maandag 22 mei 2017

David Stockman Sounds The Alarm; Fiscal Bloodbath, Market Crash To Occur "Between August And November"

As time goes on, it’s becoming abundantly clear that Trump isn’t going to be able to prevent a major financial crisis in this country. Depending on your beliefs, that’s either because he’s inept in some way, or because he’s being hamstrung by a political system that’s determined to keep our nation on the same unsustainable path. Whatever the case may be, it seems that there is no way that we can change course at this point. We’re headed for a financial crisis, and it’s going to happen sooner rather than later. That’s also the opinion of David Stockman, a former Congressman and director of the Office of Management and Budget under Ronald Reagan. In this interview with USA Watchdog, he reveals why the market rally that broke out after the last election, “was the greatest sucker’s rally we have ever seen.” He also explains why the economy could go off the rails this year, after our government endures a major budgetary crisis.
# Earlier this month our government avoided a shutdown, because Trump decided to sign Congress’s $1.2 trillion spending bill. In effect, he postponed a serious fight with Congress for later this year. On May 2nd he tweeted “Our country needs a good ‘shutdown’ in September to fix mess!” So clearly, next time he’s going to be a lot less compromising in his efforts to change the budget. That’s going to spawn a fight over the budget between Trump and both political parities, and according to Stockman, that’s when the next wave of our financial collapse is going to arrive. “There will be no bid for the stock once the panic sets in. We’re going to hit an air pocket. The S&P 500 is going to drop by hundreds and hundreds of points sometime over the next few months as we drift into this unexpected crisis. I would target sometime between August and November because that’s when the rubber is going to meet the road on a debt ceiling increase when they are out of cash. Washington is going to end up in vicious political conflict over what to do about the debt ceiling. It is going to be one giant fiscal bloodbath the likes of which we have never seen.”
That “fiscal bloodbath” is going to be the first domino to fall before the stock market and the bond market crash, both of which are extremely overvalued. “The main thing is get out of the markets. These markets are unstable. They’re rigged, and there is no reason to own stock at this point of the game. It is so overvalued. Maybe you can get another two or three percent up, but you are facing another 30% or 40% down. The bond market is one giant bubble because the central banks have been buying all these bonds worldwide. They’ve been buying trillions of dollars’ worth, and they are still buying a trillion dollars’ worth on an annual basis. All that is coming to a halt. The central banks are finally getting to the end of the road. There isn’t going to be any more money printing, and that is going to leave a giant mess on the doorstep of all the fiscal authorities. It’s going to make the bond market a particularly dangerous place. There is a $100 trillion global bond market, and this is the biggest bond bubble the world has ever seen.” When this happens, Stockman believes that the only thing that will remain standing is gold and other physical assets. Make sure that you’re prepared for it because a financial collapse is going to happen and everything that only exists on paper is going to take a hit....

Stocks Jump As Dollar Dumps And Bitcoin Explodes To Record Highs

As Bloomberg notes, the S&P 500 climbed for the third consecutive session as President Donald Trump’s trip to Saudi Arabia netted deals that lifted defense shares. The euro remains firm having pared gains from Chancellor Angela Merkel’s comment referring to the single currency as “too weak.” The 10-year Treasury yield climbed above 2.25% while gold rose and crude climbed to the highest in a month as Saudi Arabia said all producers agree on extending output cuts. Brazil’s real trimmed losses after the top court suspended its ruling on President Temer, while Mexico’s peso gained as interest rate differentials temporarily overshadow NAFTA concerns. NO VOLUME!!

While stocks are up 3 days in a row, they remain below the Trump-Dump levels. Each of the daily bounces have been opening gaps with little follow-through...

And "Most Shorted" stocks are now back unchanged from the Trump Dump...

S&P limped back into the green for May (Dow remains red)...

And all this while VIX was crushed back to a 10-handle...

And short-term VIX has crashed back to a 9-handle...

Energy stocks disappointed despite WTI topping $51 on the heels of positive OPEC jawboning...

But thanks to Trump's big deal in Saudi Arabia, Aerospace & Defense stocks soared...

And some Monday Humor...

Treasury yields rose very modestly on the day but remain well below pre-Trump-Dump levels (30Y hovers around 2.91%)...

The Dollar Index was down once again (8th of last 9 days) to pre-Trump lows...

Brazil is bouncing back a little from its devastation but notably stocks are not as excited as FX...

WTI Crude rallied to $51 and then stuck there...

Gold and Silver both gained on the day...

Finally Bitcoin was the day's real winner, soaring over 15% on the day (up 25% since the Trump chaos last week), smashing through $2000, $2100, $2200, and almost $2300...

One of these things is not like the other...

Ron Paul Warns Iran Is In The Crosshairs: "Neocons Are Still Writing The Script"

Iran has been in neocon crosshairs for a very long time. U.S. Presidential Administrations come and go, Democrat and Republican, but the neocon script has remained the same. President Trump, voted in as an "outsider," has adopted the insider script. Today's speech in Saudi Arabia was crafted by Trump's neocon Senior Policy Advisor Stephen Miller. Miller's "long-time mentor" is David Horowitz. Here are Horowitz's thoughts on Bush's invasion of Iraq: “Baghdad is liberated,” he wrote for his FrontPage Magazine in April 2003. “In the days to come let us not forget that if it were not for one man, and one man alone, George Bush, the people of Iraq would not be celebrating in the streets and pulling down Saddam’s statues today. We have entered the era of a new civil war between the forces of freedom and the powers of Islamo-fascist and communist darkness, and once again the left is clearly determined to take its stand on the other side. The good news is that America is back. Our military has performed superlatively. Our leadership has stood tall. We ourselves can celebrate over this and look confidently toward what lies ahead.” Long story short; Trump may be a different face, but the neocon goal has remained the same...

# Here's the relevant part of today's speech about Iran that neocon Stephen Miller wrote for Trump: But no discussion of stamping out this threat would be complete without mentioning the government that gives terrorists all three, safe harbor, financial backing, and the social standing needed for recruitment. It is a regime that is responsible for so much instability in the region. I am speaking of course of Iran. From Lebanon to Iraq to Yemen, Iran funds, arms, and trains terrorists, militias, and other extremist groups that spread destruction and chaos across the region. For decades, Iran has fueled the fires of sectarian conflict and terror. It is a government that speaks openly of mass murder, vowing the destruction of Israel, death to America, and ruin for many leaders and nations in this room. Among Iran's most tragic and destabilizing interventions have been in Syria.
Bolstered by Iran, Assad has committed unspeakable crimes, and the United States has taken firm action in response to the use of banned chemical weapons by the Assad Regime, launching 59 tomahawk missiles at the Syrian air base from where that murderous attack originated. Responsible nations must work together to end the humanitarian crisis in Syria, eradicate ISIS, and restore stability to the region. The Iranian regime's longest-suffering victims are its own people. Iran has a rich history and culture, but the people of Iran have endured hardship and despair under their leaders' reckless pursuit of conflict and terror. Until the Iranian regime is willing to be a partner for peace, all nations of conscience must work together to isolate Iran, deny it funding for terrorism, and pray for the day when the Iranian people have the just and righteous govrnment they deserve....

Silver Surges As Shorts Hit 2-Year High

The so-called 'smart-money' has been piling into short silver positions in the last few weeks (creating the biggest hedge fund silver short in two years as of last week) as silver rebounds from a record losing streak. The last two times hedgies were this short, silver managed notable gains...

It appears that after a record-breaking streak of losing days, amid what may have been forced liquidations from Noble Group...

$16 has brought back the buyers (and perhaps Noble has ceased its commodity liquidations)....

Bitcoin Blasts Through $2200!

Bitcoin is up almost 15% today, breaking through $2000, $2100, and now $2200...

It's been quite a ride...

