iftttwall

Earlier today, a veteran White House correspondent laid out his version of how Obama “gets away with it” in a news cycle when everyone’s attention should be glued to the economic failures of the lame duck president. One thing he forgot to mention, however, was the use of such conventional “rally around the flag” tactics as taking out a key symbolic nemesis of the US to drum up patriotic fervor.

Just over five years ago this function was served by Osama bin Laden, who then died anywhere between the 3rd and 5th time (depending on who was counting). Then, earlier today, it was Mullah Akhtar Mansour, the leader of the Taliban in Afghanistan, who was killed by a US drone strike around 6 a.m. EDT Saturday
while Mansour was riding in a vehicle in a remote area near the town
of Ahmad Wal, Pakistan, along the border with Afghanistan, according to
Defense Department officials.

Mansour has been seen as the leader of the Taliban since it was revealed last year that famed leader Mullah Mohammad Omar had died in 2013. Since the disclosure of Omar’s death and under Mansour’s leadership, Taliban fighters have conducted numerous attacks that have resulted in the death of tens of thousands of Afghan civilians and Afghan security forces as well as a number of U.S. and coalition personnel, Pentagon spokesman Peter Cook said in the statement.

As a reminder, the last time the US conducted a strategic mission deep inside Pakistan (to executed Osama bin Laden), it led to a furious reaction by the local government which had not preapproved the operation. We expect this time will be no different as the US once again shows that “sovereignty” means absolutely nothing to the printer of the world’s reserve currency.

Mullah Akhtar Mohammad Mansour, Taliban militants’ leader

While still unconfirmed, the death of Mullah Akhtar Mansour could further fracture the Taliban – an outcome that experts cautioned might make the insurgents even less likely to participate in long-stalled peace efforts. In other words, it would push Afghanistan that much further from some semblance of peace. It will , however, likely lead to an escalation of Taliban retaliation which will likely focus on US assets in both Afghanistan, Pakistan and all other neighboring countries where US presence is not exactly “welcome.”

According to Reuters, the assassination mission, which included multiple drones, demonstrated a clear willingness by Obama to go after the Afghan Taliban leadership in Pakistan now that the insurgents control or contest more territory in Afghanistan than at any time since being ousted by a U.S.-led intervention in 2001.

The WSJ adds that a second man who was with Mr. Mansour and was considered a combatant is also believed to have been killed in the strike. The strike was authorized by President Obama, Pentagon officials said. Pentagon spokesman Peter Cook confirmed an air strike targeting Mansour in the Afghanistan-Pakistan border region but declined to speculate on his fate, although multiple U.S. officials, speaking on condition of anonymity, told Reuters he likely was killed. 

Another Pentagon official said that there were no unintended casualties or other damage because of the remoteness of the area in which the strike occurred.  He probably felt obliged to add that in light of the thousands of innocent civilians that the US has “droned to death” in its pursuit of radical militants whose every step and location it knew well in advance.

“We are still assessing the results of the strike and will provide more information as it becomes available,” Cook said.

Not surprisingly the locals have denied the story:  a Taliban commander close to Mansour, speaking to Reuters on condition of anonymity, denied Mansour was dead. It’s unclear why the Taliban was anonymous: it’s not like he is exactly leaking insider trading information.

“We heard about these baseless reports but this not first time,” the commander said. “Just wanted to share with you my own information that Mullah Mansour has not been killed.”

This is not the first time Mansour has been “killed” – in December, Mansour was reportedly wounded and possibly killed in a shootout at the house of another Taliban leader near Quetta in Pakistan. Well, not reportedly killed if he has been reportedly killed again, although as a reminder this is precisely what happened to none other than Osama bin Laden who also was “reportedly” killed numerous times before Obama finally took credit for his “final” killing.

Bruce Riedel, an Afghanistan expert at the Brookings Institution think-tank, described the U.S. operation in Pakistan as an unprecedented move but cautioned about possible fallout with Pakistan, where Taliban leadership has long been accused of having safe haven.

