en 2 Charts That Might Define The Fed's Jerome Powell Era <p><a href=""><em>Authored by Daniel Nevins via,</em></a></p> <p>In September, we <a href="" rel="noopener" target="_blank">proposed</a> a theory of the Fed and suggested that <strong>the <a href="" rel="noopener" target="_blank">FOMC</a> will soon worry mostly about financial imbalances without much concern for recession risks.</strong> We reached that conclusion by simply weighing the reputational pitfalls faced by the economists on the committee, but now we&rsquo;ll add more meat to our argument, using <a href="" rel="noopener" target="_blank">financial flows data</a> released last week.</p> <p>We&rsquo;ve created two charts, beginning with a look at<strong> cumulative, inflation-adjusted asset gains during the last seven business cycles:</strong></p> <p><a href=""><img height="438" src="" width="600" /></a></p> <p>According to the way that the Fed defines its policy approach,<strong> our first chart stamps a giant &ldquo;Mission Accomplished&rdquo; on the unconventional policies of recent years.</strong> Recall that policy makers <a href="" rel="noopener" target="_blank">explained</a> their actions with reference to the <a href="" rel="noopener" target="_blank">portfolio balance channel</a>, meaning they were deliberately enticing investors to buy riskier assets than they would otherwise hold. Policy makers hoped to push asset prices higher, and they seem to have succeeded, notwithstanding the usual debates about how much of the price gains should be attributed to central bankers. (See one of our contributions <a href="" rel="noopener" target="_blank">here</a> and a couple of other papers <a href="" rel="noopener" target="_blank">here</a> and <a href="" rel="noopener" target="_blank">here</a>.) But whatever the impetus for assets to rise, it&rsquo;s obvious that they responded. In fact, judging by the data shown in the chart, policy makers could have checked the higher-asset-prices box long ago, and with a King Size Sharpie.</p> <p>Consider the measure on the vertical axis, percent of <a href="" rel="noopener" target="_blank">personal income</a>. From the risky asset trough in Q1 2009 through Q3 2017, households accumulated asset gains, in real terms, equivalent to 139% of personal income. (Nominal gains were much greater, but we used the <a href="" rel="noopener" target="_blank">CPI</a> to deduct the amount of purchasing power that households lost on their asset holdings. Also, we defined asset holdings as the four biggest categories that the Fed computes gains for&mdash;equities, mutual funds, real estate, and pensions.)</p> <p><strong>In other words, households are enjoying an investment windfall that amounts to nearly sixteen months of personal income, which is larger than the windfalls accrued in any other business cycle since the Fed began tracking asset gains in 1947. </strong>Not only that but the gap continues to widen&mdash;as of this writing, we&rsquo;re likely approaching 145% of personal income and well clear of the previous peak of 128% from the 1991&ndash;2001 expansion.</p> <p>Getting back to policy priorities, the chart seems to tell us that asset prices no longer need boosting.<strong> The Fed&rsquo;s pooh-bahs proved they could boss the investment markets, and they&rsquo;ve almost certainly moved on to new endeavors.</strong></p> <h3><u><strong>Bull, bear, or donkey?</strong></u></h3> <p><strong>But record asset gains are just one of the reasons the Fed&rsquo;s priorities are likely to be changing.</strong> To describe another reason, we&rsquo;ll first show that policy makers may wield a King Size Sharpie but that it&rsquo;s not a Permanent Marker:</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 438px;" /></a></p> <p><strong>As you can see, our second chart looks like the first, except that we pinned the tails on the asset price donkeys.</strong></p> <p>We tacked on the down halves of each cycle, showing that the portfolio balance channel has a reverse mode.</p> <p><u><em><strong>So what should we make of the result that asset price cycles, adjusted for inflation, have ended with busts that reverse a large portion and often the entirety of the prior booms?</strong></em></u></p> <p>According to our beliefs about how investment markets work, the up and down phases of asset cycles are closely connected. Also, monetary stimulus influences both phases at the same time. It helped fuel the giant gains of recent expansions, but it also helped create the imbalances that led to giant losses. And after the accelerated advances of 2016-17, it&rsquo;s fair to wonder if today&rsquo;s imbalances are approaching the extremes of 2000 and 2007. Even some FOMC members are gently <a href="" rel="noopener" target="_blank">acknowledging</a> that risk.</p> <p><strong>But we think the committee members are even more concerned than you would know by just reading their meeting minutes.</strong> We expect financial imbalances to become their biggest worry, bigger than the risk of recession, which should matter less and less to the central bankers&rsquo; reputations as the business cycle expansion continues to lengthen. In fact, a garden variety recession would barely affect their legacies at all by mid-2019, when the expansion, if still intact, would become the<a href="" rel="noopener" target="_blank"> longest ever</a>. By that time, the FOMC&rsquo;s greatest reputational threat would be another financial market debacle, which would suggest that manipulating asset prices maybe wasn&rsquo;t such a good idea, after all. In other words, the committee&rsquo;s reputational calculus will change significantly during <a href="" rel="noopener" target="_blank">Jerome Powell&rsquo;s</a> first few years as chairperson.</p> <p><strong>All that said, Powell probably wants a recession-free economy in, say, his first year or two in the position. Moreover, he&rsquo;ll certainly stress continuity with his predecessors&rsquo; policies.