As CryptoCompare's founder Charles Hayter notes, there are numerous drivers for this sudden surge in the virtual currency;
- Bitcoin is trading at a $400, or 19%, premium on Japanese Markets as Bitcoin fever takes hold.
- The USD-BTC markets are trading at $2150 whilst the JPY-BTC pair is trading at the equivalent of $2550.
- Japanese volumes are 42-50% of trading with 132k BTC volume or c.$300 million per day.
- The Japanese have caught the Bitcoin bug and inefficiencies across markets are being exposed. Irrational exuberance is taking hold as the Japanese stumble over each other to enter the Bitcoin market and drag up international prices.
- Ethereum has seen a strong price rise on the back of the Ethereum Enterprise announcement and strong buying from Korea where the price is again at a large premium trading at $230 compared to the USD market at $180 - or 27%. The Korean market share of ethereum trading has been steadily increasing and has now reached 15%.
# Summary; Bitcoin has hit the $2200 mark after a strong bull run with a fleshing out of the crypto ecosystem where positive regulatory moves, specifically in Japan have prompted a large inflow of fiat in the last couple of months. The Japanese have given bitcoin the greenlight as a currency and are looking to increase the rigour that their exchanges are subject too - all in all positive for the industry as it moves more mainstream. Alongside you are seeing Chinese exchanges switching bank online after the PBoC halted withdrawals due to AML and KYC concerns in January this year. These exchanges have been trading at a steep discount for the past couple of months as money has essentially been trapped by the PBoC's diktats. Interest in other crypto currencies has also brought money to the table that ebbs and flows via bitcoin, although you are starting to see direct ethereum pairs offering immediate exposure. The money is washing in and out of Bitcoin to search for extraordinary returns in the other crypto currencies. Ethereum and Ripple have seen some extraordinary returns this year, and momentum begets momentum with greed taking the lead.
# Premia & Discounts; Bitcoin trades across multiple fiat pairs in a range of local and global exchanges. These pairs often trade at different prices due to fees, entrance and exit routes, and various perceptions of the safety of the exchange. For example on the USD market exchanges have traded at up to a 5% or more difference. This can be exacerbated by various factors. When these inefficiencies occur there are opportunities to arbitrage the difference. So large discrepancies or rises on one particular pair - for example the JPY BTC pair - can drag up the USD BTC pair as demand on one markets prompts opportunities on another. Charts below showing the JPY Premium over time and price differential to the USD markets...

The Korean Won is also trading at a premium on the USD exchange of $2750 or a 27% premium. The Korean Won has 5% of Bitcoin trading...

# Ethereum is also seeing its markets dislocate as the Korean won takes a large premium. New fiat on ramps into the crypto currency are distorting market prices but the fundamental levels of adoption and use by industry have been key in igniting price momentum. The Enterprise Ethereum Alliance has more than tripled in size, with the group announcing 86 new members, including South Korean telecom Samsung, pharmaceuticals giant Merck, automaker Toyota, investor communications platform Broadridge, financial markets firm DTCC, and the Illinois Department of Financial and Professional Regulation, which oversees licensed businesses in the state...

# Additional factors include: Global Uncertainty. Bitcoin has reacted as a form of digital gold at times of international crisis and this is often touted as first major price factor. Bitcoin traditionally moves with a higher beta than gold so spikes higher to the upside, periods of high correlation for bitcoin and gold occur when global uncertainty takes the ascendancy, which at present doesn't seem to be the case. Bitcoin is defying its gold relationship and subject to its own internal machinations. Gold has traded between 1240-1280 USD /oz whilst bitcoin has doubled in the last 3 months. On a macro level Macron's success, despite the storm clouds of brexit and Trump's bellicose attitude mean doom and gloom scenarios of political polarisation are improbable but still nonetheless a risk...

# Scaling Debate - Litecoin has taken the lead and become the frontline in testing various augmentations for bitcoin with its segwit upgrade and early moves towards adding a lightening network for faster transactions. This has highlighted the fundamental issue of stalemate and hegemony in Bitcoin's corporate governance DNA. Although there is a proposal being put forward by Barry Silbert that cherry picks various elements to attempt to assuage both side of the political debate - there are no clear indications of a solution as of yet. The issue regularly raises its head as a bugbear for the price and takes centre stage for time with resultant downward pressure.
# Bitcoin ETF - BATS exchange have requested the SEC review its refusal to allow the Winklevoss twins exchange to be approved. The reasons for the refusal have not changed substantially so this is not expected to dramatically alter the outlook for bitcoin....

JPM Cuts 10Y Yield Forecasts "Significantly Lower" Due To Weaker Inflation Outlook

Just one day after Goldman reluctantly cut its 2017 year end forecast on the 10Y yield last Friday from 3.00% to 2.75%, "reflecting some added uncertainty on the US macro outlook" while conceded that "bond bears", i.e., those clients who have listened to it, "have had a difficult 2017" it was JPMorgan's turn, and over the weekend JPM announced it was adjusting its US rate forecast "significantly lower", slashing its year end 10Y yield target to 2.75% from 3%, reflecting “a weaker outlook on core inflation and reduced expectations around tax reform and infrastructure spending.” In the note by JPM's Jay Barry, the bank also trimmed most other tenor forecasts by 15bp-35bp lower, saying that the inflation outlook “has changed markedly” over past month based on weakness in core CPI in March and April. JPM also said that as for fiscal stimulus, odds are rising that it “gets pushed into FY18”...

And also just like Goldman, JPM tried to hedge adding that "even so, UST yields should rise in coming weeks,” because markets "continue to underprice the risk of further Fed tightening,” and yields “have consistently risen” ahead of FOMC meetings that include SEP and press conference; also, Treasuries “appear locally rich to other DM government bond markets.” Finally, JPM maintains its recommendation to hold shorts in the 3-year sector and urges 10s30s flatteners, as the curve is ~3bp too steep adjusted for market’s medium-term Fed and inflation expectations. Meanwhile, the fed funds market continues to be blissfully disconnected from the recent sharp slowdown in US economic data surprises, which as noted previously has posted one of the biggest drops on record, and if the disappointment persists, it is not impossible that the Fed will punts its June rate hike which the market now assumes is virtually assured...

Dollar Demise Continues To Escalate, Trump-Bump Dumped

It's official, the post-Trump-election gains in the dollar have now been 100% erased as the broad dollar index drops for the 8th day in the last 9 (down 2.4% in that period), to its lowest level since November 6th 2016 - before Trump was elected...

So now we assume the narrative flips from "strong dollar" means "strong economy" to "weak dollar" is "great for multinationals", either way, you buy stocks stupid....

Bill Blain: "My Prediction Is That Around October 12 Markets Will Get Horribly Interesting"

“The most dangerous four little words for a prime minister: “Doesn’t she look tired?”” Last week was dominated by Trump news flow. What initially felt like a major market wobble quickly reversed itself and we ended the week basically unchanged.. or "Unched" as the Facebook generation now like to say. Fundamentals triumphed over the political shenanigans. What does that really tell us? The market was overly nervous, the bearish doomsayers are wrong, or is the bulls are too certain of themselves? Are stocks really so undervalued they justify further upside? Lots of people obviously think so and are ready to buy the dips. And that is basically the core of the current market. What's on the menu this week? Sadly, activity is going to be thin this side of the pond - Ascension Day on Thursday means Europe is on a three day week, and mid-term school holidays in the UK mean lots of empty desks over the next two weeks. Next month we're into June, meaning the summer slowdown will be upon us. While summer is coming and the cotton is getting high, I don't expect the pace of market angst will slow. One of my market contacts at a large investment bank told me they think this is "phony war". They're reporting the same things we feel; many investment managers ignoring the physics of financial gravity and the laws of mean reversion.
Why worry? There will be a slew of data out this week - and it will likely to confirm strengthening growth in Europe and a heating up US. The ECB's talking heads will manage expectations so nobody gets too concerned about the coming Euro Taper. Many fund managers will look at the numbers, conclude there is nothing to worry about, macro fundamentals are strong and sustainable.. and keep buying. Summer is traditionally the time for asset allocation decisions - and I'm hearing a number of funds, including some monster SWFs, are planning shifts from bonds into stocks. (Clue, a 5% shift from bonds into stocks on a $1 trillion fund, a very significant amount of new cash supporting stocks through the summer). But, Catch a falling knife, why don't you. I shall spend the summer wondering just how long the Stock Market games continue. When, not if. At the moment, my prediction is October 12th. Around that day its going to get horribly interesting.. Why that particular day? Gut feel and knowing how the Bowl of Petunias felt in Hitchhikers. ("Not again.") There are just too many contradictory currents out there. The unsustainability of burgeoning consumer debt, unfeasibly tight credit spreads, the sandcastle foundations of student loans, autos, housing and the CLO market, China, Trump, politics, worries about what follows Brazil in the EM market, and whatever.
The risks of a massive consumer sentiment dump. And bear in mind we haven't seen a significant correction to the stock market since 2011! And how sustainable are fundamentals, Goldman Sachs noted at 8-yrs, the current economic recovery is the third longest since 1854. I’ve said before it looks “tired”. Steve Previs, was making some incantations to the Elliot deity along the lines of: "we're approaching the end of the 5th wave. 5th waves are always followed by a correction." Steve is usually right about these things. after all he's been trading stocks since they used to mark up prices on the cave wall. In those days a bear pit was exactly what it said it was. Interesting world we live in. The Media and the Elites tell us what should be, but that ain't the way people actually think. Trump is the classic example, every single little thing he says or does is guaranteed to throw the political classes into turmoil and generate enormous waves of market angst, witness last week. Yet, the American heartland voters still love him. California might tumble into the sea, but the Rockies will crumble before much of America loses faith in the Donald. Sure someone will have to pay the price for his non-delivery, and I suspect that will be the Republican Party. Back in Blighty, and The Theresa May Party might just have shot itself in the foot over the Dementia Tax. What I read in the press over the weekend about surging grassroots support for Jeremy Corbyn, perhaps my 5000/1 double on Corbyn IN / Trump OUT wasn't such an outrageous play after all....

