Two of Mexico’s Biggest Bugbears Surge Again

Footloose hot money that has flooded Mexico can quickly dry up.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET. After several consecutive months of predominantly positive developments, including the governing Institutional Revolutionary Party’s recent electoral victory in its key state, Estado de Mexico, the outlook for Mexico’s economy is no longer negative; it’s stable. That’s according to rating agencies, Fitch and Standard’s & Poor.
It’s a remarkable turnaround for a country that began the year in the most ominous fashion, with a crumbling currency, surging inflation and a popular revolt against gasoline price hikes.
But the peso, after plumbing to new depths of 22 pesos to the dollar on January 19, has clawed its way back to 17.8 pesos to the dollar – a 22% surge in just seven months.
Despite its fortifying currency, Mexico’s historic bugbear of inflation continues to grow. Consumer prices, as measured by the national consumer price index, soared 6.44% in July compared to a year ago. It was the sharpest annual inflation rate increase since December 2008. It has now accelerated for the thirteenth month in a row.

This post was published at Wolf Street by Don Quijones ‘ Aug 11, 2017.

Signs Of Distress

The world is edging closer to the final moments after which everything will be forever changed. Grand delusions, perpetuated over decades, will finally hit the limits of reality and collapse in on themselves.
We’re over-budget and have eaten deeply into the principal balances of all of our main trust accounts. We are ecologically overdrawn, financially insolvent, monetarily out past the Twilight Zone, consuming fossil fuels (as in literally eating them), and adding 80,000,000 net souls to the planet’s surface — each year! — without regard to the consequences.
Someday there will be hell to pay financially, economically, and ecologically as there simply isn’t any way to maintain these overdrafts forever. Reality does not renegotiate. Its deal terms aren’t compromisable.
For those who have the neural plasticity to actually see what’s happening around us, the changes are already here, blatant and frightening. Younger folks, with their fresher eyes and fewer ties to the past, can see them a lot easier than their elders.
The prosperity enjoyed by the past few generations — especially the Baby Boomers — was stolen from future generations. All the while, they pretended as if their borrowing-heavy standards of living were the result of sheer genius and intelligence; like trust fund babies who mistake being born on third base for hitting a triple.
Young people have sussed this out; and are now pulling back from many of the principal occupations of their forebears — like marriage, babies and buying homes and cars. This perplexes older folks, who are beginning to find themselves increasingly at odds with the generations following after them.

This post was published at PeakProsperity on Friday, August 11, 2017,.

Tesla Upsizes Junk Bond Offering After Excess Demand

There’s covenant-lite and then there’s “zero covenant” junk debt, and moments ago Tesla just sold $1.8 billion of the former, upsizing what was previously expected to be a $1.5 billion issue. The deeply junk “B3/B-” rated bond was priced at par to yield 5.25%, with Goldman – who famously slashed its Tesla price target to $180 a month ago – as lead left. It was unclear how many times the offering was oversubscribed but one guess offered was “many.”
The details from Bloomberg:
Issuer: Tesla Inc $1.8b, up from $1.5b, 8NC3 sr notes Launch: 5.25% (Talk 5.25%) Maturity: 08/15/2025 Pricing at par Trade date: Aug. 11 Settles Aug. 18 144a for life Rated B3/B- Bookrunners: GS/MS/BARC/BofAML/C/DB/RBC Proceeds to strengthen balance sheet and GCP As for the reason why the bond is, as we call it, “zero covenant”, Bloomberg explained two days ago that Tesla’s biggest asset, its Gigafactory, has been carved out from the debt incumbrance basket, meaning when, not if, Musk needs to raise more debt, he can simply layer the just issued notes under the new debt offering that assures those who ran to give Musk $1.8 billion today get much less, if anything, back. Here’s Bloomberg:
Valerie Potenza, the head of high-yield research at Xtract Research LLC, said “it’s a very lousy set of covenants.” … analysts combing through terms of the company’s plan to raise $1.5 billion with its debut offering in the junk-bond market [are] citing language that exempts Gigafactory 1 from the usual curbs that would prevent Tesla from using the factory as collateral for even more debt.

This post was published at Zero Hedge on Aug 11, 2017.

