Tag: finance

Authored by Bill Bonner via InternationalMan.com,

Let’s turn to an economy getting doomier by the day: Venezuela.

Actions have consequences. In public policy, it is impossible to say what the consequences will be. There are too many delusions and too much smoke.

Take a policy said to eradicate city rats. Its real purpose is to reward a large political donor who owns a pest control firm. It ends up killing the pigeons.

Often, policies with clear and obvious purposes end up producing outcomes completely at odds with the stated objectives.

Prohibition, for example, increased the number of drunks. The War on Drugs fattened drug dealers’ profits.

The War on Poverty has made poverty respectable… even attractive… to poor people.

The War on Terror has probably made a million otherwise sane and sensible Muslims yearn to blow up something with a U.S. flag on it.

Most often, these outcomes are not exactly surprises. Look more closely and you will often find, hidden behind the promises… a pest control firm!

News reports, for example, tell us that U.S. arms dealers are about to get a $110 billion payday. President Trump announced a weapons deal with the Saudis – the biggest in history.

Into the Abyss

Although the exact consequences of public policies are obscure, the patterns are familiar.

Win-lose deals always reduce total human satisfaction.

Win-lose deals – unless they are imposed by petty criminals or local bullies – require government insistence. Otherwise, no one would take the losing side.

So the more government there is… the more active, ambitious, and overbearing it is… the more win-lose deals subtract from the sum of human happiness.

A month ago, as many as a million of these disappointed people demonstrated against the government of Nicolás Maduro in Venezuela. It was the “Mother of All Protests,” they said.

What was their beef?

Inflation is running at about 700% a year. Last year, GDP plunged 19%. Food staples – beans, rice, bread – are disappearing. Families cross the border into Colombia to buy toilet paper.

Hospitals have no medicine, no equipment, not even rubber gloves and disinfectants. Sometimes, they have no electricity. Deaths of premature babies have increased 10,000% in the last five years.

How did a country make such a mess of itself?

Win-Lose

In a sense, the country was a victim of its own good luck… and then a victim of its own bad judgment.

The good luck happened in 1914 when the first oilfield was drilled. The money followed.

By the 1950s, with a basically market-oriented government, Venezuela rose to become the world’s fourth-richest country in terms of GDP per capita.

Today, the country has the largest proven oil reserves in the world – 297 billion barrels of the stuff compared to 267 billion barrels in Saudi Arabia.

But good luck allows you to make bad judgments. With the oil wealth flowing, Hugo Chávez – who described himself as a Trotskyist two days before his inauguration as president in 2007 – could impose win-lose deals on the whole economy.

Key industries were nationalized. Price controls were put in place. Wealth was redistributed.

Win-lose deals can redistribute wealth but only to the extent win-win deals create it. Take away the win-win deals, and the wealth soon runs out… as it did in Cuba and the Soviet Union.

Now the tank is about empty in Venezuela, too.

Banana Republic

It doesn’t matter what you call it – government is always a means for the few to exploit the many.

The few use every resource available to them to keep the hustle going, with special attention given to manipulating the gullible mob.

The typical citizen rarely has any idea of what is going on… and doesn’t have much curiosity about it. As long as he has credit for a new pickup and a champion who promises to smite his enemies, the common man will go along with almost anything.

But the Venezuelan auto industry has been ruined. And there’s no credit available. So there are few new pickups on the streets, and much of the public has turned against the government.

Not surprisingly, the policies that destroyed Venezuela delighted U.S. economists and politicians – who were eager to impose win-lose deals of their own.

In 2007, Nobel Prize-winning economist Joseph Stiglitz praised the “positive policies” in health and education of the Chávez government.

And in 2011, Bernie Sanders wrote:

These days, the American dream is more apt to be realized in South America, in places such as Ecuador, Venezuela and Argentina, where incomes are actually more equal today than they are in the land of Horatio Alger. Who’s the banana republic now?

Sanders had no idea what was really going on in Venezuela. But he was right about what was going on in the U.S. It was on its way to becoming a banana republic.

Only without the bananas. Or the republic.

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House Minority Leader Nancy Pelosi says President Trump would be a much more effective leader if he would just get some rest.

When asked what advice she would have for the President during a segment on MSNBC’s “Morning Joe,” Pelosi said the president should “get some sleep,” before questioning his fitness for office.

