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The UNFAIRNESS Economy

The UNFAIRNESS Economy

Bailouts for the rich. Barely anything for you.

Award-winning investigative journalist Matt Taibbi penned perhaps the most iconic condemnation of the bankers who created (and subsequently got bailed out during) the Great Financial Crisis:

The first thing you need to know about Goldman Sachs is that it’s everywhere. The world’s most powerful investment bank is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.

Tens years later, we find ourselves facing another crisis which, while triggered by the coronavirus instead of housing loans, has similar roots in a financial system made vulnerable by the unfair plunder of big banks and hedge funds — who are now being bailed out at vastly higher expense than in 2008.

Sadly, it seems we’ve learned very little over the past decade.

And as $trillions and $trillions in “rescue” stimulus are starting to be deployed by Congress and the Federal Reserve, it’s once again the financial power elite and corporate boardroom bigwigs who are receiving immediate and complete relief from the consequences of their actions.

But what will regular folks like you and me get? Crumbs, if anything.

And as taxpayers, we’re ultimately footing the bill (once again).

Given his intensive knowledge of the inner workings of Wall Street and its entanglement with the DC political machine, Taibbi explains how the inequity, abuse and fraud in today’s “Unfairness Economy” has become standard operating procedure — and will remain so until a serious enough social uprising takes place.

First, watch this 2-minute trailer:

And then click here to enjoy Peak Prosperity’s full interview with Matt Taibbi:

…click on the above link to read the rest of the article…

Gold Gains 3% To $1,672 and Silver Surges 5% To $15.40; Goldman Warns Of $3 Trillion Explosion In U.S. Debt

Gold Gains 3% To $1,672 and Silver Surges 5% To $15.40; Goldman Warns Of $3 Trillion Explosion In U.S. Debt 

◆ Gold surged 2.9% and silver by 5% yesterday, with futures leading the way higher with gold reaching it’s highest price in more than seven years

◆ Investors are diversifying into safe haven gold to hedge themselves from the coming destruction of balance sheets, trillions and trillions of fiscal and monetary stimulus and a likely economic depression


◆  JPMorgan Chase & Co.’s Jamie Dimon has blamed the pandemic on creating a “major major downturn” (see News below) and potentially an economic depression

◆Goldman Sachs have warned that the emergency “stimulus” may lead to an explosion of US national debt by about $4 trillion in just two years (see News below). This is not including the trillions in monetary stimulus by the Federal Reserve to bail out Wall Street including most large financial service providers including the mortgage sector and banks

◆ The “Everything bubble” is bursting before our eyes which is evident in the stock market crashes. Property and bond market bubbles will soon burst and confidence in the dollar and other fiat currencies will soon begin to evaporate

◆ Gold’s utility as a safe haven is again being experienced by those who own it. Gold is outperforming and has delivered a 12% dollar return in 2020 year to date, exactly when they need a safe haven and a source of returns as stocks and other assets under perform. Gold has seen even greater returns in other currencies and is 15% higher in euros and 19% higher in pounds year to date.

 The only major asset to outperform gold year to date is the U.S. 30 year bond. This out performance is unlikely to continue as the 30 year bond cannot go much higher. We are near 0% interest rates despite the appalling fiscal, financial and economic outlook for the U.S. 

…click on the above link to read the rest of the article…

“The Biggest Decline Ever”: Goldman Now Sees US GDP Crashing 34% In Q2

“The Biggest Decline Ever”: Goldman Now Sees US GDP Crashing 34% In Q2

Just over a week ago, when we reported on the ongoing feud between Goldman and JPM to come up with the most terrifying GDP forecast for the US, and when we asked if a Second Great Depression has begun after Goldman’s chief economist Jan Hatzius slashed his Q2 GDP forecast from -5% to -24%, we said “we expect Goldman to take the machete to this analysis as well in the coming days, because if the US economy is indeed paralyzed for at least one quarter, then all of GDP could be lost.”

We were right, because early on Monday morning Goldman’s Haztius did just that, and in a report titled “The Sudden Stop: A Deeper Trough, A Bigger Rebound”, he writes that he is “making further significant adjustments to our GDP and employment estimates. We now forecast real GDP growth of -9% in Q1 and -34% in Q2 in qoq annualized terms (vs. -6% and -24% previously) and see the unemployment rate rising to 15% by midyear (vs. 9% previously).”

