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A Greek drama rarely ends after just one act or scene and although the recent new bailout talks haven’t really been extensively covered by the media, the Greek population will once again have to make sacrifices to make sure the country gets more bailout money.

Since the country’s finances collapsed in 2010, it has received in excess of a quarter trillion Euro in bailout funds, pushing the Debt to GDP ratio to almost 180% despite its creditors agreeing to a haircut in 2012. What’s even worse is the fact the austerity measures and the bailout terms have actually reduced the Greek GDP by approximately 25% which made the debt to GDP ratio look even worse.

Few people know Greece will have to repay a next tranche of its bailout help in July and will need a cash injection of approximately 7.5B EUR from its lenders to make sure it can cover the repayment. And whilst the mainstream media don’t seem to care about this at all, it’s not unlikely the current negotiations will result in more ‘muscle-flexing’ from both sides.

To make sure the lenders will agree to making the next tranche of cash available, the Greek population will now suffer even more as the Greek parliament has now voted in favor more tax hikes and pension cuts last week which resulted in new riots on the streets of Athens.

Source: eurasiatimes.org

And even though there’s some serious opposition against the plans to increase the tax-free threshold, Tsipras is now even hopeful the country could go back to a normalized situation. Not only is Greece hoping to be able to try to finance itself on the capital markets again next year, it’s also expecting to reduce the bank and cash restrictions which were initiated in 2014/2015.

Does this mean the country is really doing better? Did the bailout work and is Greece saved?

Definitely not.

Source: tradingeconomics.com

As you can see in the previous image, the consumer confidence has been trending down continuously since the 2014/2015 existential crisis. It’s pretty obvious not a single economy in the world will pull itself together and get out of a difficult situation if consumers are too scared to spend the money they have left or are earning. Indeed, rather than injecting their savings and earnings into the economy, does this mean Greeks prefer to hold onto it as much and as long as possible?

Not at all. Have a look at the next chart, provided by the OECD.

Source: oecd.org

The red line is the household savings rate in Greece, which isn’t just the worst of all countries in the Eurozone, it also is incredibly negative. Even after the crisis, the savings rate decreased to -15%.

And that means exactly what you think it means. The Greeks need to tap into their cash resources or to borrow money to keep their consumption pattern at the same level. This basically means the Greek economy is living on borrowed time because even IF the economy regains momentum, the Greek citizens will first have to start to pay off their personal debt before supporting the economy by spending more.

Do the Greeks really think additional austerity is the answer? And does the Finance Minister really think the country will be able to attract funding at reasonable terms on the capital markets.

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After recently promising to take steps to boost drivers’ wages, Uber Inc. has admitted that, over the last two-and-a-half years, it “mistakenly” underpaid drivers in New York City.

The company claims it came forward voluntarily after discovering the issue, which, considering how the company has seemingly bounced from one PR crisis to the next, is probably a smart move. Uber's highly-paid communications team has hopefully learned by now that sometimes it's better to get out ahead of the story – because then you can shape it on your own terms. A few months back, the company announced that it had – again, “mistakenly” – underpaid drivers in Philadelphia.

Uber is, somewhat expaseratingly, the most highly valued startup in the world with a valuation of nearly $70 billion, even though it lost nearly a billion dollars in the fourth quarter of 2016, and has been called “a cash-burning machine” by one analyst who saw its books.

Here’s how it happened, according to WSJ:

“Under the terms of its November 2014 nationwide driver agreement, Uber was meant to take its commission, generally 25%, from U.S. drivers based on fares after any taxes and fees were deducted. Uber said that, instead, in New York City it calculated a higher cut using the full fare before accounting for sales tax and a local injury-compensation fund fee.

 

Uber told The Wall Street Journal it would refund the money plus interest, which comes to an average of about $900 per driver.”

Uber didn’t say how much repaying the drivers would cost, but WSJ calculated that the total amount is probably somewhere around $45 million, or to about $900 per driver, based on an estimated 50,000 drivers.

All New York City drivers, whether still active or not, will be eligible for a refund as long as they’ve completed a trip since the company’s nationwide driver agreement was signed in November 2014, the WSJ noted.

The company blamed the light payments on an “accounting error,” but even WSJ noted the fact that such an error occurred allegedly by accident “is striking for a company whose business hinges on complex mathematical formulas that match drivers with riders and that crunch fares by the millisecond based on traffic, demand and other factors.”

