Unleashing Wall Street

Authored by Bonner & Partners’ Bill Bonner, annotated by Acting-Man’s Pater Tenebrarum,

To Unleash or Not to Unleash, That is the Question…

LOVINGSTON, VIRGINIA –  Corporate earnings have been going down for nearly three years. They are now about 10% below the level set in the late summer of 2014. Why should stocks be so expensive?


Example of something that one should better not unleash. The probability that a win-lose proposition will develop upon meeting it seems high. It wins, because it gets to eat…


Oh, yes… because the Trump Team is going to light a fire under Wall Street. But they must be wondering about that, too. Raising up stock prices – as we’ve seen over the last eight years – is not the same as restoring economic growth and family incomes.

And as each day passes, the list of odds against either seems to be getting longer and longer. As the petty fights, silly squabbles, and tweet storms increase, the less ammunition the administration has available to fight a real battle with Congress or the Deep State.

Still – “Goldman Stock Hits Record on Bets Trump Will Unleash Wall Street,” reads a Bloomberg headline. Goldman Sachs is a pillar of the Establishment, with its man, Steve Mnuchin, heading the Department of the Treasury. So a win for Goldman is not necessarily a win for us.

“Unleashing” suggests a win-win deal, as in allowing the financial industry to get on with its business. But there are different kinds of “unleashings.” Some things – like Dobermans – are kept on a leash for a good reason. Unleashing the mob… or a war… might not be a good idea, either.

Untying Wall Street from bureaucratic rules is at least heading in the right direction. But it will only benefit the Main Street economy if Wall Street is doing business honestly, facilitating win-win deals by matching real capital up with worthy projects.


A chart of the median price/revenue ratio of S&P 500 Index components recently shown by John Hussman. We conclude that Wall Street was “unleashed” long before Mr. Trump appeared on the political scene. But why this should be considered bad? Haven’t those riding this market to such absurd levels of overvaluation made out like bandits? Why not be happy for them and leave it at that? Unfortunately, it is not that simple. Let us  consider just two problems. 1. Titles to capital only become extremely overvalued when the money supply and interest rates have been tampered with. These valuations are a symptom of extreme shifts in relative prices in the economy – they prove ipso facto that large amounts of scarce capital have been and continue to be malinvested. All of society will pay a price for this. 2. From the perspective of all market participants, whether investing is their job, or whether they are only indirectly exposed to the market through e.g. a pension fund, there will be no winners once the music stops. When an investor takes a profit, someone else must buy from him. Regardless of the trend in prices, there are no “unowned” stocks floating about in the ether. There is no way the class of investors as a whole can escape the eventual losses. Even worse, when prices retreat, the debt that has been incurred on the way up – from margin debt to the debt companies have taken up to buy back overpriced stocks – is not going to shrink with them – click to enlarge.


Deep State Industry

That, of course, is what it is NOT doing. It is a Deep State industry aided and abetted by the Fed’s fake money. The “capital” (really, money out of thin air) it helps allocate is fraudulent – provided to the elite at preferential rates by the Fed banking cartel.

That leads to a whole host of fraudulent transactions, losing propositions, and win-lose deals. The public has to borrow money at twice the interest rates of the elite in business, finance, and government. Why? The risk is lower.

If Goldman or GM gets into financial trouble – even with their favored lending rates – the feds bail them out. If the man in the street is unable to pay his mortgage, he loses his house.

This unfairness is at the heart of today’s economic system. It’s also the source of the discontent felt – but maybe not fully understood – by the masses and the current administration.


Dr. Fed explains to J6P how it works.


Fraudulent System

The typical household has less earned income today than when the century began. It should have been the biggest, most successful period in human history.

Why are American wages sagging?

After all, the number of patents has exploded. So has the pace of technological innovation. The number of people with advanced college degrees, too.

Meanwhile, the feds have pumped $37 trillion in excess credit – above and beyond the traditional relationship between debt and GDP – into the system over the last 30 years. And corporations are more flushed with cash than ever before…

So, how come an economy with more technology than ever before, with more trained workers than ever before, with more “capital” available than ever before – lowers household incomes, grows at only roughly half the rate of the 1960s and 1970s and registers the weakest “recovery” in history? How come?


As noted above, some things should better not be unleashed… Nixon probably didn’t even realize what he had let loose when he defaulted on the gold exchange standard. But that’s precisely the problem, whether it’s politicians or bureaucrats, every time they tinker with the monetary system in grand style, they have actually no idea what they are doing. One thing is clear beyond doubt though – a system characterized by constant inflation of money and credit benefits a small group to the detriment of everybody else – click to enlarge.


