en Censorship In The Digital Age <p><a href=""><em>Authord by Jason Hirthler via,</em></a></p> <p><strong>The grand experiment with western democracy, badly listing thanks to broadsides from profiteering oligarchs, may finally run ashore on the rocks of thought crime. </strong>In the uneven Steven Spielberg project <em>Minority Report</em>, starring excitable scientologist Tom Cruise, Cruise plays a futuristic policeman who investigates pre-crimes and stops them before they happen. The police owe their ability to see the criminal plots developing to characters called pre-cognitives, or pre-cogs, kind of autistic prophets who see the future and lie sleeping in sterile pools of water inside the police department. Of course, it turns out that precogs can pre-visualize different futures, a hastily hidden flaw that threatens to jeopardize the profits of the pre-crime project. Here is the crux of the story: thought control is driven by a profit motive at bottom. As it turns out, just like real life.</p> <p><strong>Now, the British government has decided to prosecute pre-crime</strong> but has done away with the clunky plot device of the pre-cogs, opting rather to rely on a hazy sense of higher probability to justify surveilling, nabbing, convicting, and imprisoning British citizens.<strong> The crime? Looking at radical content on the Internet.</strong> What is considered radical will naturally be defined by the state police who will doubtless be personally incentivized by pre-crime quotas, and institutionally shaped to criminalize trains of thought that threaten to destabilize a criminal status quo. You know, the unregulated monopoly capitalist regime that cuts wages, costs, and all other forms of overhead with psychopathic glee. Even a Grenfell Towers disaster is regarded more as a question of how to remove the story from public consciousness than rectify its wrongs.</p> <h3><u><em><strong>The Triple Evils </strong></em></u></h3> <p>Martin Luther King, Jr. famously, or infamously, depending on whether you are a penthouse mandarin or garden-variety prole, linked the triple evils of poverty, racism, and militarism. These evils are as yet unaddressed in our society, as we are daily shown on the media mouthpieces of imperial capitalism. Wars must be waged. Victims of social injustice must be incarcerated. Society itself must be made poor to ensure higher profits.</p> <p><strong>Yet there is another set of evils that are primarily used to mask the original trifecta outlined by King. In fact, the connection between propaganda, surveillance, and censorship is clear and inseparable. </strong>Take as your initial premise that imperial capitalists want to control the world. Not an unjustified claim. As an imperial capitalist, you are part of a privileged minority whose objective is to further <span style="color: #0563c1;"><span style="text-decoration: underline;"><a href=";usd=2&amp;usg=AFQjCNHTI2AnKCr-R7jk9QbZ6LU14GTRqg">exploit</a></span></span> the disenfranchised whose only recourse is the resources you are pillaging. War, be it with bombs or sanctions or special forces or proxies, is immensely profitable to the <span style="color: #0563c1;"><span style="text-decoration: underline;"><a href=";pd_rd_i=1503081575&amp;pd_rd_r=5AM0KSER0J6F98YZCS3E&amp;pd_rd_w=T9fsI&amp;pd_rd_wg=2dL5u&amp;psc=1&amp;refRID=5AM0KSER0J6F98YZCS3E">capitalists</a></span></span>. Arms makers make money. Chemical companies make money. Energy companies make money. Media companies make money. Presidents not only make money, they also make history. But the workers, the poor, and the downtrodden pay the price. That&rsquo;s why they won&rsquo;t be happy to hear of your plans. Therefore, they must be lied to, lied to so convincingly and comprehensively that they accept, without a second thought, the plans you have laid out before them.</p> <p><strong>This convincing requires three decisive actions: propaganda, surveillance, and censorship.</strong> The first is the official lie you craft to convince them to believe you. The second is the dragnet of digital observation by which you assess whether or not they do believe you. The third is the coercive methods by which you punish those that don&rsquo;t believe you (justified by the imperial tale you first wove).</p> <p><a href=""><img alt="" src="" style="width: 500px; height: 271px;" /></a></p> <p><strong>The official interpretation of reality is already in place: western civilization is beset on all sides by maniacs that want to take away our freedoms. </strong>The surveillance is already in place through programs like the Five Eyes alliance and ECHELON, PRISM, Boundless Informant, FISA, Stellar Wind, and many others. What remains is to tighten the noose of censorship around the neck of our open western societies.</p> <h3><u><em><strong>Idiots Abroad</strong></em></u></h3> <p><strong>To that end, British Home Secretary Amber Rudd recently announced that citizens that view too much extremist material online could face up to 15 years in jail. Rudd <a href=";usd=2&amp;usg=AFQjCNFZj_QzdVILeKSwoHcPj-tZRyfOiA"><span style="color: #1155cc;"><span style="text-decoration: underline;">related</span></span></a>,</strong></p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p><span style="color: #333333;">&ldquo;I want to make sure those who view despicable terrorist content online, including jihadi websites, far-right propaganda and bomb-making instructions, face the full force of the law.&rdquo; </span></p> </blockquote> <p>This flaxen cipher of totalitarian control opened by tabulating some 67,000 tweets by ISIS, along with 44,000 links to ISIS propaganda, had been generated in the last year. Already, Section 58 of the Terrorist Act 2000 criminalized the possession of information that might be useful to a terrorist. But this is not enough for 10 Downing Street. Rudd is taking that law of possession and expanding it into a law of perception<strong>. It is now enough to simply watch extremist content. You needn&rsquo;t download it, distribute it, or otherwise act on it. </strong>You need only see it more than once. At that point, by Rudd&rsquo;s surely flawlessly calculated probabilities, you have become an existential threat to the state, or rather, to national security. You are more likely to commit acts of terror than those who have not seen the extremist content. Pre-crime without the pre-cogs.</p> <p><strong>But Rudd&rsquo;s was another step in a long line of encroachments peddled by fascist-minded western governments. </strong>Theresa May, the reviled Thatcherite epigone, <a href=";usd=2&amp;usg=AFQjCNEUE0Mz08RR7isxi5Z_8YeA0yZwYg"><span style="color: #1155cc;"><span style="text-decoration: underline;">wants</span></span></a> to play a paternal role in preventing citizens from even having the chance to view extremist content. The Tory manifesto tells us, <span style="color: #281e1e;">&ldquo;Some people say that it is not for government to regulate when it comes to technology and the internet. We disagree.&rdquo; Britain plans, quite proudly it seems, to become the &ldquo;global leader&rdquo; in the regulation of the Internet. Just before these announcements were made, Britain had passed the Investigatory Powers Act, which lets the government sweep up user browsing histories. So the surveillance data authorities would use to implement Rudd&rsquo;s plan is already there. Want to read that eloquent jeremiad against the Tories? Sorry, that was just labeled hate speech. </span>Want to visit your favorite leftist forum? Apologies, mate, but that was deemed a &ldquo;safe space&rdquo; for extremist speech and shut down. <span style="color: #281e1e;">Want to watch some attractive young people copulate? No problem. Just submit a request to your local minister outlining your precise reasons for wanting access to such nominally proscribed content. Otherwise, forget it. </span></p> <p><strong>The Germans aren&rsquo;t far <a href=""><span style="color: #1155cc;"><span style="text-decoration: underline;">behind</span></span></a>.</strong> The so-called Network Enforcement Act is said to create a framework for managing Internet activity, particularly in social media. The act is part of the country&rsquo;s fake fight against fake news and hate speech, or rather its quite real fight against progressive, leftist, or communist thought and expression. This law demands, on pain of a fifty million euro penalty, that companies with two million or more web visitors must, on receipt of complaint, remove &ldquo;unlawful content&rdquo; from their sites. Facebook has opened a new data center in Germany to deal with removal requests, sure to be flooding in from the Bundestag. As the <em>World Socialist Web Site</em> <a href=";usd=2&amp;usg=AFQjCNHqS0NdhPR6c6teL__1-EgQ9QBpAg"><span style="color: #1155cc;"><span style="text-decoration: underline;">makes</span></span></a> clear, if your fake news promotes war (Iraq 2003), mischaracterizes coup d&rsquo;états (Ukraine 2014), or spreads anti-immigrant hysteria (Cologne 2015), then you&rsquo;ve got nothing to fear. Of course, it falls to the government itself to decide what is and what isn&rsquo;t extremist content, no doubt a comforting thought for myriad <em>Der Spiegel</em> loyalists. And, of course, the erstwhile European Commission, destroyer of Greece and perpetrator of other ills, has published guidelines to help member states <a href=""><span style="color: #1155cc;"><span style="text-decoration: underline;">remove</span></span></a> &ldquo;illegal&rdquo; content. Even the Russians have joined in, promoting legislation designed to curtail digital freedoms.</p> <h3><u><em><strong>Stateside Schlemiels </strong></em></u></h3> <p><strong>None of this would be news to Barack Obama, whose own legacy of crumpled writs of habeas corpus, worthless privacy platitudes, and high-altitude wetwork, sits like a canker on the body politic.</strong> On his way out the door, through the turnstile of public weal into private gain, he provided the deep state with millions of dollars when he <a href=""><span style="color: #1155cc;"><span style="text-decoration: underline;">added</span></span></a> the Countering Disinformation and Propaganda Act to the annual National Defense Authorization Act (NDAA), which consecrates black budgets, cost overruns, price gouging, and all other manner of insecurity practiced by the Pentagon and its parasitic defense contractor community. The CDPA, if that&rsquo;s how it will eventually be known, will effectively pay people to generate officially sanctioned narratives. The U.S. government is fighting fact by calling it propaganda and then producing its own propaganda and calling it fact.</p> <p>Thanks in part to pressure from Congressional Senate Intelligence Committee that, and the indefatigable efforts of Democrats Adam Schiff and Mark Warner, major brands have been hopping on the clanging tumbrel of Russiagate, as it wheels unsteadily through the digital space, collecting the corpses of freethinkers. <strong>Facebook is now blocking &ldquo;fake news&rdquo; from its ads. YouTube has begun to fetter content producers with a <a href=""><span style="color: #1155cc;"><span style="text-decoration: underline;">more</span></span></a> restrictive ad network and murky review policies. Google has tweaked its algorithm to keep &ldquo;fake news&rdquo; from surfacing high in Search Engine Results Pages, or SERPS.</strong></p> <p><a href=""><img alt="" src="" style="width: 499px; height: 276px;" /></a></p> <p><strong>What precisely constitutes fake news is evidently up to the Zuckerbergs and Schmidts of the world. </strong>For Google, it has decidedly meant suppressing progressive and left-wing content, as plummeting traffic numbers have <a href=""><span style="color: #1155cc;"><span style="text-decoration: underline;">indicated</span></span></a>. Of course, it won&rsquo;t mean suppressing the fake news produced by the <a href=";usd=2&amp;usg=AFQjCNHON7jlQCMDwwjSFbBPcVSnSe_BOQ"><span style="color: #1155cc;"><span style="text-decoration: underline;">CIA</span></span></a> or <a href=""><span style="color: #1155cc;"><span style="text-decoration: underline;">Mi5</span></span></a> or the <a href=";usd=2&amp;usg=AFQjCNERpekdOnJr026zi_aEqyA3fY3Qaw"><span style="color: #1155cc;"><span style="text-decoration: underline;">standard</span></span></a> state-fluffing smorgasbord of lies, <a href=";usd=2&amp;usg=AFQjCNGjtcsKbCcPcdqjah3ynESwMn7vww"><span style="color: #1155cc;"><span style="text-decoration: underline;">deceits</span></span></a> and hit jobs offered up by the so-called mainstream media.</p> <p>The always sharp Glen Ford at <em>Black Agenda Report</em> <span style="color: #0563c1;"><span style="text-decoration: underline;"><a href=";usd=2&amp;usg=AFQjCNFd0KAYV3q0uEDcxbvFIu3z1-zx4g">writes</a></span></span> that the FBI has created a fresh construct to deal with African-American unrest, called, &ldquo;Black Identity Extremism,&rdquo; already truncated into another mind-murdering acronym, BIE. (As though an acronym adds just the note of tenability required to pass off a fatuity on a mal-educated populace.) <em>Foreign Policy</em>, in an otherwise surprisingly liberal-minded story, <span style="color: #0563c1;"><span style="text-decoration: underline;"><a href=";usd=2&amp;usg=AFQjCNHomyVyI0tkO2ASuxEgKyKHPcU1Zw">suggests</a></span></span> the construct risks reviving the racism the agency has worked so hard to overcome. Ford drily notes the overlooked matter of J. Edgar Hoover targeting blacks since the 1920s, not to mention COINTELPRO and attacks on the Black Panthers. Regardless, in the eyes of the FBI, blacks angry about police abuses, persistent economic inequalities, and the <span style="color: #0563c1;"><span style="text-decoration: underline;"><a href=";qid=1508177953&amp;sr=8-1&amp;keywords=the+new+jim+crow">New Jim Crow</a></span></span>, are little more than &ldquo;identity extremists,&rdquo; a danger to national security, notably the security of the white plutocracy which it serves.