Category: zerohedge

After House Oversight Committee Chair Jason Chaffetz unleashed the power of his “subpoena pen” last night, sending a letter to the FBI’s Acting Director Andrew McCabe demanding all Comey-Trump related memos, the Senate Intelligence Committee is now demanding their seat at the table. 

According to media reports, the Senate Intelligence Committee, chaired by Senator Richard Burr (R-NC) has just sent an official invitation to former FBI director James Comey to appear before the panel in both open and closed sessions.

The committee has also requested that Acting FBI Director Andrew McCabe hand over any notes that Comey might have made regarding discussions he had with White House or Justice Department officials about Russia’s efforts to influence the election.

Here is the full statement from Richard Burr and Vice Chair of the Senate Intel Committee, Mark Warner:

Joint statement with @SenatorBurr: the Senate Intelligence Committee has invited James Comey to testify in open & closed session. http://pic.twitter.com/lRk0gq9iSV

— Mark Warner (@MarkWarner) May 17, 2017

According to The Hill, the committee has not yet received a response to their letter, but signaled he was optimistic Comey would testify saying “I hope he’ll accept our invitation. I believe he will.”

 

This was the Senate Intelligence Committee’s second invitation extended to Comey after he declined to appear last week behind closed doors, saying he wanted any testimony to be public.

Of course, this all comes in response to the explosive bombshell that the New York Times dropped last night saying that Comey had a collection of detailed memos archiving his interraction with Trump, one of which detailed a conversation in which Trump allegedly urded him to drop the FBI’s investigation of Michael Flynn (see “Comey’s Revenge: Leaks Memo To NYT Saying Trump Asked Him To End Flynn Investigation“).

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Again and again we were told that this rally was all about fun-durr-mentals and that anything Trump did was gravy and not priced into markets… so how do you explain the biggest plunge in European stocks since September today… on zero fundamental catalysts?

 

And banks were battered…

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Total debt held by US household reached $12.73 trillion in the first quarter of 2017, finally surpassing its $12.68 trillion peak reached during the recession in 2008 according to the NY Fed’s latest quarterly report on household debt. This marked a$479 billion increase from a year ago, and up $149 billion from Q4 2016 after 11 consecutive quarters of growth since the deleveraging period immediately following the Great Recession.

the quick and durty breakdown:

• Total household indebtedness stood at $12.73 trillion as of March 31, 2017. This increase put overall household debt $50 billion above its previous peak set in the third quarter of 2008 and 14.1 percent above the trough set in the second quarter of 2013.
• Mortgage balances, the largest component of household debt, reached $8.63 trillion as of March 31, a $147 billion uptick from the fourth quarter of 2016.
• Balances on home equity lines of credit fell slightly in the first quarter, down $17 billion to $456 billion.
• Non-housing debt saw mixed changes—an increase of $10 billion in auto loans and $34 billion in student loan balances, and a $15 billion drop in credit card balances.

Despite the new nominal all time high, on a relative basis, household debt remained below past levels in relation to the size of the overall U.S. economy, and in Q1 total debt was 66.9% of GDP, nearly 20% lower compared to 85.4% of GDP in Q3 of 2008.

Immediately following the 2009-2009 crisis, Americans reduced their debts to an unusual extent: a 12% decline from the peak in the third quarter of 2008 to the trough in the second quarter of 2013. New York Fed researchers, cited by the WSJ, described the drop as “an aberration from what had been a 63-year upward trend reflecting the depth, duration and aftermath of the Great Recession.”

Compared to 2008, balance sheets also look different now, with less housing-related debt and more, make that much, much more student and auto loans. As of the first quarter, 67.8% of total household debt was in the form of mortgages; in the third quarter of 2008, mortgages were 73.3% of total debt. Student loans rose from 4.8% to 10.6% of total indebtedness, and auto loans went from 6.4% to 9.2%.

“Almost nine years later, household debt has finally exceeded its 2008 peak but the debt and its borrowers look quite different today. This record debt level is neither a reason to celebrate nor a cause for alarm. But it does provide an opportune moment to consider debt performance,” said Donghoon Lee, Research Officer at the New York Fed.

“While most delinquency flows have improved markedly since the Great Recession and remain low overall, there are divergent trends among debt types. Auto loan and credit card delinquency flows are now trending upwards, and those for student loans remain stubbornly high.”

Overall credit rose at a brisk pace, led by $147 billion in  mortgage originations, $34 billion in student loans and $10 billion in auto loan increase, the overall pace of new lending slowed from the strong fourth quarter. Mortgage balances rose 1.7% last quarter from the final three months of 2016, while home-equity lines of credit were down 3.6% in the first quarter. Automotive loans rose 0.9% and student loans climbed 2.6%. Credit-card debt fell 1.9%, and other types of debt were down 2.7% from the fourth quarter.

