Bloomberg Stumbles On The “Only One Buyer Keeping The Bull Market Alive”

Last week, when Bloomberg was celebrating the 7 year anniversary of the third longest, most central bank-supported, and thus “most hated” bull market in history, it said that  “investors are awash in angst, showing little faith the run can continue. They worry about contracting corporate earnings, slowing Chinese growth and uncertainty over interest rates. And they’re walking the talk by pulling cash from stocks at almost the fastest rate on record. It’s not unwarranted – the S&P 500 has gained just 0.5 percent in the last 18 months.”

 

While confused by this unprecedented equity outflow, it then promptly spun the “bullish angle”and noted that just because the rally is the “most hated in history”, it probably will continue:

[W]hen people withdraw money, stocks inversely tend to rise later, according to data since 1984. In the 12 instances when funds experienced monthly outflows that were at least 2 standard deviations from the historic mean, the S&P 500 rose an average 7.1 percent six months later, compared with a normal return of 3.9 percent, data compiled by Bloomberg and Investment Company Institute show.

 

[Once] things start to turn around, bears will be forced to buy. From Feb. 11 through Monday, a Goldman Sachs Group Inc. index

of the most-shorted companies outperformed the S&P 500 by almost 16 percentage points, the most in data going back to 2008.

What Bloomberg failed to touch upon was who was buying. Ever helpful, we explained what Bloomberg was missing:

What Bloomberg is confused by is that despite this unprecedented rally, after a brief period of inflows in 2013 and 2014, investors have been pulling money out of stocks at a record pace, leading not only Bloomberg but many others to dub the move in the market as the “most-hated rally ever.”

 

Specifically, what Bloomberg fails to note is that as everyone else has been selling, corporations have unleashed the biggest debt-funded stock buyback spree in history, providing the natural offset to wholesale selling by virtually everyone else, and allowing the market to barely dip over the past year.

 

And since the bond market had gotten clogged up in recent months as a result of the market turbulence, that explains why the ECB proceeded with the unprecedented step of explicitly backstopping the IG bond market, a move which we first, and then JPM explained, would encourage even more stock buybacks.

* * *

Today, nearly a week later, Bloomberg follows up on its celebratory “anniversary” piece with the much needed clarification hinted here, in an article explaining that “There’s Only One Buyer Keeping S&P 500’s Bull Market Alive.” This is what Bloomberg “uncovered”:

Demand for U.S. shares among companies and individuals is diverging at a rate that may be without precedent, another sign of how crucial buybacks are in propping up the bull market as it enters its eighth year. Standard & Poor’s 500 Index constituents are poised to repurchase as much as $165 billion of stock this quarter, approaching a record reached in 2007. The buying contrasts with rampant selling by clients of mutual and exchange-traded funds, who after pulling $40 billion since January are on pace for one of the biggest quarterly withdrawals ever.

 

It gets better: in a far less exuberant note than last week, Bloomberg’s Lu Wang – author of the original article – writes that “while past deviations haven’t spelled doom for equities, the impact has rarely been as stark as in the last two months, when American shares lurched to the worst start to a year on record as companies stepped away from the market while reporting earnings. Those results raise another question about the sustainability of repurchases, as profits declined for a third straight quarter, the longest streak in six years.”

“Anytime when you’re relying solely on one thing to happen to keep the market going is a dangerous situation,” said Andrew Hopkins, director of equity research at Wilmington Trust Co., which oversees about $70 billion. “Over time, you come to the realization, ‘Look, these companies can’t grow. Borrowing money to buy back stocks is going to come to an end.”’

Even the banks are throwing up on the “rally”

Assuming Bank of America maintains a roughly 8 percent share in the total buyback pool since 2009 and the pace of transactions lasts through the end of March, corporate repurchases may reach $165 billion this quarter, data compiled by Bloomberg show. That would bring the 12-month total above $590 billion, an amount that’s higher than the record $589 billion in 2007.

 

“Corporate buybacks are the sole demand for corporate equities in this market,” David Kostin, the chief U.S. equity strategist at Goldman Sachs Group Inc., said in a Feb. 23 Bloomberg Television interview. “It’s been a very challenging market this year in terms of some of the macro rotations, concerns about China and oil, which have encouraged fund managers to reduce their exposure.”

 

Should the current pace of withdrawals from mutual funds and ETFs last through the rest of March, outflows would hit $60 billion. That implies a gap with corporate buybacks of $225 billion, the widest in data going back to 1998.

The bottom line:

S&P 500 companies have churned out more than $2 trillion of repurchases since 2009, helping sustain a rally where share prices almost tripled. Bolstering the outlook for debt-financed buybacks, credit stress has eased since February, with the extra yield demanded on investment-trade bonds over Treasuries narrowing by 36 basis points.

 

The growth rate of buybacks is slowing as profits are poised for a fourth quarter of declines. After rising an average 37 percent in the previous five years, repurchases grew less than 4 percent in 2015. During the last two decades, there have been two times when earnings contractions lasted longer than now. Both led companies to slash buybacks, with the peak-to-trough drop reaching an average 62 percent.

It goes without saying that since the buybacks come entirely on the back of debt issuance, corporate net leverage is now the highest level in a decade, as Kostin warned last night, and urged investors to stay away from overlevered companies.

What we find most ironic, is that the author of the Bloomberg piece is the very same Wang last week wrote “What Doesn’t Kill Bull Market in Stocks May Make It Stronger.”

We wonder if this sentiment has been revised now that Bloomberg actually has the “big picture”, and realizes that the only thing pushing the market higher is bond issuance (courtesy of central banks) whose proceeds are used to immediately buy all the stock that investors are dumping.

Then again, maybe not for a while. After all, as we explained in under 140 characters last week, the only reason for the ECB’s expansion into Corporate bond QE was to boost the market by unleashing European stock buybacks.

 


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Oil will be over $100 a Barrel in 3 Years (Video)

By EconMatters

Here is the Oil Equation: Existing Supply minus Shale Destruction, minus Cap Ex Reductions, minus Depletion Rates Globally, minus Demand Growth versus Iranian New Supply. Oil will be above $45 a barrel by April, above $70 a barrel in fifteen months, and over $100 a barrel in 3 years once you start plugging in the numbers in the aforementioned oil equation. The scary thing is we now know what Russia, Saudi Arabia and OPEC have in terms of Spare Capacity – and it is much less than we thought five years ago.

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“We’re One Hawkish Fed Statement Away” From A “Sharp Re-Pricing,” Deutsche Bank Warns

On Sunday evening we brought you the latest from Goldman’s chief equity strategist David Kostin who explained that sharp swings in crude prices have created pronounced (and in fact historic) momentum swings, catching those who had piled into “popular investment themes” to be caught flat-footed. Here’s what Kostin said:

The correlation between major macro trends has caught many popular investment themes in the momentum spin cycle. In 2015 and the first weeks of this year, lower oil prices were accompanied by lower Treasury yields and downward revisions to US growth expectations, boosting the performance of popular growth stocks and defensive equities while weighing on banks. At the same time, the US dollar, which carries a strong negative correlation with oil, strengthened by nearly 15% and presented another headwind to the US economy. The combination of growth concerns and low oil prices widened credit spreads to recessionary levels and benefitted the performance of stocks with strong balance sheets. All of these trends have reversed sharply in recent weeks.

