By now virtually every prominent financial authority or pundit has chimed in and told the Fed not to hike rates: these include the IMF, Larry Summers (who for some reason lost the fight with Yellen for the Fed chair because he was seen as "too hawkish" - oops, irony), and even China. Yet all of these are irrelevant, because when it comes to soliciting opinions, the NY Fed in general, and former Goldmanite Bill Dudley in particular, care about just one group of "advisors" - the Investor Advisory Committee on Financial Markets (a group created in July 2009 after the 2008 market crash) also known as the billionaires who run the country's biggest hedge funds, prop desks and PE firms, including JPM, Credit Suisse, Apollo, Blackrock, Blue Mountain, Brevan Howard, Tudor, Fortress, and lo and behold, David "Balls to the Wall" Tepper.
The next IACFM meeting is scheduled to take place in October, as such it will be too late to change the Fed's opinion for a potential September 17 rate hike. Which is why we have to revert to the latest advisory committee meeting which took place on June 25, just before the Greek referendum was announced and two months before the Chinese devaluation, the July FOMC minutes and subsequent market correction. It will have to do.
This is what the "smartest people in the room" told Bill Dudley and his minions about a potential September rate hike. From the June 25, 2015 minutes:
Committee attendees discussed the outlook for the U.S. economy and their expectations for monetary policy. Overall, they noted that real economic activity has gradually improved after a lackluster first quarter. Committee attendees characterized indicators of realized inflation as improving, but subdued relative to FOMC objectives. Meanwhile, the labor market was viewed as at or near full employment.
Committee attendees suggested that the FOMC is likely to increase the federal funds target range during 2015, with September cited as the most likely timing of liftoff. Some felt that financial markets are well positioned for liftoff, while others expected volatility following the first increase in the target range. Most Committee attendees suggested that the path of the policy rate would be more impactful on financial conditions than the timing of liftoff. They expected the path of monetary policy to be data dependent, but noted that they expect the FOMC to be cautious during normalization.
A quick primer on what "discounting" means - since all the participants expected a September rate hike, and since most expected volatility "following" the rate hike, some of these "smartest people in the room" decide to frontrun the volatility (a polite way for violent selling), and sell first before everyone else did. Just in case there was still some confusion about the recent market selloff.
But back to the advisory committee minutes, and what it said about global developments including China:
The sharp rise in core euro area yields during the second quarter was mostly attributed to positioning dynamics, with some feeling low yield levels were too extended. Committee attendees suggested relative value considerations prompted the coordinated move in global developed market rates. Better-than-expected economic data in the euro area and, to a lesser extent, shifting expectations for the ultimate size of the ECB asset purchase program were cited as contributing factors.
Committee attendees suggested that the euro area economy is improving, but that inflation indicators remain below mandate consistent levels and are likely to remain there for a considerable time. They felt that the ECB was doing its part, but fiscal and labor market policies across the region were likely to inhibit the euro area from reaching its inflation mandate in the near term. Most felt that that further euro depreciation was necessary to stimulate the economy.
Committee attendees generally concluded that the Japanese economy has also improved, highlighting the strength of the labor market and the improvement in inflation indicators. A few cited concerns about the Bank of Japan’s exit strategy, given the size of their balance sheet.
China was the focus of the emerging markets discussion. Committee attendees characterized the Chinese economy as slowing, with most believing GDP was running below the target level. Most concluded that recent PBOC easing measures were executed to combat the slowing economy, but noted that financial conditions were not easing much in response. Committee attendees acknowledged officials’ efforts to internationalize Chinese markets, but suggested some of those efforts may run counter to easing initiatives. Beyond China, Committee attendees did not consider emerging markets, on the whole, well prepared for liftoff by the Federal Reserve given that few countries have made structural changes necessary to absorb higher rates.
Well, they were right: emerging markets have since been paralyzed by the biggest currency collapse since the Asian Crisis of 1998 in the aftermath of the Chinese devaluation. However, if the June minutes are to be trusted, then none of what is going on in China is a surprise to any of these smartest people in the room, which is why "Committee attendees suggested that the FOMC is likely to increase the federal funds target range during 2015, with September cited as the most likely timing of liftoff", unless...
What appears to have happened in the ensuing 2 months is that none of these so-called "smartest" people hedged against anything that they warned may happen. Well, actually we take that back: recall from August 14, or just two weeks ago: "Did David Tepper Just Call The Market Top" - the S&P tumbled some 10% since then.
In fact, what has happened is that none of these "smartest people" were actually hedging anything - only Nassim Taleb was actually prepared and ready to capitalize from a market crash, and as we reported last night, his affiliated hedge fund, Mark Spitznagel's Universa made $1 billion last Monday. As for everyone else, well, just look at the table below which including many of the "advisors" listed above:
In fact, the hedge fund performance ranking above is the only thing anyone has to care about when evaluating the chance of a Fed rate hike: if and when the hedge fund losses become too unbearable, any rate hike - September, December, or whenever - will be indefinitely delayed. And that is all Bill Dudley will hear from the only group of advisors whose opinion, and offshore bank accounts, he cares about.
Back in February 2013, Thorsten Heins, then-CEO of what was once the iconic "smartphone" brand Blackberry, publicly lied that its Hail Mary iPhone competitor, the Z10, had "record" early sales. He told CNET, that "BlackBerry nearly tripled the sales of its best performance over the first week in the U.K., while it had its best first day ever in Canada. In fact, it was more than 50 percent better than any other launch day in our history in Canada."
Less than one year later, and less than two years after he was hired, the ruse was up - Blackberry's US market share has fallen from 50% to 3% in four years – and Thorsten was fired.
