http://www.zerohedge.com/fullrss2.xml/article/article/587174 en Exactly How Many Warnings Do You Need? http://www.zerohedge.com/news/2017-09-21/exactly-how-many-warnings-do-you-need <p><a href="https://realinvestmentadvice.com/4-warnings-for-the-bull-market/"><em>Authored by Lance Roberts via RealInvestmentAdvice.com,</em></a></p> <p>When I was growing up my father, probably much like yours, had pearls of wisdom that he would drop along the way. It wasn&rsquo;t until much later in life that I learned that such knowledge did not come from books, but through experience. One of my favorite pieces of &ldquo;wisdom&rdquo; was:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p><span style="color: #993300;"><em>&ldquo;Exactly how many warnings do need before you figure out that something bad is about to happen?&rdquo;</em></span></p> </blockquote> <p>Of course, back then, he was mostly referring to warnings he issued for me&nbsp;<em>&ldquo;not&rdquo;</em>&nbsp;to do something I was determined to do. <strong>Generally, it involved something like jumping off the roof with a queen-sized bedsheet convinced it was a parachute. </strong></p> <p>After I had broken my wrist, I understood what he meant.</p> <p>With that in mind, there are currently plenty of warning signs individuals might want to consider before taking that leap. Here are four to consider.</p> <h2><u><strong>Warning 1: Investor Confidence</strong></u></h2> <p>There are several different surveys of retail investors which all currently show the same thing. Individuals have never been as hopeful as they are currently that the stock market will continue to grind higher. <a href="https://realinvestmentadvice.com/technically-speaking-how-do-you-spell-r-e-l-i-e-f/" rel="noopener" target="_blank">Last week,</a> I discussed the Gallup poll which showed investor optimism at the highest levels since 1999.</p> <p>The latest survey comes from the University of Michigan survey courtesy of Business Insider.</p> <p><a href="http://realinvestmentadvice.com/wp-content/uploads/2017/09/9-18-17-retail-investor-optimism-cotd.png"><img class="alignnone size-full wp-image-23732" src="http://realinvestmentadvice.com/wp-content/uploads/2017/09/9-18-17-retail-investor-optimism-cotd.png" style="width: 601px; height: 450px;" /></a></p> <p>The preliminary survey of consumer sentiment for September showed<strong> a record 65% expected probability</strong> that stocks would rise in the next year. The data&nbsp;goes back to 2002.</p> <p>As BI noted:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p><strong><em>&ldquo;The&nbsp;<a href="https://data.sca.isr.umich.edu/fetchdoc.php?docid=57450">report</a>&nbsp;in&nbsp;February&nbsp;</em></strong><em><strong>noted that people who were most bullish for the year ahead, and could invest more in stocks, were in the top third of income distribution and in the top tier of stock ownership.</strong> In other words, the respondents to this survey have reaped strong gains on a riskier asset class in a short period of time&nbsp;and are hoping this&nbsp;continues.&rdquo;</em></p> </blockquote> <p>As I have discussed many times previously, the stock market rise <a href="https://realinvestmentadvice.com/stocks-the-great-wealth-equalizer/" rel="noopener" target="_blank">has NOT lifted all boats equally</a>. <strong>More importantly, the surge in confidence is a coincident indicator and more suggestive, historically, of market peaks as opposed to further advances.</strong></p> <p>As&nbsp;David Rosenberg, the chief economist at Gluskin Sheff noted:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p><em>&lsquo;For an investment community that typically lives in the moment and extrapolates the most recent experience into the future, <strong>it would only fall on deaf ears to suggest that peak confidence like this and peak market pricing tend to coincide with each other.&rdquo;</strong></em></p> </blockquote> <p>He is absolutely correct. As shown below in the consumer composite confidence index <em>(an average of the Census Bureau and University Of Michigan surveys),&nbsp;</em>previous peaks in confidence have been generally associated with peaks in the market.</p> <p><a href="http://realinvestmentadvice.com/wp-content/uploads/2017/09/SP500-ConsumerConfidence-Composite-091917.png"><img class="alignnone size-full wp-image-23734" src="http://realinvestmentadvice.com/wp-content/uploads/2017/09/SP500-ConsumerConfidence-Composite-091917.png" style="width: 600px; height: 332px;" /></a></p> <h2>Warning 2 &ndash; All Hat, No Cattle</h2> <p>For those of you unfamiliar with Texas sayings,<em> &ldquo;all hat, no cattle&rdquo;</em> means that someone is acting the part without having the <em>&ldquo;stuff&rdquo;</em> to back it up. Just wearing a <em>&ldquo;cowboy hat,&rdquo;</em> doesn&rsquo;t make you a <em>&ldquo;cowboy.&rdquo;</em></p> <p>I agree with the premise that leverage alone is not a problem for stocks in the short-term. <strong>In fact, it is the increase in leverage which pushes stock prices higher.</strong> As shown in the chart below, there is a direct correlation between stock price and margin debt growth.</p> <p><a href="http://realinvestmentadvice.com/wp-content/uploads/2017/09/SP500-MarginDebt-Growth-091917.png"><img class="alignnone size-full wp-image-23736" src="http://realinvestmentadvice.com/wp-content/uploads/2017/09/SP500-MarginDebt-Growth-091917.png" style="width: 599px; height: 301px;" /></a></p> <p><strong>But, margin debt is NOT a benign contributor.</strong> As I discussed previously in <a href="https://realinvestmentadvice.com/the-passive-indexing-trap/" rel="noopener" target="_blank">&ldquo;The Passive Indexing Trap:&rdquo;</a></p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p><em>&ldquo;At some point, that reversion process will take hold. It is then investor &lsquo;psychology&rsquo;&nbsp;will collide with &lsquo;margin debt&rsquo; and ETF liquidity.&nbsp;<strong>It will be&nbsp;the equivalent of striking a match, lighting a stick of dynamite and throwing it into a tanker full of gasoline.&rdquo;</strong></em></p> </blockquote> <p>Not surprisingly, the expansion of leverage to record levels coincides with the drop in investor cash levels to record lows. As noted by Pater Tenebrarum via&nbsp;<a href="http://www.acting-man.com/?p=51360" rel="noopener" target="_blank">Acting-Man blog:</a>&nbsp;<span style="color: #993300;"><em>(The following also reinforces Warning #1)</em></span></p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p><em>&nbsp;&ldquo;Sentiment has become even more lopsided lately, with the general public joining the party. It may not &lsquo;feel&rsquo; like the mania of the late 1990s to early 2000, but in terms of&nbsp;actually measurable data, the overall bullish consensus seems to be even greater than it was back then.</em></p> <p>&nbsp;</p> <p><em>Along similar lines, here is a recent chart that aggregates the relative cash reserves of several groups of market participants (including individual investors, mutual fund managers, fund timers, pension fund managers, institutional portfolio managers, retail mom-and-pop type investors). It shows that there is simply no fear of a downturn:&rdquo;</em></p> </blockquote> <p><a href="http://realinvestmentadvice.com/wp-content/uploads/2017/09/2-cash-cushion.png"><img class="alignnone size-full wp-image-23737" src="http://realinvestmentadvice.com/wp-content/uploads/2017/09/2-cash-cushion.png" style="width: 600px; height: 294px;" /></a></p> <p><strong>So much for the&nbsp;<a href="https://realinvestmentadvice.com/7-myths-of-investing/" rel="noopener" target="_blank"><em>&ldquo;cash on the sidelines&rdquo;</em> </a>theory.</strong></p> <p>When investors believe the market can&rsquo;t possibly go down, it is generally time to start worrying. As Pater concludes:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p><span style="color: #993300;"><em>&ldquo;As a rule, such extremes in complacency precede crashes and major bear markets, but they cannot tell us when precisely the denouement will begin.&rdquo;</em></span></p> </blockquote> <h2><u>Warning 3 &ndash; Valuations</u></h2> <p>In an extensive, <a href="http://www.zerohedge.com/news/2017-09-19/where-next-financial-crisis-will-come" rel="noopener" target="_blank">must-read report</a> at Zerohedge, Deutsche Bank&rsquo;s Jim Reid, the credit strategist unveiled an extensive analysis of the <em>&ldquo;</em><strong><em>Next Financial Crisis&rdquo;</em>,&nbsp;</strong>and specifically what may cause it, when it may happen, and how the world could respond assuming it still has means to counteract the next economic and financial crash. The bottom line is simple:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p><em>&ldquo;With the global levels of over-valuation of stocks and bonds, combined with excessive optimism and leverage as noted above, has set the stage for exceedingly low returns over the next decade or longer.&rdquo;</em></p> </blockquote> <p><a href="http://realinvestmentadvice.com/wp-content/uploads/2017/09/Bond-Equity-Valuations.jpg"><img class="alignnone size-full wp-image-23738" src="http://realinvestmentadvice.com/wp-content/uploads/2017/09/Bond-Equity-Valuations.jpg" style="width: 601px; height: 376px;" /></a></p> <p>As noted in the report:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p><em>&ldquo;With that baseline in mind, what happens next should be obvious: unless one assumes that the laws of economics and finance are irreparably broken, a deep recession and a market crash are inevitable, especially after the&nbsp;<a href="https://www.bloomberg.com/news/articles/2017-09-13/s-p-500-s-bull-market-gets-a-new-title-third-strongest-ever">third biggest&nbsp;</a>and&nbsp;<a href="http://money.cnn.com/2016/04/29/investing/stocks-2nd-longest-bull-market-ever/index.html">second longest&nbsp;</a>central bank-sponsored bull market in history.&rdquo;</em></p> </blockquote> <p>Valuations, as discussed&nbsp;<a href="https://realinvestmentadvice.com/investing-apathy-the-death-of-your-financial-goals/" rel="noopener" target="_blank">most recently here</a>, are a very poor market timing device for short-term investors. <strong>However, from a long-term investment perspective, valuations mean a great deal as it relates to expected returns.</strong></p> <p>As I addressed in&nbsp;<a href="http://realinvestmentadvice.com/shillers-cape-is-there-a-better-measure/">&ldquo;Shiller&rsquo;s CAPE &ndash; Is There A Better Measure:&rdquo;</a></p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p><em>&ldquo;The need to smooth earnings volatility is necessary to get a better understanding of what the underlying trend of valuations actually is. <strong>For investor&rsquo;s, periods of &lsquo;valuation expansion&rsquo; are where the bulk of the gains in the financial markets have been made over the last 114 years.</strong> History shows, that during periods of &lsquo;valuation compression&rsquo; returns are much more muted and volatile.</em></p> <p>&nbsp;</p> <p><em>Therefore, in order to compensate for the potential &lsquo;duration mismatch&rsquo; of a faster moving market environment, I recalculated the CAPE ratio using a 5-year average as shown in the chart below.&rdquo;</em></p> </blockquote> <p><a href="http://realinvestmentadvice.com/wp-content/uploads/2017/09/SP500-Cape5-Ratio-091917.png"><img class="alignnone size-full wp-image-23741" src="http://realinvestmentadvice.com/wp-content/uploads/2017/09/SP500-Cape5-Ratio-091917.png" style="width: 600px; height: 313px;" /></a></p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p><em>&ldquo;There is a high correlation between the movements of the CAPE-5 and the S&amp;P 500 index.<strong>&nbsp;However, you will notice that prior to 1950 the movements of valuations were more coincident with the overall index as price movement was a primary driver of the valuation metric. As earnings growth began to advance much more quickly post-1950, price movement became less of a dominating factor. Therefore, you can see that the CAPE-5 ratio began to lead overall price changes.</strong></em></p> <p>&nbsp;</p> <p><em>As I stated in yesterday&rsquo;s missive, a key &lsquo;warning&rsquo; for investors, since 1950, has been<strong>&nbsp;a decline in the CAPE-5 ratio which has tended to lead price declines in the overall market.&rdquo;</strong></em></p> </blockquote> <p>Notice the downturn in the CAPE-5 ratio preceded the 2016 market swoon. However, thanks to rapid Central Bank interventions, that valuation slide was rapidly reversed is now approaching previous highs. With earnings estimates being revised lower, economic growth remaining weak, and monetary policy being reigned in, the danger to investors longer-term is mounting.</p> <h2><u>Warning 4 &ndash; Share Buy Backs</u></h2> <p>The use of <a href="https://realinvestmentadvice.com/4-tools-used-to-win-the-beat-the-estimate-game/" rel="noopener" target="_blank">&ldquo;share buybacks&rdquo;</a> to win the &ldquo;beat the estimate&rdquo; game should not be readily dismissed by investors.</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p><em>&ldquo;One of the primary tools used by businesses to increase profitability has been through the heavy use of stock buybacks. The chart below shows outstanding shares as compared to the difference between operating earnings on a per/share basis before and after buybacks.&rdquo;</em></p> </blockquote> <p><a href="http://realinvestmentadvice.com/wp-content/uploads/2017/09/SP500-ReportedEarnings-Buybacks-010317.png"><img class="alignnone size-full wp-image-23750" src="http://realinvestmentadvice.com/wp-content/uploads/2017/09/SP500-ReportedEarnings-Buybacks-010317.png" style="width: 599px; height: 377px;" /></a></p> <p><strong>The problem with this, of course, is that stock buybacks create an illusion of profitability.&nbsp;</strong>If a company earns $0.90 per share and has one million shares outstanding &ndash; reducing those shares to 900,000 will increase earnings per share to $1.00.&nbsp;<strong>No additional revenue was created, no more product was sold, it is simply accounting magic.</strong>&nbsp;<strong>Such activities do not spur economic growth or generate real wealth for shareholders.</strong></p> <p>As noted <a href="http://www.businessinsider.com/stock-market-today-buyback-safety-net-failing-due-to-high-valuations-2017-9" rel="noopener" target="_blank">by Business Insider</a>&nbsp;that strategy deployed to boost share prices since the financial crisis is on the decline.</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p><em>&ldquo;Spending on buybacks, however, has slipped over the past six months. Investment-grade-rated corporations repurchased $64 billion worth of stock in the second quarter, down from $84 billion in the fourth quarter of 2016, according to data compiled by Bank of America Merrill Lynch.</em></p> <p>&nbsp;</p> <p><em>The decline puts added pressure on the stock market, which has become accustomed to buybacks pushing shares higher during lean times when real fundamental catalysts aren&rsquo;t present.&rdquo;</em></p> </blockquote> <p><a href="http://realinvestmentadvice.com/wp-content/uploads/2017/09/screen-shot-2017-09-14-at-45524-pm.png"><img class="alignnone size-full wp-image-23739" src="http://realinvestmentadvice.com/wp-content/uploads/2017/09/screen-shot-2017-09-14-at-45524-pm.png" style="width: 600px; height: 457px;" /></a></p> <p>Like margin debt, exuberance and valuations, investors have little need to worry about the decline in share buybacks in the short-term.</p> <p>As BI concludes:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p><span style="color: #993300;"><em>&ldquo;The real test will come at the first sign of downward turbulence.&rdquo;</em></span></p> </blockquote> <h2><u>If They Don&rsquo;t &ldquo;Buy &amp; Hold&rdquo; &ndash; Why Should You?</u></h2> <p>Of course, these are just&nbsp;<em>&ldquo;warning signs.&rdquo;</em>&nbsp;None them suggest that the markets, or the economy, are immediately plunging into the next recession-driven market reversion.</p> <p><strong>But they are warning signs nonetheless</strong>. Past experience suggests that future returns are likely to be far less than historical averages suggest. Furthermore, there is a dramatic difference between investing for 30 years, and whatever time you personally have left to your financial goals.</p> <p>While much of the mainstream media suggests that you&nbsp;<em>&ldquo;invest for the long-term&rdquo;</em>&nbsp;and&nbsp;<em>&ldquo;buy and hold&rdquo;</em>&nbsp;regardless of what the market brings, that is not what professional investors are doing.</p> <p>The point here is simple. <strong><a href="https://realinvestmentadvice.com/spot-whats-missing-investing-wisdoms/" rel="noopener" target="_blank">No professional, or successful investor,</a> every bought and held for the long-term without regard, or respect, for the risks that are undertaken.</strong> If the professionals are looking at <em>&ldquo;risk,&rdquo;</em> and planning on how to protect their capital from losses when things go wrong, then why aren&rsquo;t you?</p> <p>Exactly how many warnings do you need?</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="696" height="319" alt="" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/20170920_ria.jpg?1505995883" /> </div> </div> </div> http://www.zerohedge.com/news/2017-09-21/exactly-how-many-warnings-do-you-need#comments Bank of America Bank of America Bureau of the Census Business Census Bureau Consumer Sentiment Corporate finance David Rosenberg Deutsche Bank Duration Mismatch Economy Finance Financial ratios Fundamental analysis Gallup Gluskin Sheff Investment Jim Reid Market Crash Market sentiment Market Timing Merrill Merrill Lynch Michigan Monetary Policy Money None post-1950 Price–earnings ratio Recession Rosenberg S&P 500 Stock Stock market the University of Michigan University Of Michigan University of Michigan Valuation Volatility Thu, 21 Sep 2017 12:12:41 +0000 Tyler Durden 603900 at http://www.zerohedge.com "So What Did We Learn From Yellen?": Deutsche, Goldman Explain http://www.zerohedge.com/news/2017-09-21/so-what-did-we-learn-yellen-deutsche-goldman-explain <p>For those still unsure what Yellen's rambling, disjointed press conference meant yesterday, or are still in shock over the Fed's admitted confusion by the "mystery" that is inflation, here is a quick recap courtesy of Deutsche Bank and Goldman, explaining what we (probably) learned from the Fed and Yellen yesterday.</p> <p><em>First, here is DB's Jim Reid:</em></p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>So what did we learn from the Fed and Yellen last night? Firstly we learnt that stopping reinvestment is a sideshow for now and that the market still cares more about the probability of a December hike and where the Fed thinks inflation is heading. Just briefly on the balance sheet run-off, they have committed to the plan from the June meeting of $10bn per month ($6bn USTs and $4bn Mortgages) with an incremental increase every 3 months until we get to $50bn. <strong>However on the rates and inflation outlook the committee and Yellen were on the hawkish side. As DB's Peter Hooper discusses in his note, barring negative surprises in the months just ahead, the Fed is on track to raise rates once more this year and three times in 2018</strong>. Yellen recognised that inflation has been running low recently but put a higher blame on one-off factors than was perhaps anticipated. At the same time she noted that monetary policy operates with a lag and that labour market tightness will eventually push inflation up. </p> <p>&nbsp;</p> <p>The complication for markets though is that <strong>beyond 2017, the FOMC will see a huge upheaval in its membership which could easily mean current member's thoughts are meaningless in a few months time and also that Mr Trump's fiscal plans (or lack of them) have the ability to completely change the debate</strong>. So its difficult to read too much into the current FOMC's forecasts. However for now December is very much live with the probability of a December rate hike moving from a shade under 50% to 64% by the US close (using Bloomberg's calculator).</p> </blockquote> <p>Here are three additional takeaways from DB's Peter Hooper: </p> <ol> <li><strong> Inflation: </strong>Yellen emphasized in her statement and in answers to questions<br /> that, barring negative surprises in the months just ahead, the Fed is on<br /> track to raise rates once more this year and three times in 2018. She<br /> recognized that inflation has been running low recently, and that while<br /> there was some uncertainty around this performance, one-off factors that<br /> are not expected to persist, and which have not been associated with the<br /> performance of the broader economy, have been important. At the same<br /> time, Yellen noted that monetary policy operates with a lag and that labor<br /> market tightness will eventually push inflation up. The Fed wants to avoid<br /> having to tighten policy aggressively to deal with an inflation problem and<br /> thereby cause a recession. The current low level of inflation allows the<br /> Fed to move relatively slowly and cautiously. At the same time, as Yellen<br /> noted a couple times, the labor market has continued to tighten at an<br /> impressive pace, well above the pace needed to stabilize unemployment.