“Bring yourself to a place where those synapses are working. I think there’s something not — more sleep might be a solution for him,” adding that his family should be concerned about his health.

Pelosi recounted a time when Trump called her after launching a missile strike on a Syrian airbase back in April.

“It was late at night well after it was all finished it was like midnight and he was going on and on and I said, ‘why don’t you go to sleep’.”

The former speaker of the house also played down talk of impeachment, saying that – “unless you have the facts” – talk of removing the president just “inflames the situation.”

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Authored by Mike Krieger via Liberty Blitzkrieg blog,

Shortly after former FBI Director Robert Mueller was announced as the special counsel for the Russia investigation, the screeching hordes of America’s “always wrong about everything” punditry class cheered in near unison, lauding the man as some sort of second coming. This sort of thing should always be seen as a red flag, and thanks to an excellent article written by retired FBI special agent Coleen Rowley, everyone can now know exactly why.

But first, who is Coleen Rowley?

Coleen Rowley, a retired FBI special agent and division legal counsel whose May 2002 memo to then-FBI Director Robert Mueller exposed some of the FBI’s pre-9/11 failures, was named one of TIME magazine’s “Persons of the Year” in 2002. Her 2003 letter to Robert Mueller in opposition to launching the Iraq War is archived in full text on the NYT and her 2013 op-ed entitled “Questions for the FBI Nominee” was published on the day of James Comey’s confirmation hearing.

It’s important to be aware of that background as you read the following excerpts from the excellent post published at CounterPunch titled, Comey and Mueller: Russiagate’s Mythical Heroes:

Mainstream commentators display amnesia when they describe former FBI Directors Robert Mueller and James Comey as stellar and credible law enforcement figures. Perhaps if they included J. Edgar Hoover, such fulsome praise could be put into proper perspective.

 

Although these Hoover successors, now occupying center stage in the investigation of President Trump, have been hailed for their impeccable character by much of Official Washington, the truth is, as top law enforcement officials of the George W. Bush Administration (Mueller as FBI Director and James Comey as Deputy Attorney General), both presided over post-9/11 cover-ups and secret abuses of the Constitution, enabled Bush-Cheney fabrications used to launch wrongful wars, and exhibited plain vanilla incompetence.

Well of course, that’s how you get promoted in America.

TIME Magazine would probably have not called my own disclosures a “bombshell memo” to the Joint Intelligence Committee Inquiry in May 2002 if it had not been for Mueller’s having so misled everyone after 9/11. Although he bore no personal responsibility for intelligence failures before the attack, since he only became FBI Director a week before, Mueller denied or downplayed the significance of warnings that had poured in yet were all ignored or mishandled during the Spring and Summer of 2001.

 

I wanted to believe Director Mueller when he expressed some regret in our personal meeting the night before we both testified to the Senate Judiciary Committee. He told me he was seeking improvements and that I should not hesitate to contact him if I ever witnessed a similar situation to what was behind the FBI’s pre 9/11 failures.

 

A few months later, when it appeared he was acceding to Bush-Cheney’s ginning up intelligence to launch the unjustified, counterproductive and illegal war on Iraq, I took Mueller up on his offer, emailing him my concerns in late February 2003. Mueller knew, for instance, that Vice President Dick Cheney’s claims connecting 9/11 to Iraq were bogus yet he remained quiet. He also never responded to my email.

 

Beyond ignoring politicized intelligence, Mueller bent to other political pressures. In the aftermath of the 9/11 attacks, Mueller directed the “post 9/11 round-up” of about 1,000 immigrants who mostly happened to be in the wrong place (the New York City area) at the wrong time. FBI Headquarters encouraged more and more detentions for what seemed to be essentially P.R. purposes. Field offices were required to report daily the number of detentions in order to supply grist for FBI press releases about FBI “progress” in fighting terrorism. Consequently, some of the detainees were brutalized and jailed for up to a year despite the fact that none turned out to be terrorists.

 

For his part, Deputy Attorney General James Comey, too, went along with the abuses of Bush and Cheney after 9/11 and signed off on a number of highly illegal programs including warrantless surveillance of Americans and torture of captives. Comey also defended the Bush Administration’s three-year-long detention of an American citizen without charges or right to counsel.

