The Fascinating Story Of How The Petrodollar Was Born And Lived In Secrecy For Over 40 Years | Zero Hedge

The Fascinating Story Of How The Petrodollar Was Born And Lived In Secrecy For Over 40 Years | Zero Hedge: "For decades, the story of Saudi Arabia recycling petrodollars, i.e., funding the US deficit by buying US Treasuries with proceeds of its crude oil sales (mostly to the US), while the US sweetened the deal by providing the Saudis with military equipment and supplies, remained entirely in the conspiracy realm, with no confirmation or official statement from the US Treasury department.

Now, that particular "theory" becomes the latest fact, thanks to a fascinating story by Bloomberg which gives the background and details of secret meeting between then-US Treasury secretary William Simon and his deputy, Gerry Parsky, and members of the Saudi ruling elite, and lays out the history of how the petrodollar was born.

Here is the background:

It was July 1974. A steady predawn drizzle had given way to overcast skies when William Simon, newly appointed U.S. Treasury secretary, and his deputy, Gerry Parsky, stepped onto an 8 a.m. flight from Andrews Air Force Base. On board, the mood was tense. That year, the oil crisis had hit home. An embargo by OPEC’s Arab nations—payback for U.S. military aid to the Israelis during the Yom Kippur War—quadrupled oil prices. Inflation soared, the stock market crashed, and the U.S. economy was in a tailspin.
 
Officially, Simon’s two-week trip was billed as a tour of economic diplomacy across Europe and the Middle East, full of the customary meet-and-greets and evening banquets. But the real mission, kept in strict confidence within President Richard Nixon’s inner circle, would take place during a four-day layover in the coastal city of Jeddah, Saudi Arabia.
 
The goal: neutralize crude oil as an economic weapon and find a way to persuade a hostile kingdom to finance America’s widening deficit with its newfound petrodollar wealth. And according to Parsky, Nixon made clear there was simply no coming back empty-handed. Failure would not only jeopardize America’s financial health but could also give the Soviet Union an opening to make further inroads into the Arab world.
 
It “wasn’t a question of whether it could be done or it couldn’t be done,” said Parsky, 73, one of the few officials with Simon during the Saudi talks
As noted above, the framework of the required deal was simple: the U.S. would buy oil from Saudi Arabia and provide the kingdom military aid and equipment. In return, the Saudis would plow billions of their petrodollar revenue back into Treasuries and finance America’s spending."



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Consumer Confidence Plunges To 10-Month Lows As Job 'Hope' Fades | Zero Hedge

Consumer Confidence Plunges To 10-Month Lows As Job 'Hope' Fades | Zero Hedge: "The Conference Board's consumer confidence measure has hovered around the 95 level for the last 6 months (as gas prices dipped and ripped, as stock prices dipped and ripped, and as political chaos reigned). This 'stability' is in stark contrast to other surveys of confidence such as Bloomberg's and Gallup's which are both at multi-month lows... until today. Consumer Confidence plunged to 92.6 (missing expectations of 96.1 by the most since November). May's dismal print (a 3 sigma miss) is below the lowest of 68 economist estimates as expectations slipped modestly but Present Situation tumbled with optimism on jobs sliding to 6-month lows."



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The "Crazy Growth In Corporate Debt" Is Finally Noticed: Bloomberg Issues Stark Warning | Zero Hedge

The "Crazy Growth In Corporate Debt" Is Finally Noticed: Bloomberg Issues Stark Warning | Zero Hedge: "Here Bloomberg notes something else we have been warning about quite literally since 2012: "For the most part, companies aren’t pouring all that money into capital expenditures to increase the efficiency and capacity of their operations. Instead, much of it has been used to finance share buybacks, dividend boosts and acquisitions.""

By now it is a well-known fact that corporations have no real way of generating organic profit growth in this economy (the recent plunge in Q1 EPS was a stark reminder of just that), so they are relying on two things to boost share prices: multiple expansion (courtesy of central banks) and debt-funded buybacks (also courtesy of central banks who keep the cost of debt record low), the latter of which requires the firm to generate excess incremental cash. Incidentally, as SocGen showed last year, all the newly created debt in the 21th century has gone for just one thing: to fund stock buybacks.

One doesn't have to be a financial guru to grasp that the problem with this "strategy" is that if a firm is going to continue to add debt to its balance sheet in order to fund buybacks (and dividends), then it needs to be able to generate enough operational cash flow in order to service the debt. Even if one makes the argument that debt is cheap right now, which may be true, or that central banks are backstopping it, which is certainly true in Europe as of the ECB's shocking March announcement in which the CSPP was revealed, the fact remains that principal balances come due eventually, and while debt can be rolled over, at some point the inability to generate cash from the operations catches up; furthermore even a small increase in rates means the rolling debt strategy is dies a painful death, as early 2016 showed.

Then, as we showed to months ago using another stunning chart from SocGen's Andy Lapthorne, what has gone largely unnoticed in the recent past, is that the differential between the growth rate of net debt and underlying cash flow or EBITDA, now at a staggering 35%, have never been greater, and in fact "Debt Is Growing Faster Than Cash Flow By The Most On Record." As Andy Lapthorne politely put it in the chart below, there is "crazy growth in net debt."

One also does not have to be financial wizard to to know that a firm which has to borrow more than it can generate from core operations is not a sustainable business model, and yet today's CFOs, pundits and central bankers do not.

But more are starting to notice, as the corporate debt pile hits unprecedented proportions.

As Bloomberg writes this morning, when it also issued a stark warning about the next source of credit contagion, while "consumers were the Achilles’ heel of the U.S. economy in the run-up to the last recession. This time, companies may play that role."

