I know Warren Buffet is hallowed ground for some of you, but the Oracle from Omaha just cobbled together the weakest investment thesis since Yahoo! bought Broadcast.com, making Mark Cuban the luckiest son of a bitch on the face of the planet -&nb…
Via Wolf Richter of WolfStreet.com,
America becomes “Landlord Land.”
“A housing recovery that is highly dependent on real estate investors is a bit of a double-edged sword,” explained Daren Blomquist, senior VP at ATTOM Data Sol…
The post So Who’s Pumping Up This “New Normal” Housing Market? appeared first on crude-oil.news.
For months we’ve argued that record auto sales have been propped up by low interest rates, a perpetual loosening of auto lending standards with terms being stretched to the max and a wave of leases, all of which have allowed the American consumer to trade up to more expensive vehicles while maintaining low monthly payments.
And so far, this perfect alignment of the stars has propelled U.S. auto sales to record highs.
That said, with rates recently on the rise and a flood of lease returns driving down used cars prices (see “Record High Lease Returns Set To Wreak Havoc On Used Car Prices“), the tailwinds that have propelling auto sales to record highs over the past several months look set to change course.
As we noted recently, a quick look at the 61+ day delinquencies in General Motors’ subprime securitization book would seem to support our rather negative thesis on future auto sales with January 2017 delinquency rates soaring to the highest levels since late 2009 / early 2010.
Meanwhile, looking at GM’s subprime data going back to 2001 implies that historical spikes in 2-month delinquency rates is a fairly decent indicator that all is not well.
Unfortunately, at least for the auto OEMs and their investors, at this phase in the cycle the only way to ‘juice’ volume is through artificial market share gains courtesy of excessive incentive spending…which, as we all know, likely signals the beginning of the end of the auto cycle which will quickly be followed by a race to the bottom for OEM profits.
And, right on cue, it looks as if General Motors has kicked off the “Incentive War” with massive YoY increases in incentive on the auto industry’s most profitable segment, pickup trucks. Per Bloomberg:
General Motors Co. boosted incentives on its pickup models this month after its biggest foes gained ground, intensifying a price war within the U.S. auto market’s most hotly contested segment.
Discounts averaged about $6,996 for the Chevrolet Silverado and $5,315 for the GMC Sierra this month through Feb. 12, according to J.D. Power dealer data obtained by Bloomberg News. Incentives on GM’s models surged 56 percent and 82 percent, respectively, from a year earlier as Fiat Chrysler Automobiles NV and Ford Motor Co. dialed back their spending, according to the researcher.
“It’s taking a lot more incentives now to move the metal than it did last year or certainly the year before,” said Michelle Krebs, senior analyst with car-shopping website Autotrader.com. “Things are slowing.”
Of course, the increased incentive spending from GM comes as they ceded market share to both Ford and Chrysler in 2016.
Of course, we suspect that this kind of aggression will not be allowed to go unchecked and will inevitably be matched by Ford and Chrysler.
On your mark, get set, go….
The post GM Pickup Incentives Surge Over 80% As Auto Bubble Continues To Show Signs Of An Imminent Bust appeared first on crude-oil.news.
It appears the Federal Reserve took notice of the overheated stock market and realized they really must be behind the inflation curve. You don`t reach year end targets in the stock market already at all-time highs and haven`t even gotten out of February, and not wake up and realize that you are way behind the asset bubble inflation rate hiking curve.
The Neutral Fed Funds Rate should be at 2.5 to 3% given the same historical comparisons in the employment data, inflation data, retail sales, consumer sentiment, PMI`s, auto sales, etc. and most importantly you don`t have the elephant in the room of a stock market bubble staring you squarely in the face. The Fed needs consecutive 25 basis point rate hikes at each of the next 3-4 FOMC Meetings. This waiting six months between live meetings is not going to cut it anymore, the stock market bubble is out of control!
John Augustine, CIO of Huntington Bank, explains why he thinks the Aramco IPO might go to London over Asia.
crude oilThe post Saudi Aramco IPO could go to London: Expert appeared first on crude-oil.news.
Just hours after Rep. Mark Meadows (R-N.C.), chair of the conservative Freedom Caucus, said he would vote against Trump’s draft ObamaCare replacement bill (that leaked last week), The Hill reports that another influential Republican Committee member, R…
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“One man alone cannot make ‘America great again’. That you have to realize,” warns Marc Faber, the editor of “The Gloom, Boom, & Doom Report,” reminding the world that the US stock market is vulnerable to a seismic sell-off that won’t be caused by any single catalyst. His argument: Stocks are very overbought and sentiment is way too bullish for the so-called Trump rally to continue.