But as we wrote, Kostin is far from bullish. Instead, he says the market may be underestimating (or else just plain ignoring) the “largest current macro risk”: a hawkish Fed and consequently, a stronger USD. The result, another sharp reversal as stocks with strong balance sheets are once again in vogue versus momo plays, energy, and anything with nosebleed leverage.

Well now Deutsche Bank is falling in line, suggesting that European equity investors are missing the very same risks (i.e. a hawkish Fed, resultant strong USD, and weaker commodities).

“Our European credit strategists estimate that the ECB could buy €5bn – €10bn a month in IG corporate bonds starting at the end of Q2, out of an eligible universe of €400bn – €500bn,” the bank’s European equity strategists write, in note out Monday. “If ECB easing in combination with stronger oil prices pushes up Euro-area inflation expectations, while increased asset purchases reduce peripheral bond spreads, GDP-weighted Euro-area real bond yields have further downside, which should boost European P/Es.”

But, you should be cautious. Why? Because “we are just one hawkish Fed statement away,” from a series of events that will end in investors returning to their “clearly depressed” positioning in February. To wit:

However, we maintain our cautious stance on equities, given that: (a) we think we are just one hawkish Fed statement away from a potentially sharp re-pricing of Fed tightening expectations, which would push up real bond yields (as happened after the start of the ECB’s QE program in Mar 2015) as well as the dollar; (b) the surge in Chinese credit growth in January, a key driver of the recent commodity rally, looks unsustainable (and, in fact, credit figures show lending slowed sharply in February). Any drop in commodity prices would risk putting renewed upside pressure on credit spreads (despite ECB buying); (c) investor positioning is now at neutral levels, while it was clearly depressed in mid-February.

Here is that progression in chart form:

And here’s the collapse in TSF growth which suggests January was a blip, along with DB’s positioning proxy which certainly suggests that something has to give:

In other words, it’s the ECB versus the Fed for the hearts and minds of investors as the policy divergence tug-of-war just got more intense with Draghi’s move into corporate credit. As we wrote on Sunday, “the European central bank is backstopping bond issuers, it will almost certainly lead to even more outperformance by weak balance sheet companies as yet another central bank intervention unleashes another divergence between fundamentals and central planning.” Unless Yellen accidentally tanks the whole effort.

As for Deutsche’s bull case, you’ll note that quite a lot has to go right for European equities to realize their supposed 10%-13% upside. In fact, it would appear that nearly everything would have to go right. We’ll leave you with the bull case description and let readers judge how likely it is to unfold: 

What is the bull case? Anticipation of the ECB corporate bond buying program (CSPP) leads credit spreads to tighten across markets, while real bond yields drop in response to ECB easing and a dovish Fed in March. European macro data stabilizes and commodity prices rise further, as Chinese growth surprises on the upside in H1, in line with our Chinese economists’ projection. Under this scenario, European equities have around 10% upside: if the ECB’s CSPP and stronger commodity prices push US HY credit spreads back to 2015 trough levels (down another 230bps), this points to 13% upside for European equities. Similarly, a drop in Euro-area real bond yields to the Dec trough of minus 55bps (down another 20bps) would mean 6% upside to European P/Es (15.5x, versus 14.6x now). For investors wanting to position for this scenario, banks, autos and insurance benefit the most from a combination of lower credit spreads, lower real bond yields and improved macro momentum.


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Chinese Insurance Company Which Bought Waldorf Astoria Submits “Hostel Bid” For Marriott Hotels

The “hostel takeover” saga for Starwood Hotels took another unexpected turn this morning, when the company’s stock price soared following news that the hotel chain had received an unsolicited $76/share non-binding proposal (8% premium to the Friday close) from an investor group led by China’s Anbang Insurance Group, in a deal that seeks to scuttle its planned combination with Marriott International.  The proposed deal values Starwood, one of the world’s largest hotel companies which includes such brands as Westin, Sheraton, The Luxury Collection, W Hotels, St. Regis, Le Meridien and many others, at $12.8 billion.

Early on Monday Marriott issued a press release announcing it was still committed to the proposed tie-up with Starwood, said the consortium was led by Anbang, which in October of 2014 struck a deal to buy Hilton Worldwide Holdings Inc.’s flagship hotel, the historic Waldorf Astoria in Manhattan, for $1.95 billion. To wit:

On March 11, 2016 Starwood notified Marriott that it had received an unsolicited indication of interest in purchasing Starwood from a consortium of potential investors, led by Anbang Insurance Group.  Marriott notes that this unsolicited indication of interest is highly conditional and non-binding.  Marriott granted Starwood a waiver to expedite its evaluation of the letter from the interested consortium.

Starwood’s deal with Marriott includes a period during which it can consider other offers; that time frame expires at 11:59 p.m. Eastern Time on March 17. The press releases also aded the following:

Marriott will monitor this development as it and Starwood continue to work toward the closing of its transaction and the successful integration of the two companies in anticipation of votes by each company’s stockholders on March 28, 2016.

 

Starwood stated today that its Board of Directors has not changed its recommendation in support of Starwood’s merger with Marriott.  Starwood has said that its Board, in consultation with its legal and financial advisors, will carefully consider the outcome of its discussions with the consortium in order to determine the course of action that it determines is in the best interest of Starwood and its stockholders.

Starwood does not plan to comment further on discussions before the expiration of the waiver period on Thursday night.

As a reminder, Marriott agreed to acquire Starwood in November. The combination would create the No. 1 hotel company globally-with more than a million rooms-and bring together 30 brands across all lodging segments, from Starwood’s higher-end W Hotels, St. Regis and Westin brands to Marriott’s limited-service offerings like Courtyard by Marriott and its extended-stay chain Residence Inn.

Stepping back from the deal itself, what this last minute proposal by a Chinese insurance group represents is nothing more than another “innovative” attempt to park capital outside of the country.

Recall that over the weekend, the PBOC cracked down on various schemes enabling capital outflows outside of China. So what better way to transfer funds from China abroad, than to move away from one-off purchases of Vancouver real estate at ridiculous prices than to engage in wholesale M&A in the US, only this time at ridiculous valuations?

We expect a bidding war, even more acquisitions by Chinese insurance companies of US businesses, and ultimately, the involvement of Congress which will surely chime in on this Chinese attempt to acquire core US businesses in what is nothing more than more “streamlined” capital flows outside of China.