Among the warning signs: rising debt, lagging profits and mounting defaults. While the financial vulnerabilities aren’t likely to lead to another downturn soon, economists say they point to potential potholes down the road for an expansion that’s approaching its seventh birthday.

The chart below, very familiar to frequent Zero Hedge readers, is the reason why the next debt crisis will be one where corporations, not individuals, are dragged down. It shows that enticed by record-low interest rates, companies increased total debt by $2.81 trillion over the past five years to a record $6.64 trillion. In 2015 alone, liabilities jumped by $850 billion, 50 times the increase in cash by S&P’s reckoning.

Others are finally noticing too that thanks to ultra low rates, and in a world in which cash flow is increasingly more scarce, corporations have only one choice: to lever up as much as their creditors will let them. To wit:

"Companies have been adding to their debt and their debt has been growing more rapidly than their profits," said John Lonski, chief economist of Moody’s Capital Markets Research Group in New York. "That imbalance in the past has usually led to problems" in the economy as companies cut back on spending and hiring.

This time will not be any different: case in point is last week’s news that so-called core capital goods bookings fell for the third straight month in April. The seasonally-adjusted total of $62.4 billion for non-defense orders excluding aircraft was the lowest in five years, prompting Neil Dutta of Renaissance Macro Research to label business investment “pathetic.”

Bloomberg's troubling analysis of matters well known to most "skeptics" continues:

The similarities between the pre-recession debt binge by consumers and today’s burst of borrowing by companies are striking.Like households, corporations are using the money for short-term purposes rather to prepare themselves for the future. They’re basing their bets on rosy expectations that may not pan out. And it’s the bottom 99 percent that are most at risk should credit conditions tighten.

Even the tradtional fallback response, namely that cash is at all time highs, no longer works: "While corporations as a whole possess a record $1.84 trillion of cash and liquid investments, it’s heavily concentrated among a small number of companies, mainly in the technology sector, according to a study this month by S&P Global Ratings analysts Andrew Chang and David C. Tesher." Hardly news to our readers, consider it was back in January 2014 when we wrote that "Corporations Have Record Cash: They Also Have Record-er Debt, As Net Leverage Soars 15% Above Its 2008 Peak."

In the two and a half years since then, the situation has only gotten far more dire, and not even the record cash hoard is good enough to offset fears that it is all coming to a head:

The rich are getting richer as companies such as Apple Inc. and Microsoft Corp. add to their cash hoards, they wrote in their report.

Take away the $945 billion the 25 richest companies rated by S&P hold, and the picture doesn’t look particularly pretty for the bottom 99 percent of non-financial corporations. In fact, their cash-to-debt ratios are at their lowest levels in a decade, according to S&P. And more than 50 U.S. companies have defaulted on their debt so far this year.

Behind the deterioration in creditworthiness: surging corporate borrowing. Enticed by record-low interest rates, companies increased total debt by $2.81 trillion over the past five years to a record $6.64 trillion. In 2015 alone, liabilities jumped by $850 billion, 50 times the increase in cash by S&P’s reckoning.

Here Bloomberg notes something else we have been warning about quite literally since 2012: "For the most part, companies aren’t pouring all that money into capital expenditures to increase the efficiency and capacity of their operations. Instead, much of it has been used to finance share buybacks, dividend boosts and acquisitions."

Since 2009, S&P 500 companies have spent more than $2 trillion to repurchase shares, helping sustain a rally where stock prices almost tripled. Mergers and acquisitions worldwide, meanwhile, jumped about 28 percent last year to a record $3.52 trillion, according to data compiled by Bloomberg.

Not surprisingly then that as companies reach their investment great thresholds (IBM famously halted buybacks a couple of years ago when the rating agencies threatened to cut it from Investment Grade to Junk leading to the biggest drop in the stock price since the crisis), in the absence of cash flow growth, they are finally cutting back on using debt to boost their stock price:

Now, both buybacks and takeovers are starting to tail off as companies increasingly feel the pinch from sagging profits. S&P 500 earnings from continuing operations fell 7.1 percent in the first quarter from a year earlier, data compiled by Bloomberg as of May 27 show. Even after stripping out energy companies hit hard by weak oil prices, earnings were still off by 1.5 percent.

The pressure will only keep rising:  "there is newly intensified, broad-based pressure on business to cut capital spending and inventories,” David Levy, chairman of consultant Jerome Levy Forecasting Center LLC in Mount Kisco, New York, wrote in a report to clients this month.

Meanwhile, stagflation is starting to rear its ugly head, as earnings are being squeezed by lagging worker productivity and mounting labor costs as the tightening job market forces companies to pay employees more.

We warned about precisely this two months ago in "The Next Big Problem: "Stagflation Is Starting To Show Across The Economy."  This means that as the government pushes for increasingly more labor friendly policies, corporate profits at companies already levered to the hilt, are set to decline in the coming quarters even more.

Corporations also are confronting downsized economic-growth expectations. Richmond Federal Reserve Bank President Jeffrey Lacker told Bloomberg News this month that he now pegs the potential growth rate of the U.S. economy at 1.5 percent. That’s half the average pace in the quarter century that preceded the December 2007 start of the last recession.

It’s not only the U.S. where GDP is lagging. “We are seeing a slowdown in emerging and developing countries as well, and it looks increasingly likely that long-run, or potential, growth has fallen,” David Lipton, the International Monetary Fund’s No. 2 official, said at the Peterson Institute on May 24.

Bloomberg concludes that Lonski of Moody’s said it’s premature to predict that the U.S. is heading into a recession because the labor market is still strong. But the squeeze on companies is “a risk factor that’s worth watching.”

To an extent he is right: as long as rates remain low, companies will likely be able to generate a higher rate of return on their newly issued debt, assuming it does not go entirely into stock buybacks, than the cost of that debt. As such, profits should continue even if sharply reduced.

