en Morgan Stanley Sees "Greater Risk For A Correction Than We've Seen In A While"...But There's A Catch <p>As U.S. equity markets casually melt up to all new highs with each passing day, Morgan Stanley Equity Strategist Michael Wilson, whose 2,550 year-end price target from back in August was just breached in a matter of months, says he's getting somewhat concerned given Fed tightening, tax cut legislation that looks increasingly unlikely to pass, USD strengthening and extreme levels in pretty much every economic indicator which will make future improvement nearly impossible.</p> <p>Given that, Wilson says he now sees "<strong>a greater risk for a correction than we have seen in a while..."</strong></p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><strong>With the S&amp;P 500 reaching the lower end of our short term price target (2550-75) we put out in August, we think there is a greater risk for a correction than we have seen in a while. </strong>If stocks follow the pattern they have been all year, actual earnings season will be a sell the news event and <strong>we could have a decent pull back or consolidation.</strong> Other things we think warrant concern include the Fed's balance sheet reduction, uncertainty around Fed Chair nomination, negotiations on tax legislation, and the scope for a counter-trend US dollar rally.</p> <p>&nbsp;</p> <p>Six weeks ago we went out on a limb with a shorter term target of 2550-75 for the S&amp;P 500 to reach before 3Q earnings season as the market would realize consensus expectations were once again too low. Having breached that lower bound 9 days ago, we believe it is appropriate to respect the pattern we have been witnessing all year for stocks to rally into earnings season and then fade as the numbers actually get reported. Year to date, this has led to a max 3% drawdown which is not worth trying to play when there is still 15-20% upside. However, with less than 10% upside to our target, the risk reward isn't as attractive to just ignore the potential for such a move. We also think it could be bigger than 3% this time given other factors at work. Specifically, we must acknowledge:</p> <p>&nbsp;</p> <ul> <li>the <strong>Fed is reducing its balance sheet </strong>this month for the first time since QE began,</li> <li><strong>tax cut legislation is trickier than tax cut promises</strong>, the negotiations begin this month</li> <li>we are going to get the <strong>next Fed Chair </strong>nomination later this month which could disrupt financial conditions</li> <li>The <strong>US Dollar appears to be in the midst of a countertrend rally,</strong> and</li> <li>given the <strong>extremes in leading economic indicators</strong> like the purchasing manager surveys, the chance of a peak rate of change looks more likely than not.</li> </ul> </blockquote> <p>Of course,<strong> 'the catch' is that he also sees any pullback as just another short-lived opportunity to BTFD!</strong></p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>To summarize, <strong>we believe the cyclical bull market that began in 2009 is very much intac</strong>t but we are more confident than ever that we are in the latter stages. As we noted in our initiation, returns are typically very strong at the end and investors cannot afford to miss such moves given the likelihood of lower returns than normal over the next 10 years.</p> <p>&nbsp;</p> <p>We believe the next month offers a higher likelihood for a 5%+ correction than we have seen since the summer of 2016. With only 1 percent upside to our short term target of 2575 and 5%+ potential downside, this is not the time to be aggressive like it was in August. Rather than a 5%+ correction we could simply trade sideways for a month.</p> <p>&nbsp;</p> <p><strong>In either case,<span style="text-decoration: underline;"> we will be buyers of that pullback or consolidation as we believe it will set the stage for the next leg higher</span>,</strong> toward our 2,700 target on the S&amp;P by 1Q. Our focus remains on small/mid caps, Financials, and late cycle sectors including Energy, Materials, Industrials, and Tech</p> </blockquote> <p>So, what evidence does Wilson offer up to support his thesis that equity markets will continue to push higher for the foreseeable future?&nbsp; Well, apparently he's encouraged that, after a shift to value stocks earlier this summer...</p> <p><a href=" - MS 1.JPG"><img src="" style="width: 600px; height: 354px;" /></a></p> <p>...investors have returned to cyclical stocks in a big way since August signaling that "Part II" of the reflation trade has summarize, if we understand it correctly, <strong>what goes up will necessarily continue to go up.</strong></p> <p><a href=" - MS 2.JPG"><img src="" style="width: 600px; height: 366px;" /></a></p> <p>So, what tangible "fundamental" evidence does Morgan Stanley offer to support their thesis that stocks have a ways to go to the upside?&nbsp; Well, none really...just a relative multiple chart suggesting that a basket of "reflation" equities trades at a P/E discount to "deflation" equities.</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>The <strong>key fundamental drivers of our thesis </strong>are still very much in place, allowing these nominal GDP / inflation-levered sectors and styles to lead. Exhibit 5 below shows that the median relative forward P/E for "reflation" vs. "deflation" stocks has re-rated higher over the past two months. The relative multiple of this pair remains depressed since the Financial Crisis which makes sense given the persistent deflationary pressures—we would expect a continuation of the recent re-rating of reflation levered equity valuations higher as deflationary pressures fade and re-flation emerges. As further fundamental support, Exhibit 6 shows that relative earnings revisions breadth for the aforementioned pair also appears to have bottomed.</p> </blockquote> <p><a href=" - MS 3.JPG"><img src="" style="width: 600px; height: 376px;" /></a></p> <p>Of course, in our ETF-driven world it's probably not surprising that Morgan Stanley chooses to only focus on relative valuations and completely dismisses absolute valuation levels that look increasingly unsustainable...alas, the chart below was also dismissed in 1999 as irrelevant but by 2001 it was suddenly relevant again...</p> <p><a href=" - Shiller PE.JPG"><img src="" style="width: 600px; height: 312px;" /></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="788" height="431" alt="" src="" /> </div> </div> </div> Deflation Economic bubbles Economy Equity Markets Financial crisis of 2007–2008 Fundamental analysis Inflation Leading Economic Indicators Macroeconomics Monetary economics Money Morgan Stanley Nominal GDP Nomination None Rate of Change Reflation S&P 500 Stock valuation US Federal Reserve Valuation Mon, 16 Oct 2017 21:45:04 +0000 Tyler Durden 605417 at "I'm Going To Work Until I Die": A Look At How Unprepared Boomers Are For Retirement <p><em><a href="">Authored by Patrick Watson via Mauldin Economics,</a></em></p> <p>Wall Street endlessly gushes about retirement. Its TV commercials show how wonderful life will be in our golden years—when we are old, yet still healthy and wealthy enough to go hang-gliding every day.</p> <p>Meanwhile, out here in the real world, most working-age Americans don’t want to talk or even think about retirement. Often this is because <a href=";utm_medium=ED&amp;utm_source=zhb">they know they aren't saving enough and probably will have to work until they drop dead.</a></p> <p><strong>This is the elephant in the room. 10,000 US Baby Boomers turn 65 every day.</strong> For most, life at that milestone won’t look much like the TV commercials.</p> <p>That sounds dire, but it doesn’t have to be. Let’s look at ways this problem could be solved.</p> <p>But first, some more facts.</p> <p><span style="text-decoration: underline;"><strong>Retirement Shortfall Among All Income Levels</strong></span></p> <p>Lately, I’ve been working with John Mauldin to research the huge public pension fund shortfalls. But it’s not just big funds that don’t save enough—most individuals are in the same position, or worse.</p> <p>Teresa Ghilarducci is a labor economist at The New School, specializing in retirement security. Here’s what she told the <a href=";utm_medium=ED&amp;utm_source=zhb&amp;utm_term=.57be70620424">Washington Post</a> last month.</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><strong>“There is no part of the country where the majority of middle-class older workers have adequate retirement savings to maintain their standard of living in their retirement.”</strong></p> </blockquote> <p>Her research shows e<a href=";utm_medium=ED&amp;utm_source=zhb">ven high-income workers haven’t saved enough</a> to fund comfortable retirements.</p> <p><a href=" - Mauldin 1.JPG"><img src="" style="width: 600px; height: 345px;" /></a></p> <p>The circles in this chart show how much money people should be saving for retirement. The shortfall (the red part) is around 30% for all income levels.</p> <p>The green part of the circles is what Social Security provides. The program was never meant to be a full pension, and it clearly isn’t delivering one.</p> <p><strong>Yet a majority of the age 65+ population depends on Social Security for at least half of its income.</strong></p> <p><a href=" - Mauldin 2.JPG"><img src="" style="width: 600px; height: 372px;" /></a></p> <p>These are sobering numbers:</p> <ul> <li><strong>19.7% of retirees get 100% of their income from Social Security.</strong></li> <li>A full third (33.4%) depend on it for 90% of their income.</li> <li>And 61.1% get at least half their income from Social Security.</li> </ul> <p>Now, consider what John Mauldin wrote in <a href=";utm_medium=ED&amp;utm_source=zhb">Thoughts from the Frontline</a> last weekend (<a href=";utm_medium=ED&amp;utm_source=zhb">I’d also highly recommend subscribing to his weekly letter here</a>). <strong>The federal government’s unfunded 75-year liability for Social Security and Medicare combined is $46.7 trillion.</strong></p> <p><strong>So Americans aren’t saving enough for themselves, <a href=";utm_medium=ED&amp;utm_source=zhb">nor is the government saving on their behalf</a>. And the Millennial generation, whose taxes Boomers and Gen-Xers will depend on, is not exactly off to a great career start.</strong></p> <p>It’s hard to see how this story could end well. It certainly won’t end with every older American enjoying a leisurely retirement.