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The other candidate called them Deplorables, even if she herself was a card-carrying Despicable. Well, never mind her, as she lost and will never darken the halls of power again. Perhaps a more fair term for Trump’s key demographic, more accurate than what she coined, would be the Pitifuls. Pitiful they are.

Nothing is going right for them, with them being the white underclass. They face a host of problems, from the loss of the pricing power of their largely unskilled labor, to a more equitable society that has greatly increased competition by opening up opportunity for women and minorities.

The Nobel Economist Angus Deaton recently produced a study showing that since 1999, the life span of white underclass in America has declined, with males particularly hard hit. Death rates have jumped. In 1999, the death rates for white American males and German males were equal; today the death rate for American white males is 44% higher than for German white males. Equally compelling is that the life span for non-white females and minority Americans—plus highly educated white males—has increased over the same period to record highs. Poorly educated American white males, and to a lesser extent poorly educated white females, are alone on Earth in seeing their life spans decline.

The deaths result from a number of causes, including drug addiction, alcoholism, suicide, and obesity. Angus Deaton has labelled this trend Death by Despair.

The root cause of this despair is the key question. Obviously some of it is a result of labor’s loss of pricing power as outsourcing was merely a way station on the way to obsolescence via technology. Increased competition from within society is also part of it, with low skill white males now sharing the market with women and minorities. Re-training is a false hope, both because all labor—skilled and unskilled—is increasingly under pressure from technological progress, and also because this demographic simply lacks the intellect to move up the knowledge scale. Not everyone is capable of being a rocket scientist. Trump might say “I love the poorly educated”, as he did during the campaign, but the ever-competitive job market does not love them, because they have next to no use in the modern world.

Part of the despair is self-inflicted. The death spiral of white males is coincident with the rise of the internet’s legion of Despair Bloggers, to which much of the underachieving white male demo is drawn. Everybody knows what Despair Blogger means. Hundreds of websites have sprung into existence which not only offer excuses for failure, but provide daily doses of anger and bitterness that the Deplorables seem to need. People whose lives did not turn out as expected, but who seem to believe they have an entitlement to something beyond ‘life, liberty and the pursuit of happiness’, can easily find sites where they can learn everything is some other person’s, group’s, or policy’s fault. If not for the repeal of the gold standard, or fractional reserve banking, or the Fed, or Bilderbergers, or that amorphous entity called the Deep State, all of those Deplorables would surely be bathed in material glory, tops in their field, and the object of lust by the hottest babes! (Hat tip Ras)

The anger and bitterness fostered by the Despair Bloggers eventually becomes a need. It is an addiction, requiring even more bizarre tales over time, moving into endless convoluted conspiracy theories constructed Goldberg-esque style, but finding a ravenous audience. Despair Bloggers rely on three primary sources for their work: their own fertile imaginations, other Despair Bloggers to whom they LINK and Crosslink (Internet Age Law: three LINKS turns a lie into a fact), and State Actor trolls such as those championed by the FSB and their cut-outs like RT. People who either are incapable of accepting personal responsibility, or else are simply below the mean in terms of Darwinian ‘fitness’, embrace each new excuse or conspiracy as if it is nectar from the gods.

Despair becomes the steady state. It becomes home. Should a bright day sneak in somehow, those prone to despair know how to find the way back home to misery. The Deplorables cannot escape, and do not even seem to want to escape. Excuses are cold comfort, but still comfort. The Bloggers know it, feed it, and make a living off of it. Sure it’s cynical, but so was Trump University or just about any diet book ever written. The bottom line is the bottom line: profit.

Despair Blogging, though catching on in other parts of the world, began in the US and is more common in the US than anywhere. Its ascension exactly dovetails with the declining life span of poorly educated white males. It is their Black Plague. That may be a coincidence, but it might well be a contributing factor. Despair breeds despair (read any Comments Section).

Trump, either with malice aforethought or just serendipity, went after this demographic with both of his small hands. He gives voice and hope to society’s loser demographic. As a populist, he had to find hooks into some under-marketed demographic in order to get elected. He found it in the forlorn, the left behind, the unsuccessful, the Eleanor Rigbys of America. He tells them they can be part of greatness, even if he has no real plan to achieve it, but so desperate are they that they buy into his empty words. He says it’s okay to hate those ‘responsible’ for the demo’s failure in life, and they love him for it. They need that excuse; they embrace it with a passion born from desperation, even if hope itself is a delusion. They can’t see that, just as they can’t see their Messiah is not only selling bottles that say Snake Oil in bold script, but also that the bottles are just sugar water. It satisfies the sweet tooth, but ultimately is bad for those who consume it.

There is always, in any society and at any time in human history, a segment of the populace that can’t win for losing. Call it the dark underbelly of Darwin. Call it losing the Birth Lottery. There never has been, and never will be, a Lake Wobegon where ‘everyone is above average’. Democracy, in a noble attempt to be fairer than anybody’s God, and holding itself to a higher standard than anybody’s God, grants even the Darwinian Unfit the same one vote given to those who won, in a relative sense, the Birth Lottery, and who were born with the minimum level of skill, intellect, drive, or dumb luck to succeed. One man, one vote is democracy’s Achilles Heel.

This concept is the great unspoken truth of existence. It’s treated as a secret, classified material whose disclosure may not be cause for imprisonment, but just societal censure. Those who dare speak it are arrogant, cold, or heartless, but anyone who landed in this Universe on the uptown side of the mean knows it is an undeniable truth.

The Founding Fathers knew of this great secret. The Romans knew of it, too, hence the term panem et circenses. (If Trump has any skill, it is knowing that even the silliest of songs by the most cartoonish of sirens, will find an audience. He found enough of an audience to take the Electoral College.) People such as H. L. Mencken and Winston Churchill also spoke of it, noting that someday, in some democracy, a Trump would be elected. Mencken said:

“As democracy is perfected, the office of president represents, more and more closely, the inner soul of the people. On some great and glorious day the plain folks of the land will reach their hearts desire at last and the White House will be adorned by a downright moron.”

