http://www.zerohedge.com/fullrss2.xml/feeds.feedburner.com/~r/zerohedge/feed/~4/zwg3dhgylfa en The 30-Years Bubble - Why America Ain't That Rich http://www.zerohedge.com/news/2017-12-12/30-years-bubble-why-america-aint-rich <p><a href="http://davidstockmanscontracorner.com/the-30-years-bubble-why-america-aint-that-rich/"><em>Authored by David Stockman via Contra Corner,</em></a></p> <div class="article-content"> <p><strong>The entire financial and economic narrative in&nbsp;today&#39;s&nbsp;Bubble Finance world&nbsp;is virtually&nbsp;context- and history-free; it&#39;s all about the short-term deltas and therefore exceedingly misleading and dangerous.</strong></p> <p>So when a big trend or condition is&nbsp;negative and unsustainable, you generally&nbsp;can&#39;t even get a glimpse of it from the so-called&nbsp;&quot;high-frequency&quot; weekly, monthly and even quarterly data on which the financial press and its casino patrons thrive. And that&#39;s&nbsp;not merely because most of the data from the government statistical mills is heavily massaged and modeled and often&nbsp;&quot;adjusted&quot; beyond recognition over 3-5 year intervals&nbsp;of statistical&nbsp;revision.</p> <p>Beyond that,&nbsp;however, even medium term trends get largely ignored. That&#39;s because<strong>&nbsp;the purpose of economic and financial data today&nbsp;is to facilitate&nbsp;daily (and hourly) trading in the casino---not inform long-term investors about underlying trends, conditions and prospects.</strong></p> <p>The&nbsp;investor class of yore, in fact, has largely&nbsp;been destroyed by the last&nbsp;30-years of monetary central planning and the Wall Street deformations it has fostered----meaning that, increasingly, headline reading algo-traders and trend-following speculators&nbsp;are the main consumers of the &quot;incoming data&quot;.</p> <p>For&nbsp;instance, scratch a talking head today&nbsp;and you get the &quot;strong economy&quot; meme as purportedly reflected in two&nbsp;back-to-back quarters of&nbsp;<em><strong>3%</strong></em> real GDP growth. Yet there is absolutely nothing &quot;strong&quot; about the picture below or compelling about the last two quarters.</p> <p>After all, during Q2 and Q3 2014 there were back-to-back growth quarters&nbsp;of<em><strong> 4.6%</strong></em> and <em><strong>5.2%</strong></em>, respectively. But that didn&#39;t last long----nor did the<em><strong> 3.1%</strong></em> and <em><strong>4.0%</strong> </em>growth rates of Q3 and Q4 of 2013 or the three-quarter average of <em><strong>3.0%</strong></em> in Q2-Q4 of 2010.</p> <p>All of those &quot;strong&quot; quarters seem to have disappeared from the groupthink narrative, as well as the punk quarters strewn in-between. In part, that&#39;s because most of them were reported at&nbsp;far lower or higher levels&nbsp;at the time, meaning that the underlying trend has simply disappeared from the high-frequency narrative about good deltas and excuses for ones which are not.</p> <p><strong>Still,&nbsp;the heart of the problem is the foolishness of&nbsp;annualizing 90 days worth of&nbsp;preliminary data with seasonal adjustment factors that are rarely up to the task.</strong></p> <p>Moreover, the large aggregates like GDP are inherently buffeted by short-term&nbsp;shocks ( e.g. severe hurricanes not embedded in the seasonals), inventory stocking and destocking mini-cycles and the ebb and flow of global trade,&nbsp;exchange rates&nbsp;and credit impulses. These,&nbsp;in turn,&nbsp;reflect the machinations of what has now become a worldwide&nbsp;convoy of hyper-interventionist Keynesian central banks.</p> <p><img class="alignnone size-medium" src="https://fred.stlouisfed.org/graph/fredgraph.png?g=gzP9" style="width: 600px; height: 332px;" /></p> <p><strong>Even modest adjustments to deal with some of these disabilities give a starkly different picture.</strong>&nbsp;For example, consider what happens when you&nbsp;remove the inventory contribution to quarterly&nbsp;GDP----which washes to essentially zero over time---and also set aside the highly volatile impact of net import/export trade, which has actually&nbsp;averaged a <em><strong>-0.28%</strong></em> contribution to GDP growth over the last 11 quarters.</p> <p>What remains might be termed &quot;core GDP&quot; and includes consumer spending, fixed investment and government output. On that basis,&nbsp;growth was <em><strong>2.4%</strong> </em>in Q4 2016;<em><strong> 2.4%</strong></em> and <em><strong>2.8%</strong></em> in Q1 and Q2&nbsp;2017, respectively;&nbsp;and just<em><strong>&nbsp;2.0%</strong></em>&nbsp;in Q3 2017. That is, the latest quarter showed the <em><strong>weakest</strong> </em>annualized expansion rate in the last year and there was no &quot;3&quot; in it or any of the previous three periods.</p> <p>In fact, a true long-term investor would only need to know whether the trend of year-over year growth in <em><strong>real final sales</strong></em>---which removes the volatile inventory component---is accelerating or decelerating and where&nbsp;the economy&nbsp;stands in the business cycle.</p> <p>The chart below answers that question and there is no awesome 3% about it:&nbsp;Real final sales growth&nbsp;during the&nbsp;current so-called recovery <em><strong>peaked 10 quarters ago;</strong></em> has always been exceedingly weak given the unusual depth of the Great Recession; and is now constrained by an&nbsp;expansion cycle that is&nbsp;exceedingly long in the tooth by all historic standards at 102 months.</p> <p>Even on a near-term basis, it&#39;s pretty hard to say that the<em><strong> 2.3%</strong></em> year-over-year expansion of real&nbsp;final sales&nbsp;in Q3 2017 was meaningfully different from the<em><strong> 2.2%</strong></em> year-0ver-year rate of gain recorded in Q1 2016.</p> <p>Indeed, the contrast&nbsp;between the alleged&nbsp;&quot;strengthening&quot;&nbsp;direction of the last <em><strong>four</strong></em>&nbsp;<em><strong>green bars</strong> </em>in the chart above (quarterly GDP SAAR)&nbsp;and the actual&nbsp;&quot;weakened&quot; position represented by the&nbsp;last<em><strong> four</strong> </em><strong>blues bars</strong> on the chart below (Y/Y real final sales growth)&nbsp;highlights why the Wall Street narrative is so chronically incomplete and misleading. The stock peddlers who moonlight as&nbsp;&quot;strategists&quot; and &quot;economists&quot; at Goldman, Morgan Stanley etc are essentially&nbsp;selling a short-term trading &quot;edge&quot; to fast money clients, not proffering fundamental analysis about the state of the&nbsp;business cycle and&nbsp;its implications for PE multiples and stock prices.</p> <p>That&#39;s more than evident in the fact that when the real final sales&nbsp;growth trend peaked at <em><strong>3.8%</strong></em> in Q1 2015, the S&amp;P 500 stood at 2070 and was valued at <em><strong>20.8X</strong> </em>LTM reported earnings, compared to 2660 today, which represents <em><strong>24.9X</strong> </em>reported earnings.</p> <p>That is, there has been a&nbsp;<em><strong>40% downshift</strong> </em>in the real final sales growth rate accompanied by a <em><strong>400 basis point expansion</strong> </em>of the PE multiple---and from what was already the nosebleed section of history<strong>.&nbsp;And the current PE&nbsp;inflation is occurring at a&nbsp;point when the business expansion is approaching the longest one in recorded history.</strong></p> <p><img class="alignnone size-medium" src="https://fred.stlouisfed.org/graph/fredgraph.png?g=gzU3" style="width: 599px; height: 313px;" /></p> <p><strong>Indeed, this late cycle PE expansion is all the more ludicrous when the current condition of the US economy is placed in full historic context.</strong>&nbsp;Given the depth of the 2008-09 downturn and the tepid cumulative gains since then&nbsp;(there should have been a strong rebound), the handwriting is on the wall, emblazoned in red letters.</p> <p>To wit,&nbsp; even if the current expansion should last another 12 or even 24 months, there still is no conceivable set of quarterly&nbsp;gains&nbsp;that could significantly&nbsp;elevate the <em><strong>1.2%</strong> </em>peak-to-peak real final sales growth rate for this cycle to date&nbsp;(i.e. it already embodies 108 months of actual results). But as&nbsp;shown below, that&#39;s&nbsp;just <em><strong>half</strong> </em>the level of the Greenspan housing boom, and barely <em><strong>one-third</strong> </em>of the 1980s and 1990s expansions.</p> <p>So why are PE multiples (i.e. honest ones based on reported GAAP, not Wall Street ex-items forward hockey sticks) rising to historic highs, when the US economy&#39;s&nbsp;trend growth capacity has succumbed to&nbsp;Ross Perot&#39;s famous &quot;sucking sound to the south&quot;, and when on top of that profit margins are at all-time highs and will eventually also succumb to mean-reversion towards the south?</p> <p><em><strong>We think the answer is patently obvious:&nbsp;Namely, the&nbsp;casino is not capitalizing the true&nbsp;facts of the US economy or even of reported earnings. The latter came in a&nbsp;$107 per share for the September LTM period----exactly $1 thin dollar above the $106 per share level recorded 36 months ago in September 2014 when the US&nbsp;economy was entering its cyclical high (blue bars above).</strong></em></p> <p>Instead,&nbsp;the stock market&nbsp;is essentially deliriously chasing the price action and pure momentum. So doing, it is implicitly&nbsp;capitalizing an omnipotent central bank that has purportedly&nbsp;vanquished the business cycle and ushered in an era of endless full employment and low bond yields, world without end.</p> <p><img class="alignnone size-medium wp-image-127102" src="http://davidstockmanscontracorner.com/wp-content/uploads/2016/11/Capture-480x333.png" style="width: 600px; height: 416px;" /></p> <p><em><strong>But that gets us to the 30-years bubble. Stock market capitalization of perpetual full employment is another way of saying that the economic and financial foundation of the US economy is rock solid; and is&nbsp;capable of sustained expansion like no other time in history---while also being completely immune to external shocks such as, say, a crash of the Red Ponzi or the bankruptcy of Italy and consequent break-up of the Eurozone and&nbsp;collapse of the euro.</strong></em></p> <p>That presumption is&nbsp;preposterous, of course, but is nonetheless embedded in the Wall Street/Washington narrative. Otherwise, they would not be celebrating the chart below and last week&#39;s news that household net worth in Q3 2017 posted at a breathtaking historic high of <em><strong>$97 trillion</strong></em>. Yes, with a &quot;T&quot;!</p> <p>The excitement, of course, was that the number was up by&nbsp;<em><strong>$7.3 trillion</strong> </em>or <em><strong>8.1%</strong></em>&nbsp;from Q3 2016 (i.e. the eve of Trump&#39;s election), and by <em><strong>$42 trillion</strong> </em>from the post-crisis low in Q1 2009.</p> <p>Who would have thunk it? A&nbsp;whopping <em><strong>$42 trillion</strong> </em>of new&nbsp;national riches that absolutely no one could have imagined in the dark days of a purported near-armageddon 100 months ago.</p> <p>Then again, the reason that the impossible has morphed into a quarterly&nbsp;celebrati0n on bubblevision is that no one is paying attention to the trend, its implications for the future and the economic logic embedded therein.</p> <p>As to the latter, consider this. During the 30 years of halcyon prosperity in America between Q2 1957&nbsp;and Q2 1987, real GDP grew at a<em><strong> 3.54%</strong></em> compound annual rate, while real household net worth rose at a nearly identical<em><strong>&nbsp;3.42%</strong></em> annualized&nbsp;rate.