</p> <p><span style="text-decoration: underline;"><strong>“I’m Going to Work Until I Die.” Yes, You Most Likely Will, So Embrace It</strong></span></p> <p>Unprepared retirees are filling the gap the only way they can: by working well into their golden years.</p> <p><strong>In 1986, 10.6% of the population older than 65 was still working. In 2016, it was 18.6%, and I suspect the number will keep rising.</strong></p> <p>The Washington Post story profiles some working senior citizens:</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>Richard Dever had swabbed the campground shower stalls and emptied 20 garbage cans, and now he climbed slowly onto a John Deere mower to cut a couple acres of grass.</p> <p>&nbsp;</p> <p><strong>“I’m going to work until I die, if I can, because I need the money,”</strong> said Dever, 74, who drove 1,400 miles to this Maine campground from his home in Indiana to take a temporary job that pays $10 an hour.</p> <p>&nbsp;</p> <p>Dever shifted gently in the tractor seat, a rubber cushion carefully positioned to ease the bursitis in his hip—a snapshot of the new reality of old age in America.</p> </blockquote> <p>Dever’s story isn’t unusual. Many older people sell their homes, buy campers, and move around the country. Some just enjoy sightseeing—but many are making ends meet as seasonal laborers. <strong>Amazon even has a formal program for them called CamperForce.</strong></p> <p>Amazon makes it sound fun: “Your next RV adventure is here,” says the website. But it’s not the kind of adventure most camping enthusiasts would prefer.</p> <p>Now, the idea of working past age 65 isn’t necessarily so bad. After all, work isn’t “work” if you enjoy doing it. The problem arises when the work is physically difficult or otherwise unpleasant.</p> <p>I know many people over 65 who are very happily employed. John Mauldin, for one.</p> <p>He’s 68 and keeps a schedule that would exhaust much younger folks. Working past retirement age isn’t always a nightmare—though it can definitely be one if you are forced into it.</p> <p><span style="text-decoration: underline;"><strong>Encore Career</strong></span></p> <p><a href=";utm_medium=ED&amp;utm_source=zhb">This problem currently affects 76 million Baby Boomers who have already entered or are about to enter their retirement years.</a> At 53, I’m one of them.</p> <p>We know most Americans in that age group don’t have enough savings to simply stop working. If that’s you, here are some tips what to do.</p> <p>1. Save and invest as much as you can, even if the amount seems small. It will still come in handy. (In my recent exclusive special report, I describe one fixed income asset class that can yield up to 6-8% returns with moderate risks.&nbsp; <a href=";utm_medium=ED&amp;utm_source=zhb">Download it here for free</a>).</p> <p>2. Take care of your health. Lose weight, get exercise, eat healthy. This will both minimize your medical expenses and let you work more comfortably if you need to.</p> <p>3. Think ahead about what kind of work you can do in retirement. Identify a job you can “retire into.” It should be something you enjoy, that earns real income, and that you’ll be able to continue even as aging slows you down.</p> <p>4. Don’t look at it as Plan B. Think of retirement as a new stage in your career. As I said, work is only work if you don’t enjoy it. If you plan ahead, it can be a time when you work on your own terms instead of someone else’s.</p> <p>In my case, there’s no reason I can’t keep writing into my seventies. Maybe I’ll take more vacations, but I don’t want to stop writing completely. I’m not sure I could stop even if I wanted to.</p> <p>Meanwhile, those extra working years will let me save longer and my savings to compound, which will leave me in a better position when I can’t work anymore and have to tap my savings.</p> <p><a href=";utm_medium=ED&amp;utm_source=zhb">Medical breakthroughs extend what my colleague Patrick Cox calls "health spans."</a> Not only can we live longer, we can be healthier longer. There’s a good chance 80 will be the new 60.</p> <p>In that regard, <a href=";;utm_campaign=JM-305&amp;utm_medium=ED&amp;utm_source=zhb">watch this short video </a>by Gary Vaynerchuk. It has a little profanity at the end, but watch anyway. He has a message that may help.</p> <p>We all have more time than we think… and we can do a lot with it.</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="620" height="388" alt="" src="" /> </div> </div> </div> B+ Baby boomers Demography federal government Finance fixed Indiana Labor Liberalism in the United States Medicare Medicare Myra New School Pension Personal finance Population Reality Retirement Social Issues Social Security Taxation in the United States Mon, 16 Oct 2017 21:25:11 +0000 Tyler Durden 605397 at "He Shivved Me": Angry Hillary Lashes Out At Comey And Assange In Australian TV Interview <p>An angry Hillary Clinton has been making the rounds in recent weeks blaming all the usual suspects for her election loss last know, Assange, Comey, the unfortunate mall cop who tripped over a microphone cord and ruined her speech at the Little Rock Mall food court in 1984...</p> <p>But we can't remember a recent interview in which the former presidential candidate came off quite so bitter as when she sat down with Australian anchor Sarah Ferguson of 4 Corners for an interview that aired earlier today.</p> <p>On Assange, Clinton described him as a <strong>"tool of Russian intelligence"</strong> and scoffed at the idea that he's a "martyr for free speech and freedom of information."</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><span style="text-decoration: underline;"><strong>Clinton</strong></span>:&nbsp;<strong> “I think Assange has become a nihilistic opportunist who does the bidding of a dictator [Putin]."</strong></p> <p>&nbsp;</p> <p><span style="text-decoration: underline;"><strong>Ferguson</strong></span>:&nbsp; "Lots of people, including in Australia, that that Assange is a martyr for free speech and freedom of information.&nbsp; How would you describe him?"</p> <p>&nbsp;</p> <p><span style="text-decoration: underline;"><strong>Clinton</strong></span>:&nbsp; “I mean, <strong>he’s a tool of Russian intelligence.</strong>&nbsp; If he’s such a martyr for free speech, why doesn’t WikiLeaks ever publish anything coming out of Russia?”</p> <p>&nbsp;</p> <p><span style="text-decoration: underline;"><strong>Ferguson</strong></span>:&nbsp; “Isn’t he just doing what journalists do which is publish information when they get it?”</p> <p>&nbsp;</p> <p><span style="text-decoration: underline;"><strong>Clinton</strong></span>:&nbsp; “I don’t think so.&nbsp; I think for number one, it’s stolen information, and number two, if all you did was publish it, that would be one thing, but there was a <strong>concerted operation between WikiLeaks and Russia and most likely, people in the United States to, as I say, weaponized that information.”</strong></p> </blockquote> <blockquote class="twitter-video"><p dir="ltr" lang="en">.<a href="">@HillaryClinton</a> says <a href="">@JulianAssange</a> is a "tool of Russian intelligence". Watch the interview tonight on <a href=";ref_src=twsrc%5Etfw">#4Corners</a>. <a href=""></a></p> <p>— 4corners (@4corners) <a href="">October 15, 2017</a></p></blockquote> <script src="//"></script><p>&nbsp;</p> <p>On Comey, Hillary is apparently convinced that <strong>"shivving someone"</strong> and<strong> "investigating a series of federal crimes"</strong> are phrases that can be used interchangeably.</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>Ferguson:&nbsp; "You say Jim Comey shivved me."</p> <p>&nbsp;</p> <p>Clinton:&nbsp; <strong>"Oh, he did.&nbsp; Well he did shiv me.</strong>&nbsp; Yeah.&nbsp; There's never been a good explanation as to why he did what he did."</p> </blockquote> <blockquote class="twitter-video"><p dir="ltr" lang="en">.<a href="">@HillaryClinton</a> took <a href="">@FergusonNews</a> by surprise this time around. Watch it tonight 8.30pm AEDT on ABC TV or Facebook <a href=""></a> <a href=""></a></p> <p>— 4corners (@4corners) <a href="">October 16, 2017</a></p></blockquote> <script src="//"></script><p>&nbsp;</p> <p>Meanwhile, and not terribly surprisingly, Hillary says that Trump is the most "dangerous President the U.S. has ever had" and she suggests that "the whole world should be concerned."</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>"I think he is because he is impulsive.&nbsp; <strong>He lacks self control.&nbsp; He is totally consumer by how he is viewed and what people think of him.&nbsp; He is vindictive."</strong></p> <p>&nbsp;</p> <p>"I think the whole world should be concerned."</p> </blockquote> <blockquote class="twitter-video"><p dir="ltr" lang="en">.<a href="">@HillaryClinton</a> does not mince her words in this interview, then again neither does <a href="">@FergusonNews</a>. A special <a href=";ref_src=twsrc%5Etfw">#4Corners</a> next week. <a href=""></a></p> <p>— 4corners (@4corners) <a href="">October 9, 2017</a></p></blockquote> <script src="//"></script><p>&nbsp;</p> <p>Finally, Hillary shares her opinion that Fox News has morphed into an "advocacy outfit" that is just not "journalism anymore."</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>"I think Fox News has been a pernicious influence on our elections, ever since it came into being, back in the early 90s and I think that they're an advocacy outfit, they're not journalism anymore."</p> </blockquote> <blockquote class="twitter-video"><p dir="ltr" lang="en">.<a href="">@HillaryClinton</a> says <a href="">@FoxNews</a> no longer a journalism outfit. <a href=""></a></p> <p>— 4corners (@4corners) <a href="">October 16, 2017</a></p></blockquote> <script src="//"></script><p>&nbsp;</p> <p>And while she didn't specifically share her opinions on MSNBC, WaPo, CNN and the New York Times, we presume she sees those 'outfits' as something other than liberal advocacy groups?