Opportunity And Leverage

 
More hell for central bankers the globe over, the lack of common sense, or if some is good more must be a lot better. More, contrary to these folks, is often less. A 15 trillion plus balance sheet for the Lords of Eccles since the Great Recession.

Once upon a time there was a Senator who became famous for saying a billion here, a billion there, pretty soon you're talking serious money. That was then, this is now. And it's a trillion here, a trillion there and still hardly anyone thinks it's serious money.

We've talked at length before about the COLA crowd, underfunded retirement plans, insurance companies and the fixed-income set. We said before they were tossed to the wolves by central bankers and politicians who supported those central bankers knowing full well the damage they would do in rescuing their Wall Street friends.. It was a conscious choice,premeditated, and now you have Senator Pocahontas of Massachusetts screaming about struggling Social Security recipients, debt-laden students and the jobless millions.

Gross state the current system is beginning to be challenged, but that is too kind by a trillion here  and a trillion there. Opportunity and leverage don't show up often. Keep that in mind
-----
My country club locker room is a fascinating 19th hole observatory where human nature and intelligence often come into conflict. Almost all of my golfing buddies are risk takers by nature and many of them are gamblers — not just in the card room but also in the casinos in Las Vegas. Having spent some time in Sin City myself in my early 20s as one of the first blackjack counters, I was, and still am, most familiar with odds and the impossibility of beating the "House" in any game other than blackjack over a long period of time. Still, this commonsensical conclusion is not so obvious to many of my friends, who first of all, claim that they usually "break even" on any particular weekend jaunt, and secondly, suggest that they can win by using various betting "systems" that somehow allow them to claw back losses or stabilize winnings. An absurd example of this would be to triple your bet if you've lost 3 times in a row, and if you lose that, to quadruple your bet and so on. All of these illusions are derivatives of the so-called Martingale System, which claims that it is mathematically impossible to lose, given enough money and the willingness of the casino to take the increasing bet. The latter conditions, however, are where reality meets the road. A string of 4, 5 or perhaps 30 straight losses cannot work in the long run because the size of the bets eventually reach billions of dollars.

This same mathematical logic seems to have eluded central bankers around the globe. They are quite simply, employing a Martingale System in the conduct of monetary policy with policy rates now in negative territory for both the ECB and the BOJ — which in turn have led to over $15 trillion of negative yielding developed economy sovereign bonds. How else would one characterize the "whatever it takes" statement by Mario Draghi in 2014? How else would one interpret BOJ's Kuroda when just last week he upped the ante in Japan by capping 10 year JGB's at 0% until inflation exceeds 2% per year? How else would a rational observer describe Carney and Yellen other than "Martingale gamblers with a wallet or a purse?" Our financial markets have become a Vegas/Macau/Monte Carlo casino, wagering that an unlimited supply of credit generated by central banks can successfully reflate global economies and reinvigorate nominal GDP growth to lower but acceptable norms in today's highly levered world.

An interesting counter to my Martingale characterization of central bankers is in fact that they do have an unlimited bankroll and that they can bet on the 31st, 32nd, or "whatever it takes" roll of the dice. After all, their cumulative balance sheets have increased by $15 trillion+ since the Great Recession. Why not $16 trillion more and then 20 or 30? They print for free, do they not, and actually they make money for themselves and their constituent banks in the process. Why not? Why is there a limit for them as opposed to an individual gambler? If future inflation is the problem, then markets must know that that is their goal and what the increasing bets are geared to do. They are some distance from their 2% or 2+% targets so stay in the casino and keep printin'!

