http://www.zerohedge.com/fullrss2.xml/wp-content/plugins/uBillboard/Korean en "The Retail Bubble Has Now Burst": A Record 8,640 Stores Are Closing In 2017 http://www.zerohedge.com/news/2017-04-22/retail-bubble-has-now-burst-record-8640-stores-are-closing-2017 <p>&nbsp; &nbsp; &nbsp; &nbsp; <em>“Thousands of new doors opened and rents soared. This created a bubble, and like housing, that bubble has now burst.”</em></p> <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; - <strong>Richard Hayne, Urban Outfitters CEO, March 2017</strong></p> <p>The devastation in the US retail sector is accelerating in 2017, and in addition to the surging number of brick and mortar retail bankruptcies, it is perhaps nowhere more obvious than in the soaring number of store closures. </p> <p>While the shuttering of retail stores has been a frequent topic on this website, most recently in the context of the next "big short", namely <a href="http://www.zerohedge.com/news/2017-03-13/%E2%80%9C2017-will-be-tipping-point%E2%80%9D-why-some-think-next-big-short">the ongoing deterioration in the mall REITs </a>and associated Commercial Mortgage-Backed Securities and CDS, here is a stunning fact from Credit Suisse:<strong>"Barely a quarter into 2017, year-to-date retail store closings have already surpassed those of 2008</strong>."</p> <p>According to the Swiss bank's calculations, <strong>on a unit basis, approximately 2,880 store closings were announced YTD, more than twice as many closings as the 1,153 announced during the same period last year. </strong>Historically, roughly 60% of store closure announcements occur in the first five months of the year. By extrapolating the year-to-date announcements, <strong>CS estimates that there could be more than 8,640 store closings this year, which will be higher than the historical 2008 peak of approximately 6,200 store closings, </strong>which suggests that for brick-and-mortar stores stores the current transition period is far worse than the depth of the credit crisis depression.</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/04/19/CS%20retail%20stores.jpg"><img src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/04/19/CS%20retail%20stores_0.jpg" width="500" height="336" /></a></p> <p>As the <a href="https://www.wsj.com/articles/brick-and-mortar-stores-are-shuttering-at-a-record-pace-1492818818">WSJ calculates, </a>at least 10 retailers, including Limited Stores, electronics chain hhgregg and sporting-goods chain Gander Mountain have filed for bankruptcy protection so far this year. That compares with nine retailers that declared bankruptcy, with at least $50 million liabilities, for all of 2016. On Friday, women’s apparel chain Bebe Stores said it would close its remaining 170 shops and sell only online, while teen retailer Rue21 Inc. announced plans to close about 400 of its 1,100 locations.</p> <p>Broken down by retailer, either in bankruptcy or not yet:</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/04/19/store%20closings%20announced_1.jpg"><img src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/04/19/store%20closings%20announced_1_0.jpg" width="500" height="337" /></a></p> <p>Another striking fact: on a square footage basis, approximately 49 million square feet of retail space has closed YTD. Should this pace persist by the end of the year, <strong>total square footage reductions could reach 147M square feet, another all time high, and surpassing the historical peak of 115M in 2001.</strong></p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/04/19/CS%20square%20footage.jpg"><img src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/04/19/CS%20square%20footage_0.jpg" width="500" height="339" /></a></p> <p>There are several key drivers behind the avalanche of "liquidation" signs on store fronts. </p> <p>The first is the glut of residual excess retail space. As the WSJ writes, the seeds of the industry’s current turmoil date back nearly three decades, when retailers, in the throes of a consumer-buying spree and flush with easy money, rushed to open new stores. The land grab wasn’t unlike the housing boom that was also under way at that time. </p> <p>“Thousands of new doors opened and rents soared,” Richard Hayne, chief executive of Urban Outfitters Inc., told analysts last month. “<strong>This created a bubble, and like housing, that bubble has now burst.”</strong></p> <p>The excess retail space means that North America has a glut of retail outlets, as well as far too many shopping malls, something which is becoming apparent as sales per capita decline. On a per capita basis, the US has <a href="http://investor.ggp.com/sites/ggp.investorhq.businesswire.com/files/doc_library/file/Investor_Presentation_March_2017.pdf">roughly 24 square feet of retail space per capita</a>, more than twice the space of Australia and 5 times that of the UK.</p> <p>&nbsp;</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/04/19/retail%20footage_1.jpg"><img src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/04/19/retail%20footage_1_0.jpg" width="500" height="307" /></a></p> <p>The over-storing, including the influx of fast-fashion and off-price chains, has resulted in a brutally competitive landscape that made difficult for retailers to raise prices. “A pair of men’s dress pants costs less today than they did a decade ago,” Manny Chirico, chief executive of Calvin Klein and Tommy Hilfiger parent PVH Inc., said in a recent interview.</p> <p>* * * </p> <p>Then there are retail rental rates, which across top US markets, such as New York, remain the highest in the world. For years, retailers could afford the egregious demands by landlords. But as overall traffic and volumes have declined, this has also prompted an exodus of outlets even among the most desired locations, leading to a surge in "fors rent or lease" signs popping up in <a href="http://www.vacantnewyork.com/">unexpected places like Madison Avenue's "golden mile</a>." </p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/04/19/retail%20cost.jpg"><img src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/04/19/retail%20cost_0.jpg" width="500" height="359" /></a></p> <p>&nbsp;</p> <p>According <a href="https://www.ft.com/content/81a5bfc6-1658-11e7-80f4-13e067d5072c">to the FT</a>, on New York’s Fifth Avenue, the world’s most expensive shopping street, vacancy rates have jumped from 10 per cent a year ago to 16 per cent, according to Cushman &amp; Wakefield. Rents there have fallen for the first time since the recession “and the trend is not over”, the consultancy warns. Vacancy rates across SoHo have climbed to 18 per cent, from 12 per cent a year ago, according to Jones Lang LaSalle. </p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>The newfound caution among retailers has had a “very significant and fast” negative impact on retail property, says Chris Conlon, chief executive of Acadia Realty, a real estate investment trust.&nbsp; </p> <p>&nbsp;</p> <p>It is not just prestigious streets that have been hit. Malls are also hurting, as chains from Sears to Macy’s shut hundreds of stores. Analysts at Green Street Advisors argue that “low growth is the new normal”, while market rents are becoming decoupled from tenants’ revenue growth as more sales move online.&nbsp; </p> </blockquote> <p>“[Rents] are at a price point now that exceeds what retail sales can perform,” <a href="https://www.ft.com/content/81a5bfc6-1658-11e7-80f4-13e067d5072c">says Spencer Levy, global head of research for CBRE</a>. He notes that a stronger US dollar also hurts sales in New York, where deep-pocketed foreigners historically flock for deals.</p> <p>* * * </p> <p>Then there is the online migration, which recently made Jeff Bezos, owner of Amazon, <a href="http://www.zerohedge.com/news/2017-03-29/bezos-bursts-above-buffett-become-worlds-second-richest-man">the world's second richest man</a>. </p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/04/19/online%20shopping.png"><img src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/04/19/online%20shopping_0.png" width="500" height="376" /></a></p> <p>As the WSJ adds, as retailers rushed to expand their physical footprint, the internet was gearing up to do to apparel companies what it had already done to booksellers: sap profits and eliminate what little pricing power these chains commanded.</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>Despite the view that shoppers prefer to try on clothing in physical stores, apparel and accessories are expected this year to overtake computers and consumer electronics as the largest e-commerce category as a percentage of total online sales, according to research firm eMarketer. </p> <p>&nbsp;</p> <p>Helena Cawley, 37 years old, said she used to be a “die-hard” department-store shopper. But with two small children, the Manhattan entrepreneur doesn’t have time to visit physical stores the way she once did. “I buy much more online now,” she said. “With free returns and free shipping, it’s so easy.”</p> </blockquote> <p>Ironically, that shift to online shopping has come at a high cost to retailers. It is less profitable to do business online than in a brick-and-mortar store, largely due to the higher shipping, customer-acquisition and technology costs of the digital world. <strong>Retail margins on average fell to 9% last year from 10.5% in 2012, according to consulting firm AlixPartners LP. </strong>Over that period, e-commerce sales increased to 15.5% of total sales from 10.5%. The internet has also made it easier for consumers to comparison shop, thereby erasing any pricing leverage retailers may have had. “The internet has acted as the great price equalizer,” said Joel Bines, the co-head of Alix’s retail practice.</p> <p>* * * </p> <p>Yet while the retail bubble may have burst, does that mean the conventional brick-and-mortar industry is doomed? Perhaps not: </p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>Retailing has gone through shakeouts before, whether it was the superstores such as Wal-Mart Stores Inc., Target Corp. and Kmart that killed mom-and-pop shops, or category killers like Barnes &amp; Noble Inc. and Toys “R” Us Inc. that did the same to smaller booksellers and toy chains. And even today, there are chains that continue to grow, such as off-price retailer TJX Co s., which is opening hundreds of stores under its Marshalls, T.J. Maxx and HomeGoods banners, as it steals market share from Macy’s Inc. and other traditional department stores. </p> <p>&nbsp;</p> <p>“This is not the end of retailing as we know it,” Mr. Bines said. “People are not going to stop going to stores.”</p> </blockquote> <p>He's right, however in the meantime there will be an avalanche of defaults: compounding the retail decline is the debt that retailers have added to their balance sheets in recent years, either through leveraged buyouts or to fund share buybacks. That leverage has become a problem as profits dry up. According to Moody’s Investors Service, t<strong>he amount of debt coming due for 19 distressed retailers is set to more than double over the next two years.</strong></p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>Many retailers were slow to seize on the significance of these changes. When business was bad during the 2015 holiday season, many chains blamed unusually warm weather. But when the most recent holiday season once again failed to produce robust sales growth, “retailers realized this was a structural change,” Credit Suisse analyst Christian Buss said.</p> </blockquote> <p>With all that in mind, is Amazon assured of becoming the world's first trillion-dollar stock, perhaps hitting the milestone even before Apple? Perhaps, then again, chains such as Wal-Mart have stepped up their game. In a bid to better compete with Amazon.com , the giant retailer has been scooping up e-commerce startups, including Jet.com and ModCloth. And just this past week, PetSmart Inc. bought Chewy.com, a fast-growing online rival.