http://www.zerohedge.com/fullrss2.xml/etf_headlines/etf_headlines/First%20it%20was%2C%20with%20%22absolute%20certainly%22%2C%20North%20Korea.%20Then%2C%20out%20of%20the%20blue%2C%20an%20even%20more%20ridiculous%20theory%20emerged%20about%20the%20origin%20of%20the en JPMorgan's Head Quant Doubles Down On His "Market Turmoil" Forecast: Here's Why http://www.zerohedge.com/news/2017-06-23/jpmorgans-head-quant-doubles-down-his-market-turmoil-forecast-heres-why <p>After getting virtually every market inflection point in 2015, and early 2016, so far 2017 has not been Marko Kolanovic's year, whose increasingly more bearish forecasts have so far been foiled repeatedly by the market, and the same systematic traders that he periodically warns about. As a reminder, his most recent warning came last week, when he cautioned that even a modest rebound in VIX could lead to dramatic losses for vol sellers. As a reminder, here is the <a href="http://www.zerohedge.com/news/2017-06-13/jpm-head-quant-warns-catastrophic-losses-short-vol-strategies">punchline from his latest note</a>:</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>Days like May 17th and similar events "bring substantial risk for short volatility strategies. <strong>Given the low starting point of the VIX, these strategies are at risk of catastrophic losses. </strong>For some strategies, this would happen if the VIX increases from ~10 to only ~20 (not far from the historical average level for VIX). While historically such an increase never happened, we think that this time may be different and sudden increases of that magnitude are possible. <strong>One scenario would be of e.g. VIX increasing from ~10 to ~15, followed by a collapse in liquidity given the market’s knowledge that certain structures need to cover short positions.</strong></p> </blockquote> <p>So in light of a market that refuses to post even the smallest of drawdowns (we are not sure if the words "selling", "correction" or "crash" have been made illegal yet), has Kolanovic thrown in the towel and declared smooth seas ahead? To the contrary: in a note released late last night, he echoes warnings made recently by both Citi and BofA, and predicts that receding monetary accommodation from ECB and BOJ will likely lead to "<strong>market turmoil, and a rise in volatility and tail risks"&nbsp;</strong>and just in case there is some confusion, he reiterates what he said last week, namely that the "<strong>key risk of option selling programs is market crash risk</strong>."</p> <p>In terms of near-term catalysts, what is Kolanovic most worried about? The same <a href="http://www.zerohedge.com/news/2017-06-20/citi-expect-markets-flounder-central-banks-try-exit">thing that Matt King warned about this week </a>when he explained why he believes "<strong>markets will flounder as central banks try to exit" </strong>and showed the following chart: </p> <p><img src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/06/04/impl%203_0.jpg" width="500" height="321" /></p> <p>Now it's Kolanovic' turn to make essentially the same warning:</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>Equity Volatility has been suppressed by relentless supply via yield generating strategies, macro decorrelation and inflow into passive and quantitative strategies....&nbsp; Risky assets have been rallying for years, and market volatility is near record lows. Valuations are high, arguably supported by low interest rates and record pace of central bank monetary expansion. <strong>However, this may change in the near future. In the US rates are rising and monetary accommodation from the ECB and BOJ is expected to recede.</strong> Medium term, this is likely to lead to market turmoil, and a rise in&nbsp; volatility and tail risks. </p> </blockquote> <p>Indeed, and by now we can only assume that the rest of the actively trading community is well aware of these very risks. And yet, stocks refuse to budge, which either confirms what Kolanovic said recently, namely that only 10% of all market decisions are made by human traders, or that as King speculated, the <a href="http://www.zerohedge.com/news/2017-06-16/matt-king-back-and-reveals-biggest-threat-facing-market-two-charts">market is now so broken it can no longer discount the future</a>, especially if the event to be discounted is precisely the one that broke it in the first place.</p> <p>Below are some additional excerpts from Kolanovic's latest note, explaining why he is doubling down on his "market turmoil" call:</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><strong>The landscape: Volatility is low across the board </strong></p> <p>&nbsp;</p> <p>Volatility across asset classes is near all-time lows. We have written extensively about the drivers of current low volatility which we summarize below.</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/06/23/kolanovic%20june%201.jpg"><img src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/06/23/kolanovic%20june%201_0.jpg" width="500" height="359" /></a></p> <p><strong>Current pace of the Global recovery does not warrant a high volatility regime.</strong> Global growth is tracking ~3%, with disinflationary drag receding. In the US, slow and steady growth have alleviated fears of imminent US recession and China hard landing risk has been contained by PBOC easing and large Government stimulus. Medium term, as rates in the US rise and balance sheets of global central banks recede, this positive growth narrative will likely increasingly come under pressure. </p> <p>&nbsp;</p> <p>While fundamentally volatility should not be high, it is clear to us that the current macro environment does not warrant all-time low volatility either.<strong> For instance, our analyses point that in equities, implied and realized volatility may be suppressed by 4-8 points by various structural drivers. </strong></p> <p>&nbsp;</p> <p>Selling of volatility across asset classes is one of the key parts of risk premia/smart beta programs. Selling of volatility is a yield generating strategy that can be benchmarked against bond yields. <strong>The key risk of option selling programs is market crash risk. Global central banks have helped in both aspects by lowering yields and reducing crash risks, increasingly inviting strategies that sell volatility outright or implicitly.</strong></p> <p>&nbsp;</p> <p>Figure 2 below shows changes in global central banks’ assets (6-month change), and volatility of global equity markets (6-month volatility of MSCI World). <strong>One can see that in the 2007-2013 time period, central bank asset purchases leaned against major increases of market volatility and thus reduced market tail risk (<a href="https://jpmm.com/research/content/GPS-2330000-0">see here</a>). </strong>The current wide gap – with a near record pace of central bank balance sheet expansion (highest since 2011) and record low levels of market volatility – <strong>poses significant market risk. </strong>This risk is likely to materialize as the balance sheets of global central banks are pared in 2018 as described below. </p> <p>&nbsp;</p> <p>G4 Central Banks have resorted to “unconventional” policy measures to stoke the global economy in the wake of the 2008 financial crisis. Various QE programs from the Fed, BoE, BoJ and ECB resulted in central bank balance sheets ballooning from $6Tr in 2009 to $14Tr at the end of 2016. G4 QE should expand by a further $2Tr this year. However, 2018 will mark a major shift in this dynamic according to our Economic team’s forecast, as <strong>G4 QE programs should fall off a “cliff</strong>” (Figure 2). This will notably be due to the ECB and BoJ scaling down their large scale asset purchases (by $950Bn and $500Bn, respectively), and the Fed actually shrinking the size of its UST/MBS holding (by $330Bn). <strong>Such a disengagement from central banks could facilitate disruptive market moves.