Tag: finance

“The Game Is Rigged”: From Luxurious Lake Como Villa, Finance Professor Admits “QE Adds To Inequality”

While attending the ultra-exclusive Ambrosetti Workshop, University of Chicago finance professor Luigi Zingales took a few minutes to discuss income inequality in an interview with Bloomberg.

We were delighted that the irony of being at a luxurious villa on the shores of Lake Como discussing income inequality wasn’t lost on the Booth PhD: “First of all it’s a bit funny to discuss about income inequality here at this luxurious villa in Como next to George Clooney’s villa”

As Jeb Bush might say, “Please laugh.”

Moving on: when asked if central bank policy is making people feel that they’ve really lost out, Zingales reiterates what we’ve known all along, namely that the real consequences of central bank actions don’t matter, what matters is simply how people perceive the central bank and its actions. If people are told enough by smart people on television that the economy has been fixed, and the market is a reflection of the fundamentals, then they’ll blindly support anything the fed does. After all, as long as whatever voodoo is going on over at the Eccles building is pushing 401k balances higher, then it must be right.

He then goes on as far as stating that capitalism in the U.S. has failed and been converted into a perverted, mutant, crony version and that “the game is rigged.”

“I think that people are willing to support capitalism if capitalism is providing growth, providing better income for everybody, and also if it has some at least appearance of being fair. Unfortunately, none of these conditions are in place today in the United States. I think that growth is limited, and disproportionately goes to a small fraction of the population. And there is a sense that the game is rigged.”

We’ll jump in here to say, first, at least he’s telling the truth about the central planners’ strategy of perception. And also to point out that there isn’t a “sense” that the game is rigged, there is undeniable proof that the game is rigged.

As we have showed (repeatedly)  the S&P 500 (that is to say, the “1%”) has completely dislocated from the average American’s reality.

 

And here is another chart showing that all of the income gains over the past 30 years have gone to the 1% as compared to the bottom 90% of earners.  QE only made this dislocation more acute.

He wraps up the interview by answering whether or not the monetary policies of central banks are adding to income inequality and actually making the rich richer.
   
“I think QE adds to income inequality though to be fair with Mario Draghi that’s the only thing he can do.”

Well, that, and the soon to be unleashed Helicopter money of course. Meanwhile, for politicians who are supposedly so focused on fixing the unprecedented US and global wealth divide, may we suggest starting with those ruinous policies which – as we warned back in 2009 – even tenured professors now admit are not helping the everyday individual, but merely making the rich richer… as they were designed from the beginning. 

Probably not.

 

Full interview below

 


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Crude Surges Back To 2-Week Highs As Yellen Hope Trumps Iran Price Cuts

Only in the new normal of manic algos and goal-seeked short-squeezes could actual news that Iran is undercutting OPEC by slashing prices to maintain market share be out-followed by hopefulness driven by upbeat comment from Janet Yellen (because she has nailed everyting so far) and more chatter about a production freeze (which makes no sense whatsoever given the Iran news). For now, WTI is trading above $39.50 ahead of today’s rig count data, back at 2-week highs.

After yesterday’s rollover collapse, everything is epically awesome once again…

So the bad news… As Gulf News reports, Iran ratcheted up its offence in the oil market after breaking a pricing tradition, signalling it’s seeking to win market share at a time when rival producers are trying to forge a deal on freezing output.

State-run National Iranian Oil Co. will sell the Forozan Blend crude for May to Asia below the level offered by rival Saudi Aramco for Arab Medium, the third month the Arabian Gulf state is giving the discount after setting it at a premium for almost seven years through February 2016, data compiled by Bloomberg show. NIOC will also sell the Iranian Light grade to Asian customers at 60 cents below Middle East benchmark prices, a company official said on Friday, asking not to be identified because of internal policy.

 

While producers including Saudi Arabia, OPEC’s biggest member, and Russia are due to meet in Doha on April 17 to discuss a deal to freeze output in a step toward clearing a global glut, Iran is determined to regain market share lost over the past few years due to sanctions over its nuclear programme. To pry away customers relishing oil that is cheaper than mid-2014 levels by more than 50 per cent, the country is expected to focus on pricing and boosting supply.

 

“Unquestionably, since the lifting of sanctions, the Iranians have become a force to be reckoned with in global oil markets,” said John Driscoll, chief strategist at JTD Energy Services Pte, who has spent more than 30 years trading crude and petroleum in Singapore. “Their mission is to recapture market share, pure and simple.”