 

What’s not well understood is that Comey’s and Mueller’s joint intervention to stop Bush’s men from forcing the sick Attorney General to sign the certification that night was a short-lived moment. A few days later, they all simply went back to the drawing board to draft new legal loopholes to continue the same (unconstitutional) surveillance of Americans.

 

The mythology of this episode, repeated endlessly throughout the press, is that Comey and Mueller did something significant and lasting in that hospital room. They didn’t. Only the legal rationale for their unconstitutional actions was tweaked.

 

Mueller was even okay with the CIA conducting torture programs after his own agents warned against participation. Agents were simply instructed not to document such torture, and any “war crimes files” were made to disappear. Not only did “collect it all” surveillance and torture programs continue, but Mueller’s (and then Comey’s) FBI later worked to prosecute NSA and CIA whistleblowers who revealed these illegalities.

 

Neither Comey nor Mueller — who are reported to be “joined at the hip” — deserve their current lionization among politicians and mainstream media. Instead of Jimmy Stewart-like “G-men” with reputations for principled integrity, the two close confidants and collaborators merely proved themselves, along with former CIA Director George “Slam Dunk” Tenet, reliably politicized sycophants, enmeshing themselves in a series of wrongful abuses of power along with official incompetence.

 

It seems clear that based on his history and close “partnership” with Comey, called “one of the closest working relationships the top ranks of the Justice Department have ever seen,” Mueller was chosen as Special Counsel not because he has integrity but because he will do what the powerful want him to do.

 

Mueller didn’t speak the truth about a war he knew to be unjustified. He didn’t speak out against torture. He didn’t speak out against unconstitutional surveillance. And he didn’t tell the truth about 9/11. He is just “their man.”

Not good.

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A few days ago we noted that DB allegedly requested more time to comply with a letter drafted by the infamous Maxine Waters of the House Financial Services Committee demanding information from on a Russian money laundering scheme and loans made to Trump’s businesses while he was a private citizen.  Without providing any evidence or basis for her request, Waters seemingly attempted to link Trump to the “Russian Mirror Trading Scandal” and also asked for info on whether Russia “guaranteed” $300 million of loans made to Trump’s real interests in the Doral Golf resort in Florida, a Washington D.C. hotel and a Chicago tower…you know, because Russia had an obvious interest in backstopping Trump loans made several years ago on the off chance he might run for President one day and win.

Unfortunately for Waters, and millions of disaffected Hillary voters who just keeping hoping that if they throw enough shit against a wall that eventually something will stick, DB has been forced to notify her that they can’t comply with her request because, well, there are laws.  Per the Wall Street Journal:

Deutsche Bank told U.S. Democratic lawmakers the German lender can’t disclose details requested about its banking relationship with President Donald Trump, citing customer privacy rules, according to a letter from bank lawyers posted on its website.

 

Deutsche Bank also declined to provide lawmakers details of internal reviews into certain Russian trades and clients, saying the bank has settled several investigations into its trading and compliance practices and continues to cooperate with authorities looking into the matters.

 

The letter was dated Thursday and signed by two Washington, D.C.-based partners with law firm Akin Gump Strauss Hauer & Feld LLP, on behalf of Deutsche Bank. One of the lawyers referred questions to Deutsche Bank.

 

Deutsche Bank’s letter Thursday said U.S. law prevents the bank from disclosing information about customer accounts, loans or other transactions, as well as information about internal reviews of those accounts. “This is true even if the individual is a government official or well-known person, and even in circumstances where the individual has made some disclosure regarding their relationship with their banking institution,” the lawyers said in the letter.

Of course, as we noted three days ago, Maxine Waters has absolutely no authority to compel Deutsche Bank to deliver any of the documentation she requested on her Russian fishing expedition…so we suspect she’ll just continue to be disappointed in her efforts which she is unlikely to abandon.

But the loan docs, which are most likely as standard and customary as they are boring, were never really the point anyway now were they?  No, the point was to craft a salacious letter to progress a narrative that Trump’s “unconventional relationship” with DB, because providing real estate loans is way outside DB’s ordinary business scope, is somehow tied to every shady Russian money laundering scheme ever uncovered…

“Deutsche Bank’s pattern of involvement in money laundering schemes with primarily Russian participation, its unconventional relationship with the President, and its repeated violations of U.S. banking laws over the past several years, all raise serious questions about whether the Bank’s reported reviews of the mirror trading scheme and Trump’s financial ties to Russia were sufficiently robust,” the lawmakers wrote in the letter.

