Tag: news

By EconMatters

We look into the CFA Exam, and discuss a more preferred option for actually learning the fundamentals of Finance.

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In Morgan Stanley’s Sunday Start note explaining “what’s next in global macro”, the firm’s go-head of economics, Chetan Ahya notes that he remains confused by a “unique cycle” in which “our current conversations would have been centred on whether the global economy is overheating. Instead, the probability of a global recession and possibility of further stimulus still dominate our discussions on the global economy.”  Here is why, according the Morgan Stanley, the current cycle is so different, and why “global growth will likely remain below trend for a while longer and recession risks will likely remain a more topical subject than overheating risks.“

From Morgan Stanley’s Sunday Start | What’s Next in Global Macro, authored by Chetan Ahya

It’s Just Not What Used to Be

This cycle has been unique. Had it been a typical cycle, our current conversations would have been centred on whether the global economy is overheating. Instead, the probability of a global recession and possibility of further stimulus still dominate our discussions on the global economy.

The private sector’s behaviour and mind-set is the root cause of the uniqueness of the current cycle. Among the top 10 DM and top 10 EM economies, private sector debt in 12 of the 20 economies is above 200% of GDP. The shock from the financial crisis has left both the private sector and financial intermediaries seeking to restore health to their balance sheets. This motive has taken on paramount importance and might have even superseded the usual profit maximisation motive.

Reflecting the subdued animal spirits, the private sector has not responded to monetary stimulus with as much vigour as would have been expected. Moreover, monetary and fiscal policies have not really been employed in tandem in the past five years. Concerns that government spending tends to be less productive in nature and crowds out private spending, coupled with the issue that high levels of public debt would restrain longer-term economic growth prospects, have meant that public demand has not been a meaningful offset to weak private demand. The net result is a global economy which is still affected by the problem of demand deficiency and lowflation risks.

Japan’s experience over the past two decades is instructive in this regard. In the 1990s, fiscal policy was employed aggressively to lift aggregate demand, but deflationary pressures persisted as the monetary policy stance was too tight – real interest rates were too high relative to real GDP growth. The private sector repaired its balance sheets and built up its saving consistently during the 1990s before saving stabilised at relatively high levels during the early part of the current decade. The change in monetary policy stance came in 2013 when the BoJ brought real interest rates into negative territory. The complementary monetary and fiscal policies, at that time, led to an improvement in the GDP deflator, moving above 1%Y for the first time after 22 years, and a change in the private sector’s behaviour as it drew down its saving and levered up. However, policy-makers tightened fiscal policy prematurely in 2014, resulting in a renewed rise in private sector saving, which brought back the challenges of weak growth and disinflationary pressures.

The implications from Japan’s experience are two-fold: i) Both monetary and fiscal policies must be employed in order to fully address the demand deficiency – monetary policy to keep interest rates low and fiscal policy to provide a direct boost to aggregate demand; and ii) Expansionary policies should be maintained until the private sector is done repairing its balance sheet, when inflation expectations have stabilised, as any premature tightening would revive the challenges all over again. The recovery of private sector momentum is key to reviving productivity growth.

The private sector in major parts of the world has remained in a deleveraging mode, weighing on global growth. Private sector debt growth has been decelerating in the euro area, Japan and the UK but has been holding up reasonably well in the US. The softer momentum in private sector debt growth is also reflected from an expenditure perspective, where capex growth has been weak while consumption is holding up as the last pillar of growth. The deceleration in DM private demand momentum, coupled with an ongoing adjustment process in EM, has therefore meant that global growth has been close to the recession threshold of 2.5% for the last two quarters.

While we do project a recovery from 2Q16 onwards, the risks to the outlook remain skewed towards the downside. The momentum in private sector debt growth and the policy response which follows will be key in determining the growth outlook. In Japan, where private sector debt growth momentum has slipped the most among the G4 economies, policymakers have recently announced their intention to postpone the consumption tax hike, originally scheduled for 2017, and we expect them to announce material fiscal easing soon. Europe is already pursuing a moderately expansionary fiscal policy and the refugee crisis spending could provide a strong fiscal impulse relative to our baseline. In the UK, we expect only a mild increase in the fiscal deficit, but active fiscal policy will be needed if the recent weakness in private spending is sustained. In the US, private sector momentum has been relatively healthy and recent signs are pointing towards an uptick in consumer spending. We therefore do not expect a large fiscal response, but do expect   that overall growth in 2016 is likely to remain sub-par due to the drag from the external environment. In China, policy-makers had lifted public spending to offset the weakness in private demand. However, they have begun to reduce policy support recently, resulting in a slowdown in growth, raising the risk of the current mini-cycle recovery ending early. Taken together, global growth will likely remain below trend for a while longer and recession risks will likely remain a more topical subject than overheating risks.