<br /> With unemployment already below NAIRU and expected to fall further, it<br /> is seen as prudent to make further progress in a tightening direction. </li> <li><strong>Balance sheet versus fed funds rate: </strong>The preferred monetary policy tool, if<br /> needed, is the fed funds target. Yellen stated clearly several times during<br /> the press conference that balance sheet rundown will not be stopped or<br /> reversed unless the economy takes enough of a significant hit to cause<br /> the FOMC to move the fed funds rate back close to zero. </li> <li><strong>Regulation and who will be the next Chair: </strong>When asked what message she<br /> had meant to give the Administration and Congress in her Jackson Hole<br /> speech, Yellen said first that it was important to keep in place progress that had been made in strengthening the financial system via enhanced<br /> capital and liquidity requirements, stress testing, and resolution plans.<br /> But she also emphasized that regulators should look for ways to ease<br /> excessive regulatory burden and simplify standards where appropriate.<br /> She seemed to give proportionately more time to the second part of this<br /> message in her answer today than she did in her Jackson Hole speech.<br /> She also noted that she would welcome and work very well with the new<br /> Vice Chair for regulation, Randall Quarles, if his appointment is approved<br /> by the Senate. And she gave a fairly accommodative answer to a question<br /> about the burden that the slow progress in getting vacant governor seats<br /> filled (especially following Vice Chairman Fischer’s departure) imposes<br /> on the Board. Finally, she gave a relatively gentle answer to a question<br /> about fiscal policy (suggesting it would be desirable to make progress on<br /> measures that would support productivity growth). Summing up Yellen’s<br /> various comments in these areas, it strikes us that this is a person who<br /> would accept a second term as Fed chair if the Administration chooses<br /> to move in that direction. </li> </ol> <p>Finally, here is a Q&amp;A from Goldman's Jan Hatzius, who now gives 75% odds to a December rate hike:</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><strong>Q: Will the FOMC hike the funds rate in December? </strong></p> <p>&nbsp;</p> <p>A: Yes, probably. Fully 12 out of 16 FOMC participants—the same number as in June and almost certainly including the leadership—think another hike this year looks appropriate. Given the calendar, this amounts to fairly strong forward guidance for a December hike. Consistent with this, the committee upgraded the 2017 growth outlook from 2.2% to 2.4% and lowered the 2018-2019 unemployment forecast from 4.2% to 4.1%. And Chair Yellen again downplayed the significance of the weak core inflation data this year, saying that this “primarily reflects developments that are largely unrelated to broader economic conditions” and “as long as inflation expectations remain reasonably well anchored [these developments] are not a concern because their effects fade away.” Given this relatively strong message, we have increased our subjective probability of a hike in December from 60% before the meeting to 75% now. A hike is not assured, but we would now probably need a meaningful downside surprise in the inflation data relative to the Fed’s reduced expectations and/or a big market deterioration to forestall it. </p> <p>&nbsp;</p> <p><strong>Q: Was the longer-term message similarly hawkish? </strong></p> <p>&nbsp;</p> <p>A: No, on the contrary. <strong>The longer-term dots moved down by more than we (and we think most others) expected</strong>. The median pace of hikes was unchanged at three for 2018 but fell to just over two in 2019, and the longer term funds rate came down from 3% to 2.75%. Again, these moves were consistent with the message from Chair Yellen in the press conference. <strong>She said that the neutral real federal funds rate, r*, had fallen substantially and was likely to remain low, rising only to 0.75% in the longer term. </strong>And she also said that the risks to the (actual) path of the funds rate relative to the modal forecasts in the dot plot were tilted to the downside, rationalizing the very depressed market-implied path of the funds rate, at least in part.</p> <p>&nbsp;</p> <p><strong>Q: If the message was so mixed, why did the bond market take today’s news as clearly hawkish across the yield curve?</strong></p> <p>&nbsp;</p> <p>A: Three reasons. First, the dots represent a form of forward guidance in the near term—especially this late in the year, when a 2017 hike would almost certainly occur in December—but are only an opinion in the longer term, albeit a well-informed one. Second, the committee will see a substantial amount of turnover in coming years, and new participants could come with very different views. <strong>And third, the dots remain considerably above market pricing, even after Wednesday's downward revisions.</strong></p> <p>&nbsp;</p> <p><strong>Q: Are you lowering your own longer-term funds rate projections along with the FOMC?</strong></p> <p>&nbsp;</p> <p>A: No, we have kept our working estimate of the terminal funds rate at 3¼%-3½% in nominal terms and 1¼%-1½% in real terms. We are more skeptical than the committee that the notion of a depressed neutral funds rate is a useful concept for predicting monetary policy in the medium and longer term. It may well be that r* will remain below the historical norm, and our projections do, in fact, build that in to some degree. There is a solid economic rationale for the idea that lower potential GDP growth should imply a lower equilibrium interest rate. But while the idea is intuitive, the empirical support for it is weak—much weaker than assumed in the well-known Laubach-Williams model of equilibrium interest rates as well as large swaths of the current macroeconomic debate. So we would put less weight on that link in projecting interest rates several years into the future, and more weight on the historical average real rate of about 2%.</p> <p>&nbsp;</p> <p><strong>Q: Any surprises on balance sheet normalization?</strong></p> <p>&nbsp;</p> <p>A: Not as far as the near term is concerned, but Chair Yellen indicated that the hurdle for stopping balance sheet rolloff is very high indeed. Our read of her discussion in the Q&amp;A was that full reinvestment would only resume once the committee had cut the funds rate back to the effective lower bound. This would be consistent with a sentence from the March 2017 FOMC minutes that read: “A number of participants indicated that the Committee should resume asset purchases only if substantially adverse economic circumstances warranted greater monetary policy accommodation than could be provided by lowering the federal funds rate to the effective lower bound.” In the March 2017 minutes, this view was still contrasted with an alternative view held by “some” that reinvestment should resume before the committee returned to rate cuts. But Yellen’s comment today suggests that at least the current FOMC thinks balance sheet normalization is now truly on “autopilot”, barring a very bad economic outcome.</p> </blockquote> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="780" height="439" alt="" src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/yellen%20thinking%202_8.jpg?1505995522" /> </div> </div> </div> http://www.zerohedge.com/news/2017-09-21/so-what-did-we-learn-yellen-deutsche-goldman-explain#comments Banking Bond Business Congress Deutsche Bank Economy Fed Funds Target Federal funds rate Federal Open Market Committee Federal Reserve System Inflation Interest rates Jan Hatzius Jim Reid Macroeconomics Monetary Policy Monetary policy Money Real interest rate Recession Recession Senate Unemployment Yield Curve Thu, 21 Sep 2017 12:05:29 +0000 Tyler Durden 603899 at http://www.zerohedge.com South Korea Unexpectedly Approves Aid To Pyongyang As North Korea Calls Trump "Barking Dog" http://www.zerohedge.com/news/2017-09-21/south-korea-unexpectedly-approves-aid-pyongyang-north-korea-calls-trump-barking-dog <p>There is no love lost in the endlessly escalating war of words and delightful soundbites between Trump and North Korea, and after the President threatened to “totally destroy” North Korea, the country's foreign minister said <strong>Trump's UN speech amounted to “the sound of a dog barking,” adding that Trump’s warnings are just a nonsensical “dog dream."</strong></p> <p><strong>“If he was thinking he could scare us with the sound of a dog barking, that's really a dog dream,” </strong>North Korean Foreign Minister Ri Yong-ho told reporters in New York on Wednesday, as cited by the Yonhap news agency. Along with other world diplomats, Ri was in New York to attend the UN General Assembly. In his debut speech to the UN on Tuesday, Trump vowed to "totally destroy" North Korea if the US was forced to defend its allies. Referring North Korean leader Kim Jong Un by a nickname he first used in in a tweet Sunday, Trump said: "Rocket man is on a suicide mission for himself and for his regime."</p> <p>Responding to Trump’s new nickname for North Korean leader Kim Jong-un, 'Rocket Man', Ri said: “<strong>I feel sorry for his aides.”</strong></p> <p>North Korean diplomats were not present for Trump's speech.</p> <p>According to <a href="http://www.cnn.com/2017/09/21/politics/north-korea-donald-trump-united-nations/index.html">CNN</a>, US Secretary of State Rex Tillerson, who is also in New York, played down the possibility of a meeting with his North Korean counterpart. Pyongyang and Washington do not maintain formal diplomatic relations and the presence of North Korea's top diplomat in the US could have afforded a rare chance for high-level, face-to-face dialogue.</p> <p>Tillerson told reporters he did not believe he could have a "matter-of-fact discussion with North Korea because we don't know how their means of communication and behavior will be.</p> <p>Tillerson claimed there were signs that increased international pressure on North Korea was starting to bear fruit. He said there was evidence of fuel shortages in the country after the passage of recent UN sanctions, which targeted oil imports among other things. However, analysts pointed out that fuel shortages did not necessarily prove that sanctions were having an effect, as most North Koreans don't own cars or use fuel at anywhere near the rate of the rest of the world.</p> <p>Separately, Trump is scheduled to meet with Japanese Prime Minister Shinzo Abe and South Korean President Moon Jae-in Thursday, two important US allies on North Korea's doorstop. On the top of the agenda is likely to be South Korea's surprise decision to send an $8 million aid package to North Korea. According to <a href="https://www.reuters.com/article/us-northkorea-missiles-minister/south-korea-approves-aid-to-north-korea-north-calls-trump-barking-dog-idUSKCN1BW08B">Reuters</a>, the move, which runs contrary to the US and Japan's calls for an increase in economic and diplomatic pressure, marks a resumption in South Korean aid after a break of almost two years.</p> <p>The South said it planned to send $4.5 million worth of medical treatments, nursery facilities and nutritional products for children and pregnant women through the World Food Programme, and $3.5 million worth of medicinal treatments and nutritional products through UNICEF.</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>"We have consistently said we would pursue humanitarian aid for North Korea in consideration of the poor conditions children and pregnant women are in there, apart from political issues,” said Unification Minister Cho Myong-gyon. </p> <p>&nbsp;</p> <p>UNICEF’s regional director for East Asia and the Pacific Karin Hulshof said in a statement before the decision the problems North Korean children face “are all too real”. </p> <p>&nbsp;</p> <p>“Today, we estimate that around 200,000 children are affected by acute malnutrition, heightening their risk of death and increasing rates of stunting,” Hulshof said. “Food and essential medicines and equipment to treat young children are in short supply,” she said.</p> </blockquote> <p>However as Reuters adds, the decision to send aid to North Korea "was not popular in South Korea, hitting President Moon Jae-in’s approval rating. It also raised concerns in Japan and the United States, and followed new U.N. sanctions against North Korea over its sixth nuclear test earlier this month." </p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>South Korea’s efforts aimed at fresh aid for North Korea dragged down Moon’s approval rating. Realmeter, a South Korean polling organization, said on Thursday Moon’s approval rating stood at 65.7 percent, weakening for a fourth straight month.</p> </blockquote> <p>The last time the South had sent aid to the North was in December 2015 through the United Nations Population Fund (UNFPA) under ex-president Park Geun-hye.</p> <p>Meanwhile, Chinese Foreign Minister Wang Yi said the situation on the Korean peninsula was getting more serious by the day and could not be allowed to spin out of control. “We call on all parties to be calmer than calm and not let the situation escalate out of control,” Wang said, according to a report from the state-run China News Service on Thursday.</p> <p>Meeting separately with his South Korean counterpart, Kang Kyung-wha, Wang reiterated a call for South Korea to remove the U.S.-built THAAD anti-missile system, which China says is a threat to its own security. “China hopes South Korea will make efforts to reduce tension,” a report on China’s official Xinhua news agency quoted Wang as saying.</p> <p></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="900" height="500" alt="" src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/59c37d55fc7e934e568b4567.jpg?1505994261" /> </div> </div> </div> http://www.zerohedge.com/news/2017-09-21/south-korea-unexpectedly-approves-aid-pyongyang-north-korea-calls-trump-barking-dog#comments China East Asia Foreign policy of the Donald Trump administration Forms of government Government Japan KIM Kim dynasty Kim Jong-un Moon Jae-in North Korea North Korea crisis Park Geun-hye Politics Presidents of South Korea Reuters Rex Tillerson Rex Tillerson South Korea state-run China News Service UN General Assembly Unification United Nations United Nations International Children's Emergency Fund United Nations Population Fund World Food Programme Thu, 21 Sep 2017 11:53:39 +0000 Tyler Durden 603898 at http://www.zerohedge.com Gold Investment "Compelling" As Fed May "Kill The Business Cycle" http://www.zerohedge.com/news/2017-09-21/gold-investment-compelling-fed-may-kill-business-cycle <p style="color: #333333; font-family: Georgia, &quot;Times New Roman&quot;, &quot;Bitstream Charter&quot;, Times, serif; font-size: 16px;"><strong><a href="http://www.goldcore.com/us/gold-blog/gold-investment-compelling-fed-may-kill-business-cycle/">Gold Investment "Compelling" As Fed Likely To Create Next Recession</a></strong></p> <p style="color: #333333; font-family: Georgia, &quot;Times New Roman&quot;, &quot;Bitstream Charter&quot;, Times, serif; font-size: 16px;"><strong>- Is the Fed about to kill the business cycle?<br />- 16 out of 19 rate-hike cycles in past 100 years ended in recession<br />-&nbsp;Total global debt at all time high - see chart<br />- Global debt is 327% of world GDP - ticking timebomb...<br />-&nbsp;Gold has beaten the market (S&amp;P 500) so far this century<br />- Safe haven demand to increase on debt and equity risk<br />-&nbsp;Gold looks very cheap compared to overbought markets<br />- Important to diversify into safe haven gold now</strong></p> <p style="color: #333333; font-family: Georgia, &quot;Times New Roman&quot;, &quot;Bitstream Charter&quot;, Times, serif; font-size: 16px; text-align: center;"><a href="http://www.goldcore.com/ie/wp-content/uploads/sites/19/2017/09/gold-investment-debt.jpg"><img src="http://www.goldcore.com/ie/wp-content/uploads/sites/19/2017/09/gold-investment-debt.jpg" width="424" height="94" style="height: auto; max-width: 100%; display: block; margin-left: auto; margin-right: auto;" class="aligncenter wp-image-11611" /></a></p> <p style="color: #333333; font-family: Georgia, &quot;Times New Roman&quot;, &quot;Bitstream Charter&quot;, Times, serif; font-size: 16px;"><strong>by Frank Holmes via Gold.org</strong></p> <div id="rich-introduction" class=" with-authors clearfix rich-introduction no-introduction" style="color: #333333; font-family: Georgia, &quot;Times New Roman&quot;, &quot;Bitstream Charter&quot;, Times, serif; font-size: 16px;"> <p>Global debt levels have reached unprecedented levels, pension deficits are rising and the US interest rate cycle is on the turn.&nbsp;<strong>Frank Holmes</strong>, chief executive of highly regarded investment management group US Global Investors, believes that investing in gold is a logical response to current, unnerving conditions.</p> <p>For centuries, investors and savers have depended on gold in times of economic and political strife, and its investment case right now is as compelling as it’s ever been.</p> </div> <div class="gi-sub-page-section index-0 border_above copy_above" style="color: #333333; font-family: Georgia, &quot;Times New Roman&quot;, &quot;Bitstream Charter&quot;, Times, serif; font-size: 16px;"> <div class="text-placeholder"> <p><img src="https://www.gold.org/sites/default/files/images/content_shutterstock_351882113_rgb_custom.jpg" style="height: auto; max-width: 100%;" /></p> <p>As I write this, gold is trading above US$1,330 an ounce after a strong rally that took the metal to its highest levels since August 2016. Tensions over North Korea, a weakening US dollar, political uncertainty in Washington, an overvalued US stock market, surging public and private debt and negative interest rates around the world have all boosted demand for gold as a reliable and time-tested store of value.</p> <p>I often refer to this as the ‘Fear Trade.’ For centuries, investors and savers have depended on gold in times of economic and political strife, and its investment case right now is as compelling as it’s ever been.</p> <p>Let’s look at debt for the moment. Most market-watchers are aware that US government debt currently stands at just under US$20 trillion, an unfathomably large figure that will only continue to climb as the interest compounds.</p> </div> <div class="html-embed"> <p><strong>Chart 1: A Ticking Time Bomb?</strong></p> <p>U.S. Total debt balance in Trillions of dollars</p> <p><img src="https://www.gold.org/sites/all/themes/gold/rev/1.2/gi-charts/2017-sep/svg-exports/chart-1-ticking-time-bomb-revision.svg" style="height: auto; max-width: 100%;" class="svg-chart large" /></p> <p>Source: New York Fed Consumer Credit Panel, Equifax, U.S. Global Investors</p> </div> </div> <div class="gi-sub-page-section index-1 border_above copy_above" style="color: #333333; font-family: Georgia, &quot;Times New Roman&quot;, &quot;Bitstream Charter&quot;, Times, serif; font-size: 16px;"> <div class="text-placeholder"> <p><img src="https://www.gold.org/sites/default/files/images/content_shutterstock_267944789_words_rgb_custom.jpg" style="height: auto; max-width: 100%;" /></p> <p>Worrying as this is, it doesn’t take into account other forms of debt that I believe pose an even greater risk to capital markets. US household debt, which includes mortgages, auto loans, credit cards and the like, reached a mind-boggling $12.73 trillion in the first quarter of 2017, according to the Federal Reserve Bank of New York. That’s $150 billion more than the end of 2016 and $50 billion above the previous peak set in 2008.</p> <p>Even more worrisome is the fact that the number of delinquencies grew for the second straight quarter this year, as more income-strapped Americans binged on credit. As we all remember, this is what ultimately burst the housing bubble only 10 years ago.</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>Total&nbsp;<em>global</em>&nbsp;debt levels reached an astronomical US$217 trillion in the first quarter – that’s&nbsp;<em>327%</em>&nbsp;of world GDP.</p> </blockquote> <p>But let’s not stop there. According to the highly-respected Institute of International Finance (IIF), total global debt levels reached an astronomical $217 trillion in the first quarter—that’s 327 percent of world gross domestic product (GDP). Note that before the financial crisis, global debt was “only” around $150 trillion, meaning we’ve added close to $70 trillion in as little as a decade. Much of the leveraging occurred in emerging markets, specifically China, which is spending big on domestic and international infrastructure projects. Some are calling this mountain of debt “the mother of all bubbles” or “the everything bubble.”</p> <p>Paying down this debt will not be easy, whatever you call it.