We'll have to wait and see if the internal investigation into Uber's workplace culture – which is being led by former attorney general Eric Holder – turns up evidence of any more "mistakes."

The last six months have been nothing short of terrible for Uber. Here’s a roundup of all the other scandals that’ve emerged since then:

• Another tale of sexism and unacceptable workplace behavior in Silicon Valley company has emerged. This time it's at Uber, according to an explosive blog post published on Sunday by a former company engineer named Susan Fowler Riggetti.
• Uber's newly-hired VP of engineering Amit Singhal was asked to, and did, resign on Monday after the company learned from Recode that he was accused of sexual harassment shortly before leaving Google a year ago. Here's more on the difficult position of former employers in this case.
• A video showing Uber CEO Travis Kalanick rudely arguing with a long-time driver at the end of his ride was published by Bloomberg. "I need leadership help," Kalanick said in an apology he issued shortly after.
• Susan Fowler Rigetti, the former Uber engineer who wrote of discrimination, said she's hired attorneys after a new law firm began to investigate her claims. Uber confirmed it has hired Perkins Coie, which reports to former A.G. Eric Holder, who's leading the investigation.
• Uber said on Thursday that it will finally apply for a DMV permit to test self-driving cars in California after its cars' registrations were revoked in December because it refused to get the permit.
• Charlie Miller, one of the two famous car hackers who joined Uber's Advanced Technology Center in August 2015, announced he's leaving the company.
• The New York Times uncovered a secret Uber program called Greyball, through which the company uses software and data to evade law enforcement in cities.
• Keala Lusk, a former Uber engineer, published a blog post detailing how her female manager mistreated her, signaling that the company's problematic culture isn't limited to the men who work there.
• Ed Baker, Uber's head of product and growth, resigned. Though the reason is unclear, he was allegedly seen kissing another employee three years ago, which was anonymously communicated to board member Arianna Huffington, according to Recode.
• A report outlines a trip by a group of Uber employees to a Seoul karaoke-escort bar in 2014, which included company CEO Travis Kalanick and his girlfriend, Gabi Holzwarth. After arriving, several male employees picked escorts to sit with, and went to sing karaoke. Uncomfortable, a female marketing manager, who was part of the group, left after a couple of minutes, while Holzwarth and Kalanick left after an hour.
• California regulators have recommended that Uber be fined $1.13 million for failing to investigate and/or suspend drivers who are reported by a passenger to be intoxicated. The state requires ride-hailing companies to have a zero-tolerance policy for driving under the influence of alcohol or drugs.
• A new report says Uber used a secret program dubbed "Hell' to track Lyft drivers to see if they were driving for both ride-hailing services and otherwise stifle competition. Only a small group of Uber employees, including CEO Travis Kalanick, knew about the program, according to a story in The Information, which was based on an anonymous source who was not authorized to speak publicly.

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Via StockBoardAsset.com,

It’s no secret that Under Armour’s stock has crashed -65% since 4Q2015. The apparel bubble seems to be experiencing something called mean reversion with the possibility of further downside in excess of -29%.

At or around today’s fair market value, industry comps show <UA> at a startling 43.7 P/E on expectations of growth compared to competitors.

Under Armour’s declining margins and profitability over the past three years is alarming.

Glancing at US Imports of Apparel Footwear and Household Goods, it appears the industry has been stagnating for the past two years. Hello consumer?

As the equity crashed, Kevin Plank (CEO) of Under Armour was selling stock in force. During this same time period, he built his own whiskey distillery called Sagamore Spirit to smoothly sip away the pain not less than a mile away from head quarters.

In the same timeframe, he built an extravagant hotel called Sagamore Pendry Baltimore not less than a mile away from head quarters.

20 miles north in Baltimore County, Maryland. Plank’s Sagamore Farm turns out premium thoroughbred horses for the flat track.

Conclusion: Only in the Federal Reserve’s zero-lower-bound-land can an apparel company’s CEO build his own whiskey distillery and hotel a stones' throw away from head quarters, as his stock price is eviscerated… Meanwhile, just north of the city fund a large operation turning out premium thoroughbred horses.

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DoubleLine's Jeffrey Gundlach dropped a subtle hint at yet another driver of the recent surge in virtual currencies…

Bitcoin up 100% in under 2 months. Shanghai down almost 10% same timeframe, compared to most global stocks up. Probably not a coincidence!

