April 19, 2018

Warsh, Druckenmiller Buy "Basis" - The Central-Bank-Inspired "Stable" Cryptocurrency

On Wednesday, the New Jersey-based cryptocurrency startup 'Basis' announced it had raised $133 million in a round backed by venture capital firms including GV (formerly Google Ventures), Bain Capital, Lightspeed Venture Partners, Andreessen Horowitz, and Sky Capital.

Stanley Druckenmiller, the billionaire hedge fund manager, and Kevin Warsh, the former governor of the U.S. Federal Reserve, also bought in.

Basis co-founder and CEO Nader Al-Naji writes:

"...we are building a cryptocurrency with an algorithmic central bank that we believe will make cryptocurrency stable and usable around the world.

we believe the price volatility of cryptocurrencies is one of their biggest barriers to widespread adoption. Unlike the currencies we use today, most cryptocurrencies do not have a mechanism to keep purchasing power stable. This means that sporadic swings in demand can cause huge changes in price.

This is bad. Imagine you’re paid a salary of 1 Bitcoin per month. If the price of Bitcoin drops, you might not be able to make rent. If it rises, your employer won’t be able to afford your salary. It’s simply not a reliable means of payment.

A currency needs to be stable in order for people to use it. Central banks apply monetary policy to mitigate currency volatility. Until now, there’s been no way to create a cryptocurrency with comparable benefits. And no way for cryptocurrencies to become true currencies."

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April 18, 2018

US Launches Anti-Dumping Probe Into Steel Wheels From China

The tit-for-tat trade spat between the US and China continued late Tuesday when the US revealed that it is starting a new investigation into whether steel wheels produced in China are illegally dumped in the US - an investigation that's being carried out at the behest of Accuride and Maxion Wheels, two US vehicle components suppliers, Reuters reported.

In addition to the investigation, the Department of Commerce also revealed on Tuesday that producers of common alloy aluminum sheet imported from China enjoy anticompetitive state subsidies as high as 113.3%, based on findings from an investigation launched in November.

The news comes a day after China's Ministry of Commerce announced that it would impose a massive 178.6% anti-dumping tariff on imported sorghum, a grain used to feed Chinese pigs and other livestock, which in turn was in response to the US banning exports to Chinese telecom giant ZTE.

The two companies initially petitioned the Department of Commerce and the US International Trade Commission earlier this month, according to Tire Business - a trade publication that covers the tire production and other segments of the auto parts industry.

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April 17, 2018

Trader: Why Trump Is On Track To Win The "Currency Devaluation Game"

Yesterday morning, Trump raised may eyebrows with his tweet accusing China and Russia of "unacceptable" currency devaluation: after all it was Trump's own policies that sent the ruble reeling in the past month, while the Chinese yuan was as its highest against the dollar since the August 2015 devaluation.

Still, for at least one trader - former Lehman employee and current Bloomberg macro commentator Mark Cudmore - Trump's FX tweet was more 4D chess and less clueless economist, and suggests that Trump is, in fact, on track to win the currency devaluation game. He explains why in his latest macro view note:

Trump on Track to Win the Currency Devaluation Game

Trump’s confusing Monday FX-related tweet emphasized his desire for a weak dollar. He’s likely to get his wish in the long run, even if he’s already seen more greenback depreciation than growth and interest rates would have warranted in isolation.

President Trump tweeted that “Russia and China are playing the Currency Devaluation game as the U.S. keeps raising rates. Not acceptable!”

The yuan has climbed 9.5% against the dollar in the past year. The ruble has fallen 7.5% versus the dollar this month, but only because of U.S. sanctions. Despite that violent Trump-prompted correction, Russia’s currency has still gained versus the dollar since he won the presidential election in November 2016.

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April 16, 2018

How Much Longer Can The American Empire Run On Fake Money?

Gold rocketed to nearly $1,365 on Wednesday in New York, which is well above the $1,350 that Michael Oliver suggests is when technical price watchers will finally start to head into the yellow metal and related investments like gold stocks. But alas the banking cartel had other ideas and exercised a 100-tonne “pretend gold” smackdown in the gold paper futures markets starting at about noon that day, just to make sure the greatest competition in the world to the dollar didn’t start to lead to a loss of confidence.

This of course is nothing new. The Gold Anti Trust Action Committee (GATA) has been documenting paper market manipulation of the gold markets now for decades. Isn’t it interesting that more virtual gold trades in one day on the LBMA than is mined in an entire year.

Whatever it takes, including endless wars to try to keep the petrodollar alive and trillions of dollars spent on blood and treasury. I truly believe Eisenhower’s fears of the endless power of the Military Industrial Complex are now playing out.

It should be eminently clear now that “the President is not really the President of the United States.”

That was established by the “Deep State” under Kennedy. If you have doubts about that, you might do well to read “Unlike Trump, Kennedy never bent a knee,” by Jacob G. Hornberger, the founder of The Future of Freedom Foundation and a former trial attorney in Texas.

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April 13, 2018

China Posts First Trade Deficit Since February 2017 As Exports Tumble, But Not Because Of Trade War

Overnight, China surprised the market with its first trade deficit in more than a year amid escalating trade frictions with the United States, however there may be less than meets the eye here, at least for now.

China's state customs announced that in March export growth unexpectedly dropped -2.7% Y/Y, far below the consensus estimate of an increase of 11.8%. 

Looking at the details, for exports to major destinations, exports growth dropped broadly. Specifically, for major DMs, exports to EU, US and Japan decelerated -7.0% yoy, -5.6% yoy and -3.7% yoy, respectively. For major EMs, exports to ASEAN grew by 1.4% yoy from a strong increase of 36.2% yoy in February.

At the same time, import growth rebounded 14.4% Y/Y, more in line with expectations of a 12.0% rebound, although in Yuan terms imports rose a slower-than-expected 5.9%, missing expectations for 7.5%.

For commodity imports, growth went down both in volume and value terms broadly. Specifically, in volume terms, iron ore imports contracted 10.2% yoy, vs. +0.9% yoy in February; crude oil imports grew 0.6% yoy, vs. +1.5% yoy in February; steel products imports decreased by 5.1% yoy, vs. -5.8% yoy in February. In value terms, iron ore imports continued to contract by -19.3% yoy, vs. -5.4% yoy in February; crude oil imports grew 19.1% yoy, vs. +26.4% yoy in February; steel products imports increased by 11.3% yoy, vs. +11.5% yoy in February.

