en The Good Ol' Days: When Tax Rates Were 90 Percent <p><em><a href="">Submitted by Andrew Syrios via The Mises Institute,</a></em></p> <div class="body-content embedded-media"> <p><strong>It&rsquo;s quite interesting indeed when both progressives and conservatives seem to be nostalgic for those good ol&rsquo; days in the 1950s, for different reasons, of course. </strong>Conservatives want to go back to the nuclear <em>Leave It to Beaver</em> family and what not while liberals like to talk about those 90-percent tax rates that we owe our prosperity to. Or something like that. We&rsquo;ll focus on the latter for the time being.</p> <p><strong>Bernie Sanders <a href="" target="_blank">noted that</a> &ldquo;When radical, socialist Dwight D. Eisenhower was president, I think the highest marginal tax rate was something like 90 percent.&rdquo;</strong> <a href=";emc=rss&amp;_r=1&amp;pagewanted=print" target="_blank">Paul Krugman</a> said the same thing as did Michael Moore in his film <a href="" target="_blank"><em>Capitalism: A Love Story</em></a> and you&rsquo;ll see this factoid repeated on countless memes floating around the Internet.</p> <p><strong>However, what a tax rate is and what is actually paid are two very different things.</strong> Indeed, in 1955, the only people paying 90 percent (actually 91 percent) were those <a href="" target="_blank">making over $3,425,766</a> when adjusted for inflation. And these are marginal rates, so they only paid that on any earnings above that threshold.</p> <p><strong>Tax law has changed a lot over the years. </strong>As you can see by looking at the top marginal rate versus the inflation-adjusted top income bracket for those filing jointly from 1950 until 2013:</p> <div class="ds-1col file file-image file-image-png view-mode-wide_player clearfix"> <div class="img img-responsive"><img alt="Top marginal rate versus the inflation-adjusted top income bracket" src="" style="width: 600px; height: 367px;" title="Top marginal rate versus the inflation-adjusted top income bracket" /></div> </div> <h6><em>Source: <a href="" target="_blank">Tax Foundation</a>.</em></h6> <p><strong>Today, there are seven tax brackets.</strong> In 1989, there were only two. In 1955, there were an utterly ridiculous twenty-four different tax brackets.</p> <p>Regardless, one should ask how much the rich were actually paying. <strong>It should be noteworthy that back in the 1950s, the government wasn&rsquo;t actually collecting any more in tax revenue as a percentage of GDP.</strong> There&rsquo;s something called <a href="" target="_blank">Hauser&rsquo;s Law</a>, which basically states there is a maximum threshold on how much the government can tax out of its population. I think this &ldquo;law&rdquo; is no such thing. If the government really wanted to expropriate more, it could do so. But Hauser&rsquo;s Law based on the fact that in pretty much every year since 1950, the government has collected between 17 to 20 percent of GDP in taxes. Here are the government tax receipts compared to the top marginal tax rate:</p> <div class="ds-1col file file-image file-image-png view-mode-wide_player clearfix"> <div class="img img-responsive"><img alt="Total Tax Receipts vs Top Marginal Tax Rate" src="" style="width: 599px; height: 371px;" title="Total Tax Receipts vs Top Marginal Tax Rate" /></div> </div> <h6><em>Sources: <a href="" target="_blank">Tax Foundation</a> and <a href="" target="_blank">Tax Policy Center</a>.</em></h6> <p><u><strong>As you can see, no matter what the rate has been, the tax receipts have pretty much been the same. </strong></u>Whether or not you can raise the amount collected is really immaterial here, the only thing that matters is what has happened (particularly when tax rates were over 90 percent) and it&rsquo;s pretty much always been the same.</p> <p>Of course, there are a lot of other taxes than personal income taxes. Still, tax receipts from personal income taxes have consistently been <a href="" target="_blank">between 7 and 9 percent</a>. In 2014, they were 8.1 percent. <strong>Furthermore, as you can see, the chart looks pretty much the same when looking at personal income tax receipts and the top marginal tax rate.</strong></p> <div class="ds-1col file file-image file-image-png view-mode-wide_player clearfix"> <div class="img img-responsive"><img alt="Income Tax Receipts vs Top Marginal Tax Rate" src="" style="width: 601px; height: 345px;" title="Income Tax Receipts vs Top Marginal Tax Rate" /></div> </div> <h6><em>Source: <a href="" target="_blank">Tax Foundation</a>.</em></h6> <p><strong>But who is paying these taxes a liberal might retort? Has the burden fallen more on the middle and lower classes? Well, no.</strong> In fact, the percentage of taxes paid by the highest quintile of income earners <a href="" target="_blank">has steadily gone up since 1980</a>. In 1980, the top 20 percent paid about 55 percent of all income taxes. Today, it&rsquo;s just shy of 70 percent. The same goes for the top 1 percent, which went from about 15 percent in 1980 to just shy of 30 percent today.</p> <p><strong>The first of many reasons that this was the case is that we need to look at the effective tax rate, not the top marginal tax rate.</strong> So for example, if I make $20,000, I owe 10 percent under today&rsquo;s tax code, but only on any income over $18,450 (filing jointly). So I only owe 10 percent of $1550, or $155. Yes, my marginal tax rate may be 10 percent, but my effective tax rate is 0.78 percent.</p> <p>A study from the Congressional Research Service concludes that the effective tax rate for the top 0.01 percent of income earners during the period of 91-percent income taxes was <a href="" target="_blank">actually 45 percent</a>. Given that the top bracket is so much lower today ($3,425,766 in 1955 vs. $413,200 in 2015), the 39.6 percent top marginal rate probably yields something pretty close.