Day: December 26, 2016

The near extinct pension – US pensions aggressively invest in equities relative to other countries to make up for shortfalls.

Jon

The pension is nearly extinct. Overly optimistic returns left many pension plans practically insolvent and not ready to adapt to a low yield environment. The benefit of pensions however is that it forced people to save over time for retirement. What we have learned via the 401k is that when left to their own devices, people simply are not good at planning for the future especially when it comes to retirement. So now, a full generation into this experiment we are left with many older Americans fully relying on Social Security as their main source of income. That was never the intended use of that program. When we look at US pension plans we realize that they are aggressively betting on equities to make up for the larger returns needed to payout retirees. It might seem that the stock market only goes up over the last few years but as we all know, tides do shift.
The US pension plan
Relative to other countries US pensions aggressively invest in equities. The purpose of this is to chase higher yields since many plans are based on unrealistic 7, 8, or even 9 percent annual returns. This is what is expected to meet beneficiary payout expectations. That is simply unrealistic in this low yield environment.
Pensions in the US are heavily invested into equities:

This post was published at MyBudget360 on Dec 26, 2016.

Minimum Wages Jump on Jan. 1 in Cities & States. Here’s what I Think about it.

Jon

While Congress sits on its hands.
On January 1, 2017, minimum wages will increase in some states and cities around the country. In California, the state minimum wage will rise from $10 to $10.50 for employers with 26 or more employees, on its way to $15 by 2022. Smaller employers pay $0.50 less at each step along the way until 2023 when they’ll catch up. From 2024 on, the minimum wage will be indexed to inflation.
Within California, a number of cities have their own, and higher, minimum wages. Here are a few cities in the Bay Area:
In Emeryville, just across the Bay Bridge from San Francisco, the minimum wage was increased on July 1, 2016, to $14.82 for companies with 56 employees and to $13.00 for smaller companies. In San Francisco, one of the most expensive cities in the US, minimum wage will increase on July 1, 2017, from $13 to $14. On July 1, 2018, it will increase to $15, after which it will be indexed to inflation. In Oakland, minimum wage will rise on January 1, 2017, from $12.55 to $12.86 due to a CPI adjustment. In Palo Alto, the hyper-expensive center of Silicon Valley, minimum wage will increase on January 1, 2017, from $11 to $12. In San Jose, minimum wage will increase on January 1, 2017, from $10.30 to $10.50. Across the US, according to my count, 28 states have a minimum wage that is higher than the federal minimum wage, and within these states, some cities have higher minimum wages still.

This post was published at Wolf Street by Wolf Richter ‘ Dec 26, 2016.

As Mystery Of China’s Multi-Billionaire Default Deepens, A New “Bond Scare” Emerges

Jon

Last week, in a largely “under the radar” event, one of China’s wealthiest billionaires (if only on paper), Wu Ruilin, chairman of the Guangdong based telecom company Cosun Group, and whose personal fortune of 98.2 billion yuan ($14 billion) makes him wealthier than Baidu founder Robin Li who is ranked 8th on the Hurun Rich List 2016, shocked Chinese bond market watchers when he defaulted on a paltry 100 million yuan ($14 million) in bonds sold to retail investors through an Alibaba-backed online wealth management platform, citing “tight cash flow.”
Needless to say, many were stunned that a billionaire for whom $14 million is pocket change, blamed “tight cash flow” for defaulting on mom and pop investors. In any case, as South China Morning Post reported, despite the founder’s personal fortune, according to a notice put up by the Guangdong Equity Exchange on Tuesday, two subsidiaries of Cosun Group are each defaulting on seven batches of privately raised bonds they issued in 2014. According to the notice, ‘the issuer had sent over a notice on December 15, claiming not to be able to make the payments on the bonds on time, due to short-term capital crunch.”
To be sure, yet another default in a Chinese landscape suddenly littered with bankrupting debt dominoes would have been the end of it, however this morning Reuters added to the mystery when it said that the fate of the defaulted $45 million Chinese corporate bond sold through an Alibaba-backed online wealth management platform was thrown into doubt on Monday, after a bank said letters of guarantee for the bonds were counterfeit.
Quoted by Reuters, China Guangfa Bank Co Ltd (CGB) said guarantee documents, official seals and personal seals presented by the insurer of the bonds “are all fake” and that it has reported the matter to the police.