Euro Surges After Merkel Says Euro Is "Too Weak", Blames ECB

In the early days of the Trump administration, when the world was still worried - unnecessarily - that Trump would single out Europe, and especially Germany, as an unfair trading partner, slamming the Euro as too weak, Germany's fallback response was to say the currency is where it is due to the ECB's monetary policy, oh and that the Euro wasn't weak, but merely reflecting fundamentals. Well, moments ago the conventional narrative appears to have shifted once again after Angela Merkel herself took on the role of chief Euro critic, saying the common currency is "too weak" and blaming the ECB for the record German trade surplus, accusing Draghi's policies for the weak euro. Headlines from Reuters and Bloomberg as they cross:
According to Bloomberg, Merkel was quoted as saying “The euro is too weak - and that’s because of ECB policy - and so German products are cheap in relative terms,” Merkel told school students in Berlin in discussion of trade surplus. “So they’re sold more.” Merkel added that additional investment in Germany could help to reduce trade surplus. The immediate result of this latest attack on the ECB, this time not by Draghi's nemesis Schauble but by the Chancellor herself, was to send Bunds sliding to session low, with volumes surging as ~8k trades in 1 minute. the Euribor strip eding steeper; and most importantly, the EUR/USD spiking nearly 50 pips to day’s high of 1.1228...

Things To Ponder

- Trump Arrives in Israel, May Show His Cards on the Peace Process (BBG)
- Taxes, Budget Are Focus for White House Despite Probes (WSJ)
- Paul Manafort’s Lucrative Ukraine Years Are Central to the Russia Probe (BBG)
- Ford set to fire CEO Mark Fields as shares founder (Reuters)
- Producers Set to Extend Cuts as Rally Stalls: OPEC Reality Check (BBG)

Bitcoin Blows Through $2100

Bitcoin is now up over 135% year-to-date, having screamed above $2000 and $2100 overnight as the dollar limped to 6-month lows. Having shrugged off China crackdowns and worries over 'hard forks', it appears the legalization of the virtual currency in Japan (with Peach Aviation now accepting bitcoin for flight ticket purchases) and broader adoption in Russia have fueled demand in recent weeks...

Asia Jumps, Europe Stutters As Political Rumblings Return; Oil Nears $51

Global stocks were mixed to start the week, with Asian stocks higher, European stocks initially advancing then fading gains, while S&P futures are little changed after the biggest weekly drop since April (which for those keeping record was -0.4%). European shares, the euro and the pound all stumbled on Monday as rumblings in Spain, Britain and Brussels reminded investors that the region still has plenty of political uncertainty left in the tank. Oil continued to rise amid short covering and the latest round of "pricing in" that cuts to crude supplies will be extended by up to 9 months when OPEC meets on Thursday. The pound initially fell as the UK threatened to quit talks on its departure from the European Union, however it has since regains most of the overnight losses. In early trading, a one-month high for oil and bounce in the dollar triggered Asia's best session in weeks overnight but Europe struggled to maintain the momentum early on. Most Asian stocks and currencies benefitted from positive risk appetite with sentiment buoyed by Wall Street gains and the Indonesia upgrade which has sent local stocks on their best 2-day rally this year...

A rally in Tencent Holdings Ltd. helped send Hong Kong shares back toward a 22-month high. The Hang Seng China Enterprises Index jumped 1 percent while the Shanghai Composite slipped 0.5 percent. Japan’s Topix rose 0.5 percent. The Kospi and won rally despite yet another North Korean missile test on Sunday, which however has now faded largely into the background. Australian bond futures drift lower; 10-year yield briefly climbs three basis points to 2.50%. Also in Asia, MSCI's broadest index of Asia-Pacific shares outside Japan enjoyed its best session in a month helped by gains in Australia and Hong Kong stocks despite a mass downgrade of bank credit ratings in the former and new property market regulations in the latter. Chinese stocks were the only laggards in the region with mainland indices ending 0.5 percent in the red as concerns also simmered about another dip in the economy there. The bounce in Asian stocks this year has helped MSCI's closely followed emerging stocks index notch up gains of more than 17 percent compared to 8 percent for the wider 'all-world' index which is near a record high.
 European bourses have been mixed with no material moves except for Spain where government bonds, stocks underperform most European peers after Socialists elected a party leader who is a more strident critic of Prime Minister Mariano Rajoy and opposed his party’s 2016 abstention to let Rajoy govern. "Last week was all about U.S. uncertainty but we have had a reminder that Europe still has plenty of uncertainty too," said Alvin Tan at Societe Generale. Spanish 10Y spreads to German bonds rose as much as 4bps to 125 bps on the news, while the Ibex 35 index -0.3%, versus an unchanged print for the Stoxx Europe 600 index...

“There are new uncertainties in the Spanish market,” said Javier Ferrer, head of global rates at Ahorro Corp. brokerage in Madrid. “Basically the question is what road will the Socialist party take, now that Pedro Sanchez returns as leader? You can see the reaction in the Spanish spread to Italian bonds.... We’re not going to see him attempt any complex changes nationally in the short term, because he’ll have to try to fix the problems of his party first. But over the medium term, yes, would could see changes -- even the Socialists trying to call a vote of confidence in this government.” Another familiar European story was also back on the radar. Euro zone finance ministers and the IMF will meet later on Monday to try and nail down a deal on Greek debt relief that balances the IMF's demand for a clear "when and how" with Germany's preference for "only if necessary" and "details later". Without the loans, Athens would be likely to default whereas country wants a deal to help it return to market financing next year when its latest bailout, the third since 2010, ends in mid-2018. Overall, the Stoxx Europe 600 Index was little changed after the worst week since November. Looking at the bigger picture, oil advanced a fourth day in the build-up to OPEC’s gathering in Vienna this week, as speculation grew that production cuts will be extended into next year. WTI rose just shy of $51, while Oman's Al Rumhy said that oil can reach $55 if the oil cuts are extended, as they will be for the simple reason that the first 6 month cut failed to rebalance the market. The hope now is that a second, 9 month cut will succeed... 

