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Shortly after Russia admitted that it was moving nuclear-capable rockets to the exclave of Kaliningrad in explicit retaliation for NATO encroachment on its borders, something it had not done until today, another old hotzone has flared up again when moments ago the Russian military reported that Ukranian security operatives have abducted two Russian servicemen in Crimea, and are attempting to press criminal charges against them, the Russian military is reporting.

Moscow considers the kidnapping a “flagrant provocation,” and is demanding the immediate release and return of Maksim Odintsov and Aleksander Baranov to Russia, according to Sputnik.

MORE: #Moscow calls kidnapping ‘flagrant provocation,’ demands their immediate release and return to #Russia https://t.co/MW5NjhYREM http://pic.twitter.com/Cl86OW6GdN

— Sputnik (@SputnikInt) November 21, 2016

“We consider such actions by the Ukrainian security bodies against Russian citizens as another flagrant provocation and demand their immediate return to Russia,” a statement by the ministry’s press service said.

The ministry announced on Monday that the two soldiers were kidnapped on November 20, and taken across the border to the Nikolayev region of Ukraine with an apparent goal of pressing charges against them. They also expressed concern that authorities may use psychological and physical torture to coerce the two men into falsely confessing to crimes against Ukraine.

Crimea has long been a geopolitical “hotspot” ever since the Ukraine presidential coup, which resulted in a proxy civil war in the Donbas region and resulted in Crimea rejoining Russia after a 2014 referendum, one which however has not been accepted by western states, many of which still consider Crimea part of the Ukraine, even if they tacitly admit that it is now part of Russia.

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

"Riskless" US Treasury bonds are at their riskiest relative to "risky" stocks since the summer of 2013's Taper Tantrum… and at the same time, bonds are 'cheapest' to stocks in over a year…

US Treasury bond risk is at its highest in 9 months as US equity risk hovers back near 2-month lows pushing the relative risk to its highest since Aug 2013…

In June 2011, July 2013, and July 2015, we saw the same spikes in bond risk vs equity risk… and each time, stocks collapse and stock vol surged very soon after.

And at the same time bonds are the 'cheapest' to stocks since Nov 2015 (before the last Fed rate hike)…

 

We are reminded of what SocGen said just a few years ago, 

The bond investor could have bought bonds 90% of the months since 1950 and avoided having a 20% drawdown or more, whilst the equity investor could have only invested in 40% of months to avoid such losses.

 

 

 

Extreme drawdown of 40% or more, even on a real basis, is almost unheard of in the bond market, but seen 17% of the time in equities. Yes bonds at around 2% offer miserable returns, but equities will always offer a higher probability of major losses and until we have an investor base that is able to take such losses, low yields and a systematic preference for bonds is likely to be with us for a while. Risk capital will also be in short supply – if you have it, better use it wisely.

As Boomers head into an uncertain retirement, we wonder whether this type of 'realistic' analysis will trickle-down to investor expectations and 401(k)s as the triangle of risk-reward-regret becomes more and more prescient every day.

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

As India continues to struggle with a countrywide cash shortage as a result of the November 8 demonetization in which the government unexpectedly removed the highest denomination bills out of circulation and which has brought various mostly rural part of the cash-driven economy to a halt, the government is resorting to ever more novel solutions how to restock outlets with new, “clean” cash.

As the Times of India reports, authorities have managed to cut down the transportation time of cash from printing to the main distribution centers from 21 days to six and by using all modes of transport, including helicopters and Indian Air Force planes, to move the cash quickly. The government is hopeful that the situation will improve over the next week. With availability of cash improving in urban areas, the government is concentrating on rural areas.

While even tenured economists have predicted that the short-term may lead to a shock for the Indian economy, senior government sources are hopeful that the level of economic activity should climb back to normal levels by January 15. Referring to any “windfall” from the decision to demonetise 500- and 1,000-rupee notes, sources said any gains could be used for recapitalisation of banks, building infrastructure and purchasing advanced weapons systems for the armed forces.

“RBI may transfer higher dividend or there could be a special dividend,” the sources said. There is a probability of the government getting a “windfall” as a significant portion of the notes may not come back. This will reduce the liability of RBI and increase its ability to pay higher dividend. “Even in 1978 when the government resorted to demonetisation, 20% of the notes did not come back,” the sources said.

They said they would not like to speculate about the number of notes that may not come back into the system.

Meanwhile, logistical challenges have emerged. The Indian newspaper writes that according to sources, Rs 2,000 notes could not be put in the tray meant for Rs 1,000 notes as the recalibration required both hardware and software changes.