</p> <p>Some of this was because corporate rates have always <a href="" target="_blank">been lower than 50 percent</a>. And as <a href="" target="_blank">Alan Reynolds noted</a>, when the personal income tax rates were reduced, it &ldquo;&hellip; induced thousands of businesses to switch from filing under the corporate tax system to filing under the individual tax system.&rdquo; In other words, many rich people kept their money in corporate entities when personal tax rates were higher.</p> <p><strong>Another major factor was the myriad of deductions and loop holes that <u>used </u>to be available. </strong>Many of these were eliminated by the <a href="" target="_blank">Tax Reform Act of 1986</a>, which by no coincidence coincided with the biggest rate deductions. For one, interest had previously been deductible on all loans. After the act,<a href="" target="_blank"> it has only been deductible on home mortgages</a>.</p> <p><strong>But what was probably the <a href="" target="_blank">biggest lost deduction</a> for wealthy individuals was the elimination of deductions on passive investment losses on real estate. </strong>Before 1986, wealthy individuals would often buy real estate with no hopes at all of it cash flowing. That wasn&rsquo;t the point. The point was that real estate is depreciated every year in the eyes of the IRS. Even though in the long run, properties usually go up in value, the IRS assumes that every twenty-seven-and-a-half years a property&rsquo;s value will depreciate to zero.</p> <p>This &ldquo;loss&rdquo; can be written off. So, for example, say a man earning $100,000 a year buys a property worth $275,000. He rents out the property and breaks even on it. The tax code allows that person to write off $10,000 as a loss which he can count against his income for that year. So now he only has to pay taxes on $90,000. If he owned ten such properties, his income would be zero, at least according to the IRS.</p> <p>That deduction is now gone for everyone but &ldquo;active&rdquo; real estate investors, or those who invest in real estate as a career.</p> <p>Indeed, one former<a href="" target="_blank"> tax accountant even made the case</a> that there were so many deductions, loop holes and the like <em><strong>in the pre-1986 tax code that &ldquo;&hellip; there was a massive amount of tax fraud at all income levels under the old code. It was so bad and so common that most people took pride in telling others how they cheated on their taxes.&rdquo;</strong></em></p> <p>I&rsquo;ll leave how true that statement is to the reader, but from what I&rsquo;ve heard, it sounds about right.</p> <p><u><em><strong>Regardless, the simple fact is that the rich never paid 90 percent of their income in taxes or anything even remotely close to that. Unfortunately though, some memes die hard.</strong></em></u></p> </div> <p>&nbsp;</p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="225" height="205" alt="" src="" /> </div> </div> </div> Bernie Sanders Krugman Michael Moore Mises Institute Paul Krugman Personal Income Real estate Tax Fraud Tax Revenue Tue, 24 Nov 2015 22:30:00 +0000 Tyler Durden 517011 at "Your Debt Bubble Is Here" - The Updated Leverage Cycle Map <p>As we head into December and the market anxiously awaits an FOMC decision which, if the Fed were truly “data dependent”, should tell us something about what the PhD economist cabal thinks about the state of the US economy, the market is bracing for a significant monetary policy divergence between the US and the rest of the developed world.&nbsp;</p> <p>According to the standard and oft-repeated narrative, the US is the so-called “cleanest dirty shirt.” Growth is abysmal, especially in a historical context, but at least America didn’t just enter its fifth recession in as many years (like <a href="">Japan</a>). </p> <p>Similarly, inflation expectations may not be where Janet Yellen wants them to be (<a href="">understated rent inflation</a> and $170 million <a href="">Modiglianis</a> notwithstanding), but hey, at least the US isn’t sinking into deflation (like Japan and Europe).&nbsp;</p> <p>Of course it’s not just about the US vs. Europe and Japan. The world’s emerging economies are at another point in the cycle entirely and are in many cases (e.g. Brazil and China) facing an outright meltdown.&nbsp;</p> <p>For those looking to make sense of it all, <strong>SocGen is out with an updated “leverage clock” which shows where the world’s economies are in the “<em>deleveraging-no bubble-leverage-bubble burst</em>” cycle.</strong> </p> <p>As you’ll see below, the cycle begins after a burst bubble with asset price stabilization. As the private sector stops deleveraging and confidence comes back, debt growth accelerates anew and monetary policy “fails to curb” excess leverage. Ultimately, the music stops, “asset prices decline triggering balance sheet destruction,” and central planners resort to QE. Once QE bumps up against the law of diminishing returns, governments make the switch to fiscal stimulus and the cycle starts again.</p> <p>Obviously this is an oversimplification and one wonders whether, given the myriad idiosyncratic factors at play across individual markets, it’s even possible to categorize all of the world’s economies based on the cycle as described above.</p> <p>In any event, here is SocGen’s “leverage clock”:</p> <p><a href=""><img src="" width="600" height="597" /></a></p> <p>From SocGen:</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><em>Our SG Leverage Clock summarises our current view on the positioning of each economy in the cycle. As seen, the <strong>advanced economies span the full spectrum of recovery.</strong> Most advanced is the US entering the more mature phases of the cycle, but with further life left in the current cycle. Turning to the emerging economies, these tend to group at the top half of the clock, with the notable exception of the CEE region which groups closer to the US. <strong>China is turning over and we expect the cycle to bottom out soon, but this against the backdrop of a structurally slower economy.