Tag: finance

Submitted by Simon Black via SovereignMan.com,

I’ll start with a confession.

Based on the returns I’ve just prepared for 2015, my tax bill for the year amounts to exactly $0.00.

In fact, for the second year in a row, I legitimately owe zero tax. And I’m damn proud of that.

(And no, it’s not from any illegal tricks. I’ll explain how I did it later.)

Not a shred of my efforts goes to help finance bombs, wars, debt, and utterly useless waste.

April is the month where hundreds of millions of people all over the world, including the United States and Canada, file their annual tax returns.

And it raises an important question: what are you really paying for?

Occasionally I hear from friends in very high-tax places (like Norway) who tell me that they enjoy paying taxes, or at least, that they don’t mind very much.

And this may be true in a few countries where people feel like they’re receiving benefits like healthcare, education, a well-funded pension, etc.

But what tangible benefits do you receive in exchange for your federal tax dollars in the Land of the Free?

You pay for a hopelessly unfunded Social Security program that’s tantamount to a Ponzi scheme.

Even by the government’s own numbers, Social Security has no chance of existing, at least in its present form, by the time most taxpayers reach the age of eligibility.

So you’ll pay for your entire working life into a program that won’t be there for you. I’d hardly call this a benefit.

Aside from bankrupt entitlement programs like Social Security and Medicare, taxpayers also fund plenty of bombs and war.

Military spending is the next biggest line item in the US federal budget at roughly $600 billion, though it often balloons far beyond that figure through clever accounting tricks.

If you’re ready to jump to the conclusion that being a major superpower requires a massive military budget, I won’t bother arguing.

But I hope we can agree that it makes sense to spend funds wisely.

As it turns out, this isn’t happening. In 2013 the US Defense Department got caught blatantly cooking the books in order to conceal epic levels of fraud, waste, and incompetence to the tune of trillions of dollars.

This absurd level of waste is very much the case across all of government, whether it was the infamous $2 billion spent on the Obamacare website, or the $856,000 spent to train mountain lions to run on treadmills, or the $1 billion the military spent to destroy $16 billion worth of perfectly good ammunition.

After military spending, the next budget item is INTEREST on the DEBT.

According to the Treasury Department’s Bureau of Public Debt, last year the government spent over $400 billion on interest!

Again, this is hardly a benefit.

Of course, people always point to things like roads and think this is somehow a benefit of paying taxes.

Maybe so. But the Highway Trust Fund that is supposed to build and maintain the roads is flat broke, due to be insolvent in less than 60 days.

So much for the roads.

It’s also easy for some people to think that, if we all pitched in a bit more and paid more tax, these huge fiscal imbalances would be eliminated.

What total nonsense. The institution of government has an uninterrupted track record of wasting taxpayer funds.

If everyone paid more tax, they’d simply find creative ways to waste more money.

Just look at the data: nearly every year the government’s tax revenue goes UP. And yet, so does federal spending!

If you look at the big picture, it’s clear that, at best, you are writing a check that goes into a fiscal black hole.

More realistically, your funds are being squandered on waste and war. It’s pathetic.

And this problem isn’t resolved by having everyone pay more.

If you really want to do something about it, the best method is to starve the beast.

And that’s a big part of being a Sovereign Man: taking legal steps to legitimately reduce what you owe.

Note: this has nothing to do with the ‘Sovereign Citizen’ movement that advocates not paying tax by simply ceasing to file a tax return.

Even if you feel legally and morally right about not filing a tax return, never forget that taxes in the Land of the Free are collected at the point of a gun.

So if you don’t file, you could easily wind up wearing a Day-Glo orange jumpsuit in a Federal Prison Camp. It’s not worth it.

There are dozens if not hundreds of perfectly legitimate ways to reduce what you owe.

For example, anyone can set up and maximize retirement contributions to an IRA or 401(k), thus reducing what you owe in taxes.

In my case, because I live abroad, the Foreign Earned Income Exclusion and Foreign Housing Exclusion have helped reduce my own tax bill down to zero.

The best part is that I get to choose how to spend my own money.

Last year I used my tax savings to help a wounded veteran who had been abandoned by the federal government.

He lost his leg on patrol in Afghanistan, but the government wouldn’t pay for the experimental surgery he needed to start walking again. I was able to help.

I’m already looking for the next person I can help with this year’s tax savings.

