June 23, 2017

Moody's: Modest Downside Could Spark $3 Trillion Surge In Pension Liabilities

Some very simplistic math from Moody's helps to shed some light on just how inevitable a public pension crisis is in the United States.  Analyzing a basket of 56 public plans with net liabilities of $778 billion, Moody's found that just a modest downside return scenario over the next three years (2017: +7.2%, 2018: -5.0%, 2019: 0%) would result in a 59% surge in new unfunded liabilities.  Moreover, given that total unfunded public pension liabilities are roughly $5 trillion in aggregate, this implies that a simple 5% drop in assets in 2018 could trigger a devastating ~$3 trillion increase in net liabilities.

Meanwhile, Moody's found that even if the funds return 19% over the next three years then net liabilities would still increase by 15%.  Per Pensions & Investments:

In its report, Moody's ran a sample of 56 plans with $778 billion in aggregate reported net pension liabilities through three different investment return scenarios. Due to reporting lags, most 2019 pension results appear in governments' 2020 financial reporting, Moody's noted. The plans had $1.977 trillion in trillion assets.

Under the first scenario with a cumulative investment return of 25% for 2017-'19, aggregate net pension liabilities for the 56 plans fell by just 1%. Under the second scenario with a cumulative investment return of 19% for 2017-2019, net pension liabilities rose by 15%. Under the third scenario with a 7.2% return in 2017, -5% return in 2018 and zero return in 2019, net pension liabilities rose by 59%.

In 2016, the 56 plans returned roughly 1% on average and would have needed collective returns of 10.7% to prevent reported net pension liabilities from growing.

Read the entire article


June 22, 2017

Owning Gold Is The First Step To "Freedom Insurance"

It’s predictable…

A government in need of cash will turn to destructive “solutions.”

Money printing, higher taxes, and more regulations often come first. Unfortunately, these are just the hors d’oeuvres before a 10-course meal.

As they become increasingly desperate, governments implement increasingly destructive policies. This might include capital controls, price controls, people controls, official currency devaluations, wealth confiscations, retirement account nationalizations, and more.

The same pattern has played out again and again around the world and throughout history. The worse a government’s fiscal health gets, the more destructive its policies become.

This is the root of political risk.

It’s no secret that political risk is snowballing in many parts of the world. This is especially true in the US and Europe, where welfare and warfare spending continues unabated. It doesn’t matter which party is in power.

Read the entire article

June 21, 2017

Bitcoin Surges Back Above $2700 As India "Legalizes" Cryptocurrency

After crashing 30% last week, Bitcoin is now up over 33% in the last few days helped by a surge in demand from India exchanges after the India government ruled Bitcoin as legal in India...

Yet another big rebound... this time as India - the world's second most-populous nation rules in favor of regulating Bitcoin...

As CoinTelegraph reports, over the past three years, the big three Indian Bitcoin exchanges including Zebpay, Coinsecure and Unocoin operated with self-regulated trading platforms with strict Know Your Customer (KYC) and anti-money laundering systems in place, despite the lack of regulations in the digital currency industry and market.

The efforts of the Bitcoin exchanges in India to self-regulate the market allowed the Indian government to reconsider the Bitcoin and digital currency sectors, regardless of the criticisms by several politicians that significantly lack knowledge in cryptocurrency.

On March 24, Cointelegraph reported that Kirit Somaiya, a member of parliament of the ruling BJP in India, was harshly criticized for his description of Bitcoin as a Ponzi scheme.

In a letter to the Finance Ministry and the Reserve Bank of India, Somaiya explained that Bitcoin is a pyramid Ponzi-type scheme. However, Somaiya was criticized for his inability to understand the structural and fundamental difference between a Ponzi scheme and Bitcoin.

