“Q1 Stock Market Outlook: We’re Gonna Need a Bigger Slide”

Submitted by FFWiley
If 2018 rings in a bear market, it could look something like the Kennedy Slide of 1962.
That was my conclusion in ‘Riding the Slide,’ published in early September, where I showed that the Kennedy Slide was unique among bear markets of the last eighty years. It was the only bear that wasn’t obviously provoked by rising inflation, tightening monetary policy, deteriorating credit markets or, less commonly, world war or depression.
Moreover, market conditions leading up to the Slide should be familiar – they’re not too far from market conditions since Donald Trump won the 2016 presidential election. In the first year after Kennedy’s election, as in the first year after Trump’s election, inflation seemed under control, interest rates were low, credit spreads were tight, and the economy was growing. And, in both cases, the stock market was booming.

This post was published at Zero Hedge on Sat, 12/30/2017 –.

The Dreaded ‘Flattening Yield Curve’ Meets QE Unwind

During prior incidents of an ‘inverted’ yield curve, the Fed had no tools to get the market to push up long-term yields. Today it has one: the QE Unwind.
The price of three-month Treasury securities fell and the yield – which moves in the opposite direction – rose, ending the year at 1.39%, after having spiked to 1.47% on December 26, the highest since September 12, 2008. This is in the upper half of the Fed’s new target range for the federal funds rate (1.25% to 1.50%). Back in October 2015, the yield was still at 0%:

This post was published at Wolf Street by Wolf Richter ‘ Dec 30, 2017.

The Myth of Insufficient Demand

Following the ideas of Keynes and Friedman, most mainstream economists associate economic growth with increases in the demand for goods and services.
Both Keynes and Friedman felt that The Great Depression of the 1930’s was due to an insufficiency of aggregate demand and thus the way to fix the problem is to boost aggregate demand.
For Keynes, this was achieved by having the federal government borrow more money and spend it when the private sector would not. Friedman advocated that the Federal Reserve pump more money to revive demand.
There is never such a thing as insufficient demand as such, however. An individual’s demand is constrained by his ability to produce goods. The more goods that an individual can produce the more goods he can demand, and thus acquire.
Note that the production of one individual enables him to pay for the production of the other individual. (The more goods an individual produces the more of other goods he can secure for himself. An individual’s demand therefore is constrained by his production of goods).
Note again demand cannot stand by itself and be independent – it is limited by production. Hence, what drives the economy is not demand as such but the production of goods and services.
In this sense, producers and not consumers are the engine of economic growth. Obviously, if he wants to succeed then a producer must produce goods and services in line with what other producers require.
According to James Mill,

This post was published at Ludwig von Mises Institute on Dec 29, 2017.

California Supreme Court Set For Ruling That Could Cut Pensions For Public Workers

For decades now public pensions have been guided by one universal rule which stipulates that current public employees can not be ‘financially injured’ by having their future benefits reduced. On the other hand, that ‘universal rule’ also necessarily stipulates that taxpayers can be absolutely steamrolled by whatever tax hikes are necessary to fulfill the bloated pension benefits that unions promise themselves. Alas, that one ‘universal rule’ may finally be at risk as the California Supreme Court is currently considering a case which could determine whether taxpayers have an unlimited obligation to simply fork over whatever pension benefits are demanded of them or whether there is some “reasonableness” test that must be applied. Here’s more from VC Star:

This post was published at Zero Hedge on Fri, 12/29/2017 –.

China Eliminates Taxation For Foreign Companies Investing in China

China has responded to global competition that is exploding in the wake of the Trump Tax Reform. While domestic news in the USA continues to bash the tax reform on class warfare, the rest of the world is trying to come to terms with what Trump has set in motion. China’s response is to allow foreign companies complete tax-free business on any profits they reinvest in China upping the stakes. Their position was stated by the Ministry of Finance and it is designed to ‘foster the growth of foreign investment, improve the quality of foreign investment, and encourage foreign investors to continuously expand their investment in China.’ The tax exemption applies retroactively from January 1st, 2017 beating Trump at his own game once more. Foreign companies who have paid taxes in China for 2017 will be refunded.

This post was published at Armstrong Economics on Dec 30, 2017.