</strong></p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/06/23/kolanovic%20june%202.jpg"><img src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/06/23/kolanovic%20june%202_0.jpg" width="500" height="224" /></a></p> <p>We think that the <strong>current low levels of volatility are not a new normal and will not last very long given the amount of leverage, rising rates, and the approaching reduction of central bank balance sheets</strong>. While we don’t know when the next recession will happen, every Fed hike is bringing us closer to it. <strong>Increasing allocation to hedges, specifically tail hedges, may be prudent</strong>. </p> </blockquote> <p>One day, Marko's magic will return. For now, however, the relentless drift higher continues. </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="1095" height="490" alt="" src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/kolanovic%20june%202.jpg?1498232248" /> </div> </div> </div> http://www.zerohedge.com/news/2017-06-23/jpmorgans-head-quant-doubles-down-his-market-turmoil-forecast-heres-why#comments Bank of Japan BOE BoE Bond Business Central Banks China ECB Economy Equity Markets Finance Global Economy Government Stimulus Market Crash Market risk Mathematical finance Money New Normal Option People's Bank of China Recession recovery S&P/ASX 200 VIX Technical analysis US Federal Reserve VIX Volatility Volatility Volatility smile Fri, 23 Jun 2017 15:39:02 +0000 Tyler Durden 598550 at http://www.zerohedge.com Gartman: 'Oil Heading Egregiously Lower'; Saudi Oil Reserves Will Be 'Worthless' http://www.zerohedge.com/news/2017-06-23/gartman-oil-heading-egregiously-lower-saudi-oil-reserves-will-be-worthless <p>&nbsp;</p> <p>Content originally published at <a href="http://ibankcoin.com/">iBankCoin.com</a></p> <p> Normally, I don't hone in on a particular talking head, unless of course said talking head is especially egregious. Enter Dennis Gartman, the self-proclaimed 'Commodity King.'</p> <p>In the clip below, Dennis ceded to the possibility that oil might bounce a little here -- perhaps as much as $5 -- a mere charitable donation to the fuckheads surviving off oil barrel sales. But over the long run, Gartman proclaimed 'oil us heading egregiously lower.' </p> <p>Several years ago, I recall Dennis saying oil was <a href="http://ibankcoin.com/flyblog/2016/04/18/dennis-gartmans-latest-bold-call-on-crude-oil-in-gentleman-banker-terms/">heading down to a nickel</a> -- because MUH fusion energy would replace oil. What in the actual fuck is he talking about?</p> <p>Now that oil is weak again, this guy is entirely detaching from reality, pretending his car doesn't run on oil, or his planes, or the fact that oil is used to produce a sundry of goods sold in the grocery store, particularly plastics. Now oil is heading 'egregiously lower' and there's nothing you little trollops could do about it. See, we won the war, said Gartman. The Saudi oil reserves will be 'worthless' and our frackers have succeeded in becoming the 'swing producer.' </p> <p>In summary, oil will be worthless soon. The hundreds of billions of debt associated with oil is nothing, discarded as a pittance, and the dissolution of oil is a 'white swan' to the overall economy.</p> <p>See it for yourselves.</p> <p><iframe width="560" height="315" src="https://www.youtube.com/embed/Y-W-Uo2y18M" frameborder="0" allowfullscreen></iframe></p> http://www.zerohedge.com/news/2017-06-23/gartman-oil-heading-egregiously-lower-saudi-oil-reserves-will-be-worthless#comments Business Dennis Gartman Oil reserves Peak oil Reality Fri, 23 Jun 2017 15:35:15 +0000 The_Real_Fly 598548 at http://www.zerohedge.com The Fed Just Started Pulling the Plug on the Markets http://www.zerohedge.com/news/2017-06-23/fed-just-started-pulling-plug-markets <p>Global equity flows might have just peaked.</p> <p>Bull markets are driven by new capital: you need more money from more buyers to increase buying pressure so that stock prices rise.</p> <p>However, it looks as though <em>globally</em> investors are tapped out. After months of new capital pouring into the market, global equity fund inflows slowed dramatically in the last week.</p> <p>And not just a little&hellip; by a LOT.</p> <p><img alt="" src="http://www.zerohedge.com/sites/default/files/images/user20289/imageroot/2017/06/05/GPC62317.jpg" style="width: 460px; height: 448px;" /></p> <p>Source: Sober Look</p> <p>This is a MAJOR warning sign to stock bulls that buying pressure is weakening in the markets. Throw in the fact that the Fed is now both RAISING rates and DRAINING liquidity from the markets and there is the recipe for a serious market disruption to hit.</p> <p>Regarding that latter point...</p> <p>The Fed has now announced that rather than continuing reinvest the proceeds from its maturing debt securities, going forward every month it will let $10 billion ($6 billion in Treasuries and $4 billion in mortgage-backed securities) &ldquo;come due&rdquo; and NOT reinvest the money.</p> <p>Put another way, going forward the Fed will be <strong><u>withdrawing $10 billion in liquidity from the financial system every month</u></strong>.</p> <p>This amount will increase by another $10 billion next quarter (bringing the monthly withdrawal of liquidity to $20 billion in 4Q17) and another $10 billion the following quarter (bringing the monthly withdrawal of liquidity to $30 billion in 1Q18).</p> <p>Put simply, according to the <strong><em><u>current</u></em></strong> plan, the Fed will be:</p> <p style="margin-left: 40px;">1)&nbsp;&nbsp; <strong><u>Withdrawing $90 billion in liquidity in 2017 </u></strong>(three months of $10 billion per month and three months of $20 billion per month).</p> <p style="margin-left: 40px;">2)&nbsp;&nbsp; <strong><u>Withdrawing $510 billion in liquidity in 2018</u></strong> (three months of $30 billion per month, three months of $40 billion per month, and six months of $50 billion per month).</p> <p>This marks the FIRST time in 8 years that the Fed will not be actively providing liquidity to the US markets. Will this mark the top for the latest stock market bubble?</p> <p><img alt="" src="http://www.zerohedge.com/sites/default/files/images/user20289/imageroot/2017/06/05/GPC620172.png" style="width: 460px; height: 284px;" /></p> <p>A Crash is coming&hellip;</p> <p>And smart investors will use it to make literal fortunes from it.