However, there is one thing that could easily derail this ever greater "risk factor" of unprecedented corporate leverage: rising rates. Ironically, that is precisely what the Fed intends to do in the coming months.

There is a saying that "economic expansions don't die of old age", and that instead it is Fed rate hikes that launch recessions. Well, as Deutsche Bank has been loudly warning in recent weeks, this is precisely what the Fed intends to do if and when it hikes rates once again in the coming weeks. Because all that the next debt crisis needs is a spark...

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Here's Proof That The US Dollar Is Insanely Overvalued | Zero Hedge

Here's Proof That The US Dollar Is Insanely Overvalued | Zero Hedge: "Shocking. Astonishing. Jaw dropping.

There’s just no other way to describe how cheap South Africa is right now.

Between the worldwide decline in commodities prices, and a major crisis of confidence in the national government here, the local currency (South African rand) remains at the lowest level it’s been… ever.

And that’s made nearly EVERYTHING here dirt cheap if you’re spending foreign currency… especially US dollars.

Just doing something simple like eating out at a restaurant or going to the grocery store can be startling.

Once you do the math and convert the prices back to US dollars, it almost seems like you’re missing a zero.

This also carries over into many asset prices, including certain areas in the property market."

There’s just no other way to describe how cheap South Africa is right now.

Between the worldwide decline in commodities prices, and a major crisis of confidence in the national government here, the local currency (South African rand) remains at the lowest level it’s been… ever.

And that’s made nearly EVERYTHING here dirt cheap if you’re spending foreign currency… especially US dollars.

Just doing something simple like eating out at a restaurant or going to the grocery store can be startling.

Once you do the math and convert the prices back to US dollars, it almost seems like you’re missing a zero.

This also carries over into many asset prices, including certain areas in the property market.

Here in Johannesburg, I saw an amazing home for sale in one of the nicest, upscale neighborhoods with an asking price of about $515,000 US dollars.

Now, half a million bucks might not sound terribly cheap– until you find out what you’re getting for the money.

The house is an enormous seven-bedroom compound of nearly 13,000 square feet.

Pool. Courtyard. Fountains. Private chef’s kitchen. Parking for eight. Separate home for live-in staff. Wonderful neighborhood with top schools, shops, and restaurants.

Something like this would go for at least 20 times that price in Los Angeles, and 40 times the price in London.

Much of this price mismatch is due to the currency anomaly– that the South African rand is so undervalued, AND that the US dollar is so overvalued.

Perhaps this is most obvious when looking at the travel package I just bought.

Longtime readers know that I’m a big fan of special “round the world” fares that major airline alliances offer.

I’ve written about this before— all three of the major global airline alliances offer special fares for passengers when you travel completely around the world.

A typical journey might be, for example, Los Angeles to London to Singapore to Sydney and back to Los Angeles again.

That itinerary takes you all the way around the world, and you’ll pay one simple fare that’s usually quite attractive.

Typically the round-the-world fare is calculated based on the country where you depart.

So if your journey starts and stops from London, your fare will be quoted and priced in British pounds.

But if your journey starts and stops in Los Angeles, your fare will be quoted and priced in US dollars.

The strange thing is that when you convert the currencies, the amounts won’t match even though the journey is essentially the same.

In other words, LA-London-Singapore-Sydney-LA costs $11,400, while Sydney-LA-London-Singapore-Sydney costs AUD 13,600, or about $9,875 USD.

That’s more than a $1500 difference.

This doesn’t make any sense since both itineraries are comprised of the exact same flights, i.e. Sydney to LA, LA to London, London to Singapore, Singapore to Sydney.

The flights are simply in a different order. That’s all. The price should be more or less the same.

And yet, due to these major anomalies in the currency markets, there are major differences in the fares.

Here in South Africa, I’ve just booked a business class ticket that goes from Johannesburg to Asia, then the US, Chile, Madrid, London, and back to Johannesburg.

The price I paid was 70,000 South African rand.

But due to the rand being near it’s all-time low, that’s the equivalent of just $4,500.

To put this in perspective, the same itinerary starting and stopping in the US costs about $12,500 in business, and over $6,600 in economy class.

Crazy. I paid 30% less to fly in business class for the exact same flights that someone would pay in US dollars to fly in economy class.

Clearly this makes no sense (but I’m happy to take the deal).

The reason is obvious: the rand is undervalued relative to the US dollar.

Ten years ago it was the opposite: the US dollar was deeply undervalued relative to other currencies.

Oil was expensive, and major commodities exporters from Brazil to Australia, and even here in South Africa, had overvalued currencies.

Now the pendulum has swung in the other direction.

Commodities prices have plunged, and those same exporters are experiencing major economic slowdowns. Their currencies have all been punished.

Undoubtedly the right equilibrium is somewhere in the middle.

But markets rarely find the equilibrium. They almost always overcorrect.

So now the rand has plummeted and become absurdly weak, while it’s the US dollar that has become extremely expensive.

Sure, it’s possible that the dollar becomes even stronger (and the rand weaker).

But these things routinely go in cycles, and there will be a correction. There always is.

So anyone who owns US dollars has an opportunity right now to trade overvalued pieces of paper for undervalued real assets… as long as you look abroad.

Part of being a Sovereign Man is having a global view– expanding one’s thinking to the entire world.

I’ve written before about how our company is acquiring or has already purchased productive farmland in central Chile, deeply undervalued, profitable businesses in Australia, and real estate in Colombia.

These are all REAL assets. And as long as central bankers continue to print paper money without restraint or regard for the consequences, it’s critical to own something real.

Gold and silver are also real assets, and both are historically inexpensive relative to the US dollar.

