Author Archives: Bone Fish

New York Judge Rules Consumer Financial Protection Bureau An Unconstitutional Construct…

The CFPB was constructed by Elizabeth Warren and her progressive ideologues as an extra-constitutional government agency.  This was entirely by design.

https://theconservativetreehouse.files.wordpress.com/2017/11/leandra-english-nancy-pelosi-elizabeth-warren-and-chuck-schumer.jpg?w=621&h=466

The CFPB had two primary, albeit unspoken, functions.  First, it was structured as a holding center for fines and assessments against any financial organizations opposed by progressives.  Second, it was a distribution hub for the received funds to be transferred to political allies and groups supportive of progressive causes.

To pull off this scheme Elizabeth Warren et al ensured it was structured to allow no congressional oversight; however, it was also structured to have no executive branch oversight – and the funding mechanism for the CFPB budget was directly through the federal reserve.  The lack of any legislative or executive branch oversight made the entire scheme unconstitutional according to an earlier court decision.

The CFPB defenders then appealed the decision to a select appellate court in Washington DC to continue the construct.  The Warren crew won the appeal; but today, in an unrelated jurisdictional ruling a New York judge affirmed the minority opinion setting up a possible supreme court pathway to get a final decision.

NEW YORK (AP) – The U.S. government’s beleaguered consumer finance watchdog agency is unconstitutionally structured, a judge said Thursday as she disqualified the agency from serving as a plaintiff in a lawsuit.

U.S. District Judge Loretta A. Preska in Manhattan reached the conclusion about the Consumer Financial Protection Bureau in a written decision.

Her ruling related to a lawsuit brought against companies loaning money to former National Football League players awaiting payouts from the settlement of a concussion-related lawsuit and to individuals slated to receive money for injuries sustained when they helped in the World Trade Center site cleanup after the Sept. 11, 2001, terrorist attacks.

She let claims brought by the New York State attorney general proceed, but dismissed those that were brought by the CPFB, saying it “lacks authority to bring this enforcement action because its composition violates the Constitution’s separation of powers.”

In ruling, Preska sided with three judges who dissented from the six-judge majority in a January ruling by the U.S. Court of Appeals in Washington. The majority found that the agency director’s power is not excessive and that the president should not have freer rein to fire that person.  (read more)

CFPB Interim Director Mick Mulvaney has already said the CFPB needs to be disassembled.

Taking the agency down is perfectly ok with the Trump administration.

https://theconservativetreehouse.files.wordpress.com/2017/11/mulvaney-work.jpg?w=1024&h=1024

By Sundance | The Conservative Tree House

Advertisements

Recent Canadian Home Sales Plunge Most Since 2008 American Financial Crisis

  • Rising rates? Check.
  • Chinese capital controls and a slump in foreign buyers? Check.
  • Trade war with the US? Check.

Things are not looking good for Canada’s national housing market, which as VCG reports, continued its sluggish performance in the month of May. Despite the warmer weather and usually busy spring selling season, buying activity has been awfully quiet. New mortgage regulations which are now in full swing have stymied fringe buyers, particularly millennials. According to new data from credit bureau TransUnion, new mortgage originations among millennials in Canada fell by 19.5% between the last quarter of 2017 and the first three months of 2018.

That has also been showing up sales data. 

As shown in the chart below, national home sales in Canada plunged by 16% Y/Y for the month of May. This was the worst decline since the great financial crisis in 2008 when home sales dipped 17% that May. Furthermore, total home sales of 50,604 marked the lowest total since May 2011.

https://www.zerohedge.com/sites/default/files/inline-images/Year-over-Year-Change-in-Home-Sales-May.png?itok=Fy7a4zl_

Seasonally adjusted home sales edged 0.1% lower on a month over month basis, and 15% on a year over year basis. Or, as Steve Saretsky put it, “either way you slice it not a great month for one of the worlds most resilient housing markets.”

And as sales continue to slide inventory is beginning to build. For sale inventory crept up by 4% year over year, increasing for the first time in three years, and the highest May increase since 2010.

https://www.zerohedge.com/sites/default/files/inline-images/Year-over-Year-Change-in-Inventory-May.png?itok=QxM59913

In light of the above, it is not surprising that the average sales price dipped 6% year over year in May, which however was not nearly as bad as April when year over year declines registered a head turning 11% decline.

But more troubling is that when looking at the smoothed out index of the MLS HPI prices showed the smallest possible increase of just 1% year over year in May, the lowest since September 2009. Not only did this mark the 13th consecutive month of decelerating year over year gains per the Canadian Real Estate Association, but at the current rate of slowdown, next month Canada will record the first annual drop in home prices since the global financial crisis.

https://www.zerohedge.com/sites/default/files/inline-images/Screen-Shot-2018-06-19-at-12.34.41-PM-696x474.png?itok=BhmwUGHt

The silver lining: condos continue to hold up well as buyers tumble down the housing ladder; here prices posted a 13% increase from May 2017.

CREA’s chief economist Gregory Klump shouldered much of the blame on tighter borrowing conditions, “This year’s new stress-test became even more restrictive in May, since the interest rate used to qualify mortgage applications rose early in the month. Movements in the stress test interest rate are beyond the control of policy makers. Further increases in the rate could weigh on home sales activity at a time when Canadian economic growth is facing headwinds from U.S. trade policy frictions.”