Trump cannot help but eventually disappoint even those who still support him. He isn’t skilled enough to deal with simple problems, much less problems that may well be intractable, such as labor’s loss of pricing power, or religious fanaticism of all creeds. He is also his own worst enemy, childish and impulsive clown that he is, which is best exemplified in that one infamous silly Tweet…the cover-up and damage control of which now occupies most all of his non-golfing and Fake News-reading time. He can blow smoke out his ass or redirect the attention of those easily fooled, but even that has an expiration date. The jobs are not coming back. Losers are not going to miraculously become winners. The life many Deplorables think is their birthright will never be. What will they do when reality hits them?

All might be equal under the law, but all are not equal. Nobody’s God is truly fair. The Universe still survives. Democracy, flawed as it is, has survived so far. It may not survive Trump, for H. L. Mencken’s moron has arrived.

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In a reminder that Donald Trump’s trade policies – at least as he represented in the past, before surrounding himself with ex-Goldman globalists – are largely protectionist, on Friday, the US President will sign executive orders aimed at “identifying abuses” that are causing “massive U.S. trade deficits” and clamp down on non-payment of anti-dumping and anti-subsidy duties on imports, his top trade officials said quoted by Reuters.

The latest executive orders come at a sensitive time, one week before Trump is set for his first face-to-face meeting with Chinese President Xi next week in Florida, where trade issues promise to be a major source of tension. China was the biggest contributor to the $734 billion U.S. goods trade deficit last year, and the meeting “will be a very difficult one” Trump said in a tweet on Thursday night.

The directives, if actually implemented, should allow Trump to focus on meeting his campaign promises to combat the flow of unfairly traded imports into the United States just a week after his pledge to repeal and replace Obamacare imploded in Congress. Commerce Secretary Wilbur Ross told reporters that one of the orders directs his department and the U.S. Trade Representative to conduct a major review of the causes of U.S. trade deficits.

These include trade abuses such as dumping of goods below costs and unfair subsidies, “non-reciprocal” trade practices by other countries and currencies that are “misaligned.”

Ross was careful to differentiate that currency misalignment was not the same as manipulation, and only the U.S. Treasury could define currency manipulation. But he said in some cases, currencies can become misaligned from their traditional valuations unintentionally, citing the Mexican peso’s sharp decline late last year after Trump’s election.

As Reuters adds, Chinese Vice Foreign Minister Zheng Zeguang on Friday acknowledged there was a trade imbalance, but said it was mostly due to differences in the two countries’ economic structures and noted that China had a trade deficit in services. “China does not deliberately seek a trade surplus. We also have no intention of carrying out competitive currency devaluation to stimulate exports. This is not our policy,” Zheng told a briefing about the Xi-Trump meeting.

The study also will examine World Trade Organization rules that Ross said do not treat countries equally, such as on taxation. The United States has long complained that WTO rules allow exports to be exempt from value-added taxes, but do not allow export exemptions from the U.S. corporate income tax.

* * *

The ordered study also will examine the effects of trade deals that have failed to produced forecast benefits, Ross said. The aim was to complete the study and report the findings to Trump in 90 days – a time frame that coincides with the expected start of negotiations to revamp the U.S.-Canada-Mexico North American Free Trade Agreement.

The study’s findings will underpin the Trump administration’s future trade policy decisions, Ross said, and will be the first “systematic analysis” of the trade deficit’s causes, “country-by-country, product-by-product.”

 

“It will demonstrate the administration’s intention not to hipshoot, not to do anything casual, not to do anything abruptly,” Ross told a White House briefing.

 

Ross has promised tougher enforcement of U.S. trade laws and more anti-dumping and anti-subsidy cases initiated by the Commerce Department, rather than relying on companies to claim injuries from imports.

 

He said the study would focus on those countries that have chronic goods trade surpluses with the United States. China tops the list, with a $347 billion surplus last year, followed by Japan, with a $69 billion surplus, Germany at $65 billion, Mexico at $63 billion, Ireland at $36 billion and Vietnam at $32 billion.

A second trade order to be signed by Trump aims to halt the non-payment and under-collection of anti-dumping and anti-subsidy duties the United States slaps on many foreign goods. White House National Trade Council Director Peter Navarro said $2.8 billion in such duties went uncollected between 2001 and the end of 2016 from companies in some 40 countries.

Navarro said the order directs the Commerce and Homeland Security departments to close these gaps by imposing tougher bonding requirements to ensure duty collections and new legal requirements for assessing risks associated with importers. Navarro, a harsh critic of China’s trade practices, insisted that the orders were not aimed at sending a message ahead of Xi’s visit.

 

Nothing we are saying tonight is about China,” he said. “This is a story about trade abuses, this is a story about under-collection of duties, this is a story about 40 countries that basically subsidize their products unfairly and send them into our country or dump their products.”

While Navarro has been a staunch supporter of anti-globalist trade practices, his voice has been muted in recent weeks by Trump’s “Goldman circle” of advisors, who share a very much opposing view on trade than Navarro and Bannon.

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In his first comments to journalists since his stunning termination by South Africa’s president Zuma on Thursday night, ousted finance minister Pravin Gordhan dismissed an intelligence report used to justify his sacking as “absolute nonsense”. Quoted by the FT, the internationally respected, if feuding with Zuma, Gordhan said the report, which alleged he was plotting to overthrow president Jacob Zuma, was “not the basis on which you fire a minister”.

“There is an allegation circulating that sickens me, that I had secret meetings and the intention was to undermine this government,” Gordhan added and added that the Treasury had been subjected to the “most horrific attacks” in the past year, and said “we hope more and more South Africans will make it absolutely clear that our country is not for sale”. What is surprising is how resilient the rand had been during this period of “attacks”, even if it since given up most of its gains following the Gordhan sacking.

The former finance minister added that South Africans would support his deputy, Mcebisi Jonas, for refusing “a bag of cash”, a reference to allegations last year that Jonas was offered a bribe to be finance minister by the prominent Gupta family in 2015. The Guptas deny this allegation.

Conflict over the influence of the Gupta business family, friends of Mr Zuma’s, formed a key part of the year-long power struggle between the president and his finance minister.

 

Mr Zuma prompted speculation of an imminent cabinet reshuffle by recalling Mr Gordhan from an investor trip to London on Monday, and sacked him in a late-night cabinet reshuffle on Thursday.

