en Price Discovery - R.I.P.! <p><a href=""><em>Submitted by David Stockman via Contra Corner blog,</em></a></p> <p>That was quick. With practically of the Brexit loss recovered in four days and the market now up for the quarter and the year, <strong><em>what&rsquo;s not to like?</em></strong></p> <p>After all, the central banks are purportedly at the ready, and, in the case of the ECB and BOE,&nbsp;are already swinging into action according to their shills in the MSM. <strong>MarketWatch</strong> thus noted,</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>Markets were boosted by reports indicating the European Central Bank is weighing changes to its bond-buying program, while <em><strong>&ldquo;the Bank of England also said they are all in,&rdquo;</strong> </em>said Joe Saluzzi, co-head of equity trading at Themis Trading.</p> <p>The European Central Bank is considering changing the rules regarding the types of bonds it can buy as part of its stimulus package to <em><strong><a class="icon none" href="" target="_blank"><span style="text-decoration: underline;"><span style="color: #0066cc;">amid concerns it could run out of securities to buy under current stipulations</span></span></a>,</strong> </em>according to Bloomberg News. The report followed comments from Bank of England Gov. Mark Carney, who indicated the central bank is poised to <a class="icon none" href="" target="_blank"><span style="text-decoration: underline;"><span style="color: #0066cc;">further ease monetary policy</span></span></a> to combat</p> </blockquote> <p>Well now, by the sound of it you would think that the madman Draghi is fixing to uncork the mother of all QEs if there is a danger that the ECB will &ldquo;run out of securities to buy&rdquo;.</p> <p>Who would have thought that the debt engorged governments of the eurozone couldn&rsquo;t manufacture enough IOUs to satisfy Mario&rsquo;s &ldquo;buy&rdquo; button? In fact, with public debt at 91% of GDP you would think that the $12.5 trillion outstanding would be more than&nbsp;enough to go around.</p> <p><img alt="Euro Area Government Debt to GDP" id="ImageChart" src=";v=201606141716n&amp;d1=20060101&amp;d2=20161231" style="height: 279px; width: 599px;" /></p> <p>It turns out, however,&nbsp;that the operative phrase is &ldquo;under current stipulations&rdquo;. In a fit of apparent prudence, the ECB determined that in buying $90 billion of government bonds and other securities per month, it would only purchase securities with a yield higher than its<em><strong> negative 0.4% deposit rate.</strong></em></p> <p>That&rsquo;s right. Stumbling around in their monetary puzzle palace, the geniuses at the ECB determined that subzero rates are just fine with one condition. Namely,&nbsp;so long as they don&rsquo;t have to pay more to own German bonds, for example, than German banks are paying to deposit excess funds at the ECB.</p> <p>Stated differently, the ECB apparently determined it will not go broke in subzero land even if it is driving insurance companies, pension funds,&nbsp;banks and plain old&nbsp;savers&nbsp;in exactly that direction.</p> <p><strong>But then comes the catch-22. The more bonds Draghi promises to buy, the more the&nbsp;casino front-runners scarf-up those same bonds on 95% repo leverage&mdash;-knowing that Mario will gift them with a big fat gain on their tiny sliver of capital at risk.</strong></p> <p>That drives&nbsp;bond&nbsp;prices ever higher and yields lower, of course.&nbsp;At length, the stampede to buy&nbsp;today what Mario is buying tomorrow&nbsp;has driven yields&nbsp;below the negative&nbsp;0.4% cutoff point for an increasing share of the German&nbsp;yield curve.</p> <p><strong>The Brexit event only compounded the absurdity. </strong>As shown below, it caused another $1.3 trillion of worldwide sovereign bonds to enter the subzero zone. This brought the global total to $11.7 trillion or 26% of all government debt outstanding on the planet, including more than $1 trillion each of&nbsp;German and French&nbsp;government&nbsp;debt and nearly&nbsp;$8 trillion of Japanese government debt.</p> <p><a class="image-anchor" href=" 11.7 trillion.jpg" target="_blank"><img src="" style="width: 600px; height: 482px;" /></a></p> <p>Especially notable in the above chart is the swelling&nbsp;amount of longer-term debt now trading at negative yields.&nbsp;This means that the&nbsp;ECB&rsquo;s insensible &ldquo;scarcity&rdquo; problem just got worse.</p> <p>In part, that&rsquo;s because the&nbsp;ECB&rsquo;s money printing rules require&nbsp;its bond purchases&nbsp;to be allocated&nbsp;on roughly a pro rata basis among its member countries.</p> <p>So the punters who piled into bunds in response to the Brexit event, drove even more of the German yield curve below the ECB&rsquo;s negative 0.4% cut-off points. <strong>There is now a &ldquo;no buy zone&rdquo; out to 8-years on the German government yield curve.</strong></p> <p><a class="image-anchor" href=" curves DB.jpg" target="_blank"><img src="" style="width: 600px; height: 456px;" /></a></p> <p><strong>Nor is that the extent of the subzero lunacy. </strong>As also indicated in the chart, the Swiss yield curve is negative all the way out to 48 years, where the bond actually traded at -0.0082%, and the JGB 40-year bond yields a scant 6 basis points.</p> <p>Yes, by 2056 Japan&rsquo;s retirement colony will be bigger than its labor force, and its fiscal and monetary system will have crashed long before. But no matter.&nbsp;Before it self-destructs, the&nbsp;BOJ will buy all the&nbsp;Japanese government debt, anyway. It already owns 426 trillion yen worth&mdash;an amount that equals fully 85% of GDP.</p> <p>When it comes to government debt, therefore, it can be well and truly said that &ldquo;price discovery&rdquo; is dead and gone. Japan is only the leading edge, but the trend is absolutely clear. The price of&nbsp; sovereign debt is where central banks <em><strong>peg</strong></em> it, not where real money savers and investors&nbsp;will<em><strong> buy</strong> </em>it.</p> <p>Needless to say, this is something new under the sun, and not in a good way. While the casino&rsquo;s day traders may not have noticed that NIRP has not always been with us, this graph shows how rapidly the contagion is spreading.