Tag: news

Courtesy of Sov Man's Simon Black, here are several of the most bizarre legal anecdotes to take place in the US and around the globe over the past week, staring with an bill currently in Congress which is seeking to wipe out over $1 trillion in student loans.

* * *

A Convenient Way to Cancel a Trillion Dollars of Debt

What happened:

Bankruptcy is like the ultimate get out of jail free card. You just get to wipe the slate clean, and even though your credit score and ability to borrow might suffer, you are free from all your previous obligations. But student loans have long been exempted from being erased by bankruptcy.

If this bill passes Congress however, hundreds of billions of currently delinquent student loans, potentially as much as $1.4 trillion worth of student loan debt…

…. would be eligible to be wiped out by declaring bankruptcy.

As the number of those defaulting on their student loans grows, this provision could be widely used by those seeking to escape their college debt.

What this means:

The government has helped raise the costs of college and basically scam people into accepting their loans, so it is easy to be sympathetic towards those with student loans. But still, it is messed up to allow people to discharge debts they agreed to pay.

There might be a little piece in most of us that doesn’t mind seeing what we consider a predatory lender get screwed and be left with the bill.

But apart from the overall immorality of failing to pay your debts, since the government owns most of the student loans, it would basically be the taxpayers getting screwed over once again. What a surprise.

Basically if massive amounts of debt were erased, it would be another bubble bursting, which would send the U.S. into a fresh round of economic instability.

The economy would spiral downward in relation to how many people took advantage of their get out of jail free card.

* * *

Criminal Consequences for Filming on Private Property?

What happened:

If you sneak beer into a football stadium, you have explicitly broken a stadium rule. You might expect to be kicked off their private property for this transgression. But what if instead you got a year in prison?

That’s what an Idaho “Ag Gag” law did; made it illegal to take photographs or videos on private property without permission from the owner. It also made it illegal to gain access to private property through misrepresentation, for instance an undercover reporter seeking a job. Violation of the law was punishable by a year in prison and/ or $5,000 fine.

The law was drafted and sponsored by The Idaho Dairymen's Association after a video came out showing horrible abuse of cows at a dairy in Hansen Idaho. The video was taken by an employee of Mercy for Animals conducting an undercover investigation.

The bill quickly passed the legislature and was signed by the governor, but was then struck down on the grounds that it violated free speech, and equal protection for employees who may be ensnared attempting to document unsafe working conditions.

The state appealed, and now the the courts will decide whether or not to reinstate the law.

What this means:

Private property owners surely have the right to kick someone off their land or seek civil damages for having their rules broken. But it is going entirely too far when the government is used as a henchman to enforce rules on private property that prohibit actions which are otherwise legal.

Rarely is a law passed in such an obvious effort to stifle the public’s ability to see what is happening behind the scenes in food production.

The government claims it regulates these industries, yet private organizations were the ones who brought the abuse of animals to light. But the government was more interested in supporting the dairy lobby than doing their job.

So how does the government solve the issue of the public taking regulation into their own hands? Make it illegal!

It is important to respect private property, but the government has no business enforcing criminal code for the violation of private rules.

If you don’t want people to film your property, then don’t allow them onto it in the first place. Or maybe just behave in a way that you aren’t afraid of the public seeing.

* * *

Can’t Find an Investor? Force the Taxpayers to Fund Your Startup!

What happened:

Nothing screams success-in-the-making like failing to fund your startup in the private sector, and having to beg the government for money. This is especially true as America is at the peak of the startup bubble, on the heels of easy money pouring countless millions into less than spectacular business ideas.

What does the government do when it sees a good bubble? Blow it bigger! How could something so enchanting ever burst?

The feds want to get in on startups, and start investing in entrepreneurs. After all, they are the ones who created the artificially low interest rates on lending by printing all this money ever since their last major financial bubble popped.

The government’s latest shenanigans is a bill in Congress that would spend tax dollars on startups and entrepreneurship, pouring grant money into “resources and services” for the “formation and early growth stages” of a company.

For the taxpayers, you will get all the exciting risk of investing, without any possible returns!

What this means:

As if there wasn’t enough money pouring into silly businesses without any real potential. At least those in the private sector lose their own money when they invest in stupid businesses, but now the taxpayers could be robbed to do the same. But if a startup can’t get funding in the private sector, it is probably for a good reason.

For the politicians, they can say that they created jobs… even if the jobs only last six months. That’s the thing about government; they highlight the initial benefits of their actions, and somehow forget to report back later on the lack of sustainability or unintended consequences of these genius ideas.

And even if the government could pick winning companies, that literally amounts to stealing your money and handing it out to private businesses.

But they can’t, and so the money they take from the taxpayers will more likely be misappropriated into the next Pets.com style failure.