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Frontrunning: March 14

  • Fed to sit tight on rates at March meet, hint at hikes to come (Reuters)
  • Election setback a ‘wake-up call’ for Merkel, media and politicians say (Reuters)
  • Germany’s Merkel under renewed attack after populists’ poll success (FT)
  • Temperatures Rise on Eve of Next GOP Contests (WSJ)
  • Carl Icahn setting up son to take his place: sources (Post)
  • Turkey Vows Swift Retaliation After Bomb Kills 37 in Capital (BBG)
  • One of Ankara bombers was female PKK member: Turkish security sources (Reuters)
  • ECB’s Cheap Loans Highlight Rift Among Europe’s Banks (WSJ)
  • Pimco May Have to Face Gross’s Suit After Stormy Exit (BBG)
  • Trump’s Long Trail of Litigation (WSJ)
  • Putin’s $50 Billion Oil Cache Gives Russia Luxury to Ignore ECB (BBG)
  • Obama’s prisoner clemency plan faltering as cases pile up (Reuters)
  • Inflation Target Draws Fire From All Sides
  • Russia ready to cooperate with U.S.-led coalition in fight for Syria’s Raqqa (Reuters)
  • Goldman revamps electronic stock trading to catch rival (Reuters)
  • Maryland police officer slain in ambush, two suspects arrested (Reuters)
  • Apollo Global Management to Acquire Fresh Market (WSJ)

 

Overnight Media Digest

WSJ

– Venture capital firm Sequoia Capital said it parted ways with long-time partner Michael Goguen in the wake of allegations he sexually abused a woman and failed to follow through on a $40 million settlement. (http://on.wsj.com/24Zeqlj)

– Hewlett Packard Enterprise Co, having backed away from a key portion of the cloud computing-on-demand market, is expanding into cloud services to help companies analyze data such as photos, audio clips and comments on social media. (http://on.wsj.com/1M1n7p1)

– A television reporter and cameraman with the Australian Broadcasting Corp were briefly detained in Malaysia after attempting to interview Prime Minister Najib Razak while he campaigned ahead of a coming state election in the Borneo state of Sarawak. (http://on.wsj.com/24ZccTa)

– Blackstone Group LP is selling a portfolio of U.S. luxury hotels to the Chinese owner of New York’s Waldorf Astoria, just months after buying it for $4 billion. (http://on.wsj.com/24Zcauv)

– Chinese smartphone maker Xiaomi Corp is betting on an e-commerce boom in India to help offset slowing sales at home. (http://on.wsj.com/24ZcdGL)

– A powerful car bomb hit a bustling business district in central Ankara Sunday night, killing at least 34 people and wounding 125 others, and showing the threats Turkey faces in its fight with Kurdish separatists and Islamic State militants based in neighboring Syria. (http://on.wsj.com/24ZdQEg)

– Bristol-Myers Squibb Co has sprinted to an early lead in the race to sell a class of cancer treatment by bucking the trend toward precision medicine and sticking to the mass-marketing approach in selling its drug, Opdivo. (http://on.wsj.com/1M1ounv)

 

FT

* China’s Anbang Insurance Group has agreed to acquire Strategic Hotels and Resorts Inc for around $6.5 billion, a few months after private equity firm Blackstone Group LP took the company private.

* UK’s Justice Secretary Michael Gove and Labour MP Gisela Stuart have been tasked to head the Vote Leave campaign, a campaign to take Britain out of the European Union.

* British finance minister George Osborne will announce further cuts to publ

 

NYT

– Democrats in the Senate said they would introduce two bills on Monday to give Puerto Rico broad powers to shed some of its $72 billion of bonds while also giving its public workers’ pensions priority over the bonds. (http://nyti.ms/22ex8De)

– U.S. Federal Reserve officials will gather in Washington on Tuesday and Wednesday to debate whether a bumpy start to the year is now in the past, clearing the way for higher interest rates. (http://nyti.ms/1M1oJPx)

– Blackstone Group LP has agreed to sell Strategic Hotels and Resorts to Anbang Insurance Group, in a deal valued at $6.5 billion, according to a person with knowledge of the deal who was not authorized to comment. (http://nyti.ms/1M1oTGN)

– CBS’s decision to expand the announcement of the N.C.A.A. men’s basketball tournament field to a two-hour program backfired on Sunday when the full field was leaked and circulated online early in the show. (http://nyti.ms/1M1pSqu)

 

Canada

THE GLOBE AND MAIL

** More than two years after U.S. authorities began investigating Kinross Gold Corp for alleged corruption in Africa, the case remains unresolved, but details of the company’s financial activities are starting to leak out.(http://bit.ly/1ppaxGs)

** Brazil’s political crisis deepened on Sunday when opposition parties seized the occasion of nationwide anti-corruption demonstrations to push for a change in power. An estimated 1.8 million people took to the streets in peaceful protests across the country, demanding the resignation of President Dilma Rousseff.(http://bit.ly/1poNcEK)

** The federal government is fond of boasting about how its controls on weapons exports are among the strongest in the world, but Canadians are left largely in the dark over precisely what military and security equipment is being shipped to foreign customers – including those with poor human-rights records.(http://bit.ly/1ppaUkn)

NATIONAL POST

** The sudden resignation of longtime Royal Bank of Canada director Joao Pedro Reinhard, who faces a drug-related charge, should mitigate “reputational contagion” at Canada’s largest bank, corporate governance experts say.(http://bit.ly/1RgIll1)

** As the Bank of Canada hunts down a candidate to become the first Canadian woman on a banknote, numismatists are pointing out that there’s already been one. Princess Patricia, who died in 1974, was the wildly popular daughter of a Canadian Governor General whose portrait was chosen to grace a patriotic $1 note issued in the midst of the First World War. (http://bit.ly/1P7TDAz)

 

Britain

The Times

* The chief executive of Tesco, Dave Lewis, has warned that the retail sector could come under intolerable pressure unless George Osborne pledges to reform business rates. (http://thetim.es/1Ur9m4p)

* French President Francois Hollande has demanded that EDF press ahead with an 18 billion pound ($25.88 billion) reactor in Britain despite growing misgivings at home over the project.(http://thetim.es/1Ur9II6)

The Guardian

* British retail tycoon Philip Green could be asked to give up 280 mln pounds to save 13,000 British Home Stores staff from having their pensions cut. (http://bit.ly/1Ur7LM0)

* Advertising company WPP will reveal this week that its chief executive, Sir Martin Sorrell, has been handed shares worth 60 million pounds. (http://bit.ly/1Ur7VTp)

The Telegraph

* Be Heard, the new advertising group founded by former Aegis chief executive Peter Scott, is close to announcing the 20 million-pound takeover of the website and apps design agency MMT Digital. (http://bit.ly/1Ur86hK)

* Lombok, the upmarket furniture chain known for its Eastern-inspired dark teak beds and tables, is being put up for sale by the private equity buyer which rescued the retailer from near-collapse seven years ago. (http://bit.ly/1Ur8f4O)

Sky News

* Broadcasters and actors who use a loophole to avoid paying their fair share of income tax are to be targeted in next week’s Budget. (http://bit.ly/1Ur8TPM)