</strong></em></p> </blockquote> <p>For brevity's sake, we'll save you our country-by-country analysis and simply ask the following: "<strong>W</strong><strong style="font-size: 1em; line-height: 20.8px;">hy the hell is everyone other than Brazil, Canada, and India parked in one of the three 'no bubble' zones when&nbsp;</strong><strong style="font-family: 'Lucida Grande', Verdana, sans-serif; font-size: 13.3333px; line-height: 17.3333px;">at least 9 countries have debt/GDP above 300%, and a whopping 39% countries have debt-to-GDP of over 100%?"</strong></p> <p><a href="" style="font-family: 'Lucida Grande', Verdana, sans-serif; font-size: 13.3333px; line-height: 17.3333px;"><img src="" width="555" height="972" style="max-width: 100%; height: auto;" /></a></p> <p><img src="" width="571" height="784" style="max-width: 100%; height: auto; font-family: 'Lucida Grande', Verdana, sans-serif; font-size: 13.3333px; line-height: 17.3333px;" /></p> <p><strong style="font-size: 1em; line-height: 20.8px;"><br /></strong></p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="466" height="342" alt="" src="" /> </div> </div> </div> Brazil China India Janet Yellen Japan Meltdown Monetary Policy Recession recovery SocGen Tue, 24 Nov 2015 22:00:31 +0000 Tyler Durden 517012 at Crude Slides After API Reports Another Huge Inventory Build At Cushing <p>Following last week&#39;s modest inventory build, API reports another much larger-than-expected build in total crude inventories (+2.6mm barrels). This is the 9th weekly build in a row for total crude inventory but more worrisome is the <strong>3rd weekly surge in Cushing inventories (+1.9mm build) </strong>as we warned previously, <a href=""><em><strong>land storage fears are starting to rise</strong></em></a>.</p> <p>&nbsp;</p> <p>Cushing and Total crude inventories surge...</p> <p><a href=""><img height="624" src="" width="600" /></a></p> <p>&nbsp;</p> <p>Dramatically more than seasonally expected...</p> <p><a href=""><img height="302" src="" width="600" /></a></p> <p>&nbsp;</p> <p>And it&#39;s filling up..<strong>.3mo highs</strong></p> <p><a href=""><img alt="" src="" style="width: 600px; height: 315px;" /></a></p> <p>&nbsp;</p> <p>And the reaction...</p> <p><a href=""><img height="569" src="" width="600" /></a></p> <p>&nbsp;</p> <p>Probably not a great move for stocks...</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 302px;" /></a></p> <p>&nbsp;</p> <p>&nbsp;</p> <p><em>Charts: Bloomberg</em></p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="957" height="503" alt="" src="" /> </div> </div> </div> Crude Tue, 24 Nov 2015 21:43:21 +0000 Tyler Durden 517010 at The Real Value Of Cash <p><a href=""><em>Submitted by Lance Roberts via STA Wealth Management,</em></a></p> <p>With the <em>&quot;inmates running the asylum&quot;</em> during a holiday-shortened trading week, the upward bias to the market is set to continue. However, as I <a href="">addressed last week:</a></p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>&quot;<strong>As we progress through the last two months of the year, historical tendencies suggest a bias to the upside.</strong> This is particularly the case given the weakness this past summer which has left many mutual and hedge funds trailing their benchmarks. <strong>The need to play &#39;catch-up&#39; will likely create a push into larger capitalization stocks as portfolios are &#39;window dressed&#39; for year end reporting.</strong></p> <p>&nbsp;</p> <p>T<strong>his traditional &#39;Santa Claus&#39; rally, however, does not guarantee the resumption of the ongoing &#39;bull market&#39; into 2016.</strong> The chart below lays out my expectation for the market through the end of the year.&quot;</p> </blockquote> <p><a class="highslide ageent-ru" href="" target="_blank" title="SP500-MarketUpdate-112315-2"><img alt="SP500-MarketUpdate-112315-2" class="i_want_img5" src="" width="600" /></a></p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p><strong>&quot;With the markets currently oversold on a very short-term basis, the current probability is a rally into the &#39;Thanksgiving&#39; holiday next week and potentially into the first week of December.</strong> As opposed to my rudimentary projections, the push higher will likely be a &#39;choppy&#39; advance rather than a straight line.&quot;</p> </blockquote> <p>So far, the analysis over the last several weeks has continued to play out as expected. However, and this is crucially important,<strong> a near-term expectation of a bullish advance</strong> due to the recent correction and seasonal tendencies<strong> is not the same as long-term bullish outlook.&nbsp;</strong></p> <p><strong>As stated above, while seasonality likely holds the cards through the end of this year, projecting much beyond that window is foolishness.&nbsp;</strong></p> <h2><u>The Real Value Of Cash</u></h2> <p>This brings to mind a call I had on the radio show recently discussing his advisor&#39;s&nbsp;<strong>reluctance to hold cash.&nbsp;</strong></p> <p>The argument against holding cash goes this way:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>&quot;If you hold cash you lose value over time to inflation.&quot;&nbsp;</p> </blockquote> <p>This is a true statement if you hold cash for an EXTREMELY long period.&nbsp;<strong>However, holding cash as a <em>&quot;hedge&quot;</em> against market volatility during periods of elevated uncertainty is a different matter entirely.&nbsp;</strong></p> <p><a href="" style="background-color: transparent;">As I discussed previously:</a></p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>&quot;I have written previously that historically it is relatively unimportant the markets are making new highs.&nbsp;<strong>The reality is that new highs represent about 5% of the markets action</strong>&nbsp;while the other 95% of the advance was making up previous losses.<strong>&nbsp;&#39;Getting back to even&#39; is not a long-term investing strategy.