“Very simply, the market starts to go down. As it goes down, it will start triggering selling, and then it will be like an avalanche,” said Faber recently on CNBC’s Futures Now. “I would underweight U.S. stocks.”
Faber, a supporter of President Donald Trump, isn’t blaming the new administration for his bearish forecast:
“Trump, unlike Mr. Reagan, is facing huge, huge headwinds — including a debt to GDP that is gigantic, as it is in other countries.”
Faber lists rising interest rates and record earnings and margins as additional risks to the historic rally.
The Dow Jones Industrial Average closed at a record level for a twelfth consecutive session today with the S&P 500 to see the fewest declines in February than in any month since May 1990.
The investor said that markets in Mexico, Brazil, and Asia also have been picking up significant gains so far this year. However, Faber doesn’t expect the worst-case scenario for all countries that have been benefiting from a strong run.
“China looks quite attractive. For the next three months, money can flow into China. The economy, surprisingly, has begun to do quite well. We see that in retail in Hong Kong. We see that in the hotel industry, and we see that in demand for commodities,” he said.
Faber says that resource commodities such as copper and gold would probably bring the traders solid profits this year.
“When you look at Trump and his administration, and the way the budget is, I think further money printing down the line is inevitable,” he said, stressing that such a policy could push commodities even higher.
The post Dr. Doom’s Back: Marc Faber Warns Markets Will Fall “Like An Avalanche… Trump Can’t Stop It” appeared first on crude-oil.news.
Step aside bitcoin, there is a new blockchain kid in town.
In recent days, the world’s second most popular digital currency, Ethereum, has been surging (despite its embarrassing hack last June when some $59 million worth of “ethers” were stolen forcing the blockchain to implement a hard fork to undo the damage), prompting many to wonder if some big announcement was imminent. It appears that yet again someone “leaked” because on Monday, an alliance of some of the world’s most advanced financial and tech companies including JPMorgan Chase, Microsoft, Intel and more than two dozen other companies teamed up to develop standards and technology to make it easier for enterprises to use blockchain code Ethereum – not bitcoin – in the latest push by large firms to move toward the holy grail of a post-central bank world in which every transaction is duly tracked: a distributed ledger systems.
In total, some 30 companies are set to announce on Tuesday the formation of the Enterprise Ethereum Alliance, which will create a standard version of the Ethereum software that businesses around the world can use to track data and financial contracts. This will be a huge boost to the recently sagging credibility of the technology, which suffered substantial damage during last summer’s previously noted hack, when nearly half the value of Ethereum was wiped out overnight.
According to Reuters, the Enterprise Ethereum Alliance (EEA) will work to “enhance the privacy, security and scalability of the Ethereum blockchain, making it better suited to business applications”, according to the founding companies. Members of the 30-strong group also include Accenture Plc, Banco Santander, BP Plc, Credit Suisse Group AG, UBS Group AG, Banco Bilbao Vizcaya Argentaria, ING Groep NV, Bank of New York Mellon Corp , Thomson Reuters Corp (and startups ConsenSys and BlockApps.
The fascination with ethereum, or bitcoin for that matter, is familiar to fans of the digital currencies: the EEA joins a growing list of joint initiatives by large companies aiming to take advantage of blockchain, a shared digital record of transactions that is maintained by a network of computers rather than a centralized authority, eliminating the need for a central information clearinghouse. The technology is viewed as being harder to corrupt or hack because of its reliance on many people rather than just a single authority.
Companies in a wide range of industries are hoping that it can help them streamline some of their processes, such as the clearing and settling of financial securities.
About 70 financial firms are involved with a R3 CEV, a New York-based startup focused on developing blockchain technology for the finance industry, while technology firms such as IBM and Hitachi are part of the Hyperledger Project, a group led by the Linux Foundation. The EEA underscores the enthusiasm around the nascent technology, but also highlights some of the hurdles that companies must still overcome before they can deploy blockchain on a large scale. This includes ensuring that the technology can support the vast number of transactions processed by large corporations, while being secure enough to meet their stringent security standards.
The new Ethereum alliance has been described by some of its backers as a way to insure that the IBM-led blockchain effort is not the only option for businesses looking to use the technology. Other companies like R3 and Chain have also been developing alternative blockchains.
Several banks have already adapted Ethereum to develop and test blockchain trading applications. Alex Batlin, global blockchain lead at BNY Mellon, one of the companies on the EEA board, said over the past few years banks and other enterprises have increased collaboration with the Ethereum development community, facilitating the creation of the EEA.
“We are pretty equally spending our time across the different chains,” said Alex Batlin, the global head of blockchain at Bank of New York Mellon, which is joining the Ethereum alliance.
