iftttwall

Contrary to popular perception, not all of the money approved as part of the federal government’s emergency effort to save the American financial system in the fall of 2008 went to the big banks. Some of it – nearly $10 billion, all told – went to support the government’s “hardest hit” program, meant to help forestall foreclosures in 18 states.

And unsurprisingly, nearly a decade after the program was signed into law, government investigators are finding that much of this money was squandered by state governments. Money initially earmarked to help troubled homeowners struggling with underwater mortgages was instead spent on demolitions meant to boost prices of surrounding homes and help ward off crime in city neighborhoods. Except the money was often squandered by state governments, disproportionately robbing poor citizens in cities like Detroit of a program meant to save them from homelessness.

As the Detroit Metro Times reports, Detroit's decade-long wave of tax and mortgage foreclosures has wiped out large swaths of the city's neighborhoods as Wayne County continues to seize thousands of occupied homes a year. The city's neediest homeowners were supposed to receive federal assistance to save their homes as part of the Treasury Department's seven-year-old Hardest Hit Fund. But the State of Michigan squandered its money by adopting unnecessarily stringent requirements — according to a scathing audit issued in January by the Office of the Special Inspector General for the Troubled Asset Relief Program (SIGTARP).

In 2010, Michigan originally received nearly $500 million to provide loans to eligible homeowners who were facing tax or mortgage foreclosure. But the program, called Step Forward Michigan, rejected funding for about 5,000 Detroiters, while assisting more than 2,000 homeowners who earned at least $70,000 a year. That number eventually swelled to $761 million, and of that amount, half was committed to demolitions.

As a result, more than 80 percent of Detroiters making $30,000 or less a year were denied assistance to save their homes from tax or mortgage foreclosure. By contrast, the other 17 states with Hardest Hit Funds rejected 53 percent of homeowners making less than $30,000.

"Michigan and Ohio are among the states that have the most TARP dollars set aside, but also have some of the highest percentage of people turned down for the Hardest Hit Fund," the audit reads.”

SIGTARP said Michigan's high rejection rate "raises questions about whether these programs are as effective and efficient as they can be to reach those people who are the hardest hit." But perhaps even more galling than the state government’s decision to turn away needy homeowners, is how Michigan instead became the first state in 2013 to demolish homes using money intended to save them.

As the paper explains, the idea was that demolitions would revitalize neighborhoods by increasing the property values of surrounding houses, attracting new homeowners, and reducing crime rates.

The plan was only marginally successful: A report commissioned by the Skillman Foundation and Rock Ventures found that each demolition in Detroit increased the value of adjacent homes by only 4.2 percent. Since 2013, Detroit has razed more than 10,000 blighted and abandoned houses using the federal funds. But in its criticism of Michigan’s program, the Treasury Department investigators didn’t focus on its effectiveness, or the unconscionable notion that Michigan decided to destroy homes instead of saving homeowners from being put out on the street.

Instead, Michigan and several other states’ decision to use the money for demolitions has come under fire because the federal government created no rules or controls to prevent fraud, waste, and abuse, according to a 2016 SIGTARP investigation.

Their negligence allowed the program to be riddled with waste and fraud, as contractors started raising their bids, and the bidding process for demolitions has become rife with bid-rigging and other tactics for fraud and abuse that were once famously associated with the American mafia. Soaring demolition costs in the state caught the attention of federal investigators, and now the Detroit Land Bank's handling of the demolitions has become the subject of an ongoing federal grand jury investigation.

“The investigation found that demolition programs are ‘vulnerable to the risk of unfair competitive practices such as bid rigging, contract steering, and other closed door contracting processes’ because the "Treasury conducts no oversight" and therefore cannot determine whether the cost of demolition is ‘necessary and reasonable.’

The SIGTARP report added that "the vulnerability of the Hardest Hit Fund to fraud, waste, and abuse significantly increased with blight elimination, which Treasury could have mitigated, but did not."

 

In a report to Congress in April, a federal inspector slammed the state of Michigan for "skyrocketing demolition costs," indicating that the average price to raze a house had increased 90 percent, from $9,266 to $17,643 by the second quarter of 2016.

 

The Detroit Land Bank's handling of the demolitions has become the subject of an ongoing federal grand jury investigation. The Land Bank declined to comment for this story.”

Foreclosure experts question why Michigan, one of the states hardest hit by the Great Recession, would prioritize demolition over foreclosure prevention. Over the past decade, more than one in three homes in Detroit, a total of about 140,000, have been foreclosed because of unpaid taxes or mortgage defaults. Yet, requirements for the TARP relief program, a program that most homeowners probably aren’t even aware of, have been incredibly strict.

"Many of the houses now being demolished could have been saved if there wasn't a lack of preventing foreclosures," says Jerry Paffendorf, co-founder and CEO of Loveland Technologies, a Detroit-based property and mapping company. "If you don't prevent foreclosures, you're going to have more houses to demolish."

Michigan’s eligibility requirements were unusually strict, according to the report. For example, the state declines assistance to homeowners whose income was not cut by at least 20 percent, unlike other states that don’t require a specific pay reduction to be eligible. Michigan also denies funding to homeowners whose unemployment benefits ran out more than a year ago.

"The Michigan requirement does not reward a responsible worker whose paycheck was cut more than one year ago and has exhausted unemployment benefits, savings, family help, or low-paying part-time work to pay their mortgage," SIGTARP wrote in January 2017.

And while the Metro Times doesn’t bother asking why Michigan would favor contractors over poor urban homeowners, for anyone familiar with how statewide political campaigns are financed, the answer should be obvious. State contractors are often major donors to politicians. So, is it any surprise that politicians would favor their benefactors over a handful of voters?
 

via http://ift.tt/2vzj0u2 Tyler Durden

Authored by Jeffrey Snider via Alhambra Investment Partners,

Well, that clears that up. In case you missed it, back on June 27 Mario Draghi triggered the latest declared BOND ROUT!!! with what was characterized as a very upbeat economic assessment for Europe. And if things are moving forward there, they just have to be everywhere else.

It came off as “hawkish” in the sense that if real acceleration is at hand, ECB normalization of first QE then interest rates can’t be that far behind. The closer we are to the first part, closer is the second. Bonds sold off, and the collective mainstream imagination ran wild.

In truth, Draghi wasn’t “hawkish” at all, nor was he all that upbeat. The media, primarily, saw what it wanted and connected dots that it had created. As for the economy, he merely stated that it was progressing. Why that was particularly important was never stated, especially since Mario Draghi always says the economy is progressing. Out of his mouth, it never is otherwise.

More important than all that, however, the ECB chief was left to try to describe the current state of our central money problem, without recognizing it yet as just that. The economy may or may not be meaningfully improved, but inflation, the economy’s chief monetary indicator along with bond rates, will not behave. For Draghi’s speech, it was characterized as a contradiction.

Following the latest policy meeting, the mainstream believes Draghi is now “dovish.” Gone is the certainty with which the world seemed to be moving toward a better place, replaced with caution and apprehension. Many ascribe this apparent 180 degree shift as a policymaker not wanting to upset markets. If bonds sold off in a rout after his last speech, he must have noticed and reacted with a more soothing posture this time.

None of that is actually going on, of course. Draghi was no more “hawkish” in late June as he isn’t now “dovish” in mid-July. At both times he was consistently confused. Today, he came as close as might be ever expected to stating that as a fact outright:

There really isn’t any convincing sign of a pickup in inflation.

As some reports noted, he stated that same thing several times with slightly different wording. The problem continues to be an absence of all the things required to make money become inflation – starting with wage growth. Without that, can the economy really be improving?

The answer is no, and even an economist like Mario Draghi knows it. In that respect, the European economy is as stuck as the US economy. When friendly outlets like the New York Times notice this lacking vital component, it cannot be as something of a trivial difference:

Central banking increasingly looks like an act of faith.

