Normally when we think of “free trade,” us lay people, we think of removing barriers to the exchange of goods and services. Removing barriers is the “free” part of “free trade.” Of course, there really is no such thing as a “no barriers” market, since even the simplest of markets always has rules, and those who write the rules are “picking winners and losers” by definition.
Consider, for example, a flea market held in the parking lot of a local fairground on a Saturday. To participate, you have to register for a space with the organizers (the parking lot isn’t infinitely long or wide), set up an approved tent or table, and usually, if your goods are sold by weight or volume, have your weights and measuring devices certified by the organizers as honest.
All of the restrictions above place limits on the “market” — put it under control of the organizers — but consider for a minute just the last one, certified weights and measures. How is that not “picking winners and losers”? Winners — Vendors with honest scales. Losers — Vendors who cheat their customers.
Or consider a flea market without that requirement. Winners — Vendors who cheat their customers. Losers — Vendors with honest scales.
A lot has been written, in fact, about the non-existence, by definition, of anything resembling a “free market,” including much by the writer Masaccio (main site here).
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DAILY BUSINESS REPORT - Financial Updates, International Markets and Business News
November 9, 2016
November 8, 2016
"I Just Lost All Faith In Our Deeply Corrupt Legal System And In The Rule Of Law In The US"
The FBI just gave Hillary Clinton the biggest gift in the history of presidential politics. Two days before the election the FBI has announced that they are ending their investigation into Hillary Clinton’s mishandling of classified information. After reviewing the emails that were found on electronic devices owned by Huma Abedin and Anthony Weiner, FBI Director James Comey sent a letter to Congress telling them that “we have not changed our conclusions that we expressed in July with respect to Secretary Clinton.” That means that there will be no indictment, and the path is now clear for Hillary Clinton to become the next president of the United States on Tuesday unless an election miracle happens.
These days it is unusual for a news story to hit me on a deeply emotional level, but this one sure did. When the FBI originally announced that they were renewing this investigation, it gave me a glimmer of hope that there may be a little bit of integrity left in our legal system.
But after yesterday’s announcement I have lost all faith in our deeply corrupt system of justice. America has become a lawless nation, and the rule of law is completely dead in this country.
Yes, it is true that those of us in the general public do not know what was contained in those emails, and Director Comey says that nothing significant was found in them…
In a letter to lawmakers, Comey said the FBI is standing by its original findings, made in July, that Clinton should not be prosecuted for her handling of classified information over email as secretary of State.
“The FBI investigative team has been working around the clock to process and review a large volume of emails from a device obtained in connection with an unrelated criminal investigation,” Comey said in the letter. “During that process we reviewed all of the communications that were to or from Hillary Clinton while she was secretary of State,” Comey wrote. “Based on our review, we have not changed our conclusions that we expressed in July with respect to Secretary Clinton.”
Read the entire article
These days it is unusual for a news story to hit me on a deeply emotional level, but this one sure did. When the FBI originally announced that they were renewing this investigation, it gave me a glimmer of hope that there may be a little bit of integrity left in our legal system.
But after yesterday’s announcement I have lost all faith in our deeply corrupt system of justice. America has become a lawless nation, and the rule of law is completely dead in this country.
Yes, it is true that those of us in the general public do not know what was contained in those emails, and Director Comey says that nothing significant was found in them…
In a letter to lawmakers, Comey said the FBI is standing by its original findings, made in July, that Clinton should not be prosecuted for her handling of classified information over email as secretary of State.
“The FBI investigative team has been working around the clock to process and review a large volume of emails from a device obtained in connection with an unrelated criminal investigation,” Comey said in the letter. “During that process we reviewed all of the communications that were to or from Hillary Clinton while she was secretary of State,” Comey wrote. “Based on our review, we have not changed our conclusions that we expressed in July with respect to Secretary Clinton.”
Read the entire article
November 7, 2016
Private Equity Energy Funds Did So Badly They Might Have to Do the Unthinkable – Pay Clawbacks
The law firm Akin Gump issued a warning that might chill the bones of some private equity general partners: clawbacks may be a-comin’. From the firm’s website:
In recent months, managers of private equity funds in the energy sector have been facing a scenario they likely never imagined: having to return millions of dollars of their “carried interest” earnings back to investors.
For newbies to this private equity practice, private equity funds typically pay the profit share, prototypically 20% once a target rate of return has been met. What creates the possibility of a clawback is the fact that for most US funds, the profit computation and any payouts are made every time a portfolio company is sold. By contrast, in “European” deals, the carry fees are paid only at the end of the fund’s life.