</p> <p>We offer a FREE investment report outlining when the market will collapse as well as what investments will pay out massive returns to investors when this happens. It&#39;s called <strong><u>Stock Market Crash Survival Guide</u></strong>.</p> <p>We made 1,000 copies to the general public.</p> <p>As I write this, only 63 are left.</p> <p>To pick up one of the last remaining copies&hellip;</p> <p><a href="http://phoenixcapitalmarketing.com/stockmarketcrash1.html"><strong>CLICK HERE!</strong></a></p> <p>Best Regards</p> <p>Graham Summers</p> <p>Chief Market Strategist</p> <p>Phoenix Capital Research</p> <p>&nbsp;</p> <p>&nbsp;</p> http://www.zerohedge.com/news/2017-06-23/fed-just-started-pulling-plug-markets#comments Business Economy fed Finance Financial markets Market Crash Market liquidity Money Private equity in the 2000s Subprime crisis background information US Federal Reserve Fri, 23 Jun 2017 15:15:42 +0000 Phoenix Capital Research 598546 at http://www.zerohedge.com Delaware Professor Says "Rich, White, Clueless, Male" Warmbier "Got Exactly What He Deserved" http://www.zerohedge.com/news/2017-06-23/delaware-professor-says-rich-white-clueless-male-warmbier-got-exactly-what-he-deserv <p><a href="http://www.campusreform.org/?ID=9350"><em>Authored by Shannon Spada via CampusReform.org,</em></a></p> <p><strong>University of Delaware professor claimed Wednesday that Otto Warmbier was typical of &ldquo;rich, white, clueless males&rdquo; and &ldquo;got exactly what he deserved&rdquo; at the hands of the North Koreans.</strong></p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/06/22/20170619_waermbier1.jpg"><strong><img alt="" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/06/22/20170619_waermbier1.jpg" style="width: 600px; height: 335px;" /></strong></a></p> <p>Katherine Dettwyler, an anthropology professor at UDel, expressed her feelings on the death of Warmbier <a href="http://www.nationalreview.com/article/448796/otto-warmbier-lefts-hate-problem">in the comments section of an article</a> published by <em>National Review</em>, as well as on <a href="https://www.facebook.com/kadettwyler/posts/10103834302853254">her personal Facebook page</a>.</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/06/22/20170623_wtf3.jpg"><img alt="" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/06/22/20170623_wtf3_0.jpg" style="width: 600px; height: 323px;" /></a></p> <p>Dettwyler argues that while in North Korea, <strong>Warmbier had acted like a &ldquo;spoiled, naive, arrogant U.S. college student who never had to face the consequences of his actions,&rdquo; later describing him as having the &ldquo;typical mindset of a lot of the young, white, rich, clueless males&rdquo; she teaches.</strong></p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/06/22/20170623_WTF%21.jpg"><img alt="" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/06/22/20170623_WTF%21_0.jpg" style="width: 600px; height: 315px;" /></a></p> <p>She also expressed surprise at the footage of Warmbier crying during his sentencing hearing, saying he should have expected the consequences he faced, and then complaining that not enough thought is given to &ldquo;all the other people in North Korea who are suffering under a repressive government.&rdquo;</p> <p><strong>Dettwyler explains that she is &ldquo;a 62 year old college professor&rdquo; who has been teaching &ldquo;folks just like Otto&rdquo; her entire life, declaring that &ldquo;these are the same kids who cry about their grades&rdquo; after refusing to study, &ldquo;or instead of crying, they bluster and threaten their female professors.&rdquo;</strong></p> <p>Then another reader objected to &ldquo;the hatred you spew at ordinary white college kids,&rdquo; Dettwyler responded by allowing that not all of her students fall into the category she described, saying, &ldquo;I love my hard-working, sincere, non-arrogant college students.&rdquo;</p> <p><strong>She nonetheless reiterated her original assumption that Warmbier was the type of student she detests, clarifying that &ldquo;I said Otto&rsquo;s behavior is like the &lsquo;white, rich, clueless males&rsquo;...[who] think nothing of raping drunk girls at frat parties and snorting cocaine, cheating on exams, and threatening professors with physical violence.&rdquo;</strong></p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/06/22/20170623_wtf2.jpg"><img alt="" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/06/22/20170623_wtf2_0.jpg" style="width: 600px; height: 407px;" /></a></p> <p><strong><a>Dettwyler&rsquo;s page</a> on RateMyProfessors.com suggests that her outburst was not unusual,</strong> with former students describing her as &ldquo;very opinionated&rdquo; and &ldquo;obnoxious,&rdquo; and even claiming that she &ldquo;hates America.&rdquo;</p> <p>&ldquo;It&rsquo;s her opinion or no opinion and she won&rsquo;t be afraid to express it even if it may offend half the class,&rdquo; one former student warned, while another declared that &ldquo;My problem with her is that she says we are not &lsquo;entitled to our own facts,&rsquo; but she clearly seems to think she is.&rdquo;</p> <p>In her original comment, <strong>Dettwyler ultimately blames Warmbier&rsquo;s parents for allowing him to grow up with the impression that &ldquo;he could get away with whatever he wanted,&rdquo; concluding that they &ldquo;will pay this price for the rest of their lives.&rdquo;</strong></p> <p><em>Campus Reform</em> reached out to Dettwyler for commentary but she did not reply in time for publication.</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="455" height="254" alt="" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/20170619_waermbier1.jpg?1498228169" /> </div> </div> </div> http://www.zerohedge.com/news/2017-06-23/delaware-professor-says-rich-white-clueless-male-warmbier-got-exactly-what-he-deserv#comments Cinema of the United States Clueless Education Film Genealogy Kathy Dettwyler North Korea North Korea Otto Otto Warmbier UDel University of Delaware Fri, 23 Jun 2017 15:05:22 +0000 Tyler Durden 598539 at http://www.zerohedge.com McDonalds Is Replacing 2,500 Human Cashiers With Digital Kiosks: Here Is Its Math http://www.zerohedge.com/news/2017-06-23/mcdonalds-replacing-2500-human-cashiers-digital-kiosks-here-its-math <p>The stock market is <em>luvin' </em>McDonalds stock, which has continued its recent relentless rise to all time highs, up 26% YTD, oblivious to the <a href="http://www.zerohedge.com/news/2017-06-11/restaurant-sales-traffic-tumble-industry-hasnt-reported-positive-month-february-2016">carnage among the broader restaurant and fast-food sector</a>. There is a reason for Wall Street's euphoria: the same one we discussed in January in "<a href="http://www.zerohedge.com/news/2017-01-25/dear-bernie-meet-big-mac-atm-will-replace-all-your-15-hour-fast-food-workers?page=8">Dear Bernie, Meet the "Big Mac ATM" That Will Replace All Of Your $15 Per Hour Fast Food Workers</a>."