But perhaps the most memorably part of the conference was Gordhan telling reporters that he and his deputy “learnt our fate from the TV screen. Not from any phonecall, chat or conversation. So that was I’m sure as interesting for us as it was for you.”

Cyril Ramaphosa, the deputy president who is one of the main contenders to replace Mr Zuma as ANC leader later this year, called Mr Gordhan’s firing “unacceptable” – but said he would not resign in protest. “I will stay in my position to serve the people of this country,” he said. South African assets have been hit hard by the news, with the rand, bond prices and bank stocks all tumbling and analysts predicting imminent downgrades to the country’s credit ratings.

* * *

Meanwhile, the shockwave over Zuma’s decision has sent South African assets tumbling and the Rand crashing.

As we reported yesterday, Zuma replaced Gordhan, with whom he feuded over state finances, with Home Affairs Minister Malusi Gigaba, who has no financial or business experience. He also named lawmaker Sfiso Buthelezi to take over from Mcebisi Jonas as deputy finance minister. The cabinet overhaul came in a late-night move that threatens to split the 105-year-old ruling African National Congress and trigger a revolt against the president. The rand extended losses, heading for its worst week in more than a year.

“Zuma has been playing Russian Roulette with our investment-grade rating through his actions,” Colin Coleman, head of sub-Saharan Africa at Goldman Sachs Group Inc., said in an interview on Bloomberg TV on Friday.

Zuma’s decision to replace Gordhan, popular with investors because of his efforts to rein in spending, came in the face of opposition from three of the top six members of the ANC and its alliance partner, the South African Communist Party. Some cabinet ministers were said to be ready to turn against the president, who’s survived a series of corruption scandals and presided over the party’s worst-electoral performance since the end of apartheid in 1994 in municipal elections in August.

 

While Zuma told the ANC leaders about Gordhan’s removal at the Thursday night meeting, they weren’t consulted about the rest of the cabinet changes, according to the party’s secretary-general, Gwede Mantashe. Gigaba was a compromise candidate, he said.

Gordhan’s ouster marked the end of a stormy relationship that began almost as soon as Zuma named him as finance minister in December 2015, four days after the president triggered a sell-off in the rand by replacing the respected Nhlanhla Nene with a little-known lawmaker. He clashed with his boss over the affordability of building nuclear power plants and the management of state-owned companies.

While removing an opponent in a key position may strengthen Zuma’s grip over the government in his final year as ANC leader, a backlash within the party would galvanize his detractors as he seeks to secure his choice as successor in a party election in December.

According to Bloomberg, the cabinet changes will leave South Africa’s credit rating vulnerable. Moody’s Investors Service, which rates South Africa’s debt at two levels above junk and with a negative outlook, is scheduled to publish a review of the nation’s creditworthiness on April 7. S&P Global Ratings and Fitch Ratings Ltd. kept their assessments at the lowest investment grade late last year.

“We expect the current explosion of political turmoil and its resulting economic and fiscal uncertainties to catalyze sovereign rating downgrades,” said Phoenix Kalen, director of emerging-market strategy at Societe Generale SA in London.

“Unlike when Nene was fired, the opposition to Zuma within his government is now much stronger, presaging a full-blown political crisis,” said Nicholas Spiro, a partner at London-based Lauressa Advisory Ltd., which advises asset managers.

Zuma’s made 20 changes to his administration, capping a dramatic week when he ordered Gordhan on Monday to cancel a series of meetings with investors in the U.K. and the U.S. and return home. South Africa’s fourth finance chief in 15 months, Gigaba, 45, was appointed as minister of home affairs in May 2014. A former president of the ruling party’s youth wing, he trained as a teacher and holds a masters degree in social policy. He previously served as the minister of public enterprises, deputy home affairs minister and as a lawmaker for the ANC.

* * *

Finally, for those curious how to trade the political upheaval in South Africa, here are some thoughts from Mark Cudmore, a former FX trader who writes for Bloomberg.

Zuma Snatches Rug From Beneath South African Assets: Macro View

Political developments in South Africa mean much more pain for local assets, but it’s not going to be easy to trade because the terrible domestic story is running against a very positive global macro environment.

• President Jacob Zuma’s cabinet reshuffle is about as bad a development for South African assets as could have been feared.
• The news came late in the local day, so U.S. and Asia commentators were focused on the headlines about Finance Minister Pravin Gordhan being dimissed. That alone is certainly very bad news but it’s distracting from the larger fact that a total of 20 ministers and deputy ministers were removed.
• Despite speculation all week, the enormity of what has happened will still impact significantly when South Africa- focused market participants get up to speed Friday morning.
• The country’s institutional integrity has been seriously undermined, and credit rating downgrades beckon. This really matters given the large amount of foreign money in the bond market –- some of which will be forced to divest by mandate amid a downgrade to junk status.
• As outlined in this column on Tuesday, a far greater risk premium needs to be priced into South African assets. And this will be ongoing. Don’t think the correction is anywhere near complete.
• But it won’t be a straight line affair. The theme of 2017 is of both the dollar and U.S. yields far underperforming hyped expectations. This continues to provide a massive tailwind for emerging-market assets.
• Another support for South Africa is that, despite recent weakness, the country’s terms of trade have improved markedly during the past year.
• These positives won’t be nearly enough to counter the negative shift Zuma initiated this week, but they will provide two-way volatility to the trading environment.

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Stocks fell worldwide on the last day of the quarter, with US equity futures pointing to a lower open even as the S&P is set for its best quarter since 2015 amid persistent economic and political uncertainty.

WTI held gain above $50 a barrel, capping the biggest weekly gain of 2017 while the rand fell after South Africa’s finance minister was fired. European government bonds and Treasuries were steady with gold. Another three Fed presidents are set to speak on Friday; today’s economic data in the US includes University of Michigan consumer sentiment, as well as personal income and spending.

Global stocks dipped on Friday with the MSCI All-Country World Index declining 0.4% as investors locked in some of the more than 6% gain that has given them their best start to year since 2012, while the dollar inched toward what could be its strongest week of 2017 so far. As we look back on a particularly strong Q1, we find a remarkably quiet, and “unvolatile” quarter in which most asset classes outperformed around the world, global stocks were poised to end a blockbuster quarter with a whimper, with investors seeing little reason to take shares higher amid political and economic uncertainty in the coming quarter. As discussed last night, the saga involving Zuma and South Africa’s finance minister came to a close after he was fired, sending the plunging as much as 2.9% before recovering losses.