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In a somewhat shockingly journalistic interview with Hillary Clinton, ABC's George Stephanopoulos (a Hillary donor) confronted the former secretary of state that her private email-server use "was not allowed.. and that you broke State Department rules." The clearly angered Clinton – perhaps hoping for a few softball questions to enable her to make her propagandist talking points – tried to say the report vindicated her saying "everyone knew" and that she was not the only one, but, as Mediaite reports, Stephanopoulos challenged her, asking pointedly if she really just doesn’t “accept the conclusions of the report.”

 

The pained look on Hillary's face when Stephanopoulos would not acquiesce is worth the price of admission…as it is slowly dawning on Clinton that her version of reality is not being bought by the average joe… or George…

 

Perhaps this sums it up nicely…

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By the SRSrocco Report,

A SERIOUS CRACK appeared in the markets today.  This was due to the lousy payroll report of only 38,000 new jobs for May.  The market expected 160,000 new jobs, but it turned out to be more than four times less.  This is the worst jobs report since 2010.

Moreover, the jobs that we have been adding to the market for the past several years were mostly low paying service jobs like bartenders, waitresses, Walmart greeters and etc.  So, with all the massive amount of monetary injections and zero interest rates, the best we could do was prop up the service economy for a few years.

This extremely bearish payroll report caused the Dollar Index to fall 140 basis points, the markets to sell off, and gold and silver to surge higher.  I believe this is the first CRACK of a series of cracks that will cause severe problems for the economic and financial markets going forward.
WAKE UP AMERICANS…. You’re Invested In Soon To Be Worthless Paper Assets

The overwhelming majority of Americans are invested in the broader markets in one way or another.  I imagine we all in the precious metals community have plenty of stories to tell in which we have tried to convince some of our family members, relatives or friends to get out of paper assets and into physical gold and silver.  I gather the success rate in SAVING ONE OF THE POOR SOULS from certain economic death is about 1 in 20…. if that high.

So, all we can do is sit back and watch the fireworks when they finally arrive.  Of course, it will be one hell of a HORROR SHOW.  Unfortunately, this won’t be a scary movie you can just walk out of when it’s finished… it will go on and on for years destroying the lives of millions.  This is very sad indeed.

To understand why the broader stock markets (and most retirement accounts) are in real trouble, we need to look at the chart below:

If we consider the S&P500, the Dow Jones and total U.S. debt, we can see a very interesting trend here.  If we go back to the first quarter of 1980, the S&P 500 was 110 points while the Dow Jones was 865 points.  Furthermore, total U.S. Debt was a measly $863 billion in the beginning of 1980.

Well, let’s fast-forward to today.  The S&P 500 is now a whopping 2,100 points, the Dow Jones swelled to 17,800 and total U.S. Debt has ballooned to a massive $19.2 trillion.  Thus, since the beginning of 1980 the S&P 500 increased 19 times, the Dow Jones index increased 21 times, while total U.S. Debt jumped 22 times.

THERE IS NO COINCIDENCE HERE FOLKS.

I explained this in my recent interview with Rory Hall at The Daily Coin:

https://www.youtube.com/watch?v=ePabW7XZX7I

The huge rise in the S&P 500 and the Dow Jones indexes occurred on the back of massive debt accumulation.  As I discussed in the interview, an individual with $1 million in assets and $1 million in debt has a net worth of ZERO.  Unfortunately, Americans had no idea that they have funneled hard-earned funds for several decades into the GREATEST PONZI SCHEME in history that is backed by nearly $20 trillion of debt.

Mainstream investors better be prepared for the GREAT FINANCIAL & MARKET ENEMA.  The debt is becoming unsustainable and it will take down the market with it…. as well as the value of most paper assets.

The S&P 500 and Dow Jones flew high on Debt, and will Die on debt.

PRECIOUS METALS Will Be The Safe Haven, Especially Silver

This next chart shows how truly undervalued the precious metals are, especially silver:

If we look at the price of gold, oil and silver since Q1 1980, we see a much different picture than the S&P 500 and Dow Jones.  As we can see, the average price of gold during Q1 1980 increased from $620 to $1,210 today (chart was made before the big move up on Friday).  Also, the price of oil has increased from $36 in Q1 1980 to $48 today.  On the other hand, the price of silver today at $16 is less than half of what it was in the beginning of 1980 ($35).