</p> <p>The situation is aggravated because global pension levels are sharply on the rise. People are living and drawing pensions for longer periods of time and birth rates are in decline in many advanced economies, so there aren’t enough new workers to help pay for those pensions. In May, the World Economic Forum (WEF) estimated that by 2050, the size of the retirement savings gap—unfunded pensions, in other words—could grow to as much as $400 trillion. The US alone adds about $3 trillion every year to the pension deficit.</p> </div> <div class="html-embed"> <p><strong>Chart 2: Total global debt stands at all-time high</strong></p> <p>In trillions of dollars, first quarter of each year</p> <p><img src="https://www.gold.org/sites/all/themes/gold/gi-charts/2017-sep/svg-exports/chart-2-total-global-debt.svg" style="height: auto; max-width: 100%;" class="svg-chart large" /></p> <p>Source: IIF, BIS, Haver, U.S. Global Investors</p> </div> </div> <div class="gi-sub-page-section index-2 border_above copy_above" style="color: #333333; font-family: Georgia, &quot;Times New Roman&quot;, &quot;Bitstream Charter&quot;, Times, serif; font-size: 16px;"> <div class="text-placeholder"> <blockquote> <div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>I’ve always recommended a 10% weighting in gold – 5% in bullion, the other 5% in quality gold stocks, mutual funds and ETFs.</p> </blockquote> <p>Central banks’ efforts to promote economic growth through monetary easing haven’t exactly been a raging success, nor can they continue on this path forever. Plus, near-zero interest rates are precisely what encouraged such inflated leveraging in the first place.</p> <p>You can probably tell where I’m headed with all of this. Savvy investors and savers might very well see current imbalances as a sign to shift part of their portfolio out of risk assets and into gold and other safe haven investments. I’ve always recommended a 10 percent weighting in gold—5 percent in bullion, the other 5 percent in quality gold stocks, mutual funds and ETFs.</p> </div> </div> <div class="gi-sub-page-section index-3 border_above copy_above" style="color: #333333; font-family: Georgia, &quot;Times New Roman&quot;, &quot;Bitstream Charter&quot;, Times, serif; font-size: 16px;"> <div class="text-placeholder"> <p><strong>Is the Fed about to kill the business cycle?</strong></p> <p><img src="https://www.gold.org/sites/default/files/images/content_shutterstock_320846243_rgb_custom.jpg" style="height: auto; max-width: 100%;" /></p> <p>Gold’s investment case becomes even more compelling when we consider the US Federal Reserve’s (the Fed’s) next moves—specifically hiking interest rates and reducing its balance sheet. Both actions have historically preceded recessions, according to 100 years’ worth of data.</p> <p>It’s common knowledge that the Fed is actively in the process of gradually raising rates but a significant adjustment to its balance sheet is also coming sooner than many anticipated. In a recent address to the Economic Club of Las Vegas, President and CEO of the Federal Reserve Bank of San Francisco John Williams said the Fed is likely to begin normalising monetary policy as soon as the fall. This includes unwinding its $4.5 trillion balance sheet, composed of long-term Treasuries and mortgage-backed securities (MBS). The process could take up to four years to complete.</p> <p>As I said, this poses a real risk for investors. According to financial management firm Incrementum Capital Partners, 16 out of 19 rate-hike cycles in the past 100 years ended in recession. The results were the same in five of the six times the Fed reduced its balance sheet, according to research firm MKM Partners.</p> <p>“Business cycles don’t just end accidentally,” says MKM’s chief economist Mike Darda. “They are killed by the Fed. If the Fed tightens enough to induce a recession, that’s the end of the business cycle.”</p> <p>This is where that 10 percent in gold would come in especially handy. Gold has historically shared a very low to negative correlation with stocks. Consider 2008, the height of the financial crisis: US stocks ended the year down more than 37 percent, while gold held its value, returning 3.4 percent.</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>Gold’s investment case becomes even more compelling when we consider the US Federal Reserve’s next moves.</p> </blockquote> </div> </div> <div class="gi-sub-page-section index-4 border_above copy_above" style="color: #333333; font-family: Georgia, &quot;Times New Roman&quot;, &quot;Bitstream Charter&quot;, Times, serif; font-size: 16px;"> <div class="text-placeholder"> <p><strong>Gold has beaten the market so far this century</strong></p> <p>The current equity bull market, now in its eighth year, is one of the longest in US history—it could very well become the longest. Even so, gold has outperformed the S&amp;P 500 so far this century, returning 86 percent more than the market if we index both asset classes at 100 on December 31, 1999. Over the past 17 years, the S&amp;P 500 has undergone two major contractions. Gold, meanwhile, has held its value well, highlighting its appeal as a portfolio diversifier.</p> <p>Gold also looks very cheap compared to markets that are highly overbought at the moment. North Korea fears notwithstanding, major averages are regularly hitting fresh all-time highs. As such, the gold-to-S&amp;P 500 ratio is near 10-year lows, meaning the yellow metal is extremely undervalued.</p> <p>It’s worth noting too, that the stock market rally has been propelled disproportionately by only a handful of tech stocks, such as Apple, Amazon, Facebook and Alphabet. As of August 1, the S&amp;P 500 was up 10.5 percent year-to-date, but if information technology stocks were removed, the index was up around 7.5 percent, a significant difference.</p> <p>That so few stocks have contributed so much makes the market particularly vulnerable, should those stocks see a major correction. It also underscores the need to diversify into safe haven assets, such as gold.</p> </div> <div class="html-embed"> <p><strong>Chart 3: Gold has beaten the market so far this century</strong></p> <p>Gold and S&amp;P 500. Indexed at 100 December 31, 1999, as of July 31, 2017</p> <p><img src="https://www.gold.org/sites/all/themes/gold/gi-charts/2017-sep/svg-exports/chart-3-gold-price-beaten.svg" style="height: auto; max-width: 100%;" class="svg-chart large" /></p> <p>Past performance does not guarantee future results.<br />Source: Bloomberg; U.S. Global Investors via Gold.org</p> </div> </div> <p style="color: #333333; font-family: Georgia, &quot;Times New Roman&quot;, &quot;Bitstream Charter&quot;, Times, serif; font-size: 16px;"><strong><a href="https://www.gold.org/research/gold-investor/gold-investor-september-2017/gold-trade-intensifies-on-debt-and-equity-risk" target="_blank">Courtesy of Gold.org</a></strong></p> <p style="color: #333333; font-family: Georgia, &quot;Times New Roman&quot;, &quot;Bitstream Charter&quot;, Times, serif; font-size: 16px;"><strong>News and&nbsp;Commentary</strong></p> <p style="color: #333333; font-family: Georgia, &quot;Times New Roman&quot;, &quot;Bitstream Charter&quot;, Times, serif; font-size: 16px;"><strong><a href="http://www.marketwatch.com/story/gold-slides-below-1300-after-feds-rate-hike-hint-2017-09-21">Gold slides below $1,300 after Fed’s rate-hike hint (MarketWatch.com)</a></strong></p> <p style="color: #333333; font-family: Georgia, &quot;Times New Roman&quot;, &quot;Bitstream Charter&quot;, Times, serif; font-size: 16px;"><strong><a href="https://www.dailyfx.com/forex/fundamental/daily_briefing/daily_pieces/commodities/2017/09/21/Crude-Oil-Price-Hit-4-Month-High-Gold-Drops-on-FOMC-Outcome.html">Crude Oil Price Hit 4-Month High, Gold Drops on FOMC Outcome (DailyFX.com)</a></strong></p> <p style="color: #333333; font-family: Georgia, &quot;Times New Roman&quot;, &quot;Bitstream Charter&quot;, Times, serif; font-size: 16px;"><strong><a href="http://www.reuters.com/article/global-precious/precious-gold-falls-1-pct-hits-3-week-low-after-fed-statement-idUSL5N1M12MI">Gold falls 1 pct, hits 3-week low after Fed statement (Reuters.com)</a></strong></p> <p style="color: #333333; font-family: Georgia, &quot;Times New Roman&quot;, &quot;Bitstream Charter&quot;, Times, serif; font-size: 16px;"><strong><a href="https://www.cnbc.com/2017/09/20/fed-approves-october-reversal-of-historic-stimulus-leaves-rates-unchanged.html">Fed approves October reversal of historic stimulus, leaves rates unchanged (CNBC.com)</a></strong></p> <p style="color: #333333; font-family: Georgia, &quot;Times New Roman&quot;, &quot;Bitstream Charter&quot;, Times, serif; font-size: 16px;"><strong><a href="http://www.reuters.com/article/us-usa-fed/fed-keeps-rates-steady-approves-portfolio-cuts-in-october-idUSKCN1BV0GJ?il=0">Fed keeps rates steady, approves portfolio cuts in October (Reuters.com)</a></strong></p> <p style="color: #333333; font-family: Georgia, &quot;Times New Roman&quot;, &quot;Bitstream Charter&quot;, Times, serif; font-size: 16px;"><a href="http://www.goldcore.com/ie/wp-content/uploads/sites/19/2017/09/total-gold-debt.png" target="_blank"><img src="http://www.goldcore.com/ie/wp-content/uploads/sites/19/2017/09/total-gold-debt.png" width="1474" height="906" style="height: auto; max-width: 100%;" /></a>&nbsp;Total global debt stands at all-time high. Source: Source: IIF, BIS, Haver, U.S. Global Investors</p> <p style="color: #333333; font-family: Georgia, &quot;Times New Roman&quot;, &quot;Bitstream Charter&quot;, Times, serif; font-size: 16px;"><strong><a href="https://www.gold.org/research/gold-investor/gold-investor-september-2017/gold-trade-intensifies-on-debt-and-equity-risk">Gold’s Investment Case "Compelling" As Fed Likely To Create Next Recession - Holmes (Gold.org)</a></strong></p> <p style="color: #333333; font-family: Georgia, &quot;Times New Roman&quot;, &quot;Bitstream Charter&quot;, Times, serif; font-size: 16px;"><strong><a href="https://sputniknews.com/business/201709201057560325-who-manipulates-gold-prices/">'Secret Monetary Policy': Who Manipulates Gold Prices and Why (SputnikNews.com)</a></strong></p> <p style="color: #333333; font-family: Georgia, &quot;Times New Roman&quot;, &quot;Bitstream Charter&quot;, Times, serif; font-size: 16px;"><strong><a href="http://stansberrychurchouse.com/cryptocurrencies/bit-bugs-new-gold-bugs/">How “Bit Bugs” Are The New Gold Bugs (StansBerrychurcHouse.com)</a></strong></p> <p style="color: #333333; font-family: Georgia, &quot;Times New Roman&quot;, &quot;Bitstream Charter&quot;, Times, serif; font-size: 16px;"><strong><a href="https://www.bloomberg.com/news/articles/2017-09-19/norway-wealth-fund-says-reached-1-trillion-in-value">World’s Biggest Wealth Fund Hits $1 Trillion (Bloomberg.com)</a></strong></p> <p style="color: #333333; font-family: Georgia, &quot;Times New Roman&quot;, &quot;Bitstream Charter&quot;, Times, serif; font-size: 16px;"><strong><a href="https://bonnerandpartners.com/america-is-going-broke-and-nobody-cares/">America Is Going Broke… and Nobody Cares (BonnerAndPartners.com)</a></strong></p> <p style="color: #333333; font-family: Georgia, &quot;Times New Roman&quot;, &quot;Bitstream Charter&quot;, Times, serif; font-size: 16px;"><strong>Gold Prices (LBMA AM)</strong></p> <p style="color: #333333; font-family: Georgia, &quot;Times New Roman&quot;, &quot;Bitstream Charter&quot;, Times, serif; font-size: 16px;">21 Sep: USD 1,297.35, GBP 960.56 &amp; EUR 1,089.00 per ounce<br />20 Sep: USD 1,314.90, GBP 970.53 &amp; EUR 1,094.79 per ounce<br />19 Sep: USD 1,308.45, GBP 969.30 &amp; EUR 1,091.25 per ounce<br />18 Sep: USD 1,314.40, GBP 970.16 &amp; EUR 1,100.68 per ounce<br />15 Sep: USD 1,325.00, GBP 977.32 &amp; EUR 1,109.16 per ounce<br />14 Sep: USD 1,323.00, GBP 1,002.44 &amp; EUR 1,111.58 per ounce<br />13 Sep: USD 1,332.25, GBP 1,003.85 &amp; EUR 1,112.43 per ounce</p> <p style="color: #333333; font-family: Georgia, &quot;Times New Roman&quot;, &quot;Bitstream Charter&quot;, Times, serif; font-size: 16px;"><strong>Silver Prices (LBMA)</strong></p> <p style="color: #333333; font-family: Georgia, &quot;Times New Roman&quot;, &quot;Bitstream Charter&quot;, Times, serif; font-size: 16px;">21 Sep: USD 16.95, GBP 12.58 &amp; EUR 14.24 per ounce<br />20 Sep: USD 17.38, GBP 12.84 &amp; EUR 14.48 per ounce<br />19 Sep: USD 17.15, GBP 12.70 &amp; EUR 14.31 per ounce<br />18 Sep: USD 17.53, GBP 12.94 &amp; EUR 14.66 per ounce<br />15 Sep: USD 17.70, GBP 13.03 &amp; EUR 14.81 per ounce<br />14 Sep: USD 17.75, GBP 13.40 &amp; EUR 14.91 per ounce<br />13 Sep: USD 17.91, GBP 13.50 &amp; EUR 14.94 per ounce</p> <p style="color: #333333; font-family: Georgia, &quot;Times New Roman&quot;, &quot;Bitstream Charter&quot;, Times, serif; font-size: 16px;"><strong><br />Recent Market Updates</strong></p> <p style="color: #333333; font-family: Georgia, &quot;Times New Roman&quot;, &quot;Bitstream Charter&quot;, Times, serif; font-size: 16px;"><strong><a href="http://www.goldcore.com/us/gold-blog/next-financial-crisis-will-come-deutsche-bank/">-&nbsp;“This Is Where The Next Financial Crisis Will Come From” – Deutsche Bank</a></strong><br /><strong><a href="http://www.goldcore.com/us/gold-blog/global-debt-bubble-understated-13-trillion-warn-bis/">-&nbsp;Global Debt Bubble Understated By $13 Trillion Warn BIS</a></strong><br /><strong><a href="http://www.goldcore.com/us/gold-blog/bitcoin-price-falls-40-3-days-underlining-golds-safe-haven-credentials/">-&nbsp;Bitcoin Price Falls 40% In 3 Days Underlining Gold’s Safe Haven Credentials</a></strong><br /><strong><a href="http://www.goldcore.com/us/gold-blog/gold-markets-fatigued-war-talk-boils/">-&nbsp;Gold Up, Markets Fatigued As War Talk Boils Over</a></strong><br /><strong><a href="http://www.goldcore.com/us/gold-blog/oil-rich-venezuela-stops-accepting-dollars/">-&nbsp;Oil Rich Venezuela Stops Accepting Dollars</a></strong><br /><strong><a href="http://www.goldcore.com/us/gold-blog/massive-equifax-hack-shows-cyber-risk-deposits-investments-today/">-&nbsp;Massive Equifax Hack Shows Cyber Risk to Deposits and Investments Today</a></strong><br /><strong><a href="http://www.goldcore.com/us/gold-blog/british-people-suddenly-stopped-buying-cars/">-&nbsp;British People Suddenly Stopped Buying Cars</a></strong><br /><strong><a href="http://www.goldcore.com/us/gold-blog/buy-gold-long-term-fiat-money-doomed/">-&nbsp;Buy Gold for Long Term as “Fiat Money Is Doomed”</a></strong><br /><strong><a href="http://www.goldcore.com/us/gold-blog/conor-mcgregor-worth-weight-gold/">-&nbsp;Conor McGregor – Worth His Weight In Gold?</a></strong><br /><strong><a href="http://www.goldcore.com/us/gold-blog/gold-2-weekly-gain18-higher-ytd-trumps-debt-ceiling-deal-hurts-dollar/">-&nbsp;Gold Has 2% Weekly Gain,18% Higher YTD – Trump’s Debt Ceiling Deal Hurts Dollar</a></strong><br /><strong><a href="http://www.goldcore.com/us/gold-blog/things-going-long-goldman-ceo/">-&nbsp;‘Things Have Been Going Up For Too Long’ – Goldman CEO</a></strong><br /><strong><a href="http://www.goldcore.com/us/gold-blog/physical-gold-in-vault-is-true-hedge-of-last-resort-goldman-sachs/">-&nbsp;Physical Gold In Vault Is “True Hedge of Last Resort” – Goldman Sachs</a></strong><br /><strong><a href="http://www.goldcore.com/us/gold-blog/bitcoin-falls-20-mobius-chinese-regulators-warn/">-&nbsp;Bitcoin Falls 20% as Mobius and Chinese Regulators Warn</a></strong></p> <p style="color: #333333; font-family: Georgia, &quot;Times New Roman&quot;, &quot;Bitstream Charter&quot;, Times, serif; font-size: 16px;"><strong>Important&nbsp;<span class="m_-928942620346942956il">Guides</span></strong></p> <p style="color: #333333; font-family: Georgia, &quot;Times New Roman&quot;, &quot;Bitstream Charter&quot;, Times, serif; font-size: 16px;">For your perusal, below are our&nbsp;<span class="m_-928942620346942956m_5033479916755799273m_2111833215933341997il">most</span>&nbsp;<span class="m_-928942620346942956m_5033479916755799273m_2111833215933341997il">popular</span>&nbsp;<span class="m_-928942620346942956m_5033479916755799273m_2111833215933341997il">guides</span>&nbsp;in 2017:</p> <p style="color: #333333; font-family: Georgia, &quot;Times New Roman&quot;, &quot;Bitstream Charter&quot;, Times, serif; font-size: 16px;"><strong><a href="http://t.hsms10.com/e1t/c/*W1sFhNs6QLBySW4Rr0Hl90CHT-0/*N5MhbFRBkTqXW95dlRy194d-P0/5/f18dQhb0S5ft8X-f1rW8cCGTT51FcdHN5s9DSvWrM1ZW3MpzC43frry_W8r4Kht63lH28W1lQSSc8y_DL1W8z_p0c67hcl-W1qMTKP5xLd3bN8zTG51RBdNtW3L39B54P7Fz2W8rCHmp3PnStQVS9p0b63dhWbW8mp0Tc5x5KNkW7-XB_567h1CPW8r5PXz49z-4PN2MV0Xm5w8jDW1mw3yc59SFsZN4H-tjrQC5z2VPC2cV7gvpc4W4XYhBl2y9PQJW4sxqtN7h5hQFW28TbSB2Cg_LLW96LzRy5DkRJDW5BRXXj2y4Lc7N3Kd2SV_-Nf6W3brNsz66rKFTW2xH0xz1lcG1VVQBGcH5DQdGhN22JjmzdPgQwW9464-Y5GFs9DW4Rj6Nh6BzJrnN45Ly2MkwRN4W8qYMH51FnsVDW2X9_p02MVHnbN2GZdYq215_BW1J7MZd3mgJK7W4F32xR1JjtM5W4Bn5JG3ZzLH2W5jL56q7dkHC7W3VtW1b1MWhN-W1MKd944yqBfl111" target="_blank">Essential&nbsp;<span class="m_6690301754972839650m_5033479916755799273m_2111833215933341997il"><span class="m_6690301754972839650il">Guide</span></span>&nbsp;To Storing Gold In Switzerland</a></strong></p> <p style="color: #333333; font-family: Georgia, &quot;Times New Roman&quot;, &quot;Bitstream Charter&quot;, Times, serif; font-size: 16px;"><strong><a href="http://t.hsms10.com/e1t/c/*W1sFhNs6QLBySW4Rr0Hl90CHT-0/*W5Hh19S2J1j6jW1gxPj45yTRLt0/5/f18dQhb0S5fw8X-fbXW8cCGTT51FcdHN5s9DSvWrM1YW3MpzC43frry_W8r4Kht63lH28W1lQSSc8y_DL1W8z_p0c67hcl-W1qMTKP5xLd3bN8zTG51RBdNtW3L39B54P7Fz2W8rCHjG25x99KVwyMQc6PVJWyW625bx16Gj8TSW6bVy-525hjVhW83KHrF7J39qHN2m8DqKmmF0wW1jsTjn5VDnrHVbq5fx4TKc2lW6Rjg6t5Pk17jW2xZzRk8LpcPpW36k5sF4FnHNZW1mvfQB2BpzSjN1mT8mr2g4dYW5VZ-P_37vq3BW2--Tfh1w3GzfW5CkFpW6ZccdyW5vvKY_3N2S6fW3KRSNH8yxr7CW7YJp821cQlwRW63x06S1bBvW3W408wWR11rnNbV4Vjkz6NjfdLW55Fr2P5nn1d6W301cwV4GX00sW5hfR428jJDdkW4Cy2w54wj2JxVMFy4w4hyJQMV6N2-D1mPRd4N6YRN0Y4ZDMLD2LMBk7BT1f5Fq5PC03" target="_blank">Essential&nbsp;<span class="m_6690301754972839650m_5033479916755799273m_2111833215933341997il"><span class="m_6690301754972839650il">Guide</span></span>&nbsp;To Storing Gold In Singapore</a></strong></p> <p style="color: #333333; font-family: Georgia, &quot;Times New Roman&quot;, &quot;Bitstream Charter&quot;, Times, serif; font-size: 16px;"><strong><a href="http://t.hsms10.com/e1t/c/*W1sFhNs6QLBySW4Rr0Hl90CHT-0/*W7dc5x_8dXcz0W57pb-W8yRfPY0/5/f18dQhb0Sjv98X-fhGW8cCGTT51FcdHN5s9DSvWrBCVW3MpzC43frry_W8r4Kht63lH28W1lQSSc8y_DL1W8z0sTg7mCbb0W57V1HT7tVHF9W8Z32tg35s628W859LV685kgn-W5mG2963qCNtmW8hTG4j5Zh496W2d551v3pNnKLVLrb9R83_Pn-W7JCxGl81bhDKW7N_KqM11GBXTW41TlcR3TwTqzW19BjML1ks0KjW7RPZVs5-2sjBW7ZzDyK7GLjPjW2KH_vB6SdpRZW1hx1p11Gg3W9W6rwy5K1YZKs5W2gFslL6NqPjwW1tbMwf7n90PHW67SS1j224DVBW6SdFBY1S1FW8W1Th1-Q1X2dwGW1swLvy81myPRW1B9M4Q6SdHPtW7C3gqS89xKZ9W1Ms6WG19gjwJN42ktpLPs031VgkKmy5qqk_FW41Q13s3srYmmW2-yGlm4v9PYhVmLW2J4r5l5jW7fnqv3187HWVW794lJw3T7yBDW1Zq0mT90vVQHW7SNfQy7BfhjRN3QzSrFQN_TjVcGblm3cFvNY0" target="_blank">Essential&nbsp;<span class="m_6690301754972839650m_5033479916755799273m_2111833215933341997il"><span class="m_6690301754972839650il">Guide</span></span>&nbsp;to Tax Free Gold Sovereigns (UK)</a></strong></p> <p style="color: #333333; font-family: Georgia, &quot;Times New Roman&quot;, &quot;Bitstream Charter&quot;, Times, serif; font-size: 16px;">Please share our research with family, friends and colleagues who you think would benefit from being informed by it.</p> http://www.zerohedge.com/news/2017-09-21/gold-investment-compelling-fed-may-kill-business-cycle#comments Apple Bank of New York BIS Bitcoin Business Capital Markets China Consumer Credit Crude Crude Oil Debt Ceiling Debt levels and flows Deutsche Bank Economic Club of Las Vegas Economy Economy of the United States Federal Reserve Federal Reserve Bank Federal Reserve Bank of New York Federal Reserve Bank of New York Federal Reserve Bank of San Francisco Finance Financial crisis of 2007–2008 Fiscal policy Gold as an investment Gold Bugs goldman sachs Goldman Sachs Government debt Great Recession Gross Domestic Product Housing Bubble Information Technology John Williams Las Vegas Monetary Policy Money National debt of the United States New York Fed New York Fed North Korea Recession Reuters S&P 500 Security Sovereigns Switzerland US Federal Reserve US government World Economic Forum Thu, 21 Sep 2017 11:51:54 +0000 GoldCore 603896 at http://www.zerohedge.com SEC Admits US Public Filing System Was Hacked, "May Have Resulted" In Countless Illegal Profits http://www.zerohedge.com/news/2017-09-21/sec-says-edgar-filing-system-was-hacked <p>Over two years ago, on an otherwise uneventful Thursday in May 2015, <a href="http://www.zerohedge.com/news/2015-05-14/if-85-million-avon-products-shares-short-suddenly-cried-out-and-were-suddenly-silenc">shares of Avon Products suddenly jumped 20% leaving investors stunned</a>. The catalyst was quickly discovered: a filing recently uploaded to Edgar, the SEC&rsquo;s public filings database and purportedly from London-based &ldquo;PTG Capital&rdquo;, claimed that the &quot;private-equity&quot; firm was bidding to take Avon private. Upon closer inspection, <a href="http://www.zerohedge.com/news/2015-05-14/if-85-million-avon-products-shares-short-suddenly-cried-out-and-were-suddenly-silenc">investors noticed a series of glaring, suspicious errors</a>. For one, the document was riddled the spelling mistakes &ndash; the firm&rsquo;s own name, consisting of a three-letter acronym &ndash; was repeatedly misspelled. The address listed for the firm was quickly revealed to be fake. And, as it turned out, there was no PTG capital operating in London &ndash; or anywhere, for that matter.