Michael Kors Stock Won’t Be Revived by Desperate Acquisitions

This is a syndicated repost courtesy of Money Morning – We Make Investing Profitable. To view original, click here. Reposted with permission.
Shareholders of Michael Kors Holdings Ltd. (NYSE: KORS) scored a windfall gain on Aug. 8 after the firm released its fiscal Q1 earnings numbers. They blew away estimates, and Michael Kors stock jumped 21%.
If you are one of the loyal shareholders who rode this stock down from $59 in March 2016 to the recent low near $32, we suggest you take this gift. Sell these shares and move your money into something that is not going to be squashed in what Money Morning Capital Wave Strategist Shah Gilani calls the ‘Retail Ice Age.’
The company must see the writing on the ‘ice wall’ too, as the high-end footwear and apparel maker recently acquired luxury shoe retailer Jimmy Choo for $1.17 billion.
Some Wall Street analysts are pumping this up as a good move for the company. However, Gilani vehemently disagrees and expects the stock to resume its fall.

This post was published at Wall Street Examiner by Money Morning Staff Reports ‘ August 11, 2017.

Employment Is Not the Key to Economic Growth

The US unemployment rate stood at 4.3% in July against 4.4% in the month before. The number of unemployed stood at 6.981 million – an increase of 4,000 from June. A relatively low unemployment rate is considered by most experts as an important factor for economic growth.
This way of thinking based on the view that a reduction in the number of unemployed means that more people can now afford to boost their expenditure. As a result, economic activity follows suit. If unemployment is an important driving force of an economy then it is valid to conclude that changes in unemployment are an important causative factor of real economic growth.
In truth, the main driver of economic growth is an expanding pool of real savings rather than the state of unemployment. Fixing unemployment without addressing the issue of real savings cannot lift the pace of economic growth as such.
According to Mises,
“The sine qua non of any lengthening of the process of production adopted is saving, i.e., an excess of current production over current consumption. Saving is the first step on the way toward improvement of material well-being and toward every further progress on this way.”1

This post was published at Ludwig von Mises Institute on August 11, 2017.

UBS Explains Why The Next Credit Unwind Will Be Unlike Anything We’ve Seen Before

Several weeks ago, Janet Yellen boldly declared “I don’t believe we will see another crisis in our lifetime.” For the rest of us who live in reality there is little doubt that the latest Fed-fueled credit bubble will eventually burst in epic fashion and once again lay waste to the personal balance sheets of millions of Americans. And while the timing of market collapses can never be predicted, UBS strategist Matthew Mish says there is one thing that is certain about the next credit unwind, it will be unlike anything we’ve seen before.
To summarize, Mish notes that unlike previous credit expansion cycles, this current one has been dominated not by traditional banks but rather by non-bank lending entities and government backed loans, especially in riskier subprime residential, auto and student loans. Moreover, unlike traditional lenders, Government debt tends to be much slower to react to things like rising delinquency rates…you know, because it’s just taxpayer money so who cares.
First, non-bank lending (as a share of net loan growth) has accounted for about two thirds of the total expansion, akin to prior cycles. However, the non-bank share has been elevated in residential real estate (at 101%), but depressed in commercial real estate (30%) versus history. Second, the role of federal credit support has been very material, with a significant 45% of net loan growth this cycle coming from government (or government guaranteed) loans. In particular, government backed loans (as a share of the debt stock) now comprise a record 63% of residential and 29% of consumer loans, respectively, up 9% and 18% from 2010. In nominal terms, non-government related net debt growth has been negative for retail loans in aggregate. Third, while the share of non-bank lending has held steady, their share of higher risk debt has increased substantially across many loan categories. Non-banks account for 58% of outstanding adversely rated (leveraged loan) commitments, roughly 75% of recently originated FHA mortgage loans, and over 85% of subprime student and auto loans. With some exceptions (think auto and student loans), Mish notes that overall non-financial debt growth has roughly mirrored past credit cycles.

This post was published at Zero Hedge on Aug 11, 2017.

August 11/COT report shows bankers capitulating in silver/gold rises $4.10 and silver up 4 cents/gold and silver withstand another attack by bankers today/Rhetoric increases between North Korea a…

GOLD: $1287.80 UP $4.10
Silver: $17.08 up 4 cent(s)
Closing access prices:
Gold $1289.50
silver: $17.11

This post was published at Harvey Organ Blog on August 11, 2017.

Drugs & Demographics – National Tragedy, But Where From?

