Tag: finance

Last Thursday, in a speech delivered at the University of Utah, Mitt Romney blindsided Donald Trump in what amounted to a scathing indictment of the billionaire’s ability to lead the country.

“If we Republicans choose Donald Trump as our nominee, the prospects for a safe and prosperous future are greatly diminished,” Romney said, in an apparent effort to play party elder. “If Donald Trump’s plans were ever implemented, the country would sink into prolonged recession,” Romney continues, hitting Trump on the economy. “A few examples. His proposed 35 percent tariff-like penalties would instigate a trade war and that would raise prices for consumers, kill our export jobs and lead entrepreneurs and businesses of all stripes to flee America.” 

We covered the story exhaustively, and for those who would enjoya review of the verbal melee, see here, here, and here.

More important than what Romney said (after all, it’s not as though he’s the first person to essentially call Trump a demagogic lunatic who has no business being President) was what his speech represented: all-out panic on the part of the GOP establishment. 

This is it folks. Trump is on the verge of winning the nomination and although most still think he can’t beat Hillary, the national election is a wildcard. If Trump can go from laughingstock to presumed GOP nominee in nine months, there’s no reason to think he can’t ride the populist wave all the way to White House.

With diplomats the world over voicing their concern, and with America’s reputation on the line (of course we can debate about what’s left of that reputation after Bush and Obama) heavyweights from across America’s political aristocracy and business community are scrambling to figure out how to derail Trump’s momentum. In short, the Michael Bloomberg deus ex machina isn’t coming and Joe Biden isn’t likely to ride into the race in a red Camaro and save the day either, so what now?

That question, apparently, was on the agenda at the American Enterprise Institute’s annual World Forum, a secretive affair held on Sea Island, Georgia.

(the scene)

“The main topic at the closed-to-the-press confab? How to stop Republican front-runner Donald Trump,” Huff Post writes. Here’s a list of attendees:

• Apple CEO Tim Cook,
• Google co-founder Larry Page,
• Napster creator and Facebook investor Sean Parker,
• Tesla Motors and SpaceX honcho Elon Musk  
• Senate Majority Leader Mitch McConnell (R-Ky.),
• political guru Karl Rove,
• House Speaker Paul Ryan,
• GOP Sens. Tom Cotton (Ark.), Cory Gardner (Colo.), Tim Scott (S.C.), Rob Portman (Ohio) and Ben Sasse (Neb.),
• Energy and Commerce Committee Chair Fred Upton (Mich.),
• Rep. Kevin Brady (Texas)  
• Kevin McCarthy (Calif.),
• Cathy McMorris Rodgers (Wash.),
• Budget Committee Chairman Tom Price (R-Ga.),
• Financial Services Committee Chairman Jeb Hensarling (Texas)
• Diane Black (Tenn.)

“A specter was haunting the World Forum–the specter of Donald Trump,” the Weekly Standard founder Bill Kristol wrote in an emailed report from the conference, borrowing the opening lines of the Communist Manifesto. “There was much unhappiness about his emergence, a good deal of talk, some of it insightful and thoughtful, about why he’s done so well, and many expressions of hope that he would be defeated.”

Heading to AEI World Forum. Lots of interesting guests. It’s off the record, so please do consider my tweets from there off the record!

— Bill Kristol (@BillKristol) March 3, 2016

Predictably Karl Rove, GOP mastermind, gave a presentation outlining what he says are Trump’s weaknesses. Voters would have a hard time seeing him as “presidential,” Rove said. Which we suppose is why they are turning out in droves to vote for him.

In any event, this underscores how serious the situation is. America is apparently facing an identity crisis wherein the country’s elected representatives as well as the business community feel a sense of paternalistic duty to keep the public from making “a mistake” at the ballot box. 

But they don’t seem to understand that that plays right into Trump’s hands.

It’s “the establishment” trying to bend the will of the electorate.

It’s “entrenched business interests” aligning with bought-and-paid-for politicians to stand in the way of a populist revolution.

And on, and on, and on. The soundbites are unlimited for Trump. 

Now, he can say that a billionaire who refuses to unlock an iPhone to aid in the fight against terrorism on American soil, the House Speaker, Elon Musk, and none other than Karl Rove himself are secretly commiserating on an island at a lavish, neocon-hosted conference to stop America from exercising their right to choose the next President!

It would be difficult to craft a better narrative to tell working class Americans if you tried. 

Long story short, if the establishment and the business community keep focusing on how to subvert democracy rather than on how to craft a message that resonates with voters, they are going to end up handing the keys to The White House to Trump on a silver platter.

Which we suppose is just how he likes to be handed his keys.

Only the platter would preferably be gold.

via Zero Hedge http://ift.tt/1QJhVmk Tyler Durden

Submitted by David Stockman via Contra Corner blog,

The casino is incorrigible. After a monumental short squeeze that has lifted the averages right into the jaws of danger, Goldman Sachs has the temerity to print the following:

“Our model suggests SPX calls are more attractive than at any time over the past 20 years”. 

There must have been a mullets’ breeding frenzy awhile back because it’s hard to fathom how Goldman has any real customers left. Then again, its current preposterous call is just indicative of the horrible threat heading menacingly toward what remains of main street’s 401k investments.

To wit, the Fed and other central banks have thoroughly falsified financial market prices and destroyed all of the ordinary mechanisms of financial discipline. Foremost among these are short sellers and a meaningfully positive cost of carry trades.

Markets are therefore unhinged from any connection to fundamental economic and financial reality, meaning that they are capable of an extended period of spasmodic deadcat bounces that will have only one end result.