Bottom line: take advantage of this opportunity to trade your paper for something of value. It won’t last.

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Trump outlines ‘America First’ energy plan | TheHill

Trump outlines ‘America First’ energy plan | TheHill: "Environmental groups declared that Trump’s speech showed his administration would be disastrous for the environment.

“Trump's divisive language has made him a shocking candidate, but today he just pandered to the fossil fuel industry with a carbon-copy energy plan that could have been lifted directly from [Senate Majority Leader] Mitch McConnell,” David Willett, spokesman for the League of Conservation Voters, said in a statement.

“As Big Polluters’ new best friend, Trump’s 'plan' is pro-drilling, anti-EPA and is dangerous to our clean air and water. It does nothing to arrest our rapidly changing climate and the extreme weather already impacting Americans,” he added.

“Today's speech from Donald Trump reads like a love letter to big corporate polluters and a Dear John letter to our future,” said Tom Steyer, a billionaire environmentalist and Democratic donor.

“Trump’s energy policies would accelerate climate change, protect corporate polluters who profit from poisoning our air and water, and block the transition to clean energy that is necessary to strengthen our economy and protect our climate and health,” he said."



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Three Weird Consequences Of NIRP | Zero Hedge

Three Weird Consequences Of NIRP | Zero Hedge: "The Bank Pays You to Borrow

In normal times, you borrow cash from a bank and repay it slowly over time. When interest rates go below zero, the bank might have to pay you. It's happening right now in Denmark, where banks are paying interest to thousands of borrowers, instead of the other way around. 

The pressure is spreading, too. Homeowners in Spain and Portugal with variable-rate mortgages are demanding their banks pay them. Their loans are tied to a benchmark rate called Euribor, which is now below zero. The laws and contracts didn't imagine any such scenario-but the math says banks should be paying borrowers.

Spanish and Portuguese banks are fighting for legal protection from this. Will they succeed? Maybe not. Banks themselves routinely argue that contracts are sacred when they want to foreclose on someone. Now the shoe is on the other foot and they don't like it at all.

Banks Demand Free Money

Banks make money on their interest rate “spread.” That's the difference between their cost of funds (interest paid to depositors, for instance) and the interest they collect from borrowers. The wider the spread, the greater the bank's profitability.

This doesn't work so well when interest rates are negative, so US banks are looking elsewhere for income. They freaked out this year when Congress changed a law that allowed them to collect tax-free, no-risk 6% dividends on their shares in the regional Federal Reserve Banks.

The American Bankers Association, considering a legal challenge, asserted in a letter to the Fed that banks have a Constitutional right to free cash from the Fed. Even Congress can't take it away, say the bankers.
The idea seems preposterous, so we'll see what courts think. But the fact that banks would make such a bold claim suggests they are desperate for revenue. 

We'll see more weirdness if the winds of deflation and the perversions of negative interest rates persist."



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Americans Bought The Most New Homes In 8 Years Just As The Median Price Hit An All Time High | Zero Hedge

Americans Bought The Most New Homes In 8 Years Just As The Median Price Hit An All Time High | Zero Hedge:



"Ok Janet, we get it, you want to telegraph a rate hike, but surely there are more subtle and less entertaining ways to do that."

here was a lot of headscratching in today's New Home Sales reported released moments ago by the Census Bureau, according to which there was a whopping 619K new home sold in April, up from the upward revised 531K (was 511K), and smashing expectations of a 523K print, driven by a surge in Northeast home sales which soared unexpectedly from 36K in March to 55K in April, a completely unexplained 53% spike.

The head-scratching is most prevalent among the 75 economists who attempted to forecast this number... but missed by 17 standard deviations!!

Here is what drove the overall surge: a clearly "goalseeked" number resulting from a massive surge in Northeast sales, one which will be promptly revised lower next month.

Finally, adding fabricated data insult to intellectual injury, we learn that Americans - the same consumers who according to recent retail data are loath to even go out and buy clothes - rushed out to buy new homes in the month when the median new home sale price just hit an all time high of $321,100.

Ok Janet, we get it, you want to telegraph a rate hike, but surely there are more subtle and less entertaining ways to do that.

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U.S. Households’ Mortgage Debt Rises to Four-Year High, Fed Says - Bloomberg

U.S. Households’ Mortgage Debt Rises to Four-Year High, Fed Says - Bloomberg: "Increased mortgage borrowing was behind a 1.1 percent rise in U.S. household debt in the first quarter, with slowdowns in other areas such as credit-card balances and auto loans, according to the Federal Reserve Bank of New York.
Total mortgage debt rose 1.5 percent from the final quarter of 2015 to $8.37 trillion, marking the highest level since the third quarter of 2011, according to the New York Fed’s quarterly report on household debt and credit, released Tuesday. Auto-loan debt rose to a record high of $1.07 trillion in data going back to 2003, but logged the smallest percentage increase since 2012."



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Maker's Row is helping businesses get their products 'Made in the USA'

Maker's Row is helping businesses get their products 'Made in the USA': "There also is the perception that the "made in the USA" label is synonymous with good craftsmanship.

Burnett said he was surprised by the number of Chinese businesses that contacted them, seeking American factories to produce goods that they intend to sell in China."



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Failing Central States Pension Fund is out of options - May. 20, 2016

Failing Central States Pension Fund is out of options - May. 20, 2016: "The Central States Pension Fund has no new plan to avoid insolvency, fund director Thomas Nyhan said this week. Without government funding, the fund will run out of money in 10 years, he said.
At that time, pension benefits for about 407,000 people could be reduced to "virtually nothing," he told workers and retirees in a letter sent Friday.
In a last-ditch effort, the Central States Pension Plan sought government approval to partially reduce the pensions of 115,000 retirees and the future benefits for 155,000 current workers. The proposed cuts were steep, as much as 60% for some, but it wasn't enough. Earlier this month, the Treasury Department rejected the plan because it found that it would not actually head off insolvency."