If we look at these two charts, we can plainly see the massive increase of debt made its way into the broader markets rather than gold, silver or oil.  As I stated in the beginning of the article, THIS WAS DONE ON PURPOSE.  Why?

1) Investors were motivated to put surplus funds to feed the Great U.S. Paper Ponzi Scheme.  We must remember, a Ponzi Scheme can only work if there are new suckers willing to contribute funds in hopes of being paid off in the future.
2) The U.S. Govt & Wall Street funneling of Americans funds into a Paper Ponzi Scheme kept them from investing in physical assets such as gold and silver.  This kept the value of gold and silver depressed
3) Inflation was kept low because fund flows went into the broader markets and not into energy or commodities.

Basically, inflation since the early 1980’s was forced into the broader markets rather than into energy and commodities.  Which means, most Americans have this false sense of WEALTH, when in all reality, they are completely broke.   They just don’t know it yet.

When the markets really CRACK in a big way, investors will flock into gold and silver… just like they are doing today on a lousy jobs report.  However, I believe silver is a great deal more undervalued than gold.  This can be seen looking at the change in price of gold and silver since 1980.  Gold has at least doubled, while silver has fallen in half.

Moreover, nearly half of all silver produced was consumed by industry and is lost forever.  In contrast, most gold produced since 1980 is still around in private hands as jewelry, small bar and coin form or in large bars in Central Bank vaults.

When the markets finally CRACK… and crack they will, silver will be the best performing asset in the precious metals class.

Lastly, If you haven’t checked out our new PRECIOUS METALS INVESTING page, there is some interesting information.

Check back for new articles and updates at the SRSrocco Report.

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Submitted by JP Sottile via TheAntiMedia.org,

Who says nothing is made in the USA anymore?

Certainly not the well-heeled denizens of the State Department’s diplomatic corps. And they should know. That’s because they’re stationed on the frontlines of the ongoing battle to preserve Uncle Sam’s dominant market share of the global weapons trade. Luckily for the Military-Industrial Complex, it turns out that “Made In the USA” inspires a lot of brand loyalty, even if actual loyalty is often a harder sell (paging Saudi Arabia). To wit, not only was America the world’s leading arms dealer in 2014 with $36.2 billion in sales, but it topped that 35% surge in sales over 2013 with yet another profitable spike to $46.6 billion in 2015.

As Stockholm International Peace Research Institute (SIPRI) determined in its recent report on the global arms trade, the United States maintains a commanding “33% share of total arms exports” and is the world’s top seller for five years running. And its customer base includes “at least” 96 countries, which is nearly half of the world’s nations. A robust 40% of those exports end up in the Middle East. Perhaps that’s why the State Department is so darn bullish on the prospects of Uncle Sam’s booming business of selling things that go “boom!”

That’s the takeaway from a recent report in Defense News highlighting the marketing push by “Commercial Officers” stationed at the US embassy in Jordan. They worked the crowd at the kingdom’s eleventh bi-annual Special Operations Forces Exhibition and Conference (SOFEX).  Like many of the nearly 100 military-themed “trade shows” held around the world this year alone, SOFEX offered the profiteers of doom an opportunity to display their merchandise and to cut deals with bellicose browsers ready to pull the trigger on a deadly impulse buy. Some of the bigger, “glitzy” trade shows — like the International Defence Exposition and Conference (IDEX) held yearly in Abu Dhabi — are full-on one-stop-shopping destinations for the up-and-coming military power on the move, the newly-minted pro-Western junta eager to armor-up, and the forward-thinking “Coalition Partner” looking for the latest in “kinetic warfare.”

If nothing else, trade shows offer defense contractors a chance to give out “promotional tchotchkes” to potential future customers who might be swayed to double-back by a branded camouflage carryall or a Digi Camo Military Bert Stress Reliever. No doubt it’s a tedious affair, but the presenters toiling behind the displays are not alone on the battlefield of commerce. That certainly was the case at SOFEX, where the U.S. Embassy deployed Senior Commercial Officer Geoffrey Bogart and Regional Safety and Security chief Cherine Maher to act as sale-force multipliers for America’s military moneymakers. As Jen Judson detailed, Bogart and Maher tracked down sales leads throughout a region gripped by chaos since America wantonly destroyed a bystander nation under false pretenses (a.k.a. Iraq). Here are Judson’s highlights from Bogart and Maher’s magical misery tour of the profitable market forces currently shaping America’s recently reshaped Middle East:

JORDAN: “We are very high on the safety and security market in Jordan,” Geoffrey Bogart, a commercial officer at the US Embassy said. Bogart said there is an abundance of market prospects for US companies to do business in Jordan, including in border security, cyber security, command and control centers, telecommunications equipment, military vehicles, artillery, tactical equipment, bomb and metal detectors, and closed circuit television (CCTV) and access control.