</p> <p>Investors quickly concluded that the filing was a hoax, and Avon shares crashed back to earth. US authorities eventually blamed it on a <a href="http://www.reuters.com/article/us-avon-prdcts-rocky-mtn-choc-arrests/u-s-says-alleged-architect-of-avon-rocky-mountain-stock-hoaxes-arrested-idUSKCN0WD00L">Bulgarian hacker </a>who the agency claimed earned a meager profit of $5,000 for his efforts.</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user245717/imageroot/2017/09/18/2017.09.21sec.JPG"><img alt="" src="http://www.zerohedge.com/sites/default/files/images/user245717/imageroot/2017/09/18/2017.09.21sec_0.JPG" style="width: 500px; height: 260px;" /></a></p> <p>Now, two years later, the SEC has revealed that the Avon hoax - and possibly a handful of other scams involving fraudulent Edgar filings - was made possible thanks to an &quot;intrusion&quot; into Edgar&#39;s test-filing system. According to a statement <a href="https://www.sec.gov/news/press-release/2017-170">released overnight by the SEC</a>, the vulnerability that made the Avon hoax possible was discovered in 2016, and quickly patched. But it was only in August that the agency learned the vulnerability had been exploited by criminals, who likely used it to make countless illegal trades, generating an unknown amount of insider-trading profits.&nbsp;</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p><strong>&ldquo;In August 2017, the Commission learned that an incident previously detected in 2016 may have provided the basis for illicit gain through trading.&nbsp; Specifically, a software vulnerability in the test filing component of the Commission&rsquo;s EDGAR system, which was patched promptly after discovery, was exploited and resulted in access to nonpublic information. </strong>It is believed the intrusion did not result in unauthorized access to personally identifiable information, jeopardize the operations of the Commission, or result in systemic risk. An internal investigation was commenced immediately at the direction of the Chairman.&rdquo; &nbsp;</p> </blockquote> <p>The timing of the SEC&rsquo;s revelation is notable. Less than two weeks ago, credit-monitoring firm Equifax disclosed what&rsquo;s believed to be the most damaging hack in US history after thieves absconded with sensitive personal and financial data of 143 million Americans.</p> <p>In his statement, SEC Chairman Jay Clayton, who has been leading the agency for only a few months, essentially said that intrusions like the Avon hoax are inevitable. What matters, he said, is how companies and government agencies handle the response.</p> <p>&ldquo;Cybersecurity is critical to the operations of our markets and the risks are significant and, in many cases, systemic,&rdquo; said Chairman Clayton. &ldquo;We must be vigilant. We also must recognize&mdash;in both the public and private sectors, including the SEC&mdash;that there will be intrusions, and that a key component of cyber risk management is resilience and recovery.&rdquo;</p> <p>Precisely for this reason, executives at the major stock exchanges have, in recent months, warned that they might reconsider launching the Consolidated Audit Trail &ndash; a consolidated data feed that would aggregate the order books of US equity and options exchange. Such a target, the executives say, would present a tantalizing target for hackers, who could easily reap massive profits from the data, according to WSJ. The feed was expected to launch in November.</p> <p>Here&rsquo;s more from <a href="https://www.wsj.com/articles/sec-discloses-edgar-corporate-filing-system-was-hacked-in-2016-1505956552">WSJ:</a></p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>&ldquo;<strong>Mr. Clayton&rsquo;s statement acknowledged that the planned data repository, known as the Consolidated Audit Trail, could be targeted by cyber thieves looking to steal personal information of stockbrokers&rsquo; customers. The audit trail has been in the works for nearly seven years and the SEC approved its final design last year. However, exchange executives have recently cited the Equifax hack as evidence that the audit trail should be pared back, even if that takes away information that could help regulators spot manipulative traders more quickly.</strong></p> <p>Stock and options exchanges, as well as the Financial Industry Regulatory Authority, which oversees brokers, are due to begin reporting data to the repository in November. Robert Cook, chief executive of Finra, also has questioned whether the audit trail should be scaled back in light of the Equifax data breach. Speaking Wednesday at a banking luncheon in Washington, Mr. Cook questioned whether the database designed to help regulators sort through flash crashes and spot market manipulation should include personal information about stockbrokers&rsquo; customers.</p> <p>&nbsp;</p> <p><strong>&ldquo;Especially post-Equifax when we are trying to win back investor confidence in the markets, it seems to be a useful question to ask whether we&rsquo;ve got the right approach here or we need to revisit it,&rdquo; he said.&rdquo;</strong></p> </blockquote> <p>Data breaches and cyberattacks have been a fact of life for years. But, as criminals grow increasingly adept at using stolen information to game financial markets, we can&#39;t help but wonder what kind of long-term impact this troubling trend will have on markets?</p> <p>Finally, <strong>how long before this too is Putin&#39;s fault?</strong></p> <p>* * *</p> <p><em><strong>Read the SEC&#39;s full statement below (<a href="https://www.sec.gov/news/public-statement/statement-clayton-2017-09-20">link</a>): </strong></em></p> <p><strong>Introduction</strong></p> <p>Data collection, storage, analysis, availability and protection (including security, validation and recovery) have become fundamental to the function and performance of our capital markets, the individuals and entities that participate in those markets, and the U.S. Securities and Exchange Commission (&quot;Commission&quot; or &quot;SEC&quot;).&nbsp; As a result of these and other developments, the scope and severity of risks that cyber threats present have increased dramatically, and constant vigilance is required to protect against intrusions.&nbsp; The Commission is focused on identifying and managing cybersecurity risks and ensuring that market participants &ndash; including issuers, intermediaries, investors and government authorities &ndash; are actively and effectively engaged in this effort and are appropriately informing investors and other market participants of these risks.</p> <p>I recognize that even the most diligent cybersecurity efforts will not address all cyber risks that enterprises face.&nbsp; That stark reality makes adequate disclosure no less important.&nbsp; Malicious attacks and intrusion efforts are continuous and evolving, and in certain cases they have been successful at the most robust institutions and at the SEC itself.&nbsp; Cybersecurity efforts must include, in addition to assessment, prevention and mitigation, resilience and recovery.</p> <p>In today&#39;s environment, cyberattacks are perpetrated by identity thieves, unscrupulous contractors and vendors, malicious employees, business competitors, prospective insider traders and market manipulators, so-called &quot;hacktivists,&quot; terrorists, state-sponsored actors and others.&nbsp; Cyber intrusions can create significant risks to the operational performance of market participants and of markets as a whole.&nbsp; These risks can take the form of denials of service and the destruction of systems, potentially resulting in impediments to account access and transaction execution, and disruption of other important market system functionalities.&nbsp; The risks associated with cyber intrusions may also include loss or exposure of consumer data, theft or exposure of intellectual property, and investor losses resulting from the theft of funds or market value declines in companies subject to cyberattacks, among others.&nbsp; Market participants also face regulatory, reputational and litigation risks resulting from cyber incidents, as well as the potential of incurring significant remediation costs.</p> <p>Ultimately, a large portion of the costs incurred in connection with these risks, including the costs of mitigation, are borne by investors, consumers, and other important constituents.</p> <p>Cybersecurity risks extend beyond data storage and transmission systems.&nbsp; Maintaining reliability of data operations also depends on the continued functioning of other services that themselves face significant cyber risks, including, most notably, critical infrastructure such as electric power and communications grids.</p> <p>In May 2017, I initiated an assessment of our internal cybersecurity risk profile and our approach to cybersecurity from a regulatory and oversight perspective.&nbsp; Components of this initiative build on prior agency efforts in this area and include establishing a senior-level cybersecurity working group to coordinate information sharing, risk monitoring, and incident response efforts throughout the agency.&nbsp; This Statement is one part of our effort to analyze, improve and communicate our work in this area to market participants and the American public more generally.&nbsp; In more detail below we provide an overview of our approach to cybersecurity as an organization and as a regulatory body, including:</p> <p>the types of data we collect, hold and make publicly available;</p> <p>how we manage cybersecurity risks and respond to cyber events related to our operations;<br />how we incorporate cybersecurity considerations in our risk-based supervision of the entities we regulate;<br />how we coordinate with other regulators to identify and mitigate cybersecurity risks; and<br />how we use our oversight and enforcement authorities in the cybersecurity context, including to pursue cyber threat actors that seek to harm investors and our markets.<br />This Statement describes various specific cybersecurity risks that we and our regulated entities face, as well as cybersecurity events that we have experienced.&nbsp; These descriptions provide context, but are not exhaustive.</p> <p>We also expect to provide a discussion of internal cybersecurity matters each year in our annual Agency Financial Report.</p> <p><u><strong>I. Collection and Use of Data by the Commission</strong></u></p> <p>In support of its mission, the Commission receives, stores and transmits data falling under three broad categories.&nbsp; These activities are critical to our tri-partite mission of investor protection, the maintenance of fair, orderly and efficient markets, and the facilitation of capital formation.</p> <p>The first category of data includes public-facing data that is transmitted to and accessed through Commission systems.&nbsp; Since its creation in 1934, a critical part of the SEC&#39;s mission has been its oversight of the system of public reporting by issuers and other registrants, and in 1984 the Commission began collecting, and making publicly available, disclosure documents through its EDGAR system.&nbsp; In 2017, on a typical day, investors and other market participants access more than 50 million pages of disclosure documents through the EDGAR system, which receives and processes over 1.7 million electronic filings per year.</p> <p>The second category of data the Commission receives, stores and transmits includes nonpublic information, including personally identifiable information, generally related to our supervisory and enforcement functions.&nbsp; This data, which relates to the operations of issuers, broker-dealers, investment advisers, investment companies, self-regulatory organizations (&quot;SROs&quot;), alternative trading systems (&quot;ATSs&quot;), clearing agencies, credit rating agencies, municipal advisors and other market participants, may be sensitive to individuals, organizations and our markets generally.&nbsp; &nbsp;</p> <p>For example, staff in our Division of Trading and Markets often receive nonpublic drafts of proposed rule filings by SROs, and staff in our Division of Investment Management and Division of Corporation Finance often receive drafts of applications for exemptive relief under the federal securities laws.&nbsp; Staff in our Office of Compliance Inspections and Examinations (&quot;OCIE&quot;), among other divisions and offices, receive nonpublic data, including personally identifiable information, in connection with their ongoing oversight and examinations of broker-dealers, investment advisers, and other regulated entities.&nbsp; Staff in our Division of Enforcement receive nonpublic and personally identifiable information in connection with their investigations into potential violations of the federal securities laws.</p> <p>In addition, at this time it is expected that the Commission will have access to significant, nonpublic, market sensitive data and personally identifiable information in connection with the implementation of the Consolidated Audit Trail (&quot;CAT&quot;).&nbsp; CAT is intended to provide SROs and the Commission access to comprehensive data that will facilitate the efficient tracking of trading activity across U.S. equity and options markets.&nbsp; CAT, which is being developed and operationalized by the SROs, is in the later stages of its multi-year development, and its first stage of operation is scheduled to commence in November 2017.&nbsp; Cybersecurity has been and will remain a key element in the development of CAT systems.</p> <p>The third category of data includes nonpublic data, including personally identifiable information, related to the Commission&#39;s internal operations.&nbsp; This includes, for example, personnel records, records relating to internal investigations, and data relating to our risk management and internal control processes.&nbsp; This category also includes materials that Commission staff generate in connection with their daily roles and responsibilities, including work papers and internal memoranda.</p> <p>As required by the Privacy Act of 1974 (5 U.S.C. &sect; 552a), the Commission discloses on its website the types of personally identifiable information it receives, whether in connection with its outward-facing or internal operations.&nbsp; The Commission also publishes privacy impact assessments to inform the public about the information it collects and the safeguards that have been put in place to protect it.[1]</p> <p><u><strong>II. Management of Internal Cybersecurity Risks</strong></u></p> <p>As described above, the Commission receives, stores and transmits substantial amounts of data, including sensitive and nonpublic data.&nbsp; Like many other governmental agencies, financial market participants and other private sector entities, we are the subject of frequent attempts by unauthorized actors to disrupt access to our public-facing systems, access our data, or otherwise cause damage to our technology infrastructure, including through the use of phishing, malware and other attack vectors.&nbsp; For example, with respect to our EDGAR system, we face the risks of cyber threat actors attempting to compromise the credentials of authorized users, gain unauthorized access to filings data, place fraudulent filings on the system, and prevent the public from accessing our system through denial of service attacks.&nbsp; We also face the risks of actors attempting to access nonpublic data relating to our oversight of, or enforcement actions against, market participants, which could then be used to obtain illicit trading profits.&nbsp; Similarly, with respect to CAT, we expect we will face the risk of unauthorized access to the CAT&#39;s central repository and other efforts to obtain sensitive CAT data.[2]&nbsp; Through such access, intruders could potentially obtain, expose and profit from the trading activity and personally identifiable information of investors and other market participants.</p> <p>Notwithstanding our efforts to protect our systems and manage cybersecurity risk, in certain cases cyber threat actors have managed to access or misuse our systems.&nbsp; In August 2017, the Commission learned that an incident previously detected in 2016 may have provided the basis for illicit gain through trading.&nbsp; Specifically, a software vulnerability in the test filing component of our EDGAR system, which was patched promptly after discovery, was exploited and resulted in access to nonpublic information.&nbsp; We believe the intrusion did not result in unauthorized access to personally identifiable information, jeopardize the operations of the Commission, or result in systemic risk.&nbsp; Our investigation of this matter is ongoing, however, and we are coordinating with appropriate authorities.&nbsp; As another example, our Division of Enforcement has investigated and filed cases against individuals who we allege placed fake SEC filings on our EDGAR system in an effort to profit from the resulting market movements.[3]</p> <p>In addition, like other organizations, we are subject to the risk of unauthorized actions or disclosures by Commission personnel.&nbsp; For example, a 2014 internal review by the SEC&#39;s Office of Inspector General (&quot;OIG&quot;), an independent office within the agency, found that certain SEC laptops that may have contained nonpublic information could not be located.[4]&nbsp; The OIG also has found instances in which SEC personnel have transmitted nonpublic information through non-secure personal email accounts.[5]&nbsp; We seek to mitigate this risk by requiring all personnel to complete privacy and security training and we have other relevant risk mitigation controls in place. &nbsp;</p> <p>Similarly, we are subject to cybersecurity risk in connection with vendors we utilize.&nbsp; For example, a weakness in vendor systems or software products may provide a mechanism for a cyber threat actor to access SEC systems or information through trusted paths.&nbsp; Recent global supply chain security incidents such as compromises of reputable software update services are illustrative of this type of occurrence.</p> <p>In light of the nature of the data at risk and the cyber-related threats faced by the SEC, the Commission employs an agency-wide cybersecurity detection, protection and prevention program for the protection of agency operations and assets.&nbsp; This program includes cybersecurity protocols and controls, network protections, system monitoring and detection processes, vendor risk management processes, and regular cybersecurity and privacy training for employees.&nbsp; That said, we recognize that cybersecurity is an evolving landscape, and we are constantly learning from our own experiences as well as the experiences of others.&nbsp; To aid in this effort, and notwithstanding limitations on our hiring generally, we expect to hire additional expertise in this area.</p> <p><u><strong>Governance</strong></u></p> <p>It is our experience, consistent with the President&#39;s Executive Order on Strengthening the Cybersecurity of Federal Networks and Critical Infrastructure, that a focus by senior management on cybersecurity is an important contributor to the effective identification and mitigation of cybersecurity risks.[6]&nbsp; To that end, SEC Commissioners and senior management have emphasized cybersecurity awareness and compliance.&nbsp; Senior management across the SEC&#39;s offices and divisions are required to coordinate with respect to cybersecurity efforts, including through risk reporting and the development and testing of agency-wide procedures and exercises for responding to both internal and external cyber threats.</p> <p>Although all SEC personnel are responsible for employing practices that minimize cybersecurity risks, the SEC&#39;s Office of Information Technology has overall management responsibility for the agency&#39;s information technology program, including cybersecurity.&nbsp; The Chief Information Officer and Chief Information Security Officer lead cybersecurity efforts within the agency, including with respect to maintaining and monitoring adherence to the agency&#39;s Information Security Program Plan (described further below).</p> <p>The SEC periodically assesses the effectiveness of its cybersecurity efforts, including through penetration testing of internal and public-facing systems, ongoing monitoring by the Department of Homeland Security, independent verification and validation, and security assessments conducted by impartial third parties.