Having turned decidedly bullish in the immediate aftermath of the Trump victory, his supporter Carl Icahn said the strong rally in U.S. stocks since last Wednesday’s “shocking” event might be overdone, however he added that investors can expect the president-elect to be a consensus builder who can help fix Washington and improve the economy. “When it runs up like this, I scale off a little bit,” Icahn said on Wednesday at the Reuters Global Investment Outlook Summit, but added “that doesn’t mean that I am that negative or positive.”

Icahn, who has praised Trump’s two potential Treasury picks in either Jamie Dimon or Steven Munichin, aka JPM or Goldman, said on Wednesday he is confident that Trump can help undo the “stagnation” in the United States and its economy, which dominance of the Washington “establishment” has fostered. “We have a perception that the government is at war with business,” Icahn said. “The point I think about Donald is he’s a consensus builder, he’s a very smart guy.”

As reported previously, Icahn confirmed that he left what became Trump’s victory party in the early morning on Nov. 9 to bet about $1 billion on U.S. equities. He called the knee-jerk overnight plunge in stocks, as it became clearer to investors that Trump might win, “crazy” and “unique,” and that it created a buying opportunity.

Icahn added that he expects Trump to fulfill his promise to reduce regulatory burdens on business, including Dodd-Frank financial reforms that “went too far.” Hope on Wall Street that Icahn will undo years of reform has sent financial stocks soaring in the past week, leading to the biggest inflow in financial ETFs on record. As Bloomberg reported, in the week following the election, the Financial Select Sector SPDR exchange-traded fund amassed $4.9 billion of inflows — a record, and more than it accumulated in the past three years.

However, Icahn cautioned that some financial regulation remained necessary, to stop Wall Street, which was “greatly to blame” for the 2008 global financial crisis, from causing another calamity.

The billionaire raider remained upbeat about some of his own investments, saying the insurer American International Group remained undervalued even after recent asset sales he urged. He also said Herbalife, “whose prospects he has debated for years with William Ackman, a hedge fund manager who calls the nutritional products company a Ponzi scheme”, remained undervalued after it agreed in July to restructure its business and pay $200 million to end a Federal Trade Commission probe.

Icahn, who has posted 28% annualized returns as an investor, says he regularly talks with legislators in Washington, who complain that the current system prevents them from getting things done. “It’s just a major problem,” said Icahn, who like Trump is from New York. “I was a poor kid from Queens and I made all this money. I love the country, it’s just a lot of the people I don’t like.”

As Reuters adds, Icahn likened the potential for Trump to succeed to President Lyndon Johnson’s success in getting civil rights laws passed in his early White House years.

“Donald is going to surround himself with some very good people,” Icahn said. “He’ll be a guy to do what you need to build consensus. He’ll do it like Lyndon Johnson did it. Who would have thought Lyndon Johnson could get the Civil Rights Act through?”

Finally Icahn expressed hope that critics of Trump will come around, recognizing the number of voters whose ballots reflected their dissatisfaction with business as usual in Washington.

“There are so many unhappy people around, and the reason they’re unhappy is the stagnation,” he said. “That’s why I think, even those that really don’t like Trump personally, should give him a shot.”

via http://ift.tt/2f3vpgJ Tyler Durden

Yesterday morning we noted why, in light of the ongoing global bond rout, all eyes would be on the BOJ, and specifically whether Kuroda would engage his “Yield control” operation to stabilize the steepness of the JGB yield curve and implicitly support global bond yields in what DB said would be “full blown helicopter money” where the “BoJ is flying the copter over the US and may be about to become the new US government’s best friend.” And sure enough that is precisely what Kuroda did last night after the Bank of Japan “fired a warning at the bond market” as Bloomberg described it, offering to buy an unlimited amount of debt at fixed yields for the first time, an operation meant to maintain the central bank’s yield-curve target and which stopped the bleeding not only across Japanese but also global bonds, in the process pushing the dollar lower.

The central bank announced two operations, one to buy two-year notes at minus 0.09 percent, and another for five-year debt at minus 0.04 percent. That came after two-year yields rose as high as minus 0.095 percent on Wednesday, up 18 basis points in five days. The BOJ introduced the tools after deciding in September it would control the yield curve. As Bloomberg notes, the so-called fixed-rate operation yielded no bids, a sign that the move was more of a demonstration exercise than an intended transaction in notes. Officials acted amid relative calm in the market, but in the wake of a global bond sell-off in the past week that had driven up yields across the globe — and in the process put pressure on Japanese government bonds as well. “It’s a surprise that the BOJ took action today,” said Souichi Takeyama, a rates strategist at SMBC Nikko Securities Inc. in Tokyo, a unit of Japan’s second-biggest lender. “Markets won’t test levels above these fixed rates as these will be seen as reflecting the BOJ’s upper limit.”

“The aim is to send a warning to markets about a significant surge in rates,” said Keiko Onogi, a fixed-income strategist at Daiwa Securities Co. in Tokyo. At the same time, “there are questions as to why the BOJ conducted this operation now, when the market had already stabilized after the surge in yields to yesterday,” she said.

“The BOJ will have welcomed the rise in Japanese stocks and decline in the yen following the Trump Shock, but they’ve shown they aren’t going to stand for a jump in JGB yields,” said Naoya Oshikubo, a rates strategist at Barclays Plc in Tokyo. “It’s the strength of that stance rather than the actual levels at which the BOJ offered to buy the debt that’s pulling down yields.”

The BOJ operation helped halt a five-day selloff in Japanese bonds, and government securities advanced from Australia to Germany, together with U.S. Treasuries. The euro strengthened for the first time in nine days as Bloomberg’s dollar index slipped from a nine-month high. Crude reversed declines as OPEC and Russia prepared to meet in Doha for more talks. European shares were little changed, and Asian equities rose with Japan’s Topix measure closing on the brink of a bull market.

In the US traders are walking to their desks, awaiting testimony from Federal Reserve Chair Janet Yellen before the Joint Economic Committee that will help shape the outlook for interest rates: focus will be on her comments about the December rate hike and the speed of future moves as financial conditions have materially tightened in recent days.

A December increase is now all but assured by the futures market which gives it a 94% probability, while prospects for further tightening triggered a global bonds rout and boosted the dollar since the start of last week.

“From the BOJ operation, it looks like it’s a firmer cap on yields than was previously being expected, so that’s supportive for fixed-income globally, ” said Peter Chatwell, head of rates strategy at Mizuho International Plc in London. “It means that the other markets can trade with a bit less of downside risk, or downside fear.”

Japan’s intervention eased the Bloomberg Dollar Spot Index, which was down 0.2 percent. The yen rose 0.1 percent to 108.95 per dollar, but is still down more than 3 percent since Trump’s victory. The euro strengthened 0.3 percent against the dollar, halting an eight-day losing streak. The pound gained for the first time in four days as figures from the Office for National Statistics showed U.K. spending remained robust despite the Brexit vote.

Crude gained 0.4 percent to $45.76 a barrel in New York as Saudi Arabia and some other OPEC nations meet with Russia for informal talks without oil ministers from Iran and Iraq, the two countries that pose the biggest hurdle to an output deal. Russia will hold discussions with representatives from the Organization of Petroleum Exporting Countries in Doha from Thursday, Energy Minister Alexander Novak said.

The Stoxx Europe 600 Index added 0.1 percent. While the gauge has remained calm in recent days, it has alternated between intraday gains and losses for eight straight sessions, the longest streak in two years. Its valuation of about 14 times estimated earnings is at its lowest since Brexit relative to a measure tracking global shares. S&P 500 futures were little changed after the gauge slipped 0.2 percent on Wednesday. It closed within 0.6 percent of the record reached in August, while the Dow Jones Industrial Average slipped 0.3 percent from the all-time high it reached on Tuesday. The Russell 2000 Index of small-cap shares closed at a peak.

Among stocks moving on corporate news:

• Zurich Insurance Group AG gained 2.7 percent after saying it will increase its dividend and cut costs.
• Royal Ahold Delhaize NV declined 3.1 percent as its quarterly profits missed analyst projections.
• ABN Amro Group NV fell 3.1 percent after the Dutch state sold 65 million of its shares.
• Cisco Systems Inc. lost 4.4 percent in early New York trading after projecting sales and profit pointing to a slowdown in corporate spending on technology hardware.

Treasury 10-year yields fell three basis points to 2.19 percent at 9:19 a.m. London time, retreating further from this year’s high of 2.3 percent, reached Monday, after the BOJ’s first offer to buy an unlimited amount of securities. Japanese bonds also rose after the operation, which was viewed by many as a response to the surge in global yields. 10Y German bund yields also dropped three basis points, to 0.24 percentThe U.S. government will sell TIPS on Thursday, and demand may be robust, with BlackRock Inc., Fidelity Investments and Pacific Investment Management Co. all having recommended the securities since the presidential vote on speculation that Trump’s policies will boost consumer prices.