<strong> In less than 2-years, one-quarter of the world&rsquo;s sovereign debt has slid into the nether region of NIRP.</strong></p> <p><a class="image-anchor" href=" breakdown.jpg" target="_blank"><img src="" style="width: 600px; height: 335px;" /></a></p> <p>Paying governments to borrow money makes carrying coals to Newcastle sound like a vast&nbsp;understatement. <strong>But in today&rsquo;s unhinged casinos the gamblers care not a wit.</strong></p> <p>The culture of stimulus entitlement has become so embedded that the age-old truth that governments are&nbsp;inherently dangerous fiscal miscreants has been completely lost. The only thing the &ldquo;market&rdquo; looks at is how soon the next dollop of stimulus will be coming down the pike.</p> <p><u><em><strong>But the destruction of price discovery in the sovereign debt market is not simply an academic curiosity&nbsp;to be jawed about by the few remaining fiscal scolds in the world. To the contrary, it is already having massive toxic consequences in the&nbsp;arenas of fiscal governance and capital markets alike.</strong></em></u></p> <p>As to the former, consider the case of France and&nbsp;its $1 trillion of negatively yielding government debt. That amounts to nearly one-half of its relentlessly rising total, which has grown by nearly 50% just in the last nine years, and now amounts to 85% of GDP.</p> <p><img alt="France General Government Debt" id="ImageChart" src=";v=201606141716n&amp;d1=20070630&amp;d2=20160630&amp;type=column" style="height: 279px; width: 599px;" /></p> <p><strong>The fact is, France is a socialist basket case</strong> in which the state is steadily and surely devouring the entire private economy. The state share is now pushing 57% of GDP, and it has not stopped climbing toward the upper right of the graph for nearly four decades.</p> <p><strong>Yet France is now being paid to spend and borrow even more, thereby begging a self-evident question. What happens when France&rsquo;s tax and dirigisme impaired economy sinks into permanent decline (its almost there now) and the ECB is finally forced to shut down its printing press?</strong></p> <p>Nor is the eventual collapse of France $2.4 trillion sovereign bond bubble necessarily a matter for the distant by-and-by.</p> <p>The populist candidacy of Marine Le Pen was already well in the lead for France&rsquo;s 2017 presidential election. Brexit has now given&nbsp;dramatic new impetus and credibility to her anti-EU platform.</p> <p>Even the possibility of a Frexit win next year would trigger a relentless wave of selling by the Draghi front-runners who were today&nbsp;buying the 10-year bond of this terminal-ill state at a mere 7 basis point yield.</p> <p><strong>Stated differently,&nbsp;in theory the&nbsp;clueless Draghi is pegging French bond rates in the subzero zone in order to jump start inflation.</strong> In practice, he is setting up a monumental FED (financial explosive device) that could erupt at any moment owing to Frexit risk, European recession, a German revolt at the ECB or numerous other potential catalysts.</p> <p><img alt="France Government Spending to GDP" id="ImageChart" src=";v=201606141716n&amp;d1=19160101&amp;d2=20161231&amp;type=column" style="height: 279px; width: 599px;" /></p> <p>The<strong> hair-trigger risk embedded in the financial insanity of sovereign ZIRP</strong> was neatly illustrated by Wolf Richter in a recent post on this topic. What he pointed out in the case of the German bund is applicable to the entire $11.7 trillion of subzero debt outstanding.</p> <p><u><strong>To wit, the front-runners and bond market speculators are sitting on giant capital gains that were caused by the systematic falsification of bond prices by the central banks. You don&rsquo;t have to be a bond quant to understand that any serious break in confidence will cause these punters to grab their gains and dump there bond</strong></u>s:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>What does this mean for investors that bought&nbsp;bonds with long maturities years ago? For example the German 4.75% Bund, issued in 2008 and due in July 2040 trades at 202.3 cents on the euro, having <em>doubled its value over the past eight years</em>. The sellers of those bonds are the true beneficiaries of Draghi&rsquo;s monetary policies, and they can sell them right to the ECB.</p> </blockquote> <p>This observation puts the lie to a related Wall Street delusion. The crowd which insists there is no bond bubble&mdash;&ndash; notwithstanding that fully $25 trillion of government debt is yielding 1% or less&mdash;&ndash;says its just Mr. Market discounting a&nbsp;weak, deflationary economy in the period ahead.</p> <p>No it&rsquo;s not. It&rsquo;s the law of supply and demand at work.</p> <p>Between the $21 trillion of debt already owned by the central banks, and the trillions more held by front-running speculators who expect them to buy more, there is a big fat thumb on the scale; and, as a consequence,&nbsp;there are hideously large and unearned windfalls being captured by these same&nbsp;speculators.</p> <p><strong>Ironically enough, when the bond bubble eventually blows, ground zero for the meltdown is likely to be among Italy&rsquo;s $2.4 trillion of outstandings&mdash;&ndash;some part of which was issued during Mario Draghi&rsquo;s days at the Italian treasury.</strong></p> <p>The notion that today&rsquo;s yield of 1.15% on the Italian 10-year bond even remotely compensates for the risk embedded in Italy&rsquo;s fiscal and economic chamber of horrors is just plain laughable. And that&rsquo;s to say nothing of the risk the Brexit is just&nbsp;stage one, and that the EU itself will ultimately succumb to a wave of populist insurgency, including a Five Star led move to take Italy out of&nbsp;the euro.</p> <p>Indeed, Italy is truly a case of the blind leading the blind. Its giant, bloated banking system is essentially insolvent with nearly $400 billion in NPLs (non-performing loans), but Italy&rsquo;s&nbsp;languishing economy would be toast if it&rsquo;s banks are&nbsp;not propped up by the state or an EU bailout.