Category: zerohedge

In yet another development in the train wreck that is Obamacare, while we know that the legislation is failing individuals and businesses, the government is now failing to live up to its obligations made to the insurers who chose to participate in the healthcare exchanges.

The Affordable Care Act set up what is called a risk-corridor program to entice insurers to participate. Essentially the program limits the risk of loss an insurer can take due to its participation in the healthcare exchange by being reimbursed for part of the loss. The program works the other way as well, meaning that if an insurer profits above a certain threshold, those profits get paid into the program.

In 2014, insurers paid $362 million into the program, however they requested a whopping $2.87 billion in payments to help cover losses. Due to this, the federal Department of Health and Human Services promptly backed out of the agreement it had made with insurers, and decided to announce that insurers would only receive 12.6% of the money they claimed under the risk-corridor program in 2014. Perhaps the bill came due for that $4.4 billion destroyer the Navy decided it needed and the money went to pay for that instead.

It turns out that at least one insurer isn’t going accept that the the government isn’t going to fulfill its end of the bargain. Highmark, the insurance arm of Pittsburgh based nonprofit Highmark Health, is suing the US government for $223 million in back payments owed to it under the risk-corridor program.

“All we’re asking is for the federal government to do what they promised” said Highmark Health CEO David Holmberg.

Highmark Health had a loss of around $85 million last year, on revenue of about $17.7 billion. The losses are largely due in part to its ACA-plan business, and one can see why the company would expect the government to live up to its promises.

This is a textbook example of how Obamacare will not only drive up insurance premiums, drive out small businesses, and leave patients scrambling for medical attention, but it will also continue to drive health insurance companies out of business. That change we could all believe in? That’s the pennies on the dollar that the government is paying out on its own promises,

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Submitted by Charles Kennedy of Oilprice.com,

Venezuela can’t pay its millions of dollars in debt to Indian pharmaceutical companies, say Indian officials, so officials are considering a proposal that would see the Latin American country swap oil for its drug debts.

After an unlucky gamble on India’s part that Venezuela’s emerging economy would be a good place to hawk Indian pharmaceuticals, the debt is now mounting and poor crisis management coupled with the long-running oil price slump has left Venezuela too cash strapped to pay up.

Already, according to Indian media, India’s Dr Reddy’s pharmaceutical company has written off US$65 million in debt in the first quarter of this year, while Glenmark Pharmaceuticals Inc is looking to collect some US$45 million in unpaid debt from Venezuela.

“The situation in Venezuela is very precarious … the government knows it needs to do something about the medicine shortage, that’s why it is willing to discuss such a deal,” Reuters quoted an Indian official as saying.

Indian officials cited by local media have suggested that the oil-for-drugs proposal has come from the Trade Ministry, which envisions using the State Bank of India as a mediator in the swap.

“The finance ministry has assured us that the government is fully committed to it, but it will take time,” India’s Economic Times quoted P.V. Appaji, Director General of the Pharmaceutical Export Promotion Council of India, a body under the country’s commerce ministry, as saying.

It’s not an unprecedented idea. India has swapped rice and wheat for Iranian oil when Iran was under sanctions.

For now, the deal proposal is embryonic, though Indian officials cited by local media claim that Venezuela is on board with the idea, while high-level meetings should take place this summer.

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The US economy must be truly fixed and all geopolitical conflicts resolved, because as the world enjoys its global utopia on a day when yet another airplane was taken down by terrorist according to the latest news, the US Congress is busy dealing with stuff like this: according to the Hill, “the house floor devolved into chaos and shouting on Thursday as a measure to ensure protections for members of the LGBT community narrowly failed to pass after Republican leaders urged their members to change their votes.”

Here’s the before and after votes on striking anti-LGBT language from NDAA. They had it til some GOPers flipped. http://pic.twitter.com/yokSeFsyOO

— Jennifer Bendery (@jbendery) May 19, 2016

Initially, it appeared Rep. Sean Patrick Maloney’s (D-N.Y.) amendment had enough votes to pass as “yes” votes piled up to 217 against 206 “no” votes. But it eventually failed on a 212-213 vote after a number of Republican lawmakers changed their votes from “yes” to “no.” GOP leaders held the vote open as they allegedly pressured members to change sides.

The result was total chaos.

“Shame! Shame! Shame!” Democrats chanted as they watched the vote tally go from passage of Maloney’s amendment to narrow failure.

Twenty-nine Republicans voted for Maloney’s amendment to a spending bill for the Department of Veterans Affairs and military construction projects, along with all Democrats in the final roll call.