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You Are Liable For Your Employees’ Actions in Australia

What happened:

It would make sense if McDonalds was responsible for making sure their employees don’t sell drugs on their premises. But what if the fast food chain had to make sure their employees weren’t dealing drugs once they clocked out, and left McDonald's property? That would be a pretty huge liability for McDonald's, which would basically have to hire a full on internal investigations police force to make sure they weren’t blamed when one of their employees got caught pushing drugs.

Sounds ridiculous, yet many governments shift their policing responsibility to companies, and simply threaten them with fines if the business does not perform the government’s investigatory job for them.

Australia is doing just that, putting the burden of policing on companies, with new proposals to expand laws against foreign bribery in business. Under the proposals, companies would be responsible for preventing their employees from bribing foreign governments, even if the employee is not acting in official capacity, and even if there was no specific gain for the company.

So this means Australian companies will need to somehow prevent employees not only from acting illegally on behalf of the company, but also from conducting any illegal activity in their own personal lives that involves foreign governments.

What this means:

Basically this is a huge disincentive to doing business overseas if you own an Australian company. The new proposals create numerous costly liabilities and add substantial risk to international operations.

Under the proposals the company who employs the person accused of bribing a foreign official would be automatically held accountable. The rules specifically say that the employee does not have to be acting on behalf of the company, and could be ensnared for bribing for the sake of personal gain.

The safest bet would be for Australian companies to simply not operate internationally.  Of course that seems like suicide in a modern global market.

Perhaps the proposed regulations are Australia’s way of disincentivizing foreign trade and promoting nationalism. But they risk crippling their worldwide competitiveness the more they burden Australian companies with doing the government’s policing duties.

via http://ift.tt/2rG3ef9 Tyler Durden

Why do career bureaucrats in Washington keep pushing military interventionism and irresponsible monetary policies? Because they face zero risk from the consequences of their decisions, said Nassim Nicholas Taleb during an appearance on the Liberty Report with former Texas Congressman Dr. Ron Paul and his co-host Daniel McAdams.

The conversation focused on some of the themes from Taleb's upcoming book, “Skin in the Game,” which will be out later this year, including how the homogenous intellectual elite who shape American foreign policy have managed to stay in power despite decades of persistently advancing foolish interventionist policies.

Taleb even offered this colorful comparison:

“Let’s imagine you have pilots who were absolutely unharmed by crashes. People are stupid enough to put them back on planes. Then they would crash a plane, kill all passenger and continue. Well, that system would lead to complete systemic destruction.”

 

“And that’s what we have now with our foreign policy.”

Since World War II, the U.S. has embarked on military interventions in Vietnam, Iraq, Libya, Syria that have led to hundreds of thousands of unnecessary deaths. Even President Trump, who at one point promised an “America First” foreign policy of nonintervention, instead launched 59 tomahawk missiles at Syria based on unsubstantiated intelligence reports that the Syrian Army used chemical weapons against civilians in the country’s north.

Just how homogenous is the U.S. foreign policy elite? Remember that through the end of Hillary Clinton’s tenure as Secretary of State in 2013, either a Bush or a Clinton held one of the three highest offices in the U.S.  – the presidency, vice presidency or secretary of state – for eight straight terms.

Another reason why interventionist foreign policy often fails is because federal-government bureaucrats and other outsiders don’t have “skin in the game” – an entrenched interest, financial or of another sort, in the conflict –  and therefore, are incapable of achieving a comprehensive understanding of the situation. That goes for both elected leaders, beauracrats, and the media.

“We have today so many people sitting in the New York Times Washington office, in an air conditioned office, who can dictate foreign policy with zero risk.”

Dr. Paul seized the opportunity to criticize the “Chickenhawks” who advocate interventionism, but avoided serving in the military during Vietnam.

“I don’t fault them for trying to avoid the war, but I fault them for advocating war,” Paul said.

Many still haven’t internalized the lesson of the 2007-2008 economic crash and how the monetary policy missteps made by former Fed Chairman Alan Greenspan helped cause the crash. As a result, throughout human history, “we’ve never had so many people transferring risk to others,” Taleb asserts.

One reason these actors have been allowed to remain in power is that it's difficult to assign blame to individuals when you’re dealing with “macro” conflicts like the Syrian conflict that involve many different state actors. This is one reason the policy elite at the State Department – whom Taleb compared to doctors from ancient times, who inflicted more harm than healing on their patients – have managed to stay in power, while a modern-day doctor who was causing an unusual number of patient deaths would quickly be barred from practicing.

Turning the conversation toward the asset bubbles that have continued growing since the last crisis, Taleb explained how Greenspan’s discovery that he could stabilize markets by slashing interest rates has led to our current struggle with unprecedented debt creation and a belief in “perpetual wealth and perpetual growth.”