This post was published at Zero Hedge on Dec 26, 2016.

Will Gold Fall Below $1000? | BrotherJohnF

Jon

The following video was published by FinanceAndLiberty.com on Dec 26, 2016
Brother John joins Silver Doctors to discuss the precious metal markets. Precious metals have fallen with respect to the U. S. dollar, but is the bottom in? John says gold could fall further, but silver is unlikely to fall much further.
Unlike nearly all mainstream ‘experts,’ John predicted a Trump presidency about a year ago. When it comes to how the mainstream media weathered the shock, John says ‘I personally think [the mainstream media] is dying.’ The independent media is growing in its influence, though. Despite being labeled ‘fake news’ and ‘Russian propaganda,’ independent media will not be stopped, John says.
But as for the economy, John says a crisis is heading to the United States, and that silver, gold, and possibly cryptocurrency may be necessary to weather the storm.

Commodity Futures Plunge Following China Growth Downgrade

Jon

Less than a month ago we warned that the Chinese commodity bubble 2.0 was bursting as speculative volume had exploded relative to open interest and exchanges had begun (after unreal surges in prices) to crackdown on the speculation. The carnage continued and over the last few days has bloodbath’d even more as China warns that it will miss its growth targets.
Spot The Odd One Out…

This post was published at Zero Hedge on Dec 26, 2016.

The Changing Anatomy of U.S. Oil Imports Over the Last Decade

Jon

In 10 short years, Canada has replaced the once mighty OPEC
The Chart of the Week is a weekly Visual Capitalist feature on Fridays.
OPEC was once a name that made world leaders shake in their boots.
In the early 1970s, the infamous oil cartel controlled more than 50% of global market share. The power of the cartel was also clear – in response to the Yom Kippur War of 1973, many OPEC countries (that were a part of OAPEC – the Organization for Arab Petroleum Exporting Countries) initiated production cuts and an oil embargo against Western countries.
Oil prices quadrupled from $3 to $12, and OPEC producers raked in the cash.
Meanwhile, the West was in a panic. Emergency energy rations were imposed, currencies were devalued, gasoline sales were restricted, and Sunday driving was banned in seven European countries.
No Longer Mighty?
The organization still has some influence, though it seems to be harder to come by.
After many months of squabbling, OPEC recently came to its first deal to cut production since 2008. That’s kept the oil price above $50/bbl, but gains will be effectively capped once low-cost shale producers ramp up production again.

This post was published at GoldSeek on 27 December 2016.

The Italian Bank Run: Monte Paschi Capital Shortfall Surges 75% To 8.8Bn Due To “Rapid Liquidity Deterioration”

Jon

While the big news last week was that Italy’s third largest bank, Monte Paschi, had been nationalized after JPM destroyed the bank’s chances of securing a private-sector rescue, and that Italy would issue up to 20 billion in public debt to fund the bailout of this, and other insolvent Italian banks, it appears there may be more moving parts to the story.
Recall that as we warned, the biggest danger for both Monte Paschi, and Italy’s banking system in general, is that retail depositor confidence in the Siena bank is shaken enough to lead to a bank run either in the world’s oldest bank, or worse, across the entire Italian banking sector, leading to a worst case probability outcome of falling bank dominoes as bank funding needs explode, resulting in even more deposit outflows, and so on in a toxic feedback loop.
To be sure, Monte Paschi’s deposit run is hardly new, and as the bank itself admitted last week, it had already suffered roughly 14 billion in deposit outflows, or 11%, in the first nine months of the year as shown in the chart below.

This post was published at Zero Hedge on Dec 26, 2016.