“This is one of the ugliest episodes I’ve experienced in my three-plus years as a member of this House,” Maloney, who is openly gay, said while offering his amendment.

The amendment would have effectively nullified a provision in the defense authorization that the House passed late Wednesday night. The language embedded in the defense bill states that religious corporations, associations and institutions that receive federal contracts can’t be discriminated against on the basis of religion.

Democrats warn that such a provision could potentially allow discrimination against the LGBT community in the name of religious freedom. Maloney’s amendment specifically would prohibit funds to implement contracts with any company that doesn’t comply with President Obama’s executive order prohibiting federal contractors from discriminating against LGBT workers.

When asked about the vote-switching, Speaker Paul Ryan (R-Wis.) denied knowing whether his leadership team pressured Republicans.

“I don’t know the answer. I don’t even know,” Ryan told reporters.

He defended the provision in the defense bill.

“This is federalism; the states should do this. The federal government shouldn’t stick its nose in its business,” he said.

House Minority Whip Steny Hoyer (D-Md.) blasted Republicans for changing their votes without coming to the center of the chamber and exposing themselves for switching.

“No one had the courage to come into the well to change their vote,” Hoyer said.

* * *

Meanwhile, as the house was going bananas over a law about LGBT rights, earlier on Thursday, the same House passed an amendment from Rep. Jared Huffman (D-Calif.) that would restrict the display of the Confederate flag in national cemeteries.

So to summarize: while the Fed is complaining about the lack of fiscal stimulus by Congress and the world is drowning in the biggest central bank-inflated asset bubble in history, the laws that the US congress focuses on have to do with LGBT protections and whether or not confederate flags should be on display in cemeteries.

Is it any wonder, then, why market has a panic attack every time the Fed threatens to pull even the smallest 25 bps thread of support from under this massive ponzi scheme?

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Via Dana Lyons' Tumblr,

An index of public asset management companies was just soundly rejected at key chart resistance.

Asset management companies make their living by deciding where to allocate money to or away from, and when. A number of these companies are publicly traded and part of an index called the Dow Jones U.S. Asset Managers Index. Like any other index, the Asset Managers Index can be tracked and charted. And based on our read of the chart, it might be wise for these managers to be allocating money away from their own collective stocks.

The reason for our view is that the Asset Managers Index was recently firmly rejected by what we would consider major chart resistance around the 167-168 level.

3 of the main sources of potential – and once realized – resistance are the following (on a log scale):

• The underside of the post-2009 Up trendline that was broken on January 6
• The 12-month Down trendline from the all-time highs last May
• The 61.8% Fibonacci Retracement of the May-February decline

The clear pattern of lower highs and lower lows is a telltale sign of a downtrend in progress. That is obviously bearish. It is also bearish when a security, index, etc. fails so easily and precisely at presumed resistance like this index did. That is an indication that the bulls don’t have a whole lot of fight in them.

Is there a larger message contained herein regarding the trends or fate of this industry? If there is, it’s probably above our pay-grade. Besides, it is much too short-term of a move to extrapolate any real-world structural theme. All markets are subject to ups and downs across these shorter time frames, regardless of their cyclical or secular trends.

We will say that these asset managers trade with a high correlation to banks and other financial institutions. This is no surprise since they are, duh, financial institutions. That would explain the out-sized advance in the Dow Jones U.S. Asset Managers Index today of more than 2% with the supposed specter of higher interest rates.

However, in the bigger scheme of things, the DNA of this chart is not constructive. The Asset Managers Index has suffered a clear breakdown and is in an unambiguous downtrend. Furthermore, the index failed feebly at key resistance. This should be more than enough evidence to persuade asset managers to avoid this area for now – even those managers included in this index.

*  *  *

More from Dana Lyons, JLFMI and My401kPro.

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It turns out that Puerto Rico’s plan to default on its debt and beg congress for help is working out as planned.

After a slight delay, House Republicans have reached an agreement with the Obama administration to provide a path to restructure Puerto Rico’s $70 billion debt load. The bill would offer the island a legal out similar to bankruptcy and wouldn’t commit any federal money according to the WSJ.

All of the political talking heads are supportive of the bill, with House Speaker Paul Ryan saying that “the stability of the territory is in danger. Today, Republicans and Democrats came together to fulfill Congress’s constitutional and fiscal responsibility to address the crisis”, and Treasury Secretary Jacob Lew called the proposal “a fair, but tough bipartisan compromise.”

