Author Archives: Bone Fish

Update: America’s “Greatest Economy Ever”

Boston Fed’s Rosengren Says Fed Should Consider a Wider Range of Assets (Whoomp, There It Is!) Unusual and Exigent Circumstances

Boston Fed President Eric Rosengren is joining the “unconstrained rate manipulation squad” by calling for The Fed to purchase more than just Treasuries and Agency MBS.

(Bloomberg) — Federal Reserve Bank of Boston President Eric Rosengren said policy makers should be allowed to buy a broader range of assets if they lack sufficient ammunition to fight off a recession with interest-rate cuts and bond purchases. With 10-year U.S. Treasury yields notes already at record lows, Rosengren said typical quantitative easing may not work as it did during the 2008 financial crisis. Therefore, the Fed may need the flexibility “enjoyed” by policy makers in Europe and Japan.

U.S. law currently limits Fed purchases to “any obligation which is a direct obligation of, or fully guaranteed as to principal and interest by, any agency of the United States.” That translates to buying U.S. government and agency debt and mortgages issued by federal housing agencies.

For the moment.

Remember, Maiden Lane LLC? The loan to Maiden Lane LLC loan was extended under the authority of Section 13(3) of the Federal Reserve Act, which permitted the Board, in unusual and exigent circumstances, to authorize Reserve Banks to extend credit to individuals, partnerships, and corporations.

Will The Fed declare unusual and exigent circumstances, like they did with Bear Stearns, JP Morgan Chase and Maiden Lane?

Perhaps The Fed will add stocks, corporate bonds and real estate citing unusual and exigent circumstance.

Fear is driving markets … and Central Banks.

Whoomp, here it comes!

powellfearb

Source: Confounded Interest

The Seizure In Credit Markets Is About To Get A Lot More Attention…

Gundlach Was Right – Even Investment Grade Credit Markets Are Crashing Today

It appears, as Jeff Gundlach warned last night, that the seizure in credit markets is about to get a lot more attention…

“The bond market is rallying because The Fed has reacted the seizure in the corporate bond market – which is not getting enough attention.”

The Fed cut rates, he added, “in reaction to even the investment being shutdown for 7 business days.

Gundlach noted that Powell’s background in the private equity world – rather than academic economist land – has meant that his reaction function is driven by problems in the corporate bond market as “this will be problematic for the buyback aspect of the stock market.”

As HY is already at its widest since 2016…
And that’s why Gundlach is long gold:

I turned bullish on gold in the summer of 2018 on my Total Return webcast when it was at 1190. And it just seems to me, as I talked about my Just Markets webcast, which is up on DoubleLine.com on a replay, that the dollar is going to get weaker.

And the dollar getting weaker seems to be a policy. And the Fed cutting rates, slashing rates is clearly going to be dollar negative. And that means that gold is going to go higher.

Source: ZeroHedge

Zillow’s Spencer Rascoff Lists His California Brentwood Park Home for $7M Over Zestimate

Rascoff purchased the house in 2016 for $19.7 million

Spencer Rascoff and the property (Credit: Twitter, Zillow, and Google Maps)

Spencer Rascoff, the co-founder and former CEO of Zillow, has put his Brentwood Park estate on the market for $24 million, according to Redfin. The asking price is $7 million over the “Zestimate,” or Zillow’s appraisal of what the home is worth.

Property records show that Rascoff paid $19.7 million for the property in 2016.

The listing states that the 12,700-square-foot home – remodeled by architects Ken Ungar and Steve Giannetti – is located on a half acre in a gated neighborhood. The Zillow Zestimate for the house suggests it’s worth $16.7 million.

Josh and Matt Altman of Douglas Elliman have the listing.

Rascoff purchased the house from investment banker Michael J. Richter, who reportedly paid $9.3 million for the Parkyns Street manse in 2012.

The home has six bedrooms and nine bathrooms, along with a “spectacular” chef’s kitchen, a state-of-the-art theater with stadium seating, a fitness studio and a large master suite with a large balcony. The estate also features a two-bedroom guest wing, a motor court, and a spa, pool and mudroom.

Rascoff is currently launching dot.LA, a news and events company that will cover the tech scene in Los Angeles.

Last year, Rascoff stepped down from Zillow, which has pivoted to an ibuyer model with Rich Barton at the helm.

Source: by Tina Daunt | The Real Deal

“They’re Really, Really Suffering”: China Towns Worldwide Experience Devastation As Business Grinds To A Halt

It’s not just in China where the effects of the novel coronavirus are being felt – it’s in China Towns situated worldwide. Fear is gripping people around the world and, coupled with the uncertainty that is inevitable with the WHO and world leaders dragging their feet, it is keeping people out of Chinese businesses. 

As Chinese citizens of other countries try to go about business as usual in the midst of what is likely a growing pandemic, business is collapsing. Lily Zhou’s Chinese restaurant in Australia, for instance, has seen business fall 70%, according to Bloomberg. It now has a board out front where “The restaurant has been sanitized!” is written in Chinese. 

Zhou says at this rate, she can only stay in business “at most three months”.

The affect on the local economy has been so bad that the neighborhood of Eastwood is planning on setting up a A$500,000 assistance fund. 

But the affects aren’t just being felt in Australia. There are Chinatowns and Chinese businesses in places like Sydney, New York and San Francisco that are all feeling the impact. 

99 Favor Taste, a hotpot and BBQ restaurant in lower Manhattan, is now seating customers immediately. The restaurant usually has a half hour wait on weekdays to get a table. “Booths are empty,” said manager Echo Wu. 

Wu believes that the fear keeping people out of Chinese businesses is “irrational”. He says customers have even gone so far as to phone ahead to check and make sure the food wasn’t being imported directly from China. 

Wu said: “They may have a bias toward Chinese restaurants now. I hope people can be more reasonable. After all, there’s no cases in town yet.”

In Toronto, it’s a similar scene. Business at the Rol San Dim Sum restaurant is down as much as 30% and the sidewalks of Chinatown are quiet. The restaurant’s manager said it was “of course” due to the coronavirus.

At the Chinatown in Manchester, U.K., students stopped showing up after returning from the Chinese New Year holiday. The head of the local business association said: “There are less visitors, less customers. They’re really, really suffering — at the moment we haven’t come up with any solution yet. The group is discussing options such as opening a weekend market with free food tasting and discounts to bring back clients.”

San Francisco’s Chinatown has seen its lunch rush “evaporate”. One business owner, Henry Chen, said: “Usually we have a line out the door. There are less people on the street. Lunch, dinner, breakfast, there is no business.”

Philip Wu, who manages a hot pot restaurant in Sydney’s Chinatown, says that lifting travel restrictions is crucial for business.He has seen a 60% drop in business and has asked all 100 of his workers to cut their hours to four days a week.

“If the government says ‘Okay, we’ll stop the ban on the flights, and the people can travel to Australia,’ then I think the business will go up very quickly, because tens of thousands of Chinese people will be coming back,” he said. 

But that looks extremely unlikely. And these are still just minor examples compared to the disruption in places like China and Hong Kong, where schools are closed and people are stuck in their apartments under quarantine. These types of lockdowns are now spreading to Italy and other neighboring countries. 

And, unfortunately, we feel like it’s going to get worse before it gets better.

Source: ZeroHedge

NYC Hotel Loans Defaulting At Alarming Rate As Room-Rates Plunge, Tourism Tumbles

More and more New York City hotels are defaulting on their mortgages, signaling an alarming trend in the industry as “challenging market fundamentals” and new supply act as headwinds for the industry. 

This has resulted in room rates declining and sites like Airbnb gaining traction in the market, according to The Real Deal

The main metric to watch is the average daily room rate, which has dropped in New York City to its lowest point since at least 2013: $255.16, according to STR. More than 22,000 new hotel rooms remain in the pipeline, as well, which will further add to the supply glut and likely push room rates even lower.

As a result, loans like a $260 million loan on the Row Hotel near Times Square have been in default. In the case of the Row Hotel, it’s lender is looking to offload the loan on the secondary market for as little as $50 million. Meanwhile, the hotel itself has been on the market since last year, but has little interest from buyers. 

Colony Credit, the lender, says there has been a “significant deterioration” in the hotel market and that feedback during the sales process has led them to mark down the value of the loan. 

In 2019, Heritage Equity Partners defaulted on a $68 million loan for the Williamsburg Hotel. That property is now in the process of heading toward receivership. Lenders to Maefield Development’s hotel at 20 Times Square have also sought to foreclose on $650 million in loans that were made for the project. East West Bank has also moved to foreclose on loans secured by the Selina Chelsea. 

The Blakely Hotel was shut down altogether last month by its owner, Richard Born, who blamed challenges facing the industry. 

Finally, there are an additional 21 CMBS mortgages backed by New York hotels that remain under watch for potential difficulties.

As if the industry wasn’t facing headwinds of its own, it also now has to deal with the backlash of the coronavirus outbreak. We’re guessing that the droves of Chinese tourists usually meandering their way around Manhattan on any given day will likely continue to thin out, as travel restrictions between China and the U.S. remain in place. As we’ve already noted, the virus has already taken its toll on Chinese owned businesses in New York. 

Now Wah Tea Parlor’s owner, Wilson Tang, said that on February 3, his restaurant saw an unprecedented 40% drop in business, according to Eater New York. It was a similar story out of critically acclaimed Sichuan restaurant Hwa Yuan, which also saw a steep plunge in sales 2 weeks ago.

Tang said: “It sucks. The past couple days suck. We’ve been letting people go early, just to let them take some extra time off. It’s slow in general.”

Elizabeth Chin, a travel agent in Fort Lee, N.J. told the NY Times“It’s going to be a serious financial burden. The flights are canceled. The tour operators have canceled.”

Bruce Zhu, the manager of China Tour Travel Services in Flushing, Queens said: “It’s a big problem. We have to cancel the bookings, cancel the hotels. We lose a lot of money on the bookings.”

“It’s all stopped — zero,” another travel agent in Flushing lamented. 

Source: ZeroHedge

Subprime Credit Card Delinquencies Spike To Record High, Surpass Financial-Crisis Peak

The rate of credit card balances that are 30 days or more delinquent at the 4,500 or so commercial banks that are smaller than the top 100 banks spiked to 7.05% in the fourth quarter, the highest delinquency rate in the data going back to the 1980s (red line).

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Disruption Escalates: Proctor And Gamble Says Over 17,000 Products Potentially Impacted By Coronavirus

While mom and dad on Main St. still aren’t getting the dire warning that the coronavirus has been offering up to Asia and the rest of the Eastern world over the last several weeks, perhaps a light bulb will finally go off when Jane Q. Public heads to the grocery store and is unable to buy shampoo and toothpaste.  

Proctor and Gamble, one of the world’s biggest “everyday product” manufacturers, has now officially warned that 17,600 of its products could be affected and disrupted by the coronavirus. The company’s CFO, Jon Moeller, said at a recent conference that P&G used 387 suppliers across China, shipping more than 9,000 materials, according to CIPS.org.

Moeller said: “Each of these suppliers faces their own challenges in resuming operations.”

And it’s not just everyday consumer goods that are going to feel the impact of the virus.

Smartphones and cars are so far among the consumer products that have been hardest hit from the virus. In fact, according to TrendForce, “forecasts for product shipments from China for the first quarter of 2020 had been slashed, by 16% for smartwatches (to 12.1m units), 12.3% for notebooks (30.7m units) and 10.4% for smartphones (275m units). Cars have dropped 8.1% (19.3m units).”

Their report states: “The outbreak has made a relatively high impact on the smartphone industry because the smartphone supply chain is highly labor-intensive. Although automakers can compensate for material shortage through overseas factories, the process of capacity expansion and shipping of goods is still expected to create gaps in the overall manufacturing process.”

A separate coronavirus analysis by Mintec says that “Chinese demand for copper (it has hitherto been responsible for consuming half the world’s output), will fall by 500,000 tonnes this year, and falls in demand have already impacted prices. From December to January the price of copper fell 9.6%.”

The report notes: “Millions of people have been affected by the travel lock down in Hubei province, the centre of the outbreak. This has been responsible for a glut of jet fuel and diesel on global markets at a time when petroleum supplies were already abundant.” 

Other products that have been negatively affected so far include pork, which is up 11% this month, chicken, garlic and dried ginger. 

Product supply chain issues could eventually compound hysteria at supermarkets if coronavirus becomes widespread in western countries. Northern Italy, which has seen a small outbreak of coronavirus cases over the last 48 hours, is already experiencing long lines and sold out store shelves. 

Source: ZeroHedge

Covid-19 Triggers Global Luxury Bust

The impact of Covid-19 on supply chains has been tremendous. Uncertainty across the global economy is building as China remains in economic paralysis. The luxury fashion industry is suffering its most significant “shock” since the 2008 financial crisis, reported the Financial Times

Our angle in this piece is to asses which luxury brand companies are most exposed/dependent on China. Many of these firms have complex operations in the country, from manufacturing facilities to brick and mortar stores to e-commerce platforms. Chinese consumers accounted for 40% of $303 billion spent on luxury goods globally last year.

The virus outbreak has also disrupted complex supply chains for mid-market apparel brands, like Under ArmourAdidas, and Puma, warning about collapsing demand and factory shutdown woes. 

LVMH, Kering, and Richemont are luxury brands that are some of the least exposed to China because their manufacturing facilities are outside the country. 

Kering, the owner of Gucci, warned earlier this month that the virus outbreak in China could damage sales in the first quarter. 

A Moody’s report this week showed US-listed luxury brands, Coach and Kate Spade owner Tapestry, have increased their market exposure to China in recent years to gain access to a robust market, allowing their revenues to increase far faster than industry norms. That strategy today is likely to have backfired. 

Fashion brands from Hennes & Mauritz, Next of the UK, and Tory Burch, have built factories in China to take advantage of inexpensive silk, fabrics, and cotton, along with lower labor costs, are now experiencing supply chain disruptions that could lead to product shortages in the months ahead. 

The National Chamber for Italian Fashion warned earlier this week that the virus impact in China would lead to a $108 million drop in Italian exports in the first quarter because Chinese demand has fallen. If consumption remains depressed, then luxury exports to China could drop by a whopping $250 million in 1H20. 

A top executive at Shanghai’s luxury shopping mall Plaza 66 said the mall had been deserted this month. Stores such as Cartier and Tiffany’s have been shuttered. 

“We are now, brand by brand, reallocating that inventory to other regions in the world so that we are not too heavy in stock in China,” Kering chief executive François-Henri Pinault said last week. The move suggests the environment in China remains dire and to persist well into March. 

Jefferies Group noted this week that Burberry Group is the most exposed luxury brand to China. 

The crisis developing in the global luxury retail market is the first demand shock since that last financial crisis more than a decade ago. Brands that have manufacturing and retail exposure to China will be damaged the most. 

UBS analyst Olivia Townsend said luxury brands she spoke with said factories are to remain shut for all of February may lead to product shortages. 

The demand crisis comes as the global apparel industry rolls over suggests that world stocks could be headed for a correction. 

Source: ZeroHedge

Wells Fargo Pays $3 Billion To Settle Illicit Conduct Of “Staggering Scope & Duration”

Wells Fargo has agreed to pay $3 billion to settle U.S. investigations into more than a decade of widespread consumer abuses under a deal that lets the scandal-ridden bank avoid criminal charges.

The deal resolves civil and criminal investigations. It includes a so-called deferred prosecution agreement, where the Justice Department files, but doesn’t immediately pursue, criminal charges. It will eventually dismiss them if the bank satisfies the government’s requirements, including its continued cooperation with further government investigations, over the next three years.

The accord also resolves a complaint by the Securities and Exchange Commission.

“Our settlement with Wells Fargo, and the $3 billion criminal monetary penalty imposed on the bank, go far beyond ‘the cost of doing business,’” U.S. Attorney Andrew Murray for the Western District of North Carolina said in a statement.

“They are appropriate given the staggering size, scope and duration of Wells Fargo’s illicit conduct.”

All of which means – nobody goes to jail!

While today’s settlement shuts the door on a major portion of the bank’s legal problems related to the fake accounts, a scandal that has claimed two CEOs; it’s hardly the end of the bank’s legal woes. The firm remains under a growth cap imposed by the Federal Reserve. Last month the Office of the Comptroller of the Currency announced civil charges against eight former senior executives, some of whom settled. And probes into other suspected misconduct in other businesses are continuing.

Did The Fed Just Reveal Its Plans For A Digital Dollar, Cashless Society Replacement?

(Birch Gold Group) Thanks to the Federal Reserve, the idea that you can go into a store and anonymously purchase something with cash might soon be obsolete.

Corporatocracy Fedcoin: ‘in private banks we trust’

Why? Because they’re developing something called Fedcoin, which would be based on blockchain technology.

The digital and decentralized ledger that records all transactions. Every time someone buys digital coins on a decentralized exchange, sells coins, transfers coins, or buys a good or service with virtual coins, a ledger records that transaction, often in an encrypted fashion, to protect it from cybercriminals. These transactions are also recorded and processed without a third-party provider, which is usually a bank.

Right now, Bitcoin is a popular form of cryptocurrency that operates using blockchain technology. Like the description above, Bitcoin is decentralized, its transactions are anonymous, and no central bank is involved.

But the irony is, the blockchain tech behind the Fed’s idea isn’t likely to be used the way Bitcoin uses it. Not even close.

Originally, the “Fedcoin” idea appeared to be a security enhancement to a century-old system used for clearing checks and cash transactions called Fedwire. According to NASDAQ in 2017:

This technology will bring Fedwire into the 21st Century. Tentatively called Fedcoin, this Federal Reserve cryptocurrency could replace the dollar as we know it.

The idea didn’t seem to move very much three years ago, but now the idea of a central bank-controlled “Fedcoin” seems like it could be moving closer to reality, according to a Reuters report from February 5.

According to the report, “Dozens of central banks globally are also doing such work,” including China.

Of course, there is risk, according to Federal Reserve Governor Lael Brainard. For example, there is the potential for a country-wide run on banks if panic ensued while the Fed “flipped a switch” and made Fedcoin the primary currency for the United States.

But blogger Robert Wenzel warns the risks of the Federal Reserve issuing its own cyber currency may run even deeper than that.

“This is not good.”

Lawmakers try to package and sell whatever ideas they come up with, no matter how intrusive or ineffective they might be.

According to Brainard, Fedcoin has the potential to provide “greater value at a lower cost” for monetary transactions. Sounds reasonable, if taken at face value.

But no matter how the Fed may try to “sell” the idea of utilizing Fedcoin in the future, Wenzel’s warning is pretty clear:

A Federal Reserve created digital coin could be one of the most dangerous steps ever taken by a government agency. It would put in the hands of the government the potential to create a digital currency with the ability to track all transactions in an economy—and prohibit transactions for any reason. In terms of future individual freedom, this would be a nightmare.

If you use cash at a grocery store, no one will know who you are or what you bought unless it was caught on video or you use a reward card. In the rare instance a store accepts Bitcoin, the same would be true.

But if you were to use a centrally-controlled digital currency like Fedcoin, who knows what the Fed will decide to track now or in the future? Or what meddling they could come up with to deny your transaction?

If the Federal Reserve wanted to outlaw cash, and your only choice was to use Fedcoin to make purchases, then your financial life would be tracked under their watchful eye.

“Not good” indeed.

Protect your retirement by maintaining your financial freedom

Who knows if the Federal Reserve will move closer to making cash a thing of the past? Perhaps Fedcoin will add to the number of ways the Fed can meddle with your retirement?

Until that gets sorted out, you can consider other options to protect your retirement with a tangible asset that can’t be converted into digital form.

Precious metals like gold and silver continue to hold value, and have for thousands of years. And because they are physical assets, you can’t be tracked as you could if Fedcoin moves from being a bad idea to reality.

Source: by Birch Gold Group | ZeroHedge

America Exposed To Immediate Impact From “Supply-Chain Shock”, Deutsche Says

In the last few weeks, ZeroHedge provided many articles on the evidence of creaking global supply chains fast emerging in China and spreading outwards. Anyone in supply chain management, monitoring the flow of goods and services from China, has to be worried about which regions will be impacted the most (even if the stock market couldn’t care less).  

Deutsche Bank’s senior European economist Clemente Delucia and economist Michael Kirker published a note on Thursday titled “The impact of the coronavirus: A supply-chain analysis” identifying the effect of contagion on the rest of the world, mainly focusing on demand and spillover effects into other countries. 

The economists constructed a ‘dependency indicator,’ to figure out just how much a country depends on China for the supply of particular imported inputs. It was noted that the more a country depends on China, the more challenging it could be for businesses to find alternative sourcing during a period of supply chain disruptions. 

The biggest takeaway from the report is that, surprisingly, the European Union is less directly exposed to a China supply-chain shock than the US, Canada, Japan, and all the major Asian countries (i.e., India, South Korea, Indonesia, Malaysia, Vietnam).

It was determined that in the first wave of supply chain disruptions that “euro-area countries are somewhat less directly dependent on China for intermediate inputs than other major economies in the rest of the world.” 

“The euro-area countries have, in general, a dependence indicator below the benchmark. This suggests that euro-area countries have a below-average direct dependence on Chinese imports of intermediate inputs (Figure 2).” 

But since China is highly integrated into the global economy, and a supply chain shock would be felt across the world. The second round of disruptions would result in lower world trade growth that would eventually filter back into the European economy.

The US, Japan, Canada, and all the major Asian countries would feel an immediate supply chain shock from China.

Here’s a chart that maps out lower dependency and higher dependency countries to disruption from China. 

To summarize, the European Union might escape disruptions from China supply chain shocks in the first round, but ultimately will be affected as global growth would sag. As for the US and Japan, Canada, and all the major Asian countries, well, the disruption will be almost immediate and severe with limited opportunities for companies to find alternative sourcing. 

“First of all, our analysis does not take into account non-linearity in the production process. In other words, it does not capture consequences from a stop in production for particular product. It might indicate that given the dependence is smaller, Europe could find it somewhat easier substitute a Chinese product with another. But there is no guarantee this will be the case.”

“Secondly, while our results indicates that the direct impact from supply issues in China could be smaller for the euro area than for other regions in the world, the euro area could be hard-hit by second-round effects. With their higher direct exposure to China, production in other major economies could slow down as a result of disruptions in the supply chain. This not only could cause a shortage in demand for euro-area exports, but it could also impact on the euro-area’s import of intermediate inputs from these other countries (second-round effects). In other words, China has become a relevant player in the world supply chain and production/demand problems in China are spread worldwide through direct and indirect channels.

News flow this week has indeed suggested the virus is spreading outwards, from East to West, and could get a lot worse ex-China into the weekend. 

We believe supply chain disruptions ex-China could become more prevalent in the weeks ahead.

The mistake of the World Health Organization (WHO), governments, and global trade organizations to minimize the economic impact (protect stock markets) of the virus was to allow flights, businesses, and trade to remain open with China. This allowed the virus to start spreading across China’s Belt and Road Initiative (BRI). 

Enjoy a riveting weekly news wrap up with Greg Hunter…

Source: ZeroHedge

Recession 2020: 5 Reasons It Will Be Worse Than 2009

In this recession 2020 video YOU are going to discover 5 reasons (NO ONE IS TALKING ABOUT) the next recession will be far worse than the 2008/2009 recession. The Fed has created so much mal investment, by keeping interest rates artificially low, we now have the EVERYTHING BUBBLE. Stocks are in a bubble, bonds are in a bubble, housing is in a bubble and the 2020 recession (which the data suggests is highly probable) will be the pin that pricks them all.

We’ve had recessions in the US every 6-8 years throughout our history, and we’re currently 10 years into an expansion which makes the US due for a recession in 2020. While not all recessions are devastating, because the debt bubbles are so much bigger now than in 2009, the next recession has the potential to be the worst by far.

HSBC To Cut 35,000 Jobs, Shed $100 Billion In Assets As Profits Plunge

Banks around the world are supposed to benefit the most from central banks inflating assets, and hyperinflating stock markets, but over the past few years, central banks have instead caused some of the biggest bank job cuts in half a decade. 

HSBC, Europe’s largest bank and troubled lender, although not nearly as troubled as Deutsche Bank, said it would cut upwards of 35,000 jobs, shed $100 billion in assets, and take a massive $7.3 billion hit to goodwill as part of a major overhaul under Chairman Mark Tucker, the company said in a press release on Tuesday morning.

This comes months after HSBC’s interim CEO Noel Quinn unveiled plans to “remodel” large parts of the bank. The restructuring of the London-based bank is being led by Quinn, who replaced John Flint in August on an interim basis. Quinn is vying for the permanent role of CEO, which the bank said will be decided this year.

Europe’s biggest bank by assets is expected to focus more on Asia and the Middle East, while it winds down operations in Europe and the US; HSBC derives at least 50% of its revenue in Asia. The bank said net profit plunged 53% to $5.97 billion last year, due to the $7.3BN goodwill hit and also thanks to the record low interest rates and NIRP unleashed by central banks.

Tucker said the bank faces substantial challenges in the UK, Hong Kong, and mainland China. He also issued a warning over the Covid-19 outbreak in China and quickly spreading across Asia to Europe, indicating that the virus could impact the bank’s performance this year.

Quinn confirmed the bank would cut 15% of its workforce over the next two-three years. This is on top of the 10,000 jobs it axed in Oct.

“The totality of this program is that our headcount is likely to go from 235,000 to closer to 200,000 over the next three years,” Quinn told Reuters. adding that “HSBC will be “exiting businesses where necessary.”

“Around 30% of our capital is currently allocated to businesses that are delivering returns below their cost of equity, largely in global banking and markets in Europe and the U.S.,” he noted.

In its long-struggling U.S. arm, Quinn said HSBC will cut assets in investment banking and markets by almost half, and shut around 70 of its 229 branches. As of September, HSBC was the U.S.’s 14th largest commercial bank according to Federal Reserve data, with around $181 billion assets. Mr. Quinn said he had considered putting the unit up for sale but decided against it because the U.S. is a crucial part of the bank’s global network.

HSBC shares slid 6% on the restructuring news on Tuesday morning:

The benefits of the restructuring will be evident largely from 2023 onward, said Citigroup analyst Ronit Ghose, who recommended investors sell HSBC shares.

And to think it was only last year when 50 banks laid off 77,780 jobs, the most since 91,448 in 2015. 

With the global economy quickly decelerating, and a virus shock that could tilt the world into recession, if we had to guess, tens of thousands of more banking jobs will be slashed this year.

The following is a two part series on what’s happening to HSBC and the banking industry in general during this period of asset bubbles, low interest rates and a rapidly contracting global economy…

Source: ZeroHedge

“Glitch” Or Hack: Countless Fidelity Accounts Showing Zero Balance

While stocks are hitting fresh all time highs, bringing joy and spreading the “wealth effect” across America, clients of the Fidelity brokerage are having a rather shitty day because due to a glitch, or perhaps a hack, countless accounts are currently showing a zero balance, or simply removing accounts altogether.

While we assume this pesky “glitch” will be resolved promptly, we should point out that if the market were to ever again suffer a down day and should investors wish to sell some/all of their holdings, this would be a convenient way to quickly and efficiently prevent that from ever happening.

Source: ZeroHedge

Don’t Drop Your Phone In The Towlet This Year

Which Supply Chains Are Most At Risk: The Answer In One Chart

Now that Apple has broken the seal and made it abundantly clear that China’s economic collapse which could push its Q1 GDP negative according to Goldman as the second largest world economy grinds to a halt (as described here last week)…

… will have an adverse impact on countless supply-chains, which in today’s “just in time” delivery environment, are absolutely critical for keeping the global economy running smoothly (for a quick reminder of what happens when JIT supply chains stop functioning read our article from 2012 “”Trade-Off”: A Study In Global Systemic Collapse“), attention on Wall Street has turned to which other US sectors stand to be adversely impacted should the coronavirus pandemic not be contained on short notice and China’s economy crisis transforms into a supply shock.