Mario Draghi, the president of the European Central Bank, and his Bank of Japan counterpart, Haruhiko Kuroda, have spent trillions of euros and yen without generating as much inflation as they want. Yet they have little choice but to insist their policies will eventually work.

The eurozone is finally experiencing a robust recovery and the only things lacking are a pickup in wages and inflation, Mr. Draghi said on Thursday.

Is it really a “robust recovery” without a pickup in wages and household income? Mr. Kuroda can answer that question best with Japan’s experience stuck for a quarter century in, of all things, Japanification. The essence of that permanent stagnation is the lack of income and wage growth, the lagging behind of households that policymakers can’t for some reason see as the most important economic element.

Work equals recovery, and with more work comes more wages. Anything else is just the shifting of numbers, the economy flying erratically like a rocket without its tail fins.

Europe’s economy is booming, except it’s not. Mario Draghi is hawkish, except he’s not. If there is one thing policymakers, media, and regular folks in all these places are starting to really understand, it’s that something important continues to be missing. They may not yet know what it is, so the focus on inflation (and the bond market) is good in that “we” are finally starting to ask the right questions.

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

In the latest Sunday Start report from Morgan Stanley’s Andrew Sheets, the bank’s chief cross-asset strategist looks at the current state of the market – “the S&P 500, Russell 2000 and NASDAQ have hit all-time highs. Volatility has plunged back down near all-time lows. Credit is tighter and yields have been stable” – and asks the same question posed by virtually everyone else in recent weeks : “what rattles this market. What breaks the egg?“

Sheets, like the bank’s equity research team (which recall believes the current market is a rerun of 1999 and sees up to another 30% surge in stocks) remains optimistic saying that “risks don’t warrant a defensive view yet”, and adds that “with longs concentrated in DM equities and EM fixed income”… “no one wants to be that complacent investor at the highs, and good times are always the best time to think about what can go wrong.” 

On the other hand, Sheets highlights one rising risk, namely his “high conviction that markets have passed the point where bad data can be offset with promises of further easing. But so far this doesn’t matter, because growth in 2017 has been surprisingly good. Our economists see 2Q global GDP at 4.3%Q, the highest reading since 4Q10. Weaker growth will crack the egg, but we’re not seeing it yet.“

A second risk mentioned by the X-asset strategist: “valuations and earnings. High stock valuations and strong earnings can be OK (see the early 1960s and late 1990s). High valuations and poor earnings is trouble. A disappointing 2Q earnings season would be a clear catalyst to push the market lower. But there are a few reasons why we don’t think that happens.“

A third risk is that inflation, largely benign and disappointing in recent months, returns: “for now, soft inflation is giving DM central banks cover to keep real rates deeply negative. This won’t last forever; our economists forecast the trough in US core PCE in September, inflation in Japan and the eurozone to pick up materially in 1H18 and China.”

Risk number 4 to Sheets: aggressiveness. “Growth with easy money is a cocktail for all manner of problems, from ill-advised M&A, to excessive bond issuance, to extended investor positioning. All are potential egg-crackers.” But again (and you may sense a theme here) Morgan Stanley don’t think they’re negatives yet: “M&A volumes in the US and Europe are still only half the 2007 peak. US credit has yet to show strains from oversupply (although we remain cautious, seeing poor risk/reward). Our prime brokerage team tells me that hedge fund net positioning remains near its 10-year average. We’re watching all these closely.”

Which brings us to the biggest concern for the bank which recently beat Goldman Sachs in FICC revenue for the second straight quarter: politics, in general, and the debt ceiling in particular.

One reason why we may not be seeing more aggressiveness is our final risk – politics. Multiple failures in the US to pass healthcare legislation, despite single-party control, raise questions about a whole host of other issues, from the debt ceiling, to the budget, to taxes. Meanwhile, news reports suggest that the ongoing probe by Special Counsel Robert Mueller is widening.

Finally, here is what Sheets – along with many others, including the T-Bill market – believes is the biggest immediate risk to the market:

The debt ceiling worries us most, given that action may need to be taken within as little as seven weeks. But on the other issues, we’re more relaxed. The Senate’s Healthcare bill had an approval rating of 17%, so we doubt its failure would be a hit to consumer confidence. The Special Counsel’s investigation, whatever the outcome, will likely take considerable time. Our economic baseline was already cautious with regard to fiscal stimulus, a long-held view of our policy team. And while tax cuts could boost the market temporarily, they could also lead to a more hawkish Fed, a classic ‘be careful what you wish for.’

Incidentally, we agree with Sheets that the debt ceiling is fast emerging as the biggest downside risk catalyst, and one which has a tangible date: mid-to-late September. In light of the dire state of political discourse in Washington, and Trump’s inability to form a political compromise, it is no surprise why the October 19, 2017 T-Bill yield spiked in recent days…

… and why the October 19, 2017 Bill Spread has blown out….

… as more traders begin to grasp what a failure to pass the debt ceiling, if only temporarily, would mean for the US.

* * *

Andrew Sheets full note is below:

What Breaks the Egg?

 

I didn’t win the 4th of July egg-toss, and never really came close. Our egg cracked easily, which couldn’t be a worse analogy for markets over the last three weeks if I tried. The S&P 500, Russell 2000 and NASDAQ have hit all-time highs. Volatility has plunged back down near all-time lows. Credit is tighter and yields have been stable. So what rattles this market? What breaks the egg?

 

We remain constructive, with longs concentrated in DM equities and EM fixed income. But no one wants to be that complacent investor at the highs, and good times are always the best time to think about what can go wrong. What follows is where we see risks, and why we don’t think they warrant a defensive view (yet).

 

Let’s start with growth. I believe, with high conviction, that markets have passed the point where bad data can be offset with promises of further easing. But so far this doesn’t matter, because growth in 2017 has been surprisingly good. Our economists see 2Q global GDP at 4.3%Q, the highest reading since 4Q10. Weaker growth will crack the egg, but we’re not seeing it yet.

 

This brings us to a second risk: valuations and earnings. High stock valuations and strong earnings can be OK (see the early 1960s and late 1990s). High valuations and poor earnings is trouble. A disappointing 2Q earnings season would be a clear catalyst to push the market lower. But there are a few reasons why we don’t think that happens.

 

First, strong 2Q global GDP should be a tailwind to revenue. And where that growth has been most disappointing (the US), a weak dollar should provide a tailwind. My colleague, Graham Secker, has specific concerns in places like European cyclicals, where inflows have been high, a stronger EUR is a challenge and early earnings misses have been punished. But broadly, we see earnings as more likely to be a positive than negative global catalyst this year.

 

Strong global growth usually means policy tightening, another candidate to break the egg. But for now, soft inflation is giving DM central banks cover to keep real rates deeply negative. This won’t last forever; our economists forecast the trough in US core PCE in September, inflation in Japan and the eurozone to pick up materially in 1H18 and China CPI to climb steadily over the next 12 months. Our base case is that rising inflation is next year’s problem, but markets could react sooner than we expect. We’re watching this closely.

 

Strong growth and easy policy, of course, present another risk: aggressiveness. Growth with easy money is a cocktail for all manner of problems, from ill-advised M&A, to excessive bond issuance, to extended investor positioning. All are potential egg-crackers. But again (and you may sense a theme here) we don’t think they’re negatives yet.

 

M&A volumes in the US and Europe are still only half the 2007 peak. US credit has yet to show strains from oversupply (although we remain cautious, seeing poor risk/reward). Our prime brokerage team tells me that hedge fund net positioning remains near its 10-year average. We’re watching all these closely.

 

One reason why we may not be seeing more aggressiveness is our final risk – politics. Multiple failures in the US to pass healthcare legislation, despite single-party control, raise questions about a whole host of other issues, from the debt ceiling, to the budget, to taxes. Meanwhile, news reports suggest that the ongoing probe by Special Counsel Robert Mueller is widening.