Further details from the report:

Housing Debt

• Mortgage balances increased again while originations declined and median credit scores of borrowers for new mortgages increased, reflecting tightening underwriting. There was $491 billion in newly originated mortgages this quarter.
• Mortgage delinquencies worsened slightly, with 1.7% of mortgage balances 90 or more days delinquent in 2017Q1. About 91,000 individuals had a new foreclosure notation added to their credit reports between January 1 and March 31st, an increase since 2016Q4, although foreclosures remain low by historical standards

We were surprised by the NY Fed’s optimistic read on mortgage originations which declined only modestly according to Equifax numbers…

… whereas the biggest US mortgage lender – Wells Fargo – recently reported a historic collapse in new mortgage applications, which lead originations, in the first quarter.

 

 

Non-Housing Debt

• Auto loan balances increased by $10 billion Q/Q and $96 billion Y/Y, continuing their 6-year trend. Auto loan delinquency rates were flat, with 3.8% of auto loan balances 90 or more days delinquent on March 31.
• Credit card balances declined by $15 billion Q/Q but increased by $52 billion Y/Y to $764 billion, while 90+ day delinquency rates deteriorated, and now stand at 7.5%.
• Outstanding student loan balances increased by $34 billion Q/Q and $83 billion Y/Y, and stood at $1.34 trillion as of March 31, 2017, marking an increase in every year throughout the 18-year history of this series.

Confirming the broader transition to renter-housing, mortgage lending to subprime borrowers has collapsed since the housing crisis (both due to a reduction in demand and supply) in favor of loans to more crerdit-worthy borrowers. According to the detailed NY Fed report, in Q1, borrowers with credit scores under 620 accounted for 3.6% of mortgage originations, compared with 15.2% a decade earlier. The inversion at the top was also notable, as borrowers with credit scores of 760 or higher were 60.9% of originations last quarter, versus 23.9% in the first quarter of 2007.

Unlike houseing, howevern subprime auto loans have remained abundant, helping fuel the record vehicle sales of recent years as interest rates have been low. Some 19.6% of auto-loan originations last quarter went to borrowers with credit scores below 620, down from 29.6% a decade earlier according to the WSJ. The median credit score for auto-loan originations in the first quarter was 706, compared with 764 for mortgage originations.

A closer look at household bankruptcies & delinquencies in a time of near record low interest rates reveals the following:

• Aggregate delinquency rates were roughly flat.
• Bankruptcy notations reached another low the 18-year history of this series.
• 7.5% of all credit card debt was seriously delinquent in Q1 2017
• 11% of all student debt was seriously delinquent in Q1 2017
• 3.8% of all auto loan debt was seriously delinquent in Q1 2017

Additionally, this quarter saw a notable uptick in credit card debt transitioning into delinquencies, a continued upward trend of auto loans transitioning into serious delinquencies, and student loan transitions into serious delinquencies remaining high.

The aggregate default rate in Q1 was 4.8%, or roughly unchanged with some variation across product types. As of March 31, 4.8% of outstanding debt was in some stage of delinquency. Of the $615 billion of debt that is delinquent, $426 billion is seriously delinquent (at least 90 days late or “severely derogatory”). The percent of student loan balances that transition to serious delinquency has remained high, hovering around 10 % at an annual rate over the past five years.

* * *

Perhaps the most troubling update in the Q1 credit update was that the number of credit inquiries within the past six months – an indicator of consumer credit demand – declined from the previous quarter, to 162 million. This confirms what the NY Fed reported in its latest Senior Loan Officers Survey which found an unexpected collapse in both credit and auto loan demand.

It also helps explain the recent crash in both C&I and total loan issuance.

Declining household loan growth demand is typically an indication of a contracting economy. It is likely to deteriorate further as a result of rising interest rates, as the Fed continues to hike rates, which will lead to further pressure on loan demand, and result in an even greater slowdown for the economy.

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Appearing on CNBC’s Squawk Box this morning, the former CEO of General Electric, Jack Welch, offered some rather ominous market predictions in the event of a Trump impeachment:

“An impeachment proceeding would blow the market away.”

And while he doesn’t seem to be in the impeachment camp, Welch also took aim at Trump saying that he’s “on the right agenda” but has “crappy management practices.”

Welch also said Trump’s firing of James Comey as FBI director was a “rookie mistake.” He added, “You don’t make any friends doing it the way [Trump] did it.”

