During the 40 months after Alan Greenspan’s infamous “irrational exuberance” speech in December 1996, the NASDAQ 100 index rose from 830 to 4585 or by 450%. But the perma-bulls said not to worry: This time is different—-it’s a new age of technology miracles that will change the laws of finance. It wasn’t. The market cracked in April 2000 and did not stop plunging until the NASDAQ 100 index hit 815 in early October 2002. During those a heart-stopping 30 months of free-fall, all the gains of the tech boom were wiped out in an 84% collapse of the index. Overall, the market value of household equities sank from $10.0 trillion to $4.8 trillion—-a wipeout from which millions of baby boom households have never recovered. Likewise, the second Greenspan housing and credit boom generated a similar round trip of bubble inflation and collapse. During the 57 months after the October 2002 bottom, the Russell 2000 (RUT) climbed the proverbial wall-of-worry—-rising from 340 to 850 or by 2.5X. And this time was also held to be different because, purportedly, the art of central banking had been perfected in what Bernanke was pleased to call the “Great Moderation”. Taking the cue, Wall Street dubbed it the Goldilocks Economy—-meaning a macroeconomic environment so stable, productive and balanced that it would never again be vulnerable to a recessionary contraction and the resulting plunge in corporate profits and stock prices. Wrong again!
During the 40 months after Alan Greenspan’s infamous “irrational exuberance” speech in December 1996, the NASDAQ 100 index rose from 830 to 4585 or by 450%. But the perma-bulls said not to worry: This time is different—-it’s a new age of technology miracles that will change the laws of finance forever. It wasn’t. The market cracked in April 2000 and did not stop plunging until the NASDAQ 100 index hit 815 in early October 2002. During those heart-stopping 30 months of free-fall, all the gains of the tech boom were wiped out in an 84% collapse of the index. Overall, the market value of household equities sank from $10.0 trillion to $4.8 trillion—-a wipeout from which millions of baby boom households have never recovered. Likewise, the second Greenspan housing and credit boom generated a similar round trip of bubble inflation and collapse. During the 57 months after the October 2002 bottom, the Russell 2000 (RUT) climbed the proverbial wall-of-worry—-rising from 340 to 850 or by 2.5X. And this time was also held to be different because, purportedly, the art of central banking had been perfected in what Bernanke was pleased to call the “Great Moderation”. Taking the cue, Wall Street dubbed it the Goldilocks Economy—-meaning a macroeconomic environment so stable, productive and balanced that it would never again be vulnerable to a recessionary contraction and the resulting plunge in corporate profits and stock prices. Wrong again!
The GOP tax bill is not “at least something”. It’s not “better than nothing”. And, no, we are not letting the perfect become the enemy of the good. In truth, this thing is a fiscal, economic and political monster. It is hands down the worst tax bill enacted in the last half-century—-maybe even since FDR’s 1937 soak-the-rich scheme, which re-ignited the Great Depression. True, rather than soak them, the GOP’s bill will pleasure America’s wealthy with a bountiful harvest of tax relief. Owners of public equities, for example, will garner a trillion dollar shower of extra dividends and stock buybacks from the corporate rate cut. Likewise, 4 million top bracket ATM (alternative minimum tax) payers will be relieved of about $80 billion per year of Uncle Sam’s extractions; around 5,000 dead people per year with estates above $20 million will get to leave more behind; owners of real estate will be able to deduct another 20% of property income that isn’t already sheltered by depreciation and interest deductions; and tax accountants and lawyers will become stinking rich helping America’s proprietorships (24 million), S-corporations (4 million), partnerships (3.5 million) and farms (1.8 million) convert their “ordinary income” into newly deductible “qualified business income”.