Klump’s theory stacks up well with recent data which suggests fringe borrowers are being pushed towards the private lending space, particularly in Ontario. Mortgage originations at private lenders in the Q1 2018 rose to $2.09 billion in Ontario, a 2.95% increase from last year. The market share of private lending went from 5.71% of originations in Q1 2017, to 7.87% in Q1 2018, despite originations at other channels dropping.

In other words, there is a surge in unregulated, non-bank lending, just as the housing bubble pops, precisely what happened the last time there was a full-blown financial crisis.

Source: ZeroHedge

President Trump Drops $200 Billion M.O.A.T on Red Dragon (Beijing)…

When you plant your tree in another man’s orchard, you might end up paying for your own apples; it’s a risk you take…

….and President Trump knows how to use that leverage better than anyone could possibly fathom; because in this metaphor Beijing relies upon the U.S. for both the seeds and the harvest. President Trump drops the $200b M.O.A.T (Mother of All Tariffs):

https://theconservativetreehouse.files.wordpress.com/2017/11/trump-beijing-trade-2.jpg?w=625

White House – On Friday, I announced plans for tariffs on $50 billion worth of imports from China. These tariffs are being imposed to encourage China to change the unfair practices identified in the Section 301 action with respect to technology and innovation. They also serve as an initial step toward bringing balance to our trade relationship with China.

However and unfortunately, China has determined that it will raise tariffs on $50 billion worth of United States exports. China apparently has no intention of changing its unfair practices related to the acquisition of American intellectual property and technology. Rather than altering those practices, it is now threatening United States companies, workers, and farmers who have done nothing wrong.

This latest action by China clearly indicates its determination to keep the United States at a permanent and unfair disadvantage, which is reflected in our massive $376 billion trade imbalance in goods. This is unacceptable. Further action must be taken to encourage China to change its unfair practices, open its market to United States goods, and accept a more balanced trade relationship with the United States.

Therefore, today, I directed the United States Trade Representative to identify $200 billion worth of Chinese goods for additional tariffs at a rate of 10 percent. After the legal process is complete, these tariffs will go into effect if China refuses to change its practices, and also if it insists on going forward with the new tariffs that it has recently announced. If China increases its tariffs yet again, we will meet that action by pursuing additional tariffs on another $200 billion of goods. The trade relationship between the United States and China must be much more equitable.

I have an excellent relationship with President Xi, and we will continue working together on many issues. But the United States will no longer be taken advantage of on trade by China and other countries in the world.

We will continue using all available tools to create a better and fairer trading system for all Americans.

~ President Donald Trump

https://theconservativetreehouse.files.wordpress.com/2018/05/eagle-and-dragon.jpg?w=623&h=603

Historic Chinese geopolitical policy, vis-a-vis their totalitarian control over political sentiment (action) and diplomacy through silence, is evident in the strategic use of the space between carefully chosen words, not just the words themselves.

Each time China takes aggressive action (red dragon) China projects a panda face through silence and non-response to opinion of that action;…. and the action continues. The red dragon has a tendency to say one necessary thing publicly, while manipulating another necessary thing privately.  The Art of War.

President Trump is the first U.S. President to understand how the red dragon hides behind the panda mask.

It is specifically because he understands that Panda is a mask that President Trump messages warmth toward the Chinese people, and pours vociferous praise upon Xi Jinping, while simultaneously confronting the geopolitical doctrine of the Xi regime.

In essence Trump is mirroring the behavior of China while confronting their economic duplicity.

President Trump will not back down from his position; the U.S. holds all of the leverage and the issue must be addressed.  President Trump has waiting three decades for this moment.  This President and his team are entirely prepared for this.

We are finally confronting the geopolitical Red Dragon, China!

https://theconservativetreehouse.files.wordpress.com/2017/07/us-money.jpg?w=625

The Olive branch and arrows denote the power of peace and war. The symbol in any figure’s right hand has more significance than one in its left hand. Also important is the direction faced by the symbols central figure. The emphasis on the eagles stare signifies the preferred disposition. An eagle holding an arrow also symbolizes the war for freedom, and its use is commonly referred to the liberation fight of righteous people from abusive influence. The eagle on the original seal created for the Office of the President showed the gaze upon the arrows.

The Eagle and the Arrow – An Aesop’s Fable

An Eagle was soaring through the air. Suddenly it heard the whizz of an Arrow, and felt the dart pierce its breast. Slowly it fluttered down to earth. Its lifeblood pouring out. Looking at the Arrow with which it had been shot, the Eagle realized that the deadly shaft had been feathered with one of its own plumes.