The conventional US approach, combined with strong general partner incentives to realize profits on at least some promising deals early in the fund’s life, means that the general partners can pay themselves carry fees that are more than they deserved once the impact of doggy companies, which are sold late in the fund’s life, are factored in. Hence the limited partnership agreements provide for “clawbacks,” as in the recovery of overpayments of carry fees.
Yet as we’ve written, clawbacks are almost never paid in practice. Why? First, the clawback provisions have tax language that is very favorable to the general partners, and has the economic effect that they can hang on what are excessive carry fees based on raw cash flows. Second, possession is 9/10ths of the law. In those instances where the general partner owes limited partner clawbacks, the general partner usually goes to the limited partners and offers them a special deal (details often unspecified!) on their next fund. Needless to say, this approach has the desirable effect of pre-committing those limited partners.
Read the entire article
In recent months, managers of private equity funds in the energy sector have been facing a scenario they likely never imagined: having to return millions of dollars of their “carried interest” earnings back to investors.
For newbies to this private equity practice, private equity funds typically pay the profit share, prototypically 20% once a target rate of return has been met. What creates the possibility of a clawback is the fact that for most US funds, the profit computation and any payouts are made every time a portfolio company is sold. By contrast, in “European” deals, the carry fees are paid only at the end of the fund’s life.
The conventional US approach, combined with strong general partner incentives to realize profits on at least some promising deals early in the fund’s life, means that the general partners can pay themselves carry fees that are more than they deserved once the impact of doggy companies, which are sold late in the fund’s life, are factored in. Hence the limited partnership agreements provide for “clawbacks,” as in the recovery of overpayments of carry fees.
Yet as we’ve written, clawbacks are almost never paid in practice. Why? First, the clawback provisions have tax language that is very favorable to the general partners, and has the economic effect that they can hang on what are excessive carry fees based on raw cash flows. Second, possession is 9/10ths of the law. In those instances where the general partner owes limited partner clawbacks, the general partner usually goes to the limited partners and offers them a special deal (details often unspecified!) on their next fund. Needless to say, this approach has the desirable effect of pre-committing those limited partners.
Read the entire article
November 4, 2016
"Internal Crossing" - The Unintended Consequence Of Dodd-Frank That Is Crushing Bond Liquidity And Transparency
A couple of weeks ago we wrote about the curious case of the 34-year old Goldman Sachs high-yield trader, Tom Malafronte, who has managed to make $100mm "trading" with Goldman clients so far in 2016 while somehow also complying with Dodd-Frank regulations that prevent proprietary trading. Here is what we wrote:
Back in 2010, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act which was intended to shut down proprietary trading desks at the big wall street banks while allowing them to hold just enough inventory to satisfy market making requirements. Which is why many are now questioning how a 34-year-old Goldman Sach high-yield trader, Tom Malafronte, managed to make $100mm while maintaining compliance with federal banking regulations. As a senior trader of Skyland Capital told the Wall Street Journal, “It goes against everything we’ve been seeing the last three years."
The gains were the work of Tom Malafronte, a managing director on the bank’s high-yield-bond desk in New York. The 34-year-old trader bought billions of dollars in junk corporate debt on the cheap starting in January, then locked in profits as prices recovered, according to people familiar with the matter.
The windfall is a throwback to a previous era on Wall Street, when big banks were more eager to step in as markets turned and bond traders took bigger risks. Those bets have become less common since the crisis. Hoping to make the financial system safer, Congress passed rules that curbed banks’ ability to wager with their own money and required them to hold more capital.
Wall Street responded by shutting down its proprietary-trading desks and shrinking inventories of securities like bonds. The government allowed banks to continue trading securities in their capacity as market makers, serving as intermediaries between buyers and sellers. Regulators have said banks must show that the amount of bonds and other securities they hold on their balance sheets don’t exceed what they need to meet “reasonably expected near-term demand.”
Read the entire article
Back in 2010, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act which was intended to shut down proprietary trading desks at the big wall street banks while allowing them to hold just enough inventory to satisfy market making requirements. Which is why many are now questioning how a 34-year-old Goldman Sach high-yield trader, Tom Malafronte, managed to make $100mm while maintaining compliance with federal banking regulations. As a senior trader of Skyland Capital told the Wall Street Journal, “It goes against everything we’ve been seeing the last three years."
The gains were the work of Tom Malafronte, a managing director on the bank’s high-yield-bond desk in New York. The 34-year-old trader bought billions of dollars in junk corporate debt on the cheap starting in January, then locked in profits as prices recovered, according to people familiar with the matter.