</strong> But once he becomes comfortable in the job, the Fed&rsquo;s priorities will look nothing like they did under Janet Yellen and Ben Bernanke. Instead of fueling asset gains, Powell&rsquo;s biggest challenge will be containing imbalances connected to prior gains. He and his peers will aim to avoid pinning another oversized tail on the donkey&mdash;or at least to manage the fallout from said tail&mdash;and that&rsquo;s a challenge that could very well define his regime.</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="797" height="455" alt="" src="" /> </div> </div> </div> Ben Bernanke Ben Bernanke Business Business cycle CPI Economic bubble Economy Federal Reserve System Financial crises Financial economics FOMC Inflation Janet Yellen Macroeconomics Personal Income Purchasing Power Real estate Recession Recession Unemployment US Federal Reserve Thu, 14 Dec 2017 15:03:47 +0000 Tyler Durden 609076 at INTRo-DouCHe-iNG BaGMaN RoD... <p><a href="" title="BAGDAD ROD"><img src="" alt="BAGDAD ROD" width="1024" height="768" /></a></p> <script src="//"></script> Baseball Hall of Fame balloting Education Politics Thu, 14 Dec 2017 14:58:58 +0000 williambanzai7 609148 at US Services Economy Slumps To 15-Month Low, Manufacturing Rebounds <p>Despite a resurgence in positve surprises in hard macro data, PMIs (and soft survey data) has been fading in recent months and Markit&#39;s preliminary December showed a notable divergence in the US economy as <strong>Manufacturing rebounded to 2017 highs and Servces slumped to 15-month lows</strong>.</p> <p><a href=""><img height="326" src="" width="600" /></a></p> <p><strong>Higher prices for raw materials resulted in the strongest rate of input cost inflation since December 2012.</strong> There were signs that manufacturers had absorbed part of the rise in average cost burdens, as highlighted by a <strong>slower increase in factory gate charges in December. </strong></p> <p>Commenting on the flash PMI data, Chris Williamson, <a href="">Chief Business Economist at IHS Markit said</a>:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p><strong>&ldquo;The flash PMI surveys brought a mixed bag of news.</strong> While manufacturing is ending 2017 with the wind it its sails, the service sector is struggling in the doldrums by comparison.</p> <p>&nbsp;</p> <p>&ldquo;In manufacturing, <strong>faster output and order book growth encouraged firms to add factory workers at the fastest rate for over three years,</strong> painting a bright picture of the goods-producing sector expanding capacity in response to resurgent demand.</p> <p>&nbsp;</p> <p>&ldquo;In contrast, service sector activity grew at its weakest rate for over a year, taking<strong> job creation to its lowest since May.</strong></p> <p>&nbsp;</p> <p><strong>&ldquo;Similar divergences were seen in relation to future growth,</strong> with business expectations picking up in manufacturing to a near-two-year high but waning markedly in services to the lowest for one and a half years.</p> <p>&nbsp;</p> <p>&ldquo;With services representing a far greater portion of the economy than manufacturing, <strong>the overall picture is therefore one of the manufacturing sector&rsquo;s exuberance being overshadowed by the gloomier service sector. </strong></p> </blockquote> <p>Most worrisome for the 3%-growth crowd is the tumble in the Compoisite PMI to 9-month lows - signaling notably below trend growth...</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p><strong>&ldquo;Measured overall, the surveys point to the economy growing at a modest annualised rate of just over 2% in the fourth quarter.&rdquo;</strong></p> </blockquote> <p><a href=""><img alt="" src="" style="width: 600px; height: 478px;" /></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="903" height="490" alt="" src="" /> </div> </div> </div> Business Business Economic sector Economic systems Economy Economy of the United States Finance flash IHS Markit Manufacturing Markit Markit PMI Purchasing Managers' Index Surveys Thu, 14 Dec 2017 14:52:25 +0000 Tyler Durden 609146 at Grassley Fires Off Scorching Letter To DOJ After Anti-Trump Texts Reveal Burner Phone, "Insurance Policy" <p>Senate Judiciary Chairman Chuck Grassley <a href="" target="_blank">fired off a letter</a> late Wednesday to the DOJ, asking Deputy Attorney General Rod Rosenstein to explain several disturbing revelations contained within anti-Trump text messages sent between FBI investigators Peter Strzok and his FBI-Attorney mistress Lisa Page - both of whom were central to the Clinton email investigation and the Trump-Russia probe, and both of whom were removed from Robert Mueller's Special counsel when their text messages came to light. Rosenstein appeared before the House Judiciary Committee on Wednesday to answer questions&nbsp;about Strzok, Page and Mueller's investigation.&nbsp;</p> <p><em><img src="" width="500" height="280" /><br />Deputy AG Rod Rosenstein</em></p> <p><strong>Rosenstein stood by Robert Mueller's investigation</strong>, telling lawmakers dismayed at a trove of damning text messages that he is "<strong>not aware of any impropriety</strong>" on the Special Counsel (which is stacked with anti-Trump Democrats, who have reportedly&nbsp;<em>also</em>&nbsp;sent <a href="" target="_blank">anti-Trump messages</a>), saying "I think it's important that when we talk about political affiliation... The issue of bias is something different," adding "We recognize we have employees with political opinions. And it's our responsibility to make sure those opinions do not influence their actions. And so, I believe that Director Mueller understands that and he is running that office appropriately."&nbsp;</p> <p>Grassley raised serious concerns in his letter to the DOJ addressed to Rosenstein, as just two of over 10,000 (!?) text messages referred to an "<strong><a href="" target="_blank">insurance policy</a></strong>" against a Trump presidency, and a <strong>special phone </strong>they used "<strong>when we talk about hillary </strong><em><strong>because it can't be traced.</strong></em>"&nbsp;</p> <p>Grassley's letter reads:&nbsp;</p> <p style="padding-left: 30px;">"Yesterday, the Justice Department released a subset of text messages requested by the&nbsp;Committee. The limited release of 375 text messages between Mr. Peter Strzok and Ms. Lisa Page indicate a highly politicized FBI environment during both the Clinton and Russia investigations. <strong>For example, one text message from Ms. Page proclaims to Mr. Strzok, “God(,) Trump is a loathsome human</strong>.