Moral: We often give our enemies the means for our own destruction.

https://theconservativetreehouse.files.wordpress.com/2017/04/trump-xi-jinping-3.jpg?w=621&h=451

https://theconservativetreehouse.files.wordpress.com/2017/08/modi-trump-hug.jpg?w=622&h=362

https://theconservativetreehouse.files.wordpress.com/2018/06/trump-kim-summit-22.jpg?w=621&h=414

“Markets”

https://theconservativetreehouse.files.wordpress.com/2018/05/world-gdp-2017-v2.jpg?w=478&h=833

https://theconservativetreehouse.files.wordpress.com/2018/06/trump-kim-summit-24.jpg?w=622&h=390

https://theconservativetreehouse.files.wordpress.com/2018/06/trump-kim-summit-25.jpg?w=620&h=324

https://theconservativetreehouse.files.wordpress.com/2018/05/kim-jong-un-funny.jpg?w=620&h=479

… all in deep contrast with what the past American Presidential Administration were focused on (video)

Source: by Sundance | The Conservative Tree House

A Hard Rain’s A-Gonna Fall

https://whiskeytangotexas.files.wordpress.com/2017/09/abyss.jpg?w=625&zoom=2

Après moi, le déluge

~ King Louis XV of France

A hard rain’s a-gonna fall

~ Bob Dylan (the first)

As the Federal Reserve kicked off its second round of quantitative easing in the aftermath of the Great Financial Crisis, hedge fund manager David Tepper predicted that nearly all assets would rise tremendously in response. “The Fed just announced: We want economic growth, and we don’t care if there’s inflation… have they ever said that before?” He then famously uttered the line “You gotta love a put”, referring to the Fed’s declared willingness to print $trillions to backstop the economy and financial markets. Nine years later we see that Tepper was right, likely even more so than he realized at the time.

The other world central banks followed the Fed’s lead. Mario Draghi of the ECB declared a similar “whatever it takes” policy and has printed nearly $3.5 trillion in just the past three years alone. The Bank of Japan has intervened so much that it now owns over 40% of its country’s entire bond market. And no central bank has printed more than the People’s Bank of China.

It has been an unprecedented force feeding of stimulus into the global system. And, contrary to what most people realize, it hasn’t diminished over the years since the Great Recession. In fact, the most recent wave from 2015-2018 has seen the highest amount of injected ‘thin-air’ money ever:

https://static.seekingalpha.com/uploads/2018/6/17/saupload_Central_bank_global_QE_flows_-_6.14.18.png

In response, equities have long since rocketed past their pre-crisis highs, bonds continued rising as interest rates stayed at historic lows, and many real estate markets are now back in bubble territory. As Tepper predicted, financial and other risk assets have shot the moon. And everyone learned to love the ‘Fed put’ and stop worrying.

But as King Louis XV and Bob Dylan both warned us, what’s coming next will change everything.

The Deluge Approaches

This halcyon era of ever-higher prices and consequence-free backstopping by the central banks is ending. The central banks, desperate to give themselves some slack (any slack!) to maneuver when the next recession arrives, have publicly committed to ‘tightening monetary policy’ and ‘unwinding their balance sheets’, which is wonk-speak for ‘reversing what they’ve done’ over the past decade.

Most general investors today just don’t appreciate how gargantuanly significant this is. For the past 9 years, we’ve become accustomed to a volatility-free one-way trip higher in asset prices. It’s been all-glory with no risk while the ‘Fed put’ has had our backs (along with the ‘EBC put’, the ‘BOJ’ put, the ‘PBoC put’, etc). Anybody going long, buying the (few, minor) dips along the way, has felt like a genius. That’s all over.

Based on current guidance from the central banks, “global QE” is expected to drop precipitously from here:

https://static.seekingalpha.com/uploads/2018/6/17/saupload_liquidity_20supernova_201.jpg

With just the relatively tiny amount of QE tapering so far, 2018 has already seen more market price volatility than any year since 2009. But we’ve seen nothing so far compared to the volatility that’s coming later this year when QE starts declining in earnest. In parallel with this tightening, global interest rates are rising after years of flat lining at all-time lows. And it’s important to note that our recent 0% (or negative) yields came at the end of a 35-year secular cycle of declining interest rates that began in the early 1980s.

Are we seeing a secular cycle turn now that rates are creeping back up? Will rising interest rates be the norm for the foreseeable future? If so, the world is woefully unprepared for it. Countries and companies are carrying unprecedented levels of debt, as are many households. Rising interest rates increases the cost of servicing that debt, leaving less behind to invest or to meet basic operating needs.

Simon Black reminds us that, mathematically, rising interest rates result in lower valuations for stocks, bonds and housing. But so far, Wall Street hasn’t gotten the message (chart courtesy of Charles Hugh Smith):

https://static.seekingalpha.com/uploads/2018/1/15/saupload_DJIA1-18a.jpg(Source)

So we’re presented with a simple question: What happens when the QE that’s grossly-inflating markets stops at the same time that interest rates rise? The answer is simple, too: Prices fall.

They fall commensurate with the distortion within the system. Which is unprecendented at this stage.

But Wait, There’s More!

So the situation is dire. But it gets worse. Our debt that’s getting more expensive to service? Well, not only are we (in the US) adding to it at a faster rate with our newly-declared horizon of $1+ trillion annual deficits, but we’re increasingly antagonizing the largest buyers of our debt.

This is most notable with China (the #1 Treasury buyer), whom we’ve dragged into a trade war and just announced $50 billion in tariffs against. But Japan (the #2 buyer) is also materially reducing its Treasury purchases. And not to be outdone, Russia recently dumped half of its Treasury holdings, $47 billion worth, in a single fell swoop. Should this trend lead, understandably, to lower demand for US Treasures in the future, that only will put further pressure on interest rates to move higher.