Well, a commonsensical observation made by yours truly and increasing numbers of economists, Fed members, and corporate CEOs (Jamie Dimon amongst them) would be that low/negative yields erode and in some cases destroy historical business models which foster savings/investment and ultimately economic growth. Our argument is that NIMs (net interest margins) for banks, and the solvency of insurance companies and pension funds with long dated and underfunded liabilities, have been negatively affected and that ultimately, the continuation of current monetary policies will lead to capital destruction as opposed to capital creation. Central bankers counter with the cavalier attitude of "let them (savers) eat cake" (buy stocks). "Our job", they claim "is to promote economic growth in the short term and restore stability via ever ascending asset markets that eventually trickle down to the masses." They claim that normalization will have to wait, and even then, the "new, new Normal" in terms of yields will be much lower than historical averages. I think that the latter contention is true, but central bankers cannot continue to double down bets without risking a "black" or perhaps "grey" swan moment in global financial markets. At some point investors — leery and indeed weary of receiving negative or near zero returns on their money, may at the margin desert the standard financial complex, for higher returning or better yet, less risky alternatives. Bitcoin and privately agreed upon block chain technologies amongst a small set of global banks, are just a few examples of attempts to stabilize the value of their current assets in future purchasing power terms. Gold would be another example — historic relic that it is. In any case, the current system is beginning to be challenged.

zerohedge.com/news/2016-10-04/cannot-end-well-bill-gross-warns 

Count Us Incredulous Too

The constant caterwauling you here these days for ramping up fiscal spending is a catch-all term that really means we're out of ideas, so it's time to go to the government well again. In Keynesian parlance it's a well known as aggregate demand.

The only sure thing one can say about AD is it's guaranteed to proscribe any possibility of fixing anything or ever paying down your debt. A while back after MSM and other Keynesian acolytes exhausted their list of usual suspects and the economy was still sucking wind after five years of crazy monetary policy, they blamed consumers. Consumers were being too naughty. How dare they cut back on spending and start saving a few bucks. How dare they put funding their upcoming retirements in this economic slowdown ahead of government interests.

We are the government. And we know fiscal spending aka aggregate demand works. JMK told us so.
Well, here's another viewpoint.

Count us incredulous. There is absolutely no evidence to back this argument up. Between 1992 and 2000, the eight years of Bill Clinton's presidency, consumer spending averaged just 65.1% of GDP, but real GDP grew 3.8% annually.

In the past five years, consumer spending has averaged 68.3% of GDP, the highest five-year period in history. Yet real GDP grew only 2% per year. In other words, aggregate consumer demand has risen sharply, but the economy is growing more slowly.

And if you think government spending is a solution to this problem, think again. Between 1992 and 2000, federal government spending averaged 19.2% of GDP. In the past five years, government spending has averaged 21.5% of GDP.

Read more:

.advisorperspectives.com/commentaries/2016/10/03/cut-spending-to-grow-economy

The Dangerous One

 
So you think the other guy is the neocon.

We have said before they are riling the public up for a war. So you think the other guy is the dangerous one. We went to war not over WMDs but energy once before. Want to do it again, this time in a much bigger, more dangerous one.

Why now? Perhaps, in addition to the sharp deterioration in relations between Russia and the west, where tensions are on par with the cold war, another answer may come from the Chairman of the Joint Chiefs of Staff Joseph Dunford, who last week warned Congress that the implementation of a No Fly Zone in Syria as proposed by John Kerry recently, and a centerpiece of Hillary’s foreign policy strategy, would result in World War III.

As a reminder, Hillary Clinton strongly argued in favor of a no fly zone ever since October 2015, just days after Russia began a bombing campaign aimed at maintaining the stability of the Syrian government. "I personally would be advocating now for a no fly zone and humanitarian corridors to try to stop the carnage on the ground and from the air, to try to provide some way to take stock of what’s happening, to try to stem the flow of refugees," said Clinton in an interview with NBC in October 2015.

Despite the warnings, the former Secretary of State and current presidential candidate, who has a well-known hawkish position towards regime change and matters related to Russia, has continued to advocate this position which has gained traction in recent weeks among top US diplomats. 

Clinton is note alone: as the WSJ reported in June, more than 50 US diplomats endorsed a notorious dissent memo, demanding that that the Obama administration employ military options against Assad, such as the implementation of a no fly zone if not a direct attack against the Syrian regime. The argument from the diplomats is that the situation in Syria will continue to devolve without direct action by the US military, an argument of dubious legality if undertaken unilaterally without a UN Security Council resolution but which as Sputnik reports, the US Ambassador to the UN Samantha Power has been laying the groundwork for under the controversial “right to protect” theory of international law arguing that Russia’s opposition to a resolution should be ignored because they are a party to the conflict. 