In an October 2017 interview, Jamie Dimon famously lambasted Bitcoin as a ‘fraud’ and the people who bought it as ‘stupid’ which, temporarily, halted the ascent in the Bitcoin price. It also led to much heated debate in the mainstream media and much anger across the crypto community. In a just as incendiary follow up, Dimon sat down for another interview, this time as ‘The Economic Club of Chicago’. We wondered whether he would confirm recent reports that JPMorgan Chase would buy and sell Bitcoin futures for clients after the upcoming launch on the CME. Sadly, he wasn’t pressed on this question. Instead, he had some striking comments about the longevity of Trump’s Presidency, as Reuters reports. Jamie Dimon, chief executive officer of JPMorgan Chase & Co, on Wednesday said he expects to see a new U. S. president in 2021 and advised the Democratic party to come up with a ‘pro-free enterprise’ agenda for jobs and economic growth instead. Asked at a luncheon hosted by The Economic Club of Chicago how many years Republican President Donald Trump will be in office, Dimon said, ‘If I had to bet, I’d bet three and half. But the Democrats have to come up with a reasonable candidate … or Trump will win again.’ Dimon, who in the past has described himself as ‘barely’ a Democrat, has been going to Washington more often since the 2016 elections to lobby lawmakers on issues including changes in corporate taxes, immigration policies and mortgage finance.
This post was published at Zero Hedge on Nov 23, 2017.
According to the financial press we have had some swell economic numbers in the last two days—so it’s giddy-up-and-go time for the stock market again. Thursday’s industrial production number was allegedly gangbusters and today’s housing start figure for October was described as a “boom” by the incorrigible headline writers at MarketWatch: The Commerce Department on Friday said October housing starts surged, rising 13.7% to a seasonally adjusted annual rate of 1.29 million. Obviously, “surge” is a very different thing than “flat” or “punk”, but those latter terms are exactly what was reported by the Commerce Department this AM. Last October, for example, single family housing starts posted at a 871,000 SAAR (seasonally adjusted annual rate) and for October 2017 they came in at 877,000. Recalling that this minute difference represents an annualized rate, what we are really talking about here is roughly a 500 start gain for the month of October on a Y/Y basis. And that’s for the entire US of A where the total housing stock consists of about 135 million units!
As we keep insisting, monetary central planning systematically falsifies asset prices and corrupts the flow of financial information. That’s why bubbles seemingly inflate endlessly and egregiously, and also why financial crashes and economic corrections appear to come out of the blue without warning. Back in the winter of 1999-2000, for example, we were allegedly in the midst of a “new age economy”. The revolution in technology then underway, it was claimed, meant all historic valuation benchmarks–like PE multiples, cash flow and book values—– were irrelevant to stock prices. Likewise, in the fall of 2007 there was nary a cloud in the economic skies. That’s because the Great Moderation superintended by the geniuses at the Fed had purportedly engendered a “goldilocks” economy destined to expand indefinitely. Within months of the dotcom epiphanies, however, the highflying NASDAQ 100 crashed—eventually hitting bottom 83% below its new age apogee; and 15 months after the S&P 500 reached its goldilocks peak of 1570 in October 2007 it staggered around in smoldering ruins at 670—down 57% from its housing bubble high.
One of the key changes in the House GOP tax bill was to implement a cap on home interest deductions to the first $500,000 worth of mortgage debt and eliminate interest deductions from second homes. Of course, given active opposition from some very powerful realtor and homebuilder lobbying groups, it’s unclear whether the changes will find their way into the final tax bill. But, at least according to Bloomberg, New York’s “millionaire, billionaire, private jet owning” hedge fund managers aren’t waiting around to find out and are already taking steps to game any potential tax changes. Out in the Hamptons, Wall Street’s favored beach resort on Long Island, brokers and buyers already have a workaround for a tax-plan provision under consideration in Congress that would take away the mortgage-interest deduction for second homes. A client of Brown Harris Stevens broker Jessica von Hagn who works at a hedge fund decided to turn the vacation home he’s buying into an investment property by setting up a limited liability company. That will allow him to deduct the interest and earn rental income at the height of the season from the modern home on Bridgehampton’s Lumber Lane, with four bedrooms, three baths and a swimming pool on an acre of land.
This post was published at Zero Hedge on Nov 10, 2017.
