Deutsche Bank Says Next Big Short Is on CMBS as Malls Suffer (Sears Climbs On Restructing Despite Dismal Earnings)

Deutsche Bank of Greg Lippmann and ‘The Big Short’ fame has a dire warning of ANOTHER possible big short situation: commercial mortgage-backed securities (CMBS) backed by retail mall loans.
Analysts at Deutsche Bank AG, one of the biggest underwriters of bonds tied to U. S. commercial mortgages, say now it’s time to bet against the securities.
The bonds are vulnerable because they are supported in part by leases from retailers, a lagging part of the economy, wrote Ed Reardon and Simon Mui in a note this week. A combination of bankruptcies and closures could lead to faster-than-expected mortgage defaults for stores and malls, as long-term pressure from internet competitors wears many companies down, the analysts wrote. …

This post was published at Wall Street Examiner on February 10, 2017.

When Trumponomics Meets Abenomics

What will President Trump and Japanese Prime Minister Shinzo Abe talk about when they meet later today? Will they gab about what fishing holes the big belly bass are biting at? Will they share insider secrets on what watering holes are serving up the stiffest drinks?
Indeed, these topics are unlikely. Rather, what they’ll be discussing is cooperative trade, growth, and employment policies between their respective national economies. They’ll also talk about currency debasement opportunities.
Soon enough, perhaps by the time you read this, you’ll be able to peruse the headlines and garner soundbites of their discussions. Maybe a new partnership will be announced. Anything’s possible.
Regardless, what follows is a brief review – a thirty year retread – that’s intended to put the meeting within its proper context. This is the backstory you won’t hear anywhere else…
To begin, it was precisely the wrong thing to do at precisely the wrong time. But that didn’t stop the best and the brightest from attempting to improve upon the natural order of things.

This post was published at Zero Hedge on Feb 10, 2017.

Global Shipping Meltdown Mauls German Banks, Retail Investors, Taxpayers

Germany holds 25% of global shipping loans as industry collapses.
When Commerzbank, Germany’s second largest bank, reported earnings on Thursday, it made another groan in direction of the collapsing maritime shipping industry. It raised its loan loss provisions to 900 million, as it said, ‘in timely response to the deterioration in the shipping markets.’ It warned that its losses on shipping loans alone could reach 600 million in 2017 after having nearly doubled to 559 million last year.
At one point, Commerzbank had 18 billion in shipping loans. Over the years, as the shipping crisis worsened, it has whittled down its shipping loan portfolio to 5 billion.
But Commerzbank is neither alone nor the biggest player among German lenders. Before the Financial Crisis, German lenders went on a wild binge and became the world’s biggest issuers of shipping loans that ended up funding horrendous overcapacity of ships, just when global trade would face enormous challenges. Of the $400 billion in maritime loans issued by large banks, German banks hold nearly $100 billion.
Bankruptcies have cascaded through the shipping industry, starting with bulk carriers during the Financial Crisis then converging on container carriers. In August last year it sunk Hanjin, the sixth largest container carrier in the world. In Germany, these bankruptcies have created a financial bloodbath that has led to serial bank bailouts with much more pain to come.

This post was published at Wolf Street on Feb 10, 2017.

Former Goldman President Gary Cohn Is Crafting Trump’s “Phenomenal” Tax Plan

First it was the Fed with constant jawboning that the next Fed rate cut is “just around the corner.” Then it was OPEC, applying the same “spook the headline-scanning algos” strategy, arguably following Goldman’s advice, repeating relentlessly that a production cut was imminent. Now, it is may be the White House’s turn.
With concerns growing (but not too much based on the where the S&P is trading) rising about the lack of clarity of any of Trump’s economic policies, but most of all his tax plan, a White House official told Bloomberg that President Trump’s “phenomenal” tax plan is real, and that a concrete proposal – headed by Trump’s chief economic adviser, former Goldman president Gary Cohn – will be issued in the “next few weeks.”
Bloomberg adds, citing the unnamed official, that congressional leaders have been consulted on the blueprint which is separate from Trump’s proposed budget.