 

The debt ceiling worries us most, given that action may need to be taken within as little as seven weeks. But on the other issues, we’re more relaxed. The Senate’s Healthcare bill had an approval rating of 17%, so  we doubt its failure would be a hit to consumer confidence. The Special Counsel’s investigation, whatever the outcome, will likely take considerable time. Our economic baseline was already cautious with regard to fiscal stimulus, a long-held view of our policy team. And while tax cuts could boost the market temporarily, they could also lead to a more hawkish Fed, a classic ‘be careful what you wish for’ per my colleague Michael Wilson.

 

Weaker growth, disappointing earnings, hawkish policy, over-aggressiveness and political mistakes are all candidates to break the current tranquility. We like long EURAUD as a combined hedge against tighter policy or weaker growth than we otherwise expect. Our rates strategists like owning long-dated US vs. EU duration, given attractive risk/reward heading into a debt ceiling fight. Against that, we’d maintain a positive overall stance, with longs concentrated in DM equities and EM fixed income.

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

Having been quite for almost 24 hours following his tweetstorm yesterday, President Trump is once again active on his Twitter account.

First, seemingly making a jab at the special counsel’s Russia investigation – following Chuck Schumer’s admission that Democrats didn’t lose because of the Russians – Trump scoffed at the “phony Russian Witch Hunt”…

As the phony Russian Witch Hunt continues, two groups are laughing at this excuse for a lost election taking hold, Democrats and Russians!

— Donald J. Trump (@realDonaldTrump) July 23, 2017

But then turned his ire towards some in his own party…

It’s very sad that Republicans, even some that were carried over the line on my back, do very little to protect their President.

— Donald J. Trump (@realDonaldTrump) July 23, 2017

 

While a little less aggressive than yesterday’s rage, the president is no less direct in his implication.

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

Via TheMindUnleashed.com,

Few have put their lives on the line as journalist Benjamin Fulford has done. Going from the peak of his journalistic career, a massive salary and access to almost any door he wanted open, the former Asia-Pacific Bureau Chief of Forbes Magazine stepped away in disagreement of massive censoring and has since started reporting on geopolitical events that certain “elites” wish he would not. Blowing the whistle on a wide variety of topics, including 9/11 and Fukushima, Fulford has drawn the attention of many around the world and has even survived 5 assassination attempts.

The Mind Unleashed was fortunate to be able to interview Mr. Fulford.

1. What is your education and journalistic background Benjamin? 

My educational background is varied. I went to grade school in Mexico and Canada and studied in Spanish and English. My high school was in French. When I was 17 I went to the Amazon and studied under a Shipibo shaman on the banks of the Ucuyali river in Northern Peru.

My university education was Sophia University in Tokyo and the University of British Columbia in Vancouver, Canada. My degree is in Asian studies with a China area specialty. However, since I took about 10 years worth of undergraduate courses I think of myself as a generalist.

2. You also speak multiple languages, yes? 

Yes. Native or near native in English, Japanese, French and Spanish. Conversational ability in Mandarin and the various romance languages.

3. Being with such a well known media company (Forbes), what caused you to leave your job? 

There were many reasons but mainly it had to do with censorship. When Citibank was kicked out of Japan because they were caught money laundering for crime gangs, Forbes would not run the story even though my sources were Finance Ministry officials speaking on the record.

The final straw was when they asked me to do a story about a computer virus software company. I went to the Philippines to visit their laboratories and while there I went to visit the creator of the “I love you” virus that caused billions of dollars worth of damage. He claimed the anti-virus company paid him to make the virus.

I thought I had a big scoop but my editors refused to run the story because they thought I was becoming “unreliable.” Then Mr. Nakagawa, the business manager in Japan told me the real reason the story was cancelled was because the head of the anti-virus company paid Steve Forbes $500,000 to kill my story. That was the last straw for me.

However, it was a very scary thing to give up that regular fat monthly paycheck and the prestigious name card that opened so many doors. I can understand why many corporate journalists put up with censorship and control just so they can keep up their lifestyles.

4. You’ve stated that the Japanese royal family showed you evidence that 9/11 was an inside job and that this was sort of your big “wake up call.” Can you elaborate on that a bit?

I was planning to publish a book exposing the corruption in Japan. The day after I sent the first two chapters to my agent I got a call from Kaoru Nakamaru, a cousin of Emperor Hirohito who told me “I know a lot about the dark side of Japan but I understand nothing about the dark side of the West.” We met and she asked me not to publish the book because that is not what I really wanted to do in my heart. Then she gave me a 9/11 video.

My thought at the time was “this is one of those anti-semitic conspiracy videos I read about in the New York Times.” I was thus reluctant to even look at it. However, when I did, it really opened my eyes and set me on a path of intensive research into the historical truth of false flags over the ages.

5. You wrote a book about 9/11, correct?

Yes I did and it was a best seller in Japan. Here is the link.

6. You’ve also been very vocal about Fukishima being an intentional crime against humanity . Can you please elaborate on that?

First of all the Japanese authorities were warned in advance of March 11, 2011 by an Australian government agent going by the code name Richard Sorge (now Alexander Romanov) that a 500 kiloton nuclear weapon stolen from the Russian submarine Kursk in 2000 had been smuggled into Japan for the purpose of nuclear terror against that country. Sorge also told me and I wrote about it.

Sorge was a drug smuggler into Japan for over 20 years and went to the authorities when a nuclear weapon was sent together with his usual drug shipment.

The bomb was first taken to former Prime Minister Yasuhiro Nakasone’s property in Hinodecho in Western Tokyo. It was then taken to the North Korean citizen’s association building.

Later, according to Takamasa Kawase of Japanese military intelligence, the bomb was taken aboard the deep sea drilling ship Chikyu.

Local news reports confirm the Chikyu was drilling deep into the seabed at the exact epicenters of the Fukushima earthquake prior to March 11, 2011 (or 311 as they call it in Japan).

After the Tsunami and nuclear attack on Japan, a Christian Pastor by the name of Paolo Izumi was approached by a member of the Japanese self defense forces who said he was part of a 15 member crew that dismantled the bomb into 5 smaller nuclear devices and that these were drilled into the seabed by the Chikyu prior to 311. He thought at the time he was paricipating in earthquake research.

After the terrorist attack, his colleagues were all murdered so he sought shelter from his Pastor. The person is now being protected under the witness protection program and is willing to testify in public about what happened.

There is a lot more to this so please do a news search to see my previous articles on the subject. [Editor’s note: Benjamin asked that this book be read and shared by viewers of this interview.]

7. So this is some sort of global elite that have helped to orchestrate 9/11 and Fukushima? 

The forensic trail of evidence led to Peter Hanz Kolvenbach, the former head of the Jesuits and the P2 Freemason lodge in Italy. These people are aiming for a fascist world government under their control.

8. You were the first journalist (to my knowledge) to publicly write about what is known as the global collateral accounts. Can you explain what these accounts are and some of their history, well as their intended purpose? 

Again that would require a book on its own. The short version is that since Roman times the West sent gold and silver to Asia in exchange for silk, ceramics and spices. This meant that about 85% of the world’s precious metals ended up in Asia, mostly under the control of various Asian royal dynasties.

This gold was used to back up the Bretton Woods system. However, when the West broke its promises to have a Marshal plan for the whole world and only applied it to the G7 countries under their control, the gold was cut off.

The US thus ran out of gold in the early 1970’s which led to the Nixon shock when the US dollar was taken off the gold standard and put on the oil standard.

The petrodollar standard is now being replaced once again with a gold standard but the process is not complete and there is a continuing stand off between the West, who have the Euro, US Dollar and Yen printing presses and the Asians, who have the gold.

9. In August of 2011, you wrote about a meeting that took place off the coast of Monaco between a man named Neil Keenan and 57 financial representatives from various countries around the world. What was that meeting about and why was it so important?

