After a little bit of a lull, the international currency crisis is back with a vengeance. Currencies are collapsing in Argentina, Brazil, India, Turkey and other emerging markets, and central banks are springing into action. It is being hoped that the financial chaos can be confined to emerging markets so that it will not spread to the United States and Europe. But of course the global financial system is more interconnected today than ever before, and a massive wave of debt defaults in emerging markets would inevitably have extremely serious consequences all over the planet. It would be difficult to overstate the potential danger that this new crisis poses for all of us. Emerging market economies went on an unprecedented debt binge over the past decade, and a high percentage of those debts were denominated in U.S. dollars. As emerging market currencies collapse, it is going to become nearly impossible to service any debts denominated in U.S. dollars, and that could ultimately mean absolutely enormous losses for international lenders. Our system tends to do fairly well as long as everybody is paying their debts, but once the dominoes begin to tumble things can get messy really quickly.
Let’s start our roundup today with India. While India is currently not in as bad shape as some of the other emerging markets, the truth is that they could get there pretty rapidly if they keep going down this path.
On Thursday, concerns about rising oil prices drove the Indian rupee to a brand new all-time record low…
The Indian rupee fell to a record low on Thursday morning, following a declining trend all year — which economists attributed to rising oil prices, broader emerging market concerns, and strong month-end dollar demand.
It slid to 70.8100 against the dollar, after a previous new low just a day before at 70.475. That marked a 10.97 percent decline since the start of the year.
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DAILY BUSINESS REPORT - Financial Updates, International Markets and Business News
August 31, 2018
August 30, 2018
Is China Losing Control? Yuan More Volatile Than Euro For First Time Ever
For the first time, FX traders are grappling with wilder swings from China than Europe.
As Bloomberg notes, the offshore yuan has been more volatile than the euro all month after first overtaking the shared currency in July, according to 30-day realized data. And while euro uncertainty remains relatively bracketed between 6 and 8 for the last two years, yuan volatility has soared from 2 to almost 9 - the highest since 2015's devaluation.
The narrow spread (lower pane) shows China is moving to a more “flexible arrangement” when it comes to managing its currency, Bank of America analysts wrote in a note, predicting the yuan will weaken more this year.
For now it appears the temporary respite from Yuan's freefall, that 'mysteriously' occurred right before the US-China trade talks, has begun to lose momentum.
But while Yuan has become increasingly volatile, the realized volatility of gold (when priced in yuan) has collapsed to record lows...
Perhaps supporting the idea that the Chinese care more about the 'stability' of the yuan relative to gold then to the arbitrary US dollar fiat money.
Read the entire article
As Bloomberg notes, the offshore yuan has been more volatile than the euro all month after first overtaking the shared currency in July, according to 30-day realized data. And while euro uncertainty remains relatively bracketed between 6 and 8 for the last two years, yuan volatility has soared from 2 to almost 9 - the highest since 2015's devaluation.
The narrow spread (lower pane) shows China is moving to a more “flexible arrangement” when it comes to managing its currency, Bank of America analysts wrote in a note, predicting the yuan will weaken more this year.
For now it appears the temporary respite from Yuan's freefall, that 'mysteriously' occurred right before the US-China trade talks, has begun to lose momentum.
But while Yuan has become increasingly volatile, the realized volatility of gold (when priced in yuan) has collapsed to record lows...
Perhaps supporting the idea that the Chinese care more about the 'stability' of the yuan relative to gold then to the arbitrary US dollar fiat money.
Read the entire article
August 29, 2018
Turkish Lira Tumbles As Central Bank Intervention Fails
The Turkey’s lira tumbled as much as 3% against the dollar, making it the worst performing currency in the world, and extending its slump to a third day after the central bank announced it double banks' borrowing limit for overnight transactions at the interbank money market - effectively tightening liquidity by ending the unrestricted funding it has
offered since Aug. 13 - failed to bolster investor sentiment.
"Banks’ borrowing limits for overnight transactions at the Interbank Money Market established within the CBRT would be twice the limits applicable before Aug. 13", The Turkish central bank said.
However, like many of the measures introduced in recent weeks to contain a slide of more than 40 percent in the lira this year, this one also failed as investors do not see the bank's approach to market pressure as a sustainable way to tackle double-digit inflation and a widening current-account deficit, when what the bank should be doing it raising rates and making the country more attractive for foreign investors.
"It’s yet more smoke and mirrors from the central bank," said Nigel Rendell, an analyst at Medley Global Advisors LLC in London. "The change in banks’ overnight borrowing limits is aimed at trying to ease pressures on the banking system, rather than tackling Turkey’s underlying problem, which remains persistently high inflation."
The lira plunged 3.0% lower, dropping as much as 6.4786 per dollar. Together with the Argentine peso, it’s the worst-performing emerging-market currency this year. As the selling resume, the yield on 10-year bonds climbed 19 bps to 21.95%, and fast approaching the record set earlier this month.
Separately, on Wednesday the Turkish economic confidence fell to the lowest level since 2009 in August, while the country’s trade deficit widened in July from the previous month.
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offered since Aug. 13 - failed to bolster investor sentiment.
"Banks’ borrowing limits for overnight transactions at the Interbank Money Market established within the CBRT would be twice the limits applicable before Aug. 13", The Turkish central bank said.
However, like many of the measures introduced in recent weeks to contain a slide of more than 40 percent in the lira this year, this one also failed as investors do not see the bank's approach to market pressure as a sustainable way to tackle double-digit inflation and a widening current-account deficit, when what the bank should be doing it raising rates and making the country more attractive for foreign investors.
"It’s yet more smoke and mirrors from the central bank," said Nigel Rendell, an analyst at Medley Global Advisors LLC in London. "The change in banks’ overnight borrowing limits is aimed at trying to ease pressures on the banking system, rather than tackling Turkey’s underlying problem, which remains persistently high inflation."
The lira plunged 3.0% lower, dropping as much as 6.4786 per dollar. Together with the Argentine peso, it’s the worst-performing emerging-market currency this year. As the selling resume, the yield on 10-year bonds climbed 19 bps to 21.95%, and fast approaching the record set earlier this month.
