Tag: finance

Submitted by Matthew Continetti via NationalReview.com,

How bad is Hillary Clinton’s image? This bad:

Fifty-six percent of Americans view her unfavorably, according to the Huffington Post pollster trend.

 

One-third of New York Democratic primary voters say she is neither honest nor trustworthy.

Her image, writes Dan Balz, “is at or near record lows among major demographic groups.”

Like, all of them.

Among men, she is at minus 40. Among women, she is at minus 9. Among whites, she is at minus 39. Among white women, she is at minus 25. Among white men, she is 17 positive, 72 negative. Her favorability among whites at this point in the election cycle is worse than President Obama’s ever has been. . . . Among African Americans nationally the NBC–Wall Street Journal poll shows her with a net positive of 51 points. But that’s down 13 points from her first-quarter average and is about at her lowest ever. Among Latinos, her net positive is just two points, down from plus 21 points during the first quarter.

Emphasis mine. No doubt some of this degradation is related to a primary that has turned out to be much more competitive than Clinton imagined. But it’s also worth asking why that campaign has lasted so much longer than we assumed.

A lot of the reason is Clinton: her tin ear, her aloofness, her phony eagerness to please, her suspicion of the press and of outsiders, her — let us say –complicated relationship with the truth, the blithe way in which she dissembles and deceives.

Over the course of three decades in public life Hillary Clinton has misspoken and misled the public and mismanaged herself and her team to such a degree that voters cannot help noticing. Yes, many of her falsehoods are white lies. But white lies accumulate. They matter. Not only do they harm the truth. They are turning Clinton into one of the least popular candidates in history.

Since 1998 Clinton has blamed her poor reputation on the vast right-wing conspiracy. Whitewater, Travelgate, Filegate, the health-care disaster — it was all the fault of the Republicans. What’s forgotten is that Clinton has been lying in the service of her ambitions — most notably by protecting her husband from the truth of his infidelities — since long before Bill ran for president. Nor can she blame conservatives for her failure to win the Democratic nomination eight years ago. Hillary can’t help being secretive and deceptive. It’s her nature.

Think of the transcripts of the speeches she gave to Wall Street audiences. Bernie Sanders would like Clinton to release them. She refuses. Why? “When everybody agrees to do that, I will as well, because I think it’s important we all abide by the same standards.” What baloney. Democratic primary voters see the obvious: Hillary is hiding behind a standard she invented.

What the other candidates have said to bankers isn’t the issue. No one expects Donald Trump to have been anything other than fulsome in his praise of Wall Street. He probably spoke mainly about himself anyway. What Sanders wants to know is if Clinton said one thing to the financial-services industry and another to the public. Fair question. Especially considering the lady we’re talking about.

It’s also a question that Clinton could settle rather easily in her favor. Other than the most committed of Bernie Bros, does anyone really think Clinton offered to sell her soul to Lloyd Blankfein, at least on stage? The transcripts won’t contain bombshells but platitudes — thank you so much for having me, it’s great to be here, Bill and I really appreciate the socially conscious investment and work you’re doing for young people around the world, diversity, inclusion, hot sauce, Chelsea built a clinic in Haiti, climate change, I’m a grandma, blah, blah, blah. You won’t be shocked by what she said. You’ll be bored.

The act of concealment transforms the banal into the insidious. I sometimes wonder if Clinton does this just to give her rather humdrum and lackluster public life a frisson of excitement and danger, or to goad her enemies into overreaction.

Take the emails. She built the private server to shield her privacy. But the public learned of the server nonetheless. The public always finds out. A judge ordered the emails released. Thus the result of Clinton’s actions was the very opposite of her intent.

It remains to be seen whether the FBI will indict her for compromising national security, though I rather doubt that will happen. There is no smoking gun. The emails themselves show Clinton to be a tech ignoramus, a workaholic, harried by the pace of events, self-interested, paranoid, dependent on a few close advisers. Nothing we didn’t already know.

But that didn’t stop Clinton from lying about it. Never does. “The secrecy and the closed nature of her dealings generate problems of their own, which in turn prompt efforts to restrict information and draw even more tightly inside a group of intimates,” wrote Sarah Ellison last year in Vanity Fair. “It is a vicious circle.” And the person responsible for keeping the circle going is none other than the candidate herself: circumspect, wary, so damaged by her years in the public eye that she trusts no one. And receives no trust in return.

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There is a saying that the whole is greater than the sum of its part. This may be true everywhere, except in China, where the total is whatever some goalseek machine decides it is.

We first saw China’s flagrant manipulation of data when the nation released its “better than expected” trade “data” two weeks ago. As shown in the chart below, when it comes to the biggest contributor, imports from Hong Kong, it was beyond simply grotesque and had entered the sublimely ridiculous.