</p> <p style="padding-left: 30px;">Some of these texts appear to go beyond merely expressing a private political opinion,&nbsp;<strong>and appear to cross the line into taking some official action to create an “insurance policy” against a Trump presidency.</strong> Mr. Strzok writes the following to Ms. Page: </p> <blockquote style="padding-left: 30px;"><p>I want to believe the path you threw out for consideration in Andy’s office – that there’s no way he gets elected – but <strong>I’m afraid we can’t take that risk. It’s like an insurance policy</strong> in the unlikely event you die before you’re 40… </p> </blockquote> <p style="padding-left: 30px;">Presumably, “Andy” refers to Deputy FBI Director Andrew McCabe. So whatever was being discussed extended beyond just Page and Stzrok at least to Mr. McCabe, who was involved in supervising both investigations</p> <div style="padding-left: 30px;"> <div>Another text from Ms. Page to Mr. Strzok on April 2, 2016, says the following:</div> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <div>So look, <strong>you say we text on that phone when we talk about hillary&nbsp;</strong><strong>because it can’t be traced, you were just venting bc you feel bad that you’re gone so much but it can’t be helped right now.</strong></div> </blockquote> </div> <p style="padding-left: 30px;">That text message occurred during Mr. Strzok’s involvement in the Clinton investigation and&nbsp;days before he interviewed Huma Abedin and Cheryl Mills on April 5, 2016 and April 9, 2016, respectively. Thus, the mention of “hillary” may refer to Secretary Clinton and therefore <strong>could indicate that Mr. Strzok and Ms. Page engaged in other communications about an ongoing investigation on a different phone in an effort to prevent it from being traced."&nbsp;</strong></p> <p><strong>Grassley then asks the following questions of the DOJ:</strong></p> <ol> <li>On what date did you become aware of the text messages between Mr. Strzok and Ms.&nbsp;Page and on what date were they each removed from the Special Counsel’s office?</li> <li><strong>Are there any other records relating to the conversation in Andrew McCabe’s office&nbsp;</strong><strong>shortly before the text described above on August 15, 2016? </strong>[the "insurance policy" text]&nbsp;If so please produce them to&nbsp;the Committee.</li> <li>Please provide all records relating to Andrew McCabe’s communications with Peter&nbsp;Stzrok or Lisa Page between August 7, 2016 and August 23, 2016.</li> <li>What steps have you taken to determine whether Mr. Strzok, Mr. Page, and Mr. McCabe&nbsp;should face disciplinary action for their conduct?</li> <li>My understanding is that the Inspector General’s current investigation is limited to the&nbsp;handling of the Clinton email matter only. <strong>What steps have you taken to determine&nbsp;whether steps taken during the campaign to escalate the Russia investigation might have&nbsp;been a result of the political animus evidenced by these text messages rather than on the&nbsp;merits?</strong></li> <li><strong>Has the Department identified the referenced “that phone” Mr. Strzok and Ms. Page used&nbsp;</strong><strong>to discuss Secretary Clinton? What steps has the Department taken to review the records&nbsp;on this other phone that allegedly “can’t be traced.”</strong> If none, please explain why</li> </ol> <p>Grassley also tweeted "FBI owes answers abt "insurance policy" against Trump victory," adding "...why would senior FBI leaders use secret phones that "cant be traced" to talk Hillary?"&nbsp;</p> <blockquote class="twitter-tweet"><p dir="ltr" lang="en">FBI owes answers abt "insurance policy" against Trump victory...&amp; if nothing to hide, why would senior FBI leaders use secret phones that "cant be traced" to talk Hillary? DOJ needs to give JudicComm full transparency/cooperation 2 restore public trust. FBI CANT BE POLITICAL</p> <p>— ChuckGrassley (@ChuckGrassley) <a href="">December 13, 2017</a></p></blockquote> <script src=""></script><p><strong>Grassley grilled Senate Democrats last week&nbsp;</strong>for their unwillingness to investigate Hillary Clinton and the Obama Administration,&nbsp;stating that the Democrats on the committee he oversees "only want to talk about [President] Trump."&nbsp;</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><strong>There are two major controversies plaguing the credibility of the Justice Department and the FBI right now.</strong> On the one hand the Trump Russia investigation, and then on the other hand the handling of the Clinton investigation.<strong> Any congressional oversight related to either one of these topics is not credible without also examining the other.</strong> Both cases were active during last year's campaign. <strong>Both cases have been linked to the firing of the FBI Director.</strong></p> <p>&nbsp;</p> <p><strong>These questions go to the heart of the integrity of our federal law enforcement and justice system.&nbsp;&nbsp;</strong></p> </blockquote> <p>With Chuck Grassley on the warpath in the Senate, and the House Intel Committee <a href="" target="_blank">chasing down FBI Deputy Director Andrew McCabe</a>, one has to wonder how long the FBI and DOJ are going to be able to maintain this farce before shutting it down - especially if in fact other members of Mueller's team <em>also</em>&nbsp;sent anti-Trump messages as journalist Sara Carter has claimed.