dinsdag 20 februari 2018

Russia Warns US To "Stop Playing With Fire" In Syria, Immediately Leave Area It Controls

Two weeks after a US B-52 strike killed scores of Russian mercenaries in Syria, which according to Bloomberg and Reuters were are as many as 200, while Russia said no more than 5 Russians were killed in the attack then promptly refused to discuss the embarrassing topic further, Moscow has clearly not forgotten this latest, and most serious, escalation in the 7-year-old proxy war, and on Monday Russian Foreign Minister Sergei Lavrov warned the Trump administration not to “play with fire” as he lashed out at the U.S. over what he described as its “provocative” support for autonomy-seeking Kurds in Syria, while urging US troops in the area of Al-Tanf to "leave immediately." Speaking to a Moscow audience at the Valdai Club conference on the Middle East, Lavrov said that US troops must immediately cease operations in the Southern Syria area of Al-Tanf, adding that he once again calls "on our American colleagues not to play with fire and measure their steps proceeding not from immediate needs of today’s political environment, but rather from long-term interests of the Syrian people and of all peoples of this region, including the Kurds, of course," the Russian top diplomat was quoted as saying by TASS News Agency...

Lavrov was referring to an area on Syria’s border with Jordan and Iraq, which the US declared to be under its protection last year. Among other things, it contains the Rukban refugee camp. The facility is apparently used by radical militants, including members of UN-designated terrorist group best known by its former name Al-Nusra Front, to recover and raid other parts of Syria, Lavrov said at the Valdai Club conference on the Middle East in Moscow, alongside his Iranian counterpart Mohammad Javad Zarif and a top adviser of Syrian President Bashar al-Assad. The US is turning a blind eye to such abuses of its protection, he added. “Inside the Al-Tanf zone, which the Americans unilaterally declared under their protection, and inside the refugee camp jihadists are regularly reported to recover strength.
On several occasions they conducted raids from there into other territory of the Syrian Arab Republic. This zone must be shut down immediately,” the Russian minister said. He added Russia has mounting evidence that the US has no intention to oppose this jihadist group in earnest. His response came after a question from the think tank International Crisis Group about what “Russia could do more” in Syria to prevent an escalation of violence there, particularly between Iran and Israel. Lavrov said the question should be “what the US could refrain from doing” in Syria and that the answer was “stop playing dangerous games” and cease trying to partition the nation "which could lead to the dismemberment of the Syrian state" and added that Russia is "seeing attempts to exploit the Kurds’ aspirations." The Americans “in the territories they patronize east of the Euphrates River and all the way to the state border with Iraq create governing bodies which are designed by intention to have no links with Damascus,” he pointed out. Lavrov also commented on the situation in the southwestern part of Syria on the border with Jordan and Israel, which was designated as a “de-escalation zone” by Syria, Russia, Turkey and Iran, and Israel’s interests in Syria.