Unlike some other collaborative efforts, members do not need to pay a fee to participate in the EEA, for now.
Ethereum was introduced in 2013 by a developer named Vitalik Buterin, then 19, who had previously worked on Bitcoin. Since its official release in 2015, the Ethereum network has been the target of hackers and theft. Yet it has also won a large following among programmers who view it as a new and sophisticated way for groups of people and companies to initiate and track transactions and contracts of all sorts. That has led some companies to bet that Ethereum will win the race to become the standard blockchain for future business operations.
“In every industry that we come across, Ethereum is usually the first platform that people go to,” said Marley Gray, the principal blockchain architect at Microsoft.
Today’s announcement may be just the vote of confidence Ethereum needed by major corporations to catapult it in popularity, and perhaps even overtake bitcoin which suddenly seems like “yesterday’s” technology. Indeed, as the NYT adds, the creation of the Ethereum alliance shows a continuing commitment among big companies to making the technology work, in large part because it promises to create much more streamlined databases that require less back-office maintenance.
It is already reflected in the price, which has soared on the news, and is up 25% over the past week.
The move may be just the beginning if most corporations adopt Ethereum as the distributed ledger standard: accenture released a report last month arguing that blockchain technology could save the 10 largest banks $8 billion to $12 billion a year in infrastructure costs — or 30 percent of their total costs in that area. Accenture is one of 11 companies on the governing board of the Ethereum alliance.
And while the Ethereum network has an internal virtual currency known as Ether, charted above, the value of which has risen and fallen over the last two years (and is now soaring), Ethereum is much more than just a system for tracking currency. It also allows people to write what are known as smart contracts into the Ethereum blockchain. Two companies could, for instance, create a contract that would automatically send money to one of them if a particular news authority reported that the Chicago Cubs won the World Series or that “La La Land” won the Oscar for best picture. (As the last example shows, what would happen if the authority was wrong is a more difficult question.)
Because of its capacity for smart contracts — and other complicated computing capacities — Ethereum is viewed as more agile and adaptable than Bitcoin.
As with Bitcoin, however, anyone can join the Ethereum network and see all the activity on the Ethereum blockchain. The companies working on the Enterprise Ethereum Alliance want to create a private version of Ethereum that can be rolled out for specific purposes and open only to certified participants. Banks could create one blockchain for themselves and shipping companies could create another for their own purposes. The purpose of the alliance is to create a standard, open-source version of Ethereum that can provide a foundation for any specific use case.
* * *
For those who are new to Ethereum and are curious about the distinctions between that technology and bitcoin, below is a quick primer courtesy of CryptoCompare:
1. In Ethereum the block time is set to 14 to 15 seconds compared to Bitcoins 10 minutes. This allows for faster transaction times. Ethereum does this by using the Ghost protocol.
2. Ethereum has a slightly different economic model than Bitcoin – Bitcoin block rewards halve every 4 years whilst Ethereum releases the same amount of Ether each year ad infinitum.
3. Ethereum has a different method for costing transactions depending on their computational complexity, bandwidth use and storage needs. Bitcoin transactions compete equally with each other. This is called Gas in Ethereum and is limited per block whilst in Bitcoin, it is limited by the block size.
4. Ethereum has its own Turing complete internal code… a Turing-complete code means that given enough computing power and enough time… anything can be calculated. With Bitcoin, there is not this form of flexibility.
5. Ethereum was crowd funded whilst Bitcoin was released and early miners own most of the coins that will ever be mined. With Ethereum 50% of the coins will be owned by miners in year five.
6. Ethereum discourages centralised pool mining through its Ghost protocol rewarding stale blocks. There is no advantage to being in a pool in terms of block propagation.
7. Ethereum uses a memory hard hashing algorithm called Ethash that mitigates against the use of ASICS and encourages decentralised mining by individuals using their GPU’s.
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New Zealand widened to a $285 million trade deficit in January with imports rising to a record for the month, led by crude oil. The monthly trade deficit …The post Trade deficit widens to $285m in January, dominated by <b>crude oil</b&g…
Debunking a Lie
Don Watkins of the Ayn Rand Institute wrote an article, The Myth of Banking Deregulation, to debunk a lie. The lie is that bank regulation is good. That it helped stabilize the economy in the 1930’s. And that deregulation at the end of the century destabilized the economy and caused the crisis of 2008.
As of early 2015, Dodd-Frank had imposed altogether 27,670 new restrictions, more than all other laws passed under Obama combined (that is really saying something, considering the regulatory frenzy let loose by his administration. Note: the law may have “only” 2,300 pages, but more than 10 different regulatory agencies have been producing administrative laws for six years in a row to put it into practice – and they are not finished yet. Don’t you feel safer already?