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Cash-Stuffed Balance Sheets No Match for U.S. Company Debt - Bloomberg

Cash-Stuffed Balance Sheets No Match for U.S. Company Debt - Bloomberg: "There’s more cash sitting on company balance sheets than ever before. For the first time since 2012, that’s not enough.
Combining all of the corporate cash in the U.S. wouldn’t cover the $1.8 trillion of corporate debt that’s coming due in the next five years, according to a report by Moody’s Investors Service on Friday. That’s because U.S. companies have been borrowing more quickly than they’ve built up the record $1.68 trillion of cash on their balance sheets. And more of that debt comes due sooner."



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U.S. existing home sales

U.S. existing home sales: "The number of unsold homes on the market rose 9.2 percent to 2.14 million in April from March, but was down 3.6 percent compared to a year ago."



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US slaps China steel imports with fivefold tax increase - BBC News

US slaps China steel imports with fivefold tax increase - BBC News: "China's Ministry of Finance has not directly responded to the US ruling but on its website this morning it has said that China will maintain its tax rebate policy for steel exports as part of its efforts to help the bloated steel sector recover."



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The Trade Wars Begin: U.S. Imposes 256% Tarriff On Chinese Steel Imports | Zero Hedge

The Trade Wars Begin: U.S. Imposes 256% Tarriff On Chinese Steel Imports | Zero Hedge: "Which also means that now that the US has fired the first trade war shot, it will be up to China to retaliate. It will do so either by further devaluing its currency or by reciprocating with its own protectionist measures against the US, or perhaps by accelerating the selling of US Treasurys. To be sure, it has several choices, clearly none of which are optimal from a game theory perspective, but now that the US has openly "defected" from the "prisoner's dilemma" game, all bets are off."



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China Sends Hawkish Fed A Message - Devalues Yuan Near 2016 Lows | Zero Hedge

China Sends Hawkish Fed A Message - Devalues Yuan Near 2016 Lows | Zero Hedge: "Just as we warned was probable, The PBOC sent a message loud and clear to the newly hawkish Fed following today's surge in the dollar after the minutes were released. With the 2nd biggest daily devaluation since the August collapse, China pushed the Yuan fix against the USD down to its lowest since early February - barely above the January lows. As we warned earlier, the China-Panic trade looms loud now as turmoil appears all that is left to stop The Fed unleashing another round of liquidity-suckiong rate hikes sooner than the market wants.

All eyes have been firmly focus on the Yuan's move against the USD but in fact the Yuan has been falling non-stop against the world's major currencies..."



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Philly Fed Flounders To 3-Month Lows As New Orders Tumble | Zero Hedge

Philly Fed Flounders To 3-Month Lows As New Orders Tumble | Zero Hedge: "March's epic - and utterly embarassing - spike is now nothing but an aberration as for the eight month of the last nine, Philly Fed's business outlook remains firmly in negative territory. With hope-strewn expectations of a +3.0 print, Philly Fed dropped from -1.6 to -1.8 with New Orders tumbling back into contraction. While the headline data dropped, "hope" was also dashed as 6-month expectations for inventories (not good for GDP) and employees (not good for Fed meme) tumbled."



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Initial Jobless Claims Worse Than Expected, Near 3-Month Highs | Zero Hedge

Initial Jobless Claims Worse Than Expected, Near 3-Month Highs | Zero Hedge: "Following the last two weeks' dramatic surge in initial jobless claims it was expected that a pull back would occur and it did but the last week's 278k print is still worse than expected - the third weekly miss in a row (the first time since January). The downtrend remains 'broken' as the 4-week-average prints at 3-month highs, catching up to weakness in layoffs, earnings, macro data, ISM/PMI surveys, and retail stocks."



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US weekly jobless claims total 278,000 vs 275,000 estimate

US weekly jobless claims total 278,000 vs 275,000 estimate: "In a separate report, the Philadelphia Federal Reserve said its business conditions index fell to minus 1.8 this month from a reading of minus 1.6 in April. The index has registered a negative reading in eight of the last nine months.

Details of the survey were mixed, with a measure of new orders contracting after being flat in April. Current shipments, however, rose 10 points and a gauge of inventories increased to a nine-month high."



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Auto loans roar to trillion dollar level

Auto loans roar to trillion dollar level: "Experian's early analysis of auto loans held in the first quarter of the year also found a slight increase in the amount of money being borrowed by those with subprime credit ratings. The percentage of loans 30 and 60 days' delinquent edged slightly higher. Experian said 2.1 percent of all auto loans were 30 days delinquent in the first quarter while 0.6 percent were 60 days past due."



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WTF Chart Of The Day: 'Broken Markets' Edition | Zero Hedge

WTF Chart Of The Day: 'Broken Markets' Edition | Zero Hedge: "Presented with no comment... ok one word - "seriously!"

Because there's only one way to stop markets falling... stop people trading!!"

Presented with no comment... ok one word - "seriously!"

Because there's only one way to stop markets falling... stop people trading!!

2 NYSE "glitches" and 2 US equity market ramps...

Source: NYSE

Pure coincidence we are sure.

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What The Biggest Hedge Funds Did In Q1: The Full 13-F Summary | Zero Hedge

What The Biggest Hedge Funds Did In Q1: The Full 13-F Summary | Zero Hedge: "Cutting back equity exposure

As noted earlier, the value of Soros Fund Management’s publicly disclosed holdings dropped by 25% to $4.5 billion as of the end of the first quarter. He was not alone in rapidly derisking his portfolio. At Glenview Capital Management, the hedge fund run by Larry Robbins, investments in U.S.-listed stocks declined by 22 percent. At Louis Bacon’s Moore Capital Management, the value of the holdings fell by about 29 percent.

