August 23, 2017

Jackson Hole Preview: Market Reactions, And Why UBS Says "Don't Skip Lunch"

Historically the annual Jackson Hole symposium has been a major market-moving event as it has traditionally been the venue where central banks make critical announcements such as Bernanke's preview and hints of QE2 and QE3 in 2012, as well as Draghi's suggestion of the ECB's QE in 2014. As shown in the chart below, market reactions following these events have been material.

This year, however, while there was a sharp build-up in expectations after several media trial balloons suggested that Draghi would unveil the ECB's taper, the fact that the market sent the EUR just shy of 1.20 in frontrunning of this announcement, prompted the ECB head to abort the entire affair, "leaking" that no material announcement would be made this week in Wyoming after all. Which is why, in previewing potential market moves, Barclays says that "the risk for the EUR around the event is biased to the downside, and that EUR bulls might be disappointed by a lack of meaningful hints on ECB monetary policy normalisation."

ING is quick to take the fun out of this week's annual meeting: "this year's major speakers, Fed Chair Janet Yellen and the ECB President Mario Draghi, are likely to keep their cards close to their chest. Both speeches are likely to be fairly "high level" and lack any major hints about future policy."

As Deutsche Bank's Jim Reid echoes, "there might be a few less nerves about the next few days in markets than many felt a few weeks ago. Back then, Thursday's commencement of the annual Jackson Hole Symposium seemed to be a natural place for Mr Draghi to signal that exit from QE was soon to be accelerated. However a combination of still soft global inflation data and the Euro's recent ascent has made it unlikely that the event will be a watershed moment. Expect him to be upbeat on the economy but the hawkish/dovishness indicator might be swayed one way or the other on how much attention the Euro gets in his remarks."

Read the entire article

August 22, 2017

An Unexpected Problem Emerges: Chinese Banks Exhaust 80% Of Loan Quotas In First Half Of 2017

When we discussed the latest monthly Chinese credit data reported by the PBOC, we pointed out something which to most pundits was broadly seen as success by the Politburo in its deleveraging efforts: for the first time in 9 months, debt within China's shadow banking system - defined as the sum of Trust Loans, Entrusted Loans and Undiscounted Bank Loans - contracted. These three key components combined, resulted in a 64BN yuan drain in credit from China's economy, the first negative print since October 2016, and rightfully seen by analysts as evidence that Beijing’s campaign to contain shadow banking and quash risks to the financial system, is starting to bear fruit.

Offsetting this unexpected decline in shadow bank credit (if not Total Social Financing) was a greater than expected increase in traditional yuan bank loans. As we observed last Tuesday, both corporate loans and household loans increased greater than last year; new corporate loans advanced to CNY354bn from a decline of CNY3bn a year ago, with long-term corporate loans contributing CNY433bn (a year ago: CNY151bn) and short-term loans adding CNY63bn (a year ago: CNY-201bn). New household loans registered CNY562bn, compared with CNY458bn a year ago.

So far, so good: after all a transition from the largely unregulated, and speculative shadow bank issuance to conventional bank issuance is just what the PBOC, China's regulators and most importantly, Xi Jinping want ahead of this year's all important Congress. Furthermore, the fact that China's economy continues to grow at a healthy pace, even if it means creating the occasional industrial metals bubble...

.... thanks to healthy bank loan creation, is good for both China and the rest of the world, and suggests that despite the sharp drop in China's credit impulse, there is more where it came from.

Read the entire article

August 21, 2017

Builders Complain Of Record Labor Shortages: Up To 75% Of Employers Can't Find Workers

Late last month we reported the remarkable anecdote of an Ohio factory owner who has numerous blue-collar jobs available at her company, but has one major problem: she is struggling to fill positions because so many candidates fail drug tests. Regina Mitchell, co-owner of Warren Fabricating & Machining in Hubbard, Ohio, told The New York Times this week that four out of 10 applicants otherwise qualified to be welders, machinists and crane operators will fail a routine drug test. While not quite as bad as the adverse hit rate hinted at by the Beige Book, this is a stunning number, and one which indicates of major structural changes to the US labor force where addiction and drugs are keeping millions out of gainful (or any, for that matter) employment.

Mitchell said that her requirements for prospective workers were simple: “I need employees who are engaged in their work while here, of sound mind and doing the best possible job that they can, keeping their fellow co-workers safe at all times." And yet, almost nobody could satisfy these very simple requirements.

Whether it was due to pervasive drug abuse, or for some other reason, but fast forward two weeks when in response to a special question in the July NAHB/Wells Fargo Housing Market Index (HMI) survey, US homebuilders said that labor and subcontractor shortages have become even more widespread in July of 2017 than they were in June of 2016.

This is a concern as the inventory of for-sale homes recently struck a 20-year low. And while economists and the public cry for more inventory, many builders are pressed to meet demand. A labor and subcontractor shortage in the building industry has worsened over the past year, according to the National Association of Home Builders/Wells Fargo Housing Market Index survey of single-family builders.

Read the entire article

August 15, 2017

Used Car Prices Crash To Lowest Level Since 2009 Amid Glut Of Off-Lease Supply

The U.S. auto market is at an interesting crossroads with used car prices crashing to new lows every month while new car prices continue to defy gravity courtesy of a somewhat 'frothy', if not suicidal, lending market that has seemingly decided that anyone with a pulse is financially qualified for a $0 down, 0% interest, 80 month loan on a brand new $40,000 luxury vehicle of their choice. 

As the Labor Department’s consumer-price index data showed last Friday, used car prices once again dropped in July to the lowest level since the 'great recession' of 2009.  In fact, since the end of 2015, the cost of used vehicles has dropped in all but three months and are now roughly 10% off their 2013 high.

Unfortunately, the outlook for the used market is only expected to get worse with the volume of lease returns expected to soar to nearly 4mm units by 2018.

Meanwhile, despite modest weakness over the past two months, new car prices have held up fairly well...

...even as the domestic auto OEM's continue to flood dealer lots with new inventory that isn't moving.

Of course, logic would dictate that some level of substitution would have to take over at some point as the financial benefits of buying a used car eventually outweigh the social indignity of cruising around town in a 3-year old clunker. 

That said, those innovative "Low Credit Score" discounts do make new car buying very attractive...

Read the entire article

August 14, 2017

US Launches Quiet Crackdown On Cryptocurrencies

While all eyes were distracted with the Trump-demeaning headlines of the foreign sanctions bill, few spotted the hidden mandate that foreign governments monitor cryptocurrency circulations as a measure to combat "illicit finance trends" in an effort to "combat terrorism."