“Lowering rates in such a manner leads to distortions. If we didn’t have a Fed, we’d be better off because the price of money would be negotiated between people.”

Since the crash, the Fed, by cutting interest rates to zero and embarking on a regime of unprecedented money creation, has succeeded only in “injecting novocaine” into the financial system.

“Now we’re inheriting a situation with $20 trillion in debt and we have interest rates at zero – you can’t intervene when you need them. And the people in Washington who got us here have no skin in the game.”

The Fed’s monetary policy missteps have also helped create the unprecedented economic inequality that exists in the world today, which has bred unprecedented dissatisfaction with the status quo.

Even in France, “Marine Le Pen got a lot of votes,” a sign that her defeat wasn’t an unmitigated victory for the establishment like some in the media reported.

Whatever happens to the Federal Reserve -if it’s allowed to continue monetizing debt or not – it may not matter. Because digital currencies like bitcoin, which are quickly growing in popularity and value, could one day supplant the use of fiat currencies altogether, Taleb said.

During the last U.S. election, people showed that they aren’t “victims of the New York Times.” Moreover, Twitter has helped upend the media power structure in favor of the people and independent thought.

“Trump was elected in spite of 264 top newspapers wanting him to lose,” Taleb noted, adding that he believes the future will be “a libertarian dream.”

 

“We will destroy what needs to be destroyed, and build what needs to be built,” he said.

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Authored by Jim Quinn via The Burning Platform blog, 

Your government at work with your tax dollars.

 

Loan billions to brain dead teenagers so they can pretend to get smart in college. When they fail miserably due to the fact after twelve years of public school government indoctrination they can’t read, write or add, the government pays slimy collection agencies to get these unemployed dolts to pay up.

 

Not only has $600 billion of your tax dollars been pissed down the drain on loans to dumbasses, you now get to spend billions trying to collect the billions that will never be collected.

 

 

Clusterfuck is too kind of a word to use for this program Obama initiated to pump money into the economy and fake the true unemployment rate.

 

I bet you can’t wait until the government has full control of your healthcare.

The consumer bureau says slipshod loan servicing—the business of counseling borrowers on their options and sending them monthly bills—is largely to blame. NCHER President James Bergeron said the feds need to simplify the various repayment plans they offer and “do a better job” helping previously defaulted borrowers get into repayment plans. Calls and emails to the Education Department weren’t returned.

“I don’t see how anyone wins from this system other than the collection industry,” said Adam S. Minsky, a Boston-based lawyer who represents student debtors.

via http://ift.tt/2qM3Hw4 Tyler Durden

The wheels are about to fall off the US bank loan market.

After we first showed in early March the steep drop in bank loan creation for both Commercial and Industrial, auto and total loans – all traditionally leading indicators to economic contraction and recession as business and consumers halt spending, even with borrowed money – numerous other analysts and pundits have attempted to explain, and justify why one should not be particularly concerned about this tumbling indicator. Most notable among them Goldman, who in late March “explained” that there was nothing ominous about the crash in loan creation, and instead it was just a function of a base effect, and a shift from loan to corporate bond issuance.

Two months later we can confirm that not only was Goldman wrong, but so are all the Pollyannas who assert there is nothing troubling about the ongoing collapse in loan creation.

According to the latest Fed data, the all-important C&I loan growth contraction has not only continued, but over the past two months, another 50% has been chopped off, and what in early March was a 4.0% annual growth is now barely positive, down to just 2.0%, and set to turn negative in just a few weeks. This was the lowest growth rate since May 2011, right around the time the Fed was about to launch QE2.

At the same time, total loan growth has likewise continued to decline, and as of the second week of May was down to 3.8%, the weakest overall loan creation in three years.

Another loan category that has seen a dramatic slowdown since last September, when Ford’s CEO aptly predicted that “sales have reached a plateau.”  Since then auto loan growth has been slashed by more than 50% and at this runrate, is set to turn negative some time in late 2017.  Needless to say, that would wreak even further havoc on the US car market.

For a while, despite numerous attempts at explanation, there was no definitive theory why this dramatic slowdown was taking place. It even prompted the WSJ to inquire “who hit the brakes?”

Well, after the latest Fed Senior Loan Officer Survey, we may have the answer.

First, recall that in late April we showed another very troubling trend: consumer credit card default rate as tracked by S&P/Experian Bankcard had surged to the highest level since June 2013, suggesting that contrary to reports otherwise, the US consumer is increasingly unwell.

 

A quick look at the latest Fed Senior Loan officer survey revealed even more disturbing trends. According to the report, “banks reported tightening most credit policies on Commercial Real Estate loans over the past year…. On balance, banks reported weaker demand for CRE loans in the first quarter.” Even more troubling was the continued drop in demand for C&I loans among small, medium and large corporations, with “inquiries for C&I lines of credit remained basically unchanged” staying at a modestly depressed rate.