</p> <p><em><strong>For those interested, the full interview can be enjoyed here:</strong></em></p> <p><iframe src="" width="600" height="337" frameborder="0"></iframe></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="963" height="511" alt="" src="" /> </div> </div> </div> Australia Cypherpunks Entertainment Founders Fox News Hillary Clinton James Comey Julian Assange Mass media MSNBC New York Times Politics RT Russian intelligence Russian interference in the 2016 United States elections Television Twitter Twitter Mon, 16 Oct 2017 21:07:48 +0000 Tyler Durden 605424 at Netflix Jumps After Smashing Subscriber Expectations, Unveils $17 Billion In Content Commitments <p>After some initial confusion, Netflix stock surged after hours, a repeat of what it did last quarter, soaring above its all time high price, up over 2% after reporting Q3 numbers which while beating slightly on revenues ($2.99Bn, Exp. $2.97Bn), and beating modestly on non-GAAP EPS (GAAP EPS$0.29, non-GAAP EPS $0.37, exp. $0.32), were far more remarkable for the subscriber numbers, which smashed expectations as follows:</p> <ul> <li><strong>Q3 total net streaming additions 5.3 million, Exp. 4.5 million</strong> <ul> <li><strong>Q3 domestic net streaming additions 850,000, exp. 774,000</strong></li> <li><strong>Q3 international net streaming additions 4.45 million, exp. 3.72 million</strong></li> </ul> </li> </ul> <p>The addition of 5.2 million subs in Q2 was the largest increase ever during the period, which traditionally is among the company's slowest time of year. </p> <p>Netflix' Q4 outlook was in line with expecations and the company now expects Q4 net streaming adds of 6.3 million (1.25m in the US and 5.05m internationally) just fractionally higher than the consensus estimate of 6.29 million and below the 7.05 million in the year ago quarter (which was the company's all time record high quarter). </p> <p>The company expects $3.27 billion in Q4 revenue, also above the consensus estimate of $3.15 billion, generating net income of $183 million.</p> <p><a href=""><img src="" width="500" height="485" /></a></p> <p>One thing that investors will focus on is the company's content spend for next year, which Netflix is increasing once again: having previously said they would spend $7 billion, they are raising that by as much as a $1 billion, forecasting that "<strong>we’ll spend $7-8 billion on content (on a P&amp;L basis) in 2018."</strong></p> <p>Also, it will come as no surprise that with Wall Street expecting the company to spend $8.7 <a href="">billion this year on content</a>...<br /><strong><img src="" width="500" height="273" /></strong></p> <p>... it will continue spending an ungodly amount. Netflix now has 109.2 million subscribers worldwide, <strong>but the success has come at a steep price and as of Sept.30, NFLX's total content obligations were a record $17 billion.</strong></p> <p><strong>The company's historical content spending is as follows:<br /></strong></p> <ul> <li><strong>2018: $7-$8 billion (forecast)</strong><br /><strong></strong></li> <li><strong>2017: $6 billion</strong><br /><strong></strong></li> <li><strong>2016: $5 billion</strong><br /><strong></strong></li> <li><strong>2015: $4 billion</strong><br /><strong></strong></li> <li><strong>2014: $3 billion</strong><br /><strong></strong></li> <li><strong>2013: $2 billion</strong></li> </ul> <p>Also, as one would expect, the company remains in its near-record cash burning ways, <strong>reporting that in Q3 it burned $464 million, modestly below the $608 million it burned last quarter, and $506 million one year earlier</strong>.</p> <p><a href=""><img src="" width="500" height="322" /></a></p> <p>Discussing its relentless cash burn, Netflix said its negative FCF, that despite growing operating income, "<strong>is due to growth of our content spend, original content in particular, where we pay for the titles before consumers enjoy the content, and the asset is amortized by estimated viewing over time. We anticipate financing our capital needs in the debt market as our after-tax cost of debt is lower than our cost of equity.</strong>"</p> <p>Below are some more highlights from Netflix' letter, first focusin on subscribers:</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>Global streaming revenue in Q3 rose 33% year over year, <strong>driven by a 24% increase in average paid memberships and 7% growth in ASP</strong>. <strong>Operating income nearly doubled year-over-year to $209 million with our Q3 global operating margin of 7.0% putting us right on track to achieve our full year target of 7%.</strong> EPS of $0.29 included a pre-tax $51 million non-cash loss from F/X remeasurement on our Euro bond (or $39 million after tax based on a 24% tax rate). Higher than expected excess tax benefit from stock based compensation benefited our tax rate by $5 million vs. our forecast. As a reminder, the quarterly guidance we provide is our actual internal forecast at the time we report. <strong>We added a Q3-record 5.3 million memberships globally (up 49% year-over-year) as we continued to benefit from strong appetite for our original series and films, as well as the adoption of internet </strong><strong>entertainment across the world. </strong>Relative to our guidance of 4.4 million net adds, <strong>we under-forecasted both US and international acquisition. Year to date net adds of 15.5 million are up 29% versus last year.</strong></p> </blockquote> <p>On the the domestic vs international margin, and why the first missed while the second beat:</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><strong>Domestic contribution margin in Q3 of 35.8% vs. 36.4% last year was below our forecast of 37.1% due primarily to the earlier-than-anticipated close of certain content deals. </strong>The foreign currency impact in the quarter was +$13 million and Q3 international revenue grew 54% year over year, excluding currency. F/X-neutral ASP increased 7.4% year over year. <strong>International contribution profit margin of 4.7% exceeded our 2.3% guidance, also due to the timing of content deals.</strong></p> </blockquote> <p>On the company's guidance:</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><strong>For Q4, we forecast global net adds of 6.30m (1.25m in the US and 5.05m internationally) vs. 7.05m in the year ago quarter (which was our all-time high for quarterly net adds). </strong>We recently announced price adjustments in many markets to our HD and 4K video plans while keeping our SD plan mostly unchanged (still $7.99 in the US, for instance). Existing members will be notified and their prices will be adjusted on a rolling basis over the next few months. Increased revenue over time will help us grow our content offering and continue our global operating margin growth.</p> </blockquote> <p>Here is the warning that the company's contribution margin will decline as it focuses on marketing:</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>We’ve been focused on growing global operating margin as our primary profitability metric since hitting our 2020 US contribution margin goal of 40% this past Q1. <strong>This allows us to avoid near term optimization for specific domestic or international contribution margin targets which could impede our long term growth. </strong>For instance, <strong>we anticipate our Q4’17 US contribution margin will be 34.4% (a decline both year-on-year and sequentially) as we boost our marketing investment against a growing content </strong><strong>slate.</strong> We spend disproportionately in the US to generate media and influencer awareness for our programming which we believe, in turn, is an effective way to facilitate word of mouth globally<strong>. In our international segment, we are on track to generate positive contribution profit for the full year. </strong>As we move into 2018, we aim to achieve steady improvement in international profitability and a growing operating margin as our success in many large markets helps fund investments throughout Asia and the rest of the world. </p> </blockquote> <p>Perhaps most important, is the discussion of the Netflix content portfolio and the gargantuan content commitments:</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>Investors often ask us about continued access to content from diversified media companies. While we have multi-year deals in place preventing any sudden reduction in content licensing, the long-term trends are clear. <strong>Our future largely lies in exclusive original content that drives both excitement around Netflix and enormous viewing satisfaction for our global membership and its wide variety of tastes. </strong>Our investment in Netflix originals is over a quarter of our total P&amp;L content budget in 2017 and will continue to grow. <strong>With $17 billion in content commitments over the next several years </strong>and a growing library of owned content <strong>($2.5 billion net book value at the end of the quarter</strong>), we remain quite comfortable with our ability to please our members around the world. <strong>We’ll spend $7-8 billion on content (on a P&amp;L basis) in 2018.</strong></p> </blockquote> <p>On competition and usage, where everyone is jumping in:</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>Since 2013, we’ve taken the Long Term View that we’re in the early stages of the worldwide, multi-decade transition from linear TV to internet entertainment. Recently, it’s been unfolding right before our eyes: Disney announced plans to launch direct-to-consumer services for ESPN and its other brands, cable network owners are licensing their channels to virtual MVPDs like Hulu, YouTube, Sling TV, and DirecTV Now, CBS’ All Access is expanding internationally, <strong>Apple is reportedly planning on spending $1 billion on original content and Amazon is streaming NFL games while its Prime Video service has gone global. Facebook launched its Watch tab for original videos</strong>. At the same time, linear TV networks like MTV, A&amp;E and WGN are cutting down on scripted series. Last year, the number of original scripted series on linear TV (across broadcast, premium and basic cable) began to decrease as online services ramped up activity.</p> </blockquote> <p>Finally, on cash burn:</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><strong>Free cash flow in Q3 totaled -$465 million vs. -$506 million last year and -$608 million in Q2’17. </strong>There is <strong>no change to our expectation for FCF of -$2.0 to -$2.5 billion for the full year 2017. </strong>Negative FCF, despite growing operating income, is due to growth of our content spend, original content in particular, where we pay for the titles before consumers enjoy the content, and the asset is amortized by estimated viewing over time. <strong>We anticipate financing our capital needs in the debt market as our after-tax cost of debt is lower than our cost of equity.