</p> <p>Others have given up waiting for a recovery that seems always out of reach and are settling into what appears to be the new normal. “We’re planning as if the environment is not going to improve,” Jerry Storch, chief executive of Saks Fifth Avenue and Lord &amp; Taylor parent Hudson’s Bay Co., told analysts earlier this month. In the meantime, expect more store closures, more bankruptcies (recall "<a href="http://www.zerohedge.com/news/2017-04-06/these-eight-retailers-will-file-bankruptcy-next-according-fitch">According To Fitch These Eight Retailers Will File For Bankruptcy Next</a>"), and, of course, far lower asset prices, both for retail equities and mall REITs, as well as the underlying CMBS securities that for years funded the US retail (and especially mall) bubble, which has now violently burst. </p> <p><img src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/04/19/adios_0.jpg" width="500" height="324" /></p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="480" height="311" alt="" src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/adios.jpg?1492899342" /> </div> </div> </div> http://www.zerohedge.com/news/2017-04-22/retail-bubble-has-now-burst-record-8640-stores-are-closing-2017#comments Apple Apple Store Australia Business CDS Credit Crisis Credit Suisse Department store Economy Fitch Green Street Green Street Investors Service Kmart Market Share Marketing Merchandising New Normal Real estate Recession recovery REITs Retail Retailing Rue21 Saks Sears Sears Holdings Shopping Shops Trade Walmart Sun, 23 Apr 2017 03:13:25 +0000 Tyler Durden 593894 at http://www.zerohedge.com There Will Be Blood: Left Prepares For War After Berkeley Beat Down With "Combat Training, Better Equipment, Guns..." http://www.zerohedge.com/news/2017-04-22/there-will-be-blood-left-prepares-war-after-berkeley-beat-down-combat-training-bette <p><a href="http://www.shtfplan.com/headline-news/there-will-be-blood-left-prepares-for-next-phase-of-resistance-after-berkeley-beat-down-combat-training-better-equipment-guns2_04182017"><em>Authored by Mac Slavo via SHTFplan.com,</em></a></p> <p><strong>Last week Trump supporters and leftist social justice warriors met on the political field of battle in Berkeley, California. Words were exchanged, as were punches. </strong>And while an alt-right leader was punched in the face, by all accounts even the social justice warriors admit that they got a major beat-down.</p> <p>This prompted a <a href="https://archive.is/7V0lO" target="_blank">reddit discussion</a> among the left&rsquo;s tolerant resistance movement, with many asking how they can more effectively go to war&nbsp;against anyone who disagrees with their social, political, and economic views.</p> <p><strong>The anti-Trump protesters at the rally were ill-prepared for what they came to Berkeley to confront and now they are trying to figure out ways to ensure it doesn&rsquo;t happen again.</strong></p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/04/21/20170422_berk.jpg"><img src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/04/21/20170422_berk.jpg" style="width: 559px; height: 320px;" /></a></p> <p>In short, as predicted, they are <a href="http://www.shtfplan.com/headline-news/civil-war-is-unavoidable-divided-americans-will-inevitably-turn-toward-militancy-and-mob-action_11302016" target="_blank">turning to militancy and mob action</a> by mobilizing individuals and groups to attend combat training seminars, acquiring better equipment like baseball bats and helmets, and of course, if things really go bad&hellip; guns.</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><div><strong>Yes, we seemed to have lost today. The alt-right held their ground. If we wanna take action against them, we need to be better organized and better trained. It doesn&rsquo;t help that it&rsquo;s only the far left opposing them, any trump supporter can be radicalized far easier than any liberal.</strong></div> <div>&nbsp;</div> <div><strong>I hope we learn from today</strong></div> <div>&nbsp;</div> <div><strong>&hellip;</strong></div> <div>&nbsp;</div> <div><strong>A shocking number of our comrades went in there with absolute no combat training. We need to set up seminars or something of the sort.</strong></div> <div>&nbsp;</div> <div><strong>&hellip;</strong></div> <div>&nbsp;</div> <div><strong>We also need better equipment, I know the bandanna and hoodie look is our trade mark, but I saw the right wearing motorcycle helmets, and baseball helmets. A dude wearing a helmet is going to keep going if he get punched, our guys are going down.</strong></div> </blockquote> <p><img alt="antifa-protests1" class="aligncenter size-full wp-image-44397" src="http://i1.wp.com/shtfplan.com/wp-content/uploads/2017/04/antifa-protests1.jpg?resize=600%2C683" style="width: 560px; height: 637px;" /></p> <p>And though they are, always have been and always will be &ldquo;tolerant&rdquo; and &ldquo;peaceful protesters,&rdquo; many are now discussing arming themselves&nbsp;so they can go head to head with the &ldquo;fascist&rdquo; and &ldquo;racist&rdquo; alt-right.</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>I honestly think we need a campaign to get more antifa armed. It seems that seems to be the biggest problem with our resistance. They&rsquo;re mostly armed, why aren&rsquo;t we?</p> <p>&nbsp;</p> <p>&hellip;</p> <p>&nbsp;</p> <p>Not getting disarmed is a big part of the problem, yes, but we need more than flags and bats. We need to take notes from the John Brown Gun Club and get firearms and training.<strong> I know getting firearms in states and cities we have a presence in is usually a hassle, but even handguns would help.</strong> It would certainly put a psychological element in while holding fash back. Who do you think a fascist is more afraid of? People with only flags and bats, or people with flags, bats, and guns?</p> </blockquote> <p><img alt="antifa-protests2" class="aligncenter size-full wp-image-44398" src="http://i1.wp.com/shtfplan.com/wp-content/uploads/2017/04/antifa-protests2.jpg?resize=600%2C683" style="width: 560px; height: 637px;" /></p> <p><em>Video report:</em></p> <p><iframe allowfullscreen="" frameborder="0" height="315" src="https://www.youtube.com/embed/vQHE4IgQJBA" width="560"></iframe></p> <p>The &ldquo;comrades&rdquo; organizing against &ldquo;fascists,&rdquo; which basically means anyone and everyone who voted for President Trump, are quickly coming to the conclusion that to win this conflict they will need to be armed with more than just flags, banners, chants and pepper spray.</p> <p>And all this time we thought hugging it out would be the solution&hellip;</p> <p>Apparently, there&nbsp;is a realization among the left that whatever it is they are trying to accomplish will not come with peaceful assembly, but rather, <strong>with blood in the streets.</strong></p> <p>As we&nbsp;and others like Brandon Smith of <strong><a href="http://alt-market.com/" target="_blank">Alt-Market</a></strong> previously warned, <strong><a href="http://www.shtfplan.com/headline-news/civil-war-is-coming-to-the-u-s-left-will-resort-to-large-scale-violence-to-stop-fascism_02082017" target="_blank">the Left WILL Resort To Large Scale Violence&hellip; To Stop Fascism</a></strong>:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>I believed at that time that the social-justice cult would lose mainstream influence but that the existing minority would resort to even more insidious tactics and greater violence to get what they want; and, the so-called &ldquo;moderate left&rdquo; would cheer them on.&nbsp; As it turns out, I have been proven right so far.</p> <p>&nbsp;</p> <p>Not that extreme Leftists have been averse to violence over the past year, but I think it is safe to say that the volume on the cultural Marxist machine has been turned up a notch.</p> <p>&nbsp;</p> <p>&hellip;</p> <p>&nbsp;</p> <p>The social justice mantra is changing. At first, it was predominately about forming mobs to &ldquo;shame&rdquo; target political opponents into silence. Now, it is about forming mobs to do what they call &ldquo;punching Nazis.&rdquo; Leftists are now often seen regurgitating the claim &mdash; &ldquo;This is only the beginning&hellip;&rdquo;</p> </blockquote> <p>Indeed, this is only the beginning.</p> <p>Ladies and Gentlemen, if you have a Trump bumper sticker, an American flag or a Gadsden decal on your vehicle, <a href="http://amzn.to/TwaloQ" target="_blank">prepare to defend yourselves</a>.</p> <p style="text-align: left;"><iframe allowfullscreen="" frameborder="0" height="315" src="https://www.youtube.com/embed/YlOxiwGLAkY" width="560"></iframe></p> <p style="text-align: left;"><strong><em>There will be war.</em></strong></p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="547" height="313" alt="" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/20170422_berk.jpg?1492891123" /> </div> </div> </div> http://www.zerohedge.com/news/2017-04-22/there-will-be-blood-left-prepares-war-after-berkeley-beat-down-combat-training-bette#comments American people of German descent BATS Climate change skepticism and denial Donald Trump John Brown Gun Club Politics of the United States The Apprentice United States WWE Hall of Fame Sun, 23 Apr 2017 01:40:00 +0000 Tyler Durden 593887 at http://www.zerohedge.com Your Complete Guide To Sunday's French Presidential Elections First Round http://www.zerohedge.com/news/2017-04-22/your-complete-guide-sundays-french-presidential-elections-first-round <p>Ahead of Sunday's first round of the French election, we have previously provided several perspectives on the political and economic outcomes, including a <a href="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/04/19/bofa%20france%201_0.jpg">permutation matrix </a>of all six possible outcomes in terms of "high" vs "low market risk" (<a href="http://www.zerohedge.com/news/2017-04-19/nightmare-scenario-and-everything-else-full-french-election-matrix">from BofA</a>), why the market may be too <a href="http://www.zerohedge.com/news/2017-04-18/le-pen-melenchon-second-round-possible-concerned-deutsche-bank-answers">complacent about a Le Pen - Melenchon </a>result (candidate approval variance is <a href="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/04/19/DB%20gap_0.jpg">within the polling error</a>), and that European stocks have completely failed to price in any adverse outcome (as <a href="http://www.zerohedge.com/news/2017-04-21/deutsche-european-stocks-havent-priced-any-adverse-french-outcome">DB observed yesterday</a>).</p> <p><em>So with markets now closed, and all bets off, if only for the next two days until the results emerge, here is a complete guide to the first round of the first elections, compiled based on research reports by Deutsche Bank and Citigroup.</em></p> <p><span style="text-decoration: underline;"><strong>Guide to the French elections first round, from Deutsche Bank and Citi<br /></strong></span></p> <p><em>Summary:</em></p> <ul> <li>The first round of the French Presidential elections will be held on Sunday 23rd April.</li> <li>Most polling stations will close at 7pm local time but some will remain open until 8pm local time. The first exit polls should be published at 8pm but may have to be taken cautiously. By midnight local time we could expect to have a clear picture of who would make it to the second round.</li> <li>Since publication of our initial comprehensive piece on the French elections, the polls for the four major candidates have narrowed considerably and Mélenchon has replaced Hamon on the left wing. The narrowing of the polls and the historical error in actual voting relative to polls makes any of the six outcomes involving the four major candidates possible.</li> <li>In order of decreasing likelihood the potential outcomes are (1) Macron vs. Le Pen (2) Le Pen vs. Fillon (3) Macron vs. Mélenchon (4) Le Pen vs. Mélenchon (5) Macron vs. Fillon and (6) Mélenchon vs. Fillon.</li> <li>Based on current polls, in our baseline scenario of Macron vs. Le Pen in the second, Macron is expected to win comfortably. Le Pen would have to win the first round with a gap of 5pp or more and/or the participation rate in the second round to fall below 60% for her chances to improve significantly.</li> <li>We assess the expect market impact on bond markets based on expected yield and spread levels for a presidential win for the four candidates and indicative probabilities of a win for the candidates in the second round conditional on the outcome of the first round.