And this is all happening at a time when the stability of the rest of the world is fast deteriorating. Developing (EM) countries are getting destroyed as central bank liquidity flows slow and reverse — as higher interest rates strengthen the USD against their home currencies, their debts (mostly denominated in USD) become more costly while their revenues (denominated in local currency) lose purchasing power. Fault lines are fracturing across Europe as protectionist, populist candidates are threatening the long-standing EU power structure. Italy’s economy is struggling to remain afloat and could take the entire European banking system down with it. The new tit-for-tat tariffs with the US aren’t helping matters. And China, trade war aside, is seeing its fabled economic momentum slow to multi-decade lows.

All players on the chessboard are weakening.

The Timing Is Becoming Clear

Yes, the financial markets are currently still near all-time highs (or at the high, in the case of the NASDAQ). And yes, expected Q2 US GDP has jumped to a blistering 4.8%. But the writing is increasingly on the wall that these rosy heights won’t last for much longer.

These next three charts from Palisade Research, combined with the above forecast of the drop-off in global QE, paint a stark picture for the rest of 2018 and beyond. The first shows that as the G-3 central banks have started their initial (and still small) efforts to withdraw QE, the Global Financial Stress Indicator is spiking worrisomely:

https://static.seekingalpha.com/uploads/2018/6/17/saupload_GlobalStressIndicator.png

Next, one of the best predictors of global corporate earnings now forecasts an imminent collapse. As go earnings, so go stock prices:

https://static.seekingalpha.com/uploads/2018/6/17/saupload_SKEG.png

And looking at trade flows — which track the movement of ‘real stuff’ like air and shipping freights — we see clear signs that the global economy is slowing down (a trend that will be exacerbated if oil prices rise as geologist Art Berman predicts):

https://static.seekingalpha.com/uploads/2018/6/17/saupload_Alt_MeasuresofWorldTrade.png

The end of QE, higher interest rates, trade wars at a time of slowing global trade, China/Europe weakening, EM carnage — it’s like both legs of the ladder you’re standing on being sawed off, as well all of the rungs underneath you.

Conclusion: a major decline in the financial markets is due for the second half of 2018/first half of 2019.

Actions To Take

Gathering clouds deliver a valuable message: Seek shelter before the storm.

Specifically, it’s time to:

  • Get liquid. When the rug gets pulled out from under today’s asset prices, ‘flat’ will be the new ‘up’. Simply not losing money will make you wealthier on a relative basis — it’s the easiest, least-risky strategy for most investors to prepare for what’s coming. “Cash is king” in the aftermath of a deflationary downdraft, when your dry power can be then used to purchase high-quality income-producing assets at excellent value — fractions of their current prices. And in the interim, the returns on cash are getting better for investors who know where to look. We’ve recently explained how you can now get 2%+ interest on cash stored in short-term T-bills (that’s 30x more than most banks will pay on cash savings). If you’re sitting on cash and haven’t looked seriously yet at that program, you really should review our report. With more Fed tightening expected in the future, T-bill rates are likely headed even higher.
  • Get your plan for the correction into place now. In addition to your cash, how is the rest of your portfolio positioned? Do you have suitable hedges in place to mitigate your risk? Does your financial advisor even acknowledge the risks detailed in the above article? The last thing you want to do in a market downdraft is make panicked decisions.
  • Nibble into commodities. The commodities/equities price ratio is the lowest it has been in 47 years. That ratio has to correct some point soon. Much of that correction will be due to stocks dropping; but the rest will be by commodities holding their own or appreciating. While it’s true that commodities could indeed fall as well during a general deflationary rout, that’s not a guarantee — especially given that many commodities are now selling at prices close to — or in some cases, below — their marginal cost of production. The easiest commodities to own yourself, the precious metals, are ‘dirt cheap’ right now (especially silver), as explained in our recent podcast with Ronald Stoeferle. And with Friday’s bloodbath, they just got even cheaper.
  • Assess and address your biggest vulnerabilities before the next crisis hits. Are you worried about the security of your current job when the next recession hits? Are rising interest rates causing you to struggle in deciding whether to buy or sell a home? Are you trying to come up with a plan for a resilient retirement? Are you assessing the pros and cons of relocating? Do you have homesteading questions? Are you trying to create new streams of income?

We’re lurching through the final steps of familiar territory as the status quo we’ve known for the past near-decade is ending. The mind-mindbogglingly massive central bank stimulus supporting asset prices are disappearing. Interest rates are rising. It’s hard to overemphasize how seismic these changes will be to world markets and the global economy. The coming years are going to be completely different than what society is conditioned for. Time is running short to get prepared. Because when today’s Everything Bubble bursts, the effect will be nothing short of catastrophic as 50 years of excessive debt accumulation suddenly deflates.

A hard rain indeed is gonna fall.

