Gold Surges Above $1250 On Weak Data, JPM “Buy”

Extending its gains from yesterday, gold has broken back above $1255 – near 13 month highs – breaking out of its one-month triangle, following weak data this morning (ISM/PMI/Factory Orders) and JPMorgan's "Buy Gold" warning.

The barbarous relic is in high demand this morning…

 

Breaking out of the one-month triangle…

 

Pushing near 13-month intraday highs…

 

It appears more than just central banks are buying…

 

Central banks have been net buyers of gold for eight straight years, according to IMF estimates, the longest streak since the first troops were deployed in The Vietnam War.


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Bridgewater’s Ray Dalio Speaks Live From The University Of Texas

Moments after speaking with Bloomberg’s Erik Schatzker, a speech which generated numerous headlines (and which we will cover shortly due to Dalio’s comments on the fate of the market, how much gold one should hold, and whether retail investors should even hope of making profits in this market), Bridgewater’s Ray Dalio took the podium at the University of Texas Board of Directors 20th Anniversary event, which lasts for two days and will feature the following speakers today:

  • Bridgewater’s Ray Dalio (10am)
  • Dallas Fed’s Robert Kaplan (10:45am)
  • Centerbridge’s Jeff Aronson & Fortress’s Peter Briger (11:45am)
  • ValueAct’s Jeff Uben, Eminence’s Ricky Sandler & Selliam’s Ross Margolies (12:30pm)
  • Maverick’s Lee Ainslie, Passport’s John Burbank & Blue Ridge’s John Griffin (2:15pmET)

The full agenda can be found here.

While a video stream appears to be missing, readers can follow the speeches and the Q&A live here.


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“It’s A Recession Stupid” – US Factory Orders Tumble For 15th Month In A Row

In 60 years, the US economy has not suffered a 15-month continuous YoY drop in Factory orders without being in recession. Today’s -1.9% YoY drop may suggest the slide is decelerating, but off the weakness in December (-2.9% MoM), January’s bounce +1.6% MoM missed expectations (+2.1%) notably (and Ex-Trans decline MoM).

Recession…?

 

Or different this time?


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“Worse May Be To Come” As US Services Slump Into Contraction, Business Confidence At Record Lows

From the narrative-destroying 49.8 preliminary print for US Services PMI (the lowest since the government shutdown in 2013), today's final February Services PMI printed an even worse 49.7 (below 50.0 expectations) even as stocks have soared in the last 2 weeks. Business confidence tumbles to its lowest since Aug 2010 (record lows). This drops the composite PMI to a dismal 50.0, implying negative GDP growth in Q1. Then ISM Services printed 53.4 (down from January but a small beat) to 2 year lows, confirming the decoupling from manufacturing's demise was a fallacy (merely a lagged response) as the last leg of the economic recovery's stool gets kicked away.

Services Slump into contraction…

 

Dragging the Composite PMI to 50.0, signaling GDP growth has ended…

 

And ISM Services contoinued to catch down to manufacturing's weakness…

 

The ISM Employment subindex tumbled into contraction at 49.7 (lowest since Feb 2014), and New Orders slipped to March 2014 lows.

Commenting on the Services data, Chris Williamson, Chief Economist at Markit said:

“Business activity stagnated in February as malaise spread from the manufacturing sector to services. The Markit PMIs are signalling a stagnation of the economy in February, suggesting growth has deteriorated further since late last year.

“Prices pressures are waning again in line with faltering demand. Average prices charged for goods and services are dropping once again, down for the first time in five months, as firms compete to win new business

“Worse may be to come, as inflows of new business have slowed sharply, causing backlogs of work across both sectors to fall at the fastest rate seen since the 2008-9 financial crisis. Such weak demand suggests that business activity and price discounting look set to continue.

“However, perhaps the brightest warning light is the downturn in business optimism to the joint-lowest recorded by the survey, suggesting firms are bracing themselves for trouble ahead.

“The only positive note in the PMI report is the sustained robust rate of job creation in the services sector, though it seems inevitable that firms will take a more cautious approach to hiring if demand continues to wane in coming months.”

While it does not require some PhD-driven leap of economic logic to the man in the street, it appears it never occurs to analysts that when people lose good paying manufacturing jobs they stop spending on services.

Charts: Bloomberg


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JPMorgan Goes Underweight Stocks “For The First Time This Cycle”, Says To Buy Gold

Less than 24 hours ago we presented the latest reason by JPM’s Mislav Matejka explaining why the equity strategist refuses to buy this market, to wit: “equities are down ytd, but notably the ’16 P/E is not much cheaper today than it was at the start of the year. In fact, for the US, the P/E multiple is currently higher than it was on 1st January, at 16.8x vs 16.6x then.”

Fast forward to today when we read something rather stunning: in a dramatic conversion, after moving to Netural on equities just a month ago, JPM is as of this moment underweight equities “for the first time this cycle.” Additionally, JPM is also Underweight such highly correlated to stocks (and China) commodities as gas, oil, and copper, but in a surprising reversal is now, perhaps most importantly, overweight gold.

The details from JPM’s Jan Loeys:

Equities, credit and commodities have all rallied in the last three weeks, as some of the immediate threats to the world economy have faded from attention, possibly only because the bad earnings season has wound up. But, to us, the fundamentals of growth, earnings and recession risk have not improved, and if anything have worsened. We remain wary of the near-empty ammo box of policy makers.

