mortgages to prime borrowers and fixed-rate mortgages to all classes of borrowers continue to perform well, with low rates of delinquency.” – Ben Bernanke, March 28, 2007

Even with that setback real estate has marched upward. The US, of course, took a decent breather and is only today back to where it was pre the GFC.

But the US isn’t the world, so let’s look at what everyone else has been up to.

Take a look at this:

In the British empire and all its former colonies the inmates pretty much trucked on after a short “uh-oh” moment:

“Did you see that Bobby? Blimmin Mary reckons the place down on the corner only fetched a million quid.”

“Musta been a steal laddie, it even had a fence. Reckon we ought to get out and buy already.”

And so they did as we can see.

In truth, it hasn’t just been Mr. and Mrs. Smith in their tweed coats buying up UK properties, just as it hasn’t been Sheila and Bruce in Sydney, or even Maple and Hudson in Canada. A significant amount of buying power in these markets has come from offshore buyers, largely frightened Chinese money being parked. It’s pretty extraordinary, really.

Prices alone don’t provide us with the entire picture or provide us with context. I mean, real estate prices in Harare went through the roof, too, in the 2008-09 period (in ZWD) but the currency went through the floor and real purchasing power collapsed. Context, therefore, is important.

Also, clearly a swanky penthouse in Manhattan overlooking the Hudson river shouldn’t be priced the same as a swanky penthouse in Vientiane overlooking the Mekong. The main difference? Incomes.

So let’s take a look at prices relative to incomes for a better understanding.

Buying a house in the US actually makes a lot more sense. Certainly relative to its international peers the US is cheap. In fact, if you factor in the ability to fix debt for a ridiculously long time in a currency that’s ultimately going to get hammered, and if you need to find somewhere to live then you’ve found a way to essentially be synthetically short the bond market (provided you fix your rates). I’m not advocating this as a strategy but merely pointing out the mechanics of the trade.

As investors we’re interested in viewing real estate as we would any investment or asset, and as such understanding the cashflows is important. Naturally, incomes relative to asset prices tell us what the owner’s cashflows are relative to the asset they’ve buying… and the same analysis can be conducted against student loans, car loans – any credit instrument, really.

Here’s rents (cashflows) relative to asset prices:

Oy vey! There’s enough there to make your hair stand on end.

What do you think the cashflows on this baby are like?

I wonder if it comes with free tetanus shots?

Spotting bublicious markets is one thing but it’s quite another identifying turning points and then another altogether finding a means of constructing an asymmetric payoff.

Here’s a question to ask yourself:

What happens when cap rates go from 4 to 6 as in the US and from 5 to 8 in a place like New Zealand? I think we’re going to find out over the next few years.

Napkin Math

Let’s do the math…

We’ll keep the numbers dead simple. It’s the same math as looking at the market cap of a company and its dividend yield and free cashflows.

So we’ve got an asset, a commercial building someplace priced at $1m with a 4% cap rate, thus yielding $40k, and let’s assume financing costs at, say, 4%. Now this mythical building could be in Toronto, London, Sydney, or Auckland. And yes, I know financing rates and cap rates differ across town let alone across countries but it doesn’t matter – the same principles apply.

Now, for the guy owning this asset he’s either:

1. Levered and using the $40k to service debt, or…
2. He’s simply allocating capital and the 4 cap rate was more attractive than the 2 he’d get on a CD.

You may ask yourself the question: Why on earth would an investor buy a 4 cap asset in an environment where financing costs are 4%?

After insurance, maintenance, any tenant vacancies, and other opex you’re definitely underwater. A great question and one that many investors are going to be asking themselves while staring in the mirror at some point in the next few years.

The answer actually lies not in math but in human behaviour and expectations.

When rates continuously moved lower and then lower still as coordinated global central banks held rates down, buying in anticipation of ever cheaper financing costs made a lot of sense. Plenty people have gotten very rich doing it over the last few years.

Even just a 25bp move on debt financing on a multimillion portfolio of assets translates into a a heck of a lot on the asset price revaluation. And what’s more is that the guys buying negative yielding assets woke up a few short years down the track to a situation where cashflows had turned positive (financing costs moved lower) on top of the price appreciation which has been enormous. That’s how leverage works and that’s how linear assumptions get made well into the future.

Now let’s get back to our story and say lending rates rise by 200bp to 6%. The market will immediately begin to reprice all assets, including our mythical commercial building.

What are we prepared to pay for this place in a 6 cap environment?

Our interest expense just went from $40k to $60k – a 50% increase.

$40k of income used to service $1m of debt but at a 6 cap it only services $666k – a nice 33% equity haircut.

Except, of course, that’s not at all how markets work.

They are forward looking, and so when the market finally figures out that financing costs (rates) are heading higher not lower for longer, then they begin pricing in this reality and cap rates go higher than financing costs, sometimes much higher. What happens to the equity? My guess is we’re going to find out.

On Friday I’ve got a follow up article from a good friend of mine, which gets into a particular sector of the market where this is likely to hit hard.

– Chris

PS: I normally have a poll on the WOW and today I don’t. They say a change is as good as a holiday, plus I’ve gotta keep readers on their toes.

Oh, and if you like… no, love Capitalist Exploits, then please share it with every man woman and child you know. I’ll love you even more.

“There are decades where nothing happens, and then there are weeks when decades happen.” — Lenin

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Via ConvergEx's Nicholas Colas,

It’s great when a plan comes together. 

 

The recipe for not just today’s rally but the whole move since Election Day is easy.  Take one part new Administration with expansive plans to boost the US economy.  Add in 2 measures of a Federal Reserve confident enough in existing macro growth to boost interest rates.  Add a dollop of money flows.