* * *

Bulletin Headline Summary From RanSquawk

• European equities enter the North American crossover mostly lower as financial names pause for breath after recent election-inspired upside
• Some tentative signs of USD moderation in the making, with USD moderation against the EUR and JPY seeing 1.0650 and 110.00 levels respectively held
• Looking ahead, highlights include UK retail sales, EU & US CPI, ECB minutes, US weekly jobless data, housing starts & Philadelphia Fed Manufacturing Index & a host of Fed speakers

Global Market Wrap

• S&P 500 futures up 0.1% to 2175
• Stoxx 600 up 0.1% to 339
• FTSE 100 up 0.3% to 6770
• DAX down 0.3% to 10629
• German 10Yr yield down 2bps to 0.28%
• Italian 10Yr yield down 2bps to 2.02%
• Spanish 10Yr yield down 2bps to 1.52%
• S&P GSCI Index up 0.2% to 358.3
• MSCI Asia Pacific up 0.3% to 135
• Nikkei 225 up less than 0.1% to 17863
• Hang Seng down less than 0.1% to 22263
• Shanghai Composite up 0.1% to 3208
• S&P/ASX 200 up 0.2% to 5339
• US 10-yr yield down 3bps to 2.2%
• Dollar Index down 0.29% to 100.12
• WTI Crude futures up 0.2% to $45.66
• Brent Futures up 0.2% to $46.72
• Gold spot up 0.2% to $1,227
• Silver spot up 0.3% to $17.04

Top Headline News

• Apple Wants OLED in iPhones, But Most Suppliers Aren’t Ready Yet: Display makers seen struggling to meet iPhone output in 2017
• Apple Is Said To Cut Fees Video Services Will Pay for App Store
• Dimon Told Trump Team He Has No Interest in Treasury: Fortune
• Gingrich Doesn’t Want Formal Role in Trump White House: Fox
• Haley, McMaster Considered for Trump Cabinet: Post and Courier
• Verizon’s Buy of Fiber Network From Icahn’s XO Wins Approval: FCC clears $1.8 billion deal, says it doesn’t harm competition
• Ahold Delhaize Profit Misses Estimates on U.S. Deflation: Price pressure erodes sales at Food Lion supermarket chain
• Gilead’s Myelofibrosis Drug Gets Mixed Results in Cancer Trials: Treatment for a rare bone marrow cancer succeeded in one trial and failed in another
• Facebook Yields to IRS Demand for Records Over Asset Transfer: IRS demands for records related to co.’s transfer of global operations to Ireland in 2010
• Sen. Cotton Plans to Offer $26b Emergency Defense Spending Bill

* * *

Looking at regional markets, we start in Asia where stocks were slightly downbeat following a lacklustre lead from Wall St, where underperformance in energy and financials weighed on sentiment and saw DJIA close negative for the first time in 8 days. Nikkei 225 (Unch) was driven by JPY fluctuations, while ASX 200 (+0.2%) closed higher amid strength in defensive stocks with weak employment data also raising doubts that RBA may not be done with its easing cycle. Shanghai Comp (+0.1%) dampened amid ongoing trade concerns, while downside in the Hang Seng (-0.3%) was stemmed by consumer names and banks. 10yr JGBs gained with outperformance seen in the short-end after the BoJ announced to purchase an unlimited amount of bonds ranging from 1yr-5yr maturities at fixed rates which suggested an intent to cap yields if needed, although the BoJ found no takers and some gains were later pared following a weaker 20yr auction in which the b/c and average price fell from the prior month.
Japanese cabinet advisor Fujii stated he wants additional fiscal stimulus in 2017 and would like JPY 21trl added to the primary budget in the next fiscal year and in the following years thereafter.

Top Asian News

• JPMorgan Said Set to Pay $200 Million in China Hires Settlement: Non-prosecution deal reflects bank’s cooperation with inquiry
• Yuan Watchers Lower Forecasts as Trump Victory Raises Risks: Currency may weaken to 7 per dollar early next year
• Philippines Posts Strongest Economic Growth in Asia at 7.1%: Nation seen as among fastest-expanding in the world until 2018
• BOJ First Unlimited Bond Buys Get No Bids After Yields Retreated: BOJ announces first fixed-rate operation to buy JGBs
• Ward Ferry to Shut 15-Year-Old Asia Hedge Fund as Co-CIO Leaves: Co. will focus on long-only funds after Nash-Webber leaves

In Europe, bourses opened lower following the lead from Wall Street, as DAX (-0.2%) and EUROSTOXX (-0.2%) have both seen underperformance in financial names after a retracement from recent election-inspired gains. The Telecoms sector is the outperformer following reports of a potential merger between T-Mobile and Sprint in the US. Bond markets have also received a bid inline with general risk sentiment. In Italy the latest polls put the no vote ahead and with the referendum too close to call and as more comments filter through to the markets we must keep a close eye on eye on Italian yields particularly the short end.

Top European News

• VW Loses European Market Share as Scandal Effect Lingers: Carmaker’s October sales fell 1.8% vs. market’s 0.3% drop
• ABN Amro’s Dutch State Owner Selling 7% as Part of Exit Plan: Stock up 18% in 12 months as most European lenders have fallen
• Rio Tinto Fires Two Senior Executives Amid Payment Probe: fired two of its top executives over a payment connected to a giant iron ore project in Guinea in West Africa
• NN Group Chief Wants Delta Lloyd to Open Up to Deal Talks: NN still sees ‘strong merit’ in a combination of the firms

In FX, the Bloomberg Dollar Spot Index was down 0.2 percent. The yen rose 0.1 percent to 108.95 per dollar, but is still down more than 3 percent since Trump’s victory. The euro strengthened 0.3 percent against the dollar, halting an eight-day losing streak. The pound gained for the first time in four days as figures from the Office for National Statistics showed U.K. spending remained robust despite the Brexit vote. Malaysia’s ringgit fell for a seventh day, its longest stretch of losses in more than a year. Bank Negara Malaysia said Wednesday it will continue to restrict speculative activity in the currency market. The Vietnamese dong fell for a fourth day to a five-month low. “I’m just seeing this as overall dollar strength,” said Wu Mingze, a foreign-exchange trader in Singapore at INTL FCStone Inc., a Nasdaq-listed global payments-service provider. “Unfortunately speculators will treat Bank Negara’s statements as a sign of weakness if they do not actually do something.”

In commodities, crude gained 0.4 percent to $45.76 a barrel in New York as Saudi Arabia and some other OPEC nations meet with Russia for informal talks without oil ministers from Iran and Iraq, the two countries that pose the biggest hurdle to an output deal. Russia will hold discussions with representatives from the Organization of Petroleum Exporting Countries in Doha from Thursday, Energy Minister Alexander Novak said. There’s a high chance of an agreement and Russia is ready to support a decision, he said. Copper traded near a 17-month high in Shanghai. Jiangxi Copper Co., China’s top producer, agreed to cut processing fees for next year as mine supply is poised to be little changed and Chinese smelting capacity expands. Gold has stabilized after its U.S. election thrashing and is on course to end the week little changed, even as investors bail from bullion-backed exchange-traded funds. Prices for immediate delivery climbed 0.4 percent to $1,229.84 an ounce.

On today’s economic calendar, the key data to watch will be the October inflation report with headline CPI expected to tick up (+0.4% mom expected; +0.3% previous). In terms of labour market data we will get the initial jobless claims numbers for last week (257k expected; 254k previous) and the continuing claims from the week before (2030k expected; 2041k previous). We will also see the Housing starts (1156k expected; 1047k previous) and the Building Permits numbers (1195k expected; 1225k previous) for October, and finally round out the day with the Philadelphia Fed PMI for November (7.8 expected; 9.7 previous). Away from data, we continue on a busy week for Fedspeak. As already noted above, Fed Chair Yellen will testify before the Joint Economic Committee today – the first time we’ll hear from her following the US elections. We will also hear from Brainard in New York. The other event to note for today is the scheduled meeting between US President-elect Trump and Japanese PM Abe.

US Event Calendar

• 8:30am: Housing Starts, Oct., est. 1.156m (prior 1.047m)
• 8:30am: CPI m/m, Oct., est. 0.4% (prior 0.3%)
• 8:30am: Initial Jobless Claims, Nov. 12, est. 257k (prior 254k); Continuing Claims, Nov. 5, est. 2.030m (prior 2.041m)
• 8:30am: Philadelphia Fed Business Outlook, Nov., est. 7.8 (prior 9.7)
• 9:45am: Bloomberg Economic Expectations, Nov. (prior 45)
• Bloomberg Consumer Comfort, Nov. 13 (prior 45.1)
• 10am: Freddie Mac mortgage rates
• 10:30am: EIA natural-gas storage change

* * *

DB’s Jim Reid concludes the overnight wrap

Today the Trump story advances further with the President elect meeting his first world leader post the election with Japan’s Abe passing through town. We’ll also see Fed Chair Yellen testify before the Joint Economic Committee today – note that this is the first time we’ll hear from her following the election. We think her prepared remarks will be out at 8am EST. So potential for headlines from both events. It was also interesting that late last night Fox’s Maria Bartiromo suggested that the crucial US Treasury secretary role will be decided today (announced tomorrow) and is down to a choice between Jamie Dimon of JPM and Steve Mnuchin. The fact that Jamie Dimon is still in the race after his public comments downplaying his desire for the role would be a surprise to many but he would certainly be another appointment that Wall Street would appreciate. Indeed both potential candidates are Wall Street veterans. So one to watch over the next two days.

The most interesting news overnight is that the BoJ has announced its first operations to purchase an unlimited amount of bonds at a fixed rate following 10-year JGB yields turning positive earlier this week for the first time since the BoJ announced their desire to peg them near zero. They are carrying out two operations, one in 1-3 year maturities and another in the 3-5 year part of the curve. The operation received no bids but its the first sign that they are prepared to intervene. 10 year yields have edged back a fraction through zero as we type having traded as high as 0.035% yesterday.

As we discussed yesterday if the BoJ is serious about defending their targets in the face of rising global yields then we effectively have cross border helicopter money but with the helicopters dropping money printed in Japan over the US given Trump’s fiscal agenda. It’s an interesting backdrop to today’s meeting of the respective leaders. Trump might end up being very grateful for Japanese policy as it could help hold global yields down more than they would have been without it. Elsewhere Asian markets are relatively quiet with very little movement of note although I admit I might be too tired to spot anything significant even if there was.