But oil is rallying because…

Upbeat Yellen: Bloomberg reports Crude benefits from Yellen’s upbeat comments – all of which is utter nonsense as she has been a total disaster in forecasting anything.

 

Production Freeze Chatter: Bloomberg reports WTI extends gains to above $39 for the highest this month as market considers potential for output freeze – all of which is total nonsense since if Iran is cutting prices to maintain market share then the Saudis will never freeze production.

But since when did any of that matter.


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Active Shooter, Fatalities Reported At San Antonio Lackland AFB

Following a period of relative mass shooting calm over the past few weeks, moments ago reports indicate that there is an active shooter situation unfolding at Lackland Air Force Base in San Antonio, Texas which is on Lockdown. According to News4SA, there are reports that two people were shot and they are dead, although it has since clarified that according to The Bexar County Sheriff’s Office reports the victims condition was not immediately known.

The Bexar County Sheriff’s Office said deputies were clearing buildings at 9:15am.

According to News4 San Antonio, the initial calls made to police came in at around 8:45 a.m. local time, and law enforcement from both the San Antonio Police Department and the Post of San Antonio were responding.

Initial reports were unclear, but an officer said the shooting happened at an area known as the Medina Annex and someone may have been shot.

KFDN News out of Beaumont, Texas indicated moments ago that one person may have been shot. The Bexar Country Sheriff also took to Twitter immediately to comment, though did not offer any confirmation or details about the rapidly unfolding situation


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Wholsale Inventories Drop Most Since 2013; Sales Miss As Slowdown Accelerates

There was one thing keeping US GDP growing in recent months: rising inventory. Well, no more. Moments ago the Dept of Commerce reported the latest inventory data and following major historical revisions, not only was last month’s inventory print slashes from 0.3% to -0.2%, but the February Inventory number was a dramatic -0.5% drop, far below the -0.2% expected.

This was the biggest sequential drop since the spring of 2013.

 

It wasn’t just inventories: wholesale sales also declined by 0.2%. The ongoing declines refuse to paint a pretty picture of the US economy.

 

Worse, the nominal dollar spread between wholesale inventories and sales remains at record highs suggesting that the long overdue inventory liquidation has nowhere near begun yet.

 

There was some good news: the inventories/sales ratio was 1.36, a modest decline from the January print. While perhaps hinting of some long overdue renormalization, this would mean that should inventory selling commence, the US GDP is about to lose as much as 1.5% in annualized growth, potentially pushing 2016 GDP growth to 1% or lower.

And now we wait for the Altanta Fed to update its Q1 GDP model with a negative print.


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Black Activists Heckle, Turn On Bill Clinton; Accuse Him Of “Destroying Their Communities”

It is no secret that one of the core support groups behind Hillary’s presidential campaign are black voters. Which is why it came as a surprise when none other than Bill Clinton faced down protesters angry at the impact his 1994 crime reforms have had on black Americans and defended the record of his wife, Hillary Clinton, who is relying on the support of black voters in her quest for the presidency.

As Reuters reports, the former president spent more than 10 minutes confronting the protesters at a campaign rally in Philadelphia for his wife over criticisms that the crime bill he approved while president led to a surge in the imprisonment of black people. Clinton’s speech devolved into confusion when several protesters heckled the former president mid-speech and held up signs, including one that read: “CLINTON Crime Bill Destroyed Our Communities.”

Bill Clinton’s remarks on Thursday drew criticism online. Some saw him as dismissive of the Black Lives Matter movement, a national outgrowth of anger over a string of encounters in which police officers killed unarmed black people. Johnetta Elzie, a civil rights activist, wrote online that Clinton “can’t handle being confronted by his own record.”

“This is like watching a robot malfunction,” she wrote. She was referring to Bill, not Hillary.

 

Ahead of Clinton’s speech activists in the Black Lives Matter protest movement circulated video footage of Hillary Clinton defending Bill’s reforms in 1994. In the footage, she calls young people in gangs “super-predators” who need to “be brought to heel.” Hillary Clinton, 68, who also has faced protesters upset by her remarks, said in February she regretted her language.

To be sure, Bill Clinton defended her 1994 remarks, which protesters say were racially insensitive, and suggested the protesters’ anger was misplaced.

“I don’t know how you would characterize the gang leaders who got 13-year-old kids hopped on crack and sent them out on the street to murder other African-American children,” he said, shaking his finger at a heckler as Clinton supporters cheered, according to video of the event. “Maybe you thought they were good citizens. She (Hillary Clinton) didn’t.“

The question whether they are good citizens aside, the bigger problem is that absolutely nothing has been done to even address a problem of gang violence which has resulted in a record surge in gun homicides in cities such as Obama’s own Chicago, as we reported last week.