Finally, while there has been much speculation just why India engaged in this shock “purging” of the shadow economy, here is the explanation from Ravi Bansal, JB Fuqua Professor of Finance and Economics at Duke University

As you know, India demonetised. Several billion dollars worth of rupees will essentially vanish from the shadow (black) economy, due to the very tight window to convert the black money to some other valued asset. Let’s assume $50 billion worth of rupees are destroyed because they cannot be converted to alternative assets like gold or some other hard currency; this essentially is wealth tax on the holders of black money. What is remarkable, and less understood, is that it also writes-down (lowers) the debt of the government by the amount of notes destroyed by the demonetisation. If roughly 25 percent of the notes are not converted then the debt write-off is about $50 billion. That is about 2.5 percent of the Indian GDP!

In other words, the Indian “demonetization” was merely a quick and easy way to eliminate some tens of billions of sovereign debt, while at the same time “cleansing” the economy of cash whose source can not be documented. It is likely that should India’s experiment prove to be successful, it will be followed in many more cash-rich nations.

via http://ift.tt/2gD01eU Tyler Durden

Submitted by Martin Armstrong via ArmstrongEconomics.com,

The American Revolution was inspired by one book entitled Common Sense by Thomas Paine.

We even find British political tokens with the saying “END OF PAIN“, which was obviously a pun on his name.

He was demonized by the British as the man who inspired the Revolution. According to this intense studies of the Continental Army at Valley Forge, the average age of George Washington’s soldiers in 1777 was between 20 and 25. That was the average because the youth who joined were 16 to 18. The last verified surviving American veteran of the war was John Gray of Virginia who joined the Continental Army at the age of just 16 in 1780.

George Washington himself wrote: that “to place any dependence upon militia is assuredly resting upon a broken staff.” Of the New England militia, Washington wrote, “Their officers generally speaking are the most indifferent kind of people I ever saw.” Militia privates ignored commands issued by officers of the Regular Army, which disturbed Washington. The common age of a Continental soldier was quite young. One historian found that in nine New Jersey towns nearly 75% of boys who were just fifteen and sixteen. There are accounts of people such as artilleryman Jeremiah Levering who entered the service at twelve or thirteen, and hundreds more under the legal age of sixteen served in all services. Thousands more were under twenty. It was the youth who are inspired and do not appreciate the tragedy of war.

If we look at the Russian Revolution, again we find a critical book that was at the root of the split entitled What is to be Done?  Lenin wrote this work while serving a sentence of exile. The book was first published in Germany during 1902, but it was outlawed for publication and distribution in Russia. Lenin totally rejected the standpoint that the “proletariat” who he regarded as workers or working-class people collectively. This class in Roman times were called the plebeians. The proletariat, Lenin argued, was being driven spontaneously to revolutionary Socialism by capitalism itself, which he further contended had predisposed the workers to the acceptance of of Marxism.

Lenin also took the position that the case for workers will not spontaneously become Marxists simply by fighting battles over wages with their employers. Lenin argued that Marxists needed to form a political party to publicize their ideas and persuade workers to become Marxists. Lenin then took a step further arguing that to understand politics you must understand all of society, not just workers and their economic struggles with their employers. Therefore, to move the workers to become political and to become Marxists, they needed to learn about all of society, not just their own small corner of within it.

This is very important to understand because this is the same precise formula in operation today among the American youth. They are not the “workers” for most are simply students. They would not respond the the traditional class struggle of the early 20th century when the industrial revolution was just beginning and the confrontation between workers and employers were a major battle. Lacking that sort of class-struggle amount children who are not even employed, can only be accomplished precisely as Lenin argued, only from without. They would not spontaneously respond to poor working conditions since they do not work. The sphere from which a revolution can arise becomes possible only by obtaining knowledge is the sphere of interrelations between all classes on a theoretical basis. They do not understand the principle that Wall Street raises money to fund small business helping them grow to create jobs and the economy. Instead, the bankers engaged in proprietary trading are viewed as “Wall Street” when in fact they are simply speculators who bribe politicians.

Lenin also made it clear that a revolution would only be achievable by the strong leadership of one person or a select few over the masses. Lenin set forth that once the revolution had successfully overthrown the government, this individual leader must release power, to allow socialism to fully encompass the nation. Lenin’s view of a socialist intelligentsia demonstrated that he was departing from Marxist theory in this regard. Lenin agreed with the Marxist idea of eliminating social classes creating the idea of a French commune from where Marx derived his theory, but Lenin saw a ruling class should maintain control creating distinctions between those in politics and the people not much different from our Western political classes. Lenin did not effectively support the Marxist theory of a  classless society. The party split of Bolsheviks (majority) and Mensheviks (minority) in 1903, the differences originally began to surface with the publication of What is to be Done? Mensheviks generally tended to be more moderate and were more positive towards the liberal opposition and the dominant peasant-based Socialist Revolutionary party whereas the Bolsheviks saw the need for a strong political ruling class.