</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/06/23/mcdonalds-kiosks-600.jpg"><img src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/06/23/mcdonalds-kiosks-600_0.jpg" width="500" height="323" /></a></p> <p>In a report released this week by Cowen's Andrew Charles, the analyst calculates the jump in sales as a result of the company's new <em><strong>Experience of the Future </strong></em>strategy which anticipates that digital ordering kiosks (shown above) will replace cashiers in at least 2,500 restaurants by the end of 2017 and another 3,000 over 2018. Cowen also cited plans for the restaurant chain to roll out mobile ordering across 14,000 U.S. locations by the end of 2017 (we did not show that particular math, but the logic was similarly compelling). </p> <p>Here is a snapshot of the math that Cowen, likely in conjunction with management, used to come up with the cost-savings as McDonalds increasingly lays off more and more minimum wage workers and replaces them with "Big Mac ATMs"</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>MCD is cultivating a digital platform through mobile ordering and Experience of the Future (EOTF), an in-store technological overhaul most conspicuous through kiosk ordering and table delivery. <strong>Our analysis suggests efforts should bear fruit in 2018 with a combined 130 bps contribution to U.S. comps.</strong> We believe mobile ordering better supplements the drive-thru business where 70%+ of U.S. sales are transacted. In our view, MCD's differentiation lies in the operational enhancements of mobile ordering that includes curbside pick-up of orders in order to not disrupt the drive-thru.</p> </blockquote> <p>Below we show Cowen's full math laying out why the restaurant chain's client-facing fast food workers are now obsolete:</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>We are most excited for mobile ordering, Experience of the Future and the launch of fresh beef to help drive U.S. same store sales in 2018. We provide analysis for the latter three, <strong>which cumulatively we expect to contribute roughly 150 bps to U.S. same store sales in 2018, respectively.</strong> This gives us confidence to raise our 2018 U.S. same store sales forecast from 2% to 3%, in excess of Consensus Metrix’s 2.5%.</p> <p>&nbsp;</p> <p><strong>Experience of the Future Features Lower ROI Than Mobile Order, But Offers Greater Potential Longer Term</strong></p> <p>&nbsp;</p> <p>We are constructive on the use of guest facing technology for the restaurant industry. MCD’s longer-term U.S. story revolves around Experience of the Future (EOTF), a holistic operational and technological overhaul to the store base. MCD’s March 2017 investor meeting centered around the initiative with interactive displays. <strong>Perhaps the most conspicuous piece of Experience of the Future lies in digital kiosk ordering, which have seen success in International Lead Markets</strong>. Additionally, food ordered via the kiosk is delivered to the customer’s table.<strong> We believe EOTF better enhances the instore experience, which represents roughly 30% of domestic sales compared to mobile ordering, which allows customers to avoid leaving their cars.</strong></p> <p>&nbsp;</p> <p><strong>Our ROI math suggests EOTF leads to a 9% cash/cash return in Year 1 in the 55% of domestic stores that do not require a store remodel, and 5% in the 45% of stores that require a remodel, which is a predecessor to implementing EOTF. </strong>Our math is premised on <strong>total costs of $150,000 for the Experience of the Future enhancement, and $700,000 of all-in costs when including EOTF as well as a store remodel</strong>. MCD has offered to pay 55% of the cost for Experience of the Future, in excess of the 40% the company contributed to the store remodel initiative beginning in 2010, for restaurants that commit to the program by the end of 2017.</p> <p>&nbsp;</p> <p>McDonald’s targets a high-teens return on incrementally invested capital (ROIIC, or McSpeak for evaluating ROI), improving to the mid-20% range beginning in 2019. We believe EOTF’s ROI is captured over time as the sales lift does not dissolve as in the case of a traditional restaurant remodel. Rather, the lift should sustain as we expect consumers to increasingly embrace technological change. This is evidenced across concepts, such as Panera’s experience with 2.0, as well as McDonald’s own experience in Canada, where kiosks saw 12-13% sales mix in Year 1 and 27% in Year 2.<strong> We also note kiosk ordering will also likely lead to labor savings over time which should help boost ROIIC, but is unlikely for the foreseeable future.</strong></p> <p>&nbsp;</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/06/23/mcd%20fut%201.jpg"><img src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/06/23/mcd%20fut%201_0.jpg" width="500" height="325" /></a></p> <p>&nbsp;</p> <p><strong>In 2017, MCD expects to end the year with EOTF offered in 2,500 domestic locations from 500 at 2016-end. MCD targets the majority of domestic locations to feature EOTF by 2020, but has not given intermediary targets. </strong>The amount of stores adding EOTF depends on franchise reception to the initiative but we see positive indicators given our checks as well as the company’s disclosure that 90% of franchisees approved of the initiative after taking the same interactive tour that was given at the March 2017 investor day.</p> <p>&nbsp;</p> <p><strong>We estimate 3,000 locations to add EOTF in 2018, which should lead to a 70 bps contribution to U.S. same store sales assuming an even cadence of restaurants adding the initiative over the course of the year. </strong>Further we assume the mix of stores adding EOTF in 2018 reflects the mix of overall stores needed to add EOTF, or 55% of stores that already have a remodel while 45% require a store remodel. <strong>McDonald’s&nbsp; has previously announced plans to remodel 650 restaurants in 2017, which we expect will also add EOTF</strong>.</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/06/23/mcd%20fut%202.jpg"><img src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/06/23/mcd%20fut%202_0.jpg" width="500" height="453" /></a></p> </blockquote> <p>Summarizing all of the above: the workers you see in the photo below are now an endangered species.</p> <p><img src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/06/23/fast-food-wages-supplemented-welfare-.si__0.jpg" width="500" height="281" /></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="328" height="185" alt="" src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/mcdonaldsfeature.jpg?1498229011" /> </div> </div> </div> http://www.zerohedge.com/news/2017-06-23/mcdonalds-replacing-2500-human-cashiers-digital-kiosks-here-its-math#comments ATM Business Fast food Food and drink guest facing technology McDonald's McDonalds Same Store Sales Fri, 23 Jun 2017 14:45:46 +0000 Tyler Durden 598542 at http://www.zerohedge.com Smoking Gun Proof that Russia Hacked the Entire World http://www.zerohedge.com/news/2017-06-23/smoking-gun-proof-russia-hacked-entire-world <p>As shown below, the allegations that Russia has been hacking the entire world have been thoroughly vetted and verified.