Tag: finance

Submitted by Jim Quinn via The Burning Platform blog,

In Part One of this article I made a fact based case that most Americans are experiencing an economic depression on par with the Great Depression of the 1930’s. In Part Two I will compare and contrast two very different men who raised the spirits of the common man during difficult economic times. As we approach the perilous portion of this Fourth Turning, it will take more than hope to get us through to the other side.

Cinderella Man

Likening Braddock to Trump might seem far-fetched, until you think about parallels between the economic conditions during the 1930’s and today, along with the deepening mood of crisis, despair and anger at the establishment. Braddock’s career coincided with the last Fourth Turning. James J. Braddock was born in 1905, to Irish immigrant parents Joseph Braddock and Elizabeth O’Toole Braddock in a tiny apartment on West 48th Street in New York City. His life personified that of a GI Generation hero. One of seven children, Jimmy enjoyed playing marbles, baseball and hanging around the old swimming hole on the edge of the Hudson River as a youngster. He discovered his passion for boxing as a teenager.

Braddock refined his skills as an amateur fighter and in 1926 entered the professional boxing circuit in the light heavyweight division. Braddock overwhelmed the competition, knocking out multiple opponents in the early rounds of most fights. As a top light heavyweight, he stood over six feet two inches, but seldom weighed over 180 pounds. But his powerful right hand was no match for opponents that weighed close to 220 pounds. His star was ascending. He earned a shot at the title in 1929. On the evening of July 18th 1929, Braddock entered the ring at Yankee Stadium to face Tommy Loughran for the coveted light heavyweight championship. Loghran avoided Braddock’s deadly right hand for 15 rounds and won by decision. Less than two months later the stock market crashed and the country plunged into the Great Depression.

As thousands of banks failed and unemployment swept over the land like a plague, Braddock, like so many other millions of Americans lost everything. He labored to win fights so he could put food on the table for his wife and three young children. His career hit the skids as he lost sixteen of twenty-two fights and shattered his right hand landing a punch. As his boxing career spiraled downward, like the economy, he ended up working on the docks as a longshoreman. When even that job couldn’t feed his family, Jim swallowed his pride, hung up his boxing gloves and filed for government relief to help support his family. The strength, spirit and tenacity that had made him a contender were drained from his demeanor. He became just another down on his luck palooka struggling to survive during the Great Depression.

Thanks to a last-minute cancellation by another boxer, Braddock’s longtime manager and friend, Joe Gould, offered him a chance to fill in for just one night and earn cash. The fight was against the number-two contender in the world, Corn Griffin, on the undercard of the heavyweight championship fight between Max Baer and Primo Carnera. Braddock stunned the boxing experts and fans with a third-round knockout of his formidable opponent. He believed that while his right hand was broken, he became more proficient with his left hand, improving his boxing ability. Over the next nine months he upset John Henry Lewis and Art Lasky to become an unlikely contender for the heavyweight title of the world.

Braddock remembered the humiliation of having to accept government relief money and paid it all back with the prize money he earned from his fights. He also made frequent donations to various Catholic Worker Houses, including feeding homeless guests with his family. He never forgot where he came from. He was one of the common men. When his rags to riches story got out, renowned sportswriter Damon Runyon dubbed him “The Cinderella Man“, and before long Braddock came to represent the hopes and aspirations of the American public struggling during the Great Depression. The year was 1935, with the majority of Americans still facing a bleak daily existence.

Max Baer, the heavyweight champion, had a reputation as a destructive puncher and possibly the hardest hitter of all time. He had killed a man in the ring in 1930. On the evening of June 13th 1935 at Madison Square Garden Braddock, an 8 to 1 underdog, entered the ring to face Baer. Jim knew he could beat Baer if he stayed away from his hammering right hand, and that’s just what he did. In an amazing feat of courage and determination, Braddock won the 15 round decision to become the new heavyweight champion of the world. It was considered one of the greatest upsets in boxing history. The “Cinderella Man” had fulfilled the dreams and hopes of the common people, giving them a reason to battle on through those tough times.

Damon Runyan described the event in newspapers across the country the next morning:

Coming into the ring on the short end of the unheard-of price of 8 to 1 with even money he does not come out for the tenth round, and with his chances so little regarded that the crowd does not half fill the “graveyard of champions,” Braddock fights from the opening bell with the desperation of a man leading a forlorn hope.

Brought back from Hasbeenville by the magic wave of the wand of sheer chance, after being such a down-and-outer that he had to go on relief in his home State of New Jersey at $24 per month to provide food for his wife and three children, James J. Braddock at 29 years of age suddenly finds himself occupying the pinnacle of the pugilistic heap, with an utterly new life before him.

At the close of the fight, while the fighters are awaiting the announcement of the decision, the crowd begins filing out, knowing beforehand what the verdict will be, and so ends the fistic fairy tale, as all fairy tales should end, with the poor abused hero finding his pumpkins of failure turned into prancing white steeds of glittering success and his feet incased in the glass slippers of happiness, if you can follow all this twisted metaphor.

Anyway, so ends the strange story of James J. Braddock “the Cinderella Man” of Fistiana. And you cannot match his story anywhere in the realm of the most fantastic fiction.

Braddock lost his heavyweight title two years later in an 8 round KO to “The Brown Bomber”, Joe Louis. He retired after a final win over Tommy Farr in 1938. The beacon of hope for millions had done his part to revive the spirits of a country in crisis. And in true GI Generation fashion, at the age of 37, Jim and his manager both enlisted in the U.S. Army in 1942 where they became 1^st Lieutenants. Upon his return, he helped construct the Verrazano Bridge, raising his family, and living out his life as a business owner, happily married to his wife Mae until the day he died in 1974. He was the epitome of everything noble, good, honorable and proud about this country.

Trump – The Anti-Cinderella Man

It may seem like a reach to equate Donald Trump to James J. Braddock, but it really isn’t about the specific person. It’s about the mood of the country during tragically grim economic times and how average middle class (or former middle class) working Americans respond to the message and actions of celebrities they choose to follow or emulate.