</p> <h3><u><em><strong>(Fore) Closing Thoughts</strong></em></u></h3> <p><strong>Remember that much of this apparatus of thought control has been applied beneath the banner of the fake Russia hacking story.</strong> That story, created by the Clinton camp to distract from the DNC email revelations provided by WikiLeaks, at first blamed Russia for hacking into &ldquo;our democracy&rdquo;, then suggested Donald Trump had colluded with Russia to swing the election, and then emphasized that Russia had launched an &ldquo;influence campaign&rdquo; designed to swing the election, with the focus subtly shifting from hacking to collusion to influence. At each turn, the evidence proves paltry, the claims absurd, and the virtue signaling nauseating. <strong><em>The bar is being progressively lowered until it meets a threshold of credibility by which the Senate Intel Committee can prosecute Donald Trump or justify some sort of punitive measures against Russia.</em></strong></p> <p><strong>The story is so transparently <a href=";usd=2&amp;usg=AFQjCNGrGw-c4Zm0qhGNRngw0C3buB56Yw"><span style="color: #1155cc;"><span style="text-decoration: underline;">false</span></span></a>, from the technical <a href=";usd=2&amp;usg=AFQjCNEXBvP5blhICAxViD4jtn9E0wYpGw"><span style="color: #1155cc;"><span style="text-decoration: underline;">detail</span></span></a> to the geopolitical motive, that it is only sustained by the permanent - or deep state - elements of the foreign policy community that need a means by which to control and direct the Trump administration.</strong> Russia collusion served as an ideal pretext to force Trump away from campaign-trail odes to conciliation and toward a continuation of the hostile foreign policies glibly enabled and advanced by Barack Obama. The comedy of it all is that Facebook found &lsquo;incriminating&rsquo; ads that amounted to less than one percent of the Facebook total ad buys. Congress would like to ban RT, which has ratings that are 0.3 percent of Judge Judy&rsquo;s. And the infamous hack has been shown to be a leak. What are we left with? A grandiose deceit based on a need to sustain a brutal ideology of oppression, austerity, and war.</p> <p><strong>But this is how the imperialists do it. They organize globally to oppress locally.</strong> That&rsquo;s why they&rsquo;ve been rightly rebranded as &lsquo;the globalists&rsquo;. The workers always trail behind, left to cope with recently discovered alliances of institutional powers collaborating to fence in the prospects for economic equality, social justice, and the fair distribution of a nation&rsquo;s wealth. We find ourselves beneath the a pregnant cloud of metastasizing repression, conceived and constructed beneath our own gaze. In his recent novel <a href=""><em>Purity</em></a>, one of author Jonathan Franzen&rsquo;s characters, a famous East German exile and whistleblower extraordinaire (a more charismatic Assange), finds himself a global celebrity, the subject of countless interviews wherein,</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>&ldquo;&hellip;he&rsquo;d taken to dropping the word <em>totalitarian</em>. Younger interviewers, to whom the word meant total surveillance, total mind control, gray armies in parade with medium-range missiles, had understood him to be saying something unfair about the Internet. In fact, he simply meant a system that was impossible to opt out of.&rdquo;</p> </blockquote> <p><strong>Whether it is too late for a world of working class people and the ubiquitous poor to opt out of the globalized imperium dreamed up by our post-war planners, is hard to say</strong>. But if you think there&rsquo;s still time, be extremely careful, since the pre-crime police are nearly omnipresent, and they might overhear you quoting Marx or see you scrawling ideas about redistribution on the walls of some abandoned underpass. Just imagine some future advertisement for the pre-crime program, a glistening LCD ad floating between skyscrapers, a smiling family at play, a nation secure, and an omniscient narrator softly reminding you, <u><em><strong>&ldquo;Don&rsquo;t forget&mdash;it&rsquo;s the thought that counts.&rdquo;</strong></em></u></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="772" height="418" alt="" src="" /> </div> </div> </div> Amber Rudd Barack Obama British government Censorship Central Intelligence Agency Congress Congressional Senate Intelligence Committee Crime Crime prevention Democrats Donald Trump European Commission Fake news FBI Federal Bureau of Investigation Ford Germany Google Greece Iraq Law enforcement Mandarin national security None Pentagon PrISM Privacy Propaganda Propaganda techniques ratings Reality search engine Security Senate Intel Committee state police Terrorism Tom Cruise Trump Administration Ukraine US government Violence Mon, 23 Oct 2017 00:45:00 +0000 Tyler Durden 605780 at IceCap Asset Management: "We Are About To Witness The Financial Market Movement Of A Lifetime" <p><em>IceCap Asset Management's Monthly outlook on global investment markets: October 2017, submitted by Keith Decker of IceCap Asset Management</em></p> <p><span style="text-decoration: underline;"><strong>“Should I Stay or Should I Go?”</strong></span></p> <p>Darlin’ you got to let me know</p> <p>During the 1970s, The Clash pushed rock and roll to the edge. Their hard charging, explosive, and anger-filled style, inspired spiked hair, rocked generations and forced people to question conventional thinking. </p> <p>Along the way, they rocked the casbah. They called London. They got lost in a super market and then they went straight to hell. </p> <p>For many – The Clash was the only band that mattered. </p> <p>For investors, they are more – much more. </p> <p>Today, as investors around the world become increasingly anxious, one of the greatest Clash songs of all time is making a comeback. In board rooms, on trade desks, in living rooms and around kitchen tables – investors everywhere are nervously singing “Should I Stay or Should I go.” Stock market investors are nervous. Housing market investors are nervous. Gold and oil investors are nervous. US Dollar and Euro investors are nervous too.</p> <p>After all, avoiding near-certain losses should be the most important goal for every investor. </p> <p>Yet, the confusion today is that practically every talking and writing head has declared everything to be at extreme risk levels. In reality, everything cannot decline at once – money and capital just doesn’t move that way. </p> <p>Yet, as chaos continues to engulf our world, traditional investment metrics seemingly make less and less sense. </p> <p>And once you understand this all important fact – then and only then, will you be able to ignore the hyperbole, tune out the 24-7 talking heads, and dismiss the irrelevant quarterly commentaries from the big bank mutual funds. </p> <p>For investors, these are exciting times. Markets are on the cusp of some of the most dramatic movements we’ve (n)ever seen. </p> <p>In this latest IceCap Global Outlook, we examine where and why you should be nervous, what to do, and along the way – sing and enjoy the show.</p> <p><strong>The Stock Market</strong></p> <p> What can we say – there’s an awful lot of people out there saying an awful lot of awful things about the stock market. The central theme or reason for these negative views is entirely based upon stock market valuation. This view is of course wrong. And to understand why, first you must understand the background supporting these awful claims. For starters, many who proclaim stock investors are living on the edge, have actually been living on the edge themselves. </p> <p>Many of these bearish investors have shockingly been out of the stock market since the 2008 crash, with others selling out just a few years later. Investors must know that despite the marketing machines, the Hollywood movies, and the internets – many investment managers are simple humans; full of emotion, full of pride, and perhaps worst of all – more stubborn than a goat. </p> <p>Yes, many managers today are not insensitive, objective androids possessing the gift, the ability, the process and the flexibility to change their investment mind.</p> <p><em>Instead – investment managers can be slotted into 3 groups: </em></p> <p><strong>Group 1 </strong>– this manager works for a mega-big investment firm, that is typically a part of an even bigger firm – a bank. These firms are devoid of dynamic thinking. All peripheral visions have been checked at the door. Client money comes in through the same door and then it is always invested the same way, with no consideration of any significant and obvious events on the horizon. </p> <p>These managers have no market view, and if for some strange reason they possessed a market view, the compliance and enterprise risk management departments would sniff it out and exterminate it faster than a speeding macchiato. These firms did not see the tech bubble breaking until it was too late. These same firms did not see the housing bubble breaking until it was too late. </p> <p>And, today these same firms continue to whistle, Disney-themed tunes as the world passes them bye. </p> <p><strong>Group 2 </strong>– these managers were burnt badly by the last crisis and therefore continue to fight the last war. In many ways - these managers are to be commended. They understand risk. They understand how the loss of capital can be devastating for their clients.</p> <p>These managers have really nice intentions. Yet their deepest concerns about another stock market crash has kept them out of stocks during one of the largest rallies in stock market history. </p> <p>These managers are so geared towards another market crash that they epitomize confirmation bias. Every single waking hour, day and week – which have turned into months and now years are spent agonizing over how markets are not correctly priced. </p> <p>The confirmation bias first begins with showing how stocks are more expensive today than they were immediately before the 2008 crash and immediately before the 2000 crash.</p> <p><a href=""><img src="" width="500" height="286" /></a></p> <p>And since stocks are more expensive today than compared to immediately before the 2000 and 2008 bubbles, then stocks must therefore be on the verge of crashing yet again. </p> <p>But they haven’t. Another commonly trolled chart shows the VIX or market fear index:</p> <p><a href=""><img src="" width="500" height="262" /></a></p> <p>And since this data point shows current markets are also at the exact same level as they were prior to the 2000 and 2008 bubbles, then stocks therefore must also be on the verge of cracking again. </p> <p>But they haven’t. </p> <p>Next, the stock bears whip out charts showing the deterioration in Consumer Credit, the effect of Stock Buy Backs on Earnings per Share, record high profit margins, lower trending GDP, Donald Trump, Brexit, Marine Le Penn, North Korea, Russia, and the beat goes on. </p> <p>Yet, stocks continue to defy gravity. </p> <p>Then there’s the money printing, zero interest rates, negative interest rates, financial oppression, and the socialized bad debt. </p> <p>And yet, stock markets just won’t go down. In fact, not only will stocks not go down, but they continue to go up. </p> <p>Yes – it’s confusing. But it’s only confusing for those using linear thinking, one-dimensional perspectives, and the refusal to consider that maybe there’s something else a foot. Here at IceCap, we completely agree with this negative assessment of all the above factors. </p> <p><em>Yes, on a stand alone and consolidated basis, a stock market specific focus concludes nothing good is about to happen. Yet – this is the very point that is completely missed by managers in Group 2. They absolutely refuse to even consider for a moment that their analysis of risk is correct BUT maybe the risk will not be reflected in the stock market. </em></p> <p>Throughout all of these negative reports and analysis, one major point is missing – the consideration that all of the risk in the world today certainly does exist, yet this risk lies within a market completely different than the stock market. </p> <p>And since, none of these managers in Group 2 believe a major risk can ever occur outside of the stock market – then it is completely missed and dismissed. </p> <p>Whereas the managers in Group 2 are singularly focused on the stock market, other managers have assessed the exact same global macro dynamics but came to a different conclusion as to where the risk really lies. </p> <p>Which naturally brings us to investment managers in Group 3. </p> <p><strong>Group 3 </strong>– in many ways, these managers are similar to those in Group 2. They also have terrific intentions, possess a laser-like attention to avoiding capital losses, and a strongly held belief that markets can be pushed and pulled into extreme positions. </p> <p>Yet, the difference between the two groups lies in the ability to remain asset class agnostic. Whereas the managers in Group 2 are solely focused on the stock market as being the center of all evil. </p> <p>Managers in Group 3 believe that at different times, any market can be either good or evil. What we mean by this, is that these managers in Group 3 never fall in or out of love with any investment market. Just as there are times to embrace and avoid stocks, the same is true for bonds, gold, currencies and different commodities. When market conditions change, so too will the investment view of these managers. But the key point to understanding this seemingly obvious expectation – and is completely missed by those managers in Group 2; all markets are interconnected. </p> <p>In other words, stock markets cannot move in isolation without impacting other markets. And of the utmost importance – other markets cannot move in isolation without impacting the stock market. </p> <p><em>And, perhaps the single, biggest revelation of all and commonly missed by many – the financial world does not revolve around the stock market. </em></p> <p>Yes, the global stock market is big. But it is dwarfed by bond markets, interest rate markets and currency markets. Walk onto the trading floor of any major bank and you’ll see that over 75% of the floor is dedicated to bond, interest rate &amp; currency trading.