Namely, the naïve and desperate among main street investors who still, unaccountably, frequent the casino will presently be taken out back and shot yet another time. The market technicians are pleased to call this “distribution”. Would that someone on Wall Street man-up and amend the phrase to read ” distribution…….of losses to the mullets” and be done with the charade.

The S&P 500 is heading through 1300 from above long before it ever again penetrates from below its old May 2015 high of 2130. And now that 97% of Q4 results are in, there is a single number that proves the case.

Reported LTM profits as of year-end 2015 stood at just $86.46 per S&P 500 share. That particular number is a flat-out bull killer. At a plausible PE multiple of 15X, it does indeed imply 1300 on the S&P 500 index.

It also represents an 18% decline from peak S&P 500 reported earnings of $106 per share back in September 2014. And more importantly, it means that the robo-machines and hedge fund gamblers have traded the market back up to 23.1X earnings.

That’s off the charts…….except for when recession has already arrived unannounced by the hockey stick factories of Wall Street.

But here’s the thing with respect to the scarlet 23.1X numerals now painted on the casino’s front entrance. It comes at a time when the so-called historical average PE ratios are way too high for present realities. That is, in a world sliding into a prolonged deflationary decline, capitalization rates should be falling into the sub-basement of history.

Why? Because current earnings are worth far less than normal owing to the prospect that renewed earnings growth anytime soon is lodged somewhere between zero and none.

So when capitalization rates should be plunging the casino has them soaring, while pretending its all awesome on the earnings front. In a nearby post, Lance Roberts puts the story in devastating historical context.

For the third time this century, corporate earnings are already in free fall, yet the Wall Street hockey sticks are still pointing archly to the upper right of the chart.

Yet this time the backstory is even sketchier. When reported S&P 500 earnings peaked at $84.92 per share in June 2007 (LTM basis), they had grown at a 6.8% annualized rate since the prior peak of about $54/share in Q3 2000. By contrast, at the reported $86.46 level for the LTM period ending in Q4 2015, the implied 8-year growth rate is…….well, nothing at all unless you prefer two digit precision. In that case, the CAGR is 0.22%.

That’s right. Based on the kind of real corporate earnings that CEOs and CFOs must certify on penalty of jail time, profits are now barely above the June 2007 level, and are once again heading down the slippery slope traced twice already during this era of central bank bubble finance.

Yes, the sell side stock peddlers will tell you that notwithstanding the fact that Uncle Sam spends upwards of $1 billion per year pursuing accounting malefactors, these GAAP profits are to be ignored because they are chock-a-block with non-recurring items.

Well, yes they are. As an excellent recent Wall Street Journal investigation showed, the Wall Street version of ex-items earnings came in for 2015 at $1.040 trillion for the S&P 500. But that was 32% higher than actual GAAP earnings of $787 billion!

Supposedly, the $253 billion difference indicated for 2015 in the chart above dudn’t amount to nothin’ when it comes to valuing stocks. After all, what do the principal non-recurring items——asset write-offs, plant shutdowns, store closing costs, goodwill reductions, restructuring charges and stock options costs——have to do with Wall Street’s authoritative EPS hockey sticks?

The latter always and everywhere trend from the lower left to the upper right of the charts. And that’s because, apparently, by the lights of Wall Street central banks always have your back.

That’s what might otherwise be called an ambush. The trillions of speculator dollars crowded into trades of this type throughout the global financial markets will never get through the narrow door of liquidity that remains in the casinos. The dotcom and the post-Lehman meltdowns were only the rehearsal.

via Zero Hedge http://ift.tt/24OCUxA Tyler Durden

Any time a Fed president, governor or chairman trots out the trite cliche that the Fed is “apolitical” we can’t help but laugh for one simple reason: not only is the Fed not apolitical, but is very closely ideologically tied with whichever party promotes deficit spending which by definition is inflationary: more deficits mean more debt, means more opportunity for the Fed to show off its “inflation” creating skills; and in a Keynesian world, a stable 2% inflation is the lubricant that drives and stabilizes the financial system – the Fed’s true mandate. There is a reason why central bankers call deflation a “monster” which must be slayed, as per Haruhiko “Peter Pan” Kuroda.

However, it is one thing to note the obvious, it is different to have proof that Fed members have a clear ideological bias. Thanks to recent Fed appointee Lael Brainard, we have just that.

According to Bloomberg, recent Treasury staffer and current Fed Governor Lael Brainard gave $750 in three contributions to Clinton’s campaign between November and January, according to Federal Election Commission records.

For those unfamiliar, some background: Brainard, an Obama administration appointee to a top Treasury post before she joined the the Fed, has strong family ties to Clinton. Her husband, Kurt Campbell, was formerly a top adviser to the former secretary of state, serving as assistant secretary for east Asian and Pacific affairs.

She received the Alexander Hamilton Award for her service at the Treasury. She joined the Fed in June 2014 and has a term that runs until 2026. Lately, as global markets reeled over uncertainties about growth in Asia and emerging markets, her insights into how those events could effect U.S. growth have raised her profile in monetary-policy debates. She’s recently argued for caution on the timing of interest-rate increases in the face of headwinds from abroad.

In other words, she is most likely the one who created the Fed’s “China mandate” – the one which prohibits a rate hikes when one of China’s myriad of asset bubbles is bursting, or on a downtick in the Yuan.

And while Fed officials sometimes identify with either major political party, as Bloomberg correctly notes, “donations to a presidential candidate by a senior policy maker are unusual, particularly at a time when the central bank is trying to guard its independence from politics. The Fed’s authority has been criticized during the campaign, and both Democratic and Republican lawmakers have questioned decisions about regulation and monetary policy.”