— Jeffrey Gundlach (@TruthGundlach) May 23, 2017

So this happened… Chinese stocks slumped as the rest of the world soared.

 

And this happened… Virtual currencies were bid as global uncertainty soared

 

So is this is a coincidence? As China's monetary conditions are tightened to crackdown on speculative leverage, stocks have seen outflows and Bitcoin inflows…

 

And is this the same coincidence? As the broad trade-weighted value of the Renminbi collapses…

 

The question is – what happens next? Does China fold and re-enable leverage to avoid catastrophic failure in its bond/stock markets? Or does The Fed fold in June sparking chaotic weakness in the USD?

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Via The Daily Bell

Turns out, actually being a genuinely good person is the easiest way to have influence over others, and get them to like you–weird, I know.

In 1936 Dale Carnegie wrote How to Win Friends and Influence People after intense study of effective leadership, the psychology behind why people like each other, and how to approach tough situations without giving offense.

Far from being sneaky ways to get what you want, or sleazy selling tactics, the ways Carnegie describes how to properly interact with others would make the world a better place if universally adopted. You could recognize one of these tactics being used on you, and still feel no ill will towards the person employing it.

This is an overview of the key takeaways from How to Win Friends and Influence People. Read the whole book to get the most benefit from Carnegie’s lessons, and bookmark this page for a quick reference.

Think of How to Win Friends and Influence People, as oil for the gears of society.

1. “Don’t criticize, condemn, or complain.”

It just makes people defensive and breeds resentment. Criticizing and condemning makes it harder for someone to admit they are wrong because they feel the desire to justify their actions or thoughts. Even if they change their mind, it will not be a lasting change.

2. “Give honest and sincere appreciation.”

Everyone wants to feel needed and important. Those who fulfill this craving for others will be held in high esteem. But it is easy to tell shallow flattery from actual recognition of good qualities and hard work. Look for qualities worthy of commendation.

3. “Arouse in the other person an eager want.”

Dale Carnegie didn’t like to eat worms, but strangely enough, he fished with worms and did pretty well. How well would he have done if he fished with what he loved: strawberries and cream? Talk about the other person’s desires, and show them how to get there.

4. “Become genuinely interested in other people.”

You don’t need to be nearly as interesting as you need to be interested. People can tell if you are faking it, so you really need to find pleasure in learning about others. Make it a sort of game to dig deep enough to find something exotic about even the banalest acquaintances.

5. “Smile.”

You have control over your thoughts, so choose to be happy. Being positive goes a long way and is infectious. Having an authentic smile on your face is an easy way to increase the chances that someone is going to like you.

6. “Remember that a person’s name is to that person the sweetest and most important sound in any language.”

Remember names! And say their name often. It shows others they are important enough to you to be remembered. Better yet, name something after them! Maybe not your dog…

7. “Be a good listener. Encourage others to talk about themselves.”

It is easy to think we need to say the right things to get someone to like us, but it is more about allowing them to have their say. We all have interests that we are passionate about and want to talk about. When we find a sincerely interested audience, it makes us feel appreciated and important.

8. “Talk in terms of the other person’s interests.”

If you are interested in others, they will be interested in you. Just find something about a person that you know interests them, and set out to learn about it. Ask them to explain the interest, and they will enjoy your company while telling you.

9. “Make the other person feel important–and do it sincerely.”

Everybody wants to be appreciated. Don’t you remember countless times when you achieved something or put a lot of energy into a project only to be met with silence? It’s like no one even noticed! Dinner was great, the yard looks nice, great job on that assignment! If there is something important to someone, recognize their work and it will make them feel important.

10. “The only way to get the best of an argument is to avoid it.”

Even when you “win” an argument, the other person generally reverts back to their old opinion as soon as you part ways. From the get-go, an argument actually makes us dig in because we feel like we have something on the line and can’t admit we were wrong. When you disagree with someone, take the opportunity to sincerely reflect on why, and welcome hearing about the new perspective. You never know, maybe cats are better than dogs after all.

11. “Show respect for the other person’s opinions. Never say, you’re wrong.”

If you are right more than 50% of the time, then why don’t you work on Wall Street? Ask questions if you truly think you are right, and the person will usually come over through their own thought processes. Allow yourself to understand the other person, even (or especially) if they are wrong.

12. “If you are wrong, admit it quickly and emphatically.”

