Bank Of America Misses Revenues As FICC Disappoints, EPS Beats On Accelerated Expense Reductions

With much hope placed on bank results, even if yesterday’s Morgan Stanley announcement of a cut in IB bonuses hinted not all may be well, moments ago Bank of America said Q4 profit rose 43% as revenue rose less than expected, however offset by rising cost-cuts. Q4 EPS of $0.40, beat expectations of $0.38 despite missing on the top line, reporting revenues of $20.22bn, below consensus of $20.89bn, as trading revenues missed dragged lower by FICC revenue of $1.96bn which missed estimates of $2.12bn. In an attempt to redirect attention from the mixed earnings, the bank also announced it would boost its buyback by $2.5BN from $1.8BN to $4.3BN.

Net interest income rose 6.3% to $10.3 billion, falling short of the $10.6 billion average estimate. Net interest margin was unchanged from three months earlier at 2.23 percent. Investment-banking revenue, which includes dealmaking and underwriting securities in the business run by Christian Meissner, slid 3.9 percent to $1.22 billion, the company said. Last month, Moynihan said he expected those activities would generate $1 billion to $1.2 billion in the fourth quarter. Mortgage revenue almost doubled to $519 million from a year earlier, the bank said. Barclays Plc’s Jason Goldberg had expected the bank to generate $252 million from mortgage banking as fewer consumers take out residential loans, while Macquarie Group Ltd.’s David Konrad estimated $218 million.

While FICC revenue climbed 12% to $1.96 billion, it was short of consensus estimates of $2.1 billion. Equity trading rose 11 percent to $948 million, in line with their predictions. Total revenue rose 2.1% to $20 billion, missing estimates of $20.8 billion. Expenses fell 6% , more than expected, to $13.2 billion as compensation costs dropped 2.6% .

The summary of Q4 results is shown in the table below.

According to CEO Brian Moynihan, BofA is “lending more and seeing historically low charge-offs”; with revenue up “modestly,” but EPS grew as BAC continued to manage expenses, create operating leverage. In fact, as it nots in its slideshows, personnel and non-personnel costs declined 3% and 10%, respectively, from 4Q15. That said, the bank also took half a billion out of LT debt costs, while increasing service charges.

CEO Brian Moynihan has been cutting costs for years while contending with persistently low interest rates. The bank last year set a target of $53 billion in annual expenses by the end of 2018, or about 8 percent less than 2015.

Why the modest disappointment? According to CFO Paul Donofrio, the “strong” client activity, good expense discipline created “solid” operating leverage in quarter, however the recent rise in interest rates “came too late” to impact 4Q results. Still, BofA expects a “significant ” increase in net interest income in 1Q. It remains to be seen if it gets it.

The bank also revised earnings for recent years on Oct. 4 to reflect a change in the way it accounts for certain securities held in its investment portfolio. The move brings it in line with other Wall Street firms and may reduce swings in quarterly earnings, the bank said. The lender also dissolved a business segment created in 2011 to house delinquent mortgages.

Some other highlights:

The bank lowered its provision for credit losses by $76m q/q to $774m, “driven by improved asset quality in commercial portfolio, particularly energy.” The net reserve release was $106m vs $38m q/q, driven by better consumer real estate, energy exposures. Reservable criticized commercial exposures $16.3b vs $16.9b q/. Overall credit quality “remain strong,” with improvements in consumer and commercial portfolios; net charge-offs $880m vs $888m q/q.

More troubling, the Bank reported misses in key trading metrics, with Q4 trading revenue ex-DVA of $2.91 billion, missing estimates of $3.06 billion, as Q4 FICC revenue (ex-DVA) came in at $1.96bn, also missing estimates of $2.12Bn. This was modestly offset by a small beat in equities trading which in Q4 printed at $948MM, above the $944MM expected.

Looking at the core business, BofA announced that average total loans in the quarter rose by $7 billion, or 3% Y/Y, to $908 billion, as average total deposits rose by nearly double that amount, or 5% Y/Y to $1,251 billion, up from $1,2227 billion in Q3.Total client balances were up 10% to $1.0t. Total mortgage production up 29% q/q to $21.9b. New U.S. card accounts 1.13m vs 1.32m q/q. 21.6 million mobile banking active users, up 16%; 19% of deposit transactions completed via mobile devices

Anyone looking for a big rebound in the bank’s net interest income will have to wait: in Q4 NIM printed at $10.3 billion ($10.5 billion FTE), which “reflected the benefits from higher interest rates as well as loan and deposit growth, partially offset by $0.2B in market-related debt hedge ineffectiveness.” However, for all the talk of a steeper yield curve, BofA’s net interest yield remained flat at 2.23%.

As the chart below shows, the market has been pricing in significant action from NIM, although with 2s30s going nowhere, bank stocks in general, and BofA in particular, appear to be overpriced based solely on this metric.

That said, BofA was optimistic about the future and said it expects NII to “increase approximately $0.6B in 1Q17, assuming rates remain at current levels and modest growth in loans and deposits.” The bank also remains “positioned for NII to benefit as rates move higher” noting it expects a “+100bps parallel shift in interest rate yield curve is estimated to benefit NII by $3.4B over the next 12 months, with nearly 75% of the benefit driven by short-end rates.” Meanwhile, it was unclear what the MTM loss on securities held for sale was, and will be, as a result of such a steep move in yields.

Perhaps the most notable aspect of BofA’s earnings was the continued decline in overhead, as total noninterest expense of $13.2B declined $0.8B, or 6%, from 4Q15, driven by broad-based reductions in operating and support costs, lower litigation expense and improvements in mortgage servicing costs. The bank adds that personnel and non-personnel costs declined 3% and 10%, respectively, from 4Q15

  • FTE headcount down 2% from 4Q15 as reductions in support and operations more than offset increases in sales staff.
  • Compared to 4Q16, 1Q17 expenses expected to be impacted by approximately $1.3B for annual retirement-eligible incentive compensation costs and seasonally elevated payroll tax costs

Realizing that the future belongs to “digital”, BofA included a slide on digital banking trends, in which it was happy to boast that it is #1 in virtually all metrics.

Putting it all in context, the question is has BofA gotten ahead of itself? Well, readers can decide on their own.

Full Q4 presentation below:

 

via http://ift.tt/2jLOhY5 Tyler Durden

Backpage, Boogeymen, and the Shifting Face of Prostitution and Publishing

“After consultation with counsel, I decline to answer your question based on the rights provided by the 5th and 1st Amendments.”

Again and again, these words rang out through the crowded Congressional inquiry into “Backpage.com’s Knowing Facilitation of Online Sex Trafficking” Tuesday. A function of the U.S. Senate’s Permanent Subcommittee on Investigations—literal heir to the Joseph McCarthy-era espionage and subversion investigations—the hearing was ostensibly organized to shed light on the business practices of online classified-ad forum Backpage. Led by Sens. Rob Portman (R-Ohio) and Claire McCaskill (D-Missouri), the bipartisan effort represented the culmination of a 20-month long investigation and accompanied a lengthy report on the findings.

The point of the hearing, said McCaskill, was “understanding how criminals systematically use online platforms to transform normal American teenagers into sex slaves.” But if so, it was as much a look at the laws governing online publishing, user-generated content, and sex work in America. And those in the hot seat—Backpage CEO Carl Ferrer, Chief Operations Officer Andrew Padilla, General Counsel Elizabeth McDougall, and former owners Michael Lacey and James Larkin—refused to answer any of the subcommittee’s questions with more than a nod to the 5th Amendment. Launched around 10 a.m., the portion of the hearing featuring Backpage leadership was concluded, with nothing conceded, in under an hour.

As the Backpage witnesses filed out, a swarm of reporters followed, trailing a silent Ferrer and his handlers until the third-floor door of Dirksen Building elevator closed in front of them. Lacey hung back, but mostly to say that he had said all he would say for now. “I guess you don’t know what will happen next?” I asked him. “Right now,” he said, “a drink.”

Subcomitttee Findings

Portman and McCaskill’s inquiry into Backpage began in 2015. After the site’s execs refused to appear for questioning or turn over private business documents, the Permanent Subcommittee on Investigations filed a civil contempt action against them—the first authorized by the Senate in more than 20 years—and was rewarded with a federal court order compelling Backpage to turn over subpoenaed documents. The resulting report on these documents “conclusively shows that Backpage has been more deeply complicit in online sex trafficking than anyone imagined,” Portman said Tuesday.