Read the entire article

June 20, 2017

Good Luck Getting Out Of That Subprime Auto Loan When Used Car Prices Crash

We've written frequently in recent months about the coming subprime auto crisis which will very likely be prompted by a wave of off-lease vehicles that will flood the market with used inventory over the coming years.  In fact, Morgan Stanley recently predicted that the surge in used inventory could result in as much as a 50% crash in used car prices over the next couple of years which would, in turn, put further pressure on the new car market which has already resorted to record incentive spending to maintain volumes.

Here are just a couple of our most recent notes on the topic:


Of course, while pretty much anyone has been able to purchase that brand new BMW of their dreams over the past 5 years...courtesy of a surge in subprime lending volumes....

Read the entire article

June 19, 2017

With New Patent, Amazon Will Collect As Much Customer Data As Google

A day after Amazon announced it would jump head-long into the bricks-and-mortar grocery business by agreeing to buy Whole Foods Market for $13.4 billion, reports from earlier this week about a new patent issued to the company are starting to make more sense. The patent, which was first reported by the Verge, is for wireless technology that can effectively block customers in Whole Food’s retail locations from “showrooming." "Showrooming" is the practice of using retail locations to test out products before buying them online - a practice that Amazon, by making it easy to comparison shop on a smartphone, helped pioneer.

In its report, the Verge focuses on how the technology will help the company solve a problem that Amazon itself helped create – a problem that has plagued virtually every other traditional retailer.

"Systems and methods for controlling online shopping within a physical store or retailer location are provided. A wireless network connection may be provided to a consumer device at a retailer location on behalf of a retailer, and content requested by the consumer device via the wireless network connection may be identified. Based upon an evaluation of the identified content, a determination may be made that the consumer device is attempting to access information associated with a competitor of the retailer or an item offered for sale by the retailer. At least one control action may then be directed based upon the determination.”

But the technology described in the patent also raises serious concerns about the company’s plans for vastly expanding its capacity to collect and store customers' data. As MarketWatch’s Theresa Poletti reports, with this added capability, Amazon may soon be gathering as much data on its consumers now as Alphabet’s Google Inc.

Read the entire article

June 16, 2017

We Are Getting Very Close To An Inverted Yield Curve – And If That Happens A Recession Is Essentially Guaranteed

If something happens seven times in a row, do you think that there is a pretty good chance that it will happen the eighth time too?  Immediately prior to the last seven recessions, we have seen an inverted yield curve, and it looks like it is about to happen again for the very first time since the last financial crisis.  For those of you that are not familiar with this terminology, when we are talking about a yield curve we are typically talking about the spread between two-year and ten-year U.S. Treasury bond yields.  Normally, short-term rates are higher than long-term rates, but when investors get spooked about the economy this can reverse.  Just before every single recession since 1960 the yield curve has “inverted”, and now we are getting dangerously close to it happening again for the first time in a decade.

On Thursday, the spread between two-year and ten-year Treasuries dropped to just 79 basis points.  According to Business Insider, this is almost the tightest that the yield curve has been since 2007…

The spread between the yields on two-year and 10-year Treasurys fell to 79 basis points, or 0.79%, after Wednesday’s disappointing consumer-price and retail-sales data. The spread is currently within a few hundredths of a percentage point of being the tightest it has been since 2007.

Perhaps more notably, it is on a path to “inverting” — meaning it would cost more to borrow for the short term than the long term — for the first time since the months leading up to the financial crisis.

So why is an inverted yield curve such a big event?  Here is how CNBC recently explained it…

Read the entire article

June 15, 2017

Peak Economic Delusion Signals Coming Crisis

In my article 'The Trump Collapse Scapegoat Narrative Has Now Been Launched', I discussed the ongoing and highly obvious plan by globalists and international financiers to pull the plug on their fiat support for stock markets and portions of the general economy while blaming the Trump Administration (and the conservative ideal) for the subsequent crash. Numerous economic shocks and negative data which had been simmering for years before the 2016 elections are rising to the surface of the normally oblivious mainstream. This recently culminated in a surprise stock dive that stunned investors; investors that have grown used to the Dow moving perpetually upward, while the economic media immediately began connecting the entire event to Trump and the “Comey memos”, which likely do not exist.