Basically an alliance was formed with backing from US military white hats to try to take control of the global financial system away from the elite Western bloodline families I refer to as the Khazarian mafia.

10. So essentially, there is a large international alliance that is opposing a one world order?

They are not opposed to a world united by friendship and the rule of law. They are opposed to a world fascist dictatorship controlled by Satan worshiping elite bloodlines.

The anti-Russian hysteria on the part of the Khazarians is due to the fact they were kicked out of Russia and Russia is now undergoing a big Christian revival.

11. What are some sources that you receive your intelligence from? 

My sources are many and varied but include people in the P2 Freemason lodge, the FSB, the NSA, the Gnostic Illuminati, the CIA, US military Intelligence, the various Japanese crime gangs, Asian secret societies, Japanese military intelligence, the North Koreans, etc.

I have been a reporter here for 30 years which means I have developed a comprehensive set of contacts.

12. So there are many people within the intelligence community around the world who are working quietly and are also part of this international alliance seeking to end the corruptive power systems of our world?

Yes indeed there is.

13. You’ve stated that you’ve had 5 attempts at your life. Clearly, “they” don’t like that you’re putting out such revealing information on a weekly basis.

The five murder attempts include:

Being poisoned in Italy by Vincenzo Mazzara, a cavalier of the teutonic knights and a senior member of the P2 freemason lodge.

An attempt to shoot me by Japanese gangsters in Sakhalin, Russia.

Multiple attempts to murder me in Osaka by Japanese gangsters paid to do so by Rothschild Agent Michael Greenberg

An attempted attack with a heart attack inducing electronic device on a subway in Tokyo.

Being stabbed with a poison needle by Mutsuaki Okubo, a North Korean agent.

14. Some people say that you’re disinformation because certain things have not come to pass that you’ve written about. However, many things have. Can you talk about some of those big events that have?

When people accuse me of being a disinformation agent they are basically calling me a liar which is slander.

What has happened is that my sources have told me certain things are going to happen and they do not always happen as my sources told me they would. In such cases, I was quoting my sources and they were wrong. For example, senior CIA sources kept insisting to me that Joe Biden would be President but it turned out to be Donald Trump.

However, some of my sources accurately predicted events like the Lehman Shock, the overthrow of the Muslim Brotherhood government in Egypt, the Fukushima nuclear terror attack on Japan, etc.

15. So essentially, good things are happening despite a lack of media attention on it? 

Good things are definitely happening and that is obvious for all to see. Only 6% of Americans trust the mainstream media which means they have killed themselves with their constant lies and cover ups.

16. Any other messages you’d like to share with the world or anyone in particular?

Yes, the process of creating and distributing money is the process of deciding what humanity does in the future. This process should be a transparently run public utility not a private monopoly in the hands of gangsters. We are fighting to free humanity from a horrific regime of babylonian debt slavery and we are winning.

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

Some Sunday thoughts from the CIO of One River Asset Management’s latest Weekend Notes, which starts of in traditional Eric Peters style, namely a mockery of the Fed…

“Wait, that’s not even part of your model?” asked the private sector, imagining itself in the presence of the Fed.

 

“You seriously don’t even consider the crushing weight of the pension avalanche that is bearing down on us?” And the governors shrugged.

 

“You don’t even take into consideration what’s happening in China?” Silence. “Do you even understand today’s world? You’re all so old, you’re from a different time.” They returned to their spreadsheets, moving dots around, what fun.

 

“Pensions and China are the only two things that matter!” Silence. 

 

“Let me get this straight,” said the private sector, collecting its composure. “You’ve got this thing called China, and you don’t understand that?” The governors nodded.

 

“And you’ve got this other thing which is my pension liability, and you’re not modelling that?” Each nodded.

 

“And I’m supposed to have confidence in Fed policies?” asked the private sector. The governors put down their crayons, lifted their dot plots, displaying them proudly.

 

And the private sector quietly started selling its assets to buy Amazon stock, which has none of these problems.

… Continues with some additional thoughts on credit math…

“Look at it this way,” said the CIO. “If default risks are remote, and there’s a 3% return available in an asset class, investors will borrow money to buy those assets and arbitrage that 3% away.” Most assets in today’s world have an expected return of 3% or less, even negative.

 

“It should be obvious, but at this point in the cycle, with expected forward returns so low, you’re a complete prisoner to the cost of capital.” Early in a cycle that’s not the story. The arb between the cost of capital and expected returns is wider. Naturally, volatility is higher too. 

 

“Credit spreads reflect the cost of capital in an economy,” continued the same CIO. “And they are reflexive; meaning tighter spreads beget tighter spreads and vice versa.”

 

When spreads tighten dramatically, and remain there, you can be sure the arbitrage players drive asset prices higher, lowering the expected future returns. At that point, even a modest widening of spreads closes the arbitrage, and leaves asset prices with a shortage of buyers. “You don’t need yield curves to invert to spark a cycle. You just need rates to move high enough to kill the arb.”

 

“Let’s say the average US corporate borrows at 150-200bps over 5yr Treasury yields,” explained the CIO. “Now imagine 5yr Treasuries are 2%.”

 

So the average corporation borrows at 3.50%-4.00%. “Now let’s say US nominal GDP is 3.5%.” Why would corporations borrow?

 

“Now, let’s imagine that people rightly assume that defaults will rise. Credit spreads can quickly rise to 400bps.” Which lifts the cost of borrowing to 6% (5yr Treasuries plus 400bps). The arb reverses. “That’s why default cycles are so dangerous for highly leveraged economies.”

… and ends with the topic least understood by the Fed, reflexivity:

“When employment cycles turn, they do so violently,” said the historian.

 

“The same is true of credit default cycles.” Our economic system is highly integrated. One man’s liability is another’s asset. One CFO’s payable is another’s receivable. It’s a global Ponzi scheme that works wonderfully until it doesn’t.

 

“One default ripples through the system – by definition – causing another default, and so on. Nothing exists in isolation. This is why credit cycles turn violently. And they feed back into the employment cycles, amplifying those too.” Reflexively.

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

Authored by Peter Tchir via Brean Capital,

VIX ETFs and ETNs

We take a deeper dive into the strange world of VIX ETFs and ETNs.  We take a quick look at the incredible short interest in both the long VIX products and the short VIX products.  This massive short interest in both long and short products seems unique to the VIX world (it reflects a re-balancing trading strategy that works in the VIX space because of the high volatility of the VIX products) (VIX ETFs seem to run 5 to 10 times the realized volatility of the S&P 500).

Then we dig into the prospectus for each of the 4 funds I focus on (VXX, UVXY, XIV and SVXY).

What is important is the Acceleration Event in XIV.  The language from the prospectus seems clear that if the VIX Short Term Futures Total Return index moves 80% in a day, then XIV has to unwind.  While an 80% move in a single day is very unlikely, I believe that the lower VIX goes, the easier it is for it to occur (VIX at 8 only needs to jump to 14.4 in a day for this to occur), because these VIX products make a ‘mistake’ in my view of converting changes in VIX to percentage changes to provide returns (the VIX futures do not do that for example).

The problem with an XIV acceleration event is two-fold – all of the hedges (short futures positions it has) will need be covered, just as the market is struggling.  The second order problem is that many investors who have been waiting for a spike in VIX to sell volatility won’t have an outlet.  If you planned to buy XIV on a VIX spike and it isn’t there, what do you buy?  It is far less clear what sort of trigger mechanism SVXY has (that is something we are looking into).

While I talk about 80%, several funds have mentioned that they see a 60% move as the start of the unwind process in the market as a whole.

On some regression analysis (which I will try and add over the weekend), something like a 3% drop in a single day would be enough to trigger that sort of VIX avalanche – again, not a high probability, but worth noting.