Israel accuses Iran of using proxy forces to seize control of parts of southern Syria, including those along the border, and has threatened to use military force to reverse the situation. “We negotiated the creation of this zone with Jordan and the US and it’s not a secret that our Israeli colleagues were informed about what we discussed,” he said. “Now to implement everything we had agreed on we have to focus on one particular article, which said all parties to the agreement would work to make sure that no non-Syrian forces were present inside and near this de-escalation zone.” Lavrov's comments take place as the U.S. is setting up a 30,000-strong Kurdish-led border protection force in the northeast of Syria, which Assad’s backers Russia and Iran have condemned as an attempt to carve out an American zone of influence. Zarif for his part said Iran is concerned about a “new wave” of foreign intervention in Syria led by the U.S. after the defeat of Islamic State. Quoted by Bloomberg, he accused the U.S. of trying to capture Syrian territory by making use of proxies. Meanwhile, for the past month has been is pursuing an offensive against Kurdish fighters in northwest Syria - a military operation whose name "Operation Olive Branch" pretty much wins 2018 in the irony category. Also this month, Israel launched its biggest strikes in Syria since the 1982 Lebanon war after one of its warplanes was shot down in the wake of the destruction of an apparent Iranian spy drone inside Israeli territory. Israel’s prepared to act “not just against Iran’s proxies that are attacking us, but against Iran itself,” Prime Minister Benjamin Netanyahu warned Sunday at the Munich Security Conference.
# On Monday, Lavrov dismissed Western criticism of Iran’s role and demands for a pullout of Iranian troops and military advisers, saying they’ve been invited by the government in Damascus, something which no US troops in the region can claim. Iran chimed in too, saying that the Syrian government has a “right to self-defense” and Israel should stop its “acts of aggression,” while Turkey has no right to intervene in Syria, Zarif said. The dispute between Israel and Iran, Lavrov said, certainly complicated the situation in Syria, and Moscow believes both parties need to take steps to defuse it according to RT. For instance, Iran’s statements that Israel was a Zionist entity that needs to be destroyed are perceived as absolutely unacceptable in Russia. But neither does Russia see as constructive Israel’s policy of turning every problem in the region into a vehicle for opposing Iran, he said. “This is what we see in Syria, this is what we see in Yemen, and even the latest developments around the Palestinian issue, including Washington’s decision to recognize Jerusalem as Israel’s exclusive capital, are to a large extent caused by the very same anti-Iranian bias,” Lavrov explained. “Both attitudes pose a risk of further damaging the situation in the region, which is already very pitiful.”
The Russian minister suggested that Israel and Iran should try to address their differences, including the latest flare-up involving an Iranian drone destroyed by Israel after reportedly violating the airspace of the Jewish state, by taking them to the UN for proper resolution. “Otherwise we will be rolling down the slope to a situation in which every incident is simply blamed on the other party and used to justify military action.” Finally, in the most bizarre twist yet, earlier we reported that Russia-backed Syrian army forces have agreed to help the US-backed Syrian Kurds fight troops belonging to NATO member Turkey, and who "may enter the border town of Afrin within hours," according to the official SANA news agency. Turkish Foreign Minister Mevlut Cavusoglu said the plan won’t derail the offensive....