Globalization, Mexico, regulation, China, automation, inequality, financialization – they all have been blamed. But you know the real answer: because the money system is counterfeit.

It benefits the elite of Washington and Wall Street, but not the rest of us. And “unleashing” Wall Street – without a return to honest money – means allowing this Deep State beast to prey even more on average Americans.

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UBS Calls It: “The Global Credit Impulse Suddenly Collapsed To Negative”

One month ago, a skeptical Deutsche Bank warned that just as global macro surprises and economic momentum had hit 6 year highs, the bullish story was set to rollover from its current elevated levels…


… primarily as a result of a series of disappointing data points out of China…

… which would be manifest in commodity prices first then across the entire risk spectrum: “Lower macro surprises would be consistent with a tactical pull-back for equities (especially against the backdrop of still-elevated readings on our market sentiment indicators) as well as a roll-over in cyclicals versus defensives.”

While it may not have known at the time, what Deutsche Bank was really saying is that the primary driver behind global growth in the past decade – China’s credit creation, or rather its first derivative, the credit Impulse out of Beijing – was about to turn negative.

One month later, that is what UBS’ Arend Kapteyn discovered when in a report published overnight, the Swiss bank economist reported that the most important variable when it comes to global economic expansion (and alternatively, contraction) has just turned negative for the first time in three years.

In the note, UBS writes that “Our global credit impulse (covering 77% of global GDP) has suddenly collapsed” and explains that “as the chart below shows the ‘global’ credit impulse over the last 18 months is essentially mainly China (the green shaded bit), which even now is still creating new credit at an annualized rate of around 30pp of (Chinese) GDP. But the credit impulse is the ‘change in the change’ in credit and even the Chinese banks could not sustain the recent extraordinary pace of credit acceleration. As a result: whereas back in Jan ’16 the global credit impulse was positive to the tune of 3.8% of global GDP (of which China comprised 3.5% of global GDP) it has now fallen back to -0.1% of global GDP (China’s contribution is -0.3% of global GDP).

There was some good news, namely credit creation everywhere else but China as the credit impulse in advanced economies (DM) is running at its 5y avg pace, “that is to say, DM’s contribution to the global credit impulse is about ½ pp of global GDP, exactly equal to the average of the last 5 years but a few tenths below the pace back in Q3. Within DM, positive contributions are mainly coming from the US (0.2pp), UK (0.3pp) and France (0.1pp). For the US that’s largely reflecting its large GDP weight, but for France there is a clear turnaround (2 ½ pp of GDP) from a negative credit impulse mid last year to a positive one now (coinciding to some extent with the strong improvement in PMI data), and the UK is sustaining a credit acceleration that started last May. The only DM economies where the credit impulse is currently negative are Italy, Canada and Australia (combined 12% of our DM aggregate).”

Unfortunately, as we have explained for years, starting back in 2010, when it comes to the global credit impulse, it was, is and will be all about China: without a massive surge in debt creation over and above the prior year, and thus a boost to annual impulse, the global economy virtually always rolls over.  As UBS calculates, credit impulse has a strong correlation with global domestic demand growth: the average DM correlation with domestic demand is 0.67 (and as high as 0.75 for the US) whereas for EM it’s only 0.23. The correlations for Poland (0.67), Turkey (0.66), Brazil (0.6) and South Africa (0.55) are all decent but India (0.15) and China (0.1) are very low, possibly because of problems with the GDP data.”

The bottom line: absent a new, and even more gargantuan credit expansion by Beijing – which is not likely to happen at a time when every single day China warns about cutting back on shadow banking and loan growth – the so-called recovery is now assured of fading. It is just a matter of time.

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Record Gasoline Glut Is Causing Problems On The East Coast

The U.S. East Coast traditionally relies on imports from east Canada and Europe to fill in its gasoline demand. However, these days the gasoline glut in the New York area is so big that traders are scheduling exports of gasoline from the New York Harbor to West Africa and Europe. Shippers plan to export at least two million barrels of gasoline and diesel from New York and Philadelphia in the coming weeks, according to shipping data compiled by Bloomberg. UK supermajor BP and commodity trader Glencore are reportedly some of the companies sending…

OPEC To Seek “Energy Dialogue” With U.S. As Shale Output Rises

OPEC Secretary-General Mohammad Barkindo dismissed speculation that the United States’ increase in shale oil production was counteracting the effects of the bloc’s less-than-two-month-old output reduction strategy, according to comments made at the International Petroleum Week in London. The Nigerian leader of the powerful oil cartel said he looked forward to an “energy dialogue” with the U.S. – a country that, just one month ago, swore in a new president that has vowed to prioritize oil exploration and extraction…