There may also be a bias for events to occur shortly after VIX futures contract expirations as the bulk of the index is in the more volatile, and lower priced, VIX futures contract – but that is just thinking out loud.

One trade, as a result, seems to be an  uptick in volumes and activity in higher strike VIX calls.   The premise being that if VIX goes > 60% it is going to have a shock much higher.  So rather than spending a lot of premium on puts, spend as little as possible to buy some lottery tickets in the unlikely event that it occurs (I think the contingent probability of if VIX goes to 16 it is going to 25 is the right way to look at VIX – the probability of it gapping to 16 in a day is very low – but if it does, it should move a lot higher, quickly).

That ignores the usual stop loss suspects in a crowded, ‘sell vol’ space and assumes no algo will aggressively attack out of the money puts to drive bid/offer wider – which is an integral part of the VIX calculation.

The steady state grind to higher stock prices seems to be the base case, but there are clear paths to some uglier scenarios.

The corollary of my view is that ‘less liquid’ assets will likely outperform in a VIX spike type event because it will happen so quickly and recover almost as quickly, such that extremely illiquid assets won’t have time to trade down (this happened a bit in August 2015 where ETFs like HYG and JNK performed more ‘normally’ than other ETFs because there were no ‘bad prints’ to drive the algos trading).  I will highlight some of those abnormalities in this weekend’s report.

Finding ways to buy the cheapest possible lottery tickets to a VIX or volatility spike is the right trade – the event is too unlikely to be the over-riding concern in your portfolio management – but I think it is a valid enough concern and there are cheap enough ways to do it, that it is a worthwhile exercise.

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Full Report below…

Incredible Short Interest In VIX ETFs and ETNs

I cannot think of another product that has such large short interest in BOTH the long and the short versions. I might not be looking hard enough, but on a quick scan, most other asset classes seem to make due with the option of being either long or short.

Given the year to date returns it is easy to see why investors would want to own XIV and SVXY (both up more than 90%) or to be short VXX (down 54%), but why be short both? (for percentage of float short I used short interest and shares outstanding as of June 30th as that was last date I head short interest information).

Shorting both looks even more strange when over the past year it looks like owning both was the right trade (year to date you could have owned XIV and VXX and generated a 40% return?) The strategy of shorting XIV and XVV, with weekly rebalancing has produced positive returns. That is the reason that both are shorted. There is strategy that involves shorting both, rebalancing weekly and harvesting the differences that occur in these two volatile indices. (I had only run daily rebalancing which was flattish on the year, but weekly rebalancing works better).

The Benchmarks Seem The Same

From the UVXY and SVXY prospectus.

exposure to, forward implied equity market volatility as measured by the S&P 500® VIX Short-Term Futures Index (the “Index”)

From the XIV prospectus.

Each series of ETNs tracks the daily performance of either the S&P 500 VIX Short-Term Futures™ Index ER

From the VXX prospectus.

ETNs is linked to the performance of the S&P 500 VIX Short-Term Futures™ Index TR

I will admit that on Bloomberg I couldn’t find a difference between the total return version and the excess return index or the futures index (that could be Bloomberg’s fault, it could be that I missed a subtle part of the naming convention, or it could be that they all reference the same thing – which is probably the starting assumption most people make).

I can’t even find the index calculations (though I only spent half an hour googling various likely sources), but my understanding is that it is weighted return between the first futures contract and the second one. The weighting is Days into Period/Total Days and (Total Days – Days into Period)/Total Days so that at the start of a roll period, the entire weighting is on the front contract and that gradually shifts into the index using the second contract almost in its entirety, so that by the next roll it is all based on the second contract about to become the first contract.

Now For The Good Stuff – Forced Unwinds

If you aren’t confused by this point either I did a better job wrapping my head around the issues than I think I did (which is not likely) or you have just skimmed the pre-amble to get to the good part (seems likely).

But here we are, and we will start with XIV:

Acceleration at Our Option or Upon Acceleration Event

We will have the right to accelerate the ETNs of any series in whole but not in part on any Business Day occurring on or after the Inception Date (an “Optional Acceleration”). In addition, if an Acceleration Event (as defined herein) occurs at any time with respect to any series of the ETNs, we will have the right, and under certain circumstances as described herein the obligation, to accelerate all of the outstanding ETNs of such series (an “Event Acceleration”). In either case, upon acceleration you will receive a cash payment in an amount (the “Accelerated Redemption Amount”) equal to the Closing Indicative Value on the Accelerated Valuation Date. In the case of an Optional Acceleration, the “Accelerated Valuation Date” shall be an Index Business Day specified in our notice of Optional Acceleration, which Index Business Day shall be at least 5 Business Days after the date on which we give you notice of such Optional Acceleration. In the case of an Event Acceleration, the Accelerated Valuation Date shall be the day on which we give notice of such Event Acceleration (or, if such day is not an Index Business Day, the next following Index Business Day). The Accelerated Redemption Amount will be payable on the third Business Day following the Accelerated Valuation Date (such third Business Day the “Acceleration Date”). The Acceleration Date will be postponed if a Market Disruption Event occurs and is continuing on the Accelerated Valuation Date. No interest or additional payment will accrue or be payable as a result of any postponement of the Acceleration Date. See “Specific Terms of the ETNs—Market Disruption Events.” We will give you notice of any acceleration of the ETNs through customary channels used to deliver notices to holders of exchange traded notes.

 

Acceleration Event

As discussed in more detail under “Specific Terms of the ETNs—Acceleration at Our Option or Upon an Acceleration Event” in this pricing supplement, an Acceleration Event includes any event that adversely affects our ability to hedge or our rights in connection with the ETNs, including, but not limited to, if the Intraday Indicative Value is equal to or less than 20% of the prior day’s Closing Indicative Value

My interpretation of this, is that the Notes (XIV is a note issued by Credit Suisse AG (Nassau Branch)) ‘mature’ or ‘redeem’ (my words) in its entirety if the value declines by 80% in a single day.

I am not a lawyer, so you can have your lawyers read it, but every time I read it, it seems likely that at -80% on day – the fund goes ‘poof’. If the fund winds up down 90% investors would be entitled to the 10% of value left – but that is not the point.

Let’s say we are on a day where all of the calculation is based on the first VIX futures contract and the contract is trading at 8 (why not, we are in a vol seller’s world in the middle of summer).

If that contract goes to 14.4 then I think a rather nasty series of events occurs.

The valuation of the note would be -80% because although VIX going from 8 to 14.4 doesn’t seem that insane, it would be an 80% move in the index.

Now XIV (which as a note doesn’t show its daily holdings, would have to BUY a lot of VIX protection – either in VIX futures forms or in swaps – but end result is the same – a bunch of shorts will be FORCED to cover). Credit Suisse AG (Nassau Branch) as the issue would direct this, because they have no recourse to investors if the fund went down -110%. In that case CS AG (Nassau Branch) would lose 10% – and I suspect they aren’t in the business of giving away free options which is why they have the Acceleration Event defined as such – 20% should give them plenty of time to unwind though in my scenario they get stopped at 14.4 and start losing money at 16 – again seems insane to treat VIX as a percentage change).

All else being equal – UVXY will be a buyer of futures into the close as it would need to buy to maintain its 2:1 leveraged exposure.

For SVXY I could only find this:

Termination Events The Trust, or, as the case may be, a Fund, may be dissolved at any time and for any reason by the Sponsor with written notice to the shareholders.

There is also this little blurb in the prospectus

Inverse positions can also result in the total loss of an investor’s investment. For the Inverse Fund, a single-day or intraday increase in the level of the Fund’s benchmark approaching 100% could result in the total loss or almost total loss of an investor’s investment, even if such Fund’s benchmark subsequently moves lower.

They seem to contemplate some sort of a closeout (‘even if such Fund’s benchmark subsequently moves lower’) but it isn’t very clear.