</li> <li>Macron is favoured to win against all candidates if he makes it to the second round. Based on current polls market concerns about French elections should recede considerably in any outcome with Macron in the second round.</li> <li>OAT-Bund spreads have the greatest room to widen in case of a Mélenchon vs. Le Pen outcome, while it has the most room to tighten in case of a Macron vs. Fillon outcome. However, in the latter scenario the tightening in OAT-Bund spreads should be more than offset by the rise in Bund yields leaving OAT yields broadly unchanged.</li> </ul> <p><strong>Timeline of Sunday 23rd April:</strong></p> <p>On Sunday 23 April, most polling stations will close at 7pm local time but some will remain open until 8pm local time. The first exit polls should be published at 8pm but may have to be taken cautiously. Press reports suggest that pollsters are worried about their ability to provide accurate exit polls at 8pm . Throughout the evening, polls are counted. By midnight local time we could expect to have a clear picture of who would make it to the second round.</p> <ul> <li><strong>At 19:00 BST / 14:00 EDT preliminary results are released, which is perceived as a usually good indicator of the final results</strong>. This will give markets a good hour to digest before Asia markets open at 05:00 Sydney / 20:00 BST / 15:00 EDT. In 2012, 80% of the vote was counted by roughly 22:00 BST. Note that polling stations in rural areas close by 17:00 BST, urban polling stations by 18:00-19:00 BST.</li> <li><strong>However, watch out for leaks. </strong>In 2012, journalists and pollsters circumvented the law by employing code names for each candidate, leaking the results of the exit polls to the public off. These reports were then quickly picked up and distributed by foreign new outlets which are not subject to French laws. On the night of April 23 look to the airwaves for news; perhaps #RadioLondres will be making another dramatic call to La Resistance.</li> </ul> <p><strong>The candidates – A four horse race:</strong></p> <p>Of the 11 total candidates, four leading the race. Citi Research’s latest probabilities of each candidate becoming President are: Macron (35%), Fillon (30%), Le Pen (25%), Melenchon (10%). What is clear is that the first round will be too close to definitively call – it’s a four horse race.</p> <ul> <li><strong>Marine Le Pen</strong>: The right-wing&nbsp; candidate is the main risk for EUR. She has repeated a campaign promise to propose a referendum on France’s membership in the Eurozone and EU within six months. She is expected to go through the first round with ease, but not likely to prevail in the second round, ultimately.</li> <li><strong>Francois Fillon</strong>: Conservative candidate and former PM was formerly the frontrunner. However his popularity has been undermined by controversies, particularly allegations he paid his wife with taxpayer money for a job she did not perform.</li> <li><strong>Emmanuel Macron</strong>: The independent centrist and former economy minister is Citi’s base case winner. His new party En Marche has continued to gain momentum.</li> <li><strong>Jean-Luc Melenchon</strong>: The wildcard candidate has gained impressive momentum in the last month or so. The hard left wing candidate proposes a top income tax charge of 90% and to renegotiate the terms of France’s EU membership.</li> </ul> <p><strong>The first round: A close four way race</strong></p> <p>The first round polls have narrowed considerably The gap between the 4 major candidates has narrowed considerably over the past few weeks. Given the relatively narrow range between the various candidates and historical polling error, any of the six outcomes taking into consideration the four major candidates is possible.</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/04/19/france%201.jpg"><img src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/04/19/france%201_0.jpg" width="500" height="216" /></a></p> <p>Based on the final polls, Le Pen and Macron are still the favourites expected to make it past the first round and this remains the most likely outcome. As the current polls have Mélenchon and Fillon lagging, the scenarios which see them making it past the first round would probably be based on them doing better at the expense of the two front-runners.</p> <ul> <li>Mélenchon’s progress has been mainly at the expense of Hamon. To make it past the first round he would have to capture voters further away on the political spectrum. We would expect his gains to be marginally more at the expense of Le Pen rather than Macron This implies that in the second round Mélenchon vs. Macron is more likely than Mélenchon vs. Le Pen.</li> <li>In the case of Fillon, we would expect his gains to be more at the expense of Macron rather than Le Pen. Fillon’s experience and party structure could make centre-right voters tempted by a Macron vote switch back to Fillon at the last minute. This implies that in the second round Fillon vs. Le Pen is more likely than Fillon vs. Macron</li> <li>The probability of both Melenchon and Fillon making it past the first round remains low but cannot be ruled out entirely.</li> </ul> <p><strong>All six outcomes are possible</strong></p> <p>The six outcomes ordered by decreasing likelihood (i.e., most likely at the top of the list) are listed below. We also highlight the indicative probability of the first candidate wining the second round in each of these outcomes</p> <ul> <li><strong>Macron vs. Le Pen</strong>: Based on the current stated intentions and certainty to vote expressed in polls and barring a significant upside surprise for Le Pen, we would expect reasonably high chances (~80%) of Macron wining the elections. The chance for Le Pen to win the second round would increase if she wins the first round with a gap clearly larger than 5pp. A low participation rate in the second round could also increase Le Pen’s chances (&lt;60%).</li> <li><strong>Fillon vs. Le Pen</strong>: Based on the current polls and historical polling errors, we would expect Fillon’s chances to win the second round to be around 70%. Le Pen’s chances to win are likely to increase if the participation rate in the second round is lower than 55%.</li> <li><strong>Macron vs. Mélenchon</strong>: We would assign a relatively high probability (~80%) for Macron to win the second round. Mélenchon’s chances would increase if he is able to gather even more support from the supporters of the socialist party candidate Hamon in the second round.</li> <li><strong>Mélenchon vs. Le Pen</strong>: Conditional on Mélenchon making it to the second round vs. Le Pen, we would assign a higher probability (~60%) of Mélenchon rather than Le Pen winning the second round. According to polls and vote transfers between rounds, Mélenchon is more likely to appeal to the traditional centre-left and centre voters compared to Le Pen who would appeal mostly to the most conservative Republican party supporters.</li> <li><strong>Macron vs. Fillon</strong>: Based on polls, we would still assign a reasonable high probability to Macron winning the second round (~75%).</li> <li><strong>Mélenchon vs. Fillon</strong>: In this scenario we expect the second round to be reasonably close as the two front runners in the first round would have lost. Given the more strong upward momentum for Mélenchon and recent polls, we would assign a slightly higher chance (~55%) to him wining the second round.</li> </ul> <p><strong>Three key factors you should watch</strong></p> <p><strong>Momentum is a key ingredient in this contest: L</strong>ooking at recent polling, Le Pen appears to be losing some, down 1.1% point on average compared to previous surveys. Macron’s first round voting intentions have eroded by 0.2% point. Fillon and Mélenchon, by contrast have gained 1.0% point and 1.2% point respectively.</p> <p><strong>Turnout is crucial. </strong>The five-poll average suggests that 69% of voters are sure to cast a ballot, with at least an extra 10% who think that they will but cannot say for certain. However there are conflicting interpretations on how this might impact the chances of each candidate. There’s two sides to the argument:</p> <ul> <li>Higher turnout arguably tends to benefit more status quo candidates, such as Macron, who the polled suggest their less certain to show up for.</li> <li>But in the case that the turnout were to be lower-than-expected, it would likely favor Macron and Fillon whose sympathisers tend to be from voting groups (demographic wise) that are more likely to cast a ballot. If turnout is higher, then anti-establishment extremes are likely to do a little better than suggested in polls.</li> <li>CitiFX Strategist Josh O’Byrne helpfully points out, “Turnout stats by department should also be released before initial results. Figure 1 shows the top and bottom Departments for Le Pen in 2012, based on the deviation from the national average. Exceptionally high turnouts in populous Departments such as Pas-de-Calais, Gard, Paris or Hauts-de-Seine, could give an early indication of how the evening may evolve.”</li> </ul> <ol> <li><a href="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/04/19/citi%20france%201.gif"><img src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/04/19/citi%20france%201_0.gif" width="500" height="156" /></a></li> </ol> <ul> <li>The last issue we have touched upon briefly - voting intentions. The ‘certainty of choice’ as indicated in polls suggest that Le Pen supporters are especially strong.&nbsp; Le Pen’s base is the strongest, with around 84% according to Ifop-Fiducial's daily tracker, just ahead of Fillon around 82%, compared to the overall 72% average. Macron is slightly behind on 69%, with Mélenchon on 67% and Hamon on 63%. The amount of choice on the Left explains these lower ratings, but also increases tail risks for Sunday.</li> </ul> <p><strong>Impact on bond markets</strong></p> <p>In assessing the potential market impact of the result of the first round of the French election, we use the scenario analysis previously published for yield levels in case of victory in overall presidential election for the four major candidates.</p> <p>Our indicative yield and spread levels in the various outcomes of the first round are conditional on the levels we see under the presidency of the four candidates and the conditional probability of the final outcome following the first round. Investors might have expectations of different levels and probabilities but our analysis provides a reasonable guide and framework.</p> <p>In previous analysis we have estimated that the OAT-Bund spread could be ~200bp in a Le Pen win, 150bp in a Mélenchon win and 45bp in a Macron/Fillon win. Previously we had not distinguished between a Macron and Fillon presidency but we now decide to distinguish between the two even though the difference is fairly minor. In our view, Fillon’s pro-reform agenda and the backing of an established party in the parliament could see the OAT-Bund spread tighten back to the level seen in Q2-14 level of ~40bp. However, in case of a Macron win the risk of a failure to deliver could increase and the OAT-Bund spread might not tighten below the current level of Belgium-Bund spread (~50bp).</p> <p>The table below summarizes the 10Y bund yield, OAT-Bund spread and BTP-Bund spread level in these scenarios for reference.</p> <p><img src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/04/19/france%202_0.jpg" width="500" height="177" /></p> <p>For the six outcomes discussed in the previous sections and using indicative probabilities based on polls on the second round outcome conditional on the outcome of the first round we show indicative levels for the OAT-Bund spread after the first round of elections.</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/04/19/france%203.jpg"><img src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/04/19/france%203_0.jpg" width="500" height="141" /></a></p> <p>Using the same framework and our previously published scenario for 10Y Bund yields and BTP-Bund spreads we arrive at the following levels for the indicative level of 10Y yields in Germany, Italy &amp; France after the first round of the French election. It should be noted that in particular our framework was initially published in early March when the level of 10Y bunds were higher at around 0.35% compared to current levels of 0.25%.