After months of internal discord, House Republicans finally approved a bill to overhaul Obamacare, which they have been attacking since it was enacted in 2010. While there are various nuances, here are the bill's main provisions courtesy of Reuters:
COVERAGE
- The Republican plan would maintain some of Obamacare's most popular provisions. It would allow young adults to stay on their parents' health plan until age 26.
- The bill would let states opt out of Obamacare's mandate that insurers charge the same rates on sick and healthy people. It would also allow states to opt out of Obamacare's requirement that insurers cover 10 essential health benefits, such as maternity care and prescription drug costs.
- The measure would provide states with $100 billion, largely to fund high-risk pools to provide insurance to the sickest patients. The bill also would provide $8 billion over five years to help those with pre-existing conditions pay for insurance.
- It would let insurers mark up premiums by 30 percent for those who have a lapse in insurance coverage of about two months or more. Insurers won a provision they had long sought: The ability to charge older Americans up to five times more than young people. Under Obamacare, they could only charge up to three times more.
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If nothing else, the Chinese have a sense of history and destiny. They have had a glorious past, stretching back millennia, and once controlled most of the Asian heartland in the days of Genghis and Kublai Khan. But even then, China was essentially inward-looking, protecting her own cultural values. Trade with Europeans in the centuries following Marco Polo’s visit was mostly at the behest of European travelers, not the Chinese. She exported her art and culture to visitors, and did not import European values.
This was a mistake, implicitly recognized by China’s current leadership. This time, China has embraced Western thinking and technology to further her own progress. The development of the Shanghai Cooperation Organization in recent years is the platform for China in partnership with Russia to embrace the Asian continent through peaceful trade, improving the lives of all the citizens of the many nations who are and will become members. The SCO promises a revolution in the wealth and living standards of over 40% of the world’s population, and associated benefits for its supplier-nations on the other continents.
China’s approach is fundamentally different from that of America, which under President Trump appears to be envious of the success of non-Americans producing goods and services for the American consumer. Autarkic America has a GDP of $19 trillion. Eventually, China will have free trade agreements with the rest of the world, excluding for now the EU. On a purchasing power parity basis, this is a market with a GDP of about $70 trillion, out of a world total of about $125 trillion.
Already, China dominates world trade. Her own economy is already significantly larger than that of the US on the purchasing power parity (PPP) estimates. While being the largest consumer of raw materials, China also exports more finished goods by value than any other country. As the Asian powerhouse, she has lifted the economies of all the countries on the western side of the Pacific Ocean, which including her own between them have a GDP of $50 trillion. Her exports into Asia now exceed her exports to the US. Yet despite this dominance, most of China’s trade is conducted in US dollars, something China is bound to change, if she is to contain external economic risk and replace America as the dominant global empire. Both objectives can only be achieved by China replacing the dollar as a medium of exchange.
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One sector of the economy that is acting as if we were already in the middle of a horrible recession is the auto industry. We just got sales figures for the month of April, and every single major U.S. auto manufacturer missed their sales projections. And compared to one year ago, sales were way down across the entire industry. When you add this latest news to all of the other signals that the U.S. economy is slowly down substantially, a very disturbing picture begins to emerge. Either the U.S. economy is steamrolling toward a major slowdown, or this is one heck of a head fake.
One analyst that has been waiting for auto sales to start declining is Graham Summers. According to Summers, the boom in auto sales that we witnessed in previous years was largely fueled by subprime lending, and now that subprime auto loan bubble is starting to burst…
Auto-loan generation has gone absolutely vertical since 2009, rising an incredible 56% in seven years. Even more incredibly roughly 1/3 of this ~$450 billion in new loans are subprime AKA garbage.
In the simplest of terms, this is Subprime 2.0… the tip of the $199 TRILLION debt iceberg, just as subprime mortgages were for the Housing Bubble.
I’ve been watching this industry for months now, waiting for the signal that it’s ready to explode.
That signal just hit.
