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France Grinds to a Halt in Massive Strike

France Grinds to a Halt in Massive Strike

Hundreds of thousands of lawyers, teachers, students and air-traffic controllers protest pension Macron’s pension reform

Cities Paralyzed

French president Emmanuel macron is back in the hot seat over reform proposals. Over 800,000 protesters have taken to the streets in a Massive Strike that has paralyzed cities.

Cities across France were paralyzed by a massive public transport strike against a planned overhaul of France’s pensions system, in a test of President Emmanuel Macron’s resolve to modernize the economy.

Trains, including the high-speed line between Paris and London, subways and buses were severely curtailed if not halted altogether. Hundreds of flights were canceled. Many schools, and nurseries remained closed, while several museums, including the Louvre, said parts of their collections might not open. Even the Eiffel Tower was closed.

About 806,000 protesters—including lawyers, teachers, students and air-traffic controllers—hit the streets across the country, according to the French interior ministry. Unions warned the strike could last days and become one of the biggest in France in over two decades.

Mr. Macron wants to extend the number of years that people are required to work before collecting their pensions—now set at 43 years—rather than raising the age of retirement of 62 years old for all workers. That retirement age remains lower than in most other OECD group of rich nations. Under the plan, some people retiring before 64 could receive a lower pension.

Mr. Macron also wants to consolidate France’s 42 different retirement plans—and their special benefits—into one universal system that he says would be more fair. Civil servants, in particular, fear they may lose advantages they have compared to private sector employees.

Yellow-Vest Movement

Recall that the yellow vest protests went on for months.

On December 10, 2018 I wrote Macron Attempts to Placate Yellow Vest Protesters With Free Money.

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

The US Wanted a Coup in Bolivia: Like Magic, It Got One

The US Wanted a Coup in Bolivia: Like Magic, It Got One

Bolivia’s President Evo Morales was ousted in a coup. What happened?

Military Coup

The US wanted Leftist President Evo Morales gone.

Guess what? He’s gone.

The Guardian reports Many Wanted Morales Out. But What Happened in Bolivia was a Military Coup.

On Sunday the head of Bolivia’s military called on Evo Morales to resign from the presidency. Minutes later Morales was on a plane to Cochabamba where he did just that. These facts leave little doubt that what happened in Bolivia this weekend was a military coup, the first such event in Latin America since the 2009 military coup against Honduran president, Manuel Zelaya. (The 2012 and 2016 impeachments of Paraguay’s Fernando Lugo and Brazil’s Dilma Rousseff are widely viewed as “parliamentary coups.”)

The mainstream press has bent over backwards, and tied itself in more than a few tangled knots, to avoid drawing this conclusion. The Wall Street Journal celebrates Morales’ ouster as a “democratic breakout.” The New York Times is characteristically more circumspect, hemming and hawing about how “the forced ouster of an elected leader is by definition a setback for democracy” but might also “help Bolivia restore its wounded democracy.” This head-spinning rhetoric does not prevent the Times from swiftly dismissing left-of-center politicians’ “predictable” claims that what happened was a coup.

It is hardly surprising that conservative governments and powerful media outlets applaud Morales’ ouster and dismiss the claim it constitutes a coup. More surprising is that leftist commentators, including Raquel Gutiérrez and Raul Zibechi, have taken a similar stance. Zibechi attributes Morales’ fall to a “popular uprising.”

Morales’ Illegitimacy

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

Pondering the Collapse of the Entire Shadow Banking System

Pondering the Collapse of the Entire Shadow Banking System

Image courtesy of my friend Chris Temple.

What’s behind the ever-increasing need for emergency repos? A couple of correspondents have an eye on shadow banking.

Shadow Banking

  • The shadow banking system consists of lenders, brokers, and other credit intermediaries who fall outside the realm of traditional regulated banking.
  • It is generally unregulated and not subject to the same kinds of risk, liquidity, and capital restrictions as traditional banks are.
  • The shadow banking system played a major role in the expansion of housing credit in the run up to the 2008 financial crisis, but has grown in size and largely escaped government oversight since then.