The standard narrative we are told by the government and their lapdog media is that tax avoidance is something that self-centered rich assholes do so that they can buy more Ferraris.

This is complete propaganda.

Taking legal steps to reduce what you owe is all about ensuring that your labor goes to the causes that YOU believe in, rather than funding spy agencies and bombing raids on children’s hospitals.

This sense of independence is what being a Sovereign Man is all about.

via http://ift.tt/1SxcWbF Tyler Durden

On Friday, courtesy of a Deutsche Bank report laughably titled Helicopter Money 101, we showed how to trade the coming helicopter money paradrop that will be provided by central banks in the very near future. When asking the question of who would be the first to try it, one of the first central banks that comes to mind (both Deutsche’s and ours) would be the Bank of Japan. To date, the BoJ has tried everything in order to increase inflation (or simply to generate any, for that matter), and boost their economy. Everything that is, except for helicopter money (giving money directly to the government or citizens and bypassing all current institutions acting as middle men). 

Yesterday according to Bloomberg, BoJ governor Haruhiko Kuroda said that he isn’t thinking about using so-called helicopter money, and that the notion contradicts the law.

“In advanced nations nowadays, fiscal policy is determined by the government and the parliament while monetary policy is decided by the central bank, which is separate from government and parliament,” Kuroda told lawmakers in the Japanese Diet. “Deciding and implementing these things together would contradict the current legal framework. So unless the existing legal framework changes, helicopter money isn’t possible, and we at the Bank of Japan aren’t thinking about it at all.“

If you read the end of that carefully, you’ll want to revisit our article on how to trade the coming helicopter money (here). First, we’ll start with the fact that Deutsche Bank already has an answer on how to work around the “current legal framework”, and it’s called simply getting the legislature’s approval. Something tells us that given all of the insane things he has been doing to date, Shinzo Abe can conjure up enough support to tweak the current laws in order to allow the BoJ to directly fund the government – in order to “stimulate” the economy of course.

The fact that Kuroda fell back on this weakest argument against helicopter money instead of saying something like “oh, it’s absolute lunacy and only Krugman-following idiots who want hyperinflation would attempt it“, was all the tell we needed.

The DB table in question:

 

That, or simply use Japan’s increasingly more disastrous earthquakes as a signal from god that the BOJ has a carte blanche to shower its long-suffering (and mostly old) people with money.

Secondly, and perhaps this is more of the dead giveaway that helicopter money is just around the corner for Japan, is that whenever Kuroda flatly denies that something is not going to happen, it virtually assures its passage in the immediate future. Just recall what happened back in January when he told everyone that NIRP wasn’t on the table… one week before he unleashed NIRP.

January 21:

And January 28:

Bottom line, the question isn’t if the BoJ will be the first central bank to implement helicopter money, the question is when.

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Submitted by Mike Krieger via Liberty Blitzkrieg blog,

Public opposition to the sovereignty killing corporate giveaway marketed as a free trade deal known as the Trans Pacific Partnership (TPP) has become so widespread that all the leading candidates for the U.S. Presidency are publicly against it. Specifically, Donald Trump and Bernie Sanders are virulently opposed, while Hillary Clinton is pretending to be against it in order to harvest votes.

 

Essentially, the more time the American public has to learn about this scam, the more they are against it. Which is precisely why the Obama administration wants to push it through as quickly as possible.

 

– From the post: Obama to Push Passage of TPP Trade Deal Despite Rising Public Opposition

One of the key themes here at Liberty Blitzkrieg over the past year or so, has been to highlight the fact that the plethora of “free trade” deals (TPP, TTIP and TISA) being promoted by the global robber barons in power are nothing more than fascist corporate handouts (links at the end). Calling them “free trade” deals is purely for PR, and primarily serves as a means for marketing these scams to the ignorant masses.

Fortunately, I have some good news to share. The public is not as ignorant as it used to be. There’s a massive awakening happening, and it’s sweeping these United States as well as Europe.

As Reuters reports in the article, Survey Shows Plunging Public Support for TTIP in U.S. and Germany:

Support for the transatlantic trade deal known as TTIP has fallen sharply in Germany and the United States, a survey showed on Thursday, days before Chancellor Angela Merkel and President Barack Obama meet to try to breathe new life into the pact.

 

The survey, conducted by YouGov for the Bertelsmann Foundation, showed that only 17 percent of Germans believe the Transatlantic Trade and Investment Partnership is a good thing, down from 55 percent two years ago.