Of note, the country imported 5.66 million tons soybeans in March, down 11 per cent yoy and a 18% plunge compared to last month, while crude oil imports increased over 7% month-on-month in March to 39.17 million tons, equivalent to 9.22 million barrels per day, which is the second highest on record only after the 9.57 million barrels per day set in January this year.

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April 12, 2018

It All Begins And Ends With China: "Is The Global Reflation Cycle Ending?"

Last night, China released factory inflation numbers (i.e., PPI), which slowed for a fifth straight month in Mar. ’18… marking the slowest Y/Y growth rate since Oct. ’16 (Exhibit 1). Similarly, the Mar. ’18 consumer price index (“CPI”) retreated from the four-year high set in Feb. ’18 (Exhibit 1).

Interestingly, we note that the Mar. ‘18  +2.1% Y/Y growth in China’s PPI missed Consensus’ expectation of +2.6% Y/Y growth, while the Mar. ’18 +3.1% Y/Y growth in China’s PPI also missed Consensus’ forecast of +3.3% Y/Y growth.

WHAT’S DRIVING COMMODITY-PRICE DEFLATION IN CHINA? As we’ve argued before, and as noted in Exhibit 2 below, it appears the swift collapse in China’s credit impulse (i.e., a fancy way of saying China is issuing less debt as a % of GDP) is driving a correction in China’s commodity consumption. Why does this matter? Well,  in our view, steel price strength in 2017 was due to China’s steel exports falling 33.4Mmt, or the second largest decline ever, trailing only that seen in 2009 (Exhibit 5) – China produces roughly half of world’s steel, meaning when they export less, global prices rally. While the driver in 2009 was the global financial crisis (“GFC”), the driver in 2017 was a record credit stimulus in China (i.e., $4.9tn in new credit issued) driving domestic demand, and thus boosting domestic Chinese steel prices. So, in general, while in most years China’s steel prices lag the rest of the world, in 2017 they were much higher; this, in turn, pushed mills in China to ship more domestically vs. to other countries, and thus drove up global steel prices –given China was >50% of global steel production in 2017, this had a big impact on global steel prices. However, this dynamic is now in reverse (Exhibit 6), which we believe forebodes risk to global steel prices.

CONCLUSION. When analyzing China’s Mar. ’18 PPI internals, looking to see what drove such weakness in China’s factory inflation numbers (Exhibit 7), it becomes clear that price deflation across the raw material and basic industrial complex was among the key drivers. Consequently, given China’s PPI is an excellent leading indicator into how China’s industrial economy is fairing, and also considering China’s Mar. ’18 Caixin Manufacturing PMI missed Consensus’ estimate (i.e., 51.0 vs. Consensus’ 51.7), we believe the 2018 “China slowdown” meme is firmly intact (we remind our readers that China consumes the bulk of the worlds commodity-metal output). Consequently, while China’s Mar. ’18 excavator sales growth rate of +78.9% Y/Y got a lot of people excited this weekend (we received a number of inbound emails asking our opinion on this surprisingly strong number), China’s loader sales fell -50.3% Y/Y in Mar. ’18 (i.e., the weakest growth in any single month since 4Q15’s global growth scare) and China’s Mar. ’18 crane sales growth fell to -12.8% Y/Y, or the weakest rate of growth in 17 months.

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April 11, 2018

Economists Who Push Inflation Stunned That Rising Home Prices Put Buyers Deeper Into Debt

Once again, when the government intervenes – this time in housing – the left hand is starting a fire that the right hand is trying to put out. Rising prices for homes are once again pricing out prime borrowers and nobody can "figure out" why this is happening.

It is news like this article reported this morning by the Wall Street Journal that continues to perpetuate the hilarious notion of Keynesian economics as giving a job to one man digging a hole and another job to another man filling it, simply so that they both have jobs.

There is nothing funnier (or sadder) than "economists" struggling to understand how housing prices got so high and why people are taking on more debt in order to purchase them. However, that is the great mystery that the Wall Street Journal reported on Tuesday morning, making note of the fact that people are “stretching“ in order to purchase homes. What's the solution to this problem? How about just easing lending standards again? After all, what could go wrong?

Apparently blind to the obvious – that forced inflation could amazingly make things more expensive relative to income – "economists" have hilariously blamed this price/debt delta on lack of supply. Of course, no one has mentioned the credit worthiness of borrowers getting worse or the fact that homes prices are being manipulated in order to offer home ownership to people who otherwise may not be in the market.

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April 10, 2018

Petro-Yuan Is The Newest Weapon For The China-Russia-Iran Anti-USD Alliance

After 25 years of dreams, planning, rumors and testing, the Chinese petro-yuan is now official. Right now, almost all global oil trade is conducted in US dollars, using two benchmark varieties of crude, West Texas Intermediate and North Sea Brent, as the industry standards. It is no accident that these two benchmarks are based on imperial crude, American and British, and the irony of this is surely not lost on Baba Beijing (China’s leadership).

China is not selling oil, so the petro-yuan is a futures purchase contract denominated in renminbi for the country to import the stuff. As the world’s biggest importer of hydrocarbons, Baba Beijing has long felt that pricing all its millions of tons of imports should be in its national currency. Why should China pay for Russian natural gas or Venezuelan crude in Western empire’s currency of global financial control, Uncle Sam’s greenback?

Opinions outside China range from being non-plussed, to claiming it is the most important news in modern financial history, but you would have to search far and wide in Eurangloland (NATO, EU, Israel, Australia and New Zealand) and its heavily censored and suppressed media, to see for yourself. Outside the obligatory statement of fact in financial outlets like the Wall Street Journal, Financial Times, Reuters and Bloomberg, silence from the West’s mainstream media is deafening, as this screenshot below shows, when searching the topic. Only one mainstream article showed up on page #1 of the web search and that was CNBC from 2017. Even just looking for “petro-yuan” gives identical results. It’s a Western media black hole.

The West’s censorship and suppression of news that reports the truth about China, Russia and Iran is lethally effective. Hitler called it the Big Lie. Eurangloland learned from a master.