Having sworn themselves to secrecy, Republicans on the House Ways and Means committee are scrambling to put together a tax bill by next week. But not knowing anything about the details of the plan, as it stands right now, hasn’t stopped an army of lobbyists from mobbing Capitol Hill with one overweening mission: To threaten, cajole or otherwise coax lawmakers into preserving loopholes that benefit their clients. Here’s Bloomberg: The stage was set with the House’s adoption Thursday of a budget resolution designed to speed the course of tax legislation and kick off a three-week sprint toward a House bill. Now, lobbyists representing every corner of the economy are poised to first devour, then attack what may be hundreds of pages of legislation that Brady says he’ll release Nov. 1. Special interests from realtors to dairy farmers will be trying to save their industry-specific tax breaks, said Tim Phillips, president of Americans for Prosperity. His group, which is backed by billionaire industrialists Charles and David Koch, supports ending such breaks. ‘It’s pretty fierce,’ Phillips said. ‘We met with Brady on Tuesday and he was saying their offices are swamped with all the special interest groups swarming in asking to be protected.’ The immense pressure to find a source of revenue to compensate for the sweeping cuts to corporate and individual rates has already nearly derailed the tax reform process. Yesterday, House Republicans narrowly approved the Senate version of a $4 trillion federal budget over the objections of 20 blue-state Republicans who oppose the elimination of the state and local tax deduction, which they say would disproportionately raise taxes on middle-class taxpayers in blue states, which tend to have higher taxes. Yet, Ways and Means Chairman Kevin Brady has said the elimination of the SALT deduction will stay in the bill – for now, at least.
This post was published at Zero Hedge on Oct 27, 2017.
Conflicts of interest exist in almost every business model…just ask the former AIG execs who bought trillions of dollars worth of mortgage CDO risk that they were told was worthy of a AAA rating. But when you read a car review to help figure out which set of wheels you’re going to buy next, you would probably prefer that the writer of that review not be receiving payments, cash or otherwise, directly from the company producing the vehicle he’s reviewing, right? Unfortunately, that’s not so much the case when it comes to Tesla. While it’s no surprise that the writers of Electrek are big Tesla cheerleaders, as Jack Baruth of TTAC points out today, what may be surprising is just how much those writers receive from Tesla via their very generous referral program in return for their perpetually rosy commentary.
This post was published at Zero Hedge on Sep 29, 2017.
Barack Obama is funding the anti-Trump movement through a series of backdoor deals and policies. Wall Street may be surprised to learn that it is also helping bankroll the anti-Trump ‘resistance’ whether they wanted to or not. Wall Street is fighting policies which would heavily favor it, including corporate tax cuts and the repeal of Obama-era banking and health-care regulations. We have the Obama administration to thank for the harsh anti-Trump movement by far left groups, according to an article by the New York Post. The Obama administration’s massive shakedown of Big Banks over the mortgage crisis included unprecedented back-door funding for dozens of Democratic activist groups who were not even victims of the crisis. At least three liberal nonprofit organizations the Justice Department approved to receive funds from multibillion-dollar mortgage settlements were instrumental in killing the ObamaCare repeal bill and are now lobbying against GOP tax reform, as well as efforts to rein in illegal immigration. An estimated $640 million has been diverted into what critics say is an improper, if not unconstitutional, ‘slush fund’ fed from government settlements with JPMorgan Chase and Co., Citigroup Inc. and Bank of America Corp., according to congressional sources. The payola is potentially earmarked for third-party interest groups approved by the Justice Department and HUD without requiring any proof of how the funds will be spent. Many of the recipients so far are radical leftist organizations who solicited the settlement cash from the administration even though they were not parties to the lawsuits, records show. ‘During the Obama administration, groups committed to ‘revolutionary social change’ sent proposals and met with high-level HUD and Justice Department officials to try to get their pieces of the settlement pie,’ Cause of Action Institute vice president Julie Smith told The Post. -New York Post
This post was published at shtfplan on September 25th, 2017.
Ever wonder about property taxes, how they’re set, and what they cover? Specifically, the largest component of most property-tax assessments are for schools. Virtually every State Constitution calls forth a State duty to provide a free public education. Ok. Fair enough. I can argue against that quite-easily but so long as it’s present in State Constitutions the law has to be followed in that regard. But on whom should the funding costs fall? Answer: Those closest to the output of the program, who thus have every incentive to do something about it if it sucks. That’s not you, as a common citizen. If the schools suck in your local area you don’t, for the most part, get the direct costs. If you’re a parent at age 18 your offspring are no longer your responsibility. You can throw them out of the house — literally. Now it’s certainly true that the indirect costs wind up on the citizens — mostly through crime and social dependence. The direct costs fall on the local employers.