Fast forward to Monday morning, when the S&P500 had just hit its first limit down in history, stocks were crashing, countless ETFs were crashing more as ETF pricing models were corrupt and broken, the QQQs were plummeting, and none other than AAPL was set to open at a price of $92 wiping out tens of billions of market cap overnight.
It is then that AAPL CEO Tim Cook may have pulled a page straight out of Thorsten Heins' playbook when did something nobody expected him to do - he panicked, and emailed CNBC anchor Jim Cramer to do what the AAPL CEO himself admitted the company does not do by providing mid-quarter updates, and assure the CNBC anchor that there is no need to sell AAPL stock.
Specifically he said that:
"I get updates on our performance in China every day, including this morning, and I can tell you that we have continued to experience strong growth for our business in China through July and August. Growth in iPhone activations has actually accelerated over the past few weeks, and we have had the best performance of the year for the App Store in China during the last 2 weeks."
Needless to say, this stunning intervention by Tim Cook to arrest the plunge in AAPL stock succeeded, and AAPL soared from $92 to close back over $100, a gain of nearly $60 billion in market cap, in turn dragging the entire market higher with it.
Yet what many have found problematic is that in emailing Jim Cramer with what was clearly material, non-public information - how long did Cramer have possession of Cook's email, who did he privately share the information with first, did Cramer trade on the information before going public with it, etc - Cook may have breached Regulation FD.
We wondered as much in our Monday post "Did Tim Cook Violate Regulation "Fair Disclosure" By Emailing Jim Cramer To Save AAPL Stock This Morning." Nearly a week later, there is still no 8-K, even if grotesquely delayed, with what should clearly have been a replica of the statement made by Cook to Cramer.
So we decided to follow up.
What we uncovered may explain why Tim Cook did not want to publicly file his "all is well" email to Cramer: the simple reason is that Tim Cook may have simply been lying in order to halt the rout in his stock, a rout which incidentaly had little to do with concerns about AAPL's Chinese sales and was driven by the latest HFT-facilitated marketwide flash crash as we described previously.
Of course, accusations that Tim Cook is lying should be taken very seriously, which is why instead of relying on Thorsten Heins' pardon, Tim Cook's self-assessment, we went with the latest AAPL channel check out of GFK, Germany's largest market research institute.
For those who are unaware, GfK is almost universally accepted as the best source for end-market demand, collecting and aggregating point of sale data from servers at all major retailers, collecting real time consumer data, as well as conducting manual channel checks at smaller retailers. In short: if something is selling with an upward trajectory, GfK will know about it, with about an 80% confidence interval. And vice versa.
Here is the latest GfK data on Apple:
C3Q15 sell-out outlook:
- Apple’s global ex-NA outlook worsened slightly with the additional JUL/AUG weekly data. Units are now forecast to grow +2.6% q/q (prior +3.0%). Softer early AUG trends in China were only partially offset by resilience in Dev. Asia.
- In China, iPhone 6 demand softened in the final week of JUL, and remained at such levels in AUG weekly data (Figure 17). Apple, as a result, is expected to see more pronounced share loss in China than prior expectations, though units are still expected to grow +62% y/y.
- In Japan, iPhone 6 improved meaningfully in AUG despite no material ASP movements. Sony’s Xperia Z4 was most impacted following its short-lived demand uptick in JUL (Figure 18).
- Apple’s 3Q ASP is expected to decline -3.1% q/q (prior -2.5%); +6% y/y.
US iPhone demand
- Apple lost share m/m in final JUL data, with iPhone 6 & 6 Plus unit demand declining -14% m/m. This was worse than the -7% m/m decline seen for the 5s/5c in JUL-14 and was also weaker than GfK’s expectations.
- Apple’s US smartphone share fell, as a result, to a level below that seen LY (Figure 20).
- The downtick was more pronounced for iPhone 6 and drove the 6/6 Plus ratio from 4.2:1 in JUN to 3.8:1 in JUL.
- iPhone 6/6 Plus continues to significantly outperform the 5s/5c launch to date, with units +22%, only modestly below the +24% growth seen through JUN.
C3Q15 sell-in projection:
- 49.4m; +4% q/q; +26% y/y (prior 50.6m, +7% q/q; +29% y/y)
- International sell-out: 37.0m, -0.3% q/q (prior 37.2m, +0.1% q/q); +39% y/y (unchanged)
- US sell-out: 11.4m, +4% q/q (prior 12.4m); -2% y/y (prior +7%)
- Inventory build of 1.0m units (unchanged)
- Shipment ASP projection: USD667, flat q/q; +10% y/y (unchanged)
* * *
While the above data has a roughly 2 week lag, but considering the explosion of market volatility into the past two week period, it is certain that sales , if anything, deteriorated as the Shanghai Composite went red for the year (after soaring 60% two months ago).
So what can we make of the above data? Here are GfK's highlights:
- The Q3 outlook for Apple has softend notably as a result of weaker trends not only in the US, but in China - the place where Cook assured Cramer Apple has "experienced strong growth in its business."
- US unit demand declined 14% in July, far more than the -7% drop a year prior, and weaker than GfK's own expectations. This could point to substantial weakness over the next 6-12 months for Apple, considering last year, ahead of the iPhone 6 launch, the sales decline was about half of the current decline even without a major new phone rollout imminent. This may mean that the upgrade cycle was much stronger and/or shorter until now, and is starting to fade dramatically.
- The data started deteriorating before the recent rout in Chinese stocks and EM currencies (which make products such as the iPhone more expensive). Keep in mind most of the future growth for Apple is expected to come from Emerging Markets and China now that the US only accounts for a third of total sales.
So did Tim Cook lie?
If one uses channel check data to objectively determine end demand, the answer is a resounding yes. To be sure, Cook may be telling the truth in a very narrow sense, if Apple is simply be resorting to the oldest trick in the book at this point: channel stuffing.
