Trump Tax Cuts – The Spark That Burns Down The EU

Authored by Tom Luongo,

For most of this year I’ve been wondering what would the spark that would set off a banking panic in the European Union.

I know, but what do I do for fun, right?

I’ve chronicled the political breakdown of the EU, from Brexit to Catalonia to Germany’s bitch-slapping Angela Merkel at the ballot box.  All of these things have been open rebukes of EU leadership and it’s insane neoliberal push towards the destruction of national sovereignty and identity.

And what has propped up this slow train-wreck to this point has been the world’s financial markets inherent need to believe in the relative infallibility of its central bankers.

Because without competent people operating the levers of monetary policy, this whole thing loses confidence faster than you can say, “Bank run.”

The confluence of these things with the big changes happening politically here at home with President Trump are creating the environment for big trend changes to begin unfolding.

And, as always, you have to look to the sovereign bond and credit markets to see what’s coming.

The Yield’s the Thing…

There are a couple of articles on Zerohedge this morning that paint a picture that comes into focus quite clearly. 

The first is the results of this morning’s 5 year Treasury Auction, which follow yesterday’s terrible 2 year bond auction.

The auction printed at a high yield of 2.245% – the highest since March 2011 – and well above last month’s 2.066% largely thank to the recent Fed rate hike. More troubling is that the auction tailed the When Issued 2.228% by a whopping 1.7bps, the biggest tail going back at least 2 years.

The term ‘tail’ is really simple, it means that the bonds were auctioned off at a higher yield (lower price) than when they were first offered.

So, two rotten treasury auctions in a row. This is indicative of foreign central banks no longer propping up the U.S. Treasury market to keep their currencies from appreciating too much versus the dollar and crushing their exports.

The second article is more complicated but it effectively shows that the credit markets are seeing huge hedging costs for Japanese Yen and Euro-based investments.

Whatever the cause behind these sharp funding shortages, one thing is clear – dollar funding costs (FX hedging costs) for both Japanese and European insurers and banks to invest in US Treasuries are surging (with Japanese buyers and reached a post-financial-crisis high of 2.35% on 15 Dec. And in terms of practical implications for the treasury market this means that, all else equal, marginal demand for US paper is about to plunge for one simple reason: the FX-hedged yields on US Treasurys have plunged to (negative) levels never seen before (unless of course foreign investors buy US Treasurys unhedged).

For the uninitiated, this reinforces what we’re seeing in the Treasury auctions, low demand for U.S. debt and high demand for U.S. dollars.  If there wasn’t a high demand for dollars all of a sudden the costs to borrow in dollars wouldn’t be rising.

Simple supply and demand stuff.

Trump’s Tax Catalyst

And the catalyst for this may be Trump’s Tax Overhaul. As I said right after the tax cut package was passed, this was the greatest knife-in-the-back to someone’s political opponents since FDR’s New Deal.

But, this plan goes far beyond attacking Blue State Democrats and it’s potential to shift voter rolls.  It will have massive short-term implications for European and Japanese banks that have been the holders of all of that offshore cash Trump wants repatriated.

And when Apple’s Tim Cook is talking about bringing back $282 billion in capital in 2018 alone, the banks that are holding those deposits and investments as reserves are going to have to scramble to find the dollars to redeem those investments.

Does anyone think Apple draining even just $5 billion a month from the European banking system won’t have a huge effect on the health of those banks?

This is one of my favorite graphs.  It’s simple yet it says a lot. Yes, I break down the Fed’s H.4.1 report every week (for fun).

USTs Treasury

Foreign Central Banks have loaded up on USTs in anticipation of the next Dollar Bull Run

Foreign central banks have been buying U.S. Treasuries and storing them in Trust with the Federal Reserve (meaning highly liquid) for a year now.  They began buying after Trump was elected because, rightly, they expected a strong U.S. dollar from the policies he was promoting.

For most of 2017, up through September, the dollar was weak with the USDX dropping from above 104 to below 91, a huge decrease.

But, now, that trend is done.  The euro has topped, the yen is weakening, and the USDX has bottomed.  Note the size of this week’s outflow from the Fed’s reserves.  $25.4 billion left this week.

I expect this will continue.  The Treasury auctions are telling us this.  The swap markets are telling us this.  European Sovereign Bond yields are telling us this.