U.S. Treasuries were also better offered. The cable was volatile amid hardening Brexit rhetoric. On Monday morning, the PBOC injected a modest net 30 billion yuan in open market operations, strengthens daily CNY reference rate; 7-day repo rate drops 14 basis points. Futures on the S&P 500 fell 0.1 percent after the underlying gauge increased 0.7 percent Friday. As Bloomberg writes this morning, the relative tranquility across markets suggests investors are betting that global growth can weather political turmoil in the U.S. and Brazil, even as the world’s largest economy edges closer to another increase in borrowing costs. Meanwhile, Trump is trying hard to deflect attention from the domestic political crisis surrounding former FBI Director James Comey. Earlier today trump arrived in Israel after spending two days in Saudi Arabia where he signed arms contracts totallying $350BN over ten years, before continuing on to Europe. “With Trump on a tour, the hope is we see less news over the next couple of days, a chance for the waters to settle,” said Andrew Sullivan, a managing director for sales trading at Haitong International Securities Group Ltd. in Hong Kong. “It’s another overhang on the market. We’ve got all these markets trading at highs and people don’t want to miss out, but they don’t want to be caught out.”
In FX, the Bloomberg Dollar Spot Index fell less than 0.1 percent after its worst weekly performance since July. The pound lost 0.3 percent to $1.3003. The euro added 0.1 percent to $1.1218. The Russian ruble strengthened 0.6 percent. In rates, 10Y Treasury yields rose two basis points to 2.25 percent following their best week in a month. Benchmark yields in the U.K. were little changed at 1.09 percent. For those who missed it, here are the main news from the weekend: Panel officials announced on Friday that Former FBI Director Comey is to testify at the Senate intelligence committee after Memorial Day, while there were also reports that Comey now thinks that President Trump tried to influence him according to a source. Source reports indicate that Germany is said to see no Greek payout at this week's Eurogroup meeting. Spain's main opposition Socialist party (PSOE) voted for former party leader Pedro Sanchez as its leader by a projected margin of 49.6% vs. 40.2% for Susana Diaz. Focus now turns to the party Congress on June 16-18th which is aimed at uniting the party. Ideologically, Sanchez is closer than Diaz to Podemos, and the PSOE and Podemos together control 156 seats in parliament, more than the PP, which would enable them to form a blocking minority. YouGov/Sunday Times poll showed the Conservatives at 44% (-5pts) and Labour at 35% (+4pts), while the latest Survation UK election poll showed Conservatives at 43% (-5pts) vs. Labour at 34% (+5pts). UK Brexit Minister Davis stated that UK will quit Brexit talks unless EU drops its demand for a divorce bill of as much as EUR 100bIn.
Brazilian President Temer stated that an audio recording at the centre of a bribery scandal was doctored and therefore asked the Supreme Court to suspend investigations on him until the authenticity of recording can be verified. North Korea conducted another missile test over the weekend which landed off its east coast, with the missile said to be a medium range missile but with a shorter range than its past recent launches. There were also reports that Kim Jong-Un ordered the deployment of a 'missile for combat', while a South Korea Unification Ministry official stated that cut-off between South and North Korea is not desirable for stability and added they are to consider approving contacts and visits to North Korea. On Monday, Agilent, Nordson and Booz Allen Hamilton are among companies set to report earnings. Further in the week, money managers will be scrutinizing minutes released this week from the Federal Reserve’s latest meeting to gauge the chances of a rate hike next month.
*) Bulletin headline summary from RanSquawk;
- European bourses have reversed their earlier gains (Eurostoxx 50 -0.1%) with losses in tech names offsetting the rise in the materials sector
- Mixed flow in the FX markets this morning, with some light inferences on how the week may play out from here.
- Looking ahead, highlights include Fed's Kashkari and Harker
*) Global Market Snapshot;
- S&P 500 futures little changed at 2,381.70 
- STOXX Europe 600 up 0.2% to 392.35
- Nikkei up 0.5% to 19,678.28
- Hang Seng Index up 0.9% to 25,391.34
- Shanghai Composite down 0.5% to 3,075.68
- German 10Y yield rose 0.3 bps to 0.371%
- Euro down 0.3% to 1.1170 per US$
- Brent Futures up 1% to $54.14/bbl
- Italian 10Y yield fell 1.1 bps to 1.844%
- Spanish 10Y yield rose 1.1 bps to 1.59%
- Gold spot down 0.1% to $1,254.69
- U.S. Dollar Index up 0.3% to 97.38
*) Key Overnight Headlines from Bloomberg;
- Merkel says euro is "too weak" because of ECB policy, making German products "cheap in relative terms," in discussion with students over trade surprlus
- ECB’s Weidmann: ECB will need to “demonstrate backbone” when price pressures increase again - Spain: Socialist opposition party elects Sanchez as leader; could create difficulties for minority Rajoy government to pass new legislation
- Messaggero: Berlusconi says if an accord is reached on electoral reform, Italian early elections could happen this Autumn
- U.K. threatens to quit Brexit talks unless EU drops its massive divorce payment demand
- Conservatives 43%, Labour 34%, Liberal Democrats 8%: Survation/GMB poll
- Clariant to Buy Huntsman Creating $14 Billion Chemical Giant
- Trump Sticks to Script in Mideast, Trying to Turn Page on Russia
- EU Discusses Brexit Position as U.K. Threatens to Quit Talks
- Oil Extends Gain Toward $51 as Saudis See Output Curbs Into 2018
- HNA Said in Talks to Buy Stake in Hong Kong’s Value Partners
- Rupert Murdoch’s Grip on Power Put to the Test in Fox Upheaval
- SoftBank’s Son Chases Boyhood Dreams With $100 Billion Fund
- UCB Plunges Most Since 2008 on FDA Delay Osteoporosis Drug
- Aegon to Divest Majority of U.S. Run-Off Businesses to Wilton Re
- German April tax revenue rises 5.8%; economy ’solid’: Finance Ministry report
- Saudi energy minister: All ’on board’ for 9-month supply cut extension
- S&P downgrades 23 smaller Australian banks, cites risk of sharp property correction
- North Korea conducted ballistic missile test on Sunday; Japan considers new sanctions
- Ford CEO Mark Fields Said to Be Replaced by Hackett: Forbes
- Goldman Said to Hire in Asia to Expand Quantitative Products: FT
- Italy May Seek Damages From VW on Diesel Case: Corriere
- Facebook to Speed Up Process of Removing Objectionable Posts
*) Asia equity markets shrugged off the geopolitical concerns from another North Korean missile test over the weekend, with markets mostly higher following the upbeat close on Wall St. last Friday. ASX 200 (+0.7%) was led by energy and mining names after WTI crude futures reclaimed USD 50/bbl and firm gains in Dalian iron ore futures. Nikkei 225 (+0.5%) remained dictated by JPY weakness, while Shanghai Comp. (-0.5%) and Hang Seng (+0.9%) were mixed after the PBoC resumed liquidity operations, although the amount was at a reserved CNY 40bIn injection. 10yr JGBs were lower with demand subdued amid gains in riskier assets and after the BoJ kept its Rinban operation on the light side, while the curve steepened amid mild underperformance in the long-end.
# Top Asian News
- Japanese Exports Record Fifth Straight Monthly Increase in April
- A ’Mind-Boggling’ Reform Looms Over India’s $2 Trillion Economy
- Cogobuy Sinks as Much as 27% Before Halting Trading in Hong Kong
*) It has been a Quiet start to the week in Europe with the economic calendar on the light side. Nonetheless, European bourses have reversed their earlier gains (Eurostoxx 50 -0.1%) with losses in tech names offsetting the rise in the materials sector. On a stock specific breakdown, among the outperformers this morning is Clariant, trading higher by -4% after announcing a USD 20bIn merger of equals with Huntsman. Elsewhere, National Grid shares have slumped some 15% as they go ex-div. Spanish bonds are on the back foot this morning in the peripheral space with Bonos wider by 4bps against the German benchmark, taking the spread to 124bps. Sanchez is seen as a hardliner who is likely to make life difficult for the PP government, who previously refused to cooperate with the governing minority by way of abstention in a confidence vote back in October. Mild softness in equities has kept Bunds afloat with the German curve showing modest steepening, led by the outperformance in the 2yr. This also comes ahead of tomorrow's auction, where Germany are looking to tap with a new EUR 5bIn Schatz.
# Top European News;
- Sanctions No Downer for BlackRock Fund as Russia Plans Eurobond
- Three Greek Debt-Relief Options Said to Be Weighed by Creditors
- Italy’s Real GDP Projected to Expand 1% This Year: Istat
- Paysafe Drops After Short Seller’s Comments on Seeking Alpha
# In currencies, mixed flow in the FX markets this morning, with the Bloomberg Dollar Spot Index fell less than 0.1 percent after its worst weekly performance since July. The pound lost 0.3 percent to $1.3003. The euro added 0.1 percent to $1.1218. The Russian ruble strengthened 0.6 percent. Given the muted reaction to yet more missile tests in North Korea and Comey's testimony over alleged interference in FBI investigations stretching into next week, the risk mood is a little more relaxed this morning, and after a mild test on the downside, we see USD/JPY gravitating back towards 111.50. We see little to materially influence a major test on 111.00-113.00 as the broader range, but a push on 112.00 cannot be ruled out as we factor in much tight activity in the current market make up. GBP looks to be giving up some of its resilient tone this morning, and this is more likely down to the Brexit minister's (Davis) comments that the UK are ready to walk away from talks should a exit bill match the higher end of recent estimates. This was always going to be the initial sticking point, and here we are tailing off 1.3000 in Cable, while EUR/GBP is digging in its heals on the 0.8600 handle, but plenty of buying interest now anticipated into the mid 0.8500's.
# In commodities, oil prices are in the spotlight this week, and it is fair to say that the market is expecting an extension to the output deal currently in place. Saudi Arabia are convinced that production levels are yet to hit inventory to a significant degree, but if prices are to hold onto, and build on current levels, then the 9 month stretch (out) is what will be required. WTI is now through USD51.00, while Brent has maintained the USD3.00 spread to trip USD54.00. The feel-good factor has spilt over into the leading metals market, led by Copper which is eyeing a move on USD2.60 again. However, Gold and Silver are also pretty steady this morning, so it is not a clear cut case of risk-on, as geopolitical concerns as well as the Trump saga rumble on in the background. Iraq says it has announced readiness to extend OPEC agreement, while Iran state that they have the potential to boost oil output capacity 3mln bpd....