This post was published at Zero Hedge on Feb 10, 2017.

‘The Triumph of Hope Over Experience’

This is a syndicated repost courtesy of The Felder Report. To view original, click here. Reposted with permission.
Samuel Johnson famously called second marriages, ‘the triumph of hope over experience.’ I think this phrase is awfully fitting to investors’ relationship to risk assets over the past couple of decades. In the late-1990’s, they fell in love with the stock market. The aphrodisiac during this episode was more than just easy money to be made by day-trading. It was the prospect of a ‘new era’ for both the economy and the financial markets. This love affair famously ended in bitter divorce after the Nasdaq destroyed all hope by declining 90% in value after the March, 2000 peak.
Only a few years later investors found a new love. Real estate became their next infatuation. This was something real, something tangible that they could actually get their hands on. The allure this time was that ‘real estate prices had never fallen year-over-year on a nationwide basis.’ It was a can’t lose proposition and they fell head over heels for it. Until, of course, the unthinkable happened, prices fell and the pain of this amorous disillusionment was even greater than the fallout after the prior tryst.

This post was published at Wall Street Examiner by Jesse Felder ‘ February 10, 2017.

Consumer Confidence Tumbles As Democrats’ “Hope” Plunges Near Record Lows

After a couple of months of animal-spirit-inducing exuberance in soft-survey-hope-data, UMich consumer sentiment printed a disappointing 95.7 in Feb (versus 98.0 exp and down from 98.5 in Jan). The biggest driver was a notable drop in ‘hope’ as Democrats Expectations plunged near record lows.
The Democrat’s Expectations Index is close to its historic low (indicating recession) and the Republican’s Expectations Index is near its historic high (indicating expansion). While currently distorted by partisanship, the best bet is that the gap will narrow to match a more moderate pace of growth. Nonetheless, it has been long known that negative rather than positive expectations are more influential in determining spending, so forecasts of consumer expenditures must take into account a higher likelihood of asymmetric downside risks.
Inflation expectations were mixed – rising in the short-term and dropping in the longer-term – which matches the markets inflation breakeven collapse…

This post was published at Zero Hedge on Feb 10, 2017.

Great Fiscal Rotation and Gold

Reflation is a fact, at least for a while. And it is not limited to the U. S., as it is a truly global phenomenon – since 2016, the rebound in economic activity has been seen both in the advanced and emerging markets (this is partially due to the flattening in deep recessions in Russia and Brazil). The broad-based improvement is bad for the yellow metal, as it signals a more lasting revival. Additionally, although the recent rebound has mainly been triggered by the huge fiscal stimulus in China, the advanced economies have also improved significantly, in particular the U. S. It means negative news for gold, which is more sensitive to developments in America.
Going back to China, the country announced an infrastructure spending program worth half a trillion dollars. The program should not be underestimated, given the fact that China contributes about half of all global growth. Moreover, the UK also declared the biggest government investment program in over a decade, worth about 23 billion. Even the fiscal policy in the euro area has turned modestly expansionary. All these actions, as well as Trump’s fiscal plan, signal an important shift in global policy towards a more active role of fiscal policy, which may be called ‘The Great Fiscal Rotation’.
The new global regime – which only gradually materializes and results from the slow recovery, weak productivity and the widely perceived need for infrastructure investments – is negative for the gold market. We are not great fans of government spending, but fiscal policy can indeed stimulate the GDP in the short-term. The acceleration in the economic activity should support risky assets and put gold into limbo.

This post was published at GoldSeek on 10 February 2017.