Source: by Chris Martenson | Seeking Alpha

Wealthy Blue-Staters Are Using Shady Alaskan Trusts To Dodge SALT-Deduction Caps

Wealthy Americans living in blue states are scrambling to find tax loopholes that will help them get around one of the most controversial (and for some, infuriating) provisions in President Trump’s tax plan: The capping of the so-called SALT deduction. Enter real-estate planner Jonathan Blattmachr, who this week made the mistake of explaining to a Bloomberg reporter about a plan he’s devised for his clients who are trying to get out of paying the additional taxes on their summer homes in the Hamptons or Cape Cod. According to the Bloomberg story, Blattmachr is planning on transferring the interest in his two New York residences – one in Garden City and one in Southampton – into LLCs, which he will then divide up into five separate trusts that will be based in Alaska. He can then use the trusts to take the maximum $10,000 deduction five separate times. In this way, he can deduct $50,000 in mortgage taxes from his federal tax bill instead of $10,000.

“This is an under-the-radar thing and it’s novel,” said Blattmachr. (Or at least it was under-the-radar until you went blabbing to the media). The trusts that Blattmachr and other savvy estate planners are using to take advantage of this loophole are called non-grantor trusts. While trusts are typically used by the wealthiest Americans to preserve their wealth as it’s handed down from generation to generation, the tax law is giving the merely wealthy an incentive to explore setting up these trusts to pay taxes at rates found in low-tax red states. The trusts can help property owners avoid paying an additional $100,000 in taxes across their properties.

However, the plan isn’t practical for everybody, and even those who can reap the benefits over the long term must take an up-front risk because they must pay the maintenance costs for the trusts – which can be as high as $20,000 – up front. If the IRS ever issues guidance invalidating the loophole, there’s no way to recover those costs.

Setting up dozens of non-grantor trusts for those with six-figure plus property taxes can be impractical and burdensome. Plus, those whose taxes are under six figures feel the new cap most acutely, according to Steffi Hafen, a tax and estate planning lawyer at Snell & Wilmer in Orange County, California. Those clients often have monthly mortgage payments that eat up a big chunk of their take-home pay, Hafen said.

More than 10 percent of taxpayers in New Jersey will see a tax hike under the new law – the highest percentage in the U.S. – followed by Maryland and the District of Columbia at 9.4 percent, 8.6 percent in California and 8.3 percent in New York, according to an analysis earlier this year by the Tax Policy Center. Those who’ll pay more are mostly being affected by the state and local tax deduction limit.

Mark Germain, founder of Beacon Wealth Management in Hackensack, New Jersey, said the strategy is “absolutely viable,” adding that he has about a dozen clients who want to create non-grantor trusts.

Building and administering the trusts could cost about $20,000, according to Brad Dillon, a senior wealth planner at Brown Brothers Harriman. But those expenses would be justified after a few years, said Scott Testa, a lawyer who leads the estates and trusts tax practice at Friedman LLP in East Hanover, New Jersey.

Already, it’s unclear just how much longer individuals will be able to take advantage of the loophole. As Bloomberg explains, an existing provision in the US tax code could easily be revived to prohibit Americans from using trusts to avoid paying SALT taxes. Though it would take effort on the IRS’s part.

Still, the Internal Revenue Service could issue guidance that would prevent taxpayers from using the trusts to get around the SALT cap. An existing provision says that multiple non-grantor trusts with identical beneficiaries and identical grantors – and whose primary purpose is to avoid taxes – can potentially be considered a single entity, with just one $10,000 SALT deduction. But the measure has never been bolstered by regulations, leaving it vague.

That IRS provision could potentially derail the whole strategy, Dillon said. But compared to the other workarounds that have been proposed by high-tax states, the non-grantor trust “is the only one that’s come out of the fray that seems like a viable structure,” Dillon said.

Furthermore, people with large mortgages might have difficulty convincing their lender to allow them to transfer ownership over to an LLC.

The strategy isn’t for everybody: People with large mortgages on their homes might not be able to win approval from the bank to transfer ownership to an LLC. Also taxpayers with a primary residence in Florida, which like Alaska doesn’t have an income tax, can’t take advantage of the scheme because of complex rules surrounding the state’s homestead exemption.

But for those who are curious, here’s an in-depth explanation of how the process works:

Here’s how it works: First, you set up an LLC in a no-tax state such as Alaska or Delaware. Then, you transfer fractions of that LLC into multiple non-grantor trusts, which are trusts that are treated as independent taxpayers (unlike grantor trusts, where the person who creates them are generally taxed on the trust income). Each trust can take a deduction up to $10,000 for state and local taxes.

If a spouse is designated as the beneficiary, another “adverse” party – meaning someone who may want the money also — has to approve any distributions.

Keep in mind that you no longer control or can benefit from anything placed in the trust. And you have to put investment assets in the trust that will generate enough income to balance out the $10,000 deduction. One option would be a vacation home that generates rental income, according to Steve Akers, chair of the estate planning committee at Bessemer Trust. Marketable securities could also work.

Some caveats: If the home placed in the non-grantor trust is sold, the trust recognizes the gains on the sale and has to pay taxes on it – and it won’t be able to take advantage of a special home sale exclusion that’s available under a separate tax rule. For those with New York residences, putting the home in the LLC or the trust could potentially trigger the state’s 1 percent mansion tax, which is levied on sales of homes of at least $1 million.