</p> <p><span style="text-decoration: underline;">Germany</span></p> <p>Germany&rsquo;s intelligence agency <a href="https://www.wired.com/2016/12/security-news-roundup/" target="_blank" title="accused">accused</a> Russia of deploying cyberattacks to destabilize the government!</p> <p>(But German intelligence agencies later <a href="http://www.newsweek.com/germany-russia-interference-elections-fake-news-553593" target="_blank" title="found no evidence of Russian interference">found no evidence of Russian interference</a>.)</p> <p>And last December, German security officials <a href="http://www.faz.net/aktuell/politik/inland/wikileaks-sicherheitskreise-russland-hackte-geheime-bundestagsakten-14568558.html" target="_blank" title="said">said</a> that Russia hacked secret German communications and provided them to Wikileaks (<a href="https://translate.google.com/translate?hl=en&amp;sl=de&amp;u=http://www.faz.net/aktuell/politik/inland/wikileaks-sicherheitskreise-russland-hackte-geheime-bundestagsakten-14568558.html&amp;prev=search" target="_blank" title="English translation">English translation</a>).</p> <p>(But German officials later <a href="http://www.faz.net/aktuell/politik/inland/wikileaks-dokumente-aus-nsa-ausschuss-quelle-im-bundestag-vermutet-14579135.html" target="_blank" title="say">concluded</a> that the communications were likely leaked from an <em>insider</em> within the German parliament, the Bundestag (<a href="https://translate.google.com/translate?hl=en&amp;sl=de&amp;u=http://www.faz.net/aktuell/politik/inland/wikileaks-dokumente-aus-nsa-ausschuss-quelle-im-bundestag-vermutet-14579135.html&amp;prev=search" target="_blank" title="English translation">English translation</a>)).</p> <p><span style="text-decoration: underline;">France</span></p> <p>The <a href="https://www.washingtonpost.com/news/democracy-post/wp/2017/05/08/russia-is-still-waging-cyberwar-against-western-democracy-its-time-to-push-back/?utm_term=.31b7ad221d57" target="_blank" title="Washington Post">Washington Post</a>, <a href="https://www.nytimes.com/2017/05/08/world/europe/french-voters-defy-putins-meddling-but-youd-hardly-know-it-in-russia.html?_r=0" target="_blank" title="New York Times">New York Times</a> (and <a href="https://www.nytimes.com/2017/05/10/briefing/james-comey-emmanuel-macron-russia.html?_r=0" target="_blank" title="here">here</a>), <a href="http://www.reuters.com/article/us-france-election-russia-idUSKBN1852KO" target="_blank" title="Reuters">Reuters</a>, <a href="http://www.politico.eu/article/france-election-2017-russia-hacked-cyberattacks/" target="_blank" title="Politico">Politico</a>, <a class="markup--anchor markup--p-anchor" data-="" href="https://www.theregister.co.uk/2017/05/09/russia_hacked_everyone/" rel="noopener" target="_blank" title="Register">Register</a> and many other mainstream publications&nbsp; claimed that the Russians hacked the French election, just like they hacked the U.S. election.</p> <p>The head of the NSA claimed that the NSA <em>watched</em> the Russians hack the French elections:</p> <p><iframe allowfullscreen="" frameborder="0" height="393" src="https://www.youtube.com/embed/4Nq5WZEeKlY" width="700"></iframe></p> <p>(But the French government later said there was <a href="https://www.apnews.com/fc570e4b400f4c7db3b0d739e9dc5d4d" target="_blank" title="no trace of Russian hacking">no trace of Russian hacking</a>.)</p> <p><span style="text-decoration: underline;">Qatar</span></p> <p>CNN <a href="http://www.cnn.com/2017/06/06/politics/russian-hackers-planted-fake-news-qatar-crisis/index.html?SR=twtsr0606qatar" target="_blank" title="reported">reported</a> that U.S. officials suspected that Russia had hacked Qatar&rsquo;s state news agency, causing a rift with Saudi Arabia.</p> <p>(But the Qatari government later said <a href="http://www.reuters.com/article/us-gulf-qatar-cyber-idUSKBN19B2XP" target="_blank" title="it wasn’t Russia">it wasn&rsquo;t Russia</a>.)</p> <p><span style="text-decoration: underline;">America</span></p> <p>The Washington Post <a href="https://www.washingtonpost.com/world/national-security/russian-hackers-penetrated-us-electricity-grid-through-a-utility-in-vermont/2016/12/30/8fc90cc4-ceec-11e6-b8a2-8c2a61b0436f_story.html?utm_term=.0b2a67d1d893" target="_blank" title="published">published</a> a story claiming that Russian hackers penetrated the US power grid through a utility in Vermont.</p> <p>(The Post subsequently <a href="https://www.washingtonpost.com/world/national-security/russian-government-hackers-do-not-appear-to-have-targeted-vermont-utility-say-people-close-to-investigation/2017/01/02/70c25956-d12c-11e6-945a-76f69a399dd5_story.html?postshare=6521483443804621&amp;tid=ss_tw" target="_blank" title="admitted">admitted</a> that &ndash; according to officials close to the investigation &ndash; &ldquo;<span class="s1">the incident is not linked to any Russian government effort to target or hack the utility&rdquo;, that the incident only involved a laptop not connected to the electrical grid, and there may not even have been malware at all on this laptop.)</span></p> <p>When a treasure trove of secret NSA tools were revealed, <a href="http://www.nytimes.com/2016/12/13/us/politics/russia-hack-election-dnc.html" target="_blank" title="Russian hackers">Russian hackers</a> were blamed.</p> <p>(But it turns out that it was probably a <a href="http://www.washingtonsblog.com/2016/08/nsa-whistleblower-nsa-hack-likely-inside-job.html" title="leak">leak</a> <a href="http://www.baltimoresun.com/news/maryland/bs-md-harold-martin-nsa-theft-20161020-story.html" target="_blank" title="by">by</a> <a href="http://www.reuters.com/article/us-intelligence-nsa-commentary-idUSKCN10X01P" target="_blank" title="an">an</a> <a href="http://arstechnica.com/security/2016/08/hints-suggest-an-insider-helped-the-nsa-equation-group-hacking-tools-leak/" target="_blank" title="NSA">NSA</a> <a href="http://motherboard.vice.com/read/former-nsa-staffers-rogue-insider-shadow-brokers-theory" target="_blank" title="insider">insider</a>.)</p> <p>And of course the evidence that the Russians hacked Democratic party emails and leaked them to Wikileaks &ndash; and otherwise stole the election away from Clinton &ndash; is <em>extremely</em> strong.&nbsp; After all, the mainstream press has said so.</p> <p>(<a href="http://www.washingtonsblog.com/2016/12/hacking-evidence-russia-extremely-weak.html" title="Maybe">Maybe</a> <a href="http://www.washingtonsblog.com/2017/03/66395.html" title="not">not</a> <a href="http://www.washingtonsblog.com/2016/12/russian-hacking-doesnt-say.html" title="so">so</a> <a href="https://www.voanews.com/a/cyber-firm-rewrites-part-disputed-russian-hacking-report/3781411.html" target="_blank" title="much">much</a> &hellip;)</p> <p>So you see? It&rsquo;s been <em>proven</em> that Russia has hacked the world &hellip;</p> <p><span style="font-size:8px;">&lt;/sarc&gt;</span></p> http://www.zerohedge.com/news/2017-06-23/smoking-gun-proof-russia-hacked-entire-world#comments Democratic National Committee cyber attacks Democratic Party Email hacking Espionage France French government German intelligence German parliament Germany Global surveillance disclosures Government Information sensitivity Mass surveillance National security National Security Agency New York Times News leaks Politics Qatari government Reuters Russian government Russian interference in the 2016 United States elections Saudi Arabia Security WikiLeaks Fri, 23 Jun 2017 14:41:32 +0000 George Washington 598540 at http://www.zerohedge.com Stockman Warns Of "Huge Air Pocket Between Wall Street Fantasy & Economic Reality" http://www.zerohedge.com/news/2017-06-23/stockman-warns-huge-air-pocket-between-wall-street-fantasy-economic-reality <p><em><a href="https://dailyreckoning.com/stockman-horrendous-storm-stocks/">Authord by Craig Wilson via The Daily Reckoning,</a></em></p> <p>David Stockman joined <a href="https://youtu.be/_CEYRa06-sQ?t=3m35s" target="_blank">Boom Bust</a> to discuss the massive storm that is building and about to slam into Wall Street. During the discussion Stockman reveals what he believes is ahead for the stocks in the market and the economy.