Separately, on Wednesday the Turkish economic confidence fell to the lowest level since 2009 in August, while the country’s trade deficit widened in July from the previous month.
Read the entire article
August 28, 2018
Barclays Is First Bank To Sell Commercial Paper Linked To Libor Alternative
One month after Fannie Mae became the first issuer to sell debt linked to the Libor alternative, Barclays became the first commercial bank to issue commercial paper tied to the benchmark which regulators hope will replace the scandal-plagued London Interbank Offered Rate, the so-called secured overnight financing rate, or SOFR.
According to Bloomberg, on Friday the British bank sold $525 million of the short-term debt, linked to SOFR, Bloomberg reported and added that the borrowings took place via its flagship asset-backed commercial paper conduit, Sheffield Receivables Corp.
"Investor response was immediate, and fairly broad across different types of investors," Joe Muscari, head of securitized portfolio management at Barclays, said about the bank’s commercial paper deal. "Our support of SOFR with these issuances is just a recognition that this is the direction the industry is headed."
Commenting on the new bond issues, Barclays managing directors Chris Conetta told Bloomberg that "you should expect to see additional SOFR-linked deals across a broad spectrum of issuers. These will likely include bank issuers as well as other types of borrowers in the short-term debt markets. Both issuers and investors have a vested interest in seeing SOFR become an established and liquid market."
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According to Bloomberg, on Friday the British bank sold $525 million of the short-term debt, linked to SOFR, Bloomberg reported and added that the borrowings took place via its flagship asset-backed commercial paper conduit, Sheffield Receivables Corp.
"Investor response was immediate, and fairly broad across different types of investors," Joe Muscari, head of securitized portfolio management at Barclays, said about the bank’s commercial paper deal. "Our support of SOFR with these issuances is just a recognition that this is the direction the industry is headed."
Commenting on the new bond issues, Barclays managing directors Chris Conetta told Bloomberg that "you should expect to see additional SOFR-linked deals across a broad spectrum of issuers. These will likely include bank issuers as well as other types of borrowers in the short-term debt markets. Both issuers and investors have a vested interest in seeing SOFR become an established and liquid market."
Read the entire article
August 27, 2018
BIS Warns Of "Perfect Storm" For Global Economy
To those hoping for a quick resolution to the US-China trade war, Axios had some bad news earlier today, reporting that the trade feud is "likely to last much longer than originally thought — extending well into the second half of next year and perhaps beyond, experts say." According to Axios, the main reason for the protracted conflict is that neither side is prepared to appear politically weak at home, and both are ready to absorb economic pain.
With few probable winners, the biggest losers would be farmers, users of steel, and consumers in the US, manufacturers of all types will see business leave to neighbors like Vietnam and Malaysia in China, while dampening economic growth in both nations and around the globe.
However, as the general manager of the Bank of International Settlements, Agustin Carstens warned, the greater risk is not how many points of GDP the rising tariffs will subtract from the US and China, but the growing danger to globalization itself, and on Saturday, Karstens delivered a scathing critique of rising protectionism, a not-so-subtle rebuke to Trump’s use of tariffs and trade talks to wring concessions from China, Mexico and many other countries.
Read the entire article
With few probable winners, the biggest losers would be farmers, users of steel, and consumers in the US, manufacturers of all types will see business leave to neighbors like Vietnam and Malaysia in China, while dampening economic growth in both nations and around the globe.
However, as the general manager of the Bank of International Settlements, Agustin Carstens warned, the greater risk is not how many points of GDP the rising tariffs will subtract from the US and China, but the growing danger to globalization itself, and on Saturday, Karstens delivered a scathing critique of rising protectionism, a not-so-subtle rebuke to Trump’s use of tariffs and trade talks to wring concessions from China, Mexico and many other countries.
Read the entire article
August 24, 2018
"No Further Talks Scheduled": China-U.S. Trade Negotiations A Complete Bust
When reports emerged last week of a low-level Chinese delegation coming to meet with members of the Treasury department ahead of what the WSJ described would be a November trade summit in the US, stocks spiked and yields ran up (they have since tumbled with the 2s10s yield curve collapsing to just 20 basis points) on hopes that the long-running trade feud between the US and China may finally be coming to an end.
Skeptics laughed and said that after three rounds of failed trade talks, the fourth one would be no different.
The skeptics were right because after the conclusion on Thursday of the second day of the closely watched trade talks between the U.S. and China, there was "no major progress" according to Bloomberg, with the stage once again set for further escalation of the trade war between the US and China.
Worse, according to the Bloomberg source, not only are no further talks scheduled at this point but the Chinese officials have reportedly raised the possibility that no further negotiations could happen until after November’s mid-term elections in the U.S.
The White House issued a statement which said the countries “exchanged views on how to achieve fairness, balance, and reciprocity in the economic relationship, including by addressing structural issues in China” identified by the U.S. in an investigation into Chinese intellectual-property practices. The Chinese commerce ministry was even more terse, stating that two nations had "constructive, candid" communication, and will keep in touch about the next steps.
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Skeptics laughed and said that after three rounds of failed trade talks, the fourth one would be no different.
The skeptics were right because after the conclusion on Thursday of the second day of the closely watched trade talks between the U.S. and China, there was "no major progress" according to Bloomberg, with the stage once again set for further escalation of the trade war between the US and China.
Worse, according to the Bloomberg source, not only are no further talks scheduled at this point but the Chinese officials have reportedly raised the possibility that no further negotiations could happen until after November’s mid-term elections in the U.S.
The White House issued a statement which said the countries “exchanged views on how to achieve fairness, balance, and reciprocity in the economic relationship, including by addressing structural issues in China” identified by the U.S. in an investigation into Chinese intellectual-property practices. The Chinese commerce ministry was even more terse, stating that two nations had "constructive, candid" communication, and will keep in touch about the next steps.