And here is the republican soundbite for when the Trump campaign shifts to important things like the Fed:

At a time when Federal Reserve officials are making the case that monetary policy needs to be non-partisan and independent, a sitting governor has given money to Hillary Clinton.

Hardly a glowing endorsement for the apoliticalness, or for that matter intelligence, of the Fed and as Bloomberg’s Craig Torres writes, Brainard’s donations “could provide fuel for Republican narratives about the proximity of the Fed and the board to the Obama administration,” said Sarah Binder, a senior fellow at the Brookings Institution who is writing a book about politics and the central bank.

Some more on the “optics” of Brainard’s inexplicable act:

No other Fed governor has donated to a presidential candidate in this election cycle, according to a search of federal records. Michelle Smith, a Fed spokeswoman, said board members do not engage in partisan political activities, but, like all executive branch employees, may vote and may make campaign contributions under federal guidelines.“

If there is an issue here, it is one of optics,” Binder said. “It is a question of where governors want to draw their own lines and how they want to be perceived.”

House Republicans are trying to get the Fed to abide by policy rules. Last year, they passed the Federal Reserve Oversight Reform and Modernization Act. The bill, which Fed Chair Janet Yellen opposed and hasn’t proceeded into law, would require the Fed to describe their policy rule to Congress, and it would be subject to review by the Government Accountability Office.

Political donations by a sitting Fed governor are not without precedent. Alice Rivlin, who was appointed to the Fed board by former President Bill Clinton and served as vice chairman from 1996 to 1999, donated $500 in 1998 to the Democratic National Committee, FEC records show.

via Zero Hedge http://ift.tt/1TI40mF Tyler Durden

The last 14 months have seen the biggest slump in small business confidence since the financial crisis. Despite being told about how great the recovery is by authorities, at 92.9, NFIB's optimism index has collapsed to its lowest in 2 years with weakness across the board – from hiring plans to capex spending to real sales expectation. There are two 'people' to blame for this according to NFIB's chief economist – The Fed ("dithering") and Obama ("disinclined to act favorably to small business.")

Not what The Fed wants…

The datas was ugly across the board, extending recent ugliness (despite equity market's recent exuberance):

As NFIB Chief Economist William Dunkelberg explains,

Political uncertainty remains a major concern and the President does not seem inclined to act favorably on any small business owner’s major concerns.

 

Fed policy communications are very disconcerting, giving an impression that the economy is weak. Too much monthly dithering.

 

All of this generates uncertainty, the enemy of spending and hiring behavior that would move the economy forward at a faster pace.

Charts: Bloomberg

via Zero Hedge http://ift.tt/1UQ38vq Tyler Durden

With the McClellan Oscillator screaming overbought (most since the post-Lehman hope bounce)…

The two best-performing indices in the last 3 week’s yuuge short-squeeze bounce are also at extreme overbought levels.

Trannies are as overbought as they were at the peak in Nov 2014 (after Bullard’s QE4 bounce)…

And Small Caps are as overbought as they were at their peak in June 2015.

While today’s weakness is too early to call it, “Most Shorted” stocks have not been hit in 24 hours.

via Zero Hedge http://ift.tt/1Ys1tw7 Tyler Durden

Submitted by Pater Tenebrarum via Acting-Man.com,

A Serious Contender with a Plan

Donald Trump has obviously become a serious contender for the Republican nomination (in spite of the fact that he has suffered a slight setback on Saturday). He has morphed from a “joke” that the pundits were absolutely sure “would soon flame out” to the leader of the pack. Funny enough, the only candidate who still might have a chance to catch up to him is Ted Cruz – whom the Republican establishment reportedly doesn’t really like all that much either.

And he’s a gift for cartoonists too!

We have given Trump’s success some thought, and have realized that in spite of his low-brow delivery (some journalists have e.g. pointed out that he employs a rather limited vocabulary in his speeches), his seeming inconsistencies and his rudeness, his campaign has probably been planned very well from the beginning. He is definitely not the bumbler many of his critics think (or thought) he is. He actually has a strategy, and so far it has worked very well. It’s like a very well-executed business plan, getting the most bang for the buck.

The current delegate count of the Republican contenders. War party candidate Rubio seems to have no chance anymore – Ted Cruz is Trump’s only remaining competition.

Readers may e.g. recall the first Republican TV debate: he was the only candidate who initially refused to “take the pledge” (namely, to support whoever was going to win the nomination). In retrospect, it seems to have been a well calculated step. Trump has probably known from the beginning that his appeal would primarily consist of one thing: the fact that he is not them. By “them” we mean the establishment, which has completely lost touch with the base (this also explains why Cruz is turning out to be Trump’s sole competition: many apparently see him as a non-establishment guy as well, but he is a professional politician). Later of course, he decided to be pragmatic about it – the message he wanted to send, he had already gotten out.

Trump is holding up his signed pledge very carefully, as if it were one of the poisoned pages in Umberto Eco’s Name of the Rose…

As Stefan Molineux correctly noted a while back, you have to have loved something in order to hate it with a real passion. Many traditional Republican voters have been happy to see the party take control of both houses and then looked on in dismay as its representatives did none of the things their voters expected of them. Their tough talk was all bluster (yes, bluster is not only a specialty of Mr. Trump). They were putting on a great show, only to cave to the Obama administration on nearly every issue. Many of the serfs have only just discovered that it is not really a “two party system”. In reality there is just one party: the welfare/warfare party.