</strong></p> </blockquote> <p>Judging by the afterhours stock response , investors are far less worried about the relentless cash burn, and the $17 billion in already accrued content commitments, and instead are are more impressed with the subscriber additions, as a result sending the stock over 2% higher.</p> <p><img src="" width="500" height="354" /></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="1010" height="650" alt="" src="" /> </div> </div> </div> After Hours Apple Apple Inc. BlackBerry Limited Bond Book Value Business Business Computing Digital media Facebook Free cash flow GAAP National Football League Netflix Recommender systems Social media Software Universal Windows Platform apps YouTube Mon, 16 Oct 2017 20:46:09 +0000 Tyler Durden 605426 at The One Way Governments Could Actually Kill Bitcoin... <p><a href=""><em>Authored by Simon Black via,</em></a></p> <p>Something pretty miraculous happened recently.</p> <p><strong>It appears that Jamie Dimon, CEO of JP Morgan Chase, went nearly TWO WEEKS without bashing Bitcoin.</strong></p> <p>This must be a record for Mr. Dimon, who seems to have barely been able to last an hour without calling out Bitcoin as a &ldquo;fraud&rdquo;, or a refuge for criminals and North Koreans.</p> <p><strong>Mr. Dimon finally broke his Zen-like meditative silence late last week, once again returning to the familiar assaults we&rsquo;ve come to expect from the world&rsquo;s most powerful banker.</strong></p> <p>On Thursday, Dimon downplayed the importance of Bitcoin during a teleconference with journalists, and then said he wouldn&rsquo;t talk about cryptocurrency anymore.</p> <p>One day later, Dimon was talking about cryptocurrency again, this time at the annual meeting of the Institute for International Finance.</p> <p>Dimon&rsquo;s rant was in top form, and he went back to his core material&ndash; governments won&rsquo;t allow Bitcoin to exist, it&rsquo;s only useful for criminals, etc.</p> <p>He was later joined by his sidekick Larry Fink, Chairman and CEO of Blackrock (the largest investment management firm in the world with over $5.7 trillion under management).</p> <p>Fink stated succinctly that Bitoin is &ldquo;an index for how much demand for money laundering there is in the world.&rdquo;</p> <p><u><em><strong>Now, these are clearly not dumb guys. Dimon and Fink are princes of Wall Street. They know finance.</strong></em></u></p> <p><u><em><strong>But it&rsquo;s pretty obvious they haven&rsquo;t done their homework on cryptocurrency&hellip; since there&rsquo;s really no objective evidence to support their assertions.</strong></em></u></p> <p><a href=""><u><em><strong><img alt="" src="" style="width: 600px; height: 313px;" /></strong></em></u></a></p> <p><strong>Dimon&rsquo;s idea that Bitcoin is a &ldquo;great product&rdquo; for criminals is simply WRONG. Bitcoin is terrible for criminals.</strong></p> <p><u><strong>Why? Easy.</strong></u> Bitcoin is not fully anonymous. Every single Bitcoin that has ever been mined&hellip; and every single transaction in Bitcoin that has ever been made&hellip; is recorded in the Blockchain.</p> <p><u><strong>In other words, it&rsquo;s all public information.</strong></u></p> <p>That&rsquo;s not to say that people&rsquo;s names and addresses are recorded in the Blockchain; instead, a typical transaction record includes information about Bitcoin Wallet IDs, block numbers, etc.</p> <p><em>[<a href="">Visually, it looks something like this</a>]</em></p> <p><a href=""><img alt="" src="" style="width: 593px; height: 484px;" /></a></p> <p><em><strong>But for people with enough resources (i.e. governments), the transactions can be traced back to the source.</strong></em></p> <p><em><strong>Here&rsquo;s an easy example.</strong></em></p> <p>Let&rsquo;s say Alvin the Arms Dealer signs up for a new account at Coinbase&ndash; the most popular exchange in the world.</p> <p>Alvin links his Coinbase account to his bank account at, say, hmmm&hellip; JP Morgan Chase, and puts in an order to buy 100 Bitcoin.</p> <p>The money transfers from JP Morgan to Coinbase, and Alvin&rsquo;s Coinbase wallet is credited with 100 Bitcoin.</p> <p>Alvin now sends those 100 Bitcoin to his friend Marvin the Money Launder.</p> <p>Marvin sells the Bitcoin at another exchange, and deposits the US dollars into his own bank account.</p> <p><strong>EVERY SINGLE ONE OF THESE TRANSACTIONS has been posted to the blockchain.</strong></p> <p>And if the FBI or INTERPOL really looks into it, they&rsquo;ll be able to trace Marvin&rsquo;s bank deposit back to Alvin&rsquo;s initial purchase of Bitcoin at Coinbase. Boom. Smoking gun.</p> <p><strong>In other words, if you&rsquo;re the FBI, you should HOPE that criminals use Bitcoin. They&rsquo;ll be easier to catch.</strong></p> <p>But any criminal with half a brain [oxymoron, I know] is already aware of these issues. So they&rsquo;ll probably stick to giftcards&hellip; which is a MUCH easier way to launder money.</p> <p>The other laughable point that Dimon makes is that &lsquo;governments won&rsquo;t allow Bitcoin to exist&rsquo;.</p> <p><u><em><strong>He believes that governments want to remain in control of money, so at some point they&rsquo;ll merely outlaw Bitcoin. And poof&hellip; demand will vanish.</strong></em></u></p> <p><u><em><strong>This is a completely naive view.</strong></em></u></p> <p>Marijuana been illegal under US federal law for DECADES. And yet demand only grows.</p> <p>Pirating movies is also illegal. And those rules have been aggressively enforced since the passage of the Digital Millennium Copyright Act nearly 20-years ago.</p> <p>But illegal downloads of movies, music, software, etc. still constitute roughly 25% of all Internet traffic, according to a study commissioned by NBC Universal.</p> <p><strong>Bitcoin would be even harder to control.</strong> You don&rsquo;t even need to be connected to the Internet in order to receive or store Bitcoin. So fat chance they&rsquo;ll be able to enforce a ban.</p> <p>Any attempt to get rid of Bitcoin would be about as successful as preventing people from smoking weed or pirating the latest Game of Thrones episode.</p> <p><em><strong>But&hellip; Uncle Sam does have one weapon&hellip; one way they could potentially disrupt Bitcoin.</strong></em></p> <p><u><em><strong>Some day the US government and Federal Reserve might actually wake up and realize that crypto is the future.</strong></em></u></p> <p><u><em><strong>And when that day comes, the obvious tactic would be to create their own version of the Blockchain that uses &ldquo;crypto-dollars&rdquo;.</strong></em></u></p> <p>Cryptodollars would be equivalent to US dollars. So $1 in physical cash = $1 in your bank account = 1 cryptodollar.</p> <p>Cryptodollars would be legal tender and accepted everywhere in the country&ndash; Wal Mart, Amazon, etc., but without any of the wild gyrations and fluctuations that we see in the Bitcoin price.</p> <p><strong>The introduction of cryptodollars would clearly have an impact on the demand for Bitcoin.</strong></p> <p>Hardcore users would certainly still hold Bitcoin, so it wouldn&rsquo;t go to zero.</p> <p>But casual users might very well abandon Bitcoin in favor of cryptodollars due to the convenience of being able to spend them anywhere.</p> <p><strong>The added benefit to the US government is that a crypto-dollar blockchain would solidify the dollar&rsquo;s status as the international reserve currency.</strong></p> <p>So they definitely have compelling reasons to do this.</p> <p>Now, it might never happen. Or it could take years.</p> <p><em><strong>But the possibility exists. So keep that in mind before going &lsquo;all in&rsquo; on crypto.</strong></em></p> <p><a href="http://Any attempt to get rid of Bitcoin would be about as successful as preventing people from smoking weed or pirating the latest Game of Thrones episode. But… Uncle Sam does have one weapon… one way they could potentially disrupt Bitcoin."><em>And to continue learning how to safely grow your wealth, I encourage you to <span class="link tve_evt_manager_listen tve_et_click">download our free Perfect Plan B Guide</span>.</em></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="600" height="313" alt="" src="" /> </div> </div> </div> Alternative currencies B+ Bitcoin Bitcoin Blackrock Blockchains Computing Cryptocurrencies Decentralization Digital Millennium Copyright Act Economics of bitcoin ETC FBI Federal Bureau of Investigation Federal Reserve Interpol Jamie Dimon Money NBC NBC Universal Reserve Currency Technology US Federal Reserve US government Mon, 16 Oct 2017 20:23:04 +0000 Tyler Durden 605415 at Stocks Surge To Moar Record Highs But Taylor Chatter Spooks Bonds, Dollar, & Gold <p>Another day, another record high...</p> <p><iframe allowfullscreen="" frameborder="0" height="315" src="" width="560"></iframe></p> <p>&nbsp;</p> <p>To begin - &#39;Murica, fuck yeah!!</p> <p><a href=""><img height="314" src="" width="600" /></a></p> <p>&nbsp;</p> <p>North Korea headlines and &#39;John Taylor For Fed Head&#39; headlines prompted some turmoil in FX markets, bond markets, and commodity markets... but stocks didn&#39;t even blink...</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 317px;" /></a></p> <p>&nbsp;</p> <p>Trannies were worst with Small Caps clinging to unch but GS, AAPL, JPM, and TRV accounted for 100% of the points gains in The Dow...</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 377px;" /></a></p> <p>&nbsp;</p> <p>The machines really wanted Dow 23,000 amid a very chaotic day in VIX land today...</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 468px;" /></a></p> <p>&nbsp;</p> <p>Small Caps continue to tread water... (1509, 1511, 1508, 1512, 1510, 1504, 1508, 1507, 1505, 1503, 1502) even as earnings expectations tumble...</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 332px;" /></a></p> <p>&nbsp;</p> <p>Bank stocks soared today - loving the collapse in the yield curve...</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 317px;" /></a></p> <p>&nbsp;</p> <p>Healthcare stock were hit again on Trump&#39;s &quot;Getting away with murder&quot; comments...</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 317px;" /></a></p> <p>&nbsp;</p> <p>Treasury yields rose on the day but notably bear flattened with the front-end drastically underperforming...</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 314px;" /></a></p> <p>&nbsp;</p> <p>The Dollar Index rallied on the day led by AUD and CAD weakness (odd on a strong commodity day) and cable tumbled on May&#39;s comments...