Battery Wars – China Beating Tesla In The Gigafactory Race

Tesla’s Gigafactory 1 has been a center of attention for people interested in the growing momentum behind green energy, electric cars, and battery production. Therefore, it is no surprise that this facility was in the news again last month, with Tesla starting to mass produce batteries as it ramps up to its goal of 35GWh of capacity and beyond. However, as exciting as this project is, it’s actually just one of multiple large-scale “megafactories” being built – with many of them being in China. China leading the charge…

Not So Smart Money: Hedge Funds Are Again Underperforming The S&P 500 In 2017

With cross-asset correlation plunging and stock dispersion soaring…

… conventional wisdom on the street predicted that after 7 years of underperformance, 2017 would finally be the year in which hedge funds demonstrated why they are paid 2 and 20.

Alas, it was not meant to be becauase as Goldman reports in is quarterly hedge fund Trend Monitor report, six weeks into the year, the strong equity market has lifted the average hedge fund to just a 2% return YTD, once again underperforming the broader market YTD by more than 50%, while macro funds have generated a 0% return YTD. That said, not everyone is sucking, and the typical equity long/short hedge funds has fared relatively better (+4%), boosted however not so much by “stock picking”, but due to near record leverage.

While once upon a time hedge funds actually generated alpha, the story from the past several years has been all about levered beta. The first 6 weeks of 2017 are no different. That, and apparently providing value through aggressive purchases of ETFs. From Goldman:

Funds benefitted from the decision to lift net long exposures before the election, and have continued to increase leverage during the subsequent 10% equity market rally. The Goldman Sachs Prime Services Weekly shows that hedge fund net exposure rose from 53% in September 2016 to 59% on Election Day, and has since surged to nearly 70%, the highest since 2015. Hopes for better economic growth, lower taxes, and other policy tailwinds to corporate earnings also led funds to cut short interest as a share of S&P 500 market cap to the lowest level since 2012, while adding market beta through ETFs.

Net exposure has soared…

… while shorts have tumbled at the expense of the highest ETF exposure since 2013. Because surely LPs can’t buy ETFs on their own.

Another observation: after years of collapsing turnover, in Q4 hedge funds at least put in a token effort to rebalance:

Hedge fund position turnover rose to 29% during 4Q 2016, following a record low in 3Q 2016. However, turnover of the largest quartile of hedge fund positions, which account for two-thirds of hedge fund long holdings, fell to 14%. Turnover increased most in the Utilities, Consumer Discretionary, and Consumer Staples sectors.

Unfortunately for hedge funds, they once again appear to have rotated in all the wrong names:

Stocks with high hedge fund concentration unusually weak YTD


Our basket of the 20 “Most Concentrated” stocks (ticker: <GSTHHFHI>) has lagged the S&P 500 by 300 bp YTD (2% vs. 5%), an unusual stretch after leading the S&P 500 by an average of 900 bp in each of the last five years. Since 2001 the strategy of owning the stocks with the largest share of equity cap held by hedge funds has outperformed the S&P 500 during 67% of quarters by an average of 236 bp per quarter.

One almost wonders if hedge funds were not terrified of coming up with their own, original ideas, then perhaps they could get back to doing what they are paid to do: generating alpha. Since that remains impossible, for their copycat amusement here is Goldman’s best idea how to stand out from the just as useless crowd:

Hedge funds should consider the alpha-generation potential – as either long positions or shorts – of the under-owned stocks listed below. These 17 companies fall within the top 20% of S&P 500 firms based on our Dispersion Score framework, a measure of the extent to which micro factors, rather than macro dynamics, are likely to drive returns. These stocks also have less than 5% of market cap owned by hedge funds, outstanding short interest accounting for less than 5% of market cap, and five or fewer hedge funds owning each stock as a top 10 portfolio position.

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CT Intends to Confiscate Your Pension Wealth

This is How States Will Take Your Pension

All emphasis ours

written by Soren K and MarketSlant 

with contributions by Vince Lanci of Echobay.com

Are you watching closely CT, IL, NJ etc?

The table is now set for you to have your pension violated for the greater good. Are you paying attention? Someone is deciding that you must decrease your standard of living on behalf of someone else because the state of CT in its infinite ignorance messed up.