As Coinivore reports, the bill requires the governments to develop a “national security strategy” to combat the “financing of terrorism and related forms of illicit finance.”

Governments will be further required to monitor “data regarding trends in illicit finance, including evolving forms of value transfer such as so-called cryptocurrencies.”

According to the bill, an initial draft strategy is expected to come before Congress within the next year, and will see input from U.S. financial regulators, the Department of Homeland Security, and the State Department.

Read the entire article

August 11, 2017

"We Need More Suckers At The Table" - Quant Funds Stumble As Dumb-Money Disappears

The omniptence of artificial intelligence is unquestioned. The 'future' is automation, robotization, and algorithmic domination is the mantra of the new normal prognosticators - and anyone who challenges this world view is a luddite or 'denier'.

There's just one problem - those quantitative, AI-based, computerized algos, that are supposed to be making people obsolete in the financial markets, are in trouble. As Bloomberg reports, program-driven hedge funds are stumbling, a promising startup has closed, and once-reliable styles are showing weakening returns.

This isn’t just normal volatility confined to a single month, according to noted quant fund manager Neal Berger, the founder and chief investment officer of Eagle’s View Asset Management, a $500 million fund-of-funds that invests with 30 managers, half of them quants. Returns have been decaying for a year, suggesting the rest of the market has figured out what the robots are doing and started taking evasive action, Berger said.

Bloomberg notes that June was the worst month on record for Berger’s fund, as usually robust strategies lost their footing and the firm fell 2.4 percent. The worst pain has been among quants in the market-neutral equity space, which take long and short positions to isolate bets on price patterns and relationships.

Read the entire article

August 10, 2017

From Coke To Coors: Philly Soda Tax Leading To Alcoholism As Beer Now Cheaper Than Soda

Perhaps The Burning Platform summarized the idiocy of Philadelphia's soda tax better than anyone to date:

In a shocking development, the Philadelphia soda tax is a big fucking fail. Who could have predicted that. Democrat government drones and their brain dead minions are so desperate for money to fund their gold plated union pensions and bloated salaries, they lie, cheat and tax the poor into oblivion. Result: lost jobs, further impoverished poor people, no help for children, more closed businesses, and a further hole in the city budget. But at least the city union workers can keep their gold plated pensions – for now. Maff is hard for liberals, but it always wins in the end.

But, as The Washington Free Beacon points out, the unfortunate side effects of Philly's disastrous soda tax may not be limited just to the economic consequences enumerated above.  As a study by the Tax Foundation recently found, there are social consequences as well with people now choosing to substitute beer for soda in light of the fact that, well, beer is just cheaper.

Philadelphia's tax on sugary drinks has made soda more expensive than beer in the city.

The Tax Foundation released a new study on the excise tax last week, finding that the 1.5-cent per ounce tax has fallen short of revenue projections, cost jobs, and has forced some Philadelphians to drive outside the city to buy groceries.

The study finds that the tax is 24 times higher than the Pennsylvania tax rate on beer.

"Purchases of beer are also now less expensive than nonalcoholic beverages subject to the tax in the city," according to the study, written by Courtney Shupert and Scott Drenkard. "Empirical evidence from a 2012 journal article suggests that soda taxes can push consumers to alcohol, meaning it is likely the case that consumers are switching to alcoholic beverages as a result of the tax. The paper, aptly titled From Coke to Coors, further shows that switching from soda to beer increases total caloric intake, even as soda taxes are generally aimed at caloric reduction."

Read the entire article

August 9, 2017

The Volcker Rule & The London Whale: "Dear Big Media, Get A Clue"

News reports that prosecutors have dropped their case against Bruno Iksil, the former JPMorgan (NYSE:JPM) trader many know as the “London Whale,” comes as no surprise to readers of The IRA.  Iksil, who resurfaced earlier this year, has been living in relative seclusion in France for the past few years.

In previous comments posted on Zero Hedge, we dispensed with the notion that the investment activities of Iksil and the office of the JPM Chief Investment Officer were either illegal or concealed from the bank’s senior management.  The fact is that Iksil and his colleagues at JPM were doing their jobs, namely generating investment gains for the bank.

The outsized bets made by the “whale” in credit derivatives contracts resulted in a loss in 2012, but the operation generated significant profits for JPM in earlier years.  As veteran risk manager Nom de Plumber told us in Zero Hedge in 2012:

“This JPM loss, whether $2BLN or even $5BLN, is modest in both absolute and relative terms, versus its overall profitability and capital base, and especially against the far greater losses at other institutions. In practical current terms, the hit resembles a rounding error, not a stomach punch.  As either taxpayers or long-term JPM investors, we should be more grateful than sorry about the JPM CIO Ina Drew.   If only other institutions could also do so ‘poorly’………”

Read the entire article

August 8, 2017

Fannie, Freddie Would Need $100BN Bailout In New Financial Crisis

While the latest Fed stress test found that all US commercial banks have enough capital to survive even an "adverse" stress scenario, a severe recession in which the VIX hypothetically soars to 70, the two US mortgage giants would not be quite so lucky: according to the results from the annual stress test of Fannie Mae and Freddie Mac released today by their regulator, the Federal Housing Finance Agency, the "GSEs" which were nationalized a decade ago in the early days of the crisis, would need as much as $100 billion in bailout funding in the form of a potential incremental Treasury draw, in the event of a new economic crisis.

Under the "severely adverse" scenario, i.e., a "severe global recession" U.S. real GDP begins to decline immediately and reaches a trough in the second quarter of 2018 after a decline of 6.50% from the pre-recession peak. The rate of unemployment increases from 4.7% to a peak of 10.0% in the third quarter of 2018. CPI declines to about 1.25% by the second quarter of 2017 (so not that much further from here) and then rises to approximately 1.75% by the middle of 2018. Outright deflation is not even considered.

In addition, equity prices fall by approximately 50% from the start of the planning horizon through the end of 2017, and equity volatility soars, approaching levels last seen in 2008. Home prices decline by approximately 25% , and commercial real estate prices fall by 35% through the first quarter of 2019.  The Severely Adverse scenario also includes a global market shock component that impacts the Enterprises’ retained portfolios. The global market shock involves large and immediate changes in asset prices, interest rates, and spreads caused by general market dislocation, uncertainty in the global economy, and significant market illiquidity. Option-adjusted spreads on mortgage-backed securities widen significantly in this scenario.

Most interesting is the following provision in the "severly adverse" scenario: the global market shock also includes a counterparty default component that assumes the failure of each Enterprise’s largest counterparty. Which, of course, is ironic because the Fed's own stress test of commercial banks did not anticipate any bank failing. The global market shock is treated as an instantaneous loss and reduction of capital in the first quarter of the planning horizon, and the scenario assumes no recovery of these losses by the Enterprises in future quarters.