This has recently been confirmed beyond doubt when several prominent neo-conservatives announced that in the event of a Trump-Clinton race, they would rather vote for war-harpy Hillary. It’s as though they finally admitted openly that whatever they are, they are certainly not “conservatives”. Well, duh – they never were. If it were possible to reanimate Leon Trotsky, they’d switch their allegiance to him. How are members of the Republican base receiving such news? Does anyone think they will jump for joy upon hearing that allegedly conservative leading lights would pick Hillary over Trump? It’s free advertising for The Donald!

If it comes to this… who should “conservatives” pick? As an aside: we persoally think Trump would stand a much better chance against Hillary Clinton than Ted Cruz.

We recently watched an episode of John Oliver’s comedy show on Donald Trump. Apart from the punch-line, which we thought a bit weak (the joke about Trump’s name), Oliver makes many valid (and amusing) points. Yes, Trump seemingly says whatever pops into his head. He harasses his critics quite mercilessly (and effectively). And yes, he often tells quite brazen fibs. And yet, none of this seems to pose a problem for him. When he’s caught, he simply keeps saying whatever he said, as if nothing had happened! He’s like a fun house mirror in that sense. After all, nearly all politicians are lying, usually as soon as they open their mouths. The difference is only that he’s not even trying to cover it up. He just doesn’t give a f*** – and his fans appear to love him for it.

Panicked Cronies

Cronydom is in total panic by now, which is truly a great joy to watch. As to why assorted neo-conservatives would go as far as voting for Ms. Clinton, one can turn to the always dependable Justin Raimondo for a good summary:

“The neocons hate Trump because his foreign policy is the exact opposite of their imperialist delusions. He wants to withdraw US troops from Europe . He wants to do the same in the Pacific theater . He demands that these countries start paying for their own defense. This is treason as far as the neocons are concerned.

 

Both Rubio and Cruz are attacking Trump for his declaration that he would be       “evenhanded ” when it comes to resolving the Israeli-Palestinian conflict. The neoconservative orthodoxy that insists on unconditional support for Israeli actions, no matter how vicious and cruel — and in spite of how inimical it is to American interests – is being successfully challenged by Trump. What has everyone surprised is that evangelical voters, who were supposed to be in Cruz’s camp, have been won over by Trump – and this in spite of his supposedly “anti-Israel” stance.

 

The neocons especially hate Trump’s declared intention to get along with Putin. They despise the Russian leader because he’s been critical of American hegemonism, driven the thieving oligarchs out of his country, and prevented the US-sponsored regime-change campaign in Syria from succeeding. Trump welcomes the Russian attacks on ISIS, disdains the Syrian rebels so dear to Rubio’s heart, and challenges the idea that overthrowing “bad guys” like Assad, Libya’s Gaddafi, and Saddam Hussein has led to anything other than the growth of terrorism. The “Emergency Committee for Israel” ran an ad attacking Trump over this issue, but the result was very odd: if you look at it , you’ll see that any ordinary American is going to agree with Trump and not the neocons.  Indeed, the ad probably helped Trump – that’s how blind the neocons are to the unpopularity of their warmongering.

 

What really horrifies them, however, is Trump’s sharp critique of the Iraq war, which he calls “a complete disaster,” and his condemnation of George W. Bush’s legacy. He dared not only to question the dogma that “Bush kept us safe,” but he also targeted the neocons who surrounded him:

 

“They lied. They said there were weapons of mass destruction and there were none. And they knew there were none. There were no weapons of mass destruction.”

This is why the neocons are determined to destroy Trump.”

(emphasis in original)

Incidentally, Ted Cruz is reportedly also considered “suspect” on foreign policy grounds (but that is really just for show – he’s firmly in the Deep State’s pocket). A truly great moment in this “Trump vs. his own party” show came last week, when Mitt Romney decided to climb into the ring. He didn’t disappoint. Here is a clip showing excerpts of his version of “anyone but Trump”:

Romney on “why Trump shouldn’t be our nominee”

We especially liked the small pause after he summarizes Trump’s career as a businessman by asserting “a business genius he is not”. The pause was presumably meant to encourage listeners to fill in the blank with “contrary to me!”

To this one needs to first consider what Mr. Romney had to say about Donald Trump when the latter endorsed his candidacy in 2012. Not only is Romney evidently a backstabber with no honor (at a minimum, he should have held his tongue in view of his eager embrace of Trump’s support in 2012), here is his what he said then, verbatim:

“Donald Trump has shown an extraordinary ability to understand how our economy works, to create jobs for the American people, He’s done it here in Nevada. He’s done it across the country. He understands that our economy is facing threats from abroad. He’s one of the few people who stood up and said China has been cheating. They’ve taken jobs from Americans. They haven’t played fair. We have to have a president who will stand up to cheaters.”

We gather that just like Ms. Clinton was for the Iraq war before she was against it, Mr. Romney was in favor of a trade war with China before he was against it (leaving aside that Trump’s ideas on trade, while popular, really are an economic fallacy).

Malicious gossip has it that Mittens is actually trying to position himself for another run at the nomination in 2016…or somewhere around there, anyway.

