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“This Is Going To Be A National Crisis” – One Of The Largest U.S. Pension Funds Set To Cut Retiree Benefits
“This Is Going To Be A National Crisis” – One Of The Largest U.S. Pension Funds Set To Cut Retiree Benefits
As the Washington Post reports, the Central States Pension Fund, which handles retirement benefits for current and former Teamster union truck drivers across various states including Texas, Michigan, Wisconsin, Missouri, New York, and Minnesota, and is one of the largest pension funds in the nation, has filed an application to cut participant benefits, which would be effective July 1 2016, as it “projects” it will become officially insolvent by 2025. In 2015, the fund returned -0.81%, underperforming the 0.37% return of its benchmark.
Over a quarter of a million people depend on their pension being handled by the CSPF; for most it is their only source of fixed income.
Pension funds applying to lower promised benefits is a new development, albeit not unexpected (we warned of this mounting issue numerous times in the past). For many years there existed federal protections which shielded pensions from being cut, but that all changed in December 2014, when folded neatly into a $1.1 trillion government spending bill, was a proposal to allow multi employer pension plans to cut pension benefits so long as they are projected to run out of money in the next 10 to 20 years. Between rising benefit payouts as participants become eligible, the global financial crisis, and the current interest rate environment, it was certainly just a matter of time before these steps were taken to allow pension plans to cut benefits to stave off insolvency.
The Central States Pension Fund is currently paying out $3.46 in pension benefits for every $1 it receives from employers, which has resulted in the fund paying out $2 billion more in benefits than it receives in employer contributions each year.
…click on the above link to read the rest of the article…
SocGen: “Now We Know Why The Fed Desperately Wants To Avoid A Drop In Equity Markets”
SocGen: “Now We Know Why The Fed Desperately Wants To Avoid A Drop In Equity Markets”
With the ECB now unabashedly unleashing a bond bubble in Europe of which it has promised to be a buyer of last resort with the stronly implied hint that European IG companies should issue bonds and buy back shares, and promptly leading to the biggest junk bond issue in history courtesy of Numericable, it will come as no surprise that the world once again has a debt problem.
For the best description of just how bad said problem is we go to SocGen’s Andrew Lapthorne, one of last few sane analyzers of actual data, a person who first reveaked the stunning fact that every dollar in incremental debt in the 21st century has gone to fund stock buybacks, and who in a note today asks whether “central bank policies going to bankrupt corporate America?”
His answer is, unless something changes, a resounding yes.
Here are the key excerpts:
Sensationalist headlines such as the one above are there to grab the reader’s attention, but the question is nonetheless a serious one. Aggressive monetary policy in the form of QE and zero or negative interest rates is all about encouraging (forcing?) borrowers to take on more and more debt in an attempt to boost economic activity, effectively mortgaging future growth to compensate for the lack of demand today. These central bank policies are having some serious unintended consequences, particular on mid cap and smaller cap stocks.Aggressive central bank monetary policies have created artificial demand for corporate debt which we think companies are exploiting by issuing debt they do not actually need. The proceeds of this debt raising are then largely reinvested back into the equity market via M&A or share buybacks in an attempt to boost share prices in the absence of actual demand.
…click on the above link to read the rest of the article…
Ben Bernanke: “Helicopter Money May Be The Best Available Alternative”
Ben Bernanke: “Helicopter Money May Be The Best Available Alternatives
Now that the prospect of helicopter money by the ECB has so infuriated Germany, the ECB had to reach out to Schauble to “mollify” the Germans who are dreading the second coming of monetary paradrops in one century, it was only a matter of time before Citadel’s most prominent employer opined. In a blog post earlier today, Brookings’ blogger and the central banker who together with Alan Greenspan has been most responsible for the world’s unprecedented debt pile and sad economic state, Ben Bernanke, took the podium to share his views on “helicopter money” head on.