My position according to Trump's behavior and cabinet selection is that he is aware of this agenda and is playing along. That said, there is another important issue to consider - the participation of the ignorant in helping the Ponzi con-game continue.

There is a famous investor's anecdote from Joe Kennedy, the father of John F. Kennedy, about the onset of the Great Depression – he relates that one day, just before the crash of 1929, a shoe shine boy tried to give him stock tips. He realized at that moment that when the shoe shiner is offering market tips the market is too popular for its own good. He cashed out of the market and avoided the crash that many people now wrongly assume was the “cause” of the Great Depression.

I don't know that this story is true, but if it is, it is an interesting example of peak economic delusion. We do not have quite the same investment environment as existed in those days. Today, algorithmic computers dominate the functions of the stock market, chasing headlines and each other, but this does not and will not save the economy from another depression. In fact, all they have done along with substantial aid from central banks is artificially elevate equities while every other fiscal indicator implodes.

Read the entire article

June 14, 2017

Goldman: The Fed Will Hike But Here Are "The Two Most Interesting Questions"

Today the FOMC will hike rates by another 25 bps - an event which the Fed Funds market prices in with near virtual certainty, while Goldman calls the rate increase "extremely likely" - and only a "tail" event like an extremely weak CPI report hours ahead of the Fed announcement, has any chance of preventing  this outcome. So with the next rate hike virtually inevitable, questions are focused on not only the Fed's exit strategy for balance sheet normalization and what the "dots" or funds rate path will look like, but how the Fed squares rising rates with the recent string of inflation misses.

As Goldman's Jan Hatzius writes, data since the March meeting has sharpened the dilemma that both sides of the mandate are sending increasingly different signals about the urgency of further tightening. "The unemployment rate has fallen 0.4pp since the March meeting and our current activity indicator and real GDP estimates signal that above-trend output growth will produce further labor market improvement. But the year-over-year core PCE inflation is now 0.2pp lower than at the March meeting."

While conceding that a hike is guaranteed, Goldman notes that two issues should make this meeting particularly interesting.

First, will Fed officials alter their policy views in response to the increasingly different signals that both sides of the mandate are sending about the urgency of further tightening?

Second, will the press conference provide some clarity on what the next tightening step following the June hike will be?

Read the entire article

June 13, 2017

The Next Financial Crisis Has Already Arrived In Europe, And People Are Starting To Freak Out

Did you know that the sixth largest bank in Spain failed in spectacular fashion just a few days ago?  Many are comparing the sudden implosion of Banco Popular to the collapse of Lehman Brothers in 2008, and EU regulators hastily arranged a sale of the failed bank to Santander in order to avoid a full scale financial panic.  Sadly, most Americans have no idea that a new financial crisis is starting to play out over in Europe, because most Americans only care about what is going on in America.  But we should be paying attention, because the EU is the second largest economy on the entire planet, and the euro is the second most used currency on the entire planet.  The U.S. financial system is already teetering on the brink of disaster, and this new financial crisis in Europe could turn out to be enough to push us over the edge.

If EU regulators had not arranged a “forced sale” of Banco Popular to Santander, we would probably be witnessing panic on a scale that we haven’t seen since 2008 in Europe right about now.  The following comes from the Telegraph

Spanish banking giant Santander has stepped in to the rescue ailing rival Banco Popular by taking over the failing lender for €1 in a watershed deal masterminded by EU regulators to avoid a damaging collapse.

Santander will tap its shareholders for €7bn in a rights issue to raise the capital needed to shore-up Popular’s finances in a dramatic private sector rescue of Spain’s sixth-largest lender.

It will inflict losses of approximately €3.3bn on bond investors and shareholders but crucially will avoid a taxpayer bailout.

