Thursday, January 5, 2017

Today's links

“Stocks have reached what looks like a permanently high plateau.” Irving Fisher 1929.

"The financial crisis was not caused by homeowners borrowing too much money. It was caused by giant financial institutions borrowing too much money, much of it from each other on the repurchase (repo) market. This matters, because we can't prevent the next crisis by fixing mortgages. We have to fix repos." Repowatch

1--The Fed's Low Interest Rates Are Increasing Inequality

2--Record inflows into the stock market

"Biderman: "The last time we saw this much money coming in was 2007 just before the downdraft."

3--Corporate America is drowning in debt

4--Global bond issuance highest in nearly a decade

Global bond issuance is running at its fastest pace in nearly a decade ...
A total of $4.88tn of debt has been sold since the year began as issuers take advantage of rock-bottom borrowing costs, according to data from Dealogic. The figure is a hair below that of 2007, when $4.91tn of bonds were issued during the same period.

5--What the Heck’s Happening to Our Share Buyback Boom?

6--Earnings, Not Donald Trump, Are Stocks’ Best Friend in 2017

an improved outlook for financial companies, driven in part by expectations that Trump administration policies will boost growth and inflation, resulting in a steeper “yield curve” that benefits banking firms’ profits.

The S&P 500 financials sector was up 20% in 2016 and was responsible for nearly half of the total earnings growth for the S&P 500 in the third quarter, according to FactSet data.

Financials posted 8% year-over-year earnings growth, according to FactSet. J.P. Morgan Chase, Citigroup Inc., Wells Fargo & Co., Bank of America Corp., Goldman Sachs Group Inc. and Morgan Stanley all beat analysts’ estimates on an earnings-per-share basis.

7--Fed minutes: Officials were moved by Trump win before December hike

The committee in its summary of economic projections noted "substantial uncertainty" about fiscal policy ahead. However, members noted that "more expansionary fiscal policy" raised the possibility of "somewhat tighter monetary policy than currently anticipated."
"Asset price movements as well as changes in the expected path for U.S. monetary policy beyond December appeared to be driven largely by expectations of more expansionary fiscal policy in the aftermath of U.S. elections," the minutes said at one point.

In the period between the November and December meetings, "market participants saw a nearly 95 percent probability of a rate hike" as "most of the steepening of the expected policy path occurred following the U.S. elections, reportedly in part reflecting investors' perception that the incoming Congress and Administration would enact significant fiscal stimulus measures."

8--Donald Trump's reflation rally will short-circuit.

Rising borrowing costs will blow fuses across the world before fiscal stimulus arrives, if it in fact arrives.
By the end of 2017 it will be clear that nothing has changed for the better. Powerful deflationary forces retain an invisible grip over the global economy. Bond yields will ratchet up further and then come clattering down again – ultimately driving 10-year US yields below zero before the decade is over.
There are few ‘shovel ready’ projects for Trump’s infrastructure blitz. The headline figures are imaginary. His plan will be whittled down by Congress.

9--Corporate profits won't grow in Trump era without greater productivity: Strategist

10--US corporate bonds: The weight of debt

Over the past decade corporate debt in the US has risen by three-quarters to $8.4tn, according to the Securities Industry and Financial Markets Association. Money market obligations, which include short-term company borrowings, lift that figure to $11.3tn. ...The legacy of this debt has stretched corporate balance sheets for all but the top echelon of S&P 500 companies with large cash holdings.

11--Fed policy is gutting basic financial infrastructure

The Federal Reserve is focusing too narrowly on its so-called dual mandate and damaging basic financial infrastructure by keeping interest rates low, former Dallas Federal Reserve President Richard Fisher said Monday.
Fisher has long raised concerns about funds and businesses that have a hard time making a profit when interest rates are low, including insurance companies and pensions.
"The Fed seems to be focused, as they are mandated to do, on keeping inflation low, waiting for the 2 percent [inflation] target to be hit or surpassed, achieving full employment, but sneaking up behind them is the gutting of the financial infrastructure that we're used to, that people rely upon," he told CNBC's "Squawk Box."...