Conveniently, Goldman Sachs just did this analysis.

Supply Chain Chaos Unfolds At Major Chinese Ports As Frozen Meat Containers Pile Up

New evidence from Bloomberg reveals cracking global supply chains are fast emerging at major Chinese ports with thousands of containers of frozen meat piling up with nowhere to go. 

The Covid19 outbreak will remain a dominant issue for 1Q as supply chain shocks are being felt by multinationals on either side of the hemisphere. 

Sources told Bloomberg that containers of frozen pork, chicken, and beef (mostly from South America, Europe, and the US) are piling up at Tianjin, Shanghai, and Ningbo ports because of the lack of truck drivers and many transportation networks remain closed.

Seaports in China are quickly running out of room to house the containers and cannot provide enough electricity points to keep existing containers cold. This has forced many vessels to be rerouted to other destinations. 

We’ve already noted that Bloomberg’s Stephen Stapczynski recorded footage of an oil tanker parking lot off the Singapore coast last week as refiners in China cut runs as crude consumption has collapsed by more than 4 million barrels per day.  

It’s clear that a logistical nightmare is unfolding as two-thirds of the Chinese economy has effectively shut down much of its production capacity, producing a massive “demand shock.” 

The impact on the global economy is already dragging down world trade and could force the World Trade Organization (WTO) to slash economic growth forecasts for the year.

The Chinese economy constitutes about 20% of global GDP, and supply chain disruptions across China could cause a cascading effect that could tilt the world into recession. 

But it’s not just frozen meats piling up at Chinese ports or a crude glut developing. There’s a high risk that product shortages to Western countries could be 60-90 days out. 

Alibaba Group’s CEO Daniel Zhang warned last week that the supply chain disruption, or “shock,” is a “black swan event” for the global economy. 

The “black swan” warning was also repeated by Freeport-McMoRan CEO Richard Adkerson several weeks ago after he said the outbreak of the virus in China is a “real black swan event.” 

China’s economy is at a standstill and could trigger the next economic crisis, not seen since 2008. 

Source: ZeroHedge

Coronavirus Slams Airbnb, Airlines, Hotels, Casinos, San Francisco, Other Hot Spots

It’s not only Chinese tourists, business travelers, and property buyers who’re not showing up, but also travelers from all over the world who’ve gotten second thoughts about sitting on a plane.

Wyndham Closes 1,000 Hotels, Hilton 150, Best Western 65% In China, Fiat Chrysler Halts Production!

Literally, everything is shutting down. I can’t even fit everything into the title. First, The world’s largest Hotel company by properties announced they will be temporarily closing 1,000 Hotels in China. This amounts to over 70% of their hotels and the CEO said the Hotels that remain open are running under 75% Guest capacity. They expect a huge financial impact. Hilton hotels also announced they will be closing 150 hotels in China along with Best Western. We then move to the recent data compiled by Goldman detailing the true weight of the industrial production halt. Steel demand is Crashing, Construction Steal demand has collapse 88%. Fiat Chrysler warned that they would need to halt production at one of their plants outside of China due to parts shortages and The plant has come to a halt as the problem is not resolved. The company said it is in the process of attaining the product from another source. Last but not least Carnival Corp has warned of a significant financial impact in their upcoming earnings report and they pulled their full-year 2020 forward guidance due to changes.

Dominos Are Falling – China Shutdown To Crush India’s Already-Crumbling Economy

The supply chain shock emanating from China to other Asia Pacific countries and Europe, could become a major headache for India.

Bloomberg focuses on how an industrial shutdown of China’s economy has already had a profound effect on India’s economy and could get worse.

Pankaj R. Patel, chairman of Zydus Cadila, said prices of medicine in India have exponentially jumped in the last several weeks, thanks to much of the medicine is sourced from China.

The Indian pharmaceutical industry is experiencing massive disruptions that could face shortages starting in April if supplies aren’t replenished in the next couple weeks, Patel warned.

Manufacturers in China have idled plants, and at least two-thirds of the economy is halted. Some factories came online last week with promises of full production by the end of the month, but for most factories, their resumption will likely be delayed. This will undoubtedly lead to medicine shortages in India in the coming months ahead.

A new theme is developing from all this mayhem – that is the reorganization of complex supply chains out of China to a more localized approach to avoid severing. But in the meantime, these complex supply chains in India and across the world will experience massive disruption caused by the shutdown. All of this points to ugly end of globalization:

Pankaj Mahindroo, chairman of the India Cellular and Electronics Association (ICEA), said the wrecking of supply chains in China could soon have a devastating impact on India’s smartphone production. 

Mahindroo represents companies including Foxconn, Apple Inc., Micromax Informatics Ltd., and Salcomp India, warned the “impact is already visible… If things don’t improve soon, production will have to be stopped.” 

Already, the production of iPhones and Airpods has been reduced in China because of factory shutdowns.

The closure of Foxconn plants in India would be absolutely devastating for Apple. 

Apple produces iPhone XR in India. If the production of affordable smartphones is halted or reduced, the Californian based company could see full-year earnings guidance slashed. 

Mohnidroo said if things don’t improve in the next couple of weeks, smartphone factories in India could start running out of “critical components like printed circuit boards, camera modules, semiconductors, resistors, and capacitors.” 

A spokesperson for Xiaomi Corp.’s India unit said alternative sourcing attempts are underway to mitigate any supply chain disruption from China. 

Even before all of this, India’s economy is rapidly decelerating into an economic crisis. 

Former Indian Finance Minister Yashwant Sinha warned several months ago that the country is in a “very deep crisis,” witnessing “death of demand,” and the government is “befooling people” with its economic distortions of how growth is around the corner. 

Supply chain disruptions are moving from East to West. It’s only a matter of time before production lines are halted in the US because sourcing of Chinese parts is offline. The disruptions of supply chains is the shock that could tilt the global economy into recession. 

Source: ZeroHedge

Core Mortgage Repayment Risk Factors Exceed Former Financial Crisis Highs

The GSEs (Government Sponsored Enterprises) of Fannie Mae and Freddie Mac have seeming forgotten the financial crisis.

Fannie Mae, for example, now has the highest average combined loan-to-value (CLTV) ratio in history. Even higher than during the financial crisis.

How about borrower debt-to-income (DTI) ratios? Fannie Mae’s average DTI is the highest its been since Q4 2008.

At least the average FICO scores remains above kickoff of the last financial crisis.

David Lereah, Chief Economist, National Association of Realtors (2006)

Source: Confounded Interest

Fiat Chrysler To Shut Assembly Plant As Covid-19-Shock Paralyzes Global Supply Chains

It’s certainly plausible that the global economy is in the early stages of grinding to a halt. Already, we’ve noted that two-thirds of China’s economy is offline, with major industrial hubs idle and 400 million people quarantined.

The next phase of the supply chain chaos is to spread to regions that are overly reliant on Chinese parts for assembly, such as a Fiat Chrysler Automobiles NV plant in Serbia.

Bloomberg reports Friday morning that the plant is expected to halt operations of its assembly line because of the lack of parts from China as the Covid-19 outbreak worsens.

Turin, Italy-based automaker’s Kragujevac factory in Serbia, which assembles the Fiat 500L, has to bring its production line to a halt due to lack of audio-system and other electric parts sourced from China.

Four of the automaker’s suppliers have been impacted by China’s decision to shut down much of its industrial sector as part of a quarantine that’s expected to take a massive chunk out of GDP growth in the first half.

Fiat Chrysler CEO Mike Manley said four of the company’s suppliers in China had already been affected by the outbreak, including one “critical” maker of parts putting European production at risk.

The evolution of the supply chain disruption emanating from China is spreading outwards and to the West. 

Wall Street is blind as a bat, or maybe their hope the Federal Reserve will keep pumping liquidity into the market will numb the pain of one of the most significant shocks expected to hit the global economy in the near term. This is mostly due to the world’s most complex supply chains, which as of late January, have been severed and will start affecting assembly plants in Europe. 

The disruption could spread to the US, where many assembly plants source parts from China. 

What’s about to hit the global economy was beautifully outlined by former Morgan Stanley Asia chairman Stephen Roach warned several weeks ago that the global economy could already be in a period of vulnerability, where an exogenous shock, such as the Covid-19, could be the trigger for the next worldwide recession.

Mohamed El-Erian, the chief economic adviser to the insurance company Allianz, recently said the economic damage caused by virus outbreak would play out this year. 

El-Erian said the economic shock to China and surrounding manufacturing hubs is happening at a time when the global economy is slowing, and interest rates among central banks are near zero, indicating their ammo to fight the downturn is limited. 

Freeport-McMoRan CEO Richard Adkerson said in an interview last month that the virus outbreak in China is a “real black swan event” for the global economy.

Alibaba Group’s CEO Daniel Zhang said this week that the virus outbreak in China is developing into a “black swan event” that could have severe consequences for China and the global economy.

When the world’s most complex supply chains break, so does the global economy. It’s only a matter of time before disruption is seen in the US.

Source: ZeroHedge

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“I Have No Idea What To Do Now”: South Korean & Japanese Firms Screwed By Shortage Of Chinese Migrant Workers

Coal Shipping In US Industrial Heartland Hits 35-Year Low

President Trump vowed to make “Coal Great Again” and restore the industrial heartland. But it seems as Trump’s many campaign promises to coal miners have been broken, as there’s hardly a peep from the administration about the imploding industry. 

Take, for instance, a new report from A.P. News, that details how Twin Ports of Duluth-Superior, recorded its lowest coal cargo volumes in three decades during the 2019 shipping season.

Greg Nemet, a public affairs professor at the University of Wisconsin-Madison, said coal shipments in the port have plunged as the demand for renewable energy has soared in recent years.

“It’s really a competition between coal, natural gas, and renewables. It’s cheaper to make electricity with natural gas and with solar,” Nemet said. “Coal really can’t compete with either of those.”

A.P. said 8 million tons of coal moved through the Twin Ports, the lowest volume since 1985. 

U.S. coal production has plunged from 1.2 billion tons in 2008 to 597 million last year. Despite Trump’s promises to revive the industry, production continues to decline. 

Trump was silent last year after a significant bankruptcy wave devastated the industry. 

Deteriorating coal industry fundamentals and escalating environmental, social and governance concerns, led to the recent bankruptcy of Peabody, the world’s largest coal producer.  

Trump routinely pumped the coal industry, calling it “indestructible” and telling everyone on social media that “coal is back.” Here he is in 2017 famously telling people that “We are going to put our coal miners back to work.”

And to make matters worse for miners, the Trump administration isn’t about saving the industry: 

“Coal as a percentage of U.S. electricity generation is declining and will probably continue to decline for some time,” Sec. Dan Brouillette told the Atlantic Council. “The effort that we’re undertaking is not to subsidize the industry and preserve their status, if you will, as a large electricity generator. It is simply to make the product cleaner and to look for alternative uses for this product.”

The hopes of a coal rebound were all for election purposes. The industry is imploding, as it’s clear that, according to Trump, the stock market is more important than the real economy.

Source: ZeroHedge

China Is Disintegrating: Steel Demand, Property Sales, Traffic All Approaching Zero

In our ongoing attempts to glean some objective insight into what is actually happening “on the ground” in the notoriously opaque China, whose economy has been hammered by the Coronavirus epidemic, yesterday ZeroHedge showed several “alternative” economic indicators such as real-time measurements of air pollution (a proxy for industrial output), daily coal consumption (a proxy for electricity usage and manufacturing) and traffic congestion levels (a proxy for commerce and mobility), before concluding that China’s economy appears to have ground to a halt.

That conclusion was cemented after looking at some other real-time charts which suggest that there is a very high probability that China’s GDP in Q1 will not only flatline, but crater deep in the red for one simple reason: there is no economic activity taking place whatsoever.

We start with China’s infrastructure and fixed asset investment, which until recently accounted for the bulk of Chinese GDP. As Goldman writes in an overnight report, in the Feb 7-13 week, steel apparent demand is down a whopping 40%, but that’s only because flat steel is down “only” 12% Y/Y as some car plants have ordered their employee to return to work (likely against their will as the epidemic still rages).

However, it is the far more important – for China’s GDP – construction steel sector where apparent demand has literally hit the bottom of the chart, down an unprecedented 88% Y/Y or as Goldman puts it, “construction steel demand is approaching zero.”

But wait, there’s more.

Courtesy of Capital Economics, which has compiled a handy breakdown of real-time China indicators, we can see the full extent of just how pervasive the crash in China’s economy has been, starting with familiar indicator, the average road congestion across 100 Chinese cities, which has collapsed into the New Year and has since failed to rebound.

Parallel to this, daily passenger traffic has also flat lined since the New Year and has yet to post an even modest rebound.

And the biggest shocker: a total collapse in passenger traffic (measured in person-km y/y % change), largely due to the quarantine that has been imposed on hundreds of millions of Chinese citizens.

And while we already noted the plunge in coal consumption in power plants as Chinese electricity use has cratered…

… what is perhaps most striking, is the devastation facing the Chinese real estate sector where property sales across 30 major cities have basically frozen.

Finally, and most ominously perhaps, as the economy craters and internal supply chains fray, prices for everyday staples such as food are soaring as China faces not only economic collapse, but also surging prices for critical goods, such as food as shown in the wholesale food price index chart below…

… which in a nation of 1.4 billion is a catastrophic mix.

As the coronavirus pandemic spreads further without containment, and as the charts above continue to flat line, so will China’s economy, which means that not only is Goldman’s draconian view of what happens to Q1 GDP likely optimistic as China now faces an outright plunge in Q1 GDP…

… but any the expectation for a V-shaped recovery in Q2 and onward will vaporize faster than a vial of ultra-biohazardaous viruses in a Wuhan virology lab.

Source: ZeroHedge

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Chinese Experts Warn Of Imminent “Surge” In Coronavirus Cases: Virus Updates

U.S. Manufacturing Production Contracts For 7th Straight Month, Capacity Utilization Tumbles

After falling for 3 of the last 4 months, and following Germany’s disastrous January print, US Industrial Production was expected to drop by 0.2% but yet again it disappointed, falling 0.3% MoM.

This means US Industrial Production has contracted year-over-year for 5 straight months.

  • Utilities fell 4% in Jan. after falling 6.2% in Dec. (warm weather-related?)
  • Mining rose 1.2% in Jan. after rising 1.5% in Dec.

In the manufacturing segment, production slipped 0.1% MoM, matching expectations, but is down year-over-year for the seventh straight month…

Finally, we note that Capacity Utilization slumped to 76.8%.

And this is before the impact of the virus had fully hit global supply chains.

Source: ZeroHedge

Subprime Auto Loans Explode, “Serious Delinquencies” Spike To Record

Nearly a quarter of all subprime auto loans are 90+ days delinquent. Why?

Auto loan and lease balances have surged to a new record of $1.33 trillion. Delinquencies of auto loans to borrowers with prime credit rates hover near historic lows. But subprime loans (borrowers with a credit score below 620) are exploding at a breath-taking rate, and they’re driving up the overall delinquency rates to Financial Crisis levels. Yet, these are the good times, and there is no employment crisis where millions of people have lost their jobs.

All combined, prime and subprime auto-loan delinquencies that are 90 days or more past due – “serious” delinquencies – in the fourth quarter 2019, surged by 15.5% from a year ago to a breath-taking historic high of $66 billion, according to data from the New York Fed released today:

Loan delinquencies are a flow. Fresh delinquencies that hit lenders go into the 30-day basket, then a month later into the 60-day basket, and then into the 90-day basket, and as they move from one stage to the next, more delinquencies come in behind them. When the delinquency cannot be cured, lenders hire a company to repossess the vehicle. Finding the vehicle is generally a breeze with modern technology. The vehicle is then sold at auction, a fluid and routine process.

These delinquent loans hit the lenders’ balance sheet and income statement in stages. In the end, the combined loss for the lender is the amount of the loan balance plus expenses minus the amount obtained at auction. On new vehicles that were financed with a loan-to-value ratio of 120% or perhaps higher, losses can easily reach 40% or more of the loan balance. On a 10-year old vehicle, losses are much smaller.

As these delinquent loans make their way through the system and are written off and disappear from the balance sheet, lenders are making new loans to risky customers, and a portion of those loans will become delinquent in the future. This creates that flow of delinquent loans. But that flow has turned into a torrent.

Seriously delinquent auto loans jumped to 4.94% of the $1.33 trillion in total loans and leases outstanding, above where the delinquency rate had been in Q3 2010 as the auto industry was collapsing, with GM and Chrysler already in bankruptcy, and with the worst unemployment crisis since the Great Depression approaching its peak. But this time, there is no unemployment crisis; these are the good times:

About 22% of the $1.33 trillion in auto loans outstanding are subprime, so about $293 billion are subprime. Of them, $68 billion are 90+ days delinquent. This means that about 23% of all subprime auto loans are seriously delinquent. Nearly a quarter!

Subprime auto loans are often packaged into asset-backed securities (ABS) and shuffled off to institutional investors, such as pension funds. These securities have tranches ranging from low-rated or not-rated tranches that take the first loss to double-A or triple-A rated tranches that are protected by the lower rated tranches and generally don’t take losses unless a major fiasco is happening. Yields vary: the riskiest tranches that take the first lost offer the highest yields and the highest risk; the highest-rated tranches offer the lowest yields.

These subprime auto-loan ABS are now experiencing record delinquency rates. Delinquency rates are highly seasonal, as the chart below shows. In January, the subprime 60+ day delinquency rate for the auto-loan ABS rated by Fitch rose to 5.83%, according to Fitch Ratings, the highest rate for any January ever, the third highest rate for any month, and far higher than any delinquency rate during the Financial Crisis:

But prime auto loans (blue line in the chart) are experiencing historically low delinquency rates.

Why are subprime delinquencies surging like this?

It’s not the economy. That will come later when the employment cycle turns and people lose their jobs. And those delinquencies due to job losses will be on top of what we’re seeing now.

It’s how aggressive the subprime lending industry has gotten, and how they’ve been able to securitize these loans and selling the ABS into heavy demand from investors who have gotten beaten up by negative-interest-rate and low-interest-rate policies of central banks. These investors have been madly chasing yield. And their demand for subprime-auto-loan ABS has fueled the subprime lending business.

Subprime is a very profitable business because interest rates range from high to usurious, and customers with this credit rating know that they have few options and don’t negotiate. Often, they might not do the math of what they can realistically afford to pay every month; and why should they if the dealer puts them in a vehicle, and all they have to do is sign the dotted line?

So profit margins for dealers, lenders, and Wall Street are lusciously and enticingly fat.

Subprime lending is a legitimate business. In the corporate world, the equivalent is high-yield bonds (junk bonds) and leveraged loans. Netflix and Tesla belong in that category. The captive lenders, such as Ford Motor Credit, GM Financial, Toyota Financial Services, etc., or credit unions, take some risks with subprime rated customers but generally don’t go overboard.

The most aggressive in this sector are lenders that specialize in subprime lending. These lenders include Santander Consumer USA, Credit Acceptance Corporation, and many smaller private-equity backed subprime lenders specializing in auto loans. Some sell vehicles, originate the loans, and either sell the loans to banks or securitize the loans into ABS.

And they eat some of the losses as they retain some of the lower-rated tranches of the ABS. Some banks are exposed to these smaller lenders via their credit lines. The remaining losses are spread around the world via securitizations. This isn’t going to take down the banking system though a few smaller specialized lenders have already collapsed.

But demand for subprime auto loan ABS remains high. And as long as there is demand from investors for the ABS, there will be supply, and losses will continue to get scattered around until a decline in investor demand imposes some discipline.

Source: by Wolf Richter | ZeroHedge

China’s Fatal Economic Dilemma

Ending the limited quarantine and falsely proclaiming China safe for visitors and business travelers will only re-introduce the virus to workplaces and infect foreigners.

 

(Charles Hugh Smith) China faces an inescapably fatal dilemma: to save its economy from collapse, China’s leadership must end the quarantines soon and declare China “safe for travel and open for business” to the rest of the world.

But since 5+ million people left Wuhan to go home for New Years, dispersing throughout China, the virus has likely spread to small cities, towns and remote villages with few if any coronavirus test kits and few medical facilities to administer the tests multiple times to confirm the diagnosis. (It can take multiple tests to confirm the diagnosis, as the first test can be positive and the second test negative.)

As a result, Chinese authorities cannot possibly know how many people already have the virus in small-town / rural China or how many asymptomatic carriers caught the virus from people who left Wuhan. They also cannot possibly know how many people with symptoms are avoiding the official dragnet by hiding at home.

No data doesn’t mean no virus.

If the virus has already been dispersed throughout China by asymptomatic carriers who left Wuhan without realizing they were infected with the pathogen, then regardless of whatever official assurances may be announced in the coming days/weeks, it won’t be safe for foreigners to travel in China nor will it be safe for Chinese workers to return to factories, markets, etc.

But if China doesn’t “open for business” with unrestricted travel soon, its economy will suffer calamitous declines as fragile mountains of debt and leverage collapse and supply chain disruptions push global corporations to find permanent alternatives elsewhere.

Here’s the fatal dilemma: maintaining the quarantine long enough to truly contain it (which requires extending it to the entire country) will be fatal to China’s economy.

But ending the limited quarantine and falsely proclaiming China safe for visitors and business travelers will only re-introduce the virus to workplaces and infect foreigners who will return home as asymptomatic carriers, spreading the virus in their home nations.

Falsely declaring China safe will endanger everyone credulous enough to believe Chinese officials, and destroy whatever thin shreds of credibility China may yet have in the global economy and community. That will set off chains of causality that will destroy China’s economy just as surely as a three-month nationwide quarantine.

Who will be foolish enough to believe anything Chinese officials proclaim after foreigners who accepted the false assurances of safety return home with the coronavirus?

Anyone planning to receive goods via air freight from China might want to digest this report: Persistence of coronaviruses on inanimate surfaces and its inactivation with biocidal agents Endemic human coronaviruses (HCoV) can persist on inanimate surfaces like metal, glass or plastic for up to 9 days.

Air freight takes 12 to 24 hours, add another few hours for packaging, handling and last-mile delivery and that leaves 6+ days for the virus to spread to anyone who touches goods handled by an symptomatic carrier. Maybe the odds of catching the virus via surfaces are low, but maybe not. No one knows, including anyone rash enough to claim that the risk is negligible.

Source: by Charles Hugh Smith | Of Two Minds

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“Angry People Will No Longer Be Afraid” – 1000s Of Chinese Miltary/Police Quarantined, Dozens Diagnosed After CCP Lies

How Xi Jinping’s “Controlocracy” Lost Control

Chinese Dealmaking And IPOs Freeze Amid Virus Outbreak 

“They Said We Didn’t Qualify”: Wuhan Hospitals May Have Turned Away 1000s Of Seriously Sick Coronavirus Patients

 

American Consumer Debt Jumps The Most In 12 Years

Household debt surged by more than $600 billion in 2019, marking the biggest annual increase since just before the financial crisis, according to the New York Federal Reserve.

Total household debt balances rose by $601 billion last year, topping $14 trillion for the first time, according to a new report by the Fed branch. The last time the growth was that large was 2007, when household debt rose by just over $1 trillion.

Fed economists said on the Liberty Street Economics blog that the growth was driven mainly by a large increase in mortgage debt balances, which increased $433 billion and was also the largest gain since 2007.

Housing debt now accounts for $9.95 billion of the total balance. Balances for auto loans and credit cards both increased by $57 billion for the year, according to the Fed.

The economists said in the blog post that credit cards have again surpassed student loans as the most common form of initial credit history among young borrowers, following several years after the crisis when student loans were higher.

“The data also show that transitions into delinquency among credit card borrowers have steadily risen since 2016, notably among younger borrowers,” Wilbert Van Der Klaauw, senior vice president at the New York Fed, said in a statement.

However, even as the total amount of household debt has risen, the level of household debt service as a percentage of disposable personal income is at all-time lows going back to 1980.

The new report showed that credit standards tightening for some forms of debt even as the overall balance increased. The median credit score for newly originating borrowers for mortgages and auto loans increased slightly in the fourth quarter, according to the Fed.

Mortgage originations were $752 billion in the fourth quarter, the highest quarterly increase since 2005, but this was mostly due to an increase refinancing activity, the Fed said in a press release.

Source: by Jesse Pound | CNBC

China Home Sales Crash

Bloomberg cited a new report via China Merchants Securities (CMSC) that said new apartment sales crashed 90% in the first week of February over the same period last year. Sales of existing homes in 8 cities plunged 91% over the same period.

Wuhan, Hubei, China Sunrise

“The sector is bracing for a worse impact than the 2003 SARS pandemic,” said Bai Yanjun, an analyst at property-consulting firm China Index Holdings Ltd. “In 2003, the home market was on a cyclical rise. Now, it’s already reeling from an adjustment.”

Long before the coronavirus outbreak, China’s housing market has been on shaky grounds amid declining demand, stricter mortgage requirements, and price discounts.

The latest shock: two-thirds of China’s economy has come to a standstill, could generate enough pessimism to pop the country’s massive housing bubble. 

The CPC failed to stimulate the economy last year, with credit impulse not turning up as expected. The virus outbreak has allowed the CPC to scapegoat the slowdown and the inevitable crash.   

Real estate transactions have been forbidden in many cities. This means fire sales could be seen once selling restrictions end.  

E-House China Enterprise Holdings Ltd.’s research institute said four units per day were being sold in Beijing last week, and this is down from several hundred per day during the same period in the previous year. 

China International Capital Corp. analyst Eric Zhang said demand could pick back up in April, assuming the virus outbreak is under control. 

However, residents in major cities are frightened by the virus outbreak and how easily it spreads in apartment buildings

The downturn in China’s property market could get a lot worse, and without proper liquidity from the central bank, once selling restrictions end, it could trigger a liquidity gap where housing prices face a deep correction. 

But remember, the CPC can now blame the virus for a housing market crash or a downturn in the economy. 

Source: ZeroHedge

UBS’ Flagship Real-Estate Fund Hit With $7 BIllion In Redemptions

The pain for active investors who have under performed the broader market for over a decade, has claimed its first notable casualty for 2020: according to the WSJthe flagship real-estate fund of Swiss banking giant UBS has been hit with about $7 billion in redemption requests following a lengthy period of under performance. As a result, UBS has stepped up efforts to stem the bleeding at its $20 billion Trumbull Property Fund flagship real-estate fund amid concerns over its retail holdings, “as some investors move away from more conservative, lower-return funds.”

The UBS woes follow two months after M&G, a London-listed asset manager, said it has been unable to sell properties fast enough, particularly given its concentration on the retail sector, to meet the demands of investors who wanted to cash out. The investor “run” led the fund to suspend any redemption requests in its £2.5 billion ($3.2 billion) Property Portfolio in early December 2019.

While UBS hasn’t followed in M&G’s footsteps yet and gated investors, the Swiss bank has offered to reduce fees for investors who stay in the fund and to charge no management fee for new investments, according to an analyst presentation to the City of Cambridge. Mass., Retirement System. The bank also recently replaced some in the fund’s top leadership, including Matthew Lynch, the head of U.S. real estate, the WSJ reports.

A mall owned by the Trumbull Property Trust

Alas, once a fund faces a rise in redemption requests – and this becomes mainstream knowledge – the redemptions cascade and capital outflows can be hard to stop. If a fund manager doesn’t have enough cash to meet the requests, it has to sell properties. That often takes time, causing a backlog and increasing pressure on the fund to sell; what usually happens next is a “gate” barring investors from withdrawing funds.

“When there is a redemption queue investors often feel they have to get in line so they aren’t the last ones left to turn off the lights,” said Nori Lietz, a senior lecturer of business administration and faculty member at Harvard Business School.

And as in the case of numerous funds discussed previously, analysts believe that is the case with Trumbull, where the withdrawal backlog in June was little more than a third of where it is today, according to a report by consulting firm RVK for the Ohio Bureau of Workers’ Compensation.  In one of the more recent redemptions, the board of the Kansas Public Employees Retirement System last month voted to ask for some of its money back from Trumbull.