 

Our 12-month-out US recession odds have risen to 1/3, while equity-implied odds have instead fallen to near 1/5. But even with no recession this year or next, we see US earnings rising only slowly by low single digits and see little to boost multiples. The eventual recession should bring US stocks down some 30%, creating a strong downward risk skew to returns over the next few years.

How to trade’s JPM’s new reco: “We use the rally in stocks to sell it and go underweight stocks, versus HG corporate bonds and cash. The strong rebound of the past few weeks does create near-term momentum, and thus keeps our first UW small. Low growth and easy money and the reduced potential for capital gains should raise the demand for income. We focus this on US HG given its still over 4% yield, a rarity in the HG world. We are not ready to pursue FX or commodity carry at this point, but like high-dividend stocks. Within fixed income, we are now long duration.”

But most stunning is that in the overall asset allocation we spot the following (bolded and underlined):

Our portfolio is now 5% UW Equities, the first UW this cycle. We retain a 10% OW of Credit, moving Bonds to Neutral, and Cash to OW. Commodities stay UW, but we move it to a small -1%, given recent momentum and volatility. Within Equities, be OW defensive sectors. Given that our risk focus is now switching from Chinese debt to US corporate caution, we go OW EM equities. In Credit, OW US HG, US banks, and sterling HG against EUR and EM. In Commodities, be short gas oil and base metals but OW gold.

The full breakdown:

 

And some more details from the report:

  • We go Underweight Equities for the first time in this cycle.
  • Equity bearish forces include poor macro valuation vs. our recession risk for this year; negative fundamental momentum; and limited profit and return upside relative to the downside we see from the eventual recession.
  • The limited upside we see on stocks under our no-recession modal forecast is driven by still dismal productivity growth and the inability/unwillingness of monetary and fiscal policy makers to stimulate growth.
  • Within equities, we are now OW defensives and large caps, but go OW EM as risk focus is now on the US and away from China.
  • We retain an OW of HG corporate debt given its better macro valuation and better ability to absorb negative economic news. Move long duration in global bonds.
  • OW Cash, but stay UW Commodities, though cut in half.

After January’ traumatic start for risk markets, early February brought another low, but was then followed by a rebound over the past two weeks that pushed global stocks within 4% of their start of the year level. Commodities did virtually the same, with oil still net down but industrial metals net up on the year.

From risk-on/risk-off to recession-near/recession-far.  The debate among investors is not about whether we are in a risk-on or risk-off mode, but whether we are nearing a recession or are still far off. The end-of-cycle scenarios we have discussed here since early last year started with a Fedbehind- the-curve-on-inflation, to a China and EM debt crisis, and then more recently to one focused on US corporate caution, driven by falling profit margins and a policy maker without ammunition to counteract corporate retrenchment.

Market participants focus on the binary risk of recession or not because they know that risk markets – equities foremost, but also credit and commodities – have a cyclical pattern and see their greatest price falls generally in a US recession.

Over the past half year, investors have been toggling between these three “economy killers”, trying to judge odds of each over the next  year. The generally weak tone of Q4 earnings reports across the DM world in January and early February raised the risk of corporates retrenching in response to falling profits. When the bad earnings news stopped, only because the earnings season wound down, risk markets rebounded, supported also by news that China started injecting more liquidity and credit into its economy, thus reducing downside risk perception. Soothing Fed language and the resulting rally in US duration also helped.

The issue for investors is never whether a recession is coming. In a sense, it is always is coming as no economic expansion lasts forever. The issues are instead when is it coming; how much damage it will do; and whether markets still have enough upside before the recession to make up for the eventual losses during the downfall.

As we have discussed here frequently, US equity markets have in the post-war period never reached their highest level more than 13 months before the onset of recession. This is largely because there is little visibility more than one year out, and there has at least in the past generally been the conviction that if a shock were to hit the economy, policy makers would have time to provide sufficient stimulus to offset its impact.

Our economic models, based on past relationships which have never seen a US expansion lasting more than 10 years, are giving us now a 1/3 probability that the US expansion will end within 12 months, 2/3rd within 2 years, and close to 100% within 3 years. The latter should in reality be lower, as other countries have seen expansions last more than 10 years, and the post war US experience has seen only 10 cycles.

* * *

If the next 12 months also do not produce a recession, then profits should rise again, but probably only by low single digits gains, unless the economy would suddenly show a significant acceleration in productivity growth, something that would be quite a surprise given lackluster growth the past 5 years. As a result, in the no-recession scenario for the next two years, US earnings are unlikely to grow much faster than 5% pa, without a significant acceleration in growth.

It is always possible that equity prices will rise faster than earnings on optimism that tends to rise late cycle. Here we run into the problem, though, that such optimism and multiple expansion face the growing realization among investors that monetary policy makers are running out of ammunition and that new policy innovation from here might not have much impact, assuming it even does not do more damage than benefit. Fiscal policy stimulus in DM, aside from China, will probably only be used after economies have already fallen into recession. Hence, we are loath to rely on multiple expansion as the driver of higher equity prices at this point.