If deregulation is the problem, then re-regulation is the solution. So, in the wake of the crisis, Congress enacted a 2,300-page monstrosity of regulation known as Dodd-Frank.
Watkins does a good job describing government regulation of finance, in particular addressing the savings and loan industry. He gives an example where people commonly assume that Congress reduced regulation, the Graham-Leach-Bliley Act of 1999.
The headline is that this law reduced regulation, and allowed banks to be in the securities business. However, the truth is that it mixed in a dollop of increased regulation.
The economic cost of Dodd-Frank (one guess as to who is going to end up paying for this…). Note: this is not cumulative – the cumulative tally so far is a cost of $36 billion (about $310 per household!); it has so far taken 74.8 million paperwork man hours to create this monster. You will be happy to learn that the law not only makes us perfectly safe, but introduces racial and gender quotas as well. The number of final rules exceeds those generated by Sarbanes-Oxley by a factor of 30 – so far.
I commend him for tackling regulation and the moral hazard of deposit insurance, and calling for real deregulation. However, I must criticize his article. He says:
“By far the most important factor in postwar stability was not New Deal financial regulations, however, but the strength of the overall economy from the late 1940s into the 1960s, a period when interest rates were relatively stable, recessions were mild, and growth and employment were high.”
Here is a graph of the interest rate on the benchmark 10-year Treasury bond from 1946 through 1969.
10 year treasury note yield, 1946 to 1969 – stability looks different – click to enlarge.
Even during the initial smooth period through 1953, the rate of interest climbed 27 percent. By this point, the instability had only just begun. If “into the 1960’s” refers to the last plateau in 1965 before the rate destabilizes further, then the rate was about 4.2%.
This is about double what it had been just 15 years earlier. And at the end of the 1960’s, the interest rate had hit 7.7%, or about 3.5 times where it started.
Watkins gives us a hint that he means that the interest rate destabilized after President Nixon severed the last link to gold in 1971. He says, “…[the] U.S. government cut its remaining ties to gold in 1971. The volatile inflation and interest rates that followed…”
So let’s look at the interest rate for the full period of rising rates, up to the peak hit in 1981.
10 year treasury note yield, 1946 – 1981 (it seems fair to assume that the market already anticipated the coming gold exchange standard default in the 50s and 60s – deficit spending and money and credit supply expansion had rendered it untenable) – click to enlarge.
We can see that it does indeed get worse after Nixon’s ill-conceived act. However, it is just a continuation of the same trend that had been underway since 1946. It’s a combination of rising interest rates with rising interest rate volatility. Both phenomena inflict damage on the economy.
The “Good Monetary Policy” Myth
Watkins claims, “Part of the credit for this [interest rate] stability goes to monetary policy.” He thus contributes — I assume unintentionally — to the myth of monetary central planning.
Myth: central planners were successful for decades, delivering a strong and stable economy. They can do it again. So if our present planners are not getting it right, then we just have to hire the right people.
If our civilization is to have a future, then this myth must come down! In recent decades, most people believed that Fed Chairmen Greenspan and Bernanke administered a strong and stable economy. They called it “the great moderation”. Of course, this view ended with a crash in 2008, along with the markets.
Watkins reinforces the myth in his subsequent discussion of regulation and the savings and loan crisis. He says that New Deal regulation, “collapsed under the pressure of bad monetary policy from the Federal Reserve…” The very phrase “bad monetary policy” implies that there is such a thing as good monetary policy.
There is no such thing as good monetary policy. There is no such thing as effective monetary policy, or monetary policy that does no harm. There are only the times when most people see no overt symptoms, when they don’t realize the damage being done.
And there are times of pain, when reality takes hold again. Since monetary policy can have lags of decades, most people do not know how to ascribe the blame properly.
It is actually not necessary to visit hermits atop tall mountains to find this out… the belief in a scientific monetary policy is no different than any other belief in the efficacy of central planning. It is tantamount to believing in a literal impossibility.
Cartoon by Bob Rich
The Quality of Economic Growth
One economic indicator that may make the postwar economy appear strong is Gross Domestic Product. GDP quadrupled from 1946 to 1969. Unfortunately, GDP is not a measure of the quality of economic activity.
A fever is not a measure of the quality your health, but merely the quantity of calories your sick body is burning. Similarly, GDP is not a measure of the quality of the economy, only the quantity of dollars turned over.
GDP should be understood to be a measure combining destruction plus production. Government waste is added to private activity. And of course, not all private activity is productive.