What “Off The Grid” Indicators Reveal About The True State Of The US Economy

It’s that time of quarter again; today we review our ‘Off the Grid’ economic indicators. And they all look pretty good in terms of launching the American economy into 2018. Pickup truck sales and used car prices remain robust, and there’s some actual inflation in our Bacon Cheeseburger Index. One warning: ‘Bitcoin’ is among the top Google search autofills for the phrase ‘I want to buy…
We started our ‘Off the Grid’ economic indicators in the aftermath of the Financial Crisis as a way to dig deeper into the longer-lasting effects of that event on the American consumer. It seemed to us that standard economic measures like unemployment or CPI inflation missed a lot about the state of the country. So we started gathering up a list of intuitive metrics that could fill those gaps.
A few examples from these datasets over the years:

This post was published at Zero Hedge on Fri, 12/29/2017 –.

The Rise of the West

Throughout almost the entire span of human history, material privation and chronic insecurity were the norm. Not even those at the peaks of social status and political power could enjoy the creature comforts and consumer delights that “poor” people take for granted in the West today. At times, certain populations fared somewhat better – in ancient Greece and Rome, perhaps, and in China during the Sung Dynasty (960 – 1279) – but those cases were exceptional.
As late as the 14th century, the Chinese probably enjoyed the highest level of living of any large population. Recall the amazement with which Europeans greeted Marco Polo’s account of China in the latter part of the 13th century, even though, as Polo declared on his deathbed, he had not described the half of what he had seen.1
As the Middle Ages waned the Europeans began to make quicker economic progress, while the Chinese lapsed into economic stagnation. Even more remarkable, the economic energy of Europe began to shift away from the great commercial centers of northern Italy and toward the periphery of civilization in northwestern Europe. The barbarians, it seemed, had somehow stumbled onto the secret of economic progress. Henceforth, despite many setbacks, the western Europeans – and later their colonial cousins in North America as well – steadily pulled ahead of the human pack. By the 18th century they had far surpassed the Chinese, not to speak of the world’s more backward peoples, and until the late 20th century the gap continued to widen.
How did the West succeed in generating sustained economic progress? Historians and social scientists have offered various hypotheses, and so far no single explanation has gained general acceptance. Nevertheless, certain elements of an answer have received wide agreement. The growing individualism of Western culture, rooted in Christian doctrine, seems to have contributed significantly.2 In addition, the political fragmentation of the European peoples in the high Middle Ages and the early modern period – a political pluralism with hundreds of separate jurisdictions – fostered the institutional and technological experimentation by which entrepreneurs could discover how to make labor and capital more productive.

This post was published at Ludwig von Mises Institute on 2017/12/29.

Ron Paul Warns America’s “On The Verge Of Something Like 1989’s Soviet System Collapse”

Ron Paul does not believe the U. S. will break into separate countries, like the Soviet Union did, but expects changes in the U. S. monetary policy, as well as the crumbling of the country’s “overseas empire.”
The godfather of the Tea Party movement and perhaps the most prominent right-leaning libertarian in America, Ron Paul, believes the economic boom the United States experienced under President Trump could be a ‘bit of an illusion.’
Mr. Paul sees inequality, inflation, and debt as real threats that could potentially cause a turmoil.
‘the country’s feeling a lot better, but it’s all on borrowed money’ and that ‘the whole system’s an illusion’ built on corporate, personal, and governmental debt.
‘It’s a bubble economy in many many different ways and it’s going to come unglued,’
In a recent interview with the Washington Examiner, Paul said,
‘We’re on the verge of something like what happened in ’89 when the Soviet system just collapsed. I’m just hoping our system comes apart as gracefully as the Soviet system.

This post was published at Zero Hedge on Fri, 12/29/2017 –.

From Crypto To Qatar – These Were The Best & Worst Assets In 2017

2017 saw global central bank balance sheets explode almost 17% higher (in USD terms) – the biggest annual increase since 2011 – and while correlation is not causation, one can’t help but see a pattern in the chart below…
Global stocks up, Global bonds up, Global commodities up, Financial Conditions easier (despite 3 Fed rate hikes), and Dollar down (most since 2003)…
As we noted earlier, Craig James, chief economist at fund manager CommSec, told Reuters that of the 73 bourses it tracks globally, all but nine have recorded gains in local currency terms this year.
‘For the outlook, the key issue is whether the low growth rates of prices and wages will continue, thus prompting central banks to remain on the monetary policy sidelines,’ said James. ‘Globalization and technological change have been influential in keeping inflation low. In short, consumers can buy goods whenever they want and wherever they are.’
Still, the good times may not last: an State Street index that gauges investor risk appetite by what they actually buy and sell, suffered its six straight monthly fall in December, Reuters reported.
“While the broader economic outlook appears increasingly rosy, as captured by measures of consumer and business confidence, the more cautious nature of investors hints at a concern that markets may have already discounted much of the good news,’ said Michael Metcalfe, State Street’s head of global macro strategy.

This post was published at Zero Hedge on Fri, 12/29/2017 –.