2016: What Was And a Preview of 2017

Jon

Historically speaking The Market Ticker used to publish an “annual review” including a set of predictions. Some years worked out pretty good, others not so much. But even the “bad” years weren’t too bad in retrospect; if you make a dozen predictions and get half right over a year’s time that really is quite a bit better than you might first think — although nowhere near good enough to dub yourself Nostradamus.
As I intended in my ticker entitled In Closing from February of 2014 I’ve wound things back around here quite a bit. Not completely, but materially. The software here was at version 41.4 when I penned that piece; it is currently 45.5. That’s more than four revisions greater, since there have been a bunch of “point” changes since — mostly bug fixes but a few enhancements too.
The post (thread) count was 228,802 when I penned that piece. It currently stands at 231,735. The Bar (for user-generated threads and comments, open to anyone who used to be a donor at any time in the system’s history) has been reopened this fall, and for the time being I intend to leave it accessible into 2017. You can find it from the “top” menu here if you’re signed in and once had donor-level access — or just go directly to our companion domain at tickerforum.org.
There were 7,950 Tickers posted from the inception of the site to February 2014. Since there have been 2,777 more. There were 650 posted this year. However, the volume has dropped quite materially, especially in the back half; the count has been about one a day, on average since July, including a “burst” of them for the election season.
The donation system went away quite some time ago and this year the advertising system was almost-completely shut down as well, leaving it just active enough to remain “alive” from the adsense syndication system’s point of view.
Here’s the issue I have when it comes to continuing what I’ve been doing, when you get down to it: Nothing has really changed at all in terms of either outcomes or even interest among readers here. Not one of the pinned threads more-recent than my In Closing missive has managed to reach materially over 50,000 views. The only pieces to get any sort of “real attention” were those related to the election and of those none had a thing to do with policy.

This post was published at Market-Ticker on 2016-12-26.

Exit, Hope & Change – The Obama Post-Mortem

Jon

By now, anyone in this country still of sound mind knows that Barack Obama presided through eight years of remarkable continuity – of changeless conditions that left a great many hopeless. As the days of his tenure dwindle, what do we make of the departing 44th president?
He played the role with cool-headed decorum, but that raises the question: was he just playing a role? From the get-go, he made himself hostage to some of the most sinister puppeteers of the Deep State: Robert Rubin, Larry Summers, and Tim Geithner on the money side, and the Beltway Neocon war party infestation on the foreign affairs side. I’m convinced that the top dogs of both these gangs worked Obama over woodshed-style sometime after the 2008 election and told him to stick with the program, or else.
What was the program?
On the money side, it was to float the banks and the whole groaning daisy chain of their dependents in shadow finance, real estate, and insurance, at all costs. Hence, the extension of Bush Two’s bailout policy with the trillion-dollar ‘shovel-ready’ stimulus, the rescue of the car-makers, and a much greater and surreptitious multi-trillion dollar hand-off from the Federal Reserve to backstop the European banks with counter-party obligations to US banks.

This post was published at Zero Hedge on Dec 26, 2016.

Did Donald Trump Just Jump The ‘Dow 20,000’ Shark?

Jon

The world was gloomy before I won – there was no hope. Now the market is up nearly 10% and Christmas spending is over a trillion dollars!
— Donald J. Trump (@realDonaldTrump) December 26, 2016

It appears the sugar-high from holiday celebrations is still running through president-elect Trump’s veins as his tweets took an even more narcisistic tone on this oh-so-aptly-named ‘Boxing Day’ in America.
First Trump decided to take credit for the unprecedented short-squeeze in US stock markets – and the Christmas spending numbers…
We just wonder what he will sat if/when Goldman Sachs stops rising and stocks tumble (“never gonna happen”, probably The Fed’s fault after all), but perhaps even more importantly, how does he feel about the $1.2 trillion of value he has erased from global capital markets since his election?

This post was published at Zero Hedge on Dec 26, 2016.