…and, now that DB, as anyone with a brain could have predicted in advance, has officially declared that they can’t comply with Water’s ridiculous request, we simply can’t wait for the barrage of conspiracy theories that undoubtedly will emanate from CNN and the gang.

Here is the original letter (link):

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Last night, Washington’s Insurance Commissioner Mike Kreidler sent out a press release noting that two counties in his state, Klickitat and Grays Harbor, would be left with no health insurance options in 2018.  Per the press release, the ~3,330 people in those counties currently signed up on the exchange would be able to buy insurance through the state’s high-risk pool but they would lose access to taxpayer-funded subsidies.

Currently, no insurer has filed plans in two counties – Klickitat and Grays Harbor.

 

As of March 2017, 1,119 people in Klickitat County and 2,227 in Grays Harbor County were enrolled in the individual market.

 

Under current state law, if no health insurer is available in a particular county, the only coverage option is through Washington state’s high-risk pool, WSHIP. However, because WSHIP is not a qualified Exchange insurer, subsidies would not be available.

And while it’s not terribly surprising that the Obamacare markets are collapsing in the state of Washington (they’re collapsing everywhere, just see here, here and here for a couple of examples), what is somewhat ‘surprising’ is that Washington’s Insurance Commissioner has decided to place the full blame for Obamacare’s collapse, which has been ongoing and obvious for several years now, at the feet of the Trump administration.

“I’m deeply troubled by the changes we’re seeing for next year’s health insurance market,” said Kreidler. “The proposed drop in insurers and coverage areas clearly indicates to me that the uncertainty the Trump administration and the GOP-controlled Congress has sowed for months is sabotaging the progress we’ve made. Their actions, including failing to commit to fund the cost-sharing subsidies, not enforcing the individual mandate, and continuing to push in secret the severely flawed American Health Care Act are eroding confidence health insurers have in the market here and across the nation. These actions only increase premiums and decrease insurer participation.

 

“The Affordable Care Act has worked in Washington state because we fully embraced the reforms it offered – including expanding Medicaid and creating our own state Exchange. These decisions helped increase competition, provided better coverage and access, and fueled the largest drop in our uninsured in decades. Much more could be done to improve upon our progress, but that would take congressional action focused on shoring up the law, versus taking it down.

 

“For months, we’ve worked closely with our health insurers and other stakeholders in a concerted effort to try to explain to the Trump administration and congressional leaders what the impact could be to our market and most importantly, to our consumers, if this level of uncertainty and volatility continued. Today, our predictions came true.”

And while we have every confidence that Kreidler would never attempt to mislead the residents of his state and/or engage in outright fearmongering for political purposes, we would kindly remind him that the insurance markets in his state, much like the rest of the country, collapsed in the 2017 plan year.  Moreover, even though he should be aware, Kreidler seems to forget that 2017 participation and plan rates were set in the summer of 2016, when Hillary was expected by almost every pollster in the country to be on the verge of a blowout victory.

 

We would also remind the Commissioner that lawsuits challenging the constitutional basis of Obama’s healthcare ‘penalties’, which are mandatory and kinda sorta behave like…oh we don’t know….a tax, also started long before Trump took office.  But sure, it’s Trump’s fault. 

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Ray Dalio’s fatalism took another quantum step higher this afternoon.

Having made his displeasure with Trump – of whom he initially spoke quite fondly when he predicted it would be “glorious to be rich” – clear, the founder of Bridgewater (for whom James Comey worked before joining the FBI) has repeatedly hinted that the market, one of Trump’s preferred indicators of “policy success”, will not only crash but the ensuing downturn would have grave and profound social consequences.

First, one month ago in “Ray Dalio Goes Dr. Doom: “When The Next Downturn Comes, It’s Going To Be Bad”, Dalio lamented that “we fear that whatever the magnitude of the downturn that eventually comes, whenever it eventually comes, it will likely produce much greater social and political conflict than currently exists.”