Latvia Bank Crisis: Central Bank In Chaos As ECB Blocks Payments By Third Largest Bank

One day after the central bank governor and ECB Governing Council member Ilmars Rimsevics was detained by Latvia’s anti-corruption authority on Saturday on suspicion of accepting a bribe of more than €100,000, prompting both Latvia's Prime Minister and the president to call on Rimsevics to resign, Latvia appears to have a full-blown banking crisis on its hands, after the European Central Bank froze all payments by Latvia's third largest bank, ABLV, following U.S. accusations the bank laundered billions in illicit funds, including for companies connected to North Korea’s banned ballistic-missile program.
The troubles started on February 14, when Latvia began investigating ABLV over suspicions of illegal trading related to North Korea's weapons system. The investigation was launched after the Treasury Department charged the bank with having “institutionalized money laundering as a pillar of the bank’s business practices,” which proposed preventing the bank from opening an account in the U.S. That decision immediately made ABLV a pariah to other financial institutions, effectively cutting its access to the dollar and funding flows from the world’s most important market, and forcing it to rely exclusively on the ECB as it sole-source of funds. As the WSJ reported, in proposing the ban on ABLV, Treasury said the bank managed transactions for clients connected to several long-sanctioned North Korean firms. These include North Korea’s Foreign Trade Bank, the institution that manages Pyongyang’s foreign-currency earnings, revenue that U.S. and United Nations officials say go directly to North Korea’s nuclear and missile programs. According to the Treasury, ABLV’s alleged illegal activity also included funneling billions of dollars in public corruption proceeds from Azerbaijan, Russia and Ukraine through shell company accounts.
# ABLV, Latvia’s third-largest lender by assets, is based in Riga but has an office in Luxembourg and a subsidiary in the U.S. It is also supervised directly by the ECB under a new system of eurozone bank supervision introduced during the region’s recent financial crisis, under which national authorities remain responsible for enforcing money-laundering laws. On Monday morning, troubles for ABLV cascaded, when the ECB said early on Monday morning that it had instructed Latvia’s banking supervisor to impose a moratorium on the country’s third-largest bank, which freezes all payments by the bank on its liabilities. “In recent days, there has been a sharp deterioration of the bank’s financial position. This follows an announcement on 13 February by the US Department of the Treasury’s Financial Crimes Enforcement Network from February to propose a measure naming ABLV bank an institution of primary money laundering concern pursuant to Section 311 of the USA Patriot Act,” the ECB said in a statement. “A moratorium was considered necessary given that the bank is working with the Latvian central bank and authorities to address the current situation.” Meanwhile, sensing that a bank run may be imminent, Latvia’s central bank on Monday said it had extended a loan of €97.5 million to ABLV following a request by the bank. The loan was granted against high-quality securities that exceeded the amount of the loan, and state resources weren’t used, the central bank said.
# There's more. As the WSJ also reported, in a related development, Latvian state police on Monday said they had launched a criminal investigation into a complaint a high-ranking official in Latvia’s financial sector had extorted bribes from a Russian businessman, Grigory Guselnikov. The Latvian official wasn’t named. State police announced the probe at a joint press conference with the anticorruption agency, where details of the probe into Mr. Rimsevics were revealed. And this is where the banking crisis could spread beyond just ABLV: Guselnikov is the largest shareholder of AS Norvik Banka, another Latvian lender that lodged a request for arbitration against Latvia with a World Bank division in December. The bank complained of “unfair, arbitrary, improperly motivated and unreasonable regulatory treatment accorded to the Bank by the Latvian authorities.”
# On Monday, Latvia's Prime Minister Maris Kucinskis convened a two-hour meeting of cabinet ministers on Monday to discuss the two cases. He suggested after the meeting that the central banker, Rimsevics should step down, at least while the investigation is going on, local news agency Leta reported. Latvia hopes to contain the sudden central bank chaos by announcing that Rimsevics’ duties will be carried out by his deputy in his absence, however it remains to be seen how effective this last-minute attempt to avoid a depositor panic will be. The ECB declined to comment on Rimsevics' detention. Latvian President Raimonds Vejonis said on Twitter on Sunday that the country’s National Security Council would review the situation in the Latvian bank sector this week. Finally, for those wondering if there is risk of a systemic bank crisis in Latvia, we offer the following Bloomberg quote from the Prime Minister as of this morning:
Unfortunately, any time a politician tells depositors not to panic it's usually too late....

maandag 19 februari 2018

One Bank Is Worried That Credit ETFs Will Blow Up Next

Two weeks after the unprecedented, record Feb. 5 surge in the VIX, the historic move is rapidly fading into memory as "the dip gets bought" again: to those who correctly predicted it, like Fasanara Capital and Eric Peters, and those who profited from it, like Ibex Investors and Peter Thiel, congratulations. Now the question is which product, read ETF, will generate returns similar to the 94% bonanza reaped by those who were short the XIV ahead of its terminal implosion (the XIV will cease trading after Feb 20, with holders receiving a cash payment of its residual value, which is virtually nothing)...

To be sure, numerous candidates have been proposed over the past two weeks, with two names frequently cited, certainly by this site among others, include the two big junk ETFs, HYG and JNK, whose existence is only assured as long as the structure and liquidity of the underlying cash junk bond market isn't seriously tested, as the ETFs would spontaneously implode once the market of underlying junk bonds freezes up, something which Howard Marks has repeatedly warned about. What is strange, as we discussed on several occasions over the past 2 weeks, is that credit fared relatively well in the washout from the VIXplosion, widening by markedly less than various volatility models would have suggested; according to Deutsche Bank cross asset strategists, on its own the VIX spike should have been worth 56bp to IG spreads and 156bp to HY if only on a theoretical, "model basis"...