</p> <p>The remaining sliver is for the stock market. </p> <p>Believing the stock market is the king of the hill, is akin to believing the tail wags the dog. Understanding this all important point, will help you see the why the conclusion of the managers in Group 2 has been wrong. Whether they realise it or not, all of their analysis has assumed that everything is fine in the bond, interest rate and currency world. </p> <p>The reason for this is quite obvious. For many, the stumbling block today is the fact that during the past 35 years – every market crisis has eventually manifested itself in the stock market. And since few in the industry today have worked beyond the last 35 years, then they inherently believe that every crisis is eventually reflected in the stock market. </p> <p>Here at IceCap, we clearly see that today’s global financial world contains risk unlike anything we’ve seen before in our lifetime. After all, 35 years of accumulated effects of central bank policies, bailouts, fiscal deficits, and excessive borrowings have culminated in today’s rather awkward financial position. Yet, the culmination of these awkward moments, lies in the fact that central banks and their craft have finally hit rock bottom. And in the confusing world of bonds, interest rates, debt and currencies – hitting rock bottom is really the opposite of what you’d expect. </p> <p>It is bad. </p> <p>The reason it is bad, is because when interest rates are falling – the bond market zooms higher and higher. </p> <p>Reality is also true. When interest rates begin to zoom higher – the bond market drops like a stone. And because this stone is multiple times bigger than the stock market, the ripples turn into waves that will gush investors out of the bond market seeking safety. And contrary to every manager in Group 2 – this safety zone will be the USD, gold and yes, the stock market. </p> <p>So, to answer the classic question from The Clash about the stock market – absolutely stay. The ride will be a bit rough, but it will be nothing compared to what is about to happen in the bond market.</p> <p><strong>The Bond Market: It’s coming. </strong></p> <p>And when it hits, it is going to be a doozy. The global bond market is on the verge of doing something never before seen in our lifetime. Of course, the trick to seeing and understanding this certain risk is simply acknowledging the length of your current investment experience. Just because something hasn’t occurred over the last 35 years, doesn’t mean it can never happen. </p> <p>The near-complete lack of acceptance of a bond bubble is partly due in course to the fact that over the past 35 years, the investing world has only ever seen crises in the stock market. To understand why investors see it this way, see Chart 1 below. </p> <p><img src="" width="500" height="264" /></p> <p>The chart shows the history of long-term interest rates in the United States from 1962 to 2017. <em>Note how from 1962 to 1982, long-term interest rates increased from 3% all the way up to 16%. </em>During this 20 year period of rising long-term rates, financial markets were a disaster. No one made money. Stock investors lost money. And bond investors lost a lot of money.</p> <p><span style="text-decoration: underline;"><strong>If I go, there will be trouble</strong></span></p> <p>Life was so bad – especially for bond investors, <strong>that by the time 1982 rolled around you couldn’t give a bond away. </strong>If you were an investor or working in the investment industry at the time – you were painfully aware of the bond market and you were schooled to never, ever buy a bond again. </p> <p>Of course, 1982 was actually the best time ever to buy a bond. With long-term rates dropping like a stone over the next 35 years, bond investors and bond managers became known as the smartest people in the room. But, that was then and this is now. There are 2 points to remember forever here:</p> <p>1) What goes down, must come up</p> <p>2) There’s no one around today to remind us of what life was like for bond investors when long-term rates marched relentlessly higher </p> <p>Interest rates are secular. And with interest rates today already hitting the theoretical 0% level – they have started to rise. And when long-term rates begin to rise, (unlike short-term rates) it happens in a snapping, violent manner. Neither of which is good for bond investors.</p> <p><em>Of course, there’s another important point to consider, the rise in long-rates from 1962 to 1982 occurred when there wasn’t a debt crisis in the developed world. </em></p> <p>And since 99% of the industry has only worked since 1982 to today, then 99% of the industry has never experienced, lived or even dreamt of a crisis in the bond market. </p> <p>This of course is the primary reason why all the negative stories about the stock market are alive and well played out in the media – they simply don’t know any better. </p> <p>And this is wrong. Very wrong. After all, the bond bubble dwarfs the tech bubble and the housing bubble. Think about it.</p> <p><a href=""><img src="" width="500" height="293" /></a></p> <p>&nbsp;</p> <p><span style="text-decoration: underline;"><strong>And if I stay it will be double</strong></span></p> <p>To grasp why the bond market is on the verge of crisis, and why trillions of Dollars, Euros, Yen and Pounds are about to panic and run away, we ask you to understand how free-markets really work. </p> <p>For starters, all free markets have two sides competing and participating. </p> <p>There are natural buyers and there are natural sellers. The point at which they meet in the middle is the selling/purchase price and the entire process is called price discovery. </p> <p>Price discovery is a wonderful thing. It always results in the determination of a true price for a product or service. However, a big problem arises when there is an imbalance between the buyers and sellers, and when one of the sides isn’t a natural buyer or seller. </p> <p>This is what has happened in the bond market. And this is why bond prices (or yields) have become so distorted; the true price of a bond hasn’t existed now for almost 9 years. When the 2008-09 housing crisis crippled the world, central banks decided they would help the world recover by providing stimulus. </p> <p>The stimulus to be provided was in the form of Quantitative Easing, or money printing.</p> <p>What happened next has long been forgotten by the majority of the market, and is the prime reason why so few today understand and appreciate the magnitude of the stress that has been created in the bond market. </p> <p>When the central banks printed money, they actually used this printed money to buy government bonds. </p> <p>And with central banks suddenly becoming “buyers” of government bonds, the number of “buyers” in the bond market had instantly increased. </p> <p>And with the number of buyers increasing, the price of bonds increased – which caused long-term interest rates to come down. [note that in the bond world, when prices go up, interest rates go down, and vice-versa]. </p> <p>In effect, the global adoption of Quantitative Easing/Money Printing meant the entire price discovery process would become suspended. </p> <p>And with a suspended price discovery process, the real or true price for bonds, has not been seen for 9 years. The big point here, and it’s especially big in Europe – the elimination of the price discovery process has resulted in all countries paying lower rates of interest when they borrow.</p> <p><span style="text-decoration: underline;"><strong>So come on and let me know</strong></span></p> <p>Which, to the average person may seem good. After all, paying lower rates of interest has to be a good thing. </p> <p>But it isn’t. </p> <p>Instead, the manipulation of the global yield curve has created an interest rate environment that has become so stretched, shredded and tattered – that even the slightest hint of an end to this financial nirvana is enough to send investors off the deep end. </p> <p>Case in point - over the last year, we’ve seen the most significant market reaction in the history of the bond world, not once but twice. Yet, the talking heads, the big banks and their mutual fund commentaries, and the stock market focused world have completely missed it. </p> <p>Almost a year ago in November immediately after the American Election, over a span of 54 hours – the bond market blew up. </p> <p>To put things into perspective, Chart 2 shows what happened during those fateful days. Ignoring the why’s, the how’s and the who’s – the fact remains that this tiny, miniscule increase in long-term interest rates caused the bond market to vomit over itself.</p> <p><a href=""><img src="" width="500" height="313" /></a></p> <p>Yes, a +0.7% increase in the US 10-Year Treasury market yield created chaos, havoc and over $1.7 Trillion in losses around the world. </p> <p>We’ve spoken before how we had meetings the day after with the world’s largest bond manager and they described the previous few days as registering an 8 out of 10 on the holy smokes scale. Let that sink in. </p> <p><strong>This +0.7% increase in long-term rates caused this bond behemoth to go down for an 8-count. Folks – this is not reassuring.</strong></p> <p>* * * </p> <p><em>Much more in the full presentation below:</em></p> <p><iframe src=";view_mode=scroll&amp;access_key=key-tUg7nu3I9NjCZVp3tt8F&amp;show_recommendations=true" width="100%" height="600" frameborder="0" scrolling="no"></iframe></p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="781" height="446" alt="" src="" /> </div> </div> </div> Bond Bond Business Central Banks Consumer Credit Corporate finance Donald Trump Economic bubble Economy Finance Financial markets Fixed income Futures contract Housing Bubble Housing Market laser Market Conditions Market Crash Money None North Korea Quantitative Easing Reality Risk Management Short Stock Stock market Yen Yield Curve Yield curve Mon, 23 Oct 2017 00:13:28 +0000 Tyler Durden 605787 at For The First Time In 26 Years, US To Put Nuclear Bombers On 24 Hour Alert <p>The unexpected decision by President Trump to <a href="">amend an emergency Sept 11 order signed </a>by George W Bush, allowing the Air Force to recall up to 1,000 retired air force pilots to address what the Pentagon has decribed as "an acute shortage of pilots" caught us by surprise. After all, this was the first time we have heard of this particular labor shortage - perhaps there was more to this executive order than meets the eye. Indeed, a just released report may help explain the reasoning behind this presidential decision. </p> <p>According to <a href="">Defense One, </a><strong>the US Air Force is preparing to put nuclear-armed bombers back on 24-hour ready alert, a status not seen since the Cold War ended in 1991. </strong></p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><strong>&nbsp;</strong>That means the long-dormant concrete pads at the ends of Barksdale Air Force Base's 11,000-foot runway — dubbed the “Christmas tree” for their angular markings — could once again find several B-52s parked on them, laden with nuclear weapons and set to take off at a moment’s notice.</p> </blockquote> <p><strong>“This is yet one more step in ensuring that we’re prepared,” </strong>Gen. David Goldfein, Air Force chief of staff, told the publication in an interview during his six-day tour of Barksdale and other U.S. Air Force bases that support the nuclear mission. “<strong>I look at it more as not planning for any specific event, but more for the reality of the global situation we find ourselves in and how we ensure we’re prepared going forward.”</strong></p> <p>Quoted by Defense One, Goldfein and other senior defense officials stressed that the alert order had not been given, but that preparations were under way in anticipation that it might come. That decision would be made by Gen. John Hyten, the commander of U.S. Strategic Command, or Gen. Lori Robinson, the head of U.S. Northern Command. STRATCOM is in charge of the military’s nuclear forces and NORTHCOM is in charge of defending North America.</p> <p>Putting the B-52s back on alert is just one of many decisions facing the Air Force as the U.S. military responds to a changing geopolitical environment that includes North Korea’s rapidly advancing nuclear arsenal, President Trump’s confrontational approach to Pyongyang, and Russia’s increasingly potent and active armed forces.