* EDF ‘s chairman Jean-Bernard Levy has said he is “confident” that the 18 billion-pound Hinkley Point C nuclear power station will go ahead and it has the support of both the French and British governments. (http://bit.ly/1Ur965s)

The Independent

* The regulator of the Office for National Statistics needs its own IMF-style agency to police the quality of the ONS’s output, according to a government-commissioned report by Sir Charles Bean. (http://ind.pn/1Ur8wog)

* British finance minister George Osborne is being pressed to exempt more small businesses from paying business rates before Wednesday’s Budget. (http://ind.pn/1Ur8MDP)


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Proposed Massachusetts Stoned Driving Rule Is Better Than Washington’s but Worse Than Current Law

In a report issued last week, a legislative committee charged with considering the implications of marijuana legalization in Massachusetts says “there is no well-accepted standard for determining driver impairment from marijuana intoxication.” The report’s authors nevertheless recommend “establishing a legal limit for THC blood concentration that would support at least a permissible inference standard in court.” That is the approach taken by Colorado, where it has proven more favorable to defendants than the per se rule in Washington, under which any driver who exceeds a specified THC blood level is automatically deemed impaired. But Colorado’s approach is still scientifically unsound, making it easier to convict innocent people than the current law in Massachusetts. 

It seems strange that the legislators who wrote the Massachusetts report, after conceding that there is no scientific basis for tying the legal definition of impairment to a particular THC level, would recommend tying the legal definition of impairment to a particular THC level. They do not say what the level should be, possibly because that would only serve to highlight how arbitrary such cutoffs are. “Whereas the impairment effects for various concentration levels of alcohol in the blood or breath are well understood,” the National Highway Traffic Safety Administration notes, “there is little evidence available to link concentrations of other drugs to driver performance.” Hence “specific drug concentration levels cannot be reliably equated with a specific degree of driver impairment.” 

That fact makes life more difficult for cops and prosecutors, which explains the appeal of a per se rule. But the same uncertainty makes a per se rule clearly unjust. The “permissible inference” approach aims to split the difference between a per se rule and current Massachusetts law, which requires the government to show a driver consumed enough of a drug to “reduce his ability to operate a motor vehicle safely by diminishing his alertness, judgment, and ability to respond promptly.” Blood test results can be presented as evidence, but they are not conclusive. Colorado, by contrast, allows (but does not require) a DUI conviction based on nothing more than blood test results.

The THC cutoff in Colorado is the same as in Washington: five nanograms per milliliter. But while exceeding that level in Washington automatically leads to conviction, Colorado defendants can try to persuade jurors that they were not in fact impaired, and that distinction has proven decisive in many cases.

Consider Ralph Banks, who was pulled over in Lakewood, a Denver suburb, last March because of a broken headlight. The officer who stopped Banks noticed that he smelled of marijuana—which was not surprising, since he grows the stuff for Medicine Man, a state-licensed pot store in Denver—and asked him to perform roadside sobriety tests. The officer reported that Banks “failed to perform at a satisfactory level.” He was arrested for DUI, and a blood test put his THC level at 7.9 nanograms per milliliter, well above the cutoff. He was nevertheless acquitted earlier this month.

Rob Corry, Banks’ lawyer, says a physician who testified for the defense and the arresting officer, who is considered a “drug recognition expert,” agreed that “marijuana affects every person differently.” Although the officer said he was convinced Banks was intoxicated, there was no evidence of careless driving, and Corry was able to cast doubt on the validity of the roadside tests. “We established that the roadsides are generally designed for alcohol detection, which was not a factor in this case,” Corry says. “Furthermore, performance on them is a subjective analysis. Much of it is touchy-feely garbage. Glassy eyes, nervousness, estimating 30 seconds with eyes closed and head back, etc. Police in Colorado (to their detriment) never videotape roadsides, so juries are left with analyzing the subjective memories of police officers’ opinions about performance rather than objective evidence.”

Banks did not testify, but he told the officer he had not smoked marijuana in four or five days. Corry says Banks had used a cannabis-infused muscle rub earlier that day. That could help account for for his THC level, which in any event was not especially high for regular cannabis consumers, even when they are not impaired. “The commonsense suggestion was made that frequent, experienced marijuana consumers understand how marijuana will impact them, better than novices,” Corry says. It took the jurors just half an hour to acquit Banks.

“We have prevailed in numerous marijuana DUI cases around the state, both before and after the five-nanogram permissive inference standard was superimposed by the legislature,” Corry says. “The [rule] lacks much validity, and some juries are smart enough to see through it.” He says it is “challenging to overcome but not impossible.”

While Colorado’s approach is better than Washington’s, Corry says, the pre-legalization standard, which was similar to the current law in Massachusetts, was preferable to both:

I am not optimistic that innocent people will not be wrongly convicted under this inference. Some juries (and all police and prosecutors) latch onto the five-nanogram number as if it is the same as the 0.8 [percent] blood alcohol standard….The previous system, though imperfect, worked better in sorting out the guilty from the innocent. Prosecutors had to come in with actual evidence of impairment. Other drugs that can cause impairment (such as prescription opiates) have no numerical standards, but it is still illegal to operate a motor vehicle while impaired by them. The difference is that the prosecution must actually prove their case through real evidence to prevail. Every person is different. Levels of impairment vary depending on many factors, especially a person’s level of knowledge and experience with the particular drug.

Washington’s per se rule was included in that state’s legalization initiative as way of reassuring voters that legalization would be accompanied by efforts to prevent stoned driving. Colorado’s initiative, by contrast, left the DUI law unchanged, and it was state legislators who enacted the current rule. In Massachusetts, the legalization initiative that is expected to be on the ballot in November likewise does not change the state’s definition of DUI (known there as OUI, for “operating under the influence”). The Special Senate Committee on Marijuana, which issued last week’s report, is urging Massachusetts legislators to follow Colorado’s example. It says “methods and procedures for determining driver impairment due to marijuana, including establishing a legal limit for THC blood concentration that would support at least a permissible inference standard in court,” should be “adopted by statute and in place before any effective date of marijuana legalization.” If the THC limit is supposed to be scientifically sound, that goal would delay legalization indefinitely. 

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Bill Would Require Teachers to Grade Parents on Whether They’re Attentive Enough

TeacherBecause there just isn’t enough meddling in parents’ lives, a bill headed to the Mississippi state Senate would require teachers to grade parents on how involved they are with their kids’ education.

The so-called Parent Involvement and Accountability Act already passed the Mississippi House. If it passes the Senate, not only would parents be required to helicopter their kids’ homework and assignments, they would also be required to cripple their kids’ sense of confidence and self-reliance. After all, what message does a nattering, nagging, homework-obsessed parent send? To the teacher—and statehouse—I guess it will send an A+ under this law. But to the student it sends the message: I don’t trust you to be smart or proactive enough to do your schooling on your own, you lazy slug. You need me, an adult, to constantly oversee and prod you.

