Tag: news

Authored by Zaki Laidi via Project Syndicate,

In a few weeks, France will elect its next president. Given the French executive’s considerable powers, including the authority to dissolve the National Assembly, the presidential election, held every five years, is France’s most important. But the stakes are higher than ever this time.

The two frontrunners are the far-right National Front’s Marine Le Pen and Emmanuel Macron, who served as economy minister under Socialist President François Hollande, but is running as an independent. If, as expected, Le Pen and Macron face off in the election’s second round on May 7, it will be a political watershed for France: the first time in 60 years that the main parties of the left and the right are not represented in the second round.

France has not endured such political turmoil since 1958, when, in the midst of the Algerian War, General Charles de Gaulle came to power and crafted the Constitution of the Fifth Republic. That shift, like any great political rupture, was driven by a combination of deep underlying dynamics and the particular circumstances of the moment.

Today is no different. First, the underlying dynamic: the rise, as in most developed countries nowadays, of popular mistrust of elites, feelings of disempowerment, fear of economic globalization and immigration, and anxiety over downward social mobility and growing inequality.

These sentiments – together with the French state’s historical role in fostering national identity and economic growth – have contributed to a surge in support for the National Front. Le Pen’s nationalist, xenophobic message and populist economic policies resemble those of the far-left candidate Jean-Luc Mélenchon.

Although support for the National Front has been growing for more than a decade, the party has so far been kept out of power by France’s two-round electoral system, which enables voters to unite against it in the second round. And, given the National Front’s inability to make alliances, power has remained in the hands of the main parties of the left and the right, even as France has moved toward a tripartite political system.

Now, Macron is taking advantage of current circumstances to blow up the tripartite system. Macron’s great insight, which few initially recognized, was that the right-left divide was blocking progress, and that the presidential election amounted to a golden opportunity to move beyond it, without the help of an organized political movement. At a time when the French people are increasingly rejecting the traditional party system, Macron’s initial weakness quickly became his strength.

It helped that, as Macron himself recognized, both the right and the left have fragmented in recent years. This is particularly true on the left, where a clear division has emerged between a reformist current, led by former Prime Minister Manuel Valls, and traditionalists, represented by the Socialist Party candidate, Benoît Hamon. The Socialists’ problems are compounded by the existence of a radical left working actively to eliminate them, much as Spain’s left-wing Podemos party has sought to replace the Socialist Workers’ Party there.

The source of the mainstream right’s travails is less clear. Its forces remain generally united on economic and social issues. In fact, until a few months ago, its presidential candidate, the Republicans’ François Fillon, was expected to lead the pack in the first round by a wide margin. But a scandal over his personal conduct (he allegedly paid his wife and children for non-existent jobs while he was a member of parliament) damaged his candidacy – probably fatally.

Whatever the reason for the right’s decline, Macron has benefited substantially from it, as well as from the rifts afflicting the left. Now, there is a real chance the young independent could be elected president on May 7, upending the Fifth Republic’s political system.

But an electoral victory is just a first step. To govern in France’s hybrid presidential-parliamentary system, Macron would need to secure a majority in the National Assembly. This opens the possibility of two scenarios.

In the first scenario, Macron quickly gains a parliamentary majority, as French voters seek to reinforce his mandate in June’s National Assembly election. This is conceivable, but not certain: it is here where the lack of an organized political movement on the ground remains a weakness for Macron.

That is why the June election could give rise to the second scenario: cohabitation with a parliamentary coalition comprising a small right-wing faction, a large centrist faction, and a hopelessly divided left-wing faction. Such a development would be familiar in many European countries. But in France, where republicanism gave rise to the left-right ideological spectrum that shapes politics throughout the West today, it would be a genuine revolution – one that could spell the end of the Socialist Party.

Given the symbolic power of the left-right divide, France’s voters and political leaders alike have long tended to frame virtually all of the country’s problems in ideological terms. The public and its politicians have little experience with government based on broad coalition agreements. This partly explains why the political system becomes gridlocked, sometimes making reforms difficult to implement, and why Macron’s message, which includes clear reform plans, is so unusual for France.

If Le Pen somehow comes out on top, French politics – not to mention the European Union – will be turned upside. But even the ostensibly moderate Macron represents, in his own way, a truly radical stance. With both candidates likely to make it to the second round, France is on the verge of a political revolution, regardless of who wins.

via http://ift.tt/2oEDgr9 Tyler Durden

Over the past several years we have repeatedly stated that despite protests to the contrary, the single biggest factor explaining the underperformance of the active community in general, and hedge funds in particular, has been the ubiquitous influence of the Fed and other central banks over the capital markets. 