With The S&P At Record Highs, Investors Pull Cash From US Stocks In 4 Of The Past 5 Weeks

A curious dichotomy has emerged in global fund flows.
According to the latest flow report from BofA’s Michael Hartnett, “it’s risk-on in Bonds, it’s inflation-on in Stocks, and EM is now playing role of cyclical catch-up trade.” In short, in the last week the Trump Trade has emerged from the dormancy in which it had faded for the past month.
But when one looks at where the money is flowing, it is going everywhere except where one would expect, as US stocks continue to be shunned, based on EPFR data.
Here are the details.
First in bonds, there has been a dip in bond yields which has incited big buying of IG bonds ($7.6bn…biggest since Aug’16), HY bonds ($1.9bn…note price-action in corporate bond markets remains resolutely “risk-on” as cross-asset signal – Chart 1), renewed interest in EM debt (inflows 5 of past 6 weeks), and 9th consecutive week of inflows to TIPS ($1bn…biggest week for TIPS since Trump election); in contrast, dip in Treasury yields coincides with largest outflows from Treasury funds YTD. Then, in stocks there has been inflows to equity funds investing in value, Europe, Japan (like TIPS, largest week of inflows for Japan since election), materials, and financials; Paradoxically, Emerging Markets have also gained as a Trump’s “economic nationalism” had, at least until yesterday, proben to be dollar-negative not dollar-positive (biggest hit to consensus positions YTD), which has has made EM the contrarian Q1 winner…EM stocks and bonds have seen $11bn inflows YTD as investors start chasing this cyclical laggard. This trend may reverse however now that the dollar has resumed its grind higher.

This post was published at Zero Hedge on Feb 10, 2017.

10/2/17: Sovereign Debt Bubble: Methane Emissions from the Debt Dump

Because global pile of debt growth has been outpacing global economic growth for quite some time now, the sovereign debt bubble is getting wobblier by the day.
As Fitch Ratings noted yesterday: “The number of Fitch-rated sovereigns with ‘AAA’ ratings is at its lowest level since 2003 and is expected to remain unchanged over the next two years”. In other words, non-junk is getting smaller and smaller, even as Central Banks continue to hold more of the prime stuff.

This post was published at True Economics on Friday, February 10, 2017.

Amid Political Turmoil, Europe Pulls Bond Issues

Despite solid investor appetite for riskier, corporate bonds, it appears that political uncertainty across Europe is startng to create problems for the region’s so-called ‘safest’ borrowers. As Bloomberg reports, France’s government-linked development agency postponed a $1 billion bond sale this week, citing market volatility, while a junk-rated shipping company managed to increase the size of its sale.
In a week dominated by bond sales from sovereign and financial issuers, corporate borrowers accounted for three of the four most subscribed deals. Molnlycke Holding AB tops the list, as the surgical product maker’s first debt sale since 2015 pulled in bids nearly 5.4 times the 500 million-euro ($532 million) issue. Investors also clamored to buy Ryanair Holdings Plc’s first bonds since 2015, which it sold two days after reporting earnings.

This post was published at Zero Hedge on Feb 10, 2017.

Trump Reverses Course on ‘One-China’ Principle

In his first phone call with Chinese President Xi Jinping since taking office, US President Donald Trump on Feb. 10 told his counterpart that his administration will honor the so-called one-China policy, a long-standing diplomatic formula underpinning Washington’s relations with Beijing and Taipei. According to a White House statement, Trump and Xi spoke at length about a range of bilateral issues. Trump’s affirmation of existing US policy of maintaining only unofficial ties with Taiwan came at the request of the Chinese president. (Mainland China and Taiwan both adhere to the idea that there is only one China, so if a country forges ties with either Beijing or Taipei, it must sever ties with the other.)
Relations between Washington and Beijing have been effectively frozen since December when Trump broke diplomatic tradition by taking a congratulatory phone call from Taiwanese President Tsai Ing-wen – the first such call since Washington and Beijing established diplomatic relations in 1979. Trump later suggested his administration may depart from its long-standing position on Taiwan if Beijing proves unwilling to make concessions on other issues such as trade. Beijing has repeatedly warned, however, that its one-China policy is nonnegotiable.