 

In the United States, only 18 percent support the deal compared to 53 percent in 2014. Nearly half of U.S. respondents said they did not know enough about the agreement to voice an opinion.

Those are absolutely incredible numbers, and can only really be explained by low information voters becoming educated. It reminds me of something I pointed out in last year’s post, As the Senate Prepares to Vote on “Fast Track,” Here’s a Quick Primer on the Dangers of the TPP:

Mr. McConnell could repeat the exercise with a different package, but the delay would add to the risk that the legislation stalls until after Memorial Day recess. That could weigh on the bill’s overall chances, since opponents are generating grassroots opposition across the country.

 

That just says it all doesn’t it? They need to pass it before the public has a chance to learn about it and oppose it. Typical Washington D.C. bullshit.

The writing was already on the wall a year ago, which is why politicians were scrambling to pass TPP fast track as quickly as possible, which, of course, they did.

So the good news is the public is clearly waking up. What’s a bit depressing is that it’s taken so many decades. Yes, decades.

As I was just entering my teenage years back in 1992, a quirky, billionaire named Ross Perot launched what remains the most successful third-party presidential bid of my lifetime. His core issue was opposition to the one-sided “trade” deal known as NAFTA, which he said would ruin the country.

Watch the video below. He predicted everything that was to come in the decades ahead.

 

Are we done being fooled? I sure hope so.

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For those who believe that broad-based stimulus is coming to save the world from China (via RRR cuts or even pure QE) – as opposed to the hole-filling credit pump they just supported – think again. As we warned last year, this is ‘western’ thinking as the go to policy of the rest of the world’s central banks has been – put on pants, print money, paper over cracks, proclaim victory. However, in China there is one big problem with this… stoking inflation… and most crucially the social unrest concerns when suddenly a nation of newly minted equity – and now bond – losers can no longer afford their pork – which is surging to record highs.

Amid slowing global production…as GlobalMeatNews.com reports,

According the latest pork outlook report from the USDA, the global production of pig meat is forecast to drop by 1% to 109.3 million tonnes (mt) in comparison to last year.

 

This, according to Stephen Howarth, market intelligence manager at UK levy board AHDB Pork, is around 2% lower than estimates from October 2015 on the production of pork internationally.

 

The slight decline in global pork production is largely the fault of several challenges facing the world’s largest pig meat producer, China. It’s economy has cooled and is now only growing at a rate of about 7% annually – causing widespread panic in global stock markets. But pressures on the profitability of domestic production, coupled with complex issues on environmental regulation, have caused China to ease off on its pork business.

The usually seasonally slow first quarter is seeing prices surge…

 

To recod highs for both retail…

 

and wholesale…

 

Pork’s “overly sensitive” role in CPI has also been felt this year, one anlyst noted, and broad-based China CPI is starting to creep up..

 

So a slowing Chinese supply – which in the new normal demands policy stimulus – is causing priecs to surge – which extinguishes hopes of policy stimulus.

Therefore, as SocGen warned, fiscal policy has to step up, and monetary policy is likely to play an assisting role by providing targeted liquidity. It seems that the focus at the moment is on the indirect channels of policy bank funding support to infrastructure investment… and even that is now slowing after a record trillion dollar pump in Q1.

In other words, do not expect some broad based liquidity infusion (RRR cuts or QE) – policy reaction, just as we have seen in the stock market manipulation, will be piecemeal and focused

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Submitted by Thad Beversdorf via FirstRebuttal.com,

When people stop trusting a market they stop using that market.  Trust is at near 20 year lows.  The conundrum is that as volumes decline it becomes ever easier for price insensitive participants to manipulate the market only furthering the distrust.  This first three charts depict the deterioration of volumes and capital outflows in the face of a ‘7 year bull’.  A hard to explain phenomenon.

Raw Price to Monthly Volume:

And the capital outflows….

Now I heard Rick Santelli yesterday discuss whether the market can continue its run to new all time highs.  And with the obvious caveat of completely accepting that the fundamentals no longer have any correlation or relevance whatsoever to the market then yes, Santelli believes the market can reach all new highs.  On what, one may reasonably ask?  Well “kinetic energy”, he says, otherwise known as ‘Animal Spirits’ on Wall Street.