In both the report and live testimony, the subcommittee moved seamlessly between allegations that Backpage intentionally profited from the prostitution of children and statements from Backpage representatives with regard to prostitution more broadly, leaving the unmistakable impression that Backpage leadership admitted—at least internally—to the horrible things alleged by the government. But contra this careful conflation, the inquiry actually ascertained no such thing. The most significant policies the inquiry uncovered were a) moderators employed by Backpage would sometimes edit user-generated ads to remove direct references to sex for money before allowing them to post and b) between 2010 and 2012, the site employed an automatic filter to remove some blacklisted words from ads before they were posted.

Subcommittee summaries of these editing and filtering processes suggest that Backpage moderators deliberately stripped words like “teen,” “young,” “daddy’s girl,” and “barely legal,” from ads before allowing them to post, and this indicates that they knew about and encouraged underage ad-posting. But, of course, none of these words necessarily signals anything nefarious. Eighteen- and 19-year-olds are both “barely legal” and “teens,” yet still legally adults. “Young” is a term someone well beyond 18 might use. Terms like sugar baby and sugar daddy are widely used in describing arrangements between adults, with all the attendant use of terms like daddy’s girl this entails, and of course daddy is also common slang (without age connotations) in some BDSM worlds. The ambiguity of these terms led to Backpage processes, described in more detail below, that both banned said words from ads and subjected the ads to human review.

Posts featuring images of someone who was “clearly a child” were deleted and reported, while ads featuring people who looked or sounded suspiciously young were subjected to further scrutiny (and deleted or reported when appropriate). Ads reported for removal by a minor or a member of their immediate family were also removed, the report states, though people claiming to be more distant relatives were asked for corroboration.

Backpage Background

In general, ads on Backpage are user generated—that is, anyone can create an account and post about the used car they are selling or the house-cleaning services they’re offering or how they’re willing to dance naked at your bachelor party for money. Most sections of the site are free to post to, but Adult-section ads required a small fee.

After the government pressured Craigslist into shuttering its Adult Services section in 2010, U.S. sex workers flocked to Backpage. And the site’s relatively low posting fees and easy posting process made it especially popular among sex workers who were low-income, low-volume, transient, or otherwise unable or unwilling to navigate more costly, complicated, or elite advertising venues. Sometimes high-end or specialized sex workers had separate pseudonyms for posting on Backpage when regulars were slow. Whatever reputation the site may have earned or drawbacks its ads accrued, it made connecting with a large pool of potential customers incredibly easy—all without having to trawl physical spaces for clients, or rely on middlemen (escort services, pimps, etc.) to procure them. Backpage and its ilk democratized the process of promoting prostitution and erotic entertainment.

Strictly speaking, however, Backpage does not allow ads for prostitution. The sites Terms of Use prohibit, among other things, the posting of ads by people under 18 and “posting any solicitation directly or in ‘coded’ fashion for any illegal service exchanging sexual favors for money or other valuable consideration.”

In its most recent iteration, the Adult section—shut down abruptly on January 9—contained ads for many manners of legal erotic services and businesses, like BDSM dungeons, strip clubs, sensual massage, and fetish modeling. It also contained the Escort section, comprised mostly, and unmistakably, of ads offering varying sexual services for a fee. They just don’t quite say it outright, relying instead on all-but-there insinuations or the fact that by being in this section it is implied.

Moderating Vice: a Timeline

“Backpage’s editing of language in its ‘adult’ ad section began as early as 2006,” the subcommittee report states. “A 2007 email from Village Voice executive Scott Spear to then-Backpage Vice President Carl Ferrer, for example, includes a document titled ‘BACKPAGE.COM PERSONALS CRITERIA'” with some “innocuous” instructions but also instructing “moderators to ‘[e]dit ads for explicit sexual language’ and ‘[t]ake out anything questionable.'”

What happened, then, when ad contained questionable or sexual language? Backpage rejected the ad.

The site “appears to have instructed moderators to delete an entire ad if it clearly referred to performing sex acts in exchange for money,” states the report. “Similarly, a ‘REVISED Adult Policy’ implemented in March 2008 required Backpage employees to sign an agreement that provided in part that ‘any references to acts of prostitution or sex acts in exchange for money must result in an immediate rejection of any advertising or posting from such person or entity.”

Throughout 2008 and 2009, “Backpage used a combination of manual moderation and automated filtering” to keep out such ads. Moderators were provided with a forbidden-word list and “instructed to delete an entire ad if certain forbidden terms appeared,” notes the subcommittee report, explaining that forbidden terms include “the most unambiguous references to prostitution” and underage individuals. By April 2010, Backpage staff were “moderating ads on a 24/7 basis,” per one Ferrer email.

Still, “it became clear that this policy failed to block ads for illegal activity consistently,” the report states. Some company communications from early- to mid-2010 indicate that moderators may have been instructed to let ads through, rather than delete them, after removing explicit references to sex for money. Crucially, this policy did not apply when suspected underage prostitution was concerned.

In September 2010, when Craigslist shutdown its adult section, Backpage executives described it internally as an “opportunity” and “also a time when we need to make sure our content is not illegal.” To this effect, it expanded the list of offending words which would automatically trigger the deletion of a user post.

Around this same time, Backpage added a third function to its automatic filtering, which had heretofore only been able to mark ads as “banned” or “spam.” The new function, “Strip Term From Ad,” would automatically remove prohibited words from ads before allowing them to publish or sending them to a moderation queue. Some of the less egregious and more common offenses—those related to overly-direct references to adult prostitution—may have simply been cleaned up before being allowed to post.

“As originally configured, the filter stripped out offending terms only after moderators had reviewed the ad,” notes the report. “But within two months, Ferrer concluded that it would be more efficient to ‘strip out a term after the customer submits the ad and before the ad appears in the moderation queue.'” This was not the case for all prohibited terms, some of which still triggered deletion, but some portion of ads at this time were stripped of certain blacklisted terms before moderation. A human moderator then went on to look at these ads and see if they should pass or fail.

One moderator interviewed by the subcommittee said ads suggesting prostitution —”if there’s, you know, money signs, stuff like that”—would merely be cleaned up and posted, but not if the terms or images in the ad suggested “anything underage.” The employee “repeatedly stated that she entirely deleted ads that she believed were for an underage person.”

Backpage reported “cases of suspected child exploitation to the National Center for Missing and Exploited Children” (NCEMC), notes the report on “Backpage.com’s Knowing Facilitation of Online Sex Trafficking.” In “some months Backpage has transmitted hundreds of such reports to NCMEC.”

Throughout 2010-2012, executives toyed with different words triggering different policies (automatically deleted,stripped of words and published, stripped of words and sent to moderation, etc.), with responses predicated on the severity of the suggested offense. Far from evil pimps intent on letting through ads for sex-trafficked children, the strategies suggest Backpage leadership sincerely trying—with limited human resources, while culling tens of thousands of user-posted ads across the country on a daily basis—to find a system that would best limit bad ads (i.e., those featuring juveniles or violence) from getting through while still allowing adult sex workers to advertise as long they conformed to certain euphemisms.

By spring 2012, moderators were instructed to stop simply remove certain words from ads before greenlighting them, and henceforth delete any ads that contained any of 120 banned terms. And by October, the report notes, an “email from one moderator to another suggests that Backpage had ended manual editing ‘except in the case of a bad link or picture.'”

Section 230 and Catch 22s

“It is virtually impossible to determine how old the young women in these ads are without an in-depth criminal investigation,” according to the National Center for Missing and Exploited Children (NCMEC). “Pimps try to make the 15 year olds look 23. And the distinction of whether the person in the ad is 17 or 18 is pretty arbitrary.”

The Portman and McCaskill subcommittee report cites the above quote as evidence of… well, it’s not quite clear. The implication would seem to be that Backpage has a duty to ban ads featuring young adult women, too, because there’s always a chance they could be a deceptively tarted-up 16-year-old.

