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Trump won the 2016 presidential election, in large part, due to the support of the working class population in the Midwest that has suffered for decades as manufacturing wages have stagnated and jobs have been transplanted to lower cost regions like Mexico and China.  On election night, Trump vowed to change the fate of the American middle class by pledging that “the forgotten men and women of our country will be forgotten no longer.”

That said, with a significant amount of America’s wealth held by a tiny fraction of households and a widening income gap, it’s unclear what, if anything, Trump can do to reverse the collapse of America’s once thriving middle class.  As the St. Louis Fed points out, the median family in the U.S. today has accumulated roughly 30% less wealth than their counterparts in 1989 which has been a consistent trend now for decades.

The median family today is significantly poorer at any given age than their counterparts would have been 25 years earlier, according to the St. Louis Fed. For example, people born in 1970 have had about 40 percent less wealth at any given age, compared with people born in 1940. The median middle-aged family in 2013 had 31 percent less wealth than its counterpart in 1989, while the median young family had 28 percent less wealth than its 1989 counterpart. Meanwhile, the median wealth gap between young and old families has widened.

As Bloomberg points out, just 8mm households, or roughly 6% of the 125mm total households in the U.S., control a substantial portion of the country’s overall financial wealth.

 

And, with middle class incomes stagnating, the wealth gap is only expected to grow wider over time.

 

Meanwhile, more than 50% of the people with $25mm or more in financial wealth cite “inheritance” as the source of their “success.”

Others were just born lucky, as in: They inherited their cash. More than half of U.S. investors with over $25 million said inheritance was a factor in their wealth, according to a new survey by Spectrem Group, a consulting firm that specializes in polling the rich. Among these people, a whopping 73 percent of those aged 50 or younger said inheritance was a factor.

 

George Walper, Spectrem’s president, said there’s been an uptick in the last few years in the number of respondents who cite inheritance as a factor in their wealth. To be fair, the very wealthy people surveyed by Spectrem also cite hard work, education, and smart investing as playing a role in their riches.

 

But it’s become harder to build a fortune on hard work alone. Americans in their late seventies, eighties, and nineties began their careers in the midst of the U.S.’s postwar boom. More recent generations haven’t had the same economic tailwinds.

 

All of which leads to the inevitable conclusion that the growing pool of “old money” in the U.S. and stagnating incomes has resulted in a fairly grim outlook for millennials.

 

With the “old money” families taking an increasing portion of the overall American wealth pie while the overwhelming majority of American’s live month-to-month with no potential to save, it is no wonder that the American electorate has grown more divided over time.  Certainly, the democratic party has used the income divide over the years to rally their base of support.  But, with an economy that is dependent on consumers levering and spending every single dollar they make and a central bank that has removed every possible incentive to save, we suspect the income gap won’t narrow anytime in the near future.

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

Despite speculation over the past year that Canada may join Japan and Europe in the NIRP club and launch negative interest rates, so far the BOC has stood its ground. However, starting on December 22, for the broker dealer clients of one of Canada’s most reputable financial institutions, BMO Nesbitt Burns, it will be as if the Canadian bank has cut its deposit rate on most currencies, to match the deposit rate of Switzerland.

In an internal letter sent today from management, the bank explains that its current policy with respect to cash balances of foreign currencies held in client accounts – excluding U.S. dollars – has been that it “does not pay or charge clients interest on these balances.” As a result, the bank writes, clients have traditionally tended not to hold non-U.S. dollar foreign currencies in a BMO Nesbitt Burns account for any extended period. However, the notice continues, “given the current global interest rate environment, which has extended much longer than anticipated, we have seen an increase in foreign currency cash reserves across accounts; indicating clients are, in fact, moving these funds into their BMO Nesbitt Burns account in order to avoid negative interest charges on cash holdings in other accounts they maintain.” 

Welcome to the age of connected monetary vessels, where globally fungible money allows savers to bypass their own domestic “financial repression” and negative interest rates, by shifting their funds to offshore bank accounts. Or at least it did for clients using BMO Nesbitt Burns as a custodian of offshore money. Because as the bank adds, it has become necessary for the bank to update its current policy and selectively implement negative rates to avoid precisely this global interconnection. To wit:

Effective December 22, 2016, we will begin charging clients a market-rate negative interest charge of 75 basis points on cash balances of all foreign currencies held in their account(s), excluding U.S. dollars. Interest is calculated on the average daily balance during the interest period. The first negative interest charge will cover the period of December 22, 2016 to January 21, 2017, and will be charged to all applicable client accounts on January 23, 2017.

How long will BMO continue this unprecedented financial repression of its foreign clients? Simple: as long as NIRP in other nations forces funds to be parked in banks like the Bank of Montreal.

This rate will be regularly reviewed to ensure it remains competitive and will continue until to be charged until such time as foreign interest rate policies negate the need to apply this charge to client accounts. Please note that negative monthly interest charges below $5.00 will not be charged to client accounts.

What happens then? Well, if BMO depositors (of whom we wonder just what percentage are Chinese) take their money to another Canadian bank, that bank will promptly follow suit and implement a similar “negative rate” provision for foreign clients, until eventually every single bank, and not just in Canada, has a bifurcated deposit rate policy: one for account held in Canadian and US Dollars, and another for all other currencies, which will demand an annual fee of 0.75% for the privilege of holding their funds.

What is BMO Nesbitt Burns’ advice to advisors with clients that have any foreign, non-U.S. dollar foreign currencies on deposit? They are encouraged to contact these clients and advise them that they may wish to consider purchasing an alternative short-term investment denominated in the foreign currency, or another available product, as otherwise there is no evading the -0.75% fee.

Finally, this is the letter that any client of the bank who has foreign-denominated cash balances held in their account.

via http://ift.tt/2fMbGG6 Tyler Durden

Just a month after dodging a default bullet thanks to a last-minute bond swap, Venezuela’s state-owned oil company PDVSA missed coupon payments due on its bonds, according to JPMorgan. However, PDVSA president Del Pino raged on Twitter that “the information about a PDVSA default spread by the enemies of the fatherland is totally false,” but the bonds saw prices tumble despite his statement.