&quot;</strong></p> </blockquote> <p><a class="highslide ageent-ru" href="" target="_blank" title="SP500-RecordHighs-022315"><img alt="SP500-RecordHighs-022315" class="i_want_img5" src="" style="width: 600px; height: 383px;" /></a></p> <p>In a market environment that is extremely overvalued, the projection of long-term forward returns is exceedingly low. <strong>This, of course, does not mean that markets just trade sideways, but in rather large swings between exhilarating rises and spirit-crushing declines.&nbsp;<span style="color: #dc0000;">This is an extremely important concept in understanding the &quot;real value of cash.&quot;</span></strong></p> <p><a class="highslide ageent-ru" href="" target="_blank" title="Valuation-ForwardReturn-20yrs-070215"><img alt="Valuation-ForwardReturn-20yrs-070215" class="i_want_img5" src="" style="width: 600px; height: 365px;" /></a></p> <p><strong style="background-color: transparent;">The chart below shows the inflation-adjusted return of $100 invested in the S&amp;P 500</strong><em style="background-color: transparent;">&nbsp;(using data provided by Dr. Robert Shiller)</em><span style="background-color: transparent;">. The chart also shows Dr. Shiller&#39;s CAPE ratio. However, I have capped the CAPE ratio at 23x earnings which has historically been the peak of secular bull markets in the past. Lastly,</span><strong style="background-color: transparent;">&nbsp;I calculated a simple cash/stock switching model which buys stocks at a CAPE ratio of 6x or less and moves back to cash at a ratio of 23x.</strong></p> <p><strong>I have adjusted the value of holding cash for the annual inflation rate which is why during the sharp rise in inflation in the 1970&#39;s there is a downward slope in the value of cash.</strong>&nbsp;However, while the value of cash is adjusted for purchasing power in terms of acquiring goods or services in the future, the impact of inflation on cash as an asset with respect to reinvestment may be different since asset prices are negatively impacted by spiking inflation.&nbsp;<strong>In such an event, cash gains purchasing power parity in the future if assets prices fall more than inflation rises.</strong></p> <p><a class="highslide ageent-ru" href="" target="_blank" title="Stocks-Bonds-Cash-ValueOfCash-040915-2"><img alt="Stocks-Bonds-Cash-ValueOfCash-040915-2" class="i_want_img5" src="" style="width: 600px; height: 417px;" /></a></p> <p><strong>While no individual could effectively manage money this way, the importance of &quot;cash&quot; as an asset class is revealed.</strong>&nbsp;While cash did lose relative purchasing power, due to inflation, the benefits of <strong>having capital to invest at lower valuations produced substantial outperformance over waiting for previously destroyed investment capital to recover.</strong></p> <p>While we can debate over methodologies, allocations, etc., the point here is that&nbsp;<em>&quot;time frames&quot;</em>&nbsp;are crucial in the discussion of cash as an asset class.&nbsp;<strong>If an individual is&nbsp;<em>&quot;literally&quot; burying cash</em>&nbsp;in their backyard, then the discussion of the loss of purchasing power is appropriate.</strong></p> <p><strong>However, if cash is a <em>&quot;tactical&quot;</em> holding to avoid short-term destruction of capital, then the protection afforded outweighs the loss of purchasing power in the distant future.</strong></p> <p><span style="background-color: transparent;">Much of the mainstream media will quickly disagree with the concept of holding cash and tout long-term returns as the reason to just remain invested in both good times and bad. The problem is that it is YOUR money at risk. Furthermore, most individuals lack the <em>&quot;time&quot;</em>&nbsp;necessary to truly capture 30 to 60-year return averages.</span></p> <p>For individuals, trying to save for their retirement, there are several important considerations with respect to cash as an asset class:</p> <ol> <li>Cash is an effective hedge against market loss.&nbsp;</li> <li>Cash provides an opportunity to take advantage of market declines.</li> <li>Cash provides stability during times of uncertainty (reduces emotional mistakes)</li> </ol> <p>Importantly, I am not talking about being 100% in cash. I am suggesting that holding higher levels of cash during periods of uncertainty provides both stability and opportunity.&nbsp;</p> <p>With the fundamental and economic backdrop becoming much more hostile toward investors in the intermediate term, understanding&nbsp;<strong>the value of cash as a&nbsp;<em>&quot;hedge&quot;</em>&nbsp;against loss becomes much more important.&nbsp;</strong></p> <p>As <a href="">John Hussman </a>recently noted:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>&quot;<strong>The overall economic and financial landscape, then, is one where obscene valuations imply zero or negative S&amp;P 500 total returns for more than a decade &mdash;</strong> an outcome that is largely baked-in-the-cake regardless of shorter term economic or speculative factors. Presently, market internals remain unfavorable as well. Coming off of recent overvalued, overbought, overbullish extremes, this has historically opened a clear vulnerability of the market to air-pockets, free-falls and crashes.&quot;</p> </blockquote> <p><span style="background-color: transparent;">As stated above, near zero returns do not imply that each year will have a zero rate of return. However, as a quick review of the past 15 years shows, markets can trade in very wide ranges leaving those who <em>&quot;rode it out&quot;</em> little to show for their emotional wear.&nbsp;</span></p> <p>Given the length of the current market advance, deteriorating internals, high valuations and weak economic backdrop; reviewing cash as an asset class in your allocation may make some sense. Chasing yield at any cost has typically not ended well for most.</p> <p><strong>Of course, since Wall Street does not make fees on investors holding cash, maybe there is another reason they are so adamant that you remain invested all the time.