Russia, in turn, has countered that if the Assad regime falls then terrorist groups including ISIS and al-Nusra Front will likely fill the resulting power vacuum descending the country into an even greater harbor for international terrorism. Ultimately, the Syrian conflict is fundamentally about the transport of energy, and whether Russia maintains its dominance over European natural gas imports, or if - with the Syrian regime deposed - a Qatar natural gas pipeline can cross the territory and make its way to Europe.

As for the Russian nuclear war drill, we can only hope that any such rising hints of nuclear warfare remain in the realm of the purely theoretical.

zerohedge.com/news/2016-10-03/40-million-russians-take-part-radiation-disaster-drill-days-after-us-general-warns

Overnight

It was PMI day today as the Purchasing Managers Index hit the news, coming in above 50, a number considered to be indicative of growth.The 51.5 topped August's number of 49.4 and also the 50.4 economists were expecting.

The positive news spilled over in part to Asia over night with the Nikkei up 0.8%, the Hang Send off 0.11%, The Shanghai Composite up 0.21% and ASX 200 down 0.11%. The Bombay BSE Sensex gained 1.35%., the Kospi rose 0.7% and the Singapore Strait Times moved 0.2% higher.

The weaker yen helped Japanese shares as the PMI pushed the dollar higher. Also, it gave more impetus for higher U.S. interest rates in the eyes of many investors, with a hike coming this December. Japanese exporters moved higher on the session. Australia's Reserve Bank has a new governor, Philip Lowe, as investors await an interest  rate decision later today. The RBA is expected to leave interest rates unchanged at 1.5% for the second straight month as Lowe's rhetoric of late  the subject has been neutral. The stronger dollar also affected commodities, pushing many lower with Brent crude oil down 0.6% trading at $50.60 a barrel and gold down 0.1% at $1,310.92 an ounce.

As the noted the U.S.dollar index was up at 95.926 against a basket of currencies.The WSJ reported:
 Among other currencies, the British pound was relatively stable against the dollar in Asian trade, off 0.1% recently, after declining 1.1% Monday. The sterling’s decline came after U.K. Prime Minister Theresa May announced she would trigger Article 50 by the end of March 2017, formally starting the clock on the country’s two-year deadline to exit from the European Union.
 
Mainland Chinese markets are shut for the Golden Week holiday.

Crying Time Again

This from Business Insider.

The restaurant industry is not a sideshow. About 14 million people work in it, according to the National Restaurant Association. With $710 billion in annual sales, it’s an important part of consumer spending and accounts for about 4% of GDP. If the industry is having problems, it’s a red flag for the overall economy.

The news in the restaurant business presumably brings up the words to a song the late Buck Owen's wrote and the late great Ray Charles immortalized: "It's crying time again. You say you're gonna leave me." If this article from Insider is any indication, it looks as if it's crying time again for more than the restaurant business. Try the big E word: Economy.

Eight restaurant companies representing 12 chains have filed for bankruptcy since December: Restaurants Acquisitions, Cosi, Logan’s Roadhouse, Fox & Hound, Champps, Bailey’s, Old Country Buffet, HomeTown Buffet, Ryan’s, Johnny Carino’s, Quaker Steak & Lube, and Zio’s Italian Kitchen. 

Restaurants are precarious creatures. They lease costly space and have to invest in equipment and furnishings. It’s a competitive environment, with high expenses and little pricing power. To expand, they load up on debts. Some, like Cosi, always lose money. Customers are finicky and fickle. When new competitors come along, or when the economy tightens, customers thin out and creditors begin to fret and turn off the money spigot. 

Some of that is normal. The restaurants come along, and old ones die.
“But the current wave of bankruptcies is definitely unusual, and rivals the chain bankruptcy wave of 2009 and 2010, when several chains filed for debt protection after sales fell,” writes Jonathan Maze at Nation’s Restaurant News.

Here are some other points.

Only 30% of the restaurant operators reported a year-over-year increase in same-store sales. That’s down from 71% in February.

Operators also reported a net decline in customer traffic: while 21% reported a year-over-year increase, 59% reported a year-over-year decline. August was the fourth months in a row of year-over-year net declines in customer traffic. 