"We are seven-plus years into this cycle and I'm deeply worried about the damage that's being done to insurance companies, community regional banks, and the interest rate spreads for big banks and the money market funds. That needs to be taken into consideration."

12--94% of all jobs added since 2004 were either temporary or independent contractor jobs. Low-wage, part-time, no benefits

13--Blame Obama for Trump

The truth is that Obama, by coming to the rescue of Wall Street in 2009 and making the defense of its interests, both at home and abroad, the lodestar of his administration, dashed the hopes of the millions of working people who voted for him in 2008, and more reluctantly in 2012, and paved the way for a government, comprised of billionaires, ultra-right ideologues and retired generals, that will be the most reactionary in American history

14--Trump’s Coming Confrontation with Yellen and the Federal Reserve

Don’t defend the Federal Reserve if you claim to care about workers, the middle class, or anyone under the top 10% or so. They have acted unutterably evil for decades, and if it takes another evil person to destroy their power, I’m fine with it. Frankly, the Federal Reserve should be placed under direct control of Congress with 4 year terms at most, and every central bank in the world should lose its “independence”. They have misused that independence to do little more than make the rich richer for decades and they are profoundly anti-democratic....

The Federal Reserve, for 4 decades, has sandbagged wages and made sure the rich got richer. It is not even in question, and the financial crisis was only the largest proof, not nearly the only one.
Like it or hate it, he’s going to have to destroy much of how DC has done business for 40 years, and many people in power really, really don’t want this.

15--The case against Mnuchin

16--All signs point to a corporate takeover of the marijuana industry by Bayer, Monsanto

17--Fed Officials See Faster Economic Growth Under Trump, but No Boom

Fed plans to torpedo Trump boom--If the economy grows, the Fed promises to stop it.

Federal Reserve officials expect Donald J. Trump’s election to result in somewhat faster economic growth over the next several years, but they see little chance of the boom Mr. Trump has promised, according to an account of the Fed’s most recent meeting in mid-December.
That is in part because the Fed plans to raise interest rates more quickly if growth accelerates.
For now, however, Fed officials plan to wait and see what happens next, the account said.
“While the Fed signaled that it would likely respond to expansionary fiscal policies with a faster pace of rate hikes, the Fed believes it is too early to embed this into its baseline,” Michael Gapen, chief United States economist at Barclays, wrote on Wednesday following the release of the minutes. “Any real shift in the stance of monetary policy will require more clarity on the stance of fiscal policy.”..

“Participants emphasized their uncertainty about the timing, size and composition of any future fiscal and other economic policy initiatives as well as about how those policies might affect aggregate demand and supply,” the minutes said. The Fed’s policy-making committee, the Federal Open Market Committee, has 17 members, 10 of whom cast votes on monetary policy....

Ms. Yellen has warned that fiscal stimulus, like a tax cut or a spending increase, could increase economic growth to an unsustainable pace in the near term, resulting in increased inflation. The Fed quite likely would seek to offset such policies by raising interest rates more quickly.

18--U.S. Quietly Drops Bombshell: Wall Street Banks Have $2 Trillion European Exposure

19--Mnuchin Nomination for Treasury Shines Harsh Light on U.S. Politics

Mnuchin is also a former Goldman Sachs partner and hedge fund operator who has never held public office before. His rapid rise to nominee for one of the highest posts in the U.S. government, which will also put him atop the Financial Stability Oversight Council (F-SOC), appears to be hinged to raising millions of dollars for Trump’s political campaign as his National Finance Chairman. To millions of Americans, this looks like an unseemly political quid pro quo.

