S&P Warns It May Downgrade Amazon

Unlike Apple, Amazon does not have a quarter trillion in (mostly offshore held) cash. Which means, it will issue debt to fund the Whole Foods purchase. Which means its leverage will rise above 1x. Which means S&P just warned of a downgrade of Amazon’s AA- rating.
From S&P:
Amazon.com Inc. Ratings Placed On CreditWatch Negative On Debt-Financed Acquisition Of Whole Foods
Amazon has announced an agreement to purchase Whole Foods Market Inc. in a debt-financed purchase of about $14 billion. We are placing our ‘AA-‘ corporate credit rating on Amazon on CreditWatch with negative implications. Our preliminary view is that Amazon’s leverage will approach 1.5x, but mostly likely remain below 2x. We see the purchase as a major strategic initiative for Amazon, with execution risk, but also potential significant implications for Amazon’s market strategy as well as for the broader U. S. grocery market. S&P Global Ratings placed its ratings, including the ‘AA-‘ corporate credit rating, on Amazon.com Inc. on CreditWatch with negative implications.
“The CreditWatch placement reflects our expectation that Amazon’s leverage will increase as a result of its plan to purchase Whole Foods for about $14 billion,” said S&P Global Ratings credit analyst Robert Schulz.

This post was published at Zero Hedge on Jun 16, 2017.

Fear of Contagion Feeds the Italian Banking Crisis

At first, deny, deny, deny. Then taxpayers get to bail out bondholders.
By Don Quijones, Spain & Mexico, editor at WOLF STREET.
Spain’s Banco Popular had the dubious honor of being the first financial institution to be resolved under the EU’s Bank Recovery and Resolution Directive, passed in January 2016. As a result, shareholders and subordinate bondholders were ‘bailed in’ before the bank was sold to Santander for the princely sum of one euro.
At first the operation was proclaimed a roaring success. As European banking crises go, this was an orderly one, reported The Economist. Taxpayers were not left on the hook, as long as you ignore the 5 billion of deferred tax credits Santander obtained from the operation. Depositors and senior bondholders were spared any of the fallout.
But it may not last for long, for the chances of a similar approach being adopted to Italy’s banking crisis appear to be razor slim. The ECB has already awarded Italy’s Monte dei Paschi di Siena (MPS) a last-minute reprieve, on the grounds that while it did not pass certain parts of the ECB’s last stress test, the bank is perfectly solvent, albeit with serious liquidity problems.

This post was published at Wolf Street by Don Quijones ‘ Jun 16, 2017.

“Lynching Epidemic” Breaks Out In Venezuela

The public-safety infrastructure in Venezuela has been degraded to such a degree that citizens now take justice into their own hands. Agence France Presse reported that lynchings have risen sharply over the last year and a half as political and economic instability in the crumbling socialist republic has worsened. Witnesses who spoke to AFP said a 22-year-old man who was set on fire at an anti-government demonstration in May was actually lynched after being accused of stealing by the crowd – not because he was a government sympathizer, as President Nicolas Maduro had suggested at the time.
As AFP alleges, “it is not just the country’s economy and political system that are sick, but society itself, experts say. An epidemic of lynchings is one of the most gruesome symptoms.“


This post was published at Zero Hedge on Jun 16, 2017.

Gangsters, Grandmothers and Gold: Japan’s New Crime Wave

Sometimes the perpetrators are gangsters. Sometimes they are rather less accustomed to the criminal life. In one case, the ringleader of a middle-aged, female crime ring was said to be a 66-year-old woman.
An old-fashioned crime is experiencing a resurgence in Japan: gold smuggling. The authorities say they are contending with a startling rise in the amount of gold being brought illegally into the country. The smugglers – an array of professional criminals and enterprising amateurs – profit by dodging import duties and taxes, in some cases worth millions of dollars. Arrests have jumped 40-fold in just a few years.
The smuggling has gained national attention because of a spate of high-profile episodes, including a brazen gold robbery by thieves dressed as police officers; the seizure of multi-million-dollar gold cargoes from fishing boats and private jets; and the foiling of the smuggling ring the police have said was organized by a 66-year-old housewife.
Crime rates in Japan are among the world’s lowest and have been falling further as the population ages. But some nonviolent crimes, like shoplifting or embezzlement, have remained more common than other offenses – say, murder or armed robbery.