AEX Index Update (19-5-2017)

*) Het gap in de 528-zone is inmiddels gedicht en de koers beweegt zijw. rond dit gap. Zolang onder 530 geldt het ingetekende koersverloop. Zodra boven 530 kan de handel het gap ri. 535 gaan dichten. De Short-posities houden we rustig vast....

Monday Market Observations

*) The turn windows for this week is 5/21-5/22 and 5/25 (the New Moon Timing Window).
# The fast SPX correction on 5/17 may just have been a sharp "wave 2" correction. We still may have a 3rd, 4th and 5th wave higher to finish the rally from 4/16. More rally into the 5/25 New Moon could be possible. However, the muted rally in the $TRIN and Option Premium Ratio on the 5/17 decline does argue that we are close to an important top by early June.
# The USD is close to a yearly cycle low and that has been supporting gold and silver. The underperformance of the GDX/GLD ratio on Friday argues for more pullback in gold and the GDX. The GDX appears to need another leg down to finish an EW a-b-c correction on the hourly chart into 5/22. How silver behaves on 5/22 (the 34-day Fibonacci step out from 4/17) will be key to our short-term PM outlook. Gold's test of $1300 on 4/22 put in a weekly high. Gold may have seen a major low on 5/9 but a retest is likely going into June.
# Crude oil has rallied in 5-waves on the hourly since the 5/4 low. We're looking for a pullback on Monday.
# Bonds appear to need a C-wave down of an EW a-b-c correction on the hourly chart into Monday.
# The Dollar Index is declining into a yearly cycle low....

Don Quijones; The Pillage Of Pemex Turns Bloody

Gasoline theft is now the second most profitable activity for Mexico’s criminal gangs. Mexico’s state-owned oil giant, Petróleos de Mexico, AKA Pemex, has spent the last few decades being pillaged and plundered from the inside-out. The state-owned giant has been financially bled to the verge of collapse by its swollen ranks of senior managers and administrators, corrupt politicians, shady contractors, and the untouchable, unsackable leaders of the oil workers’ union. Now, Pemex is being bled dry from the outside-in. Those doing the plundering this time include armies of amateur opportunists who live close to the major pipelines that crisscross the country as well as some of Mexico’s most ruthless and organized drug gangs. Thanks to these groups’ immunity, bought with bribes and death threats, Pemex is estimated to be losing 20,000 barrels of gasoline daily, with a market value of around $4 million.That’s about $1.4 billion a year. That’s enough to put Mexico among the top in the world for fuel theft.
In 2015, over 5,574 illegal pipeline taps were found. Pemex’s response to the problem has only made matters worse. The company has tried to stop running ready-to-use fuels through its pipelines. Instead, it now carries raw products from refineries to storage terminals where they are processed and shipped out in tanker trucks. But instead of eradicating or reducing fuel theft, it has merely made it easier as stolen fuel is taken straight from Pemex’s storage facilities, where thieves siphon fuel by the truckload and simply drive away. Much of the plunder is taking place in the central state of Puebla, which, through a pure accident of geography, is located slap-bang between the vast oil fields of Veracruz and Mexico’s gas-guzzling capital Mexico City. Just one of the state’s gas pipelines, the “Minatitlán-México” line, accounts for 34% of all the oil stolen in Mexico. Puebla is one of Mexico’s safest regions but it has recently seen a spate of violence as clashes rage between soldiers and fuel thieves. At the beginning of May, one such battle claimed the lives of four soldiers and six suspected oil thieves, who used local civilians as human shields.
In 2016, the authorities discovered 1,500 new illegal pipeline taps in Puebla, roughly 800 more than the year before. None of this would be imaginable without at least a certain amount of complicity between Pemex workers, who have both the expertise and tools to tap the pipelines, Pemex contractors, and the gangs of highly organized criminals. As Carlos Loret de Mata reports, new drone footage has revealed that the gangs have achieved economies of scale and operational efficiences that would be the envy of many of the world’s largest corporations: It’s midnight. There are 148 trucks lining up to fill their drums with gasoline. They are neatly parked in the surrounding streets. Everyone knows their place, they respect it, they perform with perfect choreography. It could be the distribution line of Bimbo or Coca-Cola. It looks like a Pemex terminal. But it’s not. It’s a hamlet next to the Puebla-Orizaba highway where the huachicoleros (fuel thieves) drilled a duct and their trucks are just waiting to load the stolen product and take it wherever they’re told to: gas stations, transport companies, big consumers. The scene was captured by a drone belonging to the Mexican federal government and is to date the most conclusive proof of the sheer scale and scope of the criminal organizations behind the oil siphoning. The sale of stolen gasoline is now the second most profitable source of funds for Mexico’s criminal gangs, behind the trafficking of drugs.
The pilfered oil is sold at half the price (or less) of what drivers would have to pay at a Pemex gas station. Mexico’s black market for gasoline has been growing for years, but it was given an almighty boost at the beginning of 2017 when the government decided, against all reason, to follow through on a previous pledge to withdraw public subsidies that had helped keep gasoline prices artificially low, just as inflationary pressures were building. The result was a 20% surge in average gasoline prices, which triggered a wave of angry protests throughout the country. The depth of public anger is understandable: Mexicans spend more of their annual income on fuel than residents of 60 other countries tracked by Bloomberg, due largely to the country’s low salaries and high gasoline consumption. The Peña Nieto government had repeatedly promised that market liberalization would lead to markedly lower prices at the pump. The exact opposite has occurred, with average prices for gas and diesel soaring by around a third since Peña Nieto’s oil reforms were passed in 2014. Now, despite the Bank of Mexico’s frantic efforts to keep inflation contained by raising its policy rate to 6.75% (up from 2.5% early last year), the inflation rate has soared to 5.8%...

Pemex is bleeding oil and funds at an alarming rate. For over 70 years, Pemex served as a vast funding asset, at times providing as much as one-third of total government revenues. But in 2016, it became a national liability, requiring a $4.2 billion bailout from the government. Further fuel tax rises may also be needed to keep the country’s increasingly strained fiscal health in check. But the more prices rise at the pump, the higher they will push demand on the black market, which in turn will feed the need for more pilfered fuel. In the meantime, the government has dispatched 2,000 more soldiers to protect Puebla’s pipelines. And just like that, a region that had largely escaped the mindless barbarity of Mexico’s drug wars found itself slap bang on the front lines of a new emerging war, this time over gasoline. By Don Quijones. Debt is suffocating the economy, but where did the money go?

North Korea Test-Fires Another Ballistic Missile

Eight days after the last one, North Korea test-fired another ballistic missile on Sunday. It flew about 500 km, before falling into the Sea of Japan. According to North Korea state media, Kim Jong-un "supervised" the test firing, and "analyzed the results of the test-launch and expressed his great satisfaction over them, saying it is perfect." The new president of South Korea, Moon Jae-in, had promised to begin talks with North Korea in the hopes of convincing them to stop the tests. North Korea has not responded at all to the call for talks, and this latest ballistic missile test appears to be intended as a complete rejection. Analysts generally are saying that North Korea already has the ability to send a nuclear-tipped ballistic missile to countries and US bases in the region, and that its development is proceeding quickly enough that the ability to send one to the US mainland is in sight... AFP

A ballistic rocket launching drill in Pyongyang, North Korea, on March 7, 2017 (Reuters)

# An opinion writer, Paul Wee, for the Seattle Times explains North Korea's motivations as follows: "There is something more that needs to be said. In the early 1950s, responding to the North Korean threat, U.S. B-29s, with little opposition, carried out the saturation bombing of villages and towns across the North. The capital, Pyongyang, was 75 percent destroyed with more than 3 million people killed. Over a three-year period, 20 percent of the population was wiped out. Then Undersecretary of State, Dean Rusk, said that the U.S. bombed “everything that moved in North Korea, every brick standing on top of another.” With the cities in ruins, attention was then given to the destruction of irrigation and hydroelectric dams and the destruction of crops. Although little is spoken or written about this side of the war, in North Korea it is remembered as if it happened yesterday. During a visit in 1984, I recall billboards along the main roads that purported to graphically document the destruction and convey the enormity of the human suffering." Kyodo
# Here's what I wrote after the last ballistic missile test: "The United Nations Security Council will meet on Tuesday to discuss the situation. They're expected to issue a statement condemning the missile test, calling it "unacceptable," and threatening that if there's another test then the Security Council will hold another meeting." Well, not surprisingly, that has turned out to be completely true. South Korea's new president, Moon Jae-in, has called for an emergency meeting of the UN Security Council.... KCNA Watch and Seattle Times