Some background: started in 1978, Trumbull is one of the oldest and largest real-estate funds. It is known as a core fund, a type that focuses on less risky properties and pursues lower but steadier returns than riskier opportunity funds that aim for annual returns around the midteens. Unlike riskier private-equity style funds, which have stricter rules about investors pulling out money before the end of the fund’s life, most big core funds have open-ended withdrawals and no expiration date.

Trumbull and other core funds performed well after the financial crisis, when investors flocked to safer, more predictable strategies after a number of high-performing but riskier real-estate funds blew up in 2008 and 2009.

In fact, as late as June 2015, Trumbull had a $1.2 billion backlog of funds looking to invest, and no backlog of investors looking to get out, according to a report by consulting firm RVK for the Ohio Bureau of Workers’ Compensation. Core funds “just had incredible market tailwinds,” said Christy Fields, a managing principal at consulting firm Meketa Investment Group, Inc.

But over the past year, real returns have fallen back to their historical average, and now funds which as recently as 5 years ago had a wait list for investors, are suddenly hurting. And while J.P. Morgan’s Strategic Property Fund and other funds are experiencing outflows, Trumbull has been the hardest hit. It has performed worse than the core-fund benchmark index for 11 of the past 12 quarters, according to a December performance review by the City of Burlington, Vt., Employees Retirement System.

Between June 2018 and June 2019, the fund had a negative net return of 0.63% compared with a positive return of 5.46% for the NCREIF NFI-ODCE index, according to the RVK report for the Ohio Bureau of Workers’ Compensation.

To bolster the fund, UBS brought in Joe Azelby, a former professional football player with the Buffalo Bills and veteran of JPMorgan’s asset-management division and Apollo Global Management. He took over UBS Asset Management’s real-estate operations in March.

Meketa’s Ms. Fields said some core funds were losing investors in part because of their exposure to the struggling retail sector.

But the biggest culprit for the fund’s woes: Amazon, which has put countless bricks and mortar retailers out of business, and converted many of America’s malls into ghost towns. Trumbull owns across the U.S., many of them acquired when the outlook for the retail sector looked less dire, property records show. The mall sector is struggling with store closures as online retail expands its market share. These properties still account for nearly 20% of Trumbull’s assets, slightly above the industry average.

One of its largest malls, the Galleria Dallas, is expected to lose one of its department stores, Belk, in late March, according to the company. The fund plans to redevelop some malls in a bid to make them more profitable and sell others, according to a person familiar with the matter. At the CambridgeSide mall in Cambridge, Mass., UBS plans to convert some retail space into offices.

Source: ZeroHedge

China Suddenly Has Another Major “Virus” Problem, As Soaring Food Prices Put A Lid On Central Bank Intervention

Soon the only food that will be affordable in China, is coronabat stew.

With over 400 million people across dozens of Chinese cities living in lock down as a result of the Coronavirus pandemic, crippling global supply chains and grinding China’s economy to a halt, it is easy to forget that China has been battling another major viral epidemic for the past two years: namely the African Swing Fever virus, aka “pig ebola” which killed off over half of China’s pig population in the past year, sending pork prices soaring, and unleashing a tidal wave of inflation.

Well, earlier today, the world got a stark reminder of this when China reported that in January, its CPI jumped by whopping 5.4% Y/Y, the highest print in nine years…

… driven by a surge in pork prices, which reversed a rare drop in December when the slid by 5.6%, rising 8.5% in just ont month, and a record 116% compared to a year ago.

This unprecedented surge in pork CPI meant that China’s food CPI rose a record 20.6% in January, also the highest on record, as China’s population, now ordered to live under self-imposed quarantine, suddenly finds it can no longer afford to buy food.

Needless to say, this is suddenly a major problem for China, whose central bank has in the past two weeks unleashed an unprecedented liquidity tsunami, including the biggest ever reverse repo injection…

… in hopes of stabilizing the stock market. Well, oops, because some of this liquidity now appears to be making its way into the broader economy, and is making already scarce food (aside from bat stew of course) even more un-affordable, and the already depressed and dejected Chinese population even more hungry, and angry.

There was one silver lining in today’s data: after spending half a year in deflation, China’s Production Prices, a proxy for industrial profits and overall price leverage, finally printed in the positive, rising 0.1% Y/Y, and better than the expected 0.0%

So far so good, however, with China’s economy now on indefinite lock down, expect the correlation shown in the chart above to break any moment now, with industrial profits crashing as a result of the coronavirus putting countless Chinese factories on lock down at least until the coronavirus is contained. When that happens is anyone’s guess, but one thing is certain: at the rate food prices are exploding, soon the only food China’s population will be able to afford will be the experimental bats used by the Wuhan Institute of Virology, one of which may or may not have been accidentally sold to the local fish market last December triggering what is now the worst viral pandemic in decades.

Just as concerning, if only for Beijing, is that if the surge in food prices isn’t “contained” very soon the arms of the PBOC will be tied and any hopes that China will reflate its economy – and the world – to offset the economic crunch resulting from the coronavirus, will be weaponized and vaporize right through the HVAC, just like any number of manmade viruses currently being developed in Wuhan, as pretty soon China’s population – starving and quarantined – will have no choice but take matters into its own hands.

Source: ZeroHedge

Smaller Restaurants Forced Into Bankruptcy As Foot Traffic Collapses

While the big names in eating out – McDonald’s, Popeye’s, Chick-Fil-A and Olive Garden, to name a few – are all working diligently to get customers through the door at a time when the American eater is staying home more, lesser known restaurants are bearing the brunt of not being able to find new customers.

Names like Bar Louie and American Blue Ribbon Holdings, which owns Village Inn and Bakers Square, both filed for bankruptcy earlier this week, according to Bloomberg. Both cited lower foot traffic in the U.S. as the reason for their downfall. 

Michael Halen a senior restaurant analyst at Bloomberg, said: “The business is just over-built, especially casual dining and full-service dining. There are too many restaurants.”

American Blue Ribbon also said that competition, rising labor costs and unprofitable restaurants were all reasons for facilitating its bankruptcy. The company owns and operates 97 restaurants after closing 33 stores prior to filing Chapter 11. 

The company’s majority owner, Cannae Holdings, Inc., has agreed to provide a $20 million loan to maintain the company during bankruptcy. Cannae generates about 30% of its revenue from various restaurant companies it is invested in and has said that American Blue Ribbon will focus on strategic options in bankruptcy. 

Bar Louie has been opening new locations over the last few years which has grown its top line, but the increase in debt necessary to open new stores has suffocated the company. 

Chief Restructuring Officer Howard Meitiner said: “This inconsistent brand experience, coupled with increased competition and the general decline in customer traffic visiting traditional shopping locations and malls, resulted in less traffic at the company’s locations proximate to shopping locations and malls.”

Bar Louie has 110 locations, 38 of which have “seen their sales and profits decline at an accelerating pace” since the company began a strategic review in 2018. Those locations expected a staggering same store sales drop of 10.9% in 2019 and were closed prior to the company filing for bankruptcy. Lenders are providing a loan of as much as $22 million to keep the company operating during the proceedings.  

Other restaurant names like The Krystal Co., Houlihan’s Restaurants Inc., Kona Grill Inc. and Perkins & Marie Callender’s all filed for bankruptcy last year as well. 

Halen concluded: “We need to see a correction in the restaurant industry. We’ve seen a lot in the last few months, and I think this is just the beginning. Once the economy softens, you’ll see this getting worse.”

Source: ZeroHedge

Chicago PMI Plunges To Lowest In 4 Years

After slumping into year-end, Regional Fed surveys have (surprisingly) exploded higher this month with Richmond and Philly surveys spiking almost by the most on record.

Today’s Chicago PMI was expected to follow suit – though less excitedly – with a modest gain but instead it missed massively, plunging to its lowest since Dec 2015 – printing 42.9 vs 48.9 expectations.

Source: Bloomberg

This was the biggest miss of expectations since Dec 2015…

Source: Bloomberg

None of the underlying components rose in December:

  • Business barometer fell at a faster pace, signaling contraction
  • Prices paid rose at a slower pace, signaling expansion
  • New orders fell at a faster pace, signaling contraction
  • Employment fell at a faster pace, signaling contraction
  • Inventories fell at a faster pace, signaling contraction
  • Supplier deliveries rose at a slower pace, signaling expansion
  • Production fell at a faster pace, signaling contraction
  • Order backlogs fell at a faster pace, signaling contraction

Having tumbled by the most in 39 years last year, Chicago PMI has no been in contraction (sub-50) for 7 months in a row – something it has not done outside of recession… ever.

Source: Bloomberg

As a reminder Dec 2015 was the last time China’s economy was in free fall.

Source: ZeroHedge

FICO Changes To Dramatically Affect Credit Scores In Effort To Reduce Defaults

Fair Isaac, the company behind FICO credit scores, announced the rollout of a new scoring method that will dramatically shift credit scores for millions of Americans in either direction.

In a nutshell – ‘FICO Score 10 Suite’ is supposedly better at identifying potential deadbeats from those who can pay, and claims to be able to reduce defaults by as much as 10% among new credit cards, and nine percent on new auto loans.

Around 40 million people with already ‘high’ scores (above 680) are likely to see their credit rise, while those with scores at or below 600 could see a dramatic drop.

According to Fair Isaac, around 110 million people will see their scores swing an average of 20 points in either direction.

“Consumers that have been managing their credit well … paying bills on time, keeping their balances in check are likely going to see a gain in score,” said Dave Shellenberger, VP of product management scores.

The changes come as consumers are accumulating record levels of debt that has worried some economists but has shown no sign of slowing amid a strong economy. Consumers are putting more on their credit cards and taking out more personal loans. Personal loan balances over $30,000 have jumped 15 percent in the past five years, Experian recently  found. –Washington Post

That said, according to WalletHub, delinquency rates are in much better shape than they were a decade ago, with 6% of consumers late on a payment in 2019 vs. around 15% in 2009. Meanwhile, the average FICO score went from bottoming out at 686 in October of 2009 to an average of 706 in September of 2019.

As we noted in October, FICO has been talking about recalculating credit scores for some time now. According to the Wall Street Journal, anyone with “at least several hundred dollars” in their bank account and who don’t overdraw are also likely to see their scores rise. Specifically, anybody with an average balance of $400 in their bank accounts without an overdraft history over the last three months would likely get a boost. 

And with non-revolving debt such as student and auto loans recently rising by $14.9 billion, identifying potential deadbeats is more important than ever.

Source: ZeroHedge

 

US Home Prices Accelerate At Fastest Pace In 9 Months

Case-Shiller home price gains have re-accelerated over the last 3 months and analysts expected another acceleration in November (the latest data set) and were right as the 20-City Composite surge 2.55% YoY (better than the +2.40% YoY expectation).

This is the biggest YoY rise since Feb 2019…

Source: Bloomberg

Home prices climbed 0.5% from the previous month – also topping forecasts – matching the October increase for the best back-to-back gains since early 2018.

All 20 cities in the index showed year-over-year home-price gains, led by Phoenix; Charlotte, North Carolina; and Tampa, Florida.

After dropping YoY in September and October, the mecca of all things socially just and tech-savvy – San Francisco – saw prices adjust higher and back into the green YoY…

Source: Bloomberg

Finally, a broader national index of home prices was up 3.5% from a year earlier, the most since April.

Source: ZeroHedge

International Cargo On US Great Lakes Plunge 7% YoY

World trade in 2019 expanded at its weakest year since 2009. Significant macroeconomic headwinds started to slow the global economy in late 2017, several quarters before the trade war began. We’ve covered the main shipping lanes from the U.S. to China and China to the U.S., along with other routes from Europe to China and China to other Asian countries, but new trade data has shown international cargo on the U.S. Great Lakes also plunged last year. 

Cargo hauled across the Atlantic Ocean through the St. Lawrence Seaway to Great Lakes ports plunged 7% Y/Y last year, reported The Times of Northwest Indiana

Trade officials attributed the steep decline in cargo volumes on the trade war, high waters that made some regions impassible, and adverse weather conditions that weighed on grain exports. 

“The challenges of the 2019 shipping season underline the critical importance of protecting the future integrity of the Great Lakes-St. Lawrence waterway as a reliable and efficient trade and transportation corridor for the United States and Canada,” said Bruce Burrows, president of the Chamber of Marine Commerce.

“High water levels are negatively impacting residents and businesses, including the marine shipping sector that transports cargo through the St. Lawrence Seaway, and we need to work together with the International Joint Commission and governments to conduct a proper study into water levels and their causes, and to develop a resiliency plan that can address stakeholder needs into the future.”

Burrows said the Great Lakes-Seaway transportation system supports more than 238,000 jobs and $35 billion in economic activity for North American economies. 

Canada and U.S.’ annual growth rate has rapidly slowed since 1H18 — as a manufacturing recession continues to deepen. With no signs of abating in early 2020 – international cargo volumes across the Great Lakes could see persistent weakness in the coming quarters. 

As for world trade, the expectation of a V-shape recovery in 2020 could be more of fantasy as global equities have already priced-in a massive rebound. The world has likely entered a U-shape recovery as low-growth becomes the new normal.

Source: ZeroHedge

Former Wells Fargo CEO and Seven Others Slapped With Fines for Scamming Customers

Nearly four years after Wells Fargo’s reputation was terminally crushed by the humiliating fake accounts fraud scandal, the punishment for Warren Buffett’s favorite bank and its (mostly former) employees is still being doled out, and moments ago the Office of the Comptroller of the Currency announced $59 million in civil charges and settlements with eight former Wells Fargo senior executives on Thursday, including the payment of a $17.5 million fine by John Stumpf, the bank’s former CEO, who also agreed to a lifetime industry ban. Carrie Tolstedt, who led Wells Fargo’s community bank for a decade, faces a penalty of as much as $25 million.

“The actions announced by the OCC today reinforce the agency’s expectations that management and employees of national banks and federal savings associations provide fair access to financial services, treat customers fairly, and comply with applicable laws and regulations,” Joseph Otting, who heads the OCC, said in a statement.

Wells Fargo unleashed unprecedented public and political ire in 2016 after its was revealed that bank employees opened millions of fake accounts to meet sales goals. That and a slew of retail-banking issues that subsequently came to light have led to regulatory fallout that’s in many cases unprecedented for a major bank, including a growth cap from the Federal Reserve. It also led to a historic Congressional grilling of the bank’s then CEO, John Stumpf, who resigned shortly after.

Regulatory actions against Wells Fargo have also included billions of dollars in fines and legal costs, and an order giving the OCC the right to remove some of the bank’s leaders. The Department of Justice and the Securities and Exchange Commission also have been investigating the lender’s issues.

Why did it take 4 years for some individual justice to finally emerge? Simple: regulatory capture – as Bloomberg adds, the OCC drew scrutiny of its own as the firm’s main regulator throughout the scandals, prompting an internal review at the agency.

The OCC and the Fed have both cited a wide-ranging pattern of abuses and lapses at Wells Fargo, yet despite the universal condemnation, the bank’s biggest shareholder, Warren Buffett, has refused to dispose of his stake.

Source: ZeroHedge

Why Manhattan’s Skyscrapers Are Empty

Approximately half of the luxury-condo units that have come onto the market in the past five years remain unsold.

In Manhattan, the homeless shelters are full, and the luxury skyscrapers are vacant.

Such is the tale of two cities within America’s largest metro. Even as 80,000 people sleep in New York City’s shelters or on its streets, Manhattan residents have watched skinny condominium skyscrapers rise across the island. These colossal stalagmites initially transformed not only the city’s skyline but also the real-estate market for new homes. From 2011 to 2019, the average price of a newly listed condo in New York soared from $1.15 million to $3.77 million.

But the bust is upon us. Today, nearly half of the Manhattan luxury-condo units that have come onto the market in the past five years are still unsold, according to The New York Times.

What happened? While real estate might seem like the world’s most local industry, these luxury condos weren’t exclusively built for locals. They were also made for foreigners with tens of millions of dollars to spare. Developers bet huge on foreign plutocrats—Russian oligarchs, Chinese moguls, Saudi royalty—looking to buy second (or seventh) homes.

But the Chinese economy slowed, while declining oil prices dampened the demand for pieds-à-terre among Russian and Middle Eastern zillionaires. It didn’t help that the Treasury Department cracked down on attempts to launder money through fancy real estate. Despite pressure from nervous lenders, developers have been reluctant to slash prices too suddenly or dramatically, lest the market suddenly clear and they leave millions on the table.

The confluence of cosmopolitan capital and terrible timing has done the impossible: It’s created a vacancy problem in a city where thousands of people are desperate to find places to live.

From any rational perspective, what New York needs isn’t glistening three-bedroom units, but more simple one- and two-bedroom apartments for New York’s many singlesroommates, and small families. Mayor Bill De Blasio made affordable housing a centerpiece of his administration. But progress here has been stalled by onerous zoning regulations, limited federal subsidies, construction delays, and blocked pro-tenant bills.

In the past decade, New York City real-estate prices have gone from merely obscene to downright macabre. From 2010 to 2019, the average sale price of homes doubled in many Brooklyn neighborhoods, including Prospect Heights and Williamsburg, according to the Times. Buyers there could consider themselves lucky: In Cobble Hill, the typical sales price tripled to $2.5 million in nine years.

This is not normal. And for middle-class families, particularly for the immigrants who give New York City so much of its dynamism, it has made living in Manhattan or gentrified Brooklyn practically impossible. No wonder, then, that the New York City area is losing about 300 residents every day. It adds up to what Michael Greenberg, writing for The New York Review of Books, called a new shameful form of housing discrimination—“bluelining.”

We speak nowadays with contrition of redlining, the mid-twentieth-century practice by banks of starving black neighborhoods of mortgages, home improvement loans, and investment of almost any sort. We may soon look with equal shame on what might come to be known as bluelining: the transfiguration of those same neighborhoods with a deluge of investment aimed at a wealthier class.

New York’s example is extreme—the squeezed middle class, shrink-wrapped into tiny bedrooms, beneath a canopy of empty sky palaces. But Manhattan reflects America’s national housing market, in at least three ways.

First, the typical new American single-family home has become surprisingly luxurious, if not quite so swank as Manhattan’s glassy spires. Newly built houses in the U.S. are among the largest in the world, and their size-per-resident has nearly doubled in the past 50 years. And the bathrooms have multiplied. In the early ’70s, 40 percent of new single-family houses had 1.5 bathrooms or fewer; today, just 4 percent do. The mansions of the ’70s would be the typical new homes of the 2020s.

Second, as the new houses have become more luxurious, homeownership itself has become a luxury. Young adults today are one-third less likely to own a home at this point in their lives than previous generations. Among young black Americans, homeownership has fallen to its lowest rate in more than 60 years.

Third, and most important, the most expensive housing markets, such as San Francisco and Los Angeles, haven’t built nearly enough homes for the middle class. As urban living has become too expensive for workers, many of them have either stayed away from the richest, densest cities or moved to the south and west, where land is cheaper. This is a huge loss, not only for individual workers, but also for these metros, because denser cities offer better matches between companies and workers, and thus are richer and more productive overall. Instead of growing as they grow richer, New York City, Los Angeles, and the Bay Area are all shrinking.

Across the country, the supply of housing hasn’t kept up with population growth. Single-family-home sales are stuck at 1996 levels, even though the United States has added 60 million people—or two Texases—since the mid-’90s. The undersupply of housing has become one of the most important stories in economics in the past decade. It explains why Americans are less likely to movewhy social mobility has declinedwhy regional inequality has increasedwhy entrepreneurship continues to fallwhy wealth inequality has skyrocketed, and why certain neighborhoods have higher poverty and worse health.

In 2010, one might have thought that the defining housing story of the century would be the real-estate bubble that plunged the U.S. economy into a recession. But the past decade has been defined by the juxtaposition of rampant luxury-home building with the cratering of middle-class-home construction. The future might restore a measure of sanity, both to New York’s housing crisis and America’s. But for now, the nation is bluelining itself to death.

Source: by Derek Thompson | The Atlantic

Megxit Over: Harry, Meghan Reach Deal To Quit Royal Life

One family’s crusade to break from the unbearable bondage of royalty is finally over, or in other words, Megxit is a done deal.

Prince Harry and Meghan Markle, also known as the Duke and Duchess of Sussex, will no longer use the titles His and Her Royal Highness “as they are no longer working members of the Royal Family” Buckingham Palace announced Saturday, as part of an agreement that lets them build a life away from intense media scrutiny as members of the royal family.

“Following many months of conversations and more recent discussions, I am pleased that together we have found a constructive and supportive way forward for my grandson and his family,” Queen Elizabeth II said in a statement.

“Harry, Meghan and Archie will always be much loved members of my family,” she said. ” I recognize the challenges they have experienced as a result of intense scrutiny over the last two years and support their wish for a more independent life.”

As disclosed in the agreement, Harry and Meghan “understand that they are required to step back from Royal duties, including official military appointments. They will no longer receive public funds for Royal duties.”

They also shared their wish to repay Sovereign Grant expenditure for the refurbishment of Frogmore Cottage, which will remain their UK family home.

Frogmore House, a modest wedding gift from the Queen to Harry and Meghan

With Brexit no longer dominating the British press, the announcement that the couple wished to step back from the royal family had thrown Britain’s monarchy into turmoil and dominated the headlines. Even though Harry has only a remote prospect of becoming king – he’s sixth in line, behind his father, brother, nephews and niece – there was outrage that, with his wife, he wanted to become financially independent and “carve out” a “progressive new role.”

Still, as the following chart summarizing the net worth of UK’s royalty shows the former “Duke and Duchess” should be just fine.

According to Statista, Prince William and Prince Harry have similar incomes and net worth, and reportedly earn $6.6 million annually from the Sovereign Grant, which they split, and each have an estimated net worth that ranges around $40 million. Prince Harry’s income could fluctuate once his title is renounced. Rumors claimed Markle, who had a net worth of about $5 million before marrying Harry thanks to her acting career, was already inking up a deal with Disney to do voiceovers for future projects, though the money will reportedly go to charity.

In a separate statement, earlier this week the queen discussed the wishes of Harry and Meghan, a former actress, with her immediate family. The queen at the time described the talks as “very constructive.”

The Queen said the recent discussions led to a “supportive way forward for my grandson and his family.” She said she was “particularly proud of how Meghan has so quickly become one of the family.”

It now appears that it took Meghan even less time to leave the family.

Source: ZeroHedge

WeWork Lease Activity Crashed 93% In 4Q After Failed IPO

Several months after WeWork’s failed IPO — resulting in a bailout from SoftBank, the international money-losing office-sharing company leased just four new sites for a combined 184,00 sq. Ft. of space in 4Q19, marking a 93% plunge from its quarterly average rate of 2.54 million sq. Ft. over the last four quarters, according to data from real estate firm CBRE shared with CNBC.

The abrupt slowdown in leasing activity comes as the WeWork’s valuation imploded last August after it shelved its IPO and ran out of cash a month later, forcing its largest investor, SoftBank, to conduct an emergency bailout to rescue the company. 

With a questionable business model and no plans on turning a profit, WeWork’s valuation plunged from $47 billion in late 2018 to $8 to $10 billion by 4Q19.

In 4Q19, WeWork had to cut costs, lay off workers, and scale back operations across the world to avoid going bankrupt. In return, the company lost the top spot in the flexible office leasing space to Regus, which in 4Q19, increased lease footprint by 11% to 284,916 sq. Ft.

CBRE showed that industrywide, there was a significant pullback in office space leasing, mainly due to WeWork’s implosion.

Data shows office sharing operators declined to 1 million sq. Ft. in 4Q19 from 4 million sq. ft. in 3Q19.

Manhattan was the top city for office sharing space, even though new space leased dropped 82% to 187,078 sq. Ft., on average, the prior four quarters. Activity in Chicago, Boston, and Los Angeles also saw notable declines over the period.

“We had seen this coming right after the IPO news,” said Julie Whelan, senior director of research at CBRE, who warned it could be a bumpy ride for WeWork and other office space sharing companies in 2020. 

Source: ZeroHedge

Sonoma County California Plans To Evict Renters To Buy Million Dollar Housing For Hobos

SANTA ROSA (KPIX) — A controversial plan to solve the homeless crisis has people fired up in Sonoma County where officials plan to spend millions of dollars to buy three properties that would be used to house the homeless.

All three properties have one thing in common. They’re big and have multiple units, but many of those units are currently occupied by tenants.

“I’m sure the tenants have been asked to leave,” said Allen Thomas.  He lives near one of the three properties, 811 Davis Street in Santa Rosa.

Neighbors said it’s counterproductive to evict renters to house the homeless.

“It’s just insanity,” said Karen Sanders, who also lives in Santa Rosa.

Sonoma County leaders plan to buy two properties in Santa Rosa and one in Cotati. They’ll spend roughly one million dollars for each property. One county worker said they’re already in contract to buy the property on Davis Street.

“Million dollar homes; million dollar homes for these transients living on the trail,” said Sanders.

The county wants to get the homeless out of an encampment on the Joe Rodota Trail. Many neighbors of those three properties worry the new neighbors will bring along crime and other quality of life issues.

“I’m not NIMBY, but we’ve done enough,” said Sher Ennis, a neighbor who lives near the Davis street property.

She said she was attacked in her home by a man from a re-entry housing program years ago.  She worries about her safety.

“We don’t know. Are we getting dangerous criminals? Are we getting felons? Or are we getting people who are simply down on their luck,” said Ennis.

Another neighbor supports the county’s plan.

“I don’t think that it makes [the neighborhood] any less safe, no,” said Andrew Atkinson.

He said the county has to act now.

“It’s going to take more than this, I think, to solve the problem. But I’m glad to see they’re trying,” said Atkinson.

Many upset neighbors voiced their concerns at a community meeting Friday night in Santa Rosa. County leaders will talk about the plan to buy the houses and other solutions to house the homeless.

Source: by Da Lin | KPIX CBS SF Bay Area

The Zombification Of America – Over 40% Of Listed Companies Don’t Make Money

It’s absolutely stunning how the Fed/ECB/BoJ injected upwards of $1.1 trillion into global markets in the last quarter and cut rates 80 times in the past 12 months, which allowed money-losing companies to survive another day. 

The leader of all this insanity is Telsa, the biggest money-losing company on Wall Street, has soared 120% since the Fed launched ‘Not QE.’

Tesla investors are convinced that fundamentals are driving the stock higher, but that might not be the case, as central bank liquidity has been pouring into anything with a CUSIP

The company has lost money over the last 12 months, and to be fair, Elon Musk reported one quarter that turned a profit, but overall – Tesla is a black hole. Its market capitalization is larger than Ford and General Motors put together. When you listen to Tesla investors, near-term profitability isn’t important because if it were, the stock would be much lower. 

The Wall Street Journal notes that in the past 12 months, 40% of all US-listed companies were losing money, the highest level since the late 1990s – or a period also referred to as the Dot Com bubble.

Jay Ritter, a finance professor at the University of Florida, provided The Journal with a chart that shows the percentage of money-losing IPOs hit 81% in 2018, the same level that was also seen in 2000. 

The Journal notes that 42% of health-care companies lost money, mostly because of speculative biotech. About 17% of technology companies also fail to turn a profit. 

A more traditional company that has been losing money is GE. Its shares have plunged 60% in the last 42 months as a slowing economy, and insurmountable debts have forced a balance sheet recession that has doomed the company. 

Data from S&P Global Market Intelligence shows for small companies, losing money is part of the job. About 33% of the 100 biggest companies reported losses over the last 12 months. 

Among the smallest 80% of companies, there has been a notable rise in money-losing operations in the last three years.

“The proportion of these loss-making companies rose after each of the last two recessions and didn’t come down again afterward. The story should be familiar by now: Many small companies are being dominated by the biggest corporates, squeezing them out of markets and crushing their ability to invest for growth,” The Journal noted.