This post was published at NY Times

Ted Butler Quote of the Day 06-16-17

As I see it, this is the defining moment for James McDonald, the new enforcement director for the CFTC. Either he will do something about the continuing silver manipulation or he won’t. In the event he doesn’t do anything to interrupt the big commercials like JP Morgan from continuing to snooker the managed money technical funds into and out of COMEX futures positions by illegal spoofing and other dirty market tricks, it will fall to something and someone else. I’m not worried that the silver manipulation won’t end dramatically and soon, but it is not written in stone that it will be the defining moment that McDonald will look back on with satisfaction many years from now. Defining moments can be either good or bad and by definition last forever.

But it would be a mistake to underestimate the pressure he is under not to do the right thing. Essentially, for him to dismantle the crooked price discovery mechanism on the COMEX for silver (and gold) and on other futures exchanges for other commodities, he must repudiate more than 30 years of prior agency thinking, as well as overcome the secret and illegal agreement made between the U.S. Government and JP Morgan, on the occasion of JPM taking over Bear Stearns in 2008. Admittedly, that’s a very tall order. But the taller the order, the greater the defining moment.

Certainly, the inability to overcome the standard line from the CFTC for decades, namely, that no manipulation was possible in silver, has plagued others who set out to do so. Gary Gensler comes to mind because he started off in hitting the road running to establish legitimate position limits in 2009 and seemed to be on the right path to doing so. Even Bart Chilton, the former and very outspoken commissioner who talked openly of the silver manipulation, eventually lost his public voice for the same reason as Gensler failed – neither could overcome the illegal agreement with JPM.

A small excerpt from Ted Butler’s subscription letter on 14 June 2017.

More precious metals news & information available at
Ed Steer’s Gold & Silver Digest.
 

PetroDollar System In Trouble As Saudi Arabia Continues To Liquidate Foreign Exchange Reserves

The U. S. PetroDollar system is in serious trouble as the Middle East’s largest oil producer continues to suffer as extremely low oil price devastates its financial bottom line. Saudi Arabia, the key player in the PetroDollar system, continues to liquidate its foreign exchange reserves as the current price of oil is not covering the cost to produce oil as well as finance its national budget.
The PetroDollar system was started in the early 1970’s, after Nixon dropped the Gold-Dollar peg, by exchanging Saudi Oil for U. S. Dollars. The agreement was for the Saudi’s only to take U. S. Dollars for their oil and reinvest the surpluses in U. S. Treasuries. Thus, this allowed the U. S. Empire to continue for another 46 years, as it ran up its ENERGY CREDIT CARD.
And run up its Energy Credit Card it did. According to the most recent statistics, the total cumulative U. S. Trade Deficit since 1971, is approximately $10.5 trillion. Now, considering the amount of U. S. net oil imports since 1971, I calculated that a little less than half of that $10.5 trillion cumulative trade deficit was for oil. So, that is one heck of a large ENERGY CREDIT CARD BALANCE.

This post was published at SRSrocco Report on JUNE 16, 2017.

The Fate of Britain – Is This Why Cable Goes to Parity?

We have prepared a very important special report on Britain in the wake of the British election. This special report covers the forecast for the British pound (otherwise known as cable or sterling) against the dollar, euro, and the Japanese yen. Additionally, this covers the long gilts and the share market. We have also addressed the rising tensions once again in Northern Ireland that may reignite violence.

This post was published at Armstrong Economics on Jun 16, 2017.

The Last Time Economic Data Disappointed This Much, Bernanke Unleashed Operation Twist

For the 13th straight week, US economic data disappointed (already downgraded) expectations, sending Citi’s US Macro Surprise Index to its weakest since August 2011 (crashing at a pace only beaten by the periods surrounding Lehman and the US ratings downgrade). The last time, Us economic data disappointed this much, Ben Bernanke immediately unleashed Operation Twist… but this time Janet Yellen is hiking rates and unwinding the balance sheet?

As Citi notes, breaking down this move, we can see that the recent data
disappointments have been driven by a steady fall in the underlying
data, rather than overly exuberant expectations. In other words, economists have been adjusting expectations downwards, but the data has been falling at a faster rate.

This post was published at Zero Hedge on Jun 16, 2017.

The Pin To Pop This Mother Of All Bubbles?