Here is the current holdings of SVXY (according to their own website which actually doesn’t match Bloomberg’s MHD function)

So SVXY would be short a lot of contracts. It has cash against those. Presumably throughout the course of the day they would be receiving margin calls. While XIV made it very clear what was to occur – SVXY doesn’t make it clear at all. Could they get new money to make more margin calls (are margin calls really only at the end of the day as written in some informational section or can they be during the day? How good are their clearing agreements in terms of avoiding termination?

I am not a lawyer and admittedly gave up searching for Termination, Acceleration, Unwind, Closed, Closed-out, margin, margin call, etc….

This is a different situation than a structured note. In structured note, like XIV, the note issuer would be responsible for any losses beyond money received (not a legal opinion).

In an ETF, like SVXY, it would be counterparties to the company, that are left with the losses. If one counterparty allowed the ETF to lose more money than they held, the counterparty could not go after shareholders for the money (as I understand it). So, in my opinion, the prudent counterparty would have rules in place to prevent that, but it isn’t clear at all in the document as I read it.

Can VIX Futures Move 80% In A Day (And Should We Care)

On a simplistic glance, it seems easier to move from 8 to 14.4, then from 12 to 21.6.

Is there a real potential that that a move like that could trigger buying into a fragile market?

Yes, though maybe it would be offset by redemptions in the long products, or shorts of shorts getting stopped out, because who knows what you do with a short interest in a product that goes away (which would be the case of XIV).

Let’s not forget that VIX itself is a complex calculation – please see the wiki link to read more, if your head isn’t already spinning enough.

Maybe the VIX products are too small and hokey to impact larger markets?

Doesn't Backtesting Protect Us?

Home prices, on a national basis, have never been negative.

The probability of credit loss for a super senior corporate CDS tranche is 0.0001% (or some extremely low number). As far as I know, none of the corporate super senior CDS tranches sold by AIG FP would have experienced a loss due to Credit Events and I think even on the CDX IG index tranches, none have reached into the ‘mezzanine’ tranche, let alone super senior – yet that trade left more blood in the water than an episode of Game of Thrones.

These products, the links between them, the short interest, the unwind rules, have not been thoroughly tested.

On the other hand, SVXY has seen some outflows, so maybe we won’t run into some bizarre scenario.

So Many Unknown Unknowns

With stocks at record highs, and the FANG led NASDAQ once again showing resilience, maybe we don’t have to worry about all these strange products? Maybe all of that is too remote or just simply untradeable – especially when the ‘no one could have seen it coming’ argument would be an obvious one to employ if we ever get a VIX led problem.

Quite frankly, despite writing this, I find it hard to be alarmist right now. I can’t get up the energy to run through town crying ‘the vix are coming, the vix are coming’, but a nominally low level of VIX makes it easier to set something into motion.

While I have been writing this, several people have pointed out the rebound in the S&P 500 Implied correlation index from an unprecedented low yesterday.

via http://ift.tt/2gVcD0V Tyler Durden

Dr. Pippa Malmgren, a US policy analyst and former member of the Working Group on Financial Markets, a government entity better known by its nickname, the “Plunge Protection Team,” appeared on Erik Townsend’s MacroVoices podcast to discuss bitcoin and the European refugee crisis, while also offering some clues about how the PPT, famous for its secrecy, operates.

On The Financial Implications of Europe's Refugee Crisis

Townsend started the interview by asking Malmgren, who also served as a special assistant to the president during the Obama administration, her thoughts about the thousands of refugees who continue to pour into Europe. Surprisingly, despite her liberal views regarding the free movement of people, Malmgren said she’s “quite worried” about the crisis, and believes it will only worsen as governments in Northern Africa become increasingly unstable, potentially leading to a financial crisis in Europe.

Erik: What do you see the outcome of this refugee crisis being? We had Italy the other day threatening to issue EU visas to refugees to force other countries to do their part to absorb more people. We have seen German politics affected by what seems like a growing divide in the German populace in their attitude towards accepting refugees. mIs this going to lead to a bigger problem or is it coming under control?

Pippa: I think there is a much bigger problem in immigration coming. To be clear, I am actually in favor of the freest possible movement of people, which means human capital and goods, and capital across borders. But there are always limits. And the socially acceptable limits seem to be in flux right now across Western Europe. Here’s the problem. We are not just talking about the magnitude of refugees we have already seen. We are talking about what’s coming. And so this is where the Italian threat is very important. They basically said, look, nobody is helping us and we get all of them because of our geographical location. So unless you guys give us a hand here, then we are just going to issue them papers and then let them loose. They can go anywhere they want in Western Europe. That is of course a bit scary for the rest of Western Europe, which would prefer to have the problem contained, but they are not prepared to help Italy in the containment process, just as they weren’t particularly prepared to give Greece any extra money to deal with their refugee problem, which happens for the same reason. But this is the beginning.

The bigger issue is that you still have a buildup of immigration happening in Turkey, and the Turks have also been very threatening, saying if you don’t give us what we want, and we have got a long list of things, then we might have parts of the border that there’s just nobody to police it that afternoon. And suddenly, you get a big wave. But even more important than that, I now see Northern Africa becoming more destabilized. So Algeria, Libya, and Egypt all becoming a little more wobbly and unstable, and that wave of immigration, I think, could begin to dwarf what we have already seen. In addition to that, there’s also the fact that everybody in Africa has registered that it is possible to get to the north. Of course, all of them would like to because they are not stupid. They completely understand that there’s a potentially better quality of life and much greater opportunity. It is not just a temporary phenomenon. It is now that people in that part of the world have begun to register I can get to Europe. Look, turn on CNN and you will see, which they can all do these days because they have got the telephone in their pocket. The television is on their phone.

This is the key thing. The realization that movement may be worth it. They are saying now in parts of even Sub-Saharan Africa that the greatest luxury good, the thing a person will buy when they have any extra money is passage to Europe. And so this is why there’s a really big question about what is the European Union’s immigration policy. Do they really have one? Or do they really believe in this concept of having basically no border whatsoever? I think it is a big debate. A lot of Europeans are like we never signed up for a world where we had no borders at all. Others say once you are inside the border, you are in. And I recently had a German say to me. For example, the Polish citizens that were in the United Kingdom weren’t immigrants. They were just European Union citizens. This is the type of debate that’s occurring. But at the end of the day there is still no money to deal with them for whatever reason they are arriving, and so it will continue to be a pressure on finances. I explained the example of Britain in 1834, when they abandoned the traditional system they had used for 1,000 years at that time, which was called the Tally Stick system. So when we say we tally things up or the word stock market refers to the use of little wooden stocks. They were little pieces of wood on which you record every transaction during your life, every borrowing, every lending deal, every asset acquisition, every tax payment.”

On The Rise Of Blockchain and Cryptocurrencies and The Fall Of Dollar Hegemony

Moving on, Townsend took the conversation in a direction that he said might be outside of Malmgren’s comfort zone: The rise of cryptocurrency’s like bitcoin. Contrary to his expectations, Malmgren said she’s been closely following the increasing use of cryptocurrencies, adding that they will likely play a role in determining who dominates the global economy, and therefore determines the monetary framework, after precipitating the next big paradigm shift, which will lead the world away from the dollar-based framework that exists today. Governments like China and Russia, which are seeking to create their own digital currencies, pose a greater threat to the long-term dominance of the dollar than they, or the US, realize.
 