 

“I think without question we have a guy that’s on the right agenda with crappy management practices,” Welch said, giving the president a “D minus” on his management skills.

Meanwhile, in a comment that won’t earn him any new friends with his former employer, Welch also weighed in on the non-stop witch hunt for Trump’s alleged collusion with Russian officials to throw the 2016 election, saying that “Democrats and the press are tearing the fabric of this economy apart.”

Forward to the 1:25 mark for the relevant comment:

Of course, the market’s reactions to Trump’s missteps so far would seem to confirm Welch’s sentiments…

 

…even though we suspect it won’t matter much to liberals in Congress and/or the disaffected Hillary voters who are ramping up usage of the “I” word before they’ve even seen the alleged “Comey memos.”

 

Tune in below for the Welch interview:

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In his first public appearance since the “memo-gate” debacle dropped, President Trump is scheduled to speak at commencement ceremonies at the U.S. Coast Guard Academy on Wednesday morning.

 

Live Feed…

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Authored by Steve St.Angelo via SRSroccoReport.com,

While many precious metals investors realize the massive amount of paper trading leverage taking place in the gold market, they should see what is going on in the silver market.  In a previous article, I provided data showing that an amazing $9.8 trillion of notional gold paper trading took place on the world’s exchanges in 2016 versus $42 billion in actual physical gold investment.  This was a paper to physical ratio of 233 to 1.

However, the amount of paper trading leverage in the silver market is much higher than that.

But, before I get into the specifics of the paper silver market trading leverage, let’s take a look at the pathetic amount of physical silver investment versus Central Bank asset purchases.  According to the data in the recently released 2017 World Silver Survey, total physical silver investment for 2016 came in at a whopping $4.4 billion:

That’s correct.  When we add up all the global silver investment demand last year, it adds up to a measly $4.4 billion.  It was nearly ten times less than all physical gold investment in 2016.  The analysts who wrote 2017 World Silver Survey, arrived at the $4.4 billion figure by using the following data:

Global Silver Investment 2016 (in million oz – Moz):

Physical Bar Investment = 83.6 Moz

Official Coins & Medals = 123.2 Moz

ETP (ETF) Inventory Build = 47 Moz

Grand Total Silver Investment = 253.8 Moz

By adding up total Physical Bar investment of 83.6 Moz, Official Coins & Medals of 123.2 Moz and ETP (ETF) Inventory Build of 47 Moz and then multiplying it by the average silver spot price of $17.14, it totaled $4.4 billion.

Even when the silver price reached a high of $49 in 2011, total global silver investment was only $6.6 billion.  Looking over the market in the past six years, the total $32 billion of silver investment from 2011 to 2016 is nothing when we compare it to the staggering amount of Central Bank asset purchases.  According to a recent Zerohedge article, Why “Nothing Matters”: Central Banks Have Bought A Record $1 Trillion In Assets In 2017:

A quick, if familiar, observation to start the day courtesy of Bank of America which in the latest overnight note from Michael Hartnett notes that central banks (ECB & BoJ) have bought $1 trillion of financial assets just in the first four months of 2017, which amounts to $3.6 trillion annualized, “the largest CB buying on record.”

 

Now, if we look at the chart above, Central Banks purchased $7 trillion (that was made public, could be higher) from 2011 to 2016.  If the Central Banks purchased $1 trillion in just the first foru months of 2017 versus the $7 trillion from 2011-2016, something seriously wrong must be going on in the markets.

Regardless, $7 trillion is a lot of money when we compare it to the pathetic $32 billion invested in silver over the same period.  If we just took $100 billion of that $7 trillion and placed it in silver, it would have quadrupled the amount of global silver investment from $32 billion to $132 during that 2011-2016 time period.  A quadrupling of silver investment demand, would have pushed the price of silver, WAY ABOVE the peak $50 price.

By the Central Banks propping up the STOCK, BOND and REAL ESTATE markets, the value of silver (or gold) is being severely depressed.  And of course, to keep investors from finding out about SILVER’S HIGH QUALITY STORE OF VALUE, the price continues to be capped by the massive amount of paper trading leverage.

So, how much paper trading leverage is in the Silver Market?  Let’s look at the following chart:

Again, according to the data put out by the 2017 World Silver Survey, total paper trading silver volume on the world’s exchanges was 159,000 Moz, or 159 billion oz in 2016.    Thus, the exchanges traded 180 times more paper silver in 2016 than the global mine supply of 886 Moz.