Next one needs to consider Mish’s “The Pot Calling the Kettle Black”, which inter alia contains numerous links to further comments on Romney’s outburst. The most interesting of these has been provided by David Stockman, who presents a brief, but quite damning, overview of Mr. Romney’s business career. It reveals Romney to be a quintessential monetary inflation profiteer and crony socialist. The story of Bain Capital’s sham “takeover” of Italy’s state-owned Yellow Pages business (which Mr. Stockman fittingly refers to as “The Italian Job”) is especially noteworthy:

“Bain and some partners bought Italy’s yellow pages monopoly from the Italian government to help gussy-up its budget results when it was seeking admission to the eurozone. This was essentially a “rent-a-balance-sheet” scam—–so when Italy was safely in the eurozone a few years later, and after Romney had attended a single meeting and Bain had done essentially nothing to improve the Yellow Page operations, the government bought back the shares for 22X what Romney and his Wall Street buddies had originally paid. Since Bain had ponied up only $17 million for its piece of the LBO equity, its $375 million profit resulted in a pretty fulsome payday. As I described in the Newsweek article.

 

“In November 1997 Bain Capital pulled off a veritable capitalist heist in the socialist redoubts of the Italian Yellow Pages. On a $17 million investment in the Italian phone book, it took out a profit of $375 million. This was not only a 22-bagger; for Mitt Romney, it was the ultimate in no-sweat riches. According to the company’s CEO, Romney’s sole involvement was a cameo appearance during a due-diligence session: “He came into the room, asked a couple of very sharp questions immediately, shook hands and left.” Twenty-eight months later, in February 2000, Romney’s former colleagues at Bain located him during his tour of duty in Salt Lake City, where they wired his share of the winnings: a reputed $50 million.

 

Bain and a syndicate of private-equity houses were originally brought in as a stalking horse to validate the government’s “privatization” machinations. At the time, the key Italian Treasury official was one Mario Draghi (now president of the European Central Bank). His assignment was to get the nation’s huge deficit down to a Maastricht Treaty–compliant 3 percent, and he elected to do so by means of a rent-a-balance-sheet ploy of the type then in favor. The short story is that Bain and the other investors paid 5X the company’s operating income for their shares, and were paid 100X operating income to leave when local circumstances obviated the need for the rental deal. That preposterous multiple expansion accounted for virtually all of Bain’s 22-bagger.”

 

Yep, pure crony capitalism, and one of the world great monetary frauds, Mario Draghi, got in some practice rounds during the process.

(emphasis added)

So apparently Romney cashed $50 million personally for merely showing up in a room and shaking a few hands – one of which, surprise, surprise, belonged to the future inflation-spewing Dragon. Nice business if you can get it. Now you know why other polician-bureaucrats such as Tim Geithner or Ben Bernanke have been so keen on joining large hedge funds and private equity operations. Being a crony close to the central bank “free money” spigot is really worth it!

Here is a man happy with all the free advertising he’s getting….

As the Doplimad blog has wisely recognized, Romney’s attempt to derail Trump has probably solidified the latter’s support further. It’s like yet another free ad. What is interesting in this context is that the author of the Diplomad is actually a Republican who likes Romney in principle, and as far as we can tell is generally not averse to military interventionism either. He nevertheless articulates quite well what we believe many Republican voters feel:

“Big mistake by the “stop Trump” forces. Wheeling out Romney to dump on Trump was an error on par with the Pope’s getting involved .

 

[…]

 

[…] I have jumped off the fence. I have landed in Trump’s farm. He is not perfect, far from it. I might even change my mind, but for now I support Trump.

 

I don’t know if Trump will be terrible; I do know that what we have right now is horrible beyond words. I can’t bear the thought of a Hillary presidency. I know, I know. I have seen the advice about letting the Dems have the White House, and the GOP will hold the Congress, and thus freeze Hillary in place. Don’t buy it. We have seen what has happened over the past few years when the Dems did not have the Congress; we have seen the enormous damage that a progressive President can do even without Congressional approval. In addition, we have seen that the GOP members of the Washington Cartel refuse to fight Obama on what counts. So, I don’t want another Democratic White House. For now, I’ll go with Donald Trump.

(emphasis added)

This effect is still widely underestimated: quite a few of Trump’s supporters are actually not necessarily on board with everything he says; they are well aware of his many flaws. And yet, their view of the political establishment and the latter’s reaction to Trump is causing them to overlook his drawbacks.

As we mentioned above, Trump likely always knew that his biggest attraction would be his outsider status. Let us not forget, at one point over the past two years, Congress had an approval rating of just 9%. In one survey, even insect pests, traffic jams and colonoscopies enjoyed a better reputation. Congress barely managed to edge out deadly debilitating maladies in terms of popularity.

Unexpected consequences …

The Make-Believe World of Politicial Elites

Lastly, we want to point readers to an article a friend recently mailed to us, entitled “How Tyrannies Implode”. The article discusses the downfall of communist dictatorships in the late 1980s and brings it into context with the woes recently experienced by Europe’s political elites. The author is a conservative as well – at the time the article was written, he may not have realized yet that the very same applies to Washington’s political elites, including the GOP establishment. Here are a few pertinent excerpts:

“[T]he USSR’s vital signs gave no warning of failure. The Soviet Union in 1986 was as as big and populous as it had ever been. It had thousands of nuclear warheads.  Its economy was bad it’s true but no worse than at many points in its past. There was no significant opposition to the Politburo.

 

[…]

 

In his book Private Truth, Public Lies , social scientist Timur Kuran argued that people, under pressure to conform by culture leaders, often told public lies to get the pollsters and thought police off their backs, even as they nurtured largely undetected private resentments  inside them. Over time, two divergent perceptions would emerge: the public lie would determine how the regime thought about itself while the private truth contained the real, but hidden data.

 

These two contradictory perceptions can coexist for as long as they don’t meet, living in a kind of superposition much like Schrodinger’s Cat.  But eventually some event occurs which makes the public aware of the private truth which is really what everybody is thinking.  That observation collapses the political wave function and causes all hell to break loose.