Read the entire article
August 23, 2018
The 5 Previous Times This Stock Market Indicator Has Reached This Level Stock Prices Have Fallen By At Least 50 Percent
Have you ever heard of the “Sound Advice Risk Indicator”? Every single time in our history when it has gone above 2.0 the stock market has crashed, and now it has just surged above that threshold for the very first time since the late 1990s. That doesn’t mean that a stock market crash is imminent, but it is definitely yet another indication that this stock market bubble is living on borrowed time. But for the moment, there is still quite a bit of optimism on Wall Street. The Dow set another brand new all-time record high earlier this week, and on Wednesday we learned that this bull market is now officially the longest in our history…
For context, a bull market is defined as a 20% rally on a closing basis that’s at no point derailed by a subsequent 20% decline. March 9, 2009, has long been the agreed-upon starting point for such calculations because that was the absolute bottom for the prior bear market, which ended that day.
The S&P 500 has surged a whopping 323% over the period, with its roughly 19% annualized return slightly lagging behind the historical bull market average of 22%.
Of course the U.S. economy has not been performing nearly as well. Even if you accept the highly manipulated numbers that the federal government puts out, we haven’t had a year when GDP grew by at least 3 percent since the middle of the Bush administration.
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For context, a bull market is defined as a 20% rally on a closing basis that’s at no point derailed by a subsequent 20% decline. March 9, 2009, has long been the agreed-upon starting point for such calculations because that was the absolute bottom for the prior bear market, which ended that day.
The S&P 500 has surged a whopping 323% over the period, with its roughly 19% annualized return slightly lagging behind the historical bull market average of 22%.
Of course the U.S. economy has not been performing nearly as well. Even if you accept the highly manipulated numbers that the federal government puts out, we haven’t had a year when GDP grew by at least 3 percent since the middle of the Bush administration.
Read the entire article
August 22, 2018
Bank Of England Chief Economist Warns Of Disruptive AI Threat In "Fourth Industrial Revolution"
Meanwhile, the UK government's chair of the newly formed Artificial Intelligence Council, Tabitha Goldstaub, echoed Haldane's sentiment, warning of a "huge risk" of people being left without jobs that computers and robots have taken. She says that the challenge will be ensuring that people are prepared for the cultural and economic shifts - and that hte focus would be on creating "the new jobs of the future" in order to replace those at risk of robotic-replacement.
Mr. Haldane told the BBC: "Each of those [industrial revolutions] had a wrenching and lengthy impact on the jobs market, on the lives and livelihoods of large swathes of society," adding "Jobs were effectively taken by machines of various types, there was a hollowing out of the jobs market, and that left a lot of people for a lengthy period out of work and struggling to make a living.
"That heightened social tensions, it heightened financial tensions, it led to a rise in inequality. This is the dark side of technological revolutions and that dark-side has always been there."
"That hollowing out is going to be potentially on a much greater scale in the future, when we have machines both thinking and doing - replacing both the cognitive and the technical skills of humans."
That's a lot of words, but solutions are elusive
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Mr. Haldane told the BBC: "Each of those [industrial revolutions] had a wrenching and lengthy impact on the jobs market, on the lives and livelihoods of large swathes of society," adding "Jobs were effectively taken by machines of various types, there was a hollowing out of the jobs market, and that left a lot of people for a lengthy period out of work and struggling to make a living.
"That heightened social tensions, it heightened financial tensions, it led to a rise in inequality. This is the dark side of technological revolutions and that dark-side has always been there."
"That hollowing out is going to be potentially on a much greater scale in the future, when we have machines both thinking and doing - replacing both the cognitive and the technical skills of humans."
That's a lot of words, but solutions are elusive
Read the entire article
August 21, 2018
Chinese Oil Imports From Iran Surge As Beijing Shifts To Iran Tankers To Bypass Sanctions
One month ago, when discussing the shift in Iran's oil customer base as a result of Trump's withdrawal from the 2015 Nuclear treaty and the potential blowback from China, we noted that in a harbinger of what's to come, an executive from China's Dongming Petrochemical Group, an independent refiner from Shandong province, said his refinery had already cancelled U.S. crude orders. "We expect the Chinese government to impose tariffs on (U.S.) crude," the unnamed executive said. "We will switch to either Middle East or West African supplies," he said. We also said that China may even replace most if not all American oil with crude from Iran: "Chinese importers are not going to be intimidated, or swayed by U.S. sanctions."
And sure enough, today Reuters reported that Chinese buyers of Iranian oil are starting to shift their cargoes to vessels owned by National Iranian Tanker Co (NITC) for nearly all of their imports to keep supply flowing amid the re-imposition of economic sanctions by the United States.
To safeguard their supplies, state oil trader Zhuhai Zhenrong Corp and Sinopec Group, Asia’s biggest refiner, have activated a clause in its long-term supply agreements with National Iranian Oil Corp (NIOC) that allows them to use NITC-operated tankers, according to four sources with direct knowledge of the matter.
The expected shift demonstrates that China - Iran’s biggest oil customer with India and the EU in 2nd and 3rd spot - will keep buying Iranian crude despite the US sanctions .
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And sure enough, today Reuters reported that Chinese buyers of Iranian oil are starting to shift their cargoes to vessels owned by National Iranian Tanker Co (NITC) for nearly all of their imports to keep supply flowing amid the re-imposition of economic sanctions by the United States.
To safeguard their supplies, state oil trader Zhuhai Zhenrong Corp and Sinopec Group, Asia’s biggest refiner, have activated a clause in its long-term supply agreements with National Iranian Oil Corp (NIOC) that allows them to use NITC-operated tankers, according to four sources with direct knowledge of the matter.
The expected shift demonstrates that China - Iran’s biggest oil customer with India and the EU in 2nd and 3rd spot - will keep buying Iranian crude despite the US sanctions .
Read the entire article
August 20, 2018
Tesla Shorts Up $1.2 Billion Since Musk "Going Private" Tweet As Saudis Plan Investment In Competitor
It was less than three weeks ago when we posted "Tesla Shorts Refuse To Cover Despite Suffering Massive Losses" in which we wrote that "Tesla shares rocketed higher on August 2, by almost $50, the day after the company reported its second-quarter results" and added that "despite the stock rising more than 15% immediately after the report, WSJ analytics showed that short sellers are standing their ground in the name despite an estimated $1.7 billion paper loss resulting from the violent move higher."