 

That said, Clinton was right: “You are defending the people who kill the lives you say matter,” he told a protester. “Tell the truth.” Many have criticized the Black Lives Matter activists for actively attacking white people, while openly ignoring the problems within their own society.

One thing is clear, however: whether as a result of Clinton’s crime bill or not, the United States has more people in prison than any other country. According to the Bureau of Justice Statistics, 1.05 million prisoners were held in federal or state facilities in 1994. By 2014, it was 1.56 million. That year, 6 percent of all black men in their 30s were in prison, a rate six times higher than that of white men of the same age.

On Thursday confusion ensued over whether or not Clinton defended his legislation: the former president said last year that he regretted signing the Violent Crime Control and Law Enforcement Act into law because it contributed to the high incarceration rate of black people for nonviolent crimes. On Thursday, he did not explicitly recant those regrets, but appeared to be angry at any suggestion the bill was wholly bad.

The legislation imposed tougher sentences, put thousands more police on the streets and helped fund the building of extra prisons. It was known for its federal “three strikes” provision that sent violent offenders to prison for life. The bill was backed by congressional Republicans and hailed at the time as a success for Clinton.

Hillary Clinton promised to end “mass incarceration” in the first major speech of her campaign last year. She has won the support of the majority of black voters in every state nominating contest so far, often by a landslide.

And while many attack Trump on flipflopping on many issues, this is becoming one particular topic that may have a lasting impact on Hillary’s core support group if left unresolved. During Hillary Clinton’s failed 2008 presidential bid, civil rights leaders and high-ranking Democrats in Congress criticized the former president for statements he made during a heated campaign against then-U.S. Senator Barack Obama.

Bill Clinton said Obama’s campaign had “played the race card.” Obama became the first U.S. black president in November that year.


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Bad News For Rebound Hopes: Consumer Spending Fails To Rise According To Card Spending Data

While big banks blame the collapse in Q1 GDP on “residual seasonality” (more on that later), with BofA recently slashing its Q1 estimate from as much as 2.7% to just 0.2%, the reality is that something is not well with the US consumer. The latest proof of this comes from the most recent Bank of America credit and debt card spending data, which reveals that sales were once again down 0.1% yoy.

And unlike on previous occasions, one can’t blame it on gas at the pump, as gasoline prices have increased. Still, on a trailing basis, headline sales have been depressed by less spending at the pump due to lower prices. On a three month moving average, retail sales ex-autos are down 0.2% mom SA while retail sales ex-autos and gasoline are up a more moderate 0.3% mom SA.

The chart below shows the seasonally adjusted retail sales ex-autos measure from the BAC aggregate card data was unchanged SA in March, leaving the 3-month moving average to decline 0.2%. While a part of this weakness owes to a continued decline in gasoline prices. We find that retail sales ex-autos and gasoline was up 0.3% mom SA, which continues to be in a downward trend.

This confirms the downward revision to the Census Bureau data in January which made government data more consistent with the BAC internal data. According to Bank of America, “we therefore also look for only a slight improvement in March Census Bureau sales, in a similar pattern as the BAC internal data” which means that Q1 GDP is weak for a very specific reason: consumer spending remains anemic.

 

Bank of America then proceedds to look at spending trends for different income groups. It creates a proxy for the two ends of the income distribution using average income by zip codes. After ranking the zip codes by average income, it takes the top 3% of zip codes to capture the high-end consumer and the bottom 3% of zip codes to represent the lower end. BofA finds that the spending among the high-end has outpaced the lower-end consumer post-crisis through early 2014.

Since then spending has accelerated for the low-end, particularly in the summer of 2014 along with the drop in gasoline prices. The lower-end consumer is more budget constrained and therefore has a greater propensity to spend out of gas savings. Meanwhile higher-end consumer spending has slowed, particularly at the end of last year, which could reflect the uncertainty in the financial markets. In the past few months, spending for the low-end consumer has slowed, falling back below the growth rate of the high-end cohort.

In the chart below, BofA sees a similar pattern with the upper and lower income households, but not as obvious as the zip-code based proxies.