Their life stories couldn’t be more divergent.

Braddock was born into poverty, had to work like a dog to gain a higher stature in life, always maintained a soft spoken humble nature, evoked sympathy and admiration for his rags to riches story, and ultimately inspired generations of Americans to experience a sense of redemption during the Great Depression through his boxing feats. Braddock was a man for his times.

Donald Trump was born into wealth. He was born on third base, thinking he hit a triple. His is a story of riches to greater riches. His real estate developer father left him $100 million and the family business. To his credit, he turned the $100 million into billions. He’s been a deal maker and risk taker his entire life. He’s had spectacular successes and miserable failures. He has an ego the size of the Empire State Building. There isn’t a humble bone in his body. He’s brash, boisterous and prone to making outrageous declarations. His personality is more on par with Muhammed Ali’s among boxing legends. His is not a Cinderella story like Braddock’s. He is the anti-Cinderella man. Over the last year he has become the great last hope of the downtrodden middle class, as they struggle through their very own Greater Depression.

This unlikely billionaire champion of the silent majority has defied all odds to become the Republican nominee for president, despite the scorn and ridicule of the GOP establishment, neo-cons, political pundits and both the right and left wing corporate media. He defeated more than a dozen GOP establishment lackeys who spent far more on their campaigns than he, with the largest primary vote tally in GOP history. Just as Braddock was considered washed up and a has been after losing sixteen of twenty two fights, Trump was considered a washed up reality TV parody of himself until he announced his intention to run for president. I, among millions of others, scoffed at him and thought it was nothing more than a publicity stunt to generate some new TV program.

The press scoffed at the comeback of Braddock after he was given a new lease on life. Every time he prepared to fight a supposedly more talented opponent the odds makers and “experts” in the media expected him to get knocked out. But no one ever knocked him out and he defied the odds to earn a shot at the heavyweight championship of the world. The GOP establishment had crowned Jeb Bush the champion of their party, but Trump KO’d him in the 2^nd round. He methodically knocked out the rest of his opponents on the way to the coming heavyweight championship fight in November against the hand-picked heavyweight contender of the political establishment, Wall Street, the fallacious corporate media, the military industrial complex, and the rest of the Deep State apparatus.

Max Baer was a monster of a man and a killer in the ring. He looked down upon his opponent as out of his league. His smug know it all demeanor was evident to all. He was not loved by the common man. He was respected for his pugilistic talents, but he didn’t inspire the crowds to root for him. He brimmed with over-confidence and took his opponent lightly. He underestimated the amount of fight still left in Braddock. The “experts” all but guaranteed an overwhelming victory for Baer, likely a knockout in the 1^st or 2^nd round.

Hillary Clinton is the ultimate Washington establishment insider, with a reputation as a killer. She’s been hand-picked to continue the policies put in place by the establishment to benefit the establishment. She is loved by no one. She inspires adoration from no one. She can barely fill an auditorium without paying people to attend. She never mingles with the peasants. She collects hundreds of millions from her Hollywood elite friends, Wall Street titans, Soros, Buffett, the House of Saud and the rest of the billionaire oligarch class. She stays above the fray, letting her handlers set the agenda and telling her what to do and say. She sees blacks, Hispanics, and the working poor as voting blocs – not as real human beings deserving of respect.

Her thirst for power and control is sociopathic as she will stop at nothing to quench that thirst by being elevated to the throne of the presidency. And she’ll hit below the belt to achieve that victory. She openly despises and denigrates her opponent. She believes she is intellectually and morally superior to Trump and believed the political pundit “experts” who declared she would win in a landslide. Overconfidence, hubris and believing the press clippings from an overwhelmingly liberal media are coming home to roost with two months to go until the election.

In the Baer – Braddock fight of the century, Baer came out firing looking for the knockout punch in the early rounds. But Braddock took his best shots and kept plugging away. Hillary and her corner men have spent over $120 million on negatives ads to Trump’s $20 million in the early rounds. Her 10% post-convention lead has dwindled to zero as Trump has taken her best punches and is still standing. As the bout entered the middle rounds Braddock took control and Baer began to tire. Braddock dominated the late stages of the fight and won in a unanimous decision as the crowd went wild and average Americans around country glued to their radios reveled in jubilation as one of their own became champion.

As Hillary’s lies, deleted emails, selling influence through her crooked Clinton Foundation, smashing blackberries with hammers, and brain damage weigh her down, Trump keeps firing punches. Her stamina is in question. Other than CNN (Clinton News Network) and the rest of the Hillary cheerleading press, a large swath of the American people are questioning her honesty, competency, and health. The demoralized and subjugated silent majority are hopeful Trump can deliver them from a political establishment that threw them under the bus thirty years ago. We’ve entered the late rounds and Trump shows no signs of tiring or allowing Hillary to land any knockout blows.

The odds maker “experts” like Nate Silver (who was 90% sure Trump wouldn’t win the GOP nomination) still have Hillary winning in a landslide. The candidate of the ruling class, who pledges to maintain the status quo, is not the change agent of the masses. A victory by Hillary would be a victory for Wall Street, billionaire oligarchs, neo-con warmongers, propaganda media outlets, and corporate cronyism. A Trump victory would boost the morale of a middle class that has been abused, denigrated, belittled, ignored, and taken advantage of by the ruling class for decades. The hopes and dreams of millions are riding on a victory by the anti-Cinderella man. His popularity rides on a sea of rightful resentment, anger, and fury at how the average American has been screwed by the ruling class (both parties) for decades.

I have no illusions Donald Trump can single handedly reverse decades of bad policies, bad choices, bad government, bad politicians, and shamefully horrendous Federal Reserve monetary policies designed to impoverish millions through man made inflation and debt issuance. His election would be the upset of the century and spit in the eye of the establishment.

It would lift the spirits of disillusioned, angry Americans experiencing depressionary economic conditions who want to take this country back from the vested interests. James J. Braddock lifted the morale of a nation in the midst of a Great Depression, but he lost the championship two years later as the Great Depression eventually led to the bloodiest conflict in word history.