Asian and European shares both saw profit-taking as traders squared up for the quarter perhaps driven by an unwind of positions into Japan’s year end, though there was plenty still going, not least in South Africa where the sacking of its respected finance minister sent a spasm through the local currency.

European stocks fell for the first time in four days, with the Stoxx down -0.4%. as the Europe’s Basic Resources index where big miners are listed, fell 1.7 percent to leave London’s FTSE and the pan-European STOXX 600 index down 0.5-0.6%. Still, the later was on track for a 5% rise and third straight quarterly gain in a row, although emerging markets have been the big winners. MSCI’s EM stocks index is up 12.5 percent on a dollar-adjusted basis.

In Asia, MSCI’s broadest index of Asia-Pacific shares outside Japan retreated 0.55 percent after its 12.5 percent charge over the quarter. Hong Kong shares fell 0.6 percent, but were still headed for a 9.8 percent quarterly jump and China’s CSI 300 index added 0.4 percent, putting it on track for a 4.3 percent quarterly rise. Japan’s Topix became one of the few gauges in Asia posting a loss this quarter, wiping out a morning rally despite positive economic data. The Shanghai Composite Index added 0.4 percent. China’s official factory gauge climbed to the highest in almost five years, the latest evidence of gathering momentum in the world’s second-largest economy.

“Asia saw some pretty healthy profit-taking after a few sessions of solid gains, and as investors await euro zone and U.S. inflation data tonight,” said James Woods, global investment analyst at Rivkin Securities in Sydney.

Next week promises to an interesting start to the second quarter. Trump and Chinese President Xi Jinping will meet in Florida and the U.S. president has set the tone by tweeting that Washington could no longer tolerate massive trade deficits and job losses. He will also sign executive orders on Friday aimed at identifying abuses that are causing the deficits and clamping down on non-payment of anti-dumping and anti-subsidy duties on imports, his top trade officials said. Chinese Vice Foreign Minister Zheng Zeguang said on Friday that it does not have a policy to devalue its currency to promote exports, and neither does it seek a trade surplus with the United States.

“The dialogue emanating from that is going to help set the tone of the relationship between the U.S. and China and these days it goes beyond trade. There is a lot to discuss geopolitically, not least North Korea,” said PIMCO portfolio manager Yacov Arnopolin.

Against a basket of the world’s other major currencies the dollar was up 0.1 percent and close to a 1 percent weekly gain that would be its best in an otherwise lackluster year. Over the quarter the greenback has fallen 1.7%, its worst showing in a year, on doubts that U.S. President Donald Trump was not prioritizing to push through Congress the economic reforms that had driven the dollar to 14-year highs at the start of the year.

“We are relatively optimistic on global growth but we think the cyclical trade has rotated away from the Trump trade and near-term U.S. fiscal stimulus,” said Schroders’ multi-asset Portfolio Manager Angus Sippe. “We are now more optimistic on the euro zone,” he said, adding he was also “marginally short the dollar.”

The euro held its own at just under $1.07 as data showed euro zone inflation had slowed in March by far more than the economists had expected, driven down mostly by a deceleration of energy price rises. Eurozone inflation in March printed weaker than expected, as recent German CPI prints suggested, with headline CPI coming in at 1.5% vs 1.8% exp, while core inflation printed at 0.7% (also below the 0.8% exp.), and the lowest since April 2015.

There were tentative signs too that the euro zone’s weakest members would be hit the hardest by an imminent scaling back of the European Central Bank’s asset purchase program. The yield, an indication of borrowing costs, on bonds of southern euro zone states including Portugal and Italy headed higher in the final day of trading before the ECB drops its monthly purchases of debt from 80 billion to 60 billion euros. Top ECB policymaker Benoit Coeure emphasized the bank would tread carefully with any further changes.

In commodities, Brent oil and U.S. crude dipped to $52.91 a barrel and $50.35 a barrel, having zipped higher on Thursday after Kuwait backed an extension of OPEC production cuts. Oil was heading for a 6.8 percent loss for the quarter, though. In contrast gold which was at $1,241.81 has gained nearly 8 since the start of the year. Brent set for biggest weekly gain of 2017 on ongoing OPEC jawboning.  Benchmarks remain on course for biggest weekly gain of the year as expectations grow for an extension of OPEC output cuts. Brent declines slightly, near $52.75/bbl. WTI near $50.25 with rig count due later.

Yields on 10-year Treasuries rose one basis point to 2.43 percent, after climbing four basis points on Thursday. German 10-year yields were steady at 0.34%.

According to Bloomberg, investor focus in the second quarter looks set to be on whether political developments in the U.S. and Europe will cloud the a brightening global economic outlook. President Donald Trump’s setback on a flagship health-care bill has cast a shadow on his fiscal agenda, while French elections could be a litmus test for the rise of European populism.

“There’s a strong sense of political uncertainty going forward in both the U.S. and Europe,” said Masaru Hamasaki, head of the investment information department at Amundi Japan Ltd. “In the U.S., the repeal of the Obamacare replacement bill has continued to create confusion. In Europe, we’ve only just had the U.K. trigger Article 50. We’ve already essentially entered the new fiscal year, and its difficult to keep buying when you look to the future.”