 

Then last weekend, following the release of China’s official national GDP print of 6.7%, China also released its sequential GDP growth of 1.1% which, when annualized, one got a number of 4.5%.  Just as bad, based on the accumulated quarter-on-quarter data over the last year, annual growth in 1Q was just 6.3% – substantially below the NBS’s 6.7% reading for year-on-year growth.

 

Then over the weekend, China’s farcical “data” entered the twilight zone, when 24 of 28 Chinese province-level regions reported GDP that was higher than the national figure of 6.7%.

As China Radio International reports, 28 of 32 Chinese provinces, municipalities and autonomous regions have released their first-quarter GDP growth figures, with Chongqing and the Tibet Autonomous Region taking the lead.

24 of the provincial-level regions reported rates above the national figure of 6.7%, while places like Jilin found themselves at the bottom of the list with a 6.2% growth. Two other provinces in the country’s northeast, Liaoning and Heilongjiang, have not revealed their numbers yet as well as central Shanxi. 

 

The immediate spin was even more hilarious: not even stepping for second to appreciate that 85% of provinces “reported” numbers that were greater than the average, a professor Liu Yuanchun at the Renmin University of China said “the figures show the government’s stimulus policies are producing results, which signal stable growth.”

Actually, what the figures show is that China not only continues to fabricate its data with every passing quarter, but it has gotten to the point where it no longer cares if the data makes no sense at all and the government is exposed lying with every incremental data release.

Considering China once again is desperate to recreate its massive debt-fueled capacity glut, one would think it could afford at least a handful of “data” quality control inespectors to make sure that the presented “data package” is at least modestly believable.

That said, as CRI adds, “China’s warming property market is also said to have contributed to the better-than-expected GDP numbers. An earlier survey shows that prices of new homes continued to grow in most Chinese cities, as the country is trying to rid overstock.”

That is surely the case if only for a few more months: the problem as we showed last week is that any “growth”, is incredible as it may be, is entirely on the back of a record $1 trillion in new loan injections in the first quarter.

 

And since only a portion of these funds have once again entered the economy, the rest have gone on to create the latest and greatest commodity bubble China has ever seen, one we profiled yesterday with this stunning chart showing that, according to Deutsche Bank, the onshore China commodity markets this week traded (conservatively) $350bn notional, a 17x increase on the $20bn notional that traded on Feb 1st 2016 i.e. a month ago (is it coincidence that the notional is about the same as at the peak of the equity frenzy?).

There is a problem for China: while in the past it may have avoided international mainstream media attention, this time it is being immediately called out on its numbers:  As the FT reported earlier today, “China’s total debt rose to a record 237 percent of gross domestic product in the first quarter, far above emerging-market counterparts, raising the risk of a financial crisis or a prolonged slowdown in growth, economists warn. While the absolute size of China’s debt load is a concern, more worrying is the speed at which it has accumulated — Chinese debt was only 148 percent of GDP at the end of 2007.”

And while we welcome the MSM’s focus to a topic we have been covering since 2012, we would like to make a correction: China’s total debt/GDP is not 237%, but instead as we reported back in January, was over 100% higher, or 346%. And since in the subsequent three months, China added another $1 trillion in loans or about 10% of GDP (and who knows how much corporate debt), it is safe to say that as of this moment, China’s real total debt/GDP is now well over 350% and rising exponentially fast.

So aside from rigged numbers, a commodity bubble and newly exploding debt creation, everything else is ok with China and all those fears about a Chinese hard landing that were so prevalent 4 months ago can be safely swept away…

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Authored by Mark St.Cyr,

To say central banks have intervened far too long within the financial markets would be an understatement. However, what can not be overstated is just how far down the “rabbit hole” of lunacy they are continuing to push all measures of fundamental business understandings such as, competitive advantage, governance, price discovery, viability, and a whole lot more. Not withstanding, the devastating effect these disruptions are placing upon the population’s at large that rely on these very businesses for both their own general welfare (as in employment) but also, the taxes they pay that go into general funds of all sorts whether it be local, state, federal et al.

Today, everything (and I do mean everything!) one thought they understood about free market capitalism has been thrown into the wastebasket of history and replaced with edicts and dictates set forth by an un-elected gaggle of economic theorists who’ve decided the world of business is theirs to control. How do they control it? Hint: The courage to print!

Whether you’re a solo-practitioner or CEO of a global concern one thing should be making you very, very, very (did I say very?) concerned: The recent proclamations, as well as, delivery from the ECB’s Mario Draghi.

Mario Draghi not only openly stated, but did so in a manner which many put into the “defiantly so” camp, that he has the right, the means, and wherewithal to purchase corporate debt as he see’s fit. If that doesn’t shake you down to your business core – you just aren’t paying attention.

I’m not trying to be bombastic or hyperbolic just for the fun of it. I’m absolutely stunned at just how openly brazen Mr. Draghi’s comments, as well as, retorts when asked about not only if he would, but rather, if he should intervene (e.g. purchasing) into the differing stratum of corporate bonds. I must state this again: “If that doesn’t shake you down to your business core – you just aren’t paying attention.”

