The Fed has been sitting on the funds rate like some monetary mother hen since December 2008. Once it punts again at the June meeting owing to Brexit worries it will have effectively pegged money market rates at the zero bound for 90 straight months. There has never been a time in financial history when anything close to this happened, including the 1930s. Nor was interest-free money for eight years running ever even imagined in the entire history of monetary thought. So where’s the fire? What monumental emergency justifies this resort to radical monetary intrusion and repression? Alas, there is none. And that’s as in nichts, nada, nope, nothing! There is a structural growth problem, of course. But it has absolutely nothing to do with monetary policy; and it can’t be fixed with cheap money and more debt, anyway. By contrast, there is no inflation deficiency – – even by the Fed’s preferred measure. Indeed, the very idea of a central bank pumping furiously to generate more inflation comes straight from the archives of crank economics. The following two graphs dramatize the cargo cult essence of today’s Keynesian central banking regime. Since the year 2000 when monetary repression began in earnest, the balance sheet of the Fed has risen by 800%, while the amount of labor hours used in the US economy has increased by2%.
Brexiteers should have been prepared for the shattering intervention of the US. The European Union always was an American project. It was Washington that drove European integration in the late 1940s, and funded it covertly under the Truman, Eisenhower, Kennedy, Johnson, and Nixon administrations. While irritated at times, the US has relied on the EU ever since as the anchor to American regional interests alongside NATO. There has never been a divide-and-rule strategy. The eurosceptic camp has been strangely blind to this, somehow supposing that powerful forces across the Atlantic are egging on British secession, and will hail them as liberators. The anti-Brussels movement in France – and to a lesser extent in Italy and Germany, and among the Nordic Left – works from the opposite premise, that the EU is essentially an instrument of Anglo-Saxon power and ‘capitalisme sauvage’. France’s Marine Le Pen is trenchantly anti-American. She rails against dollar supremacy. Her Front National relies on funding from Russian banks linked to Vladimir Putin. Like it or not, this is at least is strategically coherent. The Schuman Declaration that set the tone of Franco-German reconciliation – and would lead by stages to the European Community – was cooked up by the US Secretary of State Dean Acheson at a meeting in Foggy Bottom. ‘It all began in Washington,’ said Robert Schuman’s chief of staff.
For the first time ever, Berkshire Hathaway’s annual meeting in Omaha goes digital and is being webcast live on Yahoo Finance. Those so inclined can watch Warren Buffett and Charlie Munger’s deep thoughts in real time from the Woodstock of Crony Capitalism at the webcast link below.
This post was published at Zero Hedge on 04/30/2016.
Wondering what will blow up in China next? For all the concern about excessive debt, bubbles are likely to keep inflating for a while. The latest exhibit: commodity futures. Iron-ore contracts traded in the northeastern city of Dalian are starting to look eerily like Chinese stock market indexes did in early 2015, on their run-up to a midyear peak that then turned to bust. Anyone tempted to believe that the gains are driven by fundamentals should look at what happened this week. China’s iron-ore futures contract dropped by the daily limit to 450.5 yuan ($69) on Tuesday after the Dalian exchange almost doubled trading fees, the latest of a raft of measures to curb speculation. It plunged further to close at 434.5 yuan on Wednesday, still up about 40 percent for the year. Fueling the rally are a sudden interest by Chinese investors in commodities after their best two-month run since 2012, and the availability of margin finance. The events mirror almost step by step the rise and fall of the local stock markets last year. The Shanghai and Shenzhen stock exchanges also began to raise trading fees while the bull market was still raging but it wasn’t until regulators clamped down on margin trading that the bubble popped.
By Adventures in Capitalism The Woodstock Of Crony Capitalism It’s been a while since I’ve attended the Berkshire Hathaway (BRK:NYSE) annual meeting. Between the tedium of little kids asking questions about how to live life, to the feel-good nature of the thing, I simply got repulsed. Why do a bunch of hard-nosed capitalists choose to act like Ned Flanders for a weekend – in Omaha of all places? It’s illogical and completely artificial.
This post was published at Zero Hedge on 04/29/2016 –.