And while central bank liquidity has zombified companies, investors are already starting to make a mad dash out of trash into companies that turn a profit ahead of the next recession.

Source: ZeroHedge

The Top 1% Are Much Happier & Content With Their Lives, Study Finds

Well, what do you know: It looks like money really can buy happiness. 

For years, the conventional wisdom in American culture has been that the rich have their own set of issues that are under appreciated by the rest of the population. This was perhaps best summed up by rapper Biggie Smalls in his hit song “Mo’ Money, Mo’ Problems.” 

But despite cultural taboos about high-paying, high-pressure jobs leading to substance abuse, divorce and familial ruin, one recent study found that the highest-earning Americans actually reported feeling both happier and more fulfilled on a day-to-day basis.

Here’s more on the study from The Washington Post: Adults in the top 1% of U.S. household income (i.e. those who earn at least $500,000 a year) have “dramatically different life experiences” than everyone else, according to a survey sponsored by NPR, the Robert Wood Johnson Foundation, and the Harvard T.H. Chan School of Public Health. 

A full 90% of the 1% say they are “completely” or “very” satisfied with their lives in general. That compares with two-thirds of middle-income households – those earning $35,000 to $99,000 a year – and 44% of low-income households – ie those in the $35,000 a year or less bracket. 

Even more impressive: The share of 1%-ers expressing “dissatisfaction” with their lives is statistically zero. 

As WaPo explains, because the top 1% of US earners represents such a small subset of people, it’s typically difficult to gain insight into their thoughts and feelings via polling. 

Previous studies showed that money makes a big difference in an individual’s level of happiness, but that the effect starts to weaken once an individual starts earning a little bit more than $75,000. 

But apparently, as this latest study shows, although the rich might not be much happier on a day-to-day basis, individuals earning more than $500,000 a year are typically much more content with their lives.

Inside the top 1%, for example, some 97% say that they’ve already obtained the “American Dream”, as the respondent defines it, or are actively working toward it. Among low-income adults, by comparison, some 4 in 10 believe the American Dream is completely out of their reach.

Source: ZeroHedge

IRS Audits Plummet To Lowest Level In Four Decades

Individual US taxpayers are half as likely to get audited than they were in 2010, according to the Wall Street Journal, which notes that IRS tax enforcement has fallen to the lowest level in at least four decades.

In FY 2019, the agency audited just 0.45% of all personal income-tax returns, down from 0.59% in 2018 – marking eight straight years of declining reviews. In a Monday report, the IRS said that in 2010, 1.1% of tax returns were audited. The report did not provide details on audits by income category, or how much revenue has been recovered from the enforcement (or lack thereof).

According to the Journal, years of budget cuts and a heavier workload are to blame for the steady erosion of audit – which, experts say, is depriving the Treasury of billions of dollars while budget deficits rise.

The IRS budget is about 20% below the 2010 peak in inflation-adjusted dollars, according to the Congressional Budget Office. During that time, Congress has given the agency more responsibility, including the implementation of the 2010 health care law and the 2017 tax law.

In Monday’s report, the IRS said the agency had lost almost 30,000 full-time positions since fiscal 2010, in areas including enforcement and criminal investigation. It now has about 78,000 workers and has been hiring over the past year. But the agency also projects that up to 31% of remaining workers will retire within the next five years. –Wall Street Journal

“The audit rate reported for 2019 was less than half of what it was in 2010, underscoring the depleted state of the IRS enforcement function, which urgently needs to be rebuilt,” said Chuck Marr, director of federal tax policy at the Center on Budget and Policy Priorities, a progressive group in Washington.

Investing in enforcement and tightening rules could generate about $1 trillion over a decade, according to Harvard University economist Lawrence Summers, who served as Treasury secretary in the Clinton administration, and University of Pennsylvania professor Natasha Sarin. The government estimates that each additional dollar spent on tax enforcement could yield more than $4 in revenue, and Democratic presidential candidates have made increasing IRS funding part of their agenda. –Wall Street Journal

Cuts to the IRS budget began after Republicans won a majority in the House of Representatives in 2010, and was further reduced after the Obama administration’s IRS targeting scandal in which the agency admitted in 2013 that it had given improper scrutiny to conservative nonprofit groups.

According to Trump-appointed IRS commissioner Charles Rettig, the administration has been trying to find new ways of remaining aggressive for tax-dodgers by using data analytics.

“Our compliance employees have a commitment to fraud awareness as we continue our enforcement efforts in the offshore and other more traditional compliance-challenged arenas,” writes Rettig in Monday’s report. “We want to maintain a visible, robust enforcement presence as we continue to explore innovative strategies and techniques in support of our mission.”

Source: ZeroHedge

American Consumers, Not China, Have Been Eating Trump’s Trade Tariffs All Along

New York Fed and academic researchers found that U.S. consumers and companies have borne the brunt of the president’s trade war.

WASHINGTON — American businesses and consumers, not China, are bearing the financial brunt of President Trump’s trade war, new data shows, undermining the president’s assertion that the United States is “taxing the hell out of China.”

“U.S. tariffs continue to be almost entirely borne by U.S. firms and consumers,” Mary Amiti, an economist at the Federal Reserve Bank of New York, wrote in a National Bureau of Economic Research working paper. The other authors of the paper were David E. Weinstein of Columbia University and Stephen J. Redding of Princeton.

Examining the fallout of tariffs in data through October, the authors found that Americans had continued paying for the levies — which increased substantially over the course of the year. Their paper, which is an update on previous research, found that “approximately 100 percent” of import taxes fell on American buyers.

The findings are the latest evidence that voters and American businesses are paying the cost of Mr. Trump’s penchant for using tariffs to try to rewrite the terms of trade in favor of the United States.

Manufacturing is slumping, a fact economists attribute at least partly to uncertainty stemming from the trade spats, and business investment has suffered as corporate executives wait to see how — or if — the tensions will end.

The United States and China have reached a trade truce and are expected to sign an initial deal this month, but tariffs on $360 billion worth of Chinese goods will remain in place. The levies, which are as high as 25 percent, have forced some multinational businesses to move their operations out of China, sending operations to countries like Vietnam and Mexico.

Mr. Trump and his supporters say that the United States had no choice but to resort to tough tactics to try to force China to abandon unfair economic behaviors, like infringing on American intellectual property and providing state subsidies to Chinese firms. And Mr. Trump has continued to incorrectly assert that China — not American companies and consumers — is paying the cost of the tariffs.

Tariffs may have worked as a negotiating chip to get China to the table, but recent academic research shows that leverage has come at a steep price for some American businesses and consumers.

The authors of the latest study used customs data to trace the fallout, examining import values before and after the tariffs. The research showed that the tariffs had little impact on China.

“We’re just not seeing foreigners bearing the cost, which to me is very surprising,” Professor Weinstein said in an interview.

They also found a delayed impact from the tariffs, with the decline in some imports roughly doubling on average in the second year of the levies.

That is because “it takes some time for firms to reorganize their supply chains so that they can avoid the tariffs,” the authors write.

Reaction to the tariffs has varied across business sectors, however. In the steel industry, for example, companies that export to the United States have dropped their prices — suggesting that other countries are in fact paying “close to half” of the cost of tariffs, according to the paper.

Because China is only the 10th-largest steel supplier to the United States, though, exporters in the European Union, Japan and South Korea are most likely bearing much of that cost. And as foreign prices drop, domestic steel production has barely budged, which bodes poorly for hiring in the United States steel industry, the authors note.

“The steel industry isn’t getting that much protection, as a result,” Professor Weinstein said.

In previous research, the authors found that by December 2018, import tariffs were costing United States consumers and importing businesses $3.2 billion per month in added taxes and another $1.4 billion per month in efficiency losses. They did not update those numbers in the latest study.

Their analysis joins a growing body of research examining the effects of the escalating tariffs Mr. Trump has imposed since the beginning of 2018.

A study released in late December by two economists at the Fed, Aaron Flaaen and Justin Pierce, found that any positive effects that tariffs offered American companies in terms of protection from Chinese imports were outweighed by their costs. Those costs include the higher prices companies must pay to import components from China, and the retaliatory tariffs China placed on the United States in response, the economists said.

Another study, published in October by researchers at Harvard University, the University of Chicago and the Federal Reserve Bank of Boston, also found that almost all of the cost of the tariffs was being passed on from businesses in China to American importers.

The October study found that the situation was not the same for the tariffs that China has placed on American goods in retaliation. The researchers found that American businesses had less success passing on the costs of those tariffs to Chinese importers, most likely because of the types of goods being sold.

Many of the products that the United States sells to China are undifferentiated commodities, like agricultural goods, but China sends many specialized consumer goods like silk embroidery, laptops and smartphones to the United States. China can easily swap Brazilian soybeans for American ones, but the types of goods that China sends to the United States are harder for American businesses to substitute, the researchers said.

Ms. Amiti’s colleagues at the New York Fed have traced the costs of tariffs in other research. Their study similarly found that import prices on goods coming from China had remained largely unchanged as tariffs rolled out, and argued that already-narrow profit margins — ones that leave no room for cutting — and a dearth of competitors could be among the factors insulating Chinese exporters.

Source: by Jeanna Smialek | The New York Times

And Again: The Fed Monetizes $4.1 Billion In Debt Sold Just Days Earlier

Over the past week, when looking at the details of the Fed’s ongoing QE4, we showed out (here and here) that the New York Fed was now actively purchasing T-Bills that had been issued just days earlier by the US Treasury. As a reminder, the Fed is prohibited from directly purchasing Treasurys at auction, as that is considered “monetization” and directly funding the US deficit, not to mention is tantamount to “Helicopter Money” and is frowned upon by Congress and established economists. However, insert a brief, 3-days interval between issuance and purchase… and suddenly nobody minds. As we summarized:

“for those saying the US may soon unleash helicopter money, and/or MMT, we have some ‘news’: helicopter money is already here, and the Fed is now actively monetizing debt the Treasury sold just days earlier using Dealers as a conduit… a “conduit” which is generously rewarded by the Fed’s market desk with its marked up purchase price. In other words, the Fed is already conducting Helicopter Money (and MMT) in all but name. As shown above, the Fed monetized T-Bills that were issued just three days earlier – and just because it is circumventing the one hurdle that prevents it from directly purchasing securities sold outright by the Treasury, the Fed is providing the Dealers that made this legal debt circle-jerk possible with millions in profits, even as the outcome is identical if merely offset by a few days”

So, predictably, fast forward to today when the Fed conducted its latest T-Bill POMO in which, as has been the case since early October, the NY Fed’s market desk purchased the maximum allowed in Bills, some $7.5 billion, out of $25.3 billion in submissions. What was more notable were the actual CUSIPs that were accepted by the Fed for purchase. And here, once again, we find just one particular issue that stuck out: TY5 (due Dec 31, 2020) which was the most active CUSIP, with $4.136BN purchased by the Fed, and TU3 (due Dec 3, 2020) of which $905MM was accepted.

Why is the highlighted CUSIP notable? Because as we just showed on Friday, the Fed – together with the Primary Dealers – appears to have developed a knack for monetizing, pardon, purchasing in the open market, bonds that were just issued. And sure enough, TY5 was sold just one week ago, on Monday, Dec 30, with the issue settling on Jan 2, just days before today’s POMO, and Dealers taking down $17.8 billion of the total issue…

… and just a few days later turning around and flipping the Bill back to the Fed in exchange for an unknown markup. Incidentally, today the Fed also purchased $615MM of CUSIP UB3 (which we profiled last Friday), which was also sold on Dec 30, and which the Fed purchased $5.245BN of last Friday, bringing the total purchases of this just issued T-Bill to nearly $6 billion in just three business days.

In keeping with this trend, the rest of the Bills most actively purchased by the Fed, i.e., TP4, TN9, TJ8, all represent the most recently auctioned off 52-week bills

… confirming once again that the Fed is now in the business of purchasing any and all Bills that have been sold most recently by the Treasury, which is – for all intents and purposes – debt monetization.

As we have consistently shown over the past week, these are not isolated incidents as a clear pattern has emerged – the Fed is now monetizing debt that was issued just days or weeks earlier, and it was allowed to do this just because the debt was held – however briefly – by Dealers, who are effectively inert entities mandated to bid for debt for which there is no buyside demand, it is not considered direct monetization of Treasurys. Of course, in reality monetization is precisely what it is, although since the definition of the Fed directly funding the US deficit is negated by one small temporal footnote, it’s enough for Powell to swear before Congress that he is not monetizing the debt.

Oh, and incidentally the fact that Dealers immediately flip their purchases back to the Fed is also another reason why NOT QE is precisely QE4, because the whole point of either exercise is not to reduce duration as the Fed claims, but to inject liquidity into the system, and whether the Fed does that by flipping coupons or Bills, the result is one and the same.

Source: ZeroHedge

Happy New Year California Voters: Watch California Socialist Media Discuss Their New Water Usage Laws In Effect – 55 Gallons Per Day or $1,000 Fine…

Yikes.  According to new California laws on water use: you can take a shower or you can do a single load of laundry, but you cannot do both.  55 gal per day limit, or face $1k fine.

California Association Of Realtors, where are you? 

“Tail-End Of A Big Bull Market” – Wine, Diamonds, Classic Cars Are Now Money-Losing Investments For The Ultra-Rich

Luxury assets of the ultra-wealthy, if that were expensive wine, fancy diamonds, and rare antique cars all had a down year as the stock market ramped to new highs, reported The Wall Street Journal.

In the last decade, luxury assets performed exceptionally well as central bankers handed out free money to the elite class to hoard assets of their liking. And naturally, these people, with exceptional taste, bought things that the common man has only seen on television.

Now, these luxury assets are under performing – have been during the past several years – and is a symptom of late-cycle distress.

The froth has gone out of the market. People have realized you can’t just buy stuff and expect the value to go up,” said Andrew Shirley, a partner at Knight Frank and editor of the group’s Wealth Report.

The Journal blames the under performance on the global slowdown and the lack of Asian demand. Chinese buyers account for 33% of global luxury goods sales.

“There is a lot of uncertainty in Chinese markets and the riots in Hong Kong didn’t make it easy for people to come spend money in Hong Kong either,” said Eden Rachminov, chairman of the board at the Fancy Color Research Foundation.

Colored diamonds in 2019 lost about 1% in the first three quarters.

Fine wine was also another losing asset through Nov., lost 3.6%, according to the Liv-ex 1000 index.

And the biggest loser on the year were classic cars, lost 5.6%, according to Historic Automobile Group International’s (HAGI) Top Index.

HAGI founder Dietrich Hatlapa said the classic car market has been cooling following a massive rise in price after the 2008-09 financial crisis. He said classic car prices saw double-digit gains after the recession, rallying 50% Y/Y through 2013. “We are at the tail-end of a big bull market,” Hatlapa warned.

What’s becoming evident is that ‘Not QE’ and other monetary gimmicks deployed by central banks are failing to raise asset prices of some luxury goods in 2019. Perhaps the world is stumbling into a period where tool kits of central banks are becoming less responsive to stimulate asset price inflation, and if that is the case, then everyone will figure out that prices of luxury goods have been hyper inflated over the last decade with nothing but hot air.

Source: ZeroHedge

Trump’s Trade Adviser Peter Navarro Forecasts At Least A 13% Gain For Dow Industrials In 2020

“I’m seeing at least 32,000 on the Dow,” says Navarro

White House National Trade Council Director Peter Navarro sees the Dow a lot higher in 2020

‘I’m looking forward to a great 2020. I mean, forecast-wise, I’m seeing closer to 3% real GDP growth than 2%. I’m seeing at least 32,000 on the Dow.’

Peter Navarro

(by Mark Decambre / MarketWatch) President Donald Trump’s trade adviser Peter Navarro is calling for a roughly 13% gain by the Dow Jones Industrial Average DJIA, +0.27% in 2020, and on Monday described a long-awaited “Phase 1” trade deal as “in the bank.”

Speaking on CNBC on Tuesday, Navarro forecast another period of buoyancy for equity benchmarks and the U.S. economy, with a prediction that diminishing tensions between China and the U.S. over international trade policy will give way to another powerful uptrend for stocks. (Check out a clip of Navarro’s comments below):

Navarro’s comments made on the last trading session of 2019, came before President Donald Trump tweeted that a partial Sino-American trade resolution was set to be signed on Jan. 15. The president also said that he planned to travel to Beijing to start negotiations on the second phase of negotiations thereafter.

Softening tensions over import tariffs between Beijing and Washington have at least partly helped to lift U.S. stocks to their biggest annual gains in years. The Dow looked set to close out a banner year with a two-session skid but has advanced 21.8% this year to trade at around 28,410, picking up more than 5,000 points during the calendar year. Navarro’s forecast, atypical of a government trade negotiator, of a further 13% rise in the Dow to 32,000 in 2020 from currently levels would represent the equivalent of about a 3,600-point gain.

Broadly speaking, stock indexes have enjoyed a bumper year, notably in the past few months of 2019, with reports of an imminent detente on trade.

The S&P 500 SPX, +0.29% has climbed 28.4%, putting it on pace for its biggest gain since 2013 and the Nasdaq Composite Index COMP, +0.30% has gained about 35%, not far from its stellar 1997 return, when it jumped more than 38%.

This year’s gains followed a fall of 4.2% in the S&P 500 index on a total-return basis in 2018, though, so in aggregate there has been just a 12% compounded return over the last 2 years, Datatrek’s Nicholas Colas noted. That is not far off the average 50-year S&P return of 11.1%.

President Trump and his administration have been fixated on the performance of the stock market because they see it as a potential calling card for a second term in the White House after the 2020 elections.

Indeed, this isn’t the first time Navarro has made a forecast about the Dow.

Back in July on CNBC, Navarro said talks between Washington and Beijing were heading in a “very good direction” following a meeting between Trump and Chinese President Xi Jinping at the G-20 summit in Osaka.

At that point, about five months ago, he said that the 30,000 level for the Dow was achievable if Congress approved the U.S.-Mexico-Canada Agreement and the Federal Reserve lowered interest rates.

At its peak this year, the blue-chip index wasn’t that far off 30,000. The intraday peak for the Dow was 28,701, hit on Dec. 27, about 1,300 short of Navarro’s forecast. The Dow began trade in July, when Navarro made his earlier comments, at 26,720 and has climbed more than 6% thus far.

To be sure, investors harbor major concerns heading into next year that markets may not have room for further gains, particularly as investors worry that the China-U.S. trade pact may not yield substantive changes.

Trader’s Choice Gregory Mannarino describes how Navarro’s forecast is based upon far more debt and war in store for Americans …

***

… and boom, right on Cue …

U.S. Sends New Contingent of 4,000 Troops into Iraq on New Years eve…

First, the explanation from former CIA Director, current U.S. Secretary of State, Mike Pompeo:

Welcome to the Flaming 2020’s

Major Banks Admit QE4 (money printing) Has Resumed And That Stocks Are Rising Because Of The Fed’s Soaring Balance Sheet

There was a period of about two months when some of the more confused, Fed sycophantic elements, would parrot everything Powell would say regarding the recently launched $60 billion in monthly purchases of T-Bills, and which according to this rather vocal, if always wrong, sub-segment of financial experts, did not constitute QE. Perhaps one can’t really blame them: after all, unable to think for themselves, they merely repeated what Powell said, namely that 

“growth of our balance sheet for reserve management purposes should in no way be confused with the large-scale asset purchase programs that we deployed after the financial crisis. Neither the recent technical issues nor the purchases of Treasury bills we are contemplating to resolve them should materially affect the stance of monetary policy. In no sense, is this QE.

As it turned out, it was QE from the perspective of the market, which saw the Fed boosting its balance sheet by $60BN per month, and together with another $20BN or so in TSY and MBS maturity reinvestments, as well as tens of billions in overnight and term repos, and soared roughly around the time the Fed announced “not QE.”

And so, as the Fed’s balance sheet exploded by over $400 billion in under four months, a rate of balance sheet expansion that surpassed QE1, QE2 and Qe3…

… stocks blasted off higher roughly at the same time as the Fed’s QE returned, and are now up every single week since the start of the Fed’s QE4 announcement when the Fed’s balance sheet rose, and are down just one week since then: the week when the Fed’s balance sheet shrank.

The result of this unprecedented correlation between the market’s response to the Fed’s actions – and the Fed’s growing balance sheet – has meant that it gradually became impossible to deny that what the Fed is doing is no longer QE. It started with Bank of America in mid-November (as described in “One Bank Finally Admits The Fed’s “NOT QE” Is Indeed QE… And Could Lead To Financial Collapse), and then after several other banks also joined in, and even Fed fanboy David Zervos admitted on CNBC that the Fed is indeed doing QE, the tipping point finally arrived, and it was no longer blasphemy (or tinfoil hat conspiracy theory) to call out the naked emperor, and overnight none other than Deutsche Bank joined the “truther” chorus, when in a report by the bank’s chief economist Torsten Slok, he writes what we pointed out several weeks back, namely that

“since QE4 started in October, a 1% increase in the Fed balance sheet has been associated with a 1% increase in the S&P500, see chart below.” 

Not that DB has absolutely no qualms about calling what the Fed is doing QE4 for the simple reason that… it is QE4.

The chart in question, which is effectively the same as the one we created above, shows the weekly change in the Fed’s balance sheet and the S&P500 as a scatterplot, and concludes that all it takes to push the S&P higher by 1% is to grow the Fed’s balance sheet by 1%.

And just to underscore this point, the strategist points out that such a finding is “consistent with this new working paper, which finds that QE boosts stock markets even when controlling for improving macro fundamentals.” Which, of course, is hardly rocket science – after all when you inject hundreds of billions into the market in months, and this money can’t enter the economy, it will enter the market. The result: the S&P trading at an all time high in a year in which corporate profits actually decreased and the entire rise in the stock market was due to multiple expansion.

In short: the Kool Aid is flowing, the party is in full force and everyone has to dance, because the Fed will continue to perform QE4 at least until Q2 2020. Which reminds us of what we wrote last week, namely that another big bank, Morgan Stanley, has already seen through the current melt up phase, and predicts the “Melt-Up Lasting Until April, After Which Markets Will “Confront A World With No Fed Support“.”

Source: ZeroHedge

Consumer Confidence Disappoints As Hope Fades

Following the headline decline for Conference Board Consumer Confidence in November, analysts are expecting an exuberant bounce in December as every asset class rose majestically (despite retail sales slowing).

But, despite record high stocks, the headline consumer confidence data disappointed, printing 126.5 (down from the upwardly revised 126.8) and well below the hopeful 128.5 expected.

While the Present Situation picked up modestly, the Future Outlook weakened:

  • Present situation confidence rose to 170.0 vs 166.6 last month
  • Consumer confidence expectations fell to 97.4 vs 100.3 last month

Combining for the 4th monthly headline drop in the last 5…

Source: Bloomberg

Interestingly, this is the 4th straight month of YoY declines in confidence…

Source: Bloomberg

And expectations for stock market gains also faded…

Source: Bloomberg

Isn’t the whole point of The Fed to pump enthusiasm up “by whatever means”?

Source: Bloomberg

It’s not working!

Source: ZeroHedge

Dallas Fed Contracts For 3rd Straight Month, Confirming Regional Survey Slump

The Dallas Fed conducts recurring surveys of over 900 business executives in manufacturing, services, energy, and AG lending across Texas and the broader Eleventh Federal Reserve District. The information collected is a valuable component of regional economic analysis.

Against expectations of a rebound to 0.0, The Dallas Fed Manufacturing Outlook survey disappointed in December, sliding from -1.3 to -3.2 – in contraction for the 3rd straight month…

The Dallas Fed survey has been in contraction for 7 months this year…

Under the hood was just as unimpressive with New Orders Growth rate contracting and Finished goods contracting along with the six-month outlook dropping further.

Dallas joins, Philadelphia, Kansas, Chicago, and Richmond in their regional weakness in December…

But, but , but, The Fed is on hold!?

Source: ZeroHedge

Wealth Of The Richest Surged By $1.2 Trillion In 2019

Ben Bernanke with Neel Kashkari

(ZeroHedge) At the same time that dipshits future Nobel Prize winners at the Fed like Neel Kashkari are walking around pondering why the inequality gap continues to widen in the United States, monetary policy has catalyzed another year of surging wealth for the richest in the country while keeping its boot on the neck of the poorest. 

In fact, as Bloomberg notesthe wealth of the 500 richest people surged 25% in 2019. And the riches are coming in atypical fashion.

Among those are social media giants like Kylie Jenner, who became the youngest self-made billionaire this year after her cosmetic company signed an exclusive partnership with Ulta Beauty. She sold a 51% stake in her company for $600 million. 

Similarly, the Korean family who helped popularize the Washington Nationals’ rally cry, “Baby Shark, doo-doo doo-doo doo-doo”, is now worth about $125 million.

Another great example is Willis Johnson, who made his $1.9 billion fortune by building a network of junkyards to sell damaged cars.

All of these are examples of just how much money made its way to the richest over the last 12 months. The Bloomberg Billionaires Index added $1.2 trillion, now placing their collective net worth at $5.9 trillion.

Only 52 people on the ranking saw their fortunes decline during the year. Jeff Bezos, for example, lost $9 billion – but only due to his divorce. 

Bloomberg noted the year’s biggest winners:

  • The 172 American billionaires on the Bloomberg ranking added $500 billion, with Facebook Inc.’s Mark Zuckerberg up $27.3 billion and Microsoft Corp. co-founder Bill Gates rose $22.7 billion.
  • Representation from China continued to grow, with the nation’s contingent rising to 54, second only to the U.S. He Xiangjian, founder of China’s biggest air-conditioner exporter, was the standout performer as his wealth surged 79% to $23.3 billion.
  • Russia’s richest added $51 billion, a collective increase of 21%, as emerging-market assets from currencies to stocks and bonds rebounded in 2019 after posting big losses a year earlier.

Newly minted billionaires included Anthony von Mandl, the man behind “White Claw” hard seltzer and Hong Kong’s Lo family, who are in the business of producing soy milk. 

With the market hitting new highs every day and President Trump’s relentless pressure on the Fed to keep rates low, the gap will likely continue to widen heading into 2020 – a year politicians will undoubtedly spend bickering about proposed solutions to the problem, all the while failing to understand that the alarm is coming from the inside, right before their eyes. 

The gains are an obvious continued indicator of flawed monetary policy that everybody – except those at the Fed (and Steve Liesman) seems to understand.

As a result, currently, the 0.1% control the biggest share of the pie in the U.S. than at any time since 1929.

Source: ZeroHedge

“Worst Market In 30 Years” – 400,000 Commodity Railcars Sit Idle Amid Industrial Recession

Wells Fargo, Citigroup, PNC Financial Service Group, and CIT Group accumulated hundreds of thousands of commodity hauling railcars in North America over the last decade. These banks believed railcars carrying coal, grain, and other commodities were going to be highly profitable but have recently turned out to be a major headache as many cars are now in storage because of new regulations and demand woes brought on by fluctuating commodity markets. 

David Nahass, president of Railroad Financial Corp., which provides advisory services to railroad firms, told The Wall Street Journal that “the industry is suffering, there are no two ways about it. Lease rates are down, and there’s not a source of hope about when it will start to improve.”

The Journal, citing the Association of American Railroads (AAR), said about 400,000 railcars currently sit in storage with no use at all, and many are bank-owned. 

CIT estimated railcar lease rates fell 10% to 15% in 2019 over the prior year. GATX Corp., a nonbank lessor, said specific car lease rates crashed 20% in 3Q Y/Y as an industrial recession worsened. 

Wells Fargo is the largest railcar lessor in the US, with 175,000 total cars under management. The Journal provided no details on how many railcars from the bank were sitting idle. 

The railroad crisis has hit certain types of railcars the hardest. For instance, coal shipments have plunged since 2011, which diminished the demand for coal hopper cars.