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April 9, 2018

China Studying Yuan Devaluation As Retaliation To Trade War; CNH Slides

Overnight we got a clear lesson why this highly convex trade would be prudent in the current trade war environment, when Bloomberg reported at 3am EDT that China is "evaluating the potential impact of a gradual yuan depreciation" citing people familiar with the matter said, as the country’s leaders are weighing their possible responses in the escalating trade war with President Trump.

As a reminder, a devaluation was one of the "nuclear" retaliation options listed here on Friday, and is certain to provoke an even harsher response by the US. Still, this appears not to have spooked senior Chinese officials who are reportedly studying a "two-pronged analysis of the yuan that was prepared by the government": one part looks at the effect of using the currency as a tool in trade negotiations with the U.S., while a second part examines what would happen if China depreciates the yuan to offset the impact of any trade deal that curbs exports.

Still, the analysis doesn’t mean officials will carry out a devaluation, which would require approval from top leaders.

In kneejerk response, both the onshore and offshore yuan weakened as much as 0.2% to 6.3186 per dollar in onshore trading and 6.3211 for the offshore pair.

At the same time, the dollar climbed against the yen and other EM currencies in response: "USD seems to be regaining some ground on the back of the headline" said Valentin Marinov, head of G-10 FX research at Credit Agricole. “The story seems to suggest that the Chinese are discussing the idea of FX depreciation rather than work on an imminent change in FX policy."

Ironically, while Trump has bashed China on the campaign trail and more recently on Twitter, for keeping its currency artificially weak, the yuan has gained about 9% against the greenback since he took office and has been steady in recent weeks despite the escalation of trade tensions between the world’s two largest economies, prompted by a weaker dollar. The Chinese currency touched the strongest level since August 2015 last month.

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April 6, 2018

Trade Is A Matter Of Survival For China

Many investors are familiar with the fact that President Franklin Roosevelt closed all of the banks in America and confiscated all of the privately-owned gold by executive order in the early days of his administration, which began in 1933.

Presidents since then have seized assets from countries such as Iran, Syria, North Korea and Cuba and imposed sanctions on Russia and many other countries by executive order.

Yet, relatively few are familiar with the statutory authority for these orders.

The president does not need an act of Congress to support such extreme actions. The laws have already been passed and the president has standing authority to act like a dictator with regard to financial assets.

The first such statue was the Trading With the Enemy Act of 1917, TWE. This was used to seize German assets in the U.S. during the First World War. It’s how the U.S. took control of Bayer Aspirin from the German firm Bayer AG.

TWE was the authority FDR used to close the banks and seize the gold. It’s not clear whom FDR considered the “enemy” when he used TWE; probably private gold hoarders. But, in 1977, the Congress enacted an even more extreme version of TWE called the International Emergency Economic Powers Act of 1977, or IEEPA.

This is the equivalent of a nuclear weapon when it comes to financial warfare.

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April 5, 2018

It's The Trump Slump - But David Stockman Says "Don't Blame The Donald!"

The are few snarkier defenders of the current rotten financial status quo than Ben White of Politico's Money Morning. So it's not surprising that he is out this week with the latest Trumb-o-phobe meme from Swamp Dweller's Central.

To wit, the renewed stock market swoon is purportedly all the Donald's fault owing to his unhinged tweet storms, protectionist trade initiatives and attacks on the casino's sacred cow of the moment, Amazon:

WELCOME TO THE TRUMP SLUMP - President Donald Trump is killing his own stock market rally. The president's tweet storm attacking Amazon and his protectionist trade actions against China and other nations helped crush the stock market on Monday with the Dow falling over 700 points in late afternoon trade before closing down 458, or close to 2 percent.

The tech-heavy Nasdaq fell even further, led by a five percent drop in Amazon after the president ripped the company over its delivery deals with the United States Postal Service. The Dow, Nasdaq and S&P are all now down for the year. The Dow has plunged 11 percent since its all-time high of 26,616 on Jan. 26, entering official correction territory.

Traders, money managers and economists on Monday laid much of the blame for recent declines on Trump, who spent most of 2017 bragging on a near daily basis about the massive run-up in stock prices that followed his election and the passage of sweeping corporate tax cuts.

The above is just unadulterated rubbish, of course. It's a tribute to the mindless anti-Trump bias that dominates the Imperial City press and the context-free Recency Bias that passes for financial analysis.

On at least this matter, the Donald is definitely not guilty because he hasn't been around nearly long enough to take the blame or the praise for anything related to the economy. The phony stock market boom has been gestating for three decades owing to central bank monetary madness; the up-leg since election day reflects nothing more than the final phase of an horribly metastasized financial bubble that has now reached its sell-by date.

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April 4, 2018

Mall Vacancies At Six-Year High As Local Economies Stumble On Retail Slump

Retail vacancies at regional shopping malls have reached a six-year high - jumping to 8.4% in Q1 2018, the highest level since Q4 2012, according to real-estate data firm Reis Inc. which studies 77 metropolitan areas.

Furthermore, local neighborhood and community shopping centers in 41 of the 77 areas tracked by Reis experienced an increase in vacancies during the 12 months ending March 31.

The numbers show that bricks-and-mortar malls and shopping centers continue to be hurt by shifting consumer spending patterns, particularly the increasing use of online retail. Numerous department stores and other retailers that traditionally have been mainstays of shopping areas have been contracting or have failed.

Reis reported that retailers occupied 453,000 more square feet of shopping center space at the end of the first quarter than the fourth quarter of 2017, but that amount of “absorption” was the lowest for any quarter in more than five years. The completion of 712,000 square feet of new shopping center space also was “much lower” than average, Reis said. - Wall St. Journal.

“The first quarter tends to see the lowest activity,” the Reis report said. “However, this was an unusually slow quarter for retail leasing and construction.”

The death of brick-and-mortar and its impact on jobs across the country comes as no surprise to anyone paying attention to the evolution of e-commerce and the convenience of various payment methods.

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April 3, 2018

Subprime Auto Bubble Bursts As "Buyers Are Suddenly Missing From Showrooms"

It was less than a month ago when we showed a series of "10 charts revealing an auto bubble on the brink", and which laid out several very troubling trends, including i) the average new vehicle loan hit a record high $31,099; ii) the average loan for a used auto climbed to a record high $19,589...