But it’s not so much kinetic energy that is levitating this market devoid of any supportive fundamentals, it is the fact that volumes are thin enough and technology has progressed enough that it has become entirely viable for existing policy champions (NY Fed/Citadel algos) to halt even drastic downward momentum runs and then for corporate treasury departments to grind the markets higher through record buybacks.  What we have left is a market of price insensitive participants i.e. corporate treasury departments and the Fed’s cronies (who incidentally make a fortune enacting the manipulation on behalf of the Fed).

Now I know that the last few remaining true believers, because I’ve talked to several, will suggest this explanation is just fancy talk.  But I ask you to look at the above charts and explain to me how else a market runs higher for 7 years in the face of the capital and volume exodus that has taken place?  Further explain who is stepping in on a 10% or 15% falling knife each time when the market has record short positions on and thus should profit handsomely from a continued (fundamentally sound) price reset?

We can continue to believe the hype but I expect most, and just about everyone I speak to privately, believes the efficient market is dead today just as sound banking died in 1999. And when guys like Santelli start talking about kinetic energy being the driving force behind all new highs, well you better start looking for a place to hide, it’s about to get ugly.  These April cheers are about to bring us some gut-wrenching  May tears.

I’ve said it a thousand times, you can bend but cannot break natural laws.  And while technology and lack of broad participation in the markets can facilitate a bending of the natural laws at some point the fundamentals will release that grim swan upon the world.   And so if you are still buying into the idea that the worst is over and we are now bound for the next 7 year bull, let me give you something to think about as you lay in bed tonight.

Here’s a look at the S&P 500: Jan – April 19, 2016 (top panel) vs Jan to May 19, 2008 (bottom panel).

You can see they are almost identical and you can imagine the pundits had very similar sound bites in April 2008, purporting that all the worst was finally behind us.  But there were a few that, despite the big spring 2008 rally, were giving words of caution.  Here is a short clip of Marc Faber on CNBC, May 19, 2008:

And how did the S&P 500 perform over the 10 months following that interview and the big spring rally of 2008?  It lost 52% of its value.

 

In other words, you are here…

 

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Where we are… and where we’re going?

 

 

If the 70s play out again, it implies a 6-fold gain for gold and 9-fold surge for Silver.

 

h/t Nick Laird at Sharelynx.com

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For some people, such as the Horseman Global hedge fund which has been net short since 2012, fighting the Fed can be profitable (even if March was a different story). For others, it is become a nightmare. One such person is Crispin Odey who has – so far – had a truly terrible year.

Recall it was Odey who last February predicted that the “shorting opportunity is as great as 2007-2009”,  when he said that “we used all our monetary firepower to avoid the first downturn in 2007-09, so we are really at a dangerous point to try to counter the effects of a slowing China, falling commodities and EM incomes, and the ultimate First World effects. This is the heart of the message. If economic activity far from picks up, but falters, then there will be a painful round of debt default.”

He continued:

We have seen though some strange things, with economics 101 turned on its head. We’ve seen that falling prices produce more supply, as the biggest producers see that they can take market share and use the opportunity by reducing average costs through excess production. We’ve seen that in the oil, minerals and iron ore industries. We have also seen in the last couple of years that as bond yields fall, governments are able to issue more debt.

 

But this time round the problem we have as well is that politics will start to rear its head and we are left to deal with politicians who are increasingly critical of the capitalist system’s ability to allocate capital and provide for society. For me the shorting opportunity looks as great as it was in 07/09, if only because people are still looking at what is happening and believe that each event is an individual, isolated event. Whether it’s the oil price fall or the Swiss franc move, they’re seen as exceptions.

His bearish strategy worked in 2015… in 2016 not so much.

One month ago, we updated on his performance when we noted something startling:  after starting off the year with a P&L bang, things quickly turned sour and Odey by mid-March Odey was suffering daily AUM swings of more than 5%.  The billionaire was stunned, and used the famous line that “this was no longer an investment market but a battlefield.”

Markets need equilibrium to prosper. When the authorities have a problem, markets have a problem. We have been hurt by this rally in China-related companies, and indeed we reduced the gross and net positioning of the fund significantly in mid-March, to help reduce the short term volatility of the fund, but we remain convinced that China is in many ways in an even greater bind over policy than the developed world. By mid-March the fund was rising and falling by over 5% per day. At which point this was no longer an investment market but a battlefield. On the day that Draghi came out with his massive market support operation, the stock markets rose 2.5% and then closed down 1.5% on their lows. Imagine how painful it was to see the markets bounce the next day and celebrate his success. At that point I reduced the short book by a third and the long book by 10%.