If the upside is limited, what is the downside in the eventual recession? We discussed last month that, during a recession, US large-cap are likely to drop by close to the average recession fall of 32% seen during the postwar period, given its multiple at the peak, the depth of the recession and the likely fall in earnings. Given the reduced leverage in the US economy among banks and households in this cycle, we expect any recession to be shallow. But the lack of immediate monetary stimulus in such a scenario at the same time tell us this recession may be drawn out, giving us a peak-to-trough fall that may well be similar to past recessions.

If the recession starts this year (not our modal view), then the S&P500 would likely fall some 30-35% from last year’s peak of 2,134, to somewhere between 1,400 and 1,500. If instead the recession is in one of the following two years, then we would expect the same % falls, but from levels that would be 5-10 % higher than today and thus to levels still well below today. Hence, we have a view that upside from here is not very great and that eventually over the next few years, we should be some 20% lower than today. The modal price year-end forecasts of our DM equity strategists are near today’s levels, but each sees a significant downward skew around these.

How to invest with a downside risk view on global equities? The first we have done here is to go Underweight equities in a global cross asset portfolio, after last month having gone to Neutral. In our long-short, we were already short US equities versus US HG credit spreads, volatility weighted, and add now a short US equities against US HG corporate bonds, also volatility-weighted.

Within Equities, we are OW two defensive sectors, US large caps versus small caps and global Defensive versus Cyclical sectors. Given the now concentrated focus on US economic risk and some signs of monetary and fiscal policy stimulus coming in China, we go OW EM equities versus DM. The EM-DM split has not shown much directionality in the past and we think EM can outperform even in a bearish environment for global stocks.

In Bonds, we are now long duration, not just to match our equity bearishness, but also as our rule-based models provide a long-duration signal.

We have been UW Commodities and in particular oil, on a view of systematic excess supply of crude. We still have this view but find that oil prices have now been moving up over the past 6 weeks by a cumulative 25%. Part of this is due to the same reduced economic fears that may be driving stocks up over the past few weeks. Given the still high correlation between stocks and oil and the likelihood that some of the recent rebound in oil is due to supply disruptions in Iraq, we reduce the size of our oil shorts.

* * *

Stay long Dec’16 CME gold

At the end of January, we marked our gold price forecasts higher on a delayed Fed hike and USD decoupling with our 4Q2016 average now at $1,250/oz Moreover, NIRP policy ex-US and stickiness in US inflation could push US real bond yields lower and further support gold prices as gold’s best performance has historically occurred during a low and falling US real interest rate environment, with monthly returns averaging 1.4% compared to the long-run average of 0.4%

Went long Dec’16 CME gold at a price of $1,194.60/oz on February 10. Trade target is $1,300/oz with a stop at $1,015/oz. Marked at $1,233.80/oz on March 1 for a gain of $39.20/oz or 3.3%.


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Use the Perspective of Third-Party Voters to Analyze Trump’s Supporters

Trump rally

Donald Trump is essentially running a third party campaign from within the fractured guts of the Republican Party and succeeding magnificently.

The frustation from within the party is loud and furious. He’s not even a real Republican, they insist.

But that’s not what matters to Trump’s supporters, The attempt to use arguments that appeal to either party loyalty or party identity to get to his supporters is doomed to fail. That’s because Trump supporters are essentially third-party voters.

What does that mean?

The struggle to suss out the motives of Trump supporters, at least by those who are willing to looking beyond (the very real) fears of nativism, authoritarianism, and racism, is reminiscent of the way participants of established, controlling political movements sometimes have a hard time grasping third-party voters. These voters would rather “throw their votes away” then support Democratic or Republican candidates, even if the end result is that another candidate that voter also detests may win instead. There is a not-insignificant number of conservatives who believe that Trump’s campaign will undoubtedly help Hillary Clinton win come November. There are conspiracy theories that this is even deliberate.

It just so happens that I wrote about this dynamic back in 2013, when Libertarian Party candidate Robert Sarvis challenged Democrat Terry McAuliffe and Republican Ken Cuccinelli for governor of Virginia and came away with more than six percent of the vote in a close race. Sarvis was seen by some (inaccurately) of having cost Cuccinelli the election, and there was palpable frustration at voters who went third party rather than lining up against McAuliffe. My post was titled “Read This If You Believe Your Candidate Lost Due to Third-Party Voters.” It may seem strange to invoke the piece now, given that Trump is doing so well compared to any actual third-party candidate we’ve had in modern times and is leading a takeover of an established political juggernaut. But stick with me while I go back through my bullet points and see if it can’t help grasp what is going on with Trump’s supporters in a way that doesn’t dismiss them or treat them like they’re dumb or don’t understand the kind of man Trump is.

Before going through this list, I’ll state that I am not a Trump supporter and will not be voting for him in November if he gets the nomination. In all likelihood I’ll be voting Libertarian Party or not even voting for president at all. Rather, like Nick Gillespie has been doing, I’m trying to get past a certain amount of establishment-fed oversimplification about what the Trump vote means and what may be learned from it. What can the “establishment” learn from visualizing Trump’s supporters as third-party voters?

1. “[They] don‘t like your candidate.” As I noted with Sarvis, you’d think this would be the easiest fact to grasp, but for some it seems to be a struggle. In this presidential cycle some confusion does make sense, because somehow Sens. Ted Cruz and Marco Rubio are having to fight against the “Washington insider” label, even though they’re both new senators who had to defeat “establishment” candidates themselves in order to get here in the first place. There are actually no “insider” candidates left on the Republican side in the conventional sense.