</p> <p><a href=""><img src="" width="500" height="229" /></a></p> <p>Goldfein, who is the Air Force’s top officer and a member of the Joint Chiefs of Staff, <strong>is asking his force to think about new ways that nuclear weapons could be used for deterrence, or even combat. </strong></p> <p>Quoted by Def One, he said that “the world is a dangerous place and we’ve got folks that are talking openly about use of nuclear weapons. It’s no longer a bipolar world where it’s just us and the Soviet Union. <strong>We’ve got other players out there who have nuclear capability. It’s never been more important to make sure that we get this mission right.” </strong>During his trip across the country last week, Goldfein encouraged airmen to think beyond Cold War uses for ICBMs, bombers and nuclear cruise missiles.</p> <p>“I’ve challenged…Air Force Global Strike Command to help lead the dialog, help with this discussion about ‘What does conventional conflict look like with a nuclear element?’ and ‘Do we respond as a global force if that were to occur?’ and ‘What are the options?’” he said. “How do we think about it — how do we think about deterrence in that environment?”</p> <p>Asked if placing B-52s back on alert — as they were for decades — would help with deterrence, Goldfein said it’s hard to say.</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>“Really it depends on who, what kind of behavior are we talking about, and whether they’re paying attention to our readiness status,” he said.</p> </blockquote> <p>Meanwhile, various improvements have already been made to prepare Barksdale — home to the 2d Bomb Wing and Air Force Global Strike Command, which oversees the service’s nuclear forces — <strong>to return B-52s to an alert posture.</strong> Near the alert pads, an old concrete building — where B-52 crews during the Cold War would sleep, ready to run to their aircraft and take off at a moment’s notice — is being renovated.</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>Inside, beds are being installed for more than 100 crew members, more than enough room for the crews that would man bombers positioned on the nine alert pads outside. There’s a recreation room, with a pool table, TVs and a shuffleboard table. Large paintings of the patches for each squadron at Barksdale adorn the walls of a large stairway. </p> <p>&nbsp;</p> <p>One painting — a symbol of the Cold War — depicts a silhouette of a B-52 with the words “Peace The Old Fashioned Way,” written underneath. At the bottom of the stairwell, there is a Strategic Air Command logo, yet another reminder of the Cold War days when American B-52s sat at the ready on the runway outside. </p> <p>&nbsp;</p> <p>Those long-empty B-52 parking spaces will soon get visits by two nuclear command planes, the E-4B Nightwatch and E-6B Mercury, both which will occasionally sit alert there. During a nuclear war, the planes would become the flying command posts of the defense secretary and STRATCOM commander, respectively. If a strike order is given by the president, the planes would be used to transmit launch codes to bombers, ICBMs and submarines. At least one of the four nuclear-hardened E-4Bs — formally called the National Airborne Operations Center, but commonly known as the Doomsday Plane — is always on 24-hour alert.</p> </blockquote> <p>Barksdale and other bases with nuclear bombers are preparing to build storage facilities for a new nuclear cruise missile that is under development. During his trip, Goldfein received updates on the preliminary work for a proposed replacement for the 400-plus Minuteman III intercontinental ballistic missiles, and the new long-range cruise missile.</p> <p>“Our job is options,” Goldfein told Defense One's Marcus Weisgerber. “We provide best military advice and options for the commander and chief and the secretary of defense. Should the STRATCOM commander require or the NORTHCOM commander require us to [be on] a higher state of readiness to defend the homeland, then we have to have a place to put those forces."</p> <p>And now that the US is preparing for immediate nuclear war readiness, all it needs is a provocation, one which a world which has never been more on edge over a stray tweet, may have little difficulty in finding... </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="710" height="325" alt="" src="" /> </div> </div> </div> Air Force Military Minuteman III Nuclear warfare Nuclear weapon Pentagon Politics Reality U.S. Northern Command U.S. Strategic Command United States Air Force United States Department of Defense United States Strategic Command US Air Force US military War Sun, 22 Oct 2017 23:49:00 +0000 Tyler Durden 605788 at USDJPY Inches Higher As Japanese Stocks Set For Longest Winning Streak In History <p><strong>Yen is weaker and Japanese equity futures notably higher </strong>following a landslide election victory for Japan Prime Minister Shinzo Abe which theoretically <strong>ushers in yet more easy monetary policy</strong>. USDJPY has jumped above 114.00 in early trading, sending NKY futures up almost 1% in the pre-market.</p> <p><img height="422" src="" width="600" /></p> <p>If this equity rise holds it <strong>will mark the 15th consecutive gain for the Japanese market</strong> - breaking the 1961 record of 14 straight days to <span style="text-decoration: underline;"><strong>become the longest winning streak in Japanese stock market history.</strong></span></p> <p>Nikkei 225 is at its highest since Dec 1996.</p> <p><a href=""><img height="318" src="" width="600" /></a></p> <p>Meanwhile, much has been made recently of the decoupling between USDJPY and the Nikkei 225</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 318px;" /></a></p> <p>However, this chart masks a closer relationship between USDJPY and the relative performance of Japanese and US equities.</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 311px;" /></a></p> <p>So there really is no regime shift.</p> <p><u><em><strong>What are the drivers of this persistent negative correlation between the yen and Japanese equities and which flows supported this negative correlation this year?</strong></em></u></p> <p>On Friday, JPMorgan presented three fundamental explanations to justify the link between Japanese equities and the yen.</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p><strong>One typical explanation is that the yen, being a major funding currency for the world, should rise in a risk-off equity environment and vice versa. </strong>But this argument is not supported by the fact that there is much lower correlation between the yen and global equities. It is also not supported by the structural break in the correlation between Japanese equities and the yen shown in the chart above. The yen was the most prominent or sole funding currency before the financial crisisof 2007/08. After the financial crisis the yen was joined by the dollar and later by the euro as funding currencies. So if anything the negative correlation between equities and the yen should have been even more negative before the financial crisis. But the opposite happened. The negative correlation only intensified after the financial crisis.</p> <p>&nbsp;</p> <p>A second explanation, with causality running from yen to Japanese equities, is that <strong>a weaker yen has a positive impact on corporate profits inducing equity investors to buyJapanese equities and vice versa. </strong></p> <p>&nbsp;</p> <p>A third explanation is that <strong>Abenomics was always thought of as a combined trade for overseas investors: buy Japanese equities and sell the yen.</strong> And reverse, i.e. sell Japanese equities and buythe yen, when Abenomics wanes.</p> </blockquote> <p><em><strong>But JPM notes both of these last two explanations have a problem</strong>: why does the yen not go up as foreign investors buyJapanese equities? In principle when foreign investors buy or sell Japanese equities currency-hedged there should be no currency impact. And when foreign investors buy or sell Japanese equities currency unhedged there should be in fact a positive correlation between the yen and Japanese equities. What are the circumstances then under which we have a negative correlation between Japanese equities and the yen?</em></p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p><strong>We previously presented three flow circumstances:</strong></p> <p>&nbsp;</p> <p>1) If a foreign investor (buyer) purchases Japanese equities currency-hedged from another foreign investor (seller) who was long yen already (i.e. the seller owned these Japanese equities currency unhedged before), the net market impact would be an up movein Japanese equities and a down move in yen.</p> <p>&nbsp;</p> <p>2) If a foreign investor (buyer) purchases Japanese equities currency-hedged from a Japanese investor (seller) and this Japanese investor uses the proceeds to purchase foreign equities currency-unhedged, the net impact would also be an up move in Japanese equities and a down move in yen.<strong> This flow appears to have taken place since mid-September. Foreign investors were buyers of Japanese equities, at the same time as Japanese investors sold domestic equities and as Japanese investors stepped up their purchases of foreign equities</strong>. But since September, the purchases of foreign equities by Japanese investors were smaller in magnitude relative to the purchases of Japanese equities by foreign investors. So the negative impact on theyen from the former flow was more muted relative to the positive impact on Japanese equities from the latter flow.</p> <p>&nbsp;</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 491px;" /></a></p> <p>&nbsp;</p> <p>3) Another flow example is related to dynamic hedging by existing holders of Japanese equities, Existing foreign holders of Japanese equities could have unwound previous FX hedges in response to equity price declines in recent months, even if they did not sell any Japanese equities themselves. This is because equity investors tend to dynamically adjust their FX hedges to match the size of the hedges to the value of their equity holdings. So as the price of Japanese equities goes down in local currency terms, these foreign investors cut some of their previous FX hedges, pushing the yen up in the process. The opposite flow takes place in periods of Japanese equity appreciation: existing foreign holders of Japanese equities have to increase the size of their FX hedges to match the increased equity values, pushing the yen down in the process.</p> </blockquote> <p>This dynamic hedging flow suggests that there should be an even stronger correlation between the performance of the yen and the absolute performance of Japanese equities in local currency terms, relative to the correlation between the yen and the relative performance of Japanese vs. US or global equities. <strong>But the two charts above show that the opposite happened this year. The correlation between the yen and the relative performance of Japanese vs. US equities has been stronger than the correlation between the performance of the yen and the absolute performance of Japanese equities. </strong>This suggests the above flow stemming from dynamic hedging by foreign investors of existing Japanese equity holdings, has likely weakened this year.</p> <p><strong>So from the above three flow circumstances, it is the second one that appears to offer the best explanation of what happened since September in the Japanese equity/yen space.&nbsp; </strong></p> <p>So, following the recent buying, how overweight have foreign investors become in Japanese equities?</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 560px;" /></a></p> <p>So in all,<u><strong> it appears that overweights in Japan have been focused mostly among leveraged overseas investors including CTAs, making Japanese equities vulnerable to an unwind</strong></u> of some of these positions in the near term. Non-leveraged institutional investors or retail investors are rather neutral.</p> <p><strong>To conclude, JPMorgan finds no reason to believe that the historical negative correlation between Japanese equities and the yen has broken down. </strong>The relationship between Japanese equities and the yen has been closely aligned this year if one looks at the relative rather than the absolute performance of Japanese equities.</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>More recently, since September, the purchases of foreign equities by Japanese investors were smaller in magnitude relative to the purchases of Japanese equities by foreign investors. So the negative impact on the yen from the former flow was more muted relative to the positive impact on Japanese equities from the latter flow. <strong>Going forward, overseas leveraged investors present the main vulnerability for Japanese equities, in our view.</strong></p> </blockquote> <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="949" height="503" alt="" src="" /> </div> </div> </div> Abenomics Business Economy Finance Financial crisis of 2007–2008 Financial risk Hedge Institutional Investors Investor Japan Japanese yen Market risk Monetary Policy Money Nikkei Nikkei 225 Yen Sun, 22 Oct 2017 23:34:14 +0000 Tyler Durden 605786 at What The ECB Will Announce This Week: A Summary Of All QE Tapering Scenarios <p>The main risk event in the coming week, in addition to a barrage of corporate earnings, will be the ECB's long-awaited announcement of what the central bank's QE tapering will look like. Conveniently, thanks to a trial balloon <a href="">released on October 12</a>, we already know the general parameters of this phasing out of monetization: ECB officials are considering <strong>cutting their monthly bond buying by at least half, from €60BN to €30BN, starting in January and keeping their program active for at least nine months, with some potential reference to a lengthening of the maturity of purchases.