“It’s the worst market I’ve seen in my 30-plus years in the industry,” railcar appraiser Patrick Mazzanti told the Journal.

Mazzanti said new regulations have also been the reasoning behind many oil cars sitting idle, as these cars must be retrofitted with modern technology to meet new federal requirements.

Rail-leasing units at major banks are a tiny fraction of their overall balance sheets and won’t make or break the banks.

AAR’s report last month of plunging rail traffic and intermodal container usage could be a sign that the slowing industrial economy will continue to weigh on the rail industry and force banks to idle more cars in 2020.

Transportation is a barometer of how well the real economy is doing. And it just keeps getting worse as investors hope for “green shoots” next quarter.

Source: ZeroHedge

U.S. Auto Industry Cut Thousands Of Jobs, Closed Factories As Economy Shrank In 2019

DETROIT – General MotorsFord Motor and other automakers in the past year cut thousands of jobs and shuttered factories as industry vehicle sales slow and fears of an economic slowdown pick up.

American flags fly near a General Motors Co. 2019 Chevrolet Camaro displayed at a car dealership in Tinley Park, Illinois, U.S., on Monday, Sept. 30, 2019. Auto sales in the U.S. probably took a big step back in September, setting the stage for hefty incentive spending by car makers struggling to clear old models from dealers’ inventory. Daniel Acker | Bloomberg | Getty Images

(CNBC) No one is forecasting an industry downturn comparable to when vehicle sales dropped below 11 million in the U.S. in 2009. However, domestic sales next year are forecast to drop for a second consecutive year in 2020 to below 17 million vehicles. Global vehicle sales also are expected to fall by about 3.1 million in 2019 – the steepest year-over-year decline since the financial crisis a decade ago.

Automakers took lessons learned from the Great Recession, which led to the government-backed bankruptcies of GM and then-Chrysler in 2009, to proactively restructure operations this year amid robust profits and healthy, yet slowing, vehicle sales.

“The industry was ill prepared for the crash in 2009 and the people who are in charge of the companies were around then,” said Michelle Krebs, executive analyst at Cox Automotive. “They remember it like it was yesterday. They are not going to make the same mistakes.”

Unlike 10 years ago, many of the actions taken this year were done in an attempt to safeguard investments in emerging technologies such as autonomous and electric vehicles. Both are considered to be potential multitrillion-dollar industries.

“They’re doing this at a time when the economy and the car market are good but starting to slip,” Krebs said. “The pie is shrinking, and they’re setting themselves up for that as well as this new future … Everybody is in the same boat on this in a way we’ve never seen before.”

GM and Ford

Both GM and Ford this year cut thousands of jobs and closed or announced plans to close roughly a dozen factories globally, including four in the U.S.

“We are taking proactive steps to improve our core business performance, capitalize on future mobility opportunities, improve our downturn protection, and create shareholder value,” GM CEO Mary Barra said when announcing significant restructuring actions in November 2018, many of which occurred in 2019.

GM’s announcement included reducing its headcount by 14,000 people and closing seven plants globally, including five in North America (one of which will be retooled and reopen) and two elsewhere. It came weeks after Barra said the company was continuing to position itself to “outperform in a downturn.”

The Detroit automaker expects the cost-cutting initiatives to save the companyup to $6 billion annually.

Ford took similar actions for its business to remain “vital and vibrant business through all cycles,” as Ford CEO Jim Hackett described it in May.

Since starting to lead Ford in 2017, Hackett has executed a number of global cost-savings measures as part of an $11 billion restructuring plan through the early-2020s, including significant cuts to its workforce and operations in 2019.

In June, Ford announced it would cut 12,000 mostly hourly jobs at its operations in Europe by the end of 2020. The announcement came a month after plans to cut about 7,000 salaried jobs globally, including 2,300 in the U.S.

Under the plans announced this year, Ford said it would close a U.S. engineplant in Michigan and shutter or sell off six of its 24 European plants.

“We feel we are very lean now and we’re very positioned for a downturn in case one comes,” said Kumar Galhotra, Ford president of North America, during the J.P. Morgan Auto Conference in August.

FCA-PSA merger

Fiat Chrysler took a different route than its Detroit rivals in addressing its costs. After years of rebuffs, the Italian-American carmaker finally found a merger partner, French automaker PSA Group.

The sides last week signed a binding merger agreement to create the world’s fourth-largest automaker by volume. The 50-50 all-share merger fulfills former CEO Sergio Marchionne’s vision of creating a global automaker with the resources to successfully compete in the ever-changing auto industry.

Marchionne, who unexpectedly died in July 2018, called for industry consolidation in a presentation called “Confessions of a Capital Junkie” in 2015. He believed only a handful of the world’s largest automakers would survive and have the capital to compete as automakers push for autonomous and all-electric vehicles.

Fiat Chrysler CEO Mike Manley and PSA CEO Carlos Tavares, who will lead the unnamed combined company, last week stressed that the merger is occurring at the right time, as both companies report healthy profits.

The $50-billion merged company is expected to achieve cost savings of 3.7 billion euros (US $4.1 billion) a year without closing factories.

Other restructurings in 2019 included:

  • Volkswagen’s Audi luxury brand also announced plans in November to cut up to 9,500 jobs, or 10.6% of its total staff by 2025, saving 6 billion euros ($6.61 billion).
  • Nissan Motor unveiled its biggest restructuring plan in a decade in July. The company announced plans to cut 12,500 jobs globally by March 2023, slash production capacity and ax about 10% of its product line.
  • In May, Reuters reported Volkswagen workers backed a restructuring of the world’s largest carmaker after CEO Herbert Diess pledged to spend 1 billion euros ($1.1 billion) on a new battery cell production plant near its headquarters.

Source: by Michael Wayland | CNBC

U.S. November Durable Goods Orders Experience Sharpest Decline In Six Months

The numbers: Orders for durable goods sank 2% in November, the U.S. government said Monday. This is the biggest decline since May.

Refrigerators on display at a Best Buy store.

Economists had expected a strong 1% rebound in durable-goods orders in November as a result of the end of the General Motors GM, -0.33% strike. But orders were dragged down by a major decline in defense aircraft combined with a small drop stemming from Boeing’s BA, -0.76% woes with the 737 MAX airplane design.

Orders in October were lowered to a 0.2% gain from the prior estimate of an 0.5% increase.

What happened: Orders for defense aircraft and parts plummeted 72.7% in November. Stripping out defense goods, orders were up 0.8%.

Orders for total transportation equipment fell 5.9% in November. Orders for cars and parts rose 1.9%. That is weak compared with the roughly 3% gain economists expected from the end of the GM strike. Excluding transportation, orders were flat.

Orders for core capital goods were a bright spot, posting a second straight monthly gain, although that move was a small 0.1% increase.

Orders for primary metals fell 0.3%. Orders for computers rose 0.2% in November.

Big picture: The outlook for manufacturing remains grim, as business sentiment is sluggish, the outlook for profits is soft, and global trade flows shrink given ongoing uncertainty.

What are they saying? “It’s not a disaster, but business equipment investment was still close to stagnant [in November],” said Paul Ashworth, chief U.S. economist at Capital Economics.

Source: by Greg Robb | Market Watch

A Record Number of Homes Closed for $100 Million-Plus During 2019

Six deals topped $100 million in 2019, despite a general slowdown across the U.S. luxury real-estate market. Here is a look at the top-10 home sales

Cartwell sold for $150 million in December – Jim Bartsch

In 2019, a small group of enormous real estate deals, while bearing little relationship to the overall market, had an outsize impact on the national conversation about wealth inequality and the rapidly expanding billionaire class.

A boom in ultrahigh priced deals in Palm Beach this year, including the $111 million sale of an oceanfront estate, raised questions about the number of wealthy New Yorkers fleeing to Florida in response to a 2017 change in federal tax law. A string of $100 million-plus deals completed in Los Angeles put the spotlight on high-end real estate on the West Coast.

Hedge-fund manager Ken Griffin’s roughly $238 million purchase of a New York penthouse, which set a price record for the nation, bolstered the arguments of legislators who support additional property taxes for the super rich.

These megadeals don’t necessarily speak to a broad surge in real estate values. In general, the U.S. luxury real-estate market faced a slowdown in 2019, thanks to oversupply in certain markets, tax changes and a general decline in foreign purchasers.

Read on for a closer look at the top 10 deals of the year, a record six of which topped $100 million, according to research by The Wall Street Journal and appraiser Jonathan Miller. Mr. Miller said he believes the previous record was three $100 million-plus deals, achieved in both 2014 and 2016.

1. 220 Central Park South, New York

Price: Roughly $238 million

Early in 2019, hedge-fund executive Ken Griffin closed on a roughly $238 million apartment. Emily Assiran for The Wall Street Journal

Mr. Griffin’s purchase of the roughly 24,000-square-foot Billionaires’ Row apartment “came to personify the issue of income inequality for many people,” said luxury agent Jason Haber of Warburg Realty of the deal. “Ken Griffin closed right when the legislature began their session. It was like throwing meat to the wolves.”

Soon after, the New York legislature expanded the so-called “mansion tax,” designed to target buyers of properties priced at $2 million or more, and increased property transfer taxes. The deal also helped reignite discussions around a pied-à-terre tax, which would tax multimillion-dollar second homes as a funding source for the city’s beleaguered subway system.

“It served as Exhibit A for why we should look at the possibility,” said Sen. Brad Hoylman, who sponsored the pied-à-terre tax bill.

The purchase was one of a string of record-breaking acquisitions by the billionaire in recent years In 2017, the Citadel founder bought several floors of a Chicago condominium for a record $58.75 million. He also bought a London home for about $122 million, and a piece of land in Florida for $99.1 million (see below).

To some extent, Mr. Griffin’s spending spree has made him a central figure in the debate about wealth inequality in New York. “Anyone who can afford to pay for a $238 million apartment can afford to pay a little more off the top to make the city a better place for everyone,” Sen. Hoylman said. Mr. Griffin has rarely spoken publicly on the issue. At an event this year hosted by Bloomberg News, Mr. Griffin criticized presidential hopeful Sen. Elizabeth Warren, saying he wished she spent more energy on education, rather than attacking “those of us who have been successful.”

The recently completed tower has quickly become New York’s new “it” building. Other buyers include musician Sting and hedge-fund executive Dan Och (see below).

Buyer’s agents: Tal Alexander and Oren Alexander of Douglas Elliman

Seller’s agent: Deborah Kern of the Corcoran Group

A view of Chartwell, which was purchased by Lachlan Murdoch. Jim Bartsch

2. Chartwell, Los Angeles

Price: $150 Million

Lachlan Murdoch, co-chairman of News Corp., which owns Dow Jones & Co., publisher of The Wall Street Journal, paid about $150 million for this Bel-Air estate in December, setting a record for the Los Angeles area, according to people familiar with the deal. Observers said it was the second-priciest sale ever recorded in the country for a single-family home.

Lachlan Murdoch. David Paul Morris/Bloomberg

While the price-tag was huge, the property was the latest in a line of homes to sell for a major discount to their original asking prices, marking the culmination of years of aggressive or arguably aspirational pricing for luxury homes across the country. The roughly 25,000-square-foot mansion came on the market in 2017 for $350 million, making it the most expensive listing in the nation at the time.

Designed by Sumner Spaulding around 1930, the property was owned by onetime Univision Chairman A. Jerrold Perenchio. It came with a Wallace Neff-designed five-bedroom guesthouse, a 75-foot pool, a tennis court and a car showroom with space for 40 vehicles. Mr. Murdoch didn’t respond to requests for comment.

Seller’s agents: Drew Fenton, Jeff Hyland and Gary Gold of Hilton & Hyland; Joyce Rey, Jade Mills and Alexandra Allen of Coldwell Banker Global Luxury; and Drew Gitlin and Susan Gitlin of Berkshire Hathaway HomeServices California Properties.

Buyer’s agent: Drew Fenton of Hilton & Hyland.

Spelling Manor in Holmby Hills sold for nearly $120 million. Jim Bartsch

3. Spelling Manor, Los Angeles

Price: $119.75 million

British Formula One heiress Petra Ecclestone sold Spelling Manor, a sprawling estate built for the late television producer Aaron Spelling, this past summer for $119.75 million, records show. The buyer hailed from Saudi Arabia, according to people familiar with the deal.

Petra Ecclestone. Jeff Spicer/Getty Images

The Holmby Hills property, designed in the style of a French château, is about 56,000 square feet, making it one of the largest private homes in the country. After Ms. Ecclestone bought it from Mr. Spelling’s widow, Candy Spelling, in 2011, she brought in more than 500 workers to do a three-month, multimillion-dollar renovation. The property has a two-lane bowling alley, a wine cellar, a beauty salon, a gym, tanning rooms and a tennis court.

The property is one of several significant Los Angeles area homes to have traded to buyers from the Middle East this year. In May, a Saudi buyer snapped up two neighboring Bel-Air properties for $52 million, The Wall Street Journal reported.

Seller’s agents: Kurt Rappaport and Daniel Dill of Westside Estate Agency; Jade Mills of Coldwell Banker Global Luxury and David Parnes and James Harris of the Agency.

Buyer’s agents: Jeff Hyland and Rick Hilton of Hilton & Hyland.

Read about the next seven featured properties by clicking on the article credit below…

By Katherine Clarke | Mansion Global who republished it from The Wall Street Journal

US Freight Shipments Fall Below 2014 Level. Answers Emerge

Freight shipment volume in the US by truck, rail, air, and barge of consumer and industrial goods but not bulk commodities declined 3.3% in November from a year ago, the 12th month in a row of year-over-year declines, according to the Cass Freight Index for Shipments. This follows a huge boom in shipments through much of 2018, but by November last year, that boom was already fizzling, and by December last year, shipments declined on a year-over-year basis for the first time since the last freight recession. Note the infamous boom-and-bust cycles of the business:

The Cass Freight Index tracks shipment volume of consumer goods, industrial products such as construction materials, equipment and components being shipped to or by manufacturers, supplies and equipment for oil & gas drilling, and many other things. But it does not track bulk commodities, such as grains. Cass derives the data from actual freight invoices paid on behalf of its clients ($28 billion in 2018).

The boom levels last year had been stimulated by pandemic efforts all around to front-run the tariffs by loading up on merchandise. But November’s drop in shipment volume didn’t just put the index below November last year, but also below 2017 levels and 2014 levels and nudged it closer to the lows of the 2015 and 2016 freight recession.

In the stacked chart below – note the seasonality of the business – the red line represents the index for 2019. The top black line represents 2018, the purple line 2017, and the yellow line 2014:

Freight expenditures tick down but remain high.

Declining demand for transportation services, as seen in the drop in shipment volume, has started to put pressure on some freight rates, such as in trucking. But FedEx, UPS, and other freight companies have raised their rates, as ecommerce is booming. And many contracts were negotiated near the peak last year. So despite the declining shipment volume, freight expenditures – a function of shipment volume and freight rates – remain historically high.

The total amount that shippers, such as manufacturers, retailers, or industrial companies, spent on freight by all modes of transportation – rail, truck, air, and barge – declined for the fifth month in a row, down 1.4% in November compared to a year ago, but was the second highest for any November.

Just how powerful the surge in freight expenditures was last year – on high volume and high rates – becomes obvious in the stacked chart below. The top black line denotes 2018. The yellow line denotes 2017. For most of last year, freight expenditures completely blew past any prior record and peaked in September 2018 with a year-over-year surge of 19%, that then began to fizzle:

Where does the decline in shipment volume come from?

Retail sales are fine, powered by ecommerce. Retail sales in November rose 3.1% from November last year. Not red-hot growth, but solid growth. Brick-and-mortar retail sales continue to get crushed, but ecommerce is growing at a red-hot pace, and the speed with which it is gaining share appears to be picking up. All these goods need to be shipped from the port of entry or from the manufacturer in the US across the fulfillment infrastructure to the consumer.

The industrial economy is weak. Industrial production – which includes manufacturing, oil & gas drilling, mining activities, and utilities – had boomed in late 2017 and 2018 as companies were front-running the tariffs. Year-over-year growth rates topped out at 5.5%, the fastest growth since the recovery from the Great Recession. But it peaked in December 2018, then started declining. The month-to-month drop was particularly sharp in October, according to Federal Reserve data. This was followed by a big month-to-month bounce in November, leaving year-over-year industrial production down just 0.8%.

Manufacturing – which is within industrial production – declined 0.7% year-over-year. These are obviously not large declines. In late 2015, during the worst of the Oil Bust, manufacturing production had declined 2.0% year-over-year. During the peak of the financial Crisis, it plunged 18%.

Construction spending ticked up 1.1% in November, from low levels a year earlier, according to the Commerce Department. In dollar terms, construction spending remains down about 3% from the first half in 2018.

The Oil-and-Gas-Bust Factor.

For more granularity, we’ll look at durable goods shipments – which include anything from washing machines (knock on wood in term of “durable”) to industrial equipment. Durable goods shipments in November fell 1.5% year-over-year.

But production of machinery and equipment for agriculture, construction, and mining — mining being dominated by equipment for shale oil-and-gas drilling — plunged 13.6% year-over-year. During the peak of the Oil Bust in late 2015 and early 2016, production of equipment for these sectors plunged by as much as 37% year-over-year, much worse than the plunge during the Financial Crisis when they’d bottomed out at -29%. This is how important the oil-and-gas sector has become to US industry.

While other industrial segments may be trying to scramble out of the decline, the oil-and-gas drilling industry is forced to cut back on purchasing equipment and machinery as money is drying up. Investors in these companies, which need much higher oil prices to be cash-flow-positive, are grappling with another existential crisis.

In 2019 so far, about three dozen oil-and-gas drillers have filed for bankruptcy. Other drillers, such as Chesapeake Energy, are jostling for position at the filing counter. They’re leaving investors exposed to heavy losses, including billionaires who thought they’d picked the bottom in 2016. Read…  Fracking Blows Up Investors Again: Phase 2 of the Great American Shale Oil & Gas Bust

Source: by Wolf Richter | Wolf Street

Retailpocalypse – Record 9,300 Stores Closed Across US In 2019

(Epoch Times) A report found that more than 9,300 stores have closed or are closing across the United States in 2019, including locations operated by Payless, Gymboree, Fred’s, Walgreens, Family Dollar, and many more.

According to a report (pdf) by Coresight Research, which released its year-end report on the closing stores, 5,844 stores closed in 2018. In 2019, 9,302 stores were reported to have been shut down or were going to be shut down, which is a 59 percent increase over 2018.

Payless ShoeSource shut down 2,100 stores, Fred’s shut down 564, Ascena Retail shut down 781, Gymboree shut down 740, Sears closed down 210, and Charlotte Russe shut down 512. Twelve businesses had at least 200 locations shut down in 2019, the research organization said.

Gamestop, Gap, Foot Locker, Walgreens, Destination Maternity, GNC, Bed Bad & Beyond, Victoria’s Secret, CVS, Big Lots, Office Depot, Pier 1 Imports, Rent-a-Center, and Abercrombie & Fitch all saw dozens of their stores close, the report noted.

At the same time, 4,392 new stores opened across the United States, said Coresight.

Dollar General opened up nearly 1,000, Dollar Tree opened 348, Family Dollar opened 202, Aldi opened 159, and a number of other aforementioned brands that shuttered stores also opened new locations, according to the report.

“Despite a very favorable consumer spending environment, department stores have yet to catch a break,” analyst Christinia Boni said in a research report, according to CNN, which noted that online sales are poised to increase even further.

Last month, Toys “R” Us marked its return to the United States on Wednesday by opening its first store at a location in New Jersey. The firm filed for bankruptcy in 2017 and shut down 700 stores.

“We wanted to make sure that everywhere you turned in the store there was interactivity,” said Richard Barry, president and CEO of Tru Kids, the parent company of the firm, CNBC reported.

He added, “We have an amazing number of digital experiences throughout the store, but we also have good old analog [experiences]. … Take the products out of the boxes and kids will be able to get their hands on them.”

Sears Update

Outside of a Sears department store one day after it closed as part of multiple store closures by Sears Holdings Corp in the United States in Nanuet, N.Y. on Jan. 7, 2019. (Mike Segar/Reuters)

The company that owns Sears and Kmart will lay off hundreds of corporate employees, according to a report last month, coming after the firm announced it would close 96 stores.

Transformco confirmed the layoffs to Business Insider the Sears layoffs after reports emerged.

“Since purchasing substantially all the assets of Sears Holdings Corporation in February 2019, Transformco has faced a difficult retail environment,” the statement said.

It added, “We have been working hard to position Transformco for success by focusing on our competitive strengths and pruning operations that have struggled due to increased competition and other factors. Unfortunately, this process resulted in a number of difficult but necessary decisions, including closing stores and making adjustments at our corporate headquarters and field positions to reflect our new structure. We regret the impact that this has on our associates and their families.”

Source: ZeroHedge

US Steel Shares Plunge, Dividend Slashed, Buybacks Halted, 1,500 Workers Cut Amid Deepening Manufacturing Recession

President Trump told a crowd of steelworkers in Illinois in July 2018 that “After years of shutdowns and cutbacks today the blast furnace here in Granite City is blazing bright, workers are back on the job and we are once again pouring new American steel into the spine of our country.” 

While US Steel’s Granite City might be operational for the time being, the steel producer has just announced it will shut down a “significant portion” of its Great Lakes Works facility, slash its dividend, terminate 80% of its share buyback program, and layoff 1,500 workers. 

Great Lakes Works is expected to halt operations by April 2020. The mill rolls slabs into sheets of steel and has been battered by the manufacturing recession and trade war. The facility laid off 200 workers earlier this year, with another 1,500 in the near term, reported 247 Wall Street.

The failed turn around of US Steel comes as the manufacturing recession shows limited signs of abating, forced the company to slash its dividends for 2020 from $.05 per share to $.01. At least 80% of its buyback program will be terminated in early 2020 – a measure to help the struggling steel company avoid bankruptcy. 

The company will refocus its efforts at its Mon Valley Work facility in Pennsylvania, Big River Steel in Arkansas, and another in Gary, Indiana. 

US Steel CEO David Burritt told investors on a call that “Acquiring the remaining stake in Big River Steel continues to be our top strategic priority.” 

Burritt also commented on the upcoming Great Lakes Works shutdown:

“[C]urrent market conditions and the long-term outlook for Great Lakes Works made it imperative that we act now, allowing us to better align our resources to deliver cost or capability differentiation across our footprint. Transitioning production currently at Great Lakes Works to Gary Works will enable increased efficiency in the use of our assets, improve our ability to meet our customers’ needs for sustainable steel solutions and will help our company get to our future state faster,” he said. 

 US Steel has revised fiscal 2019 guidance lower, expects a decrease in spending in 2020. Here are the earnings highlights via Reuters: 

** Shares of steel producer XN drop 5.7% to $12.60 premarket

** Company sees Q4 adj. loss per share at $1.15 compared with analysts expectations of 60 cents

** Cuts its quarterly dividend to $0.01/share from $0.05/share (Full Story)

** Expects Q4 adj. EBITDA to be -$25 mln, which excludes about $225 mln of estimated restructuring and other charges, compared with analysts’ EBITDA est. of $83.98 – Refinitiv IBES data

** Company also lowers its 2020 spending forecast to $875 mln from $950 mln

** Says it plans to “indefinitely idle a significant portion” of its operations at its Great Lakes Works facility near Detroit

** Company will issue Worker Adjustment and Retraining Notification Act notices to about 1,545 employees at the facility (Full Story)

** While steel markets in North America are recovering, Europe and Tubular segments remain weak – company

** Up to Thursday’s close, stock had fallen ~27% this year compared with ~18% gain in the S&P 400 materials index .SPMDCM

US steel was supposed to get a boost from President Trump’s 25% tariff on steel imports, but that has since backfired as steel prices continue to drop, and a manufacturing recession continues to deepen. 

So the question remains, with US Steel shares turning lower into 2020 – does that mean S&P500 priced in a monster rebound in growth that may not happen?  If so, that could mean the Fed’s ‘Not QE’ has helped fueled a blow off top in stocks. 

Source: ZeroHedge

Yield Curve Steepest In 14 Months: What Happens Next?

The Fed, reportedly, took action in 2019 – with its massive flip-flop, cutting rates drastically and expanding its balance sheet at the fastest pace since the financial crisis –  in order to ‘fix’ the yield curve which had dropped into the media-terrifying inverted state… but what investors (and The Fed) appear to have forgotten (or choose to ignore) is that it is now much more concerning.

The last few months have seen the yield curve steepen dramatically, up 35bps from August’s -5bps spread in 2s10s to over 30bps today – the steepest since October 2018…

Source: Bloomberg

That is great news, right? No more recession risk, right?

Wrong!

 

While investors buy stocks with both hands and feet, we take a look at how risk assets perform after the curve flattens and/or inverts. According to back tests from Goldman, while risky assets in general can have positive performance with a flat yield curve, risky asset performances tend to be lower. This is consistent with Goldman’s base case forecast combining low (but positive) returns from here given the lack of profit growth and a less favorable macro backdrop.

What is far more notable, as ZeroHedge showed most recently last July, is that since the mid-1980s, significant stock draw downs (i.e. market crashes) began only when term slope started steepening after being inverted.

And remember, the yield curve’s forecasting record since 1968 has been perfect: not only has each inversion been followed by a recession, but no recession has occurred in the absence of a prior yield-curve inversion. There’s even a strong correlation between the initial duration and depth of the curve inversion and the subsequent length and depth of the recession.

So, be careful what you wish for… and celebrate; because as history has shown, the un-inverting of the yield curve is when the recessions start and when the markets begin to reflect reality.

Source: ZeroHedge

California Energy Situation Bad And Getting Worse

The energy situation in California is bad and likely to get worse. Ronald Stein, Founder and Ambassador for Energy & Infrastructure of PTS Advance, sounds the alarm. Via Watts Up With That:

California has not even been able to generate enough of its own electricity in-state and imported 29% of its needs in 2018. … California households are already paying 50% more, and industrial users are paying more than double the national average for electricity.

Do the communists running the state actually believe that carbon emissions are somehow harmful? Apparently not, or they would support zero-emission and low-emission energy sources. The state’s last nuclear plant and the last three natural gas plants in Southern California are all closing. Nuclear and natural gas are no good because they are economically efficient.

But there are no plans for industrial wind or solar projects either. This means California will have to import ever more energy — some from overseas.

California is the only state in the union that currently imports most of its crude oil energy from foreign countries. The California Energy Commission (CEC) data demonstrates that this dependency on foreign sources of oil requires expenditures of $60 million dollars EVERY DAY to oil rich foreign countries to support the 5th largest economy in the world for it’s military, aviation, cruise ships, and merchant ships, just to make up for the States’ choice to continue decreasing in-state production.

Not all of these countries are friendly to the USA or to California.

Governor Gavin Newsom’s solution is to take a bad situation and make it worse. His…

…latest moves to reduce production and require larger setbacks for existing production wells will further decrease production and require the State to increase its monthly imports resulting in expenditures approaching a whopping $90 million EVERY DAY for foreign countries to support our infrastructures.

By now everyone knows that Trump is not in cahoots with Vladimir Putin, regardless of what the Democrat Party/establishment media told us for years. Maybe someone should investigate Newsom instead:

Both [Putin and Newsom] support California being more and more dependent on imported foreign oil, and both support anti-fracking in California as a successful fracking enterprise would lessen the states’ dependency on that foreign oil.

No wonder most of the moving vans are heading out of instead of into California. As those who leave are displaced by still more needy immigrants from the less successful parts of the world, expect the politics to veer ever further to the left. The Democrat Death Spiral is not inducive to energy production.

Source: Moonbattery

Federal Reserve Network Failure Caused Nationwide Direct Deposit Outage

Pinto beans, white rice, water filtration, etc…


In recent years, banks and credit card processors had blamed hackers, blackouts, infrastructure inefficiencies, and of course the “Russians” for periodic service outages. As of today, they are now blaming the Fed itself.