This post was published at FinancialSense on 02/10/2017.

Sears Soars On New $1 Billion Restructuring Plan, Despite Abysmal Earnings

Just days after troubled retailer Sears Holdings was put on (yet another) deathwatch after its stock crashed to all time lows while it CDS hit a record high, earlier this week, the short squeeze is back, with the stock surging 20% pre market, after the company announced it is planning steps to improve liquidity and financial flexibility, launching a strategic restructuring program intended to streamline operations and improve its dreadful operating performance, targeting cost cuts of at least $1 billion while repaying over a billion in outstanding pension obligations.
The announcement comes as Sears announced another brutal quarter, in which revenue crashed 16% to $6.1 billion and net losses rose to $635 million from $580 million in the period last year according to preliminary results. For the full year, Sears expects revenues to fall 12% from last year to $22.1 billion.
The company, controlled by its billionaire chief executive, Edward Lampert who over a decade ago took Kmart out of bankruptcy, announced his new plan to cut costs by at least $1 billion in 2017 by reducing overhead, improving merchandise at its stores and through better inventory management.
Company CEO and Chairman said “to build on our positive momentum, today we are initiating a fundamental restructuring of our operations that targets at least $1.0 billion in cost savings on annualized basis, as well as improves our operating performance. To capture these savings, we plan to reduce our corporate overhead, more closely integrate our Sears and Kmart operations and improve our merchandising, supply chain and inventory management.

This post was published at Zero Hedge on Feb 10, 2017.

A Bullish Take on Silver’s Nasty Reversal

Because of the gratuitous nastiness of yesterday’s reversal, I’ve selected a chart for today that shows a bullish pattern big enough not to have been affected by it. Indeed, in this picture, March Silver would become a speculative ‘mechanical’ buy on a pullback to the red-line pivot; and an even more enticing one if the futures were to fall all the way back to the green line 65 cents below. That would represent a decline of about 3.6%, so we needn’t be terribly concerned if sellers were to hit this vehicle hard for another day or two, driving it down by perhaps a further 40-50 cents; the move would still look merely corrective. This is no guarantee, however, that Silver won’t disappoint us as it has so many times since July, when its 25% decline, presumptively corrective, began. For now, we’ll wait for buyers to get traction. They’ll have their work cut out for them on the next rally, since it would need to surpass November 9’s 19.120 peak – a nearly 9% move from here – to reinvigorate the daily chart. If you don’t subscribe, click here for two weeks’ free access to Rick’s Picks, including daily, actionable ‘touts’, round-the-clock updates, impromptu tech analysis sessions online, and a chat room that draws experienced traders from around the world at all hours of the day and night.

This post was published at SilverSeek on February 9, 2017 –.

USDJPY Jumps To 10-Day High As Abe Comes To Washington

The dollar has surged in the last 24 hours (following President Trump’s tax-reform comments) to its strongest against the yen in 10 days ahead of today’s meeting of US and Japanese leaders.
The dollar has fallen steadily against the euro and yen since mid-December as Trump focused on protectionist trade policies, ran into opposition to some of his executive orders, and appeared to step away from the United States’ long-held strong-dollar policy.
But the new president spoke out on stimulus measures on Thursday, promising a “phenomenal” tax plan within a few weeks in a White House meeting with airline executives… and the dollar shot higher.
As Reuters reports, while Trump may also discuss his concerns over a strong dollar with his Japanese counterpart, it is expected that whatever is said publicly after the meeting will focus on trade and investment deals. Analysts remain uncertain with regard exactly what President Trump wants from the dollar…

This post was published at Zero Hedge on Feb 10, 2017.