But now that a “too big to fail” bank like Banco Popular has failed, investors are immediately trying to figure out which major Spanish banks may be the next to collapse.  According to Wolf Richter, many have identified Liberbank as an institution that is highly vulnerable…

Read the entire article

June 12, 2017

It's Confirmed: Without Government Subsidies, Tesla Sales Implode

According to the latest data from the European Automobile Manufacturers Association (ACEA), sales of Electrically Chargeable Vehicles (which include plug-in hybrids) in Q1 of 2017 were brisk across much of Europe: they rose by 80% Y/Y in eco-friendly Sweden, 78% in Germany, just over 40% in Belgium and grew by roughly 30% across the European Union... but not in Denmark: here sales cratered by over 60% for one simple reason: the government phased out taxpayer subsidies.

As Bloomberg writes, and as Elon Musk knows all too well, the results confirm that "clean-energy vehicles aren’t attractive enough to compete without some form of taxpayer-backed subsidy."

The Denmark case study is emblematic of where the tech/cost curve for clean energy vehicles currently stands, and why for "green" pioneers the continued generosity of governments around the globe is of absolutely critical importance, and also why Trump's recent withdrawal from the Paris Climate Treaty is nothing short of a business model death threat.

To be sure, Denmark's infatuation with green cars is well-known: the country's bicycle-loving people bought 5,298 of them in 2015, more than double the amount sold that year in Italy, which has a population more than 10 times the size of Denmark's. However, those phenomenal sales figures had as much to do with price and convenience as with environmental concerns: electric car dealers were for a long time spared the jaw-dropping import tax of 180 percent that Denmark applies on vehicles fueled by a traditional combustion engine.

Read the entire article

June 9, 2017

Morgan Stanley Warns Of "Unprecedented Buyer's Strike" In Autos; Slashes Car Sales Forecast

Morgan Stanley's auto team, led by analyst Adam Jonas, seems to be convinced that the auto trade is officially over prompting him to slash over 11 million units from his North American SAAR forecast over the next 4 years.  Jonas attributes his controversial call to the fact that OEMs have been so aggressive in implementing policies designed to pull forward sales (e.g. longer loan terms, higher loan mix to subprime borrowers, etc.) that they've actually started to pressure used car prices to the point that they're cannibalizing new sales.

We had held to a ‘higher-for-longer’ thesis on the assumption that the OEMs could keep pulling forward demand from the future… For several years, we have expressed our concern over the sustainability of used car values and powerful forces that could drive a multiyear cyclical decline, impairing the ability for consumers to transact and the willingness of financial institutions to lend as aggressively as in the past. Up to this point, we had believed that competitive forces, particularly the ability of the captive finance subs to find new ways to lower the monthly payment and put 'money on the hood’, would help extend the US auto volume cycle a few more years to new heights.

8 years into the biggest auto cycle on record, we appear to be hitting a point of diminishing returns where the tactics required to attract the incremental consumer may be putting even more pressure on the second hand market, leading to adverse conditions for selling new vehicles…

As such, for the first time this cycle, we are directly incorporating our views of used car value erosion into our US light vehicle sales forecasts, resulting in substantial SAAR reductions of several million units per annum through 2020.

Read the entire article

June 8, 2017

Central Banks Now Own Stocks And Bonds Worth Trillions – And They Could Crash The Markets By Selling Them

Have you ever wondered why stocks just seem to keep going up no matter what happens?  For years, financial markets have been behaving in ways that seem to defy any rational explanation, but once you understand the role that central banks have been playing everything begins to make sense.  In the aftermath of the great financial crisis of 2008, global central banks began to buy stocks, bonds and other financial assets in very large quantities and they haven’t stopped since.  In fact, as you will see below, global central banks are on pace to buy 3.6 trillion dollars worth of stocks and bonds this year alone.  At this point, the Swiss National Bank owns more publicly-traded shares of Facebook than Mark Zuckerberg does, and the Bank of Japan is now a top-five owner in 81 different large Japanese firms.  These global central banks are shamelessly pumping up global stock markets, but because they now have such vast holdings they could also cause a devastating global stock market crash simply by starting to sell off their portfolios.