</strong></p> <p>According to a Bloomberg survey, the ECB will likely keep buying for about nine months <strong>to take the program to just over €2.5 trillion, respondents said before the ECB’s Oct. 26 decision. </strong>That’s consistent with what some officials see as the limit in the market under current rules. ECB President Mario Draghi is predicted to announce his first interest-rate increase in early 2019.</p> <p><a href=""><img src="" width="600" height="293" /></a></p> <p>According to <a href="">Bloomberg</a>, "such an outcome for quantitative easing would soothe the concerns of policy makers who want a definite signal that the program will end, while giving succor to those who want to keep stimulus flowing as long as the inflation outlook remains lackluster. It doesn’t resolve the question of what happens in a year if consumer-price growth still isn’t on track to the ECB’s goal."</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>“There has been no dissenting voice at the ECB ahead of the meeting on the need to scale down net purchases,” said Maxime Sbaihi, an economist at Bloomberg in London. “So the question is less ‘if’ they will taper than the details of ‘how’ they will do it.”</p> </blockquote> <p>Why not taper more? Simple: Mario Draghi is terrified of starting another bond (or stock) tantrum, if investors are spooked that the ECB is withdrawing too much support: "<strong>The Governing Council seems concerned that a more aggressive tapering plan could harm financial conditions, especially by letting the euro appreciate even more,” </strong>said Kristian Toedtmann, an economist at DekaBank in Frankfurt.</p> <p>Meanwhile, the major sticking point among ECB governors appears to be whether to commit to an end-date for QE. Draghi has expressed confidence that the region’s economic recovery will eventually help him and his peers to deliver on their mandate. Yet inflation was 1.5% in September and ECB’s own forecast doesn’t see it returning to the goal of below but close to 2% before the end of 2019.</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>“It seems that the hawks want a definitive end-date while the doves want it open-ended,” Alan McQuaid, an economist at an economist at Merrion Capital in Dublin. <strong>“I think we will get a compromise, with the ECB saying that it intends to end its QE scheme in September 2018, but if things take a dramatic turn for the worse on the economic or inflation front in the meantime, it will extend its scheme further until things have stabilized</strong>.”</p> </blockquote> <p>Which is why many model QE as lasting beyond the 9 month horizon, and running through the end of March 2019.</p> <p>In terms of market consensus, the following Barclays chart visualizes the most likely outcome, showing monthly QE declining by 50% in January through October, when it tapers by another 50% until March 2019, coupled with a modest increase in the ECB's deposit rate around the end of 2018.</p> <p><a href=""><img src="" width="600" height="366" /></a></p> <p>But, as Bank of America asks,<strong> what if things don't turn out that way?</strong> In the table below, the bank's rates analyst Erjon Satko attempts to respond to the many questions the bank has gotten regarding possible market reactions to different decisions in terms of QE size/length but also to changes in the three technical aspects that matter in our view: the rates forward guidance, the maturity of QE purchases and the split between safe and risky assets (periphery, private assets).</p> <p><a href=""><img src="" width="600" height="278" /></a></p> <p>Here are BofA's observations on the various scenarios:</p> <ul> <li>In the €40bn/6m, we assume the ECB would leave the door open to a further extension, ruling out a cliff end (from €40bn to 0). That scenario, as well as the €30bn/12m would ultimately represent a large total QE amount. We thus assume that flexibility will be engineered with technical changes that should imply greater support for risky assets (this would be bullish the periphery and could also fuel a steepening in long-end swaps).</li> <li>In the €20bn/12m and even more so the €20bn/9m, the first market reaction should be bearish as the quantum of monthly Bund purchases is lower than expected. However, as previously discussed, we think the behavior of the periphery and risky assets in general will then guide term premium in Bunds. Hence the "then see periphery" in Table 1.</li> <li><strong>Purchases skewed towards risky assets: </strong>For example, if the ECB hints to more limited tapering of private asset purchases relative to PSPP, or if it increases the share of EU supras, implying greater potential for deviations from capital keys, in favor of Italy and France.</li> <li><strong>Extension of the maturity of purchases</strong>: the ECB could suggest that reinvestments will happen at a longer maturity than recent net purchases, or it could make more significant comments to signal longer overall purchases. As discussed last week, on way for the ECB to make this concrete could be that it drops the 30y maturity limit on eligible bonds</li> </ul> <p>Yet despite the ECB's tapering trial balloon, one surprising market reaction has been the recent decline in Bund yields together with the BTP spread tightening which according to BofA has "taken many by surprise, especially in light of the ever-decreasing expectations of QE support next year." In fact, while market expectations for 2018 ECB QE have been edging lower from €60bn/month to €40bn/month and now to €20-30bn/m, <strong>current valuations fail to give evidence of major concerns ahead of the tapering announcement</strong>. Of course, that may change once Draghi's media jawboning becomes fact; alternatively this may simply be more evidence of what Citi's Matt King provocative claimed this past summer, namely that the "market" has become so distorted by QE, it has <a href="">lost the ability to discount the future</a>.</p> <p>* * *</p> <p>In modeling market reaction scenarios to the ECB's October 26 announcement, nobody anticipates a major market shock. In fact, some - such as Citi - expect various permutations of the QE tapering to be actually seen as dovish for the market. As we <a href="">discussed last Saturday</a>, Citi's EONIA-signaling driven model seeks to predict the near-term market impact (around one-week) across the euro swap and Bund curve for a range of QE scenarios.</p> <p><a href=""><img src="" width="500" height="193" /></a></p> <p>Below are its key findings:</p> <ul> <li>For 10yr Bunds, <strong>yields fall around 25bp in the most dovish scenario (€40bn x 12mth) and rise around 24bp in the most hawkish scenario (€20bn x 6mth). </strong>Figure 1 above summarizes the full set of results for Bunds.</li> <li>The most market neutral scenarios, according to the model, <strong>are €20bn x 12mth, €30bn x 9mth and €40bn x 6mth.</strong></li> <li>This is broadly consistent with the Reuters poll (taken 11-14 September) which suggested the <strong>consensus amongst economists was for €40bn (range €30- 50bn) over 6mths (range 3-12mths).</strong></li> <li>Cross-checking the model output (based on policy signals) with the total size of APP extension shows a clear relationship (Figure 2). <strong>The model therefore assumes that there is less of a role for the ‘intensity’ of purchases.</strong></li> <li><strong>The market neutral size for APP upsizing appears to be around +€250bn</strong></li> <li>The Citi house view is for an extension in the form of an ‘envelope’ (without specifying a monthly purchase rate) of €150bn (with upside risk of €210bn). That could lead to a <strong>near-term sell-off of around 15-20bp. </strong></li> <li>The scenarios presented assume deliverability. But, the most dovish options undoubtedly would be more challenging to implement (see below) given scarcity constraints. In terms of likelihood, we would put less weight on these scenarios which skews the risk towards a bearish reaction on 26 October.</li> </ul> <p>Finally how should one trade the ECB announcement? Here Barclays' confusion reflects the (confused) trader's mindset best: "<em>we do not see compelling risk-reward in pre-positioning in EUR ahead of the ECB announcement, given shifting expectations and difficult in gauging how the market is pricing the parameter changes.</em>"</p> <p>Translation: stop trying to pretend you know how the market will react to the ECB, and just wait for the announcement. Here's hoping you are faster to react to the news than the HFTs.... and mind the direction of the initial kneejerk reaction, which is usually just the algos taking out all the stops.</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="1260" height="584" alt="" src="" /> </div> </div> </div> Bank of America Bank of America Barclays Bond Business Central bank Economic policy Economy Eurogroup European Central Bank European Union Fail Finance France Governing Council Inflation Italy Mario Draghi Monetary policy Monetization Money Quantitative Easing Quantitative easing recovery Reuters Sun, 22 Oct 2017 23:14:41 +0000 Tyler Durden 605784 at Bank Of Japan Is Buying Bonds From Scandal-Hit Kobe Steel <p>Last week, the simmering scandal involving Japan's third largest steel producer exploded, when following reports that Kobe Steel had falsified data about the quality of its steel, aluminum, copper, iron powder and other products it sold to customers across virtually every single industry, Japan's <a href="">Nikkei also reported </a>that some Kobe Steel plants in Japan <strong>had been falsifying product quality data for decades, </strong>well beyond the roughly 10-year time frame given by the lying steelmaker. Worse, not only did the company, having already been caught, lie to shareholders and rule-abiding employees how long this illegal behavior had been going on, but - in a glaring example of corporate idiocy - had effectively enshrined and codified its fraudulent ways, as the cheating procedures eventually became institutionalized in what was a fraud manual, allowing the practice to continue as managers came and went. </p> <p>As all this was taking place, not only did the stock price of Kobe Steel plunge, but its bonds tumbled sending its default probability sharply higher. </p> <p>&nbsp;</p> <p><a href=""><img src="" width="500" height="256" /></a></p> <p>It now turns out that the rout would have been far worse, had it not been a direct intervention by the BOJ itself, which appears to have stepped in and bought Kobe bonds to arrest the plunge. </p> <p>Posing a rhetorical question, "to buy or not to buy", the Nikkei reports that "<strong>the Bank of Japan appears to have chosen the former in considering whether to include debt issued by scandal-hit Kobe Steel in its bond-buying operations.</strong>" </p> <p>Here, it may come as a surprise to some that as part of its ultra-loose monetary easing policy, <strong>the Japanese central bank also holds roughly 3.2 trillion yen ($28.4 billion) in corporate debt</strong>, similar to the ECB's CSPP program. The BOJ maintains that balance through purchasing operations held roughly once a month. This past Thursday's operation was the bank's first since Kobe Steel's data tampering came to light earlier in October.</p> <p>While the BOJ has previously avoided bonds from companies rocked by scandal, according to an official at a Japanese asset management company, this seems to no longer be the case. Whereas such avoidance has occurred even if the security otherwise meets credit ratings and other requirements set by the bank, when it comes to Kobe bonds, Kuroda decided to make an explicit exception. </p> <p>And like the ECB, which provides only token transparency when it comes to its corporate bond purchases, the BOJ is likewise opaque about its open market operations. Investors who want to sell corporate bonds in a BOJ operation often do so via brokerages. These investors do not know whether the central bank bought the debt until results of the operation surface later that evening. And, as the Nikkei reports, it was learned later Thursday - to the relief of investors - <strong>that the bank purchased around 20 billion yen to 30 billion yen worth of corporate bonds, a major insurance provider estimated</strong>. About 170 billion yen worth of Kobe Steel bonds are circulating in the market, more than 40 billion yen of which fulfills BOJ requirements.</p> <p>Since the BOJ does not break down the purchases by issuer, whether the central bank bought Kobe Steel bonds can be inferred by the <strong>average interest rate of corporate bonds accepted. </strong>A clue that the BOJ had indeed purchased Kobe steel bonds - the metric jumped from the prior operation in September, <strong>suggesting the steelmaker's bonds likely were included in the purchases. </strong>Since only one company saw a dramatic spike in its bond yields - and default probability - it can be safely concluded that the BOJ did in fact purchase bonds from the distressed corporation.</p> <p>Of course, having purchased Kobe Steel bonds means that the central bank has once again greenlighted an unprecedented moral hazard, encouraging bond traders to buy bonds issued by a company which according to some may be facing bankruptcy in the not too distant future. Indeed, even the Nikkei writes that the Bank of Japan finds itself in an awkward position: </p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>"If it did buy Kobe Steel bonds, investors who normally would steer clear of such a company may purchase the asset anyway in anticipation of selling it to the BOJ. But if the bank blacklists Kobe Steel, investors might see the bonds as an even bigger risk."