EGYPT: “Egypt is facing a lot of challenges especially in terms of border control and whether it’s from the West or the East or the North or the South, so the main project that is going on is border and perimeter control,” Maher said, which means the country really wants bomb detection, jammers and improvised explosive device diffusers.

LIBYA: The current instability in Libya has led to challenges for US firms, according to Maher; however, US companies’ products are in high demand there. “The trick is how to enter the market, who to sell to, and making sure of export license,” she said, adding some products that had been permitted to be sold to Libya now have restrictions.

TUNISIA: There is continuous growth in Tunisia’s defense market, Maher said. Tunisia plussed up its security forces budget in 2016 due to growing terrorist threats in the region. The country wants to build up its force capacity to deter regional threats, strengthen defensive capabilities and support counterterrorism operations.

LEBANON: Lebanon is interested in border security; however, it’s particularly interested in securing public buildings and providing for civilian protection due to ongoing insecurity in some towns and cities near Beirut, Maher said.

IRAQ: Maher said Iraq has a particularly “dynamic” market valued in 2014 at about $7.6 billion, which is about 3.44 percent of its GDP. With the ongoing war against the Islamic State group, it is anticipated that Iraq will soon spend around $19 billion, which would make up about 18 to 20 percent of its GDP. Like all the other countries in the region, Iraq is investing heavily in safety and security equipment, and also wants personal protective gear and security systems for residential and commercial buildings, according to Maher.

A “dynamic” market is right … that is, if you’re General Dynamics. Or Lockheed Martin. Or Boeing. Or any of the big six defense contractors who together took home $90.29 billion of the over $175 billion worth of taxpayer dollars doled out last year to the top 100 military contractors. Not coincidentally, seven of the top eight U.S. Government contractors are defense companies, with only health care services provider McKesson making it past a phalanx of defense wheelers and dealers.

It’s a rarified world greased last year by $127.39 million of lobbying largesse and another $32.66 million spent so far this year, according to OpenSecrets.org. Of course, lobbying offers a great bang for the buck when it comes to stoking sales. A MapLight analysis earlier this year found that “major U.S. government contractors have received $1,171 in taxpayer money for every $1 invested in lobbying and political action committee contributions during the last decade.”

Now that’s some serious ROI!

Still, nothing quite compares to the breeder reactor effect that comes from using expensive military hardware to destroy regimes in a never-ending global war against a tactic. Regime change touched off civil war in Iraq. That spread to Syria which, in turn, sent over 660,000 refugees into Jordan and over one million refugees into Lebanon … all of which explains why Bogart and Maher are so bullish on the sale of security-related products to those two nations and why the entire region is in the midst of a military buying spree.

Then there is the chaotic aftermath of regime change in Libya, which threatens to spill over to two more booming markets — Tunisia and Egypt. Of course, Egypt had its own U.S.-endorsed internal regime change at the hands of a loyal customer and longtime recipient of American “aid”— the Egyptian military. It was really a “coup,” but U.S. law would’ve prevented selling Egypt’s military junta tear gas canisters marked “Made In USA” (among other things) if it was officially a coup d’etat, so the Obama Administration simply didn’t call it a coup.

Now, according to Ms. Maher, Egypt’s military is in the market for yet more military hardware that, according to a new GAO report detailed by The Intercept, is not being properly or legally vetted by the State Department. Those purchases are easily funded by the $6.4 billion in U.S. aid since the coup in 2011. And (go figure) Egypt’s wishlist is justified, in part, by the sudden need to ward off interlopers from regime-changed Libya, which, according to the aforementioned Ms. Maher, is still a red-hot market for U.S. arms dealers … if they can get the export licenses.

And so the dynamic market churns onward — with tax dollars paying the salaries of State Department “Commercial Officers” who work for the heavily-subsidized U.S. defense industry as salespeople in overseas markets destabilized by taxpayer-funded wars fought by taxpayer-supported American soldiers armed with weaponry purchased from that self-same defense industry with — you guessed it — more tax dollars.

The “diplomats” in the State Department act as important go-betweens in the process, helping “customers” navigate the military-industrial complexities of end-user certificates, export licenses, and human rights restrictions so they can spend taxpayer-funded U.S. “aid” that invariably ends up back in the coffers of Lockheed, Boeing, Raytheon, and so on.