Socialist Venezuela Again Delays Eliminating 100-Bolivar Notes Despite Hyperinflation

Hyperinflation continues in the Socialist economy of Venezuela, with an inflation rate of 93% in just January-April of this year. The country's bolivar currency is down more than 99% since Socialist leader Nicolás Maduro became president in 2013. Because the currency is becoming almost worthless, Maduro has ordered the elimination of lower-denominated bills. The 100-bolivar bill was supposed to be eliminated in December, but the order has been delayed for the seventh time, and now the elimination is scheduled for July 20. The 100-bolivar bill is currently worth about 14 US cents, and its value is continuing to fall.
The plan is to eliminate it, and print new bills of 500, 1,000, 2,000, 5,000, 10,000 and 20,000 bolivars. No reason has been given for the seventh delay, but in the past the government has been unable to purchase paper because it didn't have enough foreign exchange to be able to pay foreign suppliers. Throughout history, Socialism has had a 100% failure rate, causing nothing but economic disaster and dead bodies floating down the streets in rivers of blood, while Socialist leaders bask in opulence. Venezuela is headed down the same road, and it won't be long before Maduro orders the army to massacre thousands or tens of thousands of people, so that he can stay in power. Whether Kim Jong-un or Maduro, these Socialist leaders are all the same.... Latin American Herald Tribune and Reuters

Matt Taibbi: How Did Russiagate Start?

Amid the chaos of James Comey's firing, new questions about the timeline of his fateful investigation Former Director of National Intelligence James Clapper appeared on This Week Sunday, and said some head-scratching things. Clapper back in March told Meet the Press that when he issued a January 6th multiagency intelligence community assessment about Russian interference in the election, the report didn't include evidence of collusion between the Trump campaign and Russia, essentially saying he hadn't been aware of any such evidence up through January 20th, his last day in office. On Sunday, he said that didn't necessarily mean there was no such evidence, because sometimes he left it up to agency chiefs like former FBI Director James Comey to inform him about certain things. "I left it to the judgment of Director Comey," Clapper said, "to decide whether, when and what to tell me about counterintelligence investigations." Clapper said something similar when he testified before the Senate Judiciary Committee last Monday. In prepared remarks, he essentially said that there was nothing odd about his not being informed about the existence of an FBI counterintelligence investigation involving Donald Trump's campaign a few months ago.
Speaking generally, Clapper seemed to imply that the Trump-Russia-collusion scandal, the thing colloquially known as #Russiagate all over the world now, may have originated in information gleaned by the intelligence community, who in turn may have tipped off the FBI. "When the intelligence community obtains information suggesting that a U.S. person is acting on behalf of a foreign power," he said, "the standard procedure is to share that information with the lead investigatory body, which of course is the FBI." He went on, explaining that in such a situation, it wouldn't be unusual for the DNI to not be informed about an FBI counterintelligence investigation. "Given its sensitivity," he said, "even the existence of a counterintelligence investigation's closely held, including at the highest levels." In his Senate testimony, Clapper went out of his way to say this didn't contradict his earlier statements. But if he's not contradicting himself, he's certainly added a layer of confusion to what is already the most confusing political scandal ever. Back on March 5th, when Clapper gave that interview to Chuck Todd on Meet the Press, he sounded definitive on a number of counts....

Ron Paul Interviews Nassim Taleb: "We'll Destroy What Needs To Be Destroyed"

Why do career bureaucrats in Washington keep pushing military interventionism and irresponsible monetary policies? Because they face zero risk from the consequences of their decisions, said Nassim Nicholas Taleb during an appearance on the Liberty Report with former Texas Congressman Dr. Ron Paul and his co-host Daniel McAdams. The conversation focused on some of the themes from Taleb's upcoming book, “Skin in the Game,” which will be out later this year, including how the homogenous intellectual elite who shape American foreign policy have managed to stay in power despite decades of persistently advancing foolish interventionist policies. Taleb even offered this colorful comparison: “Let’s imagine you have pilots who were absolutely unharmed by crashes. People are stupid enough to put them back on planes. Then they would crash a plane, kill all passenger and continue. Well, that system would lead to complete systemic destruction. And that’s what we have now with our foreign policy.” Since World War II, the U.S. has embarked on military interventions in Vietnam, Iraq, Libya, Syria that have led to hundreds of thousands of unnecessary deaths. Even President Trump, who at one point promised an “America First” foreign policy of nonintervention, instead launched 59 tomahawk missiles at Syria based on unsubstantiated intelligence reports that the Syrian Army used chemical weapons against civilians in the country’s north. Just how homogenous is the U.S. foreign policy elite?
Remember that through the end of Hillary Clinton’s tenure as Secretary of State in 2013, either a Bush or a Clinton held one of the three highest offices in the U.S, the presidency, vice presidency or secretary of state, for eight straight terms. Another reason why interventionist foreign policy often fails is because federal-government bureaucrats and other outsiders don’t have “skin in the game”, an entrenched interest, financial or of another sort, in the conflict - and therefore, are incapable of achieving a comprehensive understanding of the situation. That goes for both elected leaders, beauracrats, and the media. “We have today so many people sitting in the New York Times Washington office, in an air conditioned office, who can dictate foreign policy with zero risk.” Dr. Paul seized the opportunity to criticize the “Chickenhawks” who advocate interventionism, but avoided serving in the military during Vietnam. “I don’t fault them for trying to avoid the war, but I fault them for advocating war,” Paul said. Many still haven’t internalized the lesson of the 2007-2008 economic crash and how the monetary policy missteps made by former Fed Chairman Alan Greenspan helped cause the crash. As a result, throughout human history, “we’ve never had so many people transferring risk to others,” Taleb asserts. One reason these actors have been allowed to remain in power is that it's difficult to assign blame to individuals when you’re dealing with “macro” conflicts like the Syrian conflict that involve many different state actors.
This is one reason the policy elite at the State Department, whom Taleb compared to doctors from ancient times, who inflicted more harm than healing on their patients, have managed to stay in power, while a modern-day doctor who was causing an unusual number of patient deaths would quickly be barred from practicing. Turning the conversation toward the asset bubbles that have continued growing since the last crisis, Taleb explained how Greenspan’s discovery that he could stabilize markets by slashing interest rates has led to our current struggle with unprecedented debt creation and a belief in “perpetual wealth and perpetual growth.” “Lowering rates in such a manner leads to distortions. If we didn’t have a Fed, we’d be better off because the price of money would be negotiated between people.” Since the crash, the Fed, by cutting interest rates to zero and embarking on a regime of unprecedented money creation, has succeeded only in “injecting novocaine” into the financial system. “Now we’re inheriting a situation with $20 trillion in debt and we have interest rates at zero, you can’t intervene when you need them. The people in Washington who got us here have no skin in the game.”
The Fed’s monetary policy missteps have also helped create the unprecedented economic inequality that exists in the world today, which has bred unprecedented dissatisfaction with the status quo. Even in France, “Marine Le Pen got a lot of votes,” a sign that her defeat wasn’t an unmitigated victory for the establishment like some in the media reported. Whatever happens to the Federal Reserve -if it’s allowed to continue monetizing debt or not – it may not matter. Because digital currencies like bitcoin, which are quickly growing in popularity and value, could one day supplant the use of fiat currencies altogether, Taleb said. During the last U.S. election, people showed that they aren’t “victims of the New York Times.” Moreover, Twitter has helped upend the media power structure in favor of the people and independent thought. “Trump was elected in spite of 264 top newspapers wanting him to lose,” Taleb noted, adding that he believes the future will be “a libertarian dream.” “We will destroy what needs to be destroyed, and build what needs to be built,” he said....