That spreads are lagging is not altogether that surprising looking at historical examples: as Deutsche notes, credit spreads widened much less than expected on short-lived increases in volatility in the past (notably in 2010, 2011, and 2015), but the primary risk is that the longer vol remains elevated, the more likely it is that credit will have to reprice. Indeed spreads have started to widen somewhat, and the longer that vol remains elevated, the more they should continue to do so, and in the event of another leg higher in volatility, credit would appear to be the logical nexus of risk...

# Which brings us to the key question: what could catalyze a collapse of credit ETF? In responding to this inquiry, Deutsche Bank's Dominic Konstam writes the following: Our colleagues in equity derivatives had discussed the amount of vega that short vol funds would have to buy following an increase in VIX, which effectively helped to magnify a justifiable increase in volatility. With the washout in those funds, the next nexus of risk in our minds is credit space, particularly given the relative under-reaction thus far. So going back to Deutsche Bank's volatility model, which maps the impact of VIX on IG and HY spreads, the bank estimates that a 1 point rise in VIX is worth -0.6% to IG ETFs in aggregate, and -1.3% to the universe of HY funds. Such sharp moves have yet to be observed: thus far, an index of IG ETF’s has fallen 1.2%, whereas the VIX shock should have pushed it 3.3% lower, and an index of HY funds is down just 2% versus a VIX implied drop of 7.2%...

In other words, the adverse shock to the credit space should be roughly 3 times greater to regress to its fair value levels. This in turn lays out the main concern for credit investors, which according to Deutsche Bank is that "if credit spreads do indeed reprice to higher volatility, the drawdown in credit ETFs could trigger meaningful liquidation, resulting in further pressure on spreads." To attempt to put some numbers around it, empirically a 1% m/m selloff in IG ETFs is consistent with a 1.9% decline in IG ETF AUM (currently about $130bn), meaning a 0.9% liquidation; for HY ETFS, a 1% sell-off equates to a 2.8% drop in ETF AUM (currently about $45bn), and therefore a liquidation worth 1.8% of AUM. It gets worse: assuming the full repricing implied by the move higher in volatility occurs, it would imply $3.7bn redemption in IG funds, and about $6bn in HY ETFs (and the longer that VIX remains elevated, the more this risk grows). The acute risk for the credit market should such a flow materialize should be for HY, conditional on how concentrated it is, average daily volume in IG was about $17bn last year, whereas for HY is was $7.7bn.
# Konstam's conclusion: Should credit sell-off to where the current level of volatility implies, liquidity would likely deteriorate anyway, and the added pressure from fund outflows would likely further exacerbate the spread widening. And while credit spreads have so far failed to blow out to levels suggested by the recent surge in the VIX, troubling signs that investors are already rushing for the door have emerged. On one hand, US junk bonds funds (both mutual funds and ETFs) saw outflows of $6.3b for the week ending February 14th, adding to the outflows HY funds started to see since mid-October. The outflow from riskier corporate debt funds occurred against the backdrop of rising UST yields. The past five weeks’ outflows now total to over $15bn or 7.2% of AUM. These combined outflows from both ETFs and MFs have now reversed much of the $21bn of combined inflows in 2017. Worse, according to JPMorgan, higher frequency data via ETFs shows highest ever weekly outflow of $3.2bn, or 6.4% of AUM, from high-yield bond ETFs this week, bringing cumulative outflows for the current year to $6.8bn, or 13.6% of AUM. On a monthly basis, outflows from HY ETFs have continued uninterrupted since October 2017 and reached $11bn, or 22% of AUM. This reversed almost all of the cumulative inflows into HY bond ETFs since the US election...

Meanwhile, as JPMorgan further cautions, short interest ratios in the two largest US high yield ETFs, HYG and JNK, have been spiking up since mid-Jan (Figure 11)... Both HYG and JNK short interest are at their highs for the period we track data from, suggesting that institutional investor participation via shorting ETFs has contributed to the sell-off in recent weeks. This is similar to the rise in the short interest ratio on the largest investment grade corporate bond ETF, LQD, which has moved higher during the same period this year, albeit from very low levels (Figure 12)...