As discussed in What is to be Done?, Lenin clearly believed that a rigid political structure was necessary to effectively initiate a formal revolution and to maintain it. This idea was met with opposition from his once close followers including Julius Martov, Georgy Plekhanov, Leon Trotsky, and Pavel Axelrod. Plekhanov and Lenin’s major dispute arose addressing the topic of nationalizing land or leaving it for private use. Lenin wanted to nationalize everything to aid in collectivization to be centrally controlled by the political class. Plekhanov thought worker motivation would remain higher if individuals were able to maintain their own property, which was true.

The average party member was very young and that was the entire key to brainwash the youth who had no experience in life to understand their were really surrendering personal values and freedom to the political class as they are doing once again in the United States. In 1907, 22% of Bolsheviks were all under 20, with a staggering 37% were all just 20–24. Only about 16% were between the ages of 25 to 29. Therefore, 75% of the Bolsheviks were under 30 years old. The total membership was 8,400 in 1905, rising to 13,000 in 1906 and 46,100 by 1907.

Therefore, beware of the youth. They are easily influenced and will have little regard for life for they will see themselves throughout history as the great reformers. They will not listen to Trump nor will they give him a chance for the majority of newspapers and mainstream media will attack Trump at every possible opportunity since they are bought and paid for by the establishment.

We are witnessing the second American Revolution in its infancy. The United States will break apart as was the case with Rome. Note the reverse of the the first Gallic Emperor Postumus (259-268AD). He is raising the female symbol of Gaul promising restoration of the norm – sound familiar? CHANGE!

George Washington became president on February 4th, 1789. The beginning of the Decline & Fall of the United States began with the swearing in of Obama 224 years later – January 20th, 2013. The peak in government came with 2015.75 insofar as the visible “confidence” in government. The first opportunity where the United States will break apart will be 23 years from 2013 and that will perhaps by the Pi target from the 2032 high – 3.14 years later bringing us to 2036.

We should then see the shift of the financial capital of the world to Asia with the rise of both India and China. The seed of this breakup are being planted right now by both Obama and Hillary. Their Marxist philosophies were what destroyed both China and Russia. They are directly responsible for the collapse in world GDP growth. The refugee invasion into Europe is akin to the invasion of the barbarians into the Roman Empire. Both groups had little respect for the culture and open contempt for much of it. They are not interested as a whole in adopting the European culture, they are intent upon imposing their own upon Europe. The great divide in the United States will get much worse and Hillary will be the spokesperson to lead the nation into socialist chaos.

Centralized government is the doom of humankind. It is people like Hillary and Obama who have, as Thomas Paine observed, “confounded society with government, as to leave no distinction between them.” Their goal is to eliminate personal freedom and impose their doctrine by sheer force. The Puritans imposed the same policies in England after their revolution they called “Glorious” after beheading the king. They made it a felony to kiss your wife in public, outlawed sports because it led to cursing, outlawed plays for they were filled with lies, and outlawed Christmas because you should be praying not giving gifts and partying. (see Roots of Evil). Whenever one group thinks it has the right to impose its philosophy upon the whole, civil war breaks out historically.

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

 

A few months ago we wrote that the Dallas Police and Fire Pension Fund was on the verge of collapse after a series of shady real estate investments resulted in massive markdowns of pension assets, the ouster of the fund’s CIO and an FBI raid of it’s largest real estate investment manager (see “Dallas Cops’ Pension Fund Nears Insolvency In Wake Of Shady Real Estate Deals, FBI Raid“).  We summed up the fund’s dilemma as follows:  

The Dallas Police & Fire Pension (DPFP), which covers nearly 10,000 police and firefighters, is on the verge of collapse as its board and the City of Dallas struggle to pitch benefit cuts to save the plan from complete failure.  According the the National Real Estate Investor, DPFP was once applauded for it’s “diverse investment portfolio” but turns out it may have all been a fraud as the pension’s former real estate investment manager, CDK Realty Advisors, was raided by the FBI in April 2016 and the fund was subsequently forced to mark down their entire real estate book by 32%.  Guess it’s pretty easy to generate good returns if you manage a book of illiquid assets that can be marked at your “discretion”. 

The rampant fraud at the DPFP left the fund over $3BN underfunded and its board of directors with no other option but to seek a $1.1BN infusion from taxpayers to keep the fund afloat.  Even worse, a review of the pension’s financials revealed $2.11 of annual benefit payments to members for every $1.00 contributed to the plan by members and taxpayers (mostly taxpayers)…the typical pension ponzi whereby plan administrators borrow from assets reserved to cover future liabilities (which are likely impaired) to cover current claims in full.