This stark admission that in addition to declining bank supply due to tighter standard (i.e., worries about further losses), there was less demand by businesses and consumers for loans, has explained once and for all the ongoing collapse in commercial bank loan creation, both total, C&I and auto. Of th two, the declining demand for loans businesses, is by far the most concerning aspect of an economy that is supposedly growing, and where companies should be willing to take out new credit to fund expansion (instad of merely issuing bonds to buyback their stock).

Digging deeper into the Fed report confirmed the worst-case scenario: the collapse in loan growth was almost entirely due to a sharp, recent consumer revulsion toward credit, with reduced level of consumer card and auto loan demand in the quarter. The decline took place despite “visibly softer” underwriting standards for cards which surprised some analysts as not creating incremental demand;

And while C&I loans are tumbling, demand for credit cards is now running at the lowest level in the 5 years the survey has provided credit- card-only data for consumer demand.

With all that, we can now close the book on the WSJ’s previously unanswered question of “who hit the breaks?” The answe the US consumer, the driver behind 70% of US GDP, officially tapped out. In fact, it was almost as if US consumers were hit by a perfect storm of adverse events in late 2016 and early 2017, just as GDP was on the verge of its first pre-recessionary contraction in years, and just as the S&P rose to new all time highs to distract from what is emerging as an imminent US recession.

Here’s the bottom line: unless there is a sharp rebound in loan growth in the next 3-6 months – whether due to greater demand or easier supply – this most accurate of leading economic indicators guarantees that a recession is now inevitable. How accurate: every single time C&I loan peaked, a US recession follow. We doubt this time will be different.

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Submitted by Wolf Richter via WolfStreet.com,

Just as the deflating Farmland bubble leaves its marks.

When it comes to agricultural debt, the numbers aren’t huge enough to take down the global financial system. But this shows how much pain the commodities rout is producing in the farm belt just when the farmland asset bubble that took three decades to create is deflating, and what specialized lenders and the agricultural enterprises they serve – some of them quite large – are currently struggling with in terms of delinquencies.

This is what delinquencies on loans for agricultural production – not including loans for farmland, which we’ll get to in a moment – look like:

 

From Q4 2014 to Q1 2017, delinquencies have soared by 225% to $1.4 billion, according to the Board of Governors of the Federal Reserve, which just released its report on delinquencies and charge-offs at all banks. This is the highest amount since Q1 2011, as delinquencies were falling after the Financial Crisis. That amount was first breached in Q4 2009.

The delinquency rate rose to 1.5%, the highest since Q3 2012. On the way up, going into the Financial Crisis, delinquencies breached that rate in Q1 2009.

These were the loans associated with agricultural production. In terms of loans associated with farmland, delinquencies have soared by 80% from Q3 2015 to Q1 2017, reaching $2.15 billion:

Farmland values have surged for three decades but are now in decline in many parts of the US. For example in the district of the Federal Reserve of Chicago (Illinois, Indiana, Iowa, Michigan, and Wisconsin), prices soared since 1986, in some years skyrocketing well into the double-digits, including 22% in 2011, and nearly tripling since 2004. It was the Great Farmland Bubble that had become favorite playground for hedge funds. But starting in 2014, prices have headed south.

This chart from the Chicago Fed’s AgLetter shows farmland prices in its district in two forms, adjusted for inflation (green line) and not adjusted for inflation (blue line):

Adjusted for inflation, farmland prices in the district fell 9.5% over the past three years. The exception is Wisconsin:

• Illinois -11%
• Indiana -7%
• Michigan -12%
• Iowa (since their 2012 peak) -15%
• Wisconsin +4%

The Chicago Fed adds this about the deflating farmland asset bubble, in inflation-adjusted terms:

Even after three annual declines, the index of inflation-adjusted farmland values for the District was nearly 60% higher in 2016 than its previous peak in 1979.

Does it mean to say that there is a lot more air to deflate out of the farmland bubble and a lot more pain to come and that this is just the beginning? Or is it saying that this is no big deal?

These falling farmland prices are making the debt much more precarious. So on a nationwide basis, the delinquency rate of farmland loans, according the Fed’s Board of Governors, jumped from 1.46% in Q3 2015 to 2.0% in Q1 2017.

In terms of magnitude of the dollars involved, agricultural and farmland loans pale compared to consumer or commercial loans. So the problems in the farm belt won’t cause the next Global Financial Crisis, and it progresses on its own terms. But it is putting strain on agricultural lenders, growers, and their communities.

