“In The End, There Was Absurdity” – The Great Crash Of 2018?

Crises always take longer to arrive than you think, and then happen much quicker than they ought to.
– Rudiger Dornbusch
An eerie calm has taken over the world markets. Volatility is crashing, and economic and political shocks come and go without any noticeable effect on the asset markets. Inflation and interest rates are also low. So ‘Goldilocks’ is here, right?
Well, no. I have written a collection of dark pieces about the world economy this year. They have followed the tone set in our business cycle forecasts. In March, we took a deep dive behind the faade of the economic expansion to discover the sources of growth. We found them to be unstable, depending on political decisions and thus prone to crash.
In our latest forecast, we envisaged how the world economy would respond if the foundations of global growth would break. It was not pretty. Here I present the main takeaways.
I consider the Figure 1 (below) to give the most compelling picture on the absurdity we have arrived to. It presents the yield of the US 10 year treasury bond, the yield of Italian 10 year bond and yields of junk bonds of European and US companies as well as the QE:s of the ECB and the Fed. It implies that the default probability of an average European junk-rated company is smaller than that of the US government. This, naturally, is just absurd and it only tells the tale of a massive central bank induced market distortion. The pricing of risk in the normal sense does not exist in the capital markets anymore.

This post was published at Zero Hedge on Dec 20, 2017.

Existing Home Sales Jump Right In The Middle (of what?)

Sales of existing homes soared in November 2017, according to the National Association of Realtors (NAR). Up 5.6% in just the one month, at 5.81mm (SAAR) homes sold that’s the highest pace for resales since December 2006. After several months of glaring weakness, either a delayed rebound from hurricane disrupted activity or a burst of renewed optimism has gripped the real estate market (I’d bet the former given the timing).
The breakdown of home sales by price last month shows a dramatic reversal from 2017’s persistent skew toward activity only at the upper ends. The NAR reports that sales in the all-important mid-range absolutely spiked. In the $100k to $250k tier, activity was up 42% year-over-year; in the next higher stage, houses priced $250k to $500k, there were 34% more completed transactions this November than last.
These results actually raise more questions than provide answers. They’re the kind of distortions typically reserved for anomalous conditions, or statistical problems in the data series. For almost all November’s big jump to be channeled only into the middle leaves too much to suspicion, particularly given how the upper ends of the housing market have been where the vast majority of growth has been derived for several years running.

This post was published at Wall Street Examiner on December 20, 2017.

House Passes Trump Tax Plan For Second Time

Update: In a vote that almost exactly mirrored yesterday’s results, the House once again passed the final Trump tax bill – formerly known as the conference agreement on the Tax Cuts and Jobs Act – by a vote of 224-201.
As the Financial Times pointed out, “the vote gives the president a longed-for legislative victory to carry into his second year, one whose scope matches the radical reforms of healthcare and Wall Street regulation achieved by his predecessor Barack Obama.”
But the tax bill is already as divisive as Mr Obama’s achievements, ensuring 2018 will be dominated by electoral sparring over whether it will help middle-class families, as Republicans claim, or will deliver further riches to the wealthy and powerful, as Democrats say.
Mr Trump said at a ‘celebration’ cabinet meeting that people would begin seeing the results of the tax bill in February when adjustments to their after-tax income started appearing in pay checks. ‘We got it done,’ he said, thanking congressional leaders.


This post was published at Zero Hedge on Dec 20, 2017.

Why A Scathing Wall Street Is Furious At The Trump Tax Plan

Back in October 2016, the “millionaire, billionaire, private jet owners” of America’s elitist, liberal mega-cities (A. K. A. New York and San Francisco) celebrated the tax hikes that a Hillary Clinton presidency would have undoubtedly jammed down their throats proclaiming them to be a ‘patriotic duty’. Unfortunately, now that Trump has given them exactly what they apparently wanted…an amazing opportunity to ‘spread their wealth around”…they’re suddenly feeling a lot less patriotic.
Of course, as we’ve noted numerous times, while most people across the country and across the income spectrum will benefit from the Republican tax reform package, the folks who stand to lose are those living in high-tax states with expensive real estate as their SALT, mortgage interest and property tax deductions will suddenly be capped. And, as Bloomberg points out today, that has a lot of Wall Street Traders in New York drowning their sorrows in expensive vodka and considering a move to Florida.

This post was published at Zero Hedge on Dec 20, 2017.