If Trump can win an upset victory in November, the initial surge of confidence and anticipation of game changing policy changes will shortly be replaced by the left hook of reality. Trump will likely be thwarted at every turn by the corrupt members of both parties. Debt will continue to pile up at a $1 trillion per year rate. Trump’s volatile nature will inflame passions both domestically and abroad.

His election would not change the nature of politics in Washington, but could be the push which brings this teetering welfare/warfare empire of debt crashing down. The destruction of the existing social order is the only chance for real change and Donald Trump is the only person who could trigger that change. His pugilistic demeanor may come in handy as our country confronts the final bloody stages of this Fourth Turning.

The climax year of the American Revolution happened in 1781. Almost like clockwork, the Civil War climax year of 1863 followed 82 years later. The Great Depression/World War II climax year of 1944 followed 81 years later. This would put the climax year of our current Fourth Turning around 2025, at the end of an eight year presidency of Clinton or Trump (both Prophet Generation leaders). The years leading toward the climax of a Fourth Turning have always been chaotic, dangerous and bloody. The core elements of debt, civic decay, and global disorder will accelerate the chain of events leading to the climax, whatever it may be.

No matter who is elected in November, the next eight years will try men’s souls and the outcome for our country could be glory or destruction. The technology exists to extinguish all life on the planet and human nature does not change. All it would take would be human malevolence, disastrous decision making by flawed leaders, and some bad luck to destroy the world. Who do you trust to lead during the most dangerous period of this Fourth Turning? Our choices do matter.

“Imagine some national (and probably global) volcanic eruption, initially flowing along channels of distress that were created during the Unraveling era and further widened by the catalyst. Trying to foresee where the eruption will go once it bursts free of the channels is like trying to predict the exact fault line of an earthquake. All you know in advance is something about the molten ingredients of the climax, which could include the following:

• Economic distress, with public debt in default, entitlement trust funds in bankruptcy, mounting poverty and unemployment, trade wars, collapsing financial markets, and hyperinflation (or deflation)
• Social distress, with violence fueled by class, race, nativism, or religion and abetted by armed gangs, underground militias, and mercenaries hired by walled communities
• Political distress, with institutional collapse, open tax revolts, one-party hegemony, major constitutional change, secessionism, authoritarianism, and altered national borders
• Military distress, with war against terrorists or foreign regimes equipped with weapons of mass destruction” 

 The Fourth Turning – Strauss & Howe

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It's been 16 months since the European Central Bank began its voyage into the unknowable in March 2015, and as The FT notes, this week marks a milestone – it has now purchased over EUR 1 trillion in government (and corporate) bonds since it began QE.

The ECB buys bonds through the eurozone’s national central banks and in line with a member state’s overall contribution to eurozone GDP.

 

Among its three largest economies, the ECB has snapped up a total of €238bn in German Bunds, €189bn in French paper, and €164bn in Italian bonds since last March.

 

Policymakers announced they would begin buying non-bank corporate debt earlier this year. Total ECB holdings of company bonds now stand at €20.5bn, with asset backed securities hitting €19.91bn.

 

The ECB will be meeting for its lateset monthly policy decision on Thursday and is poised to announce a six-month extension to its QE programme until September 2017.

 

According to estimates from Credit Agricole, the ECB will have hoovered up over half the eligible universe of government debt by the end of the year, forcing policymakers to tweak their QE rules in a bid to keep hitting its €80bn a month purchase target.

The trillion euro surge is driving the ECB's balance sheet up towards The Fed's…

 

The big problem is – it's not helping the real world…

 

But don't expect it to stop anytime soon. If the following utterly insane words from another ECB member show…

• *ECB'S NOWOTNY: MON POLICY PROVED `MORE POTENT' THAN THOUGHT
• *ECB'S NOWOTNY: EUROSYSTEM HAS SHOWN IT CAN ALWAYS DO MORE

That's just total bullshit…

Simply put – it's either pure propaganda-driven lies or the people pulling the strings are blinded by faith and aiming for the cognitively dissonant world record.

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Authored by Kurt Schlicher, originally posted at Townhall.com,

Love means never having to say you’re sorry, and apparently so does being a famous liberal woman. In fact, being a famous liberal woman apparently means being exempt not only from basic social conventions but from actual laws whose breaking would result in lesser humans – meaning everyone who isn’t a famous liberal woman – being forced into a years-long journey involving the transformation of large rocks into many smaller rocks.

Being a famous liberal woman makes you special and I guess us peasants ought to just get used to it.

Re-entering our collective consciousness this week is famous liberal woman and scourge of Golden Corrals everywhere, Lena Dunham. She had faded from view for a blessed while after Hollywood realized that its inexplicable campaign to make her a superstar was cratering. She did not help it when she outed herself as history’s worst babysitter, nor when her HBO show became the only series in the history of cable television to lose ratings because of too much nudity.

But now she’s back, with her dead cow eyes and her utter conviction that the world is waiting for her to verbalize every single random thought that wanders through the vast, empty expanse of her noggin. In July she complained that the poster for that new Jason Bourne movie none of us saw showed a pistol. It would have been hilarious if she had whined about it in terms of slamming Matt Damon’s gun fascist hypocrisy, but no, it was more of an aesthetic complaint. She just doesn’t think we should see guns because she doesn’t like guns. Then she committed her own aesthetic crime, unleashing upon an unsuspecting world un-retouched shots of her modeling lingerie. Caution: These visual IEDs are unsafe for work and everywhere else. You’ve been warned.

But now she has gone beyond merely asserting her entitlement to decide for all of us what posters may depict and to redefine what is and is not attractive. Now she is demanding that black men adore her. Talking to Amy Schumer, another whiny Hollywood quarter-wit who puts the “over” in “over-rated,” Dunham said:

"I was sitting next to Odell Beckham Jr., and it was so amazing because it was like he looked at me and he determined I was not the shape of a woman by his standards. He was like, ‘That's a marshmallow. That's a child. That's a dog.’ It wasn't mean — he just seemed confused.