Bulletin Headline Summary From RanSquawk

• European equities have seen a particularly tentative session thus far amid light newsflow on the last trading day of the quarter
• FX markets have been relatively quiet so far today, given it is month end — and year end in Japan
• Looking ahead, highlights include US PCE, University of Michigan sentiment, ECB’s Coure and Fed’s Bullard & Kashkari

Market Snapshot

• S&P 500 futures down 0.3% to 2,358.25
• STOXX Europe 600 down 0.3% to 379.44
• MXAP down 0.9% to 146.81
• MXAPJ down 0.6% to 479.90
• Nikkei down 0.8% to 18,909.26
• Topix down 1% to 1,512.60
• Hang Seng Index down 0.8% to 24,111.59
• Shanghai Composite up 0.4% to 3,222.51
• Sensex down 0.02% to 29,640.20
• Australia S&P/ASX 200 down 0.5% to 5,864.91
• Kospi down 0.2% to 2,160.23
• German 10Y yield rose 0.5 bps to 0.338%
• Euro up 0.2% to 1.0693 per US$
• Italian 10Y yield rose 1.1 bps to 2.148%
• Brent Futures down 0.6% to $52.66/bbl
• Gold spot unchanged at $1,242.64
• U.S. Dollar Index up 0.06% to 100.47

Top Overnight News

• Flynn Said to Seek Immunity to Testify in Russia Probes
• KKR Said to Woo State Funds on Deal for $12 Billion Tower Firm
• Quorum Health Holder KKR May Engage in Talks With Management
• South African Assets Tumble as Gloom Pervades Fiscal Outlook
• EU Says U.K. Only Gets Trade Talks After Progress on Brexit Bill
• AstraZeneca’s Tagrisso Wins Full FDA Approval for Lung Cancer
• Johnson & Johnson Declares Actelion Tender Offer Successful
• German Unemployment Falls to New Record Low as Economy Booms
• Berkshire Hathaway Energy Boosts 3-Year Capex Plan by $4.6b
• Denmark Teams Up With Industry Lobby to Boost F-35 Order Log
• Borgwarner Sees Hybrid Cars With Turbochargers Fuelling Growth
• Boeing Awarded $2.2 Billion Contract for 17 P-8A Poseidon Jets
• Gas Exports to Send U.S. Stockpiles to 3-Year Low Before Winter

Asian equity markets traded somewhat mixed with some slight indecision heading into month, quarter and fiscal year-end, while the region also digested firm Chinese PMI data and the positive lead from Wall St. where the NASDAQ printed fresh record highs. Nikkei 225 (-0.8%) traded lower despite JPY weakness and better than expected Industrial Production, while ASX 200 (-0.3%) was dampened by property names following tighter mortgage lending regulations. Shanghai Comp. (+0.4%) and Hang Seng (-0.7%) were mixed as strong Official Manufacturing and Non-Manufacturing PMI data was counter-balanced by the PBoC’s hiatus from open market operations which resulted to a net weekly drain of CNY 290b1n. Furthermore, stocks in Hong Kong were also pressured after PetroChina missed on earnings and the world’s largest lender ICBC posted its weakest profit growth in over a decade. Finally, 10yr JGBs were lower amid heightened risk sentiment in Japan, while the curve flattened with underperformance seen in the short end. PBoC refrained from open market operations, for a net weekly drain of CNY 290b1n vs. last week’s net injection of CNY 80bIn.

Top Asian News

• Rupee Set for Best 1Q Since 1975 as Foreigners Pour $12 Billion
• China Manufacturing Gauge Climbs to Highest in Almost Five Years
• China’s Factory Gauge Climbs to Highest in Almost Five Years
• BOJ Cuts Purchase Size Range of 1-3, 3-5 Year JGBs in April
• Battle With Apple Takes a Toll on Chinese Phone Giant Huawei
• Indian Stocks Slip Ahead of Closing Best Quarter Since June 2014
• BOJ to Purchase Fewer 1-to-5-Year Bonds in April, Rest Unchanged
• IDR, INR, TWD Post Quarterly Gains Amid Fund Inflows: Asian NDFs
• Japan Post Bank Applies to Expand Business Into Overdrafts, CDS
• China Issues Free-Trade Zone Plans for Some Regions: Xinhua
• China Benchmark Money Rate Climbs to Highest Since April 2015

European bourses remain quiet on typical Friday trade, but South African exposed companies are taking a major hit this morning. Investec (-7.5%) and Old Mutual (-7.5%) are down off the back of President Zuma sacking finance minister Gordhan. Elsewhere, markets remain quiet with Material names underperforming, albeit modestly so. Fixed income markets are also rangebound amid no real fundamental catalysts for any significant moves with markets somewhat unreactive to the latest raft of Eurozone inflation data which saw the headline Y/Y fall short of expectations (1.5% vs. Exp. 1.8%), with markets prepped for a soft figure given yesterday’s German numbers.

Top European News

• French Upset Signaled by Internet Chatter Flagging Macron Flaws
• U.K. House Prices Fall for First Time in Almost Two Years
• RBS CEO Says Bank Would Move to England on Scotland Independence
• Tusk Says ‘No Such Thing’ as a ‘Brexit Bill’ for U.K.
• Marine Harvest Warns Food Safety Authority of Suspected PD Case
• Too Early to Decide Location for Brexit Job Moves: UBS’s Orcel
• U.K. Raises $14.7 Billion in Blackstone-Prudential Mortgage Deal

In currencies, the rand plunged as much as 2.6 percent before paring losses to trade 0.7 percent lower. South African President Jacob Zuma replaced Finance Minister Pravin Gordhan and overhauled his cabinet in a late-night move that threatens to trigger a revolt against the administration. The Bloomberg Dollar Spot Index rose 0.1 percent. The euro was little changed at $1.0679 after tumbling 0.9 percent Thursday. FX markets have been relatively quiet so far today, given it is month end — and year end in Japan. Alongside some notable data releases, we sense real money flow today is keeping specs largely on the sidelines, but the USD remains near better levels as US Treasury yields build (very) modestly on yesterday’s gains. USD/JPY buying has taken the pair up to highs just shy of 112.20, but traders wary of sporadic JPY repatriation flow which could hit at any time into the London fix. EUFt/USD hit lows around 1.0670-75 before trying to reclaim 1.0700, but decent intra day selling seen here, and only tempered by the usual flow anticipated in EUFt/GBP. EU wide inflation has come in weaker than expected, but the miss is slightly less in the core rate, with ECB officials already tempering some of the reactions in the rate markets this week to limit today’s reaction. 1.0700 capping for now, but strong demand seen from the mid 1.0600’s lower down. For EURGBP, the triggering of Article 50 and the subsequent response from the EU is what will be driving trade from here, but we saw strong demand just below 0.8550 this morning, generating an initial test back to 0.8600 recently.