For many years,’ John Chamberlain writes in his book The Roots of Capitalism,’the system we call capitalism was on the defensive. It existed in the here-and-now, and its imperfections, whether inherent or not, were plainly apparent to everybody. ‘Socialism, on the other hand, was something to be attained in the future, a thing of shining colors wrapped in the gossamer tissue of a dream. Its imperfections, if there were to be such, were still concealed in the womb of time. When contrasted with a dream of perfection, capitalism was manifestly at a disadvantage. ‘But,’ Chamberlain goes on, ‘with the advent of socialist economies (Communist Russia, China) and the semi-socialist, or ‘mixed,’ systems of Scandinavia, Britain, and New Deal America (to say nothing of the ‘national’ socialisms of Nazi Germany and Fascist Italy), capitalism no longer requires apologists.’ Capitalism’s superiority, in hindsight, is obvious: Capitalism doesn’t require force, murder or concentration camps as a matter of policy in order to attain the desired result. Yet, many seem to think that an economic system based on private trade is the primary cause of corruption, widespread malfeasance and manmade disaster. Quick question: When’s the last time a Chipotle cashier kicked down your door and served you a burrito bowl, extra guac, at gunpoint? Now, as we shift the binoculars to the public sector for a moment, try not paying land rent (property taxes) for a few years. Then board up those windows before the capitalists in business suits show up at your door with guns.
Submitted by Irina Slav via OilPrice.com, Depressed oil prices, rampant corruption, and pipeline vandalism are only parts of Nigeria’s oil problem. It’s now losing a massive 400,000 barrels of crude daily to pirates in the Gulf of Guinea, an amount equal to the entire daily export capacity of its Forcados terminal. Overall damage from piracy, theft and fraud for Africa’s largest oil exporter is estimated at some $1.5 billion a month, according to U. S. deputy ambassador to the UN, Michele Sison, citing a Chatham House report. Attempts by local governments and the UN to put a stop to piracy have met with some success, but the practice continues – shifting location and adapting to new security measures, so now the UN Security Council is calling for a comprehensive framework of measures aimed at eradicating it.
This post was published at Zero Hedge on 04/29/2016 –.
It’s not just metals caught up in China’s commodity fever. The equivalent of 41 million bales of cotton traded in a single day on the Zhengzhou Commodity Exchange last week, the most in more than five years and enough to make almost 9 billion pairs of jeans, or at least one for every person on the planet. Prices that had slumped to the lowest on record in February surged almost 19 percent in the four days leading up to the trading spike on Friday. Traders have piled in to Chinese commodity markets, sending volumes of everything from steel to coking coal soaring and prompting exchanges to boost margins and fees or issue warnings to investors. The surge in trading is reminiscent of last year’s equities rally that boosted the stock market before a rout erased $5 trillion. China is the world’s largest consumer of cotton and second-biggest producer. ‘Record low levels in February and March sparked buying interest from both inside and outside of the cotton industry and also triggered speculation, which resulted in mounting bets in Zhengzhou futures,’ said Liu Qiannan, a Beijing-based cotton analyst at Galaxy Futures Co. ‘With massive investment and encouragement from the crazy steel and iron ore market in China, sentiment then turned to bullish from bearish.’
The billionaire investor William A. Ackman has become the unofficial leader of a thundering herd that has lost billions of dollars betting onValeant Pharmaceuticals over the past year. The 49-year-old founder of Pershing Square Capital Management, the $12.5 billion hedge fund, found himself going to bat again for Valeant on Wednesday when he testified before Congress about Valeant’s controversial drug pricing policies, which have included inflating the prices of vital heart medicines right before learning that generic equivalents were coming to the market. Mr. Ackman’s firm has lost billions of dollars on Valeant. Shares of the Canadian drug maker have plummeted 85 percent since he first pitched the company as one of his best investment ideas at a hedge fund charity event last year. Not coincidentally, big names like Paulson & Company, Viking Global Investors and Brahman Capital have also lost billions, collectively, by betting on Valeant – underscoring a growing phenomenon of hedge fund groupthink. It is a reflection of big-dollar investors chasing too few ideas and getting tripped up when things turn poorly for a company they have set big markers on.
China’s bond traders are getting a painful lesson on the dangers of leverage. After years of racking up profits by borrowing cheaply and plowing the proceeds into higher-yielding debt, investors are now rushing to unwind those wagers amid the deepest selloff in 13 months. The bets are getting squeezed from both sides as bond prices sink and borrowing costs rise to one-year highs in the 8 trillion yuan ($1.2 trillion) market for repurchase agreements, used by traders to amplify their buying power. While a reduction in leveraged wagers is arguably good for China’s long-term financial stability, it risks fueling a downward spiral in a market that Pacific Investment Management Co. says already shows signs of panic amid mounting default concerns. The pullback challenges government efforts to revive economic growth with cheap credit and could hardly come at a worse time for Chinese companies on the hook for a record 547 billion yuan of maturing onshore notes in May. ‘It looks like everybody is cutting their leverage, passively or pro-actively, as pessimistic sentiment continues to brew,’ said Wang Ming, chief operating officer at Shanghai Yaozhi Asset Management LLP, which oversees 15 billion yuan of fixed-income securities. ‘Carry trades have become riskier.’