 

The vibe was very much like, 'Do I want to f*** it? Is it wearing a … yep, it's wearing a tuxedo. I'm going to go back to my cell phone.

 

It was like we were forced to be together, and he literally was scrolling Instagram rather than have to look at a woman in a bow tie. I was like, 'This should be called the Metropolitan Museum of Getting Rejected by Athletes.'"

Yes, Whitey McMayonaise was outraged that an African-American man somehow resisted her – the nerve of him, preferring to bury himself in his iPhone instead of fussing and cooing over her awesomeness! “I was not the shape of a woman by his standards…” How dare he have standards – if that catches on, Dunham and Schumer and the cast of the new Ghostbusters and the rest of the hard threes Hollywood seems intent on forcing down America’s throat are doomed.

Maybe, just maybe, Beckham looked over at her and saw an ugly person – not physically, but in terms of her sense of entitlement and narcissism. There’s a word for this whole sorry scene, and no Lena, it’s not “sexism” or even “fatism.” It’s more like “racism.” Imagine how the social justice warriors would go on the social justice warpath if some wealthy conservative jerk pulled a Margaret Dumontesque “Well, I never!” when a minority dared to reject her dubious charms. But hey, Lena’s a famous liberal woman and special rules apply.

Of course, it’s all fun and games with Lena Dunham, unless you’re her sister or that guy she falsely accused of sexually assaulting her.

But there’s another famous liberal woman who is ignoring the rules too, blatantly, openly, and without apology. And these are not mere social convention kind of rules. These are laws, the kind of laws where other people who break them go to jail. And these are laws involving the security of our country.

That famous liberal woman is, of course, Hillary Clinton.

Just the other day – you know, late afternoon on the Friday before Labor Day – the FBI released more documents and reports related to her email shenanigans. What they revealed was, of course, that a situation that was already terrible was actually about ten times more terrible than we ever imagined. Not only did the Woman Most Qualified Ever To Be President not know how classification works, and not only did the bar-failing, chronically sick crone forget pretty much everything she ever did or said or heard, but she also managed to lose about a dozen Blackberry phones that she used to transmit classified materials.

Now, for those of you who have not worked with classified material and the equipment that transmits it, let me share with you how it might go for someone who, say, was a military guy and not a famous liberal woman:

Hi Colonel. How’s it going? By the way, I think I misplaced about 13 of those communication devices we use for classified materials. Wacky me, right? I forget where. Maybe I left them out at the range, or maybe at the base Burger King. I was getting one of those Whopperritos – yum!

 

Say Colonel, you don’t look so good. You’re all ashen and sweaty. Did you accidentally click on those Lena Dunham lingerie photos? Are you hungry? Do you want a bite of my Whopperito?

Cue the lockdown of the base, the 24/7 search for the missing gear, and the MPs to come and haul away Lieutenant Schmuckarelli. Oh, but don’t worry about Hillary’s lost gear. Some of those missing phones were hit with hammers, which apparently Huma and Company believes magically erases electronic data, so I guess it’s all good.

Are you freaking kidding me? If it wasn’t a famous liberal woman the elite is dying to install as president, this person would be Cool Hand Lukeing it in Leavenworth until the year 2100.

But famous liberal women don’t have to play by the rules. They can be bizarrely racist and the trained seals of the media will happily clap their fins. They can commit clear, unequivocal crimes and the FBI will eagerly do on its reputation what a bear does in the woods to excuse her. Because, after all, unlike us peasants, famous liberal women are special.

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Even FactSet gets the joke…

As the bottom-up EPS estimate declined during the first two months of the quarter, the value of the S&P 500 increased during this same time frame.

 

 

From June 30 through August 31, the value of the index increased by 3.4% (to 2170.95 from 2098.86). This quarter marked the 16th time in the past 20 quarters in which the bottom-up EPS estimate decreased during the first two months of the quarter while the value of the index increased during the first two months of the quarter.

The blended earnings decline for Q2 2016 is -3.2% (with 2 companies yet to report). The second quarter marked the first time the index has seen five consecutive quarters of year-over-year declines in earnings since Q3 2008 through Q3 2009.

But that doesn't matter… the drying up of the "mother's milk" of the stock market has become entirely irrelevant…

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Remember when “bad news is good news” first leapt into common parlance? At first it was used as a way to describe the reaction function of Fed policy-makers. It was taken as a cute turn of phrase in encapsulating the state the of the world. Over time, as Bloomberg's Richard Breslow explains, it’s morphed into an ugly and cynical way of justifying mindless investing behavior.

Central banks that cultivated and encouraged irrational exuberance as their main transmission mechanism of monetary policy are now hopelessly caught in its infinite loop. Seemingly feeling the need to continue doing more of the same, no matter the efficacy.

Too many investors now believe, or hope, there will be no policy reversal for the balance of their careers. They explain the world in terms that justify the status quo. It’s become their world view and they’re sticking with it and hope to get out of town before the market gets trickier.

It’s a sad commentary, that the term was actually coined by two psychologists in the 1990s studying faults in human decision-making.

After last Friday’s non-farm payroll report, analyst’s joyfully leapt to the hasty conclusion that it was sure to once again derail a hapless FOMC. No one dare seriously consider September as a legitimate possibility. No discussion of probabilities. The answer is no. Happy days.

 

Wait for it. Wait for it. There they were. Banner headlines celebrating, “Jobs data saves the day,” “SPX surges on payrolls.”

 

And the good feelings have carried through the weekend with “Asian stocks rally most in eight weeks on weak U.S. jobs data.” Ignore bond yields, what do they know, anyway?

Departing India RBI Governor Raghuram Rajan reminded us over the weekend that low global interest rates risk distorting markets and are very hard to abandon. That countries become “trapped” by the fear that rate rises could harm growth.

He was not arguing that, therefore, any excuse not to raise rates should be sought. Quite the contrary. Nor was Fed Chair Yellen when she said the case for higher interest rates had strengthened.