Once the money makes it back home to the defense industry, those companies invest some of their windfalls into lobbying, into SuperPACS, into both political parties, and directly into campaigns of the Congressional cronies who dutifully rubberstamp the defense budget that enriches the defense industry. So far this year, they’ve poured over $17 million into those efforts and, in turn, they’ve provided the fuel to run the “dynamic” perpetual machine in which the State Department is a vital cog.

And this is why the folks at the State Department know full-well that, in fact, America still actually makes something — it is the world’s leading manufacturer of war.

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By EconMatters

We include some of the most offensive valuations in this short Index, with a diversified sector weighting, and divergent catalysts that should reward the patient investor solid returns from the short side of the market over the next 6 months.

© EconMatters All Rights Reserved | Facebook | Twitter | YouTube | Email Digest | Kindle   

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Back in 2013, when David Rosenberg infamously flip-flopped from bear to bull on the “thesis” that everyone’s wages (not just his), are about to rise, and that a jump in wage inflation would be the catalyst to unleash a broad economic recovery in the process crushing bonds, we were decidedly skeptical. We said that the only thing that had changed at the time, was the Fed’s launch of QE3, which more than anything succeeded in fooling a great deal of otherwise smart people into believing that, like in China, the massive credit impulse-induced boost would be not only sustainable but lead to economic growth.

It did not.

Some three years later, not only is wage inflation nowhere to be found, but bond yields are about as low as they have ever been, over $10 trillion in global debt yields less than 0%, while increasingly more speculate that the outcome of the Fed’s disastrous policies (and Obamacare) will be stagflation, as a result of stagnant wages coupled with soaring prices for such core services as healthcare, drugs, rent and education (not to mention the stock market bubble), tumbling productivity and economic output that keeps sliding.

To be sure, David Rosenberg did not take lightly to our crticism of his flip-flop leading to this infamous exchange from January 2015.

Fast forward nearly 18 months later, and it seems that it is time for another flip-flop from the former Merrill strategist.

But first by way of background, this is what Gluskin Sheff economist told the WSJ only this past February:

“I put the odds of a U.S. recession in the next year as close to zero as anything could be close to zero,” said David Rosenberg, chief economist at money-management firm Gluskin Sheff & Associates.

 

A spike—not a fall—in oil prices preceded or accompanied every recession since the 1970s. “This is the first time I’ve ever heard the economic intelligentsia talk about how lower oil prices are going to trigger a recession in the United States,” said Mr. Rosenberg.

Which brings us to today’s when as Henry Blodget notes that David Rosenberg is once again back in the bearish camp and “thinks we are headed for a recession.”

David Rosenberg thinks we’re headed for a recession (jobs report not an anomaly and even worse than it looked) https://t.co/Xfamnb1M2U

— Henry Blodget (@hblodget) June 5, 2016

Here is Rosenberg’s latest “analysis” as per BI, in the aftermath of Friday’s stunning collapse in payroll growth:

We had been saying for some time that if there was something in recession in the U.S. it was productivity and that a huge gap had opened up over the past six months between weak business output growth and the pace of job creation.

 

Well, now we know how that gap is being resolved — with the latter playing catch-down to the former.

 

As everyone is left wondering “what happened?” here is what happened.

 

Productivity declined at a 1.7% annual rate in Q4 of last year and followed that up with a 1.0% drop in Q1. On average, labor input expanded at nearly a 2½% annual rate and nonfarm business output growth barely averaged 1%.

 

So do the math.

 

From last October to this past March, we had an unusual situation where aggregate hours worked outpaced production by a ratio of two-and-a-half to one.

 

Not sustainable.

 

The mean reversion means that it is pay-the-piper time in terms of what this means for the labor market.

 

Nonfarm payrolls rose a meager 38,000 in May and even accounting for the striking Verizon workers, the headline still would have been less than half the consensus estimate of +160,000.

 

This is the biggest “miss” by the economics community since December 2013, and the worst headline since September 2010 when the Fed was more preoccupied with its next round of quantitative easing than with raising the funds rate.

 

Not just that, but there were downward revisions to the prior two months totaling 59,000 — something we have not seen since June of last year.

 

Look at the pattern; +233,000 in February, +186,000 in March, +123,000 in April and +38,000 in May. Detect a pattern here (he asks wryly)?

 

You can see why I was gagging when I heard some of the pundits on “bubblevision” tell the anchors this morning that the Fed will look through one number. Dude — this isn’t one number, it is a pattern of softness that has been in effect for the past four months… and counting.