Then, in another post earlier this week, Dalio dropped all nuance, and said that “more I see Donald Trump moving toward conflict rather than cooperation, the more I worry about him harming his presidency and its effects on most of us.“

This increasingly gloomy outlook culminated in the latest Dalio blog on Friday afternoon, in which, discussing the causality between politics and economics, Dalio writes that for the first time since the 1930s, we now live in a time when politics supersedes economics, and “becomes the most important driver. History has shown us that these times are when there is great economic, social, and political polarity within a country and there is the selection of populist leaders to fight for “the common man” in a battle against “the elites.”

clearly, the “1930s” reference is to Adolf Hitler and World War II, because as Dalio then explains the rise of populist conditions “typically lead to a strong-minded, confrontational fighter being brought to power to represent the underserved constituency, typically by pursuing more nationalistic, protectionist, and militaristic policies, which typically leads to more domestic and international conflicts.”

One doesn’t have to be a rocket surgeon to guess who Dalio is referring to.

And the tongue-in-cheeck punchline: “in some cases it led to democracies becoming dictatorships, and wars.” Tongue-in-cheek, because the explicit mention of the 1930s, and his suggestion that “now is just like then”, insinuates that the US in particular, and the world in general, is headed for another global conflict (read war) in which “a strong-minded, confrontational fighter” takes control.

Dalio then passively tries to mitigate the impact of his stark suggestion in the very next paragraph: “I am not saying that we are on that path, but I am saying that it has to be watched out for because if it is in the works, it is a really big deal.” Indeed it is, and while Dalio’s point is loud and clear – and is likely accurate – what would have been far more useful, and courageous, would be a discussion of the permissive conditions that allowed the ascent of Trump, pardon, the “a strong-minded, confrontational fighter”, that allowed allowed Europe’s unprecedented anti-establishment wave, that allowed Brexit, and   which all start and end with one entity: the Federal Reserve in the US, and central banks around the globe. The same central banks who in their quest to “boost confidence” and create a wealth effect, have unleashed the greatest asset bubble in history, resulting in the greatest global wealth and income divide, the world has ever seen.

Everything follows from there.

Alas, Dalio refuses to touch this politically charged topic (it is debatable whether Dalio would be among the world’s wealthiest people without the benefit of the Fed) which is easiest left to “tinfoil hat” blogs, who have been arguing ever since 2009 that a “Trump outcome” is precisely what will happen if the Fed is not left unchecked. Dalio merely takes the logic of it its next, and logical, place.

In the meantime, yes – of course markets will crash after an 8 year “liquidity supernova” as Bank of America calls it, and maybe there will be a (world) war that follows, but conveniently there will be Trump to blame – a perfect scapegoat for the real culprit, the Federal Reserve, and its private-sector owners (in the words of Bernanke’s former advisor), which will quietly exit by the back door, ready to start afresh after the inevitable systemic reset.

Dalio’s full LinkedIn post below:

UK and US Increase the Odds That Conflict Will Lead to Political Ineffectiveness

 

Ordinarily, politics and economics influence each other with economics being more of a driver on politics than politics is on economics—e.g., bad economic conditions normally lead to political changes—and normally we don’t need to pay much attention to politics to get the economics and markets right. However, there are times when politics becomes the most important driver. History has shown us that these times are when there is great economic, social, and political polarity within a country and there is the selection of populist leaders to fight for “the common man” in a battle against “the elites.” These conditions exist now. The 1930s were the last time this happened in the developed world and globally.

 

As we described in the study we did on populism (accessed here), our examination of this phenomenon made clear that the conflicts between the common man and the elites typically take place a) during times of economic stress due to wealth and opportunity disparities, b) when the common man believes that the country’s core values are being threatened by foreigners, and c) when government seems so dysfunctional that radical change is widely believed to be necessary. Those conditions typically lead to a strong-minded, confrontational fighter being brought to power to represent the underserved constituency, typically by pursuing more nationalistic, protectionist, and militaristic policies, which typically leads to more domestic and international conflicts. In some cases it led to democracies becoming dictatorships, and wars. 

 

I am not saying that we are on that path, but I am saying that it has to be watched out for because if it is in the works, it is a really big deal.

 

In watching out for it, in the early stages of a new populist administration, the main thing to look for is whether conflict moves to the point that it is detrimental to the effectiveness of government and the economy. The potential for government to become dysfunctional is unique in democracies because the relatively open checks and balances system (which, under normal conditions, is a strength of the system) and because the free media (which is normally a strength of the system) can operate in a way to incite emotional conflicts rather than encourage orderly resolutions of conflicts through the legal system. Even when it is operating well, the legal system can move very slowly, dragging out the period of conflict rather than leading to the prompt resolution of it. These conditions can reinforce emotional and antagonistic polarity because the goal of beating the opposition supersedes the goal of working together to try to find compromises that are good for the country as a whole, and that can create a self-reinforcing downward spiral. That has to be watched out for because, if it were to occur, it would have profound implications for economies, capital flows, and markets. Right now there is a whiff of it in the air.