And operators are turning gloomy about the overall economy: only 17% expect the economy to improve over the next six months, but 29% expect conditions to worsen: This represented the 10th consecutive month in which restaurant operators had a net negative outlook for the economy.

Read more: businessinsider.com/the-restaurant-industry-is-giving-off-warning-signs-2016-10?

Never Were Any

The upcoming meeting this week between the International Monetary Fund and the World Bank is best described as an exercise of "whistling past the lonely graveyard" late at night.

In a post from today's Financial Times, "Global economic growth ‘sliding back into the morass,'" we get this carefully constructed language.

The annual meetings will encourage policymakers to pursue inclusive and faster global growth as international organisations, finance ministers and central bank governors seek to reassure the public they can co-operate and that they have the necessary tools to break five years of economic disappointments. 

Hanging over the meetings is the fear that the failure to improve living standards in advanced and emerging economies was important in the UK’s vote to leave the EU, may propel Donald Trump to the US presidency and will strengthen the hands of populists such as Marine Le Pen in France. 

Going into the meeting the Times is quoting a joint tracking index on global growth between the newspaper and the Brookings Institution that follows growth rates in the global economy. The article title speaks for itself. Inclusive and faster growth is always the same, code for ramping up fiscal spending another code term for solving nothing just kick the damn can the hell down the road to shut up all our critics. This damn kitchen is getting too hot. If we're not diligent this uproar will actually bring about some real meaningful change to our business-as-usual honey pot.

Don't say this out loud or you'll disturb the sleeping bureaucrats, Deutsche Bank's current morass is sine quo non. The bureaucratic monstrosity is just that, a monstrosity. Donald Trump, like the guy or otherwise, caught some hell for saying the system is rigged.  But as one Ft columnist wrote today, talking about DB: "The real eye opener is the absence of any executive from the charge sheet."

The columnist went on to say: Since the financial crisis, shareholders have borne the lion’s share of the cost of banks’ past misconduct. It has been a weighty burden on top of the requirement to put new money into often woefully undercapitalised institutions. Around the world, they have been stuck with penalties amounting to nearly $350bn.

They have certainly taken more pain than those who ran the largest banks. By and large, top executives have got off lightly. True, some have lost their jobs, or seen their wealth eroded because of the tumbling value of their stakes in their own institutions. But most have avoided sanction, hanging on to their professional credentials and much of their winnings. In a recent study of 156 criminal and civil actions brought against large banks by the US Department of Justice (DoJ), individual employees were identified and charged in just 19 per cent of those cases, according to analysis by the Wall Street Journal. In only one was a board level executive actually held to account.

No one questions that shareholders should have responsibility for the conduct of an enterprise — especially one with the economic significance of a big financial institution. Those who both have rights of control and a share in the fruits should bear the costs when things go awry. But it is striking how through the post-crisis period almost all penalties have fallen on the investors, and indeed continue to do so. Just look at the furore about the proposed settlement between the DoJ and Deutsche Bank. Most bank fines have ranged from the annoying to the painful. In this case, the DoJ went further: the $14bn it was apparently demanding — a startling four-fifths of Deutsche’s market capitalisation — actually raised questions about the bank’s ability to pay.
Even so, the real eye-opener was not so much the number (which is anyway likely to be negotiated and much smaller) as the absence of any bank executives from the charge sheet. One might have thought that malfeasance requiring such a level of restitution would at least have resulted in staff being pursued because of what they had done.

Not so. In fact not a single Deutsche employee was fingered for misconduct. And what is more, it has been virtually the same story with a host of settlements involving mortgage-backed securities. Several large US institutions, including JPMorgan, Bank of America and Goldman Sachs, have coughed up a cool $55bn. Yet with just a handful of exceptions, regulators haven’t found individual bank employees who committed prosecutable offences in the whole mortgage mess.
-----
As we said this is sine quo non. They need this to continue so they can continue running their shameful scams. Anyone think the CEO of Warren Buffett's favorite big bank,Wells Fargo, will see any jail time? And you can bet those Italian bankers right now, led by Matteo Renzi, are breathing a sigh of relief, mostly likely tilting a glass of their favorite wine with a toast or two: "Here's to all those austerity-driven German  freaks."