Erik: I want to shift gears now to a topic I didn’t used to think of as being geopolitically oriented, which of course is your area of expertise, and that is crypto currencies. In the beginning, Pippa, if you look at what BitCoin was at the very beginning, it was something only interested extreme Libertarians who were very interested in financial privacy. Nobody else was paying attention to it. It was designed really to usurp the ability of government to interfere with and control people’s finances. It seems that it is almost going through a complete transformation where now we have the Ethereum guy, I forget his name (Vitalik Buterin), meeting with Putin talking about some kind of partnership to create a digital crypto currency that will become a national currency for Russia. Meanwhile, PBOC is advertising to hire block chain engineers to help to design the digital yuan or digital RMB. So all of a sudden, it seems like what’s going on, and I don’t remember the gentleman’s name. But there was someone from PBOC, a very senior official, saying it was time for central banks to stop ignoring crypto currencies and recognize that we have got to take the lead and we have got to be in charge of these things and design what we
want them to be. Where is this going? It seems like to me this is a game changer if national governments are going to get behind crypto currencies. Where does this take us?

Pippa: Totally. I think it is a massive market and geopolitical issue. I have written a little article about this, which I put up on LinkedIn, where I said you have got to understand if the size of your debt problem is so big that it can’t be paid off and in fact even inflation, which is the usual way you would seek to default on your debt slowly over time, you can’t get enough inflation generated, then there is one further option. And that is you literally abandon the entire system of money, and accounting. I know that sounds unbelievably radical, but we have seen it happen before. I explained the example of Britain in 1834, when they abandoned the traditional system they had used for 1,000 years at that time, which was called the Tally Stick system. So when we say we tally things up or the word stock market refers to the use of little wooden stocks. They were little pieces of wood on which you record every transaction during your life, every borrowing, every lending deal, every asset acquisition, every tax payment. The way it worked was it was literally a wooden board. You cracked it half really roughly so the two sides definitely did match and couldn’t be faked. Then the borrower and the lender each marked all their transactions. The stock end was always the smaller end, so that’s where we get stock market. There was a market in the stocks, these little wooden sticks. Bottom line was why would you abandon a system that has worked perfectly beautifully for 1,000 years. The answer is you had 200 years of war debts that had accumulated. They were unable to get inflation up enough without causing social unrest, and so the government said hey, let’s take the tally sticks back, and give people this great new innovation called paper money.

You can imagine everyone said I am going to hand over this record, this ledger of my entire net worth, and you are going to give me a piece of paper. Really? This is a joke. In the end, what the government had to do was confiscate the tally sticks, and they took them to parliament to burn them. They misjudged how much heat the fire would throw off, and that is what caused Parliament to burn to the ground in 1834. It was the destruction of the system of accounting and money. In its place, we adopted what we now use, which is piece of paper we call cash. Today, we are on the brink of similar step change, and the way you will do it is you move to electronic money in conjunction with blockchain. Blockchain is the new ledger, and e-money is the new currency.

The question is whose e-money. So everybody in government circles have been watching the Indian experience because the prime minister stepped up to the platform in early November and basically said we are going to move all of you, a billion people, off paper money and onto electronic money, and we are going to do it in three months. They did it, and they did it successfully. Now governments everywhere are saying we want to do that because, guess what happens when you move to e-money. First of all, you really eliminate the black market because you can’t transact anymore without it being seen. And so, for example, the European Union are talking heavily about moving to electronic money because then all this black market activity that happens in Greece and Italy where there’s no tax, we will be able to get all that tax revenue off it. That’s one reason. The second reason is with blockchain you have total transparency over every single step of a transaction, complete providence of every single transaction. The question is who gets to see it. I think this is where governments are suddenly a little schizo because on the one side they think they are going to have the ability to see every transaction that you and I and all the listeners are engaged in, but Ethereum has created this platform where actually they won’t necessarily be in government’s hands, maybe in private hands.

The question is can you trust the private hands who are issuing Ethers as much or more as you trust governments. So governments are being to say let’s create our own version, and that’s where you get the PBOC saying we’ve got to control this. Because otherwise, you are going to end up with private sector currencies that possibly are trusted more than government currencies, and that will lead to transactions offline that governments can’t see. There was a report going around the Internet recently about some guy who made $200 million bucks trading on Ethereum in a month, and the question was who will tax that. The answer is nobody. That freaks governments out to say the least, particularly given their debt situation. So I think this is a huge, huge thing, and all investors have to think very carefully about it. I will say one last thing about it. You have got to get familiar with quantum computing, and there is loads of stuff on the net about it. But the reason it matters is because of the speed at which you can process information. We now have quantum computers. The Chinese apparently have the fastest. There is D-wave out of British Columbia, but basically you can break a block chain password or a Bitcoin password in like less than a minute if you have a quantum computer. The question is who is going to have them, and the answer is mainly governments but big corporations are buying them like crazy. Volkswagen just bought one. We are going to see major corporations buying that computer power.

The question then is who has most transparency over the block chain and e-money, and I would argue it is going to be whoever has the most and fastest processing  power, which may be governments at times, it may be private at times, it may be fluid. That’s what we have to think about as investors.

On The Real Power Of The Plunge Protection Team

Finally, Townsend said he couldn’t resist asking his guest about her time at the PPT, to which she responded that the group’s activities are far more mundane than the popular narrative that portrays them as staunchly interventionist, buying stocks to prop up the market every time there’s a forceful correction. The group’s meetings mostly consist of strategizing about monetary policy, geopolitics and how developments in both realms might impact US investors.

While the group does operate a trading desk, Malmgren said it’s mostly used to monitor capital flows, not actively participate. The group’s genuine operations generally involve crafting statements meant to influence the market that are given by prominent administration officials like the Fed chair or Treasury secretary. The group also leverages the heft of the Fed and Treasury Department to influence markets in more subtle ways. As Malmgren points out, sometimes all that’s needed to move the price of a security or currency is to have the Fed’s trading desk call up a bank and ask for a price.

Erik: Finally, Pippa, I would like to go to a topic that I know a lot of people are going to be very interested to hear from you about, and that’s the President’s working group on financial markets, better known as the Plunge Protection Team. If you were to believe in the rhetoric that you see and some of the conspiracy minded blogs and podcasts on the Internet, this is a sinister organization that exists to undermine free market capitalism by imposing government control and manipulating markets much to the dismay of short sellers and gold bugs and so forth. You have the distinction of having actually served in real life on that so called Plunge Protection Team. Tell us what they really do there. What was it like? What experiences and insights did you gain from serving on the PPT?

Pippa: What is it really? It is a working group that is the Treasury, the Federal Reserve, the controller of the currency, somebody from the White House. They call it the plus one. When I was on it, I was the plus one for the White House. Basically, they are there to confer, to swap notes about what’s going on, especially when there’s a big emergency. They do have a quote trading room, and the trading room is basically a place where they can watch markets, see prices, and see how things are unfolding. What is isn’t it is not a hedge fund. It is not an entity that can just enter the market and buy stocks. It is not like Hong Kong where they can say we are now buying stocks and suddenly the market moves.

It works in more subtle ways. My sense is it is a talk shop. It doesn’t have anything like the influence the markets attribute to it. The more important thing is that all the big financial institutions, they understand that it is better to get along with Treasury and the Fed than be obstructive or confront them. I would go even further, and I said this is in my book Signals, that a lot of people in government are definitely looking to work in the private sector when they leave. So you don’t want to do stuff that’s really disruptive to the banking sector if you expect to be named vice chairman of a major bank. So what I think actually happens is when we are in a big emergency, Treasury knows all of the people in the banking system. They are buddies, and they play golf together. They get together and go it looks really bad. It would be good if somebody came into the stock market and bought some stuff. That would be good. Yeah, I think so.

Then the order goes out to the trading floor buy stocks Monday morning. It is not because they were required to or because the government in any way has issued an order. It is just a sense of I think government is enough uneasy that they will do something. Nobody asks what can they do. They just assume it is government, so they go I think they might do something so we had better get in front of this. This is why the power of words in government is so important. What you get in government, quite literally when you go serve in any of these roles, you get a pen and a flag. It is really important to understand the power of the pen and the flag. You literally write or you say words, and the market moves.

