Will Trump’s Tax Plan Pass: Here Is The Complete Probability Matrix

With global equity markets enjoying the biggest weekly inflow since the election on what BofA described was rising expectations of a Trump tax deal, the obvious question is “what is the probability of the Trump tax deal getting done.” And, as it turns out, that is also the wrong question, because as Morgan Stanley shows, the outcome from Trump’s tax proposal is not binary. In fact, there are nine distinct possible results, depending on how the various binomial outcomes pan out.
But first, here is a snapshot of how Morgan Stanley’s Michael Zezas sees the infamous one-pager (which was fully explained by Goldman Sachs earlier in the week).
A starting point, but we don’t think the timing of tax reform is advanced: The release is a signal that the White House is taking more of a leadership role on tax than they did on healthcare. Yet that fact alone doesn’t change the barriers to action and likelihood of delays (1H18 is our estimated timing), in our view, for the following reasons: Republicans still pursuing elusive healthcare deal – Until Republicans ‘cut bait’ on repealing & replacing Obamacare, they can’t practically start the detailed work of advancing tax reform through the budget reconciliation process. While we see little practical reason for Republicans to remain focused on healthcare, the recently proposed MacArthur amendment signals renewed dedication to the effort. As such, our concern is that they become bogged down in passing amendments to AHCA that satisfy the concerns of moderates, conservatives, and Senate reconciliation rules.

This post was published at Zero Hedge on Apr 28, 2017.

Economy ‘Surprises’ to Downside, Growth Near Zero. Atlanta Fed GDPNow Forecast just about Nailed it

Lousy consumer spending & the ‘weather.’ Inflation hits Fed target. The US economy surprised economists to the downside once again, a terrible habit it has picked up over the past years. GDP adjusted for inflation inched up only 0.7% ‘compound annual rate of change.’ This means that if the economy keeps growing at this rate for four quarters in a row, economic growth for the entire year would only be 0.7%.
By comparison, in 2016, economic growth was 1.6%, matching 2011 for the worst rate since the Financial Crisis. So 0.7% is ugly. It was the weakest growth since Q1 2014.
Not annualized, growth in Q1 from Q4 2016 was a near-zero 0.17% (rounded 0.2%), according to the ‘advance’ estimate of the Bureau of Economic Analysis. This rate extrapolated to four quarters produces the 0.7% ‘compound annual rate of change.’ This chart shows that rate of change’ going back to Q1 2003:

This post was published at Wolf Street by Wolf Richter ‘ Apr 28, 2017.

France and Europe Dodge Bullet, Yet Risks Still Ahead

Markets in France, Europe, and globally are rallying as they breathe a sigh of relief following the first round of the French presidential election on Sunday. The pro-business centrist candidate Emmanuel Macron came in first, beating the far-right National Front candidate, Marine Le Pen. This preliminary outcome eliminated the ‘existential’ threat that the second round would be contested between two anti-European Union, anti-globalist extremists, Le Pen on the far right and Jean-Luc Mlenchon on the far left. Macron, who has a mainstream economic reform agenda, is the very strong favorite to win the second round of the election on May 7th, with polls showing him likely to gain more than 60% of the vote. Threats of France’s possibly leaving the euro, redenominating and devaluing the country’s debt in francs, and pulling out of the European Union (‘Frexit’) no longer overhang markets.
The French election calendar – along with its political risks – continues with the final round of the Presidential election due in two weeks. While Macron is the very likely victor, investors will look closely at the geographical pattern of the voting for clues regarding the parliamentary elections in June. Macron did not run as a candidate for one of the major parties, despite having been a minister in the former Socialist government. He will need to gain the support of the National Assembly for his growth-enhancing reforms, fiscal consolidation, and increased European political and economic integration. Socialist Party members will likely emphasize growth-stimulating measures, including Macron’s proposed 50-billion-euro investment program, while Republican Party members will likely seek public-sector expenditure cuts. And the far-right National Front may well gain enough seats to exert some influence on French policies.

This post was published at FinancialSense on 04/28/2017.