Nevertheless, the argument that voters should support a candidate they’re not fond of in order to defeat the “other team” is not a compelling suggestion to those who don’t see themselves as being on either team (and also as being abused or victimized by the policies of both teams). A big chunk of the Trump supporters we’re talking about are not regular voters. They do not feel any obligation to go along with party wishes.

And in fact, the possibility that Trump could be the GOP nomination is allegedly prompting some establishment Republicans to consider voting for Clinton instead, and for some others to suggest a third party to drain votes from Trump, meaning they’re going to help cause the very outcome they’re telling Trump supporters they’d be responsible for. Because they don’t like Trump. And so we end up full circle.

2. “You need to make an actual case for your candidate.” In the original context I meant that attempting to reach third-party voters meant promoting their own candidate’s appeal over complaining that the voter was helping the “other team.” Make a positive argument why a libertarian should support a Republican instead of a libertarian.

In this case, Cruz and Rubio have been loudly trumpeting the case for themselves, even though the argument that Trump allegedly can’t beat Clinton is still getting pushed. There is still the matter of the cases Cruz and Rubio are actually making. First of all, the two of them have been going after Trump for the lack of policy details. They’re absolutely correct, but they’re also completely missing the point. Trump voters don’t want more policies. Accurately or not, they believe the policies that get put together in Washington ultimately end up hurting them. What they want is for Trump’s “negotiation” skills to keep that from happening and make sure that they end up on the “winning” side.

And about those negotiation skills—let’s make special mention of a recent turn in how Cruz, in particular, is attempting to attack Trump. Trump is on the record saying that the details of his anti-immigration policies are negotiable. “Everything is negotiable,” he has said, though he also says the building of the absurd wall between the U.S. and Mexico is itself not.

Cruz and Rubio have both attacked Trump for not being hard enough on illegal immigration and responded accordingly to this idea of “negotiating.” Cruz hit Trump in his victory speech Tuesday night, saying that he would not be “negotiating” with Washington; he would be “standing up” to them. He hit Trump for supporting Planned Parenthood and said Trump wanted to expand socialized healthcare.

So consider this line of attack for a moment: Trump is being called an authoritarian fascist with incredibly heartless, immoral plans for dealing with immigration and securing the border. Cruz’s response is “No, he doesn’t really believe this. He’s lying. I really believe it, though! So vote for me!” That doesn’t make any sense at all. You cannot make the case that Trump’s positions are dangerous and then also make the case that they don’t go far enough and expect to be treated seriously.

3. “Don‘t presume to tell [them] what [they] believe.” This argument was initially presented as a criticism pointed toward those who would presume to tell libertarians what they’re really supposed to stand for to try to get us to line up behind a candidate we didn’t like.

Trump artBut there’s a completely different issue with Trump: There’s an entire bipartisan movement to attack and shame Trump voters, as though this would somehow affect the election in some meaningful way. Why would a Trump voter care if people who already despise them and Trump think they’re authoritarians or racists? They still get to vote exactly the same way more enlightened folks do.

For that matter, let’s talk about “authoritarianism” for a little bit. Trump voters are being singled out as authoritarians. I happen to agree that Trump supporters are clearly driven by authoritarian urges as a way to get what they want and to bypass the machinery of Washington. The consequences of this actually happening could be very serious and harmful.

But here’s the problem: They are far from alone in this election cycle. And yet, there is a concerted effort to find a way to finagle the definition of the term “authoritarian” via social science in such a way that it applies to voters and candidates on the right but not to those on the left or elsewhere. I’ve written about this before and it’s coming up again. Social scientists have framed authoritarianism to a particular type of appeal to government power so that it seems to apply only to certain types of conservatives, and thus we end up with analysis like this at Vox:

This positioned the GOP as the party of traditional values and social structures — a role that it has maintained ever since. That promise to stave off social change and, if necessary, to impose order happened to speak powerfully to voters with authoritarian inclinations.

Democrats, by contrast, have positioned themselves as the party of civil rights, equality, and social progress — in other words, as the party of social change, a position that not only fails to attract but actively repels change-averse authoritarians.

Only by describing authoritarianism as “being averse to change” is it possible to ignore the significant amount of authoritarianism by the left or among Democrats. Apparently using the law to violently force change is not authoritarianism? Vox, recall, hosted Ezra Klein’s argument for authoritarian “Yes Means Yes” laws where the government tells you what to you must do in order to make sure sex between two adults is consensual. He made no bones about his appeal to the power of authority. He said that the goal of such laws was to “create a world where men are afraid” of being prosecuted. And it’s impossible to ignore the current college environment where student activists are attempting to deny their peers of the First Amendment right of free speech when they promote disliked ideas and the Fourth Amendment right of due process for sexual misconduct allegations.