</p> </blockquote> <p>An even better question: should Kobe Steel file for bankruptcy, and its debt be equitized in the form of post-reorg equity, just how will the BOJ act when, after buying billions in Kobe bonds, it finds itself a major equity stakeholder in the restructured company? While we don't know the answer, it will certainly be a closely followed case study in central bank "activism", because after the next downturn, all eyes will be on the ECB which over the past 16 months has purchased over €110 billion in European corporate bonds with increasingly lower credit ratings. After the next European recession, many of these issuers will be bankrupt, leaving the ECB as one of the major equity stakeholders in an unknown number of upcoming restructuring processes, where it will ultimately end up owning post-reorg equity. </p> <p>Or perhaps neither the BOJ nor ECB will allow any of the corporate names in its bond portfolio to default, bidding up bonds without relent, and resulting in the most bizarre zombie company world of all: one where bankrupt companies see their bonds trading at (or above) par, unable to file for bankruptcy - just like Greece - as the alternative would be the "new normal" financial equivalent of "crossing the streams." </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="533" height="301" alt="" src="" /> </div> </div> </div> Bank of Japan Bank of Japan Bank of Japan Bond Bond Business Copper Corporate bond default Default Probability Economy European Central Bank Finance Financial markets Greece Japan Money Moral Hazard New Normal Nikkei Open Market Operations Quantitative easing ratings Recession Transparency Yen Sun, 22 Oct 2017 22:50:56 +0000 Tyler Durden 605785 at 93-Year-Old President Carter: Russians Didn't Alter Election, Obama Didn't Deliver, We Didn't Vote For Hillary <p>Spot the odd one out...</p> <p><a href=""><img height="329" src="" width="600" /></a></p> <p>One of these six people says that Russians did not alter the election outcome, or vote for Hillary.</p> <p>In a<a href=""> lengthy interview with The New York Times recently</a>, 93-year-old former President Jimmy Carter cut loose on some painful establishment &#39;facts&#39;.</p> <p><strong><a href=""><img height="367" src="" width="600" /></a></strong></p> <p><a href="">As;s Joseph Curl reports, </a>The Times decided to play up the fact that Carter would love to go over to North Korea as an envoy. But the Times is steadily proving how out of touch it is -- and how it no longer seems to actually &quot;get&quot; what real news is.</p> <p>Here are some major highlights from the interview:</p> <p><u><strong>1. The Russians didn&#39;t steal the 2016 election.</strong></u></p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>Carter was asked &quot;Did the Russians purloin the election from Hillary?&quot;</p> <p>&nbsp;</p> <p><em><strong>&quot;I don&rsquo;t think there&rsquo;s any evidence that what the Russians did changed enough votes &mdash; or any votes,&quot; </strong></em>Carter said.</p> <p>&nbsp;</p> <p>So the hard-left former president doesn&#39;t think the Russians stole the election? Take note, Capitol Hill Democrats.</p> </blockquote> <p><u><strong>2. We didn&#39;t vote for Hillary.</strong></u></p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>Carter and his wife, Roselyn, disagreed on the Russia question. In the interview, she &quot;looked over archly [and said] &#39;They obviously did&#39;&quot; purloin the election.</p> <p>&nbsp;</p> <p>&ldquo;Rosie and I have a difference of opinion on that,&rdquo; Carter said.</p> <p>&nbsp;</p> <p>Rosalynn then said, &ldquo;The drip-drip-drip about Hillary.&rdquo;</p> <p>&nbsp;</p> <p>Which prompted Carter to note that during the primary, they didn&#39;t vote for Hillary Clinton.<em><strong> &quot;We voted for Sanders.&rdquo;</strong></em></p> </blockquote> <p><u><strong>3. Obama fell far short of his promises.</strong></u></p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>Barack Obama whooshed into office on pledges of delivering &quot;hope and change&quot; to the country, spilt by partisan politics.</p> <p>&nbsp;</p> <p>He didn&#39;t. In fact, <em><strong>he made it worse.</strong></em></p> <p>&nbsp;</p> <p><em><strong>&quot;He made some very wonderful statements, in my opinion, when he first got in office, and then he reneged on that,&quot;</strong> </em>he said about Obama&#39;s action on the Middle East.</p> </blockquote> <p><u><strong>4. Media &quot;harder on Trump than any president.&quot;</strong></u></p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>A recent Harvard study showed that 93% of new coverage about President Trump is negative.</p> <p>&nbsp;</p> <p>But here&#39;s another shocker: Carter defended Trump.</p> <p>&nbsp;</p> <p><em><strong>&quot;I think the media have been harder on Trump than any other president certainly that I&#39;ve known about,&quot;</strong></em> Carter said.<strong><em> &quot;I think they feel free to claim that Trump is mentally deranged and everything else without hesitation.&quot;</em></strong></p> </blockquote> <p><strong>5. NFL players should &quot;stand during the American anthem.&quot;</strong></p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>Carter, who joined the other four living ex-presidents on Saturday for a hurricane fundraiser, put his hand on his heart when the national anthem played &mdash; and he has a strong opinion about what NFL players should do, too.</p> <p>&nbsp;</p> <p><em><strong>&quot;I think they ought to find a different way to object, to demonstrate,&quot; he said. &quot; I would rather see all the players stand during the American anthem.&quot;</strong></em></p> </blockquote> <p>Not exactly the narrative The Times was painting.</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="1319" height="723" alt="" src="" /> </div> </div> </div> Barack Obama Harvard Hillary Clinton Iran hostage crisis Jimmy Carter Middle East Middle East National Football League Nationality New York Times North Korea Phi Kappa Phi Politics Submariners United States Sun, 22 Oct 2017 22:15:00 +0000 Tyler Durden 605771 at After 16 Months Without a 5% Market Pullback, Goldman's Clients Want To Know Just One Thing <p>It's confusing to be a Goldman client these days. </p> <p>One month after the investment bank <a href="">reported that its Bear Market Risk indicator had jumped to 67%, </a>a level it hit most recently before the dot com bubble crash and just before the global financial crisis and prompted Goldman to ask "should we be worried now"...</p> <p><img src="" width="500" height="359" /></p> <p>... Goldman's chief equity strategist, David Kostin, nearly admitted capitulation on his bearish year-end S&amp;P price target of 2,400 (<em>which rises to 2,600 by year end 2019, or just 25 points from current levels</em>!), writing <a href="">last week </a>that "<strong>the 2400 target assumes no reform and P/E of 17.3x. 65% probability of passage by 1Q." However, "with tax reform, target could be 2650 (17.9x).</strong>" Even so, Kostin still conceded that both the S&amp;P 500 and the median stock trades at high valuations (the latter at the 98%-percentile of historical records), with the exception of free cash flow yields, which he explained is artificially low due to companies' unwillingness to spend on capex.</p> <p><img src="" width="500" height="367" /></p> <p>So on one hand, there is a broad consensus that stocks are massively overvalued, there are also concerns that the market is poised for a bear market, if not worse, and all this takes place 30 years after Black Monday. On the other however, Goldman refuses to cut its tactical outlook on stocks, and despite predicting a 6% drop by year end, cautions that stock may keep rising, if only on expectations of tax reform getting done, which will push stocks even higher, to 2,650 or more.</p> <p>In this context, it is probably not surprising then that as Goldman's David Kostin writes in his latest Weekly Kickstart report that <strong>"In the ninth year of economic expansion, with S&amp;P 500 up 15% YTD, the most common question from clients is, “<span style="text-decoration: underline;">When will the rally end</span>?”</strong></p> <p>Here are the details from the latest round of conversations Goldman had with its clients, which it summarizes as "peak growth and drawdown potential."</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>Thursday marked the 30-year anniversary of Black Monday. On October 19, 1987, the S&amp;P 500 plunged by 22%, its worst single-day return on record. Following the decline in global equity markets, it took the S&amp;P 500 a full year (October 20, 1988) to regain its pre-crash level. <strong>This week also marked 20 months since the last 10% S&amp;P 500 correction and 16 months since the last 5% drawdown. </strong>This ranks as the fourth longest streak in history (behind 17-19 months in 1965, 1994, and 1996) and at 332 trading days is well above the historical average of 92 days (see Exhibit 1). </p> <p>&nbsp;</p> <p><a href=""><img src="" width="500" height="359" /></a></p> <p>&nbsp;</p> <p>In the ninth year of economic expansion, with S&amp;P 500 up 15% YTD, the most common question from clients is, “<strong>When will the rally end</strong>?”</p> </blockquote> <p>Of course, it's not just Goldman clients who want the answer to that question: virtually everyone, and perhaps even the Fed, is curious how much longer can risk assets defy the forces of gravity and plow onward to new all time highs. Obviously, it's virtually impossible to give the correct answer, although Kostin's response suggests that the inflection point is approaching:</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><strong>Catalysts for equity market corrections are notoriously difficult to identify ex-ante. </strong>In fact, catalysts can even be difficult to identify in retrospect; <strong>historians still debate the cause of the Black Monday plunge </strong>although portfolio insurance is viewed as the reason the collapse was so dramatic. <strong>We do not expect an imminent drawdown</strong>, <strong>but the risks identified most frequently by clients may limit medium-term S&amp;P 500 upside.</strong> </p> </blockquote> <p>As a reminder, "drawdown" is a polite, sellside way of saying the c-word. So what are Goldman's main "drawdown" considerations?</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><strong>Economic growth is the most important driver of corporate earnings and equity performance</strong>. Since the Tech Bubble, S&amp;P 500 returns have generally tracked the pace of US economic activity as captured by the ISM Manufacturing Index. After dipping in 2Q, the index has surged in recent months and in September hit 60.8, the strongest reading in 13 years (since May 2004). The US acceleration matched a surge in global growth; our global Current Activity Indicator shows a 4.9% pace of real economic growth, nearly the fastest in five years.</p> <p>&nbsp;</p> <p><a href=""><img src="" width="500" height="366" /></a><strong>&nbsp;</strong></p> <p>&nbsp;</p> <p><strong>Although economic data are extremely strong now, an ISM reading above 60 typically marks the peak of growth and presages economic and equity deceleration. </strong>Since 1980, the ISM has exceeded 60 in eight separate episodes; four of those lasted only one month. Investors buying the S&amp;P 500 at ISM readings of 60 or higher have gone on to suffer negative three- and six-month returns on average as economic activity slowed (see Exhibit 3). In other words, <strong>an environment of synchronized global growth acceleration today raises the risk of coordinated global slowdown tomorrow</strong>.</p> <p>&nbsp;</p> <p><a href=""><img src="" width="500" height="345" /></a></p> </blockquote> <p>So if the current 61 print in the ISM Mfg survey is indeed a leading indicator of a market top, how much downside does Goldman expect based on historical data, all else equal? According to the chart below, a modest drop in the next 3-6 months is to be expected, although certainly not a <span style="text-decoration: line-through;">crash</span>, pardon substantial "drawdown".</p> <p><a href=""><img src="" width="500" height="349" /></a></p> <p>It's not just the ISM which is topping out. According to Goldman economists, US GDP will continue to grow at a healthy rate <strong>but decelerate from 1H 2017. </strong>Kostin writes that following 2Q GDP growth of 3% and September US CAI at 3.6%, they forecast real GDP growth of 2.5% in 2018. "Our economists also estimate that easing financial conditions this year have boosted GDP growth by 50-100 bp. This tailwind is unlikely to persist as the Fed continues to tighten. However, in the near term investors may discount any volatile economic data releases as a consequence of recent hurricanes."</p> <p>However, it is neither the topping ISM, nor the modest slowdown in predicted GDP that is most concerning to the Goldman strategist, who warns that "<strong>the biggest risk to equity market valuation is rising interest rates."</strong> </p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>Our economists believe that the Fed will hike in December and four times next year, while market pricing implies 2-3 by year-end 2018. Rising rates should weigh on equity valuations, just as P/E multiples compressed during the last three hiking cycles. However, <strong>since the Fed began hiking in December 2015 the S&amp;P 500 forward P/E multiple has expanded by 10% to 18.5x. <br /></strong></p> </blockquote> <p>In summary, and this is hardly rocket science, <strong>"rising inflation data or a hawkish shift in messaging from any of the major global central banks could lift long-term bond yields and spark a sharp valuation unwind.