At the start of the month, and heading into Tesla earnings, there was about $10.5 billion in short interest according to S3 Partners. And as the below chart shows, Tesla has remained the most heavily shorted stock in the U.S. both before and after its report.
Of course, the pain for the shorts only spiked on August 7 when first the Saudi Sov. Wealth Fund announced a 5% stake, promptly followed by Musk tweeting his intention to take the company private at $420, which sent the stock just shy of its all time highs.
Still, the shorts refused to cover, because as the FT reported on Sunday, while the buyout plan pitched by Musk may have been nothing more than a way to "burn the shorts", something the SEC is now allegedly investigating, less than 4 per cent of the short positions have been closed since his tweet.
And in retrospect, good thing they did not because as the bizarre events in the subsequent days demonstrated, Musk's market manipulative tweet - it has since emerged that funding was not secured - may have been the catalyst to not only an SEC investigation, but the last nail of what has been one long, at times surreal emotional collapse for the Tesla CEO.
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At the start of the month, and heading into Tesla earnings, there was about $10.5 billion in short interest according to S3 Partners. And as the below chart shows, Tesla has remained the most heavily shorted stock in the U.S. both before and after its report.
Of course, the pain for the shorts only spiked on August 7 when first the Saudi Sov. Wealth Fund announced a 5% stake, promptly followed by Musk tweeting his intention to take the company private at $420, which sent the stock just shy of its all time highs.
Still, the shorts refused to cover, because as the FT reported on Sunday, while the buyout plan pitched by Musk may have been nothing more than a way to "burn the shorts", something the SEC is now allegedly investigating, less than 4 per cent of the short positions have been closed since his tweet.
And in retrospect, good thing they did not because as the bizarre events in the subsequent days demonstrated, Musk's market manipulative tweet - it has since emerged that funding was not secured - may have been the catalyst to not only an SEC investigation, but the last nail of what has been one long, at times surreal emotional collapse for the Tesla CEO.
Read the entire article
August 17, 2018
5 Signs That Global Financial Markets Are Entering A Bear Market, And 11 Ways That You Can Get Prepared For The Chaos That Is Coming…
We haven’t seen carnage like this in the global financial marketplace in quite some time. On Wednesday, U.S. stocks were down some, but things were much, much worse around the rest of the world. Global banking stocks are plunging, emerging market stocks are cratering, and emerging market currencies continue their stunning decline. This represents a dramatic change from the relative stability that we have seen throughout most of 2018. It is almost as if someone flipped a switch once the month of August began, and the shakiness of global financial markets has many investors wondering what trouble fall will bring. What we are witnessing right now is not a full-blown panic yet, but it definitely has the potential to turn into one.
The term “bear market” is being thrown around a lot lately, but a lot of people don’t understand what a “bear market” actually is.
A bear market is generally considered to be when we see a decline of 20 percent or more from the 52-week high, and after the carnage of this past week a lot of those thresholds are now being crossed.
It would probably be too early to call this a “global stock market crash”, but we are well on the way to getting there. The following are 5 signs that global financial markets are entering a bear market…
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The term “bear market” is being thrown around a lot lately, but a lot of people don’t understand what a “bear market” actually is.
A bear market is generally considered to be when we see a decline of 20 percent or more from the 52-week high, and after the carnage of this past week a lot of those thresholds are now being crossed.
It would probably be too early to call this a “global stock market crash”, but we are well on the way to getting there. The following are 5 signs that global financial markets are entering a bear market…
Read the entire article
August 16, 2018
Yuan, Futures Jump On Report China Delegation Coming To US To Discuss Trade
The Yuan is surging, alongside S&P futures, while the Japanese Yen has erased its gains and US Treasury futures are slumping on a Bloomberg report that China's Vice Commerce Minister, Wang Shouwen, will lead a delegation to the U.S. in late August, the Ministry of Commerce says on website, adding that the visit comes at the invitation of the US.
Additionally, China reiterates that it opposes unilateralism and trade protectionism, and won’t accept any unilateral trade restriction measures. It also "welcomes communications and dialogue on the basis of equality and integrity."
The news is quickly being interpreted by the market as a possible thaw in the trade war tit-for-tat, and has sent H-shares sharply higher, while S&P futures jumped 10 points:
The news may explain why the PBOC fixed the onshore far stronger than the offshore yuan suggested, because as some desks have suggested, the last thing China will want when it comes to the US is a plunging Yuan.
So is this the end of the trade war? Hardly: after all, a Chinese delegation visited the US not that long ago, and just before Trump announced even more tariffs. Furthermore, why would Trump seek to end the "trade war" when the US is clearly winning based on the US vs Chinese stock market, and the divergence in economic growth.
For the time being, however, the market mood is clearly risk on.
Read the entire article
Additionally, China reiterates that it opposes unilateralism and trade protectionism, and won’t accept any unilateral trade restriction measures. It also "welcomes communications and dialogue on the basis of equality and integrity."
The news is quickly being interpreted by the market as a possible thaw in the trade war tit-for-tat, and has sent H-shares sharply higher, while S&P futures jumped 10 points:
The news may explain why the PBOC fixed the onshore far stronger than the offshore yuan suggested, because as some desks have suggested, the last thing China will want when it comes to the US is a plunging Yuan.
So is this the end of the trade war? Hardly: after all, a Chinese delegation visited the US not that long ago, and just before Trump announced even more tariffs. Furthermore, why would Trump seek to end the "trade war" when the US is clearly winning based on the US vs Chinese stock market, and the divergence in economic growth.
For the time being, however, the market mood is clearly risk on.
Read the entire article
August 15, 2018
This Political Event Will Be Unlike Anything We've Seen In 50 Years
Do you ever feel—despite the supposed economic "recovery" of recent years—that something in America is still not quite right?
If so, you are not alone.
After all, how can things be "OK" when nearly half the men ages 18-34 now live with their parents—the highest level since the Great Depression?
How can it be "normal" when in one of America's richest cities (Seattle) there are now 400 unauthorized homeless camps under bridges and along freeway medians?
How can it be a "recovery" when 78% of the U.S. population now lives paycheck to paycheck, with essentially zero savings?