</p> <p>The one tracked the other, of course, because during any sustained period of time, the real wealth of a society cannot grow any faster than the growth of production and income. Not surprisingly, therefore, household net worth weighed in at <em><strong>3.70X</strong> </em>GDP in 1957 and the very same&nbsp;<em><strong>3.68X</strong> </em>GDP on the eve of Alan Greenspan&#39;s arrival at the Fed.</p> <p>But that&#39;s where the skunk in the woodpile comes in. In a word, the regime of Keynesian monetary central planning or Bubble Finance ushered in by the Maestro, and then aggravated by Bernanke and Yellen during and after the Fed induced Great Financial crisis, caused the iron linkage between long-term growth of production and wealth to be temporarily suspended.</p> <p>Consequently, household wealth---which soared from<em><strong> $18 trillion</strong> </em>to <em><strong>$97 trillion</strong> </em>between Q2 1987 and Q3 2017, as shown in the orange bars below, grew far faster than GDP. Accordingly, it now stands at an off-the-charts <em><strong>5.0X</strong> </em>nominal GDP of <em><strong>$19.5 trillion</strong></em>.</p> <p><strong>Stated differently, even though the trend growth rate has fallen sharply during the last 30 years, the wealth capitalization rate of the household sector has soared into the wild blue yonder compared to all prior history.</strong></p> <p>These ratios are both expressed in nominal numbers, of course,&nbsp; but when the chart below is re-priced into constant dollar terms by the GDP deflator, the disconnect is made all the more dramatic. Namely, even as the thirty-year real GDP growth rate fell from <em><strong>3.54%</strong></em> during 1957-1987 to <strong>2.54%</strong> during the last thirty year period, the real growth rate of household net worth actually accelerated.</p> <p><strong>Since the Greenspan instigated era of Bubble Finance commenced in 1987, real household net worth has nearly tripled in today&#39;s dollars (from $33 trillion to $97 trillion), representing a <em>3.6% </em>annual growth rate.</strong></p> <p>\<img class="alignnone size-medium" src="https://fred.stlouisfed.org/graph/fredgraph.png?g=gwnb" style="width: 600px; height: 401px;" /></p> <p>Then again, the chart below suggests why these staggering gains in purported household wealth are not what they are cracked-up to be.</p> <p>To wit, real median household income during the same 30-year period has crept higher at just a <em><strong>0.4%</strong> </em>annual rate. That means, in turn, that real wealth, as reported by the Fed&#39;s flow-of-funds series, has grown <em><strong>nine times</strong> </em>faster than real&nbsp;median household&nbsp;incomes in America.</p> <p><u><em><strong>To be sure, on the surface that reflects the reverse Robin Hood effect of Bubble Finance at work. The inflation of financial and real estate assets have overwhelming gone to the top 1% and 10% of households.</strong></em></u></p> <p><u><em><strong>But at the end of the day, that giant gap cannot be explained away by the notion that there has been a permanent redistribution of the wealth to the top of the economic&nbsp;latter.</strong></em></u></p> <p>To the contrary, the truth of the matter is that the <em><strong>$97 trillion</strong> </em>of household wealth reported last week is neither real nor sustainable; it&#39;s merely another flashing red warning sign that financial asset inflation has reached dangerous asymptotic&nbsp;heights.</p> <p>For instance, if the household net worth-to-GDP ratio had remained at its historic&nbsp;<em><strong>3.7X </strong></em>level<em>&nbsp;</em>through the present, household net worth today would be just&nbsp;<em><strong>$72 trillion</strong></em>, implying that the Fed has generated at least <em><strong>$24 trillion</strong> </em>of bottled air since 1987.</p> <p><img class="alignnone size-medium" src="https://fred.stlouisfed.org/graph/fredgraph.png?g=gzMW" style="width: 600px; height: 297px;" /></p> <p><strong>In fact, the overstatement of household net worth is far larger than even that. The burgeoning demographic/fiscal crisis in America will actually grind economic growth toward the zero bound during the decade of the&nbsp;2020s as massive public sector borrowing forces bond yields dramatically higher.</strong></p> <p>And that will reveal the&nbsp;ugly underside&nbsp;of last week&#39;s flow-of-funds report. To wit, the nation is now saddled with <em><strong>$68 trillion</strong> </em>of public and private debt compared to <em><strong>$10.7 trillion</strong> </em>when the era of Bubble Finance incepted back in October 1987.</p> <p>In combination with 85 million retirees (by the end of the next decade), this debt albatross will smother American capitalism in high taxes, high interest rates and battered balance sheets in both the household and business sectors.&nbsp;As that outcome&nbsp;unfolds, the current absurdly inflated stock market PE multiples&nbsp;will get monkey-hammered by the reality of&nbsp;stagnant growth and struggling profits.</p> <p>That is to say, <strong>America ain&#39;t nearly&nbsp;so rich as the Fed&#39;s fantasy figures suggest</strong>.</p> <p>And that&#39;s a&nbsp;truth you can<strong> take to the bank by getting out of the casino now!</strong></p> </div> <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="477" height="255" alt="" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/20171212_stockman_0.jpg?1513107699" /> </div> </div> </div> http://www.zerohedge.com/news/2017-12-12/30-years-bubble-why-america-aint-rich#comments Alan Greenspan Bond Business Central Banks Economic policy of the George W. Bush administration Economy Economy of Canada Economy of the United States ETC Eurozone Financial crisis of 2007–2008 fixed GAAP Great Recession Gross domestic product Italy Macroeconomics Morgan Stanley Nominal GDP PE Multiple Presidency of George W. Bush Price Action Real estate Reality Recession Recession recovery S&P 500 Unemployment US Federal Reserve World economy Tue, 12 Dec 2017 19:52:25 +0000 Tyler Durden 609013 at http://www.zerohedge.com Revolutionary Guard Commander Says Iran Will Support Palestinian Forces In Fight Against Israel http://www.zerohedge.com/news/2017-12-12/iran-revolutionary-guard-commander-says-will-support-palestinian-forces-fight-agains <p>With US forces in the middle-east in chaos and disarray, with Saudi Arabia unsure if it wants to side with Israel or other Arab nations, and with its ally Russia increasingly more influential in the region, Iran is not only increasingly flexing its muscles, but is hardly ashamed to show it off. </p> <p>Over the weekend, we <a href="http://www.zerohedge.com/news/2017-12-09/irans-revolutionary-guard-sends-formal-message-us-military-leave-syria-or-else">reported that according to source information, </a>the commander of the Iranian Revolutionary Guards Corp, Brigadier General Qassem Soleimani sent a formal verbal message, via Russia, to the head of the US forces command in Syria, advising him to pull out all US forces to the last soldier “<strong>or the doors of hell will open up</strong>”.</p> <p>“My message to the US military command: when the battle against ISIS will end, no American soldier will be tolerated in Syria. I advise you to leave by your own will or you will be forced to it,” said Soleimani to a Russian officer. Soleimani asked the Russian officer to make known the Iranian intentions towards the US: that they will be considered as forces of occupation if these decide to stay in northeast Syria where Kurds and Arab tribes cohabit together.</p> <p> <em><a href="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/12/07/iran.jpg"><img src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/12/07/iran.jpg" style="width: 400px; height: 456px;" /></a></em></p> <p><em>IRGC commander Qassem Soleimani <br /></em></p> <p>Soleimani’s message to the US clearly indicated the promise of ‘surprise measures’ against the US:&nbsp; "<strong>You shall face soldiers and forces you have not experienced before in Syria and you will leave the country sooner or later.</strong>" Furthermore, Russia conveyed to the US that Iran will stay in Syria as long as President Assad desires, and he insists on liberating the entire territory from all forces without exception (although Russia confirmed to the US its intention to refrain from offering any air support to Iran and its allies in the case of attacks on US forces).</p> <p>The exchange took place days after CIA Director Mike Pompeo said last week that he <a href="http://www.newsweek.com/cia-director-pompeo-message-iran-political-stunt-730555">had sent a letter to Soleimani </a><strong>expressing his concern about Iran’s intention to attack American interests and “will hold Soleimani and Iran accountable for any attack in Iraq</strong>.”</p> <p>If the threat was meant to spook the veteran Iranian general, it failed to do that, and on Tuesday, Soleimani expanded his preemptive war message, <strong>saying his nation is ready to support Palestinian forces in the Gaza Strip, days after the U.S. recognized Jerusalem as Israel’s capital unleashed anti-Israel and anti-US violence uniformly around the world</strong>. As a reminder, Palestinians claim Jerusalem’s eastern sector, where the mosque stands, as the capital of a future state, and they oppose the U.S. move. As we reproted last week, Hamas has repeatedly called for another Intifada against Israel in response, though so far protests have been limited.</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/11/30/IRGC%20troops.jpg"><img src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/11/30/IRGC%20troops_0.jpg" width="400" height="275" /></a></p> <p>According to <a href="https://www.bloomberg.com/news/articles/2017-12-12/iran-guards-commander-says-ready-to-back-palestinian-forces">Bloomberg</a>, Soleimani made the offer in a phone call late Monday with leaders of groups in Gaza, according to the Revolutionary Guard Corps’ website, Sepah News, which didn’t give details of the assistance proffered. Other forces in the region are ready to defend the Al-Aqsa mosque in Jerusalem, Soleimani also told the Gaza faction leaders, without identifying them. The mosque is Islam’s third-holiest shrine and a frequent flashpoint for tensions between Israel and the Palestinians.</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>Soleimani spoke a day after the head of Lebanon’s Hezbollah movement, <strong>Hassan Nasrallah, called on all “resistance” groups in the region to come up with a unified strategy to take back Jerusalem</strong>. Iran’s Quds force operates beyond the country’s borders and has fought Islamic State in Iraq and backed President Bashar al-Assad in Syria. <strong>Iran also supports proxies such as Hezbollah and Hamas that have warred with Israel. </strong></p> </blockquote> <p>Meanwhile, Robert Gates, the former U.S. defense secretary in the administrations of George W. Bush and Barack Obama, sided with Iran, noting that Trump’s decision is “counter-productive to the administration’s own objectives,” Gates told Bloomberg News. “There was a sense this administration really thought it had a shot at making some real progress,” he said in an interview in Dubai. This announcement “makes it much tougher to try and get any kind of political progress” between Israel and the Palestinians. Gates concurred with European and Arab leaders who say it is liable to fuel more conflict in the Middle East. The international community doesn’t recognize Israeli sovereignty over Jerusalem, whose eastern sector Israel captured in the 1967 Middle East war.