You need to do actually intervene in the stock market directly or the bond market. All you need to do is put the word out that you are getting a little uncomfortable with prices where they are, and you would rather see them somewhere else. Lo and behold, the market starts moving. It is not the Plunge Protection Team that actually do this; it is much more subtle. It is much more subtle than that, and it would happen even if you didn’t have a Plunge Protection Team. It is just Wall Street sniffing out what’s the sensibility of Washington. Having served on it, whenever I read these articles saying we had so much power and we controlled the markets, I burst out laughing because I thought they couldn’t punch their way out of a paper bag. But perception is everything in markets, and the perception is not wrong that government can influence the tone. I just don’t think it does so directly as people think.

Erik: So what you are saying is that the trading room that is operated by the Plunge Protection Team is for monitoring only. There is no account with which to massively short VIX futures in order to try to suppress volatility. There is no money to spend to try to influence prices in the market. Is that correct?

Pippa: There is one entity, and it has been so long since I was there I am ditzing on the name. It was created to deal with Mexico when Mexico had the Peso collapse. Bob Rubin was there at the time, and basically they took oil as collateral in exchange for the loans that they made to Mexico. That’s it. It is called the Exchange Rate Stability Fund. That is a pool of money that is available to the Treasury, and they can deploy it in markets. It is subject to congressional oversight, but Congress gets mad as hell every time they actually use it. What Congress doesn’t like is having pools of money that are not subject to congressional oversight prior to their use. In practice, you have the Exchange Rate Stabilization Fund as a mechanism you could use, but I think in reality it is not actually used very often. But the fact that it exists makes the market guys go, they could. All you have to do if you were sitting in that seat on the trading floor of the Treasury is ask for a price. You don’t have to tell the market what to do. You just have to call up and say just checking prices. You check prices at the right moment, and everybody knows which side of the trade you want the market to be on. Suddenly, they all start moving. Again, I don’t think that it’s really about the direct deployment of capital most of the time. It is really about using the words to create the impression that causes markets to start doing things they might not otherwise be doing.

Readers can find a complete transcript of the conversation here.
 

via http://ift.tt/2uVR3zF Tyler Durden

A Ifop poll released on Sunday showed that the approval rating of France’s new President Emmanuel Macron tumbled by 10 points, hitting 54% in his third month in office, as voters were “either confused by plans for the tax system, shocked by a dispute with the head of the army or unsettled by upcoming labor laws reform”, according to Journal dy Dimanche.

According to Bloomberg calculations, the 10 point slump for Macron, elected in early May, was the second-biggest decline for a French president so soon after election. Jacques Chirac dropped 15 points from his May 1995 election to July, the Paris-based pollster said. The survey for JDD was conducted by phone and online July 17-22 among 1,947 respondents.

Macron, deuxième plus forte chute de popularité en trois mois après Chirac https://t.co/xN5zNc5EJz http://pic.twitter.com/MGqywBGCic

— Le JDD (@leJDD) July 23, 2017

While Macron made a strong start on the world stage and won a solid majority in parliament, dark clouds have emerged in recent weeks, especially after he was widely criticized by opponents and the press as heavy-handed after a row over budget cuts that ended with the resignation of a highly-regarded military chief, who infamous told a parliamentary committee “I won’t let myself be fucked“ before he resigned.

As The Local.fe reports, France’s youngest-ever president, who has sought to project an image of authority since taking office in May, made clear during the row with the military boss that he would brook no insubordination as commander-in-chief. The leftist Liberation newspaper said Macron’s “little authoritarian fit” could be a sign he was drunk on power and said it was time for him “to grow up a bit”.

The 39-year-old leader has also backed a controversial bill to toughen France’s security laws that includes measures some rights groups have branded as draconian. His majority in parliament has drawn concern, with opponents and several newspapers expressing concern over the concentration of power in the presidency.

Despite the steep drop, Macron’s rating is still quite high, especially compared with his predecessors. In September 1981, Francois Mitterand had 48% approval, Francois Holland could boast 56 percent in July 2012, and only Nicolas Sarkozy scored much better in July 2007, with 66 percent.

Prime Minister Edouard Philippe’s approval rating also fell, dropping by 8 points to 56 percent said the poll of 1,947 adults carried out from July 17th-22nd.

“Macron’s entry in the atmosphere is brutal, he’s facing the brunt of several sectors in society,” Jerome Fourquet, the head of Ifop opinion polls, told Journal du Dimanche quoted by Bloomberg. Fourquet said a tax increase that will hit retirees, new measures that that will curtail civil servants’ advantages and his demonstrations of “authoritarian style” in some cases were among reasons cited by those surveyed. “Some of those polled were openly criticizing a presidency based on communication,” he added.

There is hope the recent plunge won’t continue, as the French leader’s agenda this week could help him move on from the domestic troubles. His first event Monday is a conference call with Germany’s Angela Merkel, Russia’s Vladimir Putin and Ukraine’s Petro Poroshenko to discuss the crisis in Ukraine. Later in the day, he’ll meet with scientists fighting the AIDS virus and he’ll finish his day with Bono, the U2 singer and co-founder of the ONE non-governmental organization.

His best chance to shine will come Wednesday at 5 p.m. when he has a meeting scheduled with the pop singer Rihanna at the Elysee presidential palace, according to his official agenda.

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Following the latest weekly battering of the USD, which has tumbled to near one year lows, the latest CFTC net spec positioning (which traditionally represents a lagging picture of price trend and has very limited, if any, informational value) saw a continuation of recent extreme moves, nowhere more so than in Euro and Japanese Yen net spec positions, which have shifted to most long since late 2011, and most short since January 2014 respectively.

A quick summary of the latest FX CFTC net exposure via DB reveals that specs turned net long in CAD futures by 8K contracts for the first time since mid-March, buying over 16K contracts over the week.

They continued to pare their net shorts in GBP by 8K contracts to 16K contracts for the third week in a row.

In the meantime, they increased their net shorts in JPY for the fourth straight week to 127K contracts, the highest since January 2014…

… while turning even more bullish on the Euro, at 91k contracts, the highest net long exposure since 2011.

As a result of the ongoing rout in the USD, the net spec positioning in the greenback now the shortest since mid-2014:

Zoomed in and broken down by offseting FX pair:

* * *

Aside from FX, there was several notable trends in the rates complex, where net spec positioning in TSY futs decreased for the third straight week by 32K contracts in TY equivalents to -120K contracts.

As Deutsche Bank notes, the largest sales came in TU where specs resumed adding to their net shorts by 17K contracts after a pause in the previous week – their net shorts in TU have increased by 263K contracts since May. They also increased their net shorts in WN by 8K contracts and pared their net longs in TN by a half to 12K contracts. In contrast, specs added 25K contracts to their net longs in TY for the first time in the last four weeks.

After Eurodollars hit record net spec shorts in June, there has been a sharp burst of short covering, and the net short here is now roughly half where it was just one month ago.

Yet while shorts were covered in the ED space, a new record net spec short has emerged in 2Y contracts, which just hit a new all time net short of -274K contracts.

Meanwhile, after the recent fireworks in 10Y nets, which violentedly moved from a record short to a record long in the span of week, there has been far less movement in recent days, echoing the somewhat more stable price for 10Y futs.

* * *

A quick look at commodities reveals that there was little to note in the latest NYMEX crude move, with money managers increasing their bullish Nymex WTI crude oil bets by 36,834, the highest net-long bullish position in six weeks…

… the aggressive shorting and unwind of long position in precious metals, including gold…

… but especially silver, has accelerated in recent weeks, suggesting the lieklihood of a sharp short squeeze is rising.

* * *

Finally, looking at equity positioning, reveals a modest increase of 23K net specs in E-mini futs…

… even as hedge funds continue to unwind net long positioning in the tech-heavy Nasdaq, which has seen the net position roughly flat vs one week ago, and rising by 8K contracts to 39K as of the most recent week.

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