</p> <p><strong>That&rsquo;s because&nbsp;the footings of Italy&rsquo;s banking system exceed $4.4 trillion or more than 2X the size of its GDP. </strong>On a comparable scale basis, current US aggregate banking balance sheets of $15 trillion would be upwards of $40 trillion. That is to say, Italy&rsquo;s massive banking sector suffuses every nook and cranny of its $2 trillion economy.</p> <p>As shown below, footings have nearly tripled during the past 16 years, even as Italy&rsquo;s economy remains smaller in real terms than it was in 2007.</p> <p>And that&rsquo;s not the half of&nbsp;it.&nbsp;In addition to the massive trove of bad loans to the private sector, embedded in the total footings shown&nbsp;below&nbsp;are nearly $400 billion of Italian government bonds.</p> <p><strong>Needless to say, these&nbsp;securities are vastly over-valued owing to the&nbsp;Draghi bond-buying spree, and they&nbsp;would plummet in price were the&nbsp;speculators who have been front-running Draghi&rsquo;s QE campaign ever to&nbsp;loose confidence in the ECB or the ability and&nbsp;willingness of an Italian&nbsp;government to continue&nbsp;the giant fiscal charade now in place.</strong></p> <p><img alt="Italy Banks Balance Sheet" id="ImageChart" src=";v=201606172211n&amp;d1=20000630&amp;d2=20160630&amp;type=column" style="height: 279px; width: 599px;" /></p> <p>As it happens, that existential&nbsp;challenge is materializing right now.&nbsp;Italy&rsquo;s major banks are bleeding losses, and have been subject to a massive sell-off in the stock market. Share prices are&nbsp;down 50% to 75% since the beginning of the year alone.</p> <p>So the&nbsp;Renzi government has been desperately attempting to organize a bailout, but has run smack into the kind of catch-22 that&rsquo;s buried everywhere in the jerry-built EU bailout regime. To wit, under the new EU&nbsp;banking rules which became effective in 2016, Italy cannot inject government funds into its banking system until it has first forced a trauma-inducing&nbsp;&ldquo;bail-in&rdquo; at&nbsp;any bank getting aid.</p> <p><strong>That not only would&nbsp;mean massive losses for depositors and bank debt-holders, but also the instant collapse of the Renzi&nbsp;government. Italy&rsquo;s third largest and most insolvent bank, in fact, is virtually an auxiliary of&nbsp;his social democratic party.</strong></p> <p>Accordingly, Renzi attempted to get a waiver of the new rules on the grounds that the Italian banking crisis has been dramatically intensified by the Brexit shock. But Merkel shot that down at yesterday&rsquo;s EU leaders meeting&nbsp;faster than it could be translated into German for a powerfully self-evident reason. Namely, that the new bail-in rules are&nbsp;designed to prevent new fiscal crisis in member states and the need for more German funded bailouts.</p> <p>Now Italy faces the real possibility of a depositor run on its banks, and a&nbsp; devastating liquidity crisis in its $4.4 trillion banking sector. Accordingly, it has apparently been authorized by the EU to establish a back-up liquidity line of up to $150 billion, but under EU rules it can only be used for solvent banks&mdash;&mdash;of which Italy doesn&rsquo;t have many.</p> <p>Needless to say, that won&rsquo;t solve the problem, but could force the kind of showdown with Brussels and Berlin that is the very reason why the EU&rsquo;s days are numbered. As Zero Hedge observed,</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>Brexit will be just the scapegoat used by Renzi and Italy to circumvent any specific eurozone prohibitions. And if it fails, all Renzi has to do is hint at a referendum of his own. Then watch as Merkel scrambles to allow Italy to do whatever it wants, just to avoid the humiliation of a potential &ldquo;Italeave.&rdquo;</p> </blockquote> <p>In short, either the EU opens up the floodgates to a renewed round of bailouts, which would likely result in the collapse of Merkel&rsquo;s government, or it authorizes Italy to spend upwards of $50 billion to recapitalize its banks and keep the $400 billion of government debt they hold safely in their vaults.</p> <p>Then again, with public debt already at 133% of GDP, why would anyone except Mario Draghi&rsquo;s printing press be buying 10-year bonds at a 1.15% yield?</p> <p><u><strong>Once upon a time, price discovery by the bond vigilantes kept governments quasi-sober and functionally solvent. No more.</strong></u></p> <p>The Italian Job now underway is just the opening round in a world of failed states and broken markets.</p> <p><img alt="Italy Government Debt to GDP" id="ImageChart" src=";v=201606141716n" style="height: 279px; width: 599px;" /></p> <p><strong>Needless to say, the vast falsification of sovereign debt prices has not happened in a vacuum. It has caused a massive scramble for yield among bond managers and homegamers alike, which, in turn, has distorted and deformed the corporate debt markets like never before.</strong></p> <p>The $400 billion or high yield bonds and loans now being gutted and liquidated in the shale patch are but one example. The record level of money flows into newly minted subprime auto lenders and CLO funds are another.</p> <p>In the US alone, corporate bonds outstanding have risen from $3 trillion on the eve of the financial crisis to upwards of $7 trillion today. Overwhelmingly, that massive gain in outstandings have been cycled back into the casino to fund financial engineering schemes, most especially share buybacks.</p> <p><u><strong>In a word, without honest price discovery the debt markets of the world have been transformed into a massive doomsday machine.</strong></u> They are paying governments to bankrupt themselves in the subzero zone, while incentivizing the C-suite to strip-mine their balance sheets in order to goose their stock prices today, even as they fatally impair their capacity to compete and grow in the future.</p> <p><u><strong>As we said - price discovery, R.I. P.