Detailing the assumptions behind his latest revision, Hatzius explains that he has increased his estimates of the peak hit to services consumption, manufacturing activity, and construction, “in light of new evidence on the severity of the hit across the different sectors” and now expects the level of GDP in April to be 13% below the January/February trend, as shown in Exhibit 1. “We assume that this drag then fades gradually by 10% each month in the services industry and by 12.5% in the manufacturing and construction industries.”

Behind the core of the drop Goldman sees a 19% annualized drag from services consumption on Q2 growth, on top of a 3pp drag on Q1 growth. as shown in the next chart.

…click on the above link to read the rest of the article…

Texas Or Canada: Where Will Oil Hit $0 First

Texas Or Canada: Where Will Oil Hit $0 First

Looking at the future of oil prices, Goldman was downright apocalyptic in its short-term forecast, when in a note published this morning, the bank’s chief commodity strategist Jeffrey Currie speculated that as the current production glut “shock” cripples the crude transportation networks, “a producer would be willing to pay someone to dispose of a barrel, implying negative pricing in landlocked areas.” To wit:

The global economy is a complex physical system with physical frictions, and energy sits near the top of that complexity. It is impossible to shut down that much demand without large and persistent ramifications to supply. The one thing that separates energy from other commodities is that it must be contained within its production infrastructure, which for oil includes pipelines, ships, terminals, storage facilities, refineries, and distribution networks. All of which have relatively small and limited spare capacity. We estimate that the world has around a billion barrels of spare storage capacity, but much of that will never be accessed as the velocity of the current shock will breach crude transportation networks first, which we are already seeing evidence of around the world. Indeed, given the cost of shutting down a well, a producer would be willing to pay someone to dispose of a barrel, implying negative pricing in landlocked areas.

A quick look at two of the most popular landlocked oil producing areas demonstrate that Goldman is spot on, and as the following chart shows as of this moment Texas Midland WTI was trading at just baove $10/barrel, while the price of oil produced in the notoriously landlocked Western Canada, as represented by Canada Western Selected index, was just above $4 per barrel, or a little more than what a gallon of gas costs in California.

…click on the above link to read the rest of the article…

“This Is The Largest Economic Shock Of Our Lifetimes”: Goldman Sees Negative Prices Amid Oil Devastation

“This Is The Largest Economic Shock Of Our Lifetimes”: Goldman Sees Negative Prices Amid Oil Devastation

Over the weekend, we reported that with the oil industry oversupplied by a mindblowing 20 million barrels daily as roughly 20% of total global output ends up unused in a world economy that has ground to a halt, and instead has to be parked in storage either on land or sea, the unthinkable is about to happen: oil storage space is about to run out, and as that happens the price of oil will continue sliding ever lower and lower until it finally goes negative as some such as Mizuho’s Paul Sankey predict it will, over the next few months, leading to an unprecedented shockwave across the global energy market.

Then overnight, more eulogies for the oil market emerged, with Bank of America writing that oil has now slumped “into the abyss” and it expects to see the “steepest decline in global oil consumption ever recorded, with our base case reflecting a 12mn b/d drop in 2Q20 and a 4.5mn b/d contraction on average for the year” and on a net basis, BofA now expects global oil demand to contract by almost 17mn b/d in April with consumption recovering modestly into 3Q20 and beyond.

The bank also adjusted its oil price forecasts for 2020 and 2021 down to $37 and $45/bbl for Brent and to $32 and $42/bbl for WTI respectively, but in the near-term, it sees both benchmarks temporarily trading in the teens in the coming weeks.

However, by going all “there will be blood” on oil, BofA has only caught up where Goldman has been for the past two weeks, ever since it predicted that the “physical end was near.” Meanwhile, in a note of unprecedented gloom, Goldman now says that “the physical end is here” as the coronacrisis goes global.

…click on the above link to read the rest of the article…

Oil Plunges To 17 Year Low As One Bank Predicts Negative Prices

Oil Plunges To 17 Year Low As One Bank Predicts Negative Prices

Late on Tuesday, WTI plunged as low as $26.20 taking out the lows from the 2015/2016 oil recession, and sending it to a level last seen when US president was George W. Bush, people were listening to Get Busy by Sean Paul and Dogville was one of the most popular movies: May 2003.