The problem with channel stuffing is that it only allows you to mask the problem for 2-3 quarters at which unless there has been a dramatic improvement in the end-demand picture, it re-emerges that much more acutely: just ask AOL which was channel stuffing for months on end, only to be ultimately exposed, leading to a epic plunge in the stock price.
So is AAPL the next AOL, and is Tim Cook the next Thorsten Heins?
It all depends on China: if the world's most populous nation can get its stock market, its economy and its currency under control, then this too shall pass. The problem is that if, as many increasingly suggest, China has lost control of all three. At that point anyone who thought they got a great deal when buying AAPL at $92 will have far better opportunities to dollar-cost average far, far lower.
Oh, and to anyone still holding their breath for AAPL to file a public statement which may well contain an outright lie, you may exhale now.
Submitted by George Kintis of Alcimos
Greece - Now What
For those of you who like fast-forwarding to the end of the film, here it is:
- Grexit was never on the cards. Even less so after the recent European Summit decisions and the Greek bank recap recently put in motion. This is mainly on account of the dual surpluses Greece currently runs: the current-account and primary budget ones. Even if one could push a magic button and kick Greece out the euro, there is nothing that would prevent Greece from immediately reintroducing it, Kosovo- or Montenegro-style. The only impediment would be the funding of the banking system, but this is being taken care of.
- There has been a decoupling of a large part of the Greek economy from the sovereign issue; for example, exports of goods and services, accounting for around 30% of the Greek economy have been growing at 9% a year. Investors readily recognize this in publicly-traded assets (most Greek corporate bonds are trading well above the sovereign ceiling), but are so far oblivious to it when it comes to non-traded ones (e.g., loans, receivables, etc.). This is a “ginormous” arbitrage opportunity—one just needs to put in a bit of legwork to identify, diligence and acquire such assets. Sorry, you can’t do it off your Bloomberg terminal, or over lunch at Cecconi’s.
- Greece does not have a functioning banking system—credit has been contracting for years, while new origination is practically non-existent. This depresses asset prices to ridiculous levels—even prices of assets which are uncorrelated to the sovereign situation, per the previous point. This reversal of this situation is likely to start in Q2 2016, post the Greek bank recap, which we expect will be coupled with a bank bail-in—and the mother of all NPL trades.
Those of you who think that it’s the journey that teaches you a lot about your destination, read on.
In our recent analyses in the Greek situation, we got many things right—and not just that Grexit will not take place. For example, we had predicted that Tsipras will do an about-face even before the elections, but we also warned that GGBs are not the way to play this on 24 February (unless one has inside information on political decisions). We then advised people on 24 February to stay away from anything that has to do with the public sector and the banks. On 5 April we discussed why investing in Greek banks makes little sense–and then explained why we think Greek banks will be bailed-in on 17 July.
We also got some things wrong: the outcome of the referendum (for better or for worse, there’s a clear bias in our circle of friends towards people with a positive balance in their bank accounts) and the imposition of capital controls (which we believe to be completely illegal).
Here’s why we were wrong in predicting that capital controls wouldn’t be imposed: our working assumption in predicting various outcomes at every step of the way of the Greek saga, is that all players are totally selfish, as well as ruthless and shameless in pursuing their own interests. We realize that the ruthlessness and shamelessness of Greek politicians knows no bounds—we’ve known quite a few of them personally for way too long to have any illusions. We assumed, however, that European politicians had a modicum of dignity; that’s where we got it all wrong.
We did not, for example, expect that Ms. Danièle Nouy, head of the Single Supervisory Mechanism, would go on record as recently as 7 June proclaiming Greek banks “to be solvent and liquid”, but then the Euro Summit of 12 July would identify in its statement the need for the “the establishment of a buffer of EUR 10 to 25bn for the banking sector in order to address potential bank recapitalisation needs and resolution costs”. Where did these guys get that €25bn number—if not from the head of the bank supervisory mechanism? We’d never think that the ECB would cut off financing to banks it considers solvent, saying that they do not have adequate collateral. If they were solvent, how could they not have adequate collateral? Substituting ELA for deposits can have no effect on the solvency of the institution; if the institution was solvent—and therefore its deposits were safe, then the ELA which substitutes these deposits should be safe, too. Anything else is financial alchemy, of which we did not think an institution like the ECB would partake.
Nor could we have imagined that the ECB would refuse to disclose the rationale behind its decisions to freeze Greek ELA, citing as reason that “[i]f the ELA ceiling determined by the Governing Council and the related deliberations including the names of the credit institutions receiving ELA were to become known to the public, market participants could infer from this information the liquidity situation of the credit institutions, with immediate detrimental effects on financial stability. Even if such ELA ceiling determined in a particular situation were to be disclosed ex post, such publication could have detrimental effects on the Governing Council’s opinion-building and decision-making in future similar situations.
The ELA ceiling would be an indication of the extent of stress that the credit institutions were facing, and in particular if market participants were able to monitor the development of the ELA ceiling over time, an upward trend would be interpreted as a signal of increasing stress. Hence, publication of such information would negatively impact the banks’ ability to borrow funds from the market and thereby reinforce their liquidity problems”. This, at a time when the ceiling on Greek ELA is leaked to Reuters and Bloomberg immediately after the relevant ECB decisions, is reported on the Bank of Greece balance-sheet published on a monthly basis, while all four Greek systemic banks recently reported their ELA funding to the Athens Stock Exchange (see for example here).