&nbsp;</p> <p><iframe src="" width="560" height="315" frameborder="0"></iframe></p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="500" height="280" alt="" src="" /> </div> </div> </div> American people of German descent Andrew McCabe Department of Justice Director of the Federal Bureau of Investigation DOJ Donald Trump FBI Federal Bureau of Investigation Federal Bureau of Investigation House Intel Committee Huma Abedin Judiciary Committee Justice Department None Obama Administration Obama administration Politics Presidency of Donald Trump Rod Rosenstein Russian interference in the 2016 United States elections Senate Transparency Trump campaign–Russian meetings United States United States intelligence agencies Thu, 14 Dec 2017 14:44:13 +0000 Tyler Durden 609125 at One Bank Believes It Found The Identity Of Who Is "Propping Up The Bitcoin Market" <p>Back in May when the Chinese domination over Bitcoin was ending, <a href="">we predicted that it would shift over to Japan</a>, specifically, we said that "just as the Chinese bubble frenzy in bitcoin is fading, it may be replaced with a new one, <strong>in which thousands of Mrs. Watanabe traders shift their attention away from the FX market and toward digital currencies" </strong>and added that "If the transition is seamless, <strong>there is no telling just how far this particular bubble can grow." </strong></p> <p>Judging by the exponential price surge in bitcoin in the subsequent period, we were clearly right on the latter, and now, according to a new analysis, we were also right on the former, because as Deutsche Bank reveals in a new report by Masao Muraki, "<strong>Japanese men in their 30s and 40s who are engaged in leveraged FX trading (or who used to trade but have stopped) are driving the cryptocurrency market</strong>" and who according to DB, happen to be more or less idiots, arguably because for the time being they are outperforming every other asset class... in history, to wit: "Japanese retail investors are less financially literate than their US peers across all age groups. Compared to the US, financial literacy is particularly poor among people 35-54 years of age. The poor literacy of Japanese retail investors also stands out beside UK and German investors." </p> <p>Ah yes, by contrast the financial literacy of the world's central-planners is off the charts. Look where that got us... </p> <p>In any case, and without further ado, <strong>please meet the (rather boring) people who are propping up the Bitcoin market, </strong>at least according to Deutsche Bank.</p> <p><em>Here are the details:</em></p> <p><span style="text-decoration: underline;"><strong>The identity of who is propping up the Bitcoin market</strong></span></p> <p><strong>1. 40% of cryptocurrency trading is Japanese yen-denominated</strong></p> <p>An 11 December Nikkei report stated that 40% of cryptocurrency trading in Oct-Nov was yen-denominated. <strong>Japanese traders have reportedly come to account for nearly half of cryptocurrency trading since China started to shut down cryptocurrency exchanges</strong>, and this is said to be widely known among industry insiders (various estimates exist). <strong>This report shows that Japanese men in their 30s and 40s who are engaged in leveraged FX trading (or who used to trade but have stopped) are driving the cryptocurrency market.</strong></p> <p><strong>2. The true face of investors engaged in leveraged FX trading</strong></p> <p>“Mrs. Watanabe” is a buzzword often used by US/European media and market participants to symbolize the typical Japanese retail investor who trades in FX. <strong>Following Abe and Kuroda, Watanabe may be the most famous Japanese name among market participants </strong>(although the purported creator of Bitcoin, Satoshi Nakamoto, is also famous). <strong>Japan accounts for a high 54% of global foreign exchange margin trading (leveraged FX trading) </strong>(source: Forex Magnate, 1Q2017), so Japanese retail investors are major players in FX markets. Data from GMO Click Securities which is the top company in its industry indicates that men hold 79% of FX trading accounts, and 63% of these men are aged 30-49 (as of end-September 2017; Figures 3-4). <span style="text-decoration: underline;"><strong>The typical Japanese leveraged FX trader is thus a man in his 30s or 40s and really ought to be called “Mr. Watanabe”.</strong></span></p> <p>As the speculative frenzy over cryptocurrency heightens, the spotlight is falling on the unique characteristics of Japanese retail investors. The Nikkei report mentioned above cited an example of a 38-year-old business man who invested ¥8m ($70,000) in Bitcoin, including his bonus. The average household income of a 38-year-old is about ¥6.1m, the average savings are ¥5m, and the average borrowings are ¥8.8m. This report was also a topic of conversation among the managers of Japanese financial institutions that I visited this week.</p> <p><strong>3. Financial literacy</strong></p> <p>How much financial literacy do retail investors engaged in leveraged FX/cryptocurrency trading possess? <strong>According to a survey by the Central Council for Financial Services Information (the Bank of Japan), Japanese retail investors are less financially literate than their US peers across all age groups (Figure 6). Compared to the US, financial literacy is particularly poor among people 35-54 years of age. The poor literacy of Japanese retail investors also stands out beside UK and German investors (Figure 7).</strong></p> <p><strong><a href=""><img src="" width="500" height="196" /></a><br /></strong></p> <p>Before the FSA started applying pressure, the core investment products sold by banks and brokers were investment trusts with distribution yields above 10% (products with yields above 20% were particularly popular) that took compound risks and drew down principal (the typical purchase commission was above 3% and annual management fees were over 2%).</p> <p><strong>Figure 8 shows the top 3 reasons that Japanese retail investors engage in leveraged FX trading: 1) expectations of high returns, 2) they can easily invest in foreign currencies, and 3) many investors are earning profits. However Figure 9 shows that most investors say they quit leveraged FX trading because they did not do well (only 7.5% said they realized their profit goals).</strong></p> <p><a href=""><img src="" width="500" height="202" /></a></p> <p>More than a few Japanese investors positively value volatility. We have believed that “Japan is the Galapagos of asset management markets, pursuing its own path amid the long period of deflation. Japan’s investment style is typified by a combination of low-risk, low-return deposits and high-risk, high-return investments” (see our 11 December 2014 report, “Initiation: Securities firms confront changing "Galapagos market"”).