All of this points to the risk of a sharp blow out in credit spreads in the coming days and weeks should risk off sentiment return and/or should VIX fail to recover its recent "complacent" levels. While in itself a move wider in spreads would not be catastrophic, it could still lead to a broad liquidation panic at the synthetic credit level, at which point the main risk becomes the underlying threat latent within all ETF products, first voiced by Howard Marks in March 2015: "what would happen, for example, if a large number of holders decided to sell a high yield bond ETF all at once?" This is how Marks answered his own question: "in theory, the ETF can always be sold. Buyers may be scarce, but there should be some price at which one will materialize. Of course, the price that buyer will pay might represent a discount from the NAV of the underlying bonds. In that case, a bank should be willing to buy the creation units at that discount from NAV and short the underlying bonds at the prices used to calculate the NAV, earning an arbitrage profit and causing the gap to close. But then we’re back to wondering about whether there will be a buyer for the bonds the bank wants to short, and at what price.
Thus we can’t get away from depending on the liquidity of the underlying high yield bonds. The ETF can’t be more liquid than the underlying, and we know the underlying can become highly illiquid." Should the VIX fail to revert to its recent historic lows and remain at current "elevated" levels, which just happen to be in line with the "fear index" long-term average, we may soon find out if Marks' "worst case" scenario plays out as envisioned, and what exactly happens when everyone tries to sell a synthetic product that is far more liquid than its underlying constituents, especially during a market panic....

There Will Be No Economic Boom

Last week, Congress passed a 2-year “continuing resolution, or C.R.,” to keep the Government funded through the 2018 elections. While “fiscal conservatism” was just placed on the sacrificial alter to satisfy the “Re-election” Gods,” the bigger issue is the impact to the economy and, ultimately, the financial markets. The passage of the $400 billion C.R. has an impact that few people understand. When a C.R. is passed it keeps Government spending at the same previous baseline PLUS an 8% increase. The recent C.R. just added $200 billion per year to that baseline. This means over the next decade, the C.R. will add $2 Trillion in spending to the Federal budget. Then add to that any other spending approved such as the proposed $200 billion for an infrastructure spending bill, money for DACA/Immigration reform, or a whole host of other social welfare programs that will require additional funding. But that is only half the problem. The recent passage of tax reform will trim roughly $2 Trillion from revenues over the next decade as well. This is easy math. Cut $2 trillion in revenue, add $2 trillion in spending, and you create a $4 trillion dollar gap in the budget. Of course, that is $4 Trillion in addition to the current run rate in spending which continues the current acceleration of the “debt problem”...

But it gets worse. As Oxford Economics reported; “The tax cuts passed late last year, combined with the spending bill Congress passed last week, will push deficits sharply higher. Furthermore, Trump’s own budget anticipates that US debt will hit $30 trillion by 2028: an increase of $10 trillion.” Oxford is right. In order to “pay for” all of the proposed spending, at a time when the government will receive less revenue in the form of tax collections, the difference will be funded through debt issuance.
# Simon Black recently penned an interesting note on this: “Less than two weeks ago, the United States Department of Treasury very quietly released its own internal projections for the federal government’s budget deficits over the next several years. And the numbers are pretty gruesome. In order to plug the gaps from its soaring deficits, the Treasury Department expects to borrow nearly $1 trillion this fiscal year. Then nearly $1.1 trillion next fiscal year. And up to $1.3 trillion the year after that. This means that the national debt will exceed $25 trillion by September 30, 2020.” You can project the run rate quite easily, and it isn’t pretty...

Of course, “fiscal responsibility” left Washington a long time ago, so, what’s another $10 Trillion at this point?