So why is this of such concern some will ask. After all as the thinking will go: “Didn’t we do something similar with GM™?”

Well, yes we did – and the ramifications of that intervention are still yet to be felt. (i.e., as to how the rules of financial law play out, or applied from here on out) However, as large as GM is and the ancillary companies that were both helped, as well as, hurt by the government’s intervention. There are two distinct differences in both application as well as scale. First…

Whether you approve or disapprove of the decision, at the very least, it was made by elected officials. In other words (like it or not) people voted for those whom made the decision. It’s not a distinction without a difference. Nor, should that fact be lost. (please save the emails – this isn’t about who currently holds or, will hold the title. This is about what is, plain and simple.)

Yet, with that said it’s in the second part where concerns should manifest…

GM was in many ways an isolated event. Draghi’s proclamation of both his intention, as well as, surety turns the volume of that in both size and scale up to 11!

Let me make it clear just how brazen central banker’s are increasingly becoming as to their function and purpose when it comes to their interpretation of what their “mandate” is using Mr. Draghi’s latest words in response to the “should” idea. Ready?…

“We have a mandate to pursue price stability for the whole of the eurozone, not just Germany,” he said. “We obey the law, not the politicians.”

Ponder that statement transposing Mr. Draghi with any other central bank and you can see just how concerning this is all rapidly devolving. Today it’s Draghi. Tomorrow?

This and more is referred to as a “lament” by the WSJ™. Personally, I never thought of someone giving the middle finger while proclaiming like it or not, this is what they’re going to do as a “lament.” But that’s just me I guess.

So with this newly professed (as interpreted) “mandate” Mr. Draghi will now have the power (as by decree) of corporate life and death (via their bonds) using the business acumen and economic theory residing within that bastion of business acuity The ECB as to buy or sell corporate bonds at a pace, or rate, it has deemed “appropriate.”

And where will this new-found “purchase power” come from? Hint: A keystroke which fills a bank balance sheet with funds created ex nihilo. Am I the only one that sees an issue here?

Let me put this into more blunt terms as well as examples…

Does anyone think for a moment that the leaders of let’s say, oh I don’t know: China, are going to sit idly by as Mario Draghi decides which companies will be able to compete with an unfair advantage (such as buying their bonds) against them? China would love nothing more than to return “the finger” to their own printing presses all the while pointing out the blatant hypocrisy of the ECB’s monetary policy. Can you say Yuan devaluation? And that’s just for starters.

Mr. Draghi boldly proclaims “We obey the law, not the politicians.” Well, that may be how he currently views the dynamic. However: how many politicians from not only the Euro-zone but from across the globe will just sit back idly as their once touted symbols of free enterprise make a mad dash to reorganize their corporate structure to become headquartered in the EU as to “get a seat at the table” when Draghi begins dishing out the monetary equivalent of corporate sustenance?

If you thought corporations liked tax inversions – just wait till you see how they react to the idea of unlimited financing of their bonds! And yes, “unlimited” is accurate because as we now have proof. “whatever it takes” means just that – “whatever.”

The ECB’s latest “lament” turns everything about business dynamics onto its head. No more is it “build a better mousetrap.” Mr. Draghi is now the one deciding who will “live or die” as to build one. There’s another term for that: it’s called playing economic god.

Again, the only differentiation as to whether or not many a company will live, or perish, via their bond funding will be whether Mr. Draghi believes they should. All via a nod and a keystroke. And maybe you thought the “god” reference was a little over the top at first blush. Not so when put under this light. is it?

What an absolute debacle this will create in more ways than there is digital ink to describe it all. It’s an absolute abomination to anything related to business and free enterprise and it should be denounced boldly, firmly, and vociferously by not only politicians – but by the business community itself. For as I stated: It’s an abomination of everything once thought of as free market competition. So much so it makes the BoJ or even Krugman look fiscally responsible by comparison.

Let’s use some real world hypothetical examples. (these are meant to be overly simplistic)

Who gets to build a “better” jet engine: the better company and/or design team with limited access to funds? Or, the company whose headquarters (whether newly configured or original) is located within the ECB’s purview as to purchase their corporate debt?

How about a car company? Software company? Phone maker? Retailer? ____________(fill in the blank.)

Competitive edge? Who cares! All that will matter is whether or not your company has access to the ECB’s bond program. And if so? Bottom line inefficiencies, or product advancements be damned.

Competition? Forgettaboutit! Unless they’re on Mario’s list – there is no competition. The only competition one needs to be concerned with is whether or not the ECB has a bond ticket with your name on it. Period.

If you think this is bad, just wait – it’ll get worse. A lot worse. Why?

Do you think for one moment other central bankers are going to allow themselves to be out done via “The Full Monty?” I sincerely doubt it.