Summarizing the above is simple: cheap credit leads to easy lending conditions, and record prices as everyone floods into the market with lenders hardly discriminating who they give money to.

But, as we said in March, the key data which seems to suggest that the auto bubble may have run its course came  from the following charts which showed that traditional banks and finance companies are starting to aggressively slash their share of new auto originations while OEM captives are being forced to pick up the slack in an effort to keep their ponzi schemes going just a little longer.

Commenting on these trends, Melinda Zabritski, Experian's senior director of automotive finance solutions warned that "we're certainly at a point where affordability is a question. When you look at how much income you need to support that payment, it certainly is higher than your average individual income." And nowhere was this more obvious than the auto sector's overreliance on stretched subprime borrowers, who remained the marginal source of auto demand as long as rates remained low.

However, with short term rates rising, with Libor soaring, low rates are increasingly a thing of the past.

"For some buyers, this is going to come as a surprise," said Jessica Caldwell, executive director of Industry Analysis for Edmunds.com. "For buyers with average credit scores, the rates are higher than a couple years ago and that will mean a higher monthly payment."

And, as we said last month, it will mean for a sharp drop in demand, especially among the most stressed consumer groups.

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April 2, 2018

Spot The Real Bubble

After a seemingly unstoppable surge higher for years, March was a tough one for tech stocks, as the curtain was lifted exposing Oz-like machinations behind the scenes that spooked investors enough to pop the bubble of delusion so many were living in.

After a magnificent 2017, Cryptocurrencies also started 2018 off poorly as yet another 'bubble' popped.

However, there was one 'asset' that had a tremendous 2017, and has gone on to greater and bubblier things in 2018.

Spot the real bubble in financial markets...

A Central Bank has taken on itself to expand its balance sheet and invest in the proceeds, not in gold, nor sovereign debt - heck not even in corporate bonds. Nope, the SNB has taken it upon itself to “invest” that money in another country’s most risky part of the capital structure - equity.

And don’t think it’s a small number. It’s almost $100 billion US dollars.

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March 30, 2018

Escobar: China Taking The Long Road To Solve The Petro-Yuan Puzzle

Few geoeconomic game-changers are more spectacular than yuan-denominated future crude oil contracts – especially when set up by the largest importer of crude on the planet.

And yet Beijing’s media strategy seems to have consisted in substantially play down the official launch of the petro-yuan at the Shanghai International Energy Exchange.

Still, some euphoria was in order. Brent Crude soared to $71 a barrel for the first time since 2015. West Texas Intermediate (WTI) reached the highest level in three years at $66.55 a barrel; then retreated to $65.53.

A series of petro-yuan “firsts” include the first time overseas investors are able to access a Chinese commodity market. Significantly, US dollars will be accepted as deposit and for settlement. In the near future, a basket of currencies will also be accepted as deposit.

Does the launch of the petro-yuan represent the ultimate deathblow to the petrodollar – and the birth of a completely new set of rules? Not so fast. That may take years, and depends on many variables, the most important of which will be China’s capacity to bend, tweak and ultimately rule the global oil market.

As the yuan progressively reaches full consolidation in trade settlement, the petro-yuan threat to the US dollar, inscribed in a complex, long-term process, will disseminate the Holy Grail: crude oil futures contracts priced in yuan fully convertible into gold.

That means China’s vast array of trade partners will be able to convert yuan into gold without having to keep funds in Chinese assets or turn them into US dollars. Exporters facing the wrath of Washington, such as Russia, Iran or Venezuela, may then avoid US sanctions by trading oil in yuan convertible to gold. Iran and Venezuela, for instance, would have no problems redirecting tankers to China in order to sell directly in the Chinese market – if that’s what it takes.

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March 29, 2018

Trump: "Amazon Pays Little Or No Taxes, Puts Thousands Of Retailers Out Of Business"

If President Trump's tweet was not enough, White House spokesperson Raj Shah has just confirmed that tax policies need to catch up to Amazon, and President Trump would support tax changes aimed at leveling the playing field, which now favors the online retailer as Amazon has advantage over brick and mortar stores.

“Right now, there is no Internet sales tax and as a result companies like Amazon can buy and sell goods without having to pay basic retail taxes,”

AMZN is extending its losses on these latest headlines...

As we detailed earlier, the main driver behind yesterday's FANG plunge, was a report in Axios, according to which it was not Facebook that Trump wants to go after, but rather Amazon:

“He’s obsessed with Amazon,” a source told Axios. "Obsessed", and added that Trump has allegedly talked about changing Amazon’s tax treatment because he’s worried about mom-and-pop retailers being put out of business. Another Axios source said that POTUS has "wondered aloud if there may be any way to go after Amazon with antitrust or competition law."

Trump’s deep-seated antipathy toward Amazon surfaces when discussing tax policy and antitrust cases. The president would love to clip CEO Jeff Bezos’ wings. But he doesn’t have a plan to make that happen.

Read the entire article

March 28, 2018

Tech Shares Tumble Again as Regulatory Risks Rattle Investors

Technology stocks are suffering one of their worst beatings in years, as investors reassess a sector that has been considered the growth engine of the global economy but now faces the prospect of greater regulatory scrutiny.

The tech-heavy Nasdaq Composite Index fell 2.9% Tuesday. That selloff carried over to the broader market, where the S&P 500 index slumped 1.7%. The Dow Jones Industrial Average fell 1.4%, giving back some of Monday’s 2.8% rebound.

U.S. Treasury yields also declined. Analysts said that reflected in part a move by some investors to reduce risk at the end of the quarter by selling stocks and putting that cash into bonds. Bond prices rise when yields fall.

But tech shares were hit the hardest, dragging down the broader market in the final hour of trading. A series of recent developments pointed to more government oversight of the industry.

Facebook Chief Executive Mark Zuckerberg is planning to testify before Congress about the social-media company’s privacy and data-use standards, according to people familiar with the matter. The company’s shares fell 4.9% on Tuesday and are down 15% this month over concerns about its handling of user data, on track for its worst monthly decline since 2012.