</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 313px;" /></a></p> <p>&nbsp;</p> <p>WTI Crude (and Brent) surged overnight to 2-week highs on Iraq &#39;invasion&#39; headlines but WTI was unable to hold above $52...</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 367px;" /></a></p> <p>&nbsp;</p> <p>Gold&#39;s bounce after CPI last week - extending its post-Golden-Week gains - stalled today after John Taylor headlines...</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 297px;" /></a></p> <p>&nbsp;</p> <p>Copper made headlines - hitting a 3 year high, surging after China&#39;s Golden Week holiday ended and ahead of this week&#39;s National Congress to prove everything is awesome in the red ponzi...</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 297px;" /></a></p> <p><a href="">Which as we noted earlier </a>- raises the question - is copper overdone or do 10Y Yields need to explode 75bps higher...</p> <p><a href=""><img height="317" src="" width="600" /></a></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="640" height="74" alt="" src="" /> </div> </div> </div> Bond CAD China Commodity market Copper CPI Crude Dow Dow 30 Economy Finance headlines Iraq Money National Congress North Korea US Federal Reserve VIX Yield Curve Mon, 16 Oct 2017 20:02:43 +0000 Tyler Durden 605423 at Taleb Explains How He Made Millions On Black Monday As Others Crashed <p>Former trader and author of best-selling book &ldquo;The Black Swan&rdquo; sat down for an interview with Bloomberg News to mark the upcoming thirtieth anniversary of the stock-market crash that occurred on Oct. 19, 1987 &ndash; otherwise known as Black Monday.</p> <p>Taleb famously supercharged his career &ndash; and earned a considerable sum of money (though turns out it was less than Taleb felt he deserved) &ndash; <strong>thanks to his trading profits from that day, which he said were in the &ldquo;tens of millions of dollars.&rdquo;</strong></p> <p><iframe allowscriptaccess="always" frameborder="0" height="315" src="" width="560"></iframe></p> <p>But what did he trade, and how? And furthermore, <strong>what was going through his head as he watched the market crumble around him?</strong></p> <p>Answering a question about what specific strategies he employed, Taleb explained that he relied on &ldquo;tail options&rdquo; &ndash; contracts that, because they were way out of the money, could be purchased for negligible sums &ndash; and placed most of his bets in &ldquo;professional&rdquo; markets like currencies and Eurodollar futures.</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>&ldquo;The dollar of course collapsed. Dollar-yen options - <strong>we had options we had bought for $10,000 in inventory that were selling for 17 million.</strong></p> <p>&nbsp;</p> <p>The thing was going&hellip;it was out of control. The big payoffs weren&rsquo;t in the main, big currencies, but in the ones where the move was a big surprise like Eurodollar or yen. The Swiss franc also had high volatility.&rdquo;</p> </blockquote> <p>Asked why the movements in currency and fixed income markets weren&rsquo;t as heavily covered as the moves in the stock market &ndash; which is where the bulk of that day&rsquo;s carnage unfolded &ndash; Taleb said it&rsquo;s because these markets are strictly for professional traders. Few middle-class investors traded bonds or owned foreign currencies outright back &ndash; but everybody seemed to own stocks.</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>&ldquo;Because it was a professional market&hellip;it was the largest market, fixed income, at the time&hellip;<strong>but only professionals talk about these things. And all the professionals that were around then are dead&hellip;Everybody talks about stocks because people invest in stocks.&rdquo;</strong></p> </blockquote> <p>Taleb declined to disclose how much First Boston &ndash; the investment bank at which he was employed &ndash; paid him for his success that day, though he did say that, because most of his colleagues lost money, the sum was smaller than he had hoped.</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>&ldquo;I remember the P&amp;L. In today&rsquo;s terms for the firm it would be something substantial. <strong>But at the time, compensation wasn&rsquo;t the same. It was in the mid-tens of millions. I made $60, $70, $80 million in one day.</strong></p> <p>&nbsp;</p> <p>First Boston treated me very well. The problem was that it was still a common system where everybody had to share&hellip;and everybody had lost money except for me and one other fellow.&rdquo;</p> </blockquote> <p>Taleb said he vividly remembers Oct. 20, the day after the crash, when, he said, nearly all of his counterparties were outbidding his offer for his options positions by massive margins.</p> <p>He specifically remembers trading with famed commodity speculator Richard Dennis, whose hedge fund went bust that day.</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>&quot;I remember the [October 20], I get on the phone&hellip;and I remember there was a fellow called Richard Dennis who went bankrupt that morning at the open. There was a rally in interest rates and the guy was short eurodollars&hellip;he lost his $50 million fund&hellip;they were liquidating the thing. <strong>And I remember I had a huge delta in eurodollars. I remember then vividly offering something on the phone and filling it considerably higher. So, the guy in the pit, I&rsquo;d say let&rsquo;s sell here and he&rsquo;d sell higher. It was like the movie trading places&hellip;all morning I remember we were selling above our offers.&quot;</strong></p> </blockquote> <p>Taleb says the events of Black Monday left a lasting impression on him. His success made him brash and overconfident. But it also confirmed his view that the market&rsquo;s approach to calculating risk failed to take into account the possibility of &ldquo;six sigma&rdquo; moves like the Black Friday crash. Indeed, that trend has only worsened with the advent of ETFs and high-frequency trading, which many market strategists believe increase the likelihood of chaotic selloffs like the May 2010 flash crash.</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>&ldquo;After the event, I knew that all this stuff you learn in class, the Black-Scholes model, is useless&hellip;&rdquo;</p> </blockquote> <p>Asked what was going through his head when equity valuations were plummeting all around him, Taleb replies that he was so focused, he wasn&#39;t able to process the enormity of that day&rsquo;s events while they they were happening. All of his attention was focused on executing trades.</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p><strong>&ldquo;When you&rsquo;re trading, it&rsquo;s like being in a battle.</strong> It&rsquo;s like TV. When I&rsquo;m watching TV, I don&rsquo;t know what&rsquo;s happening during the episode. It&rsquo;s not until later that I find out. I was in a state of heightened concentration.&quot;</p> </blockquote> <p>It wasn&rsquo;t until a colleague pointed out the magnitude of the move that Taleb began to understand that this might be a once-in-a-lifetime opportunity.</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>&ldquo;Someone came to me and made a remark&hellip;<strong>something like don&rsquo;t they know that six sigmas are something you only observe once in your lifetime?&rdquo;</strong></p> </blockquote> <p>Indeed, it would be 20 years before Taleb would book similarly outsized profits after he joined a handful of contrarians in shorting the market ahead of Lehman Brothers&rsquo;s September 2008 bankruptcy filing.</p> <p><iframe allowscriptaccess="always" frameborder="0" height="315" src="" width="560"></iframe></p> <p>As for the extreme focus he exhibited on that day, Taleb said there have been a handful of occasions where he has had to maintain a monk-like level of focus for a prolonged period. He cited the invasion of Kuwait as one example, saying he arrived at First Boston&rsquo;s office at 2 am, and remained in a state of concentration for 15 or 16 hours.</p> <p>Ultimately, he says, traders are still underestimating the likelihood of another flash crash. Given the fact that realized volatility recently fell to record lows, this year&rsquo;s relatively placid equity market has fostered a widespread sense of complacency in markets.</p> <p>But that could all change in 24 hours&rsquo; time.<br />&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="1083" height="634" alt="" src="" /> </div> </div> </div> Black Friday Black Swan Black–Scholes model Bloomberg News Business Counterparties Economy EuroDollar Eurodollar Finance fixed flash Great Recession in the United States Kuwait Lehman Lehman Brothers Mathematical finance Money Stock market crashes Swiss Franc Systemic risk Technical analysis The Black Swan: The Impact of the Highly Improbable Volatility Volatility Yen Mon, 16 Oct 2017 19:50:00 +0000 Tyler Durden 605422 at Should The Middle Class Pay More For A Loaf Of Bread Than The Poor? <p><a href=""><em>Authored by Mike Shedlock via,</em></a></p> <p><strong>Iowa seeks to become the first state to dump Obamacare in favor of a state-run program that will allegedly lower costs. </strong></p> <p><a href=""><img alt="" src="" style="width: 600px; height: 340px;" /></a></p> <p><strong>I suggest Iowa&#39;s replacement plan can&#39;t work. My reason pertains to the title question.</strong></p> <div class="renderable markdown"> <div> <div> <p>Please consider <a href="">New Test for Obamacare, Iowa Seeks to Abandon Marketplace</a>.</p> </div> </div> </div> <div class="renderable markdown"> <div> <div> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div> <p><strong>With efforts to repeal the Affordable Care Act dead in Congress for now, a critical test for the law&rsquo;s future is playing out in one small, conservative-leaning state.</strong></p> <p>&nbsp;</p> <p>Iowa is anxiously waiting for the Trump administration to rule on a request that is loaded with implications for the law&rsquo;s survival. <strong>If approved by the federal Centers for Medicare and Medicaid Services, it would allow the state to jettison some of Obamacare&rsquo;s main features next year &mdash; its federally run insurance marketplace, its system for providing subsidies, its focus on helping poorer people afford insurance and medical care &mdash; and could open the door for other states to do the same.