</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/04/19/france%204.jpg"><img src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/04/19/france%204_0.jpg" width="500" height="215" /></a></p> <p><strong>Electoral dashboard</strong></p> <p>We have been publishing an election dashboard that tracks the polls’ evolution. For details of methodology see here.</p> <p><strong>Mélenchon’s surge also happened in 2012: </strong>In figure 6, we reproduce polls for Mélenchon in 2012 in the last month before the election. Mid-March&nbsp; 2012, he was polling around 11% and then surged above 15% at times. Ultimately he only gathered 11% of the votes. The similarity with the 2017 polls and momentum is striking. If Mélenchon wants to have a chance to make it to the second round, he cannot rely on taking votes from Socialist Hamon anymore. He will have to adopt a different strategy and either aim to capture Le Pen’s voters or Macron’s voters or convince abstentionists to support him. Figure 3 also shows that many of Mélenchon’s potential voters are not certain of their choice.</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/04/19/france%205.jpg"><img src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/04/19/france%205_0.jpg" width="500" height="373" /></a></p> <p><strong>Second round </strong>- In the two graphs below (figures 7 and 8), we report the polls’ evolution of support for mainstream candidates Fillon’s and Macron’s leads over Le Pen in the second round of the Presidential elections, which have been relatively stable in recent weeks.</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/04/19/france%206.jpg"><img src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/04/19/france%206_0.jpg" width="500" height="211" /></a></p> <p><strong>Second round vote transfer</strong> – Figures 9 and 10 show how votes could transfer between the first round and the second round of the Presidential elections. Here we adjust them to represent the share of the electorate of each candidate that would likely switch to Le Pen, abstain or choose Fillon/Macron.</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/04/19/france%207.jpg"><img src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/04/19/france%207_0.jpg" width="500" height="206" /></a></p> <p>We then show how these vote transfers among first-round voters could add up in the second round (Figure 11 and 12).</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/04/19/france%208.jpg"><img src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/04/19/france%208_0.jpg" width="500" height="281" /></a></p> <p><strong>Brexit and US elections polling errors applied to French polls</strong>: In the case of the US elections and particularly Brexit, polls underestimated the risks of a surprise. Figure 13 and 14 trace the history of polls in the six months prior to the vote for Brexit, and from the day Trump and Clinton were the official nominees in the US. The solid lines represent actual polling data. The dotted lines adjust for the margin of error. We apply the Brexit and US election margins of error to the Le Pen-Fillon gap and the Le Pen-Macron gap in the French second-round polls.</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/04/19/france%209.jpg"><img src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/04/19/france%209_0.jpg" width="500" height="335" /></a></p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/04/19/france%2010.jpg"><img src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/04/19/france%2010_0.jpg" width="500" height="365" /></a></p> <p><strong>Pollsters careful about not underestimating National Front support: </strong>In France, pollsters are careful in measuring National Front support. Figure 15 traces history of polling estimation error for National front since 2002. Also, the mobilization of the French electorate against the National Front should not be ignored. Recently in the 2015 regional elections – National Front candidates were defeated by wide margins against centreright candidates in two regions contrary to opinion poll expectations (Figure 16).</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/04/19/france%2011.jpg"><img src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/04/19/france%2011_0.jpg" width="500" height="206" /></a></p> <p>* * *</p> <p><strong>Possible scenarios &amp; implications for EUR</strong></p> <ul> <li>There are six possible paths for two of the main four candidates to advance to the second round. Consequently unlike previous political risk events (eg Brexit, Trump), the outcome is anything but binary. This makes it tricky to determine how EUR will react.</li> <li>There are two key negative scenarios that will be at the forefront of investors' minds: 1) Le Pen vs. Mélenchon, and 2) Fillon vs. Mélenchon. We’re most worried about the former, which has been described by some as a 'nightmare' scenario and roughly 7% priced in in the options market. If these are the final candidates for May 7, this would a hard choice between two anti-globalization, anti-EU and pro-Russia candidates. EUR is likely to react accordingly, and understandably negatively.</li> <li>The most positive outcome for EUR on the other hand this Sunday would be Le Pen coming in third place, entirely discounting the chance of her advancing to the second round and the possibility of victory. A Macron vs Fillon scenario would be ideal in such a case, as both candidates are seen as moderates. Alternatively a Le Pen vs Macron scenario for the second round would also be a positive.</li> <li>Naturally, an ultimate Le Pen victory would be the most negative for markets given her anti-EU and “Frexit” stance. As such, one thing to watch in the first round election results is her margin of victory, if she scores the highest, relative to current polling. If she obtains say, 30% of the vote or more, then EUR is likely to sell off rather sharply (she currently polls 23-24% on average).</li> </ul> <p>For those who missed, here is a scenario analysis from BofA laying out the <a href="http://www.zerohedge.com/news/2017-04-19/nightmare-scenario-and-everything-else-full-french-election-matrix">potential market impact </a>of the 6 possible outcomes from the first round:</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/04/19/bofa%20france%201.jpg"><img src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/04/19/bofa%20france%201_0.jpg" width="500" height="601" /></a></p> <p><strong>What happens next? It’s not over yet</strong></p> <p>If no candidate gets 50% in the first round vote (as is expected), then the top two candidates go through to the next round a week later and the one who gets the most votes wins. Polling restarts on Monday and there is a TV debate for the final scheduled for Wednesday May 3. The second round vote will be held on May 7.</p> <p>Also note that legislative elections are held in June. If the President fails to secure a majority in the Assemblée Nationale with their party, the country will fall into a period of “cohabitation” – which means the president will have diminished powers. Voters will elect into the lower chamber of parliament representatives from 577 constituencies.&nbsp; </p> <p>As Citi Research point out, even if Macron wins, it is unlikely that his party will have an outright majority. The most likely scenario here is a governing coalition. Le Pen’s FN, which currently has only two MPs, is extremely unlikely to get anywhere near the 289 Le Pen would need for a majority in the assembly. This is a problem Mélenchon would also face. More radical proposals, such as an EU/Eurozone referendum, will be harder to implement subsequently.</p> <p><strong>Timeline:</strong></p> <ul> <li><strong>April 21 </strong>– [from midnight] Poll blackout</li> <li><strong>April 23 </strong>– First round of French presidential elections. At 19:00 BST / 14:00 EDT, media is authorized to report preliminary results (Not exit polls, but numbers based on processed ballots – historically an accurate indicator of the final result)</li> <li><strong>April 26 </strong>– Official announcement of first-round results (latest date)</li> <li><strong>May 1 </strong>– Local holiday in France</li> <li><strong>May 3 </strong>– TV debate between the two remaining candidates</li> <li><strong>May 5 </strong>– [from midnight] Poll blackout</li> <li><strong>May 7 </strong>– Second round of French presidential elections. Last polls close at 19:00 BST / 14:00 EDT, with an exit poll result announced immediately.</li> <li><strong>May 11 </strong>– Official proclamation of the new President.</li> <li><strong>May 14 </strong>– [from midnight] End of Francois Hollande’s mandate</li> <li><strong>June 11 </strong>– First round of legislative elections</li> <li><strong>June 18 </strong>– Second round of legislative elections.</li> </ul> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="299" height="168" alt="" src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/french%20elections.jpg?1492882095" /> </div> </div> </div> http://www.zerohedge.com/news/2017-04-22/your-complete-guide-sundays-french-presidential-elections-first-round#comments Baseline Scenario Bond Citigroup Deutsche Bank Emmanuel Macron European Union Eurozone France François Fillon French people French presidential election Frexit Germany Italy Jean-Luc Mélenchon Marine Le Pen National Front National Front Nicolas Sarkozy Opinion poll Politics of France ratings Republican Party Socialist Party Socialist Party Sun, 23 Apr 2017 01:13:44 +0000 Tyler Durden 593873 at http://www.zerohedge.com Visualizing The Collapse Of The Middle Class In 20 Major U.S. Cities http://www.zerohedge.com/news/2017-04-22/visualizing-collapse-middle-class-20-major-us-cities <p>When future historians look back at the beginning of the 21st century, they&rsquo;ll note that <strong>we grappled with many big issues</strong>. They&rsquo;ll write about the battle between nationalism and globalism, soaring global debt, a dysfunctional healthcare system, societal concerns around automation and AI, and pushback on immigration. They will also note the growing number of populist leaders in Western democracies, ranging from Marine Le Pen to Donald Trump.</p> <p>However, <a href="http://www.visualcapitalist.com/animation-collapse-middle-class-20-major-u-s-cities/">as Visual Cpitalist&#39;s Jeff Desjardins notes,</a> these historians will not view these ideas and events in isolation. Instead, <strong>they will link them all, at least partially, to an overarching trend that is intimately connected to today&rsquo;s biggest problems: the &ldquo;hollowing out&rdquo; of the middle class</strong>.</p> <h2><span style="text-decoration: underline;">VISUALIZING THE COLLAPSE OF THE MIDDLE CLASS</span></h2> <p><strong>The fact is many people have less money in their pockets </strong>&ndash; and understandably, this has motivated people to take action against the status quo.</p> <p>And while the collapse of the middle class and income inequality are issues that receive a fair share of discussion, we thought that this particular animation from&nbsp;<a href="http://metrocosm.com/income-us-cities-1970-2015/">Metrocosm</a>&nbsp;helped to put things in perspective.</p> <p><strong>The following animation shows the change in income distribution in 20 major U.S. cities between 1970 and 2015:</strong></p> <p><a href="http://www.visualcapitalist.com/animation-collapse-middle-class-20-major-u-s-cities/"><img height="480" src="http://2oqz471sa19h3vbwa53m33yj.wpengine.netdna-cdn.com/wp-content/uploads/2017/04/income-distribution-usa-cities.gif" width="600" /></a></p> <p><strong>The differences between 1970 and 2015 are intense. </strong>At first, each distribution is more bell-shaped, with the majority of people in a middle income bracket &ndash; and by 2015, those people are &ldquo;pushed&rdquo; out towards the extremes as they either get richer or poorer.</p> <h2><span style="text-decoration: underline;">A BROADER LOOK AT INCOME INEQUALITY</span></h2> <p>This phenomenon is not limited to major cities, either.