Forward guidance may be lower for longer, but it most certainly has moved away from nothing for as far as the eye can see. And Kahneman and Tversky would have pointed out that Behavioral Economics isn’t the study of the Pavlovian Response.

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Over the past year, two recurring China-related themes have generated substantial media attention: the first is what we dubbed in early March, China’s wave of bizarro M&A, or what passed for “China’s most innovative capital outflow yet.” As we explained then, in China’s relentless eagerness to transfer funds and capital abroad (and thus, away from the domestic banking system which locals are well aware just how precarious it is), numerous Chinese corporations were engaged in seemingly idiotic deals with zero cost-discrimination, just so they had a legal basis to funnel cash abroad.

We presented some examples:

• Take Zoomlion, a lossmaking Chinese machinery company that is partially state-owned: its total debt stands at 83 times its EBITDA.
• Or how about Fosun, a serial Chinese acquirer that spent $6.5bn on stakes in 18 overseas companies during a six-month period last year, had a a 55.7x total debt/EBITDA in June 2015. “Fosun has bought brand names such as Club Med and Cirque du Soleil as well as a host of other assets including the German private bank Hauck & Aufhaeser.”
• Or maybe the highly publicized purchase of China Cosco Holdings of the Greek Piraeus Port Authority for €368.5m. Cosco has promised to invest €500m in the Greek port despite having total debt at 41.5x its EBITDA!
• Or Cofco Corporation, which recently reached an agreement with Noble Group under which its subsidiary, Cofco International, would acquire a stake in Noble Agri for $750m (in the process preventing the insolvency of the biggest Asian commodities trader), has total debt equivalent to 52 times its EBITDA!
• Or how about Bright Food, which bought the breakfast group Weetabix for $1.2bn last year, and has total debt at 24 times EBITDA!

 

Which brings us to theme number two: when it comes to offshore M&A activity, nobody had come anywhere close to one of China’s biggest conglomerates, Anbang Insurance Group. The relatively obscure Anbang is best known for two things: being the company which tried to buy Starwood Hotels, and pulled out in the last moment without providing a reason (as it turned out, it could not provide a legitimate source of funds). The other reason behind Anbang’s fascination is because so very little is known about it.

Actually, that is not exactly true: over the last few months, there have been several insightful exposes on the mysterious sources of cash behind Anbang’s quiet facade, the latest such report coming from the NYT which last week posted a must-read two piece report on the conglomerate (we urge readers to skim both “Behind China’s Anbang: Empty Offices and Obscure Names” and “A Chinese Mystery: Who Owns a Firm on a Global Shopping Spree?”).

However, what especially attracted our attention was not so much the narrative of Anbang’s cash provenance, but a tangent explaining why China’s upper echelons are all so eager to quietly transfer their local funds and park them abroad, whether in Vancouver housing, in US corporations, or any of the other “8 Things The Chinese Are Scrambling To Buy In America.” It was the following:

Luo Yu, the son of a former chief of staff of China’s military, said China’s most politically powerful families had been transferring money out of the country for some time.

 

“They don’t believe they will hold on to power long enough — sooner or later they would collapse,” said Mr. Luo, a former colonel in the Chinese Army whose younger brother was a business partner with one of Anbang’s founders. “So they transfer their money.”

As a recent VOA interview with Luo Yu explains, he “has a special status. He is a princeling who knew Xi Jinping personally. His father was Luo Ruiqing, one of the ten Grand Generals (ranking lower than ten Marshalls but higher than other Generals) that China conferred in 1955, after the Chinese Communist Party (CCP) took over in China.”

Luo Yu, son of revolutionary Chinese at an interview with Epoch Times and NTD TV

To be sure, If anyone is aware of the thinking behind the scenes of China’s grand capital flight, especially among China’s top power echelons, Yu is likely one of them. Which is disturbing, because what he told the NYT is that it is only a matter of time before China does what it tends to do every so often: have a revolution, and as such the oligarchs of the current regime are urgently moving their cash away from the mainland.

And while they are able to circumvent with ease the traditional capital controls like China’s limit of $50,000 in outbound cash, the bigger concern is that the broader population, which holds tens of trillions in deposits in China’s banking system will likewise do the same, leading to the worst case scenario for China’s banking system: a bank run.

Finally, if the surge in capital outflows over the past year has been any indication, and if Yu is correct, the “collapse” which China’s rich and powerful families are preparing for, appears to be getting perilously close.

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Today was a day when not one but two credit analysts, Citi’s Hans Lorenzen and BofA’s Barnaby Martin, both declared that the ECB was doing “too much” QE.

As Lorenzen showed in one or his slides to the presentation we highlighted previously, the ECB is now officially dominating the secondary € credit market, by purchasing approximately 50% of the traded volume of bonds.  This was part of a presentation which alleged not only that the ECB has injected “too much money & not enough supply”, but that the costs of QE in general are now outweighing the benefits.

BofA’s Barnaby Martin likewise wrote in a report today that the ECB’s “CSPP is simply “too big”, by which he means that it is “Too big – in buying terms – not to remain a consistently bullish tailwind for credit spreads.” He further notes that despite a jump in near-term supply, spreads will head tighter into year end and that “European credit can continue to rally. We look for Euro IG spreads to end the year at 95bp, Sterling IG to end at 105bp and Euro HY spreads to end the year at 340bp… the ECB have waited three months for decent primary, and now it is here we believe they are keen to buy in size.”

However, with seemingly nothing in the world capable of impairing the relentless grind tighter in spreads as everything trade is now merely frontrunning future ECB purchases, Martin does point out something worth contemplating, namely “that CSPP could quickly become its own worst enemy if it leads to a rapid rise in releveraging.” Specifically, Martin believes that an outbreak of the most extreme form of “animal spirits” , i.e., LBOs is imminent, to which he then adds:

And lo and behold, over the last few weeks TDC has confirmed that it has received private equity interest (which the company later rejected), and last week Bloomberg reported that KKR was one of the bidders for Repsol’s stake in Gas Natural.