</p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="800" height="551" alt="" src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/IRGC%20troops.jpg?1513106740" /> </div> </div> </div> http://www.zerohedge.com/news/2017-12-12/iran-revolutionary-guard-commander-says-will-support-palestinian-forces-fight-agains#comments Barack Obama Bloomberg News Central Intelligence Agency Dubai Foreign relations of Iran Hamas Hamas Hezbollah Hizballah Iran Iranian people Iraq Irregular military Islam Islam and antisemitism Israel Middle East Middle East northeast Syria Persian people Politics Qasem Soleimani Quds Force Revolutionary Guard Corps Robert Gates Saudi Arabia Terrorism Twelvers War Tue, 12 Dec 2017 19:30:55 +0000 Tyler Durden 609011 at http://www.zerohedge.com The Fed's Lies Are Going to Cost Investors A Fortune in 2018 http://www.zerohedge.com/news/2017-12-12/feds-lies-are-going-cost-investors-fortune-2018 <p>The Fed claims we&rsquo;re not in a bubble.</p> <p>This, like the Fed&rsquo;s claims inflation is too low, is hogwash.</p> <p>As I outline in my bestselling <strong>book <em><a data-mce-="" href="https://www.amazon.com/dp/197463406X" target="_blank">The Everything Bubble: The Endgame For Central Bank Policy</a></em></strong><em>, the</em> reality is that the Fed&rsquo;s entire monetary focus is on papering over declining living standards in the US.</p> <p>Since 1971, real incomes are down. This fact stares us in the face: before that time, one parent worked and most families got by, today both parents work and rely on debt to get by. Indeed, the fact is that most Americans are worse off than they were 10 years ago, 20 years ago, even 40 years ago.</p> <p>The Fed tries to mask this by making debt as cheap as possible, and then &ldquo;inflating the debt away&rdquo; by debasing the US Dollar.</p> <p>That, in a nutshell, is the Fed&rsquo;s entire game.</p> <p>Asset bubbles are a natural consequence of this, as the Fed is forced to maintain &ldquo;loose money&rdquo; policies ad infinitum (the alternative is to risk triggering a sovereign debt crisis/ debt deflationary spiral).</p> <p>This latest bubble is perhaps the most egregious.</p> <p>Talking heads like to talk about Price to Earnings (P/E) ratios, but earnings can be easily faked to make this multiple unrealistically low. Sales are much harder to fake: either the money comes in the door or it doesn&rsquo;t.</p> <p>With that in mind, consider that based on P/S, the market is right where it was at the peak of the 1999 Tech Bubble: arguably the most insane stock bubble of the last 100 years.</p> <p><img alt="" src="http://www.zerohedge.com/sites/default/files/images/user20289/imageroot/2017/11/30/GPC121217.png" style="width: 460px; height: 258px;" /></p> <p>H/T Bill King</p> <p>The big difference between this bubble and that of 1999 is that currently we are MUCH FARTHER down the monetary rabbit hall than we were during the late &#39;90s.</p> <p>The Fed has already engaged in $3.5 trillion in QE. And it&#39;s also employed Zero Interest Rate Policy (ZIRP) for seven years. And that is what lead to the current bubble.</p> <p>So when this one bursts, the Fed will be forced to engage in even more extreme monetary policy. I&#39;m talking about policies that will make ZIRP and $3T in QE look like child&#39;s play.</p> <p>It will take time for this to unfold, but as I recently told clients of my&nbsp;<em><strong>Private Wealth Advisory</strong></em> report, we&#39;re currently in &quot;late 2007&quot; for the coming crisis.</p> <p>The time to prepare for this is NOW before the carnage hits.</p> <p>On that note, we are putting together an Executive Summary outlining all of these issues as well as what&rsquo;s to come when The Everything Bubble bursts.</p> <p>It will be available exclusively to our clients. If you&rsquo;d like to have a copy delivered to your inbox when it&rsquo;s completed, you can join the wait-list here:</p> <p><a data-mce-="" href="https://phoenixcapitalmarketing.com/TEB.html"><strong>https://phoenixcapitalmarketing.com/TEB.html</strong></a></p> <p>Best Regards</p> <p>Graham Summers</p> <p>Chief Market Strategist</p> <p>Phoenix Capital Research</p> http://www.zerohedge.com/news/2017-12-12/feds-lies-are-going-cost-investors-fortune-2018#comments Business Business cycle Deflation Economic bubble Economy fed Financial crises Inflation Macroeconomics Monetary Policy Monetary policy Money Reality Sovereign Debt US Federal Reserve Zero interest-rate policy Tue, 12 Dec 2017 19:26:49 +0000 Phoenix Capital Research 609010 at http://www.zerohedge.com Pat Buchanan Asks "What Should We Fight For?" http://www.zerohedge.com/news/2017-12-12/pat-buchanan-asks-what-should-we-fight <p><a href="http://buchanan.org/blog/what-should-we-fight-for-128200"><em>Authored by Patrick Buchanan via Buchanan.org,</em></a></p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>&ldquo;We will never accept Russia&rsquo;s occupation and attempted annexation of Crimea,&rdquo; declaimed Rex Tillerson last week in Vienna.</p> <p>&nbsp;</p> <p>&ldquo;Crimea-related sanctions will remain in place until Russia returns full control of the peninsula to Ukraine.&rdquo;</p> </blockquote> <p><strong>Tillerson&rsquo;s principled rejection of the seizure of land by military force - &ldquo;never accept&rdquo; - came just one day after President Trump recognized Jerusalem as Israel&rsquo;s capital and pledged to move our embassy there.</strong></p> <p>How did Israel gain title to East Jerusalem, the West Bank and Golan Heights? Invasion, occupation, colonization, annexation.</p> <p>Those lands are the spoils of victory from Israel&rsquo;s 1967 Six-Day War.</p> <p><strong>Is Israel being severely sanctioned like Russia? Not quite.</strong></p> <p>Her yearly U.S. stipend is almost $4 billion, as she builds settlement after settlement on occupied land despite America&rsquo;s feeble protests.</p> <p>What Bibi Netanyahu just demonstrated is that, when dealing with the Americans and defending what is vital to Israel, perseverance pays off. Given time, the Americans will accept the new reality.</p> <p>Like Bibi, Vladimir Putin is a nationalist. For him, the recapture of Crimea was the achievement of his presidency. For two centuries that peninsula had been home to Russia&rsquo;s Black Sea Fleet and critical to her security.</p> <p><strong>Putin is not going to return Crimea to Kiev, and, eventually, we will accept this new reality as well.</strong></p> <p>For while whose flag flies over Crimea has never been crucial to us, it is to Putin. And like Israelis, Russians are resolute when it comes to taking and holding what they see as rightly theirs.</p> <p><strong>Both these conflicts reveal underlying realities that help explain America&rsquo;s 21st-century long retreat. We face allies and antagonists who are more willing than are we to take risks, endure pain, persevere and fight to prevail.</strong></p> <p>This month, just days after North Korea tested a new ICBM, national security adviser H. R. McMaster declared that Trump &ldquo;is committed to the total denuclearization of the Korean Peninsula.&rdquo;</p> <p>If so, we are committed to a goal we almost surely are not going to achieve. For, short of a war that could go nuclear, Kim Jong Un is not going to yield to our demands.</p> <p>For Kim, nuclear weapons are not an option.</p> <p>He knows that Saddam Hussein, who had given up his WMD, was hanged after the Americans attacked. He knows the grisly fate of Moammar Gadhafi, after he invited the West into Libya to dismantle his nuclear program and disarm him of any WMD.</p> <p>Kim knows that if he surrenders his nuclear weapons, he has nothing to deter the Americans should they choose to use their arsenal on his armed forces, his regime, and him.</p> <p><strong>North Korea may enter talks, but Kim will never surrender the missiles and nukes that guarantee his survival. Look for the Americans to find a way to accommodate him.</strong></p> <p>Consider, too, China&rsquo;s proclaimed ownership of the South China Sea and her building on reefs and rocks in that sea, of artificial islands that are becoming air, missile and naval bases.</p> <p>Hawkish voices are being raised that this is intolerable and U.S. air and naval power must be used if necessary to force a rollback of China&rsquo;s annexation and militarization of the South China Sea.</p> <p><u><em><strong>Why is this not going to happen?</strong></em></u></p> <p>While this area is regarded as vital to China, it is not to us. And while China, a littoral state that controls Hainan Island in that sea, is a legitimate claimant to many of its islets, we are claimants to none.</p> <p>Vietnam, Malaysia, Singapore, Brunei, the Philippines and Taiwan are the other claimants. But though their interests in the fishing grounds and seabed resources may be as great as China&rsquo;s, none has seen fit to challenge Beijing&rsquo;s hegemony.</p> <p>Why should we risk war with China to validate the claims of Communist Vietnam or Rodrigo Duterte&rsquo;s ruthless regime in Manila? Why should their fight become our fight?</p> <p>China&rsquo;s interests in the sea are as crucial to her as were U.S. interests in the Caribbean when, a rising power in 1823, we declared the Monroe Doctrine. Over time, the world&rsquo;s powers came to recognize and respect U.S. special interests in the Caribbean and Gulf of Mexico.</p> <p>Given the steady rise of Chinese military power, the proximity of the islets to mainland China, the relative weakness and reluctance to confront of the other claimants, China will likely become the controlling power in the South China Sea, as we came to be the predominant power in the Western Hemisphere.</p> <p>What we are witnessing in Crimea, across the Middle East, in the South China Sea, on the Korean peninsula, are nations more willing than we to sacrifice and take risks, because their interests there are far greater than ours.</p> <p><u><em><strong>What America needs is a new national consensus on what is vital to us and what is not, what we are willing to fight to defend and what we are not.</strong></em></u></p> <p><strong><em>For this generation of Americans is not going to risk war, indefinitely, to sustain some Beltway elite&rsquo;s idea of a &ldquo;rules-based new world order.&rdquo; After the Cold War, we entered a new world &mdash; and we need new red lines to replace the old.</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="437" height="261" alt="" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/20171212_fight.jpg?1513091183" /> </div> </div> </div> http://www.zerohedge.com/news/2017-12-12/pat-buchanan-asks-what-should-we-fight#comments Annexation of Crimea by the Russian Federation Caribbean China Crimea Europe Foreign policy of Donald Trump Foreign policy of the Donald Trump administration Golan Heights Government of Russia Gulf of Mexico Israel KIM Mexico Middle East Middle East national security None North Korea Politics Politics of Crimea Reality Republic of Crimea Rex Tillerson Russia Russian irredentism Russia–Ukraine relations South China Ukraine Vladimir Putin Vladimir Putin War Tue, 12 Dec 2017 19:01:16 +0000 Tyler Durden 609005 at http://www.zerohedge.com McCabe Cancels Testimony, Something "Far More Sinister" With Fusion GPS http://www.zerohedge.com/news/2017-12-12/mccabe-cancels-testimony-something-far-more-sinister-fusion-gps <p>FBI Deputy Director Andrew McCabe abruptly cancelled his closed door testimony in front of the House Intelligence Committee&nbsp;as <strong>news emerged that <a href="http://www.zerohedge.com/news/2017-12-11/senior-doj-officials-wife-worked-oppo-research-firm-produced-trump-dossier">the wife of Senior DOJ official Bruce Ohr worked for Fusion GPS</a></strong><a href="http://www.zerohedge.com/news/2017-12-11/senior-doj-officials-wife-worked-oppo-research-firm-produced-trump-dossier"></a>, the opposition research firm which assembled the infamous "Trump dossier." Ohr was demoted last week after allegedly trying to conceal his contacts with Fusion.