While there was no immediately clear catalyst, earlier in the day, Goldman’s commodities team published a report in which they discuss the need for commodity prices to drop below cash costs to generate supply curtailments as demand losses across the complex are now unprecedented, as Goldman now believes oil use is down an unprecedented 8 million b/d: 

Large commitments from core-OPEC for April/May deliveries pushes the net supply increase near c.3m b/d, which, when combined with the demand losses, results in an April/May surplus of 7mb/d, which will likely breach system capacity during 2Q20.

As Goldman’s Jeffrey Currie wrote, “the system strain creates a physical end, even though when COVID-19 will end is unknown, pushing our forecasts to shut-in economics. We now forecast 3m GSCI -25%.” As a result of price wars in oil and gas and uncertain policy responses in bulks and base metals, all a direct result of the sharp fall in demand resulting from the COVID-19 containment measures, Goldman has cut its 2Q Brent price target to just $20/bbl from $30/bbl. 

But that was not the worst of it for what little is left of oil bulls.

Outdoing not only Goldman, but virtually every single bearish oil analyst in existence, Mizuho’s Paul Sankey not only estimated that Goldman is too optimistic by half, calculating a whopping 15MM b/d in oversupply currently, but that crude prices could go negative – yes, as in you would be paid to take delivery – as Saudi and Russian barrels enter the market. 

…click on the above link to read the rest of the article…

Assume Crash Positions: Goldman Cuts Brent Price Target To $30 “With Possible Dips Near $20”

Assume Crash Positions: Goldman Cuts Brent Price Target To $30 “With Possible Dips Near $20”

When we discussed Saudi Arabia’s shocking decision on Saturday to reverse on years of prudent oil policy following Friday’s stunning collapse of OPEC+, with the kingdom now set to obliterate the OPEC cartel by flooding the market with heavily discounted oil in hopes of sending its price plunging, crippling competitors (such as US shale producers) and capturing market share (a repeat of what Saudi Arabia unsucessfully attempted back in Nov 2014), we made the following assessment on what the Saudi decision could to the price of oil once oil resumed on Sunday:

According to preliminary estimates, with Brent trading at $45, a flood of Saudi supply as demand is in freefall, could send oil into the $20s if not teens, in a shock move lower as speculators puke on long positions in what Goldman calls periodically a “negative convexity” event…. Oil traders are looking to historical charts for an indication of how low prices could go. One potential target is $27.10 a barrel, reached in 2016 during the last price war. But some believe the market could go even lower.

… those wondering what is the worst case scenario for oil prices, consider that Brent traded at an all time low of $9.55 a barrel in December 1998, during one of the rare price wars that Saudi Arabia has launched over the last 40 years… similar to just now.

In retrospect, one difference between the oil supply shock of 1998 and now, is that back then there was no concurrent demand shock. Instead, to find the last combo of both a positive oil supply shock and a massive negative demand shock, one would have to go to the depths of the Great Depression as Rapidian Energy notes in a WSJ article:

…click on the above link to read the rest of the article…

Goldman Issues Shocking Warning On Systemic Threat From Supply-Chain Collapse

Goldman Issues Shocking Warning On Systemic Threat From Supply-Chain Collapse

Having desperately avoided any discussion of a worst-case coronavirus scenario – or frankly any scenario that did not involve all time highs for stocks – for over a month, suddenly the market is obsessing with what a complete paralysis of China could mean for the world, not just in terms of millions in small and business companies shuttering and the financial sector collapsing under the weight of trillions in bad loans, but specifically how global supply chain linkages could cripple commerce across the world as corporations suddenly find themselves unable to find economic alternatives if China indeed goes dark.

However, as long-time readers may recall, the problem with trying to model supply chains shocks, especially in today’s “Just In Time” world, is that this task is virtually impossible as such a simulation very quickly reaches impossible complexity, something we first described in 2012 in our article “A Study In Global Systemic Collapse“, which referred to the FEASTA article titled “Trade-Off: Financial System Supply-Chain Cross-Contagion” which showed that contagion within supply chains could quickly lead to wholesale, systemic collapse due to non-linear bifurcations between sequential phase states.