The windfall is a throwback to a previous era on Wall Street, when big banks were more eager to step in as markets turned and bond traders took bigger risks. Those bets have become less common since the crisis. Hoping to make the financial system safer, Congress passed rules that curbed banks’ ability to wager with their own money and required them to hold more capital.
Wall Street responded by shutting down its proprietary-trading desks and shrinking inventories of securities like bonds. The government allowed banks to continue trading securities in their capacity as market makers, serving as intermediaries between buyers and sellers. Regulators have said banks must show that the amount of bonds and other securities they hold on their balance sheets don’t exceed what they need to meet “reasonably expected near-term demand.”
Read the entire article
November 3, 2016
Pound Surges After UK Government Loses Article 50 Lawsuit; Brexit Needs Parliamentary Approval High Court Rules
The decision means that the U.K. must hold a vote in Parliament before starting the two-year countdown to Brexit, a panel of London judges decided, setting up a constitutional confrontation at the country’s Supreme Court. London judges deliver a decision that could be a setback for Prime Minister Theresa May’s plan to unilaterally start the process by the end of March by invoking Article 50 of the Lisbon Treaty.
U.K. Trade Secretary Liam Fox said “the government is disappointed by the court’s judgement.” adding that "The country voted to leave the European Union in a referendum established by an act of Parliament." Speaking to lawmakers in the House of Commons in London, Fox also said that "It’s right we consider it carefully before deciding how to proceed."
The UK Government seeks to appeal the ruling on December 7 at the Supreme Court.
Absent an overturn on appeal, lawmakers could now influence Theresa May's approach to Brexit and if a majority is opposed it could theoretically delay or even stop the process. Mrs. May’s ruling Conservative Party is the largest party in Parliament, with a majority of 15 seats.
More details from Sky News, which explains that according to the ruling, Theresa May cannot trigger Brexit without putting it to an MPs' vote in the House of Commons, the High Court has ruled.
Read the entire article
U.K. Trade Secretary Liam Fox said “the government is disappointed by the court’s judgement.” adding that "The country voted to leave the European Union in a referendum established by an act of Parliament." Speaking to lawmakers in the House of Commons in London, Fox also said that "It’s right we consider it carefully before deciding how to proceed."
The UK Government seeks to appeal the ruling on December 7 at the Supreme Court.
Absent an overturn on appeal, lawmakers could now influence Theresa May's approach to Brexit and if a majority is opposed it could theoretically delay or even stop the process. Mrs. May’s ruling Conservative Party is the largest party in Parliament, with a majority of 15 seats.
More details from Sky News, which explains that according to the ruling, Theresa May cannot trigger Brexit without putting it to an MPs' vote in the House of Commons, the High Court has ruled.
Read the entire article
November 2, 2016
Is ECB 'Omnipotence' "Too Powerful For Any Democracy To Abide"?
The reputation of central banks has always had its ups and downs. For years, central banks’ prestige has been almost unprecedentedly high. But a correction now seems inevitable, with central-bank independence becoming a key casualty.
Central banks’ reputation reached a peak before and at the turn of the century, thanks to the so-called Great Moderation. Low and stable inflation, sustained growth, and high employment led many to view central banks as a kind of master of the universe, able – and expected – to manage the economy for the benefit of all. The depiction of US Federal Reserve Chair Alan Greenspan as “Maestro” exemplified this perception.
The 2008 global financial crisis initially bolstered central banks’ reputation further. With resolute action, monetary authorities made a major contribution to preventing a repeat of the Great Depression. They were, yet again, lauded as saviors of the world economy.
But central banks’ successes fueled excessively high expectations, which encouraged most policymakers to leave their monetary counterparts largely responsible for macroeconomic management. Such “expectational” and, in turn, “operational” overburdening has exposed monetary policy’s true limitations.
In other words, central banks’ good reputation now seems to be backfiring. And “personality overburdening” – when trust in the success of monetary policy is concentrated on the person at the helm of the institution – means that individual leaders’ reputations are likely to suffer as well.
Read the entire article
Central banks’ reputation reached a peak before and at the turn of the century, thanks to the so-called Great Moderation. Low and stable inflation, sustained growth, and high employment led many to view central banks as a kind of master of the universe, able – and expected – to manage the economy for the benefit of all. The depiction of US Federal Reserve Chair Alan Greenspan as “Maestro” exemplified this perception.
The 2008 global financial crisis initially bolstered central banks’ reputation further. With resolute action, monetary authorities made a major contribution to preventing a repeat of the Great Depression. They were, yet again, lauded as saviors of the world economy.