Shocking Admission From NY Bankruptcy Judge: "Chapter 11, 15 Filings Have Exploded"

A stunning soundbite was captured by a Bloomberg reporter during last week's event at the American Bankruptcy Institute. According to judges speaking at an ABI conference, the U.S. Bankruptcy Court for the Southern District of New York is seeing a sharp rise in cases this year, with Chapter 11 and Chapter 15 filings outpacing national averages. "Chapter 11s and Chapter 15s have exploded" said U.S. Bankruptcy Judge Shelley Chapman, speaking at American Bankruptcy Institute event, cited by Bloomberg reporter Tiffany Kary. The numbers for the bankruptcy court which serves Manhattan are, frankly, horrifying: Chapter 11s have tripled in the first quarter of the year, while Chapter 15s for companies seeking U.S. aid for a reorganization in a foreign court have increased sevenfold, Chapman added.
What makes New York data so dramatic is that the region's bankruptcy filings contrast with national data, that show Chapter 11 filings are down slightly, Judge Carla Craig from Eastern District of New York said. New York is not alone it seems: Judge Brendan Shannon from Delaware said he has also seen an uptick in Chapter 11s and Chapter 15s, though not as marked as in New York. Shannon also sees trend in retail and energy sector bankruptcies continuing, based on current cases .
# The culprit? Take one guess: “The report is that for at least a lot of retailers, it is certainly a difficult, if not flat out impossible environment to operate in,” Shannon said. “We do see more of those cases likely on the horizon.” And while we appreciate the transfer of business from bricks and mortar retail to online, it is simply impossible that the millions of soon to be laid off legacy retail, minimum-wage workers will find suitable employment in the coming retail bankruptcy tsunami (which will claim the following 11 names next according to Fitch), and which will unleash a tidal wave of bankruptcies first across New York, and soon after, across the entire US. How far this particular destructive tsunami of default will reach, and how fast, will determine just how acute the next recession will be....

North Korea's Latest Missile Test Brings Us One Step Closer To WWIII

As time goes on, North Korea’s nuclear program is making war with the United States more and more likely. We’re on a terrible path that no one knows how to escape from. On the one hand, North Korea is clearly led by an unhinged and tyrannical government that can’t be trusted with nuclear weapons. So you can understand why the US is so determined to stop their progress with these weapons. But at the same time, those nuclear weapons could one day guarantee that the leaders of North Korea will remain in power for a long time. Those weapons would make any potential aggressor think twice about trying to invade the bellicose nation, so there’s no way that North Korea is going to abandon its nuclear program. Perhaps the only thing that’s preventing a war from breaking out right now, is the fact that North Korea doesn’t have an effective way to deliver a nuke, nor have they been making much progress in that arena. It seems like every time they test a long range missile, it fails spectacularly.
So long as that state of affairs continues, war can be averted. Unfortunately, North Korea’s missile program has just made a huge leap. On Sunday they tested a new missile that was arguably far more effective than anything they’ve ever launched before. A Hwasong-12, a new medium long-range surface-to-surface missile, was launched from Kusong early Sunday morning. The missile flew roughly 430 miles, but the weapon was intentionally lofted. Analysts suspect the missile could potentially hit targets 2,800 miles away if fired along a standard trajectory. In other words, the missile was launched with a steep arc, as a opposed to a relatively flat trajectory. This was done so that the missile could be tested without launching it over any neighboring countries. Most experts believe that if the missile had been given a flatter trajectory, it could have reached American military assets throughout much of the Pacific.
# The North “appears to have not only demonstrated an intermediate-range ballistic missile (IRBM) that might enable them to reliably strike the U.S. base at Guam, but more importantly, may represent a substantial advance to developing an intercontinental ballistic missile (ICBM),” John Schilling, a respected aerospace engineer who specializes in rockets, explained. With the ability to strike Guam, the North may now have the means to strike most major U.S. strategic assets in East Asia and the western Pacific. While this would be an impressive achievement, North Korea is determined to master ICBM technology. The missile tested Sunday may be the predecessor to a future ICBM.
Is it any wonder why North Korea is the perfect trigger for World War 3? This unstable nation is rapidly increasing its nuclear capabilities, and it’s a nation that China and Russia have a vested interest in keeping alive. They want a buffer state between their borders and South Korea, which is allied with the United States. So any conflict with North Korea (a conflict that is looking more likely every day) could easily drag more nuclear armed nations into the fray. Unless one side of this fight backs down, World War 3 is inevitable. And so far it doesn’t look like either side is willing to compromise on North Korea’s missile program. And here is how we got here, courtesy of Goldman Sachs; The Timeline of North Korea Developments...

Finally, Goldman's Jeff Currie and Mikhail Sprogis discuss gold as a hedge against geopolitical events; we find that gold can effectively hedge against geopolitical risk if the geopolitical event is extreme enough that it leads to some sort of currency debasement, and especially if the gold price move is much sharper than the move in real rates or the dollar. For these events, gold essentially serves as a call option and can therefore be thought of as a “geopolitical hedge of last resort.” This analysis, however, doesn’t take into consideration gold market liquidity itself, which can be crucial when deciding to hedge via physical gold in a vault versus COMEX gold futures. Using a gold futures contract as the basis of the hedge makes the implicit assumption that market liquidity will not be a problem in the realization of a geopolitical event. The importance of liquidity was tested during the collapse of Lehman Brothers in September 2008. Gold prices declined sharply as both traded volumes and open interest on the exchange plummeted. After this liquidity event, investors became more conscious of the physical vs. futures market distinction and began to demand more physical gold or physically-backed ETFs as a hedge against black-swan events...

The lesson learned was that if gold liquidity dries up along with the broader market’s, so does your hedge - unless it is physical gold in a vault, the true “hedge of last resort”....

Greek Authorities To Launch Mass Confiscation Of Safe Deposit Boxes, Securities, Homes In Tax-Evasion Crackdown

Last week, the Greek parliament once again approved more austerity to unlock withheld Greek bailout funds in Brussels: a symbolic move, which has little impact without any actual follow through, like for example, actually imposing austerity. While Greeks have been very good in the former (promises), they have been severely lacking in the latter ( delivery). That may be changing. According to Kathimerini, Greek Finance Ministry inspectors are about to start seeking out the owners of all local undeclared properties, while the law will be amended to allow for financial products and the content of safe deposit boxes to be confiscated electronically. The plan for the identification of taxpayers who have “forgotten” to declare their properties to the tax authorities is expected to be ready by year-end, according to the timetable of the Independent Authority for Public Revenue. What follows then will be a wholesale confiscation by the government of any asset whose source, origins and funding can not be explained. The Greek tax authorities will receive support from the Land Register to that end, as by end-September IAPR inspectors are set to obtain access to the company’s database to draw details on properties.
Any taxpayers identified as having skipped the declaration of their assets to the tax authorities will be asked to comply and declare them, along with paying the tax and fines dictated by law. Should taxpayers fail to do so, the asset will be "sequestered." Kathimerini also notes that the IAPR is also waiting for Parliament to pass regulations permitting the mass confiscation of safe deposit box contents and financial assets such as securities. To date the process has been conducted in handwriting and is therefore particularly slow in locating the assets of taxpayers who have either concealed incomes or have major debts to the state. It is about to get much more streamlined: once the necessary regulations are in place for the operation of an automatic system to collect debts, the tax authorities will be able to issue online confiscation notices and immediately get their hands on the contents of safe deposit boxes, confiscating cash, precious stones, jewelry and so on. They will also be able to confiscate shares and other securities.
This year the tax authorities will focus their efforts on confiscations as they try to reduce the huge pile of expired debts to the state. In this context the Independent Authority for Public Revenue will auction 27 properties belonging to state debtors by the end of next month, with the aim of collecting 2.7 billion euros by the end of the year from old debts and another 690 million euros of new debts from major debtors. We will share the details of the auctions with readers as some notable bargains may emerge in the coming months....

Wayne Madsen; World Leaders Gather In Beijing While The US Sinks Into Irrelevancy

While vaudevillian comedy-like shouting matches broke out in the West Wing of the White House between President Donald Trump and his senior advisers and between the White House press secretary and various presidential aides, world leaders gathered in Beijing to discuss the creation of modern-day land and maritime «silk roads» to improve the economic conditions of nations around the world. Nothing more could have illustrated the massive divide between the concerns of many of the nations of the world and those of the United States, which is rapidly descending into second-rate power status, along with its NATO allies Britain, France, and Germany. While Mr. Trump was threatening to fire his senior White House staff, reprising his one-time role in his reality television show «The Apprentice», China’s President Xi Jinping, Russian President Vladimir Putin, and presidents and prime ministers from around the world sat down to discuss the creation of new international and intercontinental highways, railways, and maritime routes under China’s proposed Silk Road Economic Belt and the 21st Century Maritime Silk Road. Even countries that are cool on the Chinese initiative, including India and Japan, sent representatives to the summit that carried a bit more clout than the pathetic representation of the United States, Matt Pottinger, a little-known special assistant to Trump and the senior director for East Asia of National Security Council...