It was not enough, and as the FT reports today, what until now was merely a terrible start to the year has turned absolutely brutal for Odey’s European fund, which is now down nearly a third, or 31%, in the first four months of the year, wiping out almost half a decade of trading profits in his flagship hedge fund in less than four months. His more popular EOC MAC Macro Fund did not do much better, and plunged a whopping 24.4% in the month, one of its worst monthly performances in history, pushing the YTD total to -26.8% which is shaping up to be the worst year for Odey since its inception year of 1994.

 

According to the FT, the value of the €729m Odey European Fund has now fallen 31.1 per cent to the middle of April, dragging it back to its lowest level since January 2012. His large bets against currencies and equities have gone awry, making his stockpicking fund one of the worst performers among large vehicles this year.

Odey’s story is well known to Zero Hedge regulars. “Mr Odey, who has been among the most prominent British financiers to back the country voting to leave the EU, has held strongly bearish views on emerging markets and China for more than a year.” And following the massive coordinated reflation attempt by not just the Fed but all central banks, Odey has learned the hard way what it means to fight not just the Fed but all central banks.

What, however, makes the loss especially painful is that as Odey’s latest March letter (below) explains, he is spot on. The only problem as noted previously, is that he picked the absolutely worst time to fight not one but all central banks.

Then again, he remains optimistic and as he concludes his letter, he believes that he will have the last laugh over the rotting carcases of central banks:

Losses in the banking sector at this point in the cycle are really bad news because banks are already suffering from weakening margins. They need rights issues to deal with these losses, but why should anyone subscribe to a rights issue when zero interest rates promise no let up to a fall in profits? The only way that banks could become attractive to underwriters of the shares are if profits are rising and the only way that profits can rise is if their loan book gets repriced. Yes, only higher interest rates would make banks attractive, but higher interest rates would bring on the recession that has been kept at bay by QE and zero interest rates. Less QE and more QED.

 

QE does however have an important effect. It drives all savings to embrace higher yielding assets globally. Life insurance companies and pension funds push more money into faraway places. However if the credit transmission is not there to support increased activity, QE is merely encouraging misdirected investment. Recovery rates from EM destinations are more in the teens that the twenty percents. Is this good signalling by central banks? Remember it was Keynes, the architect of their think-ing, who said, “It is good for people to travel, goods to travel but not for savings to travel.” The disconnect between travelling and arriving may be coming home to roost. It will make the retreat from Moscow appear painless.

Good luck!

* * *

From his manager’s report.

QE came out of Fisher’s work on business cycles in 1935. For him what created the depression was the cycle of over-indebtedness allied to overcapacity, which ensured that when prices declined, loans could only be repaid by assets being sold off. The debt paid back made the debt still owing that much more expensive, because in a deflationary age, zero interest rates still meant that money remained too costly.

 

QE involved lowering interest rates from nearly 5% to almost zero very quickly, taking over the weaker financial intermediaries – AIG, Washington Mutual in the USA and, in the UK, Northern Rock, Lloyds and RBS – so that assets did not have to be sold and the debt deflationary cycle did not have its pernicious way. Central banks in a world of QE have become obsessive of where they perceive the ‘risk premium’ to be too high. Where interest rates payable by industries or by banks are seen as too high, central banks intervene and buy the bonds and in the process grow their own balance sheets.

 

The idea behind all of this is that by keeping interest rates low, slowly the economies of the world can recover and that hopefully this recovery would not be led, as it had for the 20 years before 2008, by debt that grew faster than incomes.

 

Newspapers are still full of central bank promises that interest rates can go negative and that if the worst comes to the worst, money could be helicoptered into the  economy; a method that would involve increased government expenditure financed by the printing press. Quite apart from the practicality of charging individuals negative rates on their positive balances, there is a growing body of people believing that QE and zero interest rates have already done as much as they can.

 

For, by the nature of QE and zero rates, central banks put themselves in competition with the clearing banks. They are eating the same food. Banks make their money in two ways. Maturity transformation and credit spread. However in a world of per-sistent low rates, assets (loans) will reprice downwards following liabilities (deposits) that reprice more quickly. Net interest margins will fall and in the absence of costs falling, so do profits. Secondly, central banks buy sovereign bonds and then later corporate bonds, driving down yields and again driving down the profitability of investing in these assets by banks.