ReasonAnd it’s ironic, given that Trump does not to appear to be much of a fan of the Bill of Rights himself. Frankly he’s terrible. The problem is not that just that Trump and his voters are awful on civil liberties, but also the number of people who don’t realize that they are awful as well and are trying to reframe the debate to cast themselves as heroes. Why should a Trump supporter allow themselves to be designated the villain in this scenario? Robby Soave has pointed out how backlash against the PC movement has helped give rise to Trump for this exact reason. Yes it’s hypocritical. But remember, Trump supporters see this as a defensive reaction to the power displayed by other factions. Watch a clip of protesters being ejected or facing violence at a Trump rally. Then watch fired University of Missouri professor Melissa Click trying to forcibly eject journalists from a college protest.

4. “No really, don‘t pull this ‘blue versus red‘ crap on [them].” Nobody can really say for certain what Donald Trump was actually thinking when he had New Jersey Gov. Chris Christie introduce him at his victory speech/press conference Super Tuesday night and then stand behind him, trying hard (and failing) to not look utterly defeated and broken.

It may not have been Trump’s direct aim to humiliate the governor—Trump, as crude as he is, does typically show a certain grace in victory. But given the subsequent social media response and mocking of Christie, Trump might as well have just had Christie’s head removed, glued to a plaque, and hung on the wall like a trophy.

Peter Suderman noted how the spectacle of Christie falling in behind Trump demonstrated the governor abandoning all his principles in the pursuit of a relationship to power. Christie’s positions on issues are absolutely nothing like Trump’s. They are not even compatible. And yet there he is. And some are utterly furious with Christie over it.

Let’s consider the possibility that Christie’s “defection”—scare quotes here because nobody can rightfully claim the authority to declare what the GOP is supposed to be—completely reinforces Trump’s approach to this race and a significant reason why Trump’s followers rally behind him. You say Trump is a con man who buys and sells politicians? His response is, “I sure do, and look at what it gets me. Don’t you want to be part of this?” Trump is corrupt. His response is that everybody involved in politics is corrupt—and he is good at navigating that system. He is not there to “fix” the system. He is not there to “break” the system, though the Republican Party may end up breaking as a consequence. Rather, actually similar to most politicians, he’s promising to make it work for the behalf of a particular constituency that supports him. The difference is he’s not even pretending it’s about principles or the creation of policy. It is the pure representation of application of naked political power. It’s fascism—because he’s not interested in following the political process to get his plans implemented the legally recognized way.

Pointing out that Trump was obviously a supporter of Democrats in the past means utterly nothing when this campaign is all about populist appeals to authority and outcomes over processes. What the Christie cameo Super Tuesday showed is that affiliation is no longer all that meaningful. Why should Trump voters care about electoral processes and identification if they think they’re being screwed over by everybody else?

Furthermore, it’s a reminder that political parties are not identities. While many may associate the Republican Party with conservatism and the Democratic Party with liberalism, that’s an identity organically grown from the desires of the people who belong to it. It can, and will, and does, change and evolve. The Republican Party is whatever the most numerous and powerful members determine it to be. The Democratic Party may soon be facing a turn toward full-blown democratic socialism rather than liberalism. We’ll have to see. Jesse Walker analyzed the evolutions and possible realignments of the parties here.

5. “Respect that voters determine their own political priorities.” Ron Bailey researched and noted in the wake of Super Tuesday that living in an economically distressed community is a good indicator of Trump support. His supporters tend to be poorer and less educated, often without a college degree.

Consider the fight over “income inequality.” The left thinks they own this issue. The problem is overstated, but the fact is, the biggest indicator that you’re one of the people who are on the bad side of the income shifting is that you have less than a college education. The Pew Institute looked through the demographics of who was benefitting and who was getting hurt by the current levels of income inequality. The worst were those who were just high school graduates or less. Racial and gender demographics didn’t matter as much. Blacks, women and Asians were actually doing better, as were whites and men. The gap that did exist was almost entirely due to education level.

So if these folks are Trump’s constituency, their embrace of Trump’s terrible concepts of trade makes sense. It’s not that they’re correct on trade. They’re absolutely not. Free trade helps everybody in the long run. Americans benefit greatly from trade with China with cheap goods. A lower-class American still has access to the kinds of goods and services the poor of the past could only dream about.

But! Those of us who support free trade are also very familiar with the capitalist cronyism and corruption that attempts to capture and redirect market forces not just in the United States, but in other countries (like China and Mexico, both of whom Trump hits a lot in his speeches). Trump gets attacked as one of these crony capitalists, and it’s absolutely true.

Trump’s constituency is made up of people who believe that they are the ones who have been hurt the most by this system. One might think, then, that Trump would be seen as the enemy here. Trump is “winning” by going completely mercenary with this approach: He is offering to use his knowledge and ability to manipulate this system to benefit those voters. He is going to negotiate to bring jobs back to the United States. He is going to do so many amazing things you just won’t believe it! That’s the way he talks. He doesn’t provide details, because these are just the opening offers, right? Once he has power, he’ll hash it out. Taxes, spending, whatever. Everything is negotiable. He’ll make sure you get the best deal, if you’re a Trump supporter.

There’s no concept of a win-win scenario within Trump’s perception of trade, and therefore what he’s proposing is anathema to free marketers. But the problem is that his supporters do not see the possibility of a win-win scenario in the way Washington currently operates. They just see everybody except them “getting rich” off the government. Trump is going to be the crony capitalist who serves them. He’s a con artist; he’s their con artist.