PDVSA in October swapped $2.8 billion in bonds due in 2017 for new bonds maturing in 2020... but that bounce is now dead…

As Bloomberg reports, PDVSA has activated a 30-day grace period after not meeting the full coupon payments on its 2021, 2024 and 2035 bonds that were due last week. About $400 million was due on those bonds, while PDVSA did pay $135 million due on its 2026 debt last week, JPMorgan’s Javier Zorrilla writes, citing information from the paying agent on the bonds.

“We still believe PDVSA will make these payments during the grace period,” Zorrilla wrote in the report.

 

“However, this highlights the cash difficulties and mismanagement of PDVSA with regards to its liabilities.”

But, as Reuters reports, PDVSA, in a statement, said it had paid “punctually” its obligations due this month for 2021, 2024 and 2026 papers, and was also “in the process of executing” interest payments for the 2035 bond.

“In this way, PDVSA honors its commitment … ratifying the financial solidity of Venezuelans’ main industry,” it said.

Prior to PDVSA’s response, Reuters reports that Torino Capital had said the reported delay appeared to be “a technical mistake” rather than an indication of default.

It noted that payments were being made “through accounts not conventionally used for these purposes” and that some PDVSA management changes had occurred, both of which could have contributed to a delay.

 

“Our tentative conclusion is thus that the delay in payments likely reflects administrative and technical issues of the type that the 30-day grace period is designed to handle,” wrote its chief economist Francisco Rodriguez in a note to clients.

 

“We do not believe it reflects a change in authorities’ willingness to service its international obligations.”

Venezuela bonds trade at distressed levels as a result of investor concern that a steep recession and spiraling inflation will leave it without resources to meet heavy commitments.

The country’s sovereign bonds on average pay 26 percentage points more than comparable U.S. Treasury Notes, according to JPMorgan’s Global Diversified Emerging Markets Bond Index.

But there is always a dip-buyer ready to scoop up collapsing bonds…

“I hope it gets cheaper so I can buy more,” said Diego Ferro, co-chief investment officer of Greylock Capital Management LLC in New York. “It’s a non-event most likely.”

Well the 2037s jut got a lot cheaper Mr. Ferro…

 

And all this on the day when the Bolivar crashed through 2000/$ on the black market for the first time… 

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

Submitted by Jim Quinn Via The Burning Platform blog,

In Part One of this article I discussed the arrival of Grey Champions in previous Fourth Turnings; their attributes, deficiencies, and leadership skills; and why Donald Trump is the Grey Champion of this Fourth Turning – whether you like it or not. Now I will try to make sense of what could happen next.

“Our movement is about replacing a failed and corrupt political establishment with a new government controlled by you, the American people. The establishment has trillions of dollars at stake in this election. For those who control the levers of power in Washington and for the global special interests, they partner with these people that don’t have your good in mind. The political establishment that is trying to stop us is the same group responsible for our disastrous trade deals, massive illegal immigration and economic and foreign policies that have bled our country dry.

It’s a global power structure that is responsible for the economic decisions that have robbed our working class, stripped our country of its wealth and put that money into the pockets of a handful of large corporations and political entities. The only thing that can stop this corrupt machine is you. The only force strong enough to save our country is us. The only people brave enough to vote out this corrupt establishment is you, the American people.” – Donald Trump

Seventy year old Donald Trump has assumed the Grey Champion flagstaff. In an increasingly chaotic world, normal working class Americans in flyover country were seeking a leader who could bring order, defeat the corrupt establishment, make tough decisions, and capture the zeitgeist of this moment in history. The ruling elite oligarchs and their fawning minions, occupying their strongholds in New York, California, Illinois, and D.C., are infuriated the peasants have dared to resist. In their secretive secure spaces, the elites are plotting with one purpose in mind – this uprising must be quelled.

They are now fanning the flames of discontent, funding professional protestors, and convincing the useful idiot college student millennials, Trump is dangerous to their future. It seems these mathematically challenged snowflakes have already forgotten about the $10 trillion of national debt and $1 trillion of student loan debt loaded on their backs by the Obama administration in the last 8 years. This is not to mention the $200 trillion of unfunded welfare liabilities awaiting them as they graduate with degrees in LGBT Studies and great jobs at TGI Fridays in their future.

As the legacy corporate mainstream media outlets hyperventilate over Trump going to dinner without informing them, while scorning and ridiculing his cabinet selections (even when he hasn’t made them yet), this Fourth Turning chaotically churns towards its inevitable bloody climax. The current violence in the streets may be Soros funded domestic terrorism, but it still creates more anger, bitterness, and further unwillingness to compromise or meet in the middle.

This country is manifestly divided between red and blue, with the red geographically occupying 85% of the country and blue centered in the liberal urban bastions of corruption. There are multiple civil wars brewing below the surface, between the establishment and the people; left versus right; rural versus urban; Wall Street and Main Street; and the haves versus the have nots. It hasn’t turned particularly bloody – YET.

It appears Trump’s cabinet will be filled with establishment insiders. Many of his supporters will be disappointed. The daily minutia flogged by the 24 hour cable news propaganda machines is meaningless in the broad expanse of a twenty year Fourth Turning Crisis. Every president ends up with Washington insiders in their cabinet. At the end of the day, it’s the president who sets the policy, decides what to prioritize, and sets the agenda for the nation. In the case of a Grey Champion assuming command in the midst of a Fourth Turning, events and his response to such events will dictate the course of the country and most likely the world for the next four or eight years.

The market reaction to Trump’s ascendancy has a stench about it. On election night futures dropped 800 points, but markets turned positive the next morning and haven’t looked back since. The stock market hovers at all-time highs. It’s almost as if the big swinging dicks on Wall Street decided to send a message – they are still in charge. It doesn’t matter who’s in the oval office, Wall Street calls the shots. If you cooperate and do as you’re told, the markets will ascend. If you attempt to implement any policy they don’t like, a crash will be manufactured (ex. TARP rejection by Congress). The currency and bond markets are in turmoil across the globe. Something is clearly getting ready to blow.