Jim Cramer’s Christmas Gift To Short-Sellers

Jon

Wall Street’s best contrarian indicator has spoken. Jim Cramer issued a strong buy on the Dow last Wednesday. He references the ‘generals’ that are ‘leading the charge’ higher in the stock market. He sees no end in sight to current move in market leaders. Those will prove, once again for Cramer, famous last words. It will be more like Custard making his last stand.
Perhaps the most amusing section of his maniacal diatribe was his assertion that Goldman Sachs (GS) and JP Morgan (JPM) are ‘cheap’ because of Trump. A colleague and I were, serendipitously discussing GS as a great short idea last week. Cramer is a bona fide lunatic who must relish the thought of leading the retail stock lemmings to slaughter. The financials have gone parabolic since the election and now the hedge funds who whisper sweet nothings into Cramer’s ear need an exit. Please don’t give up your chair to the sound of CNBC’s Pied Piper.
The puts on JPM and GS are loaded with premium. I don’t want to recommend any specific put ideas. If you have an interest in shorting shares, GS and JPM are among the best shorts in the Dow right now.

This post was published at Investment Research Dynamics on December 26, 2016.

Here’s How Your State Ranks On Credit Debt Per Household

Jon

As parents all around the country wake up this morning and instantly regret adding $1,000’s of dollars to their credit cards over the holidays (at a 30% interest rate nonetheless) so that little Johnny could have the latest iPad, gaming console and sneakers, here is a list of the states where consumers have racked up the most revolving debt.
Ironically, when color coded based on political preference, with the notable exception of Alaska, Democratic-leaning states seem to carry higher credit card debt balances than conservative states. Imagine that, conservatives expect their government to run budgets the way they run their own households.

This post was published at Zero Hedge on Dec 26, 2016.

How To Invest In The New World Order

Jon

In our latest Toward a New World Order, Part III we ended by promising to look closer at investment implications from the political and economic shift we currently find ourselves in; and that story must begin with the dollar. While known to the investing public for years, the Bank of International Settlements (BIS) recently acknowledge that the real risk-off / risk-on metric in global markets is the dollar and nothing else.
In the chart below, which we recreated from an absolute brilliant presentation by Macro Intelligence 2 Partners via RealVision-TV, we see the potential scale of the coming ‘dollar-problem’. The dollar moves in cycles as most things. The lower extreme around 84, only broken when Bernanke pushed through QE2, means financial conditions for emerging markets and other commodity producing economies have gotten so out of hand that conventional risk-metrics finally lead investors to pull back. The trigger, as can be seen in the chart, is often policy driven, but the underlying structural imbalance has been building for years, if not decades, prior.
Before we move on it is of utmost importance to understand that many of the dollar liabilities accumulated outside the United States are not backed by actual dollars, but are rather claims to dollar proper. This is the infamous Eurodollar market whereby banks, mostly international European ones, fund various economic activities by issuing claims to dollars, but for which no such dollars exists. Think of it as another layer of fractional reserve lending on top of fractionally created money in the first place.

This post was published at Zero Hedge on Dec 26, 2016.

The Bank of Japan Was The Top Buyer Of Japanese Stocks In 2016

Jon

When it comes to propping up the stock market in the US, the Federal Reserve does so with a certain degree of nuance, keeping at least one layer of disintermediation between itself and the market, which usually involves “advising” Citadel to intervene when it comes to acute moments of market stress, granting the HFT-heavy hedge fund a green light to stop and reverse and violent selloffs, or more traditionally, allowing companies to repurchase their own stock thanks to (until recently) record low interest rates.
This is nothing new: as Goldman has repeatedly pointed out, in 2016 corporations have been the largest source of equity demand, purchasing $450 billion of US equity through buybacks and cash M&A (net of share issuance). Outside of the Great Recession, corporates have been the primary source of US equity demand (see Exhibit 1).

This post was published at Zero Hedge on Dec 26, 2016.