</strong></u></p> <p><img src="" style="height: 384px; width: 599px;" /></p> <p>&nbsp;</p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="220" height="144" alt="" src="" /> </div> </div> </div> Bank of England Bloomberg News BOE Bond Capital Markets Central Banks European Central Bank Eurozone France High Yield Insurance Companies Italy Japan Joe Saluzzi Market Share Meltdown Monetary Policy non-performing loans Recession Sovereign Debt Themis Trading Vigilantes Yen Yield Curve Fri, 01 Jul 2016 19:10:00 +0000 Tyler Durden 564944 at With 5 Million Unemployed, Spain Still Can't Find Workers <p>With soaring youth unemployment, and <a href="">close </a>to 5 million people out of work overall, one would assume that the last problem Spain would encounter would be that it can't find workers to fill open jobs. </p> <p>However, as Bloomberg <a href="">reports</a>, <em><strong>Spain is facing labor shortages as employers struggle to find capable employees</strong></em>. "We were looking for people for two months. We managed to find one in Spain. We turned to Argentina for others" explains Samuel Pimentel, a headhunter who was searching for specialist consultants for a client. </p> <p>Pimentel's client asked for a list of candidates trained in"Agile" project management techniques for helping companies boost their productivity by using more IT systems. The client was even willing to pay $220,000 a year, almost 10 times the average salary in Spain, but Pimentel had a difficult time identifying candidates. </p> <p>The main reason for this issue according to Valentin Bote, head of research at Randstad, a recruitment agency, is that the unemployed lack the skills to fill the available positions. </p> <p>"It's a paradox. The unemployment rate is too high. <strong>Yet we're seeing some tension in the labor market because unemployed <span style="text-decoration: underline;">people don't have the skills employers demand</span></strong>." Bote said.</p> <p>Companies are struggling to fill positions such as software developers, mathematical modelers, geriatric nurses and care workers. Although the unemployment rate is <a href="">close</a> to 20%,&nbsp; Randstad estimates that companies may struggle to fill almost 2 million posts through 2020. </p> <p>Spain has had seven different education laws since 1978 according to <a href="">Bloomberg</a>, but none have addressed fundamental problems that have led to a high-school dropout rate that is twice the European average. "<strong>Education and work exist in two alternative worlds that don't really connect</strong>. <span style="text-decoration: underline;">While in other nations, like the US, college education is designed to get you a job, that's not the case in Spain.</span>" said Sandalio Gomez, a professor at the IESE Business School in Madrid. </p> <p>We would argue that the US education system isn't really designed to get students jobs per se, but we'll save that topic for another day.</p> <p>In Prime Minister Mariano Rajoy's election manifesto, the People's Party vowed to put more emphasis on technology in schools and get more students to learn English, but this issue has been decades in the making.</p> <p><strong>Even when senior posts are filled, Spanish companies are having to make due with lower-caliber candidates than their competitors in other European countries, and that hurts the profitability and resilience of companies</strong> the Bank of Spain <a href="">said </a>in its 2015 annual report.</p> <p>Spain's output is struggling to get back to its 2008 peak, and the skills gap is hindering the economy's ability to get back to that level.</p> <p><a href=""><img src="" width="600" height="334" /></a></p> <p>One thing to point out after discussing all of this is that while Spain's youth unemployment soars, and a significant skills gap puts a drag on the economy, Spanish bond spreads are actually... tightening. <strong>Isn't it amazing what can happen with a little bit of ECB magic to hide any fundamental issues in European economies - for now.</strong></p> <p><img src="" width="600" height="317" /></p> <p>*&nbsp; *&nbsp; *</p> <p><em><strong>Of course, there could be another reason why they cannot fill job vacancies... no one 'wants' to work when the welfare state is sustaining your lifestyle (in return for your votes?)</strong></em></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="957" height="506" alt="" src="" /> </div> </div> </div> Bond None Unemployment Fri, 01 Jul 2016 18:50:00 +0000 Tyler Durden 564933 at How To 'Win' 91% Of The Time When Trading Oil <p>Seriously...</p> <p><a href=""><img src="" width="600" height="460" /></a></p> <p>&nbsp;</p> <p>For the 10th day of the last 11, the minutes before the NYMEX close (1430ET) <strong>have seen a remarkable sudden panic-buying spree...</strong></p> <p><a href=""><img src="" width="600" height="343" /></a></p> <p>We note yesterday was exciting as crude crashed right as NYMEX closed... are the pattern-fitting algos starting to recognize their own self-reinforcing patterns and front-running each other?</p> <p><a href=""><img src="" width="600" height="460" /></a></p> <p>As always - buying is easy, it's when to sell that's hard.</p> <p>Trade accordingly.</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="1415" height="1084" alt="" src="" /> </div> </div> </div> Crude NYMEX Fri, 01 Jul 2016 18:36:16 +0000 Tyler Durden 564942 at "Giant Meteor For President" In Virtual Tie With Trump & Hillary Among Independents <p><a href=""><em>Submitted by Claire Bernish via,</em></a></p> <p>In what has become a presidential race based almost solely on scorn for the candidates, the establishment, <a href="" target="_blank">fraud</a> at the polls &mdash; and, hell, the entirely stale and wholly <a href="" target="_blank">rigged</a> electoral process &mdash;<strong><em> it&rsquo;s clear no one will win in the traditional meaning of the word.</em></strong></p> <p>While third party candidates have experienced growing <a href="" target="_blank">success</a> in the dearth of acceptable duopoly offerings, <strong>a dark horse has emerged.</strong></p> <p>According to Public Policy Polling, <strong>&lsquo;Giant Meteor for President&rsquo; now <a href="" target="_blank">ranks</a> as a serious contender </strong>&mdash; garnering <em>&ldquo;far more support than the third party candidates actually on the ballot.&rdquo;</em></p> <p>No, this most certainly is not the <em>Onion</em>.