 

[…]

 

It’s becoming evident that the European elites failed to understand how explosive the migrant issue was until it detonated full in their face. Now it is in the midst of a crisis which could literally bring down the European Union.  Why didn’t they see it coming?  Because they believed their own Narrative, even when they should have suspected it was a lie of their own making. If the PC Western elites are overtaken by a cascade similar to that which collapsed the Soviet Union, the ultimate irony will be that the very migrants which they had counted on to create the Curley Effect will turn out to be the engine of their own destruction.

 

They will have been hoisted on their own petard, or perhaps, more accurately, sentenced by their own Narrative.  The most dangerous lie is the one which you tell others, then wind up believing yourself.  For many years the Western political elites not only espoused the “public lie”, but made certain that anyone who refused to repeat it was pilloried by the thought police. Like the Soviets, they thought this solved the problem.  But it only ensured that the spring would be wound — and wound past the breaking point — precisely where they could not see it strain.”

(emphasis added)

Nicolae Ceau?escu and his wife Elena, at the former’s last public speech on December 21, 1989. He tried to win the comrades over one last time by promising to raise minimum wages by 200 Lei (a promise he made up on the fly), but it was too late for such niceties to stem the tide – things were about to really boil over.

We think this explains the success of Mr. Trump and the quite impressive showing of Bernie Sanders in the Democratic primaries quite well. It also explains why the political elites have been so singularly incapable of denting Trump’s bid, in spite of having the crony-class with its nigh endless monetary resources, as well as the entirety of the corporate media at their beck and call. They are all confusing their own carefully nurtured narratives with reality.

Conclusion

Everything Trump is saying and doing should probably be seen in the context of his strategy. It’s quite Machiavellian actually. The alleged lack of discernible policy stances, the occasional contradictions and often hair-raising statements are all in pursuit of the same goal: to win the nomination. As Bill Bonner has correctly pointed out: “Trump doesn’t think deeply. But he thinks big. He’s not afraid of appearing to be an idiot. He’s not afraid of complications or setbacks, either. His brain focuses on the fight… the negotiation. There are no win-wins in Donald’s world, only win-lose. And he aims to be on the winning side.”.

The country’s social mood is apparently ripe and it finally seems actually possible for a perceived outsider to win by challenging the established order. Our main regret is that it wasn’t yet ripe at the time Ron Paul tried his hand at winning the nomination.

Other than that, we mainly enjoy the growing discomfort of assorted cronies and professional politicians. As far as we are concerned “politician” is a job that shouldn’t even exist. These people should have real jobs serving consumers in the marketplace instead of trying to rule others. The mere fact that people actually want to do the latter is in our opinion indicative of a mental illness (maybe they’re all just unwittingly crying out for treatment). We realize that there are occasional exceptions to the rule, idealists who erroneously believe that they can change the system from within – and we are glad they do exist, because they may at least hamper the inexorable growth of government.

Many observers see Trump’s bluster, his often crude and insulting demeanor and his at times outrageous statements as a reason to invoke apocalyptic visions if he should become president. We wonder why anyone would expect him to be worse than his competition. Once again we turn to Bill Bonner, who recently remarked to this:

“[M]aking preposterous and outrageous proposals hardly disqualifies you for the White House. Some of our “best” presidents – at least, according to historians and the public – were those who did the looniest things… things that were completely at odds with the Constitution, the spirit of liberty, and their own policy goals.

 

[…]

 

[Martin Wolf] says that if Donald Trump wins the White House, it “would be a global disaster.” How does he know that? Would it be less of a global disaster if Marco Rubio, Ted Cruz, or Hillary Clinton were elected? Fortunately, Mr. Wolf is wrong about everything. […] If it is Mr. Trump who gets the crown, we have no real reason to think he will be a more benighted and misbegotten ruler than any of the others.”

Whatever happens will happen – we are in the meantime resolved to sit back and thoroughly enjoy the show. As we noted before, it’s great entertainment – what more can one hope for?

via Zero Hedge http://ift.tt/1Ys1qAr Tyler Durden

Over the past week we have been following a disturbing development in the US Treasury market: while the repo rate on the 10Y has been sliding deep into negative territory for a while, on Friday it finally hit the “fails charge” of -3.00%, suggesting there is a massive shortage of Treasury paper as a result of wholesale shorting by various market participants.

Back then we explained the move as follows: “[as of this moment] the repo rate can’t go any lower, and any demands to cover Treasury shorts are met with “Delivery Failure” notices. For those who are unfamiliar,  a “Delivery Failure”occurs when one party fails to deliver a U.S. Treasury security, Agency Debt or Agency MBS to another party by the date previously agreed by the parties (Sifma has more). It also means that there is an unprecedented (and based on the historical data, record) amount of shorts who would rather pay the fails charge than to cover their positions on the delivery demand, or alternatively, there is simply not enough Treasurys in the private market that are not locked up in short positions. Finally, this means that the panicked scramble by various entities, including central banks, to short US Treasurys continues unabated.”

Over the weekend Bloomberg picked up on this with a note titled “The Treasury Market’s Big Short Is in 10-Year Notes, Repos Show” in which it reiterated as much:

Demand is so great for benchmark 10-year Treasuries in the $1.6 trillion market for borrowing and lending U.S. government debt, and supply is so short, that traders are willing to pay to lend cash to get their hands on the issue.