A similar story was seen yesterday as markets continue to settle a little after a frenetic past week. The STOXX 600 (-0.20%) and S&P 500 (also -0.2%) both dipped though. US banks were the worst performing US sector yesterday (-2.1%), finally running out of steam following a strong post-election rally. The Dow (-0.32%) was also down for the first time since the beginning of last week.

Over in currency markets, the US dollar continued its post-election rally by gaining +0.3% and quickly erasing yesterday’s dip. Commodity markets were broadly down, with WTI and Brent falling by -0.7% and -1.0% respectively and copper down -0.6%. Gold was marginally lower on the day as it continued its string of losses (down -4.4% since the beginning of last week).

European credit markets were also down as iTraxx Main and Crossover both widened by +1bps on the day. Over in the US we saw CDX IG hold steady while CDX HY widened by +5bps on the day.
Turning to the other end of the risk spectrum, German 10Y yields dropped by -1bps on the day while US 10Y yields saw some big intraday swings that saw yields rise and fall by nearly +8bps and -2bps respectively before ending the day flat. The US curve also flattened somewhat as the US 2Y ticked up +1bp while the 30Y dropped by -4bps. Markets in general continue to price in a December Fed hike with near certainty, with the implied probability around 94% (unchanged from yesterday).

On the topic of rate hikes, one of the key questions surrounding Trump’s unexpected election victory last week was regarding the impact his policies may have on the Fed in the year ahead. DB’s GEP team focuses on one specific area of this issue – what appropriate Fed policy would look like given Trump’s policy mix. They find that a much faster pace of rate hikes are certainly implied under the new administration – even under a relatively conservative assessment the team finds that Yellen’s preferred Taylor rule would imply that the Fed should pursue one more rate hike next year than they currently expect. Under a more optimistic scenario (in which US growth rises to around 3% in 2017) the appropriate fed funds rate would be about 75bp higher than the Fed’s current expectations. However, the team notes that while a substantially faster pace of rate hikes in 2017 is a risk, this is not their base case: they believe inflation is likely to moderate early next year and the full growth benefits of Trump’s policies may not begin to be felt until the second half of the year. Hence, the Fed is likely to initially keep to their expectations for a gradual pace of rate increases, with the greater risk for faster rate hikes in late-2017 and 2018.

Another key topic of focus following Trump’s victory has been the potential for increased fiscal spending in the US – particularly infrastructure spending. While such a policy is largely expected to prove to be growth positive, there are also fears regarding how such unfunded spending may be possible without damaging the government’s fiscal position. However, a Bloomberg news story yesterday noted that the Trump administration is exploring ways of establishing an ‘infrastructure bank’ to fund such planned infrastructure investments. Depending on its structure, such an entity could potentially provide a way to accommodate increased spending and investment while managing the impact on the government balance sheet. Trump’s policy mix so far has had its share of unknowns (note the campaign team derided a similar policy from Clinton) and so this development might be worth following.

Another piece of political news out yesterday was that Emmanuel Macron officially confirmed his plan to run for French presidency as an independent. While Macron’s candidacy for next year’s election was expected, it does introduce further uncertainty into the race as it may further fragment the electorate. DB’s France economist Marc de-Muizon discussed Macron’s potential candidacy (among other political issues) in a report published last month and noted that his position was more difficult than his high popularity ratings suggested.

Taking a look now at some of the data out today, we saw the September and October employment report from the UK which was a bit of a mixed bag. The ILO unemployment rate for September came in marginally better than expected at 4.8% (vs. 4.9% expected; 4.9% previous). However there remain signs that the labour market may be cooling as the employment change numbers for September came in below expectations at 49k (vs. 91k expected; 106k previous) and jobless claims numbers for October ticked up to 9.8k (vs. 2.0k expected) with September being revised up to 5.6k as well (0.7k before revision). Average weekly earnings growth for September was unchanged and marginally below expectations at +2.3% (vs. +2.4% expected; +2.3% previous).

In the US data slightly disappointed. Wholesale prices for October were unexpectedly unchanged on the month (PPI +0.0% mom) and below expectations of a +0.3% increase. Industrial production was flat and below expectations in October (+0.2% expected), while the September number was revised down to -0.2% (vs. +0.1% before revision). Capacity utilization in October also ticked down and came in marginally below expectations at 75.3% (vs. 75.5% expected; 75.4% previous). The NAHB housing market index for November however did hold stable and come in as expected at 63.

Looking at the data calendar for the day ahead now, we kick off in France where we get the Q3 employment numbers, with the headline unemployment rate (9.9% expected; 9.9% previous) expected to remain unchanged. Thereafter we turn to the UK where we will see the October retail sales numbers (+0.4% mom expected; 0.0% previous). Thereafter we will see the final October CPI numbers for the Eurozone where no revisions are expected (+0.5% YoY expected).

Over in the US, the key data to watch will be the October inflation report with headline CPI expected to tick up (+0.4% mom expected; +0.3% previous). In terms of labour market data we will get the initial jobless claims numbers for last week (257k expected; 254k previous) and the continuing claims from the week before (2030k expected; 2041k previous). We will also see the Housing starts (1156k expected; 1047k previous) and the Building Permits numbers (1195k expected; 1225k previous) for October, and finally round out the day with the Philadelphia Fed PMI for November (7.8 expected; 9.7 previous).

Away from data, we continue on a busy week for Fedspeak. As already noted above, Fed Chair Yellen will testify before the Joint Economic Committee today – the first time we’ll hear from her following the US elections. We will also hear from Brainard in New York. The other event to note for today is the scheduled meeting between US President-elect Trump and Japanese PM Abe.

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If Trump Wants to Fix the ‘Disaster’ of the Pentagon, He Should Clean Up Its Nuclear Lies

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Submitted by Ronan Manly, BullionStar.com

The European Central Bank (ECB), creator of the Euro, currently claims to hold 504.8 tonnes of gold reserves. These gold holdings are reflected on the ECB balance sheet and arose from transfers made to the ECB by Euro member national central banks, mainly in January 1999 at the birth of the Euro. As of the end of December 2015, these ECB gold reserves were valued on the ECB balance sheet at market prices and amounted to €15.79 billion. 

The ECB very recently confirmed to BullionStar that its gold reserves are stored across 5 international locations. However, the ECB also confirmed that it does not physically audit its gold, nor will it divulge a bar list / weight list of these gold bar holdings.

Questions and Answers

BullionStar recently put a number of questions to the European Central Bank about the ECB’s gold holdings. The ECB Communications Directorate replied to these questions with answers that appear to include a number of facts about the ECB gold reserves which have not previously been published. The questions put to the ECB and its responses are listed below (underlining added):

Question 1: “The 2015 ECB Annual Report states that as at 31 December 2015, the ECB held 16,229,522 ounces of fine gold equivalent to 504.8 tonnes of gold. Given that the ECB gold holdings arose from transfers by the respective member central banks, could you confirm the storage locations in which this ECB gold is currently held (for example at the Bank of England etc), and the percentage breakdown of amount stored per storage location.”

ECB Response: “The gold of the ECB is located in London, Paris, Lisbon, New York and Rome. The ECB does not disclose its distribution over these places. The gold of the ECB is stored there because it was already stored there before ownership was transferred to the ECB and moving it was seen and is seen as too costly.“

Question 2: “Could you clarify as to how, if at all, this gold is audited, and whether it physical audited by the ECB or by a 3rd party?”

ECB Response: “The ECB has no physical audit of its gold bars. The gold bars that the ECB owns are individually identified and each year the ECB receives a detailed statement of these gold deposits. The central banks where the gold is stored are totally reliable.“

Question 3: “Finally, can the ECB supply a full weight list of the gold bars that comprise the 504.8 tonnes of gold referred to above?”

ECB Response: “The ECB does not disclose this information.“

London, New York, Paris, Rome, Lisbon

Given that some of the information shared by the ECB has arguably not been in the public record before, each of the 3 ECB answers above is worth further exploration.

In January 1999, when the Euro currency was created (Stage 3 of Economic and Monetary Union), each founding member national central bank (NCB) of the Euro transferred a quantity of foreign reserve assets to the ECB. Of these transfers, 85% was paid to the ECB in the form of US dollars and Japanese Yen, and 15% was paid to the ECB in the form of physical gold.

Initially in January 1999, central banks of 11 countries that joined the Euro made these transfers to the ECB, and subsequently the central banks of a further 8 countries that later joined the Euro also executed similar transfers to the ECB.

All of the foreign exchange and gold reserves that were transferred to and are owned by the ECB are managed in a decentralised manner by the national central banks that initiated the transfers. Essentially, each national central bank acts as an agent for the ECB and each NCB still manages that portion of reserves that it transferred to the ECB. This also applies to the transferred gold and means that the gold transferred to the ECB never physically moved anywhere, it just stayed where it had been when the transfers of ownership were made.

That is why, as the ECB response to Question 1 states: “The gold of the ECB is stored there because it was already stored there before ownership was transferred to the ECB”.

What is probably most interesting about the latest ECB statement is that it names 5 city locations over which the ECB’s gold is stored. The 5 gold storage locations stated by the ECB are London, New York, Paris, Rome and Lisbon. Since the gold transferred to the ECB in 1999 by the national central banks would have already been stored in central banks gold vaults, these 5 city locations undoubtedly refer to the gold vaults of:

• the Bank of England
• the Federal Reserve Bank of New York
• the Banque de France
• the Banca d’Italia
• Banco de Portugal

The fact the ECB’s gold holdings are supposedly stored at these 5 locations can be explained as follows:

Table 1: Central bank FX and Gold transfers to the ECB, January 1999

Between 4th and 7th January 1999, 11 central banks transferred a total of €39.469 billion in reserve assets to the ECB (in the form of gold, cash and securities). Of this total, 15% was in the form of gold, amounting to 24 million ounces of gold (747 tonnes of gold) which was valued at that time at €246.368 per fine ounce of gold, or €5.92 billion. The 85% transferred in the form of currencies comprised 90% US Dollars and 10% Japanese Yen. See pages 152 and 153 of ECB annual report 1999 for more details.