</p> <p><strong>4. Investors’ winning percentage and turnover</strong></p> <p>New investors continuously enter the leveraged FX trading market and repeat the metabolism of being forced out by a margin call due to sharp market changes. This results in a market with a tumultuous annual participant turnover. </p> <p><strong>Leveraged FX trading is essentially a zero-sum game. </strong>Japanese retail investors are playing this zero-sum game with institutional investors engaged in algorithmic trading. It would be very difficult for business men trading on their smartphones during lunch or after work to sustain their trade wins. In Figure 5, we equate increases in FX trading account margins with wins, and decreases with losses. Over the past 10 quarters, we estimate that wins to losses were basically even in six quarters, while significant losses dominated in four quarters.</p> <p><strong><a href=""><img src="" width="500" height="205" /></a><br /></strong></p> <p><strong>5. From leveraged FX trading to leveraged cryptocurrency trading</strong></p> <p>We think that retail investors are shifting from leveraged FX trading to leveraged cryptocurrency trading. Firms such as the GMO Group and SBI Group are embracing the sense of urgency and starting to offer cryptocurrency trading services. Factor breakdown is difficult due to market variables, but leveraged FX trading has been sluggish since February 2017 (Figure 1).</p> <p><a href=""><img src="" width="500" height="392" /></a></p> <p>Cryptocurrency has been trending up, so retail investors' unrealized gains are also rising. <strong>With few investors leaving and a steady inflow of new investors, the investor pool has been expanding</strong>. We believe that <strong>investors participating in leveraged cryptocurrency trading are typically Japanese men in their 30s and 40s who are engaged in leveraged FX trading (or who used to trade but have stopped). We think that the pool of cryptocurrency investors not using leverage is even larger.</strong></p> <p><strong>6. Margin call risk and fail risk</strong></p> <p>Leveraged cryptocurrency trading services are available in Japan. Some major FX brokers are using the same 25x leverage limit that applies to FX trading, but there are no direct rules in leveraged trading of cryptocurrency. During the Swiss franc shock in January 2015, many retail investors not only received margin calls but also incurred losses greater than their margin balances, because forced settlements couldn’t be implemented in a timely manner. This shows that investors can suffer losses which brokers end up booking as credit losses even with leveraged FX trading of developed nation currencies. Authentication of Bitcoin settlements takes at least 10 minutes. The risk of incurring losses greater than margin is higher than in normal FX trading, due to high intraday volatility. As a result, we believe that brokers also face a higher risk of failure.</p> <p><strong>7. Unrealized gains are also virtual</strong></p> <p>The National Tax Agency recently indicated that profits generated by the sale or use of cryptocurrency are classified as miscellaneous income in principle and are required to be filed in income tax returns. <strong>We think that many investors are hesitant to realize profits because, combined with other sources of income, these profits would be subject to income tax (up to 45% tax rate) and residence tax (around 10%).</strong></p> <p>The progressive taxation system means that the tax rate rises in keeping with income for a single fiscal year (on a calendar year basis). For investors thinking of taking profit in the near term, a rational tax trade would be to sell some holdings this year and the rest next year. In contrast, investors hoping that profits will be taxed as capital gains in future (20% tax rate; but we cannot see any movement towards this) may put off realizing profit.</p> <p><strong>8. Fair value of cryptocurrency</strong></p> <p>Cryptocurrency such as Bitcoin that have pure distributed systems do not have an underlying value like precious metals. Value is not guaranteed by an issuer because there is no issuer. The value of cryptocurrency is thus entirely based on the belief that it can be exchanged for goods or sovereign currencies (BoJ review of December 2015). <strong>While valuation of exchange rates between legal tender and cryptocurrency should be the vital factor, it is retail investors (including “Mr. Watanabe”) who are currently carrying out price discovery.</strong></p> <p>With a broader range of investors set to enter the market in 2018 and an increase in the ways to hedge (short selling), we expect to see the market's price discovery function being utilized. The CBOE Futures Exchange began offering Bitcoin futures trading on 10 December and the CME plans to start on the 18th (the US Futures Industry Association sent a critical letter to the Commodity Futures Trading Commission who self-certified new contracts for bitcoin futures products. The letter said that there has not been enough discussion on topics such as margin levels, transaction limits, stress tests, and settlement).</p> <p>Rather than the cryptocurrency used for speculation, our focus is on the impact that distributed ledger technology (broadly defined as blockchain technology) can have on financial transactions and the business models of financial institutions. Furthermore, as speculation in cryptocurrency is growing to a scale that cannot be ignored, we plan to look more deeply into the potential impact on the market if the bubble should burst and the effect of concerns over this on regulations and monetary policy.