 

In my opinion, the trend toward conflict leading to greater dysfunctionality, leading to greater conflict, in a self-reinforcing way is increasingly apparent in the US and UK. Over the last 24 hours we’ve seen developments in the US (pertaining to the issues surrounding Jim Comey’s testimony) and the UK (concerning no UK party having a ruling majority and the threat of a left populist leader emerging). While in both cases, so far, the political and legal institutions and systems have worked as intended—e.g., Special Counsel appointed and electoral system delivering a rebuke of a sitting government—nonetheless these developments entail the risk that political conflicts will lead to reduced government effectiveness in these two countries at especially challenging times for each of these countries (e.g., for the UK exiting the union and needing to redefine its economic and geopolitical place in the world, and for the US needing to clarify its domestic and international directions).

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Authored by Eric Peters via EricPetersAutos.com,

Almost every negative thing happening in the car business – in particular, ludicrous technical complexity for the sake of electronic gimmickry and also to cope with diminishing returns from federal “safety” and emissions mandates – could be gotten under control by the simple expedient of cutting off the monopoly money/debt-financing that makes it all possible.

The seven year loan.

“Free” money (zero or very low interest).

Give-away leases.

The car industry is riding a bubble that’s proportionately as large as the housing bubble of a decade ago. And it is going to pop. For the same reason that a wave has to crest and wash ashore, once set in motion.

Signs of trouble abound. They build them – but no one comes. Not without inducements that amount to give-aways.

For several years now the car manufacturers have been resorting to truly desperate measures to prop up new car “sales” – in air quotes because it’s a dubious proposition to describe as a “sale” a transaction that involves exchanging the item for  a sum insufficient to cover the cost of its manufacture, plus a profit sufficient to make the exercise worthwhile.

Yet that is exactly what is going on.

As new car prices rise, the cash back offers, dodgy leases and other “incentives” necessary to move them off the lot also rise in frequency and inanity. Examples include the leasing of electric cars for less than the cost of a monthly cell phone contract (Fiat made just such an offer; see here) and “below invoice” transactions that rely on the manufacturer (e.g., Ford) paying a dealer to “sell” a car (e.g., manufacturer to dealer incentives) for the sake of getting rid of it, getting it off the books.

Or rather, onto someone else’s books.

This financial flimflam works for awhile because – just like the housing flimflam – a shell game is being played.

The dealer finances the acquisition of a new car, which he buys from the manufacturer; he then puts the car on his lot for sale. He pays interest each month on his loan, just like an ordinary person who has bought a car on debt (the honest name for a loan). Each month that comes and goes with the car still on his lot is another month of carrying costs for him.

Selling the car – that is, transferring the debt load – becomes a matter of increasing urgency.

In order to entice a buyer – that is, the next-tier-debtor – he resorts to every measure available, including “special offers” and (here we go again) extremely dodgy financing. His goal is not so much to sell the car to someone who can afford it but to offload the debt.

Onto a bank or other lender.

Eventually, the taxpayer – when the bank collapses and the government bails it out.

Once the papers are signed and the car is driven away, it is no longer the dealer’s problem. He no longer has to worry about it. If the “buyer” fails to make the payments, it is now the lender’s problem.

And that problem is written off, in its turn, when it becomes necessary to do so. The bank makes up the loss via interest and fees on other debt. Or by re-selling the repo’d vehicle  at exorbitant interest to another debtor.

Rinse, repeat.

The dealer, meanwhile, has made a “sale” – and it is so recorded and reported, adding another log to the swaying Jenga tower.

Sound familiar?

But wait – there’s more!

As the ever-more-desperate measures to prop up new car sales become ever-more-desperate and more and more people who really can’t afford new cars “buy” them anyway, it depresses the used car market. Why “buy” a used car, after all, when you can “buy” a brand-new one for about the same monthly payment?

The used car market is cratering – and that is a sure sign the fat lady is clearing her throat.