Dr. Per Bylund’s recently published article poignantly states one of the core problems in the Chinese economy and its the state-manipulated Keynesian foundation. I do agree with his opinion. And if we dig deeper into the exact situation of Chinese economy, we will find that it’s a typical failing of the Keynesian, cronyist system. By using the perspective of Austrian business cycle theory, lets take a look at China’s real estate industry, which is suffering more and more painfully from artificial credit issued by China’s central bank, the People’s Bank of China (PBC). During the 2008 global economic crisis, China’s central government issued the famous RMB 4 Trillion Stimulus Package Plan (equaling to $586 billion). Since 2009, the Chinese real estate economy has already suffered from three small economic cycles. As it is becoming more difficult for real estate companies to live on artificial prosperity, the duration of every business cycle has become shorter than the previous one. We also see more and more ghost cities because of the economic boom in every sub-economic cycle. There were at least 12 ghost cities founded in 2013, and the number of them jumped to at least 50 in 2017! Bankruptcy is happening more frequently among Chinese real estate enterprises. Since 2016, at least three real estate companies – with a combined debt of at least RMB 763 million – have gone bankrupt. The story of bankruptcy is continuing, with one of the biggest real-estate-driven enterprises, Wanda Group, facing financing problems. If Wanda no longer has access to cheap debt, it might not be able to refinance or roll over all its debt again. If Wanda has to face bankruptcy, it could possibly accelerate an end of the the current Chinese boom. The data from the Chinese local governments is also not optimistic; their debt levels have reached almost RMB 25 trillion (US$ 4 trillion) at the end of 2014. In 2015, even the PBC admitted in one of its annual reports saying that China’s financial system is facing higher instability and uncertainty.
In Germany, Martin Schultz wants to give refugees the right to vote. So if he cannot win with Germans, he wants to give the right to vote to refugees to win by bribing them. The German politicians are now giving them apartments they are constructing that cost about 3 million each. The construction costs actually come out to about 1600 per square meter and since each apartment is about 470 square meters, the cost to build one apartment is more than 3 million. It is stunning that Merkel was so fearful of inflation that she would not yield to Greece and saw fit to impoverish the people to pay for the political corruption of their politicians. Yet building dwellings for refugees without language and job skills that cost 3 million each is some how not inflationary.
The biggest banks on Wall Street, both foreign and domestic, have been repeatedly charged with rigging and colluding in markets from New York to London to Japan. Thus, it is natural to ask, have the big banks formed a cartel to rig the prices of their own stocks? This time last year, Wall Street banks were in a slow, endless bleed. The Federal Reserve had raised interest rates for the first time since the 2008 financial crisis on December 16, 2015 with strong hints that more rate hikes would be coming in 2016. Bank stocks never do well in a rising interest rate environment because their dividend yield has to compete with rising yields on bonds. Money gravitates out of dividend paying stocks into bonds and/or into hard assets like real estate based on the view that it will appreciate from inflationary forces. This is classic market thinking 101. Bizarrely, to explain the current run up in bank stock prices, market pundits are shoving their way onto business news shows to explain to the gullible public that bank stocks like rising interest rates because the banks will be able to charge more on loans. That rationale pales in comparison to the negative impact of outflows from stocks into bonds (if and when interest rates actually do materially rise) and the negative impact of banks taking higher reserves for loan losses because their already shaky loan clients can’t pay loans on time because of rising rates. That is also classic market thinking 101. Big bank stocks also like calm and certainty – as does the stock market in general. At the risk of understatement, since Donald Trump took the Oath of Office on January 20, those qualities don’t readily come to mind in describing the state of the union. Prior to the cravenly corrupt market rigging that led to the epic financial crash in 2008 (we’re talking about the rating agencies being paid by Wall Street to deliver triple-A ratings to junk mortgage securitizations and banks knowingly issuing mortgage pools in which they had inside knowledge that they would fail) the previous episode of that level of corruption occurred in the late 1920s and also led to an epic financial crash in 1929. The U. S. only avoided a Great Depression following 2008 because the Federal Reserve, on its own, secretly funneled $16 trillion in almost zero interest rate loans to Wall Street banks and their foreign cousins. (Because the Fed did this without the knowledge of Congress or the public, this was effectively another form of market rigging. Had the rest of us known this was happening, we also could have made easy bets on the direction of the stock market.)