Other parts of the report also suggest that there’s no way for Backpage to win with this crowd. At one point, the report faults Backpage for informing users of its own terms of service. By telling users whose ads are rejected why their ads are rejected, Backpage is just “coaching its customers on how to post ‘clean’ ads for illegal transactions,” the report states.

Senators see similarly sinister motives in Backpage informing would-be users who indicate that they are under age 18 that one must be 18 or older to post. In this, the subcommittee sees evidence that Backpage was encouraging teenage posters to lie about their ages.

Perhaps the biggest actual reveal in the report is that while Lacey and Larkin sold the company to Ferrer in 2014, the two men still “retain significant financial and operational control, hold almost complete debt equity in the company, and still receive large distributions of company profits.” Lacey and Larkin—veteran alt-weekly publishers described by the Chicago Tribune in 2014 as “award-winning journalists who have exposed corruption and raised awareness about social issues such as immigration and civil rights abuses—have been more vocal than Ferrer about the politics involved in their persecution.

After Kamala Harris (D)—then California’s Attorney General, now a freshman U.S. Senator and Permanent Subcommittee on Investigations member—began prosecuting them for pimping and conspiracy, the men issued a joint letter accusing Harris of using their arrest, just weeks before the November 2016 election, as a way to generate positive publicity for her Senate campaign. “Make no mistake; Kamala Harris has won all that she was looking to win when she had us arrested,” the letter stated. “She issued her sanctimonious public statement, controlled her media cycle and got her ‘perp walk’ on the evening news. … And if the polls are any indication, Harris will be warmly ensconced in the United States Senate by the time her blatant violations of the First Amendment and federal law are finally adjudicated. She won’t pay. The taxpayers of California will.”

In December, a California court did indeed dismiss the charges against Lacey, Larkin, and Ferrer. In his decision, Sacramento County Superior Court Judge Michael Bowman wrote that he had not found evidence of “any illegal behavior outside of the reliance upon the content of speech created by others,” and thus the defendants were entitled to immunity under Section 230 of the federal Communications Decency Act. “Congress has spoken on this matter,” Bowman concluded his decision, in boldfaced type, “and it is for Congress, not this Court, to revisit.”

Not easily deterred, Harris filed new charges against the three men just before Christmas, alleging money laundering along with pimping. That case is still ongoing.

On Tuesday, McCaskill said she hopes that “police, local prosecutors, U.S. attorneys, the FBI,” and “attorneys general across this country” recognized “that there is evidence in [the subcommittee’s] report that can assist you in holding [Backpage] accountable.” Government officials “looked at over a million documents” to produce the report, she said.

After the hearing, McCaskill told a crowd of assembled reporters that Backpage refused to remove ads it knew were for minors and, when reminded that the witnesses had said no such thing, countered with the claim that she knew lots of other cases where this was true. When I pointed out that the California criminal evidence against Backpage execs also showed ads being removed upon request, McCaskill asked who I was and what press outlet I was with. A brief bit of further interaction with McCaskill yielded her assertion that Backpage must have known ads featured underage girls because some contained the word “teen.”

But of course 18- and 19-year-olds are both “teens” and, legally, adults. And as an unidentified reporter pointed out to McCaskill, labels like “teen” and “jailbait” are often used as marketing categories on porn websites, even though women featured therein are (documented to be) 18 or older. Did McCaskill see this as evidence of widespread child exploitation by porn sites, he asked?

The Senator responded that it was “fine” for us to say all this if we wanted to support child sex trafficking.

‘Damaged Human Beings, Forever’

Aside from Backpage representatives, the Congressional hearing featured three witnesses: Kubiiki Pride, and Nacole and Thomas S., all parents of “Jane Does” who are the subject of recent or upcoming documentary films and have brought previous lawsuits against Backpage. In addition, both families have worked with state and federal legislators for the past several years on an array of anti-Backpage-related causes. On Tuesday, the parents spoke of daughters who had run away from home and wound up having sex for money, with customers found via Backpage ads.

As minors, these girls can’t legally consent to commercial sex and are thus defined under federal law as human-trafficking victims, regardless of whether any “trafficker” was involved and without regard to the presence or absence of force, fraud, or coercion.

Pride said that in 2009 and 2010, beginning when she was just 14-years-old, her “daughter was trafficked on Backpage for months at a time. What she went through on a daily basis,” said Pride, “would be unimaginable to most of us in this room.”

This was about as much detail as Pride gave about the circumstances of her daughter’s experience, leaving open seemingly important questions such as how this plight befell her, who else was involved, who posted the ads to Backpage, how Kubiiki found out about the ads, how the girl wound up back home, or if there was evidence Backpage knew about or edited the ads before being contacted by Pride. Backpage did remove her daughter’s ads when she contacted them, Pride said, though it “did not remove them immediately after I called.”

Pride also mentioned briefly that a woman had been jailed in conjunction with her daughter’s prostitution, and that Pride had at some point filed a failed civil lawsuit against Backpage. When asked later by Sen. Portman about the suit, Pride testified that it was about Backpage not taking down her daughter’s photos; no one asked to to elaborate, though she had earlier stated that the photos were removed.

The other two witnesses, parents of “Natalie,” never personally saw their daughter’s ads on Backpage and never tried to contact the company. When they feared their daughter had become involved in prostitution, they looked for ads on Craigslist, Nacole testified Tuesday.

She described Natalie as her “baby,” an energetic and bright high-schooler who “wanted to do everything at once.” Then, at age 15, Natalie “made the implausible decision to leave the sanctity of our home” and wound up at a Seattle homeless shelter for teens, her mom explained. Once there, the girl found met a 22-year-old woman “posing as a teen.”

After speculating that her daughter must have been an “easy target,” Nacole skipped ahead to the fear she imagined Natalie felt while being “raped and beaten and threatened, and treated like a sexual object every single day. All while being posted on a Backpage online ad.” That was six years ago. Natalie is now back home, and Nacole said her dream is “to live in an America that doesn’t stand aside while little girls like our daughter Natalie, at 15, are… purchased with all the same convenience as you would expect from an order on Amazon and always returned as damaged human beings, forever changed by their trafficking.”

As with Pride’s testimony, any specifics of the story that might prove instructive were omitted, leaving a straightforward path from innocent and happy girlhood to trafficked on Backpage to total and immutable hopelessness and degradation.

“I can only tell you that when we finally got Natalie back for good, months later, the young girl we found wasn’t the same Natalie who left our home. Her hair was dyed and cut,” she had on “different clothes,” and “everything she was saying was incomprehensible to me,” Nacole testified. “Our Natalie was gone.”

False Hope

“It’s all about hysteria around girls having sex,” says Lois Lee, founder and longtime head of Los Angeles-based charity Children of the Night, when I speak to her just after the hearing. “Not one time in this hearing, with all the money they spent, did they mention a gay or lesbian youth, a transgender youth.”

Founded in 1979, Lee’s nonprofit works with young people involved in or fleeing prostitution, regardless of how they came to be involved in it or how much agency they exhibited therein. Over the years, the group has helped thousands of American kids, says Lee, and currently hosts kids from all over the country in its 24-bed facility. For the past few years, Lee has been speaking out on behalf of Backpage, which she sees as an ally in the fight to help “prostituted children.” She got involved after being approached by vice detectives “who asked me to go after the [anti] trafficking organizations to stop them from harassing Backpage because Backpage was such a great investigative tool for them,” Lee says.

In her mind, “there’s no question” that destroying sites like Backpage will hamper investigations into sex trafficking. “Everything’s going to go to the Dark Web,” she laments—where sites won’t voluntarily run the National Human Trafficking Hotline number (as Backpage does) or collect credit card information and phone numbers that can be useful in criminal investigations. “It’s not the ad” itself that helps law enforcement, says Lee, but “all the information.”

The subcomittee’s “solutions are highbrow, but they’re not practical,” says Lee. The kids she works with are frequently from abusive homes or have mental-health issues, substance-abuse issues, and other influences that are way more relevant to their involvement in prostitution than any individual perpetrator or advertising venue. What American kids really need are material resources like safe, youth-only homeless shelters and government resources that don’t—at best—simply return them to environments they ran away from or give them vouchers for local hotels, when they aren’t shuffling them into the criminal justice system.