But central banks’ successes fueled excessively high expectations, which encouraged most policymakers to leave their monetary counterparts largely responsible for macroeconomic management. Such “expectational” and, in turn, “operational” overburdening has exposed monetary policy’s true limitations.
In other words, central banks’ good reputation now seems to be backfiring. And “personality overburdening” – when trust in the success of monetary policy is concentrated on the person at the helm of the institution – means that individual leaders’ reputations are likely to suffer as well.
Read the entire article
November 1, 2016
Over Half A Trillion In M&A: October Mergers Smash All Records With $500.1 Billion In Deals
Last week David Rosenberg pointed out that mega Merger Manias like the one we are experiencing "invariably takes place at or near cycle peaks, as companies realize that they can no longer grow their earnings organically. We have just witnessed five multi-billion dollar deals this past week alone — $207 billion globally (AT&T/Time Warner; TD Ameritrade/Scottrade) in what has been the most active announcement list since 1999 … what do you know, near the tail end of that tech bull market too."
And now that October is officially over, we can close the books on what has been an unprecedented month for M&A. According to Bloomberg, in the month when a chill was sent through the spines of corporate CFOs and their investment bankers over fears that rates are about to rise and thus make debt-funded deals more expensive, the scramble to acquire competitors went off the charts, leading to an all time high in global M&A with almost half a trillion dollars of mergers and acquisitions announced globally.
CenturyLink Inc.’s $34 billion acquisition of Level 3 Communications Inc., as well as General Electric Co.’s deal to combine its oil and gas division with Baker Hughes Inc., pushed October’s deal volumes to about $489 billion, according to data compiled by Bloomberg. That’s the highest amount for at least 12 years, topping the previous record of $471 billion in April 2007, the data show.
Read the entire article
And now that October is officially over, we can close the books on what has been an unprecedented month for M&A. According to Bloomberg, in the month when a chill was sent through the spines of corporate CFOs and their investment bankers over fears that rates are about to rise and thus make debt-funded deals more expensive, the scramble to acquire competitors went off the charts, leading to an all time high in global M&A with almost half a trillion dollars of mergers and acquisitions announced globally.
CenturyLink Inc.’s $34 billion acquisition of Level 3 Communications Inc., as well as General Electric Co.’s deal to combine its oil and gas division with Baker Hughes Inc., pushed October’s deal volumes to about $489 billion, according to data compiled by Bloomberg. That’s the highest amount for at least 12 years, topping the previous record of $471 billion in April 2007, the data show.
Read the entire article
October 31, 2016
GMO and Monsanto-Bayer: Global Agribusiness’ Wild Game of Monopoly Endangers Food Diversity
Agriculture’s biggest deal ever will leave farmers and consumers paying more for less, and could accelerate a potentially catastrophic decline in the diversity of what we plant and eat.
A wave of Big Ag mergers is threatening to entrench a food system that reduces nature’s edible abundance to a handful of plants on your plate.
Monsanto, the world’s largest seed company, has been purchased by Bayer, the German pharma and agrochemical multinational. Bayer paid $66 billion — the biggest cash buy-out in history.
The stakes could not be higher. The deal threatens to put the genetic erosion of the world’s food supply on steroids, just as serious doubts are emerging about the genetically modified organism (GMO) “revolution” that began 20 years ago and the claim that US-style industrial farming will “feed the world.” The risks of monoculture are well documented: more than one million people died of starvation and disease during the Irish Potato Famine (also known as the Great Famine), between 1845 and 1852. It took 168 years to find out what went wrong.
The loss of crop diversity in the United States is already staggering: an estimated 93% of vegetable seed varieties have gone extinct in the last century.
The merger will also lead to higher seed prices. Since Monsanto’s commercial introduction of its GM seeds in 1996, the cost of seeds has skyrocketed. Farmers now pay 325% more for soybean seeds than in 1996, and 259% more for corn. The price of genetically modified cotton has soared 516%.
Read the entire article
A wave of Big Ag mergers is threatening to entrench a food system that reduces nature’s edible abundance to a handful of plants on your plate.
Monsanto, the world’s largest seed company, has been purchased by Bayer, the German pharma and agrochemical multinational. Bayer paid $66 billion — the biggest cash buy-out in history.
The stakes could not be higher. The deal threatens to put the genetic erosion of the world’s food supply on steroids, just as serious doubts are emerging about the genetically modified organism (GMO) “revolution” that began 20 years ago and the claim that US-style industrial farming will “feed the world.” The risks of monoculture are well documented: more than one million people died of starvation and disease during the Irish Potato Famine (also known as the Great Famine), between 1845 and 1852. It took 168 years to find out what went wrong.