While the goal of the bill is to reduce Puerto Rico’s debt burden, which currently absorbs about a third of the island’s revenues, the bondholders are vehemently opposing it, knowing that a haircut would be all but guaranteed. In addition to Puerto Rico’s $70 billion in debt, it also has $40 billion in unfunded pension liabilities, and bondholders have been arguing that any legislation should require pensions to be reduced before any bonds get restructured.

As a reminder, Puerto Rico’s economic crisis has led to a 10% drop in population over the past decade, which has resulted in an eroding tax base, and exacerbated further with businesses having to shut down.

In order to avoid default last year, the government withheld tax refunds and payments to suppliers. “There is an extremely high level of uncertainty, which makes it impossible to attract new investment” said Jose Vazquez, an owner of multiple Subway restaurants on the island.

Jack Lew chimed in with some more value added commentary, telling bondholders that “the reality is if the economy of Puerto Rico doesn’t come back, the bondholders are not going to do well.”

Interestingly, the legislation also exempts Puerto Rico from the new overtime regulation, which extended overtime pay to millions of lower income workers.

As we have repeated, the entire tone of the process is reminiscent of the 2008 financial crisis when Hank Paulson threatened Armageddon if nothing was done to bail the banks out. This time, Treasury Secretary Jack Lew was sending out letters out warning that if no restructuring framework were to be set forth, a series of “cascading defaults” would be touched off. So, once again a path forward has been created that will simply wipe the slate clean for the US territory, and just as in 2008, a message has been sent that it’s ok to take on unsustainable debt loads, as they can now simply be discharged either through bankruptcy or a congressional tweak to existing laws.

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Bank Bail-Ins Pose Risks To Depositors, Investors & Economies

Bank bail-ins pose risks to retail investors and especially savers throughout the western world. The new bail-in rules have been made operational since the beginning of this year in the EU and in many other countries yet the risks and ramifications of bail ins have been largely ignored in most of the media.

The Financial Times covers bail-ins today with a focus on the risk to investors while continuing to ignore that posed to savers and depositors including small and medium size enterprises.

From the FT today:

When Ignazio Visco, governor of the Bank of Italy, spoke in Florence this month, his focus turned to regulation of bail-ins.

At a sensitive moment for Italian lenders, whose shares had collapsed over recent months, the governor chose to address what he called “regulatory uncertainty” in the wake of new European wide rules for failing banks.

“We must strike the right balance,” he said. “We should not rule out the possibility of temporary public support in the event of systemic bank crises, when the use of a bail­in is not sufficient.”

Taxpayer support for banks, however, was precisely what the new European rules introduced at the start of this year aimed to avoid. To protect taxpayers, investors in bank bonds — mostly untouched during the bailouts of the last crisis — now face losses, or “bail­ins”.

…

In a March paper, German academics warned of potential retail holdings of “subordinated debt”. The paper argued that existing EU regulation “insufficiently addresses mis-selling of bail-in instruments” and pushed for more clarity on exactly who holds the affected debt.

“Bail-in theoretically is a very nice concept but the legal issues are really very big,” says Martin R Götz, professor at Goethe university Frankfurt and a co-author of the paper. “It’s very important to sort these things out because subordinated debt holders, if they are retail investors, are voters.”

Sorting out the process will involve the familiar interplay between national authorities and European rulemakers intent on harmonising rules.

Alex Birry, a senior director at Standard & Poor’s, the rating agency, says “national conduct authorities need to continue to look closely at how these instruments are sold to retail investors”.

“Will there be tensions between what domestic politicians sometimes want to do and what European regulations allow?” asks Mr Birry. “Yes. That’s probably a price to pay if you want to have a banking union.”

See FT article here

A banking union in the EU is wonderful in concept but in practice is fraught with difficulties and risk. The use of bail-ins and the confiscation of deposits while protecting some tax payers in the short term, will likely destroy consumer and business confidence in the already fragile Eurozone economies and severely impact on the tax take in EU economies in the aftermath of the bail-ins and ensuing recessions or depressions.

Small and medium size businesses are the back bone of European and global economies. The confiscation of their corporate deposits, the very capital they use to fund growth – including servicing debt, paying rent and mortgages, employing staff and paying wages – would be highly deflationary and would push economies over the edge and into sharp recessions and lead to contagion in the Eurozone.