Why The Crude Rally Has Fizzled – Part 3 (Of 3)

This is the third and final segment of a three-part look at why oil prices have failed to rally despite OPEC’s best efforts at managing supply cuts. Not only have prices failed to rally, both NYMEX WTI and ICE Brent have fallen around 9% over the past three weeks. In case you missed them, be sure to read part 1 and part 2.
Refiners do what is in their best interest, too.
Bank of America Merrill Lynch analysts recently said that refiners the world over need to weigh capitalizing on current strong margins – and risk dumping products into an already glutted market – or forgo profits now in the hopes of rescuing global product prices.
‘Refiners need to be careful not to repeat last year’s mistake and raise production in response to high margins only to add to already high inventories,’ the analysts said. ‘In a way, they face a big dilemma: be penny wise now and possibly look pound foolish later, essentially run harder now and suffer in six months, or run softer now and forgo profits.’

This post was published at Zero Hedge on Apr 28, 2017.

Biggest Inflows Into European Stocks Since 2015, Just As The Economic Pullback Begins

Forget the “great rotation” out of bonds into stocks: 6 months into the so-called reflation trade, which so many strategists predicted would unleash a new era of euphoric stock buying driven by bond sales, it just isn’t happening; in fact bonds have seen fund inflows on 17 of the last 18 weeks. Instead, two other “great rotations” have emerged: one out of “active management” into passive, or hedge funds to ETFs, while the other – more recent one – is out of various asset classes and into Europe. It was this last rotation that was on display in the past week, when Europe saw the biggest inflows – approximately $2.4 billion – since December 2015, and the 5th consecutive week of inflows in a row.
This is likely just the beginning: as DB observes overnight, “There is a wall of money just waiting to come into Europe”, as fund flows into Europe lagged other developed markets in 2016.
There were other notable observations in the latest weekly EPFR fund flow report. In addition to the surge in European inflows, a total of $21 billion was allocated to equities, the most since the US election on hopes Trump’s “tremendous” tax proposal could boost risk assets; instead it was a dud. The US alone saw $13.8bn in inflows, the largest inflows in 19 weeks.

This post was published at Zero Hedge on Apr 28, 2017.

076: Despite the new ‘plan’, this is -still- a no-brainer tax strategy

Yesterday I recorded a new podcast with my US-based tax attorney to talk about the Trump administration’s new tax plan… or as I like to call it, the plan to have a plan.
Clearly they’re trying to do something positive and significant.
But to say that their strategy is light on details at just a single page would be a massive understatement.
Rather than rehash and recap what has already been covered in the media, my attorney and I dove into some of the more important issues: what’s NOT in the plan, what are the major details to sort out, and what’s SAFE?
Personally, I’m extremely skeptical of major tax reform… though I’d be happy to be proven wrong.
As I’ve written a number of times, the last time the tax code was updated was 1986.
Tech-savvy consumers were still using 5 inch floppy disks. Many of our readers hadn’t even been born yet.
The 1986 tax code was perfectly reasonable for an industrialized economy dominated by large companies like General Motors.
Today, technology makes it possible for companies to generate income across the world through products and services that are entirely digital.

This post was published at Sovereign Man on April 28, 2017.

Dr. Doom: The US Economy Is Terminally Sick

Marc Faber appeared on CNBC Futures Now recently to talk about the impending pop of the stock market bubble. ‘Dr. Doom’ has predicted a 20% to 40% stock market selloff in the near future. The show’s host, along will Scott Nations, pressed Faber on the surging stock market. ‘If someone piled into stocks in 2012, 2013, 2014 or 2015 they’ve done pretty well. Why were you so wrong then, and why should we think you’re so right now?’ Nations asked.
Faber insisted investors need to look at the underlying economic fundamentals, not the latest stock market numbers.
‘I think the US economy, and western economies in general, are terminally sick. And we have, since 2007 before the crisis, essentially almost doubled global debt as a percentage of GDP.

This post was published at Schiffgold on APRIL 28, 2017.