They don’t believe the current system of patronage is going to end, because why would they? Does anybody actually believe that Bernie Sanders can successfully “fight Wall Street” (even if they think this is an admirable pursuit and not something that presents dire consequences)? Every politician under the sun promises to “take back Washington” and stop “the bastards,” whoever those might be. But the bastards are still there. Rather, this is about gaming the system for the Trump voters’ own benefit. It’s counting cards. It’s about stacking the deck for themselves rather than other people. Of course, that’s right up the alley of a guy who has built casinos.

That is why the obsession with “winning.” And it’s absolutely vital to understanding the authoritarian draw of Trump. It’s as defensive as the man himself, but it didn’t happen in some vacuum. Actually engaging Trump voters requires getting past the authoritarianism and nativism to truly understand what sort of outcome could please them without destroying the country’s foundations, assuming they’ll actually listen after all this time.

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“No signs of recession” says agency that always fails to predict recession

In the middle of a heated battle against my jetlag yesterday, I finally decided to exercise the nuclear option and turn on CNBC in order to stay awake.

I figured someone would say something completely ridiculous, and it would get my blood boiling enough to power through the next couple of hours.

Within minutes I saw a top economist for Moody’s (one of the largest rating agencies in the world) saying that there are absolutely zero signs of recession.

Boom. I was suddenly so wide-awake it was like that adrenaline scene from Pulp Fiction.

I couldn’t believe what I had just heard. Moody’s. No recession. Seriously?

In addition to being criminally complicit in committing widespread fraud that fueled the housing bubble ten years ago, Moody’s takes advantage of every opportunity to show the world that they don’t have a clue when it comes to economic forecasts.

It’s like what Churchill said about democracy– it’s the worst form of government, except for all the others.

Well, Moody’s is the worst rating agency and economic forecaster… except for all the others.

These are the same guys (along with their colleagues at S&P, Fitch, etc.) who totally missed the boat on the housing market and slapped pristine credit ratings on subprime mortgage bonds.

They also missed the boat on the subsequent banking crisis, giving strong ratings to Lehman Brothers and AIG right up through September 2008.

Lehman, of course, went bust that month. And AIG had to be bailed out by the taxpayer.

Moody’s and the gang also missed the rest of the global financial crisis, the collapse of Iceland, Greece’s bankruptcy, and just about every other significant financial event since… forever.

These guys are so drunk on their own Kool-Aid that in October 2007, Moody’s announced that “the economy is not going to slide away into recession.”

In December 2007, they called the bottom in the housing market, suggesting that prices would not fall any further.

Of course, the following year, the entire world was engulfed in the biggest financial crisis since the Great Depression.

Moody’s didn’t see it coming. Wall Street didn’t see it coming. The Federal Reserve didn’t see it coming. Governments didn’t see it coming.

Everyone assumed that the good times would last forever.

So when the agency that consistently fails to predict recession predicts that there will be no recession, you can pretty much guess what’s going to happen next.

This is what virtually assures negative interest rates in America.

Central banks almost invariably cut interest rates amid economic slowdown.

And over the last seven recessions in the Land of the Free, the Federal Reserve has cut interest rates an average of 5.68%.

The smallest cut was in the 1990 recession when the Fed lowered rates by 2.5%. The greatest was in 1982 when the Fed slashed rates by a massive 9%.

Think about it– rates right now are just 0.25%. So even with a tiny cut the Fed is almost guaranteed to take interest rates into negative territory in the next recession.

We can see the effects of this in Europe and Japan where negative interest rates already exist.

Negative interest rates destroy banks. It eats into bank profits and forces them to hold money losing toxic assets.

Bank balance sheets become riskier, and people start trying to withdraw their money as a result.

In Japan (which just recently made interest rates negative), one of the fastest selling items is home safes, which people are buying in order to hold physical cash.

In Europe (where negative interest rates have existed for a while longer), bank controls have already been put in place to prevent people from withdrawing too much of their own money out of the banking system.

This is a form of capital controls– a tool that desperate governments use to trap your savings within a failed system and steal your prosperity.

Wherever you see negative interest rates you are bound to see capital controls close behind.

In light of this data there are fundamentally two courses of action.

1) Hope. Pretend that everything is going to be OK until the end of time.

2) Action. Take sensible steps BEFORE any of the metaphor hits the fan.

One of the easiest things you can do is withdraw some physical cash out of the banking system.

Buy a safe and hold 50s and 20s (they might ban the Benjamins, so avoid $100 bills). And don’t take out more than a few thousand dollars at a time.

It’s hard to imagine you’re worse off for keeping a safe full of cash.

Even if nothing bad ever happens in the banking system, you can still use the cash. And all you’re missing out on is 0.01% interest in your checking account. Big deal.

But if the trend continues and capital controls arise, the value of cash (and gold for that matter) will go through the roof. And you’ll wish you had acquired some while you still had the chance.

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Over 80,000 People Want Bill Clinton Arrested For Violating Election Laws On Super Tuesday

Submitted by Carey Wedler via TheAntiMedia.org,

More than 80,000 people are calling for the arrest and prosecution of former president Bill Clinton, alleging he violated election laws by entering multiple polling stations in Boston and other Massachusetts areas on Tuesday. A Change.org petition launched that same evening calls on the state’s attorney general, Maura Healey, to take action against Clinton, though the Secretary of State insists his behavior was lawful.