In “What tools does the Fed have left? Part 3: Helicopter money” the former Fed head who first infamously hinted at helicopter money in his November 2002 speech “Deflation: Making Sure “It” Doesn’t Happen Here” when he quoted Milton Friedman, once again started off with a Friedman quote:
“Let us suppose now that one day a helicopter flies over this community and drops an additional $1,000 in bills from the sky, which is, of course, hastily collected by members of the community. Let us suppose further that everyone is convinced that this is a unique event which will never be repeated.” (Milton Friedman, “The Optimum Quantity of Money,” 1969)
He then pulls a quote from his own book “The Courage to Act”
“The deflation speech saddled me with the nickname ‘Helicopter Ben.’ In a discussion of hypothetical possibilities for combating deflation I mentioned an extreme tactic—a broad-based tax cut combined with money creation by the central bank to finance the cut. Milton Friedman had dubbed the approach a ‘helicopter drop’ of money. Dave Skidmore, the media relations officer…had advised me to delete the helicopter-drop metaphor…
…click on the above link to read the rest of the article…
“It’s Pure Chaos Now; There Is No Way Back” – Venezuela Hits Rock Bottom As Its Morgues Overflow
“It’s Pure Chaos Now; There Is No Way Back” – Venezuela Hits Rock Bottom As Its Morgues Overflow
When we previewed Venezuela’s upcoming hyperinflation, which in January was predicted to be 720% and as of this moment is likely far higher…
… we said “This Is What The Death Of A Nation Looks Like” and said “there is no good news in any of the above for the long-suffering citizens of this “socialist paradise” which any minute now will be downgraded to its fair value of “socialist hell.”
Subsequent news that Venezuela was now openly liquidating its gold reserves while its president, in an amusing twist, announced last week, that henceforth every Friday will be a holiday, (the term there was a slightly different meaning) to cut down on electricity usage (while blaming El Nino for its electricity rationing) merely confirmed that the end if nigh for this once flourishing Latin American nation.
Sadly, while we have been warning for years about Venezuela’s inevitable, economic devastation, we said it was only a matter of time before the chaos spreads to broader society and leads to total collapse.
That may have arrived because as even the FT now admits, after visiting the main Caracas morgue, Venezuela risks a descent into chaos.
But back to the morgue of central Caracas, where FT correspondent Andres Schipani writes that the stench forces everyone to cover their nostrils. “Now things are worse than ever,” says Yuli Sánchez. “They kill people and no one is punished while families have to keep their pain to themselves.”
Ms Sánchez’s 14-year-old nephew, Oliver, was shot five times by malandros, or thugs, while riding on the back of a friend’s motorcycle. His uncle, Luis Mejía, remarked that in a fortnight three members of their family had been shot, including two youths who were shot by police.
…click on the above link to read the rest of the article…
“The Game Is Rigged”: From Luxurious Lake Como Villa, Finance Professor Admits “QE Adds To Inequality”
“The Game Is Rigged”: From Luxurious Lake Como Villa, Finance Professor Admits “QE Adds To Inequality”
While attending the ultra-exclusive Ambrosetti Workshop, University of Chicago finance professor Luigi Zingales took a few minutes to discuss income inequality in an interview with Bloomberg.
We were delighted that the irony of being at a luxurious villa on the shores of Lake Como discussing income inequality wasn’t lost on the Booth PhD: “First of all it’s a bit funny to discuss about income inequality here at this luxurious villa in Como next to George Clooney’s villa”
As Jeb Bush might say, “Please laugh.”
Moving on: when asked if central bank policy is making people feel that they’ve really lost out, Zingales reiterates what we’ve known all along, namely that the real consequences of central bank actions don’t matter, what matters is simply how people perceive the central bank and its actions. If people are told enough by smart people on television that the economy has been fixed, and the market is a reflection of the fundamentals, then they’ll blindly support anything the fed does. After all, as long as whatever voodoo is going on over at the Eccles building is pushing 401k balances higher, then it must be right.
He then goes on as far as stating that capitalism in the U.S. has failed and been converted into a perverted, mutant, crony version and that “the game is rigged.”
“I think that people are willing to support capitalism if capitalism is providing growth, providing better income for everybody, and also if it has some at least appearance of being fair. Unfortunately, none of these conditions are in place today in the United States. I think that growth is limited, and disproportionately goes to a small fraction of the population. And there is a sense that the game is rigged.”