The above from Investopedia.

Hey It’s Not QE, Not Even Monetary

Yesterday, I commented Fed to Increase Emergency Repos to $120 Billion, But Hey, It’s Not Monetary.

Let’s recap before reviewing excellent comments from a couple of valued sources.

The Fed keeps increasing the size and duration of “overnight” funding. It’s now up $120 billion a day, every day, extended for weeks. That is on top of new additions.

Three Fed Statements

  1. Emergency repos were needed for “end-of-quarter funding“.
  2. Balance sheet expansion is “not QE“. Rather, it’s “organic growth“.
  3. This is “not monetary policy“.

Three Mish Comments

  1. Hmm. A quick check of my calendar says the quarter ended on September 30 and today is October 23.
  2. Hmm. Historically “organic” growth was about $2 to $3 billion.
  3. Hmm. Somehow it takes an emergency (but let’s no longer call it that), $120 billion “at least” in repetitive “overnight” repos to control interest rates, but that does not constitute “monetary policy”

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

What the Hell is the ECB Doing?

What the Hell is the ECB Doing?

Danielle DiMartino poses an interesting question regarding the ECB. I have a set of answers.

What is the ECB Doing?

I started thinking about that question weeks ago.

I have a set of answers and even started writing this post before DiMartino brought it to the forefront.

There are only two answers. One of them is very unsettling.

  1. Ignorance
  2. On Purpose

Occam’s Razor

Occam’s razor is a principle from philosophy. Suppose there exists two explanations for an occurrence. In this case the one that requires the least amount of assumptions is usually correct. Another way of saying it is that the more assumptions you have to make, the more unlikely an explanation.

Occam’s Razor typically eliminates most conspiracy theories. It’s not that conspiracies don’t happen, but that simpler solutions are far more likely.

My corollary to the theory is very easy to understand: If stupidity is one of the possible answers, it is the most likely answer.

I am a normally a big fan of Occam’s Razor.

But this is so bizarre that I have my doubts.

Importantly, this may not be a conspiracy at all. Mario Draghi can easily be acting alone.

My Lead Question

How stupid can things get before one starts believing something else is in play?

I had already been thinking about that question when not only did ECB president Mario Draghi further push interest rates into negative territory but he also said it was a good idea for the ECB to think about MMT.

Shocking ECB Dissent

Dissent at the Fed happens all the time. It is rare at the ECB. The ECB builds a consensus and it is typically unanimous.

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

Powell “Not Forecasting a Recession”

Powell “Not Forecasting a Recession”

In a speech today in Zurich Switzerland, Jerome Powell stated the Fed is not forecasting a recession.

YouTube Video of Zurich Conference

​The Fed has never forecast a recession, even after they have started.

It reminds me of Bernanke’s denials on the housing bubble.

No Comment on Trade?


1st and 3rd appear a bit opposing.

View image on Twitter

Everything’s Fine


The Economy is great. The only thing adding to “uncertainty” is the Fake News!


Accurate Reader Comment

“Not only has the Fed never forecast a recession they’ve never forecast a crash or bubble. But that hasn’t stopped them from telling us we don’t have a bubble or crash on the horizon.”

Lagarde Praises Negative Rates, Study Shows They Reduce Lending

Lagarde Praises Negative Rates, Study Shows They Reduce Lending

Incoming IMF chief Christine Lagarde says negative rates have helped Europe more than they’ve hurt. I disagree.

The nearly always wrong Christine Lagarde is wrong once again.

Today she claims Negative Rates Have Helped Europe More Than They’ve Hurt.

The next head of the European Central Bank, Christine Lagarde, appears to be as much of a fan of negative interest rates as the current chief, Mario Draghi.

European banks have complained about the impact on profitability, but even there the current managing director of the International Monetary Fund defended the move.