Ah yes, pundits telling anchors to look through numbers… here comes the latest flop:

I don’t want to alarm anyone but the facts are the facts, and the facts here is simply that this is precisely the sort of rundown we saw in November 1969, May 1974, December 1979, October 1989, November 2000 and May 2007.

 

Each one of these periods presaged a recession just a few months later — the average being five months.

So, wait, the odds of a recession in the next year are not “as close to zero as anything could be close to zero“? Truly so much changes in just 4 months, especially with the stock market soaring since Rosenberg’s made this statement to just shy of alltime highs.

There was just one time, in the 1985/86 oil price collapse, that we had such a huge decline in goods-producing employment without a recession lurking around the corner — but the Fed was easing then and fiscal policy was a lot more accommodative than is the case today.

 

Not even the job slippage in goods-producing sectors during the 1995 soft landing and the 1998 Asian crisis were as severe as what we have had on our hands from February to May.

 

For such a long time, the service sector was hanging in but services ultimately service the part of the economy that actually makes things.

 

Private service sector job gains have throttled back big-time — from +222,000 in February to +167,000 in March to 130,000 in April to +25,000 in May (ratified by the non-manufacturing ISM as the jobs index sagged to 49.7 in May from 53 in April — tied for the second weakest reading of the past five years).

The sudden bashing of the economy continues:

Once again, a discernible pattern here, but it is where the slowdown is taking place that is most disturbing.

 

More than one-third of the weakening we saw in the private services sector came in temp-agency employment where employment shrunk 21,000 in May, down now in four of the past five months and by a cumulative 64,000 which is a losing streak we have not seen since August 2009.

 

In fact, this type of weakness over such a stretch, again not to sound like an alarmist, occurred just prior to economic recessions in the past, without exception and with no “head fakes”.

 

Yes, it typically is not good news when the headhunters are the ones to start chopping off heads — this is a leading indicator. So I may not want to sound alarmist, but the answer is yes … I am worried.

 

In fact, the weakness in employment has broadened out rather dramatically — this is not just a one or two sector phenomenon. This is not just about factories cutting back, shale weakness affecting mining or constraints within the reregulated financial sector.

* * *

The bottom line is that no matter how shockingly weak the headline numbers were, the details were even worse.

Yes, truly a shock to anyone who was spoonfed the government’s recovery propaganda without digging deeper behind the numbers.

As for his conclusion:

We were always skeptical over all this rate-hike chatter of late, which seems to have just come out of nowhere, but for the Fed to tighten policy in the face of this extremely sluggish job market backdrop would be more than just a touch bizarre.

 

Then again, Fed officials have also told us that they are data-dependent and let’s face it… there is no smoking gun in the employment data, that is for sure, and there are no data points as important as the labor market.

 

This is a game-changer.

Yes indeed, and now we look forward to every other economist’s “narrative pivot” in the coming weeks, economists such as another former data cheerleader and permabull, DB’s Joe Lavorgna, who frontran Rosenberg’s latest flip-flop conversion by about 6 months, and who as we reported yesterday, warns that the next US recession may start as soon as next quarter.

via http://ift.tt/1r8qMaD Tyler Durden

This weekend the Swiss population was called upon to make a historic decision, when Switzerland became the first country worldwide to put the idea of free money for everyone, technically known as Unconditional Basic Income (of CHF2,500 per month for every adult man and woman, and CHF625 for every child, for doing absolutely nothing) to a vote. 

As reported previously, the outcome of this referendum would set a strong precedent and establish a landmark in the evolution of the debate of handing out free money in a centrally-planned world. And as predicted, based on early vote projections it has been a landslide decision against the “free lunch.”

Opponents of the Swiss Basic Income Initiative demonstrate in front of parliament

According to BBC, some 78% of voters opposed the plan, a GFS projection for Swiss TV suggested. AFP adds that most Swiss vote in advance by post, so a large majority of ballots had already been counted, and gfs.bern put the margin of error at just plus/minus three percent.

Supporters said since work was increasingly automated, fewer jobs were available for workers. Switzerland is the first country to hold such a vote. No figure for the basic income had been set, but those behind the proposal suggested a monthly income of 2,500 Swiss francs (£1,755; $2,555) for adults and SFr625 for each child, reflecting the high cost of living in Switzerland. It is not clear how it would affect people on higher salaries.

Supporters of a basic income last month launched a giant poster campaign. The
poster unfortunately fails to ask “who is going to pay for it?”

“We are very happy,” Ralph Kundig, one of the lead campaigners, told the ATS news agency. Supporters threw a party in Lausanne to celebrate the 22 percent of votes they had garnered. “One out of five people voted for the unconditional basic income, so that is a success in itself,” Sergio Rossi, an economics professor and backer of the initiative, told ATS.