In other words, with ISIS cells in Europe carrying out suicide bombing missions every few months, the US decided it was a good idea to poke yet another hornets’ nest and create more chaos and retaliation. A State Department official said both Pakistan and Afghanistan were notified of the strike but did not disclose whether that notification was prior to it being carried out.

“The opportunity to conduct this operation to eliminate the threat that Mansour posed was a distinctive one and we acted on it,” the official said.

Reuters adds that the U.S. drones targeted Mansour and another combatant as the men rode in a vehicle in a remote area southwest of the town of Ahmad Wal, another U.S. official said, speaking on condition of anonymity.

U.S. special operations forces operated the drones in a mission authorized by Obama that took place at about 6 a.m. EDT (1000 GMT), the official said. That would have placed it at Saturday at 3 p.m. in Pakistan.

Cook branded Mansour “an obstacle to peace and reconciliation between the government of Afghanistan and the Taliban” and said he was involved in planning attacks that threatened U.S., Afghan and allied forces.

Ironically, those who actually grasp what is about to happen, completely disagree. Take for example, Michael Kugelman, a senior associate for South and Southeast Asia at the Woodrow Wilson Center, said the strike was unlikely to bring the Taliban to the negotiating table any time soon. In fact, it will likely make the Taliban far less likely to want to sit down and discuss peace, assuming of course that Mansour is dead.

“The Taliban won’t simply meekly agree to talks and especially as this strike could worsen the fragmentation within the organization,” he said.

Kugelman said the most important target for the United States remained the top leadership of the Haqqani network, which is allied with the Taliban. Mansour had failed to win over rival factions within the Taliban after formally assuming the helm last year after the Taliban admitted the group’s founding leader, Mullah Omar, had been dead for more than two years.  It was unclear who Mansour’s successor might be. “If Mansour is dead it will provoke a crisis inside the Taliban,” Riedel said.U.S.

It will also likely provoke another major diplomatic incident between Pakistani leadership and the Obama administration.

Meanwhile, the neocons in the US were giidy with delight: John McCain, the Republican head of the Senate Armed Services Committee, said he hoped the strike would herald a change in the Obama administration’s policy against more broadly targeting the Taliban.

The new U.S. commander in Afghanistan is currently reviewing U.S. strategy, including whether broader powers are needed to target insurgents and whether to proceed with plans to reduce the number of U.S. forces. “Our troops are in Afghanistan today for the same reason they deployed there in 2001 – to prevent Afghanistan from becoming a safe haven for global terrorists,” McCain said. “The Taliban remains allied with these terrorists, including al-Qaeda and the Haqqani network, and it is the one force most able and willing to turn Afghanistan into a terrorist safe haven once again.”

As the WSJ concludes, under the current authorities, U.S. military operations against the Taliban can only be taken under three broad circumstances: when U.S. or coalition forces are under threat, when U.S. officials deem that the Taliban is providing direct support to al Qaeda or when the Taliban pose a “strategic threat” to Afghan forces.

U.S. officials said the strike Saturday was considered a “defensive” operation because the U.S. believed that the Taliban leader was actively plotting attacks against U.S. forces in neighboring Afghanistan. Even though there is clearly nothing defensive about an offensive drone assasination.

The White House has called for shifting control of U.S. drone operations from the CIA to the Pentagon, but officials said the shift wouldn’t apply anytime soon to Pakistan because of political opposition there to the U.S. conducting overt strikes on Pakistani soil.

via http://ift.tt/1YMYMoH Tyler Durden

A little over a month ago, conventional wisdom (and overrated pundits) said that Trump has no chance of being the republican nominee. They were all wrong, but so was the market which continued to ignore the possibility of a Trump presidency until well after the fact. And, as always happens, now is when if not the market, then certainly Goldman’s clients are finally trying to catch up. As Goldman strategist David Kostin (who just one week ago warned that there is now a substantial risk of a market drop ahead of the year end), writes “Politics is now a topic in every client discussion.”

Kostin remains short-term bearish, and still sees the S&P sliding as low as 1850 in the next several months, but he appears more focused on the the impact of the next president on the market and the economy, now that suddenly the market is starting to price it in.

So for all those curious, this is how Kostin is responding to all of Goldman’s clients questions about the upcoming presidential election and how to trade it.