Can Rates Rise with Deflation

Jon

QUESTION: Hi Marty, How does the model’s call for deflation (earlier blog posts) fit in with the likely major cycle low in interest rates (per your recent posts)? Can there be general price deflation and yet interest rates increase significantly?
ANSWER: Yes. Rates can soar to outrageous levels during the collapse of a system, which reflects a collapse in confidence that causes a simultaneous deflation in assets. Look at the highest levels of interest rates that reached nearly 200% in 1899. That was not a reflection of speculation in the markets. This was when J. P. Morgan had to arrange a gold loan to bail out the government.
Normally, interest rates are the price of inflation in a normal growth environment where confidence exists within the system as a whole. You can get hyperinflation if confidence in government collapses, but when you are on a gold standard, you end up with hoarding and the velocity of money collapses and causes the interest rate to soar like with a loan shark.

This post was published at Armstrong Economics on Dec 24, 2016.

Bundesbank Repatriates Gold From New York, Paris “Faster Than Planned”

Jon

In January of 2016, the Bundesbank announced that three years after commencing the transfer of some of its offshore-held gold from vaults located at the Banque de France in Paris and the NY Fed in New York, it had repatriated a total of 366.3 tonnes, bringing the German central bank’s gold reserves held in Frankfurt to 1,402 tonnes, or 41.5% of Germany’s total gold of 3,381 tonnes, for the first time greater than the 1.347 thousand tonnes located at the New York Fed, which as of January 27, 2016 held 39.9% of Germany’s official gold.
“With approximately 1,403 tonnes of gold, Frankfurt has been our largest storage location, ahead of New York, since the end of last year,” said Carl-Ludwig Thiele, Member of the Executive Board of the Deutsche Bundesbank. “The transfers are proceeding smoothly. We have succeeded in once again significantly increasing the transport volume compared with 2014. This means that operations are running very much according to schedule,” added Thiele last January.
As a reminder, according to its gold storage plan, unveiled in January 2013, the Bundesbank would store half of Germany’s gold reserves in its own vaults in Frankfurt am Main by 2020 which would necessitate a transfer to Frankfurt of 300 tonnes of gold from New York and all 374 tonnes of gold from Paris. It also meant that as of January, another 111 tonnes of gold from the NY Fed and 196.4 tonnes of gold from Paris remained to be transfered.
The “politically correct” motives for the transfer, as well as the logistics and the mechanics behind it were explained in a March 2015 video released by the Bundesbank…

This post was published at Zero Hedge on Dec 26, 2016.

Exit, Hope and Change

Jon

Yes, that was a gag.
By now, anyone in this country still of sound mind knows that Barack Obama presided through eight years of remarkable continuity – of changeless conditions that left a great many hopeless. As the days of his tenure dwindle, what do we make of the departing 44th president?
He played the role with cool-headed decorum, but that raises the question: was he just playing a role? From the get-go, he made himself hostage to some of the most sinister puppeteers of the Deep State: Robert Rubin, Larry Summers, and Tim Geithner on the money side, and the Beltway Neocon war party infestation on the foreign affairs side. I’m convinced that the top dogs of both these gangs worked Obama over woodshed-style sometime after the 2008 election and told him to stick with the program, or else.
What was the program? On the money side, it was to float the banks and the whole groaning daisy chain of their dependents in shadow finance, real estate, and insurance, at all costs. Hence, the extension of Bush Two’s bailout policy with the trillion-dollar ‘shovel-ready’ stimulus, the rescue of the car-makers, and a much greater and surreptitious multi-trillion dollar hand-off from the Federal Reserve to backstop the European banks with counter-party obligations to US banks.

This post was published at Wall Street Examiner on December 26, 2016.

A Follow-up Visit with Greg Crowe of Silver One

Jon

Back in September, we introduced everyone to Greg Crowe, president and CEO of a new junior resource company called Silver One. As a holiday treat, here’s an update on how things are progressing for the company.
Again, we offer these interviews not as an endorsement but as an introduction and, as most everyone knows, the key to success in mining company investing is diversification. To that end, though, you still need more winners than losers and that’s where great management often carries the day.
So please listen to this update from Greg. Last summer, Silver One purchased three properties from First Mining Finance and the long-term potential for success is there. Additionally, Greg’s 30-year career in the sector certainly provides some wisdom when evaluating what transpired in 2016 and how the precious metals might react in 2017.

This post was published at TF Metals Report on December 25, 2016.