How can you explain things like the dramatic rise of the militant left-wing group ‘Antifa'... the resurgence of White Supremacists... and the booming popularity of the Democratic Socialists—they've doubled membership in recent months.
Sure, some people—CEOs, tech entrepreneurs, and other members of the "1%"—are doing great. There's never been a better time for wealthy Americans. But the truth is, for most people, the situation is getting much, much worse.
Today I want to share a few facts our politicians are afraid to tell you—including the secret reason why working class Americans have gotten dramatically poorer over the past 40 years.
I've never seen this information published anywhere else. It's a secret that explains why the rich are really getting so much richer—while everyone else is falling behind.
Once you understand this secret, you'll see why, for millions of Americans, a crisis is coming.
Read the entire article
If so, you are not alone.
After all, how can things be "OK" when nearly half the men ages 18-34 now live with their parents—the highest level since the Great Depression?
How can it be "normal" when in one of America's richest cities (Seattle) there are now 400 unauthorized homeless camps under bridges and along freeway medians?
How can it be a "recovery" when 78% of the U.S. population now lives paycheck to paycheck, with essentially zero savings?
How can you explain things like the dramatic rise of the militant left-wing group ‘Antifa'... the resurgence of White Supremacists... and the booming popularity of the Democratic Socialists—they've doubled membership in recent months.
Sure, some people—CEOs, tech entrepreneurs, and other members of the "1%"—are doing great. There's never been a better time for wealthy Americans. But the truth is, for most people, the situation is getting much, much worse.
Today I want to share a few facts our politicians are afraid to tell you—including the secret reason why working class Americans have gotten dramatically poorer over the past 40 years.
I've never seen this information published anywhere else. It's a secret that explains why the rich are really getting so much richer—while everyone else is falling behind.
Once you understand this secret, you'll see why, for millions of Americans, a crisis is coming.
Read the entire article
August 14, 2018
That Escalated Quickly: The Emerging Market Currency Crisis Of 2018 Threatens To Destabilize The Entire Global Financial System
We haven’t seen emerging market currencies crash like this in over a decade, and analysts are warning that if this continues we could witness a devastating global debt crisis. Over the past decade, there has been an insatiable appetite for cheap loans in emerging market economies, and a very substantial percentage of those loans were denominated in U.S. dollars. When emerging market currencies crash relative to the U.S. dollar, lending dries up and servicing the existing loans becomes extremely oppressive, and that is precisely what we are witnessing right now. This week, most of the top headlines in the financial media have been about the crisis in Turkey. The Turkish lira fell another 8 percent against the U.S. dollar on Monday, and it is now down about 35 percent over the past week. Overall, the lira has fallen 82 percent against the U.S. dollar in 2018, and this is putting an enormous amount of stress on the Turkish financial system…
“It is about credit, since Turkey has been a huge borrower in global capital markets over the past number of years when the world’s central banks were encouraging investors to stretch for yield,” David Rosenberg, chief economist and strategist at Gluskin Sheff, said in his daily market note. “Over half of the borrowing is denominated in foreign currencies, so when the lira sinks, debt-servicing costs and default risks rise inexorably.”
Turkey’s economy, just like all of the other major economies around the world, is utterly dependent on the flow of credit, and now lending is becoming greatly restricted.
Meanwhile, any existing loans that were made during the lending spree of the past decade that are denominated in foreign currencies are going to be causing major problems. The following comes from CNBC…
Read the entire article
“It is about credit, since Turkey has been a huge borrower in global capital markets over the past number of years when the world’s central banks were encouraging investors to stretch for yield,” David Rosenberg, chief economist and strategist at Gluskin Sheff, said in his daily market note. “Over half of the borrowing is denominated in foreign currencies, so when the lira sinks, debt-servicing costs and default risks rise inexorably.”
Turkey’s economy, just like all of the other major economies around the world, is utterly dependent on the flow of credit, and now lending is becoming greatly restricted.
Meanwhile, any existing loans that were made during the lending spree of the past decade that are denominated in foreign currencies are going to be causing major problems. The following comes from CNBC…
Read the entire article
August 13, 2018
South African Rand Flash-Crashes 10% As Turkey Contagion Spreads
As Simon Black warned back in March, when Ramaphosa to push for the constitutional change required to confiscate white farmers' lands, this would guarantee a banking crisis for the country. Here's why - a lot of this land that the government wants to confiscate probably has quite a bit of bank debt.
Imagine – you just bought a farm for, say, 50 million rand (that’s about USD $3 million). And in order to do so, you took out a hefty loan from a South African bank.
Now the government comes along and steals your property.
Are you seriously going to keep paying the loan?
Of course not.
This means that the banks are going to be stuck with massive defaults and bad debts, leading to a wave of bank failures.
So in their crusade to bring Social Justice to South Africa, the government is effectively engineering a banking crisis in their country.
This is criminally stupid behavior that puts South Africa on the same path that Zimbabwe followed in the late 1990s.
Read the entire article
Imagine – you just bought a farm for, say, 50 million rand (that’s about USD $3 million). And in order to do so, you took out a hefty loan from a South African bank.
Now the government comes along and steals your property.
Are you seriously going to keep paying the loan?
Of course not.
This means that the banks are going to be stuck with massive defaults and bad debts, leading to a wave of bank failures.
So in their crusade to bring Social Justice to South Africa, the government is effectively engineering a banking crisis in their country.
This is criminally stupid behavior that puts South Africa on the same path that Zimbabwe followed in the late 1990s.
Read the entire article
August 10, 2018
Tesla Board Confirms It Never Saw LBO "Financing Plan" From Musk
Three days into the Tesla "going private" saga, everyone continues to scramble for more information on the biggest wildcard in the entire equation: the "committed funding" as represented by Elon Musk: shareholders are asking where it is; bankers - i.e., those who should have arranged it - are asking where it is; even the SEC is asking where it is (and probing if Musk was being "truthful" with the alternative being stock manipulation which opens up Tesla to fraud lawsuits), and now Reuters reports that even the Tesla Board of Directors wants to know where it is.