</p> <p>The interview began with the Boom Bust host asking the acclaimed author about his concern surrounding a government shutdown. &nbsp;David Stockman began<em> &ldquo;<strong>we&rsquo;re in the midst of the biggest <a href="https://dailyreckoning.com/little-putsch-beget-great-big-coup/" target="_blank">political train wreck in modern history</a>&hellip;</strong> There will be no governance in Washington. There will be no tax bill, stimulus or infrastructure.&rdquo;</em></p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p><strong>&ldquo;We&rsquo;re heading for an expiration of the debt ceiling and running out of cash that will create an enormous crisis by August or September. They&rsquo;re not going to be able to cope with it.&rdquo;</strong></p> </blockquote> <p><iframe allowfullscreen="" frameborder="0" height="315" src="https://www.youtube.com/embed/_CEYRa06-sQ" width="560"></iframe></p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>&ldquo;I think <strong>the odds by the day are increasing that we&rsquo;re going to have a government shutdown</strong>. Expect the mother of all debt ceiling crisis. The <a href="https://dailyreckoning.com/perfection-for-all-of-eternity/" target="_blank">market is utterly unprepared</a> and it really is the orange swan that is about ready to take Wall Street by surprise.&rdquo;</p> </blockquote> <p>When prompted&nbsp;about the potential shocks to the S&amp;P 500 and the threats stocks face&nbsp;in a severe decline Stockman continued to offer his sobering analysis. &nbsp;The former Reagan cabinet member noted, &ldquo;The market today is trading at 25 times S&amp;P 500 earnings which were $100 a share in the period ending in March. That represents a tiny growth from $85 a share back in June 2007 &ndash; ten years ago. We&rsquo;re about 1.2% over the last decade.&rdquo;</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>&ldquo;Why would you pay 25 times earnings for one percent growth after a tepid expansion of 100 months that&rsquo;s near the end of its &ldquo;sell by date?&rdquo;</p> <p>&nbsp;</p> <p><strong>&ldquo;<a href="https://dailyreckoning.com/hurricane-bearing-casino/" target="_blank">We&rsquo;re going to have a recession</a>, likely sooner than later, and the market is dramatically overpriced</strong>. I would say sixteen times earnings given all the headwinds in the world and chaos in Washington.&rdquo;</p> <p>&nbsp;</p> <p>&ldquo;The Fed is now finally going to begin to shrink its balance sheet and not just a little bit but by $2 trillion over the next two or three years. <strong>With all of that staring us in the face, the market is barely worth 1,600&hellip; There is a huge air pocket between the huge fantasy that prevails on Wall Street and the reality of the economic world.&rdquo;</strong></p> </blockquote> <h2><u>Deep State and the Stocks on Wall Street</u></h2> <p>When asked whether he still felt nothing would pass in Washington before 2018 Stockman stood firm.<em> &ldquo;I am sure they would like to pass something. They don&rsquo;t have the votes. They don&rsquo;t have the consensus.&rdquo;</em></p> <p><a href="https://youtu.be/_CEYRa06-sQ?t=3m35s"><img alt="David Stockman Stocks Storm" src="https://dailyreckoning.com/wp-content/uploads/2017/06/David-Stockman-Stocks-Storm.jpg" style="height: 306px; width: 561px;" /></a></p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>&ldquo;Here we are and June is almost over. They haven&rsquo;t even passed in the Senate yet a bill to repeal and replace Obamacare. If they do, it is totally incompatible with the House. They can&rsquo;t get a Conference report before Labor Day, if ever.&rdquo;</p> </blockquote> <p>Speaking on the budgetary concerns awakening the halls of Washington, Stockman leveled, &ldquo;They haven&rsquo;t even started on the <a href="https://dailyreckoning.com/trumps-budget-hat-no-cattle/" target="_blank">budget resolution for 2018</a>. Without a budget resolution, there&rsquo;s no tax bill because you need reconciliation to pass any tax bill at all.&rdquo;</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p><strong>&ldquo;The reason I saw a government shutdown is because the <a href="https://dailyreckoning.com/coming-mother-debt-ceiling-crises/" target="_blank">debt ceiling is now frozen at $19.8 trillion</a>. They have $150 billion in cash. It is draining away by $2-$3 billion a day. They will be out of cash and there is no majority in the House or the Senate, for that matter, to pass a clean debt ceiling bill.&rdquo;</strong></p> </blockquote> <p>Stockman left with a final warning for stocks noting that, <strong><em>&ldquo;Without a clean bill, you&rsquo;re having an enormous fight over what&rsquo;s that quid-pro-quo to raise the debt ceiling. That will not end easily. It is likely to end in a complete breakdown like we saw in 2011.&rdquo;</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="657" height="433" alt="" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/20170623_storm.jpg?1498222714" /> </div> </div> </div> http://www.zerohedge.com/news/2017-06-23/stockman-warns-huge-air-pocket-between-wall-street-fantasy-economic-reality#comments American people of German descent David Stockman Debt Ceiling Economy Obamacare Politics Reality Recession S&P 500 Senate Steve Stockman United States debt ceiling US Federal Reserve Fri, 23 Jun 2017 14:20:03 +0000 Tyler Durden 598534 at http://www.zerohedge.com New Home Sales Rebound From April Collapse As Median Price Hits All Time High http://www.zerohedge.com/news/2017-06-23/new-home-sales-rebound-april-collapse-median-price-hits-all-time-high <p>Following the modest bounce in existing home sales (and disappointment in starts and permits), <strong>new home sales bounced in May to 610k </strong>(after plunging 11.4% in April, now revised to a 7.9% drop).</p> <p>For now affordability doesn&#39;t matter...</p> <p><img alt="" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/06/22/20170623_homes1_0.jpg" style="width: 600px; height: 331px;" /></p> <p>Of particular note is that <strong>median new home prices surged to $345,800 - an all-time record high</strong>.