Who needs another “signal of increasing stress“, when the Euro Summit itself has adjudged “potential [Greek] bank recapitalisation needs and resolution costs [to be between]€10 to 25bn”? Of course, the irony of claiming that “publication of such information would negatively impact the banks’ ability to borrow funds from the market and thereby reinforce their liquidity problems”, when said banks have been locked out of credit markets for months, while their liquidity problems have been a direct effect of the contested ECB decisions, was lost on them. But we are digressing…
We now know better: we are convinced that all players in the Greek drama are thoroughly unscrupulous. Once one analyses the Greek situation through this lens, it’s hard to get predictions wrong. You can only go wrong when certain players turn out to be even more ruthless than you would have imagined.
Once one agrees that both sides (i.e., Greece and Germany) are only self-interested, the dynamics of the current Greek negotiation can be analysed within the framework of a prisoner’s dilemma. Greece does not want the structural changes (austerity and the like), while Germany wants to avoid a haircut at all costs. “Cooperation” would then entail Greece swallowing its medicine, while Germany continues to happily fork over money for as long as needed. “Defection” would mean that the Greek government only pretends to be discharging its obligations under the various memoranda, while Germany is forced to accept a haircut. Now, someone who’s even remotely familiar with game theory can easily predict how this will end: both sides will lose. But let’s follow the various steps.
Germany, as we all know, won the Euro Summit battle: Tsipras surrendered and capitulated (in theory) to all German demands. Germany, has, therefore, “punished” Greece in the prisoner’s dilemma framework. Now we think Greece will retaliate—with the help of the IMF.
Here is how:
We have previously analysed the ongoing tug-of-war between Germany and the IMF (read: the US) on a possible haircut on Greek debt as part of the (supposedly) ideological conflict between “austerity” and “Keynesianism”. Germany has said, no deal without the IMF. The IMF has said, no deal without a haircut. Germany has said, no haircut under any circumstances. You can see where that leads: Greece will pass through the measures, but the creditors will find it difficult to agree between themselves on a new package. We may have a few more bridge loans (in the grand can-kicking tradition of Greek negotiations) but the music will eventually stop. Then Germany will be faced with the stark choice between:
(a) a Greek default, which will result in Greece going to the IMF for help, which “stand[s] ready to assist Greece if requested to do so”, which then leads to an effective subordination (read: haircut) of Germany’s bilateral loans to Greece due to the IMF preferred-creditor status; and
(b) a haircut on Germany’s loans to Greece, which will allow the IMF to participate in the Greek bailout.
Germany is, therefore, free to choose between a haircut and a haircut—even Die Zeit seems to agree with this. A haircut is of course political suicide for Merkel, but the latter version can be sugared with some grand-European-vision talk, so we think she will go for this. We also claim, however, that whatever she does only affects her chances of political survival and not Greece. Here’s why:
Despite all the talk, Greece (still) runs a healthy primary surplus (Jan-Jun 2015) and a current account surplus. The former means that if there was no deal with the lenders, the Greek government would keep on functioning; any new money lent to Greece goes back to repay existing debt. The latter means that Greece will still have the euros it needs to pay for its imports, irrespective of any agreement with the lenders. The only leverage Germany has over Greece, is through ECB financing of Greek banks. That last card has been played—we claim to the benefit of large European banks. Greeks banks will be recapitalized (read: bailed in) no matter what, and bought out by large European banks. Their funding no longer will come from the Bank of Greece, but from the parent—which also has access to the ECB. That bullet has been spent.
Here’s where that leaves us: Greece stays in the Euro, but Greek banks are sold off, properly recapitalized at last. Here’s the back-of-an-envelope calculations behind this:
As at June 2015, the Greek banking system had loans to the private sector of €220bn and total provisions of €41bn. There’s a 35% NPL figure being bandied around, but we have long believed the real number to be higher. How higher—God knows, but let’s assume it’s 50% (it’s probably even higher, but a good part of those NPLs may be strategic, so let’s settle at 50%). To the €41bn of existing provisions one should another €30bn (equal to 8% of total liabilities which, per article 44(5) BRRD, need to be bailed-in before the public purse can be accessed) and the €25bn which have been set aside for the Greek bank recap per the 12 July Euro Summit statement and you get to a figure of €97bn in capital available to absorb losses on an NPL book of €110bn—translating to an NPL coverage ratio of 88%.
The big NPL trades, the ones everyone (and their mothers) has in vain been coming to Greece for since 2010, will finally arrive, probably in Q2 2016.
As to the Greek economy: it’s doing very well, thank you, having grown at 1.6% y-o-y in Q2 2015. It will do even better, when Greece has a functioning banking system. Stay tuned.
So why haven't they figured this out for gold too? Are there no patriots in South Africa's government?
* * *
South African Mine Industry Job Plan Targets Platinum as Central Bank Reserve Asset
By Ed Stoddard
Wednesday, August 26, 2015
JOHANNESBURG, South African -- South Africa's mining industry, unions, and the government have committed to a broad plan to stem job losses, including boosting platinum by promoting the metal as a central bank reserve asset, according to a draft agreement seen by Reuters on Wednesday.
The parties also said they would strive to delay layoffs, sell distressed mining assets instead of closing them, and look at ways of streamlining the legal process employers must follow to cut jobs.
The mining industry, which contributes around 7 percent to Africa's most developed economy, is struggling with sinking commodity prices, rising costs, and labor unrest, forcing a number of companies into mine closures and layoffs.
The agreement is expected to be signed on Monday next week after its details were hammered out on Tuesday.
The draft agreement lays out 10 wide interventions including getting the BRICS group of emerging nations to hold "platinum as a reserve asset" -- like gold -- in their central banks. Brazil, Russia, India, China, and South Africa comprise the BRICS.
South Africa sits on close to 80 percent of the world's known reserves of platinum, a metal used in emissions-capping catalytic converters and facing depressed demand. ...