Will this proposal go thru? Probably not. But this is just the first salvo. Government bureaucrats always seek to make nice with everyone. Therefore a “compromise” will follow. Leaders will be worn down, and something will get thru. Start by calling your congressman or the people in this paper

Governor Malloy let GE leave. Well, that means you, the citizen will have to take a pension cut. Not Ray Dalio who took a payoff to stick around.

You, the naive, believing in rainbow farting unicorn, Benetton wearing, Elitist, multiculturalist, asswipe (with no concept of limited resources) are telling the last 5 middle class working people left in CT that they must accept a breached contract.

And it is you who are destroying this country as well as the EU nations that have enriched themselves on the backs of the middle class. The rich get richer while the poor are taken care of by the tax paying middle class. Fuck you and your flowery false rhetoric. 

Here it is in words the academic yet supremely idiotic world leaders can understand:
The corporatist version of our capitalist system has exploited the bourgeoisie middle class system to the point of destroying them. The capitalistic pyramid shaped society we learned of in school is now in reality shaped like an hourglass.

Citigroup‘s analysts have labeled the American economy a “consumer hourglass economy.” The wealthy are doing fine, while the number of those living in poverty grows, and the middle is disappearing. New poverty figures show a big jump in the number of poorest Americans. Meanwhile, the middle class is disappearing

 The wealthy are up top. While their numbers may not be as big as the poor, their influence is far bigger. Their size represents the accumulated assets, The poor are below. While it is easy to connect the optic of size to numbers of poor, it would be more accurate to describe the bottom of the hourglass as the negative of the top in terms of assets. Or if you prefer, it represents need.

  • So the top of the hourglass represents the weighted value of those who “have”. 
  • The bottom half is weighted according to those who “need”.

What does the stem in the middle represent?  It represents the shrinking middle class. It represents those left with little upward mobility who are increasingly in danger of slipping down into poverty. They are the taken for granted backbone of capitalism.
The only thing keeping the system together is that ever narrowing middle class. And when the middle class is wiped out, that hourglass will break.
It will break because of retiring boomers and limited resources here. It will break in the EU from increased competition from immigrants for resources coupled with the rule of law being abdicated.

from wikipedia
Hourglass Economy is an economy that produces more upper and lower classes, causing a decline in the middle class.[1] An example would be during the Industrial Revolution when the introduction of efficient machinery created stratification of the classes with more lower paying unskilled jobs. This can be seen when the peak of a particular business model is growing and the antapex is growing drawing the middle in tighter and tighter.

There is one increasingly possible way the middle of the hourglass can be prevented from breaking. It is totalitarianism. So one way or another the United Colors of Benetton are burning down.- Vince Lanci

For now, lets focus on CT ‘s red herring pitch to take your pension from you.

What they should really be calling this is “Sorry, we messed up, and you aren’t getting paid what you thought”. Here’s our title:

Failed Gov’t proposes reforms that put systems before pensioners  

Here is the BS title

Yankee Institute proposes reforms that put people before pensions

Zachary Janowski

For Immediate Release: 2/22/2016
Contact: Zachary Janowski
Mobile: (860) 384-5777
Email: [email protected]

Yankee Institute proposes reforms that put people before pensions
Solutions can save hundreds of millions over the next two years

Feb. 22 – Lawmakers can change the future of Connecticut by putting people before pensions. Right now, people in our state suffer because we put pensions first.

Families suffer when loved ones don’t receive care. Those cuts happen, in large part, because we budget for pensions before people and then decide how many services we can afford. [ Edit-who receives those pensions, llamas?- Soren]

Younger state workers lose their jobs because the unions that supposedly represent them put pensions before people. [Edit- yes its always the unions, and not your inability to create a budget and retain businesses- Soren]

Commuters lose time with their families in unnecessary and potentially hazardous traffic because we put pensions before people – spending $2 on pensions for every $1 we spend on transportation. [Edit- pensions cause traffic jams. Worse, proper traffic lights are impossible because of a contract you signed and now want to dishonor- Soren]

To address this vexing problem, the Yankee Institute commissioned Securing Our Future: A Menu of Solutions to Connecticut’s Pension Crisis. Backed by a full actuarial model of the State Employee Retirement System, this report outlines options for putting people before pensions and getting Connecticut out of a repeated cycle of deficits. [Edit- do you know why it is a link and actual numbers aren’t included? Because you’d shit if you saw what they want to do -Soren]

[Edit-Here is page 3 of the document hidden behind the link- Soren]

The report was written by Anthony Randazzo and Daniel Takash from the Reason Foundation’s Pension Integrity Project and Adam Rich, a Fellow of the Casualty Actuarial Society and resident of South Windsor.