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Robert Shiller, in a discussion paper earlier this year, laid out the argument for economists paying closer attention to the "narratives" surrounding economics. To Shiller, popular narratives drive more of the fundamental economic outcomes than economists are typically willing to admit.
For example (one provided by Shiller), the 1921 recession following the end of World War I was, in part, driven by narrative. In contrast to the typical explanation of why it occurred (a central banker went on a long vacation), there are more fundamental reasons for the downturn, including a 50% increase in the price of oil (with wide-spread fear that oil production would peak in a few years) and-probably the most important-deflation expectations. Because consumers believed that prices would fall, they held back from making purchases.
This was the era of the "profiteer", the word used to describe price gouging. Thrift became a virtue, and there were calls to avoid buying anything other than the essentials. Consumer spending plummetted, leading Shiller to describe the recession as a "consumer boycott" lead by narrative, not by a traditional business cycle.
While the example above is buried deep in history, there is applicability to the present. Specifically, the rise in central bank communications. There have never been more speeches given by representatives of central banks than today. In a recent speech given by the Chief Economist of the Bank of England Andrew Haldane, he calls for less complex and more accessible communication of monetary policy. Ostensibly, this is to increase transparency and trust with the public and describe their actions and intentions to markets.
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America’s large corporations and its government have merged. Or was it an acquisition? If the latter, who acquired whom? Unfortunately, the labels affixed to purely corporate combinations lose their analytical usefulness here. While the two retain their own distinct legal structures and managements, so to speak, such a close community of interest has evolved that it’s no longer possible to separate them or delineate their individual contours. Political labels are no help; the ones most often used have become hopelessly imprecise. The Wikipedia definition of “fascism” is over 8,000 words, with 43 notes and 16 references.
However, the conjoined blob is so big, rapacious, and intrusive that akin to Justice Potter Stewart’s famous non-definition of obscenity, everybody knows it when they see or otherwise come into contact with it. This article will use the term “corporatocracy.” It’s less letters, dashes, and words to type than “the corporate-government-combination.” No serviceable understanding of either US history or current events is possible without close study of the corporatocracy. Unfortunately, such study, like entomology or cleaning septic tanks, requires a stout constitution. But take heart, entomologists grow to love their creepy crawly things, and septic tank cleaners say that after a few minutes you don’t even notice the smell.
A cherished delusion of naive liberals holds that big government is a counterweight, not a partner, to big business. Such a rationale is touted when the righteous demand new regulation, the public and media endorse it, the legislators pass it, and the president signs it into law. However, there are always unpaved stretches on the road to hell—once regulation is law, the righteous, public, media, legislators, and president, and their ostensibly good intentions, are on to the next cause.
In the quiet obscurity they relish, regulators and regulated get down to doing what they do best: bending the law to their joint benefit. Business, whose P&L’s can be powerfully affected by regulations, hire armies of lobbyists and lawyers in a never ending effort to tilt the playing field in their direction, and improve bottom lines, stock prices, and executive bonuses. The return on such investment is far higher than on old fashioned expenditures like research and development, plant and equipment, and job-creating expansion.
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Mario Draghi's job just became a little more difficult, because one day after the head of the ECB surprised markets with a more dovish statement than expected stressing risks for European inflation, on Friday morning Eurostat reported that Euro zone inflation rose by more than expected to the European Central Bank's target and core inflation increased to its highest level in four years.
Inflation in the 19 countries sharing the euro was 1.9 percent year-on-year, Eurostat estimated, up from 1.5 percent in March and just short of the four-year high of 2.0 percent recorded in February. The print was also above the 1.8% consensus estimate, even though German inflation data released on Thursday which also came in hotter than expected had prepared markets for a potential stronger figure for the bloc.
The April print (released before the month is even over) was also just shy of the ECB's medium-term target for inflation of 2 percent.
Overall inflation was higher primarily because of a 7.5% rise in energy prices and of 2.2% for unprocessed food. Prices for food, alcohol and tobacco went up by 1.5% in April, slightly lower than the 1.8% figure for March. In the services sector, the largest in the euro zone economy, prices rose by 1.8 percent in April, compared with 1.0 percent in March.