</strong></p> <p>&nbsp;</p> <p>Iowa&rsquo;s Republican leaders think their plan would save the state&rsquo;s individual insurance market by making premiums cheaper for everyone. <strong>But critics say the lower prices come at the expense of much higher deductibles for many with modest incomes, and that approval of the plan would amount to another way of undermining the law</strong>.</p> <p>&nbsp;</p> <p>Iowa calls its request a stopgap plan that would allow the state to opt out of the federal health insurance marketplace,, for 2018 and create a state-run system that its insurance commissioner says would lower premiums for the 72,000 Iowans who currently have Obamacare health plans, including 28,000 who earn too much to get subsidies to help with the cost.</p> <p>&nbsp;</p> <p><strong>But the cheaper premiums would come with a big trade-off: higher out-of-pocket costs. </strong>The only option for customers would be a plan with deductibles of $7,350 for a single person and $14,700 for a family. The proposal would also reallocate millions of federal dollars that the health law dedicates to lowering costs for people with modest incomes and use the money for premium assistance to those with higher incomes, no matter how much money they make.</p> <p>&nbsp;</p> <p><strong>The individual insurance market is particularly fragile in Iowa, partly because the state has allowed tens of thousands of people to keep old plans that do not meet the health law&rsquo;s standards. </strong>Aetna and Wellmark Blue Cross &amp; Blue Shield, the state&rsquo;s most popular insurer, are both withdrawing at the end of the year. The only insurer planning to remain, Medica, is seeking premium increases that average 56 percent, blaming Mr. Trump&rsquo;s ongoing threats to stop paying subsidies known as cost-sharing reductions that lower many people&rsquo;s deductibles and other out-of-pocket costs. Wellmark has said it will stay if the stopgap plan is approved.</p> <p>&nbsp;</p> <p><em><strong>&ldquo;What we are trying to address is a really large number of people being priced out,&rdquo; </strong></em>said Doug Ommen, the state&rsquo;s Republican insurance commissioner.</p> </blockquote> </div> </div> </div> <h3><u><strong>No Medical Insurance Available</strong></u></h3> <div class="renderable markdown"> <div> <div> <p>Aetna and Wellmark Blue Cross &amp; Blue Shield will both pull out of Iowa starting in 2018.<strong> Only one insurer, Medica, plans to remain. But Medica wants a 56% premium hike. Wellmark will stay if the stopgap plan is approved.</strong></p> </div> </div> </div> <div class="renderable markdown"> <div> <div> <p>If the stopgap plan is not approved and Medica does not get approval for a 56% premium hike, the state will have no providers for individuals or families not in a corporate plan.</p> </div> </div> </div> <div class="renderable markdown"> <div> <div> <h3><u><strong>Step in the Wrong Direction?</strong></u></h3> </div> </div> </div> <div class="renderable markdown"> <div> <div> <p><strong><em>Is this a good idea or a bad idea? The alternative might be no insurance providers to choose from.</em></strong></p> </div> </div> </div> <div class="renderable markdown"> <div> <div> <p>But what percentage of families can afford $14,700 if something happens?</p> </div> </div> </div> <div class="renderable markdown"> <div> <div> <p><strong>The proposal adds subsidies based on <a href="">federal poverty levels</a> to make things more affordable for low-income earners.</strong></p> </div> </div> </div> <div class="renderable markdown"> <div> <div> <h3><u><strong>Federal Poverty Levels</strong></u></h3> </div> </div> </div> <div class="renderable markdown"> <div> <div> <p><img src="" style="height: 348px; width: 600px;" /></p> </div> </div> </div> <div class="renderable markdown"> <div> <div> <h3><u><strong>Sock it to the Middle Class</strong></u></h3> </div> </div> </div> <div class="renderable markdown"> <div> <div> <p><strong>Individuals making more than $48,240 and couples making more than $64,960 get crucified under the plan.</strong> The stopgap plan table shows why.</p> </div> </div> </div> <div class="renderable markdown"> <div> <div> <p><img src="" style="height: 732px; width: 600px;" /></p> </div> </div> </div> <div class="renderable markdown"> <div> <div> <h3><u><strong>Cliff Synopsis</strong></u></h3> </div> </div> </div> <div class="renderable markdown"> <div> <div> <ul> <li>An individual, aged 25 making up to 150% of the poverty level ($18,090) will pay $108 per year.</li> <li>An individual, aged 25 making up to 301%-400% of the poverty level ($48,240) will pay $792 per year.</li> <li>An individual, aged 25 making up to 401% of the poverty level ($48,241) will pay $3,516 per year.</li> <li>An individual, aged 60 making up to 150% of the poverty level ($18,090) will pay $300 per year.</li> <li>An individual, aged 60 making up to 301%-400% of the poverty level ($48,240) will pay $2,136 per year.</li> <li>An individual, aged 60 making over 400% of the poverty level ($48,240) will pay $9,504 per year.</li> <li>A couple, both aged 60, making over 400% of the poverty level ($64,960) will pay $9,504 per year.</li> </ul> </div> </div> </div> <div class="renderable markdown"> <div> <div> <p>In addition, an individual would have a deductible of $7,350. A family would have a deductible of $14,700.</p> <p>The article claims &quot;The proposal would also reallocate millions of federal dollars that the health law dedicates to lowering costs for people with modest incomes and use the money for premium assistance to those with higher incomes, no matter how much money they make.&quot;</p> </div> </div> </div> <div class="renderable markdown"> <div> <div> <p><strong>The posted table says otherwise.</strong></p> </div> </div> </div> <div class="renderable markdown"> <div> <div> <h3><u><strong>Fatal Flaw</strong></u></h3> </div> </div> </div> <div class="renderable markdown"> <div> <div> <p><strong>The fatal flaw in the plan should be obvious. Those making over 400% of the poverty level will opt out.</strong></p> </div> </div> </div> <div class="renderable markdown"> <div> <div> <p>Those pie-in-the-sky premiums of a mere $300 a year for those aged 60 making the poverty level <strong>will never cover costs because a huge percentage of those making over 400% or the poverty level will opt out.</strong></p> </div> </div> </div> <div class="renderable markdown"> <div> <div> <h3><em><u><strong>Should the Middle Class Pay More for a Loaf of Bread?</strong></u></em></h3> </div> </div> </div> <div class="renderable markdown"> <div> <div> <p>A major flaw in Obamacare is the notion that everyone should pay the same price. Under the plan, young and healthy millennials overpaid, effectively subsidizing older and/or physically obese persons. The millennials opted out.</p> </div> </div> </div> <div class="renderable markdown"> <div> <div> <p><strong>The Iowa plan may capture millennials, but because of the screw job on the wealthy, those making over 400% of the poverty rate will drop out.</strong></p> </div> </div> </div> <div class="renderable markdown"> <div> <div> <p>Effectively the state said if you can afford to pay more you must pay more.</p> <p><strong>Imagine grocery stores charging $15 for a loaf of bread if you make $48,241 but only 48 cents if you make up to $18,090.</strong></p> </div> </div> </div> <div class="renderable markdown"> <div> <div> <p><u><em><strong>The idea is preposterous.</strong></em></u></p> </div> </div> </div> <div class="renderable markdown"> <div> <div> <p>Insurance for those older should cost more than those younger. Insurance for unhealthy individuals should also cost more. But that&#39;s where it has to stop.</p> </div> </div> </div> <div class="renderable markdown"> <div> <div> <p><em><strong>Obamacare is blowing up because it seeks to redistribute costs in a way that cannot possibly work. The Iowa replacement plan will fail for similar reasons. One plan screwed the young and the healthy, the other screws those the state deems to be able to afford to be screwed.</strong></em></p> </div> </div> </div> <div class="renderable markdown"> <div> <div> <p>That cliff is a mere $48,240 for individuals and $64,960 for a couple.</p> <p>A couple making $64,961 would have to pay over $24,000 out of pocket before insurance covered a dime.</p> </div> </div> </div> <div class="renderable markdown"> <div> <div> <p><u><strong>This is a huge screw-job not on the wealthy, but on the middle class!</strong></u></p> </div> </div> </div> <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="665" height="377" alt="" src="" /> </div> </div> </div> Congress Economy Fail Federal assistance in the United States Finance Healthcare reform in the United States Insurance Internal Revenue Code Internal Revenue Service Medicare Money Obamacare Patient Protection and Affordable Care Act Social Issues Mon, 16 Oct 2017 19:37:28 +0000 Tyler Durden 605405 at "There Were No Calls, That’s Absolutely Crazy": How The Stock Market Died <p>Something unexpected happened on the market's relentless trek to all time highs: the market died. </p> <p>At least that is the impression one gets from walking around Wall Street's formerly busy trading desks (<a href="">certainly the formerly biggest trading floor in the world, that of UBS, now hauntingly empty</a>) where these days one can hear a pin drop. Take the Credit Suisse Prime Brokerage desk in Manhattan for example: here, as <a href="">BusinessWeek reports </a>in its 1987 anniversary issue, "the phones hardly seem to ring anymore." In fact, if one didn't know better, one could assume that instead of all time highs, the market has just experienced another spectacular crash resulting in a universal trading revulsion. </p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>Credit Suisse's hedge fund clients don’t call about Donald Trump’s tweetstorms and the stock market or ask what to do when terrorists attack. And there was barely a whiff of panic when North Korea erupted in August. “Two rockets flew over the land mass of Japan and nothing happened,” says Mark Connors, Credit Suisse’s global head of risk advisory. </p> </blockquote> <p>Connor's assessment, in not so many words, the market has died: “There were no calls. That’s absolutely crazy.”