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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