Starting around 7am, there was a surge of outages reported at Capital One…

… with DownDetector noting that while focused on the Northeast however, the outages was nationwide.

What happened?

According to CapitalOne, network issues at the Federal Reserve were causing certain banking transactions to be delayed.

“We’re monitoring the situation closely in partnership w/ the Fed,” Capital One said in a tweet.

Capital One says it will make sure transactions are posted as soon as possible as soon as Fed issues are resolved.

During the day, customers on Twitter of Capital One and other banks have complained that their direct deposits have been delayed.

Various other banks and credit unions were also experiencing the direct deposit outage.

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World Economy Haunted by Risk Just Got a Double Shot in the Arm (How Long Before Mortgage Rates Rise??)

(Bloomberg) — Two of the biggest hurdles constraining the world economy have just been cleared.

Its a double shot of economic love!

Dogged for most of 2019 by trade tensions and political risk that hammered business confidence, the outlook for global growth will enter 2020 on a firmer footing after the U.S. and China struck a partial trade deal and outlook for Brexit cleared somewhat.

“The China trade deal and U.K. election result have taken out a major tail risk overhanging markets and companies,” said Ben Emons, managing director for global macro strategy at Medley Global Advisors in New York. “Business confidence should see a large boost that could see a restart of global investment, inventory rebuild and a resurgence of global trade volume.”

Like financial markets, most economists had factored in some kind of phase-one trade agreement between the world’s largest economies when projecting the world economy would stabilize into 2020 after a recession scare earlier this year.

But at a minimum, the agreement between President Donald Trump and President Xi Jinping means some of the more dire scenarios being contemplated just a few months ago now appear less likely. 

Bloomberg Economics estimated in June that the cost of the U.S.-China trade war could reach $1.2 trillion by 2021, with the impact spread across the Asian supply chain. That estimate was based on 25% tariffs on all U.S.-China trade and a 10% drop in stock markets.

Both the VIX and TYVIX are near historic lows.

With this bevy of good news, how long before residential mortgage rates rise??

Of course, forecasting is difficult … like forecasting your second wife.

Source: Confound Interest

Los Angeles Homelessness Czar to Resign After Homelessness Grows by 33%

Los Angeles’ head of homelessness announced on Tuesday, December 10, 2019 that he will be resigning after presiding over a 33 percent increase in homelessness during the last five years.

Peter Lynn, the head of the Los Angeles Homeless Service Authority, revealed that he would leave at the end of the year.

According to Paul Joseph Watson of Summit News, LAHSA reportedly spent $780 million with no effect.

The city’s homeless population grew even larger from 2018 to 2019, where it witnessed a 12 percent increase in that period.

Even with these unsavory facts in front of him, L.A. Mayor Eric Garcetti believed he did an amazing job and presided over “historic action.”

Lynn was apparently making $242,000 while homelessness went up along with cases of leprosy, typhoid fever, and even bubonic plague.

A few months ago, Dr. Drew Pinsky said L.A.’s public health infrastructure was a complete mess.

Source: by Jose Nino | Big League Politics

Diesel Demand Slump Signals Year Long Manufacturing Recession Is Still Raging

The U.S. economy is decelerating into an election year and could print below-trend growth by 2H20.

Manufacturing, employment, and inflation have all been in downturns for one year, hence why the Federal Reserve has been quick to slash interest rates, as President Trump has been begging for negative interest rates, quantitative easing, and emergency tax cuts.

New data from Reuters’ John Kemp shows how manufacturing continues to decelerate into year-end as there’s little evidence that growth will trough and zoom higher in early 2020.

Kemp says waning diesel consumption is a significant warning sign of manufacturing output continuing to contract and volume of freight plunging. These factors have put downward pressure on spot oil prices.

U.S. Energy Information Administration (EIA) data shows consumption of diesel was down 3% in Q3 versus a year earlier.

Kemp notes that diesel is used by “trucking firms, railroads, manufacturers, construction firms, oil and gas drillers, and farmers, so diesel consumption is tightly coupled with the manufacturing cycle.”

He said the drop in diesel consumption relative to gasoline shows that the manufacturing recession is worsening as the consumer is generating slower growth.

Consumption growth of diesel has plunged across the world.

Manufacturing downturns in China, India, Europe, South America, and the U.S. have contributed to declining demand.

As the global economy decelerates into 2020, diesel demand will continue to decline, forcing oversupplied conditions and lower prices.

Source: ZeroHedge

***

Major Freight Carrier Bankrupted, Leaving 3,000 Truckers Jobless, Many Stranded On Highways

“It’s About To Get Very Bad” – Repo Market Legend Predicts Dollar Funding Market Crash In Days

“No matter what the market does from now until year end, there is simply not enough cash and/or liquidity to allow the plumbing of the market to cross into 2020 without a crisis”

For the past decade, the name of Zoltan Pozsar has been among the most admired and respected on Wall Street: not only did the Hungarian lay the groundwork for our current understanding of the deposit-free shadow banking system – which has the often opaque and painfully complex short-term dollar funding and repo markets – at its core…

  (larger image)

… but he was also instrumental during his tenure at both the US Treasury and the New York Fed in laying the foundations of the modern repo market, orchestrating the response to the global financial crisis and the ensuing policy debate (as virtually nobody at the Fed knew more about repo at the time than Pozsar), serving as point person on market developments for Fed, Treasury and White House officials throughout the crisis (yes, Kashkari was just the figurehead); playing the key role in building the TALF to backstop the ABS market, and advising the former head of the Fed’s Markets Desk, Brian Sack, on just how the NY Fed should implement its various market interventions without disrupting and breaking the most important market of all: the multi-trillion repo market.

In short, when Pozsar speaks (or as the case may be, writes), people listen (and read).

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EU Commission Accused Of Hiding Cryptocurrency Crimes

BRUSSELS: (EU Ombudsman Complaint # 201902197)

A complaint filed by lawyer Dr. Jonathan Levy on behalf of cryptocurrency crime victims, whose claims totaling over €27 million, takes aim not only at the European Commission but singles out the United Kingdom and several other EU member states as safe havens for crypto criminals.

The EU is accused of “maladministration” in regard to cryptocurrency. Maladministration is the technical term for various types of governmental injustice including delay and failure to investigate, take action or follow the law.

Dr. Jonathan Levy represents the Victims and the National Liberal Party, a UK political party with a platform that includes sound crypto currency policy. The EU stands accused of knowingly permitting the transfer of billions of Euros from victims to organized crime including the notorious €5 billion One World–One Coin Ponzi scheme which was operated by EU citizens utilizing EU banks for over almost 5 years.  Only on the day of the filing of this complaint did the EU act to remove One World–One Coin from its own Top Level Domain .EU where it had been operating with impunity.

Dr. Levy has long criticized the United Kingdom’s handling of cryptocurrency related claims. According to Dr. Levy, “The United Kingdom and European Union have rolled out a welcome sign for crypto criminals and provided them unhindered access to Top Level Domains like .EU and .IO, their banking system, companies registration, and have turned a blind eye to the largest transfer of wealth to international criminal organizations since World War Two.”

Levy and his clients seek intervention by the EU Ombudsman to prompt the EU Commission to hold crypto currencies, social media networks, domains, exchanges, and domain privacy providers accountable for funding a Cryptocurrency Security Fund to pay out compensation to victims of crypto currency criminals.

Copies of the pleadings are available at: http://www.jlevy.co/cryptocurrency-litigation/

Source: American Intelligence Media

How California’s Government Plans To Make Wildfires Even Worse

(Ryan McMaken) Not every square inch of the planet earth is suitable for a housing development. Flood plains are not great places to build homes. A grove of trees adjacent to a tinder-dry national forest is not ideal for a dream home. And California’s chaparral ecosystems are risky places for neighborhoods.

This is nothing new. While people many Americans who live back East may imagine that something must be deeply wrong when they hear about fires out West, the fact is things are different in North America west of the hundredth meridian. The West is more prone to extreme temperatures, hundred-year droughts, and fires in the wilderness. Many of these ecosystems evolved with this fire risk. 

It’s also not enough to blame the growing devastation of recent wildfires solely on climate change, researchers said. While drier, warmer conditions have lengthened the fire season and likely increased the severity of the blazes, wildfires are only destroying more homes today than decades before because of rapid growth in rural areas.

It’s not that fires are more devastating in the natural sense. The problem is that human beings insist on putting their property in places where fires have long destroyed the landscape, over and over again.

The Bee continues:

[T]he fires aren’t getting closer to us — we’re getting closer to the fires. “We’re seeing wildfires that have always been a part of the landscape that are now interacting more and more with us…”

Strader studied wildfire history in the western United States going back three decades, then mapped population growth in areas where fire activity had ranged from medium to very high. His research determined there were 600,000 homes in fire prone areas in the West in 1940. Today, that number is around 7 million.

So, why do people keep building homes in these places? Part of it is natural populations growth, of course. But the manner and rapidity with which this development expands out into the fringes of metro areas is also partly due to government policy and infrastructure. 

In an unhampered market, it would be very expensive to extend a new neighborhood out into ever-further-out regions near metro areas. In order to reach these places, housing developers would need to find a way to finance both the new housing construction and the roads that give access to them. Certainly, developers often provide part of the funding through development fees demanded by governments. But these roads are often also subsidized by state and local governments, especially in the form of ongoing maintenance. Once a road to a new semi-rural community is built, governments will often maintain it, while spreading the cost across all the jurisdiction’s taxpayers.

This system of subsidy allows more rapid and more dispersed development. Unsubsidized roads would tend to force more close-in and more dense development.

The federal development also subsidizes the construction of larger and more sprawling residential property through the FHA insurance programs and government-sponsored enterprises like Fannie Mae. By purchasing home loans on the secondary market, the GSEs push more liquidity into the home loan market, making loans cheaper, and pushing up demand for larger, sprawling developments.

Many conservatives often speak of density in residential and commercial development as if it were some kind of left-wing conspiracy. It is assumed that few people would opt for density were there not left-wing urban planners to force it on everyone.

But the reality is that in an unhampered market, density levels would be higher than they are now, because sprawl would be (all else remaining equal) much more costly to consumers than is now the case.

In light of the increasing fire danger to homes, many left-wing advocates favor changing California’s housing development patterns. But they can only point toward more restrictive government regulations. The Los Angeles Times editorial board, for example, complains that “Land-use decisions are made by local elected officials and they’ve proven themselves unwilling to say no to dangerous sprawl development …”

But government prohibitions aren’t necessary. If people insist on building and selling homes in fire-prone areas, let them be the ones to cover all the costs. This includes the cost of fire mitigation and rebuilding after fire. This in itself would limit development in these areas.

And yet, while California pundits are complaining that policymakers aren’t doing enough, California politicians are actively taking steps to keep the market from correcting the excessive building in fire-prone areas.

This week, California regulators prohibited insurance companies from dropping the homeowners’ insurance policies of homeowners in fire prone areas:

The state said its moratorium applies to about 800,000 homes, and more areas are expected to be added.

A state law passed last year allows the California Department of Insurance to require insurers to renew residential policies for one year in ZIP Codes that have been affected by declared wildfire disasters.

Previously, insurers had to renew policies for homeowners who suffered a total loss. The current law extends to all policyholders in an affected area, regardless of whether they experienced a loss.

Not surprisingly, many homeowners in fire-prone areas of the state are having problems finding fire insurance for their homes. And they often pay handsomely when they do find it. That’s too bad for the owners, but this fact doesn’t justify handing down state mandates that insurance companies continue to cover people who have taken on unacceptably high risk.

By stepping in to force insurance companies to cover these homeowners, California politicians are doing two things:

  1. They’re continuing the cycle of encouraging home buyers to buy homes in areas likely to fall victim to wildfires.
  2. At the same time, regulators are increasing the costs incurred by insurance companies, and this will likely have the effect of driving up the price of fire insurance for homeowners who more prudently declined to purchase a house in fire-prone areas.

At the macro level, the end result will be something akin to what we’ve seen in flood-prone areas in the United States.Thanks to federal regulations and subsidies, many property owners can avail themselves of flood insurance priced well below what would be available in an unhampered market. Legislation such as the National Flood Insurance Act of 1968 means builders and homeowners have been encouraged to place property where they’re likely to be flooded over and over again.

We’re now seeing a similar type of moral hazard at work in California.

In a more sane political environment, however, those who insist on living in the way of wildfires would have to assume the risk of doing so, rather than demanding politicians force the cost on insurance companies and taxpayers.

Source: by Ryan McMaken | ZeroHedge

PG&E Announces $13.5 Billion Settlement Of Claims Linked To California Wildfires

Seen in August 2019, the remains of a home destroyed in Northern California’s 2018 Camp Fire. Rich Pedroncelli/AP

Utility giant Pacific Gas and Electric announced a $13.5 billion settlement agreement to resolve all claims associated with several Northern California wildfires that killed dozens of people and destroyed thousands of businesses and homes. The wildfires have been tied to the company’s equipment.

“We want to help our customers, our neighbors and our friends in those impacted areas recover and rebuild after these tragic wildfires,” said PG&E Corp. CEO and President Bill Johnson in a statement released late Friday.

The settlement fund, if accepted by a bankruptcy judge, will go to victims who lost loved ones and/or property, as well as government agencies and attorneys who have pressed the claims.

PG&E declared bankruptcy in January, saying it faced potential liabilities of $30 billion. The company hopes that the settlement will improve its prospects for emerging from bankruptcy before a court-imposed deadline in June.

The settlement covers the Camp Fire in 2018; the Tubbs Fire in 2017; the Butte Fire in 2015; and the Ghost Ship Fire in Oakland in 2016.

Victims seeking compensation will have to file claims by the end of the year. The deadline had been extended because tens of thousands of eligible victims had failed to file amid reports that many were still unaware that they could seek payments.

Source: by Richard Gonzalez | NPR

“Floodgates Are Open” – German Banks Start Charging Negative Rates To Retail Savers

It has been over 7 years since the European Central Bank’s key deposit facility rate was positive, and just a few weeks ago it was lowered to a record low of -50bps.

Source: Bloomberg

And during that time, European bank stocks have suffered greatly…

Source: Bloomberg

As Cornelius Riese, co-CEO of Frankfurt-based DZ Bank A.G. (Germany’s second-largest by assets), observed, negative rates indeed “have a huge impact on banks.” Riese ventured to offer some gentle criticism of Draghi & Co.’s grand policy experiment:

“Maybe at the end of the story, in three to five years, we will notice it was a historical mistake.”

Well, it appears we are about to reach the vinegar strokes of that ‘historical mistake’as Bloomberg reports, German banks are breaking the last taboo: Charging retail clients for their savings starting with very first euro in the their accounts.

While many banks have been passing on negative rates to clients for some time, they have typically only done so for deposits of 100,000 euros ($111,000) or more. That is changing, with one small lender, Volksbank Raiffeisenbank Fuerstenfeldbruck, a regional bank close to Munich, planning to impose a rate of minus 0.5% to all savings in certain new accounts.

Another bank, Kreissparkasse Stendal, in the east of the country, has a similar policy for clients who have no other relationship with the bank; and a third, Frankfurter Volksbank, one of the country’s largest cooperative lenders, is considering going even further and charging some new customers 0.55% for all their deposits is considering an even higher charge.

“The floodgates are open,” said Friedrich Heinemann, who heads the department on Corporate Taxation and Public Finance at the ZEW economic research institute in Mannheim.

“We will soon see a chain reaction. Banks that do not follow with negative interest rates would be flooded with liquidity.”

It appears that European banks are coming around to the fact – and preparing for it – that negative rates are here to stay (especially under Lagarde who has already opined that there is nothing wrong with negative rates).

Bank CEOs across Europe have expressed their anger at the ECB’s policy over the last few months.

The ECB’s imposition of negative interest rates have created an “absurd situation” in which banks don’t want to hold deposits, rages UBS CEO Sergio Ermotti, arguing that this policy is hurting social systems and savings rates.

Oswald Gruebel, who served as Credit Suisse CEO from 2004 to 2007 and as UBS Group AG’s top executive from 2009 to 2011, has slammed ECB policy in an interview with Swiss newspaper NZZ am Sonntag.

“Negative interest rates are crazy. That means money is not worth anything anymore,” Gruebel exclaimed.

“As long as we have negative interest rates, the financial industry will continue to shrink.”

And finally, Deutsche Bank CEO Christian Sewing warned that more monetary easing by the ECB, as widely expected next week, will have “grave side effects” for a region that has already lived with negative interest rates for half a decade.

“In the long run, negative rates ruin the financial system.”

The German savings rate was around 10% in 2017, almost twice the euro-area average, but one wonders what will happen now that even mom-and-pop will have to pay to leave their spare cash in ‘safe-keeping’. Will deposit levels tumble in favor of the mattress? Or, as some have suggested, gold will get a bid as a costless way of storing wealth.

Source: ZeroHedge

The Student Loan Bubble – Gambling With Your Future

(SchiffGold) Have you heard? The Democrats are going to fix the student loan mess! They’ve brought up the issue in almost every  Democratic Party presidential debate. All we need is a good government program and we can easily solve this $1.64 trillion problem.

Never mind that government programs caused the problem in the first place.

The student loan bubble continues to inflate. Student loan balances jumped by $32.9 billion in the third quarter this year, pushing total outstanding student loan debt to a new record. Student loan balances have grown by 5.1% year-on-year.

Over the last decade, student loan debt has grown by 120%.  Student loan balances now equal to 7.6% of GDP. That’s up from 5.1% in 2009. This despite the fact that college enrollment dropped by 7% between 2010 and 2017, with enrollment projected to remain flat.

In a nutshell, we have fewer students borrowing more money to finance their educations.

Before the government got involved, college wasn’t all that expensive. It was government policy that made it unaffordable. And not only did it manage to dramatically drive up the cost of a college education, but it also succeeded in destroying the value of that degree. Peter Schiff summed it up perfectly:

Before the government tried to solve this ‘problem,’ it really didn’t exist.”

Peter isn’t just spouting rhetoric. Actual studies have shown the influx of government-backed student loan money into the university system is directly linked to the surging cost of a college education.

Millions of Americans carrying this massive debt burden is a big enough problem in-and-of-itself. But it becomes an even more significant issue when you realize the American taxpayer is on the hook for most of this debt. Education Secretary Betsy Devos admitted that the spiraling level of student debt has “very real implications for our economy and our future.”

The student loan program is not only burying students in debt, it is also burying taxpayers and it’s stealing from future generations.”

This is yet another bubble created by government. Despite the campaign rhetoric coming out of the Democratic Party presidential primary debates, it seems highly unlikely Congress will do what is necessary to address the growing student loan bubble. And the Democrats’ solution seems to be to simply erase the debt – as if you can just make more than $1 trillion vanish without serious implications.

Like all bubbles, this one will eventually pop.

The bottom line is that the student debt bubble will ultimately impact US markets and average Americans.

Source: ZeroHedge

India In “Very Deep Crisis,” Witnessing “Death Of Demand,” Warns Former Indian FM

Former Indian Finance Minister Yashwant Sinha said India’s economy is in a “very deep crisis,” witnessing “death of demand,” and the government is “befooling people” with its economic distortions of how growth is around the corner, reported India Today

“No matter what the powers that be say, the fact is that we are in a very deep crisis,” warned Sinha. 

India’s GDP has been rapidly slowing since peaking in 2016. Official data shows Q3 growth slumped to 4.5%, the lowest since 1Q13. 

Sinha was speaking to an audience at the Times Litfest 2019 conference, located at Habitat World Center in Delhi, India, on Sunday.

He warned that President Narendra Modi’s government is attempting to deceive everyone about how growth is coming in the next quarter or the quarter after but cautioned there’s only a crisis ahead. 

“They (the government) are trying to fool the people by saying the next quarter will be better…This type of crisis takes a long time like three to four or even five years (to subside). It cannot be resolved at the drop of a hat or by wielding a magic stick,” he said.

He said the economy is experiencing what is called the “death of demand,” and the epicenter of it is the agriculture and rural sector.

“There is no demand in the economy, and that is the starting point of the crisis. They (government of the day) are least bothered about what is happening to our farmers, people living in rural areas, now that is where the death of demand started. The demand first dried up in agriculture and rural sector, then it dried up in the informal or unorganized sector, and ultimately it traveled to the corporate sector,” he said.

Sinha said he’s been warning the government of the crisis that is coming down the pipe.

“In fact, this was something I had done after already warning them (people in the government) personally through letters, personal meetings… it is only when the party’s doors were closed on me that I had to start speaking publicly,” he added.

Though there’s no recession in India at the moment, the warning signs are showing up. Private consumption has plunged, both public and private investments have fallen, exports have dropped in the past quarter, the economy has been decelerating for several years, and there’s zero evidence that the economy has bottomed out. 

Source: ZeroHedge

***

Bank Crisis Hits India: “Bank Stops Functioning, People Crying Outside Bank Branches”

China Braces For “Unprecedented” Default Of The Massive State-Owned Enterprise, Tewoo Group

Something is seriously starting to break in China’s financial system.

Smog is seen over the city against sky during a haze day in Tianjin, China (Stringer Network)

Three days after we described the self-destructive doom loop that is tearing apart China’s smaller banks, where a second bank run took place in just two weeks – an unprecedented event for a country where until earlier this year not a single bank was allowed to fail publicly and has now had no less than five bank high profile nationalizations/bailouts/runs so far this year – the Chinese bond market is bracing itself for an unprecedented shock: a major, Fortune 500 Chinese commodity trader is poised to become the biggest and highest profile state-owned enterprise to default in the dollar bond market in over two decades.

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Zombie NYC Developers Resort To Inventory Loans To Stay Afloat During Housing Slump

New York City’s housing market has been swamped with a historic mismatch involving a flood of luxury inventory and a shortage of buyers. 

Manhattan is facing one of the worst slumps since 2011, forcing developers to take out low-interest inventory loans, collateralized by unsold condos to stay afloat. 

These loans are lifelines for struggling developers and a boom for companies such as Silverstein Properties Inc., who is expected to double its inventory loan book to more than $1 billion in 2020, reported Bloomberg.

Silverstein’s inventory loan book is growing at an exponential rate as a housing bust across Manhattan gains momentum. 

Michael May, CEO of Silverstein, said inventory loan growth among developers is the fastest in Gramercy, Tribeca, and Midtown East. These areas have also been hit hard in the housing slump. 

“You’re seeing some projects that are completed that have just had very, very slow sales,” May said. “Given the amount of condo developers seeking debt, if we open the floodgates, we could probably load $1 billion of that product on within the next 60 days.”

Developers have been pulling inventory loans to avoid slashing listing prices that would spark a firesale and lead to further downside in the housing market.

“Our goal is not to lend to projects that fail: We’re in a position where if a project has a problem, we believe that we could execute the business plan, and we could finish the construction,” May said. “We think that there’s still demand for units that are priced well, but in many cases, the owners of these projects have not adjusted their expectations to where the price would sell in the market yet.”

Silverstein has completed $500 million in financing year-to-date. Inventory loans are expected to be a large portion of the firm’s book in 2020, as there’s no sign the Manhattan real estate market will see an upswing then, and developers will need cheap financing to weather the storm.

As a result, the rise of zombie developers across Manhattan is inevitable. Thank You Federal Reserve! 

Source: ZeroHedge

NJ To Become Wasteland: 44% Of Residents Plan To Flee State

Thanks to the highest property taxes in the nation and an unsustainable cost of living, 44% of New Jersey residents plan to leave the state in the ‘no so distant future,’ according to a recent survey from the Garden State Initiative (GSI) and Fairleigh Dickenson University School of Public & Global Affairs.

Committing to a more solid time frame, 28% say they are planning to leave within five years, and 39% say they will do so over the next decade, according to Insider NJ.

Unsurprisingly, Property Taxes and the overall Cost of Living were cited as the main drivers. The results also debunk two issues frequently cited in anecdotal accounts of out migration, weather and public transportation, as they ranked 8th and 10th respectively, out of 11 factors offered.

The desire to leave the Garden State was reflected most strongly among young residents (18-29) with almost 40% anticipating leaving the state within the next five years. At the other end of the spectrum, a third (33%) of those nearing retirement (50-64) plan to leave within the next five years. –Insider NJ

These results should alarm every elected official and policymaker in New Jersey, said GSI’s president, former Chris Christie Chief of Staff Regina Egea. GSI focuses on providing “research-based answers to fiscal and economic issues” facing the state.

“We have a crisis of confidence in the ability of our leaders to address property taxes and the cost of living whether at the start of their career, in prime earning years, or re-positioning for retirement, New Jersey residents see greener pastures in other states.  This crisis presents a profound challenge to our state as we are faced with a generation of young residents looking elsewhere to build their careers, establish families and make investments like homeownership.”

After taxes and a high cost of living, government corruption and concerns about crime and drugs concerned citizens the most. Insider notes that there were no significant differences in responses across income levels.

Source: Garden State Initiative | ZeroHedge

150 Years Of Bank Credit Expansion Is Near Its End

The legal formalization of the creation of bank credit commenced with England’s 1844 Bank Charter Act. It has led to a regular cycle of expansion and collapse of outstanding bank credit.

Erroneously attributed to business, the origin of the boom and bust cycle is found in bank credit. Monetary policy evolved with attempts to control the cycle with added intervention, leading to the abandonment of sound money.

Today, we face infinite monetary inflation as a final solution to 150 years of monetary failures. The coming systemic and monetary collapse will probably mark the end of cycles of bank credit expansion as we know it, and the final collapse of fiat currencies.

This article is based on a speech I gave on Monday to the Ludwig von Mises Institute Europe in Brussels.

Introduction

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Restoring Sound Money To America

 

George Washington’s crossing of the Delaware River

The U.S. Constitution states:

Article 1, Section 8

1. The Congress shall have Power …

5. To coin Money, regulate the value thereof, and of foreign coin….

6. To provide for the punishment of counterfeiting … current coin of the United States.

Article 1, Section 10

  1. No state shall … emit Bills of Credit and make any Thing but gold and silver Coin a Tender in Payment of Debts.

The intent of the Framers could not have been clearer. The Constitution clearly and unequivocally brought into existence a monetary system based on gold coins and silver coins being the official money of the United States.

Sound Money

Notice that the states are prohibited from issuing “bills of credit.” What are “bills of credit.” That was the term used during that time for paper money. The Constitution expressly prohibited the states from publishing paper money and making anything but gold and silver coins official legal money.

What about the federal government? The Constitution didn’t expressly prohibit it from emitting “bills of credit” like it did with the states. Does that mean that the federal government was empowered to make paper money the official money of the United States?

No, it does not mean that. In the case of the federal government, its powers are limited to those enumerated in the Constitution. If a power isn’t enumerated, then the federal government is automatically prohibited from exercising it.

Therefore, it was unnecessary for the Framers to provide for an express prohibition on the federal government to make paper money the official legal tender of the nation. All that was necessary was to ensure that the Constitution did not empower the federal government to issue paper money.

The powers relating to money that are delegated to the federal government, which are stated above, expressly make it clear that gold coins and silver coins, not paper, were to be the official money of the country. That is reflected by the power given the federal government to “coin money.” At the risk of belaboring the obvious, one does not “coin” paper. Paper is published or “emitted.” It is not coined. Coins are coined.

The provision on counterfeiting also expressly confirms that the official money of the United States was to be gold coins and silver coins. The Framers didn’t provide for punishment for counterfeiting paper money because there was no paper money. They provided for punishment for counterfeiting “current coin of the United States.”

Add up all of these provision and there is but one conclusion that anyone can logically and reasonably draw: The Constitution established a monetary system in which gold and silver coins were to be the official money of the United States.

The power to borrow

That’s not to say, of course, that federal officials could not borrow money. The Constitution did give them that power:

Article1, Section 8

1. The Congress shall have Power …

2. To borrow money on the credit of the United States.

When the federal government borrows money, it issues debt instruments to lenders, consisting of bills, notes, or bonds. But everyone understood that federal debt instruments were not money but instead simply promises to pay money. The money that they promised to pay was the gold and silver coins, which were the official money of the country.