One of the biggest lies our government tells us is that it wages the War on Drugs to keep us safe. More than 40 years after it was started, we know that it has been a colossally-expensive epic failure on its stated goals, was intentionally designed to further disenfranchise marginalized groups, and has become a full-fledged assault on our civil liberties. Even with all the billions of tax dollars it spends each year, and all the flashy photo ops of seized drugs stacked on tables, the Drug Enforcement Agency only stops 1% of the illegal drug supply from being distributed in America, according to the video below. Not only is law enforcement pathetically inept at stemming the flow of drugs, they are active participants in the illicit drug trade at both the federal and local level:
That the artificial interest rates in evidence in our hugely distorted capital and money markets can be made negative in nominal as well as in real terms is, alas, the curse of the modern age. Though entirely at odds with natural order – as we have repeatedly tried to make plain – they are also a curse that we are unlikely to have lifted any time soon, especially not in a Europe where there is no effective restraint to be had upon the exercise of his awful powers by the likes of a fanatic like Draghi. Like some latter-day Pope Gregory, Draghi pretends to a power superior to that of the secular realm’s rulers. Forgetting that it was an act of political will which first set up the ECB, he now demands that the Lords Temporal of the Eurozone shuffle barefoot through the snows, like the Emperor Henry IV before them, to genuflect before him at his seat at that modern Canossa which stands on Sonnemannstrasse. Though the ‘mandate’ which he unfailingly invokes in place of a claim of descent from St Peter was indeed intended to keep the Bank insulated from the worst, inflationary impulses of the short-horizon politician, it cannot be argued from that one act of self-denying foresight that the ECB is now only subject to a higher court. Laws are, after all, made in parliaments and when it becomes evident that among those laws there are those that have either been made obsolete by events or have become subject to exploitation by the unscrupulous, it is the duty of the people in parliament to highlight such abuses and to set in train the process by which the offending laws will be revised or repealed.
The rate that Americans own their homes fell in the first quarter to the third lowest on record, another indication that worsening finances as well as changing preferences since the Great Recession are altering behavior. The Commerce Department reported that the ownership rate fell a tenth to a seasonally adjusted 63.6% in the first quarter, marking the third lowest figure since the 63.5% low in the second quarter of 2015. The ownership rate was 67.8% in the quarter when the U. S. entered recession.
The big news of the day had nothing to do with Janet Yellen, which was entirely appropriate given both her stance on the economy and anything she could possibly, realistically do about it (nothing). Apple reported results that were shocking in many ways, though not necessarily unexpectedly so. Last quarter, CEO Tim Cook had warned that the business had shifted. On a conference call with analysts in January he declared, ‘The challenging global macroeconomic environment is leading to constrained conditions unlike anything we’ve seen, everywhere we look.’ In that quarter, Q4 2015 (fiscal Q1 2016), Apple did manage to beat its record revenue, so the 13% drop in revenue in this next quarter only further suggests the ‘macroeconomic environment is leading to constrained conditions.’ And unlike Janet Yellen, Apple isn’t ready to forecast that to change soon, though, as always, they see the longer term remaining ever so bright. The revenue forecast for Q2 (Apple’s fiscal Q3) was equally dismal, with expectations of just $41 to $43 billion vs. the $47.4 billion level that analysts had already downgraded to. In trying to explain its worst quarter since 2001, Cook again turned to the economy: Chief executive Tim Cook partially blamed ‘strong macroeconomic headwinds’ including the strong US dollar for the decline in sales, which was particularly severe in China. On yesterday’s conference call, he specifically stated it as the reason for weakness in the smartphone business, where sales of Apple’s iPhone fell for the first time ever. I think that the market as you know is currently not growing, however, my view of that is that’s an overhang of the macroeconomic environment, and we’re optimistic this too shall pass, and the market and particularly us will grow again.
The corruption is on every front. And it is pretty obvious that the two party system has thoroughly rotted through, and its decrepitude obvious to all the onlookers. There is a great deal of uproar about the collapse of the GOP – which has been thoroughly thwarted and upstaged by Donald Trump at every turn… but it should really come as no surprise. Everyone hears the warnings that the system is collapsing, but when it doesn’t happen right away, every goes back marching to the music. But the establishment party hacks – who have long forced sellout candidates pushing a draconian agenda to the captive people – could not fill their empty suit in 2016 with any of their 16 other party-loyal candidates. They were so desperate, they even considered rolling out two-time presidential loser Mitt Romney and Speaker Paul Ryan as last minute candidates. Even now, the party insiders are trying to reinvent the twist with a Ted Cruz/ Carly Fiorina ‘dream team’ ticket that is sure to make anyone cringe, but the party hopes will keep it all in the family anyway: He doesn’t have the Republican nomination. He doesn’t even have the lead for the nomination. In fact, he has no clear path to the nomination. But it looks like Ted Cruz will have a running mate. Naming Carly Fiorina as his vice-presidential pick at this point provides Mr Cruz with several benefits… Mr Cruz has his back to the wall. He needs a win in Indiana, and he really needs a strong performance in California. Mrs Fiorina on the ticket could help – and at this point, anything that might work is worth a shot.