What do household spend on?  BofA looks at the composition of spending for each income cohort, dividing spending on each sector by retail sales ex-autos. Food & beverages was the biggest spending category across all income groups in March. Health & personal care was the second biggest category. Conversely, households spent the least on electronics and furniture, which are more big-ticket purchases. As income increases, the average household spends a lower share on basic necessities like food and clothing. Instead, consumers will allocate a relatively greater share of spending on hobbies and furniture.

Finally, and perhaps most troubling, is the sharp dropoff in services in the past year, while spending on goods is barely positive on the year. BofA defines services as the combination of spending on restaurants, hotels and airlines. This is only a portion of actual services spending – notably, housing and healthcare are not captured. BofA finds that The gap between services and goods widened over last year, but in the past few months, it has narrowed back as spending on services has slowed.


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Shocking Photo: Nearly 30 Oil Tankers in Traffic Jam Off Iraqi Coast

Submitted by Charles Kennedy of OilPrice.com

Shocking Photo: Nearly 30 Oil Tankers in Traffic Jam Off Iraqi Coast

Oil tankers are caught in a traffic jam near the Iraqi port of Basra, causing delays in loading. According to Reuters, around 30 very large crude carriers (VLCCs) are sitting in the Persian Gulf, and the backlog could cost ship owners more than $75,000 per day. Some could be waiting for weeks to reach the port.

Check out this shocking satellite photo of the tanker traffic jam just off the coast of Iraq.

The culprit is high oil production in Iraq. The port at Basra is struggling to load up all the oil tankers fast enough, forcing some to sit and wait. Iraq exported about 3.26 million barrels per day (mb/d) in March from its southern coast, which is up from just 2.5 mb/d in 2010.

And the line of tankers appears to be growing. The gridlock is forcing up the cost of renting an oil tanker. That, combined with the shrinking capacity of available storage in China is pushing up tanker rates in Asia as well. Shipping data shows that VLCC rates have doubled from $37,250 per day to $74,700 per day.

As of now, Reuters calculates that there are 27 VLCCs sitting in the Gulf near Basra, holding about 43 million barrels of oil, double the typical backlog. Some have been waiting for weeks. The current waiting time is 18 to 19 days, which is two to three times the normal wait of 5 to 10 days.

Reuters contacted a captain of one oil tanker, who said that he wasn’t sure when he would be able to load up at the port. “We’ve been given no details,” he said, declining to be identified.

Meanwhile, onshore, Iraq is struggling with a bit of rising instability in the country’s south, which is far from the battlefields with ISIS and has been one of the few refuges of stability. However, militias have a growing presence there, raising concerns for the international oil companies operating in Basra.


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When Will The BOJ Intervene: This Is What Wall Street Thinks Is Kuroda’s Breaking Point

With the Yen soaring (and USDJPY plunging) some 10% in 2016, in the process crushing the tightly correlated Nikkei and leading to such outcomes as the largest Asian clothes retailer slashing profits by a third in just 4 months due to the strong currency, everyone has been wondering i) why is the BOJ waiting to intervene when it had no problems unleashing NIRP when the USDJPY was about 1000 pips higher and ii) when will it intervene again?

According to a poll by Bloomberg, Japanese authorities may intervene in the currency market if USD/JPY falls below 100 based on the median estimate of 14 analysts compiled by Bloomberg News.

Estimates range from 95 to 110. 

As we reported earlier, the USDJPY hit a 17-month low – the lowest since BOJ’s QE expansion in Oct. 2014) before rebounding 0.5% today to 108.73 on warnings from Japanese Finance Minister Aso that abrupt yen movements are most undesirable.

Additionally, Japan Chief Cabinet Secretary Suga warned several times this week that the authorities are closely watching the FX mkt and will act appropriately if necessary as there have been one-sided moves in FX mkts.

Curiously, LDP lawmakers, who form the ruling party, are less eager for intervention Bloomberg writes. LDP policy chief Tomomi Inada said today now isn’t the time for FX intervention, echoing Keiichiro Tachibana earlier this week. Begs the question if the G-20 “Shanghai Accord” was mostly coordinated and precleared with political figure, and not so much with central banks?

In any event, an intervention by the BOJ is indeed just a matter of time, the only question is at what level in the USDJPY and how long before the determined shorts push the Yen as high as it will need for Kuroda to demand mercy.

Here are some analyst views:

“At the moment, there is no international support for intervention anywhere near current levels, particularly considering the yen is actually historically quite weak here,” says Ray Attrill, global co-head of FX strategy at National Australia Bank

Decline in USD/JPY below 100 “would mark the confirmation that psychology around the currency has completely changed,” says Gareth Berry, an FX strategist at Macquarie Bank.