“On the one hand, banks may decide to pass the negative deposit rate on to depositors, lowering the interest rates the latter get on their savings,” she wrote. “On the other hand, the same depositors are also consumers, workers, and borrowers. As such they benefit from stronger economic momentum, lower unemployment and lower borrowing costs. All things considered, in the absence of the unconventional monetary policy adopted by the ECB – including the introduction of negative interest rates – euro area citizens would be, overall, worse off.”

Negative Rates Actually Cut Lending

Research shows Negative Rates Actually Cut Lending.

Central banks’ negative interest rates were supposed to increase spending, stop deflation and stimulate the economy. They may have done the exact opposite.

According to research from the University of Bath, central banks charging commercial banks to hold excess cash reserves have actually decreased lending. That’s because the additional costs reduce banks’ profit margins, leading to a drop in loan growth.

“This is a good example of unintended consequences,” said Dr. Ru Xie of the university’s School of Management, one of the study’s authors. “Negative interest rate policy has backfired, particularly in an environment where banks are already struggling with profitability.”

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

Barron’s Nonsensical Idea: Cut Rates Like Mad to Avoid Recession

Barron’s Nonsensical Idea: Cut Rates Like Mad to Avoid Recession

Barron’s writer Matthew Klein proposes to stop the recession by cutting interest rates like it’s 1995.

Klein says How to Avoid a Recession? Cut Interest Rates Like It’s 1995.

One of the most reliable harbingers of U.S. recession—short-term interest rates on U.S. Treasury debt higher than longer-term yields—has been flashing warning signs for months. That doesn’t mean the economy is doomed to a downturn.

So-called yield-curve inversions have preceded every U.S. downturn since the 1950s, with only one false positive in 1966. This past week, the yield on two-year Treasuries briefly surpassed the yield on 10-year notes for this first time since 2007. The most straightforward explanation is that traders…

Absurd Notion

The rest of the article is behind a paywall, but I can tell you with 100% certainly Klein’s notion is absurd.

Inverted yield curves do not cause recessions. They are symptoms of a buildup of excess debt or other fundamental problems.

Those problems will not not go away if the Fed “cuts rates like 1995” or even like 2008.

If a zero percent interest rate stopped recessions, Japan would not have had a half-dozen recessions in the past decades that it did have, many without inversions.

Not even negative rates can stop recessions.

The Eurozone, especially Germany, has negative rates. Yet, it’s highly likely the Eurozone is in recession now and even more likely Germany is (with the rest of the Eurozone to follow).

Monetary Madness

As a prime example of global monetary madness, witness Inverted Negative Yields in Germany and Negative Rate Mortgages.

Even if the Fed made a 100 basis point cut (four quarter point cuts at once), what the heck would that do?

Stop recession for how long? Zero months? Six months? And at what expense?

What Then?

Yes, what then? Negative mortgages? A 10-year yield of -1.0% like Switzerland.

And if that doesn’t work?

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

Recession Looms: Cass Freight Index Negative for 7th Month

Recession Looms: Cass Freight Index Negative for 7th Month

According to Cass, “Freight shipments signal economic contraction”.

The Economic Outlook from Freight’s Perspective is not promising.

  • With the -5.3% drop in June following the -6.0% drop in May, we repeat our message from last month: the shipments index has gone from “warning of a potential slowdown” to “signaling an economic contraction.”
  • May and June’s drops are significant enough to pose the question, “Will the Q2 ’19 GDP be negative?”
  • We acknowledge that all of these negative percentages are against extremely tough comparisons; and the Cass Shipments Index has gone negative before without being followed by a negative GDP.
  • The weakness in spot market pricing for many transportation services, especially trucking, is consistent with the negative Cass Shipments Index and, along with airfreight and railroad volume data, strengthens our concerns about the economy and the risk of ongoing trade policy disputes. Weakness in commodity prices and the decline in interest rates have joined the chorus of signals calling for an economic contraction.
  • We are concerned about the severe declines in international airfreight volumes (especially in Asia) and the ongoing swoon in railroad volumes, especially in auto and building materials.
  • We see the weakness in spot market pricing for transportation services, especially in trucking, as consistent with and a confirmation of the negative trend in the Cass Shipments Index.
  • As volumes of chemical shipments have lost momentum, our concerns of the global slowdown spreading to the U.S., and the trade dispute reaching a ‘point of no return’ from an economic perspective, grow.