</p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="600" height="330" alt="" src="" /> </div> </div> </div> Algorithmic Trading Alternative currencies Bank of Japan Bank of Japan Bitcoin Bitcoin Business CBOE Central Council for Financial Services Information China Commodity Futures Trading Commission Commodity Futures Trading Commission Cryptocurrencies Decentralization Deutsche Bank Digital currencies Economic bubble Economy Fail Finance Financial cryptography Financial technology Foreign exchange market FSA Institutional Investors Investor Japan ledger technology Leverage Monetary Policy Money national tax agency Nikkei Precious Metals smartphones Swiss Franc Uberisation UBS US Futures Industry Association Volatility Thu, 14 Dec 2017 14:39:14 +0000 Tyler Durden 609144 at Stephen Roach Warns "Complacency Will Be Tested In 2018" <p><a href=""><em>Authored by Stephen Roach via Project Syndicate,</em></a></p> <p><em><strong>Despite seemingly robust indicators, the world economy may not be nearly as resilient to shocks and systemic challenges as the consensus view seems to believe.</strong> In particular, the absence of a classic vigorous rebound from the Great Recession means that the global economy never recouped the growth lost in the worst downturn of modern times.</em></p> <p><a href=""><img height="305" src="" width="600" /></a></p> <p><strong>After years of post-crisis despair, the broad consensus of forecasters is now quite upbeat about prospects for the global economy in 2018.</strong> World GDP growth is viewed as increasingly strong, synchronous, and inflation-free. Exuberant financial markets could hardly ask for more.</p> <p>While I have great respect for the forecasting community and the collective wisdom of financial markets, I suspect that today&rsquo;s consensus of complacency will be seriously tested in 2018. The test might come from a shock &ndash; especially in view of the rising risk of a hot war (with North Korea) or a trade war (between the US and China) or a collapsing asset bubble (think Bitcoin). But I have a hunch it will turn out to be something far more systemic.</p> <p><u><strong>The world is set up for the unwinding of three mega-trends: unconventional monetary policy, the real economy&rsquo;s dependence on assets, and a potentially destabilizing global saving arbitrage. At risk are the very fundamentals that underpin current optimism. One or more of these pillars of complacency will, I suspect, crumble in 2018.</strong></u></p> <p>Unfortunately, the die has long been cast for this moment of reckoning. Afflicted by a profound sense of amnesia, central banks have repeated the same mistake they made in the pre-crisis froth of 2003-2007 &ndash; maintaining excessively accommodative monetary policies for too long. Misguided by inflation targeting in an inflationless world, monetary authorities have deferred policy normalization for far too long.</p> <p><em><strong>That now appears to be changing, but only grudgingly. If anything, central bankers are signaling that the coming normalization may even be more glacial than that of the mid-2000s. After all, with inflation still undershooting, goes the argument, what&rsquo;s the rush?</strong></em></p> <p>Alas, there is an important twist today that wasn&rsquo;t in play back then &ndash;central banks&rsquo; swollen balance sheets. From 2008 to 2017, the combined asset holdings of central banks in the major advanced economies (the United States, the eurozone, and Japan) expanded by $8.3 trillion, according to the Bank for International Settlements. With nominal GDP in these same economies increasing by just $2.1 trillion over the same period, the remaining $6.2 trillion of excess liquidity has distorted asset prices around the world.</p> <p>Therein lies the crux of the problem. <u><strong>Real economies have been artificially propped up by these distorted asset prices, and glacial normalization will only prolong this dependency.</strong></u> Yet when central banks&rsquo; balance sheets finally start to shrink, asset-dependent economies will once again be in peril. And the risks are likely to be far more serious today than a decade ago, owing not only to the overhang of swollen central bank balance sheets, but also to the overvaluation of assets.</p> <p>That is particularly true in the United States. According to Nobel laureate economist Robert J. Shiller, the cyclically adjusted price-earnings (CAPE) ratio of 31.3 is currently about 15% higher than it was in mid-2007, on the brink of the subprime crisis. In fact, the CAPE ratio has been higher than it is today only twice in its 135-plus year history &ndash; in 1929 and in 2000. Those are not comforting precedents.</p> <p><u><strong>As was evident in both 2000 and 2008, it doesn&rsquo;t take much for overvalued asset markets to fall sharply</strong></u>. That&rsquo;s where the third mega-trend could come into play &ndash; a wrenching adjustment in the global saving mix. In this case, it&rsquo;s all about China and the US &ndash; the polar extremes of the world&rsquo;s saving distribution.</p> <p>China is now in a mode of saving absorption; its domestic saving rate has declined from a peak of 52% in 2010 to 46% in 2016, and appears headed to 42%, or lower, over the next five years. Chinese surplus saving is increasingly being directed inward to support emerging middle-class consumers &ndash; making less available to fund needy deficit savers elsewhere in the world.</p> <p><em><strong>By contrast, the US, the world&rsquo;s neediest deficit country, with a domestic saving rate of just 17%, is opting for a fiscal stimulus. That will push total national saving even lower &ndash; notwithstanding the vacuous self-funding assurances of supply-siders. As shock absorbers, overvalued financial markets are likely to be squeezed by the arbitrage between the world&rsquo;s largest surplus and deficit savers. And asset-dependent real economies won&rsquo;t be too far behind.</strong></em></p> <p>In this context, it&rsquo;s important to stress that the world economy may not be nearly as resilient as the consensus seems to believe &ndash; raising questions about whether it can withstand the challenges coming in 2018. IMF forecasts are typically a good proxy for the global consensus. The latest IMF projection looks encouraging on the surface &ndash; anticipating 3.7% global GDP growth over the 2017-18 period, an acceleration of 0.4 percentage points from the anemic 3.3% pace of the past two years.