Read the entire article

August 7, 2017

China's Minsky Moment Is Imminent

Crescat Capital's Q2 letter to investors shouold be retitled "everything you wanted to know about the looming bursting of the world's biggest credit bubble... but were afraid to ask..." Don't say we didn't warn you...

History has proven that credit bubbles always burst. China by far is the biggest credit bubble in the world today. We layout the proof herein. There are many indicators signaling that the bursting of the China credit bubble is imminent, which we also enumerate. The bursting of the China credit bubble poses tremendous risk of global contagion because it coincides with record valuations for equities, real estate, and risky credit around the world.


The Bank for International Settlements (BIS) has identified an important warning signal to identify credit bubbles that are poised to trigger a banking crisis across different countries: Unsustainable credit growth relative to gross domestic product (GDP) in the household and (non-financial) corporate sector. Three large (G-20) countries are flashing warning signals today for impending banking crises based on such imbalances: China, Canada, and Australia.

The three credit bubbles shown in the chart above are connected. Canada and Australia export raw materials to China and have been part of China’s excessive housing and infrastructure expansion over the last two decades. In turn, these countries have been significant recipients of capital inflows from Chinese real estate speculators that have contributed to Canadian and Australian housing bubbles. In all three countries, domestic credit-to-GDP expansion financed by banks has created asset bubbles in self-reinforcing but unsustainable fashion.

Post the 2008 global financial crisis, the world’s central bankers have kept interest rates low and delivered just the right amount of quantitative easing in aggregate to levitate global debt, equity, and real estate valuations to the highest they have ever been relative to income. Across all sectors of the world economy: household, corporate, government, and financial, the world’s aggregate debt relative to its collective GDP (gross world product) is the highest it has ever been. Central banks have pumped up the valuation of equities too. The S&P 500 has a cyclically adjusted P/E of almost 30 versus a median of 16, exceeded only in 1929 and the 2000 tech bubble.

Read the entire article

August 4, 2017

Is The Dollar Setting Up For A "Rip Your Face Off" Rally Or Total Freefall?

The U.S. dollar's relentless decline this year poses a question: is the USD setting up for a monster rally, or is it in a slow-motion crash? Opinions vary, of course, as to the possible reasons for the massive decline: European growth is better than expected, Trump's presidency is going nowhere, the Federal Reserve won't be raising rates, and so on.

The nice thing about charts is they summarize all these inputs into a snapshot. So let's take a look at the daily and weekly charts of the USD.

There's nothing fancy here, just the basics of moving averages, RSI, stochastics and MACD. There's not much to encourage Bulls in the daily chart: every attempt to regain the support of the 20-day moving average has failed, and triggered another leg down.

RSI and stochastics are oversold, but as this chart illustrates, oversold conditions can continue for quite some time. MACD may be setting up the beginnings of a divergence/reversal, but maybe not. At this point, betting on a reversal might be a case of catching the falling knife.

The weekly chart is even more dramatic. Judging by the steep decline this year, the world is ending--at least for the USD. RSI is oversold for the first time in 2+ years, stochastics have been deeply oversold for months, and MACD is in a cliff-dive that could end in a belly-flop.

Read the entire article

August 3, 2017

Remember This Milestone: The Dow Jones Industrial Average Hits 22,000 For The First Time In U.S. History

The Dow hit the 22,000 mark for the first time ever on Wednesday, and investors all over the world greatly celebrated.  And without a doubt this is an exceedingly important moment, because I think that this is a milestone that we will be remembering for a very long time.  So far this year the Dow is up over 11 percent, and it has now tripled in value since hitting a low in March 2009.  It has been quite a ride, and if you would have told me a couple of years ago that the Dow would be hitting 22,000 in August 2017 I probably would have laughed at you.  The central bankers have been able to keep this ridiculous stock market bubble going for longer than most experts dreamed possible, and for that they should be congratulated.  But of course the long-term outlook for our financial markets has not changed one bit.

Every other stock market bubble of this magnitude in our history has ended with a crash, and this current bubble is going to suffer the same fate.

But many in the mainstream media are still encouraging people to jump into the market at this late hour.  For example, the following comes from a USA Today article that was published on Wednesday…

“It’s still not too late to get in,” says Jeff Kleintop, chief global investment strategist at Charles Schwab, based in San Francisco. “The gains are firmly rooted in business fundamentals, not false hopes.”

I honestly don’t know how anyone could say such a thing with a straight face.  We have essentially been in a “no growth economy” for the past decade, and signs of a new economic slowdown are all around us.

Read the entire article

August 2, 2017

A Quarter Trillion Dollars In US Savings Was Just "Wiped Away"

As part of its historical revision to GDP, the BEA also had to adjust personal income and spending, with the full results released in today's July report. What it revealed was striking: over the revised period, disposable personal income for US household was slashed cumulatively by over $120 billion to just under $14.4 trillion, while spending was revised higher by $105 billion, to just above $13.8 trillion. There were two immediate consequences of this result.

First, as the following table shows, while government pay has remained roughly flat over the past 3 years, growing in the mid-2% to mid 3% range, wages and salaries for private workers have been steadily declining as the blue line below shows, and after hitting a 4% Y/Y growth in February, wage growth has slumped to just 2.5% in June, the lowest since January 2014 when excluding the one-time sharp swoon observed at the end of 2016.

But a more troubling aspect of today's revision is what the drop in income and burst in spending means for the average household's bank account: following the latest annual revision, what until last month was a 5.5% personal saving rate was revised sharply lower as a result of the ongoing downward historical adjustment to personal income and upward adjustment to spending, to only 3.8%.

In dollar terms, this revision means that a quarter trillion dollars, or $226.3 billion, in savings was just "wiped away" from US households - if only in some computer deep in the bowels of the BEA buildings -  who as a result have that much less purchasing power, and following the revision the total personal saving in the US as calculated by the BEA is now down to only $546 billion, down from $791 billion before the revision.

Read the entire article

August 1, 2017

Goldman Sachs Says That There Is A 99 Percent Chance That Stock Prices Will Not Keep Going Up Like This

Analysts at Goldman Sachs are saying that it is next to impossible for stock prices to keep going up like they have been recently.  Ever since Donald Trump’s surprise election victory in November, stocks have been on a tremendous run, but this surge has not been matched by a turnaround in the real economy.  We have essentially had a “no growth” economy for most of the past decade, and ominous signs pointing to big trouble ahead are all around us.  The only reason why stocks have been able to perform so well is due to unprecedented intervention by global central banks, but they are not going to be able to keep inflating this bubble forever.  At some point this absolutely enormous bubble will burst and investors will lose trillions of dollars.