* * *

United we stand, divided we fall: Equity strategies ahead of a rise in political uncertainty

The US Presidential election will take place in 170 days on November 8, 2016. Politics is now a topic in every client discussion. Last week we argued the S&P 500 was vulnerable to a 5%-10% drawdown and the index could fall to 1850-1950 during the next several months although it would end the year at 2100, roughly 3% above the current level. Rising political uncertainty was one of the risks we identified as a potential catalyst for a market drawdown.

Prediction markets assign a 60% probability that Hillary Clinton will win the general election. Polls tell a different story: the Real Clear Politics (RCP) average of the most recent national polls shows a 3.1 point spread in favor of presumptive Democratic nominee former Secretary of State Clinton (45.8) versus presumptive Republican nominee businessman Donald Trump (42.7). The RCP spread has narrowed from 9.3 points just one month ago (48.8 vs. 39.5 on April 20, 2016). Some polls such as the May 18th Rasmussen Reports show a spread of 5 points in favor of Trump (42) vs. Clinton (37).

Polls in prior presidential elections tightened as voting day approached. But thus far 2016 has hardly followed a regular election playbook. Our view is the closeness of the current race is underpriced by the market. We believe that the contest will become more competitive – or at least will be perceived as more competitive – than it is currently. The upcoming party conventions (Republicans on July 18-21 and Democrats on July 25-28) will raise political uncertainty as the competition enters the home-stretch.

Equity market uncertainty will almost assuredly climb during the next several months in concert with rising political uncertainty. The US Equity Market Uncertainty Index tracks articles in more than 1,000 domestic newspapers that use the terms “uncertainty,” “economics,” and “equity market” or “stock market”. Exhibit 1 shows the path of stock market uncertainty during the past seven US presidential election years. The 2016 path is tracking below any previous election year since 1988. But the trend will soon reverse and equity uncertainty will rise as Election Day approaches.

 

When equity market uncertainty rises, Consumer Staples typically outperforms while Information Technology lags (see Exhibit 2). From a factor perspective, the past decade shows that when equity market uncertainty increases, stocks with high dividend yield and low volatility outperform. In contrast, both high growth stocks and low valuation companies underperform their respective counterparts (see Exhibit 3)

Equity portfolio managers should focus on the investment implications of the economic, trade, and tax policies of the presumptive nominees. A rise in protectionism would represent a broad risk to the stock market because 33% of aggregate S&P 500 revenues is generated outside the US.

Donald Trump has stated that if elected President he would threaten to impose tariffs on various imports to offset what he deems unfair competition in the form of state subsidies and currency manipulation. A protectionist US trade policy raises the risk of retaliation by other countries.

The Trans-Pacific Partnership (TPP) is a multilateral trade agreement with 11 other nations on the Pacific Basin that awaits Senate approval. The Office of the US Trade Representative believes the agreement will facilitate the sale of Made-in-America products abroad by eliminating more than 18,000 taxes and trade barriers on US products across TPP nations. The US Chamber of Commerce supports the deal. Hillary Clinton supported the trade agreement while it was being negotiated but now she opposes it.

Protectionist rhetoric will become louder as election season progresses and stocks with high US sales will outperform firms with foreign sales. Our sector-neutral basket of 50 stocks with 100% US sales (GSTHAINT) will outperform our corresponding basket of stocks with 72% non-US revenues (GSTHINTL). The long US sales/short foreign sales trade benefits from a strengthening US Dollar, which explains why the strategy has returned -350 bp YTD as our basket of high US sales (-1.3%) has trailed our foreign sales basket (+2.2%). Domestic stocks have faster growth and a lower P/E. Looking forward, a hawkish Fed relative to expectations will boost the USD.