</p> <p><strong>However, it is a stretch to call this a vigorous global growth outcome. </strong>Not only is it little different from the post-1965 trend of 3.8% growth, but the expected gains over 2017-2018 follow an exceptionally weak recovery in the aftermath of the Great Recession. This takes on added significance for a global economy that slowed to just 1.4% average growth in 2008-2009 &ndash; an unprecedented shortfall from its longer-term trend.</p> <p><strong>The absence of a classic vigorous rebound means the global economy never recouped the growth lost in the worst downturn of modern times.</strong> Historically, such V-shaped recoveries have served the useful purpose of absorbing excess slack and providing a cushion to withstand the inevitable shocks that always seem to buffet the global economy. The absence of such a cushion highlights lingering vulnerability, rather than signaling newfound resilience &ndash; not exactly the rosy scenario embraced by today&rsquo;s smug consensus.</p> <p>A quote often attributed to the Nobel laureate physicist Niels Bohr says it best: &ldquo;Prediction is very difficult, especially if it&rsquo;s about the future.&rdquo; <strong>The outlook for 2018 is far from certain. But with tectonic shifts looming in the global macroeconomic landscape, this is no time for complacency.</strong></p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="738" height="375" alt="" src="" /> </div> </div> </div> Bitcoin Business Central Banks China Economic bubble Economy Eurozone Financial crises Global Economy Great Recession Inflation International Monetary Fund Japan Macroeconomics Monetary Policy Money Nobel Laureate Nominal GDP North Korea Recession recovery Stephen Roach Subprime mortgage crisis Trade War Thu, 14 Dec 2017 14:21:44 +0000 Tyler Durden 609142 at Kentucky State Rep Commits Suicide, Blames Media For Molestation Allegations In Online Note <p>One Kentucky state representative who was under investigation for molesting a 17-year-old girl back in 2012 has committed suicide and leaving a public suicide note where he blamed media reports about the allegations for driving him to such desperation.</p> <p>Police were called to the scene around 7:30 p.m. <strong>Authorities discovered the lawmaker&#39;s body in front of his truck and a 40-caliber semi-automatic handgun nearby.</strong></p> <p><a href=""><img alt="" src="" style="width: 500px; height: 263px;" /></a></p> <p>Bullitt County Sheriff Donnie Tinnell said <strong>Johnson drove onto the bridge over the Salt River on Greenwell Ford Road in Mt. Washington, parked on the north side of it and shot himself in front of his car. His body was found on the bank of the river nearby, </strong>according to <a href=""></a></p> <p>Just before 5 p.m. Wednesday, Johnson posted the following message on his Facebook page:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p><strong>The accusations from NPR are false GOD and only GOD knows the truth, nothing is the way they make it out to be. AMERICA will not survive this type of judge and jury fake news. Conservatives take a stand. I LOVE GOD and I LOVE MY WIFE, who is the best WIFE in the world, My Love Forever !</strong> My Mom and Dad my FAMILY and all five of my kids and Nine grandchildren two in tummies and many more to come each of you or a total gift from GOD stay strong, REBECCA needs YOU . 9-11-2001 NYC/WTC, PTSD 24/7 16 years is a sickness that will take my life, I cannot handle it any longer. IT Has Won This Life . BUT HEAVEN IS MY HOME. &ldquo;PLEASE LISTEN CLOSELY, Only Three things I ask of you to do,if you love me is (1)blame no person,Satan is the accuser, so blame the Devil himself. (2) Forgive and Love everyone especially yourself .(3)most importantly LOVE GOD. P.S. I LOVE MY FRIENDS YOU ARE FAMILY ! GOD LOVES ALL PEOPLE NO MATTER WHAT !</p> </blockquote> <p>Relatives became concerned after seeing the post and reached out to law enforcement. Officers then pinged Johnson&#39;s phone and found his body.</p> <p>Johnson held a press conference at his church on Tuesday where he denied the molestation allegations. According to court documents obtained by the Kentucky Center for Investigative Reporting, the alleged molestation took place on New Year&#39;s Eve in 2012. The alleged victim, who was 17 at the time, told authorities that she was staying in a living area of the Heart of Fire City Church where Johnson was pastor, when Johnson, who had been drinking a lot, approached her, kissed her and fondled her under her clothes.</p> <p>Michael Skoler, the president of Louisville Public Media, which owns the Kentucky Center for Investigative Reporting, released a statement after Johnson&#39;s death:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p><strong>&quot;All of us at Louisville Public Media are deeply sad to hear that State Representative Dan Johnson has died, apparently of suicide. We grieve for his family, friends, church community and constituents.</strong></p> <p>&nbsp;</p> <p>Our Kentucky Center for Investigative Reporting released a report on Johnson this week. <strong>Our aim, as always, is to provide the public with fact-based, unbiased reporting and hold public officials accountable for their actions.</strong></p> <p>&nbsp;</p> <p>As part of our process, we reached out to Representative Johnson numerous times over the course of a seven-month investigation. He declined requests to talk about our findings.&quot;</p> </blockquote> <p><u><strong>Johnson was never criminally charged.</strong></u></p> <p>Gov. Matt Bevin tweeted a statement Wednesday night, saying his &quot;heart breaks for (Johnson&#39;s) family.&quot;</p> <p>&nbsp;</p> <blockquote class="twitter-tweet" data-lang="en"><p dir="ltr" lang="en">Saddened to hear of tonight&rsquo;s death of KY Representative Dan Johnson...My heart breaks for his family tonight...These are heavy days in Frankfort and in America...May God indeed shed His grace on us all...We sure need it...</p> <p>&mdash; Governor Matt Bevin (@GovMattBevin) <a href="">December 14, 2017</a></p></blockquote> <script async src="" charset="utf-8"></script><p>&nbsp;</p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="710" height="374" alt="" src="" /> </div> </div> </div> Fire City Church Ford Kentucky Kentucky Center for Investigative Reporting Matt Bevin United States Thu, 14 Dec 2017 14:03:35 +0000 Tyler Durden 609141 at ECB Unveils New, Higher Inflation Forecasts; Pushes Bund Yields Higher <p>While the rest of Draghi's presser was uneventful, the two things investors were looking for were the ECB's revised GDP and inflation forecasts. And while the first saw a modest improvement across the board relative to the September forecast as follows:</p> <ul> <li><strong>2017 at 2.4% vs 2.2% In Sept.