</p> <p>Why crazy? Because traders who don't belong to the millennial generation, will recall that in addition to buyers, stocks also have sellers. But not now, unfortunately, because what goes on in Credit Suisse' prime brokerage desk does not stay in Credit Suisse' prime brokerage desk. <strong>Instead, it’s become the norm on Wall Street. "Whether it’s the threat of nuclear war, hurricanes, or Russian meddling, it seems nothing can unnerve investors bent on pushing the U.S. stock market higher and higher. Even Richard Thaler, who won a Nobel Prize last week for explaining how irrationality drives financial markets, said on Bloomberg Television he couldn’t understand why stocks keep going up now.</strong>"</p> <p>What is causing this unprecedented meltup? The <a href="">same thing we first presented in 2010</a>: the "Buy The [Fucking] Dip" (which subsequently became "<a href="">Buy the Fucking All Time High</a>") mentality, originally popularized by a couple of cartoon characters, which has since become the one and only "trading strategy" on Wall Street - and everywhere else - and which is also known as <em>"don't sell anything.</em>" Because why sell in a world in which central banks have everyone's back?</p> <p><a href=""><img src="" width="500" height="375" /></a></p> <p>"So what’s going on?" Bloomberg asks and ponders: </p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>During most of the first 8½ years of the bull market, the mood was paradoxical. Although stocks rose, many investors scarred by the financial crisis acted as though they hated owning shares again, and every obstacle was framed as the next big meltdown (even as the underlying fundamentals remained strong). <strong>Now, everywhere you look—swelling stock valuations, hot sales of new cryptocurrencies, IPO shares with no voting rights—investors are embracing their speculative side. In the language of Wall Street, every day it’s “risk-on.”</strong></p> </blockquote> <p><a href=""><img src="" width="500" height="375" /></a></p> <p>Actually, dear Bloomberg authors - while we do realize the question is rhetorical - the answer is simple. <strong>Bubbles. Bubbles everywhere</strong>. </p> <p>Back in <a href="">June Citigroup's hans Lorenzen pointed out precisely what was going on </a>in financial markets that scramble to maximize every last ounce of what central bank impulse remains, in which we get such bubbles as London real estate, bitcoin and vintage cars amid the Fed's attempts to "facilitate recovery", or as Citi puts it: "<strong>the wealth effect is stretching farther and farther afield."</strong></p> <p><img src="" width="500" height="321" /></p> <p>And while on the upside the surge in sweet for everyone involved, it's what happens when bubbles burst - as they always inevitably do - that is the problem, a problem which the Fed clearly is not concerned about (and for Janet Yellen, in just three months it will be someone else's problem).</p> <p>Unfortunately, the realization that it is a bubble provides little relief for those who careers depend on being fully invested, i.e. all of Wall Street. Which is also why goalseeked justifications and rationalizations - "<em>the market is a bubble, but a much smaller bubble than bonds, etc.</em>" - emerge. This is also known as FOMO, or Fear of Missing Out. As a result, as Bloomberg notes, while it is an uncertain world out there, "<strong>fear invariably turns into greed, and the fear of missing out overshadows any anxiety about the next crash.</strong>" That tends to quickly draw money back into the market every time it wobbles, despite legitimate worries about high valuations. </p> <p><strong>“We certainly all joke about it: Buy the dip, that’s what we’ve been conditioned to do,” says Benjamin Dunn, president of the portfolio consulting practice at Alpha Theory, which works with money management firms. “Now you kind of have to do it. It’d almost be irresponsible not to.</strong>”</p> <p>A joke for some, perhaps, but in the end all that will be left are tears, of course. Until then, however, the market not only refuses to crash, it hasn't had a mere 2% drop in months.</p> <p><a href=""><img src="" width="500" height="375" /></a></p> <p>Another way of seeing the market's unprecedented complacency: the number of days with a 1% up or down move in the S&amp;P is below 10 so far in 2017, among the lowest on record. By comparison, the post WWII average is over 50. </p> <p><a href=""><img src="" width="566" height="395" /></a></p> <p>In light of the above, it is not surprisng that This year, the S&amp;P 500 index has hit records on almost four dozen different occasions, with the single biggest drop from the latest record amounting to less than 3 percent. At the same time, more than $3.2 trillion of market value has been added to U.S. equities (and $5 trillion since Trump's election as he will gladly remind his twitter followers each day) while volatility is at record lows. </p> <p>And speaking of goalseeked justifications for this epic, artifical, central-bank inspired rally, that's what Bloomberg does next:&nbsp; </p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>It’s easy to say it’s all about Trump and his promise of big tax cuts. His election has fueled some impressive gains (though perhaps not quite as impressive as he has often claimed and still far short of the best year for U.S. stocks during this current cycle). But for Credit Suisse’s Connors, the shift in market psychology can be traced back to a different signal event: <strong>Brexit</strong>. </p> <p>&nbsp;</p> <p>After the U.K. voted to leave the European Union in June 2016, $2.6 trillion was wiped off the value of equities worldwide in just three days. Many were calling it one of the most dramatic and shocking turns of events in modern British history. Among investors, the panic was palpable, and some were paralyzed with fear. <strong>But almost as quickly, the markets roared back and jolted investors out of their crisis-era fatalism</strong>. </p> <p>&nbsp;</p> <p><strong>Since then, naysayers selling into any weakness have looked like suckers. </strong>In the aftermath of other post-crisis upheavals, “we got a lot of incoming client calls,” Connors said. “But that all ended with Brexit. Now, even though the events seem dire, volume is low and and reversals are sharp. People are looking through to things that keep them long. Buy-the-dip is in place.”</p> </blockquote> <p>None other than <a href="">JPMorgan's Marco Kolanovic quantified this effect</a>, showing that starting with the August 2015 ETFlash crash, and passing through the Brexit, Trump and ultimately Italian vote, the BTFD rebound has been shorter and shorter, shrinking from 65 days to just a few hours. This is what Kolanovic wrote last December:</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><strong>It appears that the time horizon of macro traders has shortened, likely as a result of increased participation of machines and algorithms that are quicker to adjust to significant events and can eliminate trading activity of slower investors. </strong>Consider for example the US elections - traders in Japan registered a 5.4% Nikkei drop on the 9th, followed by a 6.7% rally on the 10th, while S&amp;P 500 investors did not register a significant close-to-close move over the election (due to market hours difference). These two days were enough to shift the volatility regime (usually calculated from closing returns) for the whole of 2016 for the Japanese equity market, and leave it unchanged for S&amp;P 500 (e.g. think of rebalancing needs of a hypothetical risk parity fund, or a short volatility strategy based on Nikkei vs. one based on S&amp;P 500). <strong>We also noticed that for a number of significant catalysts this year (Brexit, US Election, Italy Referendum) broad expectations were wrong both on the outcome and the directionally forecasted impact. </strong>It is possible that the lack of market reaction (or a reaction that went against the accepted narrative) was in part driven by investors’ reluctance to transact (“two negatives equal a positive”). </p> </blockquote> <p><img src="" width="501" height="360" /></p> <p>Whether central banks are involved in some capacity in these dramatic rebounds remains to be seen: so far all that has been publicly documented is that both the BOJ and SNB, as well as various sovereign wealth funds, have been aggressive in purchasing and accumulating stocks come rain or shine, with zero regard for price. Why would retail investors and algos not piggyback?</p> <p>And piggybacking is precisely what retail investors are doing, hopeful to profit during the <a href="">upcoming melt up phase</a>, as Ed Yardeni found out just a few days ago.</p> <p>&nbsp;</p> <p><a href=""><img src="" width="505" height="111" /></a></p> <p>The former chief economist for Deutsche Bank was in Texas recently, visiting clients. In hurricane-ravaged Houston, locals were still dealing with the aftermath of Harvey, and two clients couldn’t meet because of damaged buildings. </p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>Yet there was one thing on everyone’s mind. “<strong>They wanted to talk about the potential for a stock market melt-up</strong>,” he says. A melt-up is a last-gasp surge like the one in 1999, when the Nasdaq doubled—just before it crashed. <strong>Nothing like it has happened in this bull market. To the extent 2017 has a precedent, the current backdrop is closer to 1995 or 2013, when the S&amp;P 500 gained 30 percent or more with barely a peep of turbulence</strong>.</p> </blockquote> <p>So there's the self-fulfilling prophecy of a "melt up", there is also the sense that investors have become invincibly, riding on the coattails of $14 trillion in central bank liquidity and not realizing it:</p> <p>According to Wedbush Securities Inc.’s Ian Winer, all the things underpinning the gains, from robust earnings and the Federal Reserve’s low interest rate policy to the falling dollar and the retreat of sellers, has created a sense of invincibility. “<strong>Is the risk priced into the market appropriate to what the real risk is?” </strong>says Winer, the firm’s director of equities. “<strong>To me, it isn’t. People have grown more complacent and certainly more speculative, and it’s a little bit frightening.” <br /></strong></p> <p>Of course, knowing it's a bubble is meaningless, unless one also knows when it will burst. And it is this that is the problem, as Bloomberg points out:</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>it’s far from obvious what will trigger the next downturn or when investors should get out. The hazards of market timing were illustrated by a Bank of America Corp. study last year, which showed that missing the very end of a bull market often means missing a quarter of its gains. What’s more, anyone who owned stocks just before they crashed in the worst bear market since the Great Depression would still have doubled their money as long as they had the fortitude—and enough of a financial cushion—not to bail.