It is liberating to admit when you are wrong. It removes such a burden of having to always figure out how to stay right. We are going to be wrong sometimes, just a fact. Being wrong doesn’t have to be embarrassing, and admitting it quickly is the easiest way to save face, and in fact get more respect and agreement from those involved.

13. “Begin in a friendly way.”

Why make life hard for yourself? “The sun can make you take off your coat more quickly than the wind; and kindliness, the friendly approach, and appreciation can make people change their minds more readily than all the bluster and storming in the world.”

14. “Get the other person saying, ‘yes, yes’ immediately.”

Always start with, and continue to emphasize, what you agree on. Start small with something you know they will say yes to, and lead them gently down a path of agreement until they embrace “a conclusion they would have bitterly denied a few minutes previously.”

15. “Let the other person do a great deal of the talking.”

The best illustration of this principle is in dealing with children. Instead of constantly yelling, ordering, and demanding of a disobedient child, what works better is to hear them out. Sometimes all people need to be agreeable is to be heard, and if you sincerely listen to them, frustration and negativity usually evaporate.

16. “Let the other person feel that the idea is his or hers.”

Who cares about getting credit? If you want someone to agree with you, it is better to let them think any plans you had were their ideas. We are much more likely to support and be excited about our own concoctions.

17. “Try honestly to see things from the other person’s point of view.”

“Stop a minute,” says Kenneth M. Good in his book How to Turn People into Gold, “stop a minute to contrast your keen interest in your own affairs with your mild concern about anything else. Realize then, that everybody else in the world feels exactly the same way! … success in dealing with people depends on a sympathetic grasp of the other person’s viewpoint.”

18. “Be sympathetic with the other person’s ideas and desires.”

The magic phrase is: I would feel the same if I were in your position. Be sympathetic! Just telling someone you understand their frustration does wonders to calm them, even if you cannot do another single thing to help.

19. “Appeal to the nobler motives.”

This is why people get their way when they can convince others what they want is “for the children.” J.P. Morgan said there are two reasons a person does something, “one that sounds good, and a real one.” Appeal to the one that sounds good, because we are all “idealists at heart.” Basically, emotion works better than logic.

20. “Dramatize your ideas.”

“Merely stating a truth isn’t enough. The truth has to be made vivid, interesting, dramatic.” Think of interesting and fun ways to present your ideas that catch people off guard, and draw them in.

21. “Throw down a challenge.”

Or maybe you’re too scared to throw down a challenge. No? Why don’t you prove it then? It’s a great tactic to challenge someone to persevere, but it takes a special man or woman to do it right. Think you can handle it?

22. “Begin with praise and honest appreciation.”

“A barber lathers a man before he shaves him.” Sometimes it is necessary to be a critic or give someone a difficult answer. The cushion for this pain–the dentist’s Novocaine for an unpleasant but necessary drilling–should be honest praise and appreciation.

23. “Call attention to people’s mistakes indirectly.”

Change the word “but” to “and”. Begin with sincere praise, and don’t bring doubt to the initial sincerity by using the word but. Still, begin with honest appreciation, and relate the praise to what you are trying to change. Would I feel better about hearing, “I love your book, but it would make a better movie,” or “I love your book, and the action would play out especially well on screen.” It’s the same message.

24. “Talk about your own mistakes before criticizing the other person.”

I have a treasure trove of mistakes to pull from, so this one comes easy for me! Criticizing yourself puts you in the same boat as the person you need to critique, so they aren’t so defensive. The best advice available is from others who have made similar blunders.

25. “Ask questions instead of giving direct orders.”

If you are in a position of power and give a direct order, you can expect it will be done. You can also expect to stoke an “us versus them” mentality between the order givers and the order takers. If you make a question or suggestion of the order, however, this makes the receiver a participant, and might even stoke enough creativity to get the thing accomplished in a better way. Certainly, it will quell any resentment on the part of subordinates.

26. “Let the other person save face.”

If a bird gets in your house, is it more effective to corner it and trap it, or to leave a window open for it to fly out? The number one rule of diplomacy is to always give the other person an out without damaging their ego. If your kid loves to help you garden, but crushes the flowers, promote him to head leaf raker.

27. “Praise the slightest improvement, and praise every improvement.”