The only other times we have seen stock valuations at these levels were just before the stock market crash of 1929 and just before the dotcom bubble burst in 2000.  For those that think that they can jump into the markets now and make a lot of money from rapidly rising stock prices, I think that it would be wise to consider what analysts at Goldman Sachs are telling us.  The following is from a CNBC article that was published on Monday…

Investors may be in for disappointing market returns in the decade to come with valuations at levels this high, if history is any indication.

Analysts at Goldman Sachs pointed out that annualized returns on the S&P 500 10 years out were in the single digits or negative 99 percent of the time when starting with valuations at current levels.

Do you really want to try to fight those odds?

Read the entire article

July 31, 2017

The Amazon Effect: Retail Bankruptcies Surge 110% In First Half Of The Year

As Amazon flirts with a $500 billion market cap, letting Jeff Bezos try on the title of world's richest man on for size if only for a few hours, for Amazon's competitors it's "everything must go" day everyday, as the bad news in the retail sector continue to pile up with the latest Fitch report that the default rate for distressed retailers spiked again in July.

According to the rating agency, the trailing 12-month high-yield default rate among U.S. retailers rose to 2.9% in mid-July from 1.8% at the end of June, after J. Crew completed a $566 million distressed-debt exchange. Meanwhile, with the shale sector flooded with Wall Street's easy money, the overall high-yield default rate tumbled to 1.9% in the same period from 2.2% at the end of June as $4.7 billion of defaulted debt - mostly in the energy sector - rolled out of the default universe.

In a note, Fitch levfin sr. director Eric Rosenthal, said that “even with energy prices languishing in the mid $40s, a likely iHeart bankruptcy and retail remaining the sector of concern, the broader default environment remains benign."

He's right: after the energy sector dominated bankruptcies in the first half of 2016, accounting for 21% of Chapter 11 cases, in H1 2017 the worst two sectors for bankruptcies are financials and consumer discretionary.

Read the entire article

July 28, 2017

Amazon Hosts Robotics Competition To Figure Out How To Replace 230,000 Warehouse Workers

There is little doubt that Amazon operates some of the most technologically advanced warehouses in the world.  As of the end of 2016, the Seattle Times noted that the company 'employed' roughly 45,000 robots spread across 20 fulfillment centers around the country. 

As can be seen in the video below, the KIVA robots, a company which Amazon bought for $775 million in 2012, move product bins around the company's massive warehouses with relative ease.  The bins are delivered by the KIVA robots on a just in time basis to human 'pickers' who grab whatever products are needed and finish the packing process before boxes are shipped off to customers.

But while they've seemingly mastered the art of moving bins around a warehouse floor with, for all essential purposes, miniature robotic forklifts, a solution to automating the simple task of picking individual items out of those bins has remained elusive.  And, with 1,000's of very expensive, sickly and generally needy humans currently fulfilling that task, you can bet Amazon is eagerly pursuing that solution with some level of urgency.

In fact, just this weekend, Amazon will be hosting a robotics competition with 16 teams from around the world who will get a chance to show off their robotic "picking" technology for the chance to win a share of $250,000 in prize money.  Per Bloomberg:

Read the entire article

July 27, 2017

Total Government And Personal Debt In The U.S. Has Hit 41 Trillion Dollars ($329,961.34 Per Household)

We are living in the greatest debt bubble in the history of the world.  In 1980, total government and personal debt in the United States was just over the 3 trillion dollar mark, but today it has surpassed 41 trillion dollars.  That means that it has increased by almost 14 times since Ronald Reagan was first elected president.  I am searching for words to describe how completely and utterly insane this is, but I am coming up empty.  We are slowly but surely committing national suicide, and yet most Americans don’t even understand what is happening.

According to 720 Global, total government debt plus total personal debt in the United States was just over 3 trillion dollars in 1980.  That broke down to $38,552 per household, and that figure represented 79 percent of median household income at the time.

Today, total government debt plus total personal debt in the United States has blown past the 41 trillion dollar mark.  When you break that down, it comes to $329,961.34 per household, and that figure represents 584 percent of median household income.

If anyone can make a good argument that we are not in very serious debt trouble, I would love to hear it.

And remember, the figures above don’t even include corporate debt.  They only include government debt on the federal, state and local levels, and all forms of personal debt.

So do you have $329,961.34 ready to pay your share of the debt that we have accumulated?

Read the entire article

July 26, 2017

Bank Of England Warns Of "Spiral Of Complacency" Over Soaring Consumer Debt

A few weeks ago, we wrote a note about how European auto lenders are becoming just about as ridiculously undisciplined as their counterparts in the United States.  Apparently an ever-growing reliance of European millennials on lease financing has auto ABS investors worried about a potential crash in used car prices at some point in the not so distant future...that sound familiar to anyone?  (See: It's Not Just Americans, Europe's New Obsession With Auto Leases Is "Catastrophic For Used Car Prices")

Then came an undercover investigation by the Daily Mail exposing just how "undisciplined" the auto lending market has become in England.  Their undercover reporters visited a total of 22 dealerships and were repeatedly offered cars of various values with no money down and despite reporters admitting that they had no job and no source of income

Reporters visited 22 dealerships in England and Scotland, saying they were in their early twenties and either unemployed, on low incomes or trying to buy a car despite having poor credit ratings. Half of the dealerships – including ones selling Audis, Mazdas, Suzukis, Fords, Vauxhalls and Seats – told them they could have a brand new car without paying a penny up front.

In each case they were offered Personal Contract Purchase (PCP) deals – a type of car loan that now makes up nine out of ten car sales bought on finance in Britain.

These deals offer smaller monthly payments than traditional car loans.

Read the entire article

July 25, 2017

Banks Are Scheming To Dominate A Future Cashless Society

Visa recently announced its new Cashless Challenge program, which offers $10,000 to restaurants willing to transition into accepting only digital payments.  As the largest credit card processor in the U.S., it’s no surprise Visa is spearheading this campaign.

Under the guise of increasing transparency and efficiency, they’ve partnered with governments around the world to help convert financial systems into cashless models, but their real incentive is the billions of dollars in extra transaction fees it would generate.

“We are declaring war on cash,” Visa spokesman Andy Gerlt proudly proclaimed after the program was announced.

The food-based small businesses Visa is targeting are among those that benefit most from accepting cash from customers. When transactions are for amounts less than $10, the fees charged cut significantly into profits. Only 28% of food trucks currently accept credit card payments because of the huge losses they incur from them. The bribe from Visa may seem appealing up front but will be mostly paid back to them over the next few years in fees alone.