 

In a world of QE and low interest rates, banks become increasingly unprofitable which may lead them to become that much more reckless in pursuit of higher yields to expand into subprime, auto loans, leveraged loans and credit cards. It certainly does not encourage them to lend naturally. Without lending and credit however, economies will find it, as Japan has shown since 1996, difficult to grow. They can only grow as fast as productivity will allow. Factor outputs rising faster than factor inputs.

 

However a side effect of zero interest rates is that companies that would have gone to the wall, remain and help to keep compe-tition intense. Profit margins suffer. Equally, in the USA, low interest rates have served to encourage quoted corporate Ameri-ca to buy back shares with debt rather than invest. Why invest when competition is driving down prices, when buying back shares helps management to realise profits on their share options? So now zero rates are leading to weak investment spending.

 

For the first time, productivity globally has fallen either to zero or even below that. This tells a story of misallocated capital – again very likely in a world of zero rates – but more tellingly it reflects that now, where there has been overinvestment, and here China is the worst culprit, that overcapacity is leading industries – oil, iron ore, steel, coal, shipping – to sell their goods and services at prices below cost. These losses have to be financed in some way and in the end these bad debts end up with the banks.

 

However losses in the banking sector at this point in the cycle are really bad news because banks are already suffering from weakening margins. They need rights issues to deal with these losses, but why should anyone subscribe to a rights issue when zero interest rates promise no let up to a fall in profits? The only way that banks could become attractive to underwriters of the shares are if profits are rising and the only way that profits can rise is if their loan book gets repriced. Yes, only higher interest rates would make banks attractive, but higher interest rates would bring on the recession that has been kept at bay by QE and zero interest rates. Less QE and more QED.

 

QE does however have an important effect. It drives all savings to embrace higher yielding assets globally. Life insurance companies and pension funds push more money into faraway places. However if the credit transmission is not there to support increased activity, QE is merely encouraging misdirected investment. Recovery rates from EM destinations are more in the teens that the twenty percents. Is this good signalling by central banks? Remember it was Keynes, the architect of their think-ing, who said, “It is good for people to travel, goods to travel but not for savings to travel.” The disconnect between travelling and arriving may be coming home to roost. It will make the retreat from Moscow appear painless.

* * *

Finally, here is what Odey disclosed are his top 10 holdings in OEI Mac.

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Coming off a year in which Wall Street experienced the lowest average bonus since 2012, it now has to brace itself for new regulation on incentive compensation. One of the last pieces of Dodd-Frank to be written and implemented, regulators are looking to firm up the rules surrounding incentive pay for banks. The final regulation, once agreed upon, will not just apply to banks, it will also apply to investment advisers, broker dealers, credit unions, and executives at mortgage finance companies Fannie Mae and Freddie Mac according to the Wall Street Journal.

Six agencies have joint responsibility for rewriting the original government plan on Wall Street pay: FDIC, the OCC, the NCUA, the Federal Reserve, the SEC, and the Federal Housing Finance Agency. The National Credit Union Administration plans to meet today to unveil their latest proposal, with the rest of the regulators expected to follow shortly thereafter.

At the heart of the NCUA proposal are three main components: Bonus deferrals, Bonus clawbacks, and Risk Management and Controls. These are all slightly different for each level, defined by total assets of the firm.

Here are the three levels, according to the NCUA proposal

• Level 1: Greater than or equal to $250 billion
• Level 2: Greater than or equal to $50 billion and less than $250 billion
• Level 3: Greater than or equal to $1 billion and less than $50 billion

Below is a quick summary of the key takeaways from each component.

Bonus Deferrals

The key takeaway here is that for Level 1 firms, 60% of a senior executive’s qualifying incentive-based compensation and 50% of a significant risk-taker’s qualifying incentive-based compensation would have to be deferred for at least four years.

Clawbacks

The proposed rule would require clawback provisions that, at a minimum, allow the covered institution to recover incentive-based compensation from a current or former senior executive officer or significant risk-taker for seven years following the date on which such compensation vests, if the covered institution determines that the employee engaged in misconduct that resulted in significant financial or reputational harm.

Risk Management and Controls

Under the proposal, all Level 1 and Level 2 institutions would have to create and implement risk management frameworks and internal controls around incentive based compensation programs. These controls would ensure that incentive based compensation plans are monitored and that the plans appropriately balance risk and reward, as well as ensuring the compliance of the incentive based compensation programs with the institution’s policies and procedures. [ZH: SOX 2.0].