Taxes are a perennial election year debate topic. However, any tax reform plans would require Congressional approval. According to the independent Tax Foundation, Donald Trump proposes to reduce the federal corporate tax rate to 15% from the current rate of 35% and repeal most preferences. Hillary Clinton seeks to impose an “exit tax” on tax inversions and limit earnings stripping via interest deductions. In general, firms with high effective tax rates would benefit most from any changes in the tax code while companies with low tax rates would be more at risk. Constituents in our high tax rate basket (GSTHHTAX) have a median effective federal and state tax rate during the past 10 years of 38% compared with 18% for firms in our low tax rate basket (GSTHLTAX) and 31% for the median S&P 500 stock. See Exhibit 5 for a list of 16 stocks that are constituents of both our high US sales and high tax rate baskets that should outperform the 11 stocks with both high foreign sales and low tax rates as Election Day draws near.

via http://ift.tt/1U6peYX Tyler Durden

China is developing a robotic security officer that can sniff out bombs, grab suspects with a mechanical clamp and deliver a jolt of electricity to neutralise threats.

 Xiao Xiangjiang, who leads the development team at the defence university, told the People’s Liberation Army mouthpiece PLA Daily that AnBot had undergone test runs at a military camp, airport and museum in Changsha with “very positive” user feedback.

 

 

Xiao said the robot, which moves on wheels, could carry out a non-stop patrol for eight hours, hitting speeds as high as 18km/h. Its cameras can recognise and track faces, and it is equipped with sensors that can detect explosives, drugs and weapons.

 

It can also be ordered via a remote human controller to deliver an electric jolt with its mechanical clamp to disable a target.

When the system is automated, as SHTFPlan's Mac Slavo notes, the robotic enforcers will quite literally do what they are told.

If the governing powers-that-be enforce a tyranny, and ask the robots to do something against the people that human law enforcement officers would know to be illegal and/or immoral, they will simply obey. It is in their programming.

 

As such, robot enforcers stand to be a formidable obstacle to freedom and justice. They can choose targets and make decisions automatically, without the need for human oversight. So just what will happen when civil unrest, riots or other emergencies take place? These machines can and will restore order at all costs.

Mainland China has seen a spate of large-scale violent attacks erupt in key cities in recent years, including bombings, knife attacks and arson, according The South China Morning Post.

The government does not make public the number of such “mass incidents”, but sales of security hardware hit about 500 billion yuan last year and the market has been growing by 17 to 20 per cent annually, the fastest in the world, according to the association.

 

“Many soldiers and security personnel are working in torturous environments beyond the imagination of ordinary people. Security robots will end the pain,” he said.

 

But some human rights researchers have expressed concern over an authoritarian state using robots to help maintain public security. Flesh and blood officers might refuse to carry out orders if they felt conflicted.

And that's why, as The Daily Sheeple's Joshua Kearse explains, the governments of the world are very interested in developing robots for military and law enforcement applications…

Over the past few years, the police in America and around the world have been facing more scrutiny than they ever have before. Their abuses and arrogant demeanor are now easily recorded, and displayed on the internet for all to see. As a result, it’s never been so easy to criticize the police.

But it’s important to remember that not all cops are bad. It may seem that way, because people are much more likely to turn on their smartphone cameras when a cop is being an intolerable tyrant. There are still plenty of police officers out there who have a conscience, and no doubt, the government is afraid of these officers more than anyone else. They’ll never be able to crackdown on the population, unless they have near 100% obedience from their enforcers.

That’s why the governments of the world are very interested in developing robots for military and law enforcement applications. They need yes men more than ever, and if they can’t get enough yes men to enforce their onerous rules, then they’ll turn to yes robots to fill the gap, and replace all the cops and soldiers who don’t toe the line.

They’ll do it for a lot of the same reasons that private companies are trying to automate their respective industries. In any given workforce, there are humans that complain. There are people who need time off and benefits. There are people in positions both high and low, who can blow the whistle on crimes and labor violations. Ultimately, running a business means appeasing a bunch of ornery humans, each with individual needs, wants, and agendas. And let’s not forget, they all need to be paid.

But more importantly, the government needs people who are willing to control the population. Robots simplify everything for people who are control freaks, and as it just so happens, control freaks tend to gravitate into positions of higher authority in both the public and private spheres. In the case of our government and other governments around the world, the control freaks are eager to clean out all the do-gooders and conscientious individuals who are less than willing to carry out their orders to brutalize the population. If they can replace these people with robots and promote the remaining yes men to higher positions, then they no longer have to answer to anyone.