Now the Mayor of Dallas, former Pizza Hut CEO Michael Rawlings, and members of City Council are slowing coming to terms with the fact that the enormous police pension may be too large a burden for the city to overcome absent substantial benefit cuts for members.  According to the New York Times, Dallas is second only to Chicago in terms of its pension underfunding relative to financial resources….and, as our readers know well, with a 38% funding ratio, Chicago is not a city you want to be compared to when it comes to the health of you public pension plans.

Now, the Dallas Police and Fire Pension System has asked the city for a one-time infusion of $1.1 billion, an amount roughly equal to Dallas’s entire general fund budget but not even close to what the pension fund needs to be fully funded. Nothing would be left for fighting endemic poverty south of the Trinity River, for public libraries, or for giving current police officers and firefighters a raise.

 

“It’s a ridiculous request,” Mr. Rawlings, a Democrat, said in testimony this month to the Texas Pension Review Board, whose seven members are appointed by Texas governors, all Republicans for the last 20 years.

 

The mayor — who defeated a former Dallas police chief to win his office in 2011 — added that he had nothing but respect for the city’s uniformed safety workers, five of whom were gunned down by a deranged sniper during a protest against police shootings in July.

 

But that does not change the awful numbers. This month, Moody’s reported that Dallas was struggling with more pension debt, relative to its resources, than any major American city except Chicago.

 

“The City of Dallas has no way to pay this,” said Lee Kleinman, a City Council member who served as a pension trustee from 2013 until this year. “If the city had to pay the whole thing, we would declare bankruptcy.”

 

Of course, the city’s problems have been exacerbated by the fact that panicked retirees have rushed to withdrawal $220 million of funds as news spread of the pension’s potential collapse.  Moreover, the city has limited ability to halt the “run on the pension” as the fund is controlled by state lawmakers in Austin.

Over six recent weeks, panicked Dallas retirees have pulled $220 million out of the fund. What set off the run was a recommendation in July that the retirees no longer be allowed to take out big blocks of money. Even before that, though, there were reports that the fund’s investments — some placed in highly risky and speculative ventures — were worth less than previously stated.

 

This month, the city’s more than 10,000 current and retired safety workers started voting on voluntary pension trims, but then five people sued, halting the balloting for now.

 

The city is expected to call for an overhaul in December. But it has no power to make the changes, because the fund is controlled by state lawmakers in Austin. The Texas Legislature convenes only every other year, and Dallas is preparing to ask the state for help when the next session starts in January.

 

One state senator, John Whitmire, stopped by the pension building this month and urged the 12 trustees to join the city in asking Austin to scale back their plan.

 

“It’s not going to be pleasant,” said Senator Whitmire, a Democrat in the statehouse since 1973. But without some cuts, “this whole thing will come crashing down, and we’ll play right into the hands of those who would like 401(k)s or defined contribution plans.”

Like many ponzi schemes public pensions around the country, Dallas’ problems are not a recent phenomenon.  The foundation of the impending collapse started over 20 years ago when Dallas just assumed they could offer sweetened deals to policemen and firefighters and then cover up the financial implications of those decisions with ridiculous return assumptions on their assets.  

To many in Dallas, the hole in the pension fund seems to have blown open overnight. But in fact, the fuse was lit back in 1993, when state lawmakers sweetened police and firefighter pensions beyond the wildest dreams of the typical Dallas resident. They added individual savings accounts, paying 8.5 percent interest per year, when workers reached the normal retirement age, then 50. The goal was to keep seasoned veterans on the force longer.

 

Guaranteed 8.5 percent interest, on tap indefinitely for thousands of people, would of course cost a fortune. But state lawmakers made it look “cost neutral,” records show, by fixing Dallas’s annual pension contributions at 36 percent of the police and firefighters’ payroll. It would all work as long as the payroll grew by 5 percent every year — which it did not — and if the pension fund earned 9 percent annually on its investments.

 

“The Legislature clearly ignored that,” Mr. Kleinman said. The plan’s current actuary, Segal Consulting, reported in July that 23 years of unmet goals had left Dallas with a hidden pension debt of almost $7 billion.

Alas, the problem with ponzi schemes is that eventually “actual returns” trump “assumed returns” and you simply exhaust your ability to raid the cash reserved for future benefits to pay current claimants.

via http://ift.tt/2fyvlX7 Tyler Durden

Submitted by Louis Rouanet via The Mises Institute,

It seems fashionable nowadays to compare Donald Trump to Marine Le Pen or the Trump movement to the French National Front. The idea behind this comparison is to suggest that the French far right might very well win the coming presidential elections in May 2017 and create a French “Trump surprise.” But, as when it came to comparisons between Brexit and Trump, comparisons between Trump and Le Pen tend to be hyped.

There are some evident similarities between Le Pen and Trump, but there are also crucial differences.