 

The last European LBO cycle in 2005 and 2006 was relatively light in deals compared to the US LBO cycle. Many of the obstacles then to European take-privates – such as the prevalence of government shareholdings (chart 4) – are still relevant today. But there were enough big European LBOs a decade ago (TDC, VNU, ISS, Boots) for the risk to become a systemic one for spreads. And the LBO rumour mill was often enough to drive credit spreads of a highlighted company much wider.

A surge in LBOs in itself, is not a problem; what Martin is far more concerned about is a thought experiment in which “the unthinkable” happens, namely  BB yields going negative. As we explains, “such has been Draghi’s influence across the whole credit market that we are close to seeing our first negative yielding BB-rated bond. But if debt costs for speculative grade companies become “inverted”, then the economics of LBOs will be transformed, and the quality of the assets they are buying will become secondary. We see a growing risk that another private equity cycle emerges in Europe now, and the severe rating deterioration that LBOs pose would become the greatest challenge to central banks’ credit buying.”

To emphasize this point, the BofA strategist, in Chart 5, shows the most negative yielding corporate bond (or the
smallest if positive) over time in each rating category. He notes that we
are very close to having our first negative yielding BB-rated bullet
bond (HeidelbergCement €18s yield 18bp and Peugeot €18s yield 20bp). Moreover, the lowest-yielding single-B (bullet) bond is now just above 1%.

Why are BB-yields turning negative considered an unthinkable outcome? He explains:

The concept of negative debt-costs for high-yield companies will transform the traditional economics of LBOs. Take interest coverage, for instance, as chart 6 shows. Private equity pushed the envelope with interest coverage during the last LBO cycle. Interest coverage fell to just over 2x for European LBOs in 2007. But now, with the rapid decline in non-IG yields, note that interest coverage of European LBOs has begun to rise this year. Cheap debt can suddenly make unviable candidates appear “viable” for private equity.

Which brings us again to the TDC case study, a “very telling” example of what may be about to happen, according to Martin: “TDC was a previous large take-private in late 2005. With the cost cutting that has been implemented since, profit margins for the company are now high, so news of a second LBO seems strange. Low debt costs can alter the equation, however. Recall that in 2006, the high-yield debt  financing that accompanied the TDC LBO had coupons of 8%+ (second lien debt). But today we stand close to the reality of negatively yielding speculative grade bonds, and private equity firms will realise that using debt to go “long” the European equity market has never been easier.“

In other words, we are about to enter a world in which the debt tranche may actually pay itself down, an outcome even more perverse than the recently reported deal where the ECB was directly funding the acquisition of Krispy Kreme by JAB Holdings.

Putting it all together, Martin’s conclusion is that the inevitable surge in LBOs may prove to be the catalyst that forces the ECB to step back from its frenzied corporate bond-buying pace:

LBOs would be the biggest headache for Draghi: The point about a take-private is that it rapidly deteriorates credit quality. When TDC was LBOd, the rating on the senior bonds went from BBB1 to BB2 within three months (and eventually fell further). This, in our mind, would be a very challenging type of event risk for the ECB to manage and could sap their enthusiasm for continuing with CSPP. LBOs would mean CSPP bonds going from eligible to non-eligible. As we have seen recently with K+S, the risk of non-eligibility can have a profoundly negative impact on spreads (chart 7). While K+S bonds are already in our high-yield bond index, the recent negative watch on S&P’s BBB- rating has seen spreads jump wider (a loss of this rating would render the name ineligible for CSPP). We know from the CSPP ISIN disclosure that the ECB hold three K+S bonds (the €18s, €21s, and €22s).

Martin is probably right, which means that eventually the ECB will back off (much to the delight of Citigroup too, as noted above). However, before that happens, Europe is about to see an unprecedented LBO frenzy as double-Bs go negative. Which also means that it may once again be time to start buying CDS on some of the most popular LBO candidates, as no matter the ECB jawboning, unless Draghi assures the market that the ECB will monetize everything through D(efaulted) bonds, event risk such as a major chunk in new leverage will inevitably lead to a spike in default risk, especially if and when names fall out of eligibility.

It also means that the bubble frenzy to purchase Europe’s assets with lots of margin, this time by PE shops, is about to get a whole lot more “exciting.”

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Authored by Michael Boskin, originally posted at Project Syndicate,

 Little more than two months from America’s presidential election, Hillary Clinton leads Donald Trump by five points in opinion polls, nationally and in several important swing states. But nothing is decided yet, especially given the Trump campaign’s staffing shakeup and major policy speeches, not to mention the email scandals that continue to plague the Clinton campaign, including recently released email correspondence between top staff from the Clinton Foundation and officials from the State Department under Clinton.

 

So far, the media and public have focused on immigration, terrorism, foreign policy, and each candidate’s potentially problematic personality traits, but far less has been said about economic policy. This is a serious oversight, because there are substantial differences between the candidates’ economic-policy platforms.

First, consider government spending. Clinton favors welfare-state expenditures such as expanded Social Security benefits (the unfunded liabilities of which already exceed the national debt), free tuition at public colleges and student-loan debt relief, as well as an added “public option” to the 2010 Affordable Care Act, known as Obamacare. She also says she will double down on President Barack Obama’s costly green-energy industrial policy, which favors some energy sources, and even specific companies, at the expense of others.

 

By contrast, Trump says he will leave Social Security as is, repeal and replace Obamacare, and make government spending more efficient and effective (though here he has not been specific).

 

On taxation, Clinton says she will make the US tax system more progressive, even though it is already the most progressive system among the advanced economies. Specifically, Clinton calls for increases to the estate tax and the personal tax rate for the highest earners – which also affects small businesses – and caps on itemized deductions. She shows little inclination to lower corporate taxes.

 

Trump is proposing lower tax rates for individuals and US companies. The US currently has a federal corporate tax rate of 35%, the highest in the OECD. Trump is calling for it to be lowered to a below-average 15%, with first-year business investments to be deductible in full.