</strong></p> <p><span style="background-color: transparent;">Just something to think about. </span></p> <p>&nbsp;</p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="157" height="135" alt="" src="" /> </div> </div> </div> ETC John Hussman Market Internals Purchasing Power Reality Robert Shiller Volatility Tue, 24 Nov 2015 21:30:00 +0000 Tyler Durden 517005 at Stocks, Bonds, & Bullion Bid As Geopolitical Risk Soars Most In 62 years <p>Ok - where to start...</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>1) GDP met improved expectations thanks to a<strong> huge inventory build </strong>(which we know from sales since remains at cycle extremes)</p> <p>&nbsp;</p> <p>2) Richmond Fed weak for 3rd month in a row (<strong>signalled last 2 recessions</strong>)</p> <p>&nbsp;</p> <p>3) Consumer Confidence collapsed (<strong>worst in 14 months</strong>)</p> <p>&nbsp;</p> <p>4) <strong>Americans have given up hope for more employment opportunities</strong></p> <p>&nbsp;</p> <p><a href=""><img height="312" src="" width="600" /></a></p> <p>&nbsp;</p> <p>&nbsp;</p> <p>5) <strong>Another terrorist attack</strong> (this time in Tunisia)</p> <p>&nbsp;</p> <p>oh yeah and 6)<strong> Turkey shot down a bloody Russian fighter jet (in what is the closest we have come to WW3 proxy wars yet - the first NATO nation to fire at a Russian plane since 1953)</strong></p> </blockquote> <p>And so... &quot;investors&quot; bought stocks...</p> <p><iframe allowfullscreen="" frameborder="0" height="360" src="" width="480"></iframe></p> <p>&nbsp;</p> <p>As soon as Europe closed... (because when Obama, Hollande, and NATO speak, stocks must rally to confirm the confident good news)...But ended the day below the pre-Doomsday levels...</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 555px;" /></a></p> <p>&nbsp;</p> <p>Small Caps once again outperformed amid yet another short squeeze... and trannies were worst despite the ramp in energy stocks and oil...</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 445px;" /></a></p> <p>&nbsp;</p> <p>S&amp;P is unch, &quot;Most Shorted&quot; is up 3% this week!!!</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 315px;" /></a></p> <p>&nbsp;</p> <p>As energy stocks soared over 2%...</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 316px;" /></a></p> <p>&nbsp;</p> <p>Everything happened when Europe closed...</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 315px;" /></a></p> <p>&nbsp;</p> <p>And VIX was hammered to get the momo going...</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 816px;" /></a></p> <p>&nbsp;</p> <p>Is the squeeze over in KaleBios? Down 50% today...</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 440px;" /></a></p> <p>&nbsp;</p> <p>&nbsp;</p> <p>FX Carry and Treasuries were not buying it...</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 313px;" /></a></p> <p>&nbsp;</p> <p>as stocks ramped to catch up with crude...</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 328px;" /></a></p> <p>&nbsp;</p> <p>Credit markets were not bouncing with stocks...</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 336px;" /></a></p> <p>&nbsp;</p> <p>Treasury yields tumbled on safety bids after the Russian fighter jet was shot down... then traded in a very narrow range for the rest of the day...</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 316px;" /></a></p> <p>&nbsp;</p> <p>The USDollar was notably weaker on the day as EUR and JPY strengthened...</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 316px;" /></a></p> <p>&nbsp;</p> <p>Commodities were volatile today with oil backing everything but early jumps in PMs were quickly sold into...</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 311px;" /></a></p> <p>&nbsp;</p> <p>&nbsp;</p> <p>&nbsp;</p> <p><em>Charts: Bloomberg</em></p> Consumer Confidence Crude Momo Richmond Fed Turkey Tue, 24 Nov 2015 21:05:34 +0000 Tyler Durden 517008 at "What's The Worst That Could Happen?" <p>Let them in...</p> <p>&nbsp;</p> <p><a href=""><img src="" width="600" height="369" /></a></p> <p>&nbsp;</p> <p><a href=""><em>Source:</em></a></p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="695" height="427" alt="" src="" /> </div> </div> </div> Tue, 24 Nov 2015 20:55:00 +0000 Tyler Durden 517004 at US Backed "Rebels" Execute Russian Pilots While Parachuting, Caught On Tape <p>If Putin was angry when Turkey shot down a Russian plane, which may or may not have crossed Turkish territory - reports on both sides are conflicting - he will be absolutely livid to learn that, according to Turkey's Dogan News, the Russian pilots who had parachuted in an attempt to save their lives after the plane was shot down, had been executed while parachuting down by local rebels, which considering the <a href="">video released earlier belonged to the Free Syrian Army</a>, are same "rebels" who are funded directly by the CIA.</p> <blockquote class="twitter-tweet"><p dir="ltr" lang="en">Both Russian pilots shot dead while parachuting down says Dogan News Agency citing Turkmen opposition commander</p> <p>— Fercan Yalinkilic (@FercanY) <a href="">November 24, 2015</a></p></blockquote> <script src="//"></script><p>And this:</p> <blockquote class="twitter-tweet" lang="en"><p dir="ltr" lang="tr">DHA Muhabirinin görü?tü?ü Türkmen 2'nci Sahil Tümen Komutan Yard?mc?s? Alpaslan Çelik: Pilotlardan ikisini de para?ütle inerken vurduk</p> <p>— Damla Do?an (@dmladogan) <a href="">November 24, 2015</a></p></blockquote> <script src="//"></script><p>As <a href=";utm_medium=twitter">Telegraph points out</a>, the above tweet is from CNN Turk's Foreign Editor who tweeted that <strong>the Turkmen rebels DHA spoke to said: <span style="text-decoration: underline;">"We hit at the two pilots after they parachuted.</span>" </strong></p> <p>This, as many have already pointed out, is a war crime. </p> <p>The only question is whether this, together with the provocative action by Turkey which many can see being an act of war, will be deemed as such by Putin.</p> <p>The parachuters can be seen in the second half of the clip below:</p> <p><iframe src="" width="500" height="281" frameborder="0"></iframe></p> <p>&nbsp;</p> <p>For those who missed it, here is the video uploaded by the Free Syrian Army of at least one dead parachuter.