Gold’s Coal Mine

Moreover, Gold is telling us this.  Gold is up over $50 off its low from earlier in the month.  When the dollar bottomed in September and began to move higher, gold pulled back hard. The markets were reacting to rate hikes and shifts in foreign exchange markets normally.

Because as long as confidence in the system remains high, gold can be sold while the dollar rises.  So, some early dollar liquidity problems can be offset by selling some gold along with U.S .Treasuries.

But, gold only blows through technical resistance like this (when dollars are tight) when there is real panic beginning to brew, and confidence is failing. Zerohedge is handicapping an equity market failure, whereas I see the opposite — continued rallying into 2018 as the U.S. economy absorbs higher rates, companies do stock buybacks and domestic confidence grows.

Add to that real fear in Europe as all of those dollars flee political and banking unrest in Europe and we have the makings of a barn-burner of a rally in tangible assets.

We’re closing in on $1300 gold to end 2017, a number I thought was out of reach earlier this month and advised subscribers to take advantage of seasonal gold weakness in December and rotate profits from cryptocurrencies into gold in anticipation of a Q1 rally.

I know some did just this.  I may have gotten the upside numbers on Bitcoin wrong ($20,000 vs. $13,000) but that only reinforces the ideas in the post.

So, the key takeaway here is gold will be the harbinger of things going haywire.  A close above $1300 this week would be a pretty good indicator that we could see a rally into the post-Brexit high of $1375 in Q1.  Conversely, 2017 from a quarterly perspective is just a weak rally after the collapse post-election day.

Gold

Gold spent nearly all of 2017 within in range of Q4 2016’s bar, a weak rally

Regardless of what happens in the next couple of weeks, these are the conditions we’ll need — tight dollars, strong gold, weak bonds — to kick off another full-blown crisis.

Comments

gregga777 Thu, 12/28/2017 - 03:37 Permalink

• can't edit posts after saving;

• can't upvote or downvote posts;

• oldest posts appear first and the most recent posts go to the bottom of the post queue or worse to a 2nd, 3rd, 4th…nth page;

What kind of a fuckin' morons do you employ to totally fuckup ZeroBrains?

Ghordius quadraspleen Thu, 12/28/2017 - 04:17 Permalink

agree... and yet I find it refreshing, for a while

about the article. can't finish it yet, I am stuck at this first rubbish part:

"I’ve chronicled the political breakdown of the EU, from Brexit to Catalonia to Germany’s bitch-slapping Angela Merkel at the ballot box.  All of these things have been open rebukes of EU leadership and it’s insane neoliberal push towards the destruction of national sovereignty and identity."

- where is that (promised) breakdown? (while we are there, where is the breakdown of the EUR?)

- Merkel was bitchslapped at the ballot box? LOL. have a look at this map, from this wiki article:

that's the "constituency map". it represents which parties won the First Past The Post vote, which is one of the two votes Germans cast at the ballot. it's the way Germany would be represented if there was no second vote, i.e. if it would elect it's Parliament in the same way Brits do, or Americans do their Congress, etc.

yes. if Germans voted like the US/UK, Merkel's would be a landslide victory. think for a moment about that

- EU leadership? who is that? the only real and factual answer is... the Sovereign Members. the Nation States. That's France, that's Germany, that's also Poland (which, for example, voted for taking up war refugees under the previous government and now is simply refusing to comply with the current government. and who can force them? as in "you and which army?"). Because Poland is a Sovereign, complete with tax base, judiciary, national police, millions of state employees, national armed forces and so on

where is that "destruction of National Sovereignty and Identity"? not here. not in Poland, not in Germany, not in France, not in any country in the EU

In reply to by quadraspleen

CuttingEdge Ghordius Thu, 12/28/2017 - 06:14 Permalink

I'll pick you up on one thing, Ghordius (and Merry Xmas, btw).

Germany can never vote like US/UK.

You have no right-wing voter base of any significance.

Germans have been governed by socialists and the left as long as I can remember, and the population have been indoctrinated that having right-wing thoughts is just plain evil. Emasculated of any "nationalistic" ideology by a very willing media (if that propaganda outlet Der Spiegel is anything to go by). Probably the reason why Merkel managed to get over one million young male sand niggers in before anyone in Germany started scratching their heads.

To have thoughts anything right-of-centre has nazi connotations in Germany (unlike their neighbours, Austria, who recently gave a big fuck you to political correctness).