</strong></li> <li><strong>2018 at 2.3% vs 1.8%</strong></li> <li><strong>2019 at 1.9% vs 1.7%</strong></li> <li><strong>2020 at 1.7%, new forecast</strong></li> </ul> <p>It was the inflation projections that were more interesting especially after the Fed yesterday kept its own inflation forecasts unchanged despite tax reform. </p> <p>Here is what Draghi unviled moments ago for the ECB's latest inflation expectations:</p> <ul> <li><strong>2017: 1.5% vs 1.5% in Sept</strong><strong> <br /></strong></li> <li><strong>2018: 1.4% vs 1.2% prev</strong><br /><strong>&nbsp;</strong></li> <li><strong>2019: 1.5% vs 1.5% prev</strong><br /><strong>&nbsp;</strong></li> <li><strong>2020: 1.7%, </strong><strong>new forecast</strong></li> </ul> <p>And <a href="">Draghi's commentary</a>:</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>According to Eurostat’s flash estimate, euro area annual HICP inflation was 1.5% in November, up from 1.4% in October. At the same time, measures of underlying inflation have moderated somewhat recently, in part owing to special factors. Looking ahead, on the basis of current futures prices for oil, annual rates of headline inflation are likely to moderate in the coming months, mainly reflecting base effects in energy prices, before increasing again. Underlying inflation is expected to rise gradually over the medium term, supported by our monetary policy measures, the continuing economic expansion, the corresponding absorption of economic slack and rising wage growth. </p> <p>&nbsp;</p> <p>This assessment is also broadly reflected in the December 2017 Eurosystem staff macroeconomic projections for the euro area, which foresee annual HICP inflation at 1.5% in 2017, 1.4% in 2018, 1.5% in 2019 and 1.7% in 2020. <strong>Compared with the September 2017 ECB staff macroeconomic projections, the outlook for headline HICP inflation has been revised up, mainly reflecting higher oil and food prices.</strong></p> </blockquote> <p>Finally, this is how the ECB's revised inflation forecasts look visually, <strong>including the first 2020 inflation forecast</strong>:</p> <p><a href=""><img src="" width="500" height="318" /></a></p> <p>Following the incrase in 2017 and 2019 inflation expectations, and the new - and quite high - 2020 inflation forecast of 1.7%, the EUR briefly moved higher, while 10Y yields pushed higher...</p> <p><a href=""><img src="" width="500" height="263" /></a></p> <p>... although with Draghi repeating during the press conference Q&amp;A that "inflation remains muted", we expect the kneejerk reaction to be quickly faded, and indeed the EUR is already retracing session lows.</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="931" height="592" alt="" src="" /> </div> </div> </div> Business Economy Economy of the European Union Euro European Central Bank Eurozone flash Harmonised Index of Consumer Prices Headline inflation Inflation Macroeconomics Monetary Policy Monetary policy Money Price indices Public finance US Federal Reserve Thu, 14 Dec 2017 13:53:58 +0000 Tyler Durden 609140 at Initial Jobless Claims Crash Back To 44-Year Lows <p>After a brief disturbance due to the hurricanes this fall, initial jobless claims have collapsed back to 225k (down 11k last week),<strong> hovering near their lowest level since 1973...</strong></p> <p><a href=""><img src="" width="600" height="315" /></a></p> <p><span style="text-decoration: underline;"><strong>Update:</strong></span> Southbay Reserach notes that the main driver behind the drop in claims is California which saw a one-week drop of -6K (not seasonally adjusted). Typically California claims remain elevated as farm workers get laid off. Added to that wave are the massive fires in Southern California which closed businesses for a week. <em><strong>However, because of the fires, many workers were unable to file claims. </strong></em></p> <p>In other words - claims will jump next week when the firess are put out.</p> <p>*&nbsp; *&nbsp; *</p> <p>So the question is...<strong><em> What's everyone complaining about?</em></strong></p> <p>By the looks of this chart, everything is awesome! Probably a good time for a trillion-dollar-deficit busting fiscal stimulus tax reform package?</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="964" height="506" alt="" src="" /> </div> </div> </div> Business Disaster Fiscal policy Initial Jobless Claims Jobless claims Southern California Stimulus Unemployment Thu, 14 Dec 2017 13:47:22 +0000 Tyler Durden 609139 at Jim Chanos Reminds People Why He Hates Tesla <p><em>Content originally published at <a href=""></a></em></p> <p>&nbsp;</p> <p></p><p>Chanos has been so wrong on Tesla and for so long, I think he's starting to lose his mind. After all, what's not to like about Tesla?<br /> <a href=""><img src="" width="600" height="567" class="alignnone size-full wp-image-74274" /></a></p> <p>Look at those revenues. Beautiful yes?</p> <p>Now here's the losses.</p> <p><a href=""><img src="" width="600" height="557" class="alignnone size-full wp-image-74275" /></a></p> <p>Oh.</p> <p>At the heart of his short selling thesis is the fact that Tesla cannot book a profit and also, and perhaps most importantly, there is significant competition coming for Tesla in 2019, in the form of a Porsche electric sports car. Makes sense, right?</p> <p><iframe src="" width="560" height="315" frameborder="0"></iframe></p> <p>Valuation wise, the stock hasn't been this cheap, on a price to sales basis, in years. The stock is up 58% in 2017.</p> <p><a href=""><img src="" width="600" height="435" class="alignnone size-full wp-image-74276" /></a></p> Business European people Jim Chanos Nationality Nikola Tesla Porsche Science and technology in the United States Short Tesla Wireless energy transfer Thu, 14 Dec 2017 13:38:48 +0000 The_Real_Fly 609138 at