If we look at the ratio of global notional paper silver traded last year compared to actual silver investment, it was more than double that of gold:

By multiplying the 159 billion ounces of paper silver traded in 2016 by the average spot price of $17.14, we arrive at a staggering $2.27 trillion of notional paper silver traded versus $4.4 billion actual silver investment.  Thus, the paper notional silver trading ratio to physical silver investment was a whopping 517 to 1… double the 233/1 for gold.

Now, this 517/1 notional paper trading ratio to physical silver investment in 2016 does not take into account any of the huge OTC market where a lot of silver is traded and there are no quantifiable statistics to the amount or degree.

Currently, the crypto-currencies are experiencing huge gains over the past several months.  It doesn’t matter if an individual agrees with owning Bitcoin or one of the many crypto-currencies, the important thing to understand is that the tremendous price increases in many crypto-currencies are likely due to concern to the massive amount of Central Bank $1 trillion in asset purchases in the first four months of the year.

Furthermore, crypto-currencies are a likely a GOOD INDICATOR of what will take place in the gold and silver market when investors realize most STOCKS, BONDS and REAL ESTATE values will continue to implode as the U.S. and Global Oil Industries disintegrate.

The gold and silver prices are being capped because paper contracts can be added as more funds move in.  However, crpyto-currencies do not have this problem because the amount of Bitcoins, as an example, are limited.

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We warned last week that behind the scenes, professionals were increasingly speculating on a delay to the "baked in the cake" June rate hike.

The sudden surge in interest in Eurodollar calls (vs puts) suggests more than just a few prop bets are being placed on the fact that The Fed does not hike rates in June.

 

Well the last few days have seen that started to be reflected in the primary markets… as US macro data collapses (and Trumptopia tumbles).

And we know how much The Fed hates surprising the market. However, by now it is becoming clear to even the most resentful permabulls – and even Goldman  – that the longer the Fed delays the day of reckoning out of pure fear of the unknown, the greater the chaos and loss in asset values when the Fed no longer has the luxury of picking when to pull the switch.

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Even before the Comey memo news broke after the close on Tuesday, Height Securities’ Peter Cohn was already ahead of the curve, warning what key catalysts to look for should the push for Trump impeachment accelerate. Specifically, he said that while Democrats were guaranteed to push for impeachment, they are mostly noise as any credible move to impeach the president would have to start within the Republican party. As such Trump’s conduct “raises questions for investors about whether senior Republicans will abandon ship.”

Cohn also said that the bigest question was who, if anyone, would be the first Republican to push for removing the president, with the name cited name being that of John McCain:

Cutting to the chase, Cohn writes that ending Trump’s viability as president “depends on Republicans turning against him”, as impeachment proceedings can only begin with the majority party, and the 25th Amendment (allowing for president’s removal when unable to discharge powers/duties of his office) can only be invoked by Congress and/or vice president, majority of Cabinet.

 

What will Height be closely watching to see if the Trump drama enters a potentially terminal phase: the main catalyst is whether Sen. John McCain, chairman of Armed Services Committee, begins calling for Trump’s resignation, as U.S. national security issues may increase concern among Republican voters.

 

Cohn also says to closely watch other senators for even a faint trace of statements and speeches that can be parsed for any signs of throwing Trump “under the bus” as these will be a trial balloon for group sentiment toward Trump.

One day later, things are moving fast, with not only Democrats now openly calling for impeachment, but even GOP Rep. Justin Amash stating that if the Comey memo report is true, it would merit impeachment.

So what does Height’s Cohn thing today? In a note released this morning, the political analyst notes that “investors seem to be initially reacting poorly to the prospect of Trump’s ouster from the Oval Office”, however he takes the “impeachment thought experiment” to its logical conclusion and says that investors “should consider that drama-free Vice President Mike Pence would assume position with strong working relationships on Capitol Hill, knowledge of political process from years in House and as Indiana Governor.”

He adds that “having a president with more political capital to spend, higher approval ratings may mean more gets done legislatively” and concludes that “investors may question whether White House’s ‘constant atmosphere of craziness’ is worth taking a few extra months to get tax reform done.“

In other words, at least one analyst has already moved on beyong president Trump, and now envisions (a much more market friendly) president Pence. There is, of course,  the social element: how will US society, and especially Trump’s voters react to an impeachment. Cohn did not go into that much detail as the answer may be too troubling to contemplate.

And while Height Securities appears to have thrown in the towel on president Pence, here is how some other political analysts have reacted to events over the past 24 hours, courtesy of Bloomberg.