Praise to humans is like sunlight to plants, it is the warm sunshine we need to grow. Nowhere is this more obvious than with children. They want to please their parents, and if they can’t do that they will settle for whatever attention they can get. Clearly, the best idea is to praise the good behaviors so that their outlet for attention will be positive. It’s the same with dogs and adults, though you might have to be less obvious about it. “Who’s a good employee? Yes, you are! Want a belly rub?” Maybe not.

28. “Give the other person a fine reputation to live up to.”

I know everyone reading this was naturally doing most of these things anyway, and this article will only strengthen the reserve to continue on the path of making friends and influencing people just by being empathetic, intelligent, and thoughtful in your interactions, which comes so easy to you anyway.

29. “Use encouragement. Make the fault seem easy to correct.”

Telling someone they are terrible at something is a sure way to discourage them, make them internalize that feeling, and perhaps they even give up. Instead, tell someone they just need the practice to get better. Pick out the good from the bad to encourage perseverance, and better outcomes and any mistakes will naturally smooth out.

30. “Make the other person happy about doing the thing you suggest.”

When you know someone isn’t going to like what you have to tell them, best to frame it in a way they will like or follow immediately with a great alternative. If you have to let them down, bring attention to a positive route forward. “Make sure you check out that beautiful full moon while taking out the garbage!”

These are the basics, but the real fun in reading How to Win Friends and Influence People is the historical examples that Carnegie gives. It’s a classic that is still just as interesting and relevant as when it came out. It provides countless solutions on how to properly get your point across without alienating others.

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In the latest delightful note from serious "non-tinfoil" sources confirming just how broken the market has become (and how right all those who said central banking and HFT would eventually break it), Bank of America's vol expert Benjamin Bowler and team just released a report titled with the self-explanatory "While not obvious on the surface, these markets are very weird."

Actually, for anyone who has traded these markets in the "before" and "after" central planning phases, it is all too obvious just how weird the markets have become.

For the benefit of all other 17-year-old hedge fund managers and 24-year-old math PhD quants, what BofA finds striking is that "last week’s sudden shock to US equities, and rapid rebound, yet again demonstrated the historically unusual tendency for markets to jump quickly from calm to stress and back (“fragility”)."

BofA's peeve with the market's "Buy-The-Dip" reflex is hardly new, and was first pointed out by Bowler in mid-March, when the strategist lamented that "perversely, US equity sell-offs have seemingly become embraced as alpha (i.e., buy-the-dip) opportunities instead of being feared as bona fide risk-off events, as the central bank put has become a self-fulfilling prophecy."

Two months later, it's more of the same as BofA notes that the -1.8% drop in the S&P 500 on 17-May was a five standard deviation (5-sigma) event vs. trailing volatility, the third such outsized drawdown in stocks in less than a year, but only the 18th since 1928.

What is more surprising is that the sudden air pocket was immediately followed by the second-fastest retracement of a 5-sigma drop since 1928, illustrating the power of today’s “buy the dip” mindset. And while some, such as Deutsche Bank most recently, have called the market's apparent invincibility a function of the "Trump put" which has allegedly replaced the "Fed put", to BofA there is something bigger in play:

The fact it occurred in the face of risks to Trump’s policy agenda illustrates that today’s Pavlov buy the dip is not a Trump put, but something more powerful. The sudden jolt to US equities also catalysed record spikes in vol of vol and SPX skew last week. For those concerned that Trump’s policy agenda may be diluted, delayed, or possibly defeated in the coming months and catalyse a grind lower in stocks, we like leveraging steep skew via SPX put spreads and down & out puts as hedges.

Is that really the weirdest part of the market?

Hardly: we have spent the better part of the past 8 years showing and documenting precisely that – bizarre market outliet events, and in this particular case, the market's insta-rebound response has been repeatedly documented by JPM's Marco Kolanovic, who has shown how progressively shorter the half-life of every selloff has become. However, we find it useful that more "professionals" not only observe but quietly complain against what is clearly an artefact of a broken market structure: after all that may be the only way something ever changes.