European Airfreight

European airfreight volumes have been negative since March 2018, but only by a small single-digit margins (-1% to -3%), until November 2018. Unfortunately, since then, volumes have started to further deteriorate. Our European Airfreight Index was down a concerning -7.2% in April, only down -2.6% in May, before dropping -7.9% in June. Although by itself distressing, it’s the Asian data that has become the most alarming.

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

Lacy Hunt Blasts MMT and Speaks of Hyperinflation If Implemented

Lacy Hunt Blasts MMT and Speaks of Hyperinflation If Implemented

In the Hoisington First Quarter Review, Lacy Hunt blasts MMT as “self-perpetuating” inflation.

Please consider the Hoisington Investment Quarterly Outlook for the first quarter of 2019.

MMT Leads to Hyperinflation

Under existing statutes, Fed liabilities, which they can create without limits, are not permitted to be used to pay U.S. government expenditures. As such, the Fed’s liabilities are not legal tender. They can only purchase a limited class of assets, such as U.S. Treasury and federal agency securities, from the banks, who in turn hold the proceeds from this sale in a reserve account at one of the Federal Reserve banks. There is currently, however, a real live proposal to make the Fed’s liabilities legal tender so that the Fed can directly fund the expenditures of the federal government – this is MMT – and it would require a change in law, i.e. a rewrite of the Federal Reserve Act.

This is not a theoretical exercise. Harvard Professor Kenneth Rogoff, writing in ProjectSyndicate.org (March 4, 2019), states “A number of leading U.S. progressives, who may well be in power after the 2020 elections, advocate using the Fed’s balance sheet as a cash cow to fund expansive new social programs, especially in view of current low inflation and interest rates.” How would MMT be implemented and what would be the economic implications? The process would be something like this: The Treasury would issue zero maturity and zero interest rate liabilities to the Fed, who in turn, would increase the Treasury’s balances at the Federal Reserve Banks. The Treasury, in turn, could spend these deposits directly to pay for programs, personnel, etc. Thus, the Fed, which is part of the government, would be funding its parent with a worthless IOU.

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

Zombified Economy: What Will the Next Recession Look Like?

Zombified Economy: What Will the Next Recession Look Like?

The short answer is nothing like the last.

If you search for “next recession” numerous ideas pop up. Many believe there will not be a recession soon.

Condition Comparison

Conditions are radically different than in 2007 and 2000.

The Fed re-blew a housing price bubble but the number of jobs tied to construction, sales, CDOs, agents and even the impact on banks is a shell of what happened then.

Technology is bubbly, but not like 2000. This is how I see things.

  1. We will not have bank failures in the US.
  2. There will be major bank failures or bail-ins in Europe.
  3. Housing will not have a major role but will strengthen the recession.
  4. Millennials simply cannot afford houses so housing will not lead a Fed attempt at a recovery even if interest rates plunge.
  5. Low interest rates will keep zombie companies alive for a while longer .
  6. Proliferation of retail stores, Walmart, Target, everything requires minimum staffing levels no matter how poor sales become.
  7. Unemployment will not rise much like last time. Instead, expect to see hours cut.Also expect for many of those currently working two jobs to lose one of them.
  8. Retail sales will plunge with the reduction in work.
  9. The impact of the above is very weak profits but not massive labor disruption
  10. Stocks will get clobbered as earnings take a huge hit.
  11. Junk bonds also get clobbered on fears of rolling over debt.
  12. This malaise can potentially last for years.

Zombified Economy

Japan is in a state of zombification and Europe is on the verge.

The US may not and likely will not go through Japanese-like extremes just yet. However, the demography setup is poor, the student debt problem is a huge overhang, boomers unprepared for retirement is a huge overhang, and pensions are a huge overhang.