And don’t think for a second that this is going to happen many years down the road. It’s happening right now in countries like China. While the US has been leading the charge for military robots, China’s autocratic regime may be ahead of the rest of the world when it comes to law enforcement robots. In fact, they’re about to introduce one of the world’s first policing robots, complete with a tazer for shocking non compliant citizens.

Take note. This is the future. There’s no reason why robots like this won’t show up in your neighborhood someday. Pretty much all governments have the same desire to control their population, and technology knows no borders.

via http://ift.tt/1WIbsix Tyler Durden

When it comes to financial assets, Apollo’s legendary founder Leon Black has been gloomy for years, and said in a recent Milken Conference that his firm has been “selling everything that is not nailed down.” The billionaire (who at last check was worth around $4.7 billion) however appears to have a soft spot for Hollywood A-lister real estate. Because we were surprised to learn that the buyer of Tom Cruise’s $40 million 10,000 square foot Beverly Hills home is none other than Leon Black.

As TMZ reports, Tom Cruise has decided to leave Los Angeles because he’s saying goodbye to the estate he called home for nearly a decade.

Tom has sold the mansion he shared with Katie Holmes for $40 million. Cruise first offered the house for $50 million in September 2015, and then lowered the price to $45 million but could find no buyers at even the reduced price. Nonetheless, he still cashed in: he bought the house from real estate guru Kurt Rappaport, who owed it back in 2007, for $32.5 million.

As for the house, it has 7 bedrooms, 9 bathrooms, a tennis court, a swimming pool (of course), a children’s playground and a couple of guesthouses. The heavily fortified, 1.3-acre spread includes a roomy motor court with swimming-pool-sized fountain, a lighted tennis court with basketball hoops, a lap-length swimming pool, a children’s playground, and a couple of guesthouses.

Meanwhile, the world’s most famous scientologist is clearly getting out of the city of angles: Cruise recently sold a Hollywood Hills compound back in October for $11.4 million to Eva Longoria.

And this is what $40 million will buy any self-respecting private equity billionaires.

via http://ift.tt/1W92X0e Tyler Durden

While the warning flags are raging in Illinois and Connecticut, JPMorgan's Michael Cembalest states that New Jersey's problems are "not mathematically solvable." The stunning admission from a status-quo-sustaining bank that is “very focused on the total indebtedness of US states," should be worrisome enough but as Cembalest explains the answer to a debt problem is not always piling up more debt; the issue is to address the root of the problem, which can be a delicate and at times politically incorrect topic.

Reviewing the JPMorgan research might lead to several conclusions, one of them being that when any government starts to get ahead of logical debt ratios investors might best be advised to proceed with caution. As ValueWalk.com's Mark Melin continues, Cembalest takes a step back and looks at the servicing cost for the mounting state debt.

What he does is look at unfunded liabilities and given several formula factors, including an allowance to return 6% on assets. Using this formula, he projects what starts are currently paying and what they might be paying on a 30-year accrual basis. Such forward modeling helps investors determine debt sustainability much more so than does an institutional research report that might seem to omit or de-emphasize material facts.

Using this as a measure a group of bad-boy states that have been abusing their debt privileges appears to emerge. On top of this list and over the projected danger threshold of 25% are heavyweight states such as Illinois, New Jersey, Connecticut who sit next to relatively rural Kentucky.

 

In these states, a unique battle is being fought with very real and legitimate arguments on each side.

 

State debt requires understanding “The Arc of The Covenants”

When he starts to look at state debt and the economic reality, Cembalest has deft insight to recognize that while math is unemotional, he is about to wade into a deeply emotional argument involving trust and promises made to government employees.

He starts the sometimes delicate task of wading into an issue that rips deep into the social contract by addressing “The ARC and the Covenants.” This refers to the need states have to fulfill their very real obligations to public employees, and Cembalest explains this using an incredible touch:

Public sector workers form a critical part of American civil society. They rescue and protect us when we’re in danger; they make our lives safer, cleaner and more efficient; they educate our children; they enforce the rule of law and provide remedies when laws are broken; they ensure access to clean air, water and food; and they heal us when we’re sick. The legal, medical, environmental and educational problems sometimes found in other countries are a reminder of what life might be like without them. They earned the benefits they accrued and which were granted by state legislatures, and have the right to expect them to be paid.