In commodities, West Texas Intermediate crude fell 0.1 percent to $50.31, paring some big gains on Thursday that were spurred by a report Kuwait and other countries support prolonging production cuts. Oil prices remain buoyed this morning, with WTI notably holding above USD50.00, but looks fragile at present as the USD seems to have found fresh life. Lower than expected rises in inventory levels as reported from the API and DoE this week have been key to this, as have comments that discussions are in process on a potential extension to the production cut agreement. Iron ore prices under pressure due the stockpiles reported, but copper prices notably resilient. Gold edged lower on the back of the latest move higher in US Treasuries, but the yellow metal has held off USD1240 so far today. Silver remains above USD18.00.

Looking at the day ahead, it’s a busy day in the US this afternoon and headlined by the personal income, spending and PCE deflator data for February. Expectations is for a +0.2% mom rise in personal spending and +0.4% mom rise in income, while the deflator is expected to increase +0.1% mom. Away from that we will also get the March Chicago PMI before we finish the day with the final revisions to the University of Michigan consumer sentiment data for March. Away from the data there is more Fedspeak scheduled with Dudley, Kashkari and Bullard due to speak.

US Event Calendar

• 8:30am: Personal Income, est. 0.4%, prior 0.4%
  • Personal Spending, est. 0.2%, prior 0.2%
  • Real Personal Spending, est. 0.1%, prior -0.3%
  • PCE Deflator MoM, est. 0.1%, prior 0.4%, PCE Deflator YoY, est. 2.1%, prior 1.9%
  • PCE Core MoM, est. 0.2%, prior 0.3%, PCE Core YoY, est. 1.7%, prior 1.7%
• 9:45am: Chicago Purchasing Manager, est. 56.9, prior 57.4
• 10am: U. of Mich. Sentiment, est. 97.6, prior 97.6, Current Conditions, prior 114.5, Expectations, prior 86.7,
  • 1 Yr Inflation, prior 2.4%
  • 5-10 Yr Inflation, prior 2.2%

Central Banks

9am: Fed’s Dudley Speaks to Mike McKee in Bloomberg TV Interview
10am: Fed’s Kashkari Answers Questions at Banking Conference
10:30am: Fed’s Bullard Speaking in New York

DB’s Jim Reid concludes the overnight wrap

A big factor for the strong performance in Q1 has been the incredibly calm start to the year as evidenced by what various measures of volatility have done this quarter. Indeed at the close of last night the VIX is now at 11.54 and just a shade above the January low of 10.58. It’s also down from 14.04 at the end of Q4. FX vol as measured by the CVIX (DB’s currency vol index of 9 major currency pairs) is now at 9.02 and also near the bottom of the range having started the year at 11.03.

We thought it would be interesting to put into context how low volatility has been in Q1 this year compared to Q1’s over the last 10 years. The VIX has traded in just a 5.14pt range this year using the intraday high to lows over the full quarter. The second lowest range in the VIX over the last 10 years came in 2014 when the range was 9.67pts while the highest came in 2009 when the range was 20.48pts. The average Q1 range from 2008 to 2016 was in fact 14.04pts. The highest level the VIX has hit in 2017 so far is 15.11 while the high points from the prior 9 year range from 21.48 to 57.36. In fact the high print for Q1 this year would rank as the sixth lowest level in the prior 9 Q1’s. So anyway you cut it this has been an incredibly low Q1 for volatility over the last decade.

As we highlighted in the EMR yesterday global economic data surprises are hovering around 6 and a half-year highs and it is interesting that this has coincided with US political uncertainty – as measured by the Baker, Bloom & Davis index – hitting the lowest level in the Trump-presidency era yesterday and in fact the lowest level since October 10th.

That backdrop is proving supportive for risk. Last night the S&P 500 closed up +0.29% and finished higher for the third day in a row. The index is also all of a sudden back to within just 33 points of the all-time high made at the start of this month. Unlike Wednesday banks were the big driver of the broader move higher yesterday with US banks finishing up +1.48%. That move came after Treasury yields reversed course for the fourth day in a row reflecting some fairly hawkish Fedspeak over the last 36 hours or so and a bigger than expected revision to Q4 GDP in the US. 10y Treasury yields closed 4.3bps higher at 2.421% and in fact are pretty much back to where they closed last Friday despite moves of at least 3.4bps up or down each day this week. Energy stocks also contributed positively yesterday after WTI Oil (+1.70%) rose for the third day in a row and finished above $50/bbl for the first time in 3 weeks with more suggestions that the OPEC production cut will be extended beyond the initial timeframe agreed.

Over in Europe equity markets also edged higher with the Stoxx 600 closing up +0.51%. Bonds were more mixed though and 10y Bund yields in fact edged down 1.1bps to 0.328%. A disappointing CPI print in Germany for March didn’t help (+0.2% mom vs. +0.4% expected) ahead of the wider Euro area reading today while the ECB’s Nowotny – who as a reminder a couple of weeks ago said that the ECB could raise the deposit rate before the prime rate – suggested that the ECB doesn’t want to prematurely raise interest rates and that there is no reason right now to deviate from the already defined monetary policy strategy for 2017.

Jumping quickly to the overnight session now where there has been a steady stream of both significant data and political related headlines. In China the official March PMI’s have been released. The manufacturing PMI has risen two-tenths to 51.8 this month (vs. 51.7 expected) and the highest since April 2012. The nonmanufacturing PMI has also risen to 55.1 from 54.2 and the highest since May 2014. That’s helped bourses in China to rise with the Shanghai Comp and CSI 300 +0.40% and +0.45% respectively. Elsewhere, in South Korea a court has ordered the arrest of former President Park Guen-hye following the issue of a warrant in connection with bribery and abuse of powers. The Kospi is little changed following the news. Over in EM the big story is out of South Africa where President  Zuma has dismissed finance minister Pravin Gordhan and 8 other cabinet members, which in turn is heightening political uncertainty in the country again. The news has caused the Rand to sell off sharply and is currently down about -3.60% from when the headlines broke. Finally in Japan core CPI was reported as rising +0.2% yoy in February and up for the second month in succession, while industrial production and jobless rate data also showed signs of improvement. Household spending data was a little softer than expected however. The Nikkei is +0.66% following that and the Yen a touch firmer.