... For the remainder of the report:
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I’ve just received an interesting query from Mingo, a long-standing European journalist friend and expert on all-things-Afghan… someone whose acquaintanceship dates back to the early days of America’s involvement in Afghanistan. Someone, I might add, who did prove to have in 2004 a clearer vision of what was to happen in that country than most, if not all, military experts, media gurus and politicians in the US. My writings at that time can attest to that.
Mingo’s question is about the perception, he claims, Europeans have on US’ current state of the 2016 presidential election, and what he’s calling “the phenomenon Trump.” His incredulity as to the number of possible followers Trump is said to have (if accurately reflected by the polling) seems to match the incredulity by much of America’s media, or of career politicians sucking on Washington’s udder. “How can ‘that many’ Americans take seriously an arrogant charlatan and be swept away by ridiculous and undisguised hyperbole,” is a question that not just Mingo raises, but one that many have been asking for weeks since Donald Trump decided to enter presidential politics.
But it isn’t catchy phrases seasoned with political hyperbole that have been coming out of Donald Trump’s mouth; it’s not just exaggerations sliding out for emphasis or effect. The short, catchy statements coming out of the leading Republican candidate are not the expected quantifiable or qualifiable exaggerations we are accustomed to hearing from the current political version of yesteryear’s traveling medicine man. Hyperbole has been elevated to a new literary status more in line with the stature of its charismatic and billionaire originator: trumperbole. If Trump’s $3 billion wealth can be subjectively inflated to $10 billion, why not just pump hyperbole and call it trumperbole or, in similar fashion, reclassify trump as an adjective and give it comparative and superlative forms: trumper, trumpest, anyone? Well, these days in the US, we are seeing our celebrated and self-proclaimed potential savior, Donald Trump, as the non-politician politician proudly donning capitalist airs and shouting the trumpest trumperbole.
Irony of ironies, however, is the amount of truth that can come out of the mouth of this political babe as he tears apart or diminishes the political persona of GOP adversaries. Not just his party’s peer candidates but other Republican politicians as well who dare stand in the way: Jeb Bush, Lindsey Graham, John McCain, Scott Walker, Marco Rubio, Mike Huckabee, Rick Perry, Rand Paul… all have been cut to sub-Trump size, even ridiculed; while others have not been dignified with a Trump honorable mention, Ted Cruz being the exception with an interesting and secretive question mark. Be that as it may, the entire group of Republican presidential contenders has been irremediably diminished to a sickly and unworthy flock of possible standard bearers for the GOP.
But the Republicans are experiencing more than just the political castration of top party figures, often comically so by someone who lacks any orthodoxy or practicality which favors tradition and fights radical change. Out of the mouth of this political babe, there have been two gems of political wisdom which are likely to hurt Republicans far more than Democrats. Trump’s contention that politicians in Washington are being bought by special interests is no breaking news announcement, but his underlining and writing of this fact in bold letters readily does away with the mockery that ours is a democracy, or that our government is in any way, shape or form a government for the people… only for those who can pay the entry fee. The other gem has to do with iniquity in taxation, likely to make him few friends in the gallery of speculators in hedge funds.
Donald Trump, I could tell Mingo, is no phenomenon or wonder, only someone money has immunized and given a suit of armor under our capitalist system; a person with true elite-freedom. Little wonder that few people in the media, or politicians, are willing to alienate him or, much less, tackle him head on when there is the prospect of a litigious wrecking ball waiting in the wings.
It is precisely this view by many that Trump is impervious to any type of fear that makes him an attractive advocate or champion of causes which people would otherwise keep hidden within themselves. Nativists can now show their passion thanks to Trump’s leadership; and so can racial-mongers; and white nationalist activists; and a few others. They can all come out of the closet and feel safe.
I could also tell Mingo something else. The Republican Party is running the danger, if Donald Trump becomes its nominee, of having its candidate become the counterpart of George McGovern (the liberal candidate) in 1972. For those then around, we can revisit those numbers and look at the prospect of Trump becoming Republicans’ McGovern. [McGovern had just 37.5 percent of the popular vote and only carried Massachusetts and the District of Columbia in the Electoral College (520-17).]
No; Trump is no phenomenon, just a figurehead for those with closeted anger trying to resist unstoppable change in the world and resent their loss of power.
Booming house prices and stock market gains create 200000 more millionaires in ... - The Times (subscription)
The Times (subscription)
Booming house prices and stock market gains create 200000 more millionaires in ...
The Times (subscription)
The variety of millionaires within the UK has risen by 41 per cent over the previous 5 years due to booming home costs and inventory market good points, figures present. There at the moment are 715,000 millionaires dwelling in Britain in contrast with ...
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In what may be the funniest bit of economic humor uttered today, funnier even than the deep pontifications at Jackson Hole (where moments ago Stanley Fischer admitted that "research is needed for a better inflation indicator" which means that just months after double seasonally adjusted GDP, here comes double seasonally adjusted inflation), in an interview with Swiss newspaper Le Temps (in which among other things the fake-bronzed IMF head finally folded and said a mere debt maturity extension for Greece should suffice, ending its calls for a major debt haircut), took some time to discuss China.
This is what she said.
Turning to China, Lagarde said she expected the country's economic growth rate to remain close to previous estimates even if some sort of slowdown was inevitable after its rapid expansion.
China devalued its yuan currency this month after exports tumbled in July, spooking global markets worried that a main driver of growth was running out of steam.
"We expect that China will have a growth rate of 6.8 percent. It may be a little less." The IMF did not believe growth would fall to 4 or 4.5 percent, as some foresaw.
Actually, some - such as Evercore ISI - currently foresee China's GDP to be negative, at about -1.1%.
But the funniest part was this: "The slowdown was predictable, predicted, unavoidable," Lagarde was quoted as saying."