GDP does not distinguish between the squandering of precious capital during false booms and the genuine productive enterprise. It also includes many other wasteful activities, such as regulatory compliance. A rapidly-rising GDP does not necessarily mean the economy is healthy or stable. In fact, it was not in the postwar period.
What is known as gross domestic product isn’t really “gross” at all, since it ignores the bulk of the production structure. It does however contain activities that don’t generate any wealth, and partly even destroy it. We have discussed a number of the problems of GDP in past missives (see e.g. “The Mirage of Economic Growth”, which inter alia looks at Oskar Morgenstern’s objections to the measure).
Cartoon by Bob Rich
One subtle but deadly problem was described by economist Robert Triffin in 1959. Rational domestic fiscal policy was in conflict with international demand for the US dollar, used as their monetary reserve asset.
The US was obliged — and happy to oblige — to run greater and greater budget deficits. Triffin knew that a crisis was inevitable. It came under the Nixon administration.
The Self-Immolating Gold Standard Myth
I want to pick on a phrase that feeds — again I assume inadvertently — into the anti free market, anti gold standard myth. Watkins uses the passive voice to say that the classical gold standard “had fallen apart during World War I…”.
Most people today, if you press them, will tell you that that a free market contains the seeds of its own destruction. “Falling apart” is precisely what they fear will happen when a free market is unregulated, uncontrolled, and not centrally planned. That’s why they want regulators and central planners.
It needs to be said again and again. No. The classical gold standard did not fall apart!
It was killed by government. In 1913, the Federal Reserve was created. That altered the gold standard the way drinking a bottle of wine alters consciousness. If a drunken worker drives a bulldozer through a house, no one says that “the building had fallen apart.”
Ludwig von Mises noted: “[T]he gold standard is not a game, but a social institution. Its working does not depend on the preparedness of any people to observe some arbitrary rules. It is controlled by the operation of inexorable economic law.” and furthermore: “What the expansionists call the defects of the gold standard are indeed its very eminence and usefulness. It checks large-scale inflationary ventures on the part of governments. The gold standard did not fail. The governments were eager to destroy it, because they were committed to the fallacies that credit expansion is an appropriate means of lowering the rate of interest and of “improving” the balance of trade.”
Photo via mises.org
In addition to the Fed in the U.S., the governments of Britain and Germany and other belligerent powers suspended the gold convertibility of their currencies in 1914. Many people blithely say that the gold standard fell apart. I say, again, it did not.
After the war, the victorious countries claimed they were returning to the gold standard, but instead they created a pseudo gold standard. As everyone knows now, it didn’t work. At least one economist, Heinrich Rittershausen, knew in advance. He warned that this dysfunctional monetary system would cause great unemployment.
Rigorous Economic Logic and a Rational Assessment of History
We, the advocates of liberty, will only succeed if we are rigorous. We must know the facts we present in our writings, and our theories must take these facts in account. Otherwise, we may get a hosanna from the choir, but we will not persuade the mainstream. False facts will not win people who have studied the field.
Objectivism is the philosophy which reveres facts and integrates facts into theories which explain reality. The fact is that since at least 1913, we have not had capitalism (and there was not a free market in banking in 1912, or even in 1812). Instead, since 1913, we have had a central bank.
The Fed has been taking for itself more and more power over the decades. Our central bank administers the interest rate. Interest, being the price of money, affects every other price and every economic decision in the economy. Distorting interest can have terrible consequences, which can come decades later.
More importantly than deregulating — and that is very important — we need to end central planning. The collapse of the Soviet Union proved that even corn production cannot be centrally planned. Corn is a simple product. You put seeds in fertile ground, wait for sun and rain to do their thing, and then harvest it. Yet the Soviets starved.
We are smart enough to know that we can’t centrally plan corn. However, we think we can centrally plan the most complex of man’s products: credit. We must talk about this in plain language. The gold standard of a freer era did not just collapse, without cause.
Power-lusting, war-mongering governments killed it to do away with the discipline it imposed. Then, free from this constraint, they marched men off to worldwide wars twice in 30 years (no, I am not saying that the US had the same moral stature as the European belligerents).
Towards the of the second world war, the US forced the allied powers to agree to a new monetary order at Bretton Woods. The architect of this vicious scheme was Harry Dexter White, a communist and tool of the Soviet Union. Ever since then, the worldwide monetary system has been dominated by the Fed.
And the US has been abusing what Valéry Giscard d’Estaing, the French Minister of Finance in the 1960’s, called the “exorbitant privilege”. The Fed’s central planning could not possibly have delivered stability, as any rational theory tells us. The Fed’s central planning did not in fact deliver stability, as any rational reading of history shows us.