</p> <p><iframe src="" width="500" height="281" frameborder="0"></iframe></p> <p>&nbsp;</p> <p>And here is the video of rebels opening fire on Russian pilots: </p> <p> <iframe src="" width="500" height="281" frameborder="0"></iframe></p> <p> As one <a href="">commentator notes</a>, in the video one person shouts over the gun fire, "don't fire. Let's take them prisoners. Don't fire. Prisoners" but it was not meant to be.</p> <p>Reuters <a href="">confirms </a>the pilots' death: Turkmen forces in Syria shot dead the two pilots of a Russian jet downed by Turkish warplanes near the border with Turkey on Tuesday as they descended with parachutes, a deputy commander of a Turkmen brigade told reporters.</p> <p>"<strong>Both of the pilots were retrieved dead. Our comrades opened fire into the air and they died in the air</strong>," Alpaslan Celik, a deputy commander in a Syrian Turkmen brigade said near the Syrian village of Yamadi as he held what he said was a piece of a pilot's parachute.</p> <p>"Our units, who received the information that the two pilots were alive, are working to get them from opposition rebels safely," the official said.</p> <p>The Russian General Staff said that, according to preliminary data, one of the Su-24 pilots has died after being fired at from the ground.</p> <p>* * * </p> <p>According to the Geneva Convention attacks on persons parachuting from an aircraft in distress are stricly banned: if the person in distress is not acting in a hostile manner, he is to be given the chance to surrender after reaching the ground.</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="718" height="434" alt="" src="" /> </div> </div> </div> Reuters Turkey Tue, 24 Nov 2015 20:47:41 +0000 Tyler Durden 516975 at Presenting SocGen's 5 Black Swans For 2016 <p>If you’re the type who likes black swans this has been the month for you.&nbsp;</p> <p>On the political front, Portugal’s Socialists, led by Antonio Costa, formed an alliance with the Left Bloc and the Communists on the way to <a href="">overthrowing the Passos Coelho government</a> and <strong>presaging a repudiation of Berlin’s brand of fiscal rectitude.</strong> This throws the country’s austerity program into doubt and sets up not only a confrontation with the troika, but also the potential loss of access to ECB QE should a deteriorating fiscal situation prompt a DBRS downgrade.&nbsp;</p> <p>In Spain, Catalonia is in the <a href="">midst of a secession bid</a> which, depending on Catalan political infighting and how far Rajoy wants to push things ahead of national elections set for next month, <strong>could see a fifth of Spain’s GDP separate, causing Spanish debt-to-GDP to jump by some 25%.&nbsp;</strong></p> <p>As far as geopolitics goes, ISIS Sinai downed a Russian passenger plane killing all 224 people on board and then, not even two weeks later, ISIS proper waged war in the streets of Paris killing 130 people. As if those two bombshells weren’t enough, Turkey decided to shoot down a Russian fighter jet this morning.&nbsp;</p> <p>Finally, 12 month forwards for the Saudi riyal seem to indicate that the market believes the three decade-old dollar peg is about to fall under pressure from slumping crude and falling FX reserves. BofAML <a href="">calls the possibility</a> of a Saudi depeg the “number one black swan event for the global oil market in 2016.”&nbsp;</p> <p><strong>And those are just the black swans that have landed in the last 30 days.&nbsp;</strong></p> <p><strong><a href=""><img src="" width="600" height="384" /></a><br /></strong></p> <p>In its latest quarterly Global Economic Outlook, <strong>SocGen takes a look at five political and economic black swans that could touch down in 2016 and also warns that</strong>&nbsp;“high levels of public sector debt, already overburdened monetary policy, still high debt stocks and on-going balance sheet clean ups in a number of economies leave the global economy will a low level of ammunition to deal with new shocks."</p> <p><span style="font-size: 1em; line-height: 1.3em;">Here's the latest SG "swan chart" which is <strong>“dominated by downside risks”:&nbsp;</strong></span></p> <p><a href=""><img src="" width="600" height="366" /></a></p> <p>As we and a bevy of others have pointed out, QE is bumping up against the law of diminishing returns and it’s no longer clear that doubling and tripling down on monetization will do anything at all to boost aggregate demand, juice global trade, or raise inflation expectations (but what it surely <em>will do </em>is continue to inflate asset bubbles). <strong>In this environment, fiscal stimulus may be the only “solution.”</strong> As SocGen puts it, “in the event of a major new significant shock, our baseline scenario remains that both the US and Europe would opt first for further monetary policy stimulus. Later on, however, <strong>as this proves inefficient</strong>,<strong> we would expect fiscal stimulus to be considered.</strong>” China, of course, has already gone this route, boosting fiscal spending by 36% in Ocotber as the country's credit impulse disappeared despite six rate cuts in less than a year.&nbsp;</p> <p><a href="" style="font-family: 'Lucida Grande', Verdana, sans-serif; font-size: 13.3333px; line-height: 17.3333px;"><img src="" width="506" height="301" style="max-width: 100%; height: auto;" /></a></p> <p>If the Willem Buiters of the world have their way, governments will simply print debt for the sole purpose of providing central banks with something to monetize which means that in the final analysis, we could end up in the absolutely absurd perdicament of printing one liability (bonds) only to turn around and buy them from ourselves with another liability that we also print (fiat money).</p> <p>In any event, below is SocGen's rundown of the swans shown in the graphic.</p> <p>* &nbsp;* &nbsp;*</p> <p><em>From SocGen</em></p> <p><strong>Brexit at a probability of 45%, remains our highest probability risk.