The Hidden-in-Plain-Sight Mechanism of the Super-Wealthy: Money-Laundering 2.0

Financial and political power are two sides of one coin.
We all know the rich are getting richer, and the super-rich are getting super-richer. This reality is illustrated in the chart of income gains, the vast majority of which have flowed to the top .01%–not the top 1%, or the top .1% — to the very tippy top of the wealth-power pyramid:
Though all sorts of reasons have been offered to explain this trend–I’ve described the mechanisms of financialization here for years–two that don’t attract much mainstream media attention are money laundering and control fraud, i.e. changing the rules of what’s legal so what was illegal yesterday is legal today–presto-magico, illegally skimmed wealth is now “legal.”
Correspondent JD recently submitted an excellent summary of the progression from Money Laundering 1.0 to Money Laundering 2.0:
Money laundering 1.0 is making dirty money legal, control fraud is manipulating the ‘legal’ options, and money laundering 2.0 is making sure that ‘legal’ fortunes are not taxed and cannot be clawed back.”
Conventional money laundering works by shifting ill-gotten gains into legitimate banks and/or assets. Ill-gotten gains can be laundered quite easily by buying homes or businesses (in the U. S., Europe, etc.) with cash. The home or enterprises can then be sold and the net is now legit.

This post was published at Charles Hugh Smith on DECEMBER 29, 2017.

Italian Bonds Slide As Market Realizes ECB Has Been The Only Buyer

In an otherwise calm market, Italian bonds have been sold off today, breaking away from the broader bullish sentiment amid the European bond market, with the yield on 10Y BTPs rising as much as 5bps, above 2% for the first time since October 26.
While there has been no specific catalyst, some traders are starting to factor in the potential political confusion that could result after the Italian elections due in just over 2 months. As a reminder, on March 4, voters in eurozone’s third-largest economy will head to the polls amid dwindling support for the ruling pro-EU centre-left Democratic party and rising support for the Eurosceptic opposition.
According to the FT, the likely scenarios after the vote range include a hung parliament, a grand coalition or a populist government with a much more confrontational attitude towards Brussels, including the most troubling outcome: plans to question Italy’s membership of the single currency.

This post was published at Zero Hedge on Fri, 12/29/2017 –.

Housing Bubble 2.0: U.S. Homeowners Made $2 Trillion On Their Houses In 2017

Americans who are lucky enough to own their own little slice of the ‘American Dream’ are about $2 trillion wealthier this year courtesy of Janet Yellen’s efforts to recreate all the same asset bubbles that Alan Greenspan first blew in the early 2000’s. After surging 6.5% in 2017, the highest pace in 4 years according to Zillow data, the total market value of homes in the United States reached a staggering all-time high of $31.8 trillion at the end of 2017…or roughly 1.5x the total GDP of the United States.
If you add the value of all the homes in the United States together, you get a sum that’s a lot to get your mind around: $31.8 trillion.
How big is that? It’s more than 1.5 times the Gross Domestic Product of the United States and approaching three times that of China.
Altogether, homes in the Los Angeles metro area are worth $2.7 trillion, more than the United Kingdom’s GDP. That’s before this luxury home on steroids hits the market.

This post was published at Zero Hedge on Fri, 12/29/2017 –.

FinTwit Set To Lose Some Of Its Most Prominent Voices Due To Loss Of Anonymity

(2) The last four years has been a blast, both financially and politically. While I know many of you didn’t always agree with my snarky takes on Trump, Elon, etc., I hope I at least made you consider a different, if not ancient, point-of-view.
— Diogenes (@WallStCynic) December 29, 2017

Financial twitter is set to lose some of its more prominent “anonymous” voices in just a few days. The reason: in a decision that has passed largely under the radar, beginning in 2018, the SEC will require registered investment advisors – i.e. carbon-based asset managers, hedge funders and so on, to disclose any anonymous social media accounts, on their Form ADV.
This goes back to a recently filed amendment to Form ADV, i.e., the “Umbrella Registration” for asset managers, specifically Item 1. I. as described below by K&L Gates:
Recognizing the increasing use of social media by advisers, the SEC has also amended Item 1. I. to request information regarding the registrant’s accounts on publicly available social media platforms, such as Twitter, Facebook, and LinkedIn. Previously, Item 1. I. only asked for information about an adviser’s websites. Now, the registrant must provide, in addition to its website addresses, the addresses of each of its social media pages in Section 1. I. of Schedule D. However, a registrant should not provide the addresses of websites or accounts on publicly available social media platforms where the registrant does not the control the content, nor should it provide the website and social media addresses of its employees’ accounts, regardless of whether the registrant controls the content of such accounts.