Which is kinda odd as I always thought National Socialism is a bit of a clue as to the leanings of old Adolf's movement (as long as you were blond and blue-eyed). Like, whodathunk Colonel Bird of the KKK was a Democrat? Pre-Alinsky projection at it's finest?

 

And while I am hyper-critical of the leftist ideologies vomited out by the BBC and, more insidiously, schools from an early age up to higher education, there is still a healthy percentage of the population in the UK (and, similarily the US) who dare to believe that disagreeing with multiculturalism (or bending over for Islam) does not make someone a bad or racist person.

Germany not so much. The "guilt" has been bred down through generations.

In reply to by Ghordius

Ghordius CuttingEdge Thu, 12/28/2017 - 06:36 Permalink

"(Germany has) no right-wing voter base of any significance."

based on what do you say that? here: https://en.wikipedia.org/wiki/German_federal_election,_2017

AfD had 5.8 million votes, gained 13% of the votes/seats, total: 94

CDU/CSU had 15.3 million votes, gained 41.5% of the votes/seats, total: 311

that's the "Far Right" (because they sit at the furthest right of parliament) and the "Right" (because they sit furthest right of all the others except for AfD)

in other words: the Far Right and the Moderate Right (aka Centre-Right) have nearly won the elections. with 53% of the votes and 315 seats (355 needed for a majority)

that's the party that rejects Multiculturalism and proposes Integration, instead (see Merkel speeches about it), and the party that rejects immigration "in toto"

)so... what is "significance", for you? the problem there is of course that they did not won enough... and that they don't talk to each other

but hey, I presume your whole concept of what is a "right-wing" party does not entail any... talk with others, and even less support for moderate solutions. Merry Christmas)

In reply to by CuttingEdge

dunroamin Ghordius Thu, 12/28/2017 - 08:38 Permalink

Led by Merkel, May, Macron, Junker, Tusk, Verhofstad, Timmermans, Soros, Sutherland & the Pope, the "destruction of National Sovereignty and Identity" is going full steam ahead and accelerating. They haven't got Poland yet or the other Visegrad countries but not for lack of trying. The score so far:

Germany - swamped with ME & Asian immigrants

Italy - swamped with Africans

Greece - a staging post for the rabble who float across the Aegean

Sweden - the rape capital of the world and practically a war zone

France - held hostage by maurading armies of homeless migrants and more hostile arabs in the banlieux

UK - whites on their way to a minority, refugees in their own land

Holland - the tolerant Dutch can't tolerate dissent. Gert Wilders has to live under 24/7 security.

Belgium - let's just mention Molenbeek.

In reply to by Ghordius

Ghordius quadraspleen Thu, 12/28/2017 - 04:26 Permalink

another rubbish part of the article:

"Foreign Central Banks have loaded up on USTs in anticipation of the next Dollar Bull Run"

a small excursion in history: after WW2, the US made a deal: "hold dollars, they are as good as gold"

and that was the first reason why foreign central bank held dollars: they could convert them into gold

this... while American Citizens were forbidden to hold gold, note. a Prohibition that started in 1934 and ended in 1974

then... Nixon Shocked... and that's the important part... The World (not the US): no more gold conversion

since then, Foreign Central Banks holding dollars changed. the whole reasoning of why changed. still many reasons to do or not

but... "loading up ... in anticipation of the next Dollar Bull Run"? LOL. that's the least of all reasons

particularly in an environment where all CBs compete... in cheapening their currency, particularly in response to the FED cheapening the Dollar

In reply to by quadraspleen

ConfederateH Ghordius Thu, 12/28/2017 - 06:40 Permalink

Lets start with your first lie:

"where is that (promised) breakdown?"

Brexit. Blackmailing of Greece. ECB going rogue.  EU sanctioning Russia at the expense of Bulgaria, Romania, Poland and to the benefit of non-EU Ukraine.  Holocaust denial laws.  Fake "Global Warming".  War mongering in Syria and Ukraine and across the entire border with Russia.  Cover-up of shoot down of MH17.  Never ending kow-towing to Israel and ignoring her never ending genocide and crimes against humanity of Palestine.  Inability to muster support of BDS.  Bankrupt pensions systems.  Corrupt (((international))) banks.

And finally, the crowning achievement of the EU that is leading to its blatant breakdown:

An invasion of white hating military age moslem men pushed on the entire continent by the EU and leading to an ever increasing spread of random terror attacks against white Europeans.