</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/06/22/new%20home%20sales%20vs%20price%20May%202017.jpg"><img alt="" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/06/22/new%20home%20sales%20vs%20price%20May%202017.jpg" style="width: 600px; height: 408px;" /></a></p> <p>&nbsp;</p> <p>In fact, a closer look shows that home prices are exploding higher...this is the fastest 3-month spike in prices since Jan 2011... (and up 16.8% YoY)</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/06/22/20170623_homes3.jpg"><img alt="" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/06/22/20170623_homes3_0.jpg" style="width: 600px; height: 301px;" /></a></p> <p>&nbsp;</p> <p>Of course, homebuilders stocks don&#39;t care about any of this...</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/06/22/20170623_homes.jpg"><img alt="" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/06/22/20170623_homes_0.jpg" style="width: 600px; height: 317px;" /></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="962" height="508" alt="" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/20170623_homes.jpg?1498226762" /> </div> </div> </div> http://www.zerohedge.com/news/2017-06-23/new-home-sales-rebound-april-collapse-median-price-hits-all-time-high#comments New Home Sales Yoy Fri, 23 Jun 2017 14:07:57 +0000 Tyler Durden 598538 at http://www.zerohedge.com US PMIs Tumble To 9-Month Lows, Catching Down To Collapse In 'Hard' Data http://www.zerohedge.com/news/2017-06-23/us-pmis-tumble-8-month-lows-catching-down-collapse-hard-data <p>Following disappointment from China last week, and Europe this morning, <strong>US PMIs (both manufacturing and services) dropped and disappointed</strong> as it appears the lagged impact of China&#39;s slumping credit impulse are finally hitting the world&#39;s economies.</p> <p>With &#39;hard&#39; data collapsing to 13 month lows, it is not surprising that<strong> &#39;soft&#39; survey data is finally catching down with Manufacturing at 9-month lows.</strong></p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/06/22/20170623_pmi.jpg"><img alt="" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/06/22/20170623_pmi_0.jpg" style="width: 600px; height: 314px;" /></a></p> <p><em>Who could have seen this tumble in &#39;soft&#39; data coming?</em></p> <p>Commenting on the flash PMI data, Chris Williamson, <a href="https://www.markiteconomics.com/public">Chief Business Economist at IHS Markit said</a>:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>&ldquo;<strong>The economy ended the second quarter on a softer note.</strong> The June PMI surveys showed some pay-back after a strong May, indicating the second weakest expansion of business activity since last September.</p> <p>&nbsp;</p> <p><strong>&ldquo;The average expansion seen in the second quarter is down on that seen in the first three months of the year, indicating a slowing in the underlying pace of economic growth.</strong> While official GDP data are expected to turn higher in the second quarter after an especially weak start to the year (our recent GDP tracker based on various official and survey data points to 3.0% growth), the relatively subdued PMI readings suggest there are some downside risks to the extent to which GDP will rebound.</p> <p>&nbsp;</p> <p>&ldquo;There are signs, however, that growth could pick up again: <strong>new orders showed the largest monthly rise since January,</strong> business optimism about the year ahead perked up and hiring remained encouragingly resilient. The survey is indicative of non-farm payroll growth of approximately 170,000.</p> <p>&nbsp;</p> <p>&ldquo;<strong>Average prices charged for goods and services meanwhile showed one of the largest rises in the past two years</strong>, pointing to improved pricing power amid healthy demand.&rdquo;</p> </blockquote> <p>So rising prices and tumbling growth - <u><strong>Stagflation looms once again.</strong></u></p> <p><strong>Historical comparisons of the PMI against GDP indicates that the PMI is running at a level broadly consistent with the economy growing at a 0.4% quarterly rate (1.5% annualized) in the second quarter,</strong> or just over 2% once allowance is made for residual seasonality in the official GDP data.</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/06/22/20170623_pmi1.jpg"><img alt="" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/06/22/20170623_pmi1_0.jpg" style="width: 600px; height: 457px;" /></a></p> <p><a href="http://www.zerohedge.com/news/2017-06-15/what-does-trump-know-gdp-numbers-are-going-be-shockingly-good">Not exactly the &quot;shockingly good numbers&quot; that President Trump said we would see in Q2?</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="958" height="502" alt="" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/20170623_pmi.jpg?1498225748" /> </div> </div> </div> http://www.zerohedge.com/news/2017-06-23/us-pmis-tumble-8-month-lows-catching-down-collapse-hard-data#comments 2015–16 Chinese stock market turbulence Business China Economic growth Economy flash Forms of government Gross domestic product Markit Purchasing Managers' Index Stagflation United States World Fri, 23 Jun 2017 13:53:57 +0000 Tyler Durden 598537 at http://www.zerohedge.com "The Hope Trade" Is Over: BofA Slashes Its 2017 GDP Forecast To Just 2.1% http://www.zerohedge.com/news/2017-06-23/hope-trade-over-bofa-slashes-its-2017-gdp-forecast-just-21 <p>First they came for the Trump Trade... then they came for the hope. And, as a result, BofA has thrown in the towel on its economic rebound for this year. </p> <p>As BofA's Michelle Meyer writes, "<strong>Hopes for a big fiscal stimulus have faded, prompting us to revise our 2018 GDP growth forecast to 2.1%, down from 2.5%. While growth will be slower, it is important to remember that the economy does not "need" stimulus to expand</strong>." Unless it does of course, because as Citi showed recently, all central bank liquidity injections are fungible, and prop up not only stocks but also economies. </p> <p><em>In any case, here is BofA's explanation why it, like the rest of Wall Street not to mention the Fed, were all wrong.</em></p> <p><strong>Revising 2018</strong></p> <p>Back in November when we released our Year Ahead piece, we argued that growth would be a trend-like 2% this year but would rise to 2.5% next year amid fiscal stimulus. We feel generally comfortable with our forecast for this year but now believe growth will end up being slower next year. We are therefore revising our forecast to 2.1% for 2018, implying that the economy will continue to grow modestly above trend .</p> <p><img src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/06/23/bofa%20gdp_0.jpg" width="500" height="209" /></p> <p><strong>The hope trade</strong></p> <p>There are three main reasons for our downward revision to growth next year:</p> <ol> <li>The prospects of tax reform have dimmed. While it is still possible that legislation is passed, it seems that it would be later and smaller than previously speculated. </li> <li>Policy uncertainty is high and threatens to remain elevated into next year given tensions in Washington and controversies in the Trump administration. This has contributed to a "wait and see" mode among businesses and consumers.