</p> <p>Here&rsquo;s another look at the change in income distribution using smaller brackets and the whole U.S. adult population:</p> <p><a href="http://www.visualcapitalist.com/animation-collapse-middle-class-20-major-u-s-cities/"><img height="300" src="http://2oqz471sa19h3vbwa53m33yj.wpengine.netdna-cdn.com/wp-content/uploads/2017/04/ft-income-distribution.gif" width="600" /></a></p> <p><strong>It&rsquo;s a multi-faceted challenge, because while a significant portion of middle class households are being shifted into lower income territory, there are also many households that are doing the opposite.</strong> According to Pew Research, the&nbsp;<a href="http://www.businessinsider.com/charts-decline-of-the-middle-class-2016-1/">percentage of households</a>&nbsp;in the upper income bracket has grown from 14% to 21% between 1971 and 2015.</p> <p><u><em><strong>The end result?</strong></em></u> With people being pushed to both ends of the spectrum, the middle class has&nbsp;<a href="http://www.businessinsider.com/charts-decline-of-the-middle-class-2016-1/">decreased</a>&nbsp;considerably in size. In 1971, the middle class made up 61% of the adult population, and by 2014 it accounted for less than 50%.</p> <p><strong>As this &ldquo;core&rdquo; of society shrinks, it aggravates the aforementioned problems. </strong>People and governments borrow more money to make up for a lack of middle class wealth, while backlashes against globalism, free trade, and open borders are fueled. The populists who can &ldquo;fix&rdquo; the broken system are elected, and so on.</p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="592" height="267" alt="" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/20170422_middle.jpg?1492890907" /> </div> </div> </div> http://www.zerohedge.com/news/2017-04-22/visualizing-collapse-middle-class-20-major-us-cities#comments animation Broken System Distribution of wealth Donald Trump Economic globalization Economic inequality Economy Income distribution Libertarian theory Middle class Nationalism Occupy Wall Street Social inequality Social Issues Structure Sun, 23 Apr 2017 01:05:00 +0000 Tyler Durden 593886 at http://www.zerohedge.com China’s Credit Excess Is Unlike Anything The World Has Ever Seen http://www.zerohedge.com/news/2017-04-22/china%E2%80%99s-credit-excess-unlike-anything-world-has-ever-seen <p><em>By Andrew Brown, a partner for macro and strategy at ShoreVest Capital Partners</em></p> <p>From a global macroeconomic perspective, we encourage readers to consider that the world is experiencing an extended, rolling process of deflating its credit excesses. It is now simply China’s turn.</p> <p>For context, Japan started deflating their credit bubble in the early 1990s, and has now experienced more than 20 years of deflation and very little growth since. The US began its process in 2008, and after eight years has only recently been showing signs of sustainable recovery. The euro zone entered this process in 2011 and is still struggling six years onward. We believe China is now entering the early stages of this process.</p> <p>Having said that, we believe that Chinese authorities have a viable plan for deflating their credit excess in an orderly fashion. Please stay posted as we will review this multi-pronged, market-based approach in our next column.</p> <p>For now, let’s turn our attention to the size of the credit excess that China created and why we estimate it to be the largest in the world.</p> <p>A credit excess is created by the speed and magnitude of credit that is created – if too much is created in too short a time period, excesses inevitably occur and non-performing loans (NPLs) emerge.</p> <p>To illustrate the credit excess that has been created in China, let’s review several key indicators, including the: 1) flow of new credit; 2) stock of outstanding credit; 3) credit deviation ratio (i.e., excess credit); 4) incremental capital output ratio (efficiency of credit allocation). </p> <p>The chart below shows the amount of credit created as a percentage of GDP during the five years prior to major downturns globally.</p> <p><img src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/04/19/shore%201_0.jpg" width="500" height="227" /></p> <p>The US created 58 per cent of GDP between 2002-07, and the global financial crisis followed. </p> <p>Japan created credit equivalent to the entire size of its economy between 1985-90 and subsequently experienced more than 20 years of deflation (admittedly reflecting the lack of restructuring). </p> <p>Thailand created a significant real estate bubble between 1992-97 and ended up with about 45 per cent NPL ratios.</p> <p>Spain created credit equivalent to 116 per cent of GDP between 2002-07 and still is trying to address a 20 per cent unemployment rate.</p> <p>China created 139 per cent of GDP in new credit between the first quarter of 2009 and the third quarter of 2014 (when GDP growth peaked), far greater than what was created in other major credit bubbles globally.</p> <p>This unprecedented flow of new credit was predominantly in infrastructure and corporate credit. The result is that China’s corporate debt-to-GDP is too high and must be addressed, which authorities are now doing. </p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/04/19/shore%202.jpg"><img src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/04/19/shore%202_0.jpg" width="500" height="240" /></a></p> <p>Another important measure to assess the amount of credit in the economy which is “excessive” is the credit-to-GDP gap, as reported by the Bank of International Settlements. This ratio measures the difference between the current credit-to-GDP ratio in an economy against its long-term trend of what is necessary to optimally support long-term GDP growth. It is akin to measuring the amount of credit that is productively deployed into an economy. </p> <p>This metric is used by the Basel III framework in determining countercyclical capital buffers for a country’s banking system when credit creation becomes too fast (i.e., high credit growth requires higher capital ratios for banks).</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/04/19/shore%203.jpg"><img src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/04/19/shore%203_0.jpg" width="500" height="431" /></a></p> <p>A credit-to-GDP gap above 10 per cent of GDP is considered risky and requires the maximum additional 2.5 per cent of tier one capital as a countercyclical buffer under Basel III. A credit-to-GDP gap above 10 per cent of GDP is increasingly problematic as any new credit extended above that level produces progressively less GDP and is a source of future NPLs.</p> <p>Out of the 43 countries currently measured by the BIS, China has the largest credit-to-GDP gap (by orders of magnitude) at 30 per cent of GDP. This is equivalent to US$3.1 trillion in excess credit.</p> <p>Finally, to show that the pace of credit creation will necessarily slow, thereby exposing misallocated credit and driving the emergence of new NPL formation, we turn to the deterioration in China’s incremental capital output ratio.</p> <p>This ratio is the measure of the number of units of input required to produce one unit of GDP.</p> <p>For the 15 years prior to the credit impulse in 2009-14, China’s incremental capital output ratio has been consistently between two and four. <strong>Meaning that two to four yuan in fixed asset investment created one yuan in GDP.</strong></p> <p>But as a result of the credit-driven economic growth model, and the excessive credit that has been created (and the subsequent excess capacity in the industrial economy), <strong>China’s investment efficiency has deteriorated to the point that its incremental capital output ratio is now over 13.</strong></p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/04/19/shore%204.jpg"><img src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/04/19/shore%204_0.jpg" width="500" height="309" /></a></p> <p><strong>Said another way, every 1 yuan in new fixed asset investment is now creating only 7 fen in GDP</strong>. Meaning that new credit creation is having an increasingly lower transmission into GDP growth. Simply put, credit growth must necessarily slow and be redirected towards more productive activities.</p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="800" height="458" alt="" src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/china%20cash%20teaser%205_0.jpg?1492902101" /> </div> </div> </div> http://www.zerohedge.com/news/2017-04-22/china%E2%80%99s-credit-excess-unlike-anything-world-has-ever-seen#comments Bank of International Settlements BIS Business China Deflation Economic growth Economy Economy of the United States Financial crisis of 2007–2008 fixed Great Recession Gross domestic product Japan Macroeconomics National accounts non-performing loans Political debates about the United States federal budget Real estate Recession recovery Stock market crashes Unemployment Yuan Sun, 23 Apr 2017 00:28:24 +0000 Tyler Durden 593895 at http://www.zerohedge.com ANTIFA Upset For Not Being Able to Punch 'Nazis' Without Consequences http://www.zerohedge.com/news/2017-04-22/antifa-upset-not-being-able-punch-nazis-without-consequences <p>This is rich with irony. Here's an active forum on Reddit where ANTIFA degenerates discuss committing acts of violence against nazis. Again, and for the record, Le Fly supports all forms of violence, especially for superficial reasons. The laughable part of what this homo is saying below, is that he's upset that right wingers have unveiled the identity of a fellow criminal.</p> <p>He's now so beset with anguish over there being consequences for his cowardly assaults, that he's contemplating quitting altogether, until they can get their shit sorted out. This form of stupidity shouldn't be tolerated. He deserves to be impaled by the Based Stickman.</p> <p><img src="https://ibankcoin.com/flyblog/files/2017/04/IMG_7125.jpg" width="600" height="900" class="alignnone size-full wp-image-67506" /></p> <p>This all stems from the incredible investigative work done by people on 4chan, who deduced the identity of the bike lock guy, potential mass murderer, just by the boots on his feet, bag on his back, and pen in is pocket.</p> <blockquote class="twitter-tweet"><p dir="ltr" lang="en">Pol is systematically unmasking Antifag felons. Enjoy your stay in prison. Good look punching the real nazis inside there. <a href="https://t.co/ZPzTEHNydM">pic.twitter.com/ZPzTEHNydM</a></p> <p>— The_Real_Fly (@The_Real_Fly) <a href="https://twitter.com/The_Real_Fly/status/854936362969165824">April 20, 2017</a></p></blockquote> <script src="//platform.twitter.com/widgets.js"></script><blockquote class="twitter-tweet"> <p dir="ltr" lang="en">The investigation to find the bike lock scum has been concluded. <a href="https://t.co/aQDewl4ZBT">pic.twitter.com/aQDewl4ZBT</a></p> <p>— The_Real_Fly (@The_Real_Fly) <a href="https://twitter.com/The_Real_Fly/status/854938884580442112">April 20, 2017</a></p></blockquote> <script src="//platform.twitter.com/widgets.js"></script><blockquote class="twitter-tweet"> <p dir="ltr" lang="en">Pol concludes bike lock attempted murderer is... <a href="https://t.co/4CE6oSbzdr">pic.twitter.com/4CE6oSbzdr</a></p> <p>— The_Real_Fly (@The_Real_Fly) <a href="https://twitter.com/The_Real_Fly/status/854939011944783872">April 20, 2017</a></p></blockquote> <script src="//platform.twitter.com/widgets.js"></script><p>By the looks of it, the Marxist potential mass murderer is now dutifully unemployed from the college he was gainfully employed.</p> <blockquote class="twitter-tweet" data-lang="en"><p lang="en" dir="ltr">It looks like the attempted mass murderer, the bike lock Antifa scum, has been fired. <a href="https://t.co/RyMAQ8WJQl">pic.twitter.com/RyMAQ8WJQl</a></p> <p>&mdash; The_Real_Fly (@The_Real_Fly) <a href="https://twitter.com/The_Real_Fly/status/855689944832069633">April 22, 2017</a></p></blockquote> <script async src="//platform.twitter.com/widgets.js" charset="utf-8"></script><p> Many of these Antifa scum are being unveiled as college professors. What a shock.