 

On trade, Clinton has flip-flopped to oppose the Trans-Pacific Partnership, a multinational trade deal negotiated by the Obama administration and 11 other Pacific Rim countries. Unlike her husband, who supported and signed free-trade agreements during his presidency, Clinton is inching closer to the protectionist wing of the Democratic Party.

 

Clinton’s trade position has little to recommend it, but Trump’s is even worse. Among other things, Trump has threatened a trade war with China and Mexico, and says he would renegotiate America’s existing trade agreements. Clinton and Trump are understandably giving voice to lower- and middle-class workers who have been left behind by globalization. But the best policy response is not to embrace protectionism (which would leave many more people worse off), but to assist displaced workers better.

 

Lastly, Clinton and Trump differ on deficit spending and the national debt. Clinton’s Social Security expansion and other spending, and her plans to entrench the Obamacare health-care system further, without reining in future entitlement costs – which are projected to soar – suggest that large deficits would only continue during her presidency. That’s a far cry from her husband’s record: Bill Clinton worked with a Republican-controlled Congress to balance the budget in the final years of his presidency.

 

Trump recently reduced the budget cost of his proposed tax reductions to bring them more in line with Republican legislators’ own targets. If properly scored to account for increased tax revenue from economic growth, he would still need to pair his tax cuts with controls on spending, and especially on entitlements. Otherwise, a Trump presidency could also have serious debt problems.

 

One proposal the candidates agree on is massive infrastructure spending. Unfortunately, while a portion of this is appropriate for the federal government, neither candidate has ensured that money wouldn’t be misspent through politicization or cronyism. The United States does not need a repeat of the Obama administration’s “shovel-ready” stimulus-spending boondoggle.

All told, Clinton would prioritize redistribution above economic growth, while Trump is more growth-oriented. American growth is a global concern because it fuels growth elsewhere through US consumer demand and trade. But the two primary sources of growth, productivity gains and labor inputs (such as total man-hours worked), have both fallen off sharply in recent years. The US economy grew at an average annual rate of 3% during the decades after World War II, but it has not had even three consecutive quarters of 3% growth during the past decade.

There are different explanations for slowing productivity growth. Northwestern University economist Robert Gordon singles out technological innovation for contributing less to economic growth than did previous breakthroughs such as electricity, locomotion, aviation, and computing. Harvard University economist Lawrence Summers points to “secular stagnation,” a term coined by the economist Alvin Hansen in the 1930s to describe long-term tepid demand and insufficient opportunity for profitable investment. My own opinion is that poor economic policy has discouraged business investment, entrepreneurship, and work.

Polling shows that undecided voters deeply distrust both candidates. To get elected and actually have the mandate to enact her agenda, Clinton will need to be more transparent and honest about past mistakes. And on economic policy, she should move to the center, toward growth-focused measures, and away from leftist positions she adopted during her primary campaign against Vermont Senator Bernie Sanders. Trump, for his part, will need to show some humility and inclusiveness, and be open to advice from others on issues where he lacks experience.

While the Republicans are in a tight battle with the Democrats to retain control over the Senate, they are likely to maintain a majority in the House of Representatives. As a result, on many policy issues, all eyes will be on House Speaker Paul Ryan, who would likely operate either as a counterbalance – and occasional partner – to Clinton, or as a guide and more regular partner for Trump.

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Senate Republican Whip John Cornyn, of Texas, is having a little "buyer's remorse" over his decision to vote in favor of confirming Hillary as Secretary of State back in 2009.  Cornyn was one of the Republicans that originally held up Hillary's confirmation over concerns that the Clinton Foundation created an insurmountable "conflict of interest."  That said, Republicans, including Cornyn, ended up breaking party lines and confirmed Clinton after the Foundation entered into a "memorandum of understanding" that called for, among other things, transparency around donations, particularly those from foreign governments. 

That said, Cornyn now says that all the "reassurances she gave me back at the time her confirmation was considered" have for all practical purposes been "violated."  Per comments made to The Hill:

“Once again the rules don’t apply to them like they apply to everybody else. Can you imagine if anybody else in the United States government had tried to get away with something like this? It wouldn’t have happened.”

 

“When I put a hold on Mrs. Clinton’s nomination as Secretary of State, she reassured me that they would take appropriate steps.  As seems to be usual for the Clintons, they crossed the line and all the concerns that she reassured me would not occur did in fact occur."

 

“She was playing both sides. As she was performing her job of secretary of State, the Clinton Foundation was shaking down donors who were buying access. It’s absolutely deplorable.”

 

“The reassurances she gave me back at the time her confirmation was considered, she, for all practical purposes, violated.  Those representations she made to me about the integrity of the screening process and of the ethics concerns with regard to the foundation.”

The MOU, included below in its entirety for your reading pleasure, stated that, among other things, the Clinton Foundation would publish the names of all its existing contributors as well as the names of all new contributors.  The MOU was executed in December 2008 between the Clinton Foundation and President Obama's office.

The Parties seek to ensure that the activities of the Foundation, however beneficial, do no create conflicts or the appearance of conflicts for the Senator Clinton as Secretary of State.

 

In anticipation of Senator Clinton's nomination and confirmation as Secretary of State, the Foundation will publish its contributors this year.  During any service by Senator Clinton as Secretary of State, the Foundation will publish annually the names of new contributors.

 

Should an existing contributing country elect to increase materially is commitment, or should a new contributor country elect to support CHAJ, the Foundation will share such countries and the circumstances of the anticipated contribution with the State Department designated agency ethics official for review, and as appropriate, the State Department's designated agency ethics official will submit the matter for review by a designated official in the White House Counsel's office.  In the event the State Department or White House has concerns about a proposed contribution that are related to Senator Clinton's service as Secretary of State, those concerns will be conveyed to her and to the Clinton Foundation for appropriate action.  For purposes of this paragraph, an agency or department of a foreign country, as well as a government-owned corporation, will be treated as a foreign country.

But it wasn't long before the Clinton Foundation was found to be in breach of the MOU. 