US Rig Count Rise Continues As Crude Production Hits 20-Month Highs

From the May 2016 lows, the number of US oil rig counts have only declined 3 times and this week was no exception. Up for its 15th week in a row ( 9 to 697), its highest level since April 2015, the rig count continues to pull US crude production higher, stymying OPEC efforts at balance, leaving the bullish case for oil fading fast.
*U. S. OIL RIG COUNT UP 9 TO 697 , BAKER HUGHES SAYS :BHI US Texas added 11 rigs to 437, Oklahoma added 3 to 127 *U. S. GAS RIG COUNT UP 4 TO 171 , BAKER HUGHES SAYS :BHI US One might argue that the rig count – which tracks the lagged crude price – may begin to stabilize here…

This post was published at Zero Hedge on Apr 28, 2017.

Is The Dollar Bull Market Over? (And What That Would Mean For Your Portfolio)

Authored by Bryce Coward via Gavekal Capital blog,
Since the beginning of 2017, the US dollar has struggled against nearly every major currency, calling into question the idea that the US dollar is still in a bull market. Indeed, since the dollar made its cyclical high on the first day of 2017 trading, it has put in a series of lower highs and lower lows no matter how you measure it (chart 1).

This post was published at Zero Hedge on Apr 28, 2017.

Consumer Confidence ‘Steady’ Despite Weak Wages, No Spending, Slow Growth

Apart from stagnant wage growth, dismal economic growth, and tumbling spending growth, Americans remain ‘confident’ according to University of Michigan. Current conditions fell very modestly but ‘hope’ rose to its highest since January. Inflation expectations were steady (near record lows) but buying climates improved MoM.
It seems UMich respondents do not care about wage growth (just the Nasdaq)…

This post was published at Zero Hedge on Apr 28, 2017.

US GDP Collapses To 0.7%, Lowest In Three Years; Worst Personal Spending Since 2009

The Atlanta Fed was right once again, and slashing its forecast over the past 3 months today the BEA confirmed that in the first quarter US economic growth tumbled to just 0.7%, down from 2.1% in the last quarter and below the 1.0% expected, and the lowest print in three years going back all the way to Q1 2014.
Broken down by components, the disappoing number reflected increases in business investment, exports, housing investment, offset by a big slowdown in consumer spending. The increase in business investment reflected increases in both structures and equipment, notably a significant increase in mining exploration, shafts, and wells.
These positive contributions were offset by decreases in private inventory investment, state and local government spending, and federal government spending.
The increase in exports reflected an increase in nondurable industrial supplies and materials, notably petroleum. Also on trade, imports, which are a subtraction in the calculation of GDP, increased in the first quarter of 2017. As the chart below shows, the dramatic drawdown in trade as a result of the soybean export surge giveback is now over, and net trade contributed a modest 0.1% to Q1 GDP.

This post was published at Zero Hedge on Apr 28, 2017.

You Got Trumped: Bannon banned and Cohn-Kushner establishment advanced

President Trump, how’s that swamp drainage project going?
Another big move in the last couple of weeks has been the sidelining of Trump’s chief strategist Steve Bannon as the Goldman-Sachs group wins more influence in the White House. Bannon has been the guardian of the anti-establishment hopes that put Candidate Trump in office.
Rep. Steve King (R-Iowa), one of the president’s most vocal backers on Capitol Hill, said he’s been disheartened by the chief strategist’s isolation. ‘A lot of us look at Steve Bannon as the voice of conservatism in the White House,’ said King, who has known Bannon for years. (Politico)
As Newsmax reports,
In a White House marked by infighting, top economic aide Gary Cohn, a Democrat and former Goldman Sachs banker, is muscling aside some of President Donald Trump’s hard-right advisers to push more moderate, business-friendly economic policies…. More than half a dozen sources on Wall Street and in the White House said Cohn has gained the upper hand over Trump’s chief strategist, Steve Bannon, the former head of the right-wing website Breitbart News…. White House sources say he will lead the charge for Trump on top domestic priorities such as tax reform, infrastructure and deregulation…. Crucially, Cohn also has the trust of Jared Kushner, Trump’s adviser and son-in-law, and his wife Ivanka, Trump’s daughter.
The family business
Cohn and Kushner met at Goldman Sachs when Kushner was an intern there. Jared Kushner is, of course, the president’s son-in-law, married to Ivanka Trump. It was Kushner who paved the way for Cohn to meet Donald Trump after Trump became president-elect. Trump and Cohn did not know each other during the campaign.
Kushner and Bannon, on the other hand, largely butted heads in the months that followed the election. In a family business, it doesn’t pay to run at odds with the family, and the White House seems to be running as a family business.
While Trump seems to thrive on chaos and conflict as a leadership principle, the conflict became too much even for him, so two weeks ago he ordered Bannon and Kushner to find a way to ‘knock it off’ and make it work. Trump moved Bannon out of his involvement in intelligence affairs and then began to undercut him publicly in interviews.
‘I am my own strategist,’ Mr. Trump told the New York Post columnist Michael Goodwin in an interview on Tuesday, a pointed reference to what aides described as his growing irritation that Mr. Bannon’s allies are calling him the mastermind behind Mr. Trump’s victory…. In an interview with The Wall Street Journal on Wednesday, Mr. Trump made clear Mr. Bannon’s subordinate role, calling him ‘a guy who works for me.’ (The New York Times)