And in fact, that was the monetary system of the United States for more than a century, one in which gold coins and silver coins were the official money of the American people.

It is often said that the “gold standard” was a system in which paper money was “backed by gold.” Nothing could be further from the truth. There was no paper money. The “gold standard” was a system where gold coins, along with silver coins, were the official money of the country.

Monetary debauchery and destruction

It all came to an end in the 1930s, when the (D) Franklin Roosevelt regime ordered all Americans to deliver their gold coins to the federal government. Anyone who failed to do so would be prosecuted for a federal felony offense and severely punished through incarceration and fine if convicted.

In exchange, people were handed federal debt instruments, ones that promised to pay money. But since the money was now illegal, the debt instruments were promises to pay nothing. That’s reflected by the Federal Reserve Notes that people now use to pay for things.

Roosevelt’s actions were among the most abhorrent in the history of the United States. In one fell swoop, he and his regime destroyed what had been the finest and soundest monetary system in the history of the world, one that contributed mightily to the tremendous increase in prosperity and standards of living in the 19th century.

What is also amazing is that Roosevelt did it without even the semblance of a constitutional amendment. To change a system that the Constitution established requires a constitutional amendment. That is an arduous and difficult process, which is what the Framers wanted. Roosevelt circumvented that process by simply getting Congress to nationalize people’s gold.

The result of Roosevelt’s illegal and immoral actions regarding money and the Constitution? Moral, economic, and monetary debauchery, which has entailed almost 90 years of plundering and looting people through monetary debasement and devaluation to finance the ever-burgeoning expenses of America’s welfare-warfare state way of life.

The solution

The solution to all this monetary mayhem is doing what the Framers did: Separate private banking from the state entirely, in the same way that they separated church and state. This means terminate all government involvement in banking, including by ending the private Federal Reserve Bank. And while we’re at it, nationalize the sovereign city, District Of Columbia which would end London and Vatican maritime law control over America.  No doubt they won’t go down without a fight however, this is the jump start necessary towards restoring any chance for freedom, peace, and prosperity to our land.

Source: Adapted from an article by Jacob Hornberger, reposted in ZeroHedge

CAR on California October Housing: Sales Up 1.9% YoY, Inventory Down 18%

The CAR reported: California housing market holds steady in October, C.A.R. reports

(Bill McBride) Shrinking inventory subdued California home sales and held home sales and prices steady in October, the CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.) said today. 

Closed escrow sales of existing, single-family detached homes in California totaled a seasonally adjusted annualized rate of 404,240 units in October, according to information collected by C.A.R. from more than 90 local REALTOR® associations and MLSs statewide. The statewide annualized sales figure represents what would be the total number of homes sold during 2019 if sales maintained the October pace throughout the year. It is adjusted to account for seasonal factors that typically influence home sales.

October’s sales figure was up 0.1 percent from the 404,030 level in September and up 1.9 percent from home sales in October 2018 of a revised 396,720. 

“The California housing market continued to see gradual improvement in recent months as the current mortgage environment remains favorable to those who want to buy a home. With interest rates remaining historically low for the foreseeable future, motivated buyers finding that homes are slightly more affordable may seize the opportunity and resume their home search,” said 2020 C.A.R. President Jeanne Radsick, a second-generation REALTOR® from Bakersfield, Calif. “Additionally, the condominium loan policies that went into effect mid-October could help buyers for whom single-family homes are out of reach.” 

After 15 straight months of year-over-year increases, active listings fell for the fourth straight month, dropping 18.0 percent from year ago. The decline was the largest since May 2013.

The Unsold Inventory Index (UII), which is a ratio of inventory over sales, was 3.0 months in October, down from 3.6 in both September 2019 and October 2018. It was the lowest level since June 2018. The index measures the number of months it would take to sell the supply of homes on the market at the current sales rate.

Source: by Bill McBride | Calculated Risk

Rail Recession: U.S. Carloads Continue Collapse As Manufacturing Slows

Nowhere is the slowdown in the U.S. economy more obvious than in places like Class 8 Heavy Duty Truck orders and rail traffic. We already wrote about how Class 8 orders continued to fall in October and new data the American Association of Railroads (AAR) now shows that last week’s rail traffic and intermodal container usage both plunged.

The AAR reported total carloads for the week ended Nov. 9 came in at 248,905, down 5.1% compared with the same week in 2018. U.S. weekly intermodal volume was 266,364 containers and trailers, down 6.7% compared to 2018, according to Railway Age

One of the 10 carload segments that posted an increase YOY was grain, which was barely up 342 carloads to 21,855. Coal was down 9,577 carloads, to 75,180; miscellaneous carloads were down 843 carloads, to 10,944; and petroleum and petroleum products were down 741 carloads, to 12,617.

So far in 2019, railroads have reported total volume of 11,337,628 carloads, which is down 4.3% from the year prior. The year’s 11,988,234 intermodal units are down 4.6% for the year and total combined traffic was down 4.4% to 23,325,862 carloads. 

The numbers for North America in total were also lower. 

North American rail volume for the week ending November 9, 2019, on 12 reporting U.S., Canadian and Mexican railroads totaled 352,176 carloads, down 4.8% compared with the same week last year, and 352,712 intermodal units, down 6.5% compared with last year. Total combined weekly rail traffic in North America was 704,888 carloads and intermodal units, down 5.6%. North American rail volume for the first 45 weeks of 2019 was 31,852,518 carloads and intermodal units, down 3.4% compared with 2018.

Canadian rail traffic also crashed, down 5.5% with intermodal units down 5.9%. For the year, however, Canada has been the one North American country to edge out a gain on the year, with its cumulative traffic coming in at 6,824,664 carloads, up 0.4% on the year.

Mexican railroads were able to buck the broader trend, posting a slight increase in carloads for the week. 

Mexican railroads saw a slight uptick, as it reported 20,097 carloads for the week, up 2.8% compared with the same week last year, and 17,987 intermodal units, down 5.5%. Cumulative volume on Mexican railroads for the first 45 weeks of 2019 was 1,701,992 carloads and intermodal containers and trailers, down 2.7% from the same point last year.

We noted this rail recession in the U.S. in early October, citing the manufacturing collapse in the U.S., much of which is being blamed on the trade war, as the main culprit. 

What’s quite clear is that we’re not yet at a trough. Trains have not yet bottomed,” said Ben Hartford, an analyst with Robert W. Baird & Co. “We need to have some clarity in trade policy.”

We noted in October that the manufacturing recession is more widespread than the mid-cycle slowdowns in 2012 and 2015/16. The slowdown has been concentrated in manufacturing for well over a year, driven by a downturn in business investments in 2019. 

We noted last month that there is an indication that the downturn has spilled over into service sector output and employment.

Now, “there are no pockets of growth,” said Bloomberg Intelligence analyst Lee Klaskow, who said a “railroad recession” could be imminent in a recent report. “There’s really nothing that’s tapping me on the shoulder saying, ‘Hey look at me. I’m going to be your next growth engine.'”

Source: ZeroHedge

“It’s Cozy” – Los Angeles Imports Are Paying $800/Month To ‘Live In Coffins

First it was the unaffordability of ‘real’ homes (combined with massive student loan debt) that spoiled the living-the-Dream narrative for America’s young people.

Remember this 350-square foot studio in NYC that cost $645,000?

Then it was a shift to “tiny homes” – which became popular with millennials since their standard of living has collapsed.

But while they could virtue signal with solar panels and wind power systems, an eco-friendly bathroom, and a kitchen with everything needed to make avocado and toast, living in with post-industrial feel using an old shipping container for $37,000 was too much for many

So ‘podlife’ sprung up on the coasts – as the housing affordability crisis deepened on the West Coast, a new style of living, one that reminds millennials of their college dormitory days, sprang up in cities across California.

But, residents were upset by having to adhere to house rules, one being that lights go out at 10 pm each night, and no guests are allowed inside.

And so, as AFP reports, young Americans flocking to LA and NYC are now resorting to “Capsule Living” as the only affordable option

Inspired by the famous hotels in Japan, each room contains up to six capsules, described by residents as “cozy,” containing a single bed, a bar for hanging clothes, a few compartments for storing shoes and other items and an air vent.

By most standards, the coffin-like accommodation is still not cheap – $750 per month plus taxes. That works out at around $800 and there are still rules… women and men sleep apart, and having sex is not an option.

For Dana Cuff, an architect and professor at the University of California, Los Angeles (UCLA), this type of community presents only a short-term solution.

“We basically need to be developing a huge range of options for the kinds of housing that are available,” she said.

“To me, co-living pods… are symptoms of this deep need for a much greater range of housing alternatives.”

Alejandro Chupina, 27, left home as a teenager because his parents did not support his career as an actor and musician.

“We have so many different amenities… for what we’re paying, I feel like we’re getting way more, in different ways,” said the young man with a handlebar mustache, who can recite the musical “Hamilton” by heart.

We give the final word to Kay Wilson, who packed up her life in a hurry and moved to Los Angeles… only to find that what she paid in Pennsylvania for a nice studio apartment would only get her a 2.9-square-meter box in California.

“I sold all my belongings and I moved here to be in this pod… I’m finding comfort in being uncomfortable,”

The American Dream indeed…

Source: ZeroHedge

Fed Will Not Disclose Which Banks Are Receiving Repo Cash For At Least Two Years

If you want to know which investment houses have been getting the infamous “repo” loans from the Federal Reserve Bank of New York in recent weeks, as GATA has wanted to know, you’ll have to wait two years, according to a letter received from the bank today in response GATA’s request for the information.

The delay, the New York Fed’s letter says, is authorized by the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Perhaps more interestingly, the New York Fed’s letter, signed by Corporate Secretary Shawn Elizabeth Phillips, contends that the bank is exempt from the federal Freedom of Information Act but tries to comply with its spirit.

Such a claim of exemption was not made by the Federal Reserve’s Board of Governors during GATA’s FOIA lawsuit against it in 2011, in which GATA sought access to the board’s gold-related documents. GATA technically won the case when U.S. District Judge Ellen Segal Huvelle ruled that one such document was illegally withheld and ordered the board to disclose it to GATA and pay the organization court costs of $2,670:

What kind of system of government is it when every week an entity created by ordinary legislation can create enormous amounts of a nation’s currency and disburse it to unidentified parties without any oversight by the people’s elected representatives, news organizations, and ordinary citizens? It sure doesn’t sound like “the land of the free and the home of the brave.”

  The New York Fed’s response to GATA can be read below (pdf link):

Source: by Chris Powell of GATA| ZeroHedge

San Francisco Bay Area Home Prices Continue Slide, Peak Is likely In

Mainstream financial media drummed up a narrative in 1H19 about how this summer’s tech IPOs would lead to overnight millionaires across the Bay Area, and in return, would produce the next leg up in the region’s real estate market.

The economic narrative never gained traction, partly because of the IPO market imploded. New issues like Lyft and Uber have seen shares nearly halved in the last six months, leaving many investors underwater.

As for the IPO market pumping out overnight millionaires, well, that remains to be seen as the Bay Area real estate market continues to deteriorate, with expectations of a further plunge in 1H20.

The Bay Area median sales price in September for an existing home, across nine-counties including Alameda, Contra Costa, Marin, Napa, San Francisco, San Mateo, Santa Clara, Solano, and Sonoma, plunged 4.7% YoY to $810,000, according to real estate data firm CoreLogic.

Bay Area home prices are some of the most expensive in the country and might have put in a cyclical peak in 2019.

“I think the immediate trigger a year ago was the run-up in mortgage rates,” said Dr. Frank Nothaft, a chief economist at CoreLogic.

“Mortgage rates got posted about 5% a year ago, and that put up a chill on all potential buyers in the market place. When mortgage rates go up, that means the monthly mortgage payment is just taking that much bigger of a bite from family income.”

San Jose-based realtor Holly Barr told NBC Bay Area that prices have been slipping for more than a year. Barr noted that price growth has stalled in the last several years, likely marking the top of the market.

“If you look at the trend over the last two years, it’s definitely come down,” she said.

The region has seen YoY sale price declines in the last several months as the slowdown continues to worsen. This recent period of waning demand comes after seven years of rapid price growth.

Agents overwhelmingly said buyers have been on the sidelines waiting for the right deal. Many wanted to avoid a bidding war and needed prices to correct further before they entered offers.

Some buyers were concerned about a late 2020 recession, trade war uncertainties, and the threat of a corporate debt bubble implosion.

The S&P CoreLogic Case-Shiller San Francisco Home Price Index has likely peaked in a double top fashion.

The Federal Reserve usually embarks on an interest rate cut cycle in preparation for macroeconomic headwinds developing in the economy that eventually damages the housing market.

As shown below, the Case-Shiller San Francisco Home Price Index tends to fall in a cut cycle.

Bay Area home prices will continue to weaken through 1H20. At what point do millennial homeowners, most of whom bought the top of the market, panic sell into a down market? 

Source: ZeroHedge

Young First-Time Buyers Are Vanishing From US Housing Market

Seeing as most young Americans are saddled with student-loan debt, underemployment and other economic blights, few have any money left for important large purchases like a home. At this point, it’s beginning to look like millennials will be remembered as the first rentier generation in the country’s history.

To wit, according to data from the National Association of Realtors, the median age of first-time home buyers has increased to 33 in 2019, the highest median age since they started collecting the data back in 1981. Meanwhile, the median age for all buyers hit a fresh record high of 47, climbing for the third straight year, and well above the median age of 31 in 1981.

Though the median age for first timers only increased by one year, BBG reports that it reflects a variety of factors impacting those who are searching for a home.

For one, since the housing-market collapse ten years ago, construction of affordable housing has never recovered. Low housing stock, coupled with low interest rates, has stoked higher prices, especially in more affordable markets from the coasts to the middle of the country. This made circumstances ideal for older Americans with more assets to borrow against and cash on hand. But younger Americans who don’t have enough saved for a down payment lost out.

“Housing affordability is so difficult today, especially when coupled with rising rents and student loan debt, that they’re finding different ways to enter home ownership,” said Jessica Lautz, vice president of demographics and behavioral insights at the Realtors group in Washington.

That’s not all: the percentage of first-time buyers who are married has declined as more single people buy homes to share with girlfriends, boyfriends or roommates. As the average ages of home buyers increases, average incomes have also risen. The median income of purchasers rose to $93,200 in 2018 as the disappearance of affordable housing pushes low-income buyers out of the market.

Factoring in the expansion of economic inequality, young buyers who do manage to buy their own homes typically receive a small gift from their relatives to help cover the down payment first.

Source: ZeroHedge

The Great Exedous From California By Conservative Middle Class Is In Full Swing

California conservatives are fleeing the state in droves over what the LA Times describes as their “disenchantment with deep-blue California’s liberal political culture,” not to mention “high taxes, lukewarm support for local law enforcement, and policies they believe have thrown open the doors to illegal immigration.

Just over half of California’s registered voters have considered leaving the state, according to a UC Berkeley Institute of Governmental Studies poll conducted for the Los Angeles Times. Republicans and conservative voters were nearly three times as likely as their Democratic or liberal counterparts to seriously have considered moving — 40% compared with 14%, the poll found. Conservatives mentioned taxes and California’s political culture as a reason for leaving more frequently than they cited the state’s soaring housing costs. LA Times

Former Californians Richard and Judy Stark had no regrets as they left their Modesto home, towing a U-Haul trailer with their Volkswagen SUV 1,300 miles to Amarillo, Texas. After finding the website Conservative Move, the Starks put their home up for sale around six months ago and bought a newly constructed three-bedroom home in the suburb of McKinney for around $300,000. According to Stark, a similar home in California would cost around twice as much.

We’re moving to redder pastures,” said the 71-year-old. “We’re getting with people who believe in the same political agenda that we do: America first, Americans first, law and order.

According to new Census Bureau migration data for 2018, 691,145 Californians left for other states last year, according to the San Jose Mercury News.

Where they’re going (via the Mercury News)

• Top destinations: In raw terms of people moving, the top spot for Californians is Texas, which got 86,164 Californians in 2018. Next came Arizona (68,516), Washington (55,467), Nevada (50,707), and Oregon (43,058). All told, California had the most exits among the state and that wave grew by 4% in a year.

• Largest net gain: Texas also had the largest “net gain” from California — more ins than outs — with 48,354. Next was Arizona (34,846), Nevada (28,274), Oregon (19,008), and Washington (17,460).

• Greatest ratio of ins to outs: Or look at the comings and goings as a ratio of ins to outs.  Idaho wins this race with 497 arrivals from the Golden State for every 100 former Potato State residents who moved to California. Next was South Carolina (247 ins per 100 out); Texas (228); Nevada (226); and Arizona (203).

 

That said, the LA Times also notes that California is gaining people with higher incomes – most of whom have migrated to the Bay Area.

Over the last decade, the Legislative Analyst’s Office report said, the state added about 100,000 residents with household incomes of $120,000 or higher. About 85% of these higher-income earners moved to the Bay Area counties of Alameda, Contra Costa, San Francisco, San Mateo and Santa Clara. –LA Times

The three-member Bailey family moved from California to Prosper, Texas in 2017 to get away from Southern California’s steep housing prices. Bailey and her husband Scott owned a home in Orange County, while renting in El Segundo to be closer to Scott’s work in Santa Monica.

“To buy a house there [El Segundo] is insane,” said Marie. “It’s like $1 million. Why are we working our butts off for a fixer-upper in El Segundo? We’re just working, working, working — and for what?”

Bailey launched a Facebook group for people struggling with the same problems –Move to Texas From California!“, which boasts over 14,000 members. She says that most members are conservatives like her, though not all. As such, one of her rules is “no insulting or going overboard with political conversations.”

“I wouldn’t be one to put up a Trump sign, even here,” said the 40-year-old Bailey. “But in your town Facebook, people would be like, ‘We know who the Trump supporters are.’ I had friends who voted for Trump and went to work the next day and pretended they didn’t.”

Bailey says she helped around 40 families migrate to Texas over the last year.

“There are hundreds more who made the move who didn’t use my real estate services but are in the group,” she said. “Tons and tons of families are moving all the time. People are posting photos of their families waving goodbye.”

Nicole Rivers and her husband put their Clovis home on the market in April, and hope to close escrow soon. They plan on flying to Texas to look for a place to rent in the eastern part of the state, near Tyler, coming back to California and then driving to their new home.

Rivers, who recently quit her job as a medical assistant and phlebotomist, said the cost of living is so much lower in the Tyler area that she can afford to stop working and dedicate herself to being a stay-at-home mom.

Her husband works in the oil fields, she said, and was already splitting his time between his job in Pennsylvania and family in California. When he had the chance to transfer to Texas full time, they jumped on it.

The 37-year-old said she wants to live in a town where the family can save money and her husband can retire sooner.

It’s just too expensive here in California,” said Rivers, a California native. The state’s politics have “really gotten out of hand,” she added. She doesn’t support the state’s restrictive gun laws, she said, or the controversial sex education framework California approved despite protests earlier this year.LA Times

Between earthquakes, seasonal fires, high taxes, poo-covered streets, the worst homeless crisis in the nation, and transgender summer camp for children as young as four, what’s not to love?

… and, sentiment expressed in this article is not alone…

‘Get Your Act Together’: Trump Threatens To Pull Federal Support As California Fires Rage

California Governor Asks AG To Investigate High Gas Prices, But Not ‘Mystery State Surcharges’

California Is Teetering On The Edge Of Financial Ruin Again

Nearly Half Of America’s Homeless People Live In California

Large Swaths Of California Now Too Wildfire Prone To Insure

Courts Finally Force California To Repay $331 Million Stolen From Mortgage Relief For Homeowners

“California Is Being Overrun By Rodents” – And We’re Not Talking About The Politicians

Orange County California Q1 Home Sales Off To Coldest Start Since Great Recession

California’s Housing Bubble’s So Bad, 100s Forced To Live On Boats

Federal Railroad Administration Cancels $929 Million In California High Speed Rail Funds

Millions Of Californians Will “Plunge Into Darkness” As PG&E Commits To Cut Power During Wildfire Season

What Happened To The $1 Billion Tax Revenue Expected From Licensed Marijuana Sales In California?

Proposition 13 Is No Longer Off-Limits In California

Southern California Home Sales Plunge 12% In November As Prices Peak

California Faces Pension Showdown

C.A.R. Report: California Housing Market Sputtered In November

Home Builder Toll Brothers Shocks With 13% Plunge In Orders As California Falls A Staggering 39%

Yet Another Unfunded Trillion Dollar Liability, California Wildfire Damage

California Tops National Poverty Rate As Prime Tax Donkey Demographic Plans “Exodus” From State

Crisis Level: California’s Housing Affordability Plummets To 10-Year Low

California Gained Just 800 Jobs In June; Unemployment Remains At Record Low

Cesium-137 From Fukushima Found In California Wine

California Become 3rd Largest State with More People leaving than Migrating to the State

California Officials Avoid ‘p-word’ When Selling Higher Taxes to Voters

It’s Now Against The Law In California To Shower And Do Laundry On The Same Day

California Residents Flee, Chased Away By Soaring Home Prices And Cost Of Living

California University Tuition Going Up For Everyone EXCEPT Illegal Alien Students

Californians Flee The State In Droves Over Taxation And Housing Costs

California Law Makers Want Businesses To Hand Over Half Their Federal Tax Cut Savings

California Cities Spiking Taxes to Pay Spiking Pension Costs

California Moves One Step Closer To “Mileage Tax”; Could Require Tracking Your Cell Phone Movements

Required Pension Contributions of California Cities Will Double in Five Years says Policy Institute: Quadruple is More Likely

California Renter Apocalypse

Affordable Housing Plan Slaps Fee on California Property Owners

California Senate Bill 1: Expand Eminent Domain to Create “Sustainable Communities”.

CA Governor Newsom Blames Texas For CA Policies That Caused CA’s Homeless Crisis

Chief Investment Officer of Largest US Public Pension Fund Has Deep Ties to Chinese Regime

‘They Waited For Failure’: Report Exposes PG&E’s Inability To Replace Equipment That Sparked Deadly Wildfire

CA Voters Not Happy With Free Medical For Illegals

Developers Are Pulling Out All The Stops Amid Los Angeles’ Mega-Mansion Glut

Young Real Estate Flippers Get Their First Taste of Losing

Mapped: The Salary Needed To Buy A Home In 50 U.S. Metro Areas

Americans Can’t Afford To Buy A Home In 70% Of The Country

Guess How Much Americans Spend Drunk Shopping Online?

Source: ZeroHedge

The Great Decoupling From China Has Finally Begun

Before a complete fracturing of the US and Chinese economies, there have already been numerous signs of decoupling that are currently taking place behind the scenes.

But before we tell you about the decoupling and the latest evidence we’ve found. You must be asking: Where are we in the trade war? Beginning innings? Imminent trade deal?

The flurry of trade headlines from the US and China over the last 15 or so months have certainly been confusing. The fact is, there’s so much fake trade news that it’s hard to tell exactly the progress between both countries.

But what’s certain is that the trade war is in the beginning innings and nowhere near being resolved. Yes, there’s a Phase 1 deal being floated around, but that’s only for President Trump to save Midwest farmers and to create positive sentiment ahead of the 2020 election to pump the stock market. 

In reality, the trade war is a winner take all game, it’s really about empire, and how Washington is attempting to prevent China from becoming the next global superpower. Hence the reason for tariffs, which is an attempt by President Trump, the Pentagon, and US corporate elites to limit China’s ascension. 

The decoupling will be slow at first, then rapid. We’re already seeing small to medium-sized Chinese companies being denied IPOs on Nasdaq. President Trump has already banned Haweui access to key US markets. And now, the next evidence that the decoupling is gaining momentum comes from the US Department Of The Interior. 

The Department has grounded its entire fleet of 800 drones for fear that Chinese hackers could spy on critical infrastructure, reported The Wall Street Journal.

“Secretary Bernhardt is reviewing the Department of the Interior’s drone program. Until this review is completed, the Secretary has directed that drones manufactured in China or made from Chinese components be grounded unless they are currently being utilized for emergency purposes, such as fighting wildfires, search and rescue, and dealing with natural disasters that may threaten life or property,” the Department told The Verge via an email statement. 

US officials worry that the Department is relying too heavily on Chinese drones and has put critical infrastructure at risk of being spied on by the Chinese. 

Last month a bipartisan bill was introduced that would limit federal agencies from purchasing Chinese drones. 

Several years ago, the Department of Homeland Security warned federal agencies from purchasing Chinese drones, specifically ones made by Shenzhen-based SZ DJI Technology Co., Ltd.

A DJI spokesperson told The Verge in a statement that the latest grounding of their drones by the Department Of The Interior is rather “disappointing.” 

“We are aware the Department of Interior has decided to ground its entire drone program and are disappointed to learn of this development…As the leader in commercial drone technology, we have worked with the Department of Interior to create a safe and secure drone solution that meets their rigorous requirements, which was developed over the course of 15 months with DOI officials, independent cybersecurity professionals, and experts at NASA. We will continue to support the Department of Interior and provide assistance as it reviews its drone fleet so the agency can quickly resume the use of drones to help federal workers conduct vital operations,” the DJI spokesperson said.

The Department’s decision to ground Chinese drones is a clear trend of what’s to come in the year ahead: more groundings across a wide array of agencies. 

Just wait until the groundings start hitting state and local municipalities and lower-level agencies. It’s going to be a nightmare. 

Nevertheless, when the government starts banning certain Chinese products from consumers, you’ll know the great decoupling between the US and China is imminent. 

For this to all happen, the Trump administration will need to ramp up Sinophobia propaganda to convince the American people that decoupling is the right move. 

Source: ZeroHedge

‘Get Your Act Together’: Trump Threatens To Pull Federal Support As California Fires Rage

As Californians grapple with this year’s annual fire season, President Trump has a message for Democratic Governor Gavin Newsom; clean up your act.

“The Governor of California, @GavinNewsom, has done a terrible job of forest management. I told him from the first day we met that he must “clean” his forest floors regardless of what his bosses, the environmentalists, DEMAND of him,” Trump tweeted on Sunday.

Trump then threatened to withhold federal money, which California receives every time they declare a state of emergency.

“You don’t see close to the level of burn in other states…But our teams are working well together in putting these massive, and many, fires out. Great firefighters! Also, open up the ridiculously closed water lanes coming down from the North. Don’t pour it out into the Pacific Ocean. Should be done immediately. California desperately needs water, and you can have it now!”

California state Senator Mike McGuire tweeted “Total crap” in response to Trump, claiming that “Approx 57% of CA’s forest land is owned by the Fed Gov’t. Only 3% is owned by State/local gov’t. THE FEDS HAVE CUT their forest budget by hundreds of millions.”

After more than a week battling around a dozen blazes throughout the state, fire crews have most of the incidents over 70% contained, according to the California Department of Forestry and Fire Protection. That said, first responders have been slowed down by reports of drones being operated in their airspace.

Two separate instances of drone flights disrupted water-dropping helicopters from attempting structure protection in the nearby city of Santa Paula, Ventura County Fire Department spokesman Mike DesForges said.

The helicopters had to set down for 30 to 40 minutes each time,” DesForges said. “The drones are difficult to see and they can be pushed by winds very easily. If they strike one of our helicopters, they could cause it to crash, and if not, we would still need to land that helicopter to perform repairs.” –NPR

On Thursday night, the Maria Fire broke out near the cities of Ventura and Oxnard to the north of Los Angeles. It is currently 50% contained after burning around 9,400 acres. Following the new blaze, Newsom expanded the state of emergency in Sonoma and Los Angeles.

Maria fire (circled)

To the north, the Kincade Fire in Sonoma County has burned over 77,000 acres and is 76% contained. Over 4,500 fire personnel battled the blaze east of Geyserville.