You can ignore the day to day gyrations, as the three core elements of this Crisis – debt, civic decay, global disorder – will produce a chain reaction implosion during Trump’s reign of power. The national debt is on automatic pilot to breach $1 trillion per year for as far as the eye can see. A $1 trillion infrastructure plan, rebuilding the military, building walls, massive tax cuts, trade wars and no spending cuts are a recipe for fiscal disaster. Trump’s advisors seem to be following Dick Cheney’s advice that deficits don’t matter. Steve Bannon’s documentary – Generation Zero – was based on the Fourth Turning, so you would think he would understand what’s coming next.

Interest on the national debt was $433 billion in FY16. That colossal amount was with a near record low weighted interest rate of 2.2%. In case you haven’t noticed the 10 Year Treasury rate has skyrocketed from 1.32% in July to 2.36% today. A 1% increase in rates across the yield curve will result in a 50% increase in interest on the national debt to $650 billion. Soc Gen’s Albert Edwards believes the current bond route could drive the 10 Year Treasury rate to 3.25%. That would blow a hole in our annual deficits. Isn’t leverage great?

The housing market was already rolling over due to high prices and stagnant household incomes. With mortgage rates jumping by 1% and possibly more, housing bubble 2.0 meets pin 2.0. Auto loan defaults were already surging, as every Tom, Shaniqua, and Julio in America got a new vehicle with a low payment lease or 7 year 0% loan. Over 25% of all student loans are not being repaid. The stock market bubble has been sustained by corporate CEOs borrowing to buy back their stock at all-time highs. Their corporate earnings have been falling for several quarters in a row and now the interest rates on their record levels of debt are going higher.

In addition, the USD is now at a 13 year high, up 10% since May and 30% since mid-2014. This will further weaken the profits of our global conglomerates. Making America great again by bringing back manufacturing jobs will be DOA if the USD keeps rising. It just so happens earnings are falling with interest rates and currency rising, when stock market valuations are at record highs. The euphoria of the Trump victory will be short lived as the country officially enters recession and the stock market drops by 30% or more within the next year.

The civic decay already proliferating during and after the election will be exacerbated as bad debt wipes out financial institutions, corporations, and willfully ignorant consumer borrowers. The lesson of 2008 has already been forgotten. Rather than rolling out his grand vision, Trump will be dealing with a financial crisis which will make 2008 look like a walk in Central Park. Will he follow the same failed policies used after 2008 – NIRP, QE, and saving Wall Street at the expense of Main Street?

Or will he level with the American people, allow Wall Street banks to go bankrupt, let the free market purge the system of trillions in bad debt, tackle the unfunded entitlement liabilities, and have Americans endure a Depression in order to reset our economic system? It will take a Grey Champion with a high level of moral fortitude and courage to demand such sacrifice from the citizens of this country.

With the left already trying to provoke a race war, once the Depression takes grip and the social safety net of entitlements begins to fray, the civic decay in the urban ghettos will reach a tipping point. Cities will burn, looters will run roughshod as police refuse to enter lawless neighborhoods, and commerce will grind to a halt.

If social justice warriors, black lives matter terrorists, or any other group of useful idiots decide to take their protests and violence into the red zones, outright civil war could break out. The Grey Champion is likely to clamp down on this civil disorder with the use of troops. Civil liberties will be trampled as the Federal Government attempts to maintain control. Fourth Amendment fans will not be pleased.

With rigged markets at record highs and the establishment still holding this Ponzi scheme of a country together, so they can extract a few trillion more before the collapse, the illusion of normalcy has lulled tens of millions into a false sense of security. Global disorder expands exponentially by the day.

The Middle East is a powder-keg; Russia and the U.S. are one mistaken shoot down from war; Europe is being overrun by Muslim hordes even as their insolvent socialist paradise goes bankrupt; NATO provokes Russia on a daily basis; Japan’s decades long depression worsens; China’s debt bubble approaches the breaking point; and currency wars are waged across the globe. Delusional Americans willfully ignore the facts because acknowledging them would require painful choices and accepting the consequences of decades of bad decisions.

As Trump focuses on filling his cabinet posts and preparing for his inauguration eight weeks from now, the forces of evil are gathering strength and preparing for battle. We are in the midst of the lull before the storm. Nothing has changed since the election from a debt crisis perspective. It seems the mainstream media pundits are purposely asleep at the wheel as The Obama administration has dialed the government spending up to 11.

Obama has made it his mission to reach $20 trillion in debt before he departs. At the current rate of debt accumulation, he will reach his goal by mid-December. The Obama administration has increased the national debt by $324 billion in the first 48 days of the fiscal year. That’s a rate of $6.75 billion per day. The rate of accumulation last year was $3.3 billion per day. This is out of control, and not a peep from the propaganda media, or incoming administration.

The ongoing Soros funded protests in liberal urban enclaves across the country are setting the stage for a major confrontation in Washington D.C. on January 20, 2017. Obama continues to fan the flames of faux outrage from the left. Soros and his domestic terrorist co-conspirators are planning violent demonstrations in the midst of the inaugural celebration. Obama will order the police to stand down and allow the situation to get out of control.

Picture the 1968 Chicago Democratic convention. There is one major difference. There will be hundreds of thousands of Trump supporters who will not stand idly by and be abused by millennial snowflakes, BLM thugs, and feminazis. This event is likely to trigger clashes across the country. The gloves will be off and the situation could spiral out of control.

Those hoping for the Trump presidency to somehow derail this Fourth Turning are delusional. Fourth Turnings never de-intensify. They build to a bloody crescendo, with the existing social order left in tatters and clear winners and losers. I think it is useful to describe this Fourth Turning in terms everyone should understand. J.R.R. Tolkien wrote his Lord of the Rings trilogy in the midst of the last Fourth Turning. It’s not a coincidence the heroic figure of Gandalf the Grey saves the day during the Battle of Helm’s Deep. He was the Grey Champion.