Although multi-billionaire hedge fund tycoon and international political pot-stirrer George Soros lost big with the election of Donald Trump as president of the United States and the victory of the Brexit referendum in the United Kingdom, he stands to lose further ground, politically and financially, as the winds of political change sweep across the globe. Soros, who fancies himself as the master of placing short put options on stocks, often cleaning up to the tune of billions of dollars in the process when the stock values collapse, has been dealt a few financial body blows. Recently, the Dutch securities market regulator AFM accidentally revealed on line all of Soros’s short trades since 2012. Soros’s trades were revealed on AFM’s website and were removed after the regulator realized the error. However, the Soros data had already been captured by automatic data capturing software programs operated by intelligence agencies and brokerage firms that routinely scour the Internet looking for such mistakes. Among the bank shares targeted by Soros was the Ing Groep NV, a major institution and important element of the Dutch economy. After campaigning against Brexit, Soros bet against the stock of Deutsche Bank AG, which he believed would fall in value after Britain voted to leave the EU. Deutsche Bank stock fell 14 percent and Soros cleaned up. But Soros’s celebration was temporary. With Trump’s election, Soros lost a whopping $1 billion in stock speculation. Surrounded by his fellow financial manipulators, Soros explained his recent losses while attending the recent World Economic Forum in Davos, Switzerland. Soros’s mega-wealthy cronies placed their own bets against smaller Dutch firms. Those firms included Ordina, an information technology firm; Advanced Metallurgical Group; and the real estate group Wereldhave N. V.
This post was published at Zero Hedge on Jan 29, 2017.
When former Chinese Politburo member Zhou Yongkang was arrested in 2014 on corruption charges, the scale of his ill-gotten gains was astounding, totalling some $16 billion. When sums that large are involved, most of the assets have to be invested in financial instruments and real estate. But the list of physical currency found in his homes is revealing: 152.7 million Chinese yuan (valued at the time at $24.5 million), 662,000…10,000…55,000 Swiss francs — and US$275 million. The former head of China’s internal security services and one of the 10 most powerful men in China apparently preferred to keep his “petty cash” mainly in U.S. dollars. He’s not alone. China lost around $1 trillion to capital flight in 2015, before clamping down hard at the beginning of 2016. Much of this money leaves China via fake invoicing in Hong Kong, where the local currency is pegged to the U.S. dollar. Illicit outflows are also facilitated by casinos in the Philippines, South Korea, and on remote Pacific islands, all of which operate primarily in dollars. Predictions of the dollar’s demise and eventual replacement by the Chinese yuan, are a staple of global economic punditry, but they have little basis in reality. Of course China has become an important component of the global economy, accounting for more than 15 percent of global gross domestic product. But when Chinese people themselves prefer to hold dollars, there is little chance that the Chinese yuan will ever replace the U.S. dollar as the world’s key currency.
As the mainstream media continues to blast Trump with allegations of conflicts of interest related to his many real estate holdings around the world, at least one conflict they won’t have to worry about anymore is his holdings of public stocks. Per the Washington Post, a Trump spokesman told the press yesterday that Trump unloaded all of his public shares back in June. Then, in what was supposed to be an interview congratulating Trump for his Time Person of the Year award, Matt Lauer of the Today Show decided to grill the president-elect on his public stock holdings and why he decided to sell. “Well I’ve never been a big person for the stock market, frankly. But, over the years I bought stocks. And, I bought them when they were low and I saw what was going on with interest rates were so low that it almost seemed like it was easy to predict what was going to happen with the stock market.” When pressed on why he chose June to dump all his shares, Trump responded simply that he felt “like I was very much going to be winning.”
This post was published at Zero Hedge on Dec 7, 2016.