What Will the Tax Bill Do to the Housing Market?

The enormity of this change has not been fully appreciated just yet.
The tax bill now becoming law will impact the housing market in a big way via four mechanisms that gut the government’s subsidies of homeownership:
Nearly doubling the standard deduction (but wait…) Lowering the cap on the mortgage interest deduction for new purchase mortgages Capping the deduction for state and local taxes at $10,000 Eliminating the deduction for interest on home-equity debt, such as HELOCs. The Big Equalizer: The New Standard Deduction
Nearly doubling the standard deduction – from $6,350 for individuals and $12,700 for married couples filing jointly in 2017 to $12,000 and $24,000 respectively in 2018 – would be a simple way of giving many Americans an instant, massive, no-hassles tax cut.
But wait: The law also eliminates the personal exemption of $4,050 allowed for each family member. A married couple will see an increase in the standard deduction of $11,300 (compared to 2017). But it will lose $8,100 in personal exemptions. This whittles down the net increase in deductions to $3,200. For couples with kids, it gets more complicated.

This post was published at Wolf Street on Dec 20, 2017.

Europe’s Era of Harmony Is Over

No one else I know can muster as much deep experience and insight into the sprawling, incendiary world of geopolitics as my good friend George Friedman, founder and chairman of Geopolitical Futures; and in today’s Outside the Box – part 2 of my 8-part SIC Speaker Series – George brings all his powers to bear to issue quite a declamatory statement on the present and future of the European Union.
George’s argument can be summarized as ‘the center cannot hold.’ With Brexiteers on its western front and unruly right-wingers on its eastern wing in Poland, Hungary, and the Czech Republic, the EU is sore beset. But as George notes, the center is quietly debating whether that might not be a good thing:
There has been some talk in the central region of either creating a separate union consisting of Germany, France, Belgium and the Netherlands, or creating a bloc within the existing bloc. The point would be for these countries to stop being responsible for countries not ready to operate at the center’s level of performance. It would mean that southern Europe, with its economic problems, and Eastern Europe, with its distinctly different political culture, could go their own way.
That is what I would call a desperate conversation. Far from ever achieving a ‘United States of Europe,’ the EU members will be lucky (or maybe not so much) if they can retain their economic union. George agrees, and he has concluded that dissolution is inevitable:

This post was published at Mauldin Economics on DECEMBER 20, 2017.

Global Liquidity Crisis Is Over… Dollar Shortage Suddenly Disappears

Remember last week when the world was desperately willing to pay excessive spreads to get their hands on dollar liquidity (the worst liquidity crisis since the European crisis)…
Well that’s all over now!
EUR-, JPY-, and GBP-cross currency basis swaps have suddenly snapped higher (less negative) as dollar liquidity is suddenly not a problem anymore…

This post was published at Zero Hedge on Dec 20, 2017.

Don’t Just Do Something, Sit There!

Have you heard of the depression of 1920-21?
Unless you’re a pretty hard-core economics geek, you probably haven’t.
The most striking aspect of this depression was its duration. It lasted just 18 months. And how did the US get itself out of this sharp economic downturn?
By essentially doing nothing.
A collapse in GDP and production led to a sharp spike in unemployment to double-digit numbers. Modern policymakers would immediately launch economic stimulus. Consider the 2008 crash. On top of government programs such as the $700 billion TARP and $800 billion in fiscal stimulus, the Federal Reserve pumped $4 trillion in new money into the system. For 165 out of 180 months, the Fed pushed interest rates down or held them at rock-bottom levels.
The result? A tepid recovery at best with 2 million fewer ‘breadwinner’ jobs than during the 1990s. Oh. And a whole slew of bubbles waiting to pop.
Lew Rockwell compares this to the how things played out in 1920.

This post was published at Schiffgold on DECEMBER 20, 2017.

Judge Declares Mistrial In Bundy Case, Says Government Willfully Withheld Evidence

In a shocking verdict, Judge Gloria Navarro dismissed jurors Wednesday, declaring a mistrial in the Bundy Ranch case saying U. S. prosecutors willfully withheld critical and “potentially exculpatory” evidence from the defense.
Seemingly confirming what Cliven Bundy’s son said during his opening statement:
“The indictment and grand jury testimony is full of lies. Truth has been blocked in previous trials.
Listen closely – we will try to get you the truth. The truth will set me free and I’m counting on you to help me see that.”