The 11 central banks that made the transfers to the ECB in January 1999 were the central banks of Belgium, Netherlands, Germany, France, Luxembourg, Italy, Ireland, Austria, Finland, Spain and Portugal. See Table 1 for details of these gold transfers, and the amount of gold transferred to ECB ownership by each central bank.

The value of reserves transferred to the ECB by each national central bank were based on a percentage formula called a ‘capital key’ which also determined how much each central bank subscribed to the founding capital of the ECB. This capital key was based on equally weighting the percentage of population and GDP each Euro founding member economy represented, therefore central banks such as Deutsche Bundesbank, Banque de France, and Banca d’Italia comprised the largest transfers, as can be see in Table 1. It also meant that these 3 central banks transferred the largest amounts of gold to the ECB, with the Bundesbank for example transferring 232 tonnes of gold to the ECB.

The Bundesbank gold transfer to the ECB in January 1999 took place at the Bank of England. The Bundesbank actually confirmed in its own published gold holdings spreadsheet that this transfer took place at the Bank of England. See spreadsheet Column 5 (BoE tonnes), Rows 1998 and 1999, where the Bundesbank gold holdings fell by 332 tonnes between 1998 and 1999 from 1,521 tonnes to 1,189 tonnes and also see Column 20 where gold lending rose from 149 tonnes to 249 tonnes. Therefore, between 1998 and 1999, 232 tonnes of gold was transferred from the Bundesbank gold account at the bank of England to the ECB account at the Bank of England, and 100 tonnes was added to the Bundesbank’s gold loans.

Paris and Rome

The Banque de France currently stores the majority (over 90%) of its gold reserves in its own vaults in Paris, so it it realistic to assume that when the Banque de France transferred 159 tonnes of gold to the ECB in January 1999, it did so using gold stored in the Banque de France vaults in Paris. Likewise, it is realistic to assume that the Banca d’Italia, which currently stores half of its gold reserves at its own vaults in Rome, transferred 141 gold stored in its Rome vaults to the ECB in 1999. This would explain the Paris and Rome gold holdings of the ECB. While a few ex French colony central banks are known to have historically stored gold with the Banque de France in Paris, none of the founding members of the Euro (apart from the Bundesbank) are on the record as having stored gold in Paris, at least not for a long time. The Banca d’Italia is not known for storing gold on behalf of other national central banks.

Lisbon and New York

The Banco de Portugal currently holds its gold reserves in Lisbon and also at the Bank of England, the Federal Reserve Bank of New York (FRBNY), and with the BIS. The ECB gold stored in Lisbon, Portugal most likely refers to the 18.2 tonnes of gold transferred by the Banco de Portugal to the ECB in January 1999, because a) that makes most sense, and b) the Banco de Portugal is not known as a contemporary gold custodian for other central banks.

Of the other 7 central banks that transferred gold to the ECB in January 1999, the central banks of Austria, Belgium and Ireland store most of their gold at the Bank of England so are the most likely candidates to have made gold transfers to the ECB at the Bank of England. See BullionStar blog “Central bank gold at the Bank of England” for more details of where central banks are known to store gold.

The Netherlands and Finland currently store some of their gold reserves at the Bank of England and at the Federal Reserve Bank of New York and probably also did so in 1998/99, so one or both of these banks could have made transfers to the ECB at the FRBNY. Another contender for transferring gold held at the FRBNY is the Spanish central bank since it historically was a holder of gold at the NYFED. It’s not clear where the central bank of Luxembourg held or holds gold but it’s not material since Luxembourg only transferred just over 1 tonne to the ECB in January 1999.

Greece and Later Euro members

Greece joined the Euro in January 2001 and upon joining it transferred 19.5 tonnes of gold to the ECB. Greece is known for storing some of its gold at the FRBNY and some at the Bank of England, so Greece too is a candidate for possibly transferring New York held gold to the ECB. In theory, the ECB’s New York held gold may not have even arisen from direct transfers from Euro member central banks but could be the result of a location swap. Without the national central banks or the ECB providing this information, we just don’t know for sure how the ECB’s New York gold holdings arose.

Another 7 countries joined the Euro after Greece. These countries were Slovenia on 1st January 2007, Malta and Cyprus 1st January 2008, Slovakia 1st January 2009, Estonia 1st January 2011, Latvia 1st January 2014, and Lithuania 1st January 2015. The majority of these central banks made gold transfers to the ECB at the Bank of England. In total these 7 central banks only transferred 9.4 tonnes of gold to the ECB, so their transfers are not really material to the ECB’s gold holdings.

ECB Gold Sales: 271.5 tonnes

More importantly, the ECB sold 271.5 tonnes of gold between Q1 2005 and Q1 2009. These sales comprised 47 tonnes announced on 31 March 2005, 57 tonnes announced 31 March 2006,  37 tonnes over April and May 2007 announced 1 June 2007, 23 tonnes of sales completed on 30 November 2006, 42 tonnes announced 30 November 2007, 30 tonnes of completed sales announced 30 June 2008, and 35.5 tonnes completed in Q1 2009.

These sales explain why the ECB currently only holds 504.8 tonnes of gold:

i.e. 766.9 t (including Greece) – 271.5 t sales + 9.4 t smaller member transfers = 504.8 t

The ECB does not provide, nor has ever provided, any information as to where the 271.5 tonnes of gold  involved in these 2005-2009 sales was stored when it was sold. The fact that the ECB still claims to hold gold in Paris, Rome and Lisbon, as well as London and New York, suggests that at least some of the gold transferred by the Banque de France, Banca d’Italia and Banco de Portugal in 1999 is still held by the ECB.

If the ECB had sold all the gold originally transferred to it by all central banks other than France, Italy, Portugal and Germany, this would only amount to 197 tonnes, so another 74 tonnes would have been needed to make up the shortfall, which would probably have come from the ECB holdings at the Bank of England since that is where most potential central bank and bullion bank buyers hold gold accounts and where most gold is traded on the international market.

Even taking into account Greece’s 19.4 tonne gold transfer to the ECB in January 2001, and excluding the French, Italian, German and Portuguese transfers in 1999, the ECB’s 271.5 tonnes of gold sales would still have burned through all the smaller transfers and left a shortfall. So the ECB gold sales may have come from gold sourced from all of its 5 storage loacations.

It’s also possible that one or more of the original 11 central banks transferred gold to the ECB that was stored at a location entirely distinct from the 5 currently named locations, for example gold stored at the Swiss National Bank. If that particular gold was then sold over the 2005-2009 period, it would not get picked up in the current locations. It’s also possible that some or all of the 271.5 tonnes of gold sold by the ECB over 2005-2009 had been loaned out, and that the ‘sales’ were just a book squaring exercise in ‘selling’ gold which the lenders failed to return, with the loan transactions being cash-settled.

No Physical Audit of ECB Gold

Given that the Euro is the 2nd largest reserve currency in the world and the 2nd most traded currency in the world, the ECB’s gold and how that gold is accounted for is certainly a topic of interest. Although the ECB’s gold doesn’t directly back the Euro, it backs the balance sheet of the central bank that manages and administers the Euro, i.e. the ECB.

The valuation of gold on the ECB’s annual balance sheet also adds to unrecognised gains on gold in the ECB’s revaluation account. Given gold’s substantial price appreciation between 1999 and 2015, the ECB’s unrecognised gains on gold amount to €11.9 billion as of 31 December 2015.

It is therefore shocking, but not entirely surprising, that the ECB doesn’t perform a physical audit of its gold bars and has never done so since initiating ownership of this gold in 1999. Shocking because this lack of physical audit goes against even the most basic accounting conventions and fails to independently prove that the gold is where its claimed to be, but not surprising because the world of central banking and gold arrogantly ignores and bulldozes through all generally accepted accounting conventions. Geographically, 2 of the locations where the ECB claims to store a percentage of its gold are not even in the Eurozone (London and New York), and infamously, the Bundesbank is taking 7 years to repatriate a large portion of its gold from New York, so the New York storage location of ECB gold holdings should immediately raise a red flag. Furthermore, the UK is moving (slowly) towards Brexit and away from the EU.

Recall the response above from the ECB:

“The ECB has no physical audit of its gold bars. The gold bars that the ECB owns are individually identified and each year the ECB receives a detailed statement of these gold deposits. The central banks where the gold is stored are totally reliable.“

Imagine a physical-gold backed Exchange Traded Fund (ETF) such as the SPDR Gold Trust or iShares Gold Trust coming out with such a statement. They would be run out of town. References to ‘totally reliable’ are all very fine, but ‘totally reliable’ wouldn’t stand up in court during an ownership claim case, and assurances of ‘totally reliable’ are not enough, especially in the gold storage and auditing businesses.

The ECB is essentially saying that these ‘statements’ of its gold deposits that it receives from its storage custodians are all that is needed to for an “audit” since the custodians are ‘totally reliable‘.

This auditing of pieces of paper (statements) by the ECB also sounds very similar to how the Banca d’Italia and the Deutsche Bundesbank conduct their gold auditing on externally held gold i.e. they also merely read pieces of paper. Banca d’Italia audits “annual certificates issued by the central banks that act as the depositories” (the FRBNY, the Bank of England, and the SNB/BIS).