…click on the above link to read the rest of the article…
How To Hack A Presidential Election
How To Hack A Presidential Election
There is a growing recognition of the increasing tail wagging the dog nature of the internet’s control over election outcomes. We recently detailed “the hidden persuaders” at work showing how the internet has spawned subtle forms of influence that can flip elections and manipulate everything we say, think and do. Confirming all of this to be chillingly true is Andrés Sepúlveda, who rigged elections throughout Latin America for almost a decade. On the question of whether the U.S. presidential campaign is being tampered with, he is unequivocal – “I’m 100 percent sure it is.”
Liberty Blitzkrieg’s Mike Krieger excerpts a must-read Bloomberg article,
In July 2015, Sepúlveda sat in the small courtyard of the Bunker, poured himself a cup of coffee from a thermos, and took out a pack of Marlboro cigarettes. He says he wants to tell his story because the public doesn’t grasp the power hackers exert over modern elections or the specialized skills needed to stop them. “I worked with presidents, public figures with great power, and did many things with absolutely no regrets because I did it with full conviction and under a clear objective, to end dictatorship and socialist governments in Latin America,” he says. “I have always said that there are two types of politics—what people see and what really makes things happen. I worked in politics that are not seen.”Rendón, says Sepúlveda, saw that hackers could be completely integrated into a modern political operation, running attack ads, researching the opposition, and finding ways to suppress a foe’s turnout. As for Sepúlveda, his insight was to understand that voters trusted what they thought were spontaneous expressions of real people on social media more than they did experts on television and in newspapers. He knew that accounts could be faked and social media trends fabricated, all relatively cheaply.
…click on the above link to read the rest of the article…
Diversify Into Gold As An “Insurance Policy” Against Geopolitical Risk
Diversify Into Gold As An “Insurance Policy” Against Geopolitical Risk
“Investors could be forgiven for heading for the hills given the tumultuous start to 2016,” so writes Andrew Oxlade in The Telegraph today who advises investors to diversify into gold as an “insurance policy”:
We have long been advocates of exposure to gold as an insurance policy. This was demonstrated once again in the recent sell-off when the price of bullion surged from $1,061 (£762) an ounce on New Year’s Day to $1,246 (£895) by early February. In times of fear, gold is in demand. The price also rises when inflation becomes a danger.Deflation remains the bigger threat for now, which is partly why gold has been a poor investment in recent years, but the money printing excesses of central banks could yet unleash inflation. In the meantime, the gold price offers some protection during repeat episodes of buckling confidence.
Gold in GBP – 5 Years
The Telegraph, like GoldCore, had warned of such turbulence at the start of the year. John Ficenec, editor of the Questor column, warned of the real risk of volatility and falls in stock markets.
We believe that the tragic events in Brussels show the continued very high degree of geopolitical risk and the need for an insurance policy.
Further attacks are quite possible, including in the U.S., and this should support gold.
Geopolitical risk is frequently underestimated and it would be unwise to discount the risk of a September 11 style attack in the coming months. Intelligence agencies and ISIS themselves are warning of such attacks and investors need to be diversified to hedge this growing risk.
It gives us no pleasure to be the bearer of this bad news but it is important that the reality of the real risks of today are considered in order to protect and grow wealth in these uncertain times.
…click on the above link to read the rest of the article…
Japan’s Finance Minister Accidentally Reveals How It All Ends: “War”
Japan’s Finance Minister Accidentally Reveals How It All Ends: “War”
While this all started with a currency “war,” it seems – according to a stunningly candid transcript of Japan’s finance minister’s conversation with none other than Paul Krugman – that the real endgame here is actual war. Aso remarked that “a similar [deflationary mindset] had occurred in the US in the 1930s. What solved the question? War! Because World War II had occurred during the 1940s and that became the solution for the United States. [We] have to switch [the Japanese] mindset… we are looking for the trigger.“
Japanese Prime Minister Shinzo Abe has been the most hawkishly militaristic PM of a generation, shifting from the passive society to an aggressor, beginning around 2013. This has only been emboldened by rising nationalism and escalatuing tensions in the South China Sea.