Specifically, back in October 2015, we wrote that “as central planning has dominated every piece of fundamental news, and as capital flows trump actual underlying data (usually in an inverse way, with negative economic news leading to surging markets), the conventional asset management game has been turned on its head. We have said this every single year for the past 7, and we are confident that as long as the Fed and central banks double as Chief Risk Officers for the market, “hedge” funds will be on an accelerated path to extinction, quite simply because in a world where a central banker’s money printer is the best and only “hedge” (for now), there is no reason to fear capital loss – after all the bigger the drop, the greater the expected central bank response according to classical Pavlovian conditioning.”

Several years later, Goldman Sachs confirms that we were correct.

In a note released overnight by Goldman’s Robert Boroujerdi titled “An Rx for Active Management” and which seeks to explain the now chronic underperformance of the “smart money”, the Goldman analyst says he has identified two key considerations impacting the performance of actively managed equity funds including 1) the nature of market regimes and 2) behavioral tendencies of portfolio managers.

Among the various considerations described by Goldman, both market and behavioral, chief among which the observation that alpha is cyclical and that “there have been 4 distinct alpha cycles since 1990, with prior periods of persistent alpha (1990-94; 2000-09) each followed by a respective period of underperformance (1995-99; 2010-2016)”…

… the smoking gun in the report was the admission that “QE has been a headwind… Low Rates, Low Vol, Low Dispersion -> Low Alpha.”

And the punchline: in a slide titled “A word on QE: Does Active Have A QE Hangover“, the simple answer is: yes.

He makes three main points:  

1. The current run of active manager underperformance began shortly after the onset of QE (see top-left exhibit).

 

 

2. QE drove real interest rates lower (measured by the yield on 10yr TIPS). This trend towards 0%, and even negative, real rates coincided with the shift from active outperformance to underperformance (see bottom-left exhibit).

 

 

3. Equity market dispersion and volatility, both key drivers of manager tracking error and excess returns, have remained stubbornly low throughout QE and served as headwinds for manager performance (see bottom-right exhibit).

 

The slide in full:

Ironically, it has been the hedge fund community which during the current decade has been among the most vocal supporters of first Bernanke and then Yellen, and QE in general. Meanwhile, as central banks “saved” markets, they unleashed the passive, ETF revolution which is the real “great rotation”, as every weeks sees tens of billions in funds shifted from hedge funds and other active managers to low-cost passive alternatives.

What can fix this abnormal market state? Here the answe is also straightforward: a market crash.

As Goldman shows, active investing lags in up markets and outperforms but only in down markets:

• Market upside vs. downside capture for actively managed mutual funds is not symmetric.
• In “up markets” (SPX 1-month return +2% or more), the median active manager underperforms the market by approximately 20bps, on average.
• However, in “down markets” (SPX -2% or more), actively managed funds have outperformed their benchmark by nearly 40bps, on average.
• In the two most significant drawdowns since 1990 (Sept. 2000 – Sept. 2002) and (Nov 2007 – Feb 2009), the median long-only active manager was able to cushion downside and outperform the market.

Which brings us to a conclusion we have stated repeatedly on many previous occasions: while hedge funds, especially established ones with significant AUM, find the current status quo relatively comfortable – after all they get to clip their management fees year after year (forget the “performance” upside), extrapolating current trends in central-bank dominated markets would eventually lead to “active” extinction, and the complete domination of ETF-based and other low-cost passive strategies. Furthermore, taken to its thought experiment extreme, a situation in which there is only passive management would guarantee that the next market crash would be truly unprecedented with few hedge funds there to hunt for bargains.

Ironically, the only event that can break this sequence of events would be a market crash, one which finally ends the current pernicious equilibrium and resets the capital markets. For that to happen however, both the Yellen and now Trump put would have to be eliminated. And that, as the past 8 years have shown, is easier said than done. For the sake of hedge funds and their dwindling assets under management, however, they better fund a way and soon.

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

Authored by Jeff Thomas via InternationalMan.com,

Regarding the Great Depression… we did it. We’re very sorry… We won’t do it again.