The Bundesbank does likewise for its externally held gold (it audits bits of paper), and solely relies on statements from custodians that hold its gold abroad. The Bundesbank actually got into a lot of heat over this procedure in 2012 from the German Federal Court of Auditors who criticised the Bundesbank’s blasé attitude and lack of physical auditing, criticism which the Bundesbank’s executive director Andreas Dombret hilariously and unsuccessfully tried to bury in a speech to the FRBNY  in New York in November 2012 in which he called the controversy a “bizarre public discussion” and “a phantom debate on the safety of our gold reserves“, and ridiculously referred to the movies Die Hard with a Vengeance and Goldfinger, to wit:

“The days in which Hollywood Germans such as Gerd Fröbe, better known as Goldfinger, and East German terrorist Simon Gruber, masterminded gold heists in US vaults are long gone. Nobody can seriously imagine scenarios like these, which are reminiscent of a James Bond movie with Goldfinger playing the role of a US Fed accounting clerk.”

Where is the ECB Gold Bar Weight List?

Since, as the ECB states, it’s gold bars are “individually identified“, then gold bar weight lists of the ECB’s gold do indeed exist. This then begs the question, where are these weight lists, and why not release them if the ECB has nothing to hide?

Quickly, to define a weight list, a gold bar weight list is an itemised list of all the gold bars held within a holding which uniquely identifies each bar in the holding. In the wholesale gold market, such as the London Gold Market, the LBMA’s “Good Delivery Rules” address weight lists, and state that for each gold bar on a weight list, it must list the bar serial number, the refiner name, the gross weight of the bar, the gold purity of the bar and the fine weight of the bar. The LBMA also state that “year of manufacture is one of the required ‘marks’ on the bar”.

Recall from above that when the ECB was asked to provide a full weight list of its 504.8 tonnes of gold bars, it responded: “The ECB does not disclose this information.“

After receiving this response, BullionStar then asked in a followup question as to why the ECB doesn’t disclose a weight list of the gold bars. The ECB responded (underlining added):

“We would like to inform you that, while the total weight and value of the gold held by the European Central Bank (ECB) can be considered to be of interest to the public, the weight of each gold bar is a technicalitythat does not affect the economic characteristics of the ECB’s gold holdings. Therefore the latter does not warrant a publication.“

This ECB excuse is frankly foolish and pathetic and is yet another poorly crafted excuse in the litany of poorly crafted excuses issued by large gold holding central banks in Europe to justify not publishing gold bar weight lists. The Dutch central bank recently refused to issue a gold bar weight list since it said it would be too costly and administratively burdensome. The Austrian central bank in refusing to publish a weight list claimed as an excuse that it “does not have the required list online“. Last year in 2015, the German Bundesbank issued a half-baked useless list of its gold bar holdings which was without the industry standard required refiner brand and bar serial number details.  (For more details, see Koos Jansen BullionStar blogs “Dutch Central Bank Refuses To Publish Gold Bar List For Dubious Reasons“, and “Central Bank Austria Claims To Have Audited Gold at BOE. Refuses To Release Audit Reports & Gold Bar List“, and a Peter Boehringer guest post “Guest Post: 47 years after 1968, Bundesbank STILL fails to deliver a gold bar number list“).

The more evidence that is gathered about the refusal of central banks to issue industry standard gold bar weight lists, the more it becomes obvious that there is a coordinated understanding between central banks never to release this information into the public domain.

The most likely reason for this gold bar weight list secrecy is that knowledge of the contents of central bank gold bar weight lists could begin to provide some visibility into central bank gold operations such as gold lending, gold swaps, location swaps, undisclosed central bank gold sales, and importantly, foreign exchange and gold market interventions. This is because with weight list comparisons, gold bars from one central bank weight list could begin turning up in another central bank weight list or else turning up in the transparent gold holdings of vehicles such as gold-backed Exchange Traded Funds.

Conclusion

Instead of being fixated with the ECB’s continual disastrous and extended QE policy, perhaps some financial journalists could bring themselves to asking Mario Draghi some questions about the ECB gold reserves at the next ECB press briefing, questions such as the percentage split in storage distribution between the 5 ECB gold storage locations, why ECB gold is being held in New York, why is there no physical audit of the gold by the ECB, why does the ECB not publish a weight list of gold bar holdings, and do the ECB or its national central bank agents intervene into the gold market using ECB gold reserves.

The lackadaisical attitude of the ECB to its gold reserves by never physically auditing them is also a poor example to set for all 28 of the central bank members of the European System of Central Banks (ESCB), and doesn’t bode well for any ESCB member central bank in being any less secretive than the ECB headquarters mothership.

If gold does re-emerge at the core of a revitalised international monetary system and takes on a currency backing role in the future, the haphazard and non-disclosed distribution of the ECB’s current gold reserves over 5 locations, the lack of physical gold audits, and the lack of public details of any of the ECB gold holdings won’t really inspire market confidence, and is proving to be even less transparent than similar metrics from that other secretive large gold holding bloc, i.e the USA.

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Submitted by Thorstein Polleit via The Mises Institute,

Many would not have discounted the notion that financial markets would take kindly to the announcement that Donald J. Trump won the election. But when the news broke on 9 November that he will indeed be the 45th president of the United States of America, prices on international stock exchanges climbed, the US dollar exchange rate soared, and interest rates went up.

All this suggests that international financial markets’ take on Trump’s presidency is much more cheerful than the gloomy outlook many would have predicted. Mr. Trump has made no bones about his thoughts on US foreign and economic policy, but it remains to be seen if and how he will put these thoughts into action.  

It seems Mr. Trump has no truck with the ranks of the globalists who, in their efforts to establish a new world order, have entangled the US in one ill-fated overseas adventure after another. Perhaps US foreign policy will change on his watch; it may well become far less aggressive. If Mr. Trump strikes a conciliatory tone in particular in his dealings with Russia, a more cooperative relationship could help deescalate conflicts in hotspots, say in the Middle and Far East. 

In terms of economic policy, Mr. Trump’s top priority appears to be boosting economic growth and creating jobs at home. How would his administration achieve this? Basically there are two options.

First: The new president may focus on the supply side, cutting taxes for firms and income earners, while curbing government spending.

 

Second: He may zero in on the demand side, encouraging more credit-financed spending on infrastructure and the like, while pursuing an overly easy monetary policy and taking up a protectionist stance on trade.

The first scenario would clearly be a regime changer. The US government machine, a juggernaut of swelling proportions, may not necessarily grind to a screeching halt, but its growth would be checked. This, of course, would be the boldest stateside political act in recent memory, and it would take some serious stamina to see it through.

But then Mr. Trump is a wealthy businessman with few allegiances to the party and little to fear from lobbyists. Perhaps he will capitalize on this independence and seize the opportunity to make a real difference. The situation is certainly auspicious enough with a Republican majority secured in Congress for the next two years.

The mere probability of the US economy improving under Trump’s presidency has financial markets bracing themselves for higher interest rates. It is now widely expected that the Federal Reserve (Fed) will act on its plan to edge up borrowing costs further in December. If this comes to pass, the US dollar may appreciate further against other currencies, in particular the euro.

One reason is that the yield gap between the US and the euro is set to widen, making the euro less attractive vis-à-vis the Greenback. On top of that, even if Mr. Trump’s administration does not buy wholesale into the neo-isolationist ideology he espoused during the election campaign, it won’t simply champion the cause of the globalists. As a result, the European integration project will be deprived of its most powerful intellectual and political advocate.

This should add to investor uncertainty as far as the euro’s future is concerned. The United Kingdom’s decision in June to do the “Brexit” has already dealt a heavy blow to peoples’ confidence in the European Union (EU) being an economically and politically desirable institution. The chances of the project stalling are now even greater, and the ties that bind the union together may even unravel.

All this raises the question as to the single currency’s raison d'être. Doubts about its viability will exacerbate the economic misery especially of weak euro member states. Investment in these countries will slow down, further suppressing production and employment. What is more, many euro zone banks engage in cross-border lending, and they will of course suffer if the euro’s very existence is called into question.

Investors are already reluctant to extend new capital to ailing euro banks in view of their low profitability and sizable liabilities with so many bad loans on their books. More than ever, the weal and woe of euro banks is in the hands of the European Central Bank (ECB). However, the unhealthy liaison between the ECB and governments and banks in the euro area could now take a really bad turn.

On 26 July 2012, ECB president Mario Draghi pledged that “the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough.” The ECB may now be forced to do exactly that: To buy ever greater amounts of debt against issuing ever greater amounts of money to prevent interest rates from rising and keep overstretched governments and ailing banks from defaulting on their obligations.

If it turns out to be a regime changer — by doing away with economic practices hitherto held dear by the current establishment, — Mr. Trump’s presidency could actually test the single currency to the breaking point. A really plausible scenario is that sooner or later the ECB, desperately trying to prevent the euro debt pyramid from collapsing, pursues a policy of high inflation before the euro eventually falls apart.

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

Residents in the small Russian town of Ryazan, apparently excited by the election of Donald Trump in the United States, have started a petition to have a street in their town renamed “Street of Donald Trump.”  The petition was started on “change.org,” and, among other things, advocates for the name change because “recently elected U.S. President Donald Trump is a big friend of Russia and is a supporter of traditional values.”

Per HeatStreet, the petition has already gathered enough support to be officially reviewed by authorities which means residents are well on their way to “making Ryazan great again.” 

The petition for a Trump Street has turned out to be quite popular. It’s gathered enough signatures to be officially reviewed by the authorities.

 

“With a street named after Donald Trump we can make Ryazan great again,” said one of the supporters of the petition.