The globe is a very ugly place right now. And there are no saviors on the horizon for one good reason: There never were any.

Flip It

How do you spell wuss.

Well, here's a hint. It is also a twofer. You start with a B and end with an S as in Bernie Sanders. Sanders has noticeably cornered the market on both. Hilary conspired against Bernie as did his party--proved by the DNC leaked emails--and though he won't publicly admit it he was ordered out of the race. That's how you spell ultimatum. Now the queen of lies has apparently leaked a word about Sanders' policies, supposedly calling them "false promises" and the Vermont wuss does what socialist wusses do: he is still going to support her though he did muster an admission he was disturbed by it.

Bernie's been familiar with the state of being disturbed for a long time. One can only guess the bullies of his party must have threatened to repossess his new lakeside home.

"Endorse her or else!"

"Or else what?"

"We'll take back the money and the house!"

"Both? That's not how I remember the deal."

"That's the way it is."

"You got a coin?"

"Sure.  But what ya need one for?  Hardly anybody carries them today. Haven't heard about lost purchasing power?

"Flip it.

"Ok."

"Heads I get to keep both and tails I get to keep both."

World Bank KY Jelly Data

Roll out the KY jelly, set aside a pair of non-latex rubber gloves and if you can still bend over, get prepared for another you know what.

Here's a case of attempted damage control at its most insulting. A new report from those bureaucrats at the World Bank want to slide this one past you, according to the Financial Times: "World more equal since financial crisis, says report."

"Despite popular belief," the Times notes, discussing the report from the World Bank, "the world became a more equal place after the global financial crisis, with twice as many countries seeing declines in inequality as increases."

A guy named, Francisco Ferreira, the WB head bureaucrat for poverty research, called "the findings 'myth-breaking'," the Times notes. Besides the obvious timing of this release, there's no mention of how they arrived as such "myth-breaking" results. But that's hardly the phoniest part. All you people living in industrialized societies are better off as the gaps there declined not increased.

According to World Bank data shared with the Times, the UK was "the industrialized economy that saw the biggest decline in inequality after the crisis. Others include the US, Germany, Brazil and China." Talk about shooting a shot across the bow of those damned evil populists, Brexit and Trump supporters, not to leave out those crusty, austerity-crazy Germans, this gives you some idea of what these insulated bureaucrats and elitists think of you.

"But the new study by the World Bank researchers found that inequality within countries actually decreased since the 2008 crisis, with big industrial economies the winners," the Times went on.

Now it's obvious too the good Mr. Ferreira hasn't spent the last five years driving LA freeways otherwise his data would've included the huge increase in the number of homeless folks standing at the base of exit and on ramp lanes, holding up signs asking for jobs, money, food and whatever. Now many of these unfortunates are savvy enough to populates those spaces in wealthier areas. We don't have any data how successful they are versus the ones who stand in such place in less wealthy areas, but maybe that's a study the bureaucrats at the World Bank could undertake.

 Mr. Ferreira goes on, per the Times, to mention between 2012 and 2013 "100 million people falling out out poverty." But what he fails to state is the number of bureaucrats at places like the World Bank and the IMF falling out of reality during the same period.

We told you, these people have utter contempt for you and yours. The only things they want are your tax dollar and your vote.

It's Only A Side Agreement

The Neocons, among them Hillary, are getting you ready for war. Don't you understand that?

To do so you have to rile up the populace, create enemies, roll out the propaganda machines, not to mention the monetary printing presses. Default on the debt or go to war because they cannot pay it back, never had any intention of doing so, and now it's obvious they cannot grow their way out.

There is Money Mayweather and there is Money Madness. One is a professional entertainer, the other a gaggle of phony bureaucrats and politicians that run this gig. The only ones they seek to entertain is themselves. Now, however, it's become clear to them they're out of tricks. So create some more villains and tune up the war drums.