This post was published at Zero Hedge on Dec 20, 2017.

Is The GOP Tax Cut Finally Priced In? Here’s What Wall Street Thinks

Having passed the Senate, and – moments ago, for the second time – the House, the Republican Tax Cuts and Jobs Act, aka the Trump Tax Cuts is officially a done deal, just waiting for the President’s signature, at which point the longest “rumor” of 2017 will become the news. But does that mean that after “pricing it in” in some part virtually every day of the past year, the market can now sell the news? Or, as exasperated traders would put it, “is it finally fully priced in?”
Indeed, analysts, economics and investors are starting to look beyond the soon-to-be-completed tax overhaul, and judging by today’s reaction, the answer may well be yes as stocks, including tax-sensitive banks, are little-changed amid expectations tax cuts may not boost growth that much, and as likely benefits may already be priced-in to stock prices.
In fact, as Bloomberg adds, the S&P 500 and KBW bank indexes are both little changed, with top bank gainer PNC paring gains of as much as 1.1%; other rising banks include Huntington, Wells Fargo, Northern Trust, and BofA

This post was published at Zero Hedge on Dec 20, 2017.

Bi-Weekly Economic Review: Animal Spirits Haunt The Market

This is a syndicated repost courtesy of Alhambra Investments. To view original, click here. Reposted with permission.
The economic data over the last two weeks continued the better than expected trend. Some of the data was quite good and makes one wonder if maybe, just maybe, we are finally ready to break out of the economic doldrums. Is it possible that all that new normal, secular stagnation stuff was just a lack of animal spirits? Is it possible that the mere anticipation of tax cuts was sufficient to break us out of the 2% growth paradigm? Or are there other factors that have us on the precipice of a third consecutive quarter of 3%+ growth?
It is easy to find the positives in the economic data these days. Retail sales surged last month and are now up nearly 6% year over year. Wholesale sales are up over 8% and inventories are improving relative to sales. Imports and exports are up 7% and 5.6% respectively. Factory orders are rising at about a 4% clip. Productivity was up 3% last quarter. The Fed’s worries about inflation also seem reasonable considering CPI and PPI well above the Fed’s target rate of inflation. Import and export prices are both up over 3% year over year. With the unemployment rate down to 4.1% you can understand why the Philips Curve disciples are getting antsy.

This post was published at Wall Street Examiner on December 19, 2017.

Expand Tax Breaks to Expand Education

The Tax Cuts and Jobs Act is working its way through both chambers in an attempt to make it onto President Trump’s desk before Christmas. One amendment added by Senator Ted Cruz (R-TX) has some advocates of the school choice movement very enthusiastic while critics say it’s a symbolic gesture unlikely to have much of an impact.
The amendment will expand the use of 529 plans that currently allow families to save money using after tax dollars without having to pay taxes on the accumulated amount (principal and interest) when the savings are used to pay for qualified higher education expenses. Specifically, 529s allow savers and investors to save for education purposes because income gained through these accounts are subject to less taxation. Specifically, 529’s help investors better avoid dividend and capital gains taxes which can be as high as 28 percent. The plans also help taxpayers avoid income taxes on interest earned through the accounts.
So far, 529s have only been legal for use in higher education expenses. Cruz’s amendment, however, would expand the accounts to include k-12 expenses such as private and religious schools, homeschooling materials, online education courses, as well as tutoring for students with developmental disabilities for amounts up to $10,000 per year.
In addition to expanding the use of the savings account, the amendment also includes language allowing families to open the 529 plans at the moment of the child’s conception as opposed to their birth, thus expanding the time during which funds can be accumulated.

This post was published at Ludwig von Mises Institute on December 21, 2017.

Trump May Delay Signing Tax Bill Until Early Next Year

As the House prepares to hold its second vote on the final version of the Republican tax plan, Fox Business and Dow Jones Newswires are reporting that President Donald Trump might wait until early next year to sign the bill once it reaches his desk. His reason? By delaying the signing, Trump would effectively push certain spending cuts to programs like Medicare until 2019.
At issue are so-called “pay as you go,” or “pay-go,” budget rules that could be triggered by deficits in the tax bill. Congressional Republicans are preparing a separate fix to waive the rules after they finish the tax bill. But – given their already jam-packed legislative schedule – if Congress fails to pass the waiver before its year-end recess, one way to delay the cuts would be to wait until January to sign the bill.
If successful, the waiver would likely be attached to Congress’s ‘continuing resolution’ bill that would keep the government funded through Jan. 19.