 

“I’m signing because I was born in Ryazan and Trump is a great person and will change everything for the better,” said another.

Here is a loosely translated version of the petition from Google translate:

Despite the enthusiasm among many, some residents were slightly less supportive of the “Street of Donald Trump” idea and suggested that the town would end up “looking like idiots” if Trump imposed sanctions against Russia.

Some commenters, however,  expressed caution: “You should have waited to see Trump’s first moves. What if he will support the sanctions against Russia? You will look like idiots then.”

 

Despite the petition’s popularity, a city official thinks it’s unlikely the street will actually be renamed. “According to Ryazan city regulations,” the official said, “the street can be named after a famous person, Russian or foreign, only five years after the death of this person”.

Meanwhile, here in the U.S., a 15-year-old student at Richard Montgomery High School in Rockville, Maryland had to be rushed to the hospital after being beaten up by 4 other students for wearing a “Make America Great Again” hat.

Hundreds of students from Richard Montgomery High School were carrying signs reading, “Love Trumps Hate,” and chanting near the Rockville courthouse on Maryland Avenue in a protest that began at about 10 a.m. when a 15-year-old boy wearing one of the Trump campaign’s “Make American Great Again” hats was attacked by about four students.

 

The group surrounded the teen, punching him repeatedly, then threw him to the ground and kicked him repeatedly in the ribs.

 

“They jumped him and beat him up pretty bad,” Max Stucky, a bystander who witnessed the attack, told WTOP.

 

The teen, who wasn’t seriously hurt, was seen clutching the back of his head in pain. He was helped to his feet by medics and taken to a hospital in an ambulance.

And still no word from Obama and Clinton on this senseless violence…we’re still waiting…

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Submitted by Mike Shedlock via MishTalk.com,

President Obama made a foolish decision to not welcome China in the formation of the Trans-Pacific Partnership (TPP).

It was ludicrous for Obama to leave China out of things. China is the second biggest economy in the world, third if you treat the EU as a block.

Had China been in the deal all along, we may not have seen the ludicrous provision that allowed companies to sue governments. That provision was one of the key reasons the deal failed.

With the election of Trump, TPP is officially dead. China, not the US, will be at the center of a new Asian trade pact.

TPP Dead, China Strives to Fill Void

On November 10, in the wake of Trump’s election, Beijing sought to fill the void left by TPP by reviving its proposed Free Trade Area of the Asia-Pacific pact.

The Financial Times reported Beijing Plans Rival Asia-Pacific Trade Deal After Trump Victory.

Xi Jinping is rekindling efforts to promote a rival to the US-led Trans-Pacific Partnership trade agreement in the wake of Donald Trump’s election victory, Chinese officials said on Thursday.

 

With Mr Xi set to travel to Peru this month for the annual Asia-Pacific Economic Co-operation summit, Li Baodong, vice-foreign minister, said China’s plan could fill the void. Chinese officials have previously sought to promote the proposal at Apec, only to encounter resistance from US officials who wanted to prioritise TPP negotiations.

 

“Protectionism is rearing its head and the Asia-Pacific region faces insufficient growth momentum,” Mr Li said at a briefing on China’s plans for Apec, which starts next weekend. “China believes we should set a new plan to respond to the expectations of industry and sustain momentum for the early establishment of a free trade area.”

US officials have warned for months that the failure of the TPP would open the door to China to promote its own trade agreements.

 

“We are seeing that play out in real time,” Mike Froman, the US trade representative, said in an interview this week. “We are the only ones who are going to be left on the sidelines as others move forward if [TPP] doesn’t happen.”

 

China’s efforts have been focused on wrapping up talks over a deal known as the “Regional Comprehensive Economic Partnership” with the 10 members of Asean and other countries including Australia and India.

Australia Snubs Obama, Dumps TPP

Death of TPP is at hand. Australia leads the way: Australia Snubs US by Backing China Push for Asian Trade Deal.

Australia is throwing its weight behind China’s efforts to pursue new trade deals in the Asia-Pacific region amid a growing acknowledgement the US-led Trans-Pacific Partnership agreement is dead in the wake of Donald Trump’s election victory.

 

Steven Ciobo, Australia’s trade minister, told the Financial Times that Canberra [Australia’s Capital] would work to conclude new agreement among 16 Asian and Pacific countries that excludes the US.

 

He said Australia would also support a separate proposal, the Free Trade Area of the Asia-Pacific, which Beijing hopes to advance at this week’s Asia Pacific Economic Co-operation summit in Peru.

 

Australia’s decision to back China’s vision comes amid soul-searching in Australia about the impact a Trump presidency will have on its long-established military and strategic alliance with Washington.

 

On Wednesday the opposition Labor party said Mr Trump’s election marked a “change point” requiring a careful consideration of Australia’s foreign policy and global interests. It is calling for more engagement with Australia’s Asian partners, although the party says the US-Australian alliance is bigger than any one person and will endure a Trump presidency.

 

Mr Ciobo said he would not comment on whether US failure to ratify the TPP would undermine Washington’s influence in the region. He said he had sought a bilateral meeting with the US trade representatives at the Apec meeting in Peru to advocate ratification of the TPP.

 

“Australia does not shy away from being an advocate about the multitude of benefits that flow from liberalising trade,” he said. “If the TPP does not come into effect it will mean there will be higher barriers to trade, which of course means you have a more subdued trading environment.”

Goodbye TPP, Hello Free Trade Area of the Asia-Pacific

Australia’s trade minister announced “Australia would work to conclude new agreement among 16 Asian and Pacific countries that excludes the US.”

TPP discussions started in 2005. The US joined the agreement in 2008. Agreement was finally reached in 2015.

Obama wanted to exclude China from TPP. As with Obamacare, Obama succeeded, but the patient died.

Obama excluded China, negotiated in secret, insisted on global warming nonsense and did nothing about the US sugar lobby, but did allow corporations to sue governments.

A trade deal 11 years in the making is now dead. Don’t blame Trump. TPP died on its own merits.

New TPP World

Image courtesy of Wikileaks.

Related Articles

• November 15, 2016: Expect Global Trade Collapse; Bills That Won’t Be Paid; Deflation Coming Up?
• November 13, 2016: Shades of Great Depression and Smoot-Hawley: Sarkozy Proposes Carbon Tax on US, Anti-Dumping Tax, Buy-EU Act
• September 27, 2016: WTO Slashes Global Trade Growth Forecast by 39% Since April: “Wake-Up Call” Says WTO Director
• September 26, 2016: Draghi Increases Risk of Global Trade Collapse With Brexit Tough Talk
• September 17, 2016: Over 300,000 Germans Protest EU Trade Deals With US and Canada
• September 13, 2016: Michael Pettis Calls Surplus Trade Statements by German Finance Minister “Utter Lunacy”

As I stated previously, this is a very ominous if not outright scary setup.

Looking for a good trade deal? I happen to have one handy: Obama’s Trans-Pacific Partnership Fiasco vs. Mish’s Proposed Free Trade Alternative.

“All tariffs and all government subsidies on all goods and services are abolished eliminated effective immediately.”

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

Democratic Leadership ADMITS that Clinton Lost the Election Because of Voters’ Economic Worries

We’ve repeatedly said that Trump mainly won the election because voters thought that the status quo would hurt them economically.

Today, the Los Angeles Times reports that the Democratic leadership itself admits that the economy is the issue that sunk Clinton:

Sen. Charles E. Schumer of New York was elected by Democrats as minority leader of the Senate on Wednesday ….

 

***

 

Schumer also broadened the Democratic leadership tent with the intent of improving the party’s standing with both its progressive wing and its working-class base, two groups whose frustration with the party and Democratic nominee Hillary Clinton helped lead to President-elect Donald Trump’s victory.

 

***

 

Populist [because she has stood up against the big banks and for the little guy] Sen. Elizabeth Warren of Massachusetts also kept a top spot.

 

“There’s a debate going on about whether we should be the party of the diverse Obama coalition, or the blue-collar American in the heartland,” Schumer said, referring to the broad swath of heavily minority voters who helped put President Obama in office.

 

“We need to be the party that speaks to and works on behalf of all Americans and a bigger, bolder, sharper-edged economic message that talks about people in the middle class,” Schumer said. He said Democrats should also confront  “the unfairness in the American economic system.”

The Democratic leadership is admitting that it has to focus on changing its economic message.

Lambert Strether – who is extremely knowledgeable about political horseraces –  adds additional evidence:

First, the swing from Obama to Trump was greater in counties that were economically stressed. FiveThirtyEight:

 

Instead, to understand what drove Trump’s victory, we can look at how Trump’s margin against Clinton in 2016 compared with Romney’s against President Obama in 2012. Sure enough, the swing toward Trump was much stronger in counties with a higher share of routine jobs; the swing toward Trump was also stronger where unemployment was higher, job growth was slower and earnings were lower. It is clear that the places that voted for Trump are under greater economic stress, and the places that swung most toward Trump are those where jobs are most under threat. Importantly, Trump’s appeal was strongest in places where people are most concerned about what the future will mean for their jobs, even if those aren’t the places where economic conditions are worst today.

 

Notice that job crapification (“routine jobs”) is part of economic stress.

 

Second, economic optimism among Black voters was much lower than in 2012. WaPo:

 

“Pre-election research showed that among African Americans, their feelings of economic optimism were precipitously lower in this election than in 2012,” said Geoff Garin, a pollster for Priorities USA who conducted this research independently of the super PAC. “And their feeling that Clinton’s economic policies would help people like them were substantially lower. “Those kinds of things affect people’s willingness to come out to vote.”