Not for nothing, this is how we described the study back in 2012: “think of the attached 78-page paper as Nassim Taleb meets Edward Lorenz meets Malcom Gladwell meets Arthur Tansley meets Herman Muller meets Werner Heisenberg meets Hyman Minsky meets William Butler Yeats, and the resultant group spends all night drinking absinthe and smoking opium, while engaging in illegal debauchery in the 5th sub-basement of the Moulin Rouge circa 1890.”

And while there was far more in the report, one section was notable – the one discussing how relentless central bank intervention has made the global system far more brittle, or as Taleb would call it, extremely not anti-fragile:

…click on the above link to read the rest of the article…

Chinese Firms Ask For Billions In Loans Amid Virus Outbreak

Chinese Firms Ask For Billions In Loans Amid Virus Outbreak 

In response to the economic paralysis brought about by the coronavirus, Chinese banks are offering billions of dollars in loans to Chinese companies, according to two banking sources via Reuters.

About 300 Chinese firms, including top food delivery company Meituan Dianping and smartphone maker Xiaomi, have requested upwards 57.2 billion yuan ($8.2 billion) in loans to prevent a hard landing as China’s economy grinds to a halt.

The sources said the firms seeking loans are either the hardest hit or have an active role in the control of the virus outbreak. 

Evercore ISI Chairman Ed Hyman warned last week that China’s GDP growth could post “zero for the first quarter … China is really slowing and that’s worrying people for sure.”

“We are so solid,” Hyman said. “It’s not the virus, it’s the trade that matters. People are not going out. They are not shopping, and that’s what’s hurting particularly China.”

The scale of disruption in China is already staggering and is already spreading worldwide… and fast, China is effectively shut down and goods are now stranded in floating quarantines.

As Goldman noted here, the overall impact on global growth is about a 2% cut in Q1…

Extended factory closings and supply chain disruptions have forced many companies to request loans for “fast-track approvals and preferential rates,” the sources said. 

The sources reviewed several lists of companies that Chinese banks will be distributing loans to. They said no official data is showing total loans requested. 

The list includes pharmaceutical firms and restaurants, who’ve requested help from banking authorities. 

“Banks will have the final say on lending decisions,” one of the sources said. “The interest rates are likely to be on par with those offered to banks’ top clients.”

…click on the above link to read the rest of the article…

The Wealthy Are Hoarding Physical Gold

The Wealthy Are Hoarding Physical Gold

The world’s rich are hoarding gold – this according to data buried in a recent Goldman Sachs note to clients.

In the note published over the weekend, Goldman recommended diversifying long-term bond holdings with gold, citing “fear-driven demand” for the yellow metal.

Hedge funds and other large speculators boosted their bullish bets on gold by 8.9% through the week ended Dec. 3, according to government data released last Friday. That represents the biggest gain since the end of September.

The Goldman note cited political uncertainty and recession fears as the catalyst for the move toward gold. It also mentioned worries about a wealth tax, increasing interest in Modern Monetary Theory (essentially money-printing) and the current loose central bank monetary policy.

Data buried in the note also revealed that owning physical gold appears to be the preferred method to “hedge against tail events” by the rich.

Since the end of 2016 the implied build in non-transparent gold investment has been much larger than the build in visible gold ETFs.”

Goldman said the data is consistent with reports that vault demand is surging globally.

Trade data implies that gold in storage has increased far more rapidly than is reflected by financial market instruments, indicating a widespread preference for physical gold instead of gold-linked financial assets … Political risks, in our view, help explain this because if an individual is trying to minimize the risks of sanctions or wealth taxes, then buying physical gold bars and storing them in a vault, where it is more difficult for governments to reach them, makes sense.

“Finally, this build can also reflect hedges by global high net worth individuals against tail economic and political risk scenarios in which they do not want to have any financial entity intermediating their gold positions due to the counter-party credit risk involved.”