The petition says the Bill Clinton made a “clear, knowing and egregious violation of the campaign laws to swing an election in a significant way,” alluding to Massachusetts General Laws and procedures that prohibit “[c]ampaigning within 150 feet of a polling station, or in any way interfering with the right to vote.“ According to state voting procedures, “no person shall solicit votes for or against, or otherwise promote or oppose, any person or political party or position on a ballot question, to be voted on at the current election.”

Secretary of State William Galvin told the New York Times his office “had to remind some of our poll workers that even a president can’t go inside and work a polling place. He can go in, but he can’t approach voters.”

He continued: “We just took the extra precaution of telling them because this is not a usual occurrence. You don’t usually get a president doing this.”

WVBC, a local ABC affiliate, reported that Brian McNiff, a spokesperson for Galvin, “clarified that Clinton broke no laws during his visits to the interior of polling places because he was not handing out any flyers or voting materials for Hillary Clinton.”

Clinton also entered polling centers in West Roxbury and Newton, and attended an event outside a polling center in New Bedford. In West Roxbury, Clinton visibly spoke to a poll worker and agreed to take a picture with her, remarking, “As long as we’re not violating any election laws.” McNiffsaid of the New Bedford appearance that “No one was prevented from voting. The city and voters were notified well in advance of the event.”

He admitted that Galvin’s office notified Clinton’s campaign of possible violations. “We have heard about it, and the clerks have been instructed and the campaign has been instructed that 150 feet is the rule.”

Clinton supporter and mayor of Boston, Marty Walsh, declined to acknowledge any illegal activity. Rather, he shook poll workers’ hands with the the former president in West Roxbury. “President Clinton joined Mayor Walsh to thank poll workers in West Roxbury this morning,” a spokesperson for his office said, adding that Clinton did not campaign inside the polling place.

 

 

The Massachusetts’ state brass is defending the Clintons in spite of unethical and possibly illegal behavior, and the petition disputes the apparent free pass.

“Bill Clinton was not only electioneering within the boundary. Although the spokesperson for Bill Clinton denies that he was ever inside a polling place, photos and video show him clearly greeting and talking up election workers inside,” it says.

The statement continues:

“After being told to refrain from this activity, which is a 3rd degree Voter Violation Felony, for which Clinton indeed must have known the law and chose to violate it, Bill Clinton does not vote in Massachusetts, and would have no other business in a polling station on election day besides campaigning for his wife.”

A spokesman for Clinton directed inquiring CNBC reporters to the WCVB article, where McNiff asserted Bill had committed no wrongdoing. Even if Clinton did not technically violate election laws, it seems apparent his presence at polling centers was intended to promote Hillary’s campaign.

Bernie Sanders supporters and others have raised concerns throughout the campaign cycle regarding the integrity of the process, and the Clintons’ most recent apparent transgression has attracted a great deal of scrutiny. As of Wednesday afternoon, the Change petition calling for Clinton’s arrest and prosecution had attracted over 63,000 signatures, closing in its goal of 75,000.

Though the Clintons have recently been accused of even more serious criminal conduct — including rape and war crimes — they have not faced prosecution.


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It’s Official: Canada Has Sold All Of Its Gold Reserves

One month ago, when looking at the latest Canadian official international reserves, we noticed something strange: Canada had sold nearly half of its gold reserves in one month. According to the February data, total Canadian gold reserves stood at 1.7 tonnes. That was just 0.1 per cent of the country’s total reserves, which also include foreign currency deposits and bonds. 

As we noted, the decision to sell came from Finance Minister Bill Morneau’s office.

“Canada’s gold reserves belong to the Government of Canada, and are held under the name of the Minister of Finance,” explained a spokesperson for the Bank of Canada on Wednesday. “Decisions relative to gold holdings are taken by the Minister of Finance.”
Reached by Global News on Wednesday evening, a spokesperson for the finance department said the sale “was done in the normal course of business for the government. The decision to sell the gold was not tied to a specific gold price, and sales are being conducted over a long period and in a controlled manner.”

This latest sell-off is indeed part of a much longer-term pattern of moving away from gold as a government-held asset. According to economist Ian Lee of the Sprott School of Business at Carleton University, Ottawa has no real reason to keep its gold reserves other than adhering to tradition.

“Under the old system, (gold) backed up currencies,” Lee explained. “The U.S. dollar was tied to gold. One ounce was worth US$35. Then in 1971, for lots of reasons I won’t get into, Richard Nixon took the United States off the gold standard.”

Gold and dollars were interchangeable until that point, he said, but in the modern financial world, the metal is no longer considered a form of currency.  “It is a precious metal, like silver … they can be sold like any asset.”

The amount of gold the Canadian government holds has therefore been falling steadily since the mid-1960s, when over 1,000 tonnes were kept tucked away. Half of those reserves were sold by 1985, and then almost all the rest were sold through the 1990s up to 2002.

By last year, Canada’s reserves were down to just three tonnes, and the latest sales have now halved that. At the current market rate, the value of 1.7 tonnes of gold comes in at just under CAD$100 million, barely a drop in the bucket when you consider the broader scope of federal finances.

According to Lee, there may soon come a time when Canada’s gold reserves are entirely a thing of the past. There are better assets to focus on, he argued, calling the government’s decision to dump gold “wise and astute.”