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

ECB Warns Slowdown Isn’t Temporary: Draghi Announces Bold Stimulus Plan

ECB Warns Slowdown Isn’t Temporary: Draghi Announces Bold Stimulus Plan

Mario Draghi surprised even the doves with his bold new stimulus plan. It won’t help one iota.

The Wall Street Journal reports ECB Reverses Course With New Stimulus Measures.

The European Central Bank made a major policy reversal Thursday, unveiling plans for fresh measures to stimulate the eurozone’s faltering economy less than three months after phasing out a €2.6 trillion ($2.9 trillion) bond-buying program, making it the first rich-country central bank to ease policy in response to the global slowdown.

The ECB said it would hold interest rates at their current levels at least through the end of this year—months longer than previously signaled—and announced plans for a fresh batch of cheap long-term loans for banks. The first loans will be launched in September, each with a maturity of two years.

Despite the new stimulus, ECB President Mario Draghi said that the risks to the economy remain prevalent, though the likelihood of a recession is very low. Thursday’s decision was unanimous, he said at a press conference. “Given the complexity of the package, I think this is a very positive sign,” he added. The ECB also slashed is forecast for gross domestic product growth this year to 1.1% from 1.7% in December. It lowered its inflation projection to 1.2% from 1.6%, further below the ECB’s target of just under 2%.

Still, the ECB refrained from more extreme measures such as restarting its bond-buying program or cutting its deposit rate further from minus 0.4%. These options weren’t discussed, Mr. Draghi said. “In a dark room, you move with tiny steps,” he said.

Bold New Plans

Please consider ECB’s Draghi Surprised Colleagues with Bold Stimulus Plans.

European Central Bank President Mario Draghi caught even dovish rate-setters off guard by pushing on Thursday for unexpectedly generous stimulus after forecasts showed a large drop in economic growth, four sources familiar with the discussion said.

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

Stupidity Well Anchored: Absurdity of Inflation Expectations in Graphic Form

Stupidity Well Anchored: Absurdity of Inflation Expectations in Graphic Form

The amount of sheer nonsense written about inflation expectations is staggering.

Let’s take a look at some recent articles before making a mockery of them with a single picture.

by Mish

Expectations Problem

On July 17, 2017, Rich Miller writing for Bloomberg proclaimed The Fed Has an Inflation Expectations Problem.

Expectations matter because they shape how households and companies act and thus can go a long way in determining where inflation actually ends up. Consumers accustomed to meager inflation will resist paying up for goods and services.
“Lower inflation expectations make it all the more difficult for the central bank to achieve its inflation objective,” Charles Evans, president of the Chicago Fed, said in remarks posted on the bank’s website on July 14.

Key Element

The Business Insider says The Fed is missing a key sign of economic weakness coming from American consumers.

Andrew Levin, a career Fed economist who was a special adviser to Fed Chairman Ben Bernanke, told Business Insider he was worried by a noticeable decline in inflation expectations, both as reflected in consumer surveys and bond-market rates.
“The reality is that the longer-term inflation expectations of consumers and investors have shifted downward by about a half percentage point. Thus, even with the economy moving towards full employment, it’s not surprising that core PCE inflation remains about a half percentage point below the Fed’s inflation target,” he said, referring to a closely watched reading indicator that excludes food and energy costs.
“If the FOMC continues to ignore the downward drift in inflation expectations and simply proceeds with its intended path of policy tightening, actual inflation is likely to keep falling short of the Fed’s target and might well decline even further,” he said.

Janet Yellen Yesterday

In a brief speech following yesterday’s FOMC announcement Janet Yellen made these statements.

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

Amidst Global Warming Hysteria, NASA Expects Global Cooling

Amidst Global Warming Hysteria, NASA Expects Global Cooling

Those promoting CO2 as the reason for global warming are hucksters and those taken in by hucksters.

Please consider NASA Sees Climate Cooling Trend Thanks to Low Sun Activity.

“We see a cooling trend,” said Martin Mlynczak of NASA’s Langley Research Center. “High above Earth’s surface, near the edge of space, our atmosphere is losing heat energy. If current trends continue, it could soon set a Space Age record for cold.”