Lee says she sees kids where cops won’t arrest them for prostitution, “because they’re considered victims, but then they hold them as a material witness.” Another problem, she says, is “we have children who have ads on Backpage, the police are involved, the prosecutors are involved, there’s an investigation,” and then “prosecutors demand those ads stay there, for sometimes as long as a year, while waiting to prosecute the pimp/trafficker.”

Nacole’s daughter Natalie was twice arrested and “both times held in adult jail,” the mother testified Tuesday.

“And both times released back to her pimp,” she added. A 2014 story from Nacole, however, places police as her daughter’s savior one or two occasions. When Natalie “disappeared, Nacole’s husband drove the streets of Seattle looking for their little girl,” the earlier article states. “Almost two weeks later, Seattle Police called the parents saying they’d found the runaway daughter.”

“She looked completely different than she had 10 days before,” Nacole said at that time, speaking then two of her haircut and different clothes. “On the way home she started telling us that she had been held captive in Everett,” and at this point that “she had been made to work the streets.” After that initial return, Natalie soon left again—”lured out of the house by somebody she had met on the streets,” her mom said. “Within 36 hours she had been posted on the website Backpage.com by a 26-year-old man who said she was 18.”

A 2015 profile of the family claims that “so complete” was this man’s “hold on her mind, that soon she was posting the ads herself, arranging the out-calls, mostly to hotel rooms, and bringing in enough money that she supported him, two other prostitutes, two children, and herself in a three bedroom apartment.” A few months later, Natalie was arrested in a sex-worker sting conducted by police through Backpage, which led to her being returned to her parents house again.

Since then, Nacole and sometimes Natalie and her father have been active in testifying before political and media sources, including a TED talk. Pride, too, has been speaking out for years about her daugher’s ordeal, and has previously lent their story to several different legislative causes, including Sen. Mark Kirk’s (R-Ill.) 2014 attempt to crackdown on Backpage (the SAVE Act) and Illinois state lawmaker Randy Hultgren’s “Demand Reduction Act.” Tweets of Pride’s going back to 2012 condemn the Communications Decency Act.

Pride’s first media statements about her daughter, from 2008, describe a girl with “a lot of behavioral problems” and “anger-management” issues whom she enrolled in a 30-day program at Saint Vincent Home for Children in order “to scare her straight.” By 2009, the girl had run away from home and was missing for nine months before her mother discovered her ads on Backpage.

The girl was eventually sent to Chicago to receive help from a residential victim’s services organization there, but in November 2010 ran away from that program (spurring a police investigation and the involvement of the National Center for Missing and Exploited Children) and returned to St. Louis before being picked up by police and returned to her mother again.

It’s unclear how involved Pride’s daughter has been in her activism. At the time Pride was working with Sen. Kirk to hold websites accountable for sexualizing teens, her daughter was posting provocative selfies to Twitter under a handle with “ho” in the name. She was arrested on battery charges in Georgia in 2015 and picked up there again, on an outstanding warrant related to those charges, in October 2016. But both Pride and the now-20-something young woman appear in upcoming documentary, I am Jane Doe, which premieres in February and features Jessica Chastain. The website describes it as the tale of “a collision course” between victims and their families and “powerful companies, special interest groups, and Section 230.”

Up Next

In case it’s not clear by now, Section 230—the little clause that’s allowed the internet as we know it to flourish—is the big fish in this barrel of red herrings.

State lawmakers and prosecutors—including at least one now in Congress and on the Permanent Subcommittee on Investigations, Harris—have been pleading with Congress for years to change it. There are a number of reasons why they would like it done away with; remember, this is the bit that explicitly protects social-media sites, newspapers, web magazines, and most of the internet from not being targeted out of business over anything anyone says on their sites. And in child sex trafficking, they’ve found a subject emotionally provocative and viscerally appalling enough to overcome rational reticense.

At the Senate hearing, Sen. Heidi Heitkamp (D-ND) commended Pride and Nacole for representing not just their children but “all the children,” who “there but for the grace of God” went. “This can happen in any family,” said Heitkamp. “And until we really get people to appreciate and understand that, we won’t build the army that we need, because Backpage is a small part of this. If Backpage goes away tomorrow—which we would all love—there will be another Backpage.” And “if we don’t stay vigilant together” and “fight together… we will not do our job as adults in America.”

“We sit here with no greater problem… than to prevent this from ever happening,” Heitkamp continued. “The street corner now is digital. And until we start exposing all of the wrong that happens to children, in this digital media, and stop standing behind inappropriate, important constitutional protections in this country, we will surely fail.”

Asked what more could be done, Pride said that “every kid has a cell phone now,” so every kid has “access to this evil.” Prevention “would start with educating them about the ways that predators are able to contact them,” she continued. “Like, just the other day, some grown man comes into my daughter’s Snapchat again.” Like we do with sex education, “why not offer an Internet advocacy class to teach these children to navigate through this world that we’re all still trying to figure out?”

Pride’s daughter is, of course, now a grown woman herself. With a mother still monitoring her social-media interactions, and asking Congress to do the same.

She’s not alone, though. Like Heitkamp said, Backpage is just a small part of this. To be consistent, authorities must turn toward every website where young people may meet people who would exploit them, or where it’s easy for young people to sexualize themselves (and without Section 230, they would have a lot easier time doing so).

After Backpage announced the adult section’s closing on Monday, it was funny, in a sad way, to see the conversation on Twitter as lawmakers congratulated themselves on stopping sexual exploitation. Some sex workers stressed how the shutdown would cause hardship and danger in their ranks, while others distributed lists of new sites where sex workers could advertise and clients could find them. A significant number of people just wondered why anyone cared about Backpage anyway, since so much of the business had already shifted to Snapchat and Instagram anyway.


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Renault Shares Tumble After Anti-Fraud Authority Accusations Of “Cheating” On Emissions Tests

Yesterday we sarcastically noted "they are all at it" when Fiat Chrysler was slammed by the EPA for emissions cheating, and now get further confirmation of the farce as The FT reports, French authorities have started a preliminary investigation into Renault amid suspicion the company may have “cheated” to conceal abnormal emissions of pollutants from some of its diesel engines.

The government commission’s report over the summer found that nitrogen oxide emissions for many Renault models went well beyond their official limit under “normal” driving conditions, by a factor of more than 10 in the case of some models.

Renault share tumbled on the headlines…

As The FT details, the decision, made on Thursday, comes after France’s independent anti-fraud authority referred the carmaker to state prosecutors in November, after completing its own investigation.

Three judges were appointed to lead the investigation, the Paris prosecutor said in a text message, into whether they "made merchandise dangerous for human health."

 

Last year, three Renault sites in France were raided by authorities as part of a sprawling national investigation linked to the Volkswagen emissions scandal, sparking fears that the emission-rigging case was spreading across Europe.

The French government, which owns 20 per cent of Renault, and the carmaker has denied using software to cheat emission testing, saying its models “conformed to the laws and norms in each market where they are sold.”

via http://ift.tt/2jeZSOn Tyler Durden

Trump Tweetstorm Promises Full Hacking Report In 90 Days, Slams Hillary, Obamacare, & “Political Sleazebags”

As President Obama drops ever more chaos into the path of Donald Trump's presidency with everything from troop movements to trade disputes, it appears the president-elect had a lot to get off his chest this morning.

It began with some confident crowing about his cabinet appointments and their hearings…

But then quickly snapped to the "intelligence" lies and fake news of the media. As The Hill reports, President-elect Donald Trump struck a new blow in his war of words with the intelligence community on Friday, tweeting that the IC “probably” leaked new reports against him “even knowing there is no proof.”

On Tuesday, CNN reported that Trump had been briefed by top intelligence officials that Russia had a dossier on compromising information about him. Hours later, Buzzfeed published the 35-page unverified dossier, which contains multiple known errors.

 

Unconfirmed reports emerged Thursday that former MI6 agent Christopher Steele had initially begun compiling the dossier at the behest of former Florida governor and Trump GOP primary opponent Jeb Bush, reports Bush’s team strongly denied.

Promising a full report within 90 days……

 

 

Trump then pivoted to "Guilty as hell" Hillary Clinton (and the forthcoming probe on FBI behavior)…

Ending with a promise many look forward to…

How's that for a Friday morning?