…click on the above link to read the rest of the article…

“Not A QE” Begins: Fed Start Buying $60BN In Bills Per Month Starting Next Week

“Not A QE” Begins: Fed Start Buying $60BN In Bills Per Month Starting Next Week

Just one day after we laid out what Goldman’s revised forecast for the Fed’s “NOT A QE” will look like, which for those who missed it predicted that the Fed would announce “monthly purchases of about $60BN for four months, split across Treasury bills and short maturity coupon Treasuries, in order to replenish the roughly $200bn reserve shortfall and support the pace of growth in non-reserve liabilities”, the Fed has done just that and moments ago – well ahead of consensus expectations which saw the Fed making this announcement some time in November – the US central bank announced it would start purchasing $60BN in Bills per month starting October 15. This will be in addition to rolling over “all principal payments from the Federal Reserve’s holdings of Treasury securities and the continued reinvestment all principal payments from the Federal Reserve’s holdings of agency debt and agency mortgage-backed securities received during each calendar month.”

In short, the proposed schedule is virtually identical to the one Goldman “proposed” yesterday, one which sees the Fed purchase a grand total of $100BN or so in TSYs the near term, and one which is meant to “engineer a one-off level shift of roughly $200bn over the course of four months.

But wait there’s more, because just as today’s surprising spike in repo use suggested, mere “NOT A QE” may not cut it, and just in case, in order to provide an “ample supply of reserves”, the Fed will continue with $75BN in overnight repos and $35 billion in term repos twice per week, “at least through January of next year.”

 …click on the above link to read the rest of the article…

How Much Will Oil Surge When Trading Reopens

How Much Will Oil Surge When Trading Reopens

Now that Goldman has successfully sparked a near-frenzy of chaos, confusion (and market buy orders) ahead of tonight’s trading open, the only question is how high will oil surge. And according to some preliminary estimates, oil analysts expect crude prices to jump at least $5 to $10 a barrel at 6pm on Sunday after some 5% of world oil supply was pulled off the market after a drone strike hit a critical Saudi oil facility.

Saudi Aramco lost about 5.7 million barrels per day of output after several unmanned aerial vehicles on Saturday struck the world’s biggest crude-processing facility in Abqaiq and the kingdom’s second-biggest oil field in Khurais. And with Saudi Arabia admitting that it could take weeks to restore full production, Bloomberg reports that the Trump administration is ready to deploy the nation’s emergency oil reserves and help stabilize markets if needed.

While oil slumped 3% last week, dropping amid expectations of an Iran detente following John Bolton’s departure, expect a violent reversal when trading reopens tonight.

“This is a historically large disruption on critical oil infrastructure and these events represent a sharp escalation in threats to global supply with risks of further attacks”, wrote Goldman chief commodity strategist Damien Courvalin. “These events are therefore set to support oil prices at their open on Sunday, especially given recent growth concerns and low levels of positioning. The magnitude of such a price rally is difficult to estimate in the absence of official comments on the timeline and scale of production losses.”

Still, one can try to make some educated estimates of what happens next, with consensus gravitating to a $5-10 spike in kneejerk response.

…click on the above link to read the rest of the article…

Goldman: Here’s Why The Fed Is About To Shock The Market

Goldman: Here’s Why The Fed Is About To Shock The Market

As discussed earlier, and as both Bank of America and JPM explained, the biggest risk for the market next week is if the Fed not only doesn’t cut – the market assigns a very low probability to such a “pre-emptive” move – but fails to signal an aggressive dovish reversal in the form of a rate cut in July. And yet, despite its upbeat outlook – it still expects the S&P to close the year at 3,000, Goldman’s strategists are certainly taking the over on how hawkish the Fed will sound next week.

As Goldman’s chief economist Jan Hatzius writes, the bank expects “unchanged” policy at the June 18-19 FOMC meeting and sees the subjective odds of a June cut at only 10%. More importantly, while Goldman looks for a dovish tilt to the proceedings it won’t be nearly enough to appease markets that have aggressively priced rate cuts in the fall. 

Barring an unlikely surprise on the funds rate, we expect the market to focus on four key developments:

  1. the statement’s policy stance/balance of risks paragraph,
  2. the number of participants projecting cuts in the Summary of Economic Projections (SEP),
  3. the extent of dovish changes to the statement and economic forecasts, and
  4. the tone of Powell’s press conference.