Read the entire article

July 24, 2017

"It Feels Like An Avalanche": China's Crackdown On Conglomerates Has Sent A "Shock Wave" Across Markets

The first to suffer Beijing's crackdown against China's private merger-crazy conglomerates, wave was the acquisitive "insurance" behemoth, Anbang, whose CEO Wu Xiaohui briefly disappeared as the Politburo made it clear that the "old way" of money laundering - via offshore deals - is no longer tolerated. Then, several weeks later and shortly after the stocks of the "famous four" Chinese conglomerates plunged after China officially launched a crackdown on foreign acquirers amid concerns of "systemic risk", it was HNA's turn, which as we described last week, risks becoming a "reverse rollup from hell", as HNA's stock tumbled, sending the LTV of billions in loans collateralized by the company's shares soaring and in danger of unleashing an catastrophic margin call among the company's lenders.

Then Beijing's attention shifted to the biggest conglomerate of them all: billionaire Wang Jianlin’s Dalian Wanda Group, which as the WSJ and Bloomberg reported was being "punished" by Beijing, and would see its funding cutoff after China "concluded the conglomerate breached restrictions for overseas investments."

The scrutiny could rein in Wang’s ambitious attempt to create a global entertainment empire, including Hollywood production companies and a giant cinema chain he’s built up through acquisitions from the U.S. to the U.K. Six investments, such as the purchases of Nordic Cinema Group Holding AB and Carmike Cinemas Inc., were found to have violations, said the people, who asked not to be identified discussing a private matter. The retaliatory measures will include banning banks from providing Wanda with financial support linked to these projects and barring the company from selling those assets to any local companies, the people said.

The move is an unprecedented setback for the country’s second-richest man, who has announced more than $20 billion of deals since the beginning of 2016. By targeting one of the nation’s top businessmen, the government is escalating its broader crackdown on capital outflows and further chilling the prospects of overseas acquisitions during a politically sensitive year in China.

Read the entire article

July 21, 2017

Rare Earth Mania And China/US Trade Spat 2.0?

We doubt that many have heard of it, or know what it’s used for, but the price of Praseodymium-Neodymium (sold in oxide form) has been on a tear, up 43% ytd.

Neodymium and Praseodymium, collectively known as NdPr, are two of the family of seventeen rare earth elements (REEs). The price of several other REEs, like Terbium – Ticker SHRATBOX (really) and also used in very powerful permanent magnets - have been rising too (up 36% ytd). 

Unfortunately for the rest of the world, especially the US, China has a monopoly on the rare earths market with 85-90% of global production.

REEs are strategically important due to their (small but critical) applications in products used for the defense and technology sectors - including today’s mainstay of human existence, the mobile phone. China’s dominance arose from undercutting almost every other mining and processing player in the decades prior to its WTO entry.

Read the entire article

July 20, 2017

Wal-Mart Replaces More Than 4,000 Employees With Machines

The Wall Street Journal published a headline today that should strike fear into the heart of every crusaders in the fight for $15: “Robots Are Replacing Workers Where You Shop.”

As the story explains, Wal-Mart is replacing some of its non-customer facing workers with robots, like bookkeepers who were responsible for counting and storing the store's cash supply.

Last August, a 55-year-old Wal-Mart employee found out her job would now be done by a robot. Her task was to count cash and track the accuracy of the store’s books from a desk in a windowless back room. She earned $13 an hour.

Instead, Wal-Mart Stores Inc. started using a hulking gray machine that counts eight bills per second and 3,000 coins a minute. The Cash360 machine digitally deposits money at the bank, earning interest for Wal-Mart faster than sending an armored car. And it uses software to predict how much cash is needed on a given day to reduce excess.

‘They think it will be a more efficient way to process the money,’ said the employee, who has worked with Wal-Mart for a decade.”

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July 19, 2017

As Farmers Go Broke, John Deere Ramps Up It's Captive Financing Operation To Keep The Ag Party Going

So what do you do when your John Deere and your entire business revolves around selling really expensive equipment to farmers who have been absolutely decimated financially by low crop prices and can no longer convince commercial banks that they're worthy of additional debt needed to buy fancy new tractors?  Well, you take some plays from the automotive industry, that's what.  Here's how it works:

Step 1:  Setup a captive financing arm to underwrite all of the credit risk that no reasonable commercial ag bank would touch with a 10 foot pole.

Step 2:  Boost your tractor sales volumes by financing every farmer who walks through your door with a soybean dream and pulse.

Step 3:  When you run out of farmers willing to buy your brand new shiny green tractors then just start selling all your production volume to yourself and then lease it to customers at an attractive price.  This way you can still show sales growth and never have to cut production volume.

Step 4:  Finally, when it all goes horribly wrong because used tractor prices crash due to the flood of off-lease volume and brings down the new market with it then you take a one-time charge to write-off the losses, wall streets forgives you...it was just a 1x charge, right...and then you promptly rinse and repeat.

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July 18, 2017

Cashless Society Alert: Visa Will Be Giving Up To $500,000 To Restaurants That Go ‘100% Cashless’

The push toward a cashless society is becoming more of a shove.  Before today I had never heard of “The Visa Cashless Challenge”, but after reading about it I have to say that I am quite alarmed.  Visa is trying to “encourage” businesses to go cashless, and one of the ways that they will be doing this is by “awarding up to $500,000 to 50 eligible US-based small business food service owners who commit to joining the 100% cashless quest”.  The food industry is still one of the last bastions where cash is used very heavily, and so it makes sense that Visa would want to target that segment.  Of course the more people that use cards to pay for meals, the more money that Visa will make.

When I go to restaurants, I almost always use cash, and I know a lot of other people that very much prefer to use cash in those situations as well.  But if Visa has their way, soon all of us will be forced to use some form of digital payment instead.  The following is an excerpt from the press release that Visa issued about this new “challenge”…

Today Visa (NYSE:V) announced it is launching a major effort to encourage businesses to go cashless. Aiming to create a culture where cash is no longer king, the program will give merchants increased ability to accept all forms of global digital payments. Visa will be encouraging and helping merchants go cashless by using innovation to their advantage in order to stay competitively connected to their customers.

To encourage businesses to go cashless, Visa is announcing The Visa Cashless Challenge, with a call to action for small business restaurants, cafés or food truck owners to describe what cashless means for them, their employees and customers. Visa will be awarding up to $500,000 to 50 eligible US-based small business food service owners who commit to joining the 100% cashless quest.