In fact, the only reason Trump sent anyone to represent the United States at the Beijing gathering was because of a special request made by President Xi during his recent meeting with Trump at the president’s private Mar-a-Lago Club resort in Palm Beach, Florida. South Korea, which saw relations with China sour over America’s placement of Terminal High Altitude Area Defense (THAAD) missile system in South Korea, sent a delegation to Beijing after a phone call between South Korea’s new liberal president, Moon Jae-in, and President Xi. Moon responded to the phone call by sending a delegation led by his Democratic Party’s veteran legislator to Beijing. Even North Korea, which rankled South Korea, Japan, and the United States by firing a ballistic missile into waters near Russia, sent a delegation to the Beijing meeting headed by Kim Yong Jae, the North’s Minister of External Economic Relations. The Trump administration, which sent a virtual unknown to Beijing, complained loudly about North Korea’s representation at the Silk Road summit. But Washington’s complaint was conveyed by someone as unknown as Mr. Pottinger, Anna Richey-Allen, a low-level spokesperson for the U.S. State Department's East Asia Bureau. The reason why the United States is being spoken for by middle-grade bureaucrats is that the nation that still believes it is the world’s only remaining «superpower» is now governed by an administration rife with top-level vacancies, inter-agency squabbling, and amateur league players.
Even though major European Union member states were not represented in Beijing by their heads of government, Germany sent its Economy Minister, Brigitte Zypries. She warned, however, that the EU would not sign a Silk Road agreement with China unless certain EU demands on free trade and labor conditions were guaranteed. Germany’s reticence did not seem to faze other EU nations, which were represented in Beijing by their heads of government and appeared to be more avid in their support of the Chinese initiative. These EU member state leaders included Italian Prime Minister Paolo Gentiloni, Spanish Prime Minister Mariano Rajoy, Polish Prime Minister Beata Szydlo, Greek Prime Minister Alexis Tsipras, Czech President Milos Zeman, and Hungarian Prime Minister Viktor Orban. Moreover, had British Prime Minister Theresa May not been in the middle of a general election campaign, she would have been in Beijing. Nevertheless, she sent British Chancellor of the Exchequer Philip Hammond in her place. If the Trump administration hoped to convince world leaders to stay away from Beijing, it was sorely disappointed. The United Nations Secretary General, Antonio Guterres, was there, along with the President of the World Bank Jim Yong Kim and International Monetary Fund Managing Director Christine Lagarde.
Also present in Beijing were the presidents of Turkey, Philippines, Argentina, Chile, Indonesia, Kyrgyzstan, Belarus, Kazakhstan, Switzerland, Kenya, Uzbekistan, and Laos, as well as the prime ministers of Vietnam, Pakistan, Sri Lanka, Serbia, Malaysia, Mongolia, Fiji, Ethiopia, Cambodia, and Myanmar. Ministerial delegations from Afghanistan, Australia, Azerbaijan, Bangladesh, Brazil, Egypt, Finland, Iran, Kuwait, Lebanon, Romania, New Zealand, Saudi Arabia, Singapore, South Sudan, Sudan, Syria, Tanzania, Thailand, Tunisia, Uganda, and the United Arab Emirates were at the Beijing summit. Japan was represented by the senior adviser to Prime Minister Shinzo Abe and Secretary General of the Liberal Democratic Party, Toshihiro Nikai. France, which was experiencing a change of presidents, sent former Prime Minister Jean-Pierre Raffarin. The Silk Road initiative has projects planned in all the nations whose governments were represented in Beijing, except for the US and Israel. In addition to the nations represented by their government heads of state and ministers, Silk Road agreements were signed between China and Palestine, Georgia, Armenia, Bosnia and Herzegovina, Montenegro, Albania, Tajikistan, Croatia, and East Timor. The one clear message the Beijing meeting sent out to is that America’s «unipolar» vision of the world was dead and buried.
Even among Washington’s longtime friends and allies, one will not hear Donald Trump referred to as the «leader of the Free World.» That phrase has been discarded into the waste bin of history along with America’s insistence that it is the world’s only «superpower.» The United States is a power, a second-rate one that happens to possess a first-rate nuclear arsenal. But nuclear weapons were not being discussed in Beijing. Major projects were on the agenda, projects that when completed will leave the United States at sea in the propeller wash. President Xi, in his keynote address to the conference, said that the «One Belt and One Road» initiative is «a project of the century» and that will benefit everybody across the world. And to put his money where his mouth is, Xi said China will contribute 80 billion yuan (US$113 billion) as added financial impetus to create a global network of highway, railway, and maritime links in a recreation of the ancient Silk Road that linked China to the West. Meanwhile, in Washington, Trump spoke of having recorded «taped» conversations with his fired director of the FBI James Comey, setting off a political firestorm. A new global infrastructure being spoken about in Beijing and political hijinks the major topic of conversation in Washington. The United States has fallen into second-rate global status and is seriously ill as a cohesive nation-state but does not even realize it. China and Russia used the Beijing summit to showcase several Eurasian initiatives, including the Russia-inspired Eurasian Economic Union (EEU) and the China-initiated Asian Infrastructure Investment Bank (AIIB).
Both the Chinese and Russian heads of state let it be known that the BRICS alliance of Brazil, Russia, India, China, and South Africa was still a potent world entity, even though South Africa was not represented in Beijing by its president and India chose not to send any representative to Beijing. President Putin’s words to the conference about the new geopolitical status in the world were noteworthy: «the greater Eurasia is not an abstract geopolitical arrangement but, without exaggeration, a truly civilization-wide project looking toward the future.» In other words, the European Union, which is losing the United Kingdom as a member and will never see membership for Turkey, is a dying international organism. Other international initiatives, like the EEU, BRICS, AIIB, and the One Belt, One Road (OBOR), are leaving the EU and the United States in the dust. That was evident by the fact that the United States was represented in Beijing by an overrated desk clerk and the EU by a Brussels «Eurocrat,» the European Commission vice president Jyrki Katainen....

Bill Introduced Allowing Cancellation Of Over $1 Trillion In Student Debt Through Bankruptcy

Courtesy of Sov Man's Simon Black, here are several of the most bizarre legal anecdotes to take place in the US and around the globe over the past week, staring with a bill currently making its way through Congress, which is seeking to wipe out over $1 trillion in student loans. A convenient way to cancel a trillion dollars of debt.
# What happened: Bankruptcy is like the ultimate get out of jail free card. You just get to wipe the slate clean, and even though your credit score and ability to borrow might suffer, you are free from all your previous obligations. But student loans have long been exempted from being erased by bankruptcy. If this bill passes Congress however, hundreds of billions of currently delinquent student loans, potentially as much as $1.4 trillion worth of student loan debt...

Would be eligible to be wiped out by declaring bankruptcy...

As the number of those defaulting on their student loans grows, this provision could be widely used by those seeking to escape their college debt.
# What this means: The government has helped raise the costs of college and basically scam people into accepting their loans, so it is easy to be sympathetic towards those with student loans. But still, it is messed up to allow people to discharge debts they agreed to pay. There might be a little piece in most of us that doesn’t mind seeing what we consider a predatory lender get screwed and be left with the bill. But apart from the overall immorality of failing to pay your debts, since the government owns most of the student loans, it would basically be the taxpayers getting screwed over once again. What a surprise. Basically if massive amounts of debt were erased, it would be another bubble bursting, which would send the U.S. into a fresh round of economic instability. The economy would spiral downward in relation to how many people took advantage of their get out of jail free card....

zondag 21 mei 2017

Daniel Ruiz; The Foundation Of The Auto Industry Is Faltering

*) Trade Cycles and How They Affect New Vehicle Sales Velocity; Used car values determine in large the velocity of new car sales. Most new car transactions involve a trade. The level of equity in the trade oftentimes determines whether a new vehicle transaction will be successful or not. Inclining used car values lead to faster trade cycles while declining used car values lead to slower trade cycles. Dismal new car sales volume during our last recession created a shortage of used cars. This created a large supply and demand imbalance that made used car values soar from 2009 till 2014 as seen on this chart...

This time period was extremely favorable for new car sales because consumers found themselves in an equitable position on their vehicles in a very short period of time. To illustrate this, consider this chart of a 60-month loan...

The black line represents the principal balance owed. An optimal trade cycle occurs when the principal balance owed on a loan intersects with the market value of the vehicle. The bullish used car cycle for passenger cars ended in 2014 as a result of extreme pricing pressure from new car leases. Since 2014, used passenger car values have corrected and continue to underperform. This underperformance is largely due to the effects that falling used car values have had on new car sales velocity. A longer trade cycle results in a slower velocity of new car sales. Today, we’ve seen data suggesting that used car values can drop as much as 50% from current levels. Refer to the above loan chart and consider what a drop that large would mean for new car sales velocity in terms of trade cycles.... Blindersoffllc