</p> <p>Here's a list of donors to an ANTIFA front group. </p> <blockquote class="twitter-tweet"><p dir="ltr" lang="en">List of Corporate Donors to Antifa Front Group BAMN <a href="https://t.co/qMFwXoBe57">pic.twitter.com/qMFwXoBe57</a></p> <p>— Jack Posobiec ???????? (@JackPosobiec) <a href="https://twitter.com/JackPosobiec/status/855789160770273281">April 22, 2017</a></p></blockquote> <script src="//platform.twitter.com/widgets.js"></script><p> If you're curious about the potential mass murder bike lock guy, here's what he did.</p> <p><iframe src="https://www.youtube.com/embed/sRQhtkonhc0" width="560" height="315" frameborder="0"></iframe></p> <p>Content originally published at <a href="http://ibankcoin.com/">iBankCoin.com</a></p> http://www.zerohedge.com/news/2017-04-22/antifa-upset-not-being-able-punch-nazis-without-consequences#comments 2channel 4chan Anti-fascism Antifa BAMN Cyberspace Digital media Imageboards Internet culture Internet trolling Pol Twitter Twitter World Wide Web Sun, 23 Apr 2017 00:04:44 +0000 The_Real_Fly 593896 at http://www.zerohedge.com Which Country Is America’s Biggest Enemy? http://www.zerohedge.com/news/2017-04-22/which-country-america%E2%80%99s-biggest-enemy <p>Between alleged interference in U.S. elections by Russia, recent nuclear posturing by North Korea, and chemical weapon atrocities in Syria &ndash; <strong><em>it&rsquo;s hard to keep track of which country is supposed to be the bona fide number one &ldquo;enemy&rdquo; of the United States.</em></strong></p> <p>While we can&rsquo;t tell you exactly what people are thinking in this moment, <a href="http://www.visualcapitalist.com/which-country-is-americas-biggest-enemy/">Visual Capitalist&#39;s Jeff Desjardins </a>has access to about 15 years worth of polls on the subject. <strong><em>The data ends up painting an interesting backdrop for America&rsquo;s foreign policy decisions over the same timeframe, as well as the narratives being pushed by major media outlets.</em></strong></p> <h2><u>CONGRATS, DEAR LEADER</u></h2> <p>Today&rsquo;s first map visualizes the most recent data from a&nbsp;<a href="https://today.yougov.com/news/2017/02/02/americas-friends-and-enemies/">YouGov survey</a>&nbsp;between January 28 and February 1, 2017, which was taken just before the most recent string of geopolitical turmoil.</p> <p><a href="http://www.visualcapitalist.com/which-country-is-americas-biggest-enemy/"><img height="473" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/04/21/20170422_worst1_0.jpg" width="600" /></a></p> <p><a href="http://www.visualcapitalist.com/which-country-is-americas-biggest-enemy/"><em>Source: Visual Capitalist</em></a></p> <p><strong>During the survey window, more Americans viewed North Korea as an enemy than any other country, with the Hermit Kingdom being ranked as an &ldquo;enemy&rdquo; by 57% of respondents.</strong> Of course, new tensions have surfaced since then, as North Korea continues to defy U.S. pressure with further missile tests under Kim Jong-Un. This probably hasn&rsquo;t helped their case with American citizens.</p> <p>As you might imagine, aside from North Korea, <strong>most of the countries that skew towards the top of the &ldquo;enemy&rdquo; spectrum are located in the Middle East and North Africa. </strong>Here&rsquo;s a close-up of that region, with the numbers that specific countries poll at there:</p> <p><a href="http://www.visualcapitalist.com/which-country-is-americas-biggest-enemy/"><img alt="" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/04/21/20170422_worst2_0.jpg" style="width: 600px; height: 549px;" /></a></p> <p><a href="http://www.visualcapitalist.com/which-country-is-americas-biggest-enemy/"><em>Source: Visual Capitalist</em></a></p> <p>Looking just at this geographic area, Iran stands out the most with 41% of Americans considering it to be an &ldquo;enemy&rdquo;. That places it right behind North Korea on the enemy list, at least as far as this most recent poll is concerned.</p> <p>Following Iran in the rankings were Syria (32%), Iraq (29%), and Afghanistan (23%).</p> <h2><u>CHANGING ENEMIES OVER TIME</u></h2> <p>One thing is for sure:<strong> America&rsquo;s biggest foe isn&rsquo;t a constant.</strong> The identity of America&rsquo;s arch-nemesis ebbs and flows as global events unfold, and the opinions of citizens are swayed.</p> <p>The following animation shows the answer to a slightly different poll question, this time by&nbsp;<a href="http://www.gallup.com/file/poll/189536/Greatest_Enemy_of_US_160222%20.pdf">Gallup</a>, which was asked multiple years between 2001 and 2016. Specifically, Americans were asked (unprompted) to name the country that is their &ldquo;greatest enemy&rdquo;.</p> <p><strong>See how the rankings fluctuate over time, including Iraq&rsquo;s precipitous drop after Saddam was ousted and the country turned out to not have WMDs:</strong></p> <p><a href="http://2oqz471sa19h3vbwa53m33yj.wpengine.netdna-cdn.com/wp-content/uploads/2017/04/enemies-cotw.gif"><img alt="" src="http://2oqz471sa19h3vbwa53m33yj.wpengine.netdna-cdn.com/wp-content/uploads/2017/04/enemies-cotw.gif" style="width: 600px; height: 580px;" /></a></p> <p><a href="http://www.visualcapitalist.com/which-country-is-americas-biggest-enemy/"><em>Source: Visual Capitalist</em></a></p> <p>Particularly, Iran had a good run between 2006-2012, when it was the top-ranked &ldquo;enemy&rdquo; in each year a poll was done.</p> <p><strong>At other times, North Korea (2005, 2016), Iraq (2001, 2005), Russia (2015), and China (2014) have all topped the list as well.</strong></p> <p>&nbsp;</p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="1054" height="543" alt="" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/20170422_worst3.jpg?1492889738" /> </div> </div> </div> http://www.zerohedge.com/news/2017-04-22/which-country-america%E2%80%99s-biggest-enemy#comments Afghanistan animation China East Africa Eastern Mediterranean Gallup Geography of Asia Iran Iraq KIM Levant Middle East Middle East Middle East North Africa North Korea Politics Syria Weapon of mass destruction Western Asia Sat, 22 Apr 2017 23:43:00 +0000 Tyler Durden 593884 at http://www.zerohedge.com Yesterday's Broad Power Outage Likely Caused By Geomagnetic Storm http://www.zerohedge.com/news/2017-04-22/yesterdays-broad-power-outage-likely-caused-geomagnetic-storm <p><a href="http://stockboardasset.com/insights-and-research/yesterdays-broad-power-outage-likely-caused-geomagnetic-storm/"><em>Via StockBoardAsset.com,</em></a></p> <p><strong>Yesterday, a massive US power grid failure was seen across the entire United States in one simultaneous&nbsp;fashion.</strong> San Fransisco, New York, and Los Angeles were the three main areas that were hit the hardest. Each of the areas experienced challenges or shut downs in business commerce. Also, basic infrastructure such as communication networks, mass transportation, and supply chains experienced challenges. To many this seemed apocalyptic with&nbsp;anaylst citing possible cyber attacks amid mounting geopolitical turmoil across the globe. We&rsquo;re shocked that mainstream media didn&rsquo;t revive the failing Russian narrative for another round of fake news to confuse the masses. Personally, I don&rsquo;t think it was a cyber attack or the Russians, but <u><strong>more of a Space Weather Event.</strong></u></p> <p>Space weather refers to the environmental conditions in Earth&rsquo;s magnetosphere, ionosphere and thermosphere due to the Sun and the solar wind that <strong>can influence the functioning and reliability of spaceborne and ground-based systems and services or endanger property or human health.</strong></p> <p>Here is PG&amp;E outage map from yesterday&rsquo;s event. <strong>Widespread.&nbsp;</strong></p> <p><a href="http://stockboardasset.com/wp-content/uploads/2017/04/Screen-Shot-2017-04-22-at-11.00.14-AM.png"><img class="aligncenter size-full wp-image-21521" src="http://stockboardasset.com/wp-content/uploads/2017/04/Screen-Shot-2017-04-22-at-11.00.14-AM.png" style="width: 500px; height: 500px;" /></a></p> <p>This is the Planetary K-Index,&nbsp;<strong>which&nbsp;5 or greater indicates storm-level geomagnetic activity around earth.&nbsp;</strong>The latest&nbsp;space weather data signals&nbsp;a geomagnetic storm rolled in on April 20, 2017. During the elevated K-waves &gt;5, San Fransisco, New York, and Los Angeles experienced&nbsp;power grid failures simultaneously.</p> <p><a href="http://stockboardasset.com/wp-content/uploads/2017/04/2017-04-22_10-21-53.png"><img class="aligncenter size-full wp-image-21519" src="http://stockboardasset.com/wp-content/uploads/2017/04/2017-04-22_10-21-53.png" style="width: 499px; height: 424px;" /></a></p> <h3>&nbsp;</h3> <h3><u>Latest Space Weather Warnings</u></h3> <p><u><em><strong>April 22, 2017 @ 08:40 UTC - Geomagnetic Storm Warning (UPDATED)</strong></em></u></p> <p>A moderate (G2) geomagnetic storm is currently in progress thanks to a high speed solar wind stream above 700 km/s. More storming is expected over the next several days as a coronal hole stream rattles our geomagnetic field. Sky watchers at middle to high latitudes should be alert for visible aurora during the next several nights.ALERT: Geomagnetic K-index of 6<br />Threshold Reached: 2017 Apr 22 0559 UTC<br />Synoptic Period: 0300-0600 UTC<br />Active Warning: Yes<br />NOAA Scale: G2 &ndash; Moderate</p> <p><strong><u><em>April 21, 2017 @ 02:40 UTC - Large Coronal Hole Returns / G2 Storm Watch</em></u></strong></p> <p>A large recurrent coronal hole last seen in March will become geoeffective beginning April 23rd. A moderate (G2) geomagnetic storm watch was added and high latitude sky watchers may be in for an aurora treat once an expected solar wind stream arrives past Earth. More updates in the days ahead. As always, stay tuned to SolarHam.com where you will find the most up to date information.</p> <p>According to <a href="http://www.solarham.net/">http://www.solarham.net/</a>, who uses NOAA data, Geomagnetic Storm has been declared for the past few days.</p> <p><a href="http://stockboardasset.com/wp-content/uploads/2017/04/Screen-Shot-2017-04-22-at-10.30.54-AM.png"><img class="aligncenter size-full wp-image-21520" src="http://stockboardasset.com/wp-content/uploads/2017/04/Screen-Shot-2017-04-22-at-10.30.54-AM.png" style="width: 500px; height: 288px;" /></a></p> <p>Piecing together the puzzle, we understand the sun can unleash space weather that can have profound effects on&nbsp;ground based systems, as well as human health. In a report from NOAA titled:&nbsp;<strong>Geomagnetic Storms and the US Power Grid</strong>, the paper&nbsp;mentions how the US power grid is highly interconnected and susceptible to damage from geomagnetic storms.</p> <p>US Power Grid is an interconnected system which may explain why&nbsp;San Fransisco, New York, and Los Angeles all experienced power failures&nbsp;relatively at the same time.</p> <p><a href="http://stockboardasset.com/wp-content/uploads/2017/04/Screen-Shot-2017-04-22-at-11.08.20-AM.png"><img class="aligncenter size-full wp-image-21522" src="http://stockboardasset.com/wp-content/uploads/2017/04/Screen-Shot-2017-04-22-at-11.08.20-AM.png" style="width: 499px; height: 362px;" /></a></p> <p>The report shows that the&nbsp;sun&nbsp;is the source of &lsquo;GICs&rsquo;&nbsp;Geomagnetically Induced Current.</p> <p><a href="http://stockboardasset.com/wp-content/uploads/2017/04/Screen-Shot-2017-04-22-at-11.09.50-AM.png"><img class="aligncenter size-full wp-image-21523" src="http://stockboardasset.com/wp-content/uploads/2017/04/Screen-Shot-2017-04-22-at-11.09.50-AM.png" style="width: 500px; height: 363px;" /></a></p> <p>&nbsp;</p> <p>GICs can enter the earth&rsquo;s surface through transformers in the power grid.</p> <p><a href="http://stockboardasset.com/wp-content/uploads/2017/04/Screen-Shot-2017-04-22-at-11.11.23-AM.png"><img class="aligncenter size-full wp-image-21524" src="http://stockboardasset.com/wp-content/uploads/2017/04/Screen-Shot-2017-04-22-at-11.11.23-AM.png" style="width: 500px; height: 364px;" /></a></p> <p>GICs can force a transformer tank wall to overheat</p> <p><a href="http://stockboardasset.com/wp-content/uploads/2017/04/Screen-Shot-2017-04-22-at-11.13.31-AM.png"><img class="aligncenter size-full wp-image-21525" src="http://stockboardasset.com/wp-content/uploads/2017/04/Screen-Shot-2017-04-22-at-11.13.31-AM.png" style="width: 500px; height: 368px;" /></a></p> <p>Just maybe thats what happened in San Fransisco with the substation fire</p> <p><a href="http://stockboardasset.com/wp-content/uploads/2017/04/Screen-Shot-2017-04-22-at-11.14.19-AM.png"><img class="aligncenter size-full wp-image-21526" src="http://stockboardasset.com/wp-content/uploads/2017/04/Screen-Shot-2017-04-22-at-11.14.19-AM.png" style="width: 500px; height: 244px;" /></a></p> <h3>&nbsp;</h3> <h3><u>What is a substation?