Core inflation, excluding volatile prices of energy and unprocessed food and which the European Central Bank monitors even more closely, jumped to 1.2% year-on-year in April from 0.8% in March, above market expectations of 1.0 percent. The core level was at its highest level since September 2013.
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Have you ever wondered how tech companies that have been losing hundreds of millions of dollars year after year can somehow be worth billions of dollars according to the stock market? Because I run a website called “The Economic Collapse“, there are naysayers out there that take glee in mocking me by pointing out how well the stock market has been doing. This week, the Dow is flirting with 21,000 and the Nasdaq crossed the 6,000 threshold for the first time ever. But a lot of the “soaring stocks” that have been fueling this rally have been losing giant mountains of money every single year, and just like the first tech bubble this madness will eventually come to an end in a spectacular fiery crash in which investors will lose trillions of dollars.
Anyone that cannot see that we are in the midst of an absolutely insane stock market bubble simply does not understand economics. Every valuation indicator that you can possibly point to says that we are in a bubble of epic proportions, and history teaches us that all bubbles inevitably come to an end at some point.
Earlier today, I came across an article by Graham Summers in which he persuasively argued that the price to sales ratio indicates that stock prices are far more inflated than they were just prior to the great stock market crash of 2008…
Sales cannot be gimmicked. Either money comes in the door, or it doesn’t. And if a company is caught messing around with its sales numbers, someone is going to jail.
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For the sake of this essay, feudal economic models imply the idea that a very tiny segment of the society is fantastically rich while the bulk of society works hard, has few choices about the work they do, and tend to be poorly compensated for their efforts.
the dominant social system in medieval Europe, in which the nobility held lands from the Crown in exchange for military service, and vassals were in turn tenants of the nobles, while the peasants (villeins or serfs) were obliged to live on their lord’s land and give him homage, labor, and a share of the produce, notionally in exchange for military protection.
Welcome to the Algorithmic Economy, a future which uses machines to determine how effective you can be and how little they can pay you in the process.
There are no unions in this economy. There are no bosses to complain to. There are no people you can ask for redress. Because in this economy, the people doing the labor are considered the least important part of the machine and it’s best if they never communicate with someone living if it can be helped.
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Austerity is over, proclaimed the IMF this week. And no doubt attributed that to the ‘successful’ period of ‘five years of belt tightening’ a.k.a. ‘gradual fiscal consolidation’ it has, along with its econo-religious ilk, imposed on many of the world’s people. Only, it’s not true of course. Austerity is not over. You can ask many of those same people about that. It’s certainly not true in Greece.
IMF Says Austerity Is Over
Austerity is over as governments across the rich world increased spending last year and plan to keep their wallets open for the foreseeable future. After five years of belt tightening, the IMF says the era of spending cuts that followed the financial crisis is now at an end. “Advanced economies eased their fiscal stance by one-fifth of 1pc of GDP in 2016, breaking a five-year trend of gradual fiscal consolidation,” said the IMF in its fiscal monitor.
In Greece, the government did not increase spending in 2016. Nor is the country’s era of spending cuts at an end. So did the IMF ‘forget’ about Greece? Or does it not count it as part of the rich world? Greece is a member of the EU, and the EU is absolutely part of the rich world, so that can’t be it. Something Freudian, wishful thinking perhaps?
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There is much debate about where the U.S. economy is ultimately heading, but what everybody should be able to agree on is that economic conditions are significantly worse this year than they were last year. It is being projected that U.S. economic growth for the first quarter will be close to zero, thousands of retail stores are closing, factory output is falling, and restaurants and automakers have both fallen on very hard times. As economic activity has slowed down, commercial and consumer bankruptcies are both rising at rates that we have not seen since the last financial crisis. Everywhere you look there are echoes of 2008, and yet most people still seem to be in denial about what is happening. The following are 11 facts that prove that the U.S. economy in 2017 is in far worse shape than it was in 2016…
#1 It is being projected that there will be more than 8,000 retail store closings in the United States in 2017, and that will far surpass the former peak of 6,163 store closings that we witnessed in 2008.