Well, yes, here is China's Caijing quoting Zero Hedge some time in 2012, explaining that China has "the world's largest credit bubble." Incidentally, it was back in 2012 that we warned "that all platitudes of the Richard Koos aside and Paul Krugmans, who demand ever more debt, the developed world is at its debt capacity."
Three years later McKinsey admitted just that in one the most "shocking" pieces of economic analysis released in years, showing that global debt had risen by $57 trillion to $200 trillion since the first great financial crisis, which incidentally is why global growth is no longer possible in a world in which only incremental debt creation fuelled growth for decades.
But going back to Lagarde's sstatement that China's "slowdown was predictable, predicted", we just want to add that - yes, it was... by everyone but the IMF.
Here is the history of the IMF's Chinese GDP growth forecasts taken straight from its World Economic Outlook quarterly pieces. The graph, also known in Excel as "the dying hockeystick" needs no explanation.
If we told you that thousands of protesters donning bright yellow shirts had taken to the streets to call for the ouster of a leader in an important emerging market, you’d be forgiven for thinking we were talking about Brazil, where President Dilma Rousseff is facing calls for impeachment amid allegations of fiscal book cooking and government corruption.
But on this particular weekend, you’d be wrong.
We’re actually talking about Malaysia, where tens of thousands of demonstrators poured into the streets of Kuala Lumpur on Saturday to call for the resignation of Prime Minister Najib Razak whose government has been accused of obstructing an investigation into how some $700 million from 1Malaysia Development Berhad mysteriously ended up in Najib’s personal bank account.
1MDB was set up by Najib six years ago and has been the subject of intense scrutiny for borrowing $11 billion to fund questionable acquisitions. $6.5 billion of that debt came from three bond deals underwritten by Goldman, whose Southeast Asia chairman Tim Leissner is married to hip hop mogul Russell Simmons’ ex-wife Kimora Lee who, in turn, is good friends with Najib’s controversial wife Rosmah Manso.
You really cannot make this stuff up.
What Goldman did, apparently, is arrange for three private placements, one for $3 billion and two for $1.75 billion each back in 2013 and 2012, respectively. Goldman bought the bonds for its own book at 90 cents on the dollar with plans to sell them later at a profit (more here from FT). Somewhere in all of this, $700 million allegedly landed in Najib’s bank account and the going theory is that 1MDB is simply a slush fund.
So you can see why some folks are upset, especially considering Rosmah has a habit of having, how shall we say, rich people problems, like being gouged $400 for a home visit by a personal hairstylist. Here’s The New York Times with more on the protests:
Tens of thousands of demonstrators in Malaysia defied police orders on Saturday, massing in the capital in a display of anger at the government of Prime Minister Najib Razak, who has been accused of corruption involving hundreds of millions of dollars.
The demonstration in central Kuala Lumpur, which has been planned for weeks, has been declared illegal by the Malaysian police, and the government on Friday went as far as to pass a decree banning the yellow clothing worn by the antigovernment protesters.
But the demonstrators, who represent a broad coalition of civic organizations in Malaysia, including prominent lawyers, asserted their right to protest on Saturday.
The government has acknowledged that Mr. Najib received the money in 2013 and said it was a donation from undisclosed Arab royalty.
One group of protesters on Saturday carried the image of a giant check in the amount of 2.6 billion ringgit, with a sign that read, “You really think we are stupid?”
The group organizing the protest goes by the name Bersih, which means clean in Malay.
Calls for Mr. Najib to resign have come both from within his party, which is divided, and from the opposition. One junior member of Mr. Najib’s party, the United Malays National Organization, filed a lawsuit against Mr. Najib on Friday asking for details of how the money was spent.
Of course the most prominent voice calling for Najib’s ouster is that of the former Prime Minister Mahathir Mohamad. "I don’t believe it is a donation. I don’t believe anybody would give [that much], whether an Arab, or anybody," he says.
Meanwhile, Malaysia is facing a re-run of the 1997/98 financial crisis as the ringgit plunges amid broad-based pressure on emerging markets. With FX reserves now sitting under $100 billion some fear a return to capital controls (let's just call it the "1998 option") is just around the corner despite the protestations of central bank chief Zeti Akhtar Aziz. Here's BofAML:
Capital controls are not likely, but the possibility cannot be dismissed, despite <assurances from Zeti. Introducing controls will be a regressive move and a huge setback, hurting the economy and financial sector, and derailing any ambitions of becoming an international Islamic financial center. Malaysia’s reputation and credibility remain tainted by the capital controls of 1998, even after almost two decades.
The ringgit has depreciated almost 13% year-to-date, the worst performing EM Asian currency. FX reserves fell to $94.5bn at mid-August, falling below the $100bn threshold and down by about $9bn in July alone. At the peak, FX reserves were $141bn in May 2013. Cover to short-term external debt is only 1x, while cover to imports stands at 5.9 months. Downside risks remain given looming Fed rate hikes, China's RMB devaluation and the political crisis over 1MDB. Malaysia's vulnerability is also heightened by high leverage (household, quasi-public and external) and a fragile fiscal position (heavy oil dependence, off balance sheet liabilities)
The current crisis has not reached the extreme stress seen during the Asian financial crisis, when draconian capital controls were eventually introduced in September 1998. During that episode, the ringgit collapsed by about 89% from peak to trough at its worst (to 4.71 from 2.49 against the USD). The ringgit has depreciated some 26% in the current crisis. During that episode, the KLCI fell by about 79% from peak to trough (from 1,271 to 263) at its worst. The KLCI today has fallen by only about 12% from its recent peak. Nevertheless, downside risks remain given looming Fed rate hikes, China’s RMB devaluation and the political crisis.