I wouldn’t be surprised if not only the BoJ, but the Fed. and others decide to reciprocate in kind and offer similar lunacy into their economic structures – soon. After all, it’s all made possible via decree and a keystroke. And what’s even more concerning?

Not only don’t they need to ask for permission. You can forget about them ever begging for forgiveness if, and when, this all blows up. As a matter of fact, if former officials give us any clue – they’ll demand you pay $250K for the privilege to hear them proclaim how they “saved the world” from economic collapse which they, more than any one else, helped facilitate.

And that alone is concerning enough.

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Dear Canadians, bad news: your money is no longer welcome with U.S. brokerages. Why? Because you are, well, Canadian.

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As Donald Trump continues his march toward the Republican presidential nomination, he is faced with the possibility that he may have to ultimately weather a brokered convention in Cleveland this July in order to finally secure it.

Connecticut, Delaware, Maryland, Pennsylvania, and Rhode Island all hold primaries on Tuesday, and all will go a long way in determining whether or not Trump can get to the magic number of 1,237 (delegates needed to win the nomination outright). The key to the Trump nomination, however, may hinge upon how he does in the state of Pennsylvania.

Pennsylvania’s GOP primary rules are such that out of the 71 delegates up for grabs, only 17 are won with the statewide election, while 54 will eventually come in the form of delegates the people elect during the primary – a so-called “loophole primary.” The key here, as Politico writes, is that the 54 delegates that are chosen (three for each of the state’s 18 congressional districts) are unbound to the state-wide winner and do not necessarily have to vote for that candidate during the convention. To add some clarity to that, during the first round of voting at the GOP convention most delegates that are awarded during primaries are bound to each candidate, and have to vote for that candidate. Some, as is the case with Pennsylvania’s 54 delegates mentioned above, can vote for any candidate they choose during the first round of voting.

The Pennsylvania ballot will have two parts, one for the presidential candidate, and one for the delegate representative (the voter in the GOP convention who will be unbound). The challenge for Donald Trump is to ensure that he’s done enough to not only convince the the people to vote for him on the top part of the ballet, but also to motivate the people to seek out and vote for the correct delegate, who in turn will support Trump at the convention.

It’s a wrench in the traditional path to the nomination to be sure, but then again why would anything be straightforward and easy enough to execute in politics.

How will Trump fare in his quest to ultimately secure the 71 crucial delegates in Pennsylvania? For that we look to an article the financial times puts forth, giving some insight as to how Pennsylvania is leaning right now, and as usual: it’s the economy stupid.

Trump’s tough rhetoric around trade deals, and how he’ll make sure America starts to “win” again resonates with many people across the state, especially rural areas where industry has all but vanished, taking jobs and standard of living with it.

Christopher Borick, a pollster at Muhlenberg College, says: “Trump’s message of returning to some past greatness is well-designed for areas that are long past their economic glory days and for voters who feel left behind.”

As the Financial Times writes…

After months of agonised wavering over production cuts, Kevin Bachman finally received word in February that he was being laid off permanently — and destined for the jobcentre where he was filling out forms on Friday last week.

 

“When I was a kid there were at least five textile mills and three shoe companies and assorted other industries in just one town. Now there’s nothing,” says Mr Bachman in Pottsville, a county seat where a shrinking population of 14,000 lives hemmed in by pine-covered mountains.

 

Mr Bachman is applying for retraining as an IT expert, but says he does
not believe in building a nation of tech gurus: “We need to make America
industrial again.”

Trump is wasting no time in addressing the situation that’s at the front of everyone’s agenda, stirring up the crowd at a rally last week.

Last week, Mr Trump was in south central Pennsylvania for a raucous rally in Harrisburg, the state capital. He decried the empty factories he had seen on the drive in from the airport and told the crowd: “Mexico has been taking your companies like it’s candy from a baby.”

 

Then there is the lobbying effort: as of Friday afternoon, the Pittsburgh Tribune-Review had reached 135 of the 162 delegate candidates on the ballot to survey them about their intentions. Many of the candidates said they would support the presidential candidate who wins the vote at the top of the ballot in their respective districts.

But, unlike in a state like Illinois, where delegates are required to vote on the first ballot for the candidate for whom they’ve declared – the Pennsylvania delegates aren’t bound at all. They can change their minds between the primary and convention, and they’ll be lobbied furiously by both sides if Trump is just shy of the majority of the delegates on the first ballot.

 

That lobbying effort is starting in the pre-election phase: Our Principles PAC, an anti-Trump super PAC, says it’s running robocalls in some Pennsylvania districts urging voters to support certain delegate candidates in order to elect delegates who won’t back Trump on the first ballot.

There is also a lot of advertising money being spent trying to win over Pennsylvania. As Politico adds reports, of the $2.7 million being spent on television and radio advertising across the five states voting on Tuesday, just under $2 million is being spent in Pennsylvania. Even more telling of how important Pennsylvania is to Trump and his campaign, the man who prides himself on not spending much in advertising is spending nearly $1.3 million in the state alone.