</li> <li>The auto sector is shifting from a tailwind to a headwind next year. This means that auto output should go from adding a few tenths to annual GDP growth to slicing a tenth or two.</li> </ol> <p>Keep in mind that our downward revision in growth next year simply returns our forecast to the post-recession average of 2.1%. The US does not need fiscal easing to enjoy slightly above-trend growth. There are plenty of reasons to feel confident that the expansion will persist into 2018 without stimulus. The labor market is still adding workers in excess of what is necessary to keep up with population growth. The housing recovery is slow but steady. Financial conditions are supportive with low rates, recent softening in the dollar and appreciating equity markets. Household balance sheets appear robust with strong gains in net worth and low leverage.</p> <p><strong>Factor 1: where is the fiscal stimulus?</strong></p> <p>After the US presidential election expectations were high that President Trump and the Republican-controlled Congress would enact fiscal stimulus involving tax reform and, possibly, infrastructure spending. We therefore penciled into our forecasts tax reform (akin to the Better Way proposal (Ryan plan)) and some small amount of infrastructure spending. We estimated that this would add roughly 0.5pp to annualized GDP growth.</p> <p>The path ahead for tax reform is challenging. We are halfway through the year and there has been little tangible progress made on tax reform. As Joe Song writes in Fiscal foibles, Congress is tied up with healthcare reform, negotiations around the debt ceiling and the budget. The likelihood of progress this year appears to be declining, especially for comprehensive reform of the tax system. As such, we think that we either see no legislation passed or a much simpler and smaller plan. </p> <p><strong>Factor 2: Waiting and seeing</strong></p> <p>While business and consumer confidence climbed higher after the election, it was accompanied by greater policy uncertainty. This seems like a natural contradiction - how can you be more confident about the outlook when you are also more uncertain? The result is to delay investments or spending until there is clarity on potential changes. Recent surveys suggest this is the case. The Duke CFO Business Outlook Survey from June 9th revealed that almost 40% of CFOs indicated that uncertainty is higher than normal and of those, 60% said that this uncertainty has caused them to delay new projects and investments. In other words - 1 out of every 4 companies are delaying or canceling investments.</p> <p>We have recently seen a rationalization of these measures with sentiment slipping lower, particularly among consumers (Chart 2). The most recent University of Michigan consumer sentiment report was particularly notable, highlighting how developments in Washington can influence confidence.</p> <p><strong>Factor 3: Auto sector pumping the breaks</strong></p> <p>Auto sales have been on a weak trend since the beginning of the year, leading John Murphy and team to revise down forecasts for sales and production. They now believe that auto sales and production peaked last year and will be on a downward trajectory over the next several years. As John notes, the concern rests in the "looming tsunami" of off-lease vehicle volumes that will flood supply in the used car market and provide competition for new vehicles. Moreover, the credit environment has become more challenging with auto delinquencies on the rise and the demand for auto loans declining while lenders tighten lending standards.</p> <p>As we wrote back in April, trouble in the auto sector threatens to weigh on economic growth and inflation. While auto output has been a shrinking share of the economy, it is still an important sector with strong linkages to other parts of the economy. As a simple rule of thumb, we estimate that a slowdown of one million in the annual pace of auto sales slices 0.2pp from annualized GDP growth (Table 1). Since 2010, auto output has added an average 0.2pp to annual GDP growth. We think we could see a modest drag from the sector this year and perhaps a more severe hit next year.</p> <p><strong>The economy doesn't "need" stimulus</strong></p> <p>While the economy would have received a jolt from fiscal stimulus, we do not believe that fiscal easing is a necessary condition for the recovery to persist. Rather, a large degree of fiscal stimulus at this stage of the business cycle would risk overheating the economy. The stock market is at a record high while the unemployment rate is hovering near record lows - stimulus could create undue pressure for both. This would put the Fed in a difficult position having to fight inflation at the risk of pushing the economy into recession.</p> <p><strong>The role of the Fed</strong></p> <p>The Fed has been savvy in its approach to handling the uncertainty around fiscal policy that followed the election. The majority of Fed officials did not alter forecasts to account for potential changes in fiscal policy. As such, the median expectation for GDP growth next year is 2.1% which has been the forecast (give or take a tenth) since the 2018 forecasts were first released in September 2015. The prospects of fiscal policy changed how Fed officials considered the balance of risks around the forecast, but it did not affect the modal forecast.</p> <p>Our new forecast for 2018 is consistent with the Fed's expectation. <strong>As such, even with our change in the outlook, we are holding to our view of a hike in December and three hikes next year</strong>. That said, <strong>we think the risks are clearly skewed toward a slower cycle, particularly next year. This has less to do with weaker growth and more to do with weaker inflation.</strong> As Alex Lin explains in his latest inflation write up, <strong>inflation has been weaker than expected and transitory shocks are only part of the disappointment, with risks skewed to the downside for inflation going forward</strong>. Moreover, there is a wide error band in forecasting Fed policy next year given the potential for a change in leadership. The bond market is pricing in less than 1 hike next year while the Fed dots imply 3 hikes. The truth will likely lie somewhere in between. </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="1326" height="553" alt="" src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/bofa%20gdp.jpg?1498225370" /> </div> </div> </div> http://www.zerohedge.com/news/2017-06-23/hope-trade-over-bofa-slashes-its-2017-gdp-forecast-just-21#comments Auto Sales Bond Business Congress Consumer Confidence Consumer Sentiment Debt Ceiling Deficit reduction in the United States Economic policy Economy Equity Markets Fiscal policy Inflation Macroeconomics Michigan Monetary policy Political debates about the United States federal budget Quantitative easing Recession Recession recovery Trump Administration Unemployment University Of Michigan University of Michigan US Federal Reserve Fri, 23 Jun 2017 13:43:23 +0000 Tyler Durden 598536 at http://www.zerohedge.com