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March 27, 2018

'PetroYuan' Futures Launch With A Bang, Volume Dominates Brent As Big Traders Step In

As we detailed previously, China’s yuan-denominated crude oil futures launched overnight in Shanghai with 62,500 contracts traded in aggregate, meaning over 62 million barrels of oil changed hands for a notional volume around 27 billion yuan (over $4 billion).

As OilPrice.com's Tsvetana Paraskova notes, Glencore, Trafigura, and Freepoint Commodities were among the first to buy the new contract, Reuters reports.

After an initial surge in volume that outpaced overnight transactions in global benchmark Brent crude in London, trading tapered off toward the end of the session.

Within minutes of the launch, the price had gone up to almost US$70.85 (447 yuan) from a starting price of US$69.94 (440.4 yuan) per barrel. The overall price jump for the short trading session came in at 3.92 percent.

Many awaited the launch eagerly, seeking to tap China’s bustling commodity markets, although doubts remain whether the Shanghai futures contract will be able to become another international oil benchmark. These doubts center on the fact that China is not a market economy, and the government is quick to interfere in the workings of the local commodity markets on any suspicion of a bubble coming.

To prevent such a bubble in oil, the authorities made sure the contract will trade within a set band of 5 percent on either side, with 10 percent on either side for the first trading day. Margin has been set at 7 percent. Storage costs for the crude are higher than the international average in hopes of discouraging speculators.

As a result of these tight reins on the new market segment, some analysts believe international investors would be discouraged to tap the Shanghai oil futures. If the first day of trading is any indication, however, this is not the case, at least not for large commodity trading firms.

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March 26, 2018

US, China Said To Near Deal To Avert "Tit-For-Tat" Trade War

With its long-anticipated petroyuan contract only hours old, senior government officials in Beijing are reportedly working with the US to try and reach an agreement that would stave off a tit-for-tat trade war between the world's two largest economies, according to the Financial Times and Wall Street Journal.

Treasury Secretary Steve Mnuchin along with trade representative Robert Lighthizer on one side,  and Vice Premier Liu He, effectively China's economy czar and President Xi Jinping' "real second-in-command" on the other, have been negotiating behind the scenes, according to the FT.

And although nothing has been finalized, Liu has assured Mnuchin that China would cave on several US demands, including allowing foreign investment in Chinese securities firms and offering to buy more semiconductors from US semiconductor firms, the FT reported. There's also been talks that China could loosen restrictions on foreign investment in manufacturing, telecom, medical and education.

Mnuchin, who is reportedly considering whether he should plan a trip to Beijing to expedite the negotiations, said Sunday after the US and South Korea reached a trade deal to exempt the South from US aluminum and steel tariffs that he was optimistic the US might reach a similar agreement with China. The Treasury secretary has reportedly handed Liu a list of US priorities, including loosening restrictions on US auto imports.

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March 23, 2018

"Sea Of Red" - China Stocks, Commodities Crash As Trade Wars Escalate

Following the US imposition of 25% duties on China produce worth at least $50 billion including items in aerospace, information and communication technology and machinery, China has announced plans of reciprocal tariffs on $3 billion of U.S. imports.

China plans to add 15% tariffs on U.S. steel pipes, fruit, wine and other products, the Ministry of Commerce says in a statement, and also plans to add 25% tariffs on pork and recycled aluminum.

Bloomberg provides some more details on the list of goods China will be targetting...

1) fresh fruit, dried fruit and nuts

2) wine

3) denatured ethyl alcohol

4) American ginseng

5) seamless steel pipes

6) pork and pork products

7) aluminum scrap

Who knew America exports ginseng to China?

In the statement, China urged the U.S. to resolve the trade dispute via dialogue.

The reactions are ugly.

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March 22, 2018

Is China Days Away From Killing The Petrodollar?

Not long ago, there was a popular joke in China that went something like, “Who is Xi Jinping?”

The answer was, “The husband of Peng Liyuan,” the famous singer Xi is married to.

Today, Xi is China’s president. He leads 1.4 billion people. And he’ll likely be the most powerful person in the world soon.

As I mentioned last Wednesday, Trump’s new steel and aluminum tariffs are part of a larger, escalating battle between the US and China.

China is rapidly displacing the US as the dominant global power. This shift is inevitable. China’s economy will be twice as large as the US economy by 2030.

This leaves the US with limited options…

It could kick back and let China displace it as the most powerful country in the world.

It could start a military war with China.

And it could push the current trade battle into an all-out economic war against China.

I think a full-blown economic war is the most likely. Under President Trump, it’s all but certain.

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March 21, 2018

Russia Is Hoarding Gold At The Fastest Pace In 12 Years

Russia is adding gold to its reserves at the fastest pace in 12 years ...and dumping US Treasuries at the fastest pace since 2011.

The Central Bank of Russia (CBR) has been increasing its holdings of gold every month since March 2015. The country is currently the sixth-largest gold owner after the United States, Germany, Italy, France and China.

According to the CBR, gold reserves spiked to $455.2 billion between March 2 and 9 hitting a historic high not seen since September 2014.

Our international reserves increased by $2.9 billion or 0.6 percent in a single week, mainly on the strength of positive re-evaluation,” said the regulator.

In January, RT notes  that Russia surpassed China, which reportedly held 1,843 tons of the precious metal at that time. Over the last 15 years, Moscow and Beijing have been aggressively accumulating gold reserves to reduce their dependence on the US dollar.

According to World Gold Council data, last year the CBR became a world leader in stockpiling gold.

The bank has more than doubled the pace of its gold purchases, statistics showed. It has been increasing Russia’s gold reserves to meet the goal set by President Vladimir Putin to make it less vulnerable to geopolitical risks. The Russian gold cache has increased by more than 500 percent since 2000.

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March 20, 2018

Six Things We Can Learn About US Plutocracy By Looking At Jeff Bezos

1. The rich rule America because of a system wherein money translates directly into political power.
Amazon has increased its spending on Washington lobbying by 400 percent in the last five years, far in excess of its competition. Bezos hasn’t been doing this to be charitable. With growing antitrust concerns, taxation to avoid, lucrative Pentagon deals to secure, and what some experts are describing as an agenda to control the underlying infrastructure of the economy, he needs Washington on his side.