According to Reuters, Tesla's board of directors is seeking more information from CEO Elon Musk about the finance for his plan to take the U.S. electric car maker private.
And here is the punchline: While Tesla's board has held multiple discussions about the proposal - as it documented in its statement on Wednesday - it has "not yet received a detailed financing plan from Musk and specific information on who will provide the funding."
As a reminder, in a statement on Wednesday, Tesla's board said its discussion with Musk "addressed the funding" for the deal, without offering more details. And now we know why: because it had none, and one increasingly wonders if the Board simply made up the fact that it had multiple discussions just to cover Musk's back.
But there is another big problem, if only from a timing/legal standpoint: if the board has no idea where the funding is coming from, there is no way it could have signed off on it, thereby "securing it", which means that all else equal, Musk's tweet that sent the stock price soaring was a fabrication.
Read the entire article
According to Reuters, Tesla's board of directors is seeking more information from CEO Elon Musk about the finance for his plan to take the U.S. electric car maker private.
And here is the punchline: While Tesla's board has held multiple discussions about the proposal - as it documented in its statement on Wednesday - it has "not yet received a detailed financing plan from Musk and specific information on who will provide the funding."
As a reminder, in a statement on Wednesday, Tesla's board said its discussion with Musk "addressed the funding" for the deal, without offering more details. And now we know why: because it had none, and one increasingly wonders if the Board simply made up the fact that it had multiple discussions just to cover Musk's back.
But there is another big problem, if only from a timing/legal standpoint: if the board has no idea where the funding is coming from, there is no way it could have signed off on it, thereby "securing it", which means that all else equal, Musk's tweet that sent the stock price soaring was a fabrication.
Read the entire article
August 9, 2018
Bankrupt America: Bankruptcy Soars As The Country Grapples With An Unprecedented Debt Problem
America, you officially have a debt problem, and I am not just talking about the national debt. Consumer bankruptcies are surging, corporate debt has doubled since the last financial crisis, state and local government debt loads have never been higher, and the federal government has been adding more than a trillion dollars a year to the federal debt ever since Barack Obama entered the White House. We have been on the greatest debt binge in human history, and it has enabled us to enjoy our ridiculously high standard of living for far longer than we deserved. Many of us have been sounding the alarm about our debt problem for a very long time, but now even the mainstream news is freaking out about it. I have a feeling that they just want something else to hammer President Trump over the head with, but they are actually speaking the truth when they say that we are facing an unprecedented debt crisis.
For example, the New York Times just published a piece that discussed the fact that the bankruptcy rate among retirees is about three times higher than it was in 1991…
For a rapidly growing share of older Americans, traditional ideas about life in retirement are being upended by a dismal reality: bankruptcy.
The signs of potential trouble — vanishing pensions, soaring medical expenses, inadequate savings — have been building for years. Now, new research sheds light on the scope of the problem: The rate of people 65 and older filing for bankruptcy is three times what it was in 1991, the study found, and the same group accounts for a far greater share of all filers.
Read the entire article
For example, the New York Times just published a piece that discussed the fact that the bankruptcy rate among retirees is about three times higher than it was in 1991…
For a rapidly growing share of older Americans, traditional ideas about life in retirement are being upended by a dismal reality: bankruptcy.
The signs of potential trouble — vanishing pensions, soaring medical expenses, inadequate savings — have been building for years. Now, new research sheds light on the scope of the problem: The rate of people 65 and older filing for bankruptcy is three times what it was in 1991, the study found, and the same group accounts for a far greater share of all filers.
Read the entire article
August 8, 2018
Market Stunned After Musk Discloses Intention To LBO Tesla, Lawsuits Threatened
Update 10: After all that, nobody has any idea what just happened, and a word being increasingly thrown around is lawsuit. As Yahoo's Rick Newman writes, if the LBO deal described by Musk with "funding secured" is true, it’s a boon for shareholders. But if it’s not true, Tesla is in trouble, and shareholders may feel the pain.
“If funding is secured, then it’s a factual statement,” says John C. Coffee, director of the Center on Corporate Governance at Columbia Law School. “But if he can’t prove that, he’s in some danger of a big lawsuit because short sellers will be devastated by this.”
On Aug. 7, Musk tweeted: “Am considering taking Tesla private at $420. Funding secured.” Those nine words sent the stock soaring from $342 to around $370, an 8% jump. Then the Nasdaq exchange temporarily halted trading in the shares, pending clarification of material news by the company.
About three hours after his momentous tweet, Musk posted a message to employees explaining his rationale for going private. He cited “wild swings” in the stock price and frequent attacks by short sellers as “a major distraction for everyone working at Tesla.” He cited Space X, the rocket-launching company where Musk is also CEO, as an example of a privately owned company better able to focus on a complex long-term mission. “A final decision has not yet been made,” he said.
Read the entire article
“If funding is secured, then it’s a factual statement,” says John C. Coffee, director of the Center on Corporate Governance at Columbia Law School. “But if he can’t prove that, he’s in some danger of a big lawsuit because short sellers will be devastated by this.”
On Aug. 7, Musk tweeted: “Am considering taking Tesla private at $420. Funding secured.” Those nine words sent the stock soaring from $342 to around $370, an 8% jump. Then the Nasdaq exchange temporarily halted trading in the shares, pending clarification of material news by the company.
About three hours after his momentous tweet, Musk posted a message to employees explaining his rationale for going private. He cited “wild swings” in the stock price and frequent attacks by short sellers as “a major distraction for everyone working at Tesla.” He cited Space X, the rocket-launching company where Musk is also CEO, as an example of a privately owned company better able to focus on a complex long-term mission. “A final decision has not yet been made,” he said.
Read the entire article
August 7, 2018
"It's Been Crazy": Meet The Source Of China's Next Debt Crisis: Millennials With Credit Cards
Last October, when looking at the breathtaking growth in Chinese new debt, we pointed out the one segment where the danger was most acute: household debt, which in mid 2017 had surged by a whopping 43% in one year even as the growth across other debt categories was relatively stable.
In fact, as the next chart shows, Chinese households are on the verge of surpassing the nation's corporations as the biggest source of credit demand.