Bank bail-ins remain one of the greatest, but most poorly analysed and understood threats to depositors and savers today. The law of unintended consequences …

Read Protecting your Savings In The Coming Bail-In Era (11 pages)
Read From Bail-Outs to Bail-Ins: Risks and Ramifications (51 pages)

Gold and Silver Prices and News
Gold near 3-week low as Fed rate hike expectations boost dollar – Reuters
Gold slips after Fed minutes boost rate rise expectations – Reuters
Fed signals interest rate hike firmly on the table for June – Reuters
Gold futures drop as Fed leaves door open to rate hike in June – Marketwatch
Gold Declines as Prospects for U.S. Rate Increase Boosts Dollar – Bloomberg

Huge trend changes point to something big in the gold market – SRSrocco Report
Helicopter money is coming – but what will it do to us? Money Week
Brexit, The Movie – YouTube
China’s housing bubble so big “Goldman will need a bigger chart” – Zero Hedge
China’s debt bomb: no one really knows the payload – Visual Capitalist

Gold Prices (LBMA AM)
19 May: USD 1,253.75, EUR 1,117.74 and GBP 857.37 per ounce
18 May: USD 1,270.90, EUR 1,127.21 and GBP 882.05 per ounce
17 May: USD 1,270.10, EUR 1,121.43 and GBP 877.50 per ounce
16 May: USD 1,281.00, EUR 1,132.04 and GBP 892.87 per ounce
13 May: USD 1,275.15, EUR 1,123.51 and GBP 885.16 per ounce

Silver Prices (LBMA)
19 May: USD 16.60, EUR 14.81 and GBP 11.35 per ounce
18 May: USD 17.05, EUR 15.13 and GBP 11.77 per ounce
17 May: USD 17.08, EUR 15.09 and GBP 11.80 per ounce
16 May: USD 17.32, EUR 15.30 and GBP 12.07 per ounce
13 May: USD 17.09, EUR 15.06 and GBP 11.85 per ounce

www.GoldCore.com 

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Submitted by Charles Hugh-Smith of OfTwoMinds blog,

Destroying our ability to discover the real cost of assets, credit and risk has not just crippled the markets–it's crippled the entire economy.

Is anyone else fed up with the Federal Reserve? To paraphrase Irving Fisher's famous quote about the stock market just before it crashed in 1929, we've reached a permanently high plateau of Fed mismanagement, Fed worship and Fed failure.

The only legitimate role for a central bank is to provide emergency liquidity in financial panics to creditworthy borrowers. Once the bad debt (credit extended to failed enterprises and uncreditworthy borrowers) is written off, the system resets as asset valuations adjust to reality–how ever unpleasant that might be for the credulous participants who believed the ever-present permanently high plateau shuck and jive.

Just to state the obvious: Fed policies are not just insane, they're destructive:

— Bringing future sales/demand forward by lowering interest rates to zero just digs a gigantic hole in future sales/demand. Funny thing, the future eventually becomes the present, and instead of a brief recession of low demand we get an extended recession of weak demand and over-indebted households and enterprises.

— Enabling massive systemic speculation by those closest to the Fed's money spigot is insane and destructive, as capital is no longer allocated on productive returns and risk but on the speculative gains to be reaped with the Fed's free money for financiers

— Buying assets to artificially prop up markets completely distorts the markets' ability to price assets based on real returns and real risk.

Manipulating interest rates creates a hall of mirrors economy in which nobody can possibly discover the real price and risk of borrowing money. What would mortgage rates be without the Fed and the federal housing agencies (Freddie and Fannie Mac and the FHA) pumping trillions of dollars of federally backed mortgages into the housing market?

Nobody knows, because the mortgage market in America has been effectively taken over by the central bank and state.

The Fed's entire policy boils down to obscuring the real price of assets, credit and risk with a tsunami of debt. The Fed's "solution" to the economy's structural ills is: don't worry about risk, valuation or costs–just borrow more money for whatever you want: new houses, vehicles, stock buy-backs, Brazilian bonds, worthless college degrees, it doesn't matter: there's plenty of credit for everything.

The only thing that matters is your proximity to the Fed money spigot. If you're a poor student, you get a high-cost student loan from the Fed's flood of credit. If you're a corporation or financier, well, the sky's the limit: how many billions do you want to borrow or skim for stock buybacks or speculative carry trades?

The Fed's control of the machinery of obfuscating price and risk has made us all members of the Keynesian Cargo Cult. Now we all dance around the Fed's idols, beseeching the Fed the save us from our financial sins. We study the tea leaves of the Fed's announcements, and hold our breath lest the worst happen–gasp–the Fed might push interest rates up a quarter of a percent.

This is of course totally insane.

Destroying our ability to discover the real cost of assets, credit and risk has not just crippled the markets–it's crippled the entire economy. Wake up, America, and stop worshiping the false gods of the Fed. The sooner we smash the Fed's idols and strip away their power to enrich the few at the expense of the many, the better off we'll be.