Market Report: Attrition for the bears

Since President Trump won the Presidency, the dollar has risen strongly, but doubts are now entering investor’s minds.
In the first three days of this week, precious metal prices rose, before running into a minor correction yesterday (Thursday). The net result is gold is little changed on the week from last Friday’s close at $1223 in early European trade this morning, and silver up just a few cents at $17.58.
Since the December lows, gold is up almost $100. From 1st January it is up 6.5%, and silver 10.6%. Technical analysts have been badly whipsawed, so they will be changing their minds, particularly when they consider our next chart, which includes commonly-used moving averages.
After a small tick-back towards support on the 55-day moving average, the gold price has continued its rally towards the 200-day moving average, currently at about $1260. At that point, some technical selling is likely, perhaps leading to a more serious consolidation towards support on the 55-day MA. If that doesn’t hold, it will be a signal that gold is still in a bear market and heading on down. This is the Gospel according to technical analysts.

This post was published at GoldMoney on FEBRUARY 10, 2017.

Charts of Interest

Here are a few of the charts that currently have my attention:
1) The industrial metals bottomed (in price) as a group early last year. They were then led higher as a group by iron-ore, the metal that according to many analysts had the most bearish fundamentals and could therefore not sustain a rally.
The following chart (from barchart.com) shows that the iron-ore price has more than doubled since its early-2016 bottom. It made a marginal new high this week, so there is no evidence yet that the rally is over.
When the iron-ore price eventually reverses it will be a warning that the broad-based industrial-metals rally is close to an end.
2) The following chart compares the euro with the difference in yield between 10-year German Government bonds and 10-year US Treasury notes. The euro has tracked this interest-rate differential quite closely over the past two years and very closely over the past 6 months.
The implication is that for the euro to extend its short-term rebound, German yields will have to remain in an upward trend relative to US yields. How likely is that?

This post was published at GoldSeek on 10 February 2017.

Cash No Longer King: Europe Accelerates Move To Begin Elimination Of Paper Money

In the shadow of Donald Trump’s spree of controversial actions, the European commission has quietly launched the next offensive in the war on cash. These unelected bureaucrats have boldly asserted their intention to crack down on paper transactions across the E. U. and solidify a trend that has been gaining momentum for years.
The financial uncertainty amplified by Brexit has incentivized governments throughout Europe to seize further control over their banking systems. France and Spain have already criminalized cash transactions above a certain limit, but now the commission has unilaterally established new regulations that will affect the entire union. The fear of physical money flowing out of the trade bloc has manifested a draconian response from the State.
The European Action Plan doesn’t mention a specific dollar amount for restrictions, but as expected, their reasoning for the move is to thwart money laundering and the financing of terrorism. Border checks between countries have already been bolstered to help implement these new standards on hard assets. Although these end goals are plausible, there are other clear motivations for governments to target paper money that aren’t as noble.
Negative interest rates and high inflation are a deadly combination that could further destabilize the already fragile union in the future. With less physical currency circulating, these trends ensure that the impact of any additional central bank policies will be maximized. If economic conditions deteriorate, the threat of citizens pulling cash out of their accounts and starting a bank run is eliminated in a cashless system. So long as the people’s wealth is under centralized control, funds can be shifted at will to conceal any underlying problems. But the longer this shell game is allowed to persist, the more painful it will be when reality overrides the manipulation.

This post was published at Zero Hedge on Feb 10, 2017.

Greek Bond Yields Tumble After Euro Zone, IMF Agree On “Common Stance”

Update: It appears expectations of an imminent deal may be premature, because this just hit the tape:
GREEK OFFICIAL SAYS NO BAILOUT DEAL EXPECTED IN MEETING TODAY. * * *
In a welcome sign the latest conflict between the troubled Greece’s lenders may be thawing, Reuters reports that Euro zone creditors and the International Monetary Fund have agreed between themselves to present a common stance to Greece later on Friday in talks on reforms and the fiscal path Athens must take, euro zone officials said.
As reported earlier this week, a united stance among the Troika would be a breakthrough because the two groups have differed for months on the need to reduce the “explosive” Greek debt burdern and the size of the primary surplus Greece should reach in 2018 and after. Those differences have hindered efforts to unlock further funding for Greece under its latest euro zone bailout program. The IMF hasn’t signed Greece’s third bailout package, but Germany-led eurozone lenders want the IMF to rejoin the bailout as a lender.
“There is agreement to present a united front to the Greeks,” a senior euro zone official quoted by Reuters said, adding that the outcome of Friday’s meeting with the Greeks was still unclear and it was unclear if Athens would accept the proposals. “What comes out of it, we will see,” the official said.