</p> <p><em>&ldquo;[W]e find that the Meteor would poll at 13% &hellip; with Clinton at 43% and Trump at 38%,&rdquo;</em> with the Libertarian Party&rsquo;s Gary Johnson the favorite among just 5 percent and Green Party candidate Dr. Jill Stein winning just 2 percent of votes.</p> <p>Yes, seriously.</p> <p>In fact, the PPP notes, <strong><em>&ldquo;The Meteor is particularly appealing to independent voters, functionally in a three way tie at 27% to 35% for Clinton and 31% for Trump.&rdquo;</em></strong></p> <p>A previous, albeit fictitious candidate who found enormous success at the polls, Deez Nuts, managed only to <a href="">garner</a> a 9 percent support rating &mdash; making Giant Meteor officially the most popular non-Democrat/Republican duopoly &lsquo;candidate&rsquo; in the running yet.</p> <p><strong>Both Hillary Clinton and Donald Trump owe their so-called success almost solely to contempt for the other</strong> &mdash; with unfavorability in the latest <a href="" target="_blank">poll</a> running 54 and 58, respectively &mdash; as voters align behind either to prevent the former secretary of state or the demagogic billionaire from being the next leader of the no-longer Free World.</p> <p>But the Meteor &mdash; whose wildly popular bumper sticker reads, <strong>&ldquo;Giant Meteor 2016: Just end it already&rdquo;</strong> &mdash; might be the most representative of voter disenfranchisement and frustration with the politics-as-usual and wall-building candidates the two negligibly different parties coughed up as presumptive nominees.</p> <p><strong>Meteor&rsquo;s, well, meteoric rise in popularity isn&rsquo;t difficult to understand, given the circumstances. After all, another poll today <a href="" target="_blank">revealed</a> a whopping 67 percent of Democratic voters would rather see President Obama stay in office for another term than endure a Hillary Clinton administration.</strong></p> <p>In addition to aversion to Clinton, Trump&rsquo;s success could be attributed to the xenophobic vitriol and &lsquo;fearanoid&rsquo; negativity <a href="" target="_blank">common</a> during similar periods of economic stratification that gave rise to such stunners as Adolf Hitler.</p> <p>And while the Libertarian Party has made gains in popularity, <a href="" target="_blank">grumblings</a> among party diehards indicate a preference for candidates other than Johnson.</p> <p>Perhaps Giant Meteor&rsquo;s astronomical rise in the polls could be easily brushed off with a laugh &mdash; or maybe, just maybe, the idea that a heavenly body careening to Earth to kill us all having more appeal than actual candidates for president of the United States proves the people know the jig is up.</p> <p><strong>Maybe now &mdash; in a year pockmarked by political turmoil, typically ruinous scandal, and blatantly fraudulent electoral dealings &mdash; the people will slam down their collective foot to say they&rsquo;ve finally had enough of the &lsquo;lesser of two evils&rsquo; bullshit so ingrained in the American electoral mindset.</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="501" height="247" alt="" src="" /> </div> </div> </div> Donald Trump President Obama The Onion Fri, 01 Jul 2016 18:35:00 +0000 Tyler Durden 564934 at Pershing Square Lays Off More Than 10% Of Employees <p>While we await the <a href="">latest weekly update </a>from a crushed Pershing Square, to see how far the latest collapse in Valeant stock has slammed the P&amp;L of Bill Ackman's hedge fund, we know that the picture is not pretty: as of a week ago, the fund was down 21% for the year.</p> <p><a href=""><img src="" width="500" height="190" /></a></p> <p>But the biggest mystery is how has this hedge fund, arguably one of the worst performers of the past two years, managed to continue operating without suffering dramatic withdrawals. Are its LPs, especially the recent ones, massochists or are they merely hoping for some miraculous turnaround in Bill Ackman's fortune? </p> <p>We don't know the answer, and Ackman will certainly not divulge his fund's inbound redemptions requests: there is no more sure way to assure a hedge fund's demise than&nbsp; to hint to LPs that some other LPs have lost faith. What we do know is that things are starting to crack, and not just for Pershing Square's LPs ,but for its employees too. </p> <p>According to the <a href="">WSJ</a>, Pershing Square has laid off eight lower-level employees this week. The cuts, which largely involve back-office employees in technology and investor services, amount to more than 10% of the activist hedge fund’s staff. They are also just a start as every hedge fund operator knows.</p> <p>Amusingly, Ackman told his staff this week that the moves have nothing to do with the poor performance of the hedge fund. Instead, he said, the firm has gotten better in technology and automating tasks like filling out new-investor forms, reducing the need for employees. </p> <p>Oh the irony in needing less people to fill out "new investor forms." What about the manpower needed to go through all of the redemption requests? Or is there a robot for that? </p> <p>Just as amusingly, Ackman said "he doesn’t anticipate any other big cuts."</p> <p><a href=""><img src="" width="500" height="353" /></a></p> <p>We expect to follow up on this "timestamp" in a few months. Meanwhile, Pershing Square had $12.3 billion in assets, down roughly 40% from $20.2 billion at the end of July 2015, just before Valeant’s stock started falling. </p> <p>Ironically, there may be worse news for Ackman's employees: since Pershing Square is far below its high-water mark, it would need to get back to before employees would receive much of their pay. This means that unlike Starbucks, Ackman won't even need to cut back on worker hours: the upside here is capped for years if not ever.</p> <p>Then again, Ackman may be right: Pershing Square may not have to cut any more workers - the workers will just quit on their own, now that any chance of a juicy year-end bonus is gone for good. </p> <p>The better news: according to the administration, the US economy is in the midst of a strong recovery and anyone who claims otherwise is peddling fiction. Which means all those highly paid (maybe not anymore) workers will be able to transfer their socially valuable skills to other industries where they will be compensated just as richly without having to worry about watermarks, P&amp;L and redemption requests.