In today’s parlance, Helm’s Deep is occupied by normal working class Americans (aka the deplorables). George Soros is the evil Sauron, creating an army of Orcs with his immense wealth to destroy the good people of Helm’s Deep and abolish their way of life. Through relentless propaganda, violent protests, and the creation of useful idiots through our government indoctrination camps (aka public schools & universities), Soros is attempting to conquer our society and turn it into a global socialist playground for himself and his oligarch cronies. They had us surrounded and were breaching the walls. Two weeks ago the battle seemed lost. Soros had his Orc General Clinton positioned for certain victory.

When the situation looked darkest, the Grey Champion materialized on the horizon with reinforcements indispensable in turning the tide. The feeling in flyover country when Trump ascended the podium to assume the mantle of the presidency was on par with the feelings of the Helm’s Deep citizen combatants when they realized Gandalf the Grey had arrived to save the day. As we know, the victory at Helm’s Deep did not win the war. Sauron regrouped and resumed his attack on humanity in short order. Soros is regrouping as we speak and girding his forces of evil for a final showdown. This war is still being waged. And the victor will not be crowned until the mid – 2020s.

The deplorables were in search of a prophet generation (Boomer) Grey Champion to lead them through this era of darkness, adversity and peril as this Fourth Turning careens towards its climax. The Grey Champion doesn’t have to be a good person, but they must lead and display tremendous confidence in their cause and path. Humbleness, thoughtfulness, graciousness and building consensus are not the traits of a Grey Champion.

Lincoln and FDR have many detractors, but during their Fourth Turnings, they most certainly led, casting aside impediments (often illegally), initiating conflict and enduring many dark days, with bleak prospects for a successful resolution. But they forged on despite the setbacks, failures, and tragedies. Both died on the doorstep of victory. Those of a libertarian bent, thinking Trump will restore Constitutional rights, will be disappointed, as he is likely to strengthen and expand government control of our economy, healthcare system, speech and communications.

As this Fourth Turning traverses obstacles towards its ultimate climax, the intensity will escalate to an earth shattering dimension. Bold decisions will need to be made, requiring a leader who displays incredible confidence, unflinching determination and inspirational leadership. Political correctness and cultural warfare gibberish will have no place in the coming trials. Trivialities will be disregarded; techno-narcissists will be forced to abandon their iGadgets and pick up a weapon; financial oligarchs will see their fortunes evaporate in the blink of an eye; revenge and retribution will be meted out in equal portions; and the possibility for worldwide annihilation will be ever present.

Winter has arrived, bitter winds are blowing and Spring is many years away. Grim times have befallen the planet. The prospect for a tragic outcome grows by the day. The storm clouds loom on the horizon. There will be no avoiding the coming tempest. Trump cannot defuse the banquet of consequences, decades in the making, headed in our direction. The best he can do is maneuver the country through this minefield of history without blowing the world up. There will certainly be financial chaos, widespread death, colossal destruction, and an all-out war to the finish. Let’s pray the Grey Champion can lead us through this valley of death to a new High. There are no guarantees and our choices will matter.

“The risk of catastrophe will be very high. The nation could erupt into insurrection or civil violence, crack up geographically, or succumb to authoritarian rule. If there is a war, it is likely to be one of maximum risk and effort – in other words, a total war. Every Fourth Turning has registered an upward ratchet in the technology of destruction, and in mankind’s willingness to use it.” – Strauss & Howe – The Fourth Turning

via http://ift.tt/2gaM3fa Tyler Durden

Last Thursday we reported that in a startling development seeking to breach the privacy veil of users of America’s largest bitcoin exchange, the IRS filed court papers seeking a judicial order to serve a so-called “John Doe” summons on the San Francisco-based Bitcoin platform Coinbase.

The government’s request is part of a bitcoin tax-evasion probe, and seeks to identify all Coinbase users in the U.S. who “conducted transactions in a convertible virtual currency” from 2013 to 2015.

IRS is targeting transaction records of Coinbase users: case is 16-cv-06658, U.S. District Court, Northern District of California

— zerohedge (@zerohedge) November 17, 2016

What makes a “John Doe” unique, is that it represents a special “shotgun” form of summons to look for tax evaders that allows the IRS to obtain information about all taxpayers in a group or class of people, even if the agency doesn’t know their identities. The IRS has deployed the tactic in its recent crackdown on undeclared offshore accounts.

In other words, the US government’s crackdown on local bitcoin users has begun.

In the court filing, the WSJ reports that  Justice Department attorneys wrote that an IRS agent had “identified and interviewed three taxpayers who had used virtual currencies as a means of evading taxes” and that two of these taxpayers were corporate entities that “had wallet accounts at Coinbase and attempted to conceal bitcoin transactions as technology expenses on their tax returns.”

According to Forbes’ tax blogger Kelly Phillips Erb, in his declaration to the court in support of the summons, IRS Senior Revenue Agent David Utzke noted that his investigations included two taxpayers with annual revenues in the millions who “admitted disguising the amount they spent purchasing the bitcoins as deductions for technology expenses on their tax returns.” Those corporate taxpayers had wallet accounts at Coinbase. Unlike other kinds of financial transactions, there is currently no third-party information which requires separate reporting for bitcoin (think of third-party reporting like the forms 1099 issued by your bank). This, says IRS, means that the “likelihood of underreporting is significant.”

The likelihood of underreporting combined with the anonymity of virtual currency means that the IRS needs more data to complete its investigation. It also explains why the “John Doe” summons is so broad.

Meanwhile, Coinbase – not to mention its VC bakers – was “extremely troubled” by the development. It posted the following statement on its website:

Our customers may be aware that the U.S. government filed a civil petition yesterday in federal court seeking disclosure of all Coinbase U.S. customers’ records over a three year period. The government has not alleged any wrongdoing on the part of Coinbase and its petition is predicated on sweeping statements that taxpayers may use virtual currency to evade taxes.

 

Although Coinbase’s general practice is to cooperate with properly targeted law enforcement inquiries, we are extremely concerned with the indiscriminate breadth of the government’s request. Our customers’ privacy rights are important to us and our legal team is in the process of examining the government’s petition. In its current form, we will oppose the government’s petition in court.