&nbsp;</p> <p><em><a href="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/11/30/FBI-Deputy-Director-Andrew-McCabe-at-the-Cambridge-Cyber-Summit-thumbnail.jpg"><img src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/11/30/FBI-Deputy-Director-Andrew-McCabe-at-the-Cambridge-Cyber-Summit-thumbnail_0.jpg" width="500" height="281" /></a><br />FBI Deputy Director Andrew McCabe</em></p> <p><em>Fox News </em>reporter Chad Pergram's sources tell him "<strong>McCabe has an Ohr problem,</strong>" and they believe <strong>"FBI DepDir McCabe not coming to Hse Intel Cmte tomorrow because he'd be asked about Bruce Ohr &amp; Ohr's wife Nellie who worked for Fusion GPS</strong>," adding <strong>"something far more sinister.</strong>"&nbsp;</p> <p>Pergram also tweeted "<strong>Expect subpoenas to compel McCabe to appear this wk."&nbsp;</strong></p> <blockquote class="twitter-tweet"><p dir="ltr" lang="en">FBI’s McCabe was expected to appear before Hse to Intel Cmte Tues. Now told he’s not coming. Expect subpoenas to compel McCabe to appear this wk. Source: “McCabe has an Ohr problem”</p> <p>— Chad Pergram (@ChadPergram) <a href="https://twitter.com/ChadPergram/status/940428289063124992?ref_src=twsrc%5Etfw">December 12, 2017</a></p></blockquote> <script src="https://platform.twitter.com/widgets.js"></script><blockquote class="twitter-tweet"> <p dir="ltr" lang="en">Congressional sources tell Fox they believe FBI DepDir McCabe not coming to Hse Intel Cmte tomorrow because he’d be asked about Bruce Ohr &amp; Ohr’s wife Nellie who worked for Fusion GPS. <br />something far more sinister.</p> <p>— Chad Pergram (@ChadPergram) <a href="https://twitter.com/ChadPergram/status/940428751434809344?ref_src=twsrc%5Etfw">December 12, 2017</a></p></blockquote> <script src="https://platform.twitter.com/widgets.js"></script><blockquote class="twitter-tweet"> <p dir="ltr" lang="en">Fox is told Hse Intel Cmte will likely subpoena FBI DepDir McCabe to appear this wk. In addition, will subpoena documents/emails related to McCabe’s appearance</p> <p>— Chad Pergram (@ChadPergram) <a href="https://twitter.com/ChadPergram/status/940429034323922944?ref_src=twsrc%5Etfw">December 12, 2017</a></p></blockquote> <script src="https://platform.twitter.com/widgets.js"></script><blockquote class="twitter-tweet"> <p dir="ltr" lang="en">Source tells Fox they think McCabe scheduling snafu before Hse Intel arose after Fox rpt tonight about wife of DoJ’s Bruce Ohr. Nellie Ohr worked for Fusion GPS thru last fall. Firm is connected to anti-Trump dossier.</p> <p>— Chad Pergram (@ChadPergram) <a href="https://twitter.com/ChadPergram/status/940429728854560769?ref_src=twsrc%5Etfw">December 12, 2017</a></p></blockquote> <p>Of note, House Intel Committee chairman <a href="http://www.zerohedge.com/news/2017-12-05/more-anti-trump-messages-reportedly-sent-members-muellers-team-lot-more-going-come-o" target="_blank">Devin Nunes (R-CA) announced last week</a> that they were <strong>prepared to hold McCabe and assistant Attorney General Rod Rosenstein in contempt for the DOJ's failure to comply with a previous subpoena</strong>. He also accused the FBI and the DOJ of willfully refusing to comply with an Aug. 24 subpoena in part by refusing the committee's request "<strong>for an explanation of Peter Strzok's dismissal from the Mueller probe.</strong>"</p> <p><em><a href="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/11/30/Bruce-Ohr-Nellie-Ohr.jpg"><img src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/11/30/Bruce-Ohr-Nellie-Ohr_0.jpg" width="500" height="302" /></a><br />Bruce and Nellie Ohr</em></p> <p>As we reported <a href="http://www.zerohedge.com/news/2017-12-11/senior-doj-officials-wife-worked-oppo-research-firm-produced-trump-dossier" target="_blank">yesterday</a>,&nbsp;Nellie Ohr, the wife of disgraced DOJ official Bruce Ohr, was employed at Fusion GPS last year. <strong>Her term of employment overlapped with the period when the Trump dossier was being compiled.</strong> Though Fox was unable to discern the exact nature of her role at the firm, its reporters discovered that she has done extensive research on Russia-related topics for think tanks based in the Washington, DC area.</p> <p><em><a href="http://www.foxnews.com/politics/2017/12/11/wife-demoted-doj-official-worked-for-firm-behind-anti-trump-dossier.html" target="_blank">Fox News</a></em>&nbsp;reports:&nbsp;</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><strong>A senior Justice Department official demoted last week for concealing his meetings with the men behind the anti-Trump “dossier” had even closer ties to Fusion GPS,</strong> the firm responsible for the incendiary document, than have been disclosed, Fox News has confirmed: The official’s wife worked for Fusion GPS during the 2016 election.</p> <p>&nbsp;</p> <p>Contacted by Fox News,<strong> investigators for the House Permanent Select Committee on Intelligence (HPSCI) confirmed that Nellie H. Ohr, wife of the demoted official, Bruce G. Ohr, worked for the opposition research firm last year. </strong>The precise nature of Mrs. Ohr’s duties – including whether she worked on the dossier – remains unclear but a review of her published works available online reveals Mrs. Ohr has written extensively on Russia-related subjects. HPSCI staff confirmed to Fox News that she was paid by Fusion GPS through the summer and fall of 2016.</p> </blockquote> <p style="font-size: 13.008px;">Also notable is the fact that Bruce Ohr's wife <strong>not only worked for Fusion GPS, but also represented the CIA's "Open Source Works" group&nbsp;</strong>in a 2010 "<a href="https://www.ncjrs.gov/pdffiles1/nij/230846.pdf" target="_blank">expert working group</a> report on international organized crime" <strong>along with&nbsp;Bruce Ohr and Fusion GPS co0founder Glenn Simpson</strong>.&nbsp;</p> <blockquote class="twitter-tweet" style="font-size: 13.008px;"><p dir="ltr" lang="en">Nellie Ohr, the wife of demoted DOJ official, Bruce Ohr, not only worked for Fusion GPS, but has also represented the CIA's "Open Source Works" group.&nbsp;<a href="https://t.co/u5HPgJwvWd">https://t.co/u5HPgJwvWd</a>&nbsp;<a href="https://t.co/ZPhAIzR6wv">pic.twitter.com/ZPhAIzR6wv</a></p> <p>— Josh Caplan (@joshdcaplan)&nbsp;<a href="https://twitter.com/joshdcaplan/status/940444559468892160?ref_src=twsrc%5Etfw">December 12, 2017</a></p></blockquote> <p style="font-size: 13.008px;">Of note <strong style="font-size: 13.008px;">Open Source Works</strong>&nbsp;is described as the "<strong style="font-size: 13.008px;">CIA's in-house open source analysis component, devoted to intelligence analysis of unclassified, open source information."&nbsp;&nbsp;</strong>So - Nellie Ohr, the wife of recently demoted DOJ official Bruce Ohr - <strong style="font-size: 13.008px;">worked for both Fusion GPS and the CIA</strong>.&nbsp;It is unclear whether her time at Fusion overlapped with her time at the CIA.&nbsp;</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>Open Source Works, which is the CIA’s in-house open source analysis component, is devoted to intelligence analysis of unclassified, open source information.&nbsp; Oddly, however, the directive that established Open Source Works is classified, as is the charter of the organization.&nbsp; In fact, CIA says the very existence of any such records is a classified fact. <strong>“The CIA can neither confirm nor deny the existence or nonexistence of records responsive to your request,” </strong>wrote Susan Viscuso, CIA Information and Privacy Coordinator, in a November 29 response to a Freedom of Information Act request from Jeffrey Richelson of the National Security Archive for the Open Source Works directive and charter. </p> <p>&nbsp;</p> <p>“The fact of the existence or nonexistence of requested records is currently and properly classified and is intelligence sources and methods information that is protected from disclosure,” Dr. Viscuso wrote. This is a surprising development since Open Source Works — by definition — does not engage in clandestine collection of intelligence.&nbsp; Rather, it performs analysis based on unclassified, open source materials. -<em><a href="https://fas.org/blogs/secrecy/2011/12/cia_osw/" target="_blank">FAS</a></em></p> </blockquote> <p><a href="http://www.foxnews.com/politics/2017/12/07/top-doj-official-demoted-amid-probe-contacts-with-trump-dossier-firm.html" target="_blank">House investigators</a> determined that&nbsp;<strong style="font-size: 13.008px;">during the 2016 election, Bruce&nbsp;Ohr met with former MI6 spy Christopher Steele, and shortly after the 2016 election he met with Glenn Simpson, the co-founder of Fusion GPS -&nbsp;</strong>who commissioned Steele to assemble the dossier.&nbsp;</p> <p><em><a href="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/11/30/Ron-Desantis.jpg"><img src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/11/30/Ron-Desantis_0.jpg" width="500" height="281" /></a><br />Ron DeSantis (R-FL)</em></p> <p><strong>Another factor in McCabe's sudden cancellation</strong>&nbsp;is a report from <em>The Hill</em>'s John Solomon that&nbsp;Rep. Ron DeSantis (R-FL)&nbsp;recently interviewed a retired FBI supervisor who told him <strong>he was instructed by Deputy Director Andrew McCabe <a href="http://www.zerohedge.com/news/2017-12-07/fbi-deputy-director-mccabe-told-agents-lie-about-benghazi-investigation-says-gop-law" target="_blank">not to call the 2012 Benghazi attack an act of terrorism</a></strong> when distributing the FBI's findings to the larger intelligence community - despite knowing exactly who conducted the attack.&nbsp;</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>The agent found the instruction concerning because his unit had gathered incontrovertible evidence showing a major al Qaeda figure had directed the attack and the information had already been briefed to President Obama, the lawmaker said. -<a href="http://thehill.com/homenews/administration/363666-gop-lawmakers-cite-new-allegations-of-political-bias-in-fbi" target="_blank">The Hill</a></p> </blockquote> <div><strong>If true, it means McCabe lied for the Obama administration in a clear, partisan violation of the FBI's mandate to "detect and prosecute crimes against the United States," not "lie for the President so as not to offend Islam." </strong>As Rep. DeSantis told <em>The Hill:</em>&nbsp;</div> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <div>"<strong>What operational reason would there be to issue an edict to agents telling them, in the face of virtually conclusive evidence to the contrary, not to categorize the Benghazi attack as a result of terrorism?</strong> By placing the interests of the Obama administration over the public's interests, <strong>the order is yet another data point highlighting the politicization of the FBI."</strong></div> </blockquote> <div>Whether McCabe cancelled&nbsp;over his "Ohr problem," or for instructing a retired FBI supervisor to lie about the Benghazi attack, or because he doesn't want to talk about Peter Strzok's dismissal from the Mueller probe - one thing is for sure; Devin Nunes can't be happy, and we can probably expect subpoenas to start flying off his desk as soon as this morning.