</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="555" height="392" alt="" src="" /> </div> </div> </div> Pershing Square recovery Fri, 01 Jul 2016 18:30:25 +0000 Tyler Durden 564941 at Commerzbank To Cut Over 100 Bankers In NYC <p>Over the past few months we have witnessed massive cost cutting efforts (ie: firing of bankers) by many firms, <a href="">Goldman</a>, <a href="">BAML</a>, <a href="">Nomura </a>and <a href="">RBS</a> to name a few. Now it's time to add Commerzbank to the list of firms that <strong>need to fire people in order to try and cut enough costs to maintain earnings.</strong></p> <p><img src="" width="600" height="211" /></p> <p><span style="text-decoration: underline;">Germany's Commerzbank announced that it is cutting more than 100 investment banking related jobs in its New York office as part of its efforts to streamline its operations and boos profitability </span>the WSJ <a href="">reports</a>, as a sluggish trading environment continues to weigh on profits. The bank announced last year that it was going to bundle investment banking activities in certain locations. </p> <p>"<strong>We are now consequently following this strategy with the realignments of our organizational setup in North America</strong>." said Michael Reuther, head of investment banking operations.</p> <p>From the <a href="">WSJ</a></p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>The current cuts, which were reported earlier by German daily Handelsblatt, affect about 100 back-office and roughly 10 front-office jobs, according to Mr. Reuther’s memo.</p> <p>&nbsp;</p> <p><strong>As consequence of the cutbacks, Germany’s second-largest lender by market capitalization will outsource the clearing of “non-U.S. commercial payments to” U.S. banks and stop its securities lending as well as structured finance business in the U.S.</strong></p> <p>&nbsp;</p> <p>Mr. Reuther stressed however that “North America is and will remain an important international hub for Commerzbank” with the New York office being critical for services for U.S. corporate and institutional clients. “We will continue to provide products such as [U.S. dollar] loans and [U.S. dollar] bonds, foreign exchange and other risk-management solutions, as well as equity markets access to our clients,” he said.</p> </blockquote> <p>* * *</p> <p>As we say each time more layoffs are announced, the pain is not over and companies will continue to cut labor to the bone in order to try and mask slumping revenues.</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="507" height="178" alt="" src="" /> </div> </div> </div> Equity Markets Nomura RBS Structured Finance Fri, 01 Jul 2016 18:20:00 +0000 Tyler Durden 564932 at Biotechs Building Base? ...Or Bursting Bubble? <p><a href=""><em>Via Dana Lyons&#39; Tumblr,</em></a></p> <p><strong><em>The bruised and bloodied Biotech sector is testing a trendline that may determine whether it has one more bull bounce &ndash; or if its bubble has burst.</em></strong></p> <p>Today&rsquo;s Trendline Week feature takes us back to the U.S. to look at one of the, er, trendiest indices in the stock market. After covering Europe on <a href="" target="_blank">Monday</a>, Japan on <a href="" target="_blank">Tuesday </a>and back to Europe (specifically, Germany) on <a href="" target="_blank">Wednesday</a>, today we look at the oft-debated and controversial Biotechnology sector. Bear in mind that we are not picking these markets because of their prominence or popularity, but because they currently offer the most compelling trendline events in the market, in our view. That includes the Biotechs where we see the sector&rsquo;s premier index testing a crucial level of support.</p> <p><strong>Like several of the other trendlines we&rsquo;ve looked at this week, the NYSE Arca Biotechnology Index (BTK) is presently testing the key trendline supporting its post-2008 cyclical bull market.</strong></p> <p><img alt="image" src="" style="width: 600px; height: 391px;" /></p> <p>&nbsp;</p> <p><strong>As the chart illustrates, the trendline in question (drawn on a log scale) originates in November 2008 and connects the lows in March 2009, November/December 2011 and this past February. </strong>Again, we have mentioned on several occasions that the increased frequency (i.e., decreased time lapse) of trendline touches is often a harbinger of a forthcoming trendline break. If that is the case here, we can expect to see the trendline give way sooner than later.</p> <p>On the other hand, we suppose it could be argued that the drop down to the trendline this week was merely a&nbsp;&ldquo;re-test&rdquo; of the BTK&rsquo;s February low. That seems like a stretch to us, but anything is possible. Even if this is a re-test, however, one would expect prices to at least approach the February lows in a closer fashion than they have thus far. That February low sits at around 2575. The recent low in the BTK was 2807, a good 9% above February&rsquo;s levels. The problem is, the trendline sits right at 2800 today, so a true test of the February low would necessarily violate the trendline, Even if such a breach was temporary, it will still serve to weaken the uptrend.</p> <p><strong>We mentioned Biotech&rsquo;s status as&nbsp;&ldquo;controversial&rdquo;. By that, we are just referring to the much debated discussion about whether the sector is characterized by a&nbsp;&ldquo;bubble&rdquo;. Our thought, based on the parabolic price appreciation and frenzied inflows of investor money it attracted in recent years, was that it was indeed a bubble. The next question is whether the July 2015 peak marked the bubble&rsquo;s bursting or whether the sector&rsquo;s got another run to new highs left in it.