This post was published at Zero Hedge on Dec 20, 2017.

What Did You Win?

So you got your “tax cuts” eh?
What, specifically, did you just “win”?
Let’s think about this for a minute. The “average single Joe” doubled the standard deduction, which many people think is a big win. It’s not, because you lose the personal exemption, which is $4,050 per person. So the actual exemption increase isn’t $6,000, it’s $2,000. You got scammed, in short, into believing you “got” a big gain there when you didn’t.
If you’re a married couple the calculation is roughly the same; you have a $24,000 standard deduction (doubled) but you lost two personal exemptions, or $8,100. So the net income exemption gain is $4,000 not $12,000.
Further, if you have dependents (e.g. single-parent households) you get whacked here because personal exemptions are gone and those were quite substantial.
Note that because the lowest bracket is 10% the actual gain in taxes saved is $200 or $400, respectively, and that’s only if you didn’t lose a deduction off AGI in the process. There is a roughly 3% decrease in rate in all brackets but the first (in other words, once you get into the 15% bracket it’s 12% instead) however the problem with just looking at this is the loss of deductions. Again, the place this is likely to bite people is found in single-family households or families with children. In these instances you are unlikely to see much change but if you do it will probably be a net increase in taxes, although it’ll be small.

This post was published at Market-Ticker on 2017-12-20.

Despite Record Levels, the Stock Market Is Actually Shrinking in Size

Like that box of macaroni in your kitchen cupboard, the U. S. stock market has become a lot more expensive but has actually shrunk in terms of quantity.
In 1975, U. S. domestic companies that traded on U. S. exchanges totaled 4,819. Forty years later, the market has shrunk to less than 4,000, despite a tripling in GDP.
If you take a shorter time span of 20 years, which included the dot.com craze of listing companies known to Wall Street insiders as ‘crap’ and ‘dogs,’ the numbers are worse. In September of last year, Jim Clifton, the Chairman and CEO of Gallup, the polling company, reported the following:
‘The number of publicly listed companies trading on U. S. exchanges has been cut almost in half in the past 20 years – from about 7,300 to 3,700. Because firms can’t grow organically – that is, build more business from new and existing customers – they give up and pay high prices to acquire their competitors, thus drastically shrinking the number of U. S. public companies. This seriously contributes to the massive loss of U. S. middle-class jobs.’
As of early 2017, according to Ernst & Young, just 140 of these publicly traded companies represented more than half of the total market value of all stocks traded in the U. S. Another stark example of the dangerous trend of wealth concentration in the U. S.

This post was published at Wall Street On Parade on December 20, 2017.

Senate Passes GOP Tax Reform Bill 51-48, Headed Back To House For Final Vote

BREAKING: Senate votes 51-48 along strict party lines to pass a $1.5 trillion tax bill, sending the updated bill back to the House to re-vote on the measure Wednesday morning. pic.twitter.com/C2KDQecUyc
— NBC News (@NBCNews) December 20, 2017

The Senate voted 51-48 along party lines to pass the sweeping $1.5 trillion GOP tax bill a little after midnight Tuesday, leaving only the House to re-vote, likely on Wednesday morning, after it was discovered that several minor provisions in the legislation were in violation of Senate rules – requiring they be stripped from the bill. As Senator John Kennedy notably said on Tuesday “somebody screwed up.”

This post was published at Zero Hedge on Dec 20, 2017 4.

The Sun is Cooling Faster than Anyone Suspected

The danger from the Global Warming crowd is that they are misleading the entire world and preventing us from what is dangerously unfolding that sparks the rapid decline in civilization – GLOBAL COOLING. I previously warned that this is not my opinion, but simply our computer. If it were really conscious it would be running to store to buy heating pads. This year will be much colder for Europe than the last three. It will also be cold in the USA. We are in a global cooling period and all the data we have in our computer system warns that the earth is turning cold not warm.
This cooling is very serious. This decline in the energy output of the sun will manifest in a commodity boom in agriculture as shortages send food prices higher. We will see famine begin to rise as crops fail and that will inspire disease and plagues. We will see the first peak in agricultural prices come probably around 2024 after the lows are established on this cycle. We have been warning that this rise would begin AFTER 2017.

This post was published at Armstrong Economics on Dec 20, 2017.