Another asset bubble, a global one, is quietly but persistently experiencing a downturn that parallels and in some aspects already exceeds the one during the Financial Crisis. What the slow crash of classic cars says about the future of other asset classes. Read…  This Is How an Asset Bubble Gets Unwound these Days

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This is not how it's supposed to work…

"Buy low, Sell high" they say. But in the new normal of risk-parity strategies, momentum igniters, and trend-following CTA flows, its "Buy high, buy more higher… and never sell until you're forced to liquidate"

Amid the longest period of low volatility complacency in US stock market history, which saw realized volatility and VIX (expectations for future volatility) collapse to near-record lows…

 

Speculators decided that this was the perfect time to add to speculative short VIX positions…

Having twice surged to new record highs (in September 2016 and Jan 2017), VIX speculators have now pushed their net short position (implicitly bullish for stocks) to its largest in contract history.

What is even more intriguing is speculators added to net dollar longs (as the dollar dumped)…

And dumped Eurodollar shorts (folding on rate-hike bets)…

via http://ift.tt/2rFXrX4 Tyler Durden

Submitted by Daniel Ruiz via Blinders Off blog,

The Perfect Storm

The following topics all have their part in fueling the storm to come:

1) Trade Cycles and How They Affect New Vehicle Sales Velocity

Used car values determine in large the velocity of new car sales. Most new car transactions involve a trade. The level of equity in the trade oftentimes determines whether a new vehicle transaction will be successful or not. Inclining used car values lead to faster trade cycles while declining used car values lead to slower trade cycles. Dismal new car sales volume during our last recession created a shortage of used cars. This created a large supply and demand imbalance that made used car values soar from 2009 till 2014 as seen on this chart.

This time period was extremely favorable for new car sales because consumers found themselves in an equitable position on their vehicles in a very short period of time. To illustrate this, consider this chart of a 60-month loan.

The black line represents the principal balance owed. An optimal trade cycle occurs when the principal balance owed on a loan intersects with the market value of the vehicle. The bullish used car cycle for passenger cars ended in 2014 as a result of extreme pricing pressure from new car leases. Since 2014, used passenger car values have corrected and continue to underperform. This underperformance is largely due to the effects that falling used car values have had on new car sales velocity. A longer trade cycle results in a slower velocity of new car sales. Today, we’ve seen data suggesting that used car values can drop as much as 50% from current levels. Refer to the above loan chart and consider what a drop that large would mean for new car sales velocity in terms of trade cycles.

2) Increased Dependency on Leasing

Used car values also determine the effectiveness of leasing. The most significant component of a lease is the gap between the residual value and the sale price of the vehicle. A residual value is little more than a guess at the future value of a vehicle. Manufacturers and third party companies like ALG use current and historic used car value data to establish residuals. Because of this process, residual values tend to lag used car values. As residuals rise, the gap between the residual value and the sales price gets smaller leading to lower payments. As residuals fall, the gap becomes larger leading to higher payments.

There are many benefits to leasing, but the most important is affordability. Affordability is most often measured in terms of monthly payments. As leases become more affordable, they become more appealing to consumers and penetrate at a higher percentage of total sales. The bullish cycle in used car values from 2009 till 2014 led to some of the lowest lease payments I’ve seen in my career. Consumers noticed and took advantage of the savings.

Residual values lag used car values. When used car values outperform residual values, lessees can trade early and utilize the equity in their lease as a down payment towards a new purchase or lease expanding the new car business. When used car values underperform residual values, new car business contracts as lessees are forced to go the full term of the lease and are left without equity in the end. As I mentioned earlier, used car values for passenger vehicles have been falling significantly since 2014. Aside from the negative effects that used car values underperforming residual values have on new car sales velocity, the lagging effect discussed earlier leaves captive banks open to a considerable amount of residual risk. Please use this link and read through the entire thread for a number of examples using BMW leases.

As used car values continue to decline, residual values will continue to adjust downward. Lower residuals will lead to higher payments, and leasing will produce fewer sales.

Leasing is responsible for a significant portion of total light vehicle retail sales. Here’s a look at the penetration rates by manufacturer.

The average new vehicle price has inflated by 20% since 2008. Leasing has become the best and/or only way for consumers to afford new vehicles while prices continue to rise. This is evident when you see manufacturers relying on leasing for most of their sales volume.  What happens to the sales volume for individual car companies and for the auto industry as a whole when residuals are adjusted lower and the affordability that leases provide is lost?

3) Credit Risk

While conventional auto loans only carry default risk, leasing adds residual risk. Leases do not have to default to become a problem; they can become a problem at maturity. Most of the outstanding leases have been securitized bringing us back to 2007 levels. The appetite for auto related ABS makes perfect sense since leases haven’t produced negative equity for years. This adds a layer of complexity that needs to be considered.

The gap between residuals, principle balanced owed for all auto loans and the recovery value for vehicles will grow as used car prices continue to fall. The larger the gap between balances owed and used car vales, the larger the risk and potential losses for the banks holding these loans.

4) What’s Holding It All Up?