The loss of crop diversity in the United States is already staggering: an estimated 93% of vegetable seed varieties have gone extinct in the last century.
The merger will also lead to higher seed prices. Since Monsanto’s commercial introduction of its GM seeds in 1996, the cost of seeds has skyrocketed. Farmers now pay 325% more for soybean seeds than in 1996, and 259% more for corn. The price of genetically modified cotton has soared 516%.
Read the entire article
October 28, 2016
Let Crude Crash: US Oil Producers Are Hedging At Levels Not Seen Since 2007
As warned here one month ago after the farcical OPEC meeting in Algiers, the cartel's latest jawboning ploy to keep prices artificially higher - if only for one more month - is fast falling apart. Just a few hours ago, Bloomberg reporter Daniel Kruger penned the following assessment of the situation:
Production-Cut Talk Is as Good as It Gets for Oil. Some OPEC members are talking about cutting production again, and so prices are rising. Saudi Arabia and other producers both in and out of the cartel have done a good job fostering the storyline that there are terms under which parties can agree to pump less crude. Continuing signs of concord among producer nations have boosted oil prices to an average of $50 a barrel this month in New York. Yet several obstacles make it difficult for countries to commit to signing on to a deal. One obstacle is that sacrifices are needed for the agreements to succeed. Another is that those sacrifices aren’t shared equally.
Having successfully raised $18 billion in the bond market, Saudi Arabia is better positioned to withstand the loss of some revenue. Iraq, OPEC’s second-biggest producer, was the latest to plead for an exemption from a cut, citing its fight against Islamic State as a cause of hardship. Ultimately, no one wants to pump less because the upside is so limited. Saudi Arabia’s 2014 decision to double down on production in a drive for market share succeeded in making it more difficult for higher-cost producers to thrive as they once had. But having committed to that goal, they also locked themselves into a fight to keep what they’d won.
And while ConocoPhillips’ announcement this week that it plans to cut spending on major projects demonstrates the partial success of the Saudi plan to drive out rivals, it also shows producers see diminishing chances for crude to climb much above $60, said Wells Fargo Fund Management’s James Kochan. The big reason, of course, is latent U.S. supply. Baker Hughes data shows the most rigs at work in the Permian Basin since January. Sanford C. Bernstein analyst Bob Brackett suggests the per-acre price of drilling lease land will rise to $100,000 from about $60,000 now.
The one agreement players seem to have reached is that oil isn’t able to go much higher.
Read the entire article
Production-Cut Talk Is as Good as It Gets for Oil. Some OPEC members are talking about cutting production again, and so prices are rising. Saudi Arabia and other producers both in and out of the cartel have done a good job fostering the storyline that there are terms under which parties can agree to pump less crude. Continuing signs of concord among producer nations have boosted oil prices to an average of $50 a barrel this month in New York. Yet several obstacles make it difficult for countries to commit to signing on to a deal. One obstacle is that sacrifices are needed for the agreements to succeed. Another is that those sacrifices aren’t shared equally.
Having successfully raised $18 billion in the bond market, Saudi Arabia is better positioned to withstand the loss of some revenue. Iraq, OPEC’s second-biggest producer, was the latest to plead for an exemption from a cut, citing its fight against Islamic State as a cause of hardship. Ultimately, no one wants to pump less because the upside is so limited. Saudi Arabia’s 2014 decision to double down on production in a drive for market share succeeded in making it more difficult for higher-cost producers to thrive as they once had. But having committed to that goal, they also locked themselves into a fight to keep what they’d won.
And while ConocoPhillips’ announcement this week that it plans to cut spending on major projects demonstrates the partial success of the Saudi plan to drive out rivals, it also shows producers see diminishing chances for crude to climb much above $60, said Wells Fargo Fund Management’s James Kochan. The big reason, of course, is latent U.S. supply. Baker Hughes data shows the most rigs at work in the Permian Basin since January. Sanford C. Bernstein analyst Bob Brackett suggests the per-acre price of drilling lease land will rise to $100,000 from about $60,000 now.
The one agreement players seem to have reached is that oil isn’t able to go much higher.
Read the entire article
October 27, 2016
Layoffs at Alphabet Access to Hit 9%, Google Fiber to “Pause” Plans, CEO Leaves, as Alphabet Cracks Down on Costs
Five years ago, when Google announced that it would build a super-high-speed fiber-optic network in Kansas City, and then roll it out in other cities, it started an effort to own and control the data pipelines going into homes and businesses.