2. Because money equals power and power is relative, plutocrats are naturally incentivized to keep the public poor.
Plutocrats necessarily rule such an oligarchic system as surely as kings rule a kingdom. But if everyone is king, then no one is king. If your entire empire is built on a system where money equals power, then you are necessarily incentivized to keep money out of the hands of the public while amassing as much as possible for yourself.

3. Controlling the media is very important to plutocrats.
Jeff Bezos, the most crafty plutocrat alive, did not purchase the Washington Post in 2013 because he expected newspapers to make a lucrative resurgence. He purchased it so that he could ensure exactly what WaPo did to Bernie Sanders in 2016. The neoliberal Orwellian establishment that Bezos is building his empire upon requires a propaganda mouthpiece, so Bezos purchased a long-trusted US newspaper to accomplish that. WaPo is now easily the most virulently pro-establishment among all large mainstream publications, not just defending establishment narratives but actively attacking anyone who challenges them.

4. Plutocrats form alliances with defense and intelligence agencies.
Jeff Bezos is a contractor with the CIA and sits on a Pentagon advisory board. He is doing everything he can to cozy up and ingratiate himself to the establishment on which his empire is built, up to and including kicking WikiLeaks off Amazon servers in 2010. This dances very creepily with Amazon’s involvement in surveillance systems and digital “assistance” devices like Alexa.

5. The people willing to do anything it takes to get to the top are the ones who get there.
Normal human beings would have a difficult time knowing businesses are dying and workers are getting poorer as their empire grows. Jeff Bezos just keeps growing. He will happily collaborate with depraved intelligence agencies, manipulate and propagandize Americans, and expand the gulf between the rich and the poor just to be king of the world.

6. It will never be enough for them.
Jeff Bezos is worth 131.5 billion dollars as of this writing, and he is getting more ambitious, not less. He doesn’t need that money to buy more stuff; it isn’t about money for him. It’s about power. The impulse to rise to the top of your monkey tribe is an impulse buried deep within our evolutionary heritage, and when that impulse isn’t checked by empathy for your fellow man it creates an unquenchable drive to grow and grow in invincible power no matter what kind of suffering that creates.

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March 19, 2018

The Bond Market Hits A Tipping Point: What That Means For Stocks

When we earlier discussed the unwillingness of institutional investors to return to the market even as retail investors swing from one mood extreme to another, we showed a chart showing the historical and seemingly relentless selling by virtually every investor class in the past decade, which left just one question for traders: when do the stock buybacks finally stop and put an end to the party?

Answering that question would also require the response to another, far bigger question: when does the bond market stall out, or in other words, when does the endless demand for yield finally fizzle out?

For anyone to claim they have the definitive answer would be folly: after all there have been so many prior occasions in which analysts and pundits declared the end of the all consuming bond bid, only to be mocked by investors gorging on even more corporate debt.  And yet based on recent bond sales, it appears that finally investors may be getting full.

But how is that possible? Just two weeks ago there was an unprecedented $100 billion in bids for CVS's gargantuan  9-part $40 billion IG deal?

Well, as Bloomberg reported recently, in a first indication that the saturation point is approaching, there have been far fewer orders coming in for new bonds, relative to what’s for sale. This has resulted in bond-selling companies paying more interest compared with their other debt, according to Bloomberg data, and once the securities start trading, prices have been falling on more than 50% of new issues, an indication that "flipping" bonds for a profit is now only profitable half the time. And flipping for a profit, or loss - as any bond trader knows - is a well-known leading indicator to the overall strength of the bond market.

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March 16, 2018

It's Just Starting: Moody's Warns A Deluge Of Retail Bankruptcies Is Coming

2017 was a perfect storm for "brick and mortar" retailers who officially lost the war with Amazon, and no less than 30 retail chains filed for bankruptcy in a year in which the CEO of Urban Outfitters said the "retail bubble has now burst"...

So is the worst over for retail, or is the sector just now approaching the eye of the hurricane?

According to the latest Moody's research report on the retail sector, the rating agency now forecasts at least six retail & apparel issuers defaulting over the next 12 months, with most of these occurring in the first half of the year. 

While the good news is that the industry default rate is expected to peak at 12.43% this March, Moody's cautions that the still-high default forecast for the remainder of 2018 points to more pain before this lower ratings rung in retail stabilizes. Recent defaulters include Tops Markets, which filed for Chapter 11 on February 21, which followed Bon-Ton's filing on February 4. Charlotte Russe and Charming Charlie both defaulted in December, and Claire's has hired restructuring advisors.

Meanwhile, the Toys “R” Us bankruptcy in September its overnight Chapter 7 liquidation has only added to pressures by accentuating potential pressures between vendors and the more stressed retailers, even as it left some 33,000 employees without a job.

The problem is that it only gets worse from there, and the rating agency expects upcoming maturities for distressed issuers will spike in 2019. Defaults are growing as many struggle with high leverage and challenged operating performance. These challenges are compounded by the biggest risk - mounting maturities -  which spike in 2019. Overall, issuers in the Caa1 and lower group face $14.9 billion in public and private maturities due 2018 through 2020 as shown in Exhibit 1. The lion's share of these maturities (Exhibit 2) is attributable to just five issuers:

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March 15, 2018

China's Impending Middle Class Boom More Likely To Turn To Bust

In 2010, Brookings Institute offered a report stating that the global "middle class" was set to explode, almost entirely from the transition of China's and India's urban poor populations to the middle class (middle class meaning annual incomes per household of four from $14,600 to $146,000 in PPP (purchasing power parity)).

In 2017, the Institute updated the original work (HERE) reiterating that from 2015 to 2030, China, India, and the remainder of Asia-Pacific would add 2.1 billion or 89% of the new entrants to the already 3.2 billion person global middle class.  To round out Brookings' estimate for the middle class from '15 to '30; Europe would add just 9 million (less than 0.4%), N. America 19 million (about 0.8%), Central & S. America about 50 million (2.1%), MENA (Middle East/N. Africa) 90 million (3.9%), and sub-Saharan Africa adding 100 million (4.1%).

I have a major problem with the Brooking Institute's estimates.  Generally, I have major issues with the assumptions but specifically regarding China, I believe the Institute is somewhere from significantly wrong to totally wrong regarding future estimates for China's middle class...which is likely to reduce or undo the estimated growth throughout.