It is true that both tend to reject mass immigration and globalism, that their discourse is deeply anti-elitist, and that the establishment, at least during election time, frenetically smears them. Their current successes flow from global skepticism of politics and the establishment media and the intelligentsia. Furthermore, France, maybe more than any other western country, experiences a deep identity crisis which was recently revived by the migrant crisis. This has been fertile ground for the National Front’s wins.

Marine Le Pen has, however, some fundamental differences with Trump. First, she is not a billionaire. Although this could seem irrelevant, one reason Trump appealed to so many electors is that he was not beholden to special interests, did not need to be president, and proved himself to be an efficient businessman, making projects happen ahead of schedule and under budget. For Trump’s supporters, their candidate was running in this election out of genuine love for his country, not out of material interest. Marine Le Pen, on the other hand, is a career politician. As with every career politician, her job is to be elected and reelected. Whereas Trump was a part of the private sector, Marine Le Pen made politics her career and is therefore not viewed as an outsider as much as Trump is.

On this note, Trump’s profile might be closer to another presidential candidate: Emmanuel Macron. Macron was a French government senior official and an investment banker at Rothschild before he engaged in politics. In 2014, he became minister of the economy in the socialist government until he resigned in 2016. Unlike Trump, Macron is no billionaire, but he nonetheless appears as a non-career politician who does not need to be elected (i.e., whose motives are supposedly selfless). Thus, Trump’s ability to identify topics of interest to the electorate is sometimes closer to Macron’s skills than to Le Pen’s.

After three decades of rising inequality in the US, Trump indeed identified that the game is rigged. His election was the revenge of the outsiders. Similarly, Macron’s ability to identify implications is based on the division between insiders and outsiders. Obviously, Trump’s and Macron’s policy conclusions differ. Macron is sensibly more pro-market, or, at least, pro free trade.

Marine Le Pen’s platform, on the other hand, is much closer to what could be called national-collectivism. Social justice and the condemnation of “ultra-liberalism” are strong themes in all her campaigns and her economic inspirations are much closer to the far-left than anything else. For instance, in their program, the National Front plans to make the tax structure more progressive. Whereas there are some pro-business or pro-market hints in Trump’s suggested priorities, there are none in Marine Le Pen’s.

When it comes to personality and style, it is probably the National Front's founder Jean Marie Le Pen — Marine's father — who is most like Donald Trump. The elder Le Pen started his political career in the Poujadist movement. In the 1950s, Pierre Poujade led a resistance by convincing the merchants from a little southern French town, St. Céré, to refuse tax payment. Poujade’s grassroots movement quickly grew and won 41 seats at the national assembly in 1956. Rothbard writes brilliantly on Poujadisme as follows:

Poujadisme is, indeed, a “people’s movement,” in the fullest sense of that overworked term. Paris was astonished to see the Poujadist delegates come to town: a parade of butchers, bakers, grocers, students, booksellers — the first real grassroots delegation in decades.

But, whereas Jean Marie Le Pen started politics in a grassroots anti-tax movement, the National Front is by now a 44-year-old party well established on the political scene. The Trump movement is little more than one year old. Marine Le Pen is now a constant in the French political landscape, not the novelty Trump is.

Other fundamental differences between these two blond headed political animals are apparent. Trump, on the one hand, never really tried to appeal to mainstream media and intellectuals. Marine Le Pen, on the other hand, after her father left political life in 2011, tried, until now quite successfully, to “de-demonize” the National Front. She opened the party to intellectuals, technocrats, and to the more moderate young generation.

Jean Marie Le Pen, who still is the honorary president of the National Front, immediately pinpointed the critical differences between Trump’s strategy and Marine’s. On twitter, while he praised the “tremendous kick in the ass to the mondialists and French political and mediatic systems” implied by Trump’s election. He also wrote:

Long live Trump! The de-demonization is crap and a dead-end. The peoples need truth and courage. Congratulation America!

This tweet appears to be aimed directly at his daughter’s strategy.

For all these reasons, we need to be careful when comparing Le Pen and Trump. In many respects, Trump is strictly an American phenomenon and it is doubtful that the French could ever elect a billionaire. But if Le Pen is more socialist, it is only because the French electorate tends to be more anti-market and pro-State. As within America’s Beltway, political power in France lies mostly inside Paris and draws an unchallenged line between Parisians and the subservient folks in the “province.” But, unlike populism in the US, the National Front constantly asks for more centralization in an already over-centralized country.

The differences between Trumpism and the French far right are not in themselves handicaps for the French but rather adaptations to different environments. The only thing that could be a prejudice for the National Front is that it might already be too mainstream. Nonetheless, although it is not to be wished from a libertarian viewpoint, a Le Pen surprise is possible in the 2017 presidential elections. Probably, Le Pen will make her way to the second round of the presidential election but will not win. This would already be in itself a shock for the two party system. If Marine were to be elected, she would have to change the electoral rules if she wants to have a majority in parliament.