</u></h3> <p>A <strong>substation</strong> is a part of an electrical generation, transmission, and distribution system. Substations transform voltage from high to low, or the reverse, or perform any of several other important functions. Between the generating station and consumer, electric power may flow through several substations at different voltage levels. A <strong>substation may include transformers </strong>to change voltage levels between high transmission voltages and lower distribution voltages, or at the interconnection of two different transmission voltages.</p> <p>2003 Substation fire due to a geomagnetic storm overheating a&nbsp;transformer</p> <p><a href="http://stockboardasset.com/wp-content/uploads/2017/04/Screen-Shot-2017-04-22-at-11.16.00-AM.png"><img class="aligncenter size-full wp-image-21527" src="http://stockboardasset.com/wp-content/uploads/2017/04/Screen-Shot-2017-04-22-at-11.16.00-AM.png" style="width: 500px; height: 361px;" /></a></p> <p>Take away points</p> <p><a href="http://stockboardasset.com/wp-content/uploads/2017/04/Screen-Shot-2017-04-22-at-11.16.33-AM.png"><img class="aligncenter size-full wp-image-21528" src="http://stockboardasset.com/wp-content/uploads/2017/04/Screen-Shot-2017-04-22-at-11.16.33-AM.png" style="width: 500px; height: 358px;" /></a></p> <p>Looking ahead, the growth of the US transmission grid has exploded in the past 60 years. This leaves an abundant amount of the US grid susceptible to more power outages and possibly widespread events.</p> <p><a href="http://stockboardasset.com/wp-content/uploads/2017/04/Screen-Shot-2017-04-22-at-11.16.55-AM.png"><img class="aligncenter size-full wp-image-21529" src="http://stockboardasset.com/wp-content/uploads/2017/04/Screen-Shot-2017-04-22-at-11.16.55-AM.png" style="width: 500px; height: 365px;" /></a></p> <p>Bonus:&nbsp;Executive Order &mdash; Coordinating Efforts to Prepare the Nation for Space Weather Events (Fall 2016). <strong>What does our Gov&rsquo;t know that we don&rsquo;t?</strong></p> <p><a href="http://stockboardasset.com/wp-content/uploads/2017/04/Screen-Shot-2017-04-22-at-11.18.04-AM.png"><img class="aligncenter size-full wp-image-21530" src="http://stockboardasset.com/wp-content/uploads/2017/04/Screen-Shot-2017-04-22-at-11.18.04-AM.png" style="width: 500px; height: 337px;" /></a></p> <p>Bonus: ATL FED-&gt; Playing the Field: Geomagnetic Storms and the Stock Market</p> <p><a href="http://stockboardasset.com/wp-content/uploads/2017/04/Screen-Shot-2017-04-22-at-1.40.55-PM.png"><img class="aligncenter size-full wp-image-21541" height="207" src="http://stockboardasset.com/wp-content/uploads/2017/04/Screen-Shot-2017-04-22-at-1.40.55-PM.png" width="496" /></a></p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="473" height="260" alt="" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/20170422_grid_0.jpg?1492890552" /> </div> </div> </div> http://www.zerohedge.com/news/2017-04-22/yesterdays-broad-power-outage-likely-caused-geomagnetic-storm#comments Electromagnetism Meteorology National Oceanic and Atmospheric Administration NOAA Outer space Planetary science Space plasmas Space weather US Federal Reserve Sat, 22 Apr 2017 23:20:00 +0000 Tyler Durden 593885 at http://www.zerohedge.com Cheat Or Chump? - You Are Not An Investor http://www.zerohedge.com/news/2017-04-22/cheat-or-chump-you-are-not-investor <p><a href="https://www.theautomaticearth.com/2017/04/you-are-not-an-investor/"><em>Authored by Raul Ilargi Meijer via The Automatic Earth blog,</em></a></p> <p><strong>You are not an investor. </strong>One can only be an investor in functioning markets. There have been no functioning markets since at least 2008, and probably much longer. That&rsquo;s when central banks started purchasing financial assets, for real, which means that is also the point when price discovery died. <strong>And without price discovery no market can function.</strong></p> <p>You are therefore not an investor. <strong>Perhaps you are a cheat, perhaps you are a chump, but you are not an investor.</strong> If we continue to use terms like &lsquo;investor&rsquo; and &lsquo;markets&rsquo; for what we see today, we would need to invent new terms for what these words once meant. Because they surely are not the same thing. Even as there are plenty people who would like you to believe they are, because it serves their purposes.</p> <p><strong>Central banks have become bubble machines, and that is the only function they have left. </strong>You could perhaps get away with saying that the dot-com bubble, maybe even the US housing bubble, were not created by central banks, but you can&rsquo;t do that for the everything bubble of today.</p> <p>The central banks blow their bubbles in order to allow banks and other financial institutions to first of all not crumble, and second of all even make sizeable profits. <strong>They have two instruments to blow their bubbles with, which are used in tandem.</strong></p> <p>The first one is asset purchases, which props up the prices for these assets, through artificial demand. The second is (ultra-) low interest rates, which allows for more parties -that is, you and mom and pop- to buy more assets, another form of artificial demand.</p> <p>The most important central bank-created bubble is in housing, if only because it facilitates bubbles in stocks and bonds. Home prices in many places in the world have grown much higher than either economic growth or homebuyers&rsquo; wages justify.</p> <p>In many instances they have even caused a feeding frenzy, where people are so desperate to either have a place to live or not miss out on profits that they&rsquo;ll pay any price, provided rates are low enough for them to get a loan approved.</p> <p>As I said a few weeks ago in <a href="https://www.theautomaticearth.com/2017/03/our-economies-run-on-housing-bubbles/" target="new"><span style="font-size: 13px; color: #ff2222; font-weight: bold;">Our Economies Run on Housing Bubbles</span></a>, the housing bubbles created in this way are essential in keeping our economies going, because it is through mortgages -loans in general- that money is created in these economies.</p> <p><strong>If this money creation machine would stop, so would the economies.</strong> Home prices would come down to more realistic levels, but there still wouldn&rsquo;t be anyone to buy them, so they would sink further. That, too, is called price discovery. For which there is a bitter and urgent need.</p> <p>The Fed is an outlier in the central bank system, in that it no longer buys up too many assets. But other central banks have duly taken over. Indeed, <a href="http://www.zerohedge.com/news/2017-04-21/why-nothing-matters-central-banks-have-bought-record-1-trillion-assets-2017" target="new"><span style="font-size: 13px; color: #ff2222; font-weight: bold;">Tyler Durden observes today via Bank of America</span></a> that BoJ and ECB have bought more assets so far in 2017 than central banks ever have before. One may wonder at what point the term &lsquo;asset&rsquo; will lose its rightful meaning to the same extent that &lsquo;investor&rsquo; and &lsquo;markets&rsquo; have:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p><em>A quick, if familiar, observation to start the day courtesy of Bank of America which in the latest overnight note from Michael Hartnett notes that central banks (ECB &amp; BoJ) have bought $1 trillion of financial assets just in the first four months of 2017, which amounts to $3.6 trillion annualized, &ldquo;the largest CB buying on record.&rdquo; As Hartnett notes, the &ldquo;Liquidity Supernova is the best explanation why global stocks &amp; bonds both annualizing double-digit gains YTD despite Trump, Le Pen, China, macro&hellip;&rdquo;</em></p> </blockquote> <p>A recent graph from Citi and Haver illustrated it this way:</p> <p><img src="https://3r8md7174doo44lgpk3kou79-wpengine.netdna-ssl.com/wp-content/uploads/2017/04/CentralBanksMoreAndMore350.jpg" style="border-width: 0px; border-style: solid; height: 531px; width: 500px;" /></p> <p>&nbsp;</p> <p><strong>Note the rise in central bank balance sheets before 2008. There&rsquo;s nothing innocent about it.</strong></p> <p>As an aside, I like this variation from the Twitter account of &ldquo;Rudy Havenstein&rdquo;, which came with the comment:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p><strong><em>Here is a chart of the well being of the American middle-class and poor over the same period.</em></strong></p> </blockquote> <p><img src="https://3r8md7174doo44lgpk3kou79-wpengine.netdna-ssl.com/wp-content/uploads/2017/04/Havenstein350.jpg" style="border-width: 0px; border-style: solid; height: 531px; width: 500px;" /></p> <p>The Fed tries to become even more of an outlier among central banks, or at least it seems to discuss ways of doing this. Now, I don&rsquo;t know what is more stunning, the fact that they go about it the way they do, or the lack of anger and bewilderment that emanates from the press and other voices -nobody has a clue what a central bank should be doing-, but the following certainly is &lsquo;something&rsquo;:</p> <p style="margin-left: 20px;"><a href="https://www.bloomberg.com/news/articles/2017-04-20/fed-intensifies-balance-sheet-discussions-with-market-players" target="new"><span style="font-size: 13px; color: #ff2222; font-weight: bold;"> Fed Intensifies Balance-Sheet Discussions With Market Players </span> </a></p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p><em>Federal Reserve staff, widening their outreach to investors in anticipation of a critical turning point in monetary policy, are seeking bond fund manager feedback on how the central bank should tailor and communicate its exit from record holdings of Treasuries and mortgage-backed securities. Fed officials are intent on shrinking their crisis-era $4.48 trillion balance sheet in a way that isn&rsquo;t disruptive and doesn&rsquo;t usurp the federal funds rate as the main policy tool. To do that, they need to find the right communication and assess market expectations on the size of shrinkage, which is why conversations with fund managers have picked up recently. &ldquo;All indications suggest that conversations around the balance sheet have accelerated,&rdquo; said Carl Tannenbaum at Northern Trust Company. &ldquo;The consideration of everything from design of the program to communication seems to have intensified.&rdquo;</em></p> <p>&nbsp;</p> <p><em>Most U.S. central bankers agreed that they would begin phasing out their reinvestment of maturing Treasury and MBS securities in their portfolio &ldquo;later this year,&rdquo; according to minutes of the March meeting. They also agreed the strategy should be <strong>&ldquo;gradual and predictable,&rdquo;</strong> according to the minutes. <strong>Fed staff routinely seek feedback from investors and bond dealers to get a fix on sentiment and expectations.</strong> The New York Fed confirmed the discussions and said it is part of regular market monitoring. The Fed is getting closer to disclosing its plan, and conversations have become more intense. <strong>&ldquo;They are gauging what&rsquo;s the extent of weak hands in the market that will dump these assets</strong>,&rdquo; said Ed Al-Hussainy, a senior analyst on the Columbia Threadneedle Investment&rsquo;s global rates and currency team. &ldquo;They are calling all the asset managers. <strong>It is not part of the regular survey.</strong>&rdquo;</em></p> </blockquote> <p>The Fed-created bubbles in stocks, bonds, housing, what have you, have propped up these &lsquo;market players&rsquo;, which wouldn&rsquo;t even be &lsquo;market players&rsquo; anymore if they hadn&rsquo;t. That would have made for a much saner world. These people are not &lsquo;investors&rsquo; any more either, by the way, and they&rsquo;re not the chumps either; they are the cheats, the profiteers. At your expense.