The ultimate result of these efforts won’t be known until the unbound delegates vote at the convention in July, but we can only imagine Trump’s response if those 54 swing to another candidate and help cause him to lose the election.

* * *

Bonus: Here is how the GOP explains the voting process works during the convention, and how even once bound delegates become unbound (i.e. free to vote for anyone) as the rounds go on until a final candidate is chosen.

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Authored by StraightLineLogic's Robert Gore via The Burning Platform blog,

After three decades of internecine war, Abdul-Aziz bin Saud, allied with the fundamentalist Wahhabist Islamic sect, consolidated the House of Saud’s dominance over Arabia in 1932 with the tacit support of regional imperial power Great Britain. The bedrock of the Saudi Arabian economy, the massive pool of oil in the Al-Hasa region along the Persian Gulf coast, was discovered in 1938 and development began in 1941. Towards the end of World War II, President Roosevelt and Abdul-Aziz reached a handshake deal that has governed relations between the two nations ever since: Saudi Arabia would guarantee the flow of oil to the US at a reasonable price; the US would protect the Saud regime.

Like so many born into wealth, the House of Saud has mistaken fortuitous circumstances for divine favor, haughtily condescending to a world that goes along with its pretensions because of its oil. Saudi Arabia is dependent for its security and armaments on the west, particularly the US. No particular skill is necessary to extract (its reserves are among the world’s shallowest and easiest to tap), transport, or export its oil. It exports most of its oil because it has little industry, although its riches have made it a financial center and funded one of the world’s most generous welfare states. Much of the actual labor is performed by immigrants. The partial diversion of oil revenues has kept the non-House of Saud population pacified.

Oil has made the House of Saud one of the wealthiest extended clans in the world. It retains this privileged position by virtue of US military and intelligence support and its relationship with the Wahhabist clerics. Essentially, the clerics give their unwavering support to the regime, and the regime faithfully executes Sharia law (and those who violate it) in accordance with the dictates of the clerics.

It is an unfortunate tendency of the silver-spoon set not to confine itself to philanthropy, collecting art and fast cars, and other harmless pursuits. They seem compelled to tell the rest of us how to live and think. The Wahhabists make the do-gooders plaguing America look benign. It may be true that some sects of Islam are peaceful and only want to live and let live, but not the Wahhabists, it’s their brand of Sunni Islam or nothing. Everyone else is an infidel, to be converted or beheaded. So rather than just building big palaces in the desert, praying five times a day, and shopping in Paris, London, New York, and Beverly Hills, Saudi silver-spooners export their Puritanical Islam and expect obsequence from the rest of the world.

The US government promised Saudi Arabia that it would remove the military bases it erected there during Gulf War I after Saddam Hussein had been vanquished from Kuwait. It did not do so. Fighting the Soviet Union in Afghanistan, Osama bid Laden, a native of Saudi Arabia from a wealthy and well-connected family, had been happy enough to accept aid from the US. His anger at the bases and the broken promise reportedly sparked the 9/11 attacks.

Fifteen of the nineteen 9/11 hijackers were Saudi Arabians. Twenty-eight classified pages of a 2002 Congressional 9/11 investigation may well show that they received assistance from members of the Saudi Arabian government and royal family. Family members of 9/11 victims have long pressed for their release, although it will not, because of the sovereign immunity doctrine, help them in their efforts to sue the Saudi government. Senate Bill 2040 would declassify the 28 pages and suspend sovereign immunity for any government found complicit in a terrorist attack that kills Americans on US soil.

The Saudis have cranked up their greasy US lobbying apparatus to stop the bill, and have threatened to dump $750 billion in US debt if it becomes law. The 28 pages should be released because it will add to what we know about 9/11, but there is no chance Senate Bill 2040 will become law. President Obama has pledged to veto the legislation if it passes, and went to Saudi Arabia last week to “reassure” its leaders. Even if it didn’t upset the apple cart of the US-Saudi Arabian alliance, it would open the door to other nations and multinational bodies suspending the US’s sovereign immunity for say, drone strikes and indiscriminate bombings that have killed innocent people, arguably terrorist acts.

Unfortunately, the 9/11 imbroglio will probably not be the catalyst for a rupture in the alliance. Further exposure of Saudi duplicity would underscore an argument SLL has repeatedly made: the Saudis play a double game with the US. They have funded al Qaeda and its offshoots, notably ISIS, and have underwritten the world-wide export of Wahhabism and its doctrines of jihad and Islamic domination. The US friendship with the Saudi regime undercuts its claim of moral exceptionalism; the regime is among the world’s most repressive. Its Sharia law outlaws homosexuality and makes women chattels. Civil liberties are nonexistent, and lashings or beheadings await those who dare to speak out against the regime.