So in short, Malaysia is on the brink of political and financial crisis, and it looks as though the nuclear route (capital controls) may be just around the corner, which would of course only serve to alienate the country's financial system at a time when the government looks to be on the brink of collapse. What's particularly interesting here is the timing. Mahathir Mohamad famously clashed with George Soros during the '98 crisis, going so far as to brand the billionaire a "moron". Now that the country's "founding father" is looking to oust Najib, it will be interesting to see what role he plays in shaping Malaysia's response to the current financial crisis and on that note, we'll leave you with a quote from Dr. Mahathir ca. 1997:
"I know I am taking a big risk to suggest it, but I am saying that currency trading is unnecessary, unproductive and immoral. It should be stopped. It should be made illegal. We don't need currency trading. We need to buy money only when we want to finance real trade."
Today's most anticipated event at tthis year's Jackson Hole event was the panel on "Global Inflation Dynamics", not because there is any core inflation in the world (at least not in the way the CPI measures it), especially not now that China is finally in the deflation exporting business, but because the most important speaker at this year's Jackson Hole, Fed vice chairman Stanley Fischer, alongside BOE's Mark Carney, the ECB's Constancio and the RBI's Raguram Rajan, would comment.
Moments ago he just did, and courtesy of Market News, here are the highlights:
- FISCHER: SHLD NOT WAIT TIL 2% INFL TO BEGIN TIGHTENING
- FISCHER: NEED TO 'PROCEED CAUTIOUSLY' IN NORMALIZING POLICY
- FISCHER: FED FOLLOWING DEVELOPMENTS IN CHINESE ECONOMY
- FISCHER: RATE PATH MATTERS MORE THAN TIMING OF FIRST HIKE
- FISCHER: RISE IN DOLLAR COULD RESTRAIN GDP GROWTH IN '16, '17
- FISCHER: $ MAY HOLD DOWN CORE INFL 'QUITE NOTICEABLY' THIS YR
- FISCHER: NEED CAUTION IN ASSESSING INFL EXPECTATIONS AS STABLE
- FISCHER: 'GOOD REASON' FOR INFL TO MOVE UP AFTER OIL/$ PASSES
- FISCHER: CORE INFL 'TO SOME EXTENT' IMPACTED BY OIL PRICES
- FISCHER: ECON SLACK IS ONE REASON CORE INFL HAS BEEN LOW
- FISCHER: OIL PRICE IMPACT 'OUGHT' TO BE LARGELY ONE-OFF EVENT
- FISCHER: LABOR MARKET 'APPROACHING' MAX EMPLOYMENT OBJECTIVE
As AP notes, Fischer said there's "good reason to believe that inflation will move higher as the forces holding down inflation dissipate further." He says, for example, that some effects of a stronger dollar and a plunge in oil prices have already started to diminish.
Both in his speech Saturday and in an interview Friday with CNBC, Fischer made clear that the most recent economic data and the direction of financial markets over the next two weeks would help determine whether the Fed raises rates next month.
In the CNBC interview, Fischer acknowledged that before the recent market volatility, "there was a pretty strong case" for a rate hike at the Sept. 16-17 meeting, though it wasn't conclusive. Now, the issue is hazier because the Fed needs to assess the economic impact of events in China and on Wall Street.
More details from MNI:
Federal Reserve Vice Chair Stanley Fischer said Saturday the U.S. central bank should not wait until it sees 2% inflation to begin tightening policy, but it should proceed cautiously in removing accommodation.
"With inflation low, we can probably remove accommodation at a gradual pace," Fischer said in remarks prepared for a panel discussion at the close of the Kansas City Fed's annual Economic Symposium here.
Yet, he added, "because monetary policy influences real activity with a substantial lag, we should not wait until inflation is back to 2% to begin tightening."
Fischer, who as a member of the board votes at every meeting of the Federal Open Market Committee, did not comment on a particular time for the first rate hike in more than nine years. He did say, "For the purpose of meeting our goals, the entire path of interest rates matters more than the particular timing of the first increase."
That path will be decided by the progress on the Fed's price stability mandate as progress in the labor market continues and is "approaching our maximum employment objective," Fischer said.
"To ensure that these goals will continue to be met as we move ahead," Fischer said, "we will most likely need to proceed cautiously in normalizing the stance of monetary policy."
Right now though, progress on the Fed's inflation objective is being weighed down by a significant drop in oil prices and a stronger U.S. dollar since last year. Fischer estimates the rise in the dollar, about 17% in nominal terms since last summer, will restrain real GDP growth through 2016 "and perhaps into 2017 as well." It "could plausibly be holding down core inflation quite noticeably this year," he said.
The lower oil prices could also put downward pressure on core inflation, even though this measure is designed to strip out the effects of the volatile prices.
"Note that core inflation does not entirely 'exclude' food and energy, because changes in energy prices affect firms' costs and so can pass into prices of non-energy items," he said.
Overall, though, Fischer sounded optimistic these factors will prove transitory. "While some effects of the rise in the dollar may be spread over time, some of the effects on inflation are likely already starting to fade," he said.
"The same is true for last year's sharp fall in oil prices, though the further declines we have seen this summer have yet to fully show through to the consumer level," he said.
The transitory nature of these factors and "given the apparent stability of inflation expectations," he said, "there is good reason to believe that inflation will move higher as the forces holding down inflation dissipate further."
In addition, "slack in the labor market has continued to diminish, so the downward pressure on inflation from that channel should be diminishing as well," he said.
But Fischer warned that Fed olicymakers should "be cautious in our assessment that inflation expectations are remaining stable."
One reason "is that measures of inflation compensation in the market for Treasury securities have moved down somewhat since last summer," he said.
He added, though, "these movements can be hard to interpret, as at times they may reflect factors other than inflation expectations, such as changes in demand for the unparalleled liquidity of nominal Treasury securities."