We note this by way of background as just-released transcripts of a conversation between Japanese finance minister Aso and Uber-Keynesian Paul Krugman reveal perhaps the reality that Japan faces as its economic and social structure collapses…
(Minister of Finance Aso)During the 1930’s, I remember that in the United States likewise there was a situation of deflation. And the New Deal policies have been introduced by then President Roosevelt. As a result, it worked out very nicely, but the largest issue associated with it is that for a long period of time entrepreneurs and managers of companies did not go to make a capital investment by receiving the loan. It had continued up until the late 1930’s and that is the situation occurring in Japan too. The record high earnings have been generated by the Japanese companies but they would not spend in the capital investment.
…click on the above link to read the rest of the article…
Pentagon Admits It ‘Kinda Sorta’ Deployed Spy Drones Over America
Pentagon Admits It ‘Kinda Sorta’ Deployed Spy Drones Over America
In what will likely not surprise too many, The Pentagon has admitted it has deployed drones to spy over U.S. territory for non-military missions over the past decade. Confirming yet another conspiracy theory is conspiracy fact, FBI director Robert Mueller testified before Congress that the bureau employed spy drones to aid investigations, but in a “very,very minimal way, very seldom.” The report concludes, “the appetite to use spy drones in the domestic environment to collect airborne imagery continues to grow.”
As USA Today reports, the report by a Pentagon inspector general, made public under a Freedom of Information Act request, said spy drones on non-military missions have occurred fewer than 20 times between 2006 and 2015 and always in compliance with existing law.
The report, which did not provide details on any of the domestic spying missions, said the Pentagon takes the issue of military drones used on American soil “very seriously.”A senior policy analyst for the ACLU, Jay Stanley, said it is good news no legal violations were found, yet the technology is so advanced that it’s possible laws may require revision.
“Sometimes, new technology changes so rapidly that existing law no longer fit what people think are appropriate,” Stanley said. “It’s important to remember that the American people do find this to be a very, very sensitive topic.”
The use of unmanned aerial surveillance (UAS) drones over U.S. surfaced in 2013 when then-FBI director Robert Mueller testified before Congress that the bureau employed spy drones to aid investigations, but in a “very,very minimal way, very seldom.”
The inspector general analysis was completed March 20, 2015, but not released publicly until last Friday.
…click on the above link to read the rest of the article…
China Proposes Unprecedented Nationalization Of Insolvent Companies: Banks Will Equitize Non-Performing Loans
China Proposes Unprecedented Nationalization Of Insolvent Companies: Banks Will Equitize Non-Performing Loans
In what may be the biggest news of the day, and certainly with far greater implications than whatever Mario Draghi will announce in a few hours when we will again witness the ECB doing not “whatever it takes” but “whatever it can do”, moments ago Reuters reported that China is preparing for an unprecedented overhaul in how it treats it trillions in non-performing loans.
Recall that as we first wrote last summer, and as subsequently Kyle Bass made it the centerpiece of his “short Yuan” investment thesis, the “neutron bomb” in the heart of China’s impaired financial system is the trillions – officially at $614 billion but realistically anywhere between 8% and 20% of China’s total $35 trillion in bank assets – in non-performing loans. It is the unknown treatment of these NPLs that has been the greatest threat to China’s just as vast deposit base amounting to well over $20 trillion, which has been the fundamental catalyst behind China’s record capital flight as depositors have been eager to move their savings as far from China’s domestic banks as possible.
As a result, conventional thinking such as that proposed by Bass, Ray Dalio, KKR and many others, speculated that China will have to devalue its currency in order to inflate away what is fundamentally an excess debt problem as the alternative is unleashing a massive debt default tsunami and “admitting” to the world just how insolvent China’s state-owned banks truly are, not to mention leading to the layoffs of tens of millions of workers by these zombie companies.
However, China now appears to be taking a surprisingly different track, and according to a Reuters report China’s central bank is preparing regulations that would allow commercial banks to swap non-performing loans of companies for stakes in those firms. Reuters sources said the release of a new document explaining the regulatory change was imminent.