</strong></p> <p>Considering it would take a 30%+ rally to get to all-time highs, the sector has its work cut out. Thus, we are guessing that the top is in. However, another leg up can never be ruled out. Some would argue that the post-February action in the sector is a base-building phase that will serve as the launch for that next leg up. That too is possible. However, our view is that cycle patterns would suggest one more wave lower (the third following July-October and December-February) before any substantial rally transpires. Even then, the rally would likely be a counter-trend move that would fall well short of all-time highs.</p> <p>All that is conjecture at this point, though. If one is looking to play the Biotech sector, long or short, we view the post-2008 Up trendline as an important demarcating line. <strong>Hold the line (as it has since its touch on Monday) and immediate upside is more likely. Break below the Up trendline, and another wave lower is probably in the cards.</strong></p> <p>*&nbsp; *&nbsp; *</p> <p><em><em><a href="" target="_blank">More</a> from Dana Lyons, JLFMI and My401kPro.</em></em></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="499" height="270" alt="" src="" /> </div> </div> </div> Germany Japan Fri, 01 Jul 2016 18:05:00 +0000 Tyler Durden 564931 at Art Cashin Sums It All Up <p>In an interview today on CNBC, Art Cashin hits the nail on the head as he typically does when asked about the central banks, the bond market and <a href="">US Treasury yields hitting new record lows</a>. </p> <p><a href=""><img src="" width="600" height="427" /></a></p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>"It's attracting money, it's a very powerful magnet and it's going to keep doing that."</p> <p>&nbsp;</p> <p>"<strong>With all apologies to Janet Yellen it's getting to a point where <span style="text-decoration: underline;">it doesn't matter what the Fed thinks, rates are going to stay low</span></strong>."</p> </blockquote> <p>On whether anything Stanley Fischer said today changes the view on that, Cashin delivers epic truthiness that nobody with a PhD sitting in the Eccles building ever wants to hear again.</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>"Not at all, I think the only thing I heard from him was a mild frustration that they couldn't get things going. <span style="text-decoration: underline;"><strong>The market is more powerful than the Fed, that's the problem</strong></span>."</p> </blockquote> <p><iframe src="" width="600" height="355" frameborder="0"></iframe></p> <p>&nbsp;</p> <p>Or put another way <em>(h/t @RudyHavenstein)</em> - <em><span style="text-decoration: underline;"><strong>"Let the market clear!!"</strong></span></em></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="618" height="440" alt="" src="" /> </div> </div> </div> Art Cashin Bond Central Banks Janet Yellen Fri, 01 Jul 2016 18:04:43 +0000 Tyler Durden 564926 at Something "Unexpected" Happened After Starbucks Raised Minimum Wages <p>One year ago, when the political push to raise the minimum wage hit a crescendo, the CEO of Starbucks had some words of caution. <a href="">Howard Schultz told CNN that minimum wage </a>"should go up across the country", however he warned that "it will be very difficult for small business in the country at a $15 level to pay those kinds of wages." What about for his own company? <strong>"For Starbucks come January 1 we are taking wages up across the country and we will pay above the minimum wage in every state we operate. Starbucks is way above the minimum wage</strong>. <strong>I have always looked at total compensation.</strong>"&nbsp; </p> <p>His conclusion: "<strong>I have always believed that our success as a company is best shared.</strong>"</p> <script src=""></script><p>&nbsp;</p> <p>One year later, something "unexpected" has happened as a result of the Schultz' all too eager push to "share" his company's success by hiking minimum wages, namely the realization by the company's employees (if not so much the CEO, management and certainly shareholders) <strong>that total compensation is a function of two things: hourly wages <em><span style="text-decoration: underline;">and number of hours worked. </span></em></strong></p> <p>As <a href="">Reuters reports</a>, an <strong>online petition accusing Starbucks of "extreme" cutbacks in work hours at its U.S. cafes, hurting both employee morale and customer service, </strong>has been signed by more than 9,000 people. Suddenly Starbucks' eagerness to raise its wages becomes all too clear: after all, it would merely have to reduce work hours, to keep profitability humming. </p> <p>The world's biggest coffee chain, trying to address cooling growth at its U.S. shops, recently introduced technology that allows customers to order and pay from mobile devices. That service aims to boost sales and reduce bottlenecks in stores; it also aims to reduce work hours.&nbsp;</p> <p> In short: Starbucks is finding itself in a sales and profit squeeze (its shares have gone nowhere for the past year), and having been such a fervent supporter of minimum wage hikes, is now far less willing to "share" its success as a company, especially if it means a stagnant stock price for the foreseeable future. </p> <p>Starbucks CEO Howard Schultz and other top brass have spoken with Jaime Prater, a Southern California barista and the online petition's creator, the Seattle-based company said. It declined to give details but Starbucks spokeswoman Jaime Riley said it is not uncommon for Schultz to reach out to members of its 160,000-strong U.S. workforce. <strong>She said that Starbucks has a software system that determines labor needs based on business trends. </strong></p> <p>In which case, one wonders what the company's attempt to squeeze out every last penny from the bottom line by implementing "extreme" cutbacks to work hours says about business trends in the US, and the economy in general. </p> <p>But back to the disgruntled employees who don't share Schultz' optimism that this is all merely orindary course of business. <strong>Comments on the petition painted a picture of broad discontent at the company known for offering better wages and benefits than other chains, including healthcare coverage, retirement account contributions and paid vacation days</strong>.