Gold

Gold is gaining popularity among prominent investors. Soros established a $264 million position in Barrick Gold Corp., acquiring a 1.7 percent stake in the world’s biggest bullion producer that was the fund’s biggest equity position. Soros also disclosed owning bullish options on 1.05 million shares in the SPDR Gold Trust, an exchange-traded fund tracking the price of bullion. Other major investors also sought safety in the yellow metal. Eton Park purchased 3.6 million shares in the same gold ETF, a $422 million position. Bessemer Group bought 546,000 shares valued at $64.3 million.

As has become the norm, John Paulson once again went the other way and cut his holdings in the gold ETF. Paulson & Co. owned 4.8 million shares of ETF at the end of the first quarter, compared with 5.8 million as of Dec. 31. Instead he bought over $50 million worth of Office Depot stock which suffered a spectacular collapse after its merger with Staples was also terminated shortly after."



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Who Bought And Sold Apple In The First Quarter | Zero Hedge

Who Bought And Sold Apple In The First Quarter | Zero Hedge: "Much was made of Berkshire's unexpected infatuation with AAPL yesterday (which was not actually driven by Buffett but by one of his new ex-hedge fund heirs, Todd Combs and Ted Weschler, who have "shown a willingness to wade into other corners"), which catalyzed the recently beaten down stock's biggest surge in months.  Not as much was made of the selling in AAPL in the first quarter, but perhaps it should have been because while the Top 20 buyers of AAPL stock added a grand total of 101.5 million shares, the Top 20 sellers liquidated 50% more, or 157.5 million.

Additionally, if one adds up all the changes in AAPL stock as of March 31 as reported per the latest batch of 13F, there was a grand total of 58.7 million net AAPL shares sold, which explains the company's declining stock price4 in the quarter.

Finally, for those curious who the top 20 buyers and sellers of AAPL stock were in the first quarter, here is the full breakdown.

"







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America's Age Of Impunity | Zero Hedge

America's Age Of Impunity | Zero Hedge:

"JP Morgan CEO Jamie Dimon, whose bank has paid well over $30 billion in fines while Dimon remains CEO with a $27 million salary for 2015. "



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JPMorgan Chase & Co. (JPM) management assures growth in ROE during 2017

JPMorgan Chase & Co. (JPM) management assures growth in ROE during 2017: "Merrill Lynch analyst changed his stance regarding JPM stock to a more positive one as he believes that his confidence has been renewed regarding overall ROE improvement following the discussion with Mr. Sommers. Furthermore, the analyst now assumes that JPM will see stability in revenue from card consumers, which lacks any concrete ground as it was not a part of the meeting agenda, but, given the insight to management’s attempt the revenue is more than likely to stabilize.

The company’s ROE has been 18% for the past three years in a row and Merrill Lynch now projects the ROE CCB to go to 20% in the next year. The analyst reaffirmed a Buy rating with a price target of $72.

The analyst opinion for JPM stock is 10 strong Buy, 16 Buy, four Hold and two Underperform. The stock is now traded at $61.29 in the first hour of trading session."





Analyst opinion JPM



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Revealed: Saudi Arabia owns $117 billion of U.S. debt - May. 16, 2016

Revealed: Saudi Arabia owns $117 billion of U.S. debt - May. 16, 2016: "One of the biggest mysteries in global finance was just revealed: How much U.S. debt Saudi Arabia owns.
Saudi Arabia stockpiled $116.8 billion of U.S. Treasuries as of March, the Treasury Department announced on Monday, ending four decades of keeping the figure secret.
That makes Saudi Arabia the 13th largest foreign holder of U.S. debt, though well behind the $1 trillion-plus owned by China and Japan each. The Saudi figure was first reported by Bloomberg News based on a Freedom of Information Act request.
Unlike with most other major owners of U.S. debt, the Treasury Department kept Saudi Arabia's precise holdings secret since the 1970s. Saudi's holdings were lumped together with that of other oil exporting nations, including Venezuela and Iraq.
But that policy ended on Monday as the Treasury Department disclosed precise holdings by specific countries that were previously grouped together. A Treasury official told CNNMoney the move was made following a review aimed at trying to provide more "comprehensive and transparent" data.
The new Treasury report also revealed that the Cayman Islands, a country of less than 60,000 people, owned $265 billion of U.S. Treasuries as of March. That's the third-highest sum in the world and a reflection of the nation's status as a major tax haven. The Cayman Islands does not have a corporate tax, encouraging multinational companies to store vast sums of money there to avoid taxes.
Likewise, Bermuda, another popular tax haven, is sitting on $63 billion of U.S. debt. Previously both the Cayman Islands and Bermuda were lumped together in a group of Caribbean banking center nations.
It is possible that Saudi Arabia owns even more U.S. debt than what was revealed on Monday. That's because Saudi Arabia's central bank listed owning $587 billion of foreign reserves as of March. Typically, central banks park the majority of their foreign reserves in U.S. Treasuries. In other words, the numbers don't really add up.
One possibility: Saudi Arabia could be taking a page out of China's playbook. Many analysts believe China owns U.S. debt through custodial accounts in Belgium, a relatively tiny country that listed owning over $154 billion of U.S. Treasuries as of March."