Additionally, Reuters reports that Coinbase cited concerns with the wide-ranging nature of the government’s request. “We want to work with law enforcement — that’s generally our policy,” the company’s head legal counsel, Juan Suarez, said Friday. “But we can’t tolerate sweeping fishing expeditions. We are very concerned about the financial privacy rights of our customers.”

Chris Padovano, a lawyer and the founder of Decentralized Legal, said he expects Coinbase to turn back the government’s request. Cited by Reuters, Padovano said that “there are two questions here. One is whether or not (the IRS has) reasonably identified a class of individuals and has a reasonable basis for believing that all U.S. customers for Coinbase from 2013-2015 may have failed to comply with laws based on these three users,” he said. “Two is whether the information sought by IRS is not available from any other reasonable source than Coinbase.”

* * *

Good luck to Coinbase fighting the IRS: if America’s tax collector is intent on getting the identities of the biggest traders are in America’s largest bitcoin exchange, it will certainly succeed (especially if they happen to be conservatives).

It is still possible that a judge will overturn the request. Before it can serve such a summons, the IRS must first get court approval, which is why we expect the entire bitcoin community to follow the Northern District of California court fight closely as it will have profound implications not only for the tax-treatment of all future bitcoin transactions, whose biggest draw until this point at least, had been their relative anonymity.

It will also have vast chilling effects on the population of US bitcoin traders, and may ultimately lead to “business continuity” problems for Coinbase should its clients seek to withdraw their funds in bulk into an otherwise illiquid market, ahead of what may end up being the latest IRS witch hunt.

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

Submitted by Lance Roberts via RealInvestmentAdvice.com,

Review

Let’s start with where we left off last week for some context.

“The post ‘Trexit’ rally that started on Wednesday took out the first two levels of resistance with some ease. However, the “sell signal” remains intact with the market now back to extreme overbought levels as shown by the red circles at the top of the chart.

 

The good news is the market is holding above the downtrend resistance line currently which puts all-time highs as the next logical point of attack if this bull market is to continue.

 

However, is we step back to a longer-term (weekly) picture we get a little clear picture about the overall directional trend of the market.”

The good news, as shown in the next chart, is the market was able to clear that downtrend resistance this week and turn the previous “sell signal” back up.  As suggested previously, it is not surprising the markets are pushing all-time highs as we saw on Friday.

But what about after that? As I noted on Friday:

“Importantly, with next week being a light trading week, it would not be surprising to see markets drift higher. However, expect a decline during the first couple of weeks of December as mutual funds and hedge funds deal with distributions and redemptions. That draw down, as seen in early last December, ran right into the Fed rate hike that set up the sharp January decline.”

As I have noted above, there are a lot of similarities in market action between the “post-Trexit” bounce, “Brexit” and last December’s Fed rate hike. I have highlighted there specific areas of note in the chart above.

As with “Brexit” this past June, the markets sold off heading into the vote assuming a vote to leave the Eurozone would be a catastrophe. However, as the vote became clear that Britain was voting to leave, global Central Banks leaped into action to push liquidity into the markets to remove the risk of a market meltdown. The same setup was seen as markets plunged on election night and once again liquidity was pushed into the markets to support asset prices forcing a short-squeeze higher.

But let’s go back to Thanksgiving of last year as well. As I wrote back then:

“With the markets currently oversold on a very short-term basis, the current probability is a rally into the ‘Thanksgiving’ holiday next week and potentially into the first week of December. As opposed to my rudimentary projections, the push higher will likely be a ‘choppy’ advance rather than a straight line.

 

In early December, I would expect the markets to once again pull back from an overbought condition as mutual funds distribute capital gains, dividends, and interest for the year. Such a pullback would once again reset the market for the traditional ‘Santa Claus’ rally as fund managers ‘window dress’ portfolios for their end-of-year reporting.

 

This is only an expectation based on seasonal tendencies of the market. As I have stated repeatedly, the current setup is opportunistic for very short-term, nimble and disciplined traders. However, for long-term investors looking to managing risk and preserve capital, the current market environment is no longer friendly and is beginning to border on hostile.”

Interestingly, that same analysis applies today just as much as it did a year ago. With the markets trying to play catch up after a sloppy summer, pushing extreme overbought conditions, and with the Fed once again lifting rates – the backdrop is all too familiar.

Combine the current backdrop with a sharply higher dollar and interest rates and you have all the makings for a rather nasty correction.

---

Everything Is Awesome

As Eric Parnell, CFA noted on Seeking Alpha this past weekend:

“The dawn of a new era of pro-growth economic policies has suddenly come upon us, filled with massive fiscal stimulus, generous tax cuts and decreased regulation. As a result, the time has come effectively overnight in investor portfolios to abandon the safe haven of U.S. Treasuries and get reflationary!”

The whole article is a very good read and digs into the misconceptions currently existing across asset markets. However, here is an important conclusion:

“Everything is NOT awesome. I’m not saying in this statement that things might not eventually become truly awesome someday in the future, as I genuinely hope they do and believe they can. But things have not suddenly become awesome over the course of the past week. Instead, it’s going to take a long (loooong) time and a lot of potentially painful and tenuous adjustments along the way to get back to awesome. And this does not mean that markets should not move well in advance to price in this potential awesome returning at some point in the future.

 

But outside of the rise of the U.S. stock market, which when you dissect it has taken place in three specific trading days with the vast majority of it coming the day after the election on Wednesday of last week, we are actually seeing very little evidence in securities prices of the supposed awesomeness that so many analysts and pundits are proclaiming is all but certain in recent days.

 

All of this raises an important point. It is very easy to be sucked into the gushingly positive narratives and often unsupported narratives put forth by the financial media. This is particularly true when the move in asset prices can make minutes seem like days and hours seem like months. But when it comes to managing your own investment portfolios, it is critically important to do your own research to confirm or refute the narratives that you are hearing. For the reasons for what is actually taking place at any given point in time may end up leading to decidedly different outcomes.