According to watchdog.org:

The legislation, by state Rep. Gregory Holloway (D-Hazlehurst), would mandate a section be added to each child’s report card on which the parents are graded on their responsiveness to communication with teachers, the students’ completion of homework and readiness for tests, and the frequency of absences and tardiness.

What’s more, adds the Parent Herald, parents would also be required to volunteer—an oxymoron at best:

[P]arents will be required to participate in at least one supportive function for the school. This includes holding position in the Parent Teacher Association, working at concession stands during sports games or helping kids at bus stops.

While we’re on the subject of the government telling people what to do with their ostensibly free time, the legislation would also mandate nightly writing assignments for students, and require them to read and write a book report on one book each month.

Look, I’d like kids to read more, too. But for the state house to mandate the way teachers teach and parents parent is a top-down idea that does nothing to foster a true love of learning. Instead, it turns reading into a chore, and parenting in policing.

As a government bonus: Parents get to ignore anything else they hoped to do with their family’s free time and devote it to proving their worthiness to the state. Way to go, Mississippi.

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Nancy Reagan’s Crusade: New at Reason

Lady Bird Johnson had highway beautification, Laura Bush had literacy, and Michelle Obama has fitness. But probably no first lady in history has been as strongly identified with a cause as Nancy Reagan, who died last week. In pursuit of “a drug-free society,” she visited schools and treatment centers throughout the country, led thousands of schoolchildren in drug-free pledges, delivered dozens of speeches, gave more than 100 interviews, filmed PSAs with movie stars such as Clint Eastwood, co-hosted Good Morning America, and did cameo appearances on Diffrent Strokes and Dynasty. She even sat on Mr. T’s lap. “If you even save one life,” the first lady liked to say, “it’s worth it.”

But there is no evidence that her crusade saved anyone’s life, or even stopped people from using drugs, writes Jacob Sullum. Although drug use, as measured by government-commissioned surveys, fell during the 1980s, that trend began years before Nancy Reagan launched her “Just Say No” campaign. Reagan’s anti-drug activism was not just silly or ineffectual, however. It was fundamentally misguided, avowedly intolerant, and unabashedly repressive, writes Sullum. It promoted violence as a response to peaceful activities that violate no one’s rights and reinforced misconceptions about drug use that shaped public policy for decades, leading to millions of unjustified arrests and prison sentences. 

View this article.

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Central Bank Rally Fizzles: Equity Futures Lower As Attention Turns To “Hawkish Fed” Risk

The biggest macro development over the weekend was China’s latest “gloomy” economic update, in which industrial production, retail sales and lending figures all missed estimates, however now that we are back to central bank bailout mode, bad news is once again good news, and the Shanghai Comp soared +1.7% among the best performers in Asia on calls for further central bank stimulus while the new CSRC chief also vowed to intervene in stock markets if necessary. In other words, the worse the data in China, the better.

The same of course as true in Europe, where just as Draghi admitted that the 2016 inflation forecast plunged (as we warned in December) and the ECB would not hit its 2.0% inflation target by 2019….

 

… the ECB also unleashed a massive bond buying rally after Draghi said for the first time ever the ECB would monetize corporate bonds, in a move that has infuriated Germany, and confirms Europe’s economy is weaker than ever before as otherwise it wouldn’t need this unprecedented support by its central bank.

As a result, the MSCI Asia Pacific Index and the Stoxx Europe 600 Index were headed for their highest closes in two months.

 

As Bloomberg summarizes the global “deja vu all over again” situation, Central banks are being relied on to revive the global economy after a worsening growth outlook wiped almost $9 trillion off the value of equities worldwide this year through mid-February. The bulk of the stock-market losses have been clawed back, helped by monetary easing in China and last week’s announcement of unprecedented stimulus by the European Central Bank. The Bank of Japan, which adopted a negative interest rate in January, will conclude a policy review on Tuesday and a Federal Reserve meeting ends Wednesday.

“Central banks are going to be dominating market sentiment,” Matthew Sherwood, head of investment strategy at Perpetual Ltd. in Sydney, which manages about $21 billion, told Bloomberg Radio. “That could be enough for the risk rally to continue, but I think it is starting to run out of steam. The Fed is going to be front and center.”

And while Asia was up on China’s bad data, and Europe was higher again this morning to catch up for the Friday afternoon US surge, US equity futures may have finally topped off and are now looking at this week’s critical data, namely the BOJ’s decision tomorrow (where Kuroda is expected to do nothing), and the Fed’s decision on Wednesday where a far more “hawkish announcement” than currently priced in by the market, as Goldman warned last night, is likely, in what would put an end to the momentum and “weak balance sheet” rally. Earlier today, Deutsche Bank doubled down on that call as well.

Elsehwere, WTI started the week lower after Iran said over the weekend it plans to boost output to 4MM b/d before joining other suppliers in seeking ways to balance marke, while Saudi crude output was little changed at 10.22mln bpd in Feb vs. 10.23mln in Jan. Not even the ongoing “imminent OPEC meeting” headline farce, where according to flashing read headlines the OPEC producer meeting is now “expected” to take place in April instead of March as repeatedly reported previously, has been enough to push oil higher today.

Market Wrap

  • S&P 500 futures down 0.1% to 2008
  • Stoxx 600 up 0.8% to 345
  • FTSE 100 up 0.5% to 6173
  • DAX up 1.6% to 9990
  • German 10Yr yield down 3bps to 0.25%
  • Italian 10Yr yield down 3bps to 1.3%
  • Spanish 10Yr yield down 2bps to 1.46%
  • MSCI Asia Pacific up 1% to 128
  • Nikkei 225 up 1.7% to 17234
  • Hang Seng up 1.2% to 20435
  • Shanghai Composite up 1.8% to 2859
  • S&P/ASX 200 up 0.4% to 5185
  • US 10-yr yield down 2bps to 1.96%
  • Dollar Index up 0.17% to 96.33
  • WTI Crude futures down 2.1% to $37.68
  • Brent Futures down 1.7% to $39.72
  • Gold spot up 0.4% to $1,256
  • Silver spot up 1.1% to $15.66