Back to that data yesterday, where in the US Q4 GDP was revised up in the third and final revision to +2.1% qoq annualized from +1.9%. Growth in PCE was revised up five-tenths to +3.5% qoq annualized while corporate profits were recorded as growing modestly in the quarter by +0.5% qoq. That means corporate profits have now risen for two consecutive quarters for the first time since Q3 and Q4 of 2014. Elsewhere, initial jobless claims nudged down 3k last week to 258k. In Europe the only other data was the European Commission’s economic sentiment index which edged down 0.1pts to 107.9.

In terms of the Fed speakers, late last night NY Fed President Dudley said that he favours tapering reinvestments of the balance sheet “gradually and predictably” instead of outright ending them. Dudley also confirmed that the 2% inflation target for the Fed is not a ceiling and that risks for both economic growth and inflation over the medium to longer term are gradually shifting to the upside. Our favourite line from Dudley yesterday though was his reference to William McChesney Martin – the ninth and longest serving Fed Chair who famously said that the job of the Fed is to “take away the punch bowl just as the party gets going”. Dudley last night said that “I don’t think we are removing the punch bowl yet” but that “we’re just adding a bit more fruit juice”. Meanwhile the Dallas Fed’s Kaplan confirmed that two more hikes this year is a “good base case” although didn’t rule out more depending on how the economy evolves.

Looking at the day ahead, this morning in Europe we’ll be kicking off in Germany where the February retail sales data is due out before we then get the latest Nationwide house prices data in the UK for the month of March. Following that we’ll get CPI and PPI data out of France before Germany then releases unemployment data for March. It’s back to the UK after that where the final revisions to Q4 GDP will be released before we then get March CPI for the Euro area where consensus is for a slight dip in both the headline and core readings to +1.8% yoy and +0.8% yoy respectively. It’s just as busy in the US this afternoon and headlined by the personal income, spending and PCE deflator data for February. Expectations is for a +0.2% mom rise in personal spending and +0.4% mom rise in income, while the deflator is expected to increase +0.1% mom. Away from that we will also get the March Chicago PMI before we finish the day with the final revisions to the University of Michigan consumer sentiment data for March. Away from the data there is more Fedspeak scheduled with Dudley (2pm BST), Kashkari (3pm BST) and Bullard (3.30pm BST) due to speak. The BoE’s Haldane is due to speak this evening while the ECB’s Coeure speaks this morning.

 

 

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I haven’t seen a cucking this thorough since the night a binder-wielding Kurt Eichenwald was nearly killed by a post-Tucker tweet…

Last night, Tucker Carlson effortlessly savaged attention craving Drexel University “professor” George Ciccariello – who made headlines in December after calling for White Genocide over Twitter.

On Tuesday, Ciccariello once again made waves after expressing his disgust on an airplane when a 1st class passenger gave up his seat to a uniformed soldier on an airplane. Rational minds on the internet did not take too kindly:

In his latest stunt, the “white genocide” advocate led a group of feeble-voiced children in a protest of writer Charles Murray on the grounds that he’s a racist. The next stop for the Drexel degenerate; out of his safe space and into the lion’s den…

A facially ticking Ciccariello tried his best to match forces with Carlson, who simply kept knocking him on his ass – over, and over, and over. It was absolutely brutal:

Nobody takes you seriously, I’m trying to take you seriously. You’re accusing this guy of racial demagoguery and you called for white genocide, you also applauded the Haitian revolution for killing whites – look those are your views! I’m not saying you shouldn’t be allowed to express them. I’m merely pointing out the irony that you’re trafficking in race hatred and yet saying that Charles Murray shouldn’t be allowed to speak because he trafficks in race hatred. Are you self aware enough to catch that?

Tucker then goes on to read one of Ciccariello’s screeds, concluding “It’s High School writing… it’s crap!”

(that wasn’t even the best part… just watch until you see Tucker use air quotes)

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Authored by Simon Black and Tim Price via SovereignMan

It was just over two years ago that “The Grilled Cheese Truck, Inc.” began trading in the US stock market under ticker symbol GRLD.

GRLD was exactly what it sounds like– a truck that sells grilled cheese sandwiches.

Yet despite a history of heavy losses, the stock market valued the company at an extraordinary $107 million.

Skeptical investors would have been sharp to call that the peak of the market.

Yet the irrational exuberance continued.

Earlier this year, Snap Inc., a profitless mobile app which offers its shareholders ZERO voting rights, went public with a $28 billion valuation.

That too seemed like the peak of the market’s insanity. But that turned out to be a premature feeling as well.

Now we see none other than Iron Mike Tyson shilling for a Vanuatu/Latvian brokerage firm, enticing small investors with offers of 400x leverage.

It seems all we are lacking at this point is a Fortune magazine cover with a “DOW 100,000” headline.

Maybe it is the peak. Or perhaps the gains will continue.

Fortunately our job isn’t to make precise predictions; it is to assess risk and avoid taking any which (a) is unnecessary, and (b) fails to offer returns that vastly compensate for the probability of loss.

We have pointed out before that the US stock market’s average Price / Earnings ratio is at highs typically not seen except prior to spectacular declines.

See the chart below, which shows the “Cyclically Adjusted” Price-to-Earnings ratio, or CAPE, at 29. The long-term average is 17.

 

Since 1880, the CAPE has only been at this level twice before– the first time prior to the Great Depression, and the second time prior to the dot-com crash.

To us, the prospect of gaining an additional 10%… or even 30% in US stocks pales in comparison to the prospect of losses from a major correction.

As Alhambra Investment Partners point out, investment analysts were forecasting back in October that US companies in the S&P 500 would generate $29 in earnings for the 4th quarter of 2016.

As the Q4 earnings reports started rolling in last month, the estimate dropped to $26.37.

Since that time, with now almost all companies now having reported, the current figure is $24.15 – a decline of 8.4% in just four weeks.

That’s bad news for passive “index” investors who are, by default, exposed to every single one of the companies in the S&P 500– most particularly the expensive ones.

Most people don’t realize this, but the S&P 500 does not equally weigh its 500 constituent companies.

In fact, the price of the #1 weighted stock (Apple) influences the S&P 500 index over 240x more than the least weighted stock (Autonation).