COMPASS POINT (Isaac Boltansky)

• Trump Trade optimism was already tempering as market became reacquainted with “painfully slow” legislative process, but now market is forced to consider what valuations should look like if agenda doesn’t materialize
• Client questions have shifted since last night to considerations of special prosecutors, impacts on nominations, even impeachment; too early to fully contour issue’s legal/political impact
• Also too early to throw in the towel on tax cuts before the midterms, but Compass Point is concerned there may be meaningful market reaction if headlines persist, House Ways & Means Committee fails to show “some semblance of policy cohesion” during upcoming hearings

BEACON POLICY ADVISORS

• Any talk of impeachment will remain “just talk” as long as GOP keeps control of House, adding that even if Democrats gained control in 2018, Senate would still need to convict president by at least two-thirds majority
• Real focus for investors should not be on whether the president will survive, but to what extent his agenda will survive
• Still optimistic congressional Republicans will deliver healthcare and tax reform legislation, though the more internal chaos West Wing faces, the more difficult it will be for Trump administration to execute on agenda items and fill still-vacant agency positions

CANTOR FITZGERALD (Peter Cecchini)

• If this throws a wrench into implementation of reflationary, pro-growth policies like infrastructure spending, tax reform, and financial deregulation — how is it then, that reflation narrative (which was based on swift implementation of such policies), isn’t being rebuffed?
• Notes 5-year, 10-year break evens show how quickly inflation has stalled
• Inflation in 2H 2016, early 2017 was synchronized and global, and it came largely from supply curtailments in oil and industrial commodities; now that supply has largely normalized for demand environment, prices are unlikely to rise further

FTN (Jim Vogel)

• Financial markets sit in “squirming mode” rather than anything resembling real concern when it comes to daily DC news bulletins
• Just like Trump trade’s first leg, economic scenarios hinge on series of future political decisions that traders can speculate about, but only with limited conviction; for example, implications of sacking FBI director are akin to current tax reform plan: ideas on a single sheet of paper
• Washington is impacting global price levels — just not driving them in a particular direction yet; lack of a driver is particularly important to interest rates this month, because bonds and currencies have been most sensitive to potential for federal policy shifts toward gridlock; that sensitivity has been in only one direction, a “vulnerable trend,” while Fed can always decide to go “uber-hawk” to prevent greater danger

KBW (Brian Gardner)

• So far, financial markets had seemed to dismiss drama in Washington as just political noise; that may be ending as post- election rally had been supported by faith in Trump’s tax- cutting, deregulating agenda — which is now in “mortal danger”
• Latest crisis further decreases chances of passing financial regulation legislation that makes changes with bipartisan support, like raising bank $50b SIFI threshold; tax reform likely to be more limited than earlier proposals

MILLER TABAK (Matt Maley)

• The market has been priced under the assumption Trump will get his proposals enacted and it might just take a bit longer than first thought, so if it appears that policy changes might be delayed significantly or not happen at all, that would need to be factored in

Source: Bloomberg

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Well that escalated quickly…

The Dow has broken back below its 50-day moving-average and is rapidly erasing the French election exuberance…

 

And the S&P is at the 50dma…

 

Oops… Banks are suffering most…

 

With The Big Four getting f**ked…

 

Of course this is probably a buying opportunity?

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In what may be the most material development of the day, moments ago GOP Representative Justin Amash (R-Mich.) said the report that President Trump pressured ousted FBI Director James Comey to end an investigation would merit impeachment if true, becoming the first Republican lawmaker to break from the party and hint at impeachment.

Amash tells reporters that if Comey memo allegations are true, it’s grounds for impeachment. Says he trusts Comey more than Trump.

— Katie Bo Williams (@KatieBoWill) May 17, 2017

Subseqeuentlly, when asked by The Hill if the details in the memo would merit impeachment if they’re true, Amash reiterated “Yes…. But everybody gets a fair trial in this country,” Amash added as he left a House GOP conference meeting.

When asked by another reporter whether he trusted Comey’s word or Trump’s, Amash said: “I think it’s pretty clear I have more confidence in Director Comey.”

According to the Hill, Amash has been one of only two House Republicans to cosponsor a Democratic bill to establish an independent commission to investigate Russia’s role in the election. Rep. Walter Jones (R-N.C.) has also endorsed the legislation.  

Amash is a frequent conservative critic of the Trump administration, and in the past has broken with the White House on a variety of issues, including healthcare reform, NSA surveillance and the Justice Department’s new tougher sentencing guidelines.

And now all eyes on John McCain who many speculated would be the most vocal Republican opponents of Trump, and the first GOPer to recommend impeachment of his old nemesis.

Following the report, the USD tumbled to fresh intraday lows.

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