– Ben Bernanke

 

Waiting too long to begin moving toward the neutral rate could risk a nasty surprise down the road—either too much inflation, financial instability, or both.

– Janet Yellen

In his speech above, future Federal Reserve Chairman Ben Bernanke acknowledged that, by raising interest rates, the Fed triggered the stock market crash of 1929, which heralded in the Great Depression.

Yet, in her speech above, Fed Chair Janet Yellen announced that “it makes sense” for the Fed to raise interest rates “a few times a year.” This is a concern, as economic conditions are similar to those in 1929, and a rise in interest rates may have the same effect as it did then.

So let’s back up a bit and have a look at what happened in 1929. In the run-up to the 1929 crash, the Federal Reserve raised rates to 6%, ostensibly to “limit speculation in securities markets.” As history shows, this sent economic activity south rather quickly. Countless investors, large and small, who had bought stocks on margin, would be unable to pay increased interest rates and would be forced to default. (It’s important to understand that the actual default was not necessary to crash markets. The knowledge that investors would be in trouble was sufficient to send the markets into a tailspin.)

Mister Bernanke was quite clear in 2002 when he stated that the Fed would not make the same mistake again that it made in 1929, yet, then, as now, there’s been a surprise victory by a Republican candidate for president. Then, as now, a wealthy man who had never held elective office was unexpectedly in the catbird seat and had the potential to endanger the control of the political class, at a time when that political class had been complicit in damaging the system by creating massive debt.

Then, as now, conditions were ideal for the Deep State to create a solution to all problems: An economic crash was inevitable; therefore, create a trigger for it to occur and blame the collapse on the conservative political outsider. Demonstrate to all that the collapse was due to the greed of the outsider and those who were of like mind. Use that leverage to demonstrate to the hard-hit populace that what was needed was the opposite of what the outsider had proclaimed. Recommend far greater control by a new government that was staunchly liberal—a government that would change the political landscape in such a way that all those who suffered would be saved by a benevolent collectivist government.

And, of course, when it’s stated that way, it’s an easy sell. In 2017, it will be an even easier sell than it was in 1929, as the new president has already set himself up for a fall. In his inauguration speech, he focused on a single topic—the return of power to the people and away from Washington’s bureaucracy.

Beginning by decrying Washington for what it truly is, he stated that “for too long, a small group in our nation’s capital has reaped the rewards of government while the people have borne the cost. Washington flourished—but the people did not share in its wealth.”

He then went on to describe that his presidency would bring about a metamorphosis:

I will never, ever let you down. America will start winning again, winning like never before. We will bring back our jobs. We will bring back our borders. We will bring back our wealth. And we will bring back our dreams. We will build new roads, and highways, and bridges, and airports, and tunnels, and railways all across our wonderful nation. We will get our people off of welfare and back to work—rebuilding our country with American hands and American labor… We will reinforce old alliances and form new ones—and unite the civilized world against radical Islamic terrorism, which we will eradicate completely from the face of the earth… We will not fail. Our country will thrive and prosper again.

Of course, new presidents are prone to making big promises when they first take office. However, Mister Trump has, in his brief speech, effectively declared himself the enemy of the Washington bureaucracy. In so doing, he’s left himself wide open to be the fall guy if the economy does not rebound, if the average American’s lot does not improve, and if the US does not dominate the world through an expanded military.

In short, the Deep State and their cronies, who were instrumental in creating the economic, social, and political house of cards that now exists, have the perfect opportunity to bring on the collapse and blame the new president for it.

Were Mister Trump to have honestly stated that the US is effectively a house of cards and that he’ll begin the laborious job of trying to salvage what’s left of it and begin to rebuild it, he would have provided himself with a justifiable excuse when the house of cards does collapse. However, by making such lofty claims to “Make America Great Again,” he’s lost this opportunity.

In the last year, whenever I was asked who I hoped the Americans would elect as their president, I replied, “Bernie Sanders.” To those that were shocked by this answer, I would add, “An economic collapse is inevitable. No one, no matter how capable, can prevent it. The best that can happen is that the collapse occurs under a president who’s an avowed socialist. That would ensure an eventual return to smaller government and more conservative economics.”

As unfair as it may be, a nation’s people almost always blame whoever is on watch when a collapse occurs. It matters little who or what is actually at fault. People need a “face” to vilify for the disaster and the sitting leader is almost always spontaneously chosen by a nation as that face.