Rather than Goldman’s standard “Then and Now” table, the chart below “plots the setup for next week’s meeting across three dimensions, as well as their averages ahead of three major dovish shifts: September 2007 (at which the Fed abandoned the hiking bias and cut 50bps in response to subprime turmoil), September 2010 (formally signaled QE2), and March 2016 (scuttled the hiking cycle until global risks abated). Here, Hatzius also shows the three-month evolution of these four variables: stock prices, IG credit spreads, and consensus GDP growth.

 …click on the above link to read the rest of the article…

What Would Stocks Do in “a World Without Buybacks,” Goldman Asks

What Would Stocks Do in “a World Without Buybacks,” Goldman Asks

Companies buying back their own shares has “consistently been the largest source of US equity demand.” Without them, “demand for shares would fall dramatically.” Too painful to even imagine.

Goldman Sachs asked a nerve-racking question and came up with an equally nerve-racking answer: What would happen to stocks “in a world without buybacks.” Because buybacks are a huge deal.

In the fourth quarter 2018, share repurchases soared 62.8% from a year earlier to a record $223 billion, beating the prior quarterly record set in the third quarter last year, of $204 billion, according to S&P Dow Jones Indices on March 25. It was the fourth quarterly record in a row, the longest such streak in the 20 years of the data. For the whole year 2018, share buybacks soared 55% year-over-year to a record $806 billion, beating the prior record of $589 billion set in 2007 by a blistering 37%!

Share buybacks had already peaked in 2015 and ticked down in 2016 and 2017. Then the tax reform act became effective on January 1, 2018, and share buybacks skyrocketed.

The record buybacks in Q4 came even as stock prices declined on average 5.3%, according to S&P Down Jones Indices. On some bad days during the quarter, corporations were about the only ones left buying their shares.

For the year 2018, these were the top super-duper buyback queens:

  • Apple: $74.2 billion
  • Oracle: $29.3 billion
  • Wells Fargo $21.0 billion
  • Microsoft: $16.3 billion
  • Merck: $9.1 billion

But who, outside of corporations buying back their own shares, was buying shares? Goldman Sachs strategists answered this question in a report cited by Bloomberg, that used data from the Federal Reserve to determine “net US equity demand.” These are the largest investor categories other than corporate buybacks, five-year totals:

  • Foreign investors shed $234 billion.
  • Pension funds shed $901 billion, possibly to keep asset-class allocations on target as share prices soared.
  • Stock mutual funds shed $217 billion.
  • Life insurers added 61 billion
  • Households added $223 billion.

 …click on the above link to read the rest of the article…

U.S. Shale’s Glory Days Are Numbered

U.S. Shale’s Glory Days Are Numbered

Fracking

There are some early signs that the U.S. shale industry is starting to show its age, with depletion rates on the rise.

A study from Wood Mackenzie found that some wells in the Permian Wolfcamp were suffering from decline rates at or above 15 percent after five years, much higher than the 5 to 10 percent originally anticipated. “If you were expecting a well to hit the normal 6 or 8 percent after five years, and you start seeing a 12 percent decline, this becomes more of a reserves issue than an economics issue,” said R.T. Dukes, a director at industry consultant Wood Mackenzie Ltd., according to Bloomberg. As a result, “you have to grow activity year over year, or it gets harder and harder to offset declines.”

Moreover, shale wells fizzle out much faster than major offshore oil fields, which is significant because the boom in shale drilling over the past few years means that there is more depletion in absolute terms than ever before. A slowdown in drilling will mean that depletion starts to become a serious problem.

A separate study from Goldman Sachs takes a deep look at whether or not the shale industry is starting to see the effects of age. The investment bank says the average life span for “the most transformative areas of global oil supply” is between 7 and 15 years.

Examples of these rapid growth periods include the USSR in the 1960s-1970s, Mexico and the North Sea in the late 1970s-1980s, Venezuela’s heavy oil production in the 1990s, Brazil in the early 2000s, and U.S. shale and Canada’s oil sands in the 2010s. Each had their period in the limelight, but ultimately many of them plateaued and entered an extended period of decline, though some suffering steeper declines than others. Supply Soars

…click on the above link to read the rest of the article…

 

Olduvai IV: Courage
In progress...

Olduvai II: Exodus
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