 

 

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Futures Rise On Friday 13th Ahead Of Deluge Of Bank Earnings; Dollar Continues To Decline

European shares rose as Fiat rebounded on hopes concerns about parallel to Volkswagen are overblown, Asian stocks were little as Chinese shares fell to the lowest level of 2017 after poor export data, and U.S. equity-index futures rose ahead of a deluge of bank earnings. The dollar is headed for a weekly loss and gold trades at the highest price in almost two months.

On this supposedly unlucky day it’s US bank earnings that are going to be a big attraction with JPM, Wells Fargo and BofA reporting all prior to or at the open. As DB notes overnight, after the Trump trades disappointment this week – which continued yesterday – this will likely impact the overall direction of markets.

The focus this morning however has been the gloomy December trade numbers out of China which were released overnight. In US Dollar terms exports dropped -6.1% yoy in December which is a fair bit more than expected (-4.0% consensus) and also down from -1.6% in the month prior. At the same time imports shrunk to +3.1% yoy (vs. +3.0% expected) from +4.7% and so had the effect of reducing the surplus. A weaker yuan did help to cushion the fall in exports in local currency terms (+0.6% yoy vs. -0.1% expected). The trade surplus was $40.82 billion for December, versus November’s $44.61 billion.

On an annual basis, 2016 exports fell 7.7% and imports down 5.5% . The export drop was the second annual decline in a row and the worst since the depths of the global crisis in 2009. It will be tough for foreign trade to improve this year, especially if the inauguration of Trump and other major political changes limit the growth of China’s exports due to greater protectionist measures, the country’s customs agency said on Friday. It will be tough for foreign trade to improve this year, especially if the inauguration of Trump and other major political changes limit the growth of China’s exports due to greater protectionist measures, the country’s customs agency said on Friday.  China’s trade surplus with the United States was $366 billion in 2015, according to U.S. customs data, which Trump could seize on in a bid to bring Beijing to the negotiating table to press for concessions, economists at Bank of America Merrill Lynch said in a recent research note.

“The trend of anti-globalization is becoming increasingly evident, and China is the biggest victim of this trend,” customs spokesman Huang Songping told reporters. “We will pay close attention to foreign trade policy after Trump is inaugurated president,” Huang said. Trump will be sworn in on Jan. 20.

As we have said for years, central bankers can print everything except trade, and that particular omission is starting to become particularly felt in a world which has grown so reliant on globally interconnected supply chains and logistics.

Meanwhile in capital markets, the dollar headed for a weekly loss and gold traded at the highest price in almost two months as investors were concerned that market moves since the U.S. election have gone too far. European stocks and U.S. equity futures climbed and Chinese shares fell after data on exports. The USD was fractionally lower after touching the lowest point in almost a month on Thursday.

The Stoxx Euro 600 Index rebounded from its biggest drop since the end of November as Federal Reserve Chair Janet Yellen reiterated that the U.S. economy is doing well. The Shanghai Composite Index fell to its lowest level of the year, while the Shenzhen Composite slide to the lowest level in 5 months after a crackdown on insurers and as trade data showed China’s overseas shipments remain subdued.

In a week characterized by a reversal in many of the market moves seen since Donald Trump’s election, Friday will see the release of a report on U.S. holiday-season retail sales as well as earnings from Bank of America Corp., JPMorgan Chase & Co., and Wells Fargo & Co. Since Trump’s victory. The scheduled of financial earnings this morning is as follows:

  • BlackRock (BLK) 6:30am, Exp. $5.02
  • Bank of America (BAC) 6:45am, Exp. $0.38
  • PNC Financial Services (PNC) 6:45am, Exp. $1.85
  • First Republic Bank (FRC) 8am, Exp. $1.03
  • JPMorgan Chase & Co (JPM) 8am, Exp. $1.43
  • Wells Fargo & Co (WFC) 8am, Exp. $1.00

“The banking sector will be the major focus,” said Naeem Aslam, chief market analyst at Think Markets UK. “With rising interest rates and hopes of more friendly regulation, the shares of these banks have a lot of upside in the coming days.”

Overnight, in a town hall meeting, Janet Yellen said that the U.S. economy is doing well, with inflation now pretty close to the Fed’s 2 percent target. The central bank should begin discussing how to shrink its bloated balance sheet this year, according to three regional Fed presidents who stepped up pressure for a debate on when to unwind emergency-era measures that the Fed preferred to postpone.

A snapshot of markets reveals that  the Stoxx Europe 600 Index climbed 0.6 percent at 10:55 a.m. London time, rebounding from a 0.7 percent drop on Thursday. Automakers rose 0.4 percent after tumbling the most since July following U.S. government accusations that Fiat Chrysler Automobiles NV violated pollution laws. Health-care shares rose for the first time in three days after sliding on concern over price pressures under Trump.

The Shanghai Composite Index slid 0.2% in a fourth day of losses, the longest run since October. Overseas shipments dropped 6.1 percent from a year ago in December, China’s customs administration said.

Futures on the S&P 500 Index added 0.2%, on course to erase Thursday’s decline.

In rates, the benchmark 10-year Treasury yield fell one basis point to 2.35 percent, after touching the lowest level since Nov. 30 on Thursday. Bonds fell across Europe, with the yield on U.K. 10-year Gilts climbing two basis points to 1.32 percent and the yield on similar-maturity Greek debt climbing four basis point to 6.8 percent.  The symbiotic dance between the dollar and U.S. Treasury bond yields held firm on Friday. Both headed lower to end a week in which has seen the dollar fall almost 1 percent and yields extend their longest downturn since last summer.

“Bond markets continue to retrace from the yield highs set in the middle of last month,” RBC Capital markets rates strategists wrote in a note to clients on Friday. “The latest move (is) seen as a typical ‘buy-the-rumor-sell-the-fact’ reaction as Donald Trump’s pre-inauguration press conference proved to be a disappointment in terms of forthcoming growth boosting policies,” they said.

* * *

Market Snapshot

  • S&P 500 futures up 0.2% to 2268
  • Stoxx 600 up 0.5% to 364
  • FTSE 100 up 0.4% to 7323
  • DAX up 0.5% to 11575
  • German 10Yr yield up less than 1bp to 0.32%
  • Italian 10Yr yield up 2bps to 1.91%
  • Spanish 10Yr yield up 2bps to 1.42%
  • S&P GSCI Index down less than 0.1% to 400.3
  • MSCI Asia Pacific up less than 0.1% to 141
  • Nikkei 225 up 0.8% to 19287
  • Hang Seng up 0.5% to 22937
  • Shanghai Composite down 0.2% to 3113
  • S&P/ASX 200 down 0.8% to 5721
  • US 10-yr yield down 1bp to 2.35%
  • Dollar Index down 0.2% to 101.15
  • WTI Crude futures down 0.4% to $52.79
  • Brent Futures down 0.4% to $55.80
  • Gold spot up 0.2% to $1,198
  • Silver spot up 0.1% to $16.80

Top News

  • Boeing Wins $22 billion order from Indian carrier SpiceJet: order for 205 aircraft includes purchase rights for 50
  • Yellen Sees No Serious Short-Term Obstacles for U.S. Economy: says inflation “pretty close” to Fed’s 2% target, doesn’t want to see banking regulations rolled back
  • AltaGas, WGL Said to Hold Talks on Merger Topping $5 Billion: WGL was said to be weighing a sale after Iberdrola interest; cos. supply natural gas to customers in North America
  • Anadarko Sells Eagle Ford Assets to Focus on Permian, Rockies: Sanchez, Blackstone pay $2.3b for properties in Texas; deal to help Anadarko boost investment in Delaware Basin
  • Fiat Rises as Investors Question VW Parallels in Cheating Charge: EPA says Fiat Chrysler used illegal software in 104,000 autos
  • Paris Prosecutors Open Probe Into Renault Diesel Emissions
  • Mnuchin Start Date Looks Iffy as Congress Scours Wall St. Past: Senate panel to provide seven-day notice for Mnuchin hearing
  • KKR to Buy Hitachi Koki for $1.3 Billion as Group Sheds Unit: Japanese conglomerate selling non-core units as it reorganizes
  • Pandora Media Rallies as Results Top Estimates, 7% Cut in Jobs Set: the world’s largest online radio service said 4Q results exceeded its forecast; co. eliminating jobs to boost efficiency
  • Sirius Chairman Said to Say Still Keen on Buying Pandora: NYP
  • Hon Hai, Sharp Considering LCD Plant in the U.S.: Nikkei
  • Coty May Eliminate Up to 210 Jobs in Switzerland: Bilan