</p> <p><u><strong>Policies and procedures</strong></u></p> <p>The SEC maintains a number of internal policies and procedures related to cybersecurity, as set forth in the agency&#39;s Information Security Program and Program Plan.&nbsp; These documents, which are developed in accordance with standards set forth by the National Institute of Standards and Technology (&quot;NIST&quot;), delineate the roles and responsibilities of various agency officials, offices, committees and system owners in carrying out the SEC&#39;s information security objectives, including our training efforts.</p> <p>The Commission also is in the process of implementing the NIST Framework for Improving Critical Infrastructure Cybersecurity.[7]&nbsp; Among other things, the NIST Framework is expected to help the agency define and achieve appropriate cybersecurity goals and outcomes, including identifying key assets, protecting against intrusions, detecting incidents, containing impacts and planning for recovery.</p> <p><u><strong>Independent audits and reviews</strong></u></p> <p>The SEC&#39;s cybersecurity program is subject to review from internal and external independent auditors.&nbsp; The SEC&#39;s OIG audits the agency&#39;s information technology systems, and components of these audits have included cybersecurity controls.&nbsp; The OIG also audits compliance with applicable federal cybersecurity requirements in accordance with the Federal Information Security Modernization Act of 2014 (&quot;FISMA&quot;).[8] &nbsp;</p> <p>In addition, the Government Accountability Office (&quot;GAO&quot;), an external audit agency, performs annual audits of the effectiveness of the Commission&#39;s internal control structure and procedures for financial reporting.&nbsp; In connection with these audits, the GAO has examined the effectiveness of information security controls designed to protect the confidentiality, integrity, and availability of key financial systems and information.[9]&nbsp; The Commission takes seriously identified deficiencies, documents the corrective actions it undertakes, and provides documentation to auditors to close out recommendations.</p> <p><u><strong>External reporting</strong></u></p> <p>The SEC submits reports on its cybersecurity performance to the Office of Management and Budget.&nbsp; The agency also reports privacy and cybersecurity incidents to the Department of Homeland Security&#39;s Computer Emergency Readiness Team (&quot;US-CERT&quot;) in accordance with established protocols.&nbsp; Further, the SEC has established relationships with the National Cybersecurity and Communications Integration Center (&quot;NCCIC&quot;), the Financial and Banking Information Infrastructure Committee (&quot;FBIIC&quot;), and Financial Services Information Sharing and Analysis Center (&quot;FS-ISAC&quot;) to share information regarding cybersecurity threats.</p> <p><u><strong>III. Incorporation of Cybersecurity Considerations in the Commission&#39;s Disclosure-Based and Supervisory Efforts</strong></u></p> <p>Promoting effective cybersecurity practices by market participants is critical to all three elements of the SEC&#39;s mission.&nbsp; As described in more detail below, the Commission incorporates cybersecurity considerations in its disclosure and supervisory programs, including in the context of the Commission&#39;s review of public company disclosures, its oversight of critical market technology infrastructure, and its oversight of other regulated entities, including broker-dealers, investment advisers and investment companies.</p> <p>Promoting effective public company disclosures</p> <p>With respect to U.S. public company issuers, the SEC&#39;s primary regulatory role is disclosure based.&nbsp; To that end, the staff of the Division of Corporation Finance has issued disclosure guidance to help public companies consider how issues related to cybersecurity should be disclosed in their public reports.[10]</p> <p>The staff guidance discusses, among other things, cybersecurity considerations relevant to a company&#39;s risk factors, management&#39;s discussion and analysis of financial condition and results of operations (&quot;MD&amp;A&quot;), description of business, discussion of legal proceedings, financial statements, and disclosure controls and procedures.&nbsp; The staff guidance is principles based and, while issued in 2011, remains relevant today.&nbsp; Accordingly, issuers should consider whether their publicly filed reports adequately disclose information about their risk management governance and cybersecurity risks, in light of developments in their operations and the nature of current and evolving cyber threats.&nbsp; The Commission also will continue to evaluate this guidance in light of the cybersecurity environment and its impacts on issuers and the capital markets generally.</p> <p><u><strong>Oversight of market infrastructure</strong></u></p> <p>The Commission&#39;s regulatory role with respect to market infrastructure such as exchanges and clearing agencies extends beyond compliance with applicable disclosure requirements and includes ongoing supervision and oversight.&nbsp; In furtherance of its statutory objectives, the Commission adopted Regulation Systems Compliance and Integrity (&quot;Regulation SCI&quot;) and Form SCI in November 2014 to strengthen the technology infrastructure of the U.S. securities markets.&nbsp; The regulation applies to &quot;SCI entities,&quot; a term which includes SROs (including stock and options exchanges, registered clearing agencies, FINRA and the MSRB), ATSs that exceed specified trading volume thresholds, disseminators of consolidated market data, and certain exempt clearing agencies.[11]</p> <p>Regulation SCI is designed to reduce the occurrence of systems issues, improve resiliency when systems problems do occur, and enhance the Commission&#39;s ability to oversee and enforce rules governing market infrastructure.&nbsp; In addition to requiring SCI entities to maintain policies and procedures reasonably designed to ensure operational resiliency, the regulation requires SCI entities to take corrective action with respect to systems disruptions, compliance issues and intrusions (e.g., cybersecurity breaches).&nbsp; SCI entities are also required to provide notification, including to the Commission, of such events.&nbsp; SCI entities are subject to examinations by OCIE, and OCIE&#39;s Technology Controls Program reviews Regulation SCI filings as part of CyberWatch, OCIE&#39;s internal program responsible for triaging all system events reported to the SEC under Regulation SCI.</p> <p><u><strong>Oversight of broker-dealers, investment advisers and other market participants</strong></u></p> <p>The SEC also conducts supervisory oversight of broker-dealers, investment advisers, investment companies, credit rating agencies and other market participants registered with the Commission.&nbsp; Many of these entities act as the primary interface between the securities markets and investors, including Main Street investors.&nbsp; Not only do their systems provide investors access to their securities accounts, but those systems in many cases also hold customers&#39; personally identifiable information.</p> <p>Certain SEC regulations directly implicate information security practices of regulated entities.&nbsp; For example, Regulation S-P requires registered broker-dealers, investment companies and investment advisers to adopt written policies and procedures governing safeguards for the protection of customer information and records.[12]&nbsp; Similarly, Regulation S-ID requires these firms, to the extent they maintain certain types of covered accounts, to establish programs addressing how to identify, detect and respond to potential identity theft red flags.[13]&nbsp; In addition, SEC staff engage with regulated firms to provide guidance on cybersecurity practices.&nbsp; For example, in April 2015, the SEC&#39;s Division of Investment Management issued staff guidance to highlight the importance of cybersecurity and discuss measures for funds and advisers to consider when addressing cybersecurity risks.[14]</p> <p>The risk-based examinations of registered entities conducted by OCIE staff have included reviews of risk management programs and other operational components in order to evaluate compliance with Regulations S-P and S-ID, as well as with other federal securities laws and regulations.&nbsp; In recent years, OCIE has placed increasing emphasis on cybersecurity practices and has included cybersecurity in its examination priorities.[15]&nbsp; In August 2017, OCIE published a summary of observations from its second major initiative to assess cybersecurity preparedness in the securities industry.[16]&nbsp; The initiative focused its review on the content and implementation of firms&#39; written cybersecurity policies and was part of a series of OCIE publications on cybersecurity.[17]&nbsp; Recognizing that there is no single correct approach to cybersecurity, the publication was not intended to provide a checklist of required practices, but rather to share information about practices the staff identified that may be useful to firms as they engage in cybersecurity planning.</p> <p><u><strong>IV. Coordination With Other Governmental Entities</strong></u></p> <p>Effective interagency coordination facilitates the identification, mitigation and remediation of broad and potentially systemic cybersecurity risks, and it also can sharpen the focus by regulated entities on risk management efforts.&nbsp; As a general matter, the Commission shares oversight responsibility for large financial institutions with other financial regulators, which in the U.S. include the Board of Governors of the Federal Reserve System, the Commodity Futures Trading Commission, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation, among others.&nbsp; Our oversight may also require coordination with other regulatory agencies.&nbsp; For example, consumer protection matters with respect to SEC registrants are largely overseen by other federal regulators, including the Federal Trade Commission and the Consumer Financial Protection Bureau.</p> <p>The Commission coordinates on cybersecurity matters with the Department of the Treasury and other federal financial regulatory agencies within the framework of the FBIIC, an interagency working group.&nbsp; The FBIIC was designed to improve coordination and communication among financial regulators, enhance financial sector resiliency and promote private-public partnership.&nbsp; In addition to being a vehicle for federal agencies to communicate timely alerts regarding cyber threats or vulnerabilities in the financial sector, the FBIIC identifies and assesses critical infrastructure assets and holds periodic cyber incident response simulations with the FBIIC members, law enforcement and industry.</p> <p>The FBIIC also engages with the private sector on regulatory harmonization and critical cybersecurity and other infrastructure issues, primarily through industry groups such as the Financial Services Sector Coordinating Council (&quot;FSSCC&quot;).[18]&nbsp; FBIIC and FSSCC members coordinate exercises to identify critical issues that could impact the resiliency of the U.S. financial system and that may need to be addressed by private industry, the public sector, or both.&nbsp; &nbsp;</p> <p>With respect to cyber-related issues that could pose a systemic risk to our markets or U.S. financial stability, we also coordinate with other financial regulators through the Financial Stability Oversight Council.&nbsp; In addition, we seek to coordinate with non-U.S. regulators both bilaterally and through international organizations such as the International Organization of Securities Commissions.</p> <p><u><strong>V. Enforcement of the Federal Securities Laws</strong></u></p> <p>Issuers and other market participants must take their periodic and current disclosure obligations regarding cybersecurity risks seriously, and failure to do so may result in an enforcement action.</p> <p>In addition, the Commission has used its enforcement authority under the federal securities laws to vigorously pursue cyber threat actors who seek to harm investors and our markets.&nbsp; The use of innovative technology and analytical tools, many of which were developed internally, has enabled the Division of Enforcement to increasingly identify suspicious trading activity across multiple issuers, traders and geographic locations.</p> <p>The Commission recently has brought several cases alleging the hacking and stealing of nonpublic information in connection with illicit trading activity.&nbsp; For example, in December 2016, the Commission charged three traders for allegedly participating in a scheme to hack into two prominent New York-based law firms to steal information pertaining to clients that were considering mergers or acquisitions, which the hackers then used to trade.[19]&nbsp; The Commission also brought charges against two defendants who allegedly hacked into newswire services to obtain non-public information about corporate earnings announcements, as well as dozens of other defendants who allegedly traded on the information.[20]</p> <p>In another type of case, the Commission brought charges concerning a scheme to gain unauthorized access to online brokerage accounts of U.S. investors and make unauthorized stock trades, thereby driving up share prices and allowing those who allegedly perpetrated the scheme to generate profits in other trading accounts.[21]</p> <p>In an effort to proactively and efficiently address securities fraud in connection with cyberattacks, the Division of Enforcement has developed substantial expertise in the detection and pursuit of fraudulent conduct across the increasingly technological and data-driven landscape, devotes substantial resources to this effort, and works closely with its law enforcement counterparts.</p> <p><u><strong>VI. Looking Forward</strong></u></p> <p>The Commission will continue to prioritize its efforts to promote effective cybersecurity practices within the Commission itself and with respect to the markets and market participants it oversees.&nbsp; This requires an ongoing, thoughtful evaluation of the data we obtain.&nbsp; When determining when and how to collect data, we must continue to thoughtfully evaluate our approach in light of the importance to our mission of each type of data we receive, particularly in the case of sensitive data, such as personally identifiable and nonpublic information.</p> <p>There are certain types of sensitive data that we must obtain from market participants in order to fulfill our mission.&nbsp; When determining when and how to collect data, it is important that we regularly review whether our related data protections are appropriate in light of the sensitivity of the data and the associated risks of unauthorized access.&nbsp; We should also continue to evaluate whether alternatives exist that may allow us to further our mission while reducing the sensitivity of data we collect.&nbsp; For example, one way in which we have reduced the market sensitivity of certain data we collect has been to obtain it on a delayed basis when appropriate.</p> <p>Cybersecurity is critical to investors, market participants, our markets, and the Commission itself.&nbsp; By promoting effective cybersecurity practices in connection with both the Commission&#39;s internal operations and its external regulatory oversight efforts, it is our objective to contribute substantively to a financial market system that recognizes and addresses cybersecurity risks and, in circumstances in which these risks materialize, exhibits strong mitigation and resiliency.</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="847" height="441" alt="" src="http://www.zerohedge.com/sites/default/files/images/user245717/imageroot/2017.09.21sec.JPG?1505992051" /> </div> </div> </div> http://www.zerohedge.com/news/2017-09-21/sec-says-edgar-filing-system-was-hacked#comments Avon Products Banking Information Infrastructure Committee Board of Governors of the Federal Reserve System Business Capital Formation Capital Markets CAT Commodity Futures Trading Commission Commodity Futures Trading Commission Comptroller of the Currency Comptroller of the Currency Computer security Consumer Financial Protection Bureau Consumer protection Corporate crime Credit Rating Agencies Credit rating agency Cyber Security Agency Cyber-security regulation Cybercrime Cyberwarfare Department of Homeland Security Department of the Treasury Department of the Treasury FBIIC and FSSCC Federal Deposit Insurance Corporation Federal Deposit Insurance Corporation Federal Reserve Federal Trade Commission Financial Services Information Sharing and Analysis Center Financial Services Sector Coordinating Council Financial Stability Oversight Council FINRA FINRA flash Government Government Accountability Office Information Technology Insider trading International Multilateral Partnership Against Cyber Threats International Organization Main Street Market Manipulation MSRB National Cybersecurity and Communications Integration Center National Institute of Standards and Technology office of Compliance Inspections and Examinations office of Management and Budget Office of the Comptroller of the Currency Rating Agencies Reality recovery Risk Management SEC's Division of Investment Management SEC's office of Information Technology SEC's office of Inspector General Securities and Exchange Commission Securities Fraud Security engineering Trading Systems U.S. Securities and Exchange Commission U.S. Securities and Exchange Commission Thu, 21 Sep 2017 11:26:52 +0000 Tyler Durden 603894 at http://www.zerohedge.com Why Economic Data No Longer Matters http://www.zerohedge.com/news/2017-09-21/why-economic-data-no-longer-matters <p>Back in mid-2009, we said that with the Fed and central banks nationalizing capital markets, macro and even micro data and newsflow will matter increasingly less and less, and the only thing that <em><strong>does matter </strong></em>is the <a href="https://www.federalreserve.gov/releases/h41/">Fed's weekly H.4.1 statement, showing the changes to the Fed's balance sheet. </a>It also means that so-called "data dependency" is a farce (it is, and has always been "Dow dependency"), and that the impact of incremental newsflow will shrink with every passing week until virtually nobody pays attention (we have largely reached this state now). </p> <p>Since then it has been entertaining to watch how one after another stoic trader and commentator has thrown in the towel on conventional market orthodoxy to adopt precisely this kind of "tinfoil" thinking, the latest example being Bloomberg's macro commentator Mark Cudmore, who in his overnight Macro View writes that "traders should should spend less time studying economic releases and listen to the clear guidance from officials instead."</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>The relevance of data is declining. Policymakers around the world are trying to make crystal clear that they’ll ignore that which doesn’t fit their narrative. Many financial commentators have failed to make the transition and are incorrectly transfixed by each data release. </p> </blockquote> <p>Or, in short, data no longer matters in a world of central planning.</p> <p><em>Here is his latest Macro View in which Cudmore explains why "<strong>It’s Time for Traders To Listen Rather Than Watch</strong>"</em></p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>Data-dependency is becoming passé for global policymakers. Traders should should spend less time studying economic releases and listen to the clear guidance from officials instead.&nbsp; </p> <p>&nbsp;</p> <p>For years, policymakers have been emphasizing data dependency. Investors took a while to fully register the message and, as a result, often got whipsawed by throwaway comments from officials. </p> <p>&nbsp;</p> <p>Market participants fully caught up with the idea in late 2016, but now policy has moved on. </p> <p>&nbsp;</p> <p><strong>The relevance of data is declining. Policymakers around the world are trying to make crystal clear that they’ll ignore that which doesn’t fit their narrative. Many financial commentators have failed to make the transition and are incorrectly transfixed by each data release. </strong></p> <p>&nbsp;</p> <p>The BOE has been hammering home the point that it wants to raise rates. <strong>When the most dovish member of the MPC confirms that message, it’s not the time to worry whether U.K. inflation is peaking. </strong></p> <p>&nbsp;</p> <p>Brexit negotiations will matter for U.K. and European assets but again, it<strong>’s about listening to the speeches, rather than trading the data prints.