That was just your first lie, Cuck-Ghlorius. 

In reply to by Ghordius

Ghordius ConfederateH Thu, 12/28/2017 - 07:48 Permalink

Brexit has not happened yet. Greece is still there. look up how the Bulgarian, Romanian and Polish governments voted on that thing. Holocaust laws are National, nothing to do with the EU. global warming is a gift from the US, look up which former vice-president is running around for it

war mongering in Syria? get lost. we told Dubya not to attack Iraq, and that's one consequence

war mongering in Ukraine? get lost twice. who has peace talks with Ukraine and Russia? that's France and Germany

cover-up of shoot down of MH17? who shot down OUR plane, fella? not us

kow-towing to Israel? get lost three times. look up the last UN vote, featuring 128 votes against the US and Israel

look, it's simple: You Are Full Of It

simply full of it and living in La-La-Land

"white hating military age moslem men pushed on the entire continent..."

- We were against wrecking that neighbourhood

- Turkey released them

- They could have been trapped in the Balkans. now, that's when that "military age men" would have become... serious

- That was a German National Decision. by the German Chancellor

- it was 2015. that's years ago, by now. where are they now? mostly studying/working, not going on rampages "hating white"

again: You Are Full Of It and living in La-La-Land

In reply to by ConfederateH

ConfederateH Ghordius Thu, 12/28/2017 - 08:01 Permalink

Once again, I will start with your first lie:

"Brexit has not happened yet."

From someone like you who likes to pretend that votes mean something, this is, well, typical.

Brexit was voted for, and succeeded despite massive fraud, but your beloved plantation owners in Brussels are not letting it happen because when it does the entire cesspool that the pedophiles in Brussels have created is going to get sucked down the toilet.

Sure, those pedophiles will look for someone willing to further genocide white Europeans in order to keep the EU slave plantation alive for a little longer.  But whether they succeed or not is irrelevant because the EU that the Europeans were told they had voted for will at that point be clearly nothing more than ZOG.  Of course it is that already, but once England runs away the other slave states will no longer care what buffoons like you say.  They will want out too.

In reply to by Ghordius

Ghordius ConfederateH Thu, 12/28/2017 - 08:15 Permalink

Brexit in the sense of the vote has happened, yes

Brexit in the sense of the UK exiting the EU Customs Union or the EU Economic Area or both...

nope, it has not happened yet (and never mind if it is a "breakdown")

massive fraud? LOL. paper ballots. even if it was true... it's a British National Affair, anyway

not letting it happen? double LOL. show me what kind of Brexit the British Gov wants. it still has not stated it, yet

pedophiles? where? again, you are showing your lunatic side. wake up, it's the US and UK where there are rumours of pedophily. now show me rumours of such on the continent

ZOG? again, who voted in the UN? that was a vote featuring the US and Israel on one side... and 128 countries on a different side

you really have no grip whatsoever on reality, eh? you have those myths and... nothing else

In reply to by ConfederateH

ConfederateH Ghordius Thu, 12/28/2017 - 08:41 Permalink

In a "democratic" union, a legal vote to leave should be sufficient.  In the case of the EU, clearly it is not because there is no pretense to the EU being "democratic" or having any kind of a social contract.

Instead, the entire cesspool has become overwhelmed by apparatchiks like CuckEU-tius who try to argue both sides with forked tongues like the ashkenazi snakes that they worship.

One more thing:  Dutroux. And the confessions of the Dutch banker about satanic sacrifices, likely at Ing.

https://www.youtube.com/watch?v=MV3iZlQm-Zg

 

In reply to by Ghordius

Ghordius ConfederateH Thu, 12/28/2017 - 10:10 Permalink

"In a "democratic" union, a legal vote to leave should be sufficient.  In the case of the EU..."

ah, this is perhaps one I can explain

the "legal vote" was an advisory referendum. the Act of Parliament, i.e. the British Law that mandated it clearly spelled out that it would be such

after that vote, Parliament was supposed to do something... or not. but Cameron resigned, May took over, and she even had new elections... but...