Looking at regional markets, Asia stocks traded mixed following a negative lead from the US as participants continued to digest Trump’s first press conference as President-elect. Nikkei 225 (+0.8%) outperformed to recoup some of yesterday’s losses, as JPY-crosses saw upside higher with USD/JPY testing 115.00 to the upside, before dipping to the mid-114 range. ASX 200 (-0.8%) suffered amid underperformance in financials after some less hawkish comments from Fed’s Bullard and Lockhart, as they indicated they are more in favour of less than 3 US rate hikes this year. Shanghai Comp (+0.2%) initially suffered from a reduced liquidity operation by the PBoC and uninspiring Chinese trade data, while Hang Seng (+0.4%) was lifted by energy names as oil markets rallied yesterday and also benefited from several Property names reporting positive earnings as well as. 10yr JGBs traded lower amid the risk-on tone in Japan and a disappointing auction for enhanced liquidity, while the curve flattened due to underperformance in the short end.

Top Asia News

  • PBOC Said to Boost Yuan Curbs as Banks Told to Balance Flows: lenders to stop transactions unless inflows match outflows
  • Takata Said Near $1 Billion Air-Bag Settlement With U.S.: may announce a settlement as soon as Friday
  • Nintendo Switch Off to Wobbly Start as Pricing, Timing Unveiled: Price of around $300 more than anticipated, higher than rivals
  • Vietnam Recalibrates as Trump and Duterte Upset Strategy: setbacks include TPP trade deal, South China Sea disputes
  • Chinese Paper Calls Tillerson’s South Sea Threat ‘Foolish’: editorials offer more pointed response than government

European equities trade in the green (Euro Stoxx 50: +0.8%), with the move higher fuelled by Fiat Chrysler, who trade higher by 3%, with other Auto names initially trading higher in tandem before separate reports suggest the French prosecutor is looking into Renault’s (-4.2%) role in the emission scandal. The FTSE MIB is the best performing index in the wake of Fiat’s denial, while financials also outperform this morning ahead of a number of high profile US earnings including Wells Fargo, JP Morgan and Bank of America. Fixed income markets have seen the front end of core EGB markets slipping in yields as today is the first time the ECB are able to purchase securities with a yield below the -0.4% deposit rate, with the longer end suffering. Elsewhere, focus looks ahead to DBRS review of Italian sovereign debt after the close today, with some pricing in a downgrade already given the current state of Italian banks. If DBRS were to downgrade Italy, this could have a significant impact on the size of Italian collateral and could see significant flattening of the BTP curve.

Top European News

  • VW Pulled Out of Daimler Deal Before Embarking on Diesel Cheat: alliance talks involved discussions of cross shareholdings
  • French M&A Fund Bets on Successful Deal in Syngenta Takeover: shares trade at 14% discount to ChemChina takeover offer
  • Patek Philippe Chairman Tells Swiss Watch Industry to Slow Down: signs of revival after two years of job cuts on China slowing
  • Bang & Olufsen Soars as Profits Are Buoyed by New $11,500 TVs: shares soar to highest level in more than six years after earnings that showed it’s getting better at squeezing profit out of its sales

In currencies,  the Bloomberg Dollar Spot Index lost 0.1 percent after falling 0.5 percent on Thursday. The gauge is down 0.7 percent for the week. Turkey’s lira slipped 0.9 percent after surging 2.8 percent against the dollar on Thursday. The currency is down 4.2 percent this week after touching the lowest point on record. The central bank is implementing measures to force banks to borrow at a higher rate, according to a person with direct knowledge of the matter. The offshore yuan extended gains for a third day. China has asked some banks to stop processing cross-border yuan payments until they balance inflows and outflows, people familiar with the matter said, as authorities step up a campaign to curb a record amount of money leaving the nation in the local currency. The yen traded at 114.60, taking the week’s gain to 2.1 percent, the best performance since the end of July.

In commodities, the diesel emissions scandal has been reignited and further fuelled by the possible involvement of Renault, so the commodity market is perhaps looking to the palladium vs platinum relationship for reaction. Otherwise, focus will be on Gold over the session ahead, which sees the key US retail sales release impacting on the USD to some degree. Prices have dipped back under USD1200 in the meantime, but with room for further USD correction, fresh upside in the yellow metal still possible. Oil held near $53 a barrel were pretty stable after a mid-morning dip; WTI dropping 50-60 cents, but still comfortably away from the USD50.00 mark — bolstered by last year’s OPEC agreement on production – and after its biggest two-day gain in almost six weeks as Saudi Arabia said it cut output even more than required by an OPEC deal.

Looking at the day ahead, the highlight is likely the December retail sales report where the market consensus for headline sales is running at +0.7% mom, while the core is expected to come in at +0.4% mom. Also due out is the December PPI report where the consensus there is for a +0.3% mom rise in the headline. Business inventories for November and  the preliminary University of Michigan consumer sentiment survey for this month follow later on. Meanwhile the Fed’s Harker is scheduled to speak again at 9.30pm ET. The other big focus is clearly those aforementioned US bank earnings reports.

* * *

US Event Calendar

  • 8:30am: PPI Final Demand MoM, Dec., est. 0.3% (prior 0.4%)
  • 8:30am: Retail Sales Advance MoM, Dec. est. 0.7% (prior 0.1%)
  • 9:30am: Fed’s Harker Speaks on Economic Mobility in Philadelphia
  • 10am: Business Inventories, Nov., est. 0.6% (prior -0.2%)
  • 10am: U. of Mich. Sentiment, Jan. P, est. 98.5 (prior 98.2)
  • 1pm: Baker Hughes rig count

Bank Earnings:

  • BlackRock (BLK) 6:30am, $5.02
  • First Horizon National (FHN) 6:37am, $0.25
  • Bank of America (BAC) 6:45am, $0.38
  • PNC Financial Services (PNC) 6:45am, $1.85
  • First Republic Bank (FRC) 8am, $1.03
  • JPMorgan Chase & Co (JPM) 8am, $1.43
  • Wells Fargo & Co (WFC) 8am, $1.00

DB’s Jim reid concludes the overnight wrap

On this supposedly unlucky day it’s US bank earnings that are going to be a big attraction with JPM, Wells Fargo and BofA reporting all prior to or at the open. After the Trump trades disappointment this week – which continued yesterday – this will likely impact the overall direction of markets. The remainder of the US banks will report next week while the corporate calendar will also kick into gear which may all be a welcome distraction. In addition we also got an announcement yesterday that UK PM Theresa May will detail some of her Brexit plans at a long-awaited speech next Tuesday, so that should be something to look forward to as well. The focus this morning however has been the December trade numbers out of China which were released a few hours ago. In US Dollar terms exports dropped -6.1% yoy in December which is a fair bit more than expected (-4.0% consensus) and also down from -1.6% in the month prior. At the same time imports shrunk to +3.1% yoy (vs. +3.0% expected) from +4.7% and so had the effect of reducing the surplus. A weaker yuan did help to cushion the fall in exports in local currency terms (+0.6% yoy vs. -0.1% expected).

Equity markets in China were initially weaker following the data but have since recovered with the Shanghai Comp currently +0.12%. The Nikkei (+0.85%) has rebounded while the Hang Seng is also +0.45% although there’s losses currently for the Kospi (-0.51%) and ASX (-0.95%). The other focus overnight has been on comments from Fed Chair Yellen. She was largely positive, saying that “unemployment has now reached a low level, the labour market is generally strong and wage growth is beginning to pick”. The Fed Chair also said that Dodd- Frank bank regulation made “important changes” and that she would not want to see it “rolled back”. There were no comments made around policy outlook.