In a press release, Democratic Senator Jeff Merkley had this to say about the nominee:
“Donald Trump’s choice of Mnuchin is not only a fundamental betrayal of his promise to stand up to Wall Street — it is a punch in the gut to the thousands of American families who were thrown out of their homes by Mnuchin’s bank. The voices of these Americans should be heard loud and clear as the Senate examines his record and considers his nomination

20--Macronomics-Continuing deregulation funnels control to the elites, expanding disparities between rich and poor in a "winner takes all" scenario. ...

A successful economy increases wages, employment and social stability. Reducing wages is a sign of failure. There is no glory in competing in a worldwide race to lower the standard of living of one's own nation. " Sir Jimmy Goldsmith

A successful economy increases wages, employment and social stability. Reducing wages is a sign of failure. There is no glory in competing in a worldwide race to lower the standard of living of one's own nation.

U.S. Wage Growth Since 1973* Upper / High Income: +52% Everyone Else: -4.6% 
Distribution of U.S. Household Wealth to the Bottom 90% 
2016: 22% 2005: 30% 2000: 31% 1995: 32% 1985: 37%
Young Americans living w Parents*
2016: 40%2000: 31%1990: 30%1980: 30%1970: 23%1960: 23%1950: 22%
*18-34 yr olds - H/T Lawrence McDonald
We believe the domestic demand economy cannot grow without corresponding growth in employee compensation

21--Stop Trump campaign??  Revolt of the Billionaires?

We pay up to $ 1,500. Immediate hiring! Call today – protest tomorrow," RT quoted the ads as saying.

Day and evening shifts as well as full time and part time work were available to potential protesters who will be driven to protest sites, according to the ads. "The job does not require any work experience. There are vacancies for a weekend. No taxes and fees," the ads read

22--Much of the $2.5 Trillion in Corporate “Overseas Cash” Is Already in the U.S

23--Trump Team Promises To 'Dismantle' Dodd-Frank Bank Regulations

24--Volcker gets it...The main danger in the financial markets is not banks getting too big. The main danger in the financial markets is non-banks borrowing short to lend long.

25---Berlin terror attack suspect was well known to German intelligence agencies

26--The 2008 crisis: Was it traditional banks or shadow banks? (important)

Here’s what economist and blogger Timothy Taylor has to say about this chart:
Notice that before the financial crisis in 2008, liabilities of banks don’t soar; after the crisis, they don’t fall. The financial crisis instead happened in the shadow banking sector, where you can see the sharp rise in liabilities before the crisis circa 2008 and the sharp fall afterwards.
The basic lesson here is that if you still think banks are the core representative institutions in the financial system of high-income economies, you are a few decades out of date. If you are concerned about the dangers of financial sector risks cartwheeling into the real economy, you need to think about the shadow banking sector

note--So what does a negative deposit rate at the central bank accomplish?
It pushes down short-term rates on other types of lending. In theory, that is supposed to provide an economic boost. And, also in theory, it weakens the country’s currency.

The con is quite simple:
1st: Borrow cheap FedRB $ to buy back shares. Earnings per share divided by (newly reduced shares outstanding) fewer shares equals higher earnings per share ! This new EPS was easily share-repurchase-engineered to achieve the CEO’s bonus activation requirement. So, the corporation borrows money so that top executives can benefit financially from fake EPS results via performance incentive agreements. The regulators routinely ignore the fraud and the FED encourages it.
2nd: The corporation is now heavily indebted and unlikely to survive higher interest rates or a tough competitive environment. The good news is that the CEO knows the horse very well. So, ride the EPS fraud as long as possible and collect a fortune all along the trail. When tough times come, the shareholders and bondholders take the hit. The CEO then simply buys the newly debt-free corporation out of a bankruptcy proceeding with the EPS fraud derived bonus fortune that he has accumulated ! Times are very good in America for the fraud crowd. Prosecutions do not occur.
We have lost the rule of law. It’s a perverse form of theft, but ironically, just like early communist asset confiscations, the fun runs out rather quickly when there’s little left to steal


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