As we pointed out earlier this year (citing research from BAML), the Northeast and West coast – traditionally liberal bastions and, according to some, explicitly targeted by the Trump administration – generally have higher average amounts and will feel most of the pain. The chart below shows a heat map for average amount claimed under SALT deductions, with redder states farther above $10k and greener states below.

https://www.zerohedge.com/sites/default/files/inline-images/2018.06.15salt.jpg?itok=I0kc76vc

For those who are still getting up to speed on the new tax law, Goldman offered this guide earlier in the year to the most important provisions. Of course, estate planners aren’t the only ones searching for loopholes. Several blue-state governors have threatened “economic civil war” on Washington by devising loopholes for their residents that will allow them to take advantage of a “charitable” fund being set up by certain states that will essentially allow them to convert some of their taxes into charitable contributions that can still be deducted from their federal tax bill. However, the IRS has already warned states not to try and circumvent the SALT deduction caps. The retaliation has sent state lawmakers scrambling for an alternate solution. As next year’s tax deadline draws closer, expect the conflict between blue states and the federal government to intensify.

Source: ZeroHedge

***

The Sources Of Tax Revenue For Every US State, In One Chart

In the aftermath of Trump’s tax reform, which many mostly coastal states complained would cripple state income tax receipts and hurt property prices, S&P offered some good news: in a May 30 report, the rating agency said that “[s]tate policymakers have a lot to cheer,” noting the current slowdown in Medicaid signups and dramatically higher revenue collections, to the tune of 9.4%, are significantly boosting state fiscal positions.

https://www.zerohedge.com/sites/default/files/inline-images/S%26P%20states.jpg?itok=b_rsP1fm

Still, the agency’s view is that current conditions are “most likely only a temporary respite” (very much the same as what is going on at the federal level) means that the agency is likely to focus on “a state’s financial management and budgetary performance during these ‘good’ times” to determine its “resilience to stress when the economy eventually softens” according to BofA.

To that end, S&P warns that:

“For those [states] that either stumble into political dysfunction or – out of expedience – assume recent trends will persist, this moment of fiscal quiescence could prove to be a mirage.”

For now, however, let the good times roll, and with real GDP growth tracking at 3.8% for 2Q18, state tax receipts should grow at a rate of over 10% based on historical correlation patterns, with the growth continuing at 9% and 8% in Q3 and Q4.

https://www.zerohedge.com/sites/default/files/inline-images/state%20taxes.jpg?itok=lpbVNyfL

This is good news for states that had expected a sharp decline in receipts, and is especially important for states heavily skewed to the personal income tax since revenue from that source should rise by over 14%, according to BofA calculations.

Finally, the BofA chart below is useful for two reasons, first, it shows the states most reliant on individual income taxes from the Census Bureau’s most recent annual survey of tax statistics. Oregon – at 69.4% of total tax collections – is most reliant on individual income taxes, followed by Virginia (57.7%), New York (57.2%), Massachusetts (52.9%) and California (52.0%). More notably, it shows the full relative breakdown of how states collect revenues, from the Individual income tax-free states such as Florida, Texas, Washington, Tennessee, and Nevada, to the sales tax-free Alaska, Vermont and Oregon, to the severance-tax heavy Wyoming, North Dakota and Alaska, and everyone in between: this is how America’s states fund themselves.

https://www.zerohedge.com/sites/default/files/inline-images/state%20revenue.jpg?itok=PBD-1Mn5
(click here for larger image)

Source: ZeroHedge

Affordability Crisis: Low-Income Workers Can’t Afford A 2-Bedroom Rental Anywhere In America

https://i2.wp.com/houzbuzz.com/wp-content/uploads/2016/02/Transformarea-unui-apartament-de-2-camere-in-unul-de-3-How-to-turn-a-2-bedroom-into-a-3-bedroom-apartment-980x600.jpg

The National Low Income Housing Coalition’s (NLIHC) annual report, Out of Reach, reveals the striking gap between wages and the price of housing across the United States. The report’s ‘Housing Wage’ is an estimate of what a full-time worker on a state by state basis must make to afford a one or two-bedroom rental home at the Housing and Urban Development’s (HUD) fair market rent without exceeding 30 percent of income on housing expenses.

With decades of declining wages and widening wealth inequality via the financialization of corporate America, and thanks to the Federal Reserve’s disastrous policies (whose direct outcome is the ascent of Trump), the recent insignificant countertrend in wage growth for low-income workers has not been enough to boost their standard of living.

The report finds that a full-time minimum wage worker, or the average American stuck in the gig economy, cannot afford to rent a two-bedroom apartment anywhere in the U.S.

According to the report, the 2018 national Housing Wage is $22.10 for a two-bedroom rental home and $17.90 for a one-bedroom rental. Across the country, the two-bedroom Housing Wage ranges from $13.84 in Arkansas to $36.13 in Hawaii.

The five cities with the highest two-bedroom Housing Wages are Stamford-Norwalk, CT ($38.19), Honolulu, HI ($39.06), Oakland-Fremont, CA ($44.79), San Jose-Sunnyvale-Santa Clara, CA ($48.50), and San Francisco, CA ($60.02).