Over the years I have often been asked about the “plunge protection team”, but the truth is that global central banks are the real “plunge protection team”.  If stocks start surging higher on any particular day for seemingly no reason, it is probably the work of a central bank.  Because they can inject billions of dollars into the markets whenever they want, that essentially allows them to “play god” and move the markets in any direction that they please.

But of course what they have done is essentially destroy the marketplace.  A “free market” for stocks basically no longer exists because of all this central bank manipulation.  I really like how Bruce Wilds made this point…

Read the entire article

June 7, 2017

Sears Closing Another 66 Stores; Joe's Crab Shack Files For Bankruptcy

Here's another example of when cornered hacks blame "fake news" or in this case, the "irresponsible media" for their gross incompetence, only to prove the media very much responsible and unfake.

One month ago, Sears CEO Eddie Lampert blasted the media for "unfairly singling out" the company over the past decade and blamed "irresponsible" coverage for the retailer's woes. Sears, once the largest U.S. retailer, recently hit rock bottom and continued to dug when it warned investors in March there was a chance it may not survive after years of losses and declining sales. Still, that very warning did not prevent Lampert from lashing out at those who have - correctly - been warning that his company bankruptcy is just a matter of time, and back in May he kicked off the company's annual shareholders' meeting at the company's HQ with a 12 page slideshow of headlines about the company's financial distress, dating back to 2008 (Lampert is known for his peculiarities, collecting morbid headlines about his biggest asset was not known to be among them).

"You'd think it was from a month ago, but it's literally been going on for a decade," Lampert told the handful of furious Sears shareholders in attendance who have seen the value of their stock wiped out over the years.

There were other fireworks during the meeting, like for example when Lampert compared Sears - which hasn't posted a profit in six years - to Amazon's early unprofitable growth. He predicted people will look back and wonder how they missed the Sears' turnaround. The audience was not amused, and six shareholders questioned Lampert, including one asked if Lampert was paranoid and in denial about the company's losses.

Read the entire article

June 6, 2017

Exposing "The Legend" - How Traders 'Spoofed' The Precious Metals Markets

Following last week's admission by a former Deutsche Bank trader that he and many other traders conspired to manipulate the precious metals markets, court documents expose chat messages that show the level of rigging and how an unknown trader known as "the legend" taught them the "tricks from the... master."

The Deutsche Bank trader, David Liew, pleaded guilty in federal court in Chicago to conspiring to spoof gold, silver, platinum and palladium futures, according to court papers. Bloomberg notes that spoofing involves traders placing orders that they never intend to fill, in an attempt to manipulate the price.

Following an introductory period that included orientation and training, LIEW was eventually assigned to the metals trading desk (which included base metals and precious metals trading) in approximately December 2009. During the Relevant Period, LIEW was employed by Bank A as a metals trader in the Asia-Pacific region, and his primary duties included precious metals market making and futures trading....

Between in or around December 2009 and in or around February 2012 (the "Relevant Period"), in the Northern District of Illinois, Eastem Division, and elsewhere, defendant DAVID LIEW did knowingly and intentionally conspire and agree with other precious metals (gold, silver, platinum, and palladium) traders to: (a) knowingly execute, and attempt to execute, a scheme and artifice to defraud, and for obtaining money and property by means of materially false and fraudulent pretenses, representations, and promises, and in furtherance of the scheme and artifice to defraud, knowingly transmit, and cause to be transmitted, in interstate and foreign commerce, by means of wire communications, certain signs, signals and sounds, in violation of Title 18, United States Code, Section 1343,which scheme affected a financial institution; and (b) knowingly engage in trading, practice, and conduct, on and subject to the rules of the Chicago Mercantile Exchange ("CME"), that was, was of the character of, and was commonly known to the trade as, spoofing, that is, bidding or offering with the intent to cancel the bid or offer before execution, by causing to be transmitted to the CME precious metals futures contract orders that LIEW and his coconspirators intended to cancel before execution and not as part of any legitimate, good-faith attempt to execute any part of the orders, in violation of Title 7, United States Code, Sections 6c(a)(5)(C) and 13(a)(2); all in violation of Title 18, United States Code, Section 371.