“Chance for intervention at this level is quite low,” says Sim Moh Siong, an FX strategist at Bank of Singapore; cites G-7 meeting next month (the meeeting will take place May 26-27)

Here is a summary of what Wall Street thinks is the USDJPY level at which Kuroda will intervene

  • Bank of Singapore: 100
  • BofAML: 105
  • CBA: 100
  • Daiwa Securities: 100
  • JPMorgan: 95
  • Julius Baer: 100-105
  • Macquarie: 100
  • Mitsubishi UFJ Morgan Stanley: 99
  • NAB: 100
  • Nomura: 105
  • RBS: 105-110
  • Societe Generale: 104
  • Swissquote Bank: 100
  • Westpac: 106.5

Median: 100

Average: 101.75


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Futures Spike After Bill Dudley Urges “Cautious Approach” As “Balance Of Risks Tilted To Downside”

In a week overflowing with Fed speakers, moments ago NY Fed’s Bill Dudley – who recently flipped from hawkish to dovish once again – took the podium in Bridgeport Connecticut to lay out his latest thoughts.  Here is a summary of what he said in a speech titled “The National and Local Economic Outlook: An Update“, courtesy of Bloomberg

  • Caution is called for because of Fed’s limited ability to reduce policy rate, Federal Reserve Bank of New York President William Dudley says, Dudley comments in text of speech in Bridgeport, Conn.
  • “Although the downside risks have diminished since earlier in the year, I still judge the balance of risks to my inflation and growth outlooks to be tilted slightly to the downside”
  • Fed can use forward guidance, balance-sheet policies to provide more accommodation if warranted
  • While recent data show “some firming” of inflation expectations, “there is still cause for concern” because many measures still quite low
  • “The recent rise in inflation and in measures of inflation expectations have increased my confidence around this outlook compared to earlier in the year, but it is still possible that the return of inflation to our objective could take longer than I anticipate.“
  • “There is significant uncertainty about economic growth prospects abroad and how this will affect the U.S. economic outlook”
  • Despite recent financial-market volatility and economic data, “recent developments have not led me to make a fundamental change in my outlook for the U.S. economy”
  • Expects real GDP growth of about 2% in 2016, above potential; jobless rate likely to drop to around 4.75%
  • Several sectors showing signs of softness, including consumer spending, home sales, business investment
  • Labor market has remained healthy, but long-term unemployment still higher than prior cyclical peak in 2003
  • “Measures of aggregate wage growth have remained quite subdued, which suggests there is still some slack in the labor market”

On this latest cautious pessimism about the US economy futures naturally spike to intraday highs.

 

That said, we can’t blame him for being cautious. One look at the following chart from @Not_Jim_Cramer and you would be too. In fact, you may even ask what was the Fed thinking when it hiked rates last month.


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Why Bank Of America Remains A “Seller Of Risk”

It is not only BofA’s “smart money” clients who have been selling the rally non-stop (and at an accelerating pace) for the past 10 weeks: so has the bank’s chief investment strategist, Michael Hartnett, whose reluctance to embrace the mania has been duly documented on these pages.Below we lay out the reasons why he “remains a seller of risk.“

From his latest summary note:

Positioning…Sell Signal: our Global Flows Trading Rule triggered “sell” almost 4 weeks ago; note BofAML Bull & Bear Index now at 4.1 = 9-month high = most bullish sentiment since Jun’15;

Watch Cash level in next Tuesday’s April BofAML Fund Manager Survey (Feb = 5.6% “unambiguous buy signal”, March = 5.1%, April < 4.8% (3yr avg) would be risk-negative).

Positioning…US$ Bull Unwind: Fed-induced pullback in US$ continues to cause unwind of 2015 inflows into “strong-dollar” markets…Japan equity redemptions have lagged European equity redemptions (Charts 5 & 6).

Policy…Quantitative Failure:

a. Fed policy makers as fickle “as a feather in a storm” but key US domestic demand indicator, small business confidence trending decisively lower (Chart 4)

 

b. Quantitative Failure writ large across Japan/European macro

c. global bank stocks (note correlation between Japanese yen & relative performance of US financials past 12 months…both recently reflecting renewed risk aversion – Chart 3)

 

Profits…Upside Required: both 2016 GDP & EPS estimates continue to be revised lower (Charts 8 & 9) despite monetary policy inducing $9.1 trillion of negatively-yielding global government bonds (25% of outstanding).

We remain a seller of risk


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