That said, math and the fiscal responsibility of a lender not to overburden the logical constraints of the borrower can be determined non-emotionally and mathematically.

 

Cembalest models the problem using shared sacrifice as the solution

The gist of the state debt problem can be summed up in one sentence and it applies to municipal as well as sovereign debt as well.  When debt reaches a certain level, the can kicking is over and difficult decisions need to be made.

For Cembalest this means “states would need to raise substantial funds from increased tax revenues, cuts in non-retirement spending or increases in public sector worker contributions.”

Here Cembalest looks at the solutions and one realizes the difficult task ahead.

Tax increases are difficult on a political level. This is especially true given some states with the highest debt burden already have effective tax rates ranking among the highest in the US, which includes Illinois, Connecticut, Kentucky and Hawaii.

Cembalest then considers the appropriate solution of shared sacrifice – a non-emotional approach but one that, when placed through a political ringer, might come out lopsided in the end.  He looks at the revenue burden given an equal contribution from all participants. He develops a revised ratio that splits the state’s revenue needs equally across tax increases, spending cuts and worker contributions to develop a solution.

 

“Whether this kind of comprise is feasible will only be revealed with the passage of time,” he says, as residents of most of the states continue to live their wonderful lives as if the problem doesn’t exist. In reality, the problem will be upon them and once they realize it, once the knowledge is widely disseminated into the mainstream, it will likely be too late to act.

via http://ift.tt/2428ntd Tyler Durden

Following this week’s FOMC Minutes shows, which violently repriced June rate hike odds from 4% to 30% and July from 20% to 50%, the cries of lenienecy have begun, and nobody is doing so louder than Deutsche Bank which in an overnight credit summary note tries to make it clear that “the market is not ready for a June hike.”

Why is Germany’s largest bank, whose stock price is trading just barely above 52 weeks lows and level not seen since the financial crisis so worried? Simple: “the hawkish minutes will weigh on risk, bias yields lower, and flatten the curve” for the simple reason that the Fed is so clueless it “seems to be interpreting recent easing in financial conditions as an opportunity to force rate expectations higher.” Instead, the Fed is once again confusing cause and effect, and DB says the “ease in financial conditions occurred precisely because of the Fed’s dovish turn earlier this year.” Hence why DB is confident a hawkish turn will push markets right back where they were in December and January, prior to the February Shanghai Accord.

Of course, we already gave this explanation last fall, just before the Fed’s December rate hike. It’s time to give it again, and amusingly, DB agrees because as Dominic Konstam writes, “If you think you’ve seen this movie before it’s because you have.”

Alas, it is indeed deja vu all over again:

Like during 2015, the Fed appears bent on pushing rate expectations higher, and the operative question is whether the more hawkish turn to Fed rhetoric will up-end risk and tighten financial conditions to the extent that a rate hike is imprudent if not impossible given the latent fault lines in the global economy.

 

Last year the Fed attempted to prepare the market for a September hike at the June meeting with a decidedly negative result, and then had another go in October for the December meeting with the result that markets tolerated December lift-off before coming apart early in 2016. The operative question is whether markets are sufficiently calm for the Fed to use the June 2016 meeting to pave the way for a July hike.

And this is why Deutsche Thinks that just like in July/August and January/February, as the market starts to earnestly pricing in a June/July rate hike, everything is about to plunge once more:

We think the answer is no because the issue is not just the timing of a single hike toward some static goal for rate level in 2017. What is at issue is the existence of some Shanghai “accord” whereby global policymakers have agreed explicitly or implicitly that excessive dollar strength is counterproductive and that policymakers should shift their focus to domestic demand and structural reform within an environment of dollar stability, at least through the next G20 in early autumn. If there is no accord then divergent monetary policy could drive the dollar stronger, restarting among other things speculation against CNH versus the dollar rather than CNY versus the entire CNY basket with now very familiar results: reserve loss exacerbating higher Fed expectations for US rates, and downward pressure on risk assets with a non-trivial chance that China might devalue and, worse yet, do so in a lumpy fashion.