 

Third, primary counties with high Case-Deaton death rates voted for Trump. WaPo:

 

In every state except Massachusetts, the counties with high rates of white mortality were the same counties that turned out to vote for Trump.

 

We’re focusing on middle-aged whites because the data show that something has gone terribly wrong with their lives. In a study last year, economists Anne Case and Angus Deaton pointed out that mortality rates for this group have actually been increasing since the ’90s.

 

Economic struggles have likely contributed as well. Case and Deaton also found that the increase in the death rate has been driven by people with less education. For those without a college degree, the economy in recent decades has been increasingly miserable. This may explain why some have turned to self-destructive behaviors, such as drug and alcohol abuse.

 

The people I’ve been describing — this distressed, dying demographic slice of America — are similar to the people who tend to vote for Trump, according to phone and exit polls. Trump supporters are mostly white; skew older; and are less likely to have college degrees than other Republicans.

 

(“Less educated” is a proxy, for “working class.”)

 

Fourth, the swing from Obama to Trump was greater in counties that where housing costs were high. WaPo:

 

According to the analysis, respondents in hundreds of surveys were more likely to view Trump favorably if they lived in Zip codes with heavy mortgage-interest burdens relative to local incomes, after taking into account a range of socioeconomic factors.

Trump Won Among White Women, Among Women Without College Degrees, and Among Rural Women

Clinton supporters assumed that women would vote for her.

But the Guardian reports:

A majority of white women voted for Trump. And while Clinton did carry the female vote overall, her advantage among women was a percentage point less than Obama had enjoyed over Romney in 2012.

 

***

 

As John Cassidy points out in the New Yorker, not only did Trump carry white women, so did Romney in 2012, McCain in 2008 and Bush in 2004. Presumably, many white women have conservative views, whether on taxes or abortion, and neither Trump’s misogyny nor Clinton’s anatomy could override those commitments.

 

Trump also appealed to many women who feared downward mobility and poverty, winning a majority of women without college degrees, as well as rural women. He denounced the trade deals that they felt had wrecked their economies, and vowed to create jobs by rebuilding America’s decaying infrastructure. Meanwhile, Clinton partied with her funders in the Hamptons. She represented an out-of-touch elite, and many women felt that deeply and resented her – or simply didn’t care about her campaign.

 

Clinton also failed to excite some of the women who were part of the traditional Democratic base. She did win among poor women (those making under $50,000 a year), young women, Latinas and, overwhelmingly, black women. But turnout among some of these groups was disappointing. She won black women by two percentage points less than Obama did in 2012. And compared with Obama, her margin even among the much-vaunted Latina vote was about eight points lower.

Newsweek adds:

White women without  college degrees [went] for him two to one.

Vanity Fair notes:

Even educated women white voters just barely leaned toward Clinton; 51 percent of white women with college degrees voted for her ….

Overall, a slim majority of women voters – 54% – went for Clinton.

And see this.

via http://ift.tt/2giTKnz George Washington

Submitted by Brandon Smith via Alt-Market.com,

I’ve been saying this for a long time, and I’ll say it again here — in life there are only two kinds of people:  those who know and those who don’t.  Some might claim there is a third option: those who don’t want to know.  In any case, if you want to be able to foresee geopolitical and social trends, you have to be one of the people who know.

Above all else, in order to know you must be willing to step outside of the confusion and theater of the circus and look at developments from above.  If you are biased and retain too many sacred cows you will never understand how the world works.  You will be too busy trying to reinforce your own fantasies to see anything else.

Beyond this, you must also understand that political and social developments are not random; they are either reactions to deliberate policies of special interests or they are driven by policies of special interests.  Therefore, these developments are predictable and can be calculated (to a point).

I usually refer to these “special interests” as global elites, or globalists, because that is how they often refer to themselves.  The point is, most of the events you see in the political world are engineered events designed to elicit a specific psychological response from you and the people around you.  You are not a human being to these people; you are either an asset to be molded or an obstacle to be disposed of.  This is how our world works.  Period.  And until we fully understand this and accept it, things will never change.

So, to be clear, if you understand the minds of globalists and understand what they want, you can understand the basic direction of the future.

It is this philosophy which has allowed me to consistently and accurately predict geopolitical and economic events that very few other people have been able to predict.  For example, I correctly predicted the Federal Reserve taper of QE, I predicted the inclusion of China in the IMF’s Special Drawing Rights years in advance, I predicted the exact timing of the first Fed rate hike, I predicted the success of the Brexit referendum when most of the world and the liberty movement said it was never going to happen, I predicted that the Saudi 9/11 bill would pass, that Barack Obama would veto it and that congress would override his veto, I predicted that Hillary Clinton would be the Democratic candidate and that Donald Trump would be the Republican candidate for president of the U.S. and, for the past five months, I have been predicting that Donald Trump would win the 2016 election.

People can either attribute these series of successful predictions to pure “luck,” or they can consider the possibility that I know what I am talking about.  I’ll leave that to them.

The real issue, though, is not that my predictions were correct.  What is more important is WHY they were correct.  To begin with, I am often correct because it is a fact that globalists influence events.  Globalists are human (at least partially); thus, they are predictable, making events predictable.  If you can see from the perspective of a globalist, you will know what they want and what they are likely to do to get it.

In a world without globalists I would have a hard time successfully predicting anything.

I never make a cold prediction without a concrete rationale for why I hold that view.  I always break down the reasons and evidence that bring sense to them.  Some analysts might be content to simply flip a coin and make a call without explanation; I am not.

As far as the Trump election win is concerned, this is what I said in June of this year:

“In light of the Brexit I’m going to have to call it here and now and predict that the most likely scenario for elections will be a Trump presidency.  Trump has consistently warned of a recession during his campaign and with the Brexit dragging markets lower over the next few months, he will probably be proven “prophetic.”

 

… Even if Trump is a legitimate anti-establishment conservative, his entry into the Oval Office will seal the deal on the economic collapse, and will serve the globalists well.  The international banks need only pull the plug on any remaining life support to the existing market system and allow it to fully implode, all while blaming Trump and his conservative supporters.

 

The mainstream media has been consistently comparing Trump supporters to Brexit supporters, and Trump himself has hitched his political wagon to the Brexit. This fits perfectly with the globalist narrative that populists and conservatives are killing the global economy and placing everyone at risk.”

All of my predictions are rooted in a particular premise; that the global elites have been, since 2008 at least, deliberately setting the stage for an evolving international financial crisis greater than any other seen in modern history.  This crisis is a means to an end.  Globalists use one strategy above all others to achieve their goals — the Hegelian Dialectic; problem, reaction, solution.

As I have documented for years, the elites openly call for the ultimate eradication of national sovereignty and the formation of a single world economy, a single world currency and, eventually, a single world government.  In order to make this omelet, they intend to break a few eggs (and collapse a few economies).  By blaming "national sovereignty" (and the people that defend it) for this crisis, they hope to convince the masses that the only practical solution is total centralization.  You can read my in-depth analysis and evidence of this in my article “The Economic End Game Explained.”

I also specifically predicted the Brexit and the Trump win based on another premise; that the elites are allowing conservative movements to take political power in certain regions, only to remove stimulus support from the global economy afterward.  That is to say, I successfully predicted the Brexit and the Trump win because I understand and accept the reality that conservatives and liberty activists are not “winning;” we are being set up as scapegoats for a financial crash that the globalists already created.

Again, people can either say I am lucky, or that there is something to my position, but the fact of the matter is I have been right and I will probably continue to be right.  This brings us to what will happen going into 2017.

The election of Donald Trump signals a sea change in not only global politics, but more importantly, global economic stability and social developments.  As frenetic and insane as 2016 has been, 2017 will be drastically more chaotic.  Some of these changes will be obvious, some of them will once again only be visible to a handful of people in the world.  Lets start first with my happier predictions…

The Death Of The Mainstream Media

This is an easy one.  The mainstream media, with its insane regressive-progressives and elitist bias, misrepresented the “Alt-Right,” the Trump campaign and anti-social justice movements during the entirety of the election process.  Not only this, but through Wikileaks the leftist media was made naked as numerous journalists and outlets were exposed; colluding directly with the DNC and the Hillary campaign to first bushwhack Bernie Sanders and then rig debates and polling numbers to show Clinton in a farcically superior position to Trump.

The mainstream media is now seen by the majority of Americans on the left and right as a lumbering rotting propaganda corpse that needs to be decapitated before it spreads its disease to anyone else.  I predict MSM outlet readership and viewership (with the exception of FOX News) will collapse even further than it already has and that many outlets will be forced to consolidate until they fade out of existence.

As I have said for years, the mainstream media is dead, they just don’t know it yet.  Well, after this election, everyone knows.  The alternative media will take the place of the mainstream media.  We will be adopting their viewership and growing explosively over the next year while they shrivel.

They decided that their job was not to report the facts, but to manipulate public opinion.  They are liars and a disgrace to true journalism.  Good riddance.

That said, some people will argue that my position that the elites wanted a Trump presidency is not tenable exactly because the liberal media worked so hard to rig public opinion against Trump.  I will explain in my next article why these people are missing the bigger picture.

The Crippling Of Social Justice Warriors

The SJW cult is not dead, but it has been crippled.  It is now a drooling bedridden quadriplegic eating its meals through a straw; a malfunctioning shell of a movement destined to be put out of its misery.

When I think of social justice warriors I think of the Island of Misfit Toys; nobody wants these people.  They are a detriment to everything they touch, including the Democratic party.  It was the zealotry of SJWs that caused conservatives to rally in anger around Trump.  It was they that awakened the sleeping giant.