Per The Hill, the Clinton Health Access Initiative, a fund within the foundation, did not meet its reporting requirements from 2009 to 2013.  Moreover, Clinton Foundation officials acknowledged to The Washington Post last year that they made a mistake by not seeking prior approval from the State Department ethics office for a $500,000 donation from the Algerian government.

In addition, State Department records obtained by the conservative group Judicial Watch and made public last month showed that Doug Band, a senior executive at the Clinton Foundation, helped set up a meeting between Crown Prince Salman of Bahrain with Clinton in 2009 after the prince’s efforts to reach out through normal channels failed.  Band described Salman as a “good friend of ours.” By 2010, a scholarship fund set up by Salman gave $32 million to the Clinton Global Initiative, according to Judicial Watch.

Finally, just yesterday we called out the "curious" timing of a meeting between Dow Chemical CEO, Andrew Liveris, and Hillary back in July 2009 (see "Did Foundation Donor Dow Chemical Seek Hillary "Favor" To Settle $9 Billion Lawsuit With Kuwait?").  Per the email below from Huma, apparently Bill was really eager for Hillary to meet up with the CEO of the large Clinton Foundation donor.  That said, we're sure it had nothing to do with open litigation initiated by Dow Chemical against Kuwait (another large Clinton Foundation donor) for backing out of the $17 billion K-Dow joint venture that would have netted Dow Chemical $9 billion in cash.  

From: Huma Abedin Huma@clintonemail.com
To: Valmoro, Lona J
Sent: Monday, Jul 27 06:02:01 2009
Subject:

 

Wjc wants to be sure hrc sees Andrew Liveris, ceo of dow tomorrow night. Apparently he is head of us china business council. Is he definitely going to be there?

But we urge Senator Cornyn to relax.  While there seems to be a lot of smoke here, Hillary has assured us that these are all simple, honest mistakes and there "is no fire."

 

 

 

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Submitted by Simon Black via SovereignMan.com,

One of the members of Team Sovereign Man just arrived for the first time in his life to the United States.

This is pretty unusual, especially for the incredibly well-traveled members of our team.

Peter, an Australian in his mid-40s who has been living in Asia for most of his adult life, is taking a few days rest in Arizona in transit from his home in Bangkok to our headquarters in Chile.

It’s not every day that someone I’ve known for several years comes to the country of my birth for the first time ever, and I thought his impressions were quite interesting.

I’m forwarding them to you below:

I’ve been to 30 countries, so I’m not widely traveled by Sovereign Man standards, but I do have an interesting perspective: I’ve never been to America. Until now.

 

I was expecting everything to be big and awesome and based on consumption, but I simply wasn’t prepared for what I was going to see.

 

Old town Scottsdale, where I’m staying, is beautiful, clean, and full of fun people.

 

The biggest 4x4s I’ve ever seen cruise up and down the roads, along with golf carts, a Thai tuktuk, and some contraption with eight young women pedaling while they drank cocktails (they had a sober driver) and waved to the odd Australian who was actually walking.

 

Nobody seems to walk here. I asked about the comedy club which is a 10-minute walk from my hotel. They told me it’s a 3-minute drive. Everything is an x-minute drive away.

 

And everything is mind-bogglingly big.

 

I walked into the convenience store and they had seven types of hot coffee, five types of cappuccino, and a larger wine collection than most wine shops in Bangkok where I live.

 

There were two long walls of fridges: one for soft drinks and one for alcohol.

 

And the breakfast at my hotel had six types of coffee cream for God’s sake.

 

Simon reckons that America is the best place in the world to be a consumer. I had no idea how spot on he was until I arrived here.

 

The place is tidy, quiet, and has everything you could possibly want for a good life. I keep thinking, “Yes, this is a place and a lifestyle you would fight to preserve. And it’s a damn shame how quickly it’s disappearing for so many.”

 

After seeing a small piece of America and talking to a few of the locals, I finally understood the feelings behind the two strangest things that I witnessed at the airport.

 

The first was the high regard Americans seem to have for their military:

 

• There was a welcome message over the public address system from LA mayor Eric Garcetti, with a special message for service men and women.
• Convenience stores have donation boxes so that an American serviceman can make a phone call home. (They haven’t heard of Skype?)
• Billboards and notices on the wall had welcoming and thank you messages for service men and women.

 

This is bizarre for me. Nobody in Australia (where I served in the Army Reserve) or any other country really cares one way or the other if you serve in the armed forces.

 

Heck, when I joined the Australian military and told the interview panel that I “want to serve my country” the senior officer just shook his head and replied, “You can serve your country just as well as an engineer working at a private company.”

 

But here in the US of A, I can really see what they want to protect.

 

People here do seem to feel that this lifestyle could be in danger from radical Islam. Maybe so.

 

But it’s even more in danger from exploding national debt, endless money printing at the Federal Reserve, and a mountain of laws and rules that get passed each day.

 

The second strange thing that I witnessed was the two women ahead of me in the security line at LAX getting a “second level” screening.

 

I was shocked.

 

Female officers felt up their entire bodies: boobs, crotch, and backside included.

 

What was most strange to me, though, was the way the lady in front of me took the body search. It didn’t faze her at all.

 

I caught up with her after security and asked her about it.

 

“I think it’s something to do with the baby formula that sets off the machine.” (She had a 2-year old daughter and her husband with her.)

 

“Are you ok with it? Has this happened before?”

 

“Yes, many times. I’m used to it now. Thanks for asking.”

 

And just like that, Stockholm Syndrome has set in.

 

People just accept that they have to send soldiers overseas and have to submit to government intrusion for the price of being free.

 

Everyone knows it doesn’t make a difference, but everyone just accepts it because they don’t have the power to change it and don’t want to think about what the government will do to them next.

 

This is a wonderful country, but it’s clear to me that the Land of the Free has already lost a host of freedoms… and a bunch more will be on the chopping block under either Clinton or Trump.

 

At least the woman’s daughter, who watched her mother willingly submit to a humiliating body search by government officials, will grow up to be an accepting model citizen.

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