 

This also leads to perhaps an even more important point. We should all remember that just as a stock market can rise relentlessly and valuations can increase despite a largely stagnant economy thanks to extraordinarily accommodative monetary policy, so too can a stock market fall relentlessly and valuations compress despite a steadily growing economy as a result of restrictive monetary policy.

 

In fact, monetary policy does not even need to be restrictive to see stocks fall into a bear market. For so much air has been put under a stock market that continues to trade at its highest valuations in history that even a solidly growing economy can come with a good dose of valuation compression.”

Excessive market valuations, weak internal measures, and a deteriorating backdrop has historically been a “wicked brew” for investor outcomes.

While markets can certainly remain “irrational longer than you can remain solvent,” the secret to “solvency” is understanding “when” to make an investment “bet.” A professional gambler only goes “all-in” when he “knows” he has a winning hand. He also knows when to “fold” and minimize his losses. For long-term investors, the risk to “solvency” greatly exceeds the “reward” currently.

For short-term traders, a breakout to new highs will likely provide a short-term trading opportunity to speculate in the market. However, gains will likely be limited and risk of failure is high.

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The Great Bond Crash of 2016

“OMG…Are interest rates ever going to stop rising? My bond funds are getting crushed.”

Actually, it isn’t just bond funds it is all interest rate sensitive sectors of the market. But, as I have discussed many times in the past, this is the problem particularly with bond funds and ETF’s – WHICH ARE NOT BONDS.

Actual bonds, which are the only thing you should buy for fixed income in your portfolio, have two key factors:

1. An actual interest payment is made at specific intervals during the life of the bond, and;
2. A return of principal function at maturity.

Everything else, bond funds, bond ETF’s, preferred stocks, REIT’s, MLP’s, closed-end funds, and target-date funds that have been passed off as bond substitutes, ARE NOT BONDS. 

Interest rates sensitive investments are a trade on the direction of interest rates, just as stocks are a trade on the direction of the equity markets. No more. No less.

And, as you have seen recently, they can, do and will lose value.

However, let’s also put the recent correction in rates into a bit of perspective.

Let’s start with my analysis from last week:

“However, the spike in rates this past week, now has me buying bond ETF”s for a trading opportunity. As shown below, interest rates are now pushing overbought conditions only seen near absolute peaks in interest rates movements. (Orange circles)”

“What is interesting is that stock buyers are told to buy stocks after big corrections, yet it works EXACTLY the same way with bonds. When interest rates spike, bonds become VERY oversold and operate on exactly the same premises as stocks.

 

So, bonds are now EXTREMELY oversold and this is as good of an opportunity as one will get to buy bonds.

 

Does this mean rates will plunge on Monday? No. Rates could go a bit higher from here, but it will likely not be much. As Jeff Gundlach stated last week:

 

“I do think this rate rise is about 80% through. If yields rise beyond ‘critical resistance’ levels, including 2.35% on the 10-year note, then things are in really big trouble.”

 

He is right, higher rates negatively impact economic growth. But in BOTH CASES, the outcome for bonds is EXCELLENT.”

Rates did drift slightly higher this week as stated but still well within the context of the long-term downtrend. The chart below shows the long-term trend of the 10-year Treasury going back to 1978 as compared to its RSI index and I have circled the recent “surge” in rates.

When put into this context, the rise is barely noticeable. However, what is notable is that historically whenever the RSI on rates has exceeded 80%, red dashed lines, it has preceded a subsequent decline in rates. In other words, overbought rates are a signal to buy oversold bonds for a potential reversion trade.

However, the coincident surge in both rates AND the dollar have also put the markets at risk of a bigger “impact correction” due to the simultaneous strain the surging dollar and rates put on foreign exchange and economies. History is littered with incidents that have coincided with similar environments.

Sure, this time could be different…it just usually isn’t.

As Horseman Capital recently penned in a letter to their investors:

“The problem with sharply higher US bond yield is that this tightens financial conditions.  We have often seen rises in yield coincide with financial market crises.  A rise in yields preceded the 1987 market crash.  A rise in yield in 1994 preceded the Tequila crisis, when the Mexican peso devalued by half.  After both events, yields quickly fell to new lows. Yields rose in 1996/7 before the Asian Financial Crisis, and yields again rose in 1999 before the dot com crash.  After both  events, yields fell to new lows. More recently, bond yields rose in 2006 before the Global Financial Crisis, and again in 2010/1  before the Euro-crisis. There was also a rise in yields before the crash in oil prices in 2014.  In all cases yields fells to new low.”

Let me repeat:

“While the punditry continues to push a narrative that ‘stocks are the only game in town,’ this will likely turn out to be poor advice. But such is the nature of a media driven analysis with a lack of historical experience or perspective.

From many perspectives, the real risk of the heavy equity exposure in portfolios is outweighed by the potential for further reward. The realization of ‘risk,’ when it occurs, will lead to a rapid unwinding of the markets pushing volatility higher and bond yields lower.”

Here is the most important point.

“Just one month ago, we were told that U.S. equities should rise because bond yields would be low forever, discount rates should trend toward 0% and therefore equity valuations should trend toward infinity over time.  Now, we’re told that despite bond yields surging we can still count on U.S. equities trending toward infinity because they’re better positioned to absorb higher rates than emerging markets.”

It can’t be both.

While the belief currently is the policies being promoted by President-elect Trump are both stimulative and inflationary, my view aligns with Dr. Lacy Hunt of Hoisington Capital Management:

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After epic back-to-back meltdowns at concerts in San Jose and Sacramento, Kanye West has decided to spare his fans from any additional exposure to his rapidly deteriorating mental condition by cancelling all of the remaining 21 dates left on his “Saint Pablo” tour.  According to Bloomberg, Kanye will sacrifice roughly $30mm in ticket sales from the cancellation of the remaining concerts.

The Forum, where Kanye was expected to perform tonight in Los Angeles, was the first to announce the cancellation.

JUST IN: Kanye West concert at @theforum tonight has been canceled just hours before show. http://pic.twitter.com/WCIsNzy8BN

— FOX 11 Los Angeles (@FOXLA) November 21, 2016

 

That said, the tour, set to conclude Dec. 31, had future stops all across the country, including New York City, Philadelphia, Detroit, Boston and Washington D.C.. 