</p> <p>Prater and many signers say they <strong>noticed cutbacks in U.S. staffing hours after Starbucks in April reported a deceleration in quarterly cafe sales growth</strong>. Several of them said store managers were under pressure to comply with the dictates of Starbucks' software system.</p> <p>Translated: <em>boost profits by reducing overall pay. </em></p> <p>Almost 7,000 signers of the petition described themselves as employees, according to Prater. They did not give their full names and Reuters was not immediately able to confirm that signers worked for Starbucks.&nbsp;</p> <p><strong> "The labor situation has gone from tight to infuriating," </strong>Prater said. </p> <p>One central California store has seen its <strong>labor allotment shrunk by about 10 percent, even </strong>though sales are up, its manager, who asked not to be identified for fear or reprisal, told Reuters. Similar complaints were heard from many signers of the online petition.</p> <p><strong>"No matter what we do to save on labor at my store, the system tells us EVERY SINGLE DAY that we are at least 8 hours over in labor for the day and have to cut even more," </strong>wrote signer Aaron I. "We're suffering, &amp; so are our customers. It's not working," wrote Leslie S, a self-described shift manager. </p> <p>But... just one year ago an euphoric Howard Schultz said he was <em>so eager </em>to raise minimum wages. What he forgot to add is that he is just as eager to cut work hours if it means preserving profitability.</p> <p>"Mobile orders have increased sales and created more need for labor, yet the company is cutting labor," wrote Makenna S, a shift supervisor.</p> <p>And the punchline: like other restaurants and retail companies, Starbucks is wrestling with the effects of local minimum wage increases. Some petitioners said Starbucks had not boosted pay for existing workers in areas where minimum wages have increased - creating a situation where new hires are paid about the same wage as more experienced peers. </p> <p>The longer we look at it, the more it appears that the CEO was not exactly genuine in his enthusiastic support for minimum wages. </p> <p>As for the cherry on top: some employees said take-home pay had also taken a hit because tipping has fallen substantially amid broad customer adoption of the "Starbucks Rewards" program, which allows customers to pay with a loyalty card or mobile phones.&nbsp;</p> <p>* * * </p> <p>And just like that, the grim picture of the "minimum wage hike effect" is starting to be appreciated by all, and explains why over the past few months even the BLS has reported that average work hours have been shrinking, incidentally something we warned about over a year ago when the topic of minimum wage increases first emerged. Because as was obvious all along, the simple math is that as mandatory wages rise, <strong>there is far less "success" to be shared. </strong></p> <p>To be sure Starbucks is neither the first nor the last corporation to show its true colors. One year ago we reported that "<a href="">Economics 102: WalMart Cuts Worker Hours After Hiking Minimum Wages</a>", and just four weeks ago we followed up that "<a href="">Half Of Washington DC Employers Have Cut Jobs, Hours Due To Minimum Wage Increases - And It's Going To Get Worse</a>." </p> <p>The Starbucks news confirms just that; expect much more. </p> <p>Meanwhile, we can only hope that more realize <strong>that politicians pandering to populism by conducting a phony "war on inequality" via minimum wage propaganda is merely serving their corporate overlords. Because as Starbucks employees are the latest to learn the hard way, as wages go up, all in comp is rapidly dropping while layoffs are rising</strong>. Maybe next time Obama mandates a minimum wage to show how much he cares about the "little worker", he should also issue an executive order requiring minimum hours too. Naturally, that would merely unleash even more central-planning hell, but in a world in which the central banks already control everything, why the hell not? </p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="1010" height="603" alt="" src="" /> </div> </div> </div> BLS Central Banks Reuters Fri, 01 Jul 2016 17:53:02 +0000 Tyler Durden 564940 at 30-Day Fed Funds Futures Expectations (Video) <p>By <a href=""><span style="color: #f24024;">EconMatters</span></a> </p> <p><em><br /></em> </p> <div class="separator" style="clear: both; text-align: center;"><a title="Open in new window" class="external" href="" style="margin-left: 1em; margin-right: 1em;" target="_blank"><img src="" width="400" height="266" border="0" /></a></div> <p> We are starting to price back in a December Rate hike by the Federal Reserve, slowly but surely we are coming off the zero bound for this market event. We now stand at 22% and rising for a December Fed Funds Rate Hike of 25 basis points to (50-75 basis points).</p> <p></p> <div class="separator" style="clear: both; text-align: center;"><iframe src="" width="320" height="266" frameborder="0"></iframe></div> <div class="separator" style="clear: both; text-align: center;"></div> <div class="separator" style="clear: both; text-align: center;"><a title="Open in new window" class="external" href="" style="margin-left: 1em; margin-right: 1em;" target="_blank"><img src="" width="640" height="362" border="0" /></a></div> <p> © <a href="" target="_blank"><span style="color: #f24024;">EconMatters</span></a> All Rights Reserved | <a title="Open in new window" class="external" href="" target="_blank"><span style="color: #f24024;">Facebook</span></a> | <a title="Open in new window" class="external" href="!/EconMatters" target="_blank"><span style="color: #f24024;">Twitter</span></a> | <a title="Open in new window" class="external" href="" target="_blank"><span style="color: #f24024;">YouTube</span></a> | <a title="Open in new window" class="external" href="" target="_blank"><span style="color: #f24024;">Email Digest</span></a> | <a title="Open in new window" class="external" href=";node=80" target="_blank"><span style="color: #f24024;">Kindle</span></a><strong>&nbsp;</strong><em>&nbsp;</em><span style="text-decoration: underline;">&nbsp;</span><span style="text-decoration: line-through;">&nbsp;</span></p> Federal Reserve Twitter Twitter Fri, 01 Jul 2016 17:30:29 +0000 EconMatters 564938 at