The light truck and SUV segment is at a different stage in its’ cycle compared to passenger cars. The majority of US consumers prefer light trucks and SUVs instead of passenger cars. However, the performance of the light truck and SUV segment is very dependent on the price of fuel. Years of low fuel prices have kept the demand for light trucks and SUV very high. So what do you do when one segment (Light Pickups and SUVs) is outperforming the other (Passenger Cars)? Well, you build less of what’s underperforming (Passenger Cars) and more of what’s outperforming (Pickup Trucks and SUVs). Much like a stock market index where money can flow into big names like FANG while market breadth is lost and still move up, manufacturers have shifted their focus toward the more profitable light pickup truck and SUV market. This has experts very focused on oil to gauge the overall health of the automotive sector.

5) Think Fuel Prices Are Your Leading Indicator? Guess Again…

The same thing that caused the correction in used passenger car values is now affecting light pickup trucks and SUVs – ultra low lease payments. Note how lease volume is now favoring SUVs instead of passenger cars. (Residuals are correcting in passenger cars, which translates into higher payments.) 

Consumers purchase used cars because they are typically more affordable than new vehicles. Affordability is most often measured in terms of monthly payments. What happens to used car values when a new vehicle becomes more affordable than its’ 1, 2 or 3-year-old version?

6) Supply and Demand

Rate of sale calculations from a record setting year followed by 4 months of year-over-year misses, has left us with a high-day supply of new vehicles.

When sales velocity slows down, the expected reaction from manufacturers is more incentives, and increased incentives are exactly what we received. To illustrate this, let’s take a look at General Motors. GM had a 98-day supply of vehicles at the end March (2017). Ninety-Eight days is very high, but GM stated that it’s part of a strategic build in their inventory. Even if that is the case, the Malibu had a 124-day supply and the Silverado had a 115-day supply.  The response to the day-supply problem in Silverado and Malibu was a very aggressive lease and 20% off MSRP respectively.

This scenario triggers a series of events that places a lot of negative pressure on used car values.

This new car problem precedes a supply glut of lease returns. Supply will soon overwhelm demand as the record setting leases of the last 3 years mature. Here is a look at a maturity chart for Ford.

Lease maturities don’t necessarily turn into inventory problems. When used car values are outperforming residual values, most clients elect to buy the vehicle from the captive banks or utilize the equity as a down payment toward a new purchase or lease. A smaller amount of vehicles reaching wholesale auctions limits supply and supports higher used car values. However, when used car values underperform residual values, clients will exercise their right to return the keys to the vehicle and use the protection that the residual value provides. A growing return rate shown here on this slide from Ford’s Q1 earnings call is proof that this is happening today.

Dealers will also reject maturing leases at the residual value thus leaving the transfer of ownership from captive banks to the new owner at wholesale auctions. This will lead to higher auction volumes resulting in lower used car values.

7) The Competition Does Not Wait

Competitors will not sacrifice market share while another manufacturer manages a day-supply problem. As I expected, competitors responded quickly to the aggressive lease on Silverado:

These aggressive leases are exactly what triggered the correction in used passenger cars. Will it be different this time?

8) Manufacturers Start The Problem And Dealers Supercharge It

New car dealerships are being built in vast quantities. With demand slowing, more dealers have to fight for fewer sales. This supercharges the already large discounting effect created by the manufacturers. The unintended collateral damage becomes used car values. What market is left for used cars when new cars are less expensive?

9) 2016 Leftovers in May of 2017

A quick scan using your favorite auto search engine will reveal a staggering amount of new 2016 leftovers. On May 10, 2017, a simple internet search returned 145,763 leftover units nationally.

This is concerning for many reasons. Dealers place very heavy emphasis on getting rid of prior model year vehicles before the end of each year. At a certain time of the year (already past), manufacturers will give dealers a lump-sum payment per unit of unsold prior model year vehicles and remove incentive support in terms of special leases, incentivized rates and rebates. Dealers do not want to have any leftover vehicles when this happens, as those vehicles are extremely difficult to sell against the newest models that have manufacturer incentive support.

The amount of leftover new car inventory is also a sign of slowing demand. These vehicles represent the heaviest discounted portion of new car inventory at dealerships. The 2016 leftover models have not sold yet and we already have 2018 models at a showroom floor near you.

10) How Important is the Health of the Rental Car Market?

The problems facing rental car companies today are very serious. It’s important to understand how their monthly per-unit expense relates to profitability.

There is a direct correlation between used car values and the car rental company’s monthly per-unit fleet cost. The rise in per-unit cost has a direct effect on profit margins. You can see this very clearly if you overlay the NADA used car value index over a stock chart during the same time period.

The monthly per-unit cost at Hertz is currently $348.  Consider what happened to sales into rental  (below chart) in 2009 with a similar per-unit cost.