</div> <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="500" height="281" alt="" src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/FBI-Deputy-Director-Andrew-McCabe-at-the-Cambridge-Cyber-Summit-thumbnail.jpg?1513083579" /> </div> </div> </div> http://www.zerohedge.com/news/2017-12-12/mccabe-cancels-testimony-something-far-more-sinister-fusion-gps#comments al-Qaeda Central Intelligence Agency Christopher Steele Competitive intelligence Department of Justice DOJ Donald Trump–Russia dossier Espionage FBI Federal Bureau of Investigation Federal Bureau of Investigation Fox News Freedom of Information Act Fusion GPS Government House Intel Committee House Intelligence Committee International relations Law national security Obama Administration Obama administration Permanent Select Committee President Obama Russian interference in the 2016 United States elections Russia–United Kingdom relations SPY Testimony Twitter Twitter United Kingdom–United States relations United States intelligence agencies Tue, 12 Dec 2017 18:50:06 +0000 Tyler Durden 608976 at http://www.zerohedge.com Five European Nations Issue Warning To America On Tax Reform http://www.zerohedge.com/news/2017-12-12/five-european-nations-issue-warning-america-tax-reform <p><strong>First it was the <a href="http://www.zerohedge.com/news/2017-12-11/%E2%80%9Cwe%E2%80%99ll-have-tough-battles-china-unveils-plan-combat-trump-tax-reform">Chinese</a>, now it&rsquo;s the Europeans, as the rest of the world is suddenly very unhappy with the prospect of US tax reform (or maybe it is an unexpectedly strong US economy).</strong> As we <a href="http://www.zerohedge.com/news/2017-12-11/%E2%80%9Cwe%E2%80%99ll-have-tough-battles-china-unveils-plan-combat-trump-tax-reform">discussed</a> yesterday, with the historic Trump tax reforms on the verge of passage and the Fed&rsquo;s dot plot signalling another 7-8 rate hikes (soon to be revised much lower), China is nervous that the capital outflows, which it thought it had bottled up, might be about to return. China is preparing a contingency plan which includes &ldquo;higher interest rates, tighter capital controls and more-frequent currency intervention to keep money at home and support the yuan&rdquo;.</p> <p>Amusingly, the Wall Street Journal quoted a Chinese official who described Washington&rsquo;s tax plan as a <strong>&ldquo;gray rhino&rdquo;</strong>. The latter is a combination of an &ldquo;elephant in the room&rdquo; and a &ldquo;black swan&rdquo;, i.e. a high probability threat which people should see coming, but don&rsquo;t. The focal point of China&rsquo;s fears is the Yuan, which the authorities have spent so much time and effort stabilising during the last two years. Speaking to the WSJ, the Chinese official sounded a warning: &ldquo;We&rsquo;ll likely have some tough battles in the first quarter.&rdquo;</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user235761/imageroot/2017/11/22/trade6_0.png"><img alt="" src="http://www.zerohedge.com/sites/default/files/images/user235761/imageroot/2017/11/22/trade6_0.png" style="width: 500px; height: 482px;" /></a></p> <p>Switching to Europe and five European finance ministers have sent a letter criticising the US for undermining the &ldquo;rules of the game&rdquo; and international trade. Notwithstanding Brexit, the signatories included the UK Chancellor, Philip Hammond, as well as his counterparts in Germany, France, Italy and Spain. Essentially, the European nations are warning the US that it risks starting a trade dispute.</p> <p>According to the <a href="https://www.ft.com/content/eeb17eaa-de91-11e7-a8a4-0a1e63a52f9c">Financial Times</a>, &quot;the finance ministers from Europe&rsquo;s five largest economies have warned the Trump administration that Republican tax cut plans would flout international agreements and undermine trade, threatening to turn a Washington policy battle into a transatlantic row.&quot;</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p><strong>In a letter to the White House and US Treasury department, the ministers - including Philip Hammond of the UK, Peter Altmaier of Germany and Bruno Le Maire of France - raised the possibility of retaliating if the legislation becomes law. </strong>The letter highlights concerns in Europe that the Trump administration will use tax reform as a route to promote &ldquo;America first&rdquo; trade discrimination, escalating tensions that have already risen in other policy areas like the environment and Middle East peace.</p> <p>&nbsp;</p> <p>The ministers insisted they were not seeking to intervene in a domestic tax debate, which they called one of &ldquo;the essential pillars of a state&rsquo;s sovereignty&rdquo;. Nevertheless, the letter warned Steven Mnuchin, US Treasury secretary, that Washington should not start a trade dispute under the guise of anti-avoidance measures in taxation. &ldquo;We have strong concerns if (US action to protect its tax base) is done via measures that are not targeted on abusive arrangements as this would impact on genuine business activities,&rdquo; they wrote.</p> </blockquote> <p>The letter was sent to Treasury secretary, Steven Mnuchin, White House economic adviser, Gary Cohn and the heads of congressional committees who are currently embroiled in merging the different versions of the tax reforms passed by the Senate and the House of Representatives. From the European perspective, the sources of contention are three measures which favour domestic US businesses, as the FT explains.</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>All of the measures that have angered European governments would treat US operations differently than those from overseas groups, provisions that the finance ministers said violate international tax norms. For example, an &ldquo;excise tax&rdquo; in the House bill would impose a 20 per cent levy on US company purchases from their foreign subsidiaries which would not apply to similar domestic transactions. The letter said this &ldquo;could discriminate in a manner that would be at odds with international rules embodied&rdquo; in the World Trade Organization.</p> </blockquote> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>The other two elements are the Senate bill, including a provision that would tax US exporters more favourably when they make profits from brands and other intangible assets. The letter argues the measure could &ldquo;face challenges as an illegal export subsidy&rdquo;, a thinly-veiled threat of European retaliation. Other Senate measures would tax transfers within international banks and insurance companies on the total amount sent between US and European operations regardless of the balance between transatlantic flows. Some of the European criticisms have been shared by a group of US tax academics, who published a recent analysis that said both the excise tax and financial flows measure &ldquo;likely violates WTO obligations and presents tax treaty concerns&rdquo;.</p> </blockquote> <p>In a swipe at the poor lines of communication between the Trump administration and European nations, a French finance ministry official noted that using &ldquo;more informal&rdquo; methods of communication hadn&rsquo;t worked, consequently, they had resorted to a formal letter as a &ldquo;way to weigh into the debate&rdquo;. Germany&rsquo;s Finance Minister, Peter Altmaier, acknowledged that the US has the right to change its tax regime as it sees fit &rdquo;but it must be in compliance with the international rules&rdquo;.</p> <p>A spokesperson in Mnuchin&rsquo;s Treasury department said that &ldquo;We appreciate the views of the finance ministers.&rdquo; However, with the tax reform being a centrepiece of Trump&rsquo;s policy and US lawmakers rushing to finalise the legislation by the end of the year, we see little prospect of major changes to satisfy European concerns at such a late hour.</p> <p>This latest dispute re-opens the wound of arguments&nbsp; between Europe and the US and over tax, as the FT notes.</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>&rdquo;The European letter is only the latest in a series of disputes between Europe and the US over tax issues that date back to the Obama administration. Then-President Barack Obama publicly complained about European Commission actions targeting American tech groups for &ldquo;sweetheart&rdquo; tax agreements with several low-tax EU countries. The most high-profile case has come against Apple, which has been ordered by Brussels to pay &euro;13bn in back taxes to Ireland, but the commission has also opened similar cases against Amazon in Luxembourg and Starbucks in the Netherlands.</p> </blockquote> <p>One difference between the current dispute and previous ones is that this time, the relationship between the incumbent US Administration and major European nations is considerably worse. Even the so-called &ldquo;special relationship&rdquo; between the US and UK has been damaged by a spat over Trump re-tweeting anti-Islam video from the deputy leader of a British far-right group.</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user235761/imageroot/2017/11/22/trade5.png"><img alt="" src="http://www.zerohedge.com/sites/default/files/images/user235761/imageroot/2017/11/22/trade5_0.png" style="width: 500px; height: 300px;" /></a></p> <p>Meanwhile, both the US and European Union are engaged in a dispute with China about the latter&rsquo;s status as a market economy within the WTO. Granting it market economy status would make it more difficult for other nations to penalise China with duties. for dumping products, e.g. steel, at unfair prices. As we <a href="http://www.zerohedge.com/news/2017-11-30/us-fights-chinas-market-economy-status-threatens-future-wto">discussed</a>, there is speculation that a Chinese victory in the dispute with Europe (the US will be settled afterwards) &ndash; and a decision is expected in 2019 &ndash; could lead to the demise of the WTO.</p> <p><strong>It&rsquo;s becoming increasingly clear that the risk that a dispute between the triumvirate of the US, Europe and China escalating is significantly higher now than it has been in recent memory, which in itself should naturally be sufficient to send the S&amp;P to new all time highs this morning.</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="700" height="394" alt="" src="http://www.zerohedge.com/sites/default/files/images/user235761/imageroot/trade7.png?1513071961" /> </div> </div> </div> http://www.zerohedge.com/news/2017-12-12/five-european-nations-issue-warning-america-tax-reform#comments Apple Barack Obama Black Swan Business China Destination-based cash flow tax Economic policy of Donald Trump Economy European Union European Union France Germany Insurance Companies International taxation Ireland Italy Middle East Netherlands Obama Administration Other Senate Politics Tobin tax Treasury Department U.S. Treasury US Federal Reserve Wall Street Journal White House White House World Trade Yuan Tue, 12 Dec 2017 18:40:00 +0000 Tyler Durden 608970 at http://www.zerohedge.com Congress Expands Uranium One Probe After Senator Claims Obama Admin Misled Him Over Yellowcake Exports http://www.zerohedge.com/news/2017-12-12/congress-expands-uranium-one-probe-after-senator-claims-obama-admin-misled-him-over- <p>Senator John Barrasso (R-WY) is turning up the heat on the Uranium One investigation, demanding documents from both the Energy Department and the Nuclear Regulatory Commission (NRC) <a href="https://www.epw.senate.gov/public/_cache/files/8/9/89cda6e8-e46c-4830-90be-45485218f177/FA1839D3EBE3D5AA69DAACACD2B849EC.12.11.17-barrasso-svinicki-perry-uranium-one-letter.pdf" target="_blank">in a Monday letter</a> to both entities. Barrasso wants to find out <strong style="font-size: 13.008px;">if he was intentionally misled by the Obama administration</strong>&nbsp;about Uranium One being able to export <strong style="font-size: 13.008px;">yellowcake uranium</strong>&nbsp;out of the United States after the company was acquired by Russia.&nbsp;</p> <p><em><a href="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/11/30/barrasso-profile04.jpg"><img src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/11/30/barrasso-profile04_0.jpg" width="500" height="378" /></a><br />Rep. John Barrasso (R-WY)</em></p> <p>Barrasso writes:&nbsp;</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>Prior to the approval of the sale [of Uranium One], I wrote to then-President Barack Obama registering my strong concerns regarding Russian control over American uranium production facilities and Russia's ability to ship U.S. uranium overseas. I also requested immediate notification should ARMZ file for a license to export U.S. uranium. <strong>Based on information that has recently come to light, I now believe the response I received, and the process by which I received it, were both misleading.