And, of course, the opposing party invariably makes the most of the situation. Just as in 1929 and for years thereafter Herbert Hoover received the lion’s share of the blame for a Wall Street crash and the subsequent Great Depression, even though he was not at fault, so too will the US come to blame the new president who made promises that were far beyond what he could deliver.

The die is cast. The patsy-in-chief is now installed. The media will do all they can to discredit Mister Trump and civil unrest will be funded by his opponents. The US economy is more debt-laden than any country in the history of the world and, historically, this has always resulted in economic collapse. At present, there are scores of triggers that could bring about collapse. Any one of these black swans could do the job, but it’s entirely possible that the Federal Reserve will serve once again as the trigger, as it did in 1929.

This is unquestionably the smart way to play the game. Rather than wait for a random occurrence, if a date is set for a controlled collapse, those connected to the Deep State will have a brief time to disconnect their wealth from the system, as was done in 1929.

The trigger would be pulled by the Fed and the US economy would go down in as controlled a fashion as Building Seven in the World Trade Center.

When is this likely to occur? Herbert Hoover was given just under eight months. The date for the next collapse could be earlier or later. But the question is not when that date might be, but whether we’ve prepared ourselves for the eventuality.

*  *  *

The Fed could start its controlled demolition of the US economy any day now. This collapse will be much worse and last much longer than the Great Depression or the 2008 financial crisis. Doug Casey and his team have critical, time-sensitive information about preparing for this economic meltdown. They’re sharing need-to-know details in this urgent new special report. Click here to download the PDF now.

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

Despite Trump and Pence’s warnings, it seems North Korea will not back down…

“North Korea would do well not to test his resolve or the strength of the armed forces of the United States in this region.”

Vice Foreign Minister Han Song-Ryol told the BBC’s John Sudworth in Pyongyang…

“We’ll be conducting more missile tests on a weekly, monthly and yearly basis,” 

He added that:

an “all out war” would result if the US was “reckless enough to use military means”.

Certainly seems like rhetoric is worsening, not improving, and if Trump is to be held to his pre-emptive word then this threat of guaranteed provocation, guarantees a pre-emptive strike.

via http://ift.tt/2pJAb8K Tyler Durden

President Trump will not be amused. In a letter to employees, Boeing VP John Hamilton announces that the company will lay off “hundreds” of engineers as soon as this week, affecting Washington and “other enterprise locations.”

As Bloomberg headlines show:

• *BOEING TO SEND NOTICES FOR INVOLUNTARY LAYOFFS APRIL 21
• *BOEING ENGINEERING LAYOFFS PLANNED FOR JUNE 23, 2017

The timing is interesting as the Ex-Im Bank discussions hot up and comes just 2 months after Trump visited Boeing’s South Carolina plant.

Standing in front of a new Boeing 787-10 Dreamliner passenger aircraft made at in North Charleston, Trump repeated his campaign promises to promote American production that partly fueled his dizzying path to the White House. He warned of a “substantial penalty” for companies that move jobs out of the United States.

 

“We want products made by our workers in our factories stamped with those four magnificent words — made in the USA,” Trump said.

The share price is entirely unimpressed…

via http://ift.tt/2pJuyY6 Tyler Durden

Via The Daily Bell

Do we owe society taxes?

Tax day is tomorrow. Some people get excited because they will get money back which the government withheld–a clever trick that makes people feel less oppressed and plundered by filing taxes.

Something the regressive left likes to say is that taxes are justified because of the infrastructure of society, provided by the government, makes all earning possible. It is, therefore, only fair to share some of that wealth to continue funding the common property. They say the rich would never have gotten rich without government provided services, and that is why they owe the government.

An up and comer on the left who we will unfortunately not stop hearing from anytime soon has weighed in on why we owe taxes to society. This is an old but relevant quote since progressive champion Elizabeth Warren will probably be a White House contender soon enough. While running for Senate she said:

There is nobody in this country who got rich on his own. Nobody! You built a factory out there, good for you, but I want to be clear, you moved your goods to market on the roads the rest of us paid for. You hired workers the rest of us paid to educate. You were safe in your factory because of police forces and fire forces the rest of us paid for. You didn’t have to worry that mauraduing bands would come and seize everything at your factory, and hire someone to protect against this, because of the work the rest of us did… But part of the underlying social contract is that you take a hunk of that, and pay forward for the next kid that comes along.