The new data is coming from NASA’s Sounding of the Atmosphere using Broadband Emission Radiometry or SABER instrument, which is onboard the space agency’s Thermosphere Ionosphere Mesosphere Energetics and Dynamics (TIMED) satellite. SABER monitors infrared radiation from carbon dioxide (CO2) and nitric oxide (NO), two substances that play a vital role in the energy output of our thermosphere, the very top level of our atmosphere.

“The thermosphere always cools off during Solar Minimum. It’s one of the most important ways the solar cycle affects our planet,” said Mlynczak, who is the associate principal investigator for SABER.

The new NASA findings are in line with studies released by UC-San Diego and Northumbria University in Great Britain last year, both of which predict a Grand Solar Minimum in coming decades due to low sunspot activity. Both studies predicted sun activity similar to the Maunder Minimum of the mid-17th to early 18th centuries, which coincided to a time known as the Little Ice Age, during which temperatures were much lower than those of today.

If all of this seems as if NASA is contradicting itself, you’re right — sort of. After all, NASA also reported last week that Arctic sea ice was at its sixth lowest level since measuring began. Isn’t that a sure sign of global warming?

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

China Trade Data is Nail in the Coffin of Global Economy

Chinese exports and imports even though China’s trade balance with the US rose.

Eamonn Sheridan at Forex Live has some interesting comments on China’s December Trade Balance.

The export figures are a focus and they are poor indeed. But save some space in the barf bag for the import results, they are terrible – huge miss on these.

Demand in China has been showing evidence of slowing. This is a nail in the coffin.

December 2018 Data – Yuan Terms

  • China trade balance comes in at CNY 395bn, expected CNY 345bn, prior was CNY 306bn
  • Exports 0.2% y/y, expected 6.6%, prior was 10.2%… BIG MISS
  • Imports -3.1% y/y, expected 12.0%, prior was 7.8% … even bigger miss

December 2018 Data – US Dollar Terms

  • China trade balance USD 57.06bn, expected $51.6bn, prior was $44.7bn
  • Exports -4.4% y/y, expected 2.0%, prior 5.4%
  • Imports -7.6% y/y, expected 4.5%, prior was 3.0%

Tariff Man

Brad Setser on Twitter
Brad Setser on Twitter

Chinese Investment in the US Slumps to 7-Yr Low

Including $13bn in US asset divestitures by Chinese investors, China’s net US investment actually shrank by $8bn in 2018.

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

World Seriously Needs to Tell Trump “Go to Hell”

The US threatens German companies with sanctions if they continue with Nord Stream 2. This is not our place.

Neither the US nor President Trump should not be the sole decider of global sanctions. If the EU wants to do business with Russia to secure natural gas, that is EU business.

U.S. President Donald Trump has accused Germany of being a “captive” of Moscow because of its reliance on Russian energy and urged it to halt work on the $11 billion gas pipeline. U.S. Ambassador Richard Grenell addressed the issue in a letter sent to several companies, the U.S. Embassy said on Sunday.

Juergen Hardt, foreign policy spokesman for Merkel’s conservatives in parliament, was scathing in his criticism of the U.S. move.

“That the U.S. ambassador is now turning to German companies with direct threats is a new and unacceptable one-sided tightening of the tone in the transatlantic relationship,” Hardt said. “If the U.S. president thinks he has to publicly show he is getting tough on Russia in view of the many question marks regarding his relationship with Moscow, he should not thereby impair the relationship with his most important ally.”

“The letter reminds that any company operating in the Russian energy export pipeline sector is in danger under CAATSA of U.S. sanctions,” the embassy spokesman said, adding that other European states also opposed the planned pipeline.

CAATSA

CAATSA stands for Countering America’s Adversaries Through Sanctions Act.

Imagine Europe passing a CEATSA and directly threatening US businesses. That’s how arrogant and wrong this policy is.

A Bloomberg Nord Stream 2 Editorial gets it correct.

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

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