This post was published at shtfplan on April 27th, 2016.
American interventionism isn’t just sending in the Marines – more often it’s sending in the President. The ‘bully pulpit’ has worldwide resonance, and President Obama recently used it to urge the British to reject ‘isolationism’ and stay in the EU. As usual with the White House – and not just this one – the little lecture was accompanied by a threat: if the Brits abjured his advice, and that of British Prime Minister David Cameron, they would be put ‘at the back of the queue’ when it comes to signing trade deals with the US. This is nonsense, as London mayor Boris Johnson pointed out: the European Union’s routinely protectionist stance would actually made it harder rather than easier to negotiate any kind of trade deal. But Obama, undeterred by the furious reaction to his intervention in the debate, continued his assault on British ‘isolationism’ the next day, averring that it would take a decadefor the US to agree to freer trade with the British in the absence of the EU. I had to laugh when I read the following in the Bloomberg piece linked above: ‘The comments extended the rare intervention of a U. S. president into another nation’s domestic politics. On Friday, Obama stood beside Prime Minister David Cameron to admonish the British electorate about the perils of embracing an isolationist stance.’ ‘Rare’? In what universe? I’m sure the peoples of South and Central America, not to mention more recent victims of US meddling in Ukraine and other places too numerous to list, would be very interested to hear how ‘rare’ this is!
Professor Jack Hoadley of Georgetown University recently gave an excellent presentation discussing prices of prescription drugs. Two slides stand out. First, a slide showing how much prescription spending is controlled by insurers and governments versus patients directly:
Corporate America is swimming in cash. There is no great news about this, and no great mystery about where it came from. Seven years of historically low interest rates will prompt companies to borrow. A new development, however, is that investors are starting to ask in more detail what companies are doing with their cash. And they are starting to revolt against signs of over-leverage. That over-leverage has grown most blatant in the last year, as earnings growth has petered out and, in many cases, turned negative. This has made the sharp increases in corporate debt in the post-crisis era look far harder to sustain. Perhaps the most alarming illustration of the problem compares annual changes in net debt with the annual change in earnings before interest, tax, depreciation and amortisation, which is a decent approximation for the operating cash flow from which they can expect to repay that debt. As the chart shows, debt has grown at almost 30 per cent over the past year; the cash flow to pay it has fallen slightly.
It’s all over except the shouting. That is, the primary election season effectively ended last night and now the actual shouting match between Hillary and The Donald begins. This will surely be the most entertaining election in US history, and probably the most pointless, too. After all, Hillary wants to use government to make Government Great Again. And Trump promises to use government to make America Great Again. But government doesn’t make anything great, including itself. It is a necessary evil that always and everywhere is driven toward self-aggrandizement and mission creep by the politicians and special interest lobbies which control its operations. What government actually does is thwart the capacity of the people to pursue their own vision of greatness by encumbering their economic lives with burdensome taxation, regulation, roadblocks to opportunity and monetary fraud while saddling their public lives with endless Nanny State impositions and encroachments upon their personal liberty.
At a logistics park bordering Shanghai’s port last month, the only goods stored in a three-story warehouse were high-end jeans, T-shirts and jackets imported from the U. K. and Hong Kong, most of which had sat there for nearly two years. Business at the 108,000-square-foot floor warehouse dwindled at the end of 2015 after several Chinese wine importers pulled out, said Yang Ying, the warehouse keeper, leaving lots of empty space. The final blow came after a merchant turned away a shipment in December at the dock. ‘The client told the ship hands, just take the wine back to France,’ Ms. Yang said. ‘Nobody wants it.’ Pain is increasing among the world’s biggest ports – from Shanghai to Hamburg – amid weaker growth in global trade and a calamitous end to a global commodities boom. Overall trade rose just 2.8% in 2015, according to the World Trade Organization, the fourth consecutive year below 3% growth and historically weak compared with global economic expansion. The ancient business of ship-borne trade has been whipsawed, first by a boom that demanded more and bigger vessels, and more recently by an abrupt slowing. That turnabout has roiled the container-shipping industry, which transports more than 95% of the world’s goods, from clothes and shoes to car parts, electronic and handbags. It has set off a frenzy of consolidation and costs cutting across the world’s fleets.