Read the entire article

June 5, 2017

The Real Unemployment Number: 102 Million Working Age Americans Do Not Have A Job

Did you know that the number of working age Americans that do not have a job right now is far higher than it was during the worst moments of the last recession?  For example, in January 2009 92.6 million working age Americans did not have a job, but we just found out that in May the number of working age Americans without a job increased to just a shade under 102 million.  We’ll go over those numbers in more detail in a moment, but first I want to talk a bit about the difference between perception and reality.  According to the bureaucrats in the federal government, the “unemployment rate” in May was the lowest that we have seen in 16 years.  At just “4.3 percent”, we are essentially at “full employment”, and so according to them anyone that really wants a job should be able to find one pretty easily.

Of course that is a load of nonsense.  John Williams of shadowstats.com tracks what our economic numbers would look like if honest numbers were being used, and according to his calculations the unemployment rate is currently 22 percent.

So what accounts for the wide disparity between those numbers?

Well, the truth is that the official “unemployment rate” that the mainstream media endlessly hypes is so manipulated that it has essentially lost all meaning at this point.

In May, we were told that the U.S. economy added 138,000 jobs, but that is not even enough to keep up with population growth.

Read the entire article

June 2, 2017

The Bilderberg 2017 Agenda: "The Trump Administration - A Progress Report"

Every year, the world's richest and most powerful business executives, bankers, media heads and politicians sit down in some luxurious and heavily guarded venue, and discuss how to shape the world in a way that maximizes profits for all involved, while perpetuating a status quo that has been highly beneficial for a select few, even if it means the ongoing destruction of the middle class. We are talking, of course, about the annual, and always secretive, Bilderberg meeting.

And just like last year's meeting in Dresden, the primary topic on the agenda of this year's 65th Bilderberg Meeting which starts today and ends on Sunday, is one: Donald Trump.

Ironically, this year "the storm around Donald Trump" as the SCMP puts it, is not half way around the world, but just a few miles west of the White House, in a conference centre in Chantilly, Virginia, where the embattled president will be getting his end-of-term grades from the people whose opinion actually matters: some 130 participating "Bilderbergs".

The secretive three-day summit of the political and economic elite kicks off Thursday in heavily guarded seclusion at the Westfields Marriot, a luxury hotel a short distance from the Oval Office.

Read the entire article

June 1, 2017

Dear Fed, It's Not "Really Hard To Spot Bubbles"

Here are some visual aids to help the Fed spot the housing bubble.

Minneapolis Fed President Neel Kashkari was the latest Fed official to claim in an essay – thus following in the time-honored footsteps of former Fed Chair Ben Bernanke – that “spotting bubbles is hard,” that the Fed cannot see them, and that if it could see them, it shouldn’t do anything to stop them because it had only “limited policy tools,” and because “the costs of making policy mistakes can be very high.”

But it’s OK to use these “limited policy tools” to inflate the greatest bubbles the world has ever seen and then preside over the damage they cause to the real economy before they even implode.

Neither Kashkari nor anyone else working at the Treasury Department in 2006 – when they were tasked by Secretary of the Treasury Hank Paulson to look for signs of trouble because they were “due for some form of crisis,” as he writes – could see any bubbles, not even the housing bubble although it was already beginning to deflate.

“It is really hard to spot bubbles with any confidence before they burst,” Kashkari writes, specifically naming stock prices and house prices. “Everyone can recognize a bubble after it bursts, and then many people convince themselves that they saw it on the way up.”

So here are some visual aids I put together for Kashkari and other Fed governors. It will help them “spot” the beautiful housing bubbles in the US – because bubbles really aren’t hard to recognize before they burst, if you want to recognize them.

What’s hard to predict accurately is when they’ll burst.

Read the entire article