The proper US response to the Saudi’s threat would have been the middle finger. Ever-happy-to-monetize central banks and the world’s capital markets can handle a $750 billion sale of US debt. There would be a price concession as markets soaked the Saudis, but after the sale prices would rally and there would be no permanent damage. That the US would allow itself to be threatened illustrates what happens when a confederated empire rests on borrowed money. How long can an empire last that succumbs to its creditors’ threats? (China has a lot more US government debt than Saudi Arabia.)

Mostly what the US response illustrates is what happens when you have a government run by eunuchs. A bipartisan, bought-and-paid-for coalition of chicken hawks sends in bombers, drones, special forces, and the NSA to wage lucrative, costly, bloody, doomed-to-fail, civil-liberties-destroying wars against terrorist “threats,” but sucks up to an empty-robe regime that has indoctrinated, funded, and armed al Qaeda and ISIS. What would the Saudis do with their oil if the world’s largest oil consumer bought elsewhere, especially as the low oil price bleeds Saudi Arabia’s foreign currency reserves? What would their military—which can’t take out fourth-rate Yemen—do if the world’s number one arms supplier refused to sell to it? What would their corrupt and tyrannical alliance of mosque and state do if the US denounced the corruption and tyranny? What leverage would the Saudi’s have after they sold their $750 billion in debt?

Take away Saudi Arabia’s oil and all that’s left are a couple of Islamic shrines and a lot of sand and hot air. Nothing so captures the testicularly-challenged US government and its leader’s relationship to that den of thieves as the photograph at the top of the page.

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As BofA’s Michael Harnett reminds us, on Thursday, April 28th, the US equity “bull market” becomes second longest ever. Next Thursday the current bull market will be 2607 days old, exceeding the bull market of June 1949 to August 1956 by one day; the longest bull market ever was October 1990 to March 2000 (3452 days). The following chart shows the evolution of the three Great Bull Markets.

 

Here are three point from Hartnett for those curious what may come next.

The Path from No. 2 to No. 1

• First, the last years of the longest ever equity bull market (i.e. the late-90s) were marked by cross-asset volatility and a bubble; that remains a plausible risk scenario.

• Second, this bull market is trading more like the mid-50s bull market which slowly exhausted itself and then reversed for a year or two as the investment cycle moved to “overheating” in 1956-57 and then brief “recession” in 1956-57. Note how asset markets have struggled to produce upside since the era of excess liquidity came to an end and/or illustrates how low expected returns of bills, bonds, equities, and indeed all risk assets have become thanks to “financial repression”. The total return from a portfolio of equities, bonds, commodities, cash split percentage-wise 50/35/10/5 from the secular lows of 2009 to the end of QE3 in October 2014 of an investment of $100 would have grown to $198. Since the end of QE3 the same portfolio would have fallen 3.4% to a value of $192. Note this also shows a diminishing “wealth effect” for the economy, another reason to be long Main Street, short Wall Street.

• Third, another factor behind the fatigue is earnings, which as the following chart shows, have also faded in recent quarters (even excluding the energy sector). Our shift in recent years from “raging bull” to “sitting bull” to “volatility bull” reflects low probability of the Higher EPS & Lower Rates in coming quarters.

 

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Fake goods, fake economic growth, fake trade, fake cities, fake human rights, fake country. Real debt.

The global trade in counterfeit goods accounts for 2.5 percent of the world’s imports and is worth almost half a trillion euro, according to a report from the OECD and EUIPO. US, Italian and French brands suffer the most from the lucrative global trade in knockoffs. The report analyzed customs seizures around the world between 2011 and 2013, finding that China accounted for the most fake goods of any nation by some distance.

You will find more statistics at Statista

h/t The BurningPlatform

 

So everything's fake about China! Except this! Real Debt!

 

And that bubble is bursting.

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Submitted by Jeffrey Snider via Alhambra Investment Partners,

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Forget the G-20 agreement on no “competitive devaluations” – the full court press on the Bank of Japan to engage in the next round of aggressive currency devaluation is on, just three months after Kuroda unveiled Japan’s first negative interest rate.

Recall that it was Goldman who not only brought forward its forecast for a first rate hike from July to April and first suggested earlier this week that it is time for the Bank of Japan to forget about caution and to more than double its purchases of equities in the form of ETFs (and which the BOJ already owns a majority of all available securities) as doing either more NIRP and more QE may no longer have a favorable outcome:

… we think the BOJ is most likely to ease mainly via the qualitative measure, with increasing ETF purchasing the central pillar, with a view to improving business confidence. We think the market is already factoring in an increase in annual purchasing from ¥3.3 tn to ¥5-6 tn, and we thus think the BOJ may look to slightly more than double its current figure to around ¥7 tn.

This pushed both the USDJPY and the S&P off their overnight lows when it was first floated in the early morning of April 20.