“They’re still doing a lot of work in those hot spots, and there are still a lot of utility workers in there trying to get services restored,” said Cal Fire spokesman Cleo Doss. “We’re trying to help the people who have already been released get back into the area.”

According to the San Francisco Chronicle, evacuation orders have been lifted for all but a few locations affecting 1,500 people. During the height of the fire, around 185,000 people were evacuated. The fire has destroyed 372 structures, including 175 homes. Four first responders sustained non-life threatening injuries.

Freight Railroad Traffic Plunged 8% At The End Of October

US freight railroads, which along with Class 8 trucking have long been used as a gauge of the country’s economic health, continue to show declines in traffic.

Freight railroads logged 513,147 carloads and intermodal units during the week ending October 26, according to data from the Association of American Railroads reported on by Progressive Railroading. This marks an 8.8% decline compared to the same week last year. 

Total carload traffic for the week was down 9.4% to 243,321 units and intermodal volume fell 8.3% to 269,826 containers and trailers.

The AAR tracks 10 carload commodity groups on a weekly basis – none of them showed growth for the week. Coal fell 14,797 carloads, grain fell 2,512 carloads and metallic ores and metals fell 2,064 carloads.

Canadian and Mexican railroads also reported traffic declines for the week. Canadian railroads were down 7.9% and intermodal units were down 3.6%. Mexican railroads logged 19,573 carloads for the week, down 1.1% and intermodal units fell 5.6%.

As the report notes, in aggregate: 

  • U.S. railroads reported a combined 22,300,581 carloads and intermodal units, down 4.3 percent;
  • Canadian railroads reported a combined 6,523,922 carloads, containers and trailers, up 0.7 percent; and
  • Mexican railroads reported a combined 1,625,137 carloads and intermodal containers and trailers, down 2.8 percent.

Total North American rail volume for the YTD 43 week period is still 3.2% lower than 2018. Recall, we wrote earlier this month that Class 8 orders for September had also crashed 71%, with the two indicators marking an obvious slowdown in the country’s economic productivity that everybody except Jim Cramer and Jerome Powell are able to see.

Source: ZeroHedge

Fed Gives Up On Inflation, Welcome To The United States Of Japan

On Wednesday, the Fed cut rates for the third time this year, which was widely expected by the market.

What was not expected was the following statement.

I think we would need to see a really significant move up in inflation that’s persistent before we even consider raising rates to address inflation concerns.
– Jerome Powell 10/30/2019

The statement did not receive a lot of notoriety from the press, but this was the single most important statement from Federal Reserve Chairman Jerome Powell so far. In fact, we cannot remember a time in the last 30 years when a Fed Chairman has so clearly articulated such a strong desire for more inflation.

Why do we say that? Let’s dissect the bolded words in the quote for further clarification.

  • “really significant”– Powell is not only saying that they will allow a significant move up in inflation but going one better by adding the word significant.
  • “persistent”– Unlike the prior few Fed Chairman who claimed to be vigilant towards inflation, Powell is clearly telling us that he will not react to inflation that is not only well beyond a “really significant” leap from current levels, but a rate that lasts for a period of time.
  • “even consider”– If inflation is not only a really significant increase from current levels and stays at such levels for a while, they will only consider raising rates to fight inflation.

We are stunned by the choice of words Powell used to describe the Fed’s view on inflation. We are even more shocked that the markets or media are not making more of it.

Maybe, they are failing to focus on the three bolded sections. In fact, what they probably think they heard was: I think we would need to see a move up in inflation before we consider raising rates to address inflation concernsSuch a statement would have been more in line with traditional “Fed-speak.”

There is an other far more insidious message in Chairman Powell’s statement which should not be dismissed.

The Fed just acknowledged they are caught in a “liquidity trap.”

Continue reading

The Federal Reserve Is A Barbarous Relic

The Sky is Falling

“We believe monetary policy is in a good place.”

– Federal Reserve Chairman Jerome Powell, October 30, 2019.

The man from good place. “As I was going up the stair, I met a man who wasn’t there. He wasn’t there again today, Oh how I wish he’d go away!” [PT]

Ptolemy I Soter, in his history of the wars of Alexander the Great, related an episode from Alexander’s 334 BC compact with the Celts ‘who dwelt by the Ionian Gulf.’  According to Ptolemy’s account, which survives via quote by Arrian of Nicomedia some 450 years later, when Alexander asked the Celtic envoys what they feared most, they answered:

“We fear no man: there is but one thing that we fear, namely, that the sky should fall on us.”

 Today, at the risk of being called Chicken Little, we tug on a thread that weaves back to the ancient Celts.  Our message is grave: The sky is falling.  Though the implications are still unclear.

Various Celts – left: fearsome warriors; middle: fearsome warriors afraid of the sky falling on their heads; right: Cernunnos, fearsome Celtic horned god amid his collection of skulls. [PT]

The sky, for our purposes, is the debt based dollar reserve standard that has been in place for the past 48 years. If you recall, on August 15, 1971, President Nixon “temporarily” suspended convertibility of the dollar into gold.  The dollar  became wholly the fiat money of the Treasury.

At the G-10 Rome meeting held in late-1971, Treasury Secretary John Connally reduced the new dollar reserve standard to a bite-sized nugget for his European finance minister counterparts, stating:

“The dollar is our currency, but it’s your problem.”

The Nixon-Connally tag team in the White House. [PT]

Predictably, without the restraint of gold, the quantity of debt based money has increased seemingly without limits – and it is everyone’s massive problem.  What’s more, over the past 30 years the Federal Reserve has obliged Washington with cheaper and cheaper credit.

Hence, public, private, and corporate debt levels in the U.S. have multiplied beyond comprehension.  Total US debt is now on the order of $74 trillion.  \The consequences, no doubt, are an economy that is equally distorted and disfigured beyond comprehension.

Behold the debt-berg in all its terrible glory. [PT]

Selective Blind Spots

America is no longer a dynamic, free-market economy.  Rather, the economy is stagnant and operates under the central planning authority of Washington and the Fed. The illusion of prosperity is simulated by spending trillions of dollars funded by history’s greatest debt bubble.

Simple arithmetic shows the country is headed for economic catastrophe. Clearly, Social Security and Medicare face long-term financial challenges. Current workers must shoulder a greater and greater burden to pay for the benefits of retired workers.

At the same time, the world that brought the debt based dollar reserve standard into being no longer exists. Yet the dollar reserve standard and the Federal Reserve still remain as legacy institutions.

The divergence between the world as it exists – with its massive trade imbalances, massive debt loads, wealth inequality, and inflated asset prices – and the legacy dollar reserve standard is irreversible. Unless the unstable condition that has developed is allowed to transform naturally, there will be outright collapse.

Rather than adopting policies that allow for economic transformation and minimizing the ultimate disruption of a collapse, today’s planners and policy makers are doing everything they can to hold the failing financial order together.  They are deeply invested academically and professionally; their livelihoods depend on it.

You see, selective blind spots of the best and brightest are normal when the sky is falling.  For example, in 1989, just two years before the Soviet Union collapsed, Paul Samuelson – the “Father of Modern Day Economics” –  and co-author William Nordhaus, wrote:

“The Soviet economy is proof that, contrary to what many skeptics had earlier believed, a socialist command economy can function and even thrive.” – Paul Samuelson and William Nordhaus, Economics, 13th ed. [New York: McGraw Hill, 1989], p. 837.

Could Samuelson and Nordhaus possibly have been more clueless?

The bizarre chart illustrating the alleged “growth miracle” of the “superior” Soviet command economy, as seen by Samuelson – published about one and a half years before the Soviet Bloc imploded in what was undoubtedly the biggest bankruptcy in history. [PT]

The Federal Reserve is a Barbarous Relic

On Wednesday, following the October federal open market committee (FOMC) meeting, the Federal Reserve stated that it will cut the federal funds rate 25 basis points to a range of 1.5 to 1.75. No surprise there.

But the real insights were garnered several days earlier.  Leading up to the FOMC meeting Fed Chair Jerome Powell received some public encouragement from one of his former cohorts –  former President of the Federal Reserve Bank of New York, Bill Dudley.  What follows is an excerpt of Dudley’s mental diarrhea, which he released in a Bloomberg Opinion article on Monday:

“People shouldn’t be as worried as they are about the risk of a U.S. recession. That said, it wouldn’t take much to trigger one, which is why the Federal Reserve should take out some insurance by providing added stimulus this week.

“Sometimes, an adverse event and human psychology can reinforce each other in such a way that they bring about a recession. Given how slowly the economy is growing, even a modest shock could do the trick.

“This danger bolsters the argument for the Fed to ease monetary policy at this week’s meeting of the Federal Open Market Committee. Such a preemptive move will reduce the chances that the economy will slow sufficiently to hit stall speed. Even if the insurance turns out to be unnecessary, the potential consequences aren’t bad. It just means that the economy will be stronger and the inflation rate will likely move more quickly back toward the Fed’s 2 percent target.”

Retired former central planner Bill Dudley. These days an armchair planner, and as deluded as ever. [PT]

Dudley, like Samuelson, believes he can aggregate economic data and plot it on a graph; and, then, by fixing the price of credit, he can make the graphs appear more to his liking. He also believes he can preempt a recession by making ‘insurance’ rate cuts to stimulate the economy.

Like Samuelson, Dudley doesn’t have a clue. The Fed cannot preemptively stop a recession.  And after the dot com bubble and bust, the housing bubble and bust, the great financial crisis, zero interest rate policy, negative interest rate policy, quantitative easing, operation twist, quantitative tightening, reserve management, and many other failures, the Fed’s standing is clear to everyone but Dudley…

The Federal Reserve is a barbarous relic. The next downturn will be its death knell.  Alas, what comes after the Fed will probably be even worse. Populism demands it.

Source: by NM Gordon | ZeroHedge

 

How QE Has Radically Changed The Nature Of The West’s Financial System

 

‘Because they are so ensconsed in their little bubble and because they profit so much from maintaining the status quo, Western mainstream media pundits don’t – or perhaps can’t – admit how Quantitative Easing policies have so quickly and so radically changed the financial system of the West and their satellites’

(Authored by Ramin Mazaheri via The Saker blog,) I imagine that most everyone reading this is already aware of what has transpired economically across the West over the last decade:

  • Elite-class asset (stuff rich people own – stocks, real estate, financial derivatives, luxury goods, etc.) prices have ballooned to pre-2008 levels.
  • Debt (which is, of course, another elite-owned asset), mainly to pay for banker bailouts and their usurious interest levels, has ballooned national accounts to incredible levels.
  • The “real” economy has only weakened, as proven by endemic low economic growth across the West and Japan.

Similarly, I imagine that everyone reading this is generally aware of what will happen should the West stop easy money: obviously, once artificial demand is no longer being fabricated then these assets will plummet in value, with huge ripple effects in the “real” economy. The West will be right back to dealing with most of the same toxic assets they had back in 2007, but now compounded by a decade of more debt, more interest payments, and a “real” economy which was made weaker via austerity.

None of that is really “news” to a smart reader… but it is “news” to many dumb journalists.

Continue reading

Hong Kong Plunges Into Recession After Months Of Violent Resistance To Chicom Invasion

Hong Kong has finally entered a recession after more than half a year of violent anti-government protests, the city’s Financial Secretary wrote in a blog post over the weekend, reported Reuters.

“The blow to our economy is comprehensive,” Paul Chan wrote, adding that upcoming economic data later this week will trigger a technical recession.

“The government will be announcing its advance estimates for the third quarter on Thursday. After seeing negative growth in the second quarter, the situation continued in the third quarter, meaning our economy has entered technical recession,” Chan wrote.

“It seems it will be extremely difficult for us to reach full-year economic growth of 0 to 1%. I would not rule out the possibility that the full-year economic growth will be negative.”

Protesters have frequently shut down popular shopping districts, something that we outlined last week, warning that the retail industry in Hong Kong is on the brink of collapse.

 

Tourism plunged 37% Y/Y in 3Q19, and the trend for 4Q19 is likely not to improve. The number of tourists for the first two weeks of October was down 50% on a Y/Y basis. 

Rooms at the most high-end hotels, like Marco Polo Hongkong in Tsim Sha Tsui, are going for $72 per night, a 75% discount versus last year. 

Anyone who wants to travel to Hong Kong this week, departing from New York City airports, can easily get round trip plane tickets for 50% off because air travel to Hong Kong remains depressed. 

Local businesses are cutting back on their workforce as approximately 77% of all hotel workers have just been asked to go on leave without pay. 

Chan said government officials had announced stimulative measures to support local small and medium-sized businesses as the recession is expected to deepen into 1H20.

Hong Kong billionaire Li Ka-shing pledged to give local businesses $128 million in support following the protests that have presented the city with “unprecedented challenges.”

In a series of charts below, the city’s economic decline suggests a crisis has arrived: 

In a 12-month and 3-month change, Hong Kong retail sales have absolutely crashed over the last half-year. 


Who wants to shop for discretionary goods during a Chicom invasion?

  Who wants to risk capital during a Chicom invasion?

  No one wants to pay more than the last guy for housing during a Chicom invasion.

Hong Kong is the first domino to drop. More emerging growth countries will fall under economic stress as the global recession is imminent, if not already arrived. 

Source: ZeroHedge

U.S. Pending Home Sales Surprise, Biggest Annual Gain Since 2015

Despite disappointing slowdowns in sales of new- and existing-homes, pending home sales were expected to show a small positive gain in September but surprised with a 1.5% MoM pop (0.9% exp).

This is the strongest pending home sales index since Dec 2017…

The National Association of Realtors’ Index of pending home sales increased 6.3% in September from a year earlier on an unadjusted basis, the biggest gain since August 2015

“Even though home prices are rising faster than income, national buying power has increased” with lower interest rates, Lawrence Yun, NAR’s chief economist, said in a statement.

“But home prices are rising too fast because of insufficient inventory.”

The monthly gains in contracts were concentrated in the Midwest and South, while the West and Northeast recorded declines.

Source: ZeroHedge

Halt All New Home Construction In Dubai Or Face Economic Disaster, Builder Warns

Damac Properties, one of the largest property developers in Dubai, warned over the weekend about an imminent economic crisis, festering in Dubai’s real estate market. 

Damac Chairman Hussain Sajwani told Bloomberg that a collapse in the housing market is nearing unless new home construction is halted for several years. “Either we fix this problem, and we can grow from here, or we are going to see a disaster,” Sajwani said. 

Sajwani is the latest real estate executive to voice his concern that Dubai’s housing market is on the brink of disaster. 

The slump in the city’s housing market has been underway for the last five years. Prices have tumbled by more than 30% in the same timeframe.

Despite the requests to halt all new home sales, Sajwani said Damac would complete 4,000 homes in 2019 and another 6,000 in 2020. The developer is expected to reduce new builds and concentrate on selling inventory next year. 

“All we need is just to freeze the supply,” Sajwani said. “Reduce it for a year, maybe 18 months, maybe two years,” he said.

Sajwani predicted oversupplied markets would crash home prices.

He said if prices drop further, then it would trigger a tsunami in non-performing loans that would cause contagion in the banking industry. 

“The domino effect is ridiculous because Dubai’s economy relies on property heavily,” he said.

Standard and Poor’s warned last month that economic growth in Dubai will trend lower through 2022 due to depressed oil prices, a global synchronized slowdown, turmoil from the US and China trade war, and geopolitical uncertainties in the Middle East.

The international rating agency said deterioration in real estate and tourism sectors had weighed heavily on the domestic economy.

Housing data from Cavendish Maxwell’s Dubai House Price Index via Property Monitor showed home prices plunged to their lowest levels in June, not seen since the 2008 financial meltdown.

Damac’s shares have crashed more than 77% in the last 26 months, mirroring the downturn in the overall housing market. 

If oversupplied conditions aren’t corrected in the coming quarters, Sajwani’s prediction of a market crash could unfold in Dubai in 2H20.

Source: ZeroHedge

Global Debt & Liquidity Crisis Update: Fed Injects $134BN In Liquidity, Term Repo Oversubscribed Amid Month-End Liquidity Panic

‘The volume of billions being lent into existence from nothing by the Fed to bail banks out will go parabolic. It must, otherwise credit will freeze, asset prices will fall, forced bank depositor bail-ins will ensue’

With stocks threatening to close in the red, late on Wednesday the Fed sparked a furious last hour rally…

… when in a statement published at 1515ET, precisely when the S&P ramp started, the New York Fed confirmed it would dramatically increase both its overnight and term liquidity provisions beginning tomorrow through November 14th.

The Desk has released an update to the schedule of repurchase agreement (repo) operations for the current monthly period.  Consistent with the most recent FOMC directive, to ensure that the supply of reserves remains ample even during periods of sharp increases in non-reserve liabilities, and to mitigate the risk of money market pressures that could adversely affect policy implementation…

As we noted yesterday, that was a massive 60% increase in the overnight repo liquidity availability (from $75 billion to $120 billion) and a 28% jump in the term repo provision (from $35 billion to $45 billion).

“It’s just more evidence the Fed will not back off as year-end gets closer,” said Wells Fargo’s rates strategist, Mike Schumacher. “The Fed wants to take out more insurance. You had repo pick up last week. That might not have gone over too well.”

And now we know that there was good reason for that, because according to the latest, just concluded Term Repo operation, a whopping $62.15BN in securities were submitted to the Fed’s 14-day operation, ($47.55BN in TSYs, $14.6BN in MBS), resulting in a 1.38x oversubscribed term operation, the second consecutive oversubscription following Tuesday’s Term Repo, when $52.2BN in securities were submitted into the Fed’s then-$35BN operation.

This was the highest uptake of the Fed’s term repo operation since Sept 26.

But wait there’s more, because while the upsized term-repo saw the biggest (oversubscribed) uptake in one month, demand for the Fed’s overnight repo also soared, with dealers submitting 89.2BN in securities for the newly upsized, $120BN operation.

In total, between the $45BN term repo and the $89.2BN overnight repo, the Fed just injected a whopping $134.2BN in liquidity just to make sure the US banking system is stable. That, as the Fed’s balance sheet soared by $200BN in the past month rising to just shy of $4 trillion.

Meanwhile, funding tensions weren’t evident only in repo, but also in the Fed’s T-Bill POMO, where as we noted yesterday, demand for liquidity has also been increasing with every subsequent operation, peaking with yesterday’s operation.

Needless to say, if the funding shortage was getting better, none of this would be happening; instead it appears that with every passing day the liquidity shortage is getting worse, even as the Fed’s balance sheet is surging.

The only possible explanation, is someone really needed to lock in cash for month end (the maturity of the op is on Nov 7) which is when a “No Deal” Brexit may go live, and as a result one or more banks are bracing for the worst. The question, as before,  remains why: just what is the source of this unprecedented spike in liquidity needs in a system which already has $1.5 trillion in excess reserves? And while we await the answer, expect stocks to close pleasantly in the green as dealers transform their newly granted liquidity into bets on risk assets.

‘The powers that shouldn’t be would rather us experience a mad max world while they hide in luxury bunkers, than allow us a treasury issued gold backed currency, absent a central bank once again’

Source: ZeroHedge

Existing Home Sales Tumble In September, Despite Low Mortgage Rates All Summer

After August’s rebound across the housing market – as mortgage rates tumbled – September was expected to see some slowdown but existing home sales fell significantly (dropping 2.2% MoM against expectations of a 0.7% drop).

Existing Home Sales SAAR fell from 5.50mm to 5.38mm in September…


Source: Bloomberg

Lawrence Yun, NAR’s chief economist, said that despite historically low mortgage rates, sales have not commensurately increased, in part due to a low level of new housing options.

“We must continue to beat the drum for more inventory,” said Yun, who has called for additional home construction for over a year.

Home prices are rising too rapidly because of the housing shortage, and this lack of inventory is preventing home sales growth potential.”

Regional breakdown:

  • September existing-home sales in the Northeast fell 2.8% to an annual rate of 690,000, a 1.5% rise from a year ago. The median price in the Northeast was $301,100, up 5.2% from September 2018.
  • In the Midwest, existing-home sales dropped 3.1% to an annual rate of 1.27 million, which is nearly equal to August 2018. The median price in the Midwest was $213,500, a 7.2% jump from a year ago.
  • Existing-home sales in the South decreased 2.1% to an annual rate of 2.28 million in September, up 6.0% from a year ago. The median price in the South was $237,300, up 6.3% from one year ago.
  • Existing-home sales in the West declined 0.9% to an annual rate of 1.14 million in September, 5.6% above a year ago. The median price in the West was $403,600, up 4.5% from September 2018.

 Source: Bloomberg

As price once again becomes an issue.

The median existing-home price for all housing types in September was $272,100, up 5.9% from September 2018 ($256,900), as prices rose in all regions. September’s price increase marks 91 straight months of year-over-year gains.

Total housing inventory at the end of September sat at 1.83 million, approximately equal to the amount of existing-homes available for sale in August, but a 2.7% decrease from 1.88 million one year ago. Unsold inventory is at a 4.1-month supply at the current sales pace, up from 4.0 months in August and down from the 4.4-month figure recorded in September 2018.

Source: ZeroHedge

California Governor Asks AG To Investigate High Gas Prices, But Not ‘Mystery State Surcharges’

In addition to earthquakes, wildfires, power outages and an army of pooping homeless people, California is known for ridiculously high gasoline prices – thanks in part to the state’s notoriously exorbitant taxes.

And in the wake of $6.00 gasoline in some parts of the state, Governor Gavin Newsom has asked Attorney General Xavier Becerra to investigate “If oil companies are engaging in false advertising or price fixing,” according to KCRA, after a new report suggests that big oil companies are overcharging customers by as much as $1 per gallon. 

Name brand retailers – including 76, Chevron and Shell – often charge more because they say their gasoline is of higher quality. But a new analysis from the California Energy Commission could not explain the price difference, concluding “there is no apparent difference in the quality of gasoline at retail outlets in the state.”

The commission said California drivers paid an average of 30 cents more per gallon in 2018, with the difference getting as high as $1 per gallon in April of this year. The result is California drivers paid an additional $11.6 billion at the pump over the last five years. –KCRA

That said, according to an April report in the Orange County Registerat $4 per gallon, approximately .98c of it is due to various taxes and fees. 

  • Federal excise tax — 18 cents
  • State excise tax — 42 cents
  • State and local sales tax — 8 cents
  • State underground storage tank fee — 2 cents*
  • Additional costs for compliance under Cap & Trade, as well as the Low Carbon Fuels Standard— 28 cents
  • Total — 98 cents

* Note: The state and local sales tax is calculated at an average state sales tax rate of 2.25% percent although actual sales tax rates vary throughout California.

That said, “Severin Borenstein, a professor at UC Berkeley’s Haas School of Business and faculty director of the Energy Institute at Haas, said his own tax calculations came within a penny of that total. But the mystery surcharge — an added expense that has yet to be identified — has averaged 28 per cents a gallon from January through March of this year. When added to the taxes, that brings the total to about $1.26 a gallon,” according to the report.

“In January, a group of 19 state legislators sent a letter to the California Attorney General’s Office saying, ‘We want you to investigate this,’” said Borenstein, who added. “They have never replied. They said they don’t make public statements about investigations. We don’t even know if they are investigating it.”

So while California’s AG has been asked to investigate false advertising and price fixing by the oil companies, Newsom’s letter is devoid of any request to look into the mystery surcharge found by Borenstein.

Source: ZeroHedge

“We’re Being Robbed” – Central Bank ‘Stimulus’ Is Really A Huge Redistribution Scheme

When an economy turns from expansion to contraction there is an order of events. The first signs are an unexpected increase in inventories of unsold goods, both accompanied with and followed by business surveys indicating a general softening in demand. For monetarists, this is often confirmed by an inverting yield curve, which tells them that at the margin the short-term rates set by the central bank are becoming too high for business conditions.

That was the position for the US 10-year bond less the 2-year bond very briefly at the end of August, since when this measure, which is often taken to predict recessions, has turned mildly positive again. A generally negative sentiment, fueled mainly by the escalating tariff war between America and China, had earlier alerted investors to an international trade slowdown, expected to undermine the American economy in due course along with all the others. It stands to reason that backward-looking statistics have yet to reflect the global slowdown on the US economy, which is still buoyed up by consumer credit. The German economy, which is driven by production rather than consumption is perhaps a better guide and is already in recession.

So reliant have markets become on monetary expansion that the default assumption is that an economy will always be rescued from recession by an easing of monetary policy, and furthermore that monetary inflation will prevent it from being any more than mild and short. We see this in the performance of stock market indices, which reflect perpetual optimism.

There is a further problem. Other than a rise in bankruptcies, unemployment and negative indications from business surveys, there may be no statistical evidence of a slump. The reason this is almost certainly the case is we are dealing with a combination of funny money and statistics which are simply not fit for measuring anything. The money and credit are backed by nothing, and when expanded by the banking system simply dilutes the quantity of existing money, which if continued is bound to end up impoverishing everyone with cash balances and whose wages and profits do not increase at least as fast as the surge in the quantity of money.

Indeed, the official purpose of the expansion of money and credit is to somehow persuade economic actors that things are better than they really are, and to stimulate those animal spirits. You’d think that with this policy now being continually in operation that people would have become aware of the dilution fraud. But as Keynes, the architect of it all said, not one man in a million understands money, and in this he has been proved right.

For five years, the ECB has applied negative interest rates on commercial bank reserves, and commercial banks have paid €21.4bn to it in deposit interest. Since it introduced negative interest rates, it has injected some €2.7 trillion of base money into the Eurozone economy, increasing M1, the narrower measure of the money quantity, by 61%. Almost all of it has supported the finances of Eurozone governments.

The effect on broader money, which includes bank credit, has been to increase M3 by 30%. Far from stimulation, this is daylight robbery perpetrated on everyone’s liquidity and cash deposits. It is a tax on the purchasing power of their wages.

The ECB is not alone. Since Lehman went under, the major central banks have collectively increased their balance sheets from $7 trillion to $19.4 trillion, an increase of 177%. Most of this monetary expansion has been to buy government bonds, providing a money-fountain for profligate governments. The purpose of money-printing is always to finance government spending, not to stimulate or ease conditions for the private sector: while some trusting souls in the system believe it is for the latter, that amounts to just a myth.

Due to the flood of new money the yields on government debt have been depressed, giving holders of this debt, principally the banks, a nice fat capital profit. But that is not the purpose of all this monetary largess: it is to make it ultra-cheap for governments to borrow yet more and to encourage banks to expand credit in their governments’ favor. Just listen to the central bankers now encouraging governments to take the opportunity to ease fiscal policy, extend their debts and borrow even more.

Central banks pretend all these benefits come at no cost to anyone. Unfortunately, there is no such thing as a perpetual motion of money creation, and someone ultimately pays the price. But who pays for it all? Why, it is the wage-earner and saver and anyone else with deposits at the bank. They are also robbed of the compounding interest their pension funds would otherwise receive. These are the very people who, in a bizarre twist of macroeconomic logic, we are told benefit from having the prices of their everyday purchases continually increased.

Attempts to measure the supposed benefits of inflation on the general public are in turn dishonest, with the true rise in prices concealed in official calculations of price inflation. Suppressed evidence of rising prices is then applied to estimates of GDP to make them “real”. For the purpose of measuring the true condition of an economy these official statistics are taken as gospel by both the commentariat and investors.

We cannot know the accumulating economic cost of cycles of progressively greater monetary inflation, because all government statistics are based on the lie that money is a constant, when in fact it has become the greatest variable in everyone’s life. The transfer of wealth from all consumers through monetary debasement is an act of impoverishment, and to the extent it is not offset in other ways the economy as a whole suffers.

Source: Authored by Alasdair Macleod via The Mises Institute, | ZeroHedge

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Are The Rating Agencies Complicit In Another Massive Scandal: A WSJ Investigation Leads To Shocking Questions

“It’s pretty eye-popping if you’ve been doing this for 20-plus years, to see how much more leverage a number of these companies can incur with the same credit rating.”