 

The overnight repurchase agreement rate on the newest 10-year note was negative 2.9 percent at noon New York time Monday, the lowest for any Treasury note or bond, according to ICAP Plc data. In the parlance of the repo world, that means the maturity is on ‘special,’ signaling heightened appetite for this specific security in deals where traders exchange the debt for overnight cash. In agreements lasting one month, the rate was as low as negative 1 percent last week, the most special since mid-2008, according to JPMorgan Chase & Co.

 

While futures traders have been short the maturity for about a year, the scramble in the repo market has intensified as the availability of the notes in cash dealings has dwindled.

There is more to it but the gist is clear: everyone is short the 10Y.

Today JPM confirmed as much when it said that according to the Treasury Client Survey for the week ended March 7, active clients were the most short since November 23; broken down as follows:

• Longs 14 vs 20
• Neutrals 64, unch
• Shorts 22 vs 16
• Net longs -8 vs 4

And then we got the latest repo data, where we find that the shortage has never been worse!

According to ICAP, the current 10Y remains at the “fails charge” of -3.00% in repo, which according to Bloomberg is a “reflection of the increasing short base and shortage of the security, which the Fed cannot alleviate because it doesn’t hold much of the issue.”

As Stone McCarthy writes, “once again the 10-year note has fallen below the fails charge. The 10-year note has fallen below the -275 basis point fails charge at various times over the past four days, though currently it is at -280 basis points. With this much pressure on the issue, it may continue to trade special even after the new auction settles and it is classified as the off the run 10-year note.“

Worse, the shortage at the 10Y has now drifted to the long end as well as someone is absolutely desperate to keep yields higher. More from SMRA:

“even more noteworthy is the 30-year bond’s drop to -75 basis points. The 30-year bond rarely trades this tight, the last time it was below 75 basis points was December 14th, 2010.“

And the shortage has even migrated to the short end! “The 3-year note is also trading special at -20 basis points this morning ahead of its auction this afternoon.”

In short, pardon the pun, there is no OTR paper available at all!

To be sure, some optimists continue to hold out hope that new 10Y supply will “clear up the fails” although that is precisely what they said when the Treasury issuance announcement was made last week. It did not help.  Meanwhile, the demand for paper is about double what is available: just yesterday, dealers took $905m of $906m 1.625% Feb-26 security available, after requesting double this amount or $1.822 billion.

Meanwhile, 10Y yields are starting to slide:

Is today the day the short trap for Treasury bears is finally sprung and the 10Y pulls a “crude” and soars? Find out soon.

via Zero Hedge http://ift.tt/1LONVIT Tyler Durden

Submitted by Artrhur Bermann via OilPrice.com,

Oil prices should fall, possibly hard, in coming weeks. That is because fundamentals do not support the present price.

Prices should fall to around $30 once the empty nature of an OPEC-plus-Russia production freeze is understood. A return to the grim reality of over-supply and the weakness of the world economy could push prices well into the $20s.

A Production Freeze Will Not Reduce The Supply Surplus

An OPEC-plus-Russia production cut would be a great step toward re-establishing oil-market balance. I believe that will happen later in 2016 but is not on the table today.

In late February, Saudi oil minister Ali Al-Naimi stated categorically, “There is no sense in wasting our time in seeking production cuts. That will not happen.”

Instead, Russia and Saudi Arabia have apparently agreed to a production freeze. This is meaningless theater but it helped lift oil prices 37 percent from just more than $26 in mid-February to almost $36 per barrel last week. That is a lot of added revenue for Saudi Arabia and Russia but it will do nothing to balance the over-supplied world oil market.

The problem is that neither Saudi Arabia nor Russia has greatly increased production since the oil-price collapse began in 2014 (Figure 1). A freeze by those countries, therefore, will only ensure that the supply surplus will not get worse because of them. It is, moreover, doubtful that Saudi Arabia or Russia have the spare capacity to increase production much beyond present levels making the proposal of a freeze cynical rather than helpful.

(Click to enlarge)

Figure 1. Incremental liquids production since January 2014 by the United States plus Canada, Iraq, Saudi Arabia and Russia. Source: EIA & Labyrinth Consulting Services, Inc. (click image to enlarge)

Saudi Arabia and Russia are two of the world’s largest oil-producing countries. Yet in January 2016, Saudi liquids output was only ~110,000 bpd more than in January 2014 and Russia was actually producing ~50,000 bpd less than in January 2014. The present world production surplus is more than 2 mmbpd.

By contrast, the U.S. plus Canada are producing ~1.9 mmbpd more than in January 2014 and Iraq’s crude oil production has increased ~1.7 mmbpd. Also, Iran has potential to increase its production by as much as ~1 mmbpd during 2016. Yet, none of these countries have agreed to the production freeze. Iran, in fact, called the idea “ridiculous.”

Growing Storage Means Lower Oil Prices

U.S. crude oil stocks increased by a remarkable 10.4 mmb in the week ending February 26, the largest addition since early April 2015. That brought inventories to an astonishing 162 mmb more than the 2010-2014 average and 74 mmb above the bloated levels of 2015 (Figure 2).

(Click to enlarge)

Figure 2. U.S. crude oil stocks. Source: EIA and Labyrinth Consulting Services, Inc. (click image to enlarge)

The correlation between U.S. crude oil stocks and world oil prices is strong. Tank farms at Cushing, Oklahoma (PADD 2) and storage facilities in the Gulf Coast region (PADD 3) account for almost 70 percent of total U.S. storage and are critical in WTI price formation. When storage exceeds about 80 percent of capacity, oil prices generally fall hard. Current Cushing storage is at 91 percent of capacity, the Gulf Coast is at 87 percent and combined, they are at a whopping 88 percent of capacity (Figure 3).