Anyone who wishes to actually read the NCUA’s 278 page proposal in its entirety can do so here.

While we understand the motive behind such policies, the reality of the situation is that instead of incentive based pay, executives and managers will just begin to require (and receive) higher base salaries, as they did after the financial crisis when . This will inevitably put the government in a difficult situation, as the narrative thus far has been that it doesn’t want to dictate how much someone can get paid, it just wants to ensure that risk taking will be closely tied to incentive compensation.

As a reminder, here is a chart showing total and average Wall Street bonus over the years.

 

* * *

Here is a CNBC clip on the topic

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Submitted by Lance Roberts via RealInvestmentAdvice.com,

Market Cycles And Expected Outcomes

The “Visual Capitalist” website had a terrific market diagram explain the “best time to buy stocks.”

“Is it possible to time the market cycle to capture big gains?

 

Like many controversial topics in investing, there is no real professional consensus on market timing. Academics claim that it’s not possible, while traders and chartists swear by the idea.

 

The following infographic explains the four important phases of market trends, based on the methodology of the famous stock market authority Richard Wyckoff.

 

The theory is: the better an investor can identify these phases of the market cycle, the more profits can be made on the ride upwards of a buying opportunity.”

So, the question to answer, obviously, is:

“Where are we now?”

I’m glad you asked.

Let’s take a look at the past two full-market cycles, using Wyckoff’s methodology, as compared to the current post-financial-crisis half-cycle. While actual market cycles will not exactly replicate the chart above, you can clearly see the Wyckoff’s theory in action.

1992-2003

The accumulation phase, following the 1991 recessionary environment was evident as it preceded the “internet trading boom” and rise of the “dot.com” bubble from 1995-1999.

The distribution phase became evident in early-2000 as stocks began to struggle as Enron and WorldCom because poster children for “greed and excess” of the preceding bull market frenzy. It is worth remembering that during this phase the media and Wall Street were touting the continuation of the bull market indefinitely into the future. (Jim Cramer published his list of 10 Tech Companies for the next decade.)

Then, the decline.

2003-2009

Following the “dot.com” crash investors had all learned their lessons about the value of managing risk in portfolios, not chasing returns and focusing on capital preservation as the core for long-term investing.

Okay. Not really.

It took about 27 minutes for investors to completely forget about the previous pain of the bear market and jump headlong back into the creation of the next bubble leading to the “financial crisis.” 

Once again, during the distribution phase of the market, analysts, media, Wall Street and now a rise of bloggers, all touted “this time was different,” “green shoots,” “Goldilocks economy,” and “no recession in sight.” 

They were disastrously wrong.

2009-Present

More than 7-years into the current economic recovery the headlines ring of “no recession in sight,” “the bull market is still cheap” and “this time is different because of Central Banking.”

Need I say more.

Bounces Do Not Imply Ends

Secondly, these bounces are simply normal restocking cycles as inventories are drawn down during protracted declines in activity. Furthermore, as with all economic data, nothing travels in a straight line either up or down.

However, in particular, the recent bounce in manufacturing data was a clear anomaly caused by the extremely warm winter weather. This could be seen in the recent slate of data points from the Fed Philadelphia Region as shown below:

• February: -2.8
• March: 12.4
• April: -1.6

The weakness in the manufacturing data will likely reassert itself as the seasonal cycle realigns with the seasonal adjustments.

However, if we compare the Economic Output Cycle Index (EOCI) above to both GDP and the Leading Economic Indicator Index, we see a clearer picture of what is currently happening in the economy.

Not surprisingly, the EOCI has bottomed coincident with Central Bank interventions which drag forward future consumption. Unfortunately, when you “drag forward” future consumption today, you leave a “void” in the future that must be filled.

That future “void” continues to expand each time activity is dragged forward until, inevitably, it can not be filled. This is currently being witnessed in the overall data trends which are being reflected in the deterioration in corporate earnings and revenues.

While the media continues to “protest too much,” the reality is that earnings and revenue are a  direct reflection of real economic activity.

The only question is whether Central Banks can continue to support asset prices long enough for the economic cycle to catch up.

Historically, such is a feat that has never been accomplished.

via http://ift.tt/1MLgOqj Tyler Durden