Or just as we said on Thursday, it will be all up to China again to stop the Fed’s rate hike:

Looks like its up to China again to derail the Fed’s June rate hike plans

— zerohedge (@zerohedge) May 19, 2016

Still, assuming the Fed ignores Deutsche Bank’s laments for a reprieve – because as we saw in February, DB may well be the first bank to go under should the market be swept by another global round of risk off – this is how a rate hike could take place.

The risk is that the Fed might use the June meeting to pre-announce a press conference around the July meeting, or in some other way “pre-commit” to a July hike. The issue is that with still benign wage pressure and inflation, premature and more aggressive Fed hikes would drive real yields higher for the wrong reason. This is the policy error scenario. Yellen’s timeout drove real yields roughly 70 bp lower from the late 2015 highs, but levels have already more than doubled from the lows by virtue of little more than “why not raise rates for the sake of it” rhetoric. What Fed officials seem to be suggesting is that they might be growing increasingly nervous about low real rates fuelling asset classes like equities, investment grade credit, and gold even though other risky assets such as high yield and emerging markets do not perform  well absent higher breakevens. The risk case is then that an overly aggressive Fed would push real yields up and breakevens down, thus undermining risk assets generally.

But which risk asset is at most, pardon the pun, at risk?

One issue is precisely what risk asset valuations are telling us. If we consider risk asset valuations as a function of Fed-related variables – say, breakevens and real yields –market valuations of HY, IG, and EM are more or less consistent with “fair” levels given these variables and their historical relationship with asset valuations. Note that DXY appears too high from this perspective, while oil appears too low.

 

 

The outlier appears to be SPX, where valuations appear excessive given the breakeven/real yield framework.

And while DB’s points are mostly valid, its agenda becomes fully transparent with the next sentence:

This is not to say that the Fed can never raise rates because of negative impact on financial variables, but it is far from clear to us that the Fed should be hiking against financial market froth when many asset classes have only partially recovered from losses last year.

Actually that’s exactly what it says (ignoring the pleas by all those hundreds of millions of elderly retirees whose only source of income used to be interest income and who have been left for dead under a central bank regime which only caters to its commercial bank owners) and the longer the world eases financial conditions, either via QE or ZIRP or NIRP, the more impossible it will be for the Fed to ever hike; in fact the next big move will be just the one Deutsche Bank has been begging for all along – unleashing helicopter money.

In fact, we are confused by Konstam’s note: if indeed DB wants (and needs) a monetary paradrop (recall “According To Deutsche Bank, The “Worst Kind Of Recession” May Have Already Started”), then a policy error is precisely what the Fed should engage in.  Not only will it send markets into a long, long overdue tailspin, one from which the only recovery will be the bubble to end all bubbles, the end of monetarism as we know it courtesy of the quite literal money paradrop, but reset not just the US economy but that of the entire world, in the process wiping out tens of trillions in unrepayable debt, and allowing the system the much needed reboot we have been urging ever since our start in 2009.

We are confident that just like everything else predicted on these pages, it is only a matter of time now before this final outcome is also realized.

via http://ift.tt/1sLKWsS Tyler Durden

Authored by Bill Bonner of Bonner & Partners (annotated by Acting-Man's Pater Tenebrarum),

High on the Hog

Much of The Deep State's growth is recorded in the pages of the Code of Federal Regulations (CFR). This tracks all the laws laid down by successive governments.

Lower extremities of typical Deep State enforcer

 

A privilege, a special tax break, a rule, a prohibition, a piece of meat here, a piece of meat there… and soon the foxes are eating high on the hog.  But what’s meat for the foxes is poison for the economy.

 

The relentless growth of Leviathan: total pages in the Code of Federal Regulations, 1950-2013 (it has continued to grow since then…). No wonder the economy is in the dumps – click to enlarge.