This post was published at Zero Hedge on Feb 10, 2017.

Gold Stocks’ Strong New Upleg

Gold stocks are on fire this year, powering higher in market-dominating performance. This is a massive reversal from their dark fourth quarter, with 6/7ths of those losses already erased. But this strong new upleg still remains young and small by historical standards. Gold stocks’ recent rally is only the vanguard of another major bull-market upleg. This sector’s bullish technicals reveal vast upside potential from here.
The gold miners are a small contrarian stock-market sector that isn’t widely followed. Hearing about how the gold stocks are faring in the mainstream financial media is pretty rare. So this sector generally flies under the radars of the great majority of speculators and investors. That’s rather unfortunate, because the gold stocks have enjoyed some of the greatest gains in all the stock markets in this young century.
The flagship gold-stock index is the NYSE Arca Gold BUGS Index, which trades under the symbol HUI. BUGS stands for Basket of Unhedged Gold Stocks, as major gold miners can’t be included in the HUI unless their gold production is not hedged beyond 1.5 years. Running all the way back to June 1996, and having no management fees like ETFs, the HUI offers the definitive read on gold-stock performance.
Today’s leading gold-stock trading vehicle, the GDX VanEck Vectors Gold Miners ETF, closely mirrors the HUI’s price action. Since there aren’t that many major gold miners, GDX’s composition is similar to the HUI’s by necessity. But because GDX charges a 0.52% annual management fee, and its managers change around its components and their weightings so much, the HUI remains the gold-stock metric of choice.
All speculators and investors should pay attention to gold stocks because their bull markets and uplegs multiply wealth like no other sector. Their last secular bull ran between November 2000 and September 2011. During that 10.8-year span, the HUI skyrocketed 1664% higher while the broad-market S&P 500 slipped 14% lower! Secular bull markets in gold stocks truly create life-changing dynasty-building wealth.
Last year another major gold-stock bull market was stealthily born, that has great potential to go secular and get huge. Despite their rotten fourth quarter, the gold stocks as measured by the HUI still blasted a market-leading 64.0% higher in 2016! That compares to a mere 9.5% gain in the S&P 500. So with the HUI already up 21.5% year-to-date in young 2017, speculators and investors alike really need to take notice.
All this gold-stock behavior over the past year or so has been textbook early-secular-bull stuff. And if a new secular bull is indeed underway, the gains in gold stocks in the coming years are going to radically dwarf those seen since early 2016. This first chart looks at this young gold-stock bull in HUI terms since last January. This sector’s technicals have turned really favorable again following the fourth-quarter anomalies.
Just over a year ago in mid-January 2016, the gold miners’ stocks had been left for dead. Traders had abandoned them to such an extreme degree that the HUI slumped to a fundamentally-absurd 13.5-year secular low. Gold-stock prices had collapsed back to July 2002 levels, when gold was trading near $305 and had yet to exceed $329 in its young secular bull! But last January gold was 3.6x higher at $1087 at worst.
Just like the rest of the stock markets, gold-mining stock prices must ultimately reflect some reasonable multiple of underlying corporate profits. Back in Q4’15 as traders fled gold stocks, the average gold price was $1105 which was the worst quarter since Q4’09. Yet the elite gold miners of GDX still reported average all-in sustaining costs of just $836 per ounce. They remained very profitable even in gold’s trough quarter.

This post was published at ZEAL LLC on February 10, 2017.