The future is uncertain. Marine Le Pen has a long way to go before she can become the French Donald Trump.

via http://ift.tt/2fkHC3E Tyler Durden

Bloomberg political reporter Jennifer Epstein reports that a gaggle of mainstream media TV executives and anchors entered the Trump Tower elevators shortly before 1pm for a meeting with Donald Trump. Among those named were the who-is-who of the prime time news circuit, including the following.

ABC:

George Stephanopoulos
Martha Radatz
David Muir

CBS:

Charlies Rose
John Dickerson
Norah O’Donnell
Gayle King

CNN:

Jeff Zucker
Wold Blitzer
Erin Burnett

Fox:

Bill Shine
Jack Abernethy
Jay Wallace
Suzanne Scott

NBC:

Deborah Turness
Lester Holt
Chuck Todd

Several executives from the network news divisions were also spotted on the way into Trump Tower: CNN president Jeff Zucker, ABC News president James Goldston, Fox News co-presidents Bill Shine and Jack Abernethy, and NBC News president Deborah Turness

According to CNN, the meeting was organized by Trump’s campaign manager Kellyanne Conway, who is now a senior adviser to Trump. NBC’s Chuck Todd and Lester Holt; CNN’s Wolf Blitzer and Erin Burnett; CBS’s Norah O’Donnell, Charlie Rose, John Dickerson, and Gayle King; and ABC’s George Stephanopoulos were some of the anchors who were seen entering Trump Tower shortly before 1 p.m.

Sources said the meeting would involve Trump, Conway and representatives from ABC, NBC, CBS, CNN, and Fox News. (NBC’s cable news channel MSNBC is included in the NBC invitation, Conway noted.) 

 

The substance of the meeting is intended to be off the record, meaning the participants will not divulge what is said.

 

President Obama and other government officials occasionally hold similar off the record sessions with reporters, anchors and other media bigwigs. (Obama talked off the record with the reporters traveling with him on the way home from Peru on Sunday night.)

As CNN adds, “there are many looming questions about whether Trump will provide the same levels of press access that past presidents have permitted, like a traveling “press pool” and regular news conferences.” It also notes that most presidents-elect hold a news conference within days of being elected. Trump was elected almost two weeks ago and has not taken questions in that setting yet. However, he has been interviewed on the CBS newsmagazine “60 Minutes,” and he answered a few shouted questions from reporters over the weekend.

It remains to be seen if there will be a notable shift in the MSM’s coverage tone of the Trump administration following the meeting.

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Mario Draghi just dropped the c-word. In his address to the EU Parliament, the ECB President explained that financial-stability risks are "for the time being, contained." Having admitted that Deutsche Bank is correct that negative rates certainly hurt bank profits, Draghi remains "committed to accomodative policy." But it was ECB executive board member Benoit Coeure that spoiled the party by rejecting the narrative of ECB stock buying.

Buying stocks is “in theory possible” but the ECB is “far away from being in the place where we will need to do it,” ECB executive board member Benoit Coeure says on panel in Munich.

• “It has been done by the Bank of Japan for instance but it’s clearly not in the discussion today. We never discussed it”
• “What we are doing is exactly what must be done to bring inflation back to 2 percent. At some point we’ll start scaling it down. Not yet”
• On unconventional policies: “We don’t intend to keep them forever. When we see inflation coming back to 2 percent sustainably, we’ll start winding it down”
• “Inflation is still very low”

But all eyes were on Mario Draghi as he address EU Parliament…

• *DRAGHI SAYS 'SERIOUS GEOPOLITICAL RISKS' HAVE MATURED
• *DRAGHI: EURO AREA HAS RECOVERED IN SPITE OF GEOPOITICAL RISKS
• *DRAGHI SAYS ECB IS BASICALLY SUPPORTING EURO-AREA RECOVERY
• *DRAGHI SAYS CORPORATE BOND PURCHASE PROGRAM ALSO BENEFITS SMES
• *DRAGHI: CORPORATE BOND ISSUANCE HAS SEEN SIGNIFICANT INCREASE
• *DRAGHI SAYS ECB SEES NO BUBBLE IN ASSET VALUATIONS

And then came the c-word…

• *DRAGHI: FINANCIAL-STABILITY RISKS ARE 'FOR THE TIME' CONTAINED
• *DRAGHI SAYS RESILIENCE OVER BREXIT IN PART DUE TO BOE, ECB

Which never worked out well for Bernanke. But Draghi as always promised more…

• *DRAGHI SAYS ECB IS COMMITTED TO PRESERVING ACCOMMODATIVE POLICY
• *DRAGHI SAYS ECB COMMITTED TO ACT IF WARRANTED

Even though he admitted Deutsche Bank was correct…

• DRAGHI:BUT IN LONGER TERM NEG RATES CERTAINLY HURT BANK PROFIT

EURUSD hardly budged on any of this…

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In light of the recent surge in shorts across the curve, which as the table below shows has pushed repo rates deep into special territory, with the 2-Year going negative ahead of today’s auction…

… it may have been the squeeze going into today’s 1PM auction announcement that prevent an uglier result for the just concluded sale of $26 billion in 2 Year paper.