</strong> </p> <p>&nbsp;</p> <p>U.S. inflation hasn’t hit target in years but Fed members have been consistent in saying that’s a side issue -- the FOMC is focused on normalizing policy while the economy is strong enough to cope. <strong>So far in 2017 the year- on-year core PCE index fell from 1.9% to 1.4%, yet guidance remains hawkish. </strong></p> <p>&nbsp;</p> <p><strong>Stop fretting about the marginal data print. Janet Yellen has made clear it will take a momentous and broad economic shift to alter the Fed’s path. And if that shift happens, she’ll make the new approach clear as well. </strong></p> <p>&nbsp;</p> <p>The ECB has flagged that it’s eager to taper quantitative easing. Inflation isn’t at target and the structural imbalances in the euro zone haven’t been fixed, but that doesn’t matter. </p> <p>&nbsp;</p> <p>That isn’t to say that data is completely irrelevant for traders, but it does decrease the importance of individual releases. And don’t be too quick to fade asset price reactions to comments from officials.</p> </blockquote> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="580" height="304" alt="" src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/trader%20monitors_2.jpg?1505992351" /> </div> </div> </div> http://www.zerohedge.com/news/2017-09-21/why-economic-data-no-longer-matters#comments Bank of England BOE Capital Markets Central Banks Economics Economy European Central Bank Federal Reserve System fixed Inflation Janet Yellen Janet Yellen Macro Macroeconomics MPC PCE Quantitative Easing Source code US Federal Reserve Thu, 21 Sep 2017 11:14:36 +0000 Tyler Durden 603895 at http://www.zerohedge.com Traders Yawn After Fed's "Great Unwind" http://www.zerohedge.com/news/2017-09-21/traders-yawn-after-feds-great-unwind <p>One day after the much anticipated Fed announcement in which Yellen unveiled the "Great Unwinding" of a decade of aggressive stimulus, it has been a mostly quiet session as the Fed's intentions had been widely telegraphed (besides the December rate hike which now appears assured), despite a spate of other central bank announcements, most notably out of Japan and Norway, both of which kept policy unchanged as expected. </p> <p>“Yesterday was a momentous day - the beginning of the end of QE,” Bhanu Baweja a cross-asset strategist at UBS, told Bloomberg TV. “The market for the first time is now moving closer to the dots as opposed to the dots moving towards the market. There’s more to come on that front. ”</p> <p>Despite the excitement, S&amp;P futures are unchanged, holding near all-time high as European and Asian shares rise in volumeless, rangebound trade, and oil retreated while the dollar edged marginally lower through the European session after yesterday’s Fed-inspired rally which sent the the dollar to a two-month high versus the yen on Thursday and sent bonds and commodities lower. Along with dollar bulls, European bank stocks cheered the coming higher interest rates which should help their profits, rising over 1.5% as a weaker euro helped the STOXX 600. Shorter-term, 2-year U.S. government bond yields steadied after hitting their highest in nine years.</p> <p>“Initial reaction is fairly straightforward,” said Saxo Bank head of FX strategy John Hardy. “They (the Fed) still kept the December hike (signal) in there and the market is being reluctantly tugged in the direction of having to price that in.”</p> <p>The key central bank event overnight was the BoJ, which kept its monetary policy unchanged as expected with NIRP maintained at -0.10% and the 10yr yield target at around 0%. The BoJ stated that the decision on yield curve control was made by 8-1 decision in which known reflationist Kataoka dissented as he viewed that it was insufficient to meeting inflation goal by around fiscal 2019, although surprisingly he did not propose a preferred regime. BOJ head Kuroda spoke after the BoJ announcement, sticking to his usual rhetoric: he stated that the bank will not move away from its 2% inflation target although the BOJ "still have a distance to 2% price targe" and aded that buying equity ETFs was key to hitting the bank's inflation target, resulting in some marginal weakness in JPY as he spoke, leaving USD/JPY to break past FOMC highs, and print fresh session highs through 112.70, the highest in two months, although it has since pared some losses.</p> <p>Japanese shares extended this week’s rally as the yen fell on the U.S. Federal Reserve’s hawkish tone, even as the benchmark Topix index came off earlier highs after the BOJ kept its policy rate unchanged. “<strong>It’s been reaffirmed that BOJ will stand by its super easy monetary policy, making the yield gap between the U.S. and Japan widen further,” </strong>said Ikuo Mitsui, a fund manager at Aizawa Securities Co. in Tokyo. But “given the recent sharp gains in Japanese equities, investors may opt to stay on the sidelines to see how U.S. long-term yields and the foreign-exchange rate moves from here overnight.” The benchmark Topix index is heading for its best monthly performance since December, with automakers and banks contributing most to the gauge’s gains Thursday.</p> <p>The dollar pared an earlier advance and West Texas crude fell. The Bloomberg dollar index extended gains overnight, rising a second day in the aftermath of the Fed meeting while gold dropped below $1,300 per ounce. EURUSD traded in a tight 1.1866-1.1919 range while the ten fell to a 2-month low of 112.72 versus USD as BOJ kept policy unchanged. Australian dollar extends overnight weakness amid declines in base metals, coupled with S&amp;P downgrade of China’s sovereign rating. </p> <p>Asia’s emerging-market currencies fell, led by South Korea’s won, after the Federal Reserve maintained its forecast for another interest-rate increase this year and indicated three more hikes were likely in 2018. The MSCI EM Asia Index of stocks and most sovereign bonds declined. </p> <p><strong>“The dollar could see a further technical rally and we should see weaker Asian currencies,” </strong>said Sim Moh Siong, a currency strategist at Bank of Singapore.<strong> “The message is that the Fed would like to get on with the job in terms of tightening. The market was only pricing one rate hike by the end of next year.” </strong></p> <p>The Norwegian krone spiked higher after the central bank kept its interest rate unchanged at 0.5%, but adjusted the rate-path forecast higher. The new rate path now begins rising in Q2 18, more hawkish than expected, but still first full hike not before Q3 19.</p> <p><img src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/09/05/norges%20bank_0.png" width="500" height="250" /></p> <p>The hawkish Fed, weakened Asutralia's ASX 200 (-0.9%) with gold miners weighed after the precious metal felt the brunt of a firmer USD in the aftermath of the Fed, while Nikkei 225 (+0.4%) outperformed on a weaker currency. Chinese markets were indecisive with Hang Seng (Unch.) and Shanghai Comp (+0.2%) choppy after a reserved PBoC operation and an increase in Hong Kong money market rates, although Macau gambling names were higher on optimism ahead of National Day holidays.&nbsp; Following a tumble in the Yuan after the Fed announcement driven by a jump in the US Dollar, the Chinese currency was largely unchanged despite a downgrade by S&amp;P, which cut China's sovereign rating to A+, it first since 1999. While Chinese stocks were little changed, it was the latest move lower in Chinese commodities that has attracted attention, and overnight Iron Ore traded in Dalian slid by 4.7%, entering a bear market, down 22% from recent highs on declining demand, tougher seasonal pollution controls to come and less WMP "shadow capital" allocated to the commodity sector.</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/09/05/china%20iron%20ore.jpg"><img src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/09/05/china%20iron%20ore_0.jpg" width="500" height="242" /></a></p> <p>European equities advanced, led by banks on the back of the plunge in the Euro after yesterday's USD surge, while bonds followed Treasuries lower as investors digested the Federal Reserve’s plans to pursue both higher interest rates and balance-sheet reduction in the coming months. The Stoxx 600 Index, up 0.2% at publication, was also boosted by the previous session’s drop in the euro, while lenders including Intesa Sanpaolo SpA benefited from the prospect of higher yields. </p> <p>In rates, as the 10-year Treasury yield edged further toward 2.30% almost all government bond yields in Europe followed it higher: Germany’s 10-year yield rose three basis points to 0.47 percent, the highest in five weeks. Britain’s 10-year yield gained three basis points to 1.37 percent, the highest in seven months.</p> <p>The higher dollar strained commodity markets, where the underlying raw materials are priced in the U.S. currency. Gold hit a three-week low of $1,296 per ounce, Brent and WTI oil eased away from multi-month highs, while industrial metals copper and nickel tumbled 1 and 3 percent to more than one-month lows. Brent crude futures LCOc1 last stood at $56.17, down slightly from late U.S. levels as U.S. benchmark West Texas Intermediate drifted down to $50.64.</p> <p>Data include jobless claims and Philadelphia Fed business outlook. Scholastic and Presidio are reporting earnings.</p> <p><strong>Bulletin Headline Summary from RanSquawk</strong></p> <ul> <li>The Greenback remains stronger against its pairs following the FOMC</li> <li>BoJ, Riksbank and Norges Banks all in Focus</li> <li>Looking ahead, highlights include: weekly jobs data, Philly Fed and ECB’s Dragh</li> </ul> <p><strong>Market snapshot</strong></p> <ul> <li>S&amp;P 500 futures little changed at 2,503.70</li> <li>STOXX Europe 600 up 0.2% to 382.85</li> <li>MSCI Asia down 0.7% to 163.36</li> <li>MSCI Asia ex Japan down 0.6% to 541.44</li> <li>Nikkei up 0.2% to 20,347.48</li> <li>Topix up 0.05% to 1,668.74</li> <li>Hang Seng Index down 0.06% to 28,110.33</li> <li>Shanghai Composite down 0.2% to 3,357.81</li> <li>Sensex down 0.2% to 32,332.15</li> <li>Australia S&amp;P/ASX 200 down 0.9% to 5,655.42</li> <li>Kospi down 0.2% to 2,406.50</li> <li>German 10Y yield rose 3.0 bps to 0.473%</li> <li>Euro up 0.1% to $1.1909</li> <li>US 10Y yield rose 1 bps to 2.27%</li> <li>Italian 10Y yield rose 2.2 bps to 1.778%</li> <li>Spanish 10Y yield rose 3.1 bps to 1.613%</li> <li>Brent futures down 0.4% to $56.04/bbl</li> <li>Gold spot down 0.4% to $1,295.58</li> <li>U.S. Dollar Index down 0.1% to 92.41</li> </ul> <p><strong>Top Overnight News</strong></p> <ul> <li>S&amp;P Global Ratings cut China’s sovereign credit rating for first time since 1999, citing the risks from soaring debt, and revised its outlook to stable from negative. Rating was cut by one step, to A+ from AA-, the agency said in statement</li> <li>Yellen Brushes Aside Inflation ‘Mystery’ as Fed Eyes Rate Hike</li> <li>Google Buys HTC Talent for $1.1 Billion to Spur Devices Push</li> <li>BOJ left its target interest rates and asset-purchase program unchanged in an 8-1 vote, with new member Goushi Kataoka objecting; Kataoka argued there was little chance of reaching the BOJ’s inflation target by the projected time frame of around fiscal 2019</li> <li>U.K. PM May is said to be weighing whether to accept for the first time the need to discuss the EU’s demand for a “Brexit bill” of tens of billions of pounds, in a move designed to kick-start stalled negotiations</li> <li>Swiss inflation still is low, production capacity still not fully utilized despite a moderate recovery, the franc is still highly valued, and finally the interest-rate differential with foreign assets is small, SNB President Thomas Jordan said, according to Luzerner Zeitung</li> <li>New Zealand’s economy grew at 0.8% q/q in 2Q, matching estimates; the economy expanded 2.5% from a year earlier</li> <li>Anadarko Will Buy Back 10 Percent of Shares as Investors Agitate</li> <li>Beat or Miss? MiFID Will Make It Harder to Tell on Earnings Day</li> <li>Trump Has Allies Guessing on Iran Deal as U.S. Highlights Flaws</li> </ul> <p><strong>Asia equity markets were mixed </strong>as the region digested events from US, where the FOMC announced plan to begin balance sheet normalization as anticipated, and suggested increased prospects of a 3rd rate hike for 2017 as dot plot projections showed more committee members expect another hike by year-end. This weakened ASX 200 (-0.9%) with gold miners weighed after the precious metal felt the brunt of a firmer USD in the aftermath of the Fed, while Nikkei 225 (+0.4%) outperformed on a weaker currency. Chinese markets were indecisive with Hang Seng (Unch.) and Shanghai Comp (+0.2%) choppy after a reserved PBoC operation and an increase in Hong Kong money market rates, although Macau gambling names were higher on optimism ahead of National Day holidays. 10yr JGBs opened lower to track the declines in USTs and amid the heightened risk tone in Japan, although mild support was seen on return from the break after a somewhat dovish dissent at the BoJ. PBOC injected CNY 40bln via 7-day reverse repos and CNY 20bln via 28-day reverse repos.PBoC set CNY mid-point at 6.5867 (Prev. 6.5670)</p> <p><em>Top Asian News</em></p> <ul> <li>BlackRock Sells Singapore Office Tower for $1.5 Billion to CCT</li> <li>AIA Buys Commonwealth Bank’s Life Unit for A$3.8 Billion</li> <li>Tencent Enters Old-School Finance With Stake in China’s CICC</li> <li>Yen Bears Awaken as Fed Tips Hawkish While the BOJ Digs in</li> <li>Rupee Slides With Indian Bonds on Bets Fiscal Deficit Will Widen</li> </ul> <p><strong>European equities are marginally higher across the board, </strong>aided by the Fed’s hawkish rhetoric which led to a weaker EUR. The banking sector noticeably out-performers amid the increased likelihood of a FOMC December hike, with Commerzbank extending on gains after UniCredit showed interest in a deal with the German Bank. Further reports circulated that the German Government favours a merger between the Commerzbank and France’s BNP Paribas, seeing an evident bid in the French giants. Global bonds trade around lows, following the previously stated Fed rhetoric. The UK 5-year yields have touched their highest levels since the Brexit vote. The weakness in Europe this morning has led to dealers liquidating longs, further adding to the selling pressure.</p> <p><em>Top European News</em></p> <ul> <li>EU Unyielding on Brexit Leaves May With One Choice: Pay the Bill</li> <li>May to Test Limits of Money Pledges to Unlock Brexit Talks</li> <li>U.K. Budget Deficit Unexpectedly Narrows in Boost for Hammond</li> <li>The Russian Banking Analyst Who Predicted Deluge of Bailouts</li> <li>Norway Signals Tighter Monetary Policy Amid Economic Recovery</li> <li>Ryanair Downgraded at Kepler on Risks to Airline’s Cost Base</li> </ul> <p><strong>In currencies, </strong>the Central Bank theme continued today, noticeably from Scandinavia, as participants saw Minutes from Riksbank and an Interest Rate decision from Norway. The former noted that several board members highlighted the issue of an overheating economy, yet did note that there are no current signs of this. The SEK still saw a bid on these comments, as there is evident chatter of an overheating economy. The move was quickly retraced, as EUR bulls do remain in the market and the concerns of a heating economy were seemingly not an immediate concern. EUR/NOK saw a much firmer move following Norway’s interest rate decision, keeping their rate unchanged at 0.50%, however with increases to the medium term key policy rate resulted in EUR/NOK falling around 60pips. Kuroda spoke post BoJ, sticking to his usual rhetoric, where the BoJ kept monetary policy unchanged as expected. The decision on the yield curve control did see a lone dissenter, with new member Kataoka viewing it as insufficient to meeting the inflation goal by around 2019. The Governor stated that the bank will not move away from its 2% inflation target, resulting in some marginal weakness in JPY as he spoke, leaving USD/JPY to break past FOMC highs, and print fresh session highs through 112.70.</p> <p><strong>Commodities were mostly weaker </strong>with gold prices back below USD 1300/oz after the USD strengthened in the wake of the FOMC. Elsewhere, copper was also pressured alongside broad pressure in the complex and with selling exacerbated at the open of Chinese metals trade, while WTI took a breather from yesterday’s gains and was unchanged throughout the session.</p> <p><strong>Looking at the day ahead, </strong>the data due out includes initial jobless claims (which are expected to spike to 300k reflecting the recent storm and hurricane impacts), Philly Fed business outlook, FHFA house price index and conference board’s leading index. Away from the data, ECB President Mario Draghi is scheduled to make the keynote address at the second European Systemic&nbsp; Risk Board annual conference in Frankfurt at 2.30pm BST. Shortly after this hits your email the ECB’s Smets will speak in Frankfurt at an ‘Understanding Inflation’ conference which could be worth a watch. </p> <p><strong>US Event calendar</strong></p> <ul> <li>8:30am: Initial Jobless Claims, est. 301,500, prior 284,000; Continuing Claims, est. 1.98m, prior 1.94m</li> <li>8:30am: Philadelphia Fed Business Outlook, est. 17.1, prior 18.9</li> <li>9am: FHFA House Price Index MoM, est. 0.4%, prior 0.1%</li> <li>9:45am: Bloomberg Consumer Comfort, prior 51.9; Economic Expectations, prior 54</li> <li>10am: Leading Index, est. 0.3%, prior 0.3%</li> <li>10:15am: Fed’s Fisher Speaks at BOE Independence Conference, London</li> <li>12pm: Household Change in Net Worth, prior $2.35t</li> </ul> <p><strong>DB's Jim Reid concludes the overnight wrap</strong></p> <p>So what did we learn from the Fed and Yellen last night? Firstly we learnt that stopping reinvestment is a sideshow for now and that the market still cares more about the probability of a December hike and where the Fed thinks inflation is heading. Just briefly on the balance sheet run-off, they have committed to the plan from the June meeting of $10bn per month ($6bn USTs and $4bn Mortgages) with an incremental increase every 3 months until we get to $50bn. However on the rates and inflation outlook the committee and Yellen were on the hawkish side. As DB's Peter Hooper discusses in his note, barring negative surprises in the months just ahead, the Fed is on track to raise rates once more this year and three times in 2018. Yellen recognised that inflation has been running low recently but put a higher blame on one-off factors than was perhaps anticipated. At the same time she noted that monetary policy operates with a lag and that labour market tightness will eventually push inflation up.</p> <p>The complication for markets though is that beyond 2017, the FOMC will see a huge upheaval in its membership which could easily mean current member's thoughts are meaningless in a few months time and also that Mr Trump's fiscal plans (or lack of them) have the ability to completely change the debate. So its difficult to read too much into the current FOMC's forecasts. However for now December is very much live with the probability of a December rate hike moving from a shade under 50% to 64% by the US close (using Bloomberg's calculator). After trading with no great conviction in the lead up, 10y&nbsp; Treasury yields spiked around 6ps higher immediately after the announcement but have retraced around 2bps of the move. The Dollar rallied with the Euro hitting $1.2033 just before the announcement but falling after to range trade between $1.1850-1.1900 into the close and where it remains in the Asian session.</p> <p>Meanwhile the S&amp;P 500 finally snapped its run of 6 consecutive sessions of moving in an intraday range of less than 0.35% to close +0.06%% (with a range of around 0.5%). However the VIX closed below 10 (9.78) for the first time since the day before Mr Trump's "Fire and Fury" speech on August 9th. These moves came after equity and bond markets in Europe closed little changed (Stoxx 600 -0.04%, Bunds -0.9bps) although it’s worth noting the underperformance of Spanish assets (IBEX -0.83% and Spanish Bonds +2.3bps) following police raids of Catalan government offices ahead of the proposed&nbsp; independence referendum. Staying with central banks, overnight we’ve had the BoJ meeting with policy left&nbsp; unchanged as expected. However there was surprisingly one dissenter with new board member Kataoko voting for more stimulus. The vote was still 8-1 so it doesn't really impact the likelihood of a change in policy soon. The Yen has been a touch weaker (now at 2-month lows) but thats as much due to Dollar strength after the Fed. Kuroda's press conference starts at 7.30am BST. Ahead of this the Nikkei is +0.44%, with the Hang Seng +0.1% and the Shanghai Comp +0.2%. </p> <p>So with the big policy meetings now out of the way, it feels like the next significant hurdle for markets in the remaining two days this week is UK PM Theresa May’s speech in Florence tomorrow. The latest&nbsp;&nbsp; twist in the Brexit saga leading into this yesterday were the various reports suggesting that PM Theresa May was preparing to offer €20bn in budget contributions to the Europeans, and also that May had supposedly made peace with Foreign Secretary Boris Johnson following his resignation speculation on Tuesday. The EU have previously said that the UK has net liabilities of about €60bn so it remains to be&nbsp; seen how May’s offer will be taken, assuming it’s true.