I think she slipped up there. Do you see it? Warren says that if the government didn’t provide security for the factory, the business owners would have to “hire someone to protect against” marauding bands. And she is correct in that.

What she leaves out is that their money is already stolen to pay for the police. So why on earth would they say no thanks to a service for which they were forced to pay? (Well, I guess because the police do a terrible job. Most factories do in fact hire their own security in addition to the police that “the rest of us” paid for.)

And this is the whole issue: Which came first, the government or wealth?

Clearly, a business first has to have money in order to be taxed. And it makes sense to think that since the infrastructure already exists, it helps people to earn money. And it does, but it was all paid for first by privately produced wealth.

Think about it, the very first tax payers were farmers that were conquered by herders and forced to pay a share of their yield to the nomadic invaders. The herders realized they could make this a regular thing if they didn’t murder all the farmers, and thus government was born.

Not murdering the people was the first service which government ever provided. Boy, are we lucky to have them!

Ironic that Warren says taxes are paid to basically prevent from happening the very thing which began the existence of government. It was extortion from the very beginning. The farmers paid protection money to their government.

Who was the main threat? The government. The mafia does the same thing.

But looking at the first taxpayers shows that they necessarily had to have earned something and created wealth before they were taxed on it.

And this means we are building on a stolen foundation. It means we didn’t need the government to make wealth creation possible in the very first place. Based on the very function of government, which only came into existence after the first farmers had created wealth, this proves that it is possible to create wealth without that magnificent infrastructure for which “the rest of us” paid.

Warren said it herself when she admitted the factories could simply purchase their own protection. But what they are really paying for, is protection from the people they are paying, the government.

So is taxation the price we pay for the society government has built around us? Without a doubt, certain things taxes pay for are used by everyone living in society and thus contribute to business, like roads for shipping.

And even though the government is used to providing these things, the question remains are taxes what we owe to society for the opportunity to do business? Or did wealth have to be created first before taxes could be paid?

Justifying the Upward Redistribution of Wealth

Everything government does is done with tax dollars, therefore first something of value had to be created before they could tax anything.

So then why do people argue that we owe the government taxes because they have made everything we earn possible?

We wanted to add a Bernie Sanders quote since he was vocally against the wealthy. He is one of the most powerful U.S. Senators at this point, with his unspent war chest of individual campaign donations, and an army of useful idiots.

But it turns out the man said remarkably little for how much he talked. It was all catch phrases and the same repeated lines about how immoral it is to be wealthy. The rich need to pay their “fair share” he says, but that doesn’t actually answer the question of why anybody should have to pay taxes. We all need to be robbed equally?

There are certain ways to become wealthy which are immoral, such as securing government contracts, government bailouts, government grants, government loans, and government subsidies. But Bernie’s support for higher taxes would only exacerbate that upward transfer of wealth.

Sanders actually never tried to justify why the rich owe taxes, his only criticism seemed to be that they were wealthy. He repeated over and over that they basically stole this wealth from the middle class, but offered no real examples other than the Wall Street bailouts (which yes, were theft on their part, but again that was a government transfer of wealth, which giving the government more power would only increase).

Turns out what Bernie was doing has been done since the beginning of government. Jared Diamond explains the origins of Chiefdoms in his book Guns, Germs, and Steel:

These noble and selfish functions are inextricably linked, although some governments emphasize much more of one function than of the other. The difference between a kleptocrat and a wise statesman, between a robber baron and public benefactor, is merely one of degree: a matter of just how large a percentage of the tribute extracted from producers is retained by the elite, and how much the commoners like the public uses to which the redistributed tribute is put…

Make the masses happy by redistributing much of the tribute received, in popular ways. This principle was as valid for Hawaiian chiefs as it is for American politicians today.

Clearly, Bernie is a big fan of the redistribution method; his free college proposals sound pretty good to his young target demographic.

So basically, these “progressive” stars are actually regressing to the oldest forms of government which always looted and tricked the masses into supporting their power grabs and wealth confiscation.

The government didn’t create the wealth in society, and they didn’t even make that wealth creation possible. They simply stole the wealth that others created and redistributed it in obvious and popular ways. They monopolized mechanisms like roads and security in order to make it seem like the government is the only method of laying the infrastructure to create wealth.

But clearly wealth came before taxation, otherwise, there would have been nothing to tax! The premise of their justification for theft is a fallacy.

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