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Something has changed according to Jeff Gundlach.  After claiming that a rate hike is “inconceivable” as recently as a month ago, a stance which he softened somewhat in recent days, Gundlach said that the Fed has changed the conditions required for a potential interest-rate hike this year.

Cited by Bloomberg, Gundlach believes that the Fed’s thinking has shifted from, ‘if the data pattern improves we will have the green light to hike,’ to ‘unless the data pattern weakens we have the green light to hike.'”

Perhaps, but surely only as long as the S&P, pardon the “economy” remains above 2,000. The second the S&P, pardon the “economy” slides back under that critical for the Fed level, one can forget all about any rate hike for the foreseeable future as the Fed will never risk crushing the wealth effect it has built up over 8 years of careful micromanagement and market manipulation.

And that is precisely what the market, which understand the reflexive relationship with the Fed much better than the group of career academics locked up in the Marriner Eccles building ever could, is going for: pushing the S&P, pardon the “economy” back under 2,000 so that any hiking ambitions Yellen may have are promptly pushed back by another three months.

In minutes of an April Federal Open Market Committee meeting released Wednesday, officials used the word June six times, signaling the possibility of a rate hike next month. Odds of a move in June, which would be the second in a decade following December’s quarter-percentage-point increase, climbed to 28 percent, according to Bloomberg data.

Gundlach, whose $60 billion DoubleLine Total Return Bond Fund has outperformed 98 percent of its Bloomberg peers over the past five years, said May 12 that the odds were about 50-50 for an increase this year.

Bloomberg also reminds us that Gundlach previously criticized Fed board members who signaled intentions to increase rates as many as four times this year as “a suicide mission,” given signs of weakness, such as slowing U.S. corporate earnings and negative interest rate policies pursued by central bankers in Japan and Europe.

But the biggest threat is how China will respond not so much to another rate hike but to the surge in the USD that will precede it. Ovenright Beijing already launched the warning salvo, when the PBOC not only devalued the Yuan by the most since the infamous August devaluation, but also pushed the Yuan to 2016 lows against the USD – a precursor to the market swoon observed at the start of the year.

And as even the Fed has admitted by now, once the emerging market starts turmoiling, then all bets, and certainly of a rate hike, are off.

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Some abnormally amusing market commentary from everyone’s favorite “commodity guru”, Dennis Gartman.

[W]e are reminded of a day many, many years ago when as a member of the Chicago Board of Trade we had come home, beaten and thoroughly exhausted as the bond futures had traded both limit up and limit down only to have closed the day unchanged. The trading activity was violent; random and huge, and our wife at the time… with whom we are still very good friends… having seen on the television that the bond market had closed unchanged on the day greeted us at the door by saying “It must have been a boring day.” It was anything but boring! It was almost life changing. To many on the floor with us, it was life threatening; to very, very few it was life affirming. To everyone it was frightening.

 

Yesterday was that day relived, except this time it was in the equities market. Having been 150 Dow points higher and then only moments later to have traded down to where the Dow was suddenly 150 lower, the market finished effectively unchanged, with the Bulls and the Bears left scratching their heads and wondering aloud, “What the hell just happened?”

 

* * *

 

Yesterday was our worst day of the year thus far, as that which we were long of fell and that which we were short of closed unchanged. Long ago we learned that when things go awry and do so as “majestically” as they did yesterday it is best to simplify, simplify and to simplify again. Getting smaller; getting less involved; curtailing positions in numbers and sizes is the only proper way to respond and so we did exactly that. We exited everything other than our positions in GEUR, GYEN and our short derivatives position… and even that we cut back upon to leave ourselves net short of equities but only rather modestly so.

 

Yesterday was a disaster which we wish to put behind us, and by getting smaller and less widely involved we are in the process of doing so. We are still profitable for the year-to-date, but only marginally so. Defense is the better offense for the moment. There will be better times ahead if we stick by our rules of trading. Of that we are certain.

“Oddly” enough, there was no update of Gartman’s YTD “performance” in retirement fund terms, an unaudited number which Gartman has been very proud of in recent weeks.

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Over a decade ago, the US cracked down on Marth Stewart as an example of all that is wrong with the US financial system. The same US which did not put any  bankers in prison after the financial crisis. We now get a repeat. The United States Attorney for the Southern District of New York Preet Bharara announces charges against William “Billy” Walters and Thomas Davis, the former Chairman of the Board of Directors of Dean Foods Company, for insider trading.

Meanwhile, the real criminals, the real central banks, the HFTs, all continue to rig and manipulate markets day after day…

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