</strong> At this time, a date has yet to be set for the referendum but 3Q16 seems a likely timing, based on the idea that Prime Minister Cameron will want to hold the referendum within a reasonable timeframe on concluding an agreement with his EU partners (which could come as early as the December 2015 Summit, but more likely in March 2016). <span style="white-space: pre;"> </span><em style="font-size: 1em; line-height: 1.3em;"><span style="white-space: pre;"> </span></em></p> <p><strong>China hard landing remains a significant risk at 30%. Medium-term, we set an even higher probability of 40% on a lost decade scenario.</strong> As opposed to a hard landing, however, such a risk scenario would manifest itself only gradually. The most likely trigger for a China hard- landing is policy error with miscalculation of how much financial risk management or structural reform the system can absorb. We identify three main triggers. In practice, a combination thereof seems the most likely cause of such a risk scenario.<em style="font-size: 1em; line-height: 1.3em;"><span style="white-space: pre;"> </span></em></p> <ul> <li><em style="font-size: 1em; line-height: 1.3em;"><strong>Credit crunch: </strong>An intensification of capital outflows, a growing number of non-performing loans and an insufficient response from the PBoC could result in a credit crunch. Such risks could be further exacerbated by pressure coming from Chinese corporations’ foreign exchange denominated debt and overall high level of leverage.</em><em style="font-size: 1em; line-height: 1.3em;"><span style="white-space: pre;"> </span></em></li> <li><em style="font-size: 1em; line-height: 1.3em;"><strong>Dry-up in housing demand:</strong> Should a new housing shock emerge, triggering a buyers strike, then real estate developers (also burdened with foreign currency loans) could suffer renewed stress, triggering a significant scaling back of investment.&nbsp;</em><em style="font-size: 1em; line-height: 1.3em;"><span style="white-space: pre;"> </span></em></li> <li><em style="font-size: 1em; line-height: 1.3em;"><strong>Capacity overhang:</strong> The still-large excess capacity in the manufacturing sector would be further exacerbated in such a scenario, weighing on corporate margins and profits. The risk is to see bankruptcies and unemployment increase in such a bleak scenario.</em><em style="font-size: 1em; line-height: 1.3em;"><span style="white-space: pre;"> </span></em></li> </ul> <p>China hard landing and/or a renewed EM crisis are both potential triggers for a shock that <strong>could trigger global recession (10% probability). <span style="white-space: pre;"> </span></strong><strong style="font-size: 1em; line-height: 1.3em;"><span style="white-space: pre;"> </span></strong></p> <p>Consumers hold the key to recovery in the advanced economies. <strong>We place a 25% probability on the risk that consumers in the advanced economies save more of the gains in real disposable income than we expect.</strong></p> <p><strong>* &nbsp;* &nbsp;*</strong></p> <p>As for the risk that the "Fed hikes to late", we encourage you to review "<a href="">The Fed Has Made A "Policy Mistake" And The Inevtiable Result Will Be A Recession</a>", wherein we review BNP's contention that the FOMC has missed its window to hike and has thereby set the US up for a recession once unemployment (which will likely undershoot) invariably snaps back.&nbsp;</p> <p>So as you think about 2016, you can add China hard landing (of course that's already happened, but we suppose it could always get harder-er-er), Brexit, a global recession, and lackluster consumer spending to your black swan list which should already include World War III.</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="835" height="510" alt="" src="" /> </div> </div> </div> Baseline Scenario Black Swan Black Swans Central Banks China Crude Global Economy Monetary Policy Monetization non-performing loans Real estate Recession recovery Risk Management SocGen Turkey Unemployment Tue, 24 Nov 2015 20:45:48 +0000 Tyler Durden 517007 at Distressed-Debt Losses Worst Since 2008 - "It's Not Just Energy, It's Everything" <p><em>When buy the dip doesn&#39;t work</em>. &quot;Most distressed situations have not worked out in 2015,&quot; exclaims one distressed hedge fund manager facing significant losses on the year, <em><strong>&quot;It wasn&rsquo;t just energy. It was anything with loads of leveraged debt on it.&quot;</strong></em> <a href="">As Bloomberg reports</a>,<strong> distressed hedge funds dropped 5% in 2015 through October, putting them on pace for their worst year since 2008</strong>, when they lost 25%... and November isn&rsquo;t looking like it will be much better.</p> <p>Ugly!!</p> <p><a href=""><img height="311" src="" width="600" /></a></p> <p>&nbsp;</p> <p><strong>Hedge funds that specialize in the debt are grappling with their worst declines in seven years.</strong> <a href="">As Bloomberg reports,</a> funds managed by Knighthead Capital Management, Candlewood Investment Group, Mudrick Capital Management and Archview Investment Group all posted losses through October. And year-end bonuses at Wall Street desks that trade distressed debt could be slashed by a quarter, Options Group said.</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p><strong>After six years of easy-money central-bank policies kept over-leveraged companies afloat and left scant opportunities for traders who profit off the market&rsquo;s scrap heaps, a rout in commodities prices in 2014 presented what had seemed like a perfect chance to buy again. Instead, those prices only declined further this year, causing the debt of everyone from oil drillers to coal miners to fall deeper into distress. </strong>As the losses intensified, gun-shy investors pulled back from almost anything that smacked of risk, spreading the losses to industries from retail to technology.</p> <p>&nbsp;</p> <p>...