Here are some additional observations from BofA, which is clearly fascinated with the "Third 5-sigma SPX drawdown in <1yr followed by 2nd-fastest retracement in history"

* * *

Last Wednesday’s (17-May) sudden shock to US equities, and the ensuing rapid rebound, provides the latest illustration of the capacity for markets to jump extraordinarily quickly from states of calm to stress and back – a dynamic we called market “fragility” in our 2016 Outlook. Consider that:

• Prior to the -1.8% drawdown in the S&P 500 on 17-May, the realized volatility of the S&P had been 5.7% (36bps daily vol).1 Hence the equity decline, while not large nominally, was in fact a five standard deviation (5-sigma) event (1.8% / 0.36%) when accounting for how low volatility was prior to the shock (Chart 7).
• The last such 5-sigma event occurred on 9-Sep-16, when stocks were jolted out of their summer lull by weakness in bond markets, and prior to that on 24-Jun-16 following the Brexit vote (Chart 7). In other words, the past 229 trading days have delivered three 5-sigma drawdowns in the S&P 500 (1.3% frequency of occurrence). In contrast, the prior 22,222 trading days (i.e., since Jan 1928) witnessed only 15 such drawdowns – a frequency of 0.07%, or 19x less frequent.
• Perhaps even more remarkable than the capacity for US equities to jump from calm to stress today is their ability to revert astoundingly quickly back to a state of calm. Chart 8 shows that in the three trading days since 17-May, the S&P 500 has recouped 85% of its 1.8% decline. This is the second-fastest retracement of a 5-sigma drawdown in the history of the S&P 500 and not dissimilar from the speed of recovery seen both after Brexit and in Sep-16.
• These records underscore our view that market shocks have come to be viewed by investors as alpha opportunities rather than marking the onset of rising uncertainty. Initially, a clearly visible and high strike Fed put taught the market to “buy the dip”; now, however, this behaviour has simply become a learned response function.

Sudden jolt to US equities led to record rise in vol of vol and SPX skew In equity volatility, the effects of the outsized drop in US equities on 17-May were profoundly felt in skew and vol of vol. VVIX, which measures the implied volatility of 1M VIX options, experienced its largest one day rise (34.7 points) since Feb-07 (not coincidentally another 5-sigma shock to US equities). S&P 500 3M implied volatility skew experienced the largest rise in stress among GFSI’s 43 sub-components by a factor of nearly 2x (Chart 9) and a 99.8th percentile rise relative to its own history since 2000 (Chart 10).

 

While S&P skew has receded from the extremes reached on 17-May, it remains historically elevated, particularly on the put side where the ratio of 10-delta to 35-delta SPX 3M put premiums (as one example) reached a 10yr+ high on 17-May and ended last week in the 97th percentile based on daily data since May-07 (Chart 11).

* * *

And as a bonus, here are some "notable trends and dislocations" from BofA observed in the aftermath of last week's events:

Last week brought a spike in vol amid a potential political scandal unfolding in Washington. On May 17th (last Wednesday), former FBI Director Comey released a memo indicating that President Trump may have tried to influence the Flynn investigation, sending markets to sell off—the S&P declined 1.8% (the largest single-day drop since September 2016), and the VIX jumped 4.94 vol points to 15.59, the largest since Brexit. Vol-of-vol was bid and the move was outsized relative to the move in vol (Chart 17). However, by the end of the week investors bought the dip, and the S&P 500 closed only 0.38% lower while the VIX retreated to 12.04 (by Monday’s close, the VIX was all the way down to 10.93). Major US indices ended the week lower as the Russell 2K recorded the largest decline (-1.12%), followed by the Nasdaq (-0.62%), and the Dow (-0.44%).

• Markets sold off on Wed, 17-May, following reports of a memo from former FBI Director Comey that says Trump asked him to stop the investigation of former national security advisor Flynn.
• The VIX 1M constant maturity future rose 2.17 vol points to 14.24 and vol of vol (VVIX) rose disproportionately higher by 34.72 points in an unprecedented relative move.
• Similar to post-Brexit, the buy-the-dip mentality kicked in and VVIX quickly reverted ending the week virtually unchanged, only 4.7 points (5.7%) higher than the previous Friday.