Remember: Interest rates on new cars are lower (even nonexistent) and the loan/debt can be extended over a preposterously long period – seven years is now routine – while the loan/debt on the used car must be of shorter duration because of the greater and faster depreciation on the used car. The typical three-year-old car is worth about 75 percent of what it was worth when new – and will only be worth about 50 percent after another three years. Writing a loan/debt on an asset that will almost certainly be worth less than the balance due on the loan before the loan can be paid off is what you call a bad deal.

It cannot go on much longer.

The loan/debt limit has probably already been reached. Seven years is a kind of Event Horizon for car loans because after seven years, almost every car – regardless of make or model or what it sold for when it was new – will be worth less than 50 percent of what it sold for when it was new. They can’t keep pushing off the paid-for date in order to keep “sales” from wilting, permanently.

 

This is why the bum’s rush to ride-sharing; to the rent-by-the-hour (via an app) business model that GM (Maven) and Ford (the firing of Mark Fields) and pretty much the entire car industry have embraced as their only possible savior. The people running major companies are many things but idiots they are not – some superficial evidence to the contrary notwithstanding.

Poltroons and greedheads, certainly. But not dummies.

They know that they can’t keep pushing out loans indefinitely to sell cars. It is not tenable, both because of the debt load (unsupportable) and depreciation, which imposes a physical limit on loan duration. Hence the new rent-by-the-app (and hour) business model. It is the only way the business can continue without going out of business.

Either that or economic sanity returns.

The government stops mandating diminishing returns emissions rigmarole, for instance. And here’s a real whopper of an idea: We get scientists, not politicians and regulators – to prove that harm (real harm, not some ugsome bureaucrat’s hypothetical) would result from dialing back the current rigmarole to, say, model year 2000 standards.

Consider: Were new cars “dirty” in 2000? Were the skies suffused with smog? People choking and coughing, falling comatose into gutters? No, to all of the above. The fact is the cars and the air have been clean for decades – but the EPA continues to pretend otherwise, to maintain the fiction of the need for its continued existence.

And it goes without saying – or should – that how many air bags a new car has (whether several or none at all) ought to be none of the government’s business.

Same for the presence or absence of back-up cameras and anti-whiplash head rests and whether the car can do an egg-beater roll without its roof crushing. The fact that some people want to be parented doesn’t mean the government has the right to parent the rest of us. Let those who want and need adult diapers go ahead and wear them, if they like.

So, the good news out of all this bad news is that it must soon come to an end. The cost-no-objecting and mandating; the noxious, suffocating parenting.

It is going to end – because it cannot continue.

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Whereas some members of the governing council of the European Central Bank were hinting the monetary policy would return back to ‘normal’ sooner rather than later, Mario Draghi, the president of the ECB, had a completely different opinion when he testified at the European Parliament.

According to Draghi, all stimulus measures need to remain in place until the Eurozone returns to a normalized inflation rate, and reducing the efforts of the ECB aren’t even being discussed.

Draghi did confirm the economy of the Eurozone is getting stronger thanks to domestic consumption and investment (rather than seeing a boost caused by external investment and export increases), but it’s still too soon to reduce the asset purchase program which will now very likely be extended.

Source: tradingeconomics.com

The ECB has also published its ‘Financial Stability Review’, which assesses the risks and vulnerabilities of the financial system as we know it. According to the ECB, the measures of the systemic stress levels in the Eurozone remained very low thanks to a slight increase of the interest rates which increased the confidence the European financial sector will be able to benefit from a larger interest rate spread to strengthen their performances and balance sheets.

This doesn’t mean the financial sector is out of the woods yet, as the ECB is explicitly warning for specific countries where the Non-Performing Loans are ‘eating away’ the profit generated by the interest spread. There’s pretty much zero doubt the ECB is referring to Italy here, and we discussed the country’s situation last week in this article. As you might remember, two Italian banks which were previously rescued by the tax-payer through a government fund once again need an urgent cash infusion to prevent a collapse.

And whilst higher interest rates on the financial markets are excellent news for the financial sector, the ECB also acknowledges these higher interest rates might actually suffocate both the private and public debt issuers. Not only will the governments have to cough up more cash to fund the interest payments on their government debt, the private sector has greatly benefited from the low interest rates. Just like in the USA, companies issued much more debt than they needed, only to spend it on non-accretive things such as share buybacks and special dividends. One good example here might for instance be Bayer’s attempt to acquire Monsanto in a $66B deal. Bayer was (and still is) planning to fund the entire acquisition with debt. A 1.5% increase in the cost of debt will result in Bayer paying $1B per year more in interest expenses. So it shouldn’t be a surprise the ECB is now also calling higher interest rates one of the main potential systemic risks.