However, there was little support among Swiss politicians for the idea and not a single parliamentary party has come out in favour, but the proposal gathered more than 100,000 signatures and was therefore put to the vote under the Swiss popular initiative system. 

Critics of the measure say that disconnecting the link between work done and money earned would be bad for society. But Che Wagner from the campaign group Basic Income Switzerland, says it wouldn’t be money for nothing. “In Switzerland over 50% of total work that is done is unpaid. It’s care work, it’s at home, it’s in different communities, so that work would be more valued with a basic income.”

Luzi Stamm, who’s a member of parliament for the right-wing Swiss People’s Party, opposes the idea. “Theoretically, if Switzerland were an island, the answer is yes. But with open borders, it’s a total impossibility, especially for Switzerland, with a high living standard,” he says.

“If you would offer every individual a Swiss amount of money, you would have billions of people who would try to move into Switzerland.”

Because, one you start handing out free lunches, everyone wants a piece of the pie…

Andreas Ladner, a political scientist at Lausanne University, told RTS the Swiss were “realistic” in their assessment of the UBI plan. Accepting that people can “be paid without having to work would have been a very big step” for the industrious Swiss, he said.

Critics have slammed the initiative as “a Marxist dream”, warning of sky-high costs and people quitting their jobs in droves, causing economic chaos.

The wording on the initiative was vague, asking for a constitutional change to “guarantee the introduction of an unconditional basic income” but with no mention of amounts.

Switzerland may be the first but it won’t be the last. The idea is also under consideration elsewhere. In Finland, the government is considering a trial to give basic income to about 8,000 people from low-income groups. And in the Dutch city of Utrecht is also developing a pilot project which will begin in January 2017.

* * *

Meanwhile, here are some recent thoughts on why the idea of a Free Lunch, old as time, will never work.

The Free Lunch – A Fantasy as Old as Methuselah

The promise of a free lunch is by no means a new thing in politics. Getting “something for nothing” is an age-old shiny trinket that has been dangled before the eyes of the public since time immemorial. In fact, it has appeared so excruciatingly often in our political history, for centuries on end, that one would think that it wouldn’t work anymore; not in 2016, surely. And yet it does. UBI is the proof that there are still people who choose to believe that “no strings attached” freebies and gifts are promises one can rely on and build an economy on, especially when they are coming from their government and rulers.

However, there are always some strings attached to such gifts and if history has taught us anything on this matter, it is the distinction between a gift and a bribe. Unsavory political ideologies and catastrophic cultural philosophies often tend to make their debut in front of the public hidden inside a Trojan gift horse. Unrealistic yet enchanting promises have always been a reliable political tool and it has never been a big strategic challenge to corrupt the people by granting the majority something that was stolen from minorities.

The Cultural Argument for Collectivism

Key figures of the pro-UBI camp take pride in claiming that the main motivation behind the campaign is not economic but cultural. They say this proposal aims to make people think about the nature of life and work, it is a way to liberate them from the jobs they don’t like but need, a status which the scheme’s advocates, quite unhistorically, equate to the indignity of slavery. On top of this, they claim, UBI will help society survive the imminent unemployment apocalypse: they believe that with the help of automation and artificial intelligence 50% of all the existing jobs will be taken over within the coming decade by computers and machines.

Such an argument might sound superficially rational, but it goes deeper than that: It presupposes that we as human beings see ourselves downgraded and equated to a machine, like just another cog that can be replaced at any time, in a system where man is literally defined as a human resource.

The truth is that it is indeed a cultural debate, far more than it is an economic one. The only conceivable aim of such a factually unhinged and unfounded proposal can be to gauge the mind-set of the Swiss people in this moment in time. The outcome of this referendum can provide a valuable insight into the Swiss mentality, and whether the Swiss  actually prefer collectivism over individualism. Such a signal could serve as cue for a further escalation of government empowerment: After all, the collapsing centralized system is bound to show symptoms of desperation by “doubling down” and accelerating and maximizing its centralization efforts. Thus focusing on the symptoms and secondary effects is futile; a real difference can only be made by addressing the root cause, the system itself.

Despite the economic non-sequiturs and the plain Utopianism that lie at the core of the idea of a Universal Basic Income, the concept seems to be gaining popularity worldwide. Canada is set to conduct an experiment with this idea later this year. The city of Utrecht in the Netherlands is launching a pilot program, Finland is planning a two-year trial and a British proposal is gathering interest, while the nonprofit group Give Directly will start providing a guaranteed income to 6,000 Kenyans this month in a decade-long scheduled program and track the results. The idea seems to be gaining traction due to the Western Left’s efforts, however the polls in Switzerland are painting a dramatically different picture: the UBI initiative is projected to suffer a crushing defeat.