“At Visa, we believe you can be everywhere you want to be, and that it should be easy to pay and be paid in more ways than ever – whether it’s a phone, card, wearable or other device,” said Jack Forestell, head of global merchant solutions, Visa Inc. “With 70% of the world, or more than 5 billion people, connected via mobile device by 20201, we have an incredible opportunity to educate merchants and consumers alike on the effectiveness of going cashless.”

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July 17, 2017

95% Of Europeans Reject EU Efforts To "De-Cash" Their Lives

But the IMF has suggestions on how to win the War on Cash...

In January 2017 the European Commission announced it was exploring the option of imposing upper limits on cash payments, with a view to implementing cross-regional measures as soon as 2018. To give the proposal a veneer of respectability and accountability the Commission launched a public consultation on the issue. Now, the answers are in, but they are not what the Commission was expecting.

A staggering 95% of the respondents said they were opposed to a cash ceiling at EU level. Even more emphatic was the answer to the following question:

“How would the introduction of restrictions on payments in cash at EU level benefit you, or your business or your organisation (multiple replies are possible)?”

In the curious absence of an explicit “not at all” option, 99.18% chose to respond with “no answer.” In other words, less than 1% of the more than 30,000 people consulted could think of a single benefit of the EU unleashing cross-regional cash limits.

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July 14, 2017

Visa Trying to Bribe Merchants to Stop Taking Cash

The war on cash is escalating. A big driver isn’t central banks who want to be able to inflict negative interest rates on savers, or Treasuries who see cash transactions as hiding revenues from their tax collectors, but the payment networks that want to kill cash (and checks!) as competitors to their oh so terrific (and fee-gouging) credit and debit cards.

However, one bit of good news is there doesn’t appear to be much enthusiasm on the buyer, as in merchant, end.

First, the overview from the Wall Street Journal:

Visa Inc. has a new offer for small merchants: take thousands of dollars from the card giant to upgrade their payment technology. In return, the businesses must stop accepting cash.

The company unveiled the initiative on Wednesday as part of a broader effort to steer Americans away from using old-fashioned paper money. Visa says it is planning to give $10,000 apiece to up to 50 restaurants and food vendors to pay for their technology and marketing costs, as long as the businesses pledge to start what Visa executive Jack Forestell calls a “journey to cashless.”

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July 13, 2017

Is This The Generation That Is Going To Financially Destroy America?

Did you know that the federal government is going to spend more than 4 trillion dollars this year?  To put that into perspective, U.S. GDP for the entire year of 2017 is going to be somewhere between 18 and 19 trillion dollars.  So when you are talking about 4 trillion dollars you are talking about a huge chunk of our economy.  But of course the federal government doesn’t bring in 4 trillion dollars a year.  At the beginning of Barack Obama’s first term, we were 10.6 trillion dollars in debt, and now we are nearly 20 trillion dollars in debt.  That means that we have been adding more than a trillion dollars a year to the national debt.  When you break that down, that means that we have essentially been stealing more than a hundred million dollars from future generations of Americans every single hour of every single day to pay for our debt-fueled lifestyle.  Even Federal Reserve Chair Janet Yellen is warning that this is not sustainable, and yet we just keep on doing it.

Nobody can pretend that what we have today is the kind of limited federal government that our founders intended.  When federal spending accounts for more than 20 percent of GDP, it is hard to argue that we haven’t moved very far down the road toward socialism.  As I mentioned above, total federal spending will surpass 4 trillion dollars for the first time ever in 2017…

Both the Congressional Budget Office and the White House Office of Management and Budget project that federal spending will top $4 trillion for the first time in fiscal 2017, which began on Oct. 1, 2016 and will end on Sept. 30.

In its “Update to the Budget and Economic Outlook: 2017 to 2027” published last week, CBO projected that total federal spending in fiscal 2017 will hit $4,008,000,000,000.

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July 12, 2017

Connecticut Capital Hartford Downgraded To Junk By S&P

One week ago, Illinois passed its three year-overdue budget in hopes of avoiding a downgrade to junk status, however in an unexpected twist, Moody's said that it may still downgrade the near-insolvent state, regardless of the so-called budget "deal." In fact, a downgrade of Illinois may come at any moment, making it the first U.S. state whose bond ratings tip into junk, although as of yesterday, credit rating agencies said they were still reviewing the state's newly enacted budget and tax package. The most likely outcome is, unfortunately for Illinois, adverse: "I think Moody's has been pretty clear that they view the state's political dysfunction combined with continued unaddressed long-term liabilities, and unfavorable baseline revenue performance as casting some degree of skepticism on the state's ability to manage out of the very fragile financial situation they are in," said John Humphrey, co-head of credit research at Gurtin Municipal Bond Management.

And yet, while Illinois squirms in the agony of the unknown, another municipality that as recently as a month ago was rumored to be looking at a bankruptcy filing, the state capital of Connecticut, Hartford, no longer has to dread the unknown: on Tuesday afternoon, S&P pulled off the band-aid, and downgraded the city's bond rating by two notches to BB from BBB-, also known as junk, citing "growing liquidity pressures" and "weaker market access prospects", while keeping the city's General Obligation bonds on Creditwatch negative meaning more downgrades are likely imminent.

"The downgrade to 'BB' reflects our opinion of very weak diminished liquidity, including uncertain access to external liquidity and very weak management conditions as multiple city officials have publicly indicated they are actively considering bankruptcy," said S&P Global Ratings credit analyst Victor Medeiros. Hartford has engaged an outside law firm with expertise in financial restructuring. Officials also mentioned that the city would initiate discussions with bondholders for concessions to implement a debt restructuring if it didn't receive the necessary support in the state's 2019 biennial budget.

S&P also said that Hartford may be downgraded again if the state passage of a budget is significantly delayed, or if the city were not to receive sufficient support in a timely manner that would enable it to manage liquidity and allow it to meet obligations in a timely manner.

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July 11, 2017

"... A Recession Has Always Followed": Is This The Real Reason The Fed Is Suddenly Panicking

"Why is the Fed so desperate to raise rates and tighten financial conditions? Why has the Fed shifted from a dovish to a hawkish bias?"

That is the question on every trader's, analyst's and economist's mind in the past month. Is it because the Fed is suddenly worried it has inflated another massive equity bubble (major banks now openly warn their clients the market is in frothy territory, if not inside a bubble), or is the Fed just worried that it will fall too far behind the curve and be unable to regain control of the economy once inflation spikes, without creating a recession (in what will soon be the second longest, if weakest, economic expansion of all time).