</strong>"</p> <p>Or not, because as <a href="">BofA's Michael Hartnett wrote on Friday, </a>the absence of inflation, and especially wage growth, could be the catalyst that forces bonds bears to capitulates, sending 30-year Treasury yields toward 2%, the Nasdaq toward 10,000, and high yield &amp; Emerging Market bond spreads 100bps tighter. "The outperformance of “deflation” versus “inflation” could turn exponential."<br /><img src="" width="500" height="262" /></p> <p>Putting all this in simple English, the longer the Fed's attempts to create economic inflation fail to, well, create inflation - in the real world - the bigger the financial asset bubble the Fed has created will become; meanwhile as <a href="">we showed recently</a>, <strong>the difference between inflation in the "real economy" and hyperinflation in the asset prices</strong>, has already hit record levels.</p> <p><a href=""><img src="" width="501" height="367" /></a></p> <p>Meanwhile as Goldman admits that downside risks are mounting, it can't leave its outlook on a sour note, which is why Kostin reverts to the concept of the "Schrodinger market", one where the <a href="">year end price target </a>for the S&amp;P depends on whether or not republicans will get the tax deal done:</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><strong>Tax reform remains the key potential upside and downside risk to equity markets. </strong>Our political economist sees a 65% probability that tax cuts are passed in early 2018. We estimate tax cuts could lift 2018 EPS by 7% to $148, <strong>suggesting that tax reform optimism has contributed to the 5% S&amp;P 500 rally since late August. </strong>If developments in Washington lift the odds of tax reform closer to 100%, or hint at larger cuts than we currently expect, S&amp;P 500 could continue to rise toward 2650. <strong>On the other hand, a collapse in expectations would likely mean the reversal of the market’s recent 5% rally.</strong></p> </blockquote> <p>Finally, here are two more reasons why, even in a worst case scenario, Goldman does not expect a market correction, imminent or delayed, to be dramatic: someone Goldman once again tries to pass off the claim that everyone remains too cautious, which provides "limited downside from any economic or policy-related disappointment", and the second reason is that corporations will unleash stock buybacks on even a modest decline. </p> <p>More on the first: </p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><strong>Persistently cautious investor sentiment is one reason we expect limited downside from any economic or policy-related disappointment.</strong> After spending 12 straight weeks above 90, our Sentiment Indicator now stands at 87 out of 100 (page 14). Client conversations reveal investors probing for reasons the market may turn lower. As noted, the lack of investor “euphoria” typical of bull market peaks is one argument against major market downside. Of course, cautious sentiment did not prevent the decline 30 years ago: <strong>today’s AAII bull (38) and bear (28) sentiment readings are remarkably close to the levels of 37 and 33 in mid-October 1987</strong>.</p> </blockquote> <p>Here we can add that the "lack of euphoria" argument is, at this moment, utter rubbish. Not only are such metrics as CNN's bull and bear "Greed" indicator near all time highs, but according to the latest UMichigan survey, American households said that the probability of an increase in stock prices in 1 year is the highest in history.</p> <p><strong>&nbsp;</strong> </p> <p><a href=""><img src="" width="501" height="345" /></a></p> <p>That said, we do agree with Goldman that if markets finally do crash, corporate treasurers will be busy issuing debt and buying back stock with the proceeds: </p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><strong>Ample buyback capacity also reduces the risk of near-term drawdown. </strong>Policy uncertainty and lack of “dip” to buy explains the 16% fall in S&amp;P 500 buybacks in 1H 2017 vs. 1H 2016. However, authorizations are up 18% YTD. <strong>Weak stock prices would be countered with buybacks, buffering downside.</strong></p> </blockquote> <p>Considering there are virtually no aggregate shorts left, this is perhaps the most credible argument for what could arrest a sharp market drop, aside from central banks directly intervening in the market of course. Recall that as we reported several months ago, when one nets out all capital flows since the financial crisis, <a href=""><strong>there has been just one buyer of stocks: Companies themselves</strong></a><strong>.</strong></p> <p><strong>&nbsp;</strong> </p> <p><a href=""><img src="" width="500" height="475" /></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="580" height="368" alt="" src="" /> </div> </div> </div> Bear Market Bond Business Central Banks Economics Economy Equity Markets Fail Finance Financial crisis of 2007–2008 Foreign exchange market Fundamental analysis Great Recession in the United States Gross domestic product High Yield Hyperinflation Investment Investor Sentiment ISM Manufacturing Money NASDAQ NASDAQ 100 S&P S&P 500 Stock valuation US Federal Reserve Valuation Weekly Kickstart Sun, 22 Oct 2017 22:14:09 +0000 Tyler Durden 605783 at This Secretive Japanese Company Is Driving The Global Boom In Industrial Automation <p>As<a href=""> we&rsquo;ve reported in the past, </a>skyrocketing wages in mainland China have caused the adoption of robot workers by the country&rsquo;s manufacturers to accelerate rapidly in recent years, cementing the country&rsquo;s position as a world leader in industrial automation.</p> <p><a href=""><img alt="" src="" style="width: 500px; height: 395px;" /></a></p> <p>But while that trend has been widely cited and is widely known, particularly as the US plays catch up with one of its most prominent economic rivals despite President Donald Trump&rsquo;s promises to bring back manufacturing jobs, what many don&rsquo;t know is the worldwide boom in industrial automation has largely been driven by one press-shy Japanese company called Fanuc.</p> <p>Fanuc, as <a href=";utm_content=business&amp;utm_campaign=socialflow-organic&amp;utm_source=twitter&amp;utm_medium=social">Bloomberg </a>Businessweek reports, manufacturers robots that can perform all manner of functions. From constructing complex motors to making injection-molded parts and electrical components. At pharmaceutical companies, Fanuc&rsquo;s sorting robots categorize and package pills. At food-packaging facilities, they slice, squirt, and wrap edibles.</p> <p><a href=""><img alt="" src="" style="width: 500px; height: 289px;" /></a></p> <p>Sales of industrial robots in the US soared during the first quarter of 2017 as manufacturers spent more than half a billion dollars on new products bound for auto manufacturing centers in Indiana, Michigan and Ohio - and the overwhelming majority of these robots are being manufactured by Fanuc.</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p><strong>In the first quarter of 2017, North American manufacturers spent $516 million on industrial robots, a 32 percent jump from the same period a year earlier. A study published by the Brookings Institution shows many of them are ending up in steel and auto manufacturing centers such as Indiana, Michigan, and Ohio. According to the report, there are about nine industrial robots for every 1,000 workers in Toledo and Detroit&mdash;three times the figure for 2010. </strong>Many of these robots are Fanuc&rsquo;s. Its machines are also in Tesla Inc.&rsquo;s Gigafactory, in Nevada, lifting heavy chassis and delicately assembling battery trays, among other tasks. Its sorting robots, meanwhile, are ubiquitous at Inc.&rsquo;s massive warehousing and shipping facilities.</p> </blockquote> <p>But US sales are dwarfed by sales in China&mdash;which purchased some 90,000 units, almost a third of the world&rsquo;s total industrial robot orders last year. Sales to China amounted to about 55 percent of the $5 billion that Fanuc&rsquo;s automation unit generated in the fiscal year ended March 2017.</p> <p>The International Federation of Robotics estimates that, by 2019, China&rsquo;s annual industrial robot orders will rise to 160,000 units, suggesting Fanuc&nbsp; will be insulated from any slowdown in the world&rsquo;s second-largest economy. Yoshiharu told investors at his most recent Q&amp;A session in April that the company expects demand in China to outstrip supply even after Fanuc opens a factory next August in Japan&rsquo;s Ibaraki prefecture. The facility will be dedicated solely to keeping up with Chinese demand.</p> <p>Fanuc, whose robots are painted in the company&rsquo;s signature bright yellow, was founded in the 1950s by Seiuemon Inaba, a Japanese engineer. His son, Yoshiharu, now serves as CEO.</p> <p><a href=""><img alt="" src="" style="width: 500px; height: 262px;" /></a></p> <p>But of the many models of machines produced by Fanuc, none are more representative of the company&rsquo;s dominance than the Robodrill - a machine used by Apple Inc. suppliers to make the metal casings that have been a feature of every iPhone since the iPhone four.</p> <p>Analysts even cited Robodrill sales to discount rumors that the Apple 8 and Apple X wouldn&rsquo;t feature the metal casing.</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>King of them all is the Robodrill, which plays first violin in one of the great symphonies of modern production: machining the metal casing for Apple Inc.&rsquo;s iPhones. <strong>In the fiscal year surrounding the 2010 introduction of the iPhone 4, the first to use an all-metal casing, Robodrill sales more than doubled. </strong></p> <p>&nbsp;</p> <p>Since then, this relationship has become so chummy that, based solely on strong first-quarter Robodrill sales, analysts discounted early rumors the iPhone 8 would eschew metal casing for front-and-back glass panels. Instead, the recent iPhone 8 release and coming iPhone X launch spurred higher Robodrill sales to Apple&rsquo;s manufacturers in China, some of which are building new factories to assemble the company&rsquo;s phones. <strong>New iPhones also mean more demand for Robodrills from Chinese smartphone makers such as Xiaomi, Vivo, Oppo Electronics, and Huawei Technologies, which often present their own more affordable models in the wake of each fresh offering from Apple.</strong></p> </blockquote> <p>Indeed, Fanuc&rsquo;s machines are directly responsible for the return of offshore manufacturing jobs to North America, as companies realize they can achieve more efficient streamlining and less costly economies of scale with &ldquo;lights out&rdquo; factories stocked with robots.</p> <p><a href=""><img alt="" src="" style="width: 500px; height: 466px;" /></a></p> <p><em>The Robodrill</em></p> <p>Of course, this trend, as <a href=";utm_content=business&amp;utm_campaign=socialflow-organic&amp;utm_source=twitter&amp;utm_medium=social">Bloomberg </a>notes, won&rsquo;t save American manufacturing jobs - if anything it will only slow the decline. Companies are spending more money than ever before on robots. And as academics and even investors like Bill Gross speak up about the potential for automation to reshape the global labor market in fundamental ways, there&rsquo;s a strong argument that Fanuc is the most important manufacturing company in the world right now.</p> <p>That this status is held by a Japanese company is hardly surprising. The country&rsquo;s looming demographic crisis, driven by the lowest birth rate in the developed world, has bolstered domestic demand for machines that can augment or replace human workers.</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>And as China goes, so goes the rest of the industrial world. Multinationals that are reshoring operations from East Asia to North America and Europe are doing so in part because automation promises sophisticated production methods and labor savings; they, and companies who stayed out of China in the first place, are spending more than ever on industrial robots. The overarching pattern is less a reversal of the 20th century&rsquo;s offshore manufacturing boom than an unraveling, with jobs vanishing from developing and developed nations alike.</p> <p>&nbsp;</p> <p><strong>Amid the tumult, there&rsquo;s one clear winner: the $50 billion company that controls most of the world&rsquo;s market for factory automation and industrial robotics.</strong> In fact, Fanuc might just be the single most important manufacturing company in the world right now, because everything Fanuc does is designed to make it part of what every other manufacturing company is doing.</p> </blockquote> <p>Fanuc reached an important milestone in its conquest of the US market in the early 1980s when the CEO of GM purchased the first Fanuc robots to work on GM assembly lines.</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>The resulting press coverage caught the attention of Roger Smith, who had recently become president and CEO of General Motors Corp. Smith had joined GM&rsquo;s accounting division 30 years earlier, after spending the final two years of World War II in the U.S. Navy. He&rsquo;d risen through the corporate ranks slowly, gaining prominence as GM deftly navigated the gasoline crisis of the 1970s to become America&rsquo;s top automaker.