For people earning minimum wage, which could be most millennials stuck in the gig economy, the situation is beyond dire. At $7.25 per hour, these hopeless souls would need to work 122 hours per week, or approximately three full-time jobs, to afford a two-bedroom rental at HUD’s fair market rent; for a one-bedroom, these individuals would need to work 99 hours per week, or hold at least two full-time jobs.

The disturbing reality is that many will work until they die to only rent a roof over their head.

The report warns: “in no state, metropolitan area, or county can a worker earning the federal minimum wage or prevailing state minimum wage afford a two-bedroom rental home at fair market rent by working a standard 40-hour week.”

The quest to afford rental homes is not limited to minimum-wage workers. NLIHC calculates that the average renter’s hourly wage is $16.88. The average renter in each county across the U.S. makes enough to afford a two-bedroom in only 11 percent of counties, and a one-bedroom, in just 43% .

FIGURE 1: States With The Largest Shortfall Between Average Renter Wage And Two-Bedroom Housing Wage

https://www.zerohedge.com/sites/default/files/inline-images/Screen-Shot-2018-06-15-at-7.20.19-AM.png?itok=KaVotzhn

Low wages and widespread wage inequality contribute to the widening gap between what people earn and mandatory outlays, in the price of their housing. The national Housing Wage in 2018 is $22.10 for a two-bedroom rental home and $17.90 for a one-bedroom, the report found.

FIGURE 3: Hourly Wages By Percentile VS. One And Two-Bedroom Housing Wages 

https://www.zerohedge.com/sites/default/files/inline-images/Screen-Shot-2018-06-15-at-7.35.24-AM.png?itok=iHn8hTTb

Here is how much it costs to rent a two-bedroom in your state:

https://www.zerohedge.com/sites/default/files/inline-images/Screen-Shot-2018-06-15-at-7.31.37-AM-768x656.png?itok=SXGF28_H
https://www.zerohedge.com/sites/default/files/inline-images/Screen-Shot-2018-06-15-at-7.38.14-AM-768x523.png?itok=XbVW_WOH

Case Shiller House Prices have continued to surge to bubble levels with growing demand for rental housing in the decade post the Great Recession.

https://www.zerohedge.com/sites/default/files/inline-images/DeaHhBBVAAAeXNU-1-768x822.jpg?itok=YoWejOTe(Click here for larger image)

The report indicates that new rental construction has shifted toward the luxury market because it is more profitable for homebuilders. The number of rentals for $2000 or more per month has more than doubled between 2005 and 2015.

Here are the Most Expensive Jurisdictions for Housing Wage for Two-Bedroom Rentals

https://www.zerohedge.com/sites/default/files/inline-images/Screen-Shot-2018-06-15-at-8.30.11-AM.png?itok=U4SbvhkU(click here for larger image)

Here is how your state ranks regarding Housing Wage: 

https://www.zerohedge.com/sites/default/files/inline-images/Screen-Shot-2018-06-15-at-8.31.40-AM.png?itok=OEREudkr(click here for larger image)

“While the housing market may have recovered for many, we are nonetheless experiencing an affordable housing crisis, especially for very low-income families,” said Bernie Sanders quoted in the report.

The fact is, the low-wage workforce is projected to soar over the next decade, particularly in unproductive service-sector jobs and odd jobs in the gig economy, as increasingly more menial jobs are replaced by automation/robots. This is not sustainable for a fragile economy where many are heavily indebted with limited savings; this should be a warning, as many Americans do not understand their living standards are in decline. American exceptionalism is dying.

https://www.zerohedge.com/sites/default/files/inline-images/Screen-Shot-2018-06-15-at-7.39.37-AM.png?itok=bqrovzMC

The bad news is that for the government to combat the unaffordability crisis, deficits would have to explode because even more Americans would demand housing subsidies, setting the US debt on an even more unsustainable trajectory. Even though Congress marginally increased the 2018 HUD budget, the change in funding levels for some housing programs have declined.

Changes In Funding Levels For Key HUD Programs (FY10 Enacted To F18 Enacted) 

https://www.zerohedge.com/sites/default/files/inline-images/Screen-Shot-2018-06-15-at-8.12.49-AM.png?itok=ZdxA6T54

But wait a minute, something does not quite add up: consider President Trump’s cheer leading on Twitter calling today’s economy the “greatest economy in History of America and the best time EVER to look for a job.”

Source: ZeroHedge

America: From Largest Creditor Nation To Largest Debtor Nation In History – What’s Next?

“The Global Bond Curve Just Inverted”: Why JPM thinks a market Crash may be imminent

At the beginning of April, JPMorgan’s Nikolaos Panigirtzoglou pointed out something unexpected: in a time when everyone was stressing out over the upcoming inversion in the Treasury yield curve, the JPM analyst showed that the forward curve for the 1-month US OIS rate, a proxy for the Fed policy rate, had already inverted after the two-year forward point. In other words, while cash instruments had yet to officially invert, the market had already priced this move in.