Top Global News via BBG

  • Anbang Expands U.S. Hotel Foray With Record $6.5 Billion Deal: Anbang Insurance’s $6.5b agreement to buy 16 U.S. luxury resorts and hotels from Blackstone marks a record transaction for Chinese buyers of American real estate
  • Brent Swings Near $40 as Falling U.S. Rigs Counter Iran Output: U.S. rig count drops 12th week to lowest since Dec. 2009
  • Danaher, Duke Energy, NextEra Energy to Join S&P 100: S&P 500 constituents DHR, DUK, NEE to replace Devon Energy, Anadarko Petroleum, Norfolk Southern in S&P 100 index after close of trading March 18
  • LSE, Deutsche Boerse Deal Could Be Announced Monday, Times Says
  • Morgan Stanley Says Bonds Set to Surge in 2016 Year of the Bull: U.S. 10-yr yield may fall to 1.45% by Sept. 30 report says
  • Airbnb to Let Neighbors Give Feedback on Hosts, ‘Party Houses’: A new tool will let neighbors weigh in with feedback on Airbnb properties nearby, Yasuyuki Tanabe, the head of Airbnb in Japan, said at a government panel in Tokyo on Monday
  • Disney Says ‘Zootopia’ Tops Weekend Box Office on Sales of $50m
  • Trump Switches Florida Rally to Ohio as Protests Shadow Events
  • Hillary Clinton Accuses Donald Trump of Stoking Violence to Win Votes
  • Carl Icahn Said in Talks With Son Brett to Succeed Him: NYP
  • Apollo Global Said to Near Deal to Buy Fresh Market: Reuters: Nearing a deal to acquire Fresh Market for more than $1.3b, Reuters reports, citing unidentified people familiar
  • Energy Transfer Equity Held Talks on Sunoco Sale: Reuters

* * *

Looking at regional markets, we start in Asia where equities tracked Friday’s Wall St. gains where stock markets rose to the highest level since early January as they digested the ECB’s aggressive measures. Nikkei 225 (+1.7%) advanced with index-giant Fast Retailing gaining nearly 5% as JPY weakness bolstered exporter names, while the largest increase in machine orders for 13 years further added to the optimism. ASX 200 (+0.4%) was led by telecoms and energy after crude posted a 4th consecutive weekly gain. Chinese markets outperformed despite weak China data in which industrial production, retail sales and lending figures all missed estimates, with the Shanghai Comp (+1.8%) among the best performers as the data supports calls for further measures, while the new CSRC chief also vowed to intervene in stock markets if necessary. 10yr JGBs traded higher with prices back above the 151.00 level amid relatively thin trade as the BoJ kicked off its 2-day policy meeting, in which they are expected to keep policy on hold.

Top Asian News

  • China Overseas Buys Citic’s Property Assets for $4.8 Billion: To buy the Chinese residential property assets held by Citic for about 31b yuan ($4.8b); China Overseas will sell 1.1b shares at HK$27.13 each to the Citic cos. as part of deal
  • China Burns Hedge Funds as $562 Million Yuan Bet Turns Worthless: Options on weaker yuan fail to pay out as PBOC intervenes
  • Offshore Yuan Drops as Zhou Says No Need for Major Economy Steps: Investors were expecting more support for growth, analyst says
  • Thailand Passes Korea as Top Nation for Mainland Visitors: Thailand and Japan are attracting more Chinese tourists as South Korea draws fewer
  • India Said to Need an Extra $3.7 Billion in Risk to Deficit Goal: Modi administration to ask parliament for more cash
  • Alibaba Said to Set Fees for Banks on Loan of Up to $4 Billion: Co. is offering 60 bps to lenders committing $200m and above to facility

In Europe, Monday has kicked off where Friday ended, with markets still feeling the full force of Draghi’s actions last week as European equities and fixed income markets all reside in the green. Euro Stoxx (+1.2%) continue to gain today, with the ever-turbulent Italian banking sector among the best performers today, while divergence has been seen in commodities, with materials outperforming while energy remains one of the session’s laggards. Bunds remain at elevated levels this morning, trading above the 162.00 level and amid no supply today, while this week is set to see supply fall to around EUR 16bIn from the EUR 18.2bIn that hit the market last week.

Top European News

  • German Divisions on Merkel Refugee Policy Laid Bare in Votes: Anti-immigration AfD party surges to record in three elections
  • Safran Shares Fall Most Since Feb. 8 After Margin Forecast: Sees flat adjusted recurring oper. margin 2016-20
  • Aryzta Shares Retreat on Forecast for ‘Erratic’ Revenue Growth: Said revenue missed its own forecasts and growth will be erratic over the next 18 months.
  • Turkey Vows Swift Retaliation After Bomb Kills 34; Lira Weakens: Turkish warplanes struck Kurdish militants in northern Iraq hours after a suicide car bomb killed at least 37 people in the capital, Ankara
  • Swiss Seen Holding Fire as Franc Resists ECB for a Second Time: Durvey shows most economists see SNB leaving rates unchanged

In currencies, it has been a very quiet start to the week, with range bound trade seen in the majors so far. We saw some early selling of AUD/USD and Cable, while EUR/USD drifted lower again, but this flow has been turned on its head as the USD index gives up on what has been a modest recovery. USD/JPY had tested 114.00 in the Asia session, but any hopes of retesting this will perhaps have been dashed in the wake of comments from Japan PM advisor Hamada who sees further BoJ easing unlikely near term with the JPY ‘not too strong’ at current levels. USD/CAD has been edging higher as Oil has taken a dip, but the upside has been contained well ahead of 1.3300 higher up.

Australia’s dollar fell 0.5 percent, pacing declines among the currencies of resource-exporting nations, after Chinese industrial output and retail sales data over the weekend added to signs of a slowdown in the world’s second-biggest economy. Malaysia’s ringgit lost 0.4 percent as a falling oil price dimmed prospects for Asia’s only major net exporter of crude. The yuan fell 0.16 percent in Hong Kong’s offshore market and was little changed in Shanghai.

Turkey’s lira weakened 0.5 percent after a suicide car bomb in Ankara killed at least 34 people, the capital’s third attack in five months. The rand slid 0.7 percent, leading losses among major currencies. South Africa’s Directorate for Priority Crime Investigation wants information from Finance Minister Gordhan on what he knew about a so-called rogue unit in the tax agency that investigated political leaders, the Sunday Independent newspaper reported, citing a letter sent by the police unit’s head to the minister’s lawyers.

The Egyptian central bank devalued its pound by almost 13 percent at an “exceptional” sale of dollars on Monday. The central bank said it sold $198.1 million to local lenders at 8.85 pounds per dollar. That compares with a previous exchange rate of 7.73 pounds.

In commodities, Brent and WTI started the session fairly flat and then fell roughly 1.7%. This comes as Saudi crude output was little changed at 10.22mln bpd in Feb vs. 10.23mln in Jan, and also after Iran said it plans to boost output to 4 million barrels a day before it will consider joining other suppliers in seeking ways to rebalance the global crude market.

Gold and other precious metals on the other hand have risen slightly, with gold still rising toward 1260.00/oz with the next notable resistance level at 1260.50.

Copper rose 0.3 percent in London, rebounding from earlier losses. Gold gained 0.5 percent, after retreating 1.8 percent on Friday. The precious metal is far from being out of favor, with money managers holding the biggest net-long position in related futures and options in more than a year, according to Commodity Futures Trading Commission data.

There is no tier 1 economic data in the US today.