</strong></p> <p>&nbsp;</p> <p>On March 21, 2011, former NRC Chairman Greg Jaczko responded to my letter on behalf of then-President Obama stating:</p> <p>&nbsp;</p> <p><em>‘At this time, neither Uranium One Inc. nor ARMZ holds a specific NRC export license. In order to export uranium from the United States, Uranium One, Inc. or&nbsp;</em></p> <p><em><span style="text-decoration: underline;"> ARMZ would need to apply for and obtain a specific NRC license authorizing the export of uranium for use in reactor fuel’</span></em></p> <p><em><span style="text-decoration: underline;"><br /></span></em></p> <p>The NRC staff made a similar statement in their recommendation to approve the transfer control of Uranium One to ARMZ, stating:&nbsp;</p> <p>&nbsp;</p> <p><em>"<strong>before the licensee may export uranium to a foreign country, they must first comply with the NRC's regulations and <span style="text-decoration: underline;">seek a specific license for such purpose.</span></strong>"</em></p> <p>&nbsp;</p> <p><strong>Recent reporting by The Hill uncovered that Uranium One was able to export uranium without obtaining a specific export license.</strong> Beginning in 2012, <strong>Uranium One exported U.S. uranium by ‘piggy-backing’ as a supplier on an export license held by the shipping company, RSB Logistic Services Inc.</strong></p> </blockquote> <p>Indeed, as <em>The Hill 's </em>John Solomon and Alison Spann <a href="http://thehill.com/policy/national-security/358339-uranium-one-deal-led-to-some-exports-to-europe-memos-show" target="_blank">reported last month</a>&nbsp;-&nbsp;<strong style="font-size: 13.008px;">when congress reviewed the Uranium One deal back in 2010</strong>, assurances that US uranium would not leave the country was a key sticking point. As such, repeated assurances were provided that such exports would never occur.</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>“<strong>No uranium produced at either facility may be exported</strong>,” the NRC declared in a November 2010 press release that announced that ARMZ, a subsidiary of the Russian-owned Rosatom, had been approved to take ownership of the Uranium One mining firm and its American assets.</p> <p>&nbsp;</p> <p>A year later, the nuclear regulator repeated the assurance in a letter to Sen. John Barrasso, a Wyoming Republican in whose state Uranium One operated mines.</p> <p>&nbsp;</p> <p>“<strong>Neither Uranium One Inc. nor AMRZ holds a specific NRC export license. In order to export uranium from the United States, Uranium One Inc. or ARMZ would need to apply for an obtain a specific NRC license authorizing the exports of uranium for use in reactor fuel,”</strong> then-NRC Chairman Gregory Jaczko wrote Barrasso.</p> <p>&nbsp;</p> <p>The NRC never issued an export license to the Russian firm, a fact so engrained in the narrative of the Uranium One controversy that it showed up in The Washington Post’s official fact-checker site this week. “We have noted repeatedly that extracted uranium could not be exported by Russia without a license, which Rosatom does not have,” The Post reported on Monday, linking to the 2011 Barrasso letter.</p> </blockquote> <p>Memos obtained by <em><a href="http://thehill.com/policy/national-security/358339-uranium-one-deal-led-to-some-exports-to-europe-memos-show" target="_blank">The Hill</a></em> in November confirmed that, in fact, Uranium One yellowcake did manage to escape U.S. shores repeatedly between 2012 - 2014.</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><strong>NRC memos reviewed by The Hill shows that it did approve the shipment of yellowcake uranium — the raw material used to make nuclear fuel and weapons — from the Russian-owned mines in the United States to Canada in 2012 through a third party. Later, the Obama administration approved some of that uranium going all the way to Europe, government documents show.</strong></p> <p>&nbsp;</p> <p>NRC officials said they could not disclose the total amount of uranium that Uranium One exported because the information is proprietary. They did, however, say that the shipments only lasted from 2012 to 2014 and that they are unaware of any exports since then.</p> <p>&nbsp;</p> <p><strong>NRC officials told The Hill that Uranium One exports flowed from Wyoming to Canada and on to Europe between 2012 through 2014</strong>, and the approval involved a process with multiple agencies.</p> </blockquote> <p>As Senator Barrasso notes in his letter, "<strong>According to The Hill, not only did Uranium One export U.S. uranium, but it was subsequently exported out of Canada," </strong>and concludes “By stating DOE had no role in the matter,<strong> the DOE concealed the possibility of subsequent exports and their responsibility in reviewing them</strong>."&nbsp;</p> <p><em><a href="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/11/30/barassosess.PNG"><img src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/11/30/barassosess.PNG" width="500" height="345" /></a><br />Rep John Barasso and Attorney General Jeff Sessions (Alex Wong, Getty)</em></p> <p>Barrasso asked Attorney General Jeff Sessions for records pertaining to the FBI's investigation of the Uranium One deal - which, according to a FBI mole within the Russian nuclear industry, <a href="http://www.zerohedge.com/news/2017-11-21/journalist-sara-carter-slams-doj-attempt-discredit-fbi-informant-and-stonewall-urani">are extensive</a>. <em>The Hill's </em>John Solomon and journalist Sara Carter <strong>have copies</strong>&nbsp;of the mole's evidence, which purportedly include <strong>a video of Russians stuffing bribe money <a href="http://www.zerohedge.com/news/2017-11-18/fbi-informant-has-video-russian-agents-briefcases-bribe-money-clinton-uranium-scanda" target="_blank">into a suitcase</a></strong>.&nbsp;</p> <p>In a nutshell:&nbsp;</p> <ul> <li>FBI mole William Campbell was a highly valued FBI asset - paid $51,000 by FBI officials at a celebration dinner in Chrystal City, VA, where Campbell's attorney says they thanked him for his service.</li> <li>Campbell was required by the Russians, under threat, to launder large sums of money - which allowed the FBI to uncover a massive Russian "nuclear money laundering apparatus"</li> <li>Campbell collected over 5,000 documents and briefs over a six year period</li> <li>Campbell uncovered a Russian plot to penetrate the Obama administration and gain approval for the Uranium One sale, including a 2010 email which describes "Russia's intent on expanding its Uranium expansion in the United States."&nbsp;</li> </ul> <p style="box-sizing: border-box; margin-top: 0.25em; margin-bottom: 0.75em; font-variant-numeric: inherit; font-stretch: inherit; line-height: 1.3;"><strong>“This is not just about bribery and kickbacks but about a U.S. company that was transporting yellow-cake for the Russians with our approval,” </strong>an unnamed U.S. Intelligence official told Carter, adding “this should raise serious questions. At the time everyone was concerned about Russia’s ties to Iran, we still are. And of course, Russia’s intentions and reach into the U.S. energy market.”</p> <p style="box-sizing: border-box; margin-top: 0.25em; margin-bottom: 0.75em; font-variant-numeric: inherit; font-stretch: inherit; line-height: 1.3;">There are currently two investigations into the Uranium One deal by the House, exploring the Obama administration's approval of the Uranium One sale, as well as evidence that the Clinton Foundation was gifted approximately $145 million dollars in charitable donations prior to the deal's passage while Hillary Clinton was Secretary of State.&nbsp;&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="1160" height="629" alt="" src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/barrasso%202.jpg?1513098704" /> </div> </div> </div> http://www.zerohedge.com/news/2017-12-12/congress-expands-uranium-one-probe-after-senator-claims-obama-admin-misled-him-over-#comments Barack Obama Barrasso Clinton Foundation Department of Energy FBI Federal Bureau of Investigation Iran John Barrasso Matter Nuclear fuels Nuclear materials Nuclear Regulatory Commission Nuclear technology Obama Administration Obama administration Physical universe U.S. intelligence Uranium Uranium Yellowcake Tue, 12 Dec 2017 18:21:35 +0000 Tyler Durden 608999 at http://www.zerohedge.com Attention Derivatives Traders: Here Are "The Top 17 Themes To Remember From 2017" http://www.zerohedge.com/news/2017-12-12/bofas-derivatives-wizards-reveal-top-17-themes-remember-2017 <p>Last week, as part of its <a href="http://www.zerohedge.com/news/2017-12-06/moment-market-broke-behavior-volatility-changed-entirely-2014">must read 2018 Outlook piece</a>, Bank of America's derivatives team pointed out two particularly notable things: the first was BofA's version of the (central-bank mediated) "feedback loop" diagram that keeps volatility record low and grinding even lower, as selling of vol has become a self-reinforcing dynamic, in which lower VIX begets more vol-selling by "yield-starved investors", leading to even lower VIX as the shock that can reset the feedback loop is no longer possible, and thus the strike price on the Fed's put can not be put to a market test, which also results in even greater market fragility and assured central bank interventions...</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/11/30/low%20vol%20bofa.jpg"><img src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/11/30/low%20vol%20bofa_0.jpg" width="500" height="339" /></a></p> <p>... and a chart suggesting that the market generally broke some time in 2014, when the <strong>"behavior of volatility entirely changed, with volatility shocks retracing at record speed. Investors no longer fear shocks, but love them, as it is an opportunity to predictably generate alpha.</strong>"</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/11/30/vol%20chart%204.jpg"><img src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/11/30/vol%20chart%204_0.jpg" width="500" height="181" /></a></p> <p>Now in keeping with the prevailing theme of the year, which for better or worse is the "paradoxical inversion" of everything, in its last report of the year, the BofA derivatives team looks not forward, but back, at the year that is almost over, and in an attempt to summarize the bank's volatility insights from 2017, has written:&nbsp;</p> <p><span style="text-decoration: underline;"><strong>"17 facts from ‘17 to remember for 2018"</strong></span></p> <p>First, here are the key takeaways from BofA's derivatives gurus:</p> <ul> <li>Extremes are everywhere when looking at markets through the lens of volatility.</li> <li>Despite low volatility, trading volatility as an asset class just keeps getting more popular.</li> <li>Use 2017 dislocations to your advantage in 2018 for cheap hedges, alpha and harvesting risk premia.