Pricing at 1.085%, a 0.1 basis point tail to the 1.084% When Issued, today’s 2Y auction yield was the highest since the 1.09% auction in December 2009. The high yield would have likely been even higher if there was no squeeze in repo.

The internals, however, were fractionally better, with the Bid to Cover rising from 2.53 in October to 2.732 in November, the highest since August. Direct Bidders took down 13.43% of the final allotment, while Indirects were responsible for 50.8% of the takedown, better than the 6 month average of 46.9%. As a result Dealers were left holding 35.8%.

Overall, an average auction, but certainly an improvement from the first two “deplorable” auction under Trump which priced two weeks ago at terms that left many wondering if the Bond Vigilantes were now truly stirring.

via http://ift.tt/2gvxmY6 Tyler Durden

Last week, when looking at the divergence between Donald Trump’s proposed fiscal plan to “make America great again” on the back of an unprecedented fiscal stimulus boost which is expected to add $5.3 trillion to the debt over the next decade…

 

… and the deleveraging fiscal plan espoused by House Republicans…

… we pointed out something disturbing: the two plans were roughly $12 trillion apart over a cumulative ten year period, a difference equal to more than one-quarter of total federal outlays.

Then earlier today, none other than Fed vice chair Fischer issued a clear warning to the new administration:

• FISCHER: NOT A LOT OF ROOM TO INCREASE U.S. DEFICIT WITHOUT ADVERSE CONSEQUENCES DOWN THE ROAD

adding that there “enormous uncertainty around new US fiscal policies.”

Judging by the market’s reaction, there is little uncertainty, although that statement is certainly accurate for members of Congress who appear to have finally woken up to what Trump’s policies mean for the US.

The result is the first major problem to emerge for Donald Trump’s economic policies.

Perhaps the GOP read over the weekend what we reported, or maybe did the math on their own, but as The Hill writes this morning, Republican lawmakers warn that there could be a major obstacle to enacting President-elect Donald Trump’s agenda: the national debt.

The website once again lays out the generic framework of Trump’s plan: “Trump called during the campaign for a $1 trillion infrastructure package, $5 trillion in tax cuts, increases in military spending and the repeal ObamaCare, which could cost more than $350 billion over 10 years. At the same time, the president-elect has promised “not to touch” Social Security or make cuts to Medicare. The cost of Trump’s plans and the lack of concrete details on how to pay for them could become a problem for congressional Republicans next year, especially when they are faced with raising the nation’s $20 trillion borrowing limit sometime after March.”

“I was disappointed that it wasn’t brought up in the campaign — anybody’s campaign really — it really wasn’t mentioned,” Sen. Jeff Flake (R-Ariz.) said of deficits and debt.

“So I’m very concerned about it. It’s going to be tough to address if there’s no push from outside of the Congress,” he added. “I’m very concerned about it. It’s the biggest problem we face, by far.”

Conservative groups are worried as well. They say Republicans must not lose sight of fiscal restraint now that they are set to control the White House and Congress.

“We did not hear anything about entitlement reform from either of the candidates, and that’s a serious issue,” said Michael Sargent, a research associate at The Heritage Foundation. “You cannot address the growth in spending without addressing entitlement issues.” Well, perhaps if the campaign was engaged in non-stop daily midslinging between Trump and Clinton, someone would have “heard” about it. Alas, now it is a little too late.

Compounding the problem is the expected Federal rate hike to arrest rising inflation, which would increase the cost of the nation’s debt.  Flake noted on the Senate floor in September that for every quarter point that interest rates rise, the federal government would have to spend an additional $50 billion annually to service the debt.

Ultimately, the problem regarding the US debt is not so much Trump’s, as that of Republicans who would have to support it. Readers will recall that Congressional Republicans assailed President Obama early in his tenure over soaring federal deficits, which exceeded $1 trillion dollars during his first four years in office. As a result, debt reduction was the main focus of GOP leaders after they took back control of the House in 2010.

“It is a problem and going to be a problem. Don’t forget that Obama has doubled the debt and if interest rates were at their historic norms, the deficit would be $612 billion bigger,” said former Sen. Phil Gramm (R-Texas).

This is precisely the point made by Nassim Taleb yesterday in a series of tweet as noted here previously:

Obama:
Protected banksters (largest bonus pool in 2010)
“Helped” Libya
Served AlQaeda/SaudiBarbaria(Syria & Yemen) https://t.co/bcNMhDgmuo

— NassimNicholasTaleb (@nntaleb) November 19, 2016

2) (Cont) But in the end what Obama did that is unforgivable is increasing centralization in a complex system.