In general, more expensive stocks count more than inexpensive stocks.

So if you buy a traditional index fund, you are allocating the majority of your capital to popular companies, and very little capital to overlooked gems that are inexpensive and undervalued.

This is the opposite of what value-oriented investors should be doing.

As Ian Lance of RWC Partners points out,

“Passive [index] investors in 2000 were allocating large chunks of their money to bubble stocks like Cisco, Sun and Yahoo, and also to accounting frauds like Enron and Worldcom which were on their way to zero.”

We have little experience gambling, but we’re pretty sure that you can’t prosper by betting on every number at the roulette table.

That’s essentially what index investing is. And, like casino games, the market is rigged against individual investors.

You’re already fighting an uphill battle against high-frequency traders and dishonest bankers. Overpaying for expensive, popular assets doesn’t help.

Never forget that the world is a big place.

And if your stock market is irrationally overvalued, you have the freedom to allocate your time, effort, and capital to more attractive, undervalued investments elsewhere.

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Authored by Don Quijones, Spain & Mexico, editor at Wolf Street

Here’s Why Italy’s Banking Crisis Has Gone Off the Radar

For a country that is on the brink of a gargantuan public bailout of its toxic-loan riddled banking sector, or failing that, a full-blown financial crisis that could bring down the European financial system, things are eerily quiet in Italy these days. It’s almost as if the more serious the crisis gets, the less we hear about it — otherwise, investors and voters might get spooked. And elections are coming up.

But an article published in the financial section of Italian daily Il Sole lays out just how serious the situation has become. According to new research by Italian investment bank Mediobanca, 114 of the close to 500 banks in Italy have “Texas Ratios” of over 100%. The Texas Ratio, or TR, is calculated by dividing the total value of a bank’s non-performing loans by its tangible book value plus reserves — or as American money manager Steve Eisman put it, “all the bad stuff divided by the money you have to pay for all the bad stuff.”

If the TR is over 100%, the bank doesn’t have enough money “pay for all the bad stuff.” Hence, banks tend to fail when the ratio surpasses 100%. In Italy there are 114 of them. Of them, 24 have ratios of over 200%.

Granted, many of the banks in question are small local or regional savings banks with tens or hundreds of millions of euros in assets. These are not systemically important institutions and can be resolved without causing disturbances to the broader system. But the list also includes many of Italy’s biggest banks which certainly are systemically important to Italy, some of which have Texas Ratios of over 200%. Top of the list, predictably, is Monte dei Paschi di Siena, with €169 billion in assets and a TR of 269%.

Next up is Veneto Banca, with €33 billion in assets and a TR of 239%. This is the bank that, together with Banco Popolare di Vicenza (assets: €39 billion, TR: 210%), was supposed to have been saved last year by an intervention from government-sponsored, privately funded bank bailout fund Atlante, but which now urgently requires more public funds. Their combined assets place them seventh on the list of Italy’s largest banks.

Some experts, including the U.S. bank hired last year to save MPS, JP Morgan Chase, have warned that Popolare di Vicenza and Veneto Banca will not be eligible for a bailout since they are not regarded as systemically important enough. This prompted investors to remove funds from the banks, further exacerbating their financial woes. According to sources in Rome, the two banks’ failure would send shock waves through the wider Italian financial industry.

There are other major Italian banks with Texas Ratios well in excess of 100%. They include:

• Banco Popolare (the offspring of a merger of Banco Popolare di Verona e Novara and Banca Popolare Italiana in 2017 and then a subsequent merger with Banca Popolare di Milano on 1 January 2017): €120 billion in assets; TR: 217%.
• UBI Banca: €117 billion in assets; TR: 117%
• Banca Nazionale del Lavoro: €77 billion in assets; TR: 113%
• Banco Popolare Dell’ Emilia Romagna: €61 billion in assets; TR: 140%
• Banca Carige: €30 billion in assets; TR: 165%
• Unipol Banca: €11 billion in assets; TR: 380%

In sum, almost all of Italy’s largest banking groups, with the exception of Unicredit, Intesa Sao Paolo and Mediobanca itself, have Texas Ratios well in excess of 100%.

But, as Eisman recently pointed out, the two largest banks, Unicredit and Intesa Sanpaolo, have TRs of over 90%. As long as the other banks continue to languish in their current zombified state, they will continue to drag down the two bigger banks. And if either Unicredit or Intesa begin to wobble, the bets are off.

To stay on the right side of the solvency threshold, Unicredit has already had to raise €13 billion of new capital this year and last week it took advantage of the ECB’s latest splurge of charitable lending (formally known as TLTRO II) to borrow €24 billion of free money. But as long as the financial health of the banks all around it continues to deteriorate, staying upright is going to be a tough order.

This is where things get complicated. In order to qualify for public assistance, banks must be solvent. Presumably, that would automatically disqualify any bank with a Texas Ratio of over 150%, which includes MPS, Banco Popolare, Popolare di Vicenza, Veneto Banca, Banca Carige and Unipol Banca. The bailout must also comply with current EU regulations including the Bank Recovery and Resolution Directive of Jan 1, 2016, which specifically mandates that before public funds are injected into a bank, shareholders and creditors must be bailed in for a minimum amount of 8% of total liabilities, as famously happened in the rescue of Cyprus’ banking system in 2013.

The Italian government knows that this approach could end up wiping out retail investors (otherwise known as voters) who were missold, in many cases fraudulently, subordinated bonds by cash-hungry banks in the wake of the last crisis, in turn wiping out the government’s votes. To avoid such an outcome, the government has proposed compensating those retail bondholders with public funds, just as the Spanish government did with the holders of preferente bonds. Which, of course, is in direct contravention of EU laws.

So far, the European Commission has stayed silent on the issue, presumably in the hope that the resolution of Italy’s financial sector can be held off until at least after the French elections in late April, if not the German elections in September. Then, if those elections go Brussels’ way, a continent-wide taxpayer funded bailout of banks’ NPLs can be unleashed, as already requested by ECB Vice President Vitor Constancio and European Banking Authority President Andrea Enria.

With no guarantee that Italy’s NPL-infested banks can hold out that long, it’s a dangerous waiting-and-hoping game. In the meantime, shhhhhhhh… By Don Quijones.

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