This is also what BofA's chief economist Ethan Harris tried to answer over the weekend, when he recalled that while from 2013 to 2016 the Fed seemed to have a "dovish bias" signaling a slow exit from super easy monetary policy, but pausing at any sign of trouble, this year the Fed appears to have shifted to a "hawkish bias:" signaling a slow exit, but only pausing if the outlook changes significantly. He says that this was most evident when the Fed hiked rates and signaled balance shrinkage at its June meeting despite weak growth and inflation data.

Why the change of Fed feathers? In BofA's view, three factors are at play, in increasing order of importance.

First, the Fed is worried a bit about financial stability and overheating markets. However, the bank puts a relatively low weight on this argument, as Chair Yellen and her allies have repeatedly underscored the idea that macro prudential policy is the first line of defense against asset bubbles and monetary policy is a distant "Plan B", although to this we can add that macroprudential policy has yet to demonstrate its effectiveness in preventing even one asset bubble.

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July 10, 2017

38 Incredible Facts About The Modern U.S. Dollar

We’ve previously showed you 31 Fascinating Facts About the Dollar’s Early History, which highlighted the history of U.S. currency before the 20th century. This was a very interesting period in which we looked at the money used by the first colonists, the extreme bust of the Continental currency, the era of privately-issued bank notes, and Congress’ emergency issuance of the fiat “greenback” during the Civil War.

However, as The Money Project - an ongoing collaboration between Visual Capitalist and Texas Precious Metals that seeks to use intuitive visualizations to explore the origins, nature, and use of money - notes, the modern era of the U.S. dollar is just as interesting. We have it starting in 1913, when the Federal Reserve Act was passed by Woodrow Wilson. Not only did it establish a new central bank, but it also gave the Fed the authority to issue the Federal Reserve Note, which is (for now) the dominant form of U.S. currency both domestically and abroad.

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July 7, 2017

Panicked BOJ Unleashes Bond Buying Bazooka: Offers To Buy Unlimited 10Y JGBs At 0.11%

During this morning's bond rout when a poor French auction sparked a high-volume selloff in German Bunds which also hit Japanese JGBs before slamming US TSYs, Goldman said that "with 10Y JGBs closing at 0.095 and getting hit at 10bp intraday, focus will be on how the BOJ will react tomorrow [i.e. now]. Opinions seem pretty split with some expecting an increase in purchase size in the 5-10 bucket, while others feel that the BOJ will let the 10Y run loose given the current sell off is more fundamental than event driven. With BOJ behind buying pace for 80tn reference anyway, personally I feel it doesn't hurt the BOJ to remind market of their presence."

Goldman was right: the BOJ, panicking after the overnight bond rout, not only reminded markets of its presence, but did so in dramatic fashion when it first boosted the amount of JGBs bought in the 5-10 year bucket from JPY 450BN to JPY 500 BN, and then for good measure unleashed the QQEWYC bazooka, announcing it would purchase an unlimited amount of 10Y JGBs at 0.11%, just a fraction above the BOJ's 0.10% line in the sand, only the second time it has done so in 2017 since February.

In immediate reaction, the benchmark Japanese TSY, which was trading north of 0.105% and flirting with 0.11%, promptly slid back to 0.095% now that it has become clear that all the hawkish posturing by central banks was just that.

Japanese market were relieved with the Topix paring losses to 0.3%, or 1,611.52 as of 10:23am in Tokyo, down from a drop as big as 0.7%, same as the Nikkei, which had dropped 0.7% earlier, then trimming losses by more than half, while the Yen, after trading at 113.250, immediately weakened by 25 pips to 113.50.

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July 6, 2017

The Fed Has An Alarming Low-Inflation Problem

With all the talk of central bank hawkishness in the last week, one might assume there was some inflation to point to. It is quite the opposite. It is one thing to talk about inflation being below the Fed’s target of 2%, it is an entirely different issue to see it flirting with deflation! Shorter-term trends of core-inflation are very near to 0%, levels we haven’t seen since the great recession and the advent of quantitative easing.

In its most common form, inflation is quoted by measuring its percentage change compared its level 12 months ago, the so-called year-over-year (YoY%) metric. But, shorter-term periods can be measured to get a sense of more recent trends as well as if there is acceleration or deceleration in the metric. The shorter the period measured, the more volatility the metric has, and so year-over-year (YoY%) has become the standard. It also has the added benefit of eliminating any seasonal effects.

In the charts below, we show the two top-tier measures of consumer price inflation, the Fed-preferred core PCE deflator, and the core CPI; with its common year-over year (YoY%) format, 6 months back annualized, and 3 months back annualized. Comparing the three gives a sense of acceleration of deceleration. If the 3mo. is less than the 6mo. is less than the 12mo., there is deceleration and vice-versa, there is acceleration.

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July 5, 2017

Chinese Manufacturers Are Scrambling To Replace Workers With Robots As Wages Soar

Tepid wage growth has been frustrating Americans for years. But if trends in China’s manufacturing sector have any bearing on the US, there’s an upside to stagnant pay: Workers get to keep their jobs – for now, at least.

In China – where real wages have doubled in the past decade – the opposite is true: Manufacturers, squeezed by rising labor costs and a paucity of skilled workers, are fueling an unprecedented boon in the adoption of automated technologies to cut down on the number of workers needed on factory floors, according to the latest findings of the China Employer-Employee Survey.

Ironically, the Communist Party’s willingness to support unprofitable businesses is compounding problems for Chinese workers, as many manufacturers are barely profitable to begin with.

As Bloomberg explains, China is no longer the cheap labor haven it once was.

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July 4, 2017

Nasdaq Triggers Market-Wide Circuit-Breaker As AMZN "Crashes" 87% After-Hours

Nasdaq has issued a market-wide trading halt amid what appears to be a "glitch" that sent a number of the largest Nasdaq-listed stocks to crash or spike to exactly $123.47 per share.

This move crashed the value of companies including Amazon and Apple, sparked chaos in Microsoft, while sending Zynga rocketing up more than 3000%.

As Bloomberg reports, the apparent swings triggered trading halts in some securities, according to automatically generated messages. The halts are a mechanism exchanges use to limit the impact of particularly volatile sessions. A system status alert on Nasdaq’s website said that systems were operating normally at 8:23 p.m. ET. After-market hours on Nasdaq typically last from 4 p.m. to 8:00 p.m.

In a statement, Nasdaq said the glitch was related to “improper use of test data” sent out to third party data providers, and said it was working to “ensure a prompt resolution of this matter”. In cases of any clearly erroneous data, trades made are cancelled.

As a reminder this is not the first time 'glitches' have occurred on holidays... remember gold on Thanksgiving 2014.