* * *
 

• On 15-Aug-71 Nixon introduced his new economic plan and set the beginning of the end of the fixed exchange rates established at the end of World War II. The dollar was effectively devalued, which prompted OPEC to raise oil prices 160%, causing inflation to spike. Coincidentally, the unemployment rate soared as the FED tightened to fight inflation. As with all macro-economic policies, it took time for this to trickle down to the real economy. The GDP growth rate was above 5% in 1972 and in 1973. It subsequently dropped to -0.5% in 1974. Today’s economic environment is obviously quite different from the early 70’s.
• Nixon served his first mandate as President of the United States from Jan-69 to Jan-73. The height of the Watergate scandal was between 8-Jan-73 (days prior to Nixon’s second inauguration when five defendants in the burglary trials pled guilty) and 9-Aug-74 when Nixon resigned the presidency to then Vice President Gerald Ford (white area on chart).
• Throughout the period, S&P 500 lost over 40% of its market cap however the economic backdrop prior to the scandal was a large contributor to the decline. Realized vol trended higher and the period was characterized by three major volatility spikes, which coincided with dissemination of information on the Watergate scandal (Chart 19). Interestingly however, each vol spike reverted to the trend within on average 24 sessions.

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Authored by Steve H. Hanke of the Johns Hopkins University. Follow him on Twitter @Steve_Hanke.

On March 16th, the New York Times carried reportage by Peter S. Goodman, Keith Bradsher and Neil Gough, which was titled “The Fed Acts. Workers in Mexico and Merchants in Malaysia Suffer.” The theme of their extensive reportage is that U.S. monetary policy is the elephant in the room. It is the elephant that swings exchange rates and capital flows to and fro in emerging-market countries, causing considerable pain.

The real problem that all of the countries mentioned in the New York Times reportage face is the fact that they have central banks that issue half-baked local currencies. Although widespread today, central banks are relatively new institutional arrangements. In 1900, there were only 18 central banks in the world. By 1940, the number had grown to 40. Today, there are over 150.

Before the rise of central banking the world was dominated by unified currency areas, or blocs, the largest of which was the sterling bloc. As early as 1937, the great Austrian economist Friedrich von Hayek warned that the central banking fad, if it continued, would lead to currency chaos and the spread of banking crises. His forebodings were justified. With the proliferation of central banking and independent local currencies, currency and banking crises have engulfed the international financial system with ever-increasing severity and frequency. What to do?

The obvious answer is for vulnerable emerging-market countries to do away with their central banks and domestic currencies, replacing them with a sound foreign currency. Panama is a prime example of the benefits from employing this type of monetary system. Since 1904, it has used the U.S. dollar as its official currency. Panama’s dollarized economy is, therefore, officially part of the world’s largest currency bloc.

The results of Panama’s dollarized monetary system and internationally integrated banking system have been excellent (see accompanying table).

• Panama’s GDP growth rates have been relatively high. Since 1994, when the Mexican tequila crisis commenced, real GDP growth has averaged 5.8% per year.
• Inflation rates have been somewhat lower than those in the U.S. Since 1994, CPI inflation has averaged 2.3% per year.
• Since Panama’s fiscal authorities can’t borrow from a central bank, the fiscal accounts face a “hard” budget constraint dictated by the bond markets. In consequence, fiscal discipline is imposed, and since 1994, Panama’s fiscal deficit as percent of GDP has averaged 1.7% per year.
• Interest rates have mirrored world market rates, adjusted for transaction costs and risk.
• Panama’s real exchange rate has been very stable and on a slightly depreciating trend vis-à-vis that of the U.S.
• Panama’s banking system, which operates without a central bank lender of last resort, has proven to be extremely resilient. Indeed, it weathered a major political crisis between Panama and the United States in 1988 and made a strong comeback by early 2000.

To avoid the pain described in the New York Times reportage, emerging-market countries should dump their central banks and local currencies. They should follow Panama’s lead and adopt a stable foreign currency. Or, they could install a competitive currency regime, which would allow for more than one foreign currency to be used.

This piece was originally published on Forbes.

via http://ift.tt/2qLTFgt Steve H. Hanke

It's "Groundhog Day" again… again, scoffs RBC's head of cross-aset strategy Charlie McElligott in his latest note. For the sake of clarity, he keeps it short and sweet…

> ‘Macro range trade’ persists – sell ‘reflation’ at 2.40 in UST 10Y yields, buy ‘reflation’ at 2.15.

> Investor muscle memory remains ‘buy risk- & carry- dips / sell vol rips’ as PMIs & ISM remain ‘expansive’ alongside ‘goldilocks’ US rates / US Dollar for corporates.

> That said, rates are currently unable to hit ‘escape velocity’ due to breakdown in ‘inflation expectations’ via the trifecta of ‘Tightening Fed’ / ‘Deleveraging China’ / ‘Less-Dovish ECB’ in conjunction with the fading energy ‘base-effect’.