But what was behind the surge in household loan demand? As it turns out, it was merely the reality of China's surging prices coupled with stagnant incomes, forcing countless, mostly young Chinese residents to do what Americans have been doing for decades: charge it.
In a report on China's brand new infatuation with consumer credit, the FT highlights the case of Tom Wang, a graduate from a middle-ranked Chinese university, who struggling to find well-paid work after arriving in Shanghai turned to the only possible source to fund his spending: credit cards.
“Using credit cards did not feel like spending money, and the debt grew and grew,” said the 26-year-old, whose starting salary of Rmb3,000 ($470) a month could not cover rent and the consumption habits he called “irrational”, such as buying the latest smartphone.
To cover repayments and keep spending, Wang took on more debt, borrowing Rmb60,000 over four credit cards , before turning to online lenders for a further Rmb70,000. The problem is that interest payments quickly “snowballed” to an untenable Rmb1,500 a month, eating up half of his entire pretax income.
Read the entire article
In fact, as the next chart shows, Chinese households are on the verge of surpassing the nation's corporations as the biggest source of credit demand.
But what was behind the surge in household loan demand? As it turns out, it was merely the reality of China's surging prices coupled with stagnant incomes, forcing countless, mostly young Chinese residents to do what Americans have been doing for decades: charge it.
In a report on China's brand new infatuation with consumer credit, the FT highlights the case of Tom Wang, a graduate from a middle-ranked Chinese university, who struggling to find well-paid work after arriving in Shanghai turned to the only possible source to fund his spending: credit cards.
“Using credit cards did not feel like spending money, and the debt grew and grew,” said the 26-year-old, whose starting salary of Rmb3,000 ($470) a month could not cover rent and the consumption habits he called “irrational”, such as buying the latest smartphone.
To cover repayments and keep spending, Wang took on more debt, borrowing Rmb60,000 over four credit cards , before turning to online lenders for a further Rmb70,000. The problem is that interest payments quickly “snowballed” to an untenable Rmb1,500 a month, eating up half of his entire pretax income.
Read the entire article
August 6, 2018
China Is Now Left With Just Three Options, And They Are All Equally Bad
Last Friday's forceful intervention by the PBOC, in which the central bank hiked the reserve requirement for FX forwards trading from 0% to 20%, was a warning shot at the gathering yuan shorts who managed to briefly send the Chinese currency below 6.90 against the dollar last week, after losing 4% of its value in the past month, and bringing the cumulative decline against the dollar to 10% since April, a far steeper drop than seen during the 2015 devaluation.
The yuan slide had come amid growing speculation that Chinese authorities are more willing to let their currency weaken along with market forces and an escalating trade war, at least for as long as they felt any capital account leakages are contained and manageable.
And yet, despite China's long overdue intervention - after all, once capital flight begins as new holes in the capital account are uncovered, it would be too late to prevent a repeat of the 2015 scenario - the debate about Chinese currency depreciation and what happens next with Chinese policy gathered pace, with ING last week proposing that this latest attempt to "nuke the shorts" is doomed to failure, just like previous unilateral FX interventions.
Over the weekend, JPMorgan echoed ING's skepticism, writing that despite Friday's PBoC announcement and despite the cumulative depreciation over the past two months, "the pressure on the Chinese renminbi to decline further against the dollar is unlikely to go away if trade tensions with the US escalate further from here."
Meanwhile, in a move that puzzled many China watchers, at the same time that the PBoC announced an increase in the reserve requirement ratio for fx forwards trading, China announced that it would implement tariffs on $60bn of imports in response to a threat by the US earlier this week to raise the tariff rate from 10% to 25% on $200bn of Chinese exports to the US, prompting some to speculate that the FX intervention was merely implemented to prevent a collapse in the yuan beyond 7.00 vs the dollar as the market freaked out about the latest Chinese retaliation.
Read the entire article
The yuan slide had come amid growing speculation that Chinese authorities are more willing to let their currency weaken along with market forces and an escalating trade war, at least for as long as they felt any capital account leakages are contained and manageable.
And yet, despite China's long overdue intervention - after all, once capital flight begins as new holes in the capital account are uncovered, it would be too late to prevent a repeat of the 2015 scenario - the debate about Chinese currency depreciation and what happens next with Chinese policy gathered pace, with ING last week proposing that this latest attempt to "nuke the shorts" is doomed to failure, just like previous unilateral FX interventions.
Over the weekend, JPMorgan echoed ING's skepticism, writing that despite Friday's PBoC announcement and despite the cumulative depreciation over the past two months, "the pressure on the Chinese renminbi to decline further against the dollar is unlikely to go away if trade tensions with the US escalate further from here."
Meanwhile, in a move that puzzled many China watchers, at the same time that the PBoC announced an increase in the reserve requirement ratio for fx forwards trading, China announced that it would implement tariffs on $60bn of imports in response to a threat by the US earlier this week to raise the tariff rate from 10% to 25% on $200bn of Chinese exports to the US, prompting some to speculate that the FX intervention was merely implemented to prevent a collapse in the yuan beyond 7.00 vs the dollar as the market freaked out about the latest Chinese retaliation.
Read the entire article
August 3, 2018
3% Treasuries, Say Hello To Trillion Dollar Deficits
In two months we will be in fiscal 2019 for the US government, and the OMB projects +$1 trillion/year deficits until 2021. Ten year Treasuries nosed over 3% today on news of some small but unexpected issuance, so where will rates go once deficits kick into high gear? And how will stocks discount higher rates, regardless of reason? Our answers below.
If the 10 Year Treasury were 4.0% at the end of 2019, would you expect US equities to be higher or lower then? It is easy enough to tell a story either way:
Bullish for stocks. Rising inflation caused by economic growth lifts both bond yields and corporate earnings. Companies push for greater efficiency to offset labor/materials costs, limiting margin erosion and (finally) increasing workforce productivity. PE multiples contract, but earnings growth more than offsets the decline and stocks rise.