Given how frustrated consumers are with their ISPs, it seems people couldn’t wait for Google Fiber, now operated by Alphabet’s Access. Google then spent a fortune building out the network in select cities around the country. This could have been huge. At a huge cost.
“Amazing bet,” is what Craig Barratt, senior VP at Alphabet and CEO of Access, called Google Fiber in a blogpost yesterday. In the same breath, he also announced that they would “pause” the build-out of Google Fiber in cities where it had been planned, that there would be layoffs and reassignments, though he didn’t say how many, and that he’d “step aside” as CEO of Access.
His replacement has not been announced.
He’s the third CEO of an Alphabet division to part ways since June. He prefaced this whole debacle this way:
And thanks to the hard work of everyone on the Access team, our business is solid: our subscriber base and revenue are growing quickly, and we expect that growth to continue. I am extremely proud of what we’ve built together in five short years.
Read the entire article
Given how frustrated consumers are with their ISPs, it seems people couldn’t wait for Google Fiber, now operated by Alphabet’s Access. Google then spent a fortune building out the network in select cities around the country. This could have been huge. At a huge cost.
“Amazing bet,” is what Craig Barratt, senior VP at Alphabet and CEO of Access, called Google Fiber in a blogpost yesterday. In the same breath, he also announced that they would “pause” the build-out of Google Fiber in cities where it had been planned, that there would be layoffs and reassignments, though he didn’t say how many, and that he’d “step aside” as CEO of Access.
His replacement has not been announced.
He’s the third CEO of an Alphabet division to part ways since June. He prefaced this whole debacle this way:
And thanks to the hard work of everyone on the Access team, our business is solid: our subscriber base and revenue are growing quickly, and we expect that growth to continue. I am extremely proud of what we’ve built together in five short years.
Read the entire article
October 26, 2016
Deutsche Bank Considering Alternatives To Paying Cash Bonus
It has been at least a few weeks since Deutsche Bank appeared in the flashing red breaking news sections of newswires, with news that was - mostly - negative. And while the stock has since rebounded materially, wiping out all losses since the DOJ's $14 billion RMBS settlement leak, it appears that not everything is back to normal for the largest German lender. Because in what may be the worst news yet for DB's employees, moments ago Bloomberg reported that the German Bank is exploring "alternatives to paying bonuses in cash" as Chief Executive Officer John Cryan seeks to boost capital buffers.
According to Bloomberg, DB executives have discussed options including giving some bankers shares in the non-core unit instead of cash bonuses. Another idea under review is replacing the cash component with more Deutsche Bank stock.
The supervisory board may discuss the topic of variable pay at a meeting on Wednesday though no final decisions are expected, the people said, the day before it reports third-quarter earnings. The measures, if pursued in the coming months, would mostly impact the investment bank, the people said. The Frankfurt-based lender is still considering other alternatives, they said.
As Bloomberg adds, any bonus-related decision will depend on the size and timing of Deutsche Bank’s settlement with the U.S. Department of Justice over a probe into the the sale of faulty real-estate securities. Last year, Deutsche Bank awarded staff 2.4 billion euros ($2.6 billion) of bonuses for 2015, 1.45 billion euros of which was for the combined investment banking and trading unit. Of the 2.4 billion euros, 49 percent was deferred stock and cash while the remainder was paid out immediately. It appears that DB wants to take the 49% number and make it bigger.
Read the entire article
According to Bloomberg, DB executives have discussed options including giving some bankers shares in the non-core unit instead of cash bonuses. Another idea under review is replacing the cash component with more Deutsche Bank stock.
The supervisory board may discuss the topic of variable pay at a meeting on Wednesday though no final decisions are expected, the people said, the day before it reports third-quarter earnings. The measures, if pursued in the coming months, would mostly impact the investment bank, the people said. The Frankfurt-based lender is still considering other alternatives, they said.
As Bloomberg adds, any bonus-related decision will depend on the size and timing of Deutsche Bank’s settlement with the U.S. Department of Justice over a probe into the the sale of faulty real-estate securities. Last year, Deutsche Bank awarded staff 2.4 billion euros ($2.6 billion) of bonuses for 2015, 1.45 billion euros of which was for the combined investment banking and trading unit. Of the 2.4 billion euros, 49 percent was deferred stock and cash while the remainder was paid out immediately. It appears that DB wants to take the 49% number and make it bigger.