Then, on Friday, the Yen had its biggest one day surge since the announcement of the expanded QQE in October 2014 when Bloomberg reported of the latest BOJ trial balloon whereby “the Bank of Japan may consider helping banks lend by offering a negative rate on some loans, according to people familiar with talks at the BOJ.” This happened just as the net spec short position in the USDJPY hit record short, forcing yet another massive squeeze in the currency which soared higher by nearly 300 pips in one day.

 

Which brings us to today, when in its latest attempt to throw everything at the wall and hope something sticks, Goldman Sachs’ FX team – whose trading recommendations in the past 6 months have been an unmitigated disaster – is predicting that the $/JPY will “move higher again in the near term and continue to forecast $/JPY at 130 a year from now.”

Why does Goldman expect a collapse in the Yen by nearly 20 big figures? 

Because as analysts Sylvia Ardagna and Robin Brooks note, “the BoJ faces an important challenge: it needs to reaffirm that the monetary easing arrow of Abenomics is still on course, or the market will price that the central bank is backtracking from the 2% inflation goal. This could be extremely disruptive for the Japanese economy. Using markets jargon, the BoJ is already so long into ‘the reflationary trade’ that it has to continue to deliver further accommodation for the time being.”

In other words, having committed to a terminal expansion of its balance sheet, it is far too late for Kuroda to backtrack, especially since the recent massive growth in its balance sheet has actually led to a just as massive capital outflow from Japan, as investors have been rapidly pulling out funds from Japan afraid that the BOJ will be the first central bank to lose all control. Goldman is basically saying that the Bank of Japan has no way out.

 

Indeed, since the launch of NIRP, the Bank of Japan has indeed effectively lost control, manifesting by the inverse reaction of the Yen to Japan’s launch of NIRP. This is Goldman’s take:

“Since the Bank of Japan introduced negative interest rates at the end of January, $/JPY has appreciated 8%. While part of this $/JPY strength has been triggered by a repricing of the Federal Reserve’s pace of hikes, the performance of the cross also reflects an increasing conviction among investors that the Bank of Japan has run out of ammunition and that its 2% inflation target will never be met. We in the FX Strategy team disagree with this line of argument, and in this FX Views we discuss our expectations for the outcome of the upcoming BoJ meeting, the monetary and fiscal policy mix that we expect to be implemented in Japan before the Summer, and why we believe the policy outlook is supportive of our strong conviction that $/JPY will move higher in coming months.”

 

As Exhibit 1 shows, the $/JPY appreciation since the end of January has been accompanied by a widening of the JPY-USD inflation differential. At the same time, spot inflation has decelerated and core CPI is at 0%. In a recent interview with the Wall Street Journal, Governor Kuroda emphasized that the BoJ remains committed to winning the battle against deflation, but that the recent broad-based JPY strength poses a material risk for the inflation dynamics[1]. A more dovish Fed that is also concerned about USD appreciation does not help to break this negative loop.

 

However, unlike its economist team, Goldman’s FX team is confident that the BOJ will revert to doing what it has been doing – and failing at – since 2013: massively expanding its balance sheet, nevermind concerns voiced both here years ago and by the IMF more recently, that the central bank is running out of willing sellers for government securities.

In the FX team, we think that the emphasis could be placed much more squarely on balance sheet expansion than on interest rates policy, in sympathy with the ECB in March. Investors are now justifiably asking whether shorting the currency or going long the Nikkei offers a better risk-reward going into the BoJ’s meeting if the focus is going to be on further balance sheet expansion and more ETF purchases. Our short answer is that we like both trades as, in coming months, we could see a replay of trends observed when QQE was first started.

Or just because it didn’t work for the first three years, and the Nikkei recently dipped to a level as if the BOJ’s QE expansion never actually happened, doesn’t mean doing even more won’t work. We can only imagine that Goldman has been talking to Krugman.

Indeed, for Goldman it is all about no longer doing what doesn’t push the market higher, namely more NIRP, and sticking with what has benefited Japan’s stocks, i.e., more monetization: “as the BoJ delivers more stimulus via QQE, asset prices should respond, as in the past, to an increasingly expansionary monetary policy stance. We expect $/JPY to move higher again in the near term and continue to forecast $/JPY at 130 a year from now.”

 

Furthermore, the BOJ will have one additional factor going in its favor: the recent devastating earthquakes, which will allow the Finance Ministry to unveil an extra budget. This means more bonds for the BOJ to monetize which directly leads to a lower Yen and a higher Nikkei. It appears that destructive  earthquakes are indeed a Keynesian’s best friend. To wit:

Our strong conviction on the currency is also linked to the broader policy mix we expect to be implemented in Japan before the Summer. To boost economic activity ahead of the July elections, Prime Minister Abe is likely to announce a fiscal expansion (between 1% and 2% of GDP). Moreover, following the recent earthquakes, there could be scope for increasing the size of the package. However, unlike at the beginning of its mandate, we in the FX team do not expect the government to announce a future fiscal contraction to offset the initial expansion (this is what happened in 2013, when the VAT tax increase was legislated to prevent concerns on debt sustainability and the BoJ independence).