...in the meantime, she did the real legal thing necessary for the UK to exit the EU: she wrote a letter

here: United_Kingdom_invocation_of_Article_50_of_the_Treaty_on_European_Union

that's it. or, as explained in the wiki article: "This means that the UK will cease to be a member of the EU on 30 March 2019, unless an extension to negotiations is agreed upon by the UK and EU"

alternatively, here a Telegraph article: 

http://www.telegraph.co.uk/news/0/what-is-article-50-the-only-explanati…

so no, nobody is holding the UK up. it's still exit on March 2019, so far. the British gov is not asking for a faster exit, note

(nor is a video about a Dutch banker and satanic sacrifices anything I find interesting, nor valid for anything)

In reply to by ConfederateH

ConfederateH Ghordius Thu, 12/28/2017 - 10:54 Permalink

Forked tongue.  One comment, brexit isn't an exit and the EU isn't affected.  The next comment, brexit will happen in 2019.  Before Brexit, the EU is threatening retaliation, after Brexit, the EU demands hundreds of billions.  Yet that is "democracy", not meddling?

As far as the children your idols in Brussels are sacrificing and abusing, I am not surprised that it isn't "anything I find interesting".  No one in Brussels in "interested" in these children's welfare officially, just highly "interested" and involved privately.

In reply to by Ghordius

Ghordius ConfederateH Fri, 12/29/2017 - 06:28 Permalink

why don't you blame... Theresa May, the British PM?

she is the one that confuses the term, followed by the whole UK establishment

from "Brexit means Brexit" to "We will have a Red, White and Blue Brexit" to...

... "my idols" in Brussels now asking her:

"What kind of Brexit do you want, Madame"

currently, Brexit means several things:

- the outcome of the referendum

- the exit of the UK from the EU which is again more complex, entailing

-- the exit from the Customs Union and/or

-- the exit from the Single Market and/or

-- the exit from something like two hundred related treaties and arrangements

I'm sorry, it is not me who makes confusion about the term

In reply to by ConfederateH

the late idi armin Ghordius Thu, 12/28/2017 - 08:42 Permalink

Ghordius is right, Brexit hasn't happened yet as the British govt keeps putting obstacles in its own way, thats more likely to be because the brits really really want to to be in Europe, just at the Paris Berlin level instead of the Madrid Rome Warsaw level. and the only thing that will keep them up there is the special arrangement with DC.
DC doesn't like the EU any more than it likes Russia or China so it puts a finger in the Eye of the EU (Paris, Berlin) by making the British work out some ad hoc system.

 

In reply to by Ghordius

the late idi armin Ghordius Thu, 12/28/2017 - 08:42 Permalink

Ghordius is right, Brexit hasn't happened yet as the British govt keeps putting obstacles in its own way, thats more likely to be because the brits really really want to to be in Europe, just at the Paris Berlin level instead of the Madrid Rome Warsaw level. and the only thing that will keep them up there is the special arrangement with DC.
DC doesn't like the EU any more than it likes Russia or China so it puts a finger in the Eye of the EU (Paris, Berlin) by making the British work out some ad hoc system.

 

In reply to by Ghordius

HRH of Aquitaine 2.0 Thu, 12/28/2017 - 04:02 Permalink

Someone else mentioned it in another article.  Saturn is home, in Capricorn as of December 19/20.  Saturn is the grumpy old man.  Capricorn is the sign of discipline, hard work.  January 1/2 is a grand water trine:  Jupiter (jolly happy Jupiter) is stuck in serious and wet Scorpio; Neptune is at home in Pisces (where it will stay for 7 more years).  Neptune, where illusions and dreams live in the darkness (it is obvious that many people are stuck in their dream life and delusions, far away from reality).  And on the first day of the New Year the Full Moon is in Cancer.  This may be the day where reality and fantasy meet and people are not going to be happy.  Buckle up.  It's going to be a bumpy ride!

Ace006 Thu, 12/28/2017 - 04:42 Permalink

Putting "neo" in front of some term does not imbue it with magical powers. You still have to show that the "neo" whatever has the effect you allege. 

Always enjoy your articles, Mr. L.

Guyzz239 Thu, 12/28/2017 - 04:56 Permalink

so much negativity on ZH about ZH this morning.  LIGHTEN UP!

The comment, Moreover, Gold is telling us this.  Gold is up over $50 off its low from earlier in the month.  Is something I find interesting.

 

Who is the only analyst to call the buy signal in Gold? and called it right at the correct time. 

SHEPWAVE totally has been calling gold, and oil and the stocks.  I don't believe this article is wrong but it is coming out a little late to help any of us.  I just read the two reports from Shepwave analysts for Thursday and there is some shake up about to happen.  They have yet to be wrong yet.