Read the entire article
October 25, 2016
Credit Card Delinquencies Creep Up To Highest Levels Since 2012 As Subprime Issuance Soars
As Obama's "recovery" rolls along, the Wall Street Journal points out that the delinquency rates of subprime credit cards has surged to the highest levels recorded since 2012. Moreover, per TransUnion data, delinquency rates on cards issued in 2015 are close to 3%, or roughly double the overall rate, indicating that consumers have grown increasingly dependent on credit cards over the past couple of years to fund daily expenses.
Credit-card lending to subprime borrowers is starting to backfire.
Missed payments on credit cards that lenders issued recently are higher than on older cards, according to new data from credit bureau TransUnion. Nearly 3% of outstanding balances on credit cards issued in 2015 were at least 90 days behind on payments six months after they were originated. That compares with 2.2% for cards that were given out in 2014 and 1.5% for cards in 2013.
The poorer performance on newer cards pushed up the 90-day or more delinquency rate for all credit cards to 1.53% on average nationwide in the third quarter. That’s the highest level since 2012.
Meanwhile, FRED data reveals that while overall credit card delinquency rates remain at 10-year lows, the trends has been higher over the past several quarters.
Read the entire article
Credit-card lending to subprime borrowers is starting to backfire.
Missed payments on credit cards that lenders issued recently are higher than on older cards, according to new data from credit bureau TransUnion. Nearly 3% of outstanding balances on credit cards issued in 2015 were at least 90 days behind on payments six months after they were originated. That compares with 2.2% for cards that were given out in 2014 and 1.5% for cards in 2013.
The poorer performance on newer cards pushed up the 90-day or more delinquency rate for all credit cards to 1.53% on average nationwide in the third quarter. That’s the highest level since 2012.
Meanwhile, FRED data reveals that while overall credit card delinquency rates remain at 10-year lows, the trends has been higher over the past several quarters.
Read the entire article
October 24, 2016
Six Things To Consider About Inflation
As an economic term, “inflation” is shorthand for “inflation of the money supply.”
The general public, however, usually takes it to mean “rising prices” which is not surprising since one of the common effects of an increase in the money supply is higher prices. However, supporters of government policy often say, “If quantitative easing (QE) and its terrible twin, fractional reserve banking, are so awful, why have we got no inflation?”
To address this conundrum, there are six related factors that are noteworthy:
Number One: we need to be clear about the terms we are using. Instead of talking about “inflation” in the loose sense, as above, it is more accurate to speak of currency debasement, which is the real impact of fiat money creation by any means. We experience currency debasement as declining purchasing power. Two sides of the same coin: one reflects the other.
Number Two: the above question overlooks the fact that the measures used in this process are inherently unreliable. The decline in purchasing power is most evident when objectively measured by reference to an essential commodity such as oil — rather than against the Consumer Price Index (CPI). The CPI purports to reflect the prices of ingredients selected by government statisticians in what they consider to be a typical, but notional, basket of “consumer goods and services.” This basket, whose contents are varied periodically, results in an index that cannot be trusted as an objective barometer. It supports the wizardry of non-independent Treasury statisticians, and relates to goods that scarcely feature in your shopping basket or mine.
Read the entire article
The general public, however, usually takes it to mean “rising prices” which is not surprising since one of the common effects of an increase in the money supply is higher prices. However, supporters of government policy often say, “If quantitative easing (QE) and its terrible twin, fractional reserve banking, are so awful, why have we got no inflation?”
To address this conundrum, there are six related factors that are noteworthy:
Number One: we need to be clear about the terms we are using. Instead of talking about “inflation” in the loose sense, as above, it is more accurate to speak of currency debasement, which is the real impact of fiat money creation by any means. We experience currency debasement as declining purchasing power. Two sides of the same coin: one reflects the other.
Number Two: the above question overlooks the fact that the measures used in this process are inherently unreliable. The decline in purchasing power is most evident when objectively measured by reference to an essential commodity such as oil — rather than against the Consumer Price Index (CPI). The CPI purports to reflect the prices of ingredients selected by government statisticians in what they consider to be a typical, but notional, basket of “consumer goods and services.” This basket, whose contents are varied periodically, results in an index that cannot be trusted as an objective barometer. It supports the wizardry of non-independent Treasury statisticians, and relates to goods that scarcely feature in your shopping basket or mine.
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October 21, 2016
David Rosenberg Calls For A Multi-Trillion, "Helicopter Money" Stimulus Package
With the inherent weakness in US GDP and the rising probability of a recession (two weeks ago Bank of America modeled that the next recession would likely start roughly one year from now), Gluskin Sheff's David Rosenberg thinks that with monetary options exhausted it will take a fiscal boost in the trillions of dollars to kickstart the economy. These issues were discussed in an extended interview with Real Vision TV, where the chief economist and strategist at Gluskin Sheff proposed some radical policies to engineer the growth needed in nominal income.