</p> <p>Now, with the new capital they have, courtesy of the Fed and other central banks only, certainly not their own intelligence or timing or knowledge, they get calls from Yellen and other Fed people about what the Fed can do for them this time. Yellen et al are afraid that if the Fed starts selling, the so-called &lsquo;market players&rsquo; will too. Of course they will.</p> <p><strong>The bubble created by artificial demand cannot be allowed to burst all at once, it has to be done &ldquo;gradual and predictable.&rdquo; </strong>As if that is possible, as if the Fed controls the bursting of bubbles it has itself created. And Yellen is not going to call you or me, she could not care less; she&rsquo;s going the call the pigs she fattened up most. The Fed is more than anything a bunch of academics, seduced exclusively by textbook theories that are shaky at best, to transfer wealth to the most sociopathic and hence seductive financial predators, at everyone else&rsquo;s expense.</p> <p><strong>And that expense is humongous. At the same time that the Fed and the rest of the world&rsquo;s central banks fattened their balance sheets as seen in the graph above, this is what happened to US debt vs GDP:</strong></p> <p><img src="https://3r8md7174doo44lgpk3kou79-wpengine.netdna-ssl.com/wp-content/uploads/2017/04/FREDUSNominalDebtVsGDP-1-1.jpg" style="border-width: 0px; border-style: solid; height: 263px; width: 499px;" /></p> <p><strong>The Fed bubbles, intended to keep market players whole, are blown at the expense of the real economy.</strong> Imagine if all those $20 trillion and counting in central banks&rsquo; bubble blowing would have been used to prop up Main Street instead of Wall Street; everybody would have been better off except for the &lsquo;investors&rsquo; who are not even real investors.</p> <p>The problem is, the Fed has no control over its own bubbles. It may or may not devise ways to &lsquo;deflate&rsquo; its balance sheet, but the bubbles that balance sheet gave birth to cannot be deflated in the same way. If the Fed did have &lsquo;bubble control&rsquo;, it would have chosen to keep both the stock markets (S&amp;P) and housing prices at a much lower level, with only a gradual increase. That would have given the impression that things were still doing sort of fine, without adding the risk -make that certainty- that the whole shebang would blow up. But once&rsquo;s the genie&rsquo;s out of the bubble&hellip;</p> <p><strong>The academics must have missed that part.</strong> In the end the Fed works for banks and affiliated &lsquo;industries&rsquo;, not for people. Even -or especially- those people that like to think of themselves as &lsquo;investors&rsquo;. Today, in the process, America&rsquo;s central bank is actively destroying American people. And while the Fed&rsquo;s operatives may know this or not, the people certainly don&rsquo;t. They think they&rsquo;re making fat profits in either stocks or housing. And they are the lucky ones; most Americans are simply drowning.</p> <p><strong>A great representation of all that&rsquo;s wrong in this comes courtesy of this Lance Roberts graph. A chilling illustration of the price you pay for setting S&amp;P records.</strong></p> <p><img src="https://3r8md7174doo44lgpk3kou79-wpengine.netdna-ssl.com/wp-content/uploads/2017/04/MarginDebtCreditBalanceVsSAndP.jpg" style="border-width: 0px; border-style: solid; height: 359px; width: 500px;" /></p> <p><strong>These days, every rising asset price, every single bubble, comes at the expense of enormous increases in debt. </strong>And there are still people who wish to claim that this is not a bubble. That it is OK to get into deep debt to purchase a home, or stocks, with leverage: can&rsquo;t miss out on those rates! And sure, that is still true in theory; all you have to do is get out in time. If only the Fed can get out in time, if only you can get out in time.</p> <p>&lsquo;Getting out in time&rsquo; is bubble territory by definition. It&rsquo;s not investing. Investing is buying an interest in something that you expect to do well, something that you think may be successful in benefiting society in such a way that people will want to own part of it. As I write down these words, I can&rsquo;t help thinking of &lsquo;It&rsquo;s A Wonderful Life&rsquo;, simply because it is so obvious but already feels so outdated.</p> <p>I&rsquo;m thinking also of Uber and Airbnb and Tesla and so many other &lsquo;innovative&rsquo; ideas. All seemingly thriving but only because there&rsquo;s so much excess cash sloshing around courtesy of Bernanke and Yellen and Draghi, looking for a next bubble to &lsquo;invest&rsquo; in. Ideas that apparently have no trouble raising another $1 billion or $10 billion &lsquo;investment&rsquo;, in the same way that the Tulip Bubble had no such trouble, or the South Sea or Dot.Com ones.</p> <p><strong>Good luck with all that, but you&rsquo;ve been warned, you&rsquo;re hereby on notice. The odds that you&rsquo;ll be able to &lsquo;get out in time&rsquo; are vanishingly small. </strong>And even if you do, most others just like you won&rsquo;t. And neither will the Fed academics. They have the most so-called &lsquo;money&rsquo; at their disposal, and the least sense of what to do with it. But they have their advisers in the private banking industry to tell them all about where to put it: in one bubble or another; anywhere but the real economy.</p> <p>Have I mentioned yet that all these start-ups and other bubbles are being launched into a rapidly shinking economy? Or you don&rsquo;t think it is shrinking? Look, there would be no need for the Fed to blow bubbles if the economy were doing fine. And if so, they wouldn&rsquo;t. Even academics have an innate sense for risk overdose.</p> <p><em><strong>C&rsquo;mon, you&rsquo;re not an investor. And perhaps you won&rsquo;t even end up a loser, though the odds on that are slim, but one thing&rsquo;s for sure. You are a character in an epic poem about losers.</strong></em></p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="234" height="187" alt="" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/20170422_rigged.jpg?1492887374" /> </div> </div> </div> http://www.zerohedge.com/news/2017-04-22/cheat-or-chump-you-are-not-investor#comments Bank of America Bank of America Bond Bond Dealers Business Business cycle Central Banks China Economic bubble Economic history of the Dutch Republic Economic history of the United States Economy Federal Reserve Federal Reserve System Finance Financial crises Financial history of the Dutch Republic Housing Bubble Housing Prices Main Street Monetary Policy Money New York Fed New York Fed Real estate bubble Twitter Twitter Tyler Durden United States housing bubble US Federal Reserve Sat, 22 Apr 2017 22:10:00 +0000 Tyler Durden 593882 at http://www.zerohedge.com Despite Mounting Losses, Mystery Trader "50 Cent" Doubles Down With Massive VIX Spike Bet http://www.zerohedge.com/news/2017-04-22/despite-mounting-losses-mystery-trader-50-cent-doubles-down-massive-vix-spike-bet <p><a href="http://www.zerohedge.com/news/2017-04-01/who-real-50-cent-mystery-trader-systematically-betting-massive-vix-spike">Three weeks ago we introduced the real &quot;50 Cent&quot;</a> - <em>the <strong>mystery trader whose pattern of huge, near-daily trades on the VIX is turning heads in the options market</strong></em>.</p> <p>Not him..</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/04/21/20170422_VIXCALLS1.jpg"><img height="364" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/04/21/20170422_VIXCALLS1.jpg" width="600" /></a></p> <p>&nbsp;</p> <p><a href="http://www.zerohedge.com/news/2017-04-01/who-real-50-cent-mystery-trader-systematically-betting-massive-vix-spike">As we detailed previously</a>,<a href="http://www.cnbc.com/2017/03/31/mysterious-trader-known-as-50-cent-bets-millions-on-volatility-spike.html"> Pravit Chintawongvanich, head of risk strategy at Macro Risk Advisors</a>,&nbsp; the huge options buyer known as &quot;50 Cent&quot; shows no signs of slowing down.<strong><em> </em></strong></p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p><strong><em>&quot;I would categorize them as someone who doesn&#39;t flinch at losing money,&quot; </em></strong>commented Chintawongvanich who flagged the activity in a series of research notes.</p> <p>&nbsp;</p> <p><strong>The money-losing trades in question have been purchases of call options on the CBOE volatility index. These represent bets that market volatility is set to rise, and to a lesser extent, that stocks are set to fall.</strong></p> <p>&nbsp;</p> <p>Sussing out the actions of an institutional trader based on public information about options trades can be difficult, if not impossible. But this trader made it easier by leaving a clue out in the open.<em><strong> &quot;They have a very particular pattern of buying options,&quot;</strong></em> Chintawongvanich explained Wednesday on CNBC&#39;s &quot;Trading Nation.&quot;</p> <p>&nbsp;</p> <p><em><strong>&quot;Basically they come in every day and they buy 50,000 VIX calls worth 50 cents. So in other words, they don&#39;t care too much what the strike is; they just pick the option that&#39;s worth 50 cents.&quot;</strong></em></p> </blockquote> <p>Having <a href="http://www.businessinsider.com/mystery-trader-50-cent-cant-stop-betting-on-a-stock-market-shock-2017-4">reportedly </a><strong>suffered $89 million in losses so far in 2017</strong> however, the trader is <strong>not giving up on his strategy and just doubled-down</strong>...</p> <p>On Wednesday morning, the trader, nicknamed &quot;50 Cent&quot; by <a href="http://www.macroriskadvisors.com/">Macro Risk Advisors</a> because of their predilection for contracts that cost roughly that much, <strong>bought an additional 100,000 VIX calls betting that the index will climb about 40% by May</strong>.</p> <p>Sending <strong>VIX Call volumes to near-record highs</strong>...</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/04/21/20170422_VIXCALLS.jpg"><img height="314" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/04/21/20170422_VIXCALLS_0.jpg" width="600" /></a></p> <p>And MRA doesn&#39;t think the trader will stop there. The firm expects purchases of bullish VIX contracts to continue in the coming days.</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p><em><strong>&quot;The amounts of money 50 Cent is spending are large, but this could be just the tip of the iceberg when you consider all the hedging that takes place over the counter as well,&quot;</strong></em> Pravit Chintawongvanich, the head of derivatives strategy at MRA, wrote in a client note on Thursday.</p> <p>&nbsp;</p> <p><strong>&quot;Even in the listed space, there is plenty of hedging that takes place that may not be as obvious and predictable as 50 Cent, and thus harder to attribute to one person.&quot;</strong></p> </blockquote> <p>Still, positioning from hedge funds suggests the trader might be on to something. They <strong>haven&#39;t been this bullish on the VIX since March 2016,</strong> according to data from the US Commodity Futures Association.</p> <p><img alt="" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/04/21/20170422_VIXCALLS2_0.jpg" style="width: 600px; height: 312px;" /></p> <p>Notably,<em><strong> 50 Cent&#39;s options would become profitable only if the VIX climbed to between 19 and 26,</strong></em> according to data compiled by MRA.</p> <p>&nbsp;</p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="467" height="283" alt="" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/20170422_VIXCALLS1.jpg?1492885064" /> </div> </div> </div> http://www.zerohedge.com/news/2017-04-22/despite-mounting-losses-mystery-trader-50-cent-doubles-down-massive-vix-spike-bet#comments Behavioral finance Business CBOE CBOE Volatility Chicago Board Options Exchange Economy Finance Hedge Market sentiment Mathematical finance Money Money 50 Options S&P/ASX 200 VIX Technical analysis US Commodity Futures Association VIX Volatility Sat, 22 Apr 2017 21:45:00 +0000 Tyler Durden 593881 at http://www.zerohedge.com