</p> <p>&nbsp;</p> <p><u><strong>November isn&rsquo;t looking like it will be much better. </strong></u>A Bank of America Merrill Lynch index of distressed debt is down almost 8 percent this month as the average price of bonds in the benchmark dropped to 57 cents on the dollar, from as high as 75.6 cents in February.</p> </blockquote> <p>Hope remains though...</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p><strong>&quot;Now is the time you should be putting capital to work, anticipating that it&rsquo;s going to be messy for the next six months or so&quot; in the energy industry</strong> said one manager.</p> </blockquote> <p>And firms are raising capital for the turn...</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>&quot;The increasing fragility of certain business models is beginning to be reflected in a number of ways, including wider credit spreads, lower liquidity, and a material and sudden expansion of the stressed and distressed debt universe,&quot; Canyon Capital wrote in a letter dated Oct. 19, explaining its rationale for the new pool.</p> </blockquote> <p>&ldquo;This has been a tough year for distressed,&rdquo; one manager concluded...</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p><u><strong><em>&ldquo;There&rsquo;s a lot of people that won&rsquo;t have the ability to stick around. They won&rsquo;t see the eventual rebound. You have to have staying power.&rdquo;</em></strong></u></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="966" height="501" alt="" src="" /> </div> </div> </div> Bank of America Bank of America Merrill Merrill Lynch Tue, 24 Nov 2015 20:30:00 +0000 Tyler Durden 517003 at "We're Now Just One Big Shock Away From A Global Downturn" <p><a href=""><em>Submitted by Bill Bonner via Bonner &amp; Partners</em></a> <a href=""><em>(annotated by;s Pater Tenebrarum)</em></a>,</p> <h3><u><strong>Big Shock</strong></u></h3> <p>The financial news continues to confound and confuse investors.<strong> The Fed is telling one story. The world economy is telling another.</strong></p> <p style="text-align: center;"><strong><img alt="" src="" style="width: 600px; height: 301px;" /></strong></p> <p style="text-align: center;"><em>What happens next?</em></p> <p>The Fed is talking about increasing the federal funds rate &ndash; eventually getting rates back to &ldquo;normal&rdquo; &ndash; because the U.S. economy is so healthy. Meanwhile, the world heads toward deflation.</p> <p>Says Ruchir Sharma, head of emerging markets and global macro at Morgan Stanley Investment Management:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p><strong>&ldquo;We are now just one big shock away from a global downturn, and the next one seems most likely to originate in China, where heavy debt, excessive investment, and population decline are combining to undermine growth&hellip;&rdquo;</strong></p> </blockquote> <p>But it looks to us as though the global downturn is already here. First, the Baltic Dry Index is at a record low.</p> <p>&nbsp;</p> <p style="text-align: center;"><a href="" target="_blank"><img alt="BDI" class="aligncenter wp-image-41558" src="" style="width: 599px; height: 265px;" /></a></p> <p style="text-align: center;">The Baltic has been hung out to dry &ndash; click to enlarge.</p> <p>&nbsp;</p> <p>Here&rsquo;s Bloomberg with the full story:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>&ldquo;The cost of shipping commodities fell to a record, amid <strong>signs that Chinese demand growth for iron ore and coal is slowing,</strong> hurting the industry&rsquo;s biggest source of cargoes.</p> <p>&nbsp;</p> <p>The Baltic Dry Index, a measure of shipping rates for everything from coal to ore to grains, fell to 504 points&nbsp;on Thursday, the lowest data from the London-based Baltic Exchange going back to 1985.&rdquo;</p> </blockquote> <p><strong>And falling shipping costs aren&rsquo;t the only sign of global deflation&hellip;</strong></p> <p>In October, construction and mining equipment maker Caterpillar posted another month of falling sales &ndash; making it 35 in a row.</p> <p>The latest figures reveal something new, too. Sales are now dropping in the U.S. as well as overseas.</p> <p><strong>U.S. corporate profits have also begun falling. </strong></p> <p style="text-align: center;"><a href=""><img alt="" src="" style="width: 600px; height: 324px;" /></a></p> <p>And earnings per share (EPS) &ndash; a key measure of profitability that looks at the portion of companies&rsquo; profits allocated to each outstanding share &ndash; are falling too.</p> <p>&nbsp;</p> <p style="text-align: center;"><a href="" target="_blank"><img alt="Non-fin corporate debt" class="aligncenter wp-image-41560" src="" style="width: 600px; height: 320px;" /></a></p> <p style="text-align: center;">US non-financial corporate debt issues plus US sourced bank loans (foreign loans not included) &ndash; a page from the new &ldquo;Spot the Great Credit Crisis&rdquo; game &ndash; click to enlarge.</p> <p>&nbsp;</p> <p><strong>Average third-quarter EPS for S&amp;P 500 companies has fallen by over 2% from the same quarter last year. </strong>And this figure would be even more disappointing if it weren&rsquo;t for their massive share buyback binge (which, by reducing the number of outstanding shares, increased the earnings that accrue to each share).</p> <p><em><strong>According to Citi Research, since 2004, S&amp;P 500 companies have spent 2,848% more money buying their own shares than investors have moved into the stock market.</strong></em></p> <p>With corporate debt levels now more than double their pre-crisis levels, this all could have a big impact on corporate bond default rates&hellip; especially if the cost of carrying all that debt goes up.</p> <p><strong>Fed policy rates, back to &ldquo;normal&rdquo;?</strong></p> <p><em><span style="text-decoration: underline;"><strong>Not likely&hellip;</strong></span></em></p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="728" height="393" alt="" src="" /> </div> </div> </div> Baltic Dry Bond China Credit Crisis default Morgan Stanley Tue, 24 Nov 2015 20:15:00 +0000 Tyler Durden 517001 at