One way of visualizing this inversion was by charting the front end between the 2-year and 3-year forward points of the 1-month OIS. Here, as JPM showed two months ago, a curve inversion had arisen for the first time during the first week of January, but it only lasted for two days at the time and the curve re-steepened significantly in the beginning of April.

https://www.zerohedge.com/sites/default/files/inline-images/JPM%203y2y.jpg

Fast forward to today when in a follow up note, Panigirtzoglou highlights that this inversion has gotten worse over the past week following Wednesday’s hawkish FOMC meeting. As shown in the chart below which updates the 1-month OIS rate, the difference between the 3-year and the 2-year forward points has worsened, falling to a new low for the year of -5bp.

https://www.zerohedge.com/sites/default/files/inline-images/3y2y%20OIS%20rate.jpg?itok=JXNSJoY7

But in an unexpected development – because as a reminder we already knew that the market had priced in an inversion in the short-end of the curve – something remarkable happened last week: the entire global bond curve just inverted for the first time since just before the financial crisis erupted.

As JPM notes, while the Fed’s hawkish move was sufficient to invert the short end further, it was not the only central bank inducing flattening this past week: the ECB also pressed lower on the curve via its “dovish QE end” policy meeting this week. And as a result of this week’s broad-based flattening, the yield curve inversion has spilled over to the long end of the global government bond yield curve also.

In particular, the yield spread between the 7-10 year minus the 1-3 year maturity buckets of our global government bond index (JPM GBI Broad bond index) shifted to negative territory this week for the first time since 2007. This can be seen in Figure 2.

https://www.zerohedge.com/sites/default/files/inline-images/JPM%20LT%20yield%20curve.jpg?itok=1sQEeAxj

But how is it possible that the global government bond yield curve can be inverted when most developed 2s10s cash curves are still at least a little steep? After all, as seen below, After all, the flattest 2s10s government yield curve is in Japan at +17bp and although the 2s10s US government curve – shown below – has been collapsing, it is still 35bp away from inversion.

https://www.zerohedge.com/sites/default/files/inline-images/curves.jpg?itok=d9_y1whZ

The answer is in the unequal weighing of US duration in the JPM global bond index: specifically, as Panigirtzoglou explains, the US has a much higher weight in the 1-3 year bucket, around 50%, than in the 7-10 year bucket, where it has a weight of only 25%.

This is because in terms of the relative stocks of government bonds globally, there are a lot more short-dated US government bonds relative to longer-dated ones as the US has lagged other countries in terms of the duration expansion trend that took place over the past ten years.

This is shown in Figure 3 which shows the average duration of various countries’ government bond indices over time. It is very clear that the US has failed to follow other countries in the past decade’s duration expansion race and as a result there are currently a lot more non-US government bonds in longer-dated buckets which are typically lower yielding than the US. And a lot more US government bonds in short-dated buckets which are typically higher yielding.

https://www.zerohedge.com/sites/default/files/inline-images/duration%20JPM%202.jpg?itok=FTgQsK-7

What are the practical implications? Well, in a word, global investors – those for whom Treasury flows are fungible and have exposure to the entire world’s “safe securities” – now find themselves in inversion.

In other words, with the Fed having pushed the yield on short dated 1-3 year US government bonds to above 2.5%, global bond investors who, by construction, hold more US government bonds in the 1-3 year bucket and more non-US government bonds in the longer-dated buckets, finds themselves with a situation where extending maturities at a global level provides no extra yield compensation.

And the punchline:

This means that while at the local level bond investors are still demanding a premium for longer-dated bonds, at an aggregate level – abstracting from segmentation and currency hedging issues – bond investors globally are no longer demanding such a premium.

Needless to say, although JPM says it anyway, “this is rather unusual as can be seen in Figure 2.”

As for the timing, well it’s troubling to say the least: it did so just before the last two bubbles burst. In fact, the last time the 7-10y minus 1-3y yield spread of JPM’s GBI Broad bond index turned negative was in 2007 ahead of an equity correction and recession at the time. Before then it had turned very negative in late 1990s also, after the 1997/1998 EM crisis but also in 1999 ahead of a burst in the equity bubble and a reversal of Fed policy.

And if that wasn’t enough, here are some especially ominous parting thoughts from the JPM strategist:

In other words, in normal times, bond investors demand a premium to hold longer-dated bonds and to tie their  money for a long period of time vs. investing in lower risk short-dated bonds. But when investors have little confidence in the trajectory of the economy or they think monetary policy tightening is overdone or they see a high risk of a correction in risky markets such as equities, they may prefer to buy longer-dated government bonds as a hedge even though they receive a lower yield than short-dated bonds. This is perhaps why empirical literature found that the slope of the yield curve is such a good predictor of economic slowdowns and/or equity market corrections.

In other words, contrary to all those awed but naive interpretations of the short-term market reaction invoked by Powell or Draghi, according to the market, not only the Fed but the ECB engaged in consecutive policy mistakes. And, as JPM confirms, “this week’s central bank meetings exacerbated this flattening trend.”

As a result the yield curve inversion is no longer confined to the front-end of the US curve, but has also emerged at the longer end of the global government bond yield curve.

What this means is that a decade after the last such inversion, bond investors globally no longer require extra premium for holding longer-dated bonds vs short-dated bonds, something that happens rarely, e.g. when investors have little confidence in the trajectory of the economy, or they think monetary policy tightening is overdone or they see a high risk of a correction in risky markets such as equities.

Source: ZeroHedge