Births in China:

Let's begin with China's births, on an average basis per five years, since 1950 (chart below).  Peak births took place in the 1965-70 period at just over 30 million annually.  But with the introduction of the one-child policy in '71, the UN data makes it plain that China's births continued declining in spite of a continually larger childbearing population (aged 15-45 years old).  Even now with the one-child rollback, births are only set to further decline (detailed HERE).

Read the entire article

March 14, 2018

Bitcoin Sinks As Google Moves To Ban All Crypto, ICO Ads In June

Mimiccing its biggest rival for ad dollars - Facebook - Google will ban online advertisements promoting cryptocurrencies and initial coin offerings, and "other speculative financial instruments" starting in June.

Some aggressive businesses found a loophole: purposely misspelling words like "bitcoin" in their ads. A Google spokeswoman said the company’s policies will try to anticipate workarounds like this.

The reaction was immediate across the crypto space but for now is somewhat subdued...

Alphabet’s Google said the new policy will become effective in June across ads bought on its search and display-advertising network, as well as its YouTube unit.

But, as The Wall Street Journal reports, the policy also will restrict ads for nontraditional methods of wagering on the future movements of stock prices and foreign-exchange, such as binary options and financial spread-betting, Google said.

Google said last year it removed more than 130 million ads that were used by hackers to mine for cryptocurrency. That is a very small percentage of the ads run on Google’s ad network.

The company’s director of sustainable ads, Scott Spencer, declined to comment on how much potential ad revenue the company would be turning away by enacting the new policy, saying the decision was made to prevent consumer harm.

Read the entire article

March 13, 2018

Synchronized Global Growth is Ending: Shocks Come Next

Economic pleasant surprises are in the past, as is the buildup of the balance sheet. The future is deleveraging.

Alarm bells are ringing. No one cares. By now, everyone knows stock only go up.

For those in tune with other ideas, Financial Times writer Stephen King suggests the Global Economy is Due for a Downswing.

Jim Bianco at Bianco Research comments on synchronized growth in his report Concerted Economic Growth is in Jeopardy of Ending.

Summary

Less than 50% of the world’s economies are now producing economic data surprises. Realized economic data following suit in the months to come would remove the tailwind of ‘concerted economic growth’ for risk assets and central banks. Emerging markets may be first on the list to experience higher volatility.

Comment

We have all been discussing ‘concerted global economic growth’ since early 2017 as a tailwind to risk assets and central bank policies. The chart below shows the percentage of the world’s economies producing economic data surprises (orange line) and above-average data changes (blue line) since 2004.

Over 90% of economies were indeed posting realized data changes at above-average growth rates in mid-2017. However, reported data has slowed its ascent over the past month led by the Eurozone and Canada. The percentage of economies with upside surprises has fallen to 44%, which has been a leading indicator for actual data changes like payrolls, industrial production, and durable goods orders. Above-average data changes have also rolled over to 67%. A break below 50% would mean ‘concerted economic growth’ should no longer be proclaimed.

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March 12, 2018

China Reveals Largest Defense Budget In Three Years

China’s government has been relatively vocal in transforming itself into a serious threat against the West — by modernizing its military in anticipation of future wars with Washington. It it therefore not surprising when the official Xinhua news agency reports that China will increase its defense budget by 8.1 percent in 2018, up marginally from last year’s 7 percent.

China has undoubtedly given America’s military-industrial complex and clueless politicians in Washington a stern message, by increasing its defense budget to the highest levels in more than three years, even as the country insists it does not mean harm.

According to the annual budget report, submitted to the first session of the 13th National People’s Congress Monday, the 2018 defense budget will be 1.11 trillion yuan (approximately 175 billion U.S. dollars). In 2017, the country spent roughly 1.02 trillion yuan (approximately 161.87 billion dollars) on its military budget in 2017, or about 1.3 percent of its gross domestic product (GDP).

The United States is the only country that outpaces China in defense spending, with the Pentagon’s expenditures exceeding four times Beijing’s, according to the latest report of the 2018 Military Budgets via the London-based International Institute for Strategic Studies (IISS).

In a speech at an annual Meeting of China’s National People’s Congress, Premier Li Keqiang suggested the country faced “profound changes in the national security environment,” requiring a stronger military.

As we stated before the conference, geopolitical strategists are concerned about President Xi Jinping aggressive military buildup and power grab, which has put Beijing on a crash course for military conflict with Washington.

Read the entire article

March 9, 2018

BoJ Leaves Policy Stance Unchanged, Optimistic On Global Economy

Having briefly injected some anxiety into markets over reported comments last week about paring back easing in 2019 (which were swiftly denied), Kuroda is likely to err on the dovish side in his comments after BoJ left all monetary policy levers unchanged.

Consensus expectations are that the BOJ to leave all its key policy settings unchanged:

  • likely to keep the short-term rate at -0.1% and target for the 10-year JGB yield at around 0%
  • also likely to maintain the current pace of purchases of exchange-traded funds and real estate investment trusts
  • The BOJ is likely to retain its guideline on the annual pace of JGB accumulation at 80 trillion yen
  • Post-meeting comments by Kuroda are likely to be calibrated to avoid stoking upward pressure on the yen. That means he’s likely to avoid specifics if asked again about how or when the BOJ could manage an exit from extreme stimulus.

And that is what we got. All policy levers unchanged.

There was one dissenter - same as before - this guy not only wanted more NIRP, but also more QE, clearly unaware that the BOJ already owns more than half of all Japanese govt bonds.

  • BOJ Board Member Kataoka Votes Against Keeping Rates Unchanged
  • BOJ Kataoka: Should Take Additional Easing if Delay in Hitting Inflation Target
  • BOJ Kataoka: BOJ Should Lower Yields on JGBs of 10-Years and Longer

Language surrounding the global economy is more optimistic.

Read the entire article

March 8, 2018

Stockman Celebrates The End Of The Goldman Sachs Regency At The White House

The financial commentariat and the robo-machines are all in a tizzy this morning because Gary Cohn up and quit. But we say good riddance: The man gave Trump bad advice on nearly every single issue---trade, taxes, fiscal policy and the Fed.