…click on the above link to read the rest of the article…
Why Helicopter Money Can’t Save Us: We’ve Already Been Doing It For 8 Years
Why Helicopter Money Can’t Save Us: We’ve Already Been Doing It For 8 Years
For those unfamiliar, it’s billed as a kind of last Keynesian resort when ZIRP, NIRP, and QE have all failed to boost aggregate demand and juice inflation.
For instance, HSBC said the following late last month: “If central banks do not achieve their medium-term inflation targets through NIRP, they may have to adopt other policy measures: looser fiscal policy and even helicopter money are possible in scenarios beyond QE and negative rates.”
And here’s Citi’s Willem Buiter from Septemeber: “Helicopter money drops would be the best instrument to tackle a downturn in all DMs.”
So what exactly is this “helicopter money” that is supposed to provide a lifeline when all of central banks’ other forays into unconventional policy have demonstrably failed? Well, here’s Buiter to explain how it works in theory (this is the China example, but it’s the same concept everywhere else):
Now whether it’s “fiscally, financially and macro-economically prudent in current circumstances,” (or any circumstances for that matter) is certainly questionable, but what’s not questionable is that it is indeed feasible.
How do we know? Because we’ve been doing it for 8 long years.
If you think about what Buiter says above, it’s simply deficit financing. The government prints one paper liability and buys it from itself with another paper liability that the government also prints.
Sound familiar? It’s called QE.
The first-best would be for the central government to issue bonds to fund this fiscal stimulus and for the PBOC to buy them and either hold them forever or cancel them, with the PBOC monetizing these Treasury bond purchases. Such a ‘helicopter money drop’ is fiscally, financially and macro-economically prudent in current circumstances, with inflation well below target and likely to fall further.
…click on the above link to read the rest of the article…
Former-PM Admits “Future Existence Of Japan Was At Stake” As Mutations Appear In Fukushima Forest
Former-PM Admits “Future Existence Of Japan Was At Stake” As Mutations Appear In Fukushima Forest
“The future existence of Japan as a whole was at stake,” admits Japan’s prime minister at the time of the 2011 quake and tsunami, revealing that the country came within a “paper-thin margin” of a nuclear disaster requiring the evacuation of 50 million people. Naoto Kan expressed satisfaction at the three TEPCO executives facing charges over negligence, but this shocking admission comes as AFP reports, conservation group Greenpeace warned that “signs of mutations in trees and DNA-damaged worms beginning to appear,” while “vast stocks of radiation” mean that forests cannot be decontaminated.
In an interview with The Telegraph to mark the fifth anniversary of the tragedy, Naoto Kan described the panic and disarray at the highest levels of the Japanese government as it fought to control multiple meltdowns at the crippled Fukushima Daiichi nuclear power station.
He said he considered evacuating the capital, Tokyo, along with all other areas within 160 miles of the plant, and declaring martial law. “The future existence of Japan as a whole was at stake,” he said. “Something on that scale, an evacuation of 50 million, it would have been like a losing a huge war.”Mr Kan admitted he was frightened and said he got “no clear information” out of Tepco, the plant’s operator. He was “very shocked” by the performance of Nobuaki Terasaka, his own government’s key nuclear safety adviser. “We questioned him and he was unable to give clear responses,” he said.
“We asked him – do you know anything about nuclear issues? And he said no, I majored in economics.”
“When we got the report that power had been cut and the coolant had stopped working, that sent a shiver down my spine,” Mr Kan said. “From March 11, when the incident happened, until the 15th, the effects [of radioactive contamination] were expanding geographically.
…click on the above link to read the rest of the article…
BlackRock Suspends ETF Issuance Due To “Surging Demand For Gold”
BlackRock Suspends ETF Issuance Due To “Surging Demand For Gold”
BlackRock’s Gold ETF (IAU) has seen fund inflows every day in 2016 (no outflows at all) and with the stock trading above its NAV for most of the year, the world’s largest asset manager has made a significant decision:
- *BLACKROCK SAYS ISSUANCE OF GOLD TRUST SHARES SUSPENDED
- *BLACKROCK SAYS SUSPENSION DUE TO DEMAND FOR GOLD
Issuance of New IAU (Gold Trust) Shares Temporarily Suspended; Existing Shares to Trade Normally for Retail and Institutional Investors on NYSE Arca and Other VenuesSuspension results from surging demand for gold, which requires registration of new shares
iShares Delaware Trust Sponsor LLC, in its capacity as the sponsor of iShares Gold Trust (IAU), has temporarily suspended the creation of new shares of IAU until additional shares are registered with the Securities and Exchange Commission (SEC).