The epic rants started a couple of nights ago when Kanye kept cutting off songs to discuss Trump’s victory, admitting that if he had of cared enough to vote he would have voted Trump. 

“I said something that was kind of politically correct. I told y’all I didn’t vote, right? What I didn’t tell you … If I were to have voted I would have voted on Trump.

Last night’s rant in Sacramento grew even more bizarre with Kanye attacking everyone and everything from Google and Facebook to Jay Z and Beyonce.  Fans grew increasingly hostile after the rapper showed up 1.5 hours late for the concert and then walked off the stage after performing only 3 songs.

“A lot of people here feel like they lost… you know why… because y’all been lied to. Google lied to you. Facebook lied to you. Radio lied to you.”

 

“Jay Z, call me, bruh. You still ain’t called me. Jay Z, I know you got killers. Please don’t send them at my head. Please call me. Talk to me like a man,”

Even Snoop Dogg was having some difficulty trying to figure out what the hell Kanye has been ranting about.

Snoop Dogg voices his confusion over Kanye West’s latest onstage rant. http://pic.twitter.com/WLUs4moEe5

— Pop Crave (@PopCrave) November 21, 2016

 

Meanwhile, Page Six, citing friends close to Kanye, is reporting that the “mad genius” rapper has officially suffered a complete nervous breakdown.  Apparently friends are attributing the mental incapacitation to an exhausting workload though we have our suspicions that Hillary’s loss may have been the “trigger” that set him off.

“There are fears he is having a nervous breakdown. He’s surrounded by all these crazy people, but there’s nobody he listens to or who can rein him in. He’s a mad genius, and he’s spiraling further and further out of control. Basically everything crazy he does is ‘art,’ so he is becoming more and more unpredictable.”

 

Another source explained West is burned out from juggling his fashion line and the tour. “He’s just exhausted. He’s been working around the clock on fashion design, both on his own line and the Adidas line. He’s a notorious workaholic, so balancing both that work — which is extremely important to him — and the rigors of the tour every night. It really wore him out.”

As glorious as it would be for Kanye to simply disappear from public life for a while, something tells us we haven’t seen the end of this meltdown.

* * *

Here’s what we wrote on Kanye’s most recent meltdown in Sacramento:

Following last week’s surprise statement that “If I were to have voted I would have voted on Trump” by Kanye West, it appears the celebrities are now turning on one another as the cognitive dissonance bomb of a Trump win ripples through their minds. Billboard reports that Kanye went on another epic (aleit incomprehensible) rant during his Saint Pablo tour stop at Sacramento, that “sometime we be playing the politics too much,” before ending the show after just 3 songs.

Just like last week, Kanye offered praise to President-elect Donald Trump during a nearly 20-minute speech he made addressing real-word and awards-show politics. During his speech, West directly addressed Democratic presidential nominee Hillary Clinton and Beyonce.

“It’s a new world, Hillary Clinton, it’s a new world,” West said during the concert, The New York Times reported. “Feelings matter. Because guess what? Everybody in Middle America felt a way and they showed you how they felt.”

The concert got off to a rough start when the 39-year-old rapper arrived about an hour-and-a-half late to the stage.

Then as Billboard reports, West’s tirade began:

West’s rant began:

“A lot of people here feel like they lost… you know why… because y’all been lied to. Google lied to you. Facebook lied to you. Radio lied to you.”

And continued by slamming some of his closest performing peers: “Beyonce, I was hurt ‘cause I heard that you said you wouldn’t perform unless you won Video of the Year over me and over ‘Hotline Bling,’” West told the crowd, referencing the 2016 MTV VMAs.

“Now don’t go trying to diss Beyonce. She is great. Taylor Swift is great. We are all great people. We are all people. But sometimes we be playing the politics too much and forgetting who we are just to win. F–k winning. F–k looking cool. F–k being cool.”

Jay Z was his next target. “Jay Z, call me, bruh. You still ain’t called me. Jay Z, I know you got killers. Please don’t send them at my head. Please call me. Talk to me like a man,” West said.

“This Saint Pablo tour is the most relevant [thing] happening. If your old ass keeps following old models, you’ll be Hillary Clinton.”

West railed on President Obama, saying he couldn’t make America great again “because he couldn’t be him to be who he was.”

“Black men have been slaves. Obama wasn’t allowed to do this” West said, “and still win. He had to be perfect. But being perfect don’t always change” things.

Toward the end of the show, West said he wasn’t going to “say things the perfect way, the right way.”

“Right now, press, get ready to write your passive aggressive, LeBron James racist comments, Season 4 racist comments. Get ready to have a field day, press, get ready, get ready, because the show’s over,” the rapper said before walking off stage.

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

All things considered, the PANW numbers weren’t all that bad. Revenues rose by 34% and gross margins are at the historical median point. However, they issued a warning for next quarter, taking with it the entirety of the cyber-security sector.

Reports Q1 (Oct) earnings of $0.55 per share, $0.03 better than the Capital IQ Consensus of $0.52; revenues rose 34.0% year/year to $398.1 mln vs the $400.38 mln Capital IQ Consensus.

 

Billings grew 33% y/y to $516.9 bln (Q2 increased 45% y/y)

 

Co issues guidance for Q2, sees EPS of $0.61-0.63, excluding non-recurring items, vs. $0.63 Capital IQ Consensus Estimate; sees Q2 revs of $426-432 mln vs. $439.28 mln Capital IQ Consensus Estimate.

Judging by the growth numbers, one might surmise PANW to be a wonderful enterprise, unless of course you bothered to take a gander at its balance sheet and come to the realization that the company is unable to earn a profit.

 

Taking a cursory view at their balance sheet, it appears the growth of the company is entirely tied and offset by the amount of money spent on sales and marketing. Since 2015, revenues have nearly doubled, and so have expenses in sales and marketing! How delightful.

Valuation wise, PANW is absurdly expensive at 11x sales — especially when compared to their peers, like CHKP (8x), SYMC (5x), VRSN (8x) and the clown  of the sector, FEYE at 3x.