This post was published at GoldSeek on 28 April 2017.

Just These Five Companies Account For 28% Of The S&P’s 2017 Returns

On the last day of the busiest earnings week in a decade, here is a striking statistic from Goldman Sachs, showing just how dominant a handful of large cap companies have become in terms of both overall profitability and market impact:
Year to date the top 10 contributors have combined to account for 37% of the S&P 500 index return (more than double their market cap representation of 17%). The concentration among the top five is even greater, with those firms – AAPL, FB, AMZN, GOOGL, and MSFT – accounting for 28% of the return and 12% of market cap.
Some further perspective, courtesy of the WSJ, which notes that the combined market capitalization of AMZN, MSFT, INTC and GOOG makes up about 8% of the Index’s total.
Throwing in Apple and Facebook puts about 13% of the S&P 500’s combined market cap into the hands of just six companies. This wasn’t always the case. Ten years ago, Apple, Amazon, Google, Microsoft and Intel made up just 5% of the S&P 500’s market cap, while Facebook was four years away from becoming a public company.

This post was published at Zero Hedge on Apr 28, 2017.

Stock Market Sentiment, Re-Fueled Along the Way

It’s a big picture view with a story to tell. People are micro-managing the VIX, talking about how it either doesn’t work anymore, if it ever did, or is forecasting extreme doom imminently (through investor complacency). But what is ‘imminently’? Is it next month or is it the 2-3 years that this indicator often wallows along the bottom of its support zone before overseeing a coming Armageddon? Sure, it started wallowing in the zone back in 2013, but then the ‘fuel stops’ that were ultimately bullish (the 2010, 2011 and 2015 corrections) cleared the overhead inventory of investors out of the markets.
Sometimes you’ve got to let a picture marinate and tell its story, not impose your (relatively) hypersensitive brainwaves on it. The story this thing is telling is that Armageddon ’08 surely was a massive sentiment reset (of much greater power and significance than I originally thought it would be, when I got bullish in early 2009). On top of that big sentiment event that cleaned the markets out to a fully sanitized state, there were 3 subsequent eruptions of bearishness that may have reinforced the message of the 2008 disaster, sternly reminding casino patrons that this thing is not safe.
And yet up go the prices of stocks, and down goes the VIX. The problem for bears who would like to sharpen their claws for a ‘fish in a barrel’ opportunity, is that 3rd fuel stop of the current bull market, from 2015. VIX is in the zone, but how many months will it wallow there thanks to the 2015 clean out?
Now let’s look again at the weekly chart of the S&P 500 along with the stubbornly un-bullish AAII (Individual Investors). In NFTRH we have had an open question about whether the AAII will need to finally jerk all-in, similar to 2000, or at least heavily-in, similar to 2010 and 2014 before the bull finally terminates.

This post was published at GoldSeek on 28 April 2017.