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George Soros bets big against U.S. stocks - May. 17, 2016

George Soros bets big against U.S. stocks - May. 17, 2016: "George Soros is bracing for a stock market storm.
The legendary investor doubled his negative bet against the S&P 500 to more than $430 million, according to regulatory filings made public this week.
Soros, known as the "man who broke the Bank of England," is instead investing in gold. He plunked down $387 million to amass new positions in a gold ETF and also bought shares of Barrick Gold (ABX), the world's largest gold miner in the first quarter. Gold tends to do well when people are afraid.
Those three bets are now among the largest in Soros' hedge fund and reflects how downbeat he is on U.S. markets. Earlier this year Soros sounded the alarm on global financial markets by saying the situation in China reminds him of the 2008 crisis."



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Mutiny Among The "Magic People" - India Central Banker Admits "The Ammo Is Almost Gone" | Zero Hedge

Mutiny Among The "Magic People" - India Central Banker Admits "The Ammo Is Almost Gone" | Zero Hedge: " 
The self-described "magic people" who "give to the markets" are facing a mutiny this morning as Raghuram Rajan, the head of the Indian central bank, admits central banks and governments of rich countries are running out of ammunition for stimulating their economies... but they can never admit as much. Crushing the dreams of "extreme monetary policy"-setters, Rajan goes on to discuss the sanity of 'helicopter money' warning that people will not be 'stimulated' to spend but will question: "What kind of world are we in when the central bank prints money and throws it out of the window?"

Blasphemy!!"

Although Mr Rajan said there were limits on stimulus, he said central banks “cannot claim to be out of ammunition because immediately that would create the wrong kind of expectations, so there’s always something up their sleeves”.

Mr Rajan said he was a supporter of stimulus policies to “balance things out” over short periods when households or companies were proving excessively cautious with their spending. But eight years after the financial crisis, we “have to ask ourselves is that the real problem?”.

“I have this image of stimulus as a bridge,” he said. “As the economy goes down, there is an expectation it will come up. Stimulus is a bridge which smoothes over the growth rate of the economy and prevents damaging expectations from building up.”

If stimulus went on for a long time, if it did not work, he said, the adjustment would be sharp, indicating there was little room for further stimulus.

Mr Rajan warned governments not to rely too much on fiscal stimulus through cutting taxes or increasing public spending. “If your debt to GDP is over 100 per cent, [and you] do more fiscal stimulus, you’d better have a pretty high rate of return in mind, otherwise your younger and middle-aged generations are thinking ‘This thing is not going to return enough, but I’m going to have to pay for it’.”

Central bankers were also under “stress” to stimulate more when inflation was below target, Rajan continued to explains to The FT...

The most extreme forms of stimulus — such as “helicopter money”, where the central bank prints money so that governments can give a cheque to their citizens — were unlikely to work, Mr Rajan said.

The Bank of Japan and the European Central Bank are under pressure to consider such a move but Mr Rajan said there was a good chance households would see the move as a sign of panic rather than a sign to spend more.

“Is the advent of helicopter money going to result in everybody going out and spending as though there is no tomorrow when they get a cheque? Or are they going to ask, ‘What kind of world are we in when the central bank prints money and throws it out of the window?’”

Mr Rajan said that instead of seeking stimulus, people should recognise that slower growth was probably a part of ageing economies and perhaps the result of low interest rates, which protected inefficient companies from going out of business.

Which makes no sense whatsoever... because the central planners are "magic" and can do anything, right? Just look at the 'markets'...

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Empire State manufacturing survey at -9.02 vs. 7.25 reading expected

Empire State manufacturing survey at -9.02 vs. 7.25 reading expected: "Factory activity in New York shrank in May after expanding for two months, as manufacturers received fewer orders and shipments fell.

The Federal Reserve Bank of New York says that its Empire State manufacturing index slumped to minus 9 in May, after reaching 9.6 the previous month. Any reading below zero points to contraction.

The figures suggest that factories in the state continue to struggle despite growth in March and April. Factory output nationwide has been sluggish in the past year as a weak global economy has lowered exports and U.S. businesses are spending less on equipment and machinery.

A measure of new orders fell to minus 5.5, from 11.1 the previous month. And a gauge of shipments also slipped into negative territory, falling to minus 1.9 from 10.2.

"



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Another Headline Head Fake - The Consumer Can't Save The U.S. Economy | Zero Hedge

Another Headline Head Fake - The Consumer Can't Save The U.S. Economy | Zero Hedge: "After a week in which all the big retailers—Macy’s, Kohl’s, Nordstrom’s, Gap, JC Penney, Dillard’s——reported exceedingly downbeat results for their April quarter, it is not surprising that the Census Bureau’s statistical fabrication mill reported robust April retail sales. Likewise, you could count on the financial press to trot out the superlatives, as in the case of the Reuters’ headline proclaiming, “U.S. retail sales rise strongly, boost economic outlook”:

U.S. retail sales in April recorded their biggest increase in a year as Americans stepped up purchases of automobiles and a range of other goods, suggesting the economy was regaining momentum after growth almost stalled in the first quarter…….”The retail sales report shows that recent claims of the demise of the U.S. consumer have been greatly exaggerated,” said Steve Murphy, a U.S. economist at Capital Economics in Toronto.
Not exactly. Retail sales of $450.89 billion in April were down 2% from $460.1 billion in March.

Yes, April has one fewer day than March so there is a matter of seasonal adjustment. But that’s where the shenanigans start.

The Census Bureau reported seasonally adjusted April sales of $453.44 billion, up by a headline catching 1.3% from March.

But then again, based on the seasonal adjustment factor used in 2011, the SA number would have been $450.35 billion, up only 0.6%; and had the 2014 seasonal adjustment factor been used, headline sales would have been $452.6 billion, representing an in-between gain of 1.0%.

Then we also have Easter falling in April during both of the latter two years versus March 27th this time; and in all years there were April showers, too, normal or not!

For crying out loud, seasonally-maladjusted, weather-whacked single month deltas from the rickety government statistical mills are only one step removed from noise. But they are seized upon by the financial press because the latter are exceedingly lazy and always on the prowl for anything that might be “good news” for the stock averages.