Shares are plummeting in an after-hours bloodfest.

 

Other stocks in the sector, down in sympathy, include  FEYE (-2%), SPLK (-1.75%), FTNT (-2.1%), CYBR (-1.1%) and PFPT (-4.5%).

Content originally graced in the halls of iBankCoin.

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Submitted by Howard Kunstler via Kunstler.com,

America didn’t get what it expected, but perhaps it got what it deserved, good and hard. Daddy’s in the house and he busted straight into the nursery and now the little ones are squalling in horror. Mommy was discovered to be a grifting old jade who ran the household into a slum and she’s been turned out to solemnly await the judgment of the courts, nowhere to run, nowhere to hide. The kids on campus have gone temporarily insane over this domestic situation and some wonder if they’ll ever get over it.

Trump as The USA’s Daddy? Well, yeah. Might he turn out to be a good daddy? A lot of people worry that he can’t be. Look how he behaved on the campaign trail: no behavioral boundaries… uccchhh. He even lurches as he walks, like Frankenstein. Not very reassuring — though it appears that somehow he raised up a litter of high-functioning kids of his own. Not a tattoo or an earplug among them. No apparent gender confusion. All holding rather responsible positions in the family business. Go figure….

Judging from the internal recriminations among Democratic Party partisans playing out in the newspapers, it’s as if they all woke up simultaneously from a hypnotic trance realizing what an absolute dud they put up for election in Hillary Clinton — and even beyond that obvious matter, how deeply absurd Democratic ideology had become with its annoying victimology narrative, the incessant yammer about “diversity” and “inclusion,” as if pixie dust were the sovereign remedy for a national nervous breakdown. But can they move on from there? I’m not so sure.

For all practical purposes, both traditional parties have blown themselves up. The Democratic Party morphed from the party of thinking people to the party of the thought police, and for that alone they deserve to be flushed down the soil pipe of history where the feckless Whigs went before them. The Republicans have floundered in their own Special Olympics of the Mind for decades, too, so it’s understandable that they have fallen hostage to such a rank outsider as Trump, so cavalier with the party’s dumb-ass shibboleths. It remains to be seen whether the party becomes a vengeful, hybrid monster with an orange head, or a bridge back to reality. I give the latter outcome a low percentage chance.

Mommy is all about feelings and Daddy’s role is action and that is another reason that Hillary lost and Trump won. We’ve heard enough about people’s feelings and it just doesn’t matter anymore. You’re offended? Suck an egg. Someone appropriated your culture? Go shit in your sombrero. What matters is how we’re going to contend with the winding down of Modernity — the techno-industrial orgy that is losing its resource and money mojo. The politics of sacred victimhood has got to yield to the politics of staying alive.

President-elect Trump may not know it yet, but events are now in charge, not personalities, not even his super-sized persona. Global trade and economic activity have been winding down all year and it’s finally affecting financial markets kept aloft on borrowed money, sending a strong signal through bonds that the borrowed money may never be paid down, and that additional borrowing will cost a whole lot more — so much more that it will bankrupt the nations that issue it.

That alone will make it difficult for a President Trump to scare up the ready cash for the infrastructure-rebuilding fiesta so many expect. And if he does manage to flush the funding out of the banking thickets, it is liable to carry an inflationary bird flu that will end up killing money all around the world. We won’t be worrying about Trans Pacific Partnerships anymore because letters-of-credit will be unavailable to move large shipments of anything from Point A to Point B. How long after that will it be before the supermarket shelves empty down? And in the event, what will the dollar buy?

It looks like the shit sandwich President Obama has carefully prepared and left in the White House pantry for his successor will take the form of inflation, the dying of your money — or, at least, paper currency. Or, if it doesn’t die outright, prepare for the possibility that you might not be able to get your hands on it, as money markets gate their exits and banks restrict cash withdrawals.

Though it’s clearly a loser strategy now, I suspect that the ragged remains of the Democratic Party will persist in amping up their sacred identity grievances to the point of civil strife without ever understanding the economic dynamics in motion. They don’t know what else to do. Plus, they are captives of the poverty policy racketeers. I also suspect that neither Mr. Obama or Mr. Trump will get around to pardoning Hillary Clinton for the racketeering operation of her foundation, of which the private email server was the least issue — rather, the arrant sale of influence and access to the State Department is the heart of the matter, and anyone paying attention knows it, including the incoming Attorney General. If that circus comes to town, Trump could benefit from the distraction it offers the public.

There’s a lot of talk on the Net about Strauss and Howe’s “Fourth Turning” taking stage now. That excellent book, published twenty years ago, posits the turbulent end of 80-year generational cycles in history. (Blogger Jim Quinn lays it out nicely this week at The Burning Platform). Previous Fourth Turning presidents Lincoln and Franklin Roosevelt took the nation through epic bloodbaths and economic dislocation. Donald Trump in terms of demeanor is no Lincoln and no FDR. But he did raise up those children of his somehow, and that’s all we’ve got to go on for the moment.

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As US stocks push to record highs, trading volume is dwindling and broad market breadth is terrible…

 

But, as Eric Bush, of Gavekal Capital blog, explains, more than one out of five developed market stocks and more than two out of five emerging market stocks are in a bear market (down over 20% from a high) in the past 200 days. In the developed market, the percentage of stocks in a bear market has doubled from just 11% in late September to 22% as of Friday’s close. EM stocks have fared worse as just 18% of EM stocks were in a bear market in late September and now 44% are in bear market.

The aggregate numbers hide a disparity in the regional performance for equities. Since 10/26, the percentage of DM Asia equities that are in a bear market has increased from 9% to 22%. DM EMEA equities have had the worst performance as 36% of DM EMEA stocks are in a bear market. DM Americas equities have fared the best with just 13% of stocks in a bear market.

In the emerging markets, it has been EM Americas that has been blown up recently. 61%, which is an improvement from 76% on 11/11, of EM Americas stocks are in a bear market. 41% of EM Asia and 47% of EM EMEA equities are in a bear market.

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