Source: ECB

And that’s a little bit a contradictio in terminis. The ECB wants the inflation to increase which would allow it to normalize the benchmark interest levels, but if the interest rates increase without seeing a corresponding increase in the inflation rate (the natural effect of companies passing the higher price levels on to their consumers is a very unhealthy situation.

The higher interest rates for private companies are one part of the equation, perhaps an even more important part is the total debt level. And this is where the ECB is sounding the alarm bell as well. According to data provided by the OECD, the private debt in the Eurozone is higher than the historic average, ànd is higher than for instance Japan, the USA and emerging market countries.

Source: ECB

This data confirms the ECB would be nuts to stop its ZIRP and to reduce the asset purchase programme. The interest rates would increase too fast, and possibly push the Eurozone over the cliff again. We told you this before and will do so again; once you’re addicted to cheap debt, it’s really difficult to detox.

The end result? Tens of billions of freshly-printed euro’s will continue to be injected in the system. And it’s not a question of ‘if’ it will go wrong, but a question of when it will go wrong.

>>> Click here to read our Guide to Gold 

via http://ift.tt/2snhwEA Secular Investor

Last Friday at her weekly press briefing, Nancy Pelosi caught a lot of folks, including us, off-guard when she suggested that she had no intention of supporting a debt ceiling increase.  The comments led Bloomberg and others to speculate that Democrats were looking to somehow tie a debt ceiling vote to blocking the President’s tax plan, presumably a non-starter for Republicans.

Needless to say, after 8 years of bashing Republicans for using debt ceiling votes as leverage to try to force spending cuts, Pelosi’s comments were shocking, even for her.  Here’s what she said last week:

“I don’t have any intention of lifting the debt ceiling to enable the Republicans to give another tax break to the wealthy in our country.  To further exacerbate the challenge that is created when they have their trickle down economics.”

 

“The president keeps saying ‘the tax bill is moving through Congress,’ it doesn’t exist.  It doesn’t exist.  So you understand the frustration.  It doesn’t exist.  There is no tax bill moving through Congress.”

 

But apparently it was all just a simple misunderstanding attributable to an inability to achieve crystal clarity during last week’s press briefing…you know, because “I don’t have any intention of lifting the debt ceiling” was completely ambiguous, at best. 

Luckily, Pelosi was questioned about the debt ceiling again this week giving her the opportunity to clarify…

“No, I wasn’t clear.  My point was, there should be no signal from a clean debt ceiling that we pass it, that this is license to increase the debt.”

…except that her clarification was also about as clear as mud. 

Thankfully, however, this week she kept rambling until something resembling a coherent thought finally surfaced: “plain and simply, for a clean debt ceiling.”

Here is the clip from this week’s presser (forward to 14:50 or click here for the relevant clip):

 

Ironically, Pelosi started out today’s meeting by questioning Trump’s “fitness for office” and suggesting that he should “get some sleep”…a suggestion that both Pelosi and John McCain should both probably consider themselves…

via http://ift.tt/2rePJ4s Tyler Durden

From Qatar to Comey, it’s been a busy week in Washington (and around the world) for President Trump, so perhaps he has not had a chance to catch up with Goldman Sachs CEO Lloyd Blankfein on his ‘progress’.

No matter, having emerged recently on Twitter, it appears the Goldman CEO and overt Hillary Clinton-supporter has mastered one of the social media’s darkest arts, trolling and asking sarcastic rhetorical questions.

Just landed from China, trying to catch up…. How did “infrastructure week” go?

— Lloyd Blankfein (@lloydblankfein) June 9, 2017

Lloyd may have been in China, but we doubt the “great firewall” prevented the head of the world’s most important and politically connected hedge fund bank to access articles such as “The disaster that was “Infrastructure Week” is a symbol of Trump’s many problems.“

The real question is how will Lloyd’s former right-hand man and Trump’s current chief economic advisor, Gary Cohn respond?

via http://ift.tt/2r3D4Co Tyler Durden