 

Each piece requires paperwork, delays, permits, accountants, lawyers. You can’t do this… you can’t do that – with so many hurdles in their way, entrepreneurs think twice, capital investment declines, and the economy slows.

Each favor to the foxes is an act of larceny, taking something away from the people who earned it to redistribute wealth, power, and status to the insiders.

 

Number of regulatory restrictions – the chart  is a bit dated, but it shows the trend quite well. Once upon a time, none of these restrictions existed. One wonders how the world managed to keep turning!

 

From fewer than 25,000 pages when President Eisenhower left the White House, the CFR now has nearly 200,000 pages – each one a honeypot for Deep State cronies. And who reads this stuff?

Do you know what rules and regulations you are breaking right now? Most people are too busy earning their money and raising their families to spend much time tracking the federal bureaucracy and its cronies. But the foxes make it their business to pay attention… and make the rules that work for them.

An honest person is at a great disadvantage.

 

Rules and Regulations

Think you’re going to change this system by voting for Hillary or Trump, Democrat or Republican? Maybe, but there’s no evidence of it in the CFR. The number of pages kept rising, year after year, no matter who was in the White House.

 

Aggregate word count of Dodd-Frank regulations alone as of 2012 (when about one third of the regulatory implementation was finished!). Has the financial system become “safer” because of this? Not one bit actually – on the contrary, it may well be even more dangerous now. The root causes of the crisis (fractional reserve banking,  fiat money and central economic planning) have remained untouched – click to enlarge.

 

Twenty-five thousand pages were added during the Kennedy and Johnson years… another 25,000 under Nixon and Ford… and another 25,000 during the Reagan and George H.W. Bush administrations.

Federal spending per capita shows the same basic trend, an almost unbroken uptrend – through Democratic and Republican administrations – stretching back from 2016 to 1952.

Under President Eisenhower, domestic discretionary spending per person was under $500. Today it’s over $4,500. Like the Federal Code, real spending per person has increased about nine times in the last 64 years.

 

Federal tax rules – from 400 in 1913 to 74,000 in 2012. The cost of compliance alone amounts to $160 billion per year! So why are there so many rules in view of this immense waste? It’s all about cronyism actually. This is why proposals to “simplify the tax code” never get anywhere. Modern-day regulatory democracies are little more than tax farms – and the average citizen fulfills the role of the cattle.

 

There were two presidents under whom spending went down – Ronald Reagan and Bill Clinton. Go figure. In neither case, however, did it stay down for long. Once Reagan and Clinton were out of the way, the foxes went to work and quickly brought spending back to the trend line.

What will happen to the little foxes under Donald Trump? Or Hillary?  The earnings of the top 5% – the “foxy five” – began to diverge from the earnings of everybody else in the mid-1970s.

Since then, they increased alongside the FCR and government spending. Rules and regulations multiplied. Spending increased. The foxes got richer; everyone else got poorer.

 

What are foxes? Some say they are evil, wily, conniving and duplicitous… essentially rats in expensive coats.

Photo via pinterest.com

 

All this happened through both Republican and Democratic administrations. Most likely the foxes will continue to earn more through a Trump or Clinton administration too.

via http://ift.tt/1XIjSpW Tyler Durden

As we've chronicled the pure insanity that has been taking place in the real estate market, most recently with the revelation that for just $499,000 one could be the proud owner of a 20-by-97 foot lot with a "house" on it in Brooklyn, we continue to be amazed at what we find.

Now we learn that an unidentified buyer has spent a mind-boggling $5.3 million for a triple-wide mobile home in Malibu, California. The four bedroom, four bathroom mobile overlooks the coastline, and comes with hardwood floors, skylights and a pair of gas fireplaces.

The sale is the most ever paid for a mobile home in Malibu according to Elizabeth Seaman, the Pinnacle Estate Properties agent who represented the buyer.

You don't say…

The most stunning part of the deal is that the same property sold for $4 million only a year ago. What could possibly go wrong flipping mobile homes for millions in a softening economy? In light of of all of this, we expect to see a pilot for "Flip This Malibu Mobile" coming to a network very soon.

via http://ift.tt/1OG4QJK Tyler Durden