A Bastion of Liberty

The Swiss have been voting counter-intuitively for years: When they held a referendum for or against six weeks of vacation, or when they were called upon to vote for an initiative advocating fewer working hours, or even when they made their choice on the issue of the minimum wage, they always delivered outcomes that seemed surprising to the rest of the West, especially the rest of Europe. Up to now, the Swiss have consistently rejected interference by the state when it came to such topics and have refused to grant more powers to their government. Even in recent years, when the trend in favor of aggressive state expansionism seems to be stronger than ever, Switzerland appears to still hold the line as the last bastion of liberty that remains standing.

So what is so different about the Swiss then? Switzerland is indeed very different, because it became a nation by its peoples’ own will, based on limited government, strong private property rights and a direct democracy founded on the principles of subsidiarity. This has always required open dialogue and being exposed to different ideas and values: Vigorous debate itself leads to an enlightened society. Thus, the essential difference lies in the nation’s culture, mentality and philosophy.

The Swiss have grown up in an environment in which the people were always able to decide for themselves, but they also have a long tradition of doubt and of dissent. Every critical issue is discussed and decided by the people, the actions of government are subject to the judgment of and limited by the citizenry. All viewpoints are heard, even anti-establishment voices have their say, and critical thinking provides the basis for society’s future. However, this is only possible when people rely on their own mind to think about the issues individually and independently.

Switzerland is therefore quite a hostile terrain for those who wish to promote “free lunches” and “no strings attached” gifts. A long history of independent thinking, of consequential analysis and of government limitation, makes it very easy for the Swiss to see past the populism-fueled empty promises and the associated publicity stunts. The upcoming rejection of the UBI proposal on June the 5th will and should serve as a reminder that the Swiss still remain the exception to the rule.

via http://ift.tt/1O9e9Ya Tyler Durden

Good news for the gold investors on Friday as the Department of Labor Statistics released the long-awaited jobs report. We won’t bore you with re-hashing everything in there, but the main point you should remember is pretty obvious, the US economy was able to create just 38,000 jobs which is definitely much less than the 160,000 jobs the analysts were expecting.

Despite this abysmal result, the unemployment rate fell by 0.3% to just 4.7%. That does sound very encouraging but indeed, the unemployment rate didn’t fall because so many new jobs were created, no, the unemployment rate fell because hundreds of thousands of Americans who were previously available for the labor market have now left the labor force.

Source: DLS Data.

The US mainstream media has rallied its troops to offer explanations for the huge miss. CNBC said we should actually be very happy with the low job growth as it means the productivity of the existing labor market participants has increased, whilst CNN claims the strike at Verizon has had a negative impact on the total growth rate as ’36,000 Verizon employees didn’t report to work’. Sure, that’s a very valid statement but even when you’re trying to sugarcoat things, you should make sure the math works out. Even if you’d add all of the 36,000 Verizon employees to the equation, the total job creation would be just 74,000 which still is more than 50% lower than the average expectations.

On top of that, the Labor department reduced the job growth numbers of the two previous months and slashed the job growth number in March and April by an additional 59,000 jobs.

Does this surprise us? Not at all. We wrote an article last month wherein we already explicitly warned the DLS seems to be overestimating the job growth numbers at the time of publication, but subsequently has to backtrack on its words and confess the job growth rate is much lower. We literally wrote:

‘If both February and March had to be revised (in a negative way), it’s not impossible the weaker-than-expected April report could be subject to another negative revision.’

That has now indeed happened, and this increases the pressure on the Federal Reserve to do nothing at all. It’s absolutely unthinkable the Fed will increase the benchmark interest rates at its June meeting, and this is now also being reflected in the futures market.

Source: CME Group

Last week we showed you how the market was indicating there was a 32% chance there would be no rate hike before September, and the odds have now changed completely, as there futures market is indicating there’s a 52% chance nothing will happen, whilst the odds there will be just one rate hike by February next year have increased from 55% to  a stunning 76%.

Source: CME Group

The sharp reaction in the gold price (up $30/oz) shows how fast the market can switch between a bullish and bearish point of view. The continuous hints from Janet Yellen about potential rate hikes did scare the market which resulted on more pressure on the gold price. Now a new rate hike seems to become very unlikely, the appetite for owning gold is returning.

The US economy is definitely getting worse by the month, and no, you cannot blame the strike at Verizon for this.

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