This post was published at Zero Hedge on Fri, 12/29/2017 –.

US Dollar Has Worst Year since 2003, Defying the Fed

Where will it go from here?
Today is another down-day for the US dollar, the third in a row, capping a nasty year for the dollar, the worst since 2003. In 2017, the dollar dropped 7% against a broad basket of other currencies, as measured by the Trade Weighted Dollar Index (broad), which includes the Chinese yuan which is pegged to the US dollar. It was worse than the 5.7% drop in 2009, but not as bad the 8.5% plunge in 2003.
Here are the past four years of the dollar as depicted by the Broad Trade Weighted Dollar Index, which tracks 26 foreign currencies. The index is updated weekly, with the last update on December 26, and has not yet captured the declines of past three days:

This post was published at Wolf Street on Dec 29, 2017.

Global Stocks Set To Close 2017 At All Time Highs, Best Year For The Euro Since 2003

With just a few hours left until the close of the last US trading session of 2017, and most of Asia already in the books, S&P futures are trading just shy of a new all time high as the dollar continued its decline ahead of the New Year holidays.
Indeed, markets were set to end 2017 in a party mood on Friday after a year in which a concerted pick-up in global growth boosted corporate profits and commodity prices, while benign inflation kept central banks from snatching away the monetary punch bowl. As a result, the MSCI world equity index rose another 0.15% as six straight weeks and now 13 straight months of gains left it at yet another all time high.
In total, world stocks haven’t had a down month in 2017, with the index rising 22% in the year adding almost $9 trillion in market cap for the year.
Putting the year in context, emerging markets led the charge with gains of 34%. Hong Kong surged 36%, South Korea was up 22% and India and Poland both rose 27% in local currency terms. Japan’s Nikkei and the S&P 500 are both ahead by almost 20%, while the Dow has risen by a quarter. In Europe, the German DAX gained nearly 14% though the UK FTSE lagged a little with a rise of 7 percent.
Craig James, chief economist at fund manager CommSec, told Reuters that of the 73 bourses it tracks globally, all but nine have recorded gains in local currency terms this year.
‘For the outlook, the key issue is whether the low growth rates of prices and wages will continue, thus prompting central banks to remain on the monetary policy sidelines,’ said James. ‘Globalization and technological change have been influential in keeping inflation low. In short, consumers can buy goods whenever they want and wherever they are.’

This post was published at Zero Hedge on Fri, 12/29/2017 –.

MIFiD II Delays…

Talk amongst many traders is that they are so unsure how the new rules and regulations surrounding the implementation of MIFiD II (Markets in Financial Instruments Directive) are to be imposed, that some even said they were keen to extend their holidays until this mess is sorted out. In other words, until they hear that regulators will grant firms a six-month delay for part of the changes about to be implemented for both the company and country, many just do not even know how to conduct business anymore.
The most critical problem surrounding this nightmare is the fact that every trade (with a European Counterpart) will require a LEI (Legal Entity Identifier). This is not such a critical issue for Wall Street Banks since they have already won a 30-month grace period after the SEC requested time to negotiate terms with the EU. Goldman Sachs has installed another of its board members as the top negotiator inside the SEC – Alan Cohen. Goldman Sachs has now three strategic people in the Trump Administration to steer the legislation in their favor both in the USA with restoring Glass Steagall to reduce their competition (Gary Cohen & Steven Mnuchin) and they have now added Alan Cohen, who was their Head of Global Compliance.

This post was published at Armstrong Economics on Dec 29, 2017.

The EU Bad Loan Crisis to Get Much Worse – The Solution = Financial Pandemic

The bad loan (‘non-performing loan’ (NPL)) crisis in Europe is well known and many have been calling for this issue to be addressed. In Italy, the bad loan crisis has reached 21% of GDP. While NPLs dropped to 4.8% of all loans in the EU as a whole during the first quarter of 2017, they remained well above 40% in Greece and Cyprus, at 18.5% in Portugal, and 14.8% in Italy according to the European Banking Authority.
Now comes the bureaucrats with zero experience to save the day – or is that to create a financial pandemic in the EU? The EU Commission (EUC) along with the European Central Bank (ECB), want to ensure that banks promptly sell real estate, stocks, bonds and other assets that serve to collateralize loans according to their Mid-term Review of the Capital Markets Union Action Plan. Member States are required to adopt laws that facilitate the central directive. At this time, any bank cannot just sell a property that secures a loan. The problem is, all loans, whether secured or not, are valued the same.

This post was published at Armstrong Economics on Dec 29, 2017.