[Follow our work on pension reform at YankeeInstitute.org/PensionReform]

Pension reform will have an immediate impact on the people of Connecticut. Over the next two years, Connecticut faces deficits of more than $3 billion. Pension reform could save hundreds of millions of dollars over the next two years. It could mean the difference between services continuing rather than being cut, and alleviate the need for yet more tax increases that will hurt homeowners across the state.

If even a few of the reforms in this paper were enacted, [Edit- they are already haggling, see?- Soren] the state could save hundreds of millions of dollars a year in payments to our pension system, and almost $9 billion over the next 30 years. One reform alone – bringing employee contributions up to the national average level of 6 percent – would save $290 million over the next two years.

“For too long, Connecticut has put pensions before people.[Edit- don’t you mean Pensioners before Corrupt Politicians?- Soren] It is time we rethought our priorities so that people come first,” said Carol Platt Liebau, president of the Yankee Institute. “We can prevent a great deal of suffering across our state if we put people before pensions.”

“We have to decide whether retirement benefits for future state workers are more important than people who are actually suffering today,” Liebau said.

“Lawmakers recently refinanced Connecticut’s pension payments. It’s a bit like refinancing the mortgage on a house you can’t afford,” said Suzanne Bates, policy director for the Yankee Institute. “Not a bad first step, but you still need to sell the house.”

The potential solutions in the paper include changes to the governance of SERS; changes to existing benefits that would require approval from state employee unions; and changes to benefits for future workers which could be set in statute by lawmakers.

The proposed reforms will help Connecticut meet a range of goals.

  • Fair. Right now, non-government workers in Connecticut pay extra taxes to support state worker pensions of which they could only dream. This unfair system hurts people at all income levels simply because they don’t work for government.
  • Affordable. Since 2001, pension costs have grown faster than government spending or tax revenue, meaning that other spending priorities have received less funding. Unaffordable pensions mean less care for the disabled, worse road conditions and higher taxes. Unfunded pension promises loom over families and employers as future tax increases when they make decisions about where to live and locate.
  • Stable and transparent. Connecticut has an obligation to keep its retirement promises to current and retired state employees. Modifying future promises is one way to increase the likelihood that existing promises are kept. The recent SEBAC agreement refinanced pension costs to avoid large planned spikes in the future. The agreement did not address unplanned uncertainty. Current projections assume pension fund investments will earn 6.9 percent every year. If returns fall a little short and reach an average of 6 percent (which is higher than recent returns), pension costs in 2040 will go up by 30 percent.

    The current pension system is not transparent. It is impossible to know how much it will cost to pay a state employee’s pension until that employee – or his or her spouse – die, long after he or she stopped working. This lack of clarity makes it difficult to budget. Under the current system, decisions made today will ripple through state finances for decades.

    Connecticut pensions appear similar in overall cost compared to other state systems, but two things make them different. Typically, these comparisons are done relative to payroll. Connecticut state employees tend to earn more than employees of other states, which makes a pension worth the same percent of pay even more valuable. (For example, the average state employee salary here is $10,000 higher than the average salary in Massachusetts, and $5,000 higher than the average in New York.) The second issue is that although the cost as a percentage of payroll is similar to other states, the costs are shared very differently in Connecticut. The most a non-hazardous state employee contributes is 2 percent of payroll. The national average is 6 percent.

Securing Our Future builds on past Yankee Institute projects including Born Broke (2014) on the enormity of Connecticut’s unfunded pension promises and Unequal Pay (2015), which showed Connecticut state employees earn at least 25 percent more than non-government workers with the same skills and experience. In the past six months, Yankee Institute videos on these topics were viewed more than 400,000 times.

The Hartford-based Yankee Institute for Public Policy works to transform Connecticut into a place where everyone is free to succeed. 


Here is the “Reform” Plan that they couldn’t bring themselves to include in their announcement today. 


h/t Brian Johnson

Where is the Piranha when you need him?

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Unsatisfied With Oil Prices, Iraq Calls For New OPEC Meeting

Iraq thinks that OPEC should hold a new meeting to discuss the cartel’s oil production cuts, given the fact that the current oil prices are still below expected levels, according to Iraqi Prime Minister Haider al-Abadi. The price of oil is still below the level that is needed to replenish the budget deficit of Iraq, Kazakh agency KazTag reported on Wednesday, quoting Iraqi media that carried al-Abadi’s statements. Iraq – OPEC’s second biggest producer behind Saudi Arabia – has “tried hard to cut down production volume in…