11) Expected Results Versus Reality

Many respected sources are projecting flat retail sales for 2017 and a modest 1% decline in 2018. I respectfully disagree. We are simply too far along in a used vehicle value correction that currently includes light pickup trucks and SUVs. Leases will become less affordable as residuals rise. Without leases, we simply will not have the volume needed to meet those projections. I also believe that sales to rental car agencies will significantly decline moving forward. At this pace, the possibility of a major rental car agency going out of business in the next year is not out of the question.

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

One can call Saudi Arabia – the world leader in weapons imports and decapitations per capita – many things, but a bastion of “democracy and moderation” is not one of them.

One could, for example, call the Saudi Kingdom the biggest financial sponsor of terrorism – not only Al Qaeda (recall who funded and organized the Sept 11 attack), but also ISIS, as was confirmed on many separate occasions, but most notably in a leaked email from Hillary Clinton in which the former secretary of state said that “we need to use our diplomatic and more traditional intelligence assets to bring pressure on the governments of Qatar and Saudi Arabia, which are providing clandestine financial and logistic support to ISIL and other radical Sunni groups in the region.”

And yet, none of this was mentioned in today’s Trump speech, who instead deliberately diverted away from the real culprits behind the global rising wave of terrorism, and focused exclusively on Iran (with a  little dose of Syria throw in for good measure) which only yesterday held a democratic presidential election (in which the hard-liner lost), as the biggest source of instability and terrorism in the world. This is what Trump said:

But no discussion of stamping out [the threat of terrorism] would be complete without mentioning the government that gives terrorists all three—safe harbor, financial backing, and the social standing needed for recruitment. It is a regime that is responsible for so much instability in the region. I am speaking of course of Iran.

 

From Lebanon to Iraq to Yemen, Iran funds, arms, and trains terrorists, militias, and other extremist groups that spread destruction and chaos across the region. For decades, Iran has fueled the fires of sectarian conflict and terror.

 

It is a government that speaks openly of mass murder, vowing the destruction of Israel, death to America, and ruin for many leaders and nations in this room.

 

Responsible nations must work together to end the humanitarian crisis in Syria, eradicate ISIS, and restore stability to the region. The Iranian regime’s longest-suffering victims are its own people. Iran has a rich history and culture, but the people of Iran have endured hardship and despair under their leaders’ reckless pursuit of conflict and terror.

 

Until the Iranian regime is willing to be a partner for peace, all nations of conscience must work together to isolate Iran, deny it funding for terrorism, and pray for the day when the Iranian people have the just and righteous government they deserve. 

And this is how Iran’s foreign minister responded on Twitter, shortly after Trump’s speech, when in just 23 words Iran’s Javad Zarif exposed the hypocrisy in Trump’s 3,400-word laudation of Saudi Arabia, which just became one of America’s biggest friends, after it promised to buy over half a trillion in weapons from the US over the next decade.

This is what Zarif said: “Iran—fresh from real elections—attacked by @POTUS in that bastion of democracy & moderation. Foreign Policy or simply milking KSA of $480B?”

Iran—fresh from real elections—attacked by @POTUS in that bastion of democracy & moderation. Foreign Policy or simply milking KSA of $480B? http://pic.twitter.com/ahfvRxK3HV

— Javad Zarif (@JZarif) May 21, 2017

Zarif does have a point: Trump’s words – hollow as they may be – are just that, meanwhile he is set to return to the US with over $300 billion in funding commitments which are sure to make shareholders of the US Military-Industrial complex richer than ever.

As for the upcoming even greater and more violent middle-eastern wars, as Saudi Arabia puts all of its newly purchased US “toys” to use, that’s a topic for a different post although the following “simplified” chart of the ongoing Syrian civil war is a good place to start…

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

Authored by Chris Campbell via LFB.org,

“Progressive” is often a word we hear bandied about to describe very destructive things.

It’s “progressive,” for example, to believe taking responsibility for your individual thoughts, words and actions is a fool’s errand. When taken to its extreme, as it often is, many self-described progressives believe you are responsible for the actions, past and present, of your “group” — and such group, whether you like it or not, is decided for you without your input.

And based on what group you are in, you are more responsible for some things and less responsible for others.

So, says the uber-progressive, your individual actions don’t matter. The core of your being is morally relative. You are defined not by your peers, principles and actions — but by the things you can’t possibly choose. You are judged, rather, by those things outside of your control and those judgments are based on the whims of trendsetters, glitterati and pseudo-experts.

Filmmaker Neel Kolhatkar did a brilliant video about this strange paradigm called Modern Educayshun. Check it out if you haven’t seen it.

It’s also “progressive” to believe only elite academics or politicians — those people, as it happens, with the least skin in the game — are capable of saving the environment, the poor, the abused and the downtrodden from themselves.