But before it all breaks out, see if you can't get government permission to destroy your personal computer. After all, you would not want it to fall into enemy hands.

zerohedge.com/news/2016-10-03/us-suspends-bilateral-diplomatic-relations-russia-syria

zerohedge.com/news/2016-10-03/fbi-allowed-2-hillary-aides-destroy-their-laptops-newly-exposed-side-agreements

Until Hell Freezes Over

 
Here's a story from the non-taxes-paying New York Times that actually has something positive and truthful to report, the people of Spain without a stumbling, bumbling, inept greedy government for several months. And guess what, it seems to be getting on quite well. Imagine that!

MADRID — For the past 288 days, Spain has plodded along without an elected national government. For some Spaniards, this is a wonderful thing.

“No government, no thieves,” said Félix Pastor, a language teacher who, like many voters, is fed up with the corruption and scandals that tarnished the two previous governing parties.

Mr. Pastor, a wiry, animated 59-year-old, said Spain could last without a government “until hell freezes over” because politicians were in no position to do more harm.

After two grueling national elections in six months, and with a third vote possible in December, no party has won enough seats or forged the coalition needed to form a government. For the first time in Spain’s four decades as a modern democracy, this country of 47 million people has a caretaker government. That has produced an unprecedented public spectacle: Politicians scheme and plot but reject the difficult compromises needed to form a government. Voters watch ruefully with a mix of fascination and contempt.

On Saturday, the Socialists’ leader, Pedro Sánchez, stepped down in a move that could open the way for his party to agree to the re-election of Prime Minister Mariano Rajoy and a government led by his conservative Popular Party. But while the Socialists’ revolt could break the deadlock, it may do little to heal Spaniards’ frustration with a crisis that has further eroded their faith in politicians.

Spain’s leaders warned that having no government would mean chaos and deprivation. Instead, more than anything, the crisis seems to have offered a glimpse of life if politicians simply stepped out of the way. For many here, it has not been all that bad. “Spain would be just fine if we got rid of most of the politicians and three-fourths of government employees,” Rafael Navarro, 71, said inside his tiny storefront pharmacy in Madrid. Too little government is better than too much, he said. In some ways, this is a phantom crisis for ordinary Spaniards. There has been no United States-style government shutdown. There are no mounds of uncollected garbage, no unpaid police officers, no shuttered ministries, no public trains or buses halted.

Budget money is still flowing. Government ministries are functioning. Social service recipients and civil servants are being paid. Even if no new government has been formed when the 2016 national budget expires this fall, the old budget will simply become the new budget for 2017.

But government is paralyzed in other ways. Nobody is proposing legislation, debating international affairs or even rotating Spain’s ambassadors. Funding for many infrastructure and government projects is frozen. And nationalist movements in Catalonia and the Basque region continue to roil national politics.

Spain has been in political limbo since last October, when Mr. Rajoy called a general election while he held a parliamentary majority. His Popular Party then won the most votes in December and June, but did not win a majority. It now holds 137 of the 350 seats in Parliament. The stalemate has come at an opportune moment. After a severe recession ended in 2013, Spain’s economy rebounded. Growth is forecast to be 2.9 percent this year, almost twice the 1.6 percent eurozone average expected by the European Commission. Interest and energy rates are at historic lows.

Spain, a tourism superpower, expects 74 million visitors this year, six million more than last year, as terrorism fears elsewhere send visitors here. Cafes and museums are crowded, and hotels are booked solid. But after trudging to the polls twice already in the last year, weary voters are in no mood to vote again. The political calendar dictates a vote on Christmas if no agreement to form a government can be reached by Oct. 31.

The impasse has dragged on so long that “it’s like ‘Groundhog Day’ every day,” said Pedro Rodríguez, an assistant professor of international relations at a private university in Madrid.

Until the recent and chaotic revolt within the Socialist Party, said Nacho Cardero, the editor of El Confidencial, a news website, reader clicks on stories about the crisis had dropped steadily.

“People are exhausted,” Mr. Cardero said. “They don’t want to hear one more thing from these politicians.” Spaniards were hopeful for better government in December, after two new parties, for the first time, won a third of the seats in Parliament. That set off a political free-for-all because no single party has been able to muster a majority.

  

.nytimes.com/2016/10/03/world/europe/spain-socialists-sanchez-rajoy.