Bearish for stocks. Rising inflation caused by escalating trade frictions lifts interest rates, but has a chilling effect on the economy and corporate earnings. The Federal Reserve likely avoids going full Volcker, and simply keeps rates constant in 2019 knowing an inflation-induced recession will take inflation lower without their having to become a political pariah. Multiples contract due to higher rates, but earnings are down 10% rather than the current forecast of +10%. The combination pushes US stocks lower.
Capital markets currently see the bull case as much more likely, and the other end of the yield curve – 2 Year Treasuries – supports that interpretation. It sits at 2.68% today, just 1 basis point off its post-Financial Crisis high, and has been moving upward all year. This is entirely consistent with the view that the Federal Reserve will respond to a strengthening US economy with higher rates through 2019. A trade war recession isn’t priced in at all.
Read the entire article
If the 10 Year Treasury were 4.0% at the end of 2019, would you expect US equities to be higher or lower then? It is easy enough to tell a story either way:
Bullish for stocks. Rising inflation caused by economic growth lifts both bond yields and corporate earnings. Companies push for greater efficiency to offset labor/materials costs, limiting margin erosion and (finally) increasing workforce productivity. PE multiples contract, but earnings growth more than offsets the decline and stocks rise.
Bearish for stocks. Rising inflation caused by escalating trade frictions lifts interest rates, but has a chilling effect on the economy and corporate earnings. The Federal Reserve likely avoids going full Volcker, and simply keeps rates constant in 2019 knowing an inflation-induced recession will take inflation lower without their having to become a political pariah. Multiples contract due to higher rates, but earnings are down 10% rather than the current forecast of +10%. The combination pushes US stocks lower.
Capital markets currently see the bull case as much more likely, and the other end of the yield curve – 2 Year Treasuries – supports that interpretation. It sits at 2.68% today, just 1 basis point off its post-Financial Crisis high, and has been moving upward all year. This is entirely consistent with the view that the Federal Reserve will respond to a strengthening US economy with higher rates through 2019. A trade war recession isn’t priced in at all.
Read the entire article
August 2, 2018
BOE Raises Interest Rates In Surprise Unanimous Decision
As expected by the market, the Bank of England raised interest rates only for the second time since the financial crisis, to the highest level since 2009, saying recent data confirmed the bank's view that the first quarter slowdown in UK growth was temporary.
Members of the BOE's Monetary Policy Committee voted unanimously for a 25 basis point increase, bringing the BoE’s benchmark rate to 0.75%, the highest since the onset of the global crisis.
While the outcome was widely expected, with the market pricing in the quarter point rate rise fully in the run-up to the meeting well in advance, the surprise was that the decision was unanimous, which adds a hawkish tilt to this decision according to several Wall Street analysts.
The unanimous decision is perplexing because the BOE spent the two years since Brexit to scare the nation just how perilous the economy is. And yet, here they are, with just 8 months left until the final Brexit divorce deadline, to announce how upbeat the central bank is on the country's outlook, and to upgrade its outlook for the coming year.
And it certainly was upbeat: "The MPC continues to judge that the UK economy currently has a very limited degree of slack. Unemployment is low and is projected to fall a little further. In the MPC’s central projection, therefore, a small margin of excess demand emerges by late 2019 and builds thereafter, feeding through into higher growth in domestic costs than has been seen over recent years.”
Read the entire article
Members of the BOE's Monetary Policy Committee voted unanimously for a 25 basis point increase, bringing the BoE’s benchmark rate to 0.75%, the highest since the onset of the global crisis.
While the outcome was widely expected, with the market pricing in the quarter point rate rise fully in the run-up to the meeting well in advance, the surprise was that the decision was unanimous, which adds a hawkish tilt to this decision according to several Wall Street analysts.
The unanimous decision is perplexing because the BOE spent the two years since Brexit to scare the nation just how perilous the economy is. And yet, here they are, with just 8 months left until the final Brexit divorce deadline, to announce how upbeat the central bank is on the country's outlook, and to upgrade its outlook for the coming year.
And it certainly was upbeat: "The MPC continues to judge that the UK economy currently has a very limited degree of slack. Unemployment is low and is projected to fall a little further. In the MPC’s central projection, therefore, a small margin of excess demand emerges by late 2019 and builds thereafter, feeding through into higher growth in domestic costs than has been seen over recent years.”
Read the entire article
August 1, 2018
Five Trillion Dollars! Doomed US Pensions' Shortfall Now The Size Of Japan's Economy
Scores of public pensions across the United States are so massively underfunded that the shortfall is roughly equal to Japan's GDP - the world's third-largest economy, according to Moody's Investors Service.
State and local pension plans in the U.S. now have less than three- quarters of the money they need to meet their promised payouts, their lowest level since at least 2001, according to Public Plans Database figures weighted by plan size. In dollar terms the hole for state and local pensions is now $5 trillion, according to Moody’s Investors Service. -WSJ
If governments don't increase taxes, convince pensioners to take less than they were promised or divert funds from elsewhere, an increasing number of funds face insolvency, reports the Wall Street Journal.
In Kentucky, for example, a major pension for state employees had around 16% of what it needs to fulfill its obligations based on 2017 fiscal year figures, according to the Public Plans database which tracks state and local pension funds. A Chicago municipal employee fund had less than 30% of what it needed during the same fiscal year, while New Jersey's state pension is so underfunded it faces insolvency in 12 years according to a Pew Charitable Trusts Study.
Read the entire article
State and local pension plans in the U.S. now have less than three- quarters of the money they need to meet their promised payouts, their lowest level since at least 2001, according to Public Plans Database figures weighted by plan size. In dollar terms the hole for state and local pensions is now $5 trillion, according to Moody’s Investors Service. -WSJ
If governments don't increase taxes, convince pensioners to take less than they were promised or divert funds from elsewhere, an increasing number of funds face insolvency, reports the Wall Street Journal.
In Kentucky, for example, a major pension for state employees had around 16% of what it needs to fulfill its obligations based on 2017 fiscal year figures, according to the Public Plans database which tracks state and local pension funds. A Chicago municipal employee fund had less than 30% of what it needed during the same fiscal year, while New Jersey's state pension is so underfunded it faces insolvency in 12 years according to a Pew Charitable Trusts Study.
Read the entire article
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