If only they had more money. If only they could go deeper and deeper and deeper into debt. If only the masses would just get on their knees like good little docile sheep and wisely accept their theories as unvarnished truth. If only they would get “educated.” (Another word that’s been corrupted beyond belief.)

If only. Then, we could make real progress.

Which is why, naturally, the progressive movement is responsible for not just the centralized power structures we behold today — but also for the biggest “vampire squid” (hat tip to Matt Taibbi) of them all… the Federal Reserve.

To explain, we pull a chapter from Murray Rothbard’s enlightening book, The Origins of the Federal Reserve.

Read on.

The Progressive Movement

Murray Rothbard, The Origins of the Federal Reserve

The Federal Reserve Act of December 23, 1913, was part and parcel of the wave of Progressive legislation, on local, state, and federal levels of government, that began about 1900. Progressivism was a bipartisan movement which, in the course of the fi rst two decades of the twentieth century, transformed the American economy and society from one of roughly laissez-faire to one of centralized statism.

Until the 1960s, historians had established the myth that Progressivism was a virtual uprising of workers and farmers who, guided by a new generation of altruistic experts and intellectuals, surmounted fierce big business opposition in order to curb, regulate, and control what had been a system of accelerating monopoly in the late nineteenth century. A generation of research and scholarship, however, has now exploded that myth for all parts of the American polity, and it has become all too clear that the truth is the reverse of this well-worn fable.

In contrast, what actually happened was that business became increasingly competitive during the late nineteenth century, and that various big-business interests, led by the powerful financial house of J.P. Morgan and Company, had tried desperately to establish successful cartels on the free market.

The first wave of such cartels was in the first large-scale business, railroads, and in every case, the attempt to increase profits, by cutting sales with a quota system and thereby to raise prices or rates, collapsed quickly from internal competition within the cartel and from external competition by new competitors eager to undercut the cartel.

During the 1890s, in the new field of large-scale industrial corporations, big-business interests tried to establish high prices and reduced production via mergers, and again, in every case, the mergers collapsed from the winds of new competition.

In both sets of cartel attempts, J.P. Morgan and Company had taken the lead, and in both sets of cases, the market, hampered though it was by high protective tariff walls, managed to nullify these attempts at voluntary cartelization. It then became clear to these big-business interests that the only way to establish a cartelized economy, an economy that would ensure their continued economic dominance and high profits, would be to use the powers of government to establish and maintain cartels by coercion. In other words, to transform the economy from roughly laissez-faire to centralized and coordinated statism.

But how could the American people, steeped in a long tradition of fierce opposition to government imposed monopoly, go along with this program? How could the public’s consent to the New Order be engineered?

Fortunately for the cartelists, a solution to this vexing problem lay at hand. Monopoly could be put over in the name of opposition to monopoly! In that way, using the rhetoric beloved by Americans, the form of the political economy could be maintained, while the content could be totally reversed.

Monopoly had always been defined, in the popular parlance and among economists, as “grants of exclusive privilege” by the government. It was now simply redefined as “big business” or business competitive practices, such as price-cutting, so that regulatory commissions, from the Interstate Commerce Commission to the Federal Trade Commission to state insurance commissions, were lobbied for and staffed by big-business men from the regulated industry, all done in the name of curbing “big business monopoly” on the free market.

In that way, the regulatory commissions could subsidize, restrict, and cartelize in the name of “opposing monopoly,” as well as promoting the general welfare and national security. Once again, it was railroad monopoly that paved the way.

For this intellectual shell game, the cartelists needed the support of the nation’s intellectuals, the class of professional opinion molders in society. The Morgans needed a smoke screen of ideology, setting forth the rationale and the apologetics for the New Order. Again, fortunately for them, the intellectuals were ready and eager for the new alliance.

The enormous growth of intellectuals, academics, social scientists, technocrats, engineers, social workers, physicians, and occupational “guilds” of all types in the late nineteenth century led most of these groups to organize for a far greater share of the pie than they could possibly achieve on the free market.

These intellectuals needed the State to license, restrict, and cartelize their occupations, so as to raise the incomes for the fortunate people already in these fields. In return for their serving as apologists for the new statism, the State was prepared to offer not only cartelized occupations, but also ever increasing and cushier jobs in the bureaucracy to plan and propagandize for the newly statized society.

And the intellectuals were ready for it, having learned in graduate schools in Germany the glories of statism and organicist socialism, of a harmonious “middle way” between dog-eat-dog laissez-faire on the one hand and proletarian Marxism on the other.

Instead, big government, staffed by intellectuals and technocrats, steered by big business and aided by unions organizing a subservient labor force, would impose a cooperative commonwealth for the alleged benefit of all.

via http://ift.tt/2qIEjK1 Tyler Durden