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July 3, 2017

India: Cash Is Back (But The Crisis Has Deepened)

Cash is Back

I know many wealthy and so-called educated people who have never used a bank card. Many simply won’t trust a machine. Most are incapable of learning how to use the cards. With people tired of corrupt, untrustworthy and unpredictable banks and payment portals incapable of providing reliable services, cash is coming back with a vengeance.

The economy, however, continues to be stagnant. Businesses continue to fail. If not for economic reasons, businessmen have grown tired of corrupt and rapacious bureaucrats and an extremely uncertain regulatory regime. Look at an Indian businessman and you will see an unhealthy, tired, soulless person.

Even today, vegetables sell for half as much as they normally do. Are poor people going hungry? Do not expect news on this in the media, which must toe the line of the Indian government.

Money — even in fiat currency form — is the blood of the system. Once the blood flow was stopped, even if it is fully revived later, clots will have appeared and organs will have failed. That is happening in India today. Job growth was already stagnant, but the situation is much worse now, making India’s so-called demographic asset, which never was an asset, a massive liability.

Domino effects continue to work their way up the food chain. Formal and big businesses are beginning to show signs of stagnation. Members of the salaried middle class are losing their jobs, but they have so far failed to connect the dots and continue to support Modi.

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June 30, 2017

The World Is Now $217,000,000,000,000 In Debt And The Global Elite Like It That Way

The borrower is the servant of the lender, and through the mechanism of government debt virtually the entire planet has become the servants of the global money changers.  Politicians love to borrow money, but over time government debt slowly but surely impoverishes a nation.  As the elite get governments around the globe in increasing amounts of debt, those governments must raise taxes in order to keep servicing those debts.  In the end, it is all about taking money from us and transferring it into government pockets, and then taking money from government pockets and transferring it into the hands of the elite.  It is a game that has been going on for generations, and it is time for humanity to say that enough is enough.

According to the Institute of International Finance, global debt has now reached a new all-time record high of 217 trillion dollars

Global debt levels have surged to a record $217 trillion in the first quarter of the year. This is 327 percent of the world’s annual economic output (GDP), reports the Institute of International Finance (IIF).

The surging debt was driven by emerging economies, which have increased borrowing by $3 trillion to $56 trillion. This amounts to 218 percent of their combined economic output, five percentage points greater year on year.

Never before in human history has our world been so saturated with debt.

And what all of this debt does is that it funnels wealth to the very top of the global wealth pyramid.  In other words, it makes global wealth inequality far worse because this system is designed to make the rich even richer and the poor even poorer.

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June 29, 2017

Janet Yellen Says A New Financial Crisis Probably Won’t Happen ‘In Our Lifetimes’ But The BIS Says One Could Soon Hit ‘With A Vengeance’

Federal Reserve Chair Janet Yellen is quite convinced that the United States will not experience another financial crisis for a very long time to come.  In fact, she is publicly saying that she does not believe that another one will happen “in our lifetimes”.  But there are other central bankers that see things very differently.  In fact, a new report that was just released by the Bank for International Settlements is warning that a new financial crisis could soon strike “with a vengeance”.  So who is right?

It would be nice if it turned out that Yellen was right.  Nobody should want to see a repeat of what happened in 2008, and Yellen seems extremely confident that she will never see another crisis of that magnitude

“Would I say there will never, ever be another financial crisis? You know probably that would be going too far but I do think we’re much safer and I hope that it will not be in our lifetimes and I don’t believe it will be,” Yellen said at an event in London.

Even though the U.S. national debt has roughly doubled since the start of the last financial crisis, and even though corporate debt has roughly doubled since then as well, and even though U.S. consumers are more than 12 trillion dollars in debt, and even though the top 25 U.S. banks have 222 trillion dollars of exposure to derivatives, Yellen believes that our financial system “is much safer and much sounder” than it was in 2008…

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June 28, 2017

The End Of The (Petro)Dollar: What The Fed Doesn't Want You To Know

The United States’ ability to maintain its influence over the rest of the world has been slowly diminishing. Since the petrodollar was established in 1971, U.S. currency has monopolized international trade through oil deals with the Organization of the Petroleum Exporting Countries (OPEC) and continuous military interventions. There is, however, growing opposition to the American standard, and it gained more support recently when several Gulf states suddenly blockaded Qatar, which they accused of funding terrorism.

Despite the mainstream narrative, there are several other reasons why Qatar is in the crosshairs. Over the past two years, it conducted over $86 billion worth of transactions in Chinese yuan and has signed other agreements with China that encourage further economic cooperation. Qatar also shares the world’s largest natural gas field with Iran, giving the two countries significant regional influence to expand their own trade deals.

Meanwhile, uncontrollable debt and political divisions in the United States are clear signs of vulnerability. The Chinese and Russians proactively set up alternative financial systems for countries looking to distance themselves from the Federal Reserve.  After the IMF accepted the yuan into its basket of reserve currencies in October of last year, investors and economists finally started to pay attention. The economic power held by the Federal Reserve has been key in financing the American empire, but geopolitical changes are happening fast. The United States’ reputation has been tarnished by decades of undeclared wars, mass surveillance, and catastrophic foreign policy.

One of America’s best remaining assets is its military strength, but it’s useless without a strong economy to fund it. Rival coalitions like the BRICS nations aren’t challenging the established order head on and are instead opting to undermine its financial support. Qatar is just the latest country to take steps to bypass the U.S. dollar. Russia made headlines in 2016 when they started accepting payments in yuan and took over as China’s largest oil partner, stealing a huge market share from Saudi Arabia in the process. Iran also dropped the dollar earlier this year in response to President Trump’s travel ban. As the tide continues to turn against the petrodollar, eventually even our allies will start to question what best serves their own interests.

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June 27, 2017

Italy's Newest Bank Bailout Cost As Much As Its Annual Defense Budget

The Italian Prime Minister himself stated that depositors’ funds were at risk, so the government stepped in with a bailout and guarantee package that could cost taxpayers as much as 17 billion euros.

That’s a lot of money in Italy - around 1% of GDP. In fact it’s basically as much as the 17.1 billion euros they spent on national defense last year (according to an estimate by Italian think tank IAI).

You don’t have to have a PhD in economics to figure out that NO government can afford to spend its entire defense budget every time a couple of medium-sized banks need a bailout.

That goes especially for Italy, whose public debt level is already 132% of GDP… and rising. They simply don’t have the money.

Moreover, the European Union actually has a series of new rules collectively known as the “Bank Recovery and Resolution Directive” which is supposed to prevent failing banks from being bailed out with taxpayer funds.

Here’s the thing– Italy has LOTS of banks that are on the ropes.

So with taxpayer resources exhausted (and technically prohibited), who’s going to be on the hook next time a bank goes under?

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