In other words, as we suggested last week in “We Aren’t Thinking About It At All”, Or How Kuroda Just Assured That Helicopter Money Is Coming To Japan, the BOG is indeed making an overture to becoming the first central bank to openly embrace helicopter money.

This time, a larger deficit-to-GDP ratio could be more openly funded by a further expansion of the QQE program via purchases of long-dated JGBs. Negative bond yields across the maturity structure also make the fiscal expansion much less costly. The larger the fiscal expansion, the larger the amount of JGB purchases, and the longer the JGB maturities the Finance Ministry will issue and the BoJ will buy, increasing the probability of higher inflation, lower real rates and a weaker currency.

 

To Goldman what is about to be unveiled by Japan is an episode of fiscal and monetary policy “coordination”, which should lead to higher break-even inflation, lower real rates and a weaker currency. This would be the first baby step toward helicopter money, a move which according to Goldman is now justified for the following reasons:

• First, the Japanese economy is in a liquidity trap with nominal interest rates negative up to 10-year maturities. So, all else equal, a fiscal expansion should not generate higher nominal interest rates and a stronger currency, crowding out investment and exports.
• Second, the fiscal expansion would not occur in isolation, but would take place together with further monetary expansion. The BoJ would continue to support JGB prices, control yields along the term structure and prevent an increase in fiscal risk premia by purchasing larger quantities of short- and long-dated bonds.
• Third, by making the fiscal expansion permanent and funded through money creation (a politically correct phrase for a form of ‘helicopter money’), expectations of future inflation should increase and real rates fall, not just because of the further increase in the monetary base, but mainly because a more open coordination of the fiscal and monetary authority would make it explicit that policy makers are willing to monetize part of the debt and any fiscal expansion announced by the government.

Goldman’s conclusion:

In a nutshell, it is the view of the writers that one or a series of permanent fiscal expansions accommodated by expansions and/or an extension of duration of JGB purchases by the BoJ could be a pretty strong policy mix that could help to boost inflation expectations, as it should become increasingly clear that monetary and fiscal policy independence remains an institutional feature de jure, but less so de facto. And, once started, the government could also continue to announce monetary financed expansionary fiscal policies, at least until inflation reaches the new target.

 

In the same Wall Street Journal interview cited above, Governor Kuroda strongly defended the independence of monetary and fiscal policy (and ruled out the use of ‘helicopter money’ and the risk of fiscal dominance), but he also acknowledged that the “monetary authority and the fiscal authorities can cooperate and coordinate their policies, and quite effectively’’. A more open coordination could move market expectations.

 

As our Japan economist Naohiko Baba wrote in “Fiscal discipline at a critical juncture with three-dimensional monetary easing” the fiscal and monetary policy mix could turn out to be similar to that implemented in the 1930s during the Takahashi administration. The outcome could even be an overshooting of the BoJ’s 2% inflation target.

 

It is striking that markets are not pricing this scenario at all. On the contrary, markets still doubt Prime Minister Abe and BoJ Governor Kuroda’s commitment to reflate the Japanese economy. We in the FX strategy team do not.

Yes, because the Goldman FX team’s track record has been so immaculate in the past year, and has been right in FX even as the market has been repeatedly wrong…

Sarcasm aside, it will be extremely interested to see the market’s reaction to this proposal for the BOJ to unleash helicopter money will be the response in Japanese yields, which are already trading at record low yields. If yields plunge even further into negative territory, then Goldman’s entire thesis that Helicopter money will be seen as reflationary will be thrown out of the window as the entire nation will scramble into the “safety” of Japanese paper, which now will be monetized by the BOJ will complete and utter abandon.

On the other hand, should yields spike, it may be even worse for Japan: after all with BOJ holdings rapidly approaching half of all marketable securities, there is absolutely no liquidity in the BOJ market, and should a sharp reversal take place there is an all too real risk the entire JGB market may go bidless unveiling the “endgame” scenario predicted by former IMF chief economist Olivier Blanchard just two weeks ago.

Of course, the most likely outcome here is that Goldman’s FX team will simply be dead wrong as has been the consistent case for months, and while Japan may indeed unveil helicopter money as soon as this week (after all Kuroda is known best for succumbing to peer pressure when it comes to monetary policy) the result may be not only a further plunge in JGB yields, but a surge in the Yen.

If that is indeed the outcome, then the first test of the monetary helicopter will be a crash on take off, which in turn will mean that the last play left in the central bankers’ playbook is dead on arrival. We eagerly look forward to finding out what “tools” they will have left after such an epic failure.

via http://ift.tt/23T5VKK Tyler Durden