Donald Trump hasn’t yet made the move from Trump Tower to America’s most expensive public housing, but he was able to come through with one campaign promise this week by announcing a deal with Indiana-based Carrier Air Conditioning that will keep almost 1,000 jobs in the state. As reported, the deal seems largely focused on the State of Indiana offering millions in tax breaks and an understanding that the Trump administration will push for regulatory and corporate tax relief at the Federal level. While the jobs Carrier will be keeping in the US only makes up about a third of the jobs the company had planned to move to Mexico, the underlying deal seems to reflect a larger commitment to addressing the corporate tax and regulatory burdens that have long held back the American economy. While some have described Trump’s approach as crony capitalism, if the terms of the deal really are limited to tax relief, such claims are baseless. While it is true that tax breaks for specific companies are less ideal than across-the-board cuts (or outright abolishment) of business taxes, they should not be confused with taxpayer subsidies. As Matthew McCaffrey wrote last year defending tax credits for video game companies: Decades ago, economists like Mises and Rothbard were already arguing that tax breaks are not economically or ethically equivalent to receiving subsidies. Simply put, being permitted to keep your income is not the same as taking it from competitors. Exemptions and loopholes do not forcibly redistribute wealth; taxes and subsidies do, thereby benefiting some producers at the expense of others.
For a long time, I’ve advocated that the world’s governments should default on their debt. I recognize that this is an outrageous-sounding proposal. However, the debts accumulated by the governments of the U.S., Japan, Europe and dozens of other countries constitute a gigantic mortgage on the next two or three generations, as yet unborn. Savings are proof that a person, or a country, has been living below their means. Debt, on the other hand, is evidence that the world has been living above its means. And the amount of government debt and liabilities in the world is in the hundreds of trillions and growing rapidly, even with essentially zero percent interest rates. This brings up several questions: Will future generations be able to repay it? Will they be willing to? And, if so, should they? My answers are: No, no and no. The ‘should they’ is one moral question that should be confronted. But I’ll go further. There’s another reason government debt should be defaulted on: to punish the people stupid enough, or unethical enough, to lend governments the money they’ve used to do all the destructive things they do. I know it’s most unlikely you’ve ever previously heard this view. And I recognize there would be many unpleasant domino-like effects on today’s over-leveraged and unstable financial system. It’s just that, when a structure is about to collapse, it’s better to have a controlled demolition, rather than waiting for it to collapse unpredictably. That said, governments will perversely keep propping up the house of cards, and building it higher, pushing the nasty consequences further into the future, with compound interest. With that in mind, a few words on the euro, the E.U. and the European Central Bank are in order.
Too big to fail is about to get tested once again. Deutsche Bank – Germany’s largest, and in many ways the embodiment of the global financial system – as you may have heard, is in a spot of bother. The U. S. government is considering imposing a fine of around $14 billion on the bank for selling faulty mortgage-backed securities in the run up to the financial crisis. That’s on top of the fact that Deutsche and other European banks have been struggling with negative interest rates, which are squeezing profits. In all, Deutsche Bank’s DB 6.79% market cap has now shrunk to nearly its proposed fine, provoking fears that the bank might have to be helped out the German government, or be wiped out. So far, Germany’s Chancellor Angela Merkel has said that there will be no bailouts for Deutsche Bank. But while Germany says it won’t stop a Deutsche bank failure, how worried should the U. S., and investors, be about it? Ultimately, the new regulations put in place since 2008 to contain Too-Big-To-Fail banks should mean that there will be no direct impact on the average American. But here are a few reasons why you should still keep an eye on it. Too Big to Fail was always a bit of a misnomer. What really makes a bank a risk to the financial system as a whole is the degree to which it is interconnected with other institutions, i.e., its ability to spark chain reactions of non-payment if it should ever default. By this measure, Deutsche is frighteningly indispensable. It’s a counterparty to virtually every major bank in the world, in virtually all asset classes. This illustration from an IMF report in June gives you some idea. This is why I argued yesterday that the German government, which together with the European Central Bank is responsible for supervising Deutsche, would be highly unlikely to let it fail in a disorderly manner la Lehman Brothers.