Global macro economic data has been weak for many years, but there’s now a very real chance of a world-wide recession happening in 2017.
Why? A dramatic and worsening shortfall in new credit creation.
The world’s major central banks have, again, done the world an enormous disservice. Instead of admitting that maybe/perhaps/possibly the practice of issuing debt at more than twice the rate of underlying economic growth was a very bad idea over the past several decades, they instead doubled down and created an even larger debt monster to be dealt with.
The resulting global asset price bubble — or, more accurately, set of nested and incestuously intertwined bubbles — can collectively be called the Mother Of All Bubbles (MOAB). None has ever been larger in history.
As with all prior bubbles, it shares the collective delusion that there’s such a thing as a free lunch. History has seen many attempts to eat this elusive meal, with each generations convinced that they were the chosen ones who could finally crack that nut.
So, dutifully, our central bankers have tried, and tried again, to deliver that free lunch — i.e. to print up prosperity.
But, alas, prosperity cannot be printed out of thin air. All that can be accomplished by central bank slight of hand is a transfer of wealth. Central banks steal from the many to give to the few. They are the reverse Robin Hoods of our day.

This post was published at PeakProsperity on Friday, June 16, 2017,.

The Rise Of Robots & The Risk To Passive

Authored by Lance Roberts via RealInvestmentAdvice.com,
In Tuesday’s post, ‘A Shot Across The Bow,’ I discussed the recent ‘Tech Wreck’ and the warning sign that was delivered when trading algorithms begin to run in the same direction. To wit:
‘The plunge was extremely sharp but fortunately regained composure and shares rebounded. A ‘flash crash.’ One day, we will not be so lucky. But the point I want to highlight here is this is an example of the ‘price vacuum’ that can occur when computers lose control. I can not stress this enough.
This is THE REASON why the next major crash will be worse than the last.’
Of course, it generally isn’t long after publishing commentary about the dangers of the current crowding into ETF’s, that I receive some push back.
Shocker: For fee broker advises against indexing — JiveJoseph_Duarte (@JiveJoey_D) June 13, 2017

This post was published at Zero Hedge on Jun 16, 2017.

Government as the Source of Monopoly: US Airlines Edition

“Is Government the Source of Monopoly?” asked Chicago economist Yale Brozen in an essay first published in 1968. Yes, he answered – not only directly, by awarding exclusive licenses and contracts, but also indirectly, via regulation, minimum-wage legislation, and other forms of government intervention. Austrian economists such as Murray Rothbard and Dominick Armentano went further, arguing that monopoly per se is impossible on the free market, as long as government does not restrict entry into markets. More successful firms will tend to grow and increase their market share, but this does not constitute monopoly, as long as other firms are free to compete, or try to compete. The concept of monopoly only makes sense, theoretically and empirically, when the government protects privileged firms from competition, either directly or through the kinds of indirect means discussed by Brozen.
I recently came across a lucid example of government-created monopoly in Thomas Petzinger excellent book Hard Landing: The Epic Contest for Power and Profits That Plunged the Airlines into Chaos (Crown, 1996). Petzinger explains the emergence of the US commercial airline industry in the 1930s as the result of efforts by Walter F. Brown, Postmaster General in the Hoover Administration, to reorganize the nascent airmail business.

This post was published at Ludwig von Mises Institute on June 17, 2017.

Fractional-Reserve Banking and Money Creation

According to traditional economics textbooks, the current monetary system amplifies initial monetary injections of money. The popular story goes as follows: if the central bank injects $1 billion into the economy, and banks have to hold 10% in reserve against their deposits, this will allow the first bank to lend 90% of this $1 billion. The $900 million in turn will end up with the second bank, which will lend 90% of the $900 million. The $810 million will end up with a third bank, which in turn will lend out 90% of $810 million, and so on.
Consequently the initial injection of $1 billion will become $10 billion, i.e., money supply will expand by a multiple of 10. Note that in this example the central bank has actively initiated monetary pumping of $1 billion, which in turn banks have expanded to $10 billion.
But in a world where central banks don’t target money supply but rather set targets for the overnight interest rate (e.g. the federal funds rate in the United States and the call rate in Japan) does this continue to make sense? Additionally, in some economies like Australia banks are not even compelled to hold reserves against their deposits. Surely then the entire multiplier model in the economics textbooks must be suspect.

This post was published at Ludwig von Mises Institute on June 17, 2017.

Matt King Is Back With A Dire Warning: “A Significant Un-balancing Is Coming”

Earlier this week we discussed a chart from Citi’s Hanz Lorenzen, which we said may be the “scariest chart for central banks” and showed the projected collapse in central bank “impulse” in coming years as a result of balance sheet contraction, and which – if history is any indication – would drag down not only future inflation but also risk assets. As Citi put it “the principal transmission channel to the real economy has been… lifting asset prices” to which our response was that this has required continuous CB balance sheet growth, and with the Fed, ECB and BOJ all poised to “renormalize” over the next year, the global monetary impulse is set to turn negative in the coming year.