His ideas, some of which can be seen here in a clip of the interview, include helicopter money attached to a $2 trillion perpetual bond, massive infrastructure spending and measures to tackle the $1 trillion student debt load that has seriously hamstrung the economy.
Doing the Same Thing Over Again and Expecting a Different Outcome
Whether the US will in fact experience the technical definition of a recession is a matter of fervent debate, with the odds something like 20%-30%, according to Rosenberg (60% according to Deutsche Bank), but with growth averaging around 1%, there is no doubt the economy is weak.
“There are some people saying a recession is here right now,” Rosenberg says, “I don't think that we meet those conditions yet. But people say, well, look. Twelve months in a row of negative year on year industrial production, that's never happened outside recession, check. We've had now going into six quarters of profit contraction, year over year. That's only happened in the context of a recession, check. I mean, all that is true, but so much of this has been related to the oil shock that we had.”
Read the entire article
His ideas, some of which can be seen here in a clip of the interview, include helicopter money attached to a $2 trillion perpetual bond, massive infrastructure spending and measures to tackle the $1 trillion student debt load that has seriously hamstrung the economy.
Doing the Same Thing Over Again and Expecting a Different Outcome
Whether the US will in fact experience the technical definition of a recession is a matter of fervent debate, with the odds something like 20%-30%, according to Rosenberg (60% according to Deutsche Bank), but with growth averaging around 1%, there is no doubt the economy is weak.
“There are some people saying a recession is here right now,” Rosenberg says, “I don't think that we meet those conditions yet. But people say, well, look. Twelve months in a row of negative year on year industrial production, that's never happened outside recession, check. We've had now going into six quarters of profit contraction, year over year. That's only happened in the context of a recession, check. I mean, all that is true, but so much of this has been related to the oil shock that we had.”
Read the entire article
October 20, 2016
Mexico Orders Banks To "Stress Test" For A Trump Victory
It's official: Donald Trump is now a systemic threat.
As part of the Mexican stress test, alongside more traditional calamities such as recession, economic crisis, and market crash, the Mexican financial authorities have ordered local banks to assess the potential impact of Donald Trump winning the U.S. presidential election, Reuters reports. Citing six bank sources, Reuters says that alongside a "normal" annual stress test, the banks were asked to conduct an additional test to examine the macroeconomic effects and volatility resulting from a potential Trump victory on Nov. 8.
The local regulator, the Financial System Stability Board (CESF) said that as a result of the ongoing risk surrounding the U.S. election and an expected tightening in Federal Reserve monetary policy, it had examined the results of stress tests of the country's financial system. "These exercises showed that the banking sector maintains adequate levels of capital and liquidity to face adverse scenarios," the CESF, which includes representatives from the Finance Ministry, the Bank of Mexico and the banking regulator CNBV, said in its statement.
However, while the rest of the stress test is largely fluff, what Mexico really wanted to know is what happens to local banks if Trump becomes president in 19 days: as a result the tests "were specifically aimed at modeling the possible impact of a Trump victory over Democratic candidate Hillary Clinton, the latest example of the panic the Republican candidates campaign has induced in Mexico."
Read the entire artcile
As part of the Mexican stress test, alongside more traditional calamities such as recession, economic crisis, and market crash, the Mexican financial authorities have ordered local banks to assess the potential impact of Donald Trump winning the U.S. presidential election, Reuters reports. Citing six bank sources, Reuters says that alongside a "normal" annual stress test, the banks were asked to conduct an additional test to examine the macroeconomic effects and volatility resulting from a potential Trump victory on Nov. 8.
The local regulator, the Financial System Stability Board (CESF) said that as a result of the ongoing risk surrounding the U.S. election and an expected tightening in Federal Reserve monetary policy, it had examined the results of stress tests of the country's financial system. "These exercises showed that the banking sector maintains adequate levels of capital and liquidity to face adverse scenarios," the CESF, which includes representatives from the Finance Ministry, the Bank of Mexico and the banking regulator CNBV, said in its statement.
However, while the rest of the stress test is largely fluff, what Mexico really wanted to know is what happens to local banks if Trump becomes president in 19 days: as a result the tests "were specifically aimed at modeling the possible impact of a Trump victory over Democratic candidate Hillary Clinton, the latest example of the panic the Republican candidates campaign has induced in Mexico."
Read the entire artcile
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