Authored by Jeffrey Snider via Alhambra Investment Partners,
In 1928, the fertility rate of American females (aged 15 to 44) was 93.8 per 100,000. By 1931, the first year of full Great Depression and collapse, the rate had declined to 84.6. It would bottom out, unsurprisingly, around 1933 and 1935 and the end of the contraction part of the depression. But what made that economic event ‘great’ wasn’t just that one forward piece. It was instead the fact that it lingered on and on for more than a full decade.
As such, fertility rates in America would remain subdued until the later years of WWII. It was one reason economist Alvin Hansen conjured his (incorrect) secular stagnation thesis. Without the demographic tailwind, he surmised, growth would be exceedingly difficult as a baseline matter.
But what if it was the other way around? What if growth came first and then came the babies, as they did following WWII and the restoration of economic function after sixteen years of pent up demand and persisting unwanted pessimism (plus more than a little stabilization to the global monetary system).
Fertility rates during the Baby Boomer years, defined as 1946 through 1964, were an impressive and wholly unexpected 113.4.

This post was published at Zero Hedge on Aug 11, 2017.

Baby boomers are refusing to sell and will age like a fine wine in their homes. The dominant force in the housing market.

Older Americans own half of the houses in the market. Many are simply refusing to sell and others have adult ‘kids’ moving back in since they can’t afford a place to rent or buy. It is a Catch 22 and many people are looking at countries like Italy where the number of adults that live at home is enormous. Multi-generational families just don’t coincide with the ‘rugged American’ worldview where you go out on your own and you make it with your own two hands. Of course, many house humpers had mom and dad chip in but that doesn’t make for such a sexy story. In the end, however there are many baby boomers that simply are not selling. This is actually an interesting problem that is not going away.
Refusing to sell
Housing used to be a young person’s game. The U. S. housing market and to a large extent, the economy was driven by home buying and big ticket purchases. But that has definitely changed since the housing market imploded with the 2000s. It has also changed in terms of people marrying later, having fewer kids, and basically preferring to live in city centers versus suburbs. In other words, not a big need for McMansions.

This post was published at Doctor Housing Bubble on August 11, 2017.

“You Could See Panic”: PIMCO Joins Gundlach In Loading Up On S&P Puts

In the world of giant bond funds, imitation of trades just may be the sincerest form of flattery.
Just two days after DoubleLine’s Jeff Gundlach told Bloomberg and CNBC that he was taking profits in high risk assets, including corporate profits, building a buffer and loading up on VIX as a surge in volatility was his “highest conviction trade” (and correctly so, as just one day later VIX soared from 10 to 17), that “other” bond titan, Pimco said it was doing precisely the same.
Speaking to Reuters, Pimco’s chief investment officer, Dan Ivascyn, said on Friday that his firm which which oversees more than $1.6 trillion of assets “has built up an above-average cash position firmwide and has held S&P put options as geopolitical and military risks mount.”
The former should not come as a surprise: three weeks ago we reported that according to Bank of America, the cash allocation among the bank’s high net worth private clients (i.e. rich retail investors) had fallen to the lowest on record as institutions were liquidating stocks to increasingly more euphoria retail investors, which obviously meant that those on the other side of the trade – in this case selling institutions like Pimco – were building up their cash reserves, because contrary to CNBC’s constantly erroneous reporting on the topic for nearly a decade, there is no such thing as “cash on the sidelines” and every time someone buys a stock or any other risk assets, someone else sells it and pockets cash proceeds.

This post was published at Zero Hedge on Aug 11, 2017.

Baltimore School With Zero Students Proficient In Math Has Highest Graduation Rate

Baltimore’s community is absolutely stunned after ‘Project Baltimore’, an investigative reporting initiative, which was launched in March 2017, by Sinclair Broadcast Group Inc. asked this question: How can a high school with zero students proficient in math, have one of the highest graduation rates in Baltimore City?
Project Baltimore is investigating Northwood Appold Community Academy II, or NACA II, after teachers ‘contacted us saying grades are being changed so students can graduate’. The school is located in East Baltimore City, Maryland where nearly 1/3 of African Americans have zero net wealth.
The identities of the teachers who contacted Project Baltimore have been masked because they fear retaliation. Per Project Baltimore:
NACA II is a Baltimore City high school that has its troubles. According to district data analyzed by Project Baltimore, attendance rates are down since 2013, while chronic absenteeism has nearly quadrupled and suspensions have more than doubled. Yet, the school reports an 87 percent graduation rate, the exact same as the state average.
’13… ’14… ’15… ’16
Attendance Rates: 95… 92… 91… 88 Chronic Absenteeism: 7… 21… 18… 27 Suspensions: 24… 38… 28… 53 Source: Baltimore City School Profiles

This post was published at Zero Hedge on Aug 11, 2017.