Back to yesterday. Perhaps the most interesting story to emerge was the balance sheet unwinding comments to come out of the Fed. Some of it came from Philadelphia Fed President Patrick Harker who said that the Fed can start  considering stopping balance sheet reinvestment and later start unwinding the balance sheet when the Fed funds rate gets to 100bps. In addition, St Louis Fed President James Bullard said that the “committee may be in a better position to allow reinvestment to end or to otherwise reduce the size of the balance sheet”. So if you share the FOMC median 3 rate hikes this year view then this could be a 2017 story although in reality the Fed talk probably won’t get serious until the Fed funds rate gets to 100bps. You’d imagine that this debate will also be greatly influenced by political pressures but it’s certainly one to keep an eye on.

Speaking of tapering, the ECB minutes of the December meeting were released yesterday. The text suggested that there was a fair bit of debate and differing views amongst policy members. Indeed the debate was over continuing at the €80bn pace for an additional six months or extending the programme for nine months at a €60bn pace – which the Bank eventually settled on. It was revealed that a “few members voiced an initial preference for the first option….while expressing readiness to join a consensus forming on the second option”. At the same time while the text also revealed that “very broad support emerged  among members” for the second option, there were “arguments also put forward in support of a shorter purchase horizon, namely limited to six months, at a rescaled pace of purchases of €60bn”. Some members “could not support either of the two options….in view of their well known general scepticism regarding APP and public debt purchases in particular”. On a related noted, German Finance Minister Wolfgang Schaeuble also said yesterday that the ECB should start unwinding its ultra-loose monetary policy this year.

Moving on. In terms of markets and as highlighted earlier, it was another day of generally unwinding Trump trades following the disappointment at the lack of substance in his press conference. The big mover gain was the Greenback with the Dollar index falling -0.37% to take it to -1.51% since Trump spoke on Wednesday although it has recovered modestly this morning. Emerging markets were the big beneficiaries of yesterday’s weakness with currencies in Turkey (+2.82%), South Africa (+1.79%), Colombia (+1.78%) and Chile (+1.26%) in particular standing out. EM equities (+1.12%) also had a decent day. Equity markets were weaker across the pond although in fairness did recover a bit into the close. The S&P 500 finished -0.21% after being down as much -0.93% while the Nasdaq Biotech index recovered similarly to finish +0.36% following that sell off on Wednesday. Markets in Europe did however come under more pressure however with the Stoxx 600 closing -0.65% although the FTSE 100 (+0.03%) managed to eke out a positive return and in doing so capped a fairly incredibly 13th consecutive daily gain – extending the record streak.

There was a bit of corporate news too to digest. Fiat Chrysler shares fell steeply after the automaker became the latest to be accused by the EPA of violating pollution laws on diesel vehicles. According to the FT the group could face a fine of as much as $4.6bn. Meanwhile Amazon announced that they are to add 100k full time jobs in the US over the next 18 months which will likely put them in Trump’s good books ahead of his inauguration. There was, however, plenty of focus on the fact that the hires could come at the expense of the bricks and mortar retailers in the US.

Elsewhere, in rates 10y Treasury yields touched an intraday low of 2.305% yesterday which is the lowest yield since the end of November, before paring much of that into the close to finish only a shade lower on the day at 2.363%. Sovereign bond markets in Europe also ended up on the firmer side (10y Bund yields falling 1.4bps to 0.307%). In the commodity complex Oil got another boost after Saudi Arabia announced that it had cut production even more than required by the OPEC deal. WTI edged back up to $53/bbl (+1.45%) after hitting as low as $50.71/bbl earlier in the week. Gold (+0.32%) also continued its urge to take the YTD move past +4% already.

Before we wrap up, there wasn’t a huge amount to take away from yesterday’s economic data. In the US a boost from higher energy prices saw the import price index rise +0.4% mom in December and so putting the YoY rate at +1.8% which is the highest since March 2012. Initial jobless claims came in at 247k last week which is up from the very low 237k reading the week prior. Finally the December monthly budget statement revealed a slightly wider than expected $27.5bn deficit. Meanwhile in Germany we learned that Germany’s economy grew 1.9% in calendar year 2016 which is a little bit more than what the consensus expected (of 1.8%). Our economists in Europe noted that growth was strongly tilted towards consumption thanks to several tail winds (refugee crisis, low inflation, labour market strength), while slowing exports weighed on private equipment investment. They also note however that with several tail winds fading and a workday effect weighing, GDP growth looks set to slow in 2017 to 1.1%. In other news, Euro area industrial production was confirmed as rising a much better than expected +1.5% mom in November (vs. +0.6% mom expected).

Looking at the day ahead, this morning in Europe it’s particularly quiet with no significant data due out although expect there to be some focus on the BoE’s credit conditions and bank liabilities survey, due out at 9.30am GMT. This afternoon in the US the calendar is a fair bit busier however. The highlight is likely the December retail sales report where the market consensus for headline sales is running at +0.7% mom, while the core is expected to come in at +0.4% mom. Also due out is the December PPI report where the consensus there is for a +0.3% mom rise in the headline. Business inventories for November and  the preliminary University of Michigan consumer sentiment survey for this month follow later on. Meanwhile the Fed’s Harker is scheduled to speak again at 2.30pm GMT. The other big focus is clearly those aforementioned US bank earnings reports.

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UK Labour Leader Jeremy Corbyn Accused Of “Collaborating With Russia” For Wanting Peace

Submitted by Mike Krieger via Liberty Blitzkrieg blog,

Welcome to “everyone I disagree with works for Putin,” the UK version.

UK Labour leader Jeremy Corbyn sits on the polar opposite of the political spectrum in most respects from U.S. President elect Donald Trump, yet they are both being accused of the same blasphemy — wanting peace with Russia. Here’s what I’m talking about, from The Independent:

In an interview with BBC Wales today, Mr Corbyn said it was “unfortunate that troops have gone up to the border on both sides”.

 

He added: “I don’t want to see any more troops deployed on the borders between Nato and Russia, I want to see a de-escalation, ultimately a de-militarisation and better relationships between both sides of it... there cannot be a return to a Cold War mentality.”

This is precisely the sort of sober commentary I’d want to hear from an elected leader at such an unnecessarily charged and dangerous moment, yet Mr. Corbyn was attacked for it in a manner quite familiar to us Americans…

The Conservative Armed Forces Minister Mike Penning has accused Jeremy Corbyn of “collaborating with Russia” in response to comments that British troops about to be deployed to Estonia were there to “escalate tensions” between Russia and NATO.

 

Mr Penning said the comments made on Wednesday by a spokesperson for Mr Corbyn showed that Labour “cannot be trusted with Britain’s national security”.

 

Mr Penning said: “Britain has Nato’s second biggest defence budget and plays a leading role in the alliance. It is unprecedented for a leader of the opposition to attack the defensive deployment of British troops in Nato territory.

 

“These comments suggest that the Labour leader would rather collaborate with Russian aggression than mutually support Britain’s Nato allies. As with Trident, everything Labour says and does shows that they cannot be trusted with Britain’s national security.”

The fact that Jeremy Corbyn is being attacked in exactly the same manner as Donald Trump tells us all we need to know. Namely, that if you disagree with the neocon/neoliberal establishment’s foreign policy, this makes you an agent of Vladimir Putin. Absurd and childish? Certainly, but that’s what they’re going with. Which is extremely important to recognize.

Those of us opposed to a continued insane push for more imperial overseas militarism must understand this isn’t a partisan issue. There is an entrenched establishment in power, and they laugh at Republican/Democrat or Conservative/Labour distinctions. These people are totally united in their thirst for confrontation with Russia.

Ok, fine, so what do we do about it? The reason I’m pointing all of this out is to stress the importance of unity. I see too much ego strutting and preening in the alternative media world today. Too many people who seem more focused on their own fame and status, and appear too preoccupied with picking stupid fights with others to see the bigger picture of what’s really at stake. The time for pettiness is over, the time for unity has arrived.

We need to isolate the big issues we all agree in order to successfully take on a well organized, bipartisan establishment. As I noted on Twitter the other day.

If we are divided and conquered with petty fights by demanding conformity on all the issues we care about, we are doomed. I don’t want to convince you that I’m right about everything, I want to win. To win, we must unite.

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Guggenheim: “3% Is The Beginning Of The End”

The debate over what yield on the 10Y spells the end of the 30 year bond bull market, and would spillover into selling among other asset classes, is heating up.