</li> </ul> <p>With that in mind, <strong>here's what BofA thinks you need to remember about 2017 for 2018 </strong>(highlights our):</p> <ol> <li><strong>Global assets' record dependency on US rates make rising rates vol a key risk</strong></li> <li>Sharpe Ratios near 80yr highs suggests using cheap options for equity upside</li> <li><strong>Risk parity vol at its lowest in decades makes bond tantrum hedges cheap</strong></li> <li>US equity trading ranges hit 110yr lows; look for vol bubble deflation in '18</li> <li><strong>Buy-the-dip is alive and well as evidenced from record intra-day (vs daily) vol</strong></li> <li><strong>Equity instability at 90yr highs despite low vol, but can be hedged with VIX</strong></li> <li><strong>Extreme post-US election rotation crushed correlation creating opportunities</strong></li> <li>Markets where we like owning vol are showing most signs of life in '17</li> <li><strong>BOJ ETF purchases may peak in 2017, reducing impact on NKY vol in 2018</strong></li> <li><strong>Korean retail vol selling may have peaked in '17, lowering headwinds in '18</strong></li> <li>Diversification benefit of owning vol as an asset is near record highs</li> <li><strong>Record year for VIX volumes despite low VIX cements vol as an asset class</strong></li> <li><strong>50% VSTOXX futs. growth shows it's a market of choice for trading EU risk</strong></li> <li>VSTOXX futures may gain significantly as they wake up to Italian election risk</li> <li><strong>2017 vol crush left ESTX50 short-dated roll-down most attractive in history</strong></li> <li><strong>Rising popularity of S&amp;P weekly options shows lack of long-term conviction</strong></li> <li><strong>Dispersion trumped geo-politics as the most popular research theme of 2017</strong></li> </ol> <p>And here are some additional details on BofA's top themes:</p> <p><strong>1. Global assets' record dependency on US rates make rising rates vol a key risk</strong><br />&nbsp; <br />The correlation of rate-sensitive assets to US rates is at record highs as investors fail to care about outside risks, leaving markets increasingly dependent on US policy. Coupled with rates vol near lifetime-lows - on few expectations for policy disruption - this has helped suppress global cross-asset vol. However, with the Fed appearing to soldier-on towards policy normalization, persistently low rates vol may be at risk. This in turn creates risks for a market slaved to rates. To monetize this, buy calls on dispersion on a basket of highly rate-sensitive stocks, which could benefit from a pick-up in rates volatility and/or a decline in component correlation if assets become less slaved to a common factor.</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/11/30/bofavol1.jpg"><img src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/11/30/bofavol1_0.jpg" width="500" height="349" /></a></p> <p>* * *</p> <p><strong>2. Sharpe Ratios near 80yr highs suggests using cheap options for equity upside</strong></p> <p>In our 2018 year ahead, we focused on the question of whether 2018 is the year when we finally escape from this record vol depression or if this is a new normal? Our view is that this is not a new-normal, but a bubble. While one can debate whether risk assets like equities and credit are in a bubble, volatility is clearly there. As one piece of evidence, US equites generated near 80yr record Sharpe Ratios this year (4.3 for the Dow and 3.1 for the S&amp;P500 and the Nasdaq100), not because returns were record high but because vol was record low. Given today's equity Sharpes are in "rare air", we continue to advocate using historically cheap options to capture upside without the need to time to top. Simply replacing upside equities with call structures for example makes sense. Or finding cheap puts on momentum stocks can create a synthetic long call position and provide more confidence to chase momentum.</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/11/30/bofavol2.jpg"><img src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/11/30/bofavol2_0.jpg" width="500" height="390" /></a></p> <p>* * * </p> <p><strong>3. Risk parity vol at its lowest in decades makes bond tantrum hedges cheap</strong></p> <p>In 2017, multi-asset portfolios continued to benefit from equity/bond diversification. Low equity/bond correlation alongside record low cross-asset volatility is driving the vol of equity/bond risk parity portfolios to its lowest levels since the 1960s. Other multi-asset portfolios holding a mixture of equities and bonds have likely also seen extremely low volatility recently.</p> <p>However, a disorderly rise in yields that accompanies an equity market pullback (i.e., 2013 Taper Tantrum) could be a surprise for many investors who have become conditioned to the recent environment in which bonds and equities diversify one another. Hedges for a bond tantrum are still cheaply priced as derivatives imply this risk is remote - consider buying SPX puts contingent on higher 10yr CMS rates or HYG (HY Corporate Bond) put spreads.</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/11/30/bofavol3.jpg"><img src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/11/30/bofavol3_0.jpg" width="500" height="447" /></a></p> <p>* * *&nbsp; </p> <p><strong>4. US equity trading ranges hit 110yr lows; look for vol bubble deflation in '18</strong></p> <p>A less traditional depiction of the extreme low equity market vol we realized in the last year, both the S&amp;P 500 (SPX) and Dow (INDU) traded in record tight trading ranges in 2017. Specifically, the S&amp;P 12 day close-to-close trading range dropped to 0.32% in Aug-2017 (Chart 11) and the Dow 12 day close-to-close trading range fell to 0.47% in Mar-2017 (Chart 12), shattering 90 year and 117 year records respectively. While stock valuations are not at life-extremes, century-long records suggest volatility has reached levels that are unsustainable over the long term.</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/11/30/bofavol4.jpg"><img src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/11/30/bofavol4_0.jpg" width="500" height="212" /></a></p> <p>* * *</p> <p><strong>5. Buy-the-dip is alive and well as evidenced from record intra-day (vs daily) vol</strong></p> <p>As highlighted in our 2018 outlook Risk is not fake news, investors no longer fear shocks but love them. Since 2013, central banks have stepped in (or communicated that they may step in) to protect markets, leaving investors confident enough to "buy-the-dip". In fact, the market rebounded so quickly after Brexit (3 days) that the Fed did not even need to step in, with dips progressively becoming shallower from then. This intra-day mean-reversion (in part driven by buy-the-dip behaviour) has translated into record high intra-day realised vol relative to open-to-close realised vol. While this effect was particularly stark for US equities (Chart 13), it is also true for Europe and Japan.</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/11/30/bofavol5.jpg"><img src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/11/30/bofavol5_0.jpg" width="500" height="245" /></a></p> <p>* * * </p> <p><strong>6. Equity instability at 90yr highs despite low vol, but can be hedged with VIX</strong></p> <p>looking at the long-term history of the S&amp;P500, 2017 stands out for generating an unprecedented number of 5? 1-day SPX drawdowns, suggesting US equities are unusually fragile today by historical standards. Our favorite "fragility" hedge entails going long VIX 1M 50-delta calls vs. short VIX 2M futures on a 1:0.85 ratio as a way to hedge a VIX singularity with low carry. Why? Funding VIX calls via rich term structure risk premium can (i) carry flat in quiet markets and (ii) unlike many other flat-carry hedges, provide attractive convexity benefits in shocks that come with little forewarning. The trade leverages both curve flattening/inversion and a spike in vol of vol - common features of the "fragility" events witnessed in recent years.</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/11/30/bofavol6.jpg"><img src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/11/30/bofavol6_0.jpg" width="500" height="433" /></a></p> <p>* * * </p> <p><strong>7. Extreme post-US election rotation crushed correlation creating opportunities</strong></p> <p>Record sector rotation since the US election has driven inter-sector correlation to multi-year lows, as markets continue to differentiate between perceived winners and losers under the Trump administration. Indeed, the average pairwise 6m realized correlation between the 10 GICS sectors in the S&amp;P500 is at levels last seen during the dotcom bubble (albeit amid significantly lower realized vol). Going forward, this creates opportunities like buying hedges that harvest depressed correlation/volatility (e.g., best-of-puts) or monetizing the implied-realized correlation risk premium via vega flat dispersion.</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/11/30/bofavol7.jpg"><img src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/11/30/bofavol7_0.jpg" width="500" height="398" /></a></p> <p>* * * </p> <p><strong>8. Markets where we like owning vol are showing most signs of life in '17</strong></p> <p>With global equity volatility near multi-year lows in 2017, we note that volatility is still off 37-year lows in US small caps (RTY) and the NKY, while other markets including SPX are at life-lows. As highlighted in our 2018 year ahead, Risk is not fake news, we continue to like vol "decompression" trades through owning longer-dated realized vol spreads between NKY, RTY, and SX5E vs. SPX, as they carry flat to positively but should benefit from rising risk. US small cap realized volatility in 2017 is supported by the expectation of a tax reform and the NKY realized volatility is supported by the unexpected break-out of the index in 3Q 2017.</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/11/30/bofavol8.jpg"><img src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/11/30/bofavol8_0.jpg" width="500" height="388" /></a></p> <p>* * *</p> <p><strong>9. BOJ ETF purchases may peak in 2017, reducing impact on NKY vol in 2018</strong></p> <p>While, not the dominant driver of NKY vol this year, the BoJ has enlarged its ETF purchase program to ¥6trillion in 2017 and we estimate that the program depressed the current equity 6-month realized volatility by 0.8 volatility points (or 9% of its current realized volatility). With the trend of policy tightening globally, the BoJ may change the wording of its ETF purchase program in 2018 to enable stealth tapering.</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/11/30/bofavol9.jpg"><img src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/11/30/bofavol9_0.jpg" width="500" height="395" /></a></p> <p>* * * </p> <p><strong>10. Korean retail vol selling may have peaked in '17, lowering headwinds in '18</strong></p> <p>With a strong market rally and global rates remaining at relatively low levels, Korean structured product issuance is expected to hit a new all-time high of US$55bn in 2017. The substantial amount of volatility supply (&gt;US$200mn vega) was one of the key drivers in pushing volatility lower this year. However, we expect to see headwinds in issuance amount from higher interest rates in 2018.<br /><a href="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/11/30/bofavol10.jpg"><img src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/11/30/bofavol10_0.jpg" width="500" height="380" /></a></p> <p>* * *&nbsp; </p> <p><strong>11. Diversification benefit of owning vol as an asset is near record highs</strong></p> <p>On a 6m basis, the beta between VIX/SPX, V2X/SX5E, and VNKY/NKY each reached new records in 2017 as spot indices rallied and vol remained restrained. Hence the diversification benefits of owning volatility as an asset have been near record highs.</p> <p>However, the beta between VHSI and HSI bucked the trend as its beta failed to reach a new record. During 2017, there were multiple instances where both HSI spot and HSI vol increased simultaneously, curtailing the beta ratio.