Saxo Hikes Inverse VIX ETF Margins To 40%

Last Saturday, we reported that with VIX at 9, Interactive Brokers surprised many when announced it would raise volatility margins anticipating a VIX shock. This is what the brokerage said:
VIX has established new all-time lows over the course of the past month. The price dynamics of that product are such that it can have very large relative price increases over a very short period of time base on news and other market factors. In recognition of the special risk of sudden, large increases in market volatility, that is inherent in Volatility Products such as VIX, Interactive Brokers will put into place greater margin requirements for Volatility Products after expiration processing on Saturday, 19 August. IB was also surprisingly clear in what it anticipated
IB’s margin policy will be to consider market outcome scenarios under which VIX might rise to a price of 18 (even when it is currently priced much lower) and under which the other Volatility Products could rise to proportionately similar degrees. As we summarized, “In other words, IB is starting to prepare for the day that the VIX doubles from current levels.” Less than a week later, Interactive Brokers was proven right when VIX hit 17, nearly hitting its bogey. We also pointed out something else:
Of course, since volatility is the “fulcrum security” of today’s reflexive market nature – does a surge in the VIX send stocks lower, or does a market crash lead to a VIX surge? – the very fact that vol-linked leverage is about to be aggressively cut first by one, then by many more if not all exchanges, as we head into the critical for volatility fall period, these warnings could create a self-fulfilling prophecy whereby the margin increases are the very catalyst that leads to a surge in volatility. Whether that is what happens over the next two weeks remains to be seen.

This post was published at Zero Hedge on Aug 11, 2017.

Prepare for Another Market Face Pounding

‘Better than Goldilocks’
‘Markets make opinions,’ goes the old Wall Street adage. Indeed, this sounds like a nifty thing to say. But what does it really mean?
Perhaps this means that after a long period of rising stocks prices otherwise intelligent people conceive of clever explanations for why the good times will carry on. Moreover, if the market goes up for long enough, the opinions become so engrained they seek to explain why stock prices will go up forever.
After nine years of near uninterrupted stock market gains, new opinions are being offered to explain why the stock market will be bathed in sunshine indefinitely. For example, the late-1990s term Goldilocks is again being used to describe why the slow growth, low unemployment, economy is good for stocks. Apparently, if an economy is not-too-cold, but not-too-hot, stocks can go up lots and lots.
What’s more, these days everything is so perfect that Goldilocks is no longer a good enough descriptor. This was the conclusion that JP Morgan’s Jan Loeys recently reached, no doubt after peering at a 5-year S&P 500 index chart:
‘We nicknamed this world ‘Better than Goldilocks’ two weeks ago. With global growth breaking out from its 7-year range and inflation still surprisingly down, we are graduating from a not-too-hot, not-too-cold Goldilocks world to an even better one for risk assets. It will not last forever, but could easily last long enough, given past momentum in growth and inflation forecasts changes, to have a positive impact on all assets with risky ones outperforming.’

This post was published at Acting-Man on August 11, 2017.

Bannon “Increasingly Isolated” As Breitbart’s War On McMaster Backfires

First it was Preibus, then Kushner and now General H. R. McMaster. Breitbart has seemingly waged war on many of President Trump’s closest advisors over the past several months but it seems that the only person they’re actually hurting is their former Executive Chair, Steve Bannon. As Politico notes this morning, whether true or not, every time Breitbart drops a negative article on the White House, all eyes turn to Bannon.
‘Fair or not, common sense would dictate that Steve Bannon has reach and influence and communication with these alt-right platforms whose editorial bent more often than not, aligns with Steve’s agenda,’ said Kurt Bardella, a former Breitbart spokesperson. ‘I think [the stories] gave ammunition to his detractors internally, to either ID him or his people as part of the problem.’ ‘The guy is desperately trying to lay low and keep his fights from spilling out into the public,’ said one White House official. ‘Because he knows that he gets blamed.’
A White House spokeswoman did not respond to a request for comment. Bannon declined to comment.

This post was published at Zero Hedge on Aug 11, 2017.

The Insecurity Of Social Security

According to the June 2017 snapshot from the Social Security Administration, nearly 61.5 million people were receiving a monthly benefit check, of which 68.2% were retired workers. Of these 41.9 million retirees, more than 60% count on their Social Security to be a primary source of income.
Of course, that dependency ratio is directly tied to financial insolvency of the vast majority of Americans. According to a Legg Mason Investment Survey, US baby boomers have on average $263,000 saved in defined contribution plans. But that figure is less than half of the $658,000 they say they will need to retire. As noted by GoBankingRates, more than half of Americans will retire broke.

This post was published at Zero Hedge on Aug 11, 2017.