 

Seems perfect, but there is one thing missing: the analysts who actually cover companies and make earnings forecasts aren’t buying it. Just look at the latest FactSet numbers – bottom up estimates for the S&P 500 have fallen this year from $133/share to $131.28 currently.  In other words, the confidence that has taken stocks higher is obvious everywhere except for earnings expectations.   One bright spot: our monthly look at analyst revenue expectations for the Dow stocks shows that Wall Street has (for now) stopped cutting their views on sales growth. Bottom line: US equities can only live on hope for so long. 

 

 

Eventually, earnings estimates have to start rising in order to justify investor faith in faster economic growth.  The big question is “When"?

I grew up in a household where no one really knew how to cook.  My parents were Cuban immigrants, used to a life where other people cooked – at least until they came to US in 1960 with no money (let alone a household chef).  The happiest culinary days of my youth were when my parents would go out for the evening and I got to have a TV dinner.  Dinners for the rest of the month were my parents’ vague attempt at meatloaf (slimy), shake and bake chicken (far better as a meme from Talladega Nights), and chicken fried rice. At least I hope it was chicken – people in my neighborhood did keep pigeons.  And not as pets.

As an adult I initially had no success in the kitchen, although one of the chief merits of living in New York is the ability to get by without ever having to turn on a stove.  But takeout food is like dating – there is such a thing as too much convenience.  To appreciate anything in life, you generally have to work at it.  So I bought a set of pots and pans and some cookbooks and started to teach myself to cook.

Here is the biggest secret to good cooking: it has very little to do with cooking.  In order to follow any recipe successfully (hard or simple, it matters not), the most important thing is to prepare.  Read the ingredient list and prep everything first.  Scan the instructions and put every item in the exact order you’ll need it.  Visualize how it’s all going to work.  Then, and only then, are you ready to start cooking.  But if you do your “Mis en place” (the French term for getting your act together ahead of time), cooking even ambitious meals is actually pretty straightforward.

If all that sounds like an allegory for investing, it should.  But only because cooking and investing are simply both parts of life.  In general, the more you prepare the better off you are.

The recipe for the market rally since Election Day has its own ingredients, of course.  Of course there’s the promise of faster economic growth from a new Administration.  Add to that a little more optimism about global growth as well.  Fold in still low interest rates and today’s Fed decision and Chair press conference (lots of optimism on display there) and you have the makings of a continued rally.

There is, however, one thing our “Mis en place” is missing: an improving outlook for corporate earnings.  A few data points from the most recent FactSet Earnings Insight report (see here: http://ift.tt/2mxXyjz…):

• Current bottom up estimates (those made by analysts that cover individual companies) for 2017 earnings for the S&P 500 are $131.28. In September of last year that number was $134.50 and on the eve of the US elections it was $133/share.
• That trend to lower earnings expectations is obviously counter to the general belief that earnings will improve as a result of the Trump economic agenda. The only trouble is that since that agenda hasn’t actually become law or policy, there is no way for Wall Street analysts to model it.
• In case you are wondering what analysts are looking for in 2018, the bottom up number there is $147/share (12% growth from the $131/share number for this year).
• The FactSet report has a very useful analysis of corporate earnings margins that highlights why the proposed reduction in corporate tax rates is both so enticing to investors and so important to market direction. Net margins are currently just as high as 2007, which is to say they are at peak levels (9.5% versus a 10 year average of 8.8%).  Without a corporate tax cut, margins will likely decline in coming years either because wage and raw material inflation picks up or because the macro economy cools.  (Page 17 of the FactSet report to see the graphs).

The key takeaway is that equity markets are discounting earnings streams that Wall Street analysts haven’t yet modeled (because the specifics are not yet known) or published.  We are essentially flying blind. It is a very unique situation, something akin to when the Fed first launched quantitative easing.  It all sounds great, but no one knows exactly how it will work.

If there is one piece of good news, it is that analysts seem to be pulling the reins on the near term pessimism that has been causing them to reduce earnings estimates for 2017.  Every month we look at the revenue estimates that the Street publishes for the 30 companies of the Dow Jones Industrial Average.  There are several charts below…

But here is a quick summary:

• For Q2 2017: back in mid-2016 analysts were showing expected revenue growth rates of +4% for next quarter. Since then they have reduced their estimates to 2.9%, but as of this month at least that number is holding (it was 2.9% last month as well).
• For Q3 2017: Analysts expect year over year revenue comparisons for the Dow companies to improve sequentially to 3.5%. As with the comp data for Q2, this month they have stuck to that number instead of cutting it further.
• For all of 2017: Analysts are only looking for an average of 3.4% revenue growth for the Dow companies. Yes, this was 4.5% last November so we’ve lost some ground on a fundamental basis even if stock markets have actually rallied.

The most important thing to take away from this quick 2-part analysis is this:

1. The post-Election Day rally in US stocks is anchored in the belief US corporate earnings power will materially improve as a result of the Trump economic agenda.
2. As of today, however, earnings estimates are still declining.
3. The best thing you can say about the fundamental picture is that at least analysts aren’t cutting revenue numbers any more so perhaps earnings estimates will begin to improve soon.
4. At some point, an equity market trading for +18x current year earnings is going to want to see either companies beat earnings estimates in resounding fashion or at least start to see analysts raising their earnings estimates. We aren’t getting the latter, and the former won’t happen until we get legislative action on taxes, infrastructure investment and deregulation.

In short, the current rally is very much a faith-based move.  That’s OK.  But at some point the sizzle becomes less important than seeing the steak.  And if you don’t have all the right ingredients in place, it may not be much of a meal.

via http://ift.tt/2m7eZMx Tyler Durden

via http://ift.tt/2m7jtmg Reggie Middleton