</p> <p>While we’re with the UK, the BoE hawks got a boost yesterday following the August retail sales data. Excluding fuel, sales jumped up a much better than expected +1.0% mom last month (vs. +0.1% expected) which in turn helped to push the annual rate up to +2.8% yoy from +1.7%. Including fuel, sales were also significantly better than expected (+1.0% mom vs. +0.2% expected). Separately, a BoE agents survey released yesterday reported a modest rise in labour costs in August. Sterling at one stage touched $1.3657 yesterday and a new post-Brexit high, before falling sharply after the Fed to close just below $1.35.</p> <p>Over at the ECB, it is worth noting the somewhat hawkish comments from governing council member Klaas Knot yesterday. He said that “against the backdrop of an increasingly reflationary environment, the tail risk of a deflationary spiral is no longer imminent. Consequently, the main rationale for central bank asset purchases has disappeared”. Knot was also upbeat about inflation trending back to target and also downplayed concern about the recent euro appreciation. If anything the comments seemed to be somewhat on-side with the Reuters article from earlier this week which suggested that policy makers were debating the possibility of a close-ended tapering commitment, which we’d imagine is a more hawkish outcome compared to what the market is expecting.</p> <p>Jumping back to politics and specifically Trump, it was interesting to note the Politico article yesterday suggesting that the ‘Big Six’ tax reform negotiators are due to release an update at some stage next week. The article suggests that the blueprint will include a corporate tax rate target of “lower than 20%” which would suggest a backing away of sorts from the 15% rate previously touted. The article also suggests that the announcement will include a move away from full and immediate expensing. The suggestion is that we should hear some of the new details in a scheduled address by President Trump on September 29th. However it’s possible that Treasury Secretary Mnuchin and NEC Director Cohn unveil details before that earlier in the week. So one to keep in mind. Also watch for a possible return of the heath care bill soon as various news outlets are suggesting that Senate Majority Leader Mitch McConnell plans a vote next week.</p> <p>Before we look at today’s calendar, in terms of the other economic data released yesterday, in Germany PPI for August was reported as nudging up a little more than expected (+0.2% mom vs. +0.1%&nbsp; expected) while in the US existing home sales for August were soft (-1.7% mom vs. +0.2% expected). </p> <p>Looking at the day ahead, this morning we’re kicking off with more data out of the UK with the August public sector net borrowing figures, while later this afternoon we’ll get the September consumer confidence reading for the Euro area. Over in the US the data due out includes initial jobless claims (which are expected to spike to 300k reflecting the recent storm and hurricane impacts), Philly Fed business outlook, FHFA house price index and conference board’s leading index. Away from the data, ECB President Mario Draghi is scheduled to make the keynote address at the second European Systemic&nbsp; Risk Board annual conference in Frankfurt at 2.30pm BST. Shortly after this hits your email the ECB’s Smets will speak in Frankfurt at an ‘Understanding Inflation’ conference which could be worth a watch. Fellow board member Peter Praet then speaks at the same conference at 10.30pm BST.</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="880" height="495" alt="" src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/trader%20sleeping%20%282%29_7.JPG?1505991217" /> </div> </div> </div> http://www.zerohedge.com/news/2017-09-21/traders-yawn-after-feds-great-unwind#comments AA- ASX 200 Australian Dollar Bank of England Bank of Japan Bank of Japan Bear Market BOE Bond Budget Deficit Business Catalan government CCT AIA Buys Commonwealth Bank’s Life Unit Central Banks Consumer Confidence Continuing Claims Copper Crude ECB Economy Equity Markets European Union federal government Federal Open Market Committee Federal Reserve Federal Reserve System Finance Fisher Gambling German government Germany Hang Seng 40 Hong Kong Inflation Inflation targeting Initial Jobless Claims Interest rate Iran Japan Jim Reid Monetary Policy Monetary policy Money MSCI EM Asia Nikkei Nikkei 225 Norway Open market operation People's Bank of China Philadelphia Fed Philly Fed ratings recovery Reuters S&P 500 S&P/ASX 200 Saxo Bank Scandinavia second European Systemic Risk Board SNB Stoxx 600 Topix US Federal Reserve US government West Texas Yen Yield Curve Yield curve Yuan Thu, 21 Sep 2017 10:57:02 +0000 Tyler Durden 603893 at http://www.zerohedge.com S&P Downgrades China To A+ From AA- Due To Soaring Debt Growth http://www.zerohedge.com/news/2017-09-21/sp-downgrades-china-aa-due-soaring-debt-growth <p>Four months after <a href="http://www.zerohedge.com/news/2017-05-23/yuan-tumbles-moodys-cuts-chinas-credit-rating-a1-warns-financial-strength-will-worse">Moody's downgraded China to A1 from Aa3</a>, unwittingly launching a startling surge in the Yuan as Beijing set forth to "prove" just how "stable" China truly is through its nationalized capital markets, moments ago S&amp;P followed suit when the rating agency also downgraded China from AA- to A+ for the first time since 1999 citing risks from soaring debt growth, <strong>less than a month before the most important congress for Chiina's communist leadership in the past five years is set to take place</strong>. In addition to cutting the sovereign rating by one notch, S&amp;P analysts also lowered their rating on three foreign banks that primarily operate in China, saying HSBC China, Hang Seng China and DBS Bank China Ltd. are unlikely to avoid default should the nation default on its sovereign debt. Following the downgrade, S&amp;P revised its outlook to stable from negative.</p> <p>“China’s prolonged period of strong credit growth has increased its economic and financial risks,” S&amp;P said. “Since 2009, claims by depository institutions on the resident nongovernment sector have increased&nbsp; rapidly. The increases have often been above the rate of income growth.&nbsp; Although this credit growth had contributed to strong real GDP growth and higher asset prices, we believe it has also diminished financial stability to&nbsp; some extent."</p> <p>According to commentators, the second downgrade of China this year represents ebbing international confidence China can strike a balance between maintaining economic growth and cleaning up its financial sector, <a href="https://www.bloomberg.com/news/articles/2017-09-21/s-p-lowers-china-s-rating-to-a-from-aa-says-outlook-stable">Bloomberg reported</a>. The move may also be uncomfortable for Communist Party officials, who are just weeks away from their twice-a-decade leadership reshuffle.</p> <p>The cut will “have a relatively big impact on Chinese enterprises since corporate ratings can’t be higher than the sovereign rating,” said Xia Le, an economist at Banco Bilbao Vizcaya Argentaria SA in Hong Kong. “It will affect corporate financing.”</p> <p>“The market has already speculated S&amp;P may cut soon after Moody’s downgraded,” said Tommy Xie, an economist at OCBC Bank in Singapore. “This isn’t so surprising.”</p> <p>S&amp;P said that its stable outlook "reflects our view that China will maintain robust economic performance over the next three to four years. We expect per capita real GDP growth to stay above 4% annually, even as public investment growth slows&nbsp; further. We also expect the stricter implementation of restrictions on&nbsp; subnational government off-budget borrowing to lead to a declining trend in the fiscal deficits, as measured by changes in general government debt in terms of GDP."</p> <p>Whereas the Yuan tumbled following the Moody's downgrade in May, ironically this time the currency has actually strenghtened after a brief kneejerk response lower.</p> <p>* * *</p> <p><em>Full S&amp;P text below.</em></p> <p><span style="text-decoration: underline;"><strong>People's Republic Of China Ratings Lowered To 'A+/A-1'; Outlook Stable</strong></span></p> <p>OVERVIEW</p> <ul> <li>China's prolonged period of strong credit growth has increased its&nbsp; economic and financial risks.</li> <li>We are therefore lowering our sovereign credit ratings on China to&nbsp; 'A+/A-1' from 'AA-/A-1+'. </li> <li>The stable outlook reflects our view that China will maintain its robust&nbsp; economic performance and improved fiscal performance in the next three to&nbsp; four years.</li> </ul> <p>RATING ACTION</p> <p>On Sept. 21, 2017, S&amp;P Global Ratings lowered the long-term sovereign credit&nbsp; ratings on China to 'A+' from 'AA-' and the short-term rating to 'A-1' from 'A-1+'. The outlook on the long-term rating is stable. We have also revised our transfer and convertibility risk assessment on China to 'A+' from 'AA-'.</p> <p><strong>The downgrade reflects our assessment that a prolonged period of strong credit growth has increased China's economic and financial risks</strong>. Since 2009, claims by depository institutions on the resident nongovernment sector have increased rapidly. The increases have often been above the rate of income growth. Although this credit growth had contributed to strong real GDP growth and higher asset prices, we believe it has also diminished financial stability to some extent.</p> <p>The recent intensification of government efforts to rein in corporate leverage could stabilize the trend of financial risk in the medium term. However, we foresee that credit growth in the next two to three years will remain at levels that will increase financial risks gradually.</p> <p>OUTLOOK</p> <p>The stable outlook reflects our view that China will maintain robust economic performance over the next three to four years. We expect per capita real GDP growth to stay above 4% annually, even as public investment growth slows further. We also expect the stricter implementation of restrictions on subnational government off-budget borrowing to lead to a declining trend in the fiscal deficits, as measured by changes in general government debt in terms of GDP.</p> <p>We may raise our ratings on China if credit growth slows significantly and is sustained well below the current rates while maintaining real GDP growth at healthy levels. In this scenario, we believe risks to financial stability and medium-term growth prospects will lessen to lift sovereign credit support.</p> <p>A downgrade could ensue if we see a higher likelihood that China will ease its efforts to stem growing financial risk and allow credit growth to accelerate to support economic growth. We expect such a trend to weaken the Chinese economy's resilience to shocks, limit the government's policy options, and increase the likelihood of a sharper decline in the trend growth rate. </p> <p>RATIONALE</p> <p>The ratings on China reflect our view of the government's reform agenda, growth prospects, and strong external metrics. On the other hand, we weigh hese strengths against certain credit factors that are weaker than what is typical for similarly rated peers. For example, China has lower average income, less transparency, and a more restricted flow of information.</p> <p>Institutional and economic profile: Reforms to budgetary framework and financial sector in progress </p> <ul> <li>China's policymaking has helped it to maintain consistently strong economic performances since the late 1970s.</li> <li>We project China's per capita GDP to rise to above US$10,000 by 2019, from a projected US$8,300 for 2017.</li> </ul> <p>The Chinese government is taking steps to bolster its economic and fiscal resilience. We view the government's anti-corruption campaign as a significant move to improve governance at state agencies, local governments, and state-owned enterprises (SOEs). Over time, this could translate into greater confidence in the rule of law, improvements in the private-sector business environment, more efficient resource allocation, and a stronger social contract.</p> <p>The government continues to make significant reforms to its budgetary framework and the financial sector. These changes could yield long-term benefits for China's economic development. The government also appears to be signaling that it will allow SOEs with lesser policy importance to exit the market either through merger, closure, or default in order to allocate resources more efficiently. More recently, it has also indicated financial stability as a top policy priority and is acting to rein in growth of public sector borrowing. However, we believe some local government financing vehicles, despite their diminishing importance, continue to fund public investment with borrowings that could require government resources to repay in the future.</p> <p>China's policymaking has helped it to maintain consistently strong economic performances since the late 1970s. However, coordination issues between the line ministries and the State Council sometimes lead to unpredictable and abrupt policy implementation. The authorities also have yet to develop an effective communication channel with the market to convey policy intent, heightening financial volatility at times. Moreover, China does not benefit from the checks and balances usually coming from the free flow of information. These characteristics can lead to the misallocation of resources and foster discontent over time.</p> <p>We expect China's economic growth to remain strong at close to 5.8% or more annually through at least 2020, corresponding to per capita real GDP growth of above 5.4% each year. We also expect credit growth in China to outpace that of nominal GDP over much of this period. </p> <p>We project China's per capita GDP to rise to above US$10,000 by 2019, from a projected US$8,300 for 2017, given our assumptions about growth and the continued strength of the renminbi's real effective exchange rate. Over the next three years, we expect final consumption's contribution to economic growth to increase. However, we believe the gross domestic investment rate is likely to remain above 40% of GDP.</p> <p>Flexibility and performance profile: External profile remains key strength</p> <ul> <li>We expect financial assets held by the public and financial sectors to exceed total external debt by more than 90% of current account receipts (CAR) at the end of 2017. <strong>At the same time, we estimate China's total external assets will exceed its external liabilities by 65% of its CAR.</strong></li> <li><strong>In 2017-2020, we project the increase in general government debt in each of these years at 2.8%-4.9% of GDP</strong>. We project net general government debt will fall toward 46% of GDP in the period to 2020 and interest cost to government revenue will remain below 5% throughout the forecast horizon.</li> <li><strong>We believe China's monetary policy is largely credible and effective. We believe the liberalization of deposit rates at banks in recent years is an important reform that could further improve monetary transmission in China.</strong></li> </ul> <p>China's external profile remains a key credit strength despite the recent decline of its foreign exchange reserves. We partly attribute the fall in reserves in 2016 to increased expectations of renminbi depreciation. Consequently, some private sector firms reduced or hedged their dollar debt and exporters kept a greater share of their proceeds in foreign exchange. We also attribute the accommodation of SOE and private-sector demand for foreign exchange as a willingness of officials to diversify China's external assets away from holdings of U.S. government debt to other investments of the financial and private sectors. </p> <p>China remains a large external creditor. We expect financial assets held by the public and financial sectors to exceed total external debt by more than 90% of current account receipts (CAR) at the end of 2017. At the same time, we estimate that China's total external assets will exceed its external liabilities by 65% of its CAR. China's external liquidity position is equally robust. We expect the country to sustain its current account surplus at more than 2% of GDP in 2017-2020. We project annual gross external financing needs in 2017-2020 to total less than 60% of CAR plus usable reserves.</p> <p>The increasing global use of the renminbi (RMB) also bolsters China's external financial resilience. According to the Bank for International Settlements' (BIS) "Triennial Central Bank Survey," published 2016, the renminbi was traded in 4% of foreign exchange transactions globally. We therefore assess the RMB as an actively traded currency. Demand for renminbi-denominated assets from both official and private-sector creditors could rise with the inclusion of the renminbi in the IMF's Special Drawing Rights basket of currencies. </p> <p>We expect the share of renminbi-denominated official reserves to rise over time. If the renminbi achieves reserve currency status (which we define as more than 3% of aggregated allocated international foreign exchange reserves), it could strengthen external and monetary support for the sovereign ratings. Although the People's Bank of China (the central bank) does not operate a fully floating foreign exchange regime, it has allowed greater flexibility in the nominal exchange rate over the past decade. Based on estimates from the BIS, the real effective exchange rate has appreciated by close to 10% since the end of 2011. Any future weakness of the renminbi needs to be analyzed in this light.</p> <p>China is gradually implementing an ambitious fiscal reform to improve fiscal transparency, budgetary planning and execution, and subnational debt management. These reforms could help the government to manage slower growth of fiscal revenue and lower its reliance on revenue from land sales.</p> <p>In 2017-2020, we expect the Chinese government to keep the reported general government deficit close to, or below, 2.5% of GDP. <strong>However, off-balance-sheet borrowing could continue for the next two to three years. This reflects both the financing needs of public works started before 2015 as well as some new projects that the central government is willing to authorize to support growth. Consequently, we project the increase in general government debt in each of these years at 2.8%-4.9% of GDP.</strong></p> <p><strong>We now include the entire sum of nearly RMB25 trillion (US$3.9 trillion, or approximately 36% of 2015 GDP) of government-related debt from local government financing vehicles in general government debt. We have also included the debts of China Railway Corp. in general government debt. The company was previously the Ministry of Rail but was incorporated as a special industrial enterprise. Bonds issued by the company are held on China banks' books at a lower capital charge compared with other corporate debt. </strong></p> <p>We offset these debts to compute net general government debt with fiscal deposits held by the government, net assets of the China Investment Corp. and net assets of the National Council of Social Security Funds. Using this method, we project net general government debt will fall toward 46% of GDP in the period to 2020 and interest cost to government revenue will remain below 5% throughout the forecast horizon. These forecasts in turn follow from our assumptions regarding real growth and ample domestic liquidity keeping financing cost low for the government.</p> <p>Although the fiscalization of the local government financing vehicles and China Rail Corp. has raised our figure for general government debt, it has simultaneously decreased our estimates for contingent liabilities to the government from this sector. Entities with weak financial metrics owe much of the financing vehicle loans that are being redeemed through government bond issuance. By putting these loans on the government's balance sheet, the government has significantly reduced the banks' credit risks, in our view.</p> <p><strong>We believe China's monetary policy is largely credible and effective, as demonstrated by its track record of low inflation and its pursuit of financial sector reform. </strong>Consumer price index inflation is likely to remain below 3% annually over 2017-2020. Although the central government--through the State Council--has the final say in setting interest rates, we find that the central bank has significant operational independence, especially regarding open-market operations. These operations affect the economy through a largely responsive interbank market and a sizable and fast-expanding domestic bond market. The liberalization of deposit rates at banks in recent years is an important reform that could further improve monetary transmission in China.