Earlier this week, in his monthly annual letter Bill Gross wrote that 2.6% is the only level for the market that matters: “This is my only forecast for the 10-year in 2017. If 2.60% is broken on the upside – if yields move higher than 2.60% – a secular bear bond market has begun. Watch the 2.6% level. Much more important than Dow 20,000. Much more important than $60-a-barrel oil. Much more important that the Dollar/Euro parity at 1.00. It is the key to interest rate levels and perhaps stock price levels in 2017.”

Later that day, during his webcast with investors, Doubleline’s Jeff Gundlach slammed Gross as a “second tier bond manager” for his “forecast”, and countered that 3.0% is the magic number: “the last line in the sand is 3 percent on the 10-year. That will define the end of the bond bull market from a classic-chart perspective, not 2.60%” as Gross suggested.  He then added that “almost for sure we’re going to take a look at 3 percent on the 10-year during 2017, and if we take out 3 percent in 2017, it’s bye-bye bond bull market. Rest in peace.”

Today, a third bond manager joined the frey when Guggenheim’s Scott Minerd sided with Gundlach and said that 10-year yields could end their long-term trend if they rise above 3%.

“It’s basically the beginning of the end,” Minerd told Bloomberg Television. “Long-term trends like this don’t reverse quickly,” he added, saying yields might spend several building a new base before taking off.”

Minerd also said the Federal Reserve risks falling “behind the curve” on the U.S. economy and needs to raise interest rates in March, a step that markets see as far from certain. Futures trading implies a roughly 30 percent chance, according to data compiled by Bloomberg. The fund manager also said that while stock markets may be volatile as President-elect Donald Trump takes office, his policies ultimately can provide a “potent mix” for economic growth. The S&P 500 Index, now at 2270, is likely to end the year in the 2450-2500 neighborhood, according to Minerd.

However, he cautioned that markets continue to disagree with the Fed’s dot plot signaling where rates are headed, which makes “the market is vulnerable to a tantrum.”

Also, he said that “as the business cycle ages, in 2019, 2020 when we could anticipate we might have another recession, that there will be another deflationary burst that will bring rates back down if we do get above 3%, but we haven’t violated that trend yet.”

We have little to add to this pissing contest about whose prediction about the number that marks the end of the bond bull market will be right, suffice it to say that it truly is a bizarro world when some of the smartest bond managers are arguing over some squiggles on a chart.

via http://ift.tt/2ijPmpQ Tyler Durden

Financial Times Editorial Seeks Restrictions On Free Speech To Stop False News “Propaganda War”

Submitted by Michael Shedlock via MishTalk.com,

A pair of articles by the Financial Times offers quite the take on disinformation hypocrisy.

I suggest the Financial Times look into the mirror if it wants to understand where the problem is.

Worse yet, to stop the spread of fake news, the FT editorial board wants restrictions on freedom of speech.

Yesterday, in The Threat Posed by Putin’s Cyber Warriors the FT was so worried about “disinformation” that it proposed restrictions on freedom of speech.

“The Russian state is far from alone in using hacking as a form of espionage. What distinguishes Moscow’s activity is the malicious way it appears to be using the information garnered and disseminating fake news to further pollute the political atmosphere. The timing of leaks during the US election looked calculated to weaken Hillary Clinton, the Democratic candidate,” claims the FT editorial view.

After railing against “fake news” the editorial view went on to propose restrictions on free speech.

“Berlin is considering imposing hefty fines on media outlets that spread false and malicious information. This may seem an undue restriction to freedom of speech but in the context of a propaganda war designed to undermine western democracy, it may be necessary to do more than enforce existing laws on libel and incitement.”

FT Purveyors of Fake News

That was yesterday. Today, the Financial Times spread fake news. Please consider Trump blasts US intelligence on Russia dossier.

Actually it’s the subtitle I want you to consider.

ft-fake-news

The subtitle “President-elect acknowledges Moscow hacked election” is a blatant lie.

Trump did not admit Moscow hacked the “election”.

Let’s consult the press conference transcript.

As far as hacking, I think it was Russia. But I think we also get hacked by other countries and other people. And I — I can say that you know when — when we lost 22 million names and everything else that was hacked recently, they didn’t make a big deal out of that. That was something that was extraordinary. That was probably China.

 

But remember this: We talk about the hacking and hacking’s bad and it shouldn’t be done. But look at the things that were hacked, look at what was learned from that hacking.

 

That Hillary Clinton got the questions to the debate and didn’t report it?

Key Differences

Trump never said Russia hacked the “election”. He did not even say Russia hacked anything. He said he “thinks” Russia hacked [the DNC].

  1. Hacking the “DNC” is not quite the same as hacking the “election”.
  2. “Think they did” is not the same as “did”.

The Financial Times should know the difference, especially in this heated environment.

By the way, the DNC was “hacked” by anyone. Someone at the DNC exposed their password in a phishing expedition.

And now we have Democrat Senators all wanting an investigation into a proven bogus dossier given to the FBI by Senator McCain.

To top it off, the FT wants to restrict freedom of speech to prevent the spread of fake news.

Who is to be the judge of fake news?

If the FT editorial board has an ounce of sense, it will immediately take back its preposterous stance.

via http://ift.tt/2iOyfsm Tyler Durden

Visualizing Donald Trump’s $20 Trillion Problem

Only a few days after Trump’s inauguration ceremony, the U.S. National Debt will creep across the important psychological barrier of $20 trillion.

It’s a problem that’s been passed down to him, but, as Visual Caitalist's Jeff Desjardins notes, it certainly puts the incoming administration in a difficult place. The debt is burdensome by pretty much any metric, and the rate of borrowing has exceeded economic growth pretty much since the late 1970s.

How Trump deals with this escalating constraint will be a deciding factor in whether his administration crashes and burns – or ends up re-positioning America for greatness.

Donald Trump’s $20 Trillion Problem

Partisans will squabble about who added what to the mounting debt, but the reality is that none of that really matters. Both parties have kicked the can down the road for the last 40 years, and that has culminated in the current situation:
Debt incurred under each President

Source: The Money Project

Back in 1979, the debt-to-GDP ratio was a modest 31.8%, and the federal government only had an outstanding tab of $826 billion. Fast forward to today, and the perpetual borrowing has added up.

The debt-to-GDP is now 104.2%, with the total debt burden nearing the $20 trillion mark.

US government debt to GDP

Source: The Money Project

In absolute terms, the debt is the highest it has ever been. Using the common measure of debt-to-GDP, the debt is the highest it’s been in 70 years. The last time it soared past the 100% mark was during the final year of WWII.

Granted, the situation isn’t as bad as Greece, Cyprus, or Japan – but it’s getting there:

Debt to GDP

Source: The Money Project

In terms of debt-to-revenue, a measure that compares the national debt to the amount of taxes taken in by the federal government, the U.S. has the 2nd highest debt out of 34 OECD countries:

Debt to Revenue

Source: The Money Project

On a “per person” basis, each person in the U.S. owes $61,300 – the second highest in the world. Per taxpayer, however, that amount balloons to $167,000.

Changing Rhetoric

So what does Trump think of all this debt business? It’s hard to say, because his rhetoric has changed.

At the start of his campaign, he made it clear that debt would be a top issue for his administration. In February 2016, Trump said that the U.S. was becoming a “large-scale version of Greece” and that tackling the debt would be “easy” with a more dynamic economy. In April 2016, he said he could pay off the debt after eight years in office.

This rhetoric aligns with the official GOP platform, which says that the national debt has “placed a significant burden on future generations”, calling for a “strong economy” and “spending restraint” to pay it down.

But since then, Trump’s views may have changed.

His most recent economic plans include $1 trillion in infrastructure and $5 trillion in tax cuts – and they could increase debt by anywhere from $5.3 to $11.5 trillion. He’s also said that the U.S. will never have to default because it can simply “print money”.

How Trump will choose to deal with the debt is a big question – and only time will tell if his actions will make America great again.

 

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The Money Project aims to use intuitive visualizations to explore ideas around the very concept of money itself. Founded in 2015 by Visual Capitalist and Texas Precious Metals, the Money Project will look at the evolving nature of money, and will try to answer the difficult questions that prevent us from truly understanding the role that money plays in finance, investments, and accumulating wealth.

via http://ift.tt/2j77r7I Tyler Durden