> This 1) ‘disinflationary impulse’ alongside 2) slowing trajectory of US economic data vs R.O.W. (all G10 stronger against USD over the past wk) 3) fading expectations of US fiscal policy are contributing to the meltdown in USD, lower US nominal yields (think ‘anchoring’ rates) and flattening UST curves.

> The implications of these ‘perpetually easy’ US rates / Dollar conditions for equities continue to be clear:

1. Large institutional / passive inflows into equities ‘buying the dip,’ as we now see new YTD highs in the cumulative NYSE market-on-close buy imbalances

 

2. More ‘vol selling’ in the market as evidenced by large overwriting programs across multiple sectors in recent days, with clients selling options to collect premium in core long names on expectations for a placid market backdrop over next few months / predictable Fed @ June mtg

 

3. The ratio of ‘Growth’ factor (‘secular’ stories with EPS / revenue growth and little policy- / rate- exposure) to ‘Value’ (metrics including ‘book or earnings to price’ / ‘book value’–largely cyclicals with rates- and policy- sensitivity) now sits at 17 year highs;

 

4. ‘Quality’ (ROE, earnings stability, div growth stability) now massively outperforming ‘Size’ (small cap, more cyclically-geared companies), with the ratio at highs last seen during the 1Q16 market and before that, 4Q11

 

5. ‘Anti-Beta’ now the 2nd best performing US factor market-neutral strategy YTD on the aforementioned inability for rates to move higher (and investor preference for yield / ‘low volatility’ of bond-like equities)

‘Growth : Value,’ ‘Quality : Size’ and ‘Anti-Beta’ market neutral are all expressions of ‘defensive’ investor positioning as it relates to ‘low’ / ‘stable’ future expectations for the US economy—which corroborates with aforementioned flat curves and low nominals.

Specifically as it relates to the ongoing defenestration of ‘Value,’ we continue to see signs of market-neutral book unwinds in both ‘energy’ and ‘financials’ sectors where the ‘tight stops’ model can’t handle ‘acute’ one-way melt-downs (alongside flailing stat-arb ‘mean reversion strategies QTD).

As I have stated since late March though—this incredible ‘one-way crowding’ into ‘Growth’ proxies (tech, consumer discretionary, biotech) corroborated by 13F’s and FAANG / PANE / sector performance evidences a major market positioning asymmetry, as well as ‘over-exposure’ to ‘market’ factor risk (a.k.a. long books are very ‘high beta’) which could ‘tip over’.

The largest market risk to me isn’t thus a ‘systemic’ or economic one; it is a ‘systematic’ one (‘get it’?)

This is essentially a ‘pure Minsky’ backdrop, where due to ‘epic’ lows in cross-asset realized vols (per the inability of monpol to sustain ‘inflation expectations’—and thus rates—higher), ‘negative convexity’ / ‘short gamma’ strategies continue to allocate large leverage / exposure onto traditionally ‘risky’ assets to generate return

For example, CTA and risk-parity length in equities or EM bonds / FX; equity L/S gross- and net- leverage at cycle-highs; or ‘vol risk premia’ funds profiting from CB liquidity; or more ‘micro,’ market-neutral equities strats which have been required to load increasing amounts of leverage upon ‘working’ factor strategies to amplify returns

Classic ‘pennies in front of a stream-roller’ / ‘negative skew’ return profile – Taleb distribution: “The statistical profile of an investment which normally provides a payoff of small positive returns, while carrying a small but significant risk of catastrophic losses.”

The problem is….IT KEEPS WORKING, because market expectations for rates / curves / inflation expectations remain D.O.A., which perversely keeps the major global central banks “reflexively easy”—a.k.a. “The Insanity Loop”

Punchline: we need sustained and regularly-occurring rate hikes to break the lazy-carry complacency, which in turn will allow for macro trading regime change.

STALL-SPEED—IS THE BEST NOW BEHIND US?

 

‘VALUE’ DESTROYED RELATIVE TO ‘GROWTH’ AS PERPETUALLY ‘EASY’ POLICY SINCE ’09 KEEPS RATES LOWER / CURVES FLATTER:

 

RATES THAT DON’T RISE / CURVES THAT DON’T STEEPEN = ‘GOLDILOCKS’ FOR LEVERAGED-ALLOCATION / VOL-TARGETING / RISK-PARITY / ‘CARRY’ STRATEGIES (% RETURN YTD):

 

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