This suspension does not affect the ability of retail and institutional investors to trade on stock exchanges. Retail and institutional investors will continue to be able to buy and sell shares in IAU.
IAU holds gold as a physical asset. IAU is an exchange-traded commodity (ETC), which therefore is not eligible for registration as an investment company under the ’40 Act. IAU may only be registered under the ’33 Act as a grantor trust. Under the ’33 Act, subscriptions for new shares in excess of those registered requires additional filings with the SEC.
Nearly all other U.S. iShares are exchange-traded funds (ETFs), registered as investment companies under the ’40 Act. The ’40 Act provides for the continuous offering of shares and does not require registration of additional shares as the fund grows due to investor demand in connection to new subscriptions.
…click on the above link to read the rest of the article…
The Global Run On Physical Cash Has Begun: Why It Pays To Panic First
The Global Run On Physical Cash Has Begun: Why It Pays To Panic First
Back in August 2012, when negative interest rates were still merely viewed as sheer monetary lunacy instead of pervasive global monetary reality that has pushed over $6 trillion in global bonds into negative yield territory, the NY Fed mused hypothetically about negative rates and wrote “Be Careful What You Wish For” saying that “if rates go negative, the U.S. Treasury Department’s Bureau of Engraving and Printing will likely be called upon to print a lot more currency as individuals and small businesses substitute cash for at least some of their bank balances.”
Well, maybe not… especially if physical currency is gradually phased out in favor of some digital currency “equivalent” as so many “erudite economists” and corporate media have suggested recently, for the simple reason that in a world of negative rates, physical currency – just like physical gold – provides a convenient loophole to the financial repression of keeping one’s savings in digital form in a bank where said savings are taxed at -0.1%, or -1% or -10% or more per year by a central bank and government both hoping to force consumers to spend instead of save.
For now cash is still legal, and NIRP – while a reality for the banks – has yet to be fully passed on to depositors.
The bigger problem is that in all countries that have launched NIRP, instead of forcing spending precisely the opposite has happened: as we showed last October, when Bank of America looked at savings patterns in European nations with NIRP, instead of facilitating spending, what has happened is precisely the opposite: “as the BIS have highlighted, ultra-low rates may perversely be driving a greater propensity for consumers to save as retirement income becomes more uncertain.”
…click on the above link to read the rest of the article…
HSBC Looks At “Life Below Zero,” Says “Helicopter Money” May Be The Only Savior
HSBC Looks At “Life Below Zero,” Says “Helicopter Money” May Be The Only Savior
For whatever reason, Haruhiko Kuroda’s move into NIRP seemed to spark a heretofore unseen level of public debate about the drawbacks of negative rates. Indeed, NIRP became so prevalent in the public consciousness that celebrities began to discuss central bank policy on Twitter.
When we say “for whatever reason” we don’t mean that the public shouldn’t be concerned about NIRP. In fact, we mean the exact opposite. The ECB, the Nationalbank, the SNB, and the Riksbank have all been mired in ineffectual NIRP for quite sometime and the public seemed almost completely oblivious. Indeed, even the financial media treated this lunacy as though it were some kind of cute Keynesian experiment that could be safely confined to Europe which would serve as a testing ground for whether policies that fly in the face of the financial market equivalent of Newtonian physics could be implemented without the world suddenly imploding.
We imagine the fact that equity markets got off to such a volatile start to the year, combined with the fact that crude continued to plunge and at one point looked as though it might sink into the teens, led quite a few people to look towards the monetary Mount Olympus (where “gods” like Draghi, Yellen, and Kuroda intervene in human affairs when necessary to secure “desirable” economic outcomes) only to discover that not only has all the counter-cyclical maneuverability been exhausted, we’ve actually moved beyond the point where the ammo is gone into a realm where the negative rate mortgage is a reality.
…click on the above link to read the rest of the article…