Fischer didn't comment much in his prepared remarks on other recent financial market volatility, except to say "At this moment, we are following developments in the Chinese economy and their actual and potential effects on other economies even more closely than usual."
In broad terms, this is a repeat of what he told CNBC's Liesman yesterday, which resulted in the market getting spooked in a "not dovish enough" reaction, if only until the last 15 minute mauling of VIX, which sent the DJIA down from -110 to almost positive.
What is clearly missing from Fischer's speech is even the faintest grasp that China is now actively exporting deflation via active devaluation, which is a double whammy for the Fed's "financial conditions" as it means not only will US inflation remains persistently low (the way the BLS measures it), but the ongoing selloff in TSYs will force the Fed to get involved soon, especially if ongoing selling in both TSYs and stocks wreaks more havoc with 'risk parity" models, potentially forcing the world's biggest hedge fund Bridgewater to delever and/or unwind some of its massive $150+ billion in positions.
However once again, the most important question was missing: now that China is engaging in reverse QE and selling tens if not hundreds of billions in US Treasurys every month, with the US facing a $450 billion budget deficit (hence needing to issue half a trillion in debt), the Fed balance sheet contracting by over $250 billion, just how does the Fed plan on tightening if what it should instead be doing is easing, and massively at that.
Full speech here (link):
The moment you add the yen to any larger financial discussion it inevitably brings out passionate response. I think that is derived partially from its status as unbelievably durable; if there is one currency in the world that “deserves”, so to speak, ultimate execution it is that of the Japanese. The Bank of Japan has done more than any other central bank for far longer to kill it, but like any horror movie villain it seems immune to any reckoning or even the laws of financial sense.
In the bigger picture, that is as much a damning indictment as a tale of orthodox resilience. It shows that monetary redistribution is nothing but a trap, an incredibly narrow and locked economic existence that can and will be permitted by any sustained apathy. It is a cautionary tale that “markets” can become comfortable with perpetual dysfunction and disaster over time; distract investors enough with monetary magic and they will apparently forget all about more basic functions like impoverishment and general, sustained degeneration.
To the more immediate effect, the yen as related to financial markets elsewhere is always going to be tangled by the “carry trade.” The idea has become legend, as to whenever the yen moves starkly in one direction or the other the first commentary will usually “inform” of the carry trade potential. I have no doubt that it exists and even that it forms the great basis of yen involvement in so many spheres, but I think it more a means than an end.
What was notable about Japan during the past few weeks was the yen’s strengthening. Almost in lockstep with gold, it was quite clear that fear was driving both as the “dollar” was being run. Under less pressured condition, a tightening in wholesale “dollars” would typically find both the yen and gold in the reverse; the fact that they (and the franc) had become the opposite was a telling cue.
Any examination of the yen is drawn to the major devaluations, the most prominent of features in its chronology of the past few years. However, despite that seeming one-way direction there have been a couple of noteworthy exceptions. The first was (below) starting May 22, 2013, and running through the middle of June that year. Recall that May 22 was the onset of the credit crash after the first utterance of the word “taper” and that the selloff ran through to June 24, especially MBS and eurodollars. The yen, rather than continue against such a “strong dollar” instead itself appreciated jumping from a low of 103.50 to 94.30 by the end of the episode.
In the past year, as the “dollar’s” various runs have become more frequent and globally involved, the yen has staged a couple of these same reversals to smaller degrees. The first was October 15, going from 109 to 106 which sounds like almost nothing except that it interrupted, prominently, right in the middle of the second major devaluation. Since that time, these counter moves in the yen have matched perfectly other “dollar” runs; one ending on December 16, 2014, as junk bonds and the corporate credit bubble was hit; one ending on January 15, 2015, when the SNB was forced to break its euro peg from “dollar” pressure, marking the first major central bank warning.
You could even add another yen appreciation in early March, ending just after the March FOMC. Finally, there was the largest yen “safety” bid so far, a huge spike that began August 19 as the “dollar” system was run further toward its ultimate global liquidation point. Was that the carry trade unwinding? Most assuredly, but not for or of itself and certainly not because of factors in Japan. In other words, in these specific episodes at least, the carry trade was likely just one method of expressing broader uncertainty and then fear against US assets. To my view, that is an enormous statement itself given the rather deserved disdain for the yen.
We knew liquidity globally was under great strain in the weeks prior to this Monday’s stock participation, but the yen, franc and gold also showed clearly that general fear was moving into that situation as well; that is, obviously, a shift and an unwelcome one given what transpired.
Is it over? From these indications it may not be, at least not yet fully. Gold has been higher today (both through the AM and PM fixes) while the yen is still lingering around 121 rather than the 124-125 range prior to the PBOC’s defeat. Stocks may be more sanguine, but in the bubble age that is an almost permanent feature making them the last in line of the liquidity train to “get the message” (discounting mechanism? Not for a long time). It would be reasonable to assume then, despite the “dollar’s” more immediate pause across the financial system this week, not everything has resumed ignoring these deeper funding issues. That may, of course, dissipate next week or however long into the immediate future, but for now, having been subjected to a very serious move, the “system” doesn’t seem quite ready yet to just move on (interesting also that UST’s were bid starting yesterday afternoon until this morning; 10s were 2.20% in yield around 1 pm yesterday and falling to 2.13% before reversing yet again around 10 am).
In many ways, you expect gold to behave in this manner even against its more nefarious “dollar” connections that have for a few years now been pulling it steadily lower – there was always a safety bid awaiting some more aggressive disruption. To see the yen and the franc participate too, and to such a heavy reversal, seems to suggest just how far into the interior of even the domestic foundation this “run” progressed. We knew it was a grave period by the very fact of knocking the PBOC so unsteady as it did, but these other moves add unconditional confirmation of what it really was.