* * *

Lee was right, because fast forward one month when earlier today Canada’s Department of Finance released its latest official international reserves and as of this moment it’s official – Canada has fully “broken away with tradition” and has exactly zero gold left.

This is what it said:

The Government of Canada sold 21,851 ounces of gold coins for settlement in February. On February 29, gold holdings stood at 77 ounces. The valuation is based on the February 29, 2016, London p.m. fix of US$1,234.90 per ounce.

And now, Canada can focus on buying “better assets.” As to whether “the government’s decision to dump gold was wise and astute”, we’ll check back on that at some point in the near future.


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The Ongoing Plunge In American Worker Productivity Explained

While revised modestly higher from preliminary levels, US non-farm productivity plunged 2.2% in Q4 2015 – the biggest drop since Q1 2014.

 

Economists are gnashing their teeth to explain this "plunging productivity paradox" – we think it is rather simple…

 

While only modestly tongue in cheek, here is what is really going on…

Just under two years ago, when Bank of America's economic team still produced meaningful commentary instead of blaming the growth slowdown on the snow (especially after it said not to blame the growth slowdown on the snow), it pointed out that the real reason the US recovery was aging (this was in the summer of 2013) was the tumble in worked productivity. This is what BofA said then: "what we show below is that, outside of the tech boom in the late 1990s, productivity tends to slow as business expansions mature. Our current 'expansion' is now thoroughly mature."

 

This time, Bank of America was absolutely right.

And finally, here is Eugen Bohm-Bawerk explaining how US productivity is now on par with Agrarian slave economics…

monetary policy has become slave to the service sector as it has become linked to the much touted wealth effect (capital consumption) that is now an integral part of the American business cycle.

Now it is time to take a closer look at productivity measured in terms of GDP per capita. While this is not an entirely correct way to measure productivity, it does adhere to new classical growth model theories which posit that in a developed economy, reached steady state, the only way to increase GDP per capita is through increased total factor productivity. In plain English, growth in GDP per capita equals productivity growth. The reason we use this concept instead of more advanced productivity measures is to get a long enough time series to properly understand the underlying fundamental forces driving society forward.

In our main chart we have tried to see through all the underlying noise in the annual data by looking at a 10-year rolling average and a polynomial trend line.

In the period prior to the War of 1812 US productivity growth was lacklustre as the economy was mainly driven by agriculture and slaves (slaves have no incentive to work hard or innovate, only to work just hard enough to avoid being beaten). From 1790 to 1840 annual growth averaged only 0.7 per cent.

As the first industrial revolution started to take hold in the north-east, productivity growth rose rapidly, and even more during the second industrial revolution which propelled the US economy to become the world largest and eventually the global hegemon (see bonus chart at the end).

As a side note, it is worth noting that while the US became the world largest economy already by 1871, Britain held onto the role as a world hegemon until 1945. Applied to today’s situation in light of the fact that China is, by some measures, already the largest economy on the planet, it does not mean it will rule the seven seas anytime soon. In our view, they probably never will, but that is a story for another time.

Adjusting for the WWII anomaly (which tells us that GDP is not a good measure of a country’s prosperity) US productivity growth peaked in 1972 – incidentally the year after Nixon took the US off gold. The productivity decline witnessed ever since is unprecedented. Despite the short lived boom of the 1990s US productivity growth only average 1.2 per cent from 1975 up to today. If we isolate the last 15 years US productivity growth is on par with what an agrarian slave economy was able to achieve 200 years ago.

In addition, the last 15 years also saw an outsized contribution to GDP from finance. If we look at the US GDP by contribution from value added by industry we clearly see how finance stands out in what would otherwise have been an impressively diversified economy.

With hindsight we know that finance did more harm than good so we can conservatively deduct finance from the GDP calculations and by doing so we essentially end up with no growth per capita at all over a timespan of more than 15 years! US real GDP per capita less contribution from finance increased by an annual average of 0.3 per cent from 2000 to 2015. From 2008 the annual average has been negative 0.5 per cent!

In other words, we have seen a progressive (pun intended) weakening of the US economy from the 1970s and the reason is simple enough when we know that monetary policy broken down to its most basic is a transaction of nothing (fiat money) for something (real production of goods and services). Modern monetary policy thereby violates the most sacred principle in a market based economy; namely that production creates its own demand. Only through previous production, either your own or borrowed, can one express true purchasing power on the market place.

The central bank does not need to worry about such trivial things. They can manufacture the medium of exchange at zero cost and express purchasing power on the same level as the producer. However, consumption of real goods and services paid for with zero cost money must by definition be pure capital consumption.

Do this on a grand scale, over a long period of time, even a capital rich economy as the US will eventually be depleted. Capital per worker falls relative to competitors abroad, cost goes up and competitiveness falls (think rust-belt). Productive structures cannot be properly funded and the economy must regress to align funding with its level of specialization.

In its final stage, investment give way for speculation, and suddenly finance is the most important industry, pulling the best and brightest away from every corner of the globe, just to find more ingenious ways to maximise capital consumption.

As the slave economy got perverted by incentives not to work, so does the speculative fiat based economy, which consequently create debt serfs on a grand scale.

Bonus chart:


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