</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/11/30/bofavol11.jpg"><img src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/11/30/bofavol11_0.jpg" width="500" height="404" /></a></p> <p>* * * </p> <p><strong>12. Record year for VIX volumes despite low VIX cements vol as an asset class</strong></p> <p>Volume in VIX-linked products reached multiple highs throughout the year despite historically low VIX levels - trading over $1bn vega daily 12 times in 2017 vs. 7 times in total from 2004-2016. The all-time high of $1.9bn vega was set on 10-Aug-17. On the day, volume in VIX call and put options reached $250M vega and VIX futures traded a record $850M vega (with the vast majority of this volume in the front and second month futures). Similarly, volume in long unlevered, long levered, and inverse VIX ETPs reached an all-time high of $830M vega traded.</p> <p>While we do not see the VIX market as large enough or levered enough to destabilize the broader US equity market, VIX derivatives are clearly the dominant market for trading global equity volatility today. Hence the nuances of VIX positioning are more important than ever to understand, as discussed in our 2018 Outlook.</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/11/30/bofavol12.jpg"><img src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/11/30/bofavol12_0.jpg" width="500" height="491" /></a></p> <p>* * * </p> <p><strong>13. 50% VSTOXX futs. Growth shows it's a market of choice for trading EU risk</strong></p> <p>VSTOXX futures and options open interest and volumes reached record highs in 2017. Demand for VSTOXX derivatives - futures in particular - soared around the Apr/May-17 French elections, as it had done in the past around well-flagged political events like the Brexit vote in Jun-16 and US elections in Nov-16. Notably, while VSTOXX liquidity has significantly improved, it is still dwarfed by that of the VIX: average daily VSTOXX futures volume was EUR 5.2 mio vega in 2017, which is approx. 2% of the VIX (USD 256 mio vega, disregarding FX).</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/11/30/bofavol13.jpg"><img src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/11/30/bofavol13_0.jpg" width="500" height="199" /></a></p> <p>* * * </p> <p><strong>14. VSTOXX futures may gain significantly as they wake up to Italian election risk</strong></p> <p>If history is anything to go by, the VSTOXX futures curve can reprice significantly going into well-flagged high-stakes events, as it did ahead of the UK's EU referendum (Jun16) and French elections (Apr/May 2017). While a reflection of Italian election risk (currently expected by mid-March 2018) was starting to emerge as early as mid Oct-17 in VSTOXX futures flies, the short 1xJan / long 2xFeb / short 1xMar fly has lost some steam recently. Arguably, uncertainty around the exact date of the vote may mean that the Mar future is also pricing some event risk.</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/11/30/bofavol14.jpg"><img src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/11/30/bofavol14_0.jpg" width="500" height="390" /></a></p> <p>* * * </p> <p><strong>15. 2017 vol crush left ESTX50 short-dated roll-down most attractive in history</strong></p> <p>Equities have been remarkably quiescent in 2017 and set multi-year records in terms of how tight trading ranges have been. European equities set an all-time record (30yr history) in their 1yr max versus min price range (Chart 25). As a result, short dated ESTX50 volatility collapsed, leading to extreme steepening in the vol term structure. Chart 26 highlights how low volatility has been in 2017 versus 2016 (on average). It is interesting to note the contrast in term structure in 2017 (much steeper) vs 2005, which was the last time European equities were stuck in a range close to the same extent as now.</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/11/30/bofavol15.jpg"><img src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/11/30/bofavol15_0.jpg" width="500" height="203" /></a></p> <p>* * * </p> <p><strong>16. Rising popularity of S&amp;P weekly options shows lack of long-term conviction</strong></p> <p>Nearly 30% of all listed S&amp;P 500 (SPX) options volume now takes place in options that are (i) short-dated, with expiries less than 2 weeks away, and (ii) close to at-the-money, with strikes between 98% and 102% of SPX spot. </p> <p>In our view, this reflects the proliferation of S&amp;P weekly option listings, which allow investors to express increasingly precise views, particularly around macro catalysts - but also a market that has become increasingly short-term in its focus, lacking longer-term conviction and wary of carrying longer-term positions. Additionally, historically low volatility has likely forced both premium sellers and buyers alike into options that are closer to at-the-money.</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/11/30/bofavol16.jpg"><img src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/11/30/bofavol16_0.jpg" width="500" height="436" /></a></p> <p>* * * </p> <p><strong>17. Dispersion trumped geo-politics as the most popular research theme of 2017</strong></p> <p>Aside usual suspects like volatility, risk, etc., dispersion and hedging have been the most frequently referred themes based on our derivatives publication (GEVI) titles from 2017. This is in contrast to 2016 where key events like the Brexit vote and US elections dominated.</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/11/30/bofavol18.jpg"><img src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/11/30/bofavol17_0.jpg" width="500" height="184" /></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="516" height="346" alt="" src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/bofavoltease.jpg?1513101355" /> </div> </div> </div> http://www.zerohedge.com/news/2017-12-12/bofas-derivatives-wizards-reveal-top-17-themes-remember-2017#comments Alpha Applied mathematics Bank of Japan Beta Bond Central Banks Convexity Dow 30 ETC European Union Fail Finance Financial risk Futures contract Hedge Japan Mathematical finance Money New Normal Risk parity Risk Premium S&P S&P 500 Technical analysis Trump Administration VIX Volatility Volatility Tue, 12 Dec 2017 18:17:09 +0000 Tyler Durden 609002 at http://www.zerohedge.com Strong 30-Year Auction Sets The Stage For Yellen's Final Rate Hike http://www.zerohedge.com/news/2017-12-12/strong-30-year-auction-sets-stage-yellens-final-rate-hike <p>After yesterday's stellar 3Y morning auction, and disappointing 10Y afternoon auction, today's reopening of the 29-Year, 11-month RZ3 Cusip was right down the middle.</p> <p>The bond stopped at a high yield of 2.804%, stopping through the When Issued 2.808% by 0.4bps, the third consecutive stop through in a row. The high yield was above November's 2.801% but below October's 2.870%. </p> <p>The internals were solid but not unprecedented: the Bid to Cover rebounded from last month's 2.225 to 2.479, and above the 6 month average of 2.318. This was the second highest BTC going back to July 2016 with only October's 2.53% higher.</p> <p>The Indirect Award was 61.9%, unchanged from last month, and fractionally below the 6 month average 62.6%, while Directs took down 9.0%, above the 6MMA of 7.1%, and Dealers were left with 29.1%, below last month's 31.8% and below the 6 auction average of 30.3%. </p> <p>Overall, a solid - if not spectacular - auction heading into tomorrow's FOMC meeting where Janet Yellen is expected to make her last 25 bps rate hike announcement. That said, the fact that today's auction wasn't a disaster, and foreign interest was solid, confirms that the curve will continue to flatten as the Fed rises the short-end every few months, ultimately inverting the yield curve some time in mid-2018. </p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/11/30/30Y%20Dec%202017.jpg"><img src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/11/30/30Y%20Dec%202017_0.jpg" width="500" height="306" /></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="1468" height="898" alt="" src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/30Y%20Dec%202017.jpg?1513102302" /> </div> </div> </div> http://www.zerohedge.com/news/2017-12-12/strong-30-year-auction-sets-stage-yellens-final-rate-hike#comments Auction Auction theory Auctions Bid-to-cover ratio Bond CUSIP Finance Financial ratios Fixed income Fixed income analysis Foreign Interest High Yield Janet Yellen Microeconomics Money US Federal Reserve Yield Curve Yield curve Tue, 12 Dec 2017 18:13:37 +0000 Tyler Durden 609004 at http://www.zerohedge.com Stocks, Bonds, & Bullion Still Uncertain As Rand Paul Clarifies Statement On "No" To Higher Deficits http://www.zerohedge.com/news/2017-12-12/confused-algos-slam-stocks-rand-paul-says-no-debt-busting-budget-deal <p style="text-align: justify;"><u><strong>Update:</strong></u> Rand Paul attempted to clarify his comments by tweeting:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p style="text-align: justify;"><strong>Tax cuts - people keeping more of their money - are never the problem. The problem is spending. We should obey our rules, stop the deficit spending, and shrink government.</strong></p> </blockquote> <p style="text-align: justify;">But that seemed to have sparked more selling as it suggests that any bill that increases the deficit is &quot;no&quot; for Paul and thus with reconciliation likely to leave doubts over the debt outcome, Paul may have become a &#39;no&#39; on the tax bill.</p> <p style="text-align: justify;"><a href="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/12/08/20171212_paul121.jpg"><img alt="" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/12/08/20171212_paul121_0.jpg" style="width: 600px; height: 412px;" /></a></p> <p style="text-align: justify;">*&nbsp; *&nbsp; *</p> <p style="text-align: justify;">Just minutes after hope for Senator Cornyn on the tax bill deal sent stocks to new record highs, Senator Rand Paul threw cold water all over the government shutdown budget bill with a tweet, <strong>sparking algos to sell on the &quot;Paul says no&quot; headlines</strong>.</p> <blockquote class="twitter-tweet"><p dir="ltr" lang="en">I cannot in good conscience vote to add more to the already massive $20 trillion debt. I promised Kentucky to vote against reckless, deficit spending and I will do just that. <a href="https://t.co/BUYqm91mli">pic.twitter.com/BUYqm91mli</a></p> <p>&mdash; Senator Rand Paul (@RandPaul) <a href="https://twitter.com/RandPaul/status/940633423164698626?ref_src=twsrc%5Etfw">December 12, 2017</a></p></blockquote> <script src="https://platform.twitter.com/widgets.js"></script><p>The reaction from the machines is clear...</p> <p style="text-align: justify;"><a href="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/12/08/20171212_paul1.jpg"><img height="327" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/12/08/20171212_paul1_0.jpg" width="600" /></a></p> <p style="text-align: justify;">Bonds and Bullion are bid...</p> <p style="text-align: justify;"><a href="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/12/08/20171212_paul2.jpg"><img height="399" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/12/08/20171212_paul2_0.jpg" width="600" /></a></p> <p style="text-align: justify;">We suspect the market will bounce right back to the highs as soon as the machines realize this is <span style="text-decoration: underline;"><strong>not a &quot;no&quot; on the tax bill but the budget bill.</strong></span></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="1228" height="844" alt="" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/20171212_paul121.jpg?1513102361" /> </div> </div> </div> http://www.zerohedge.com/news/2017-12-12/confused-algos-slam-stocks-rand-paul-says-no-debt-busting-budget-deal#comments Business Deficit Spending Deficit spending Fiscal policy headlines International relations Non-interventionism Politics Politics Presidency of Barack Obama Protestantism Rand Paul Twitter Twitter United States United States debt-ceiling crisis United States federal budget Tue, 12 Dec 2017 17:34:06 +0000 Tyler Durden 609001 at http://www.zerohedge.com