#2 The number of retailers that have filed for bankruptcy so far in 2017 has already surpassed the total for the entire year of 2016.
#3 So far in 2017, an astounding 49 million square feet of retail space has closed down in the United States. At this pace, approximately 147 million square feet will be shut down by the end of the year, and that would absolutely shatter the all-time record of 115 million square feet that was shut down in 2001.
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One of the issues I keep reading about recently is the (alleged) divergence between “soft” and “hard” data. For example, consumer sentiment as measured by the University of Michigan (and the Conference Board, and Gallup) has been making new highs since the Presidential election last November (according to Gallup, mainly fueled by a massive gain in optimism among Republicans). while “hard data,” chiefly industrial production but also including consumer spending, has failed to follow suit.
One problem with this thesis has been that manufacturing as measured by the industrial production index, turned up for five months in a row. It turned down in March, and one good measure of how intellectually honest the commentator is, is whether they have been using a consistent measure for industrial production:
Production as a whole only fell in January and February because of utility production (warm winter in the eastern half of the US). In March, production only rose because utility production rebounded sharply (March was actually colder than February in much of the East).
So a Doomer who was all over the decline in industrial production for the last two months should be touting its advance in March. If the Doomer backs out utilities this month, take a look to see if they did the same thing last month — almost certainly not.
Another problem with the soft/nard data dichotomy is that online retail appears to have reached a tipping point where it is causing big damage to brick-and-mortar retailers, who are laying off thousands of employees and even shutting down completely.
I am concerned that the official real retail sales numbers might not be adequately picking up online retail:
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Oil lending could go down even more
Even though the price of oil has nearly doubled from its lows printed at the beginning of last year, it seems that for many oil and gas companies, the downturn continues to weigh on operations.
According to the most recent issue of the Haynes and Boone, Borrowing Base Redeterminations Survey, conducted last quarter, around 24% of exploration and production borrowers expect to see a decrease in their borrowing base redeterminations for spring 2017. Even though the number of responses indicating a reduction in borrowing capacity has decreased dramatically since last year (down from 41% in the fall of 2016) it is notable that many sector stakeholders believe further adjustments are ahead despite the changes that have taken place over the past 12 months.
Banks Plan To Cut Oil Lending Further
163 Borrowing Base surveys were completed for the spring 2017 issue with respondents spread across the lending, producer, services and other oil and related industries. Far more borrowers believe borrowing bases will be cut this year than lenders with 27% of borrowers predicting a cut and 20% of lenders holding the same opinion.
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Goldman Sachs' Chief US Political Economist Alec Phillips writes that tax reform faces a risk of failure, but tax cuts remain likely... in 2018 and investors need to stay realistic about the impact of fiscal stimulus.
President Trump’s campaign proposals initially raised expectations of several forms of fiscal stimulus, driving investor optimism on both infrastructure spending and various elements of tax reform. However, we expect only tax cuts to have a meaningful effect on growth over the next couple of years. Three risks are behind this view: tax reform failure, fiscal constraints, and delayed enactment.
Debates, delays, distractions
First, tax reform faces a real risk of failure. If Republicans pursue revenue-neutral tax reform, they are likely to encounter the same challenges they encountered in passing their health legislation. Inclusion of controversial proposals like the border-adjusted tax (BAT) or even the repeal of corporate interest expense deductibility, for example, could sink the effort. Views on these issues do not follow traditional party lines, which could easily lead to some Republican opposition (we have already seen significant opposition to the BAT, for example). With few if any Democratic lawmakers likely to vote for the tax bill, Republicans would need nearly unanimous support from their own party. Thus, while revenue-neutral tax reform might be preferable from a policy perspective, imposing this restriction would lower the odds of enactment by next year.