But that’s what Bubble Finance has come to. Namely, a cult of the daily stock market that is so myopic, superficial and sycophantic that it has practically reduced financial journalism to noise, as well."



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Exposing The Job Market Reality - Only Purple Squirrels Need Apply | Zero Hedge

Exposing The Job Market Reality - Only Purple Squirrels Need Apply | Zero Hedge: "The point is that the difference between the number hired and the number of job openings is not merely shrinking, but has plunged to a negative half a million jobs. How can that be happening at the same time most headlines suggest the job market is strong?

When the number of job openings surges so much faster than economic growth, it results in a large and growing divergence between those ostensible job openings and authentic hiring. This is not an indication of a truly tight labor market. If it were, wages would be soaring, whereas wage growth has actually declined in real terms since last fall."



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Middle Class Shrinks in 9 of 10 US Cities as Incomes Fall - ABC News

Middle Class Shrinks in 9 of 10 US Cities as Incomes Fall - ABC News: "Middle Class Shrinks in 9 of 10 US Cities as Incomes Fall"

In cities across America, the middle class is hollowing out.

A widening wealth gap is moving more households into either higher- or lower-income groups in major metro areas, with fewer remaining in the middle, according to a report released Wednesday by the Pew Research Center.

In nearly one-quarter of metro areas, middle-class adults no longer make up a majority, the Pew analysis found. That's up from fewer than 10 percent of metro areas in 2000.

That sharp shift reflects a broader erosion that occurred from 2000 through 2014. Over that time, the middle class shrank in nine of every 10 metro areas, Pew found.

The squeezing of the middle class has animated this year's presidential campaign, lifting the insurgent candidacies of Donald Trump and Bernie Sanders. Many experts warn that widening income inequality may slow economic growth and make social mobility more difficult. Research has found that compared with children in more economically mixed communities, children raised in predominantly lower-income neighborhoods are less likely to reach the middle class.

Pew defines the middle class as households with incomes between two-thirds of the median and twice the median, adjusted for household size and the local cost of living. The median is midway between richest and poorest. It can better capture broad trends than an average, which can be distorted by heavy concentrations at the top or bottom of the income scale.

By Pew's definition, a three-person household was middle class in 2014 if its annual income fell between $42,000 and $125,000.

Middle class adults now make up less than half the population in such cities as New York, Los Angeles, Boston and Houston.

"The shrinking of the American middle class is a pervasive phenomenon," said Rakesh Kochhar, associate research director for Pew and the lead author of the report. "It has increased the polarization in incomes."

The report documents several other key trends:

— Income for the typical household fell in 190 of the 229 metro areas studied, further evidence of the decline in U.S. living standards since 1999. Median incomes fell even in wealthier cities such as San Francisco, Seattle and Denver.

— Income inequality is lifting some Americans closer to the top even as people in the middle fall further. Median incomes fell 8 percent nationwide from 1999 to 2014. Yet the share of adults in upper-income homes rose to 20 percent from 17 percent. Middle-income households declined to 51 percent from 55 percent.

— The hollowing out of the middle class has occurred even as the income needed to meet Pew's definition of the middle has declined. A three-person household had to earn $45,115 in 1999 to qualify as middle-class. Now, that figure is just $41,641.

Wendell Nolen, 52, has experienced the slide from middle-class status firsthand. Eight years ago, he was earning $28 an hour as a factory worker for Detroit's American Axle and Manufacturing Holdings, assembling axles for pickup trucks and SUVs.

But early in 2008, things unraveled. After a three-month strike, Nolen took a buyout rather than a pay cut. Less than a year later, the plant was closed and American Axle shipped much of its work to Mexico.

Now Nolen makes $17 an hour in the shipping department of a Detroit steel fabricator, about 40 percent less than he made at the axle plant.

"America is losing jobs because of the free trade stuff," Nolen argued. "They're selling America out."

Many of the income changes in the past 15 years have been much more dramatic at the local level than nationally. There are now 79 metro areas in which the proportion of adults in upper-income households equals or exceeds the national average of 20 percent. That's more than double the 37 cities in which that was true in 2000.

And the proportion of adults in lower-income households meets or exceeds the national average of 29 percent in 103 areas, up from 92 in 2000.

The report studied 229 of the largest U.S. metro areas, which constituted 76 percent of the U.S. population.

Overall, cities with the largest middle classes are more likely to be in the Midwest. Those with the biggest low-income populations are more often in the Southwest, particularly near the Mexico border. Metro areas with the highest proportions of upper-income households are more likely to be found in the Northeast or along the West Coast.

Even many of the cities with substantial middle-class populations are still under stress, according to Pew's research. For example, Wausau, Wisconsin, and Youngstown-Warren, Ohio, are among the cities with the largest proportions of adults in middle-class homes, at 67.2 percent and 60.2 percent, respectively.

Yet median incomes have fallen sharply in both cities. They fell 8.5 percent in Wausau and 12.9 percent in Youngstown, Pew found.

In addition, both cities now have larger proportions of lower-income residents and smaller proportions of upper-income households. That suggests that their middle classes have been bolstered by downward mobility: Some richer households fell into the middle, and middle-income earners fell into lower brackets.

In some cases, many former middle-class residents have moved up. In others, they've fallen lower.

Middle-class adults now constitute less than half of Boston's adult population, down from 56 percent in 2000. Nearly the entire change reflects an increase in upper-income earners. The lower-income proportion was little changed.

In Atlanta, the reverse is true: Middle-income adults have fallen to just over half the total from 56 percent. High-earners dropped about 1 percentage point to 22.6 percent. Yet lower-income adults, jumped 7 points to 27 percent.

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