We didn't make any bones about that viewpoint during our appearance on Fox Business this AM. When Maria Bartiromo asked us about Cohn's departure, our reply was: Hallelujah, the Goldman Sachs Regency in the White House is finally over!

The fact is, we do have a trade crisis, but Gary Cohn and the Wall Street pseudo-free traders don't care and never have. That's because they fiercely support a perverted, self-serving monetary regime that systematically and massively inflates financial assets, even as it strip mines and deflates the main street economy.

As we have been pointing out in this series, there is a perverse symbiosis between the Fed and the Dirty Float central banks of the 10 major countries (China, Vietnam, Mexico, Japan, etc), which account for 90% of the nation's $810 billion trade deficit (2017). Together they have ripped the guts out of the US industrial economy---effectively sending jobs and production abroad and cash flow and liquidated capital to Wall Street.

For its part, the Fed has monkey-hammered US competitiveness. That's the result of its insensible 2.00% inflation policy, which has fatally inflated nominal dollar wages in a world market drowning in cheap labor priced in artificially under-valued currencies.

Read the entire article

March 7, 2018

The SPY Of Crypto? Coinbase Launches Cryptocurrency Index Fund

Coinbase dashed the hopes of thousands of ripple investors, who've been holding out hope that the exchange would add the coin, when it revealed that its "major announcement" Tuesday afternoon was, in fact, the introduction of the Coinbase Index Fund, a pioneering investing vehicle that just might do to cryptocurrencies what the ETFs like the SPY did for stocks. 

The company published the announcement on its blog:

We’re excited to announce Coinbase Index Fund.

Coinbase Index Fund will give investors exposure to all digital assets listed on Coinbase’s exchange, GDAX, weighted by market capitalization. If a new asset is listed on the exchange, it will be automatically added to the fund.

Index funds have changed the way that many people think about investing. By providing diversified exposure to a broad range of assets, index funds enable investors to track the performance of an entire asset class, rather than having to select individual assets. We’re excited to give our customers the ability to invest in the potential of blockchain-based digital assets as a whole.

Twitter users were unimpressed however because, as the company pointed out, Coinbase and associated exchange GDAX only lists four coins...

The news had some impact on the price of cryptocurrencies, which have been slumping Tuesday, with Ripple lower and the rest bouncing marginally higher...

Read the entire article

March 6, 2018

Oh Canada! The Looming Economic Meltdown

Canada’s Fourth Quarter economic growth was 1.7% following positive signs of growth earlier in the year. This growth, however modest, is attributable to easy credit and the increased consumer spending. At this time, Canadian households are facing one the largest indebtedness when compared to most other countries. For every $1.00 of income, consumers owe $1.68. This is the highest income to debt ratio in the world. For low-income Canadian households, the $1.00 disposable income to $3.33 debt ratio is even worst.

Canada, along with other nations, especially emerging markets are carrying records levels of consumer debts, may be facing a serious crash as further growth becomes unsustainable.

Canada combined deficit rose to $18.1 billion in 2016, from $12.9 billion in the previous year. Higher debts and increased spending are causing serious concerns that the Canadian economy is on an unsustainable economic path.

A considerable portion of Canada’s future economic growth has been predicated on strengthening and improving the country’s infrastructure. However, Prime Minister Trudeau’s policies are destined to strangle potential economic growth by shifting C$7.2 billion allocated to infrastructure improvements to government programs such as gender equality hiring opportunities. According to the Conference Board of Canada’s Craig Alexander.

Canada appears to be stunting its own economic growth as a matter of policy.

Three major infrastructure projects, The Northern Gateway pipeline ($7.9 billion), the Pacific Northwest LNG project ($36 billion), and possibly the Energy East pipeline ($15.7 billion) would have been instrumental in guaranteeing economic growth for decades to come. However, these have been stymied in favor of Trudeau’s economic egalitarian vision. As a result, investors have been abandoning certain projects. The last time Canada’s saw such heavy-handed government interference in its economy was during the presidency of Trudeau’s father, Pierre Trudeau.

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March 5, 2018

Trump Warns "It's Time For Change" In The Countries Responsible For America's Trade Deficit

Update: President Trump is showing absolutely zero signs of backing away from his trade tariffs plan and has just tweeted...

"We are on the losing side of almost all trade deals. Our friends and enemies have taken advantage of the U.S. for many years. Our Steel and Aluminum industries are dead. "

Which as the chart below shows is true. Trump has a warning...

"Sorry, it’s time for a change! MAKE AMERICA GREAT AGAIN!"

While establishment globalists doth protest loudly of the Steel (and Aluminum) impositions that President Trump is proclaiming, it appears their memories of recent historic reality is gravely absent (or willfully being ignored).

On Friday, Peter Navarro, Trump's newly reincarnated foreign trade advisor, made clear that this is not a 'first strike' in the 'trade war', this is America's retaliation to years of abuse:

“I don’t believe any country in the world is going to retaliate for the simple reason we are the most lucrative and biggest market in the world,” Navarro told Fox News Friday.

“They know they’re cheating us. All we’re doing is standing up for ourselves.”

One look at the record US trade deficit, with both the entire world, (and more specifically China alone and Europe alone), and one could make the case that he is correct.

Read the entire article

March 2, 2018

Everything You Need To Know About Federal Spending In Five Charts

It’s time to address the budget in a comprehensive fashion. Let’s look at five charts to put everything in context and to show how we got into our current mess.

Our first chart (based on Table 8.2 from the Office of Management and Budget’s Historical Tables) shows what has happened to major spending categories from 1962 to 2017. And all the data is in inflation-adjusted dollars (2009 benchmark) to accurately gauge how and why the burden of federal spending has grown.

This next chart shows the actual percentage increases in the major spending categories during this time period. The two big takeaways are that 1) the defense budget is not the cause of our long-run fiscal problems (though that doesn’t mean it should be exempt from cuts), and 2) entitlement expenditures have exploded.

And if you look at the data I shared from the Congressional Budget Office’s long-run forecast, you would see that these same trends will prevail for the next three decades.

In other words, our fiscal problems start with entitlements and end with entitlements.

If you want to look at the problem with a broader lens, this next chart shows that the problem is domestic spending (i.e., the combination of entitlement and domestic discretionary outlays).

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