</p> </blockquote> <p>Meanwhile, and most ironically, the biggest losers even as the zombie market, in which nobody bothers to sell any more hits all time highs, are professional, active investors, who have become a dying breed, among the biggest active to ETF, or passive, asset allocation shift in history.&nbsp;</p> <p><a href=""><img src="" width="500" height="675" /></a></p> <p>Among the very few who are happy with the current "dead" market, is the Vanguard Group, whose trillions of dollars in low-cost and index-tracking funds have been credited and blamed for the current market mood, as so many retail investors have decided just to buy a diversified fund and forget about it—the new mindset is a sign of a job well done. </p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>“To see people not trading wildly on political news is optimistic,” says Fran Kinniry, a principal in Vanguard’s investment strategy group. “<strong>Investors are acting in a very positive way, how a professional investor should be investing. Have an asset allocation and rebalance it, and do your best to differentiate between the noise vs. reality</strong>.”</p> </blockquote> <p>Still, one can't help but wonder just how professionally these investors will be acting during the next, perhaps last, ETFlash crash, one which will make the August 24, 2015 market break, ETF and VIX freeze seem like a walk in the park. One thing that is certain: the market will simply shut down that day. The question is for how long, and will it ever reopen.</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="1342" height="826" alt="" src="" /> </div> </div> </div> Alpha Bank of America Bank of America Bear Market Bitcoin BOJ Business Central Banks Credit Suisse Deutsche Bank Economic bubbles Economy ETC European Union European Union Finance Financial markets Great Depression Investment Investment strategy Italy Janet Yellen Japan Market Timing Market timing Mathematical finance Meltdown Meltup Money NASDAQ NASDAQ 100 Nikkei None North Korea Real estate Reality recovery Risk parity S&P S&P 500 SNB Stock market Technical analysis Twitter Twitter US Federal Reserve Volatility Mon, 16 Oct 2017 19:34:17 +0000 Tyler Durden 605412 at One Bank's Shocking Warning: Central Banks Will Lead To "An Orgy Of Blood" <p>Whereas several years ago, forecasting that central banks would unleash wars, bloodshed and social conflict was considered so preposterous, it was relegated to the domain of fringe, tinfoil hat blogs, it has gradually been &quot;normalized&quot; as even the mainstream realized just how clueless the world&#39;s central planner truly are, and this scandalous topic ghas since migrated to the permitted list of items for discussion by respected, establishment institutions including banks and wealth managers, such as the UK&#39;s <a href="">Clarmond Wealth</a>.</p> <p>Case in point, in the latest market comment note by Clarmond&#39;s Chris Andrew and Mustafa Zaidi, titled aptly enough &quot;<strong>An Orgy of Blood</strong>&quot; the duo warn, in no uncertain terms, that &quot;<strong>central banks are currently furnishing the excess credit that, in the past, has been followed by an orgy of blood.</strong>&quot;</p> <p>Below we repost the <a href="">full Clarmond note </a>which just a few short years ago would have prompted scandalous outrage across the &quot;very serious people&#39;s&quot; world of finace, and now is more or less considered common knowledge as to how &quot;this&quot; all ends, and hardly generates any reaction.</p> <p>* * *</p> <p><strong>An Orgy of Blood </strong><em>(<a href="">link</a>)</em></p> <p class="paragraph_style_5"><strong>The Bank of Japan&rsquo;s current path provides an ominous reminder of a similar era 80 years ago. These policies, which are also being followed by the other world central banks, will lead to disaster.</strong></p> <p class="paragraph_style_6"><span class="style_2">&ldquo;One man - one kill&rdquo; railed inoue Nissho, leader of the Ketsumeidan (the Blood Pledge Corps), a Japanese ultranationalist group of the 1930s committed to cleansing the country of &lsquo;traitors&rsquo; - the leaders of business and government. </span></p> <p class="paragraph_style_6"><a href=""><img alt="" src="" style="width: 500px; height: 243px;" /></a></p> <p class="paragraph_style_6"><span class="style_2">The first name on their death list was Inoue Junnosuke, a former Finance Minister, an austerity advocate and former governor of the Bank of Japan (BOJ); <strong>he was shot as he visited a nursery school</strong>. The next name was Dan Takuma, head of the Mitsui Group, the Japanese Goldman Sachs; <strong>he was shot in front of his office in the fashionable Nihonbashi district. </strong>Further attacks on the BOJ and Mitsubishi Bank followed but were unsuccessful. The &ldquo;world of cosmopolitan finance had collided with nationalist resentment.&rdquo; The liberal elite was stunned, unable to provide answers to the social turmoil of the time; and with the establishment paralysed, the public began to sympathise with the killers&rsquo; aims. </span></p> <p class="paragraph_style_6"><span class="style_2">Enter Finance Minister Takahashi Korekiyo. He placated the nationalists by championing massive deficit financing, via the BOJ, to pull Japan out of its economic morass. Japan&rsquo;s economy soon embarked on a period of economic growth with stable prices, full employment and humming factories, an &ldquo;economic nirvana.&rdquo; <strong>Seven decades later these results were heralded a success by another central banker trying a similar trick - Ben Bernanke</strong>.</span></p> <p class="paragraph_style_6"><span class="style_2">Korekiyo&rsquo;s plan was to fund government spending by having the BOJ directly purchase all the government-issued bonds. The hope was that, when conditions and inflation improved, the bonds would be sold back into the market. <strong>Four years later, the BOJ&rsquo;s balance sheet was 90% of GDP, and the economy (and for &ldquo;economy&rdquo; read military) was totally dependent on government spending financed by the BOJ.</strong></span></p> <p class="paragraph_style_6"><span class="style_2">As the first modest hint of inflation arrived Korekiyo attempted to sell government bonds publicly, but the auction failed. <strong>With this failure it became clear that the bonds which had been stuffed onto the BOJ&rsquo;s balance sheet could never be sold</strong>. Korekiyo&rsquo;s struggle to &lsquo;cut up the credit card&rsquo; <strong>culminated in him suffering a similar fate to Junnosuke and being cut up in an attack of army machetes</strong>. As the BOJ&rsquo;s balance sheet crossed 100% of GDP, there could be no turning back, <strong>the road to conflict had been primed by the BOJ&rsquo;s swollen balance sheet and the money that had flooded into the military.</strong></span></p> <p class="paragraph_style_6"><u><strong><span class="style_3">A world at war?</span></strong></u></p> <p class="paragraph_style_6"><span class="style_2">The current Bank of Japan&rsquo;s balance sheet has now again crossed that fabled 100% of GDP and it is getting close to owning 45% of outstanding government bonds. There is no end in sight with the BOJ buying $60 billion a month of government debt. At this current pace the modern BOJ will by 2019 be the proud owner of 60% of the local bond market. <strong>There is no longer a market price for a Japanese Government Bond, it is an asset whose price is set by the BOJ</strong>. The key difference between today and the 1930s is that Japan now has an open capital account, therefore the only untethered market price is the currency. The Yen&rsquo;s continued devaluation will be deep and comprehensive, while Japanese equities will continue to rise, adjusting to the currency loss. </span></p> <p class="paragraph_style_6"><span class="style_2">But there is an even darker side to the actions of the BOJ and its central bank brethren. <strong>Central banks continue to act as the enablers to their respective governments</strong>. They provide funding that papers over the underlying social anxiety, delaying our much needed dialogue. </span></p> <p class="paragraph_style_6"><span class="style_2">When historians look back and see the cavalier balance sheets of the central banks they would rightly assume <strong>there was a world war going on as every central bank balance sheet is now approaching or exceeding levels not seen since 1945. However, the worrying truth is that there are no external enemies to overcome; the central bankers are only maintaining the growth trajectory that we demand.&nbsp;&nbsp;&nbsp; </strong></span></p> <p class="paragraph_style_6"><u><strong><span class="style_3">The age of sloganeers</span></strong></u></p> <p class="paragraph_style_6"><span class="style_2">The current social contract is mired in the quicksand of global finance. <strong>It is being kept alive by the corpulent balance sheets of central banks, who do their government&rsquo;s bidding so that the politicians do not have to put unpleasant choices in front of their electorates</strong>. This cowardly behaviour gives rise to slogans and sloganeers, who provide familiar but false checklists of remedies. &ldquo;Take bank control&rdquo;&hellip;&rdquo;America First&rdquo;&hellip;&rdquo;One Belt, One Road&rdquo;&hellip;&rdquo;Ein Volk, ein Reich, ein Fuhrer&rdquo;&hellip;&rdquo;One Man - One Kill&rdquo;. </span></p> <p><strong><span class="style_2">Central banks are currently furnishing the excess credit that, in the past, has been followed by an orgy of blood.</span></strong></p> <p><a href=""><strong><span class="style_2"><img alt="" src="" style="width: 500px; height: 279px;" /></span></strong></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="3516" height="1964" alt="" src="" /> </div> </div> </div> Bank of Japan Bank of Japan Bank of Japan Ben Bernanke Ben Bernanke Blood Pledge Corps Bond Bond Business Central bank Central bankers Central Banks Ch??, Tokyo Economy Economy of Japan Finance Financial services goldman sachs Goldman Sachs Japan Junnosuke Inoue Nihonbashi, Tokyo Quantitative easing Yen Mon, 16 Oct 2017 19:21:10 +0000 Tyler Durden 605421 at