This post was published at Zero Hedge on Jun 16, 2017.

One Fed President Says The Rate Hike Decision Was A Choice “Between Faith And Data”

Over the years many have accused central banking of being the world’s latest (and most profitable) religion, with central bankers the only modern day priests left that still matter (to the tune of $75 trillion, the market cap of all stocks in the world).
Today, in a blog post from Minneapolis Fed president Neel Kashkari explaining why he dissented from the latest Fed rate hike decision, he admits as much when he says “for me, deciding whether to raise rates or hold steady came down to a tension between faith and data. On one hand, intuitively, I am inclined to believe in the logic of the Phillips curve: A tight labor market should lead to competition for workers, which should lead to higher wages. Eventually, firms will have to pass some of those costs on to their customers, which should lead to higher inflation. That makes intuitive sense. That’s the faith part.”
In a surprisingly honest assessment, he then says that “unfortunately, the data aren’t supporting this story, with the FOMC coming up short on its inflation target for many years in a row, and now with core inflation actually falling even as the labor market is tightening. If we base our outlook for inflation on these actual data, we shouldn’t have raised rates this week. Instead, we should have waited to see if the recent drop in inflation is transitory to ensure that we are fulfilling our inflation mandate.”
Which inductively suggests that the rest of the FOMC is still driven by, well, faith alone. Unfortunately, this time the faith has consequences, and as Citi’s Matt King explained earlier, the Fed’s decision to not only hike rates but also to begin a $450 billion annual reduction in its balance sheet, will have “significant adjustment in valuations.”

This post was published at Zero Hedge on Jun 16, 2017.

JUNE 16/DEPT OF JUSTICE SHENANIGANS/NY FED LOWERS ESTIMATE OF 2ND QUARTER GDP TO 1.8%/GOLD RISES $1.80 BUT SILVER LOSES 5 CENTS/ FOR THE 12TH CONSECUTIVE DAY, THE AMOUNT OF SILVER STANDING AT THE…

GOLD: $1254.00 UP $1.80
Silver: $16.64 DOWN 5 cent(s)
Closing access prices:
Gold $1253.40
silver: $16.67
SHANGHAI GOLD FIX: FIRST FIX 10 15 PM EST (2:15 SHANGHAI LOCAL TIME) SECOND FIX: 2:15 AM EST (6:15 SHANGHAI LOCAL TIME)
SHANGHAI FIRST GOLD FIX: $1260.95 DOLLARS PER OZ
NY PRICE OF GOLD AT EXACT SAME TIME: $1252.61
PREMIUM FIRST FIX: $8.34

This post was published at Harvey Organ Blog on June 16, 2017.

GDXJ: Myth vs. Reality

Many of you have contacted me about the sell-off in GDXJ and upcoming re-balancing that will occur at the end of this week (I think). First of all, thank you for your inquiries and please feel free to email me with questions/ideas. The only ‘dumb’ question regarding gold, silver and mining shares is, ‘should I own any?’
First I wanted to highlight the difference between fact and ‘propaganda.’ The propaganda has led many to believe that the rebalancing of the GDXJ has exerted undue pressure on the mining stocks as a whole and on the GDXJ components specifically. However, a simple graphic analysis differentiates fact from fiction:

This post was published at Investment Research Dynamics on June 16, 2017.

The foreign business incentives in this country can help double your income.

Yesterday I spent all afternoon meeting with government officials here in the Philippines, and I’m still in shock. I’ll explain –
About a year and a half ago I purchased a fairly large manufacturing business that is oddly enough based in Australia.
It’s been a fantastic investment so far, primarily because it generates so much cashflow relative to the price I paid.
With big public companies listed on a major stock market, it’s not uncommon to pay 20x, 50x, even more than 100x a company’s annual profits.
For example, as I write to you early in the morning here in Manila right now, Amazon’s stock sells for 180x its annual profits.
In other words, if you were theoretically to acquire 100% of Amazon’s shares, at current levels it would take you 180 years to recoup your investment.
(This presumes you put all the profits in your pocket, but doesn’t account for the effects of dividend taxation.)
Obviously most investors expect Amazon to keep growing.
But even if Amazon’s earnings were to grow at an annual rate of 25% per year (which would be unprecedented), it would still take almost two decades to recoup your investment.

This post was published at Sovereign Man on June 16, 2017.