Gold Hostage to Stocks

Gold has had a wild ride since Trump’s surprise election win in early November. This metal first plunged then surged, ultimately making little headway. It wasn’t until mid-April that gold regained its pre-election levels. This overall lackluster gold action was confounding given all the mounting uncertainties. But it once again highlights that gold investment demand is often hostage to the US stock markets’ fortunes.
Before the election, gold surged every time Trump appeared to advance in the polls. Trump had a well-earned reputation as a loose cannon, implying far greater unpredictability. Increasing prospects of a Trump victory drove gold to $1305 the Friday before the election. But that weekend the FBI cleared Clinton again on her classified-e-mail front. So gold sold off sharply on rising odds Clinton would indeed win.
On Election Day gold closed near $1276, a price that essentially wasn’t seen again until just a couple weeks ago. As the early voting results came in that evening, Trump took a surprise lead in Florida which started to grow. As the biggest battleground state with 29 electoral votes, Florida was an absolute must-win for Trump. Gold futures soared in real-time to $1337 that evening, 4.8% over that day’s close hours earlier!
For months before that vote, all indications were gold would surge on a Trump victory. Gold investment demand grows on uncertainty, and Trump is unpredictability personified. Gold’s election-evening gains didn’t seem unreasonable, merely matching the 4.8% surge seen the day after the UK’s Brexit vote in late June that also surprised. But a couple days after Trump’s victory, gold spiraled into a 5-week-long plunge.
How could gold’s price action pivot so radically across that election as uncertainties indeed soared? It was an exceedingly-vexing outcome for gold investors and speculators, leaving them confounded and disheartened. This improbable result sprung from an equally-improbable one. Contrary to virtually all expectations pre-election, the stock markets surged in extraordinary Trumphoria after his underdog win.
Though traders often forget, gold has long been hostage to stocks. Gold is a unique asset that tends to move counter to stock markets, making it something of an anti-stock trade. So gold investment demand surges when stock markets weaken, as investors seek to prudently diversify their stock-heavy portfolios. But when stock markets surge, counter-moving gold is soon forgotten so its investment demand withers.
Given gold’s global supply-and-demand fundamentals, it’s remarkable just how dominant investment demand is in driving gold’s prevailing price levels. The definitive arbiter of gold fundamental data is the World Gold Council. It reported that global gold investment demand accounted for only 36% of overall total demand in 2016, and just 22% in 2015. Jewelry dwarfed that at 47% and 57% respectively those years.
Yet it’s not gold’s perennial largest demand category of jewelry that really moves its price, but its much-smaller investment one. Investment demand drives gold prices at the margin because it is exceedingly volatile compared to gold’s other demand categories. Between 2010 and 2016, the best jewelry-demand year was only 31% bigger than the worst one. But this same variance in investment demand was huge at 119%!
And there’s nothing that’s driven global gold investment demand in recent years like US stock-market fortunes. That sounds dubious, but the hard market data is crystal-clear. Gold investment demand surges when US stock markets weaken, and slumps when they strengthen. That’s what birthed the apparent gold anomaly after the election. Trump won, but gold demand didn’t surge because stock markets soared.

This post was published at ZEAL LLC on April 28, 2017.

Atlanta Fed GDPNow Nails it: Economy ‘Surprises’ to Downside, Growth Near Zero

Lousy consumer spending & the ‘weather.’ Inflation hits Fed target.
The US economy surprised economists to the downside once again, a terrible habit it has picked up over the past years. GDP adjusted for inflation inched up only 0.7% ‘compound annual rate of change.’ This means that if the economy keeps growing at this rate for four quarters in a row, economic growth for the entire year would only be 0.7%.
By comparison, in 2016, economic growth was 1.6%, matching 2011 for the worst rate since the Financial Crisis. So 0.7% is ugly. It was the weakest growth since Q1 2014.
But wait. It gets worse. This is the seasonally adjusted ‘compound annual rate of change,’ according to the ‘advance’ estimate of the Bureau of Economic Analysis. The BEA’s seasonally adjusted ‘annual rate of change’ – without the ‘compound’ – which is what the Atlanta Fed’s GDPNow model is forecasting, was only 0.2%, just a hair above zero. From the BEA:
Economists blamed the weather. It was too warm this time around, rather than too cold, which is the usual explanation for Q1 debacles.

This post was published at Wolf Street on Apr 28, 2017.