Overnight Bulletin Summary from RanSquawk and Bloomberg

  • European equities start the week on the front foot as financial names lead the way higher in the wake of last week’s ECB policy announcements
  • A very quiet start to the week, with range bound trade seen in the majors so far with the USD giving up on its initial modest recovery
  • Treasuries higher overnight, global equity markets rally; crude drops, China’s new securities regulator said it was too early for state rescue funds to leave market and vowed to step in “decisively” if needed to curb panic; this week brings FOMC rate decision on Wednesday, no hike expected.
  • Even though the short-term rates market is priced for unchanged rates at this week’s FOMC meeting, it’s still expected to react as it adjusts to the central bank’s updated Summary of Economic Projections (SEP), known as the “dots”
  • Another sign of how crucial buybacks are in propping up the bull market as it enters its eighth year — S&P’s 500 Index constituents are poised to repurchase as much as $165 billion of stock this quarter, approaching a record reached in 2007
  • Oil fell from a three-month high as Iran plans to boost output by about a third to 4 million barrels a day before joining talks to freeze production. Futures dropped as much as 2.5% in New York
  • Dilma Rousseff’s future as president of Brazil was cast into further doubt as millions of protesters, wearied by scandal and recession, demonstrated peacefully for her ouster in some of the largest rallies in the country’s modern history
  • Chancellor Merkel faces an increasingly splintered political landscape after voters punished her party and lifted the anti-immigration Alternative for Germany to its best showing yet in three state elections dominated by the refugee crisis
  • Industrial production in the euro area jumped 2.1% in January from December, its strongest monthly performance in more than six years, boosted by energy and capital goods
  • Since hitting a 3 1/2-year low just a month ago, European banks have rebounded 28%, with Greece’s Eurobank Ergasias SA, Italy’s UniCredit SpA and Deutsche Bank AG among the top performers
  • Foreign buyers boosted their holdings of Turkey’s sovereign debt by the most in 19 months in February, finding it hard to resist the highest yields in emerging Europe, encouraged by a slowdown in inflation and the ECB stimulus outlook
  • No IG corporates priced Friday; weekly volume $44.595b, March $86.42b, YTD $380.67b; $800m HY priced Friday, $3.225b last week, $14.025b MTD

US Event Calendar

  • No events

Central Banks

  • TBA: Bank of Japan policy rate, est. -0.1% (prior -0.1%)
  • 3:00pm: Reserve Bank of New Zealand speaks in Auckland
  • 8:30pm: Reserve Bank of Australia meeting minutes

Jim Reid concludes the overnight wrap

2016 for European credit investors so far reminds me of Season 9 of Dallas which was completely wiped from existence and turned into Pam Ewing’s bad dream in a plot devise to allow Bobby Ewing to return from the dead having been run down by a car at the end of Season 8. I remember crying at his death as a 10 year old just as I cried a few years earlier at JR Ewing being shot as my nickname at school was JR given my initials. I therefore felt his pain pretty hard. Anyway Draghi has put on his ten gallon hat and has helped write off a nightmare start to 2016 as a bad dream which investors have now awakened from.

To give some context to this turnaround, in the CDS world iTraxx Europe tightened -17bps on Friday (-7bps Thursday) and 58bps off the 2016 wides to now be 10bps tighter on the year. Crossover was 50bps tighter Friday (-18bps Thursday), 178bps off the 2016 wides and 6bps tighter YTD. Even iTraxx Fin Senior has edged just tighter on the year after Friday’s 17bps rally. Sub Fins are back to ‘only’ 15bps wider in 2016 after 34bps of tightening on Friday. In the more important cash market, EU iBoxx non-financial IG corporates (closest to the universe the ECB will potentially pick from) were 11bps tighter on Friday which was the best day since 2011 and in the top 10 of best days of the near 4300 business days since the Euro started in 1999. This index is now 5bps tighter on the year and 34bps off the wides in mid-February. This index is still historically quite wide and we’d still expect notable tightening as we discussed in our note published Friday morning (see the link at the bottom or in your mail boxes at around 5.30am Friday).

One of the things we discussed in our 2016 outlook was that although central banks have limited ability to influence economies in what is a near liquidity trap, we still thought they could move markets this year in spite of concerns they were running out of bullets. The rationale was that with inflation so low they had plenty of room to be aggressive. The ECB last week delivered on this and this week it’s over to the BoJ (tomorrow) and the Fed (Wednesday). While the BoJ will likely take pause for breath after the controversial decision to move into negative rate territory last meeting, Kuroda’s press conference will be widely anticipated. As will Yellen’s after the FOMC will almost certainly stay put. Financial conditions have eased since the last meeting so we would expect the Fed to retain optionality to hike in June whilst acknowledging the fragilities around. Data dependency will likely be the key theme. Overall we still think 2017 will be more of a challenge for the economy and central bankers than in 2016 where inflation is still low enough for the plates to be spun a little more.

Speaking of challenges, China data is proving difficult for analysts to get their head round following a mixed set of releases over the weekend. The negative side of things saw both retail sales (down five-tenths to 10.2% yoy; vs. 11.0% expected) and industrial production (down seven-tenths to 5.4% yoy; vs. 5.6% expected) fall in February relative to the prior month, while growth of funds available for fixed asset investment was also noted as slowing. On the flip side the big surprise was a rebound in fixed asset investment, driven by the rise of property investment. Investment grew 10.2% yoy last month (vs. 9.3% expected) which was up two-tenths from January. DB’s Zhiwei Zhang also highlighted that other indicators in the property sector rebounded as well including the value of property sales, land sales and new housing starts – all of which is suggesting that the momentum in property investment may continue at least in the next few months.

Taking a look at our screens this morning it’s been a strong start for much of Asia this morning with bourses following the lead from those gains in Europe and Wall Street on Friday. It’s China which is leading the way however with the Shanghai Comp (+2.58%) and Shenzhen (+4.04%) both rallying into the midday break. Elsewhere, there’s gains also for the Nikkei (+1.79%), Hang Seng (+1.32%) and ASX (+0.34%). There’s been a big rally for credit markets also. ITraxx Aus and Asia indices are currently 10bps and 5bps tighter respectively. US equity index futures are flat currently, along with Oil. Asian currencies are generally outperforming while the Turkish Lira is a touch weaker following those disturbing reports yesterday of a blast in the Turkish capital of Ankara.

Also of note from the weekend were the German regional elections, where the big news is that of some signs of diminishing support for German Chancellor Merkel’s CDU party. Instead, it’s the rightwing populist forces which appear to have come out on top, with the anti-immigration Alternative for Germany (AfD) party in particular gaining notable support. As per the FT, Merkel’s CDU party has failed in its attempt to claw back the majority in the Baden-Wurttemberg and Rhineland-Palatinate while projections are also suggesting that the party will fail to garner enough votes to create a viable coalition in Saxony-Anhalt. With the refugee crisis in full debate and clearly a major factor in the results, it’s the AfD party which has made the most headway and is projected to win 24% of the vote in Saxony-Anhalt as well as exceeding expectations in Baden-Wurttemberg (15%) and Rhineland-Palatinate (12%). The party is currently projected to be presented in eight of Germany’s 16 regional assemblies. Given similar results in other parts of Europe (most recently in France with the National Front), political risks in Europe are still very much a factor to keep an eye on.