— NassimNicholasTaleb (@nntaleb) November 19, 2016

3) Don’t fughet Obama is leaving us a Ponzi scheme, added ~8 trillions in debt with rates at 0. If they rise, costs of deficit explode…

— NassimNicholasTaleb (@nntaleb) November 20, 2016

 

Fast forward to Trump’s campaign trail, where as the Hill adds, “deficits barely gained any notice on the campaign trail.”

Trump focused on immigration, trade and economic renewal while Hillary Clinton talked about infrastructure, immigration reform and campaign finance reform. The media largely focused on the personal attacks the candidates leveled against each other.

 

Trump advisers have suggested the new administration will be able to trigger massive private sector investments in infrastructure without a huge increase in spending. They say federal expenditures in the form of tax credits could be enough to get projects underway.

 

In the absence of a specific plan, what has garnered more attention is the overall number attached to his infrastructure plan: $1 trillion.

“In regard to infrastructure and the things that have been talked about, nobody really knows the details. As we talk about them, our conference will be very concerned about how they affect both the debt and the deficit,” said Sen. John Boozman (R-Ark.), a member of the Environment and Public Works Committee, which has jurisdiction over infrastructure.

Others are also realizing what the missing link is to “making America great again.” Sargent, of the Heritage Foundation, said he’s seen as many as four different iterations of Trump’s infrastructure plan, all of which he says would raise the deficit.

“I’ve seen everything ranging from direct stimulus to a $1 trillion in tax credits, both of which would obviously raise the deficit. The tax credits, he claims, would pay for themselves. I do not see that at all. The assumptions that are built into it I think are wildly optimistic,” he said.

Lawmakers spent months negotiating ways to pay for a six-year, $300 million highway bill that passed last year. It was the first multi-year highway bill to pass in years, and Senate Majority Leader Mitch McConnell (R-Ky.) lauded it as a major, hard-won accomplishment.

 

Conservatives, however, complained that many of the offsets used to pay for the highway bill were “gimmicks.”

 

Many Republicans in Washington are also skeptical that additional infrastructure spending will provide a boost to the economy. They would prefer to focus on tax reform that closes loopholes and lowers rates.

 

“I know of no case in the post-war era where infrastructure has proved to be an effective stimulus in any country in the world,” said Gramm, a former chairman of the Banking Committee and member of the Budget panel.

To be sure, Trump could alleviate some of the concerns brewing in the Republican conferences by pushing new proposals to curb spending.

Already he has modified his stance on Medicare, adopting language favored by Speaker Paul Ryan (R-Wis.) that Democrats are interpreting as a sign Trump will embrace Ryan’s vision for a dramatic overhaul of the entitlement program.  The transition website states the incoming administration will act to “modernize Medicare so that it will be ready for the challenges of the coming retirement of the Baby Boom generation — and beyond.”

In addition, many Republicans believe that repealing ObamaCare will have a positive fiscal impact beyond the 10-year window scored last year by the Congressional Budget Office. Several Republicans said Trump’s plan to replace ObamaCare with healthcare reforms could open the door to overhauling Medicaid, which was expanded in 31 states under the healthcare law.

“One of the things Donald Trump emphasized in his campaign was the risks of a $20 trillion debt and at the same time he put forth proposals that would increase the debt by another $5 trillion,” said Maya MacGuineas, president of Committee for a Responsible Federal Budget.

“Some changes are definitely going to have to be made. The good news is he’s shown a willingness to do that,” she added, noting that Trump downsized his tax proposal, which initially stood at $10 trillion. Boozman said he hopes Trump will seek to stimulate the economy through regulatory reform, which won’t add to the deficit.

* * *

But what may be the biggest wildcard, is what Trump advisor Steve Bannon said in his interview with the Hollywood reporter last week:

“I’m the guy pushing a trillion-dollar infrastructure plan. With negative interest rates throughout the world, it’s the greatest opportunity to rebuild everything. Ship yards, iron works, get them all jacked up. We’re just going to throw it up against the wall and see if it sticks. It will be as exciting as the 1930s, greater than the Reagan revolution — conservatives, plus populists, in an economic nationalist movement.”

The problem is that bond traders are fully aware of this and as they discount the coming deluge in debt – in a time of rising rates – making negative interest rates rapidly a thing of the past. And as a result of the record and continuing surge in global yields over the past two weeks, the bond market may just price out the very reason that sent yield soaring, making much of the proposed deficit expansion impossible. Unless, of course, Trump quickly makes up with Yellen, pushing for a dovish Fed, one that would proceed to monetize much if not all of the billions in coming deficits.

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