</p> <p>&nbsp;</p> <p>When Smith took over, GM held 46 percent of the U.S. auto market, but the industry was in decline, and most companies were looking to cut costs and improve efficiency to compete with Japanese automakers. GM was in the enviable position of being flush with cash, and Smith had ideas, most of which sought to restore the company&rsquo;s focus on technological innovation. <strong>Like Fanuc, GM had pioneered early developments in numerical control, including the use of a storage system to record the movements of a human machinist, then mimic them on demand. Such experiments had led Smith to imagine what he called a &ldquo;lights-out factory of the future,&rdquo; which would so limit reliance on assembly workers at GM plants that lights and air-conditioning would be unnecessary. </strong>The company failed to advance very far in that direction, though, choosing to focus instead on the traditional manufacturing methods that were helping it dominate the U.S. auto market.</p> <p>&nbsp;</p> <p>Fanuc&rsquo;s robots were unlike anything Smith had seen outside his own dreams, and he soon decided he&rsquo;d found the way forward for GM. <strong>A year after he became CEO, on a humid June afternoon in Troy, Mich., a yellow robot bowed first to Smith and then Inaba before swinging its arm to cut the ribbon for a joint venture called GMFanuc Robotics Corp. </strong></p> </blockquote> <p>As advances in automation and machine learning continue to accrue, human workers in all but the most-skilled professions will slowly see their jobs lost to an army of robots. But as <a href=";utm_content=business&amp;utm_campaign=socialflow-organic&amp;utm_source=twitter&amp;utm_medium=social">Bloomberg </a>points out, while an optimist might hope the consequences of automation might be limited to workers enjoying more meaningful pursuits with their free time, whether automation will lead to a higher standard of living for all - or rather further imbalance already lopsided economic inequality remains to be seen.</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="1029" height="594" alt="" src="" /> </div> </div> </div> Apple Automation Bill Gross Brookings Institution Business China CNC Detroit Donald Trump East Asia FANUC Furukawa Group General Motors Indiana Industrial robot Industrial robotics International Federation Japan Lights out machine learning Manufacturing Michigan None Ohio Robot Robotics Roger Smith smartphone Technology United States Navy Sun, 22 Oct 2017 21:45:00 +0000 Tyler Durden 605762 at Working-Age Depopulation Is Hugely Bullish For Assets... Bearish For Mankind <p dir="ltr"><em><a href="">Authored by Chris Hamilton via Econimica blog,</a></em></p> <p dir="ltr"><strong>Population growth is the primary, if not sole, contributor to growth in consumption and the resultant economic growth.</strong>&nbsp; But not simply any population, but it is the growing population of the working age or &quot;core&quot; population of 20 to 65 year olds (particularly among the wealthy or developing nations) that is hyper-critical.&nbsp; The chart below shows the average household income and expenditures by the age of the head of the household.&nbsp;<strong> Not surprisingly, the 35 to 64 year old age group makes and spends more than double the younger or older age groups.&nbsp;</strong> Although the dollar amounts vary, this principle is true worldwide.</p> <p dir="ltr"><a href=""><img height="292" src="" width="500" /></a></p> <p dir="ltr"><strong>The rise, peak, and deceleration of core population growth among the nations with income, savings, and/or access to credit goes an awful long way in explaining the deceleration of economic growth.&nbsp; </strong>That decelerating growth explains the interest rate cuts, rise in debt, and now the rise in central bank monetization.&nbsp; This change in core growth (and the central banks reactions to it) explains the great and accelerating divergence of negative economic activity vs. positive asset valuations.&nbsp; The charts below show core population growth (which is determined through 2035, and estimates from there on all taken from the United Nations).</p> <p dir="ltr">The chart below details the change (per five year periods) in the &quot;core&quot; global working age population (20-65yr/olds, excluding Africa) and &quot;elderly&quot; (65+yr/olds, excluding Africa...why x-Africa explained below).&nbsp;</p> <ul dir="ltr"> <li>Core growth peaked in 2010 and growth will decelerate by 52% in the current real numbers, the core population will grow 150 million fewer between 2015 and 2020 than it did between 2005 to 2010.</li> <li>Core growth will decelerate 80% by real numbers, the core will grow by 230 million fewer from 2030 to 2035 than it did during the peak growth period.</li> <li>By 2040, the core is likely to begin outright declining.</li> </ul> <p dir="ltr"><a href=""><img alt="" src="" style="width: 500px; height: 295px;" /></a></p> <h3><u><em>Global 20-65yr/old vs. 65+yr/old (x-Africa)</em></u></h3> <p>While working age population growth is decelerating, elderly population growth is accelerating and growth per period will more than double from 2010 through 2020.&nbsp; <strong>Surging elderly growth will likely surpass dwindling core growth by 2025.</strong></p> <p><a href=""><img alt="" src="" style="width: 500px; height: 298px;" /></a></p> <h3><em><u>Global 65-75 vs. 75+ (x-Africa)</u></em></h3> <p>If you looked at the first chart much, then <strong>the chart below will be cause for extreme alarm.&nbsp;</strong> 2015 through 2020 is the peak of growth among the 65 to 75yr/old group and from 2025 onward, the 75+yr/old will be the primary source of population growth.&nbsp; <strong>But since 75+yr/olds make and spend half as much...the economic impact should be really clear.&nbsp; </strong>A halving of income growth and spending (or a proportionate decline of economic growth should be the expectation).</p> <p><a href=""><img alt="" src="" style="width: 499px; height: 292px;" /></a></p> <p>I&#39;ll outline the regions by the wealthiest to poorest and most economically important to least...and you may notice depopulation among wealthy and growth among poor.</p> <h3><u><em>Europe</em></u></h3> <p><strong>European core growth peaked in 1985 and is now indefinitely declining, falling by 14 million during the current five year period...and on and on.&nbsp;</strong> Meanwhile, the quantity of elderly keeps adding up but by 2025, European elderly growth will peak and begin decelerating (chart below).</p> <p><a href=""><img alt="" src="" style="width: 499px; height: 292px;" /></a></p> <p>Breaking down the growth of the European elderly between 65-75 vs. 75+yr/olds...<strong>all growth is shifting to the eldest and lowest of earners, slightest of spenders </strong>(chart below).&nbsp; Economically, this portends things are going to get far worse Europe-wide.</p> <p><a href=""><img alt="" src="" style="width: 496px; height: 290px;" /></a></p> <h3><u><em>N. America (Canada, US)</em></u></h3> <p>Core growth peaked in 2000 &amp; growth is down 75% since.&nbsp; Inversely, elderly growth is surging and will peak by 2025 (chart below).</p> <p><a href=""><img alt="" src="" style="width: 496px; height: 290px;" /></a></p> <p>The chart below highlights that while N. America&#39;s growth moves to the 65+ will be shifting to the oldest of the old.&nbsp; <strong>Again, thinking of the income and spending of the elderly, the surge in growth among 75+yr/olds is a death knell economically.</strong></p> <p><a href=""><img alt="" src="" style="width: 496px; height: 290px;" /></a></p> <h3><u><em>Asia</em></u></h3> <p><strong>Asia represents about 3/5th&#39;s of the worlds population, so even small changes there are a big deal everywhere. </strong></p> <ul> <li>Asia adult core population growth has decelerated by 47% in the most recent five year period since the &#39;05 to &#39;10 real numbers, growth has decelerated by 110 million.</li> <li>Asia adult core population growth will decelerate by nearly 80% by 2035 and turn outright negative somewhere between 2040 to 2050 (chart below).</li> </ul> <p><a href=""><img alt="" src="" style="width: 500px; height: 301px;" /></a></p> <h3><u><em>East Asia</em></u></h3> <p>China, Japan, N/S Korea, Taiwan, Mongolia</p> <ul> <li>Core population growth peaked in 1990 (adding over 100 million new adults from &#39;85 to &#39;90) but has turned outright negative during the current five year period, declining by 12 million.</li> <li>Accelerating core depopulation in China, Japan, Taiwan, S. Korea, etc. will be persistent for the remainder of most of the rest of our lives.&nbsp; This will be a phenomenon unlike the contemporary world has ever seen.</li> <li>All growth will solely be among the elderly (chart below).</li> </ul> <p><a href=""><img alt="" src="" style="width: 500px; height: 301px;" /></a></p> <p><strong>China, Japan, S. Korea, Taiwan will be home to the most 75+yr/olds in the world.&nbsp;</strong> The most elderly of elderly (that add the least possible to economic growth) are set to surge in unprecedented numbers (chart below).</p> <p><a href=""><img alt="" src="" style="width: 500px; height: 301px;" /></a></p> <h3><em><u>Middle East</u></em></h3> <p>West Asia is made up of Armenia, Azerbaijan, Bahrain, Cyprus, Georgia, Iraq, Israel, Jordan, Kuwait, Lebanon, Oman, Qatar, Saudi Arabia, Palestine, Syria, Turkey, UAE, Yemen.</p> <ul> <li><strong>Core growth peaked in 2010 and is down 31% in 2020 </strong>(chart below).</li> </ul> <p><a href=""><img alt="" src="" style="width: 500px; height: 301px;" /></a></p> <h3><em><u>South America</u></em></h3> <ul> <li>Core growth peaked in &#39;05 and is down 28% vs. surging elderly growth.</li> <li>Elderly growth will surpass core growth by 2030 and core growth will likely be negative by 2040 (chart below).</li> </ul> <p><a href=""><img alt="" src="" style="width: 500px; height: 301px;" /></a></p> <h3><em><u>South Central Asia</u></em></h3> <p>The most populous region includes India, Kazakhstan, Kyrgzstan, Tajikistan, Turkmenistan, Uzbekistan, Afghanistan, Bangladesh, Iran, Pakistan, Nepal, Sri Lanka.</p> <ul> <li>Core growth peaked in 2010 &amp; will be down 8% in the current five year period.</li> <li>Core growth will be down 32% by 2035...and continuing to fall fast from there.</li> </ul> <p><a href=""><img alt="" src="" style="width: 500px; height: 301px;" /></a></p> <h3><u><em>Central America &amp; Caribbean</em></u></h3> <p>Core growth peaked in 2010 and will consistently decelerate until turning negative around mid century.&nbsp; Of course, growth among the elderly will do the inverse.</p> <p><a href=""><img alt="" src="" style="width: 500px; height: 301px;" /></a></p> <h3><em><u>Africa</u></em></h3> <p>While the population growth in Africa is in the right places of core vs. elderly, it unfortunately will add up to almost nothing as outlined <a href="" target="_blank">HERE</a>.</p> <p><a href=""><img alt="" src="" style="width: 499px; height: 292px;" /></a></p> <h3><u><em>Conclusion</em></u></h3> <p><strong>I submit that these changes, unlike anything experienced by contemporary humankind, explain why central banks have taken over.&nbsp; Global free markets have ceased to exist and asset prices are now centrally determined rather than freely set between buyers and sellers.&nbsp; </strong>This is only the beginning and I haven&#39;t a clue how this ends but how central banks will respond is absolutely clear...they will monetize.&nbsp; The fast rising combined Federal Reserve, Bank of Japan, &amp; European Central Bank balance sheets are charted below vs. decelerating core population growth.&nbsp; <em><strong>Asset prices will soar due to extreme weakness coupled with extreme monetization until this ludicrous monstrosity falls apart.</strong></em></p> <p><a href=""><img alt="" src="" style="width: 500px; height: 301px;" /></a></p> <p><strong>Of even greater concern or consequence than the economic or financial impacts, the very viability of democratic republics are at stake.&nbsp;</strong> In a world where the pies that matter are either seeing decelerating growth or outright shrinking indefinitely, the public will be left with a choice.&nbsp; Vote for the candidate suggesting cuts or the candidate suggesting we need never cut...because We can run ever larger deficits funded by greater central bank monetization (an unconstitutional body for this very reason that it allows the Congress to avoid its sole purpose of finding a balanced compromise of infinite wants vs. limited Tocqueville&#39;s fear come to fruition).&nbsp; Unfortunately the only &quot;viable&quot; choices to lead us through the options will be liars and the public will select the liar who tells the lies they most want to be told and prefer to believe.&nbsp; This is how a noble idea dies.&nbsp; But what is born is not clear.</p> <p><u><em><strong>Economic decline masked with financial trickery leading to political farce and ultimately likely culminating in social breakdown (aka war).</strong></em></u>&nbsp; But, of course, never have we gone to war with such horrific capability.&nbsp; I believe we have the capacity to avoid the worst of outcomes...but if We can&#39;t even begin to discuss the problems We face (let alone potential solutions), then history seems sadly likely to repeat itself.</p> <pre> </pre> <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="482" height="290" alt="" src="" /> </div> </div> </div> Afghanistan Ageing Bank of Japan Bank of Japan Business Caribbean Central America Central Asia Central Banks China Congress Demography East Asia Economic growth ETC European Central Bank European Central Bank Extreme poverty Federal Reserve Federal Reserve Bank Human overpopulation India Iran Iraq Israel Japan Kazakhstan Kuwait Middle East Monetization Population Population decline Population ecology Population growth Saudi Arabia South Central Asia Turkey Turkmenistan United Nations US Federal Reserve Uzbekistan West Asia Sun, 22 Oct 2017 21:15:00 +0000 Tyler Durden 605776 at