A quick recap of the rest of Friday’s news and price action. One market worth keeping an eye in the wake of the ECB is the new issue corporate market in Europe and, while quiet from an overall volume perspective on Friday, a small deal (€600m) from French auto component manufacturer Valeo caught the eye with the order book said to have closed above €7bn. Evidence then perhaps of what the presence of a new large potential IG bond buyer (in the ECB) can do for demand in the primary market now then.

So while credit markets caught the eye with those huge moves tighter, equity markets bounced back in style with big moves of their own, in stark contrast to the price action which concluded on Thursday. With financials driving the moves, the Stoxx 600 finished with a +2.62% gain to close at its highest level since late-January, while peripheral markets were the big outperformers with the IBEX and FTSE MIB up +3.69% and +4.80% respectively. Those gains also helped the S&P 500 finish up +1.64% with the month of March proving to be a fruitful one so far for the US equities (index has now closed higher on 8 of the 9 trading days). A recovery for Oil also (WTI +1.74%) did little to dampen the mood with the IEA even going as far as saying on Friday that prices may have ‘bottomed out’ and that ‘there may be light at the end of what has been a long, dark tunnel’.

Base metals had a good day too (Copper +1.64%, Zinc +2.07%, Nickel +0.86%) while unsurprisingly it was emerging market and commodity-sensitive currencies which led the way in the FX space. European sovereign bond markets staged an impressive rally also. 10y Bunds ended the session down over 3bps in yield at 0.269% (although are still higher than where they were pre-ECB) while in the periphery we saw a massive rally for similar maturity bonds in Italy (-13.3bps), Spain (-9.9bps) and Portugal (-21.3bps). Moves in the US Treasury market were more reflective of traditional risk-on mode with the benchmark 10y finishing up over 5bps higher in yield at 1.985% and the highest now since the 27th January. Fed fund futures crept up as a result too with the probability of a hike by the end of the year now at 77% (from 74%) – a notable swing from the lowly 11% priced in during the February lows.

There was little data to conclude the week and certainly not enough to impact the price action. In the US the import price index reading for February was a tad less deflationary than expected (-0.3% mom vs. -0.7% expected). Prior to this we learned that there was no change to the final February CPI reading for Germany at +0.4% mom and so confirming a leg lower in the YoY rate to 0.0% (from +0.5% in January). Elsewhere in Italy the January industrial production reading was a lot more robust that expected at +1.9% mom (vs. +0.7% expected), which lends some support to today’s wider Euro area figure.


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Fred Feldkamp: Donald Trump and Jesus Christ

In 2014, I co-authored an updated version of a book originally written by Fred Fredfeldkamp entitled “Financial Stability: Fraud, Confidence & the Wealth of Nations.”  The book starts with a discussion of why, in financial and economic terms, Jesus of Nazareth tossed the money changers out of the Temple in Jerusalem.

The Old Testament forbade the use of “two measures,” effectively requiring that currency transactions occur at the mid-point of the market. Temple priests maintained an excessive bid-offer spread, an early example of financial fraud and political folly that eventually led to the cruxifiction of Christ. They also were tax collectors for the Roman army of occupation, who eventually destroyed Jerusalem in 70 AD in response to the rebellion which followed the death of Jesus.

The email below came after I sent Fred a copy of the article by my friend William Greider in The Nation, ? “How Donald Trump Could Beat Hillary Clinton.”

http://ift.tt/1QXtYN1…

Below is the email from Fred.  Best, Chris

 

Frederick L. Feldkamp <ffeldkamp@gmail.com>

<http://ift.tt/1THSZSj;

March 13, 2016

 

[Bill Greider]’s correct and a very wise man.  We can only hope for better–we cannot undo mistakes of the past.

It’s coming toward Easter, Chris, and I always think more about the “economics” of what Christ was trying to achieve at this time of year.

In fact, he was trying to cure an economic and political debacle that was sinking the fortunes and lives of everyone around him, because NOBODY in power had even the slightest idea what the heck they were doing to themselves and everyone else by their self-centered practices to build a huge Temple treasury of riches and a murderous Roman occupation army.

Leaders of Christ’s church (the Jewish leaders of the temple in Jerusalem) could not see that they had been running a rigged market that made money mainly for their leader, Annas, who hoarded so much of it as to cut off re-circulation (just as the practice of huge excess reserves in the Great Depression caused a shortage of circulating money–pushing spreads through the roof and the economy through the floor).  

That’s the same trap we all fell into in 2007-8 as fear caused everyone to stop circulating money.

Christ did what was necessary to end the combination of monopoly/hoarding/taxation by chasing money exchange out of the temple, but that meant he would bankrupt the High Priest’s family and destroy the Roman tax base (created by taxing all Jews as they left the Temple at holidays).

He then actually forgave even his murderers as he was dying, saying “they know not what they are doing.”

WOW!!  WAS THAT AN UNDERSTATEMENT!!

The same thing applies to all the people Grieder identifies as at the heart of today’s problems.  Until the nation listened to Bernanke’s understanding of how mistakes, restraints and fear raised the true cost of money and destroyed the economy in 2008, we were heading onto the same path of destruction that the Annas family and Roman rulers created for Jerusalem in the First Century.

Christ identified “how” to fix it, but nobody listened and performed what was needed.  Anger and frustration built on all sides of the First Century dispute until Rome said “enough” (then robbed the Temple treasury, killed as many Jews as remained available for killing, burned the Temple down and destroyed Jerusalem).

Christ’s backers fled and eventually founded a religion that Rome adopted.  The Jews finally acknowledged that Temple sacrifice was not a good way to go and built Rabbinical Judaism around the principles of Hillel the Elder (the head Rabbi in Jerusalem at the time Christ was a teenager who lingered at the Temple when he was 12). 

Grieder has perceived the same build-up of frustration today.  I see it in the trigger-point of the frustration of “tax hoarding” that I mentioned Friday.  BIG BUSINESSES WILL NOT INVEST THEIR HOARDS SET ASIDE IN TAX HAVENS TODAY FOR FEAR THAT THE WORLD’S GOVS WILL FIGURE OUT THE SCAM AND DEMAND PAYMENT OF BACK TAXES.

So, while nobody is talking about it, fear has gripped us yet again, just as it did in Jerusalem 2000 years ago.

The one truly constructive thing is that fear has subsided dramatically since 2/11/16.  Bank spread (Inv. Gr. – 10-yr Ts) is down 47 bps.  The banker who bought Chicago’s biggest bank used his bank’s capital to make the buy and entirely paid for it by cutting the merged banks’ funding cost by 50 bps.  So, the recovery since 2/11 is huge if only for that.

BUT, it’s much better.  The spread banks charge to growth firms (HY bonds – IG bonds) has fallen an astonishing 112 bps (total finance spread, HY minus 10 yr Ts, is down an amazing 159 bps since 2/11). 


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