In light of the challenges tax reform faces, we believe that President Trump, who did not emphasize revenue-neutrality during the campaign, is likely to eventually endorse more limited reforms that result in a net tax cut. However, the size of such a cut would be limited by fiscal constraints; centrist Republican lawmakers seem especially likely to balk at large tax cuts that would eventually require deep spending cuts to maintain fiscal sustainability. Dynamic scoring and other budget accounting strategies might provide several hundred billion dollars’ worth of room for a tax cut in 10-year budget projections, but alone would allow for only a very modest cut. Our current expectation is a tax cut of $1.75tn over ten years, taking effect in 2018.
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What tentative hope had emerged for a rebound for the U.S. restaurant industry at the start of the year, was doused last month when in its February Restaurant Industry Snapshot, TDn2K found that "Restaurant Sales and Traffic Tumble in February" and reported that same-store sales fell -3.7% in February, with traffic declining -5.0% . It did however leave a possibility that things may turn around as a result of the prompt disbursement of withheld tax refunds in the month, which it suggested may have adversely affected sales and traffic.
Alas, that did not happen, and restaurant struggles continued in March as sales and traffic again declined year-over-year: same-store sales were down 1.1% while traffic dropped 3.4%. March results were disappointing for an industry desperately trying to reverse performance trends; with sales now negative in 11 out of the last 12 months, the longest stretch since the financial crisis. There was a modest improvement sequentially, however, and while still negative, sales improved by 2.5% points compared to February as traffic rose marginally by 1.6%.
Explaining the sequential "improvement", Victor Fernandez, executive director of insights and knowledge for TDn2K, said “March sales were expected to be somewhat better than February due in part to the catch-up of tax refunds that were initially delayed in February. In addition, the industry likely benefited from the shift in the Easter holiday, which fell in March in 2016. For the largest segments (quick service and casual dining), this holiday represents a potential loss of sales."
However, it was not enough: “The fact that sales were still negative in March given these tailwinds highlights the challenge chains have faced since the recession. Factors like restaurant oversupply and additional competition for dining occasions continue to take their toll on chain traffic.”
As TDn2K further adds, with a same-store sales decline of 1.6%, the first quarter of 2017 was the fifth consecutive quarter of negative results. The last time the industry experienced a similar period was in 2009 and the first half of 2010, as the economy began recovery following the recession. Only this time the move is in the opposite direction.
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Step aside China Huishan Dairy Holdings - China's largest dairy producer which cratered last month after a negative Muddy Waters research report brought attention to a company we knew for one year was collateralizing its cows to fund stock buybacks - and make way for what may be the next Chinese megafraud.
While China Hongqiao Group may be best known for being the world's largest aluminum producer, it has in recent months featured just as prominently among short-seller reports who have accused the company of being a fraud. As the WSJ's Scott Patterson writes, questions about China Hongqiao’s finances first emerged in November, when an anonymous short seller wrote on a website called Hongqiao Exposed that the company’s profits are “too good to be true.” China Hongqiao in the March 31 statement called the report “untrue and unfounded.”
A subsequent 46-page report on Feb. 28 by Emerson Analytics, a trading firm focused on Chinese stock-market fraud, disclosed more allegations of fraud involving the Chinese commodity giant.
Emerson accused China Hongqiao of “abnormally high” profits generated by underreporting production costs and disclosing electricity expenses—one of the biggest costs for aluminum producers—as much as 40% below their true cost. Emerson said it investigated Chinese electricity costs, spoke to former China Hongqiao employees and compared the company’s costs and profits with other comparable companies.
Additionally, China Hongqiao has been more profitable than some Chinese competitors. For instance, China Hongqiao earned an average operating profit margin of 27% in the past five years, compared with minus-1.7% for state-owned Aluminum Corp. of China , known as Chalco, and 5.9% for Alcoa, according to FactSet. “People were always skeptical about how they managed to be more profitable than their peers,” said Sandra Chow, a credit analyst at CreditSights.
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