One reason I was so certain Clinton had set herself up for a loss was her insistence that the Democrats openly adopt these hell spawn and their ideology.  By embracing politically correct rhetoric and accusing all opposition of being “deplorable” racists, sexists and homophobes, Clinton doomed her campaign from the very beginning.  Anyone with any sense could see the massive tide against SJWs growing on the internet.  In fact, I propose that the globalists, using the advanced web analytics at their disposal, saw it even before the rest of us did.

SJWs are a tiny minority in American society.  Their only strategy has been to use Alinsky tactics to make their movement appear much larger than it really is.  Through mutual aid and elitist supporters in popular media, SJWs presented a fabricated consensus.  They made it seem as though they were the majority view and, thus, the "superior" view.

One fantastic result of the 2016 election has been the realization by conservatives that they are not isolated on the fringes of society.  In fact, in America at least, we are a considerable force to be reckoned with.  There is an old story of a Roman Senator 2,000 years ago who suggested the idea of forcing slaves to wear armbands to make them easily identifiable.  Another senator admonished the notion, stating “No, if they realize how many of them there really are, they may revolt.”

This is what Election 2016 did for conservatives — we have seen that millions of us have arm bands, and we are now in revolt.

I rarely comment on race issues because I don’t really see race as very relevant in most cases; but it has been the tactic of social justice cultists to constantly and brutally target straight white males as the monsters of history and therefore responsible for the ills and failures of every minority group from today to eternity.  At this point I think it is safe to say that we will NO LONGER sit idly by as whipping boys for sad, deluded people clamoring for victim group status.

The End Of Mainstream Polling

I was also confident in my prediction of a Trump win based on my knowledge of inconsistencies in modern polling methods.  The fact of the matter is, polling suffers from the same lack of objectivity that any other “science” can at times suffer from — the results will always be vulnerable to influence from the observer.  If the observer wants a particular outcome for the numbers, they will consciously or unconsciously rig their method to produce the desired result.

I saw this happen time and time again during the Brexit polls leading up to the referendum, and, as I stated many times before the U.S. election, the campaign polls seemed to be behaving the same way.  This is how you get media sources like Reuters claiming a 90 percent chance of a win by Hillary Clinton just before the election.  When pollsters weight their polls with far more democrats than republicans and when they poll the same groups repeatedly they are not going to get varied or honest data.

In the end, polls become propaganda tools rather than litmus tests.  The mainstream has tried desperately to explain why their polls were so utterly wrong, but it is too late for them.  After the Brexit and the U.S. election, no one is going to trust these numbers again.

Liberty Groups Will Get Some Breathing Room (For A Little While)

The steady drum beat of government antagonism for “patriot groups” is probably going to subside for a short time.  I happen to know that many militia groups and preparedness networks are breathing a heavy sigh of relief today after eight years of a hostile Obama presidency, the IRS sniping at liberty organizations and individual activists based purely on political zealotry, the DHS profiling liberty activists as terrorists and the SPLC frothing at the mouth like rabid animals looking to use their ties to the feds as a means to sink their teeth into any conservatives with the guts to refuse participation in the mainstream narrative.

With conservatives launching into 2017 with complete control of government and a Trump mandate, it would seem that liberty groups have “won the fight” and have nothing to worry about.

That said, don’t get too comfortable, folks, because now we are going to discuss my negative predictions going into next year…

The Final Stage Of Economic Collapse

Economic collapse is a process, not a singular event; stock markets play only a minor part in this process.  Most Americans’ only relation to the economy is through the daily rise and fall of the Dow Jones.  If they see the Dow in the green, they go on with their day.  If they see the Dow in the red, they stop and question what is happening.  The election of Donald Trump has surprised many with a sudden rise, rather than fall, in stock markets.  But, as I told my readers before the election, it would be wise to wait a couple of weeks before trying to analyze these markets because that is how long it will take just to absorb the election results.

I predict first that central banks around the globe will further cut stimulus measures and that the Fed is now guaranteed to raise interest rates, probably in December before Trump even enters the White House.  I also believe that the process of initiating a market crisis will take approximately six months to become widely visible to the public.  As a consequence of the Fed pulling the plug on markets, I predict Trump and the Fed will enter into open hostilities against each other, which will erode international faith in the U.S. dollar as the world reserve currency.

By extension, Trump’s presence in the White House will exacerbate already-existing tensions with Saudi Arabia.  The Saudi 9/11 bill is just the beginning.  As a result, I believe Saudi Arabia will dump the U.S. dollar as the petro-currency, influencing numerous other OPEC nations to do the same.  I believe this will happen by early 2018.

In my view, for now, oil prices will be the best indicator for where stocks are headed in the next few months.

This is not something many Trump supporters want to hear.  The response in the liberty movement to my prediction that the elites would allow Trump into office was rather predictable as well.  In my article 'Why The U.S. Election Has The Entire World Confused' I stated:

“I have not taken this position just to be contrary. If I think about it honestly, my position is truly a losing position. If I am mistaken and Clinton wins on the 8th then I’ll probably never hear the end of it, but that’s a risk that has to be taken, because what I see here is a move on the chess board that others are not considering. If I’m wrong, then I’m wrong.

 

That said, if I am right, then I still lose, because Trump supporters and half the liberty movement will be so enraptured that they will probably ignore the greater issue — that Trump is the candidate the elites wanted all along.”

This seems to be the reaction from about half the liberty movement so far; a general blind faith and bias, clinging to the idea that the election (just like the Brexit) was a victory, and that conservatives had just won the culture war and defeated the globalists.  It’s funny how it wasn’t much of a controversy when everyone thought I was wrong about Trump winning in the first place.

There are two primary arguments that come up with these people. First, that my view on the influence of the elites is “unrealistic” and that the elites would have to be “omnipotent” in order to succeed in directing the outcome of these events so effectively.  I will address this argument in detail in my next article on the Trump presidency and what the consequences will be for us all if Trump turns out not to be a constitutionalist.

The second argument they present is that the elites “will never succeed” in blaming Trump and conservatives for an economic crisis that was decades in the making.  To the people that embrace this argument I say — I understand mass psychology far better than you do.

The reality is, half of America is ALREADY primed to blame Trump for everything that happens over the next four years (if we even make it that long).  Possession is nine-tenths of the law in the minds of many.  Beyond that, every meme in the global media and on the left is promoting the idea that Trump is an apocalypse in the making.  Even Germany’s 'Der Spiegal' published its after-election magazine with a cover depicting Trump’s head as a giant comet hurtling towards the Earth.  Don’t tell me that Trump cannot be blamed for an economic crisis.  Only a complete idiot would suggest that he is anything other than the perfect scapegoat.

At bottom, it does not matter whether people believe the above predictions or not.  I have hundreds of emails from readers who called me a “tinfoil hatter” in the past and are now apologizing.  So, if you plan to react in a knee-jerk fashion to the notion that Trump and conservatives are being set up by the elites for a final financial flagellation, be sure to write two letters — one for today saying I’ve lost touch, and the other for tomorrow when you find out I was right once again.

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

As we’ve noted before, Defined Benefit Pension Plans are, almost by definition, a ponzi scheme. Current assets are used to pay current claims in full in spite of insufficient funding to pay future liabilities: classic Ponzi.  But unlike wall street and corporate ponzi schemes no one goes to jail here because the establishment is complicit.  Everyone from government officials to union bosses are incentivized to maintain the status quo – public employees get to sleep better at night thinking they have a “retirement plan,” public legislators get to be re-elected by union membership while pretending their states are solvent and union bosses get to keep their jobs while hiding the truth from employees. 

That said, certain states are better at the ponzi game than others and the great state of Illinois, we must say, is one of the best.  As we noted a few months ago, Illinois governor Bruce Rauner even admitted to being a willing participant in his state’s pension ponzi warning that should his largest public pension fund do what it should have done long ago, it would put a big dent in the state’s already fragile finances and lead to “crippling” pension payment hikes.  But, if you ignore the problem then surely it will just go away…good plan.

And, while the pension ponzi can likely outlast Rauner’s term as governor, eventually funding for current claims can only be borrowed from future generations for so long before finally running out of cash.  As the latest “Special Pension Briefing” report from Illinois’ Commission on Government Forecasting and Accountability (CGFA) points out, that time may be getting very near.

Per the latest actuarial valuations, the 5 largest publicly-funded Illinois pensions are now $130BN underwater and only 37.6% funded.

As a guide, here is a recap of the acronyms used by CGFA:

TRS = Teachers’ Retirement System

 

SERS = The State Employees’ Retirement System

 

SURS = State Universities Retirement System

 

GARS = General Assembly Retirement System

 

JRS = Judges’ Retirement System

Illinois’ unfunded liabilities really started to surge in 2008 due a combination of lower returns on assets and lower corporate bond yields which drive down discount rates used by actuaries resulting in substantial increases in the present value of liability streams.  As we’ve pointed out in the past, given the long duration of pension liabilities, even small swings in discounts can have a material impact on underfunding levels.

Meanwhile, even though Illinois has taken the prudent step of reducing their assumed returns on assets…

…they apparently didn’t reduce them enough as only 1 of the 5 largest pension funds managed to actually generate a positive return in FY 2016.  That said, we’re sure a lot of hedge funds were still able to collect very nice fees for generating these negative returns.

But, don’t worry, there is hope for Illinois pensioners yet.  As CGFA points out, all the state has to do is funnel $10-$20 billion of taxpayer money into these pension funds each year and earn a consistent 7% annual return on assets and in a matter of just 28 years the funds should be 90% funded!  That seems like a very reasonable plan.

But don’t worry teachers of Illinois, just keep electing politicians who tell you that everything is fine and we’re sure this problem will just go away. 

via http://ift.tt/2fXht9K Tyler Durden