The Disconnect Between Stock Market Perception and Economic Reality

This week Nasdaq soared to record highs, cracking the 6,000 ceiling for the first time. The Dow Jones surged as well, gaining 1.1% Tuesday. Earlier this year, the Dow shot above the 21,000 mark and hit record highs 12 days in a row in February. Despite these impressive numbers, there are increasing signs that the economy is tanking. In fact, there is a huge reality disconnect between what is going on in the economy and the soaring stock markets.

The US economy barely grew in the first quarter. The Commerce Department announced Friday that GDP increased by just 0.7% in Q1 of 2017. Analysts had projected 1.2% growth. It was the weakest Q1 performance in three years. According to the AP, the slowdown primarily reflected slower consumer spending, which grew by just 0.3%.
Of course, pundits are trying to spin the bad news. The AP said analysts blamed the drop in consumer spending on ‘the unusually warm winter, which meant less spending on utility bills,’ and insisted economists think the slowdown is only temporary. But other news that came out this week doesn’t paint a rosy picture.
There was weaker than forecast data on durable goods orders. Non-defense capital goods orders excluding aircraft increased just 0.7% in March. Analysts had expected 1.2% growth. It was the poorest showing in more than seven years.

This post was published at Schiffgold on APRIL 28, 2017.

Gold and Silver Market Morning: April 28 2017 – Gold is holding below support!

Gold Today – New York closed at $1,265.00 yesterday after closing at$1,269.50 Wednesday. London opened at $1,266.25 today.
Overall the dollar was weaker against global currencies early today. Before London’s opening:
– The $: was weaker at $1.0940 after yesterday’s $1.0892: 1.
– The Dollar index was weaker at 98.76 after yesterday’s 99.01.
– The Yen was weaker at 111.37 after yesterday’s 111.30:$1.
– The Yuan was weaker at 6.8944 after yesterday’s 6.8940: $1.
– The Pound Sterling was stronger at $1.2939 after yesterday’s $1.2900: 1.
Yuan Gold Fix
The Shanghai Gold Exchange was trading at 283.20 towards the close today. This translates into $1,272.63. New York closed at a $5.95 discount to Shanghai’s close yesterday. London opened at a discount of$6.38 to Shanghai’s close today.
Shanghai’s gold prices slipped slightly again today, but the discounts of New York and London are narrowing slightly too. But in London and New York, dollar prices are consolidating in a narrowing band implying that we are moving to a point of resolution, after which we expect a strong move either way.

This post was published at GoldSeek on 28 April 2017.

27/4/17: Russian Economy Update, Part 2: Two Key Sectors

Two key sectors to watch Now, looking at some sectors across the Russian economy
In 2015, total volume of manufacturing output dropped 5.4% and in 2016 it was basically unchanged on foot of robust growth in the chemical sector ( 5.6% growth) and food sector (ca 2% growth) Other positive growth sectors were Pulp & Paper and Rubber & plastics, Wood products and Machinery and Equipment. The latter sector has been in a free-fall since 2012 Negative growth continued in Transport vehicles (negative growth since 2014), Metals and products (also in decline since 2014) Production of oil products fell, ending years of growth starting even before 2007 Construction materials experienced their second year of declining output Electrical machinery & equipment continued to contract for the fourth year in a row

This post was published at True Economics on Thursday, April 27, 2017.

No Roads Needed: Google-Backed Flying Cars For Sale By End Of 2017

Ever wanted to ride a flying drone? Well, if you’ve got the money, you might get the chance to by the end of the year.
ABC News reported Monday that a Google-backed Silicon Valley startup has just completed testing on an ‘octocopter’ that’s all-electric, can seat one person, and fly up to 15 feet in the air.
The company, Kitty Hawk, says all the necessary legal steps have been taken, and the Kitty Hawk Flyer – designed only for use over water – is just about ready for production. The company says it will begin selling the Flyer this year.
‘You don’t need a pilot’s license, and you’ll learn to fly in minutes,’ the company said in a statement, adding that the machine is ‘safe, tested and legal to operate in the United States in uncongested areas.’

This post was published at Zero Hedge on Apr 27, 2017.