</p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="640" height="360" alt="" src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/xi%20teaser%203_0.jpg?1505987292" /> </div> </div> </div> http://www.zerohedge.com/news/2017-09-21/sp-downgrades-china-aa-due-soaring-debt-growth#comments BIS Bond Business Capital Markets China Chinese government Communist Party Corporate Leverage Credit rating agency Creditors default Economy Economy of China Economy of the United States Finance Government debt Gross domestic product Hong Kong International Monetary Fund Ministry of Rail Monetary Policy Money National Council of Social Security Funds National debt of the United States Nominal GDP People's Bank Of China People's Bank of China Political debates about the United States federal budget Rating Agency ratings Renminbi Reserve Currency Sovereign Debt Standard & Poor's State Council Transparency United States fiscal cliff US government Volatility Yuan Thu, 21 Sep 2017 09:57:45 +0000 Tyler Durden 603892 at http://www.zerohedge.com Let Catalonia Decide http://www.zerohedge.com/news/2017-09-20/let-catalonia-decide <p>The Independent reports&nbsp;<a href="http://www.independent.co.uk/news/world/europe/catalonia-independence-referendum-catalan-police-storm-ministries-arrested-josep-maria-jov-a7956581.html" rel="noopener" target="_blank">Spanish police storm Catalan government buildings to stop independence referendum</a>.</p> <p><a href="https://mishgea.files.wordpress.com/2017/09/self-evident.png"><img class="alignnone size-large wp-image-48111" height="381" src="https://mishgea.files.wordpress.com/2017/09/self-evident.png?w=529&amp;h=381" width="529" /></a></p> <p>As <a href="https://mishtalk.com/2017/09/20/de-facto-state-of-emergency-spanish-police-storm-catalonia-government-office/">MishTalk&#39;s Mike Shedlock details</a>, <strong>the Catalan president described the raids as a &ldquo;co-ordinated police assault&rdquo; and a &ldquo;de facto state of emergency&rdquo;.</strong></p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>Spanish national police have stormed ministries and buildings belonging to Catalonia&rsquo;s regional government to put a stop to the region&rsquo;s independence referendum.</p> <p>&nbsp;</p> <p>In the early hours of the morning armed officers arrived at various Catalan ministries, including the economy department, foreign affairs department, and social affairs department, Spanish media reports.</p> <p>&nbsp;</p> <p>At least twelve Catalan officials are said to have been arrested, including the chief aide to Catalonia&rsquo;s deputy prime minister, Josep Maria Jové. The arrests come as the mayors of Catalan towns who back the referendum were yesterday questioned by state prosecutors.</p> <p>&nbsp;</p> <p>Pro-independence crowds have formed outside the regional ministries in support of the provincial government and in protest against the raids and searches.</p> <p>&nbsp;</p> <p>Speaking at lunchtime Carles Puigdemont, the president of the Catalonian government, said the Spanish government had &ldquo;de facto suspended&rdquo; home rule in the province.</p> </blockquote> <p><span style="text-decoration: underline;"><strong>Spanish Assembly Rejects Use of Force</strong></span></p> <p><strong>The tactics of prime minister Mariano Rajoy have not won him any popularity contests. </strong></p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>The Spanish national assembly on Wednesday rejected a motion to support the Spanish government&rsquo;s heavy-handed response to the the referendum by 166 votes against to 158 in favor, after the centre-left opposition party PSOE teamed up with left-wingers Podemos and smaller separatist parties in the parliament.</p> <p>&nbsp;</p> <p>After news of the raids broke on Wednesday, separatist political parties, as well as Podemos, cancelled all their planned political events for the rest of the day.</p> <p>&nbsp;</p> <p>&ldquo;It is unacceptable for there to be political prisoners in a European democracy. The Partido Popular leads us to an authoritarian regression that cannot be tolerated,&rdquo; a spokesperson for Podemos said on social media.</p> </blockquote> <p><span style="text-decoration: underline;"><strong>Government Suspended</strong></span></p> <p>The Guardian reports<strong> <a href="https://www.theguardian.com/world/2017/sep/20/spain-guardia-civil-raid-catalan-government-hq-referendum-row" rel="noopener" target="_blank">Catalan president says Madrid is suspending region&rsquo;s autonomy</a>.</strong></p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>The Catalan president has accused the Spanish government of effectively suspending the region&rsquo;s autonomy and declaring a de facto state of emergency. Police officers raided Catalan government offices on Wednesday and arrested 12 senior officials in a bid to stop an independence referendum being held in less than two weeks&rsquo; time.</p> <p>&nbsp;</p> <p>Carles Puigdemont described the raids as a &ldquo;a co-ordinated police assault&rdquo; that showed that Madrid &ldquo;has de facto suspended self-government and applied a de facto state of emergency&rdquo; in Catalonia.</p> <p>&nbsp;</p> <p>Speaking after an emergency ministerial meeting, Puigdemont vowed the poll would go ahead, adding: &ldquo;We reaffirm our peaceful response. The Spanish government has crossed a red line and become a democratic disgrace.&rdquo;</p> <p>&nbsp;</p> <p>The mayor of Barcelona, Ada Colau, tweeted: &ldquo;Searching public bodies and arresting officials for political reasons is a democratic scandal. We defend Catalan institutions.&rdquo;</p> </blockquote> <p><span style="text-decoration: underline;"><strong>Mayor of Barcelona, Ada Colau </strong></span></p> <blockquote class="twitter-tweet"><p dir="ltr" lang="und">Es un escàndol democràtic que s&#39;escorcolli institucions i es detinguin càrrecs públics per motius polítics. Defensem institucions catalanes</p> <p>&mdash; Ada Colau (@AdaColau) <a href="https://twitter.com/AdaColau/status/910410999328624640">September 20, 2017</a></p></blockquote> <script src="//platform.twitter.com/widgets.js"></script><blockquote class="twitter-tweet"><p dir="ltr" lang="en">Best Wishes to Catalonia<br />Be courageous - Let the Vote Take Place!</p> <p>&mdash; Mike Mish Shedlock (@MishGEA) <a href="https://twitter.com/MishGEA/status/910529799474388992">September 20, 2017</a></p></blockquote> <script src="//platform.twitter.com/widgets.js"></script><p>Mayor Colau is against independence but she does want to allow the vote.</p> <p><span style="text-decoration: underline;"><strong>What if Britain treated Scotland the way Spain treats Catalonia? </strong></span></p> <p>UK MP Daniel Hannon hits the nail on the head with his <a href="http://www.telegraph.co.uk/news/2017/09/17/europhiles-really-despise-boris-johnson-irrepressible-cheerfulness/" rel="noopener" target="_blank">Telegraph</a> piece on Europhiles.</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>Imagine that, instead of agreeing terms with Alex Salmond on an independence referendum, David Cameron had prosecuted him. Suppose Tory MPs had called for troops to be deployed to prevent a vote, and for Scots to be Anglicised. Scottish voters would have felt, with justice, that they were being treated as conquered vassals and the United Kingdom would have cracked apart.</p> <p>&nbsp;</p> <p>Incredibly, Spanish conservatives are taking this line on Catalonia. For many on the Spanish Right, hostility to separatism is the core of their beliefs. They justify their inflexibility by pointing to the letter of the constitution, which forbids such plebiscites, but their motive is more atavistic than legalistic. Paradoxically, they are creating the very thing they purport to oppose. You persuade people to stay by making clear they are free to leave.</p> </blockquote> <p>Rajoy&rsquo;s tactics have done nothing but drum up support for independence.</p> <p><span style="text-decoration: underline;"><strong>Catalonia Shortchanged?</strong></span></p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>In Catalonia&rsquo;s case, the regional government says that&nbsp;<a href="http://www.diplocat.cat/files/docs/140909-E06EN-FiscalDeficitCataloniaCentralSpanishAdministration.pdf" rel="noopener noreferrer" target="_blank">Madrid shortchanged it by somewhere in the range of &euro;11 billion to &euro;15 billion</a>&nbsp;in 2011 (between &euro;1,500 and &euro;2,000 per capita), depending on how one does the calculations. The central government countered by saying the gap was&nbsp;<a href="http://www.lavanguardia.com/politica/20140723/54412386000/deficit-fiscal-catalunya-8-455-milllones.html" rel="noopener noreferrer" target="_blank">only &euro;8.5 billion</a>.</p> </blockquote> <p>By the Spanish government&rsquo;s own admission, Catalonia is shortchanged.</p> <p>Those are 2011 numbers, from a 2015 article in <a href="http://fortune.com/2015/01/30/spain-catalonia-independence-taxes-economy/" rel="noopener" target="_blank">Fortune</a>, but I have seen nothing more recent.</p> <p>A September 2017 BBC article, referenced below, mentions the same numbers.</p> <p><span style="text-decoration: underline;"><strong>Region or Nation?</strong></span></p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p><strong>&ldquo;<em>With its own language, a recorded history of more than 1,000 years as a distinct region, and a population nearly as big as Switzerland&rsquo;s (7.5 million), Catalonia&rsquo;s claim to nationhood is serious.</em>&rdquo;</strong></p> </blockquote> <p>The above snip from the BBC report <a href="http://www.bbc.com/news/world-europe-29478415" rel="noopener" target="_blank">Catalonia&rsquo;s Collision Course with Madrid</a>.</p> <p><em><strong>I support that view. More importantly, so do 700 mayors in the region.</strong></em></p> <p><em><strong>Let the voting begin.</strong></em></p> <p>Which leaves us with the simple question - as the Spanish government attempts to &#39;save&#39; the Catalan people from &#39;themselves&#39; - <em><span style="text-decoration: underline;"><strong> Should Catalonia be independent?</strong></span></em></p> <p>As <a href="https://mises.org/blog/let-catalonia-decide">The Mises Institute&#39;s Jeff Deist explains</a>, <u><strong>surely Catalans, and nobody else, must answer that question. </strong></u></p> <p><strong>Some Catalans consider themselves Spanish and some don&rsquo;t. </strong>Many Spaniards consider Catalonia part of Spain, while some don&rsquo;t. But it&rsquo;s clear that a significant number of Catalans feel politically conquered, and resent it.<em><strong> Why should they live under a Spanish government, when their history, culture, and language are not Spanish?</strong></em></p> <p>It&rsquo;s a fair question, and one for which western democracies have no easy answer. If democratic voting is sacrosanct, are the results also sacrosanct, whatever the outcome? Do democrats really want democracy?</p> <p>Ludwig von Mises summed up the problem succinctly <a href="https://mises.org/library/liberalism-classical-tradition/html/p/41">in </a><em><a href="https://mises.org/library/liberalism-classical-tradition/html/p/41">Liberalism</a></em>:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>The situation of having to belong to a state to which one does not wish to belong is no less onerous if it is the result of an election than if one must endure it as the consequence of a military conquest.</p> </blockquote> <p>Certainly many Hillary Clinton voters in the United States <a href="https://mises.org/blog/left-embraces-secession-calexit">feel this way today</a>. They don&rsquo;t consider Trump a legitimate president (even aside from the electoral college issue), and are not particularly interested in respecting election results or the views of Trump voters. They feel &ldquo;their&rdquo; government not only does not represent them, but is actively hostile toward them.</p> <p>They feel, in short, like many Catalans.</p> <p><strong>Understanding any region&rsquo;s local politics and history is always a dangerous proposition for outsiders.</strong> Catalonia has a messy and complex past, dating back to the late 15th century and the nascent Kingdom of Spain. Momentum for independence from Madrid gathered throughout the 20th century, culminating in a 2014 referendum which the Spanish central government attempted to block in court. Over 80% of voters supported independence, yet only about a third of Catalans participated in the vote. It is unclear whether a scheduled October 1st vote on a new referendum will happen, given the possibility of Spanish <a href="http://www.bbc.com/news/world-europe-29478415" target="_blank">criminal charges</a> against the Catalan politicians behind it.</p> <h4><u>Should&nbsp;Secession Be Allowed for Groups We Disagree With?&nbsp;</u></h4> <p>There are also very <a href="https://www.theguardian.com/world/2017/sep/19/temperature-climbs-in-spain-as-catalan-question-comes-to-a-head" target="_blank">serious questions</a> about what an independent Catalonia would mean, not only for economically wobbly Spain but also neighboring France and the EU.</p> <p>Marta Hidalgo, a Spanish financial adviser and 2017 Mises University graduate, argues that Catalonia <em>is </em>Spain. She questions the region&rsquo;s historical claims to independence, arguing that Catalan nationalism has been fraught with propaganda from those seeking to make a political movement out of a minority sentiment. She also points out that Spain is Catalonia&rsquo;s principal market, propping up the Catalan economy through duties and tariffs on (otherwise) cheaper and better imports from England or Germany. And she stresses polls showing only about 2 million out of 7.5 million Catalans support secession.</p> <p>But these arguments don&rsquo;t address the fundamental underlying issue of self-determination. Should Catalans be allowed to make their own decisions, even if those decisions are &ldquo;bad,&rdquo; and we (or Spain or the EU) disagree with them?</p> <p><strong>Yes, some people would be worse off under an independent Catalan state &mdash; assuming Ms. Hidalgo is correct. But by the same token, some Spaniards may be objectively better off as a result of becoming unyoked politically from Catalonia. It&rsquo;s a complex factual question, and both sides have arguments.</strong></p> <p>But whether an independent Catalonia would be better off or worse off is highly subjective, and simply not for us to decide.</p> <h4><u>Self-Determination Is the Highest Political End</u></h4> <p><strong>For libertarians, self-determination is the highest political end. In political terms, self-determination <em>is</em> liberty. In an ideal world, self-determination extends all the way to the individual, who enjoys complete political sovereignty over his or her life. <a href="https://mises.org/blog/anarchism-and-radical-decentralization-are-same-thing">The often misued term for this degree of complete self-determination is anarchy</a>.</strong></p> <p>In an imperfect world, however, libertarians should support smaller and more decentralized governments as a pragmatic step toward greater liberty. Our goal should be to devolve political power whenever possible, making states less powerful and easier to avoid. Barcelona is less ominous than Madrid. The&nbsp;Legislature&nbsp;in a US state is less fearsome than Congress in Washington DC. Street gangs are bad, but they can be avoided in ways Uncle Sam cannot.</p> <p>Ultimately, the argument in favor of Catalonian&nbsp;independence mirrors the <a href="https://mises.org/library/secession-begins-home-0">argument</a> for Scottish independence in 2014:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>Some &hellip; libertarians claimed that we should oppose the referendum on the grounds that it would create a new government, and thus two states would exist in the place of one. But reducing the size and scope of any single state&rsquo;s dominion is healthy for liberty, because it leads us closer to the ultimate goal of self-determination at the individual level, to granting each of us sovereignty over our lives. It&rsquo;s always good to reduce the number of individuals over which any government asserts authority.</p> <p>&nbsp;</p> <p>Furthermore, some conservatives argue that we should not support secession movements where the breakaway movement is likely to create a government that is more &ldquo;liberal&rdquo; than the one it replaces. This was the case in Scotland, where younger Scots who supported the independence referendum in greater numbers hoped to create strong ties with the EU parliament in Brussels and build a Scandinavian-style welfare state run from Holyrood (never mind that Tories in London were overjoyed at the prospect of jettisoning a huge number of Labour supporters!).</p> <p>&nbsp;</p> <p>But if support for the principle of self-determination is to have any meaning whatsoever, it must allow for others to make decisions with which we disagree. Political competition can only benefit all of us. What neither progressives nor conservatives understand &mdash; or worse, maybe they do understand &mdash; is that secession provides a mechanism for real diversity, a world where we are not all yoked together. It provides a way for people with widely divergent views and interests to live peaceably as neighbors instead of suffering under one commanding central government that pits them against each other.</p> </blockquote> <p><u><em><strong>So let Catalonia go, if it chooses.</strong></em></u></p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="228" height="136" alt="" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/20170920_cat.jpg?1505966005" /> </div> </div> </div> http://www.zerohedge.com/news/2017-09-20/let-catalonia-decide#comments 8.5% Autonomous communities of Spain Carles Puigdemont Catalan government Catalan independence Catalan nationalism Catalonia Catalonian government Congress European Union France Generalitat de Catalunya Germany Government of Catalonia Independence referendum Independent reports Spanish police storm Catalan government Ludwig von Mises Mises Institute Mises Institute Mises University Nationalism Nationalisms and regionalisms of Spain Politics Politics of Catalonia provincial government PSOE regional government Spanish government Spanish national assembly Statute of Autonomy of Catalonia Switzerland UK MP United Kingdom Thu, 21 Sep 2017 09:00:00 +0000 Tyler Durden 603891 at http://www.zerohedge.com Turkish Authorities Top For Twitter Censorship http://www.zerohedge.com/news/2017-09-20/turkish-authorities-top-twitter-censorship <p>Twitter has evolved to become an important outlet for political discussion, debate and commentary. The platform was notably put to use to successfully organize anti-government protests on numerous occasions, and <a href="https://www.statista.com/chart/11177/turkish-authorities-top-for-twitter-censorship/">as Statista&#39;s Niall McCarthy notes</a>, <strong>this put some world leaders on edge, unsurprisingly leading to some countries&nbsp;<a href="https://www.statista.com/chart/6839/where-popular-apps-are-under-assault/" target="_blank">clamping down on the network&#39;s content</a>.</strong></p> <p>Twitter&#39;s latest&nbsp;<a href="https://transparency.twitter.com/en/information-requests.html" target="_blank">transparency report</a>&nbsp;shows the number of content removal requests made by different countries as well as the share that were granted.</p> <p><a href="https://www.statista.com/chart/11177/turkish-authorities-top-for-twitter-censorship/" title="Infographic: Turkish Authorities Top For Twitter Censorship | Statista"><img alt="Infographic: Turkish Authorities Top For Twitter Censorship | Statista" height="428" src="https://infographic.statista.com/normal/chartoftheday_11177_turkish_authorities_top_for_twitter_censorship_n.jpg" width="600" /></a></p> <p><em>You will find more statistics at <a href="https://www.statista.com/">Statista</a></em></p> <p><strong>In the first six months of 2017, Turkey was the most controlling of Twitter content, </strong>making nearly 2,000 removal requests between January 01 and June 30. 11 percent of those requests were granted to some extent.</p> <p><strong>Turkish authorities&nbsp;<a href="https://www.statista.com/chart/5333/the-targets-of-erdogans-purge/" target="_blank">detained thousands of people</a>&nbsp;after last July&#39;s failed coup with President Tayyip Erdogan clamping down on what he percieves as illegal online activity for years</strong>.</p> <p>Russia also has a long history of attempting to silence Putin critics and it comes second, making a total of 1,213 removal requests up to June 30th.</p> <p>In the first six months of the year, <strong>90 percent of all removal requests came from just four countries</strong> - Turkey, Russia, France and Germany.</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="740" height="311" alt="" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/20170920_twtr.jpg?1505965522" /> </div> </div> </div> http://www.zerohedge.com/news/2017-09-20/turkish-authorities-top-twitter-censorship#comments Computing France Geography of Asia Germany Politics Politics Recep Tayyip Erdo?an Software Transparency Transparency report Turkey Turkey Twitter Twitter Twitter Thu, 21 Sep 2017 08:15:00 +0000 Tyler Durden 603890 at http://www.zerohedge.com