(Click to enlarge)

Figure 3. Cushing and Gulf Coast crude oil storage. Source: EIA and Labyrinth Consulting Services, Inc. (click image to enlarge)

Prices have fallen hard in step with growing storage throughout 2015 and early 2016. Since talk of a production freeze first surfaced, however, intoxicated investors have ignored storage builds and traders are testing new thresholds before they fall again.

The truth is that prices will not increase sustainably until storage volumes fall, and that cannot happen until U.S. production declines by about 1 mmbpd.

Despite extreme reductions in rig count and catastrophic financial losses by E&P companies, production decline has been painfully slow. The latest data from EIA indicates that February 2016 production will fall approximately 100,000 bpd compared to January (Figure 4).

(Click to enlarge)

Figure 4. U.S. crude oil production and forecast. Source: EIA STEO, EIA This Week In Petroleum, and Labyrinth Consulting Services, Inc. (click image to enlarge)

That is an improvement over the average 60,000 bpd monthly decline since the April 2015 peak. It is not enough, however, to make a difference in storage and storage controls price.

EIA and IEA will publish updates this week on the world oil market balance and I doubt that the news will be very good. IEA indicated last month that the world over-supply had increased almost 750,000 bpd in the 4th quarter of 2015 compared with the previous quarter. EIA data corroborated those findings and showed that the surplus in January 2016 had increased 650,000 bpd from December 2015.

Oil Prices and The Value of the Dollar

Why, then, have oil prices increased? Partly, it is because of hope for an OPEC production freeze and that sentiment is expressed in the OVX crude oil-price volatility index (Figure 5).

(Click to enlarge)

Figure 5. Crude oil volatility index (OVX) and WTI price. Source: EIA, CBOE and Labyrinth Consulting Services, Inc. (click image to enlarge)

The OVX reflects how investors feel about where oil prices are going. It is sometimes called the “fear index.” That suggests that investors are feeling pretty good and less fearful about the oil markets than in the last quarter of 2015 when oil prices fell 47 percent. Since mid-February, prices have increased 37 percent.

But there is more to it than just hope and that may be found in the strength of the U.S. dollar. The negative correlation between the value of the dollar and world oil prices is well-established. The oil-price increase in February was accompanied by a decrease in the trade-weighted value of the dollar (Figure 6).

(Click to enlarge)

Figure 6. U.S. Dollar value vs. WTI NYMEX futures price. Source: EIA, U.S. Federal Reserve Bank and Labyrinth Consulting Services, Inc. (click to enlarge)

Now, that trend has reversed. The U.S. jobs report last week was positive so continued strength of the dollar is reasonable for a while. Assuming the usual correlation, that means that oil prices should fall.

Oil Prices Should Fall Hard

It is a sign of how bad things have gotten in oil markets that we feel optimistic about $35 oil prices. It should also be a warning that the over-supply that got us here has not gone away.

Oil storage volumes continue to grow and that is the surest indication that production has not declined enough yet to make a difference. It is impossible to imagine oil prices rising much beyond present levels until storage starts to fall. In fact, it is difficult to understand $35 per barrel prices based on any measure of oil-market fundamentals.

The OPEC-plus-Russia production freeze is a cynical joke designed to increase their short-term revenues without doing anything about production levels. An output cut would make a difference but a freeze on current Saudi and Russian production levels means nothing. It apparently made some investors feel better but it didn’t do anything for me. Iran got this one right by calling it ridiculous.

No terrible economic news has surfaced in recent weeks but that does not change the profound weakness of a global economy that is burdened with debt and weak demand. The announcement last week by the People’s Bank of China that it sees room for more quantitative easing may have comforted stock markets but it only added to my anxiety about reduced oil consumption and future downward shocks in oil prices.

I hope that oil prices increase but cannot find any substantive reason why they should do anything but fall. As market balance reality re-emerges in investor consciousness and the false euphoria of a production freeze recedes, prices should correct to around $30. A little bad economic or political news could send prices much lower.

via Zero Hedge http://ift.tt/1W61LHv Tyler Durden

If anyone is still confused why the most predatory, parasitic, and in many case criminal, of HFT actors are so vehemently opposed to IEX’s HFT-limiting exchange application, here is the reason. 

According to Bloomberg, Europe’s Aquis Exchange has doubled its share of public European stock trading since Feb. 8, when it banned what it considers a problematic high-frequency-trading strategy. Aquis says it doesn’t have a beef with HFT firms, it just wants to limit proprietary traders to passively providing price quotes. In other words, it wants to ban HFT firms which are parasitic orderflow frontrunners not market makers, and take zero risk which is about 99% of them. 

Bloomberg also notes that one firm that is still permitted on Aquis is HFT powerhouse Virtu: “We have the same goal as the end investor – we both want to minimize market impact,” said Doug Cifu, the chief executive of Virtu Financial Inc., an electronic trading company that’s providing more liquidity on Aquis. And why shouldn’t it – now that it has enough scale it can merely step back and watch as the frontrunning HFT strategies cannibalize each other.

Meanwhile investors, all of whom have by now learned how HFTs manipulate and rig markets, will run away from any venue that still permits HFTs, and go to alternatives such as Aquis and, if its application is granted, IEX (which it won’t be because NY Fed’s favorite hedge fund Citadel is vocally opposed to IEX which means so is the SEC). This can be seen in the chart showing Aquis’share of European stock trading below.

via Zero Hedge http://ift.tt/21VY0ey Tyler Durden