While this issue is not lost on a vast majority of Americans that “choose” to pay attention, it has been quickly dismissed by much of the mainstream media, and Congressman running for re-election, by suggesting tax reform will significantly boost economic growth over the next decade. The general statement has been: “By passing much-needed tax reform, we will finally unleash the economic growth engine which will more than pay for these tax cuts in the future.” Don’t dismiss the importance of $25-30 Trillion in U.S. debt. It is larger than the debts of every other nation in the world, combined....

Congress Killed The Economic Boom

While it truly is a great “talking point,” the reality is it just isn’t true. As I have shown previously, there is absolutely NO historical evidence that cutting taxes, without offsetting cuts to spending, leads to stronger economic growth...

Even Congressman Kevin Brady, Chairman of the House Ways and Means Committee, confirmed the same. Deficits, and deficit spending, are HIGHLY destructive to economic growth as it directly impacts gross receipts and saved capital equally. Like cancer, running deficits, along with continued deficit spending, continues to destroy saved capital and damages capital formation. Debt is, by its very nature, a cancer on economic growth. As debt levels rise it consumes more capital by diverting it from productive investments into debt service. As debt levels spread through the system it consumes greater amounts of capital until it eventually kills the host. The chart below shows the rise of federal debt and its impact on economic growth...

The reality is that the majority of the aggregate growth in the economy since 1980 has been financed by deficit spending, credit creation and a reduction in savings. This reduced productive investment in the economy and the output of the economy slowed. As the economy slowed, and wages fell, the consumer was forced to take on more leverage to maintain their standard of living which in turn decreased savings. As a result of the increased leverage more of their income was needed to service the debt, and with that, the “debt cancer” engulfed the system. The Austrian business cycle theory attempts to explain business cycles through a set of ideas. The theory views business cycles: “As the inevitable consequence of excessive growth in bank credit, exacerbated by inherently damaging and ineffective central bank policies, which cause interest rates to remain too low for too long, resulting in excessive credit creation, speculative economic bubbles and lowered savings”...

The problem that is yet not recognized by the current Administration and mainstream economists is that the excessive deficits and exponential credit creation can no longer be sustained. The process of a “credit contraction” will eventually occur over a long period of time as consumers and governments are ultimately forced to deal with the deficits. The good news is the process of “clearing” the market will eventually allow resources to be reallocated back towards more efficient uses and the economy will begin to grow again at more sustainable and organic rates. Today, however, expectations of a return to economic growth rates of the past are most likely just a fairy tale. The past 9-years of stock market returns have been fueled by trillions of dollars of support and direct injections into the financial system, that support is not sustainable in the long run. While the injections have kept the economy from falling into a depression in the short term, the unwinding of that support will suppress economic growth for many years to come. There is no way to achieve the necessary goals “pain-free.”
 The time to implement austerity measures is when the economy is running a budget surplus and is close to full employment. That time was two Administrations ago when the economy would have slowed but could have absorbed and adjusted to the restrictive measures. However, when things are good, no one wants to “fix what isn’t broken”. The problem today is that with a high dependency on government support, high levels of underemployment and rising budget deficits, the implementation of austerity measures will only deter future economic growth, which is dependent on the very things that need to be “fixed”. The processes that fueled the economic growth over the last 30 years are now beginning to run in reverse, and when combined with the demographic shifts in the U.S., the impact could be far more immediate and prolonged than the media, economists, and analysts are currently expecting. Sacrifices will have to be made, the economy will drag on at subpar rates of growth, individuals will be working far longer into their retirement years and the next generation of Americans will lead a far different life than what the currently retiring generation enjoyed. It is simply a function of the math....

Someone Forgot To Tell The Machines The US Markets Are Closed

US Equity futures traded higher overnight (most of Asia closed for new years) into the European open and then started fading. However, at 0930ET, it appears the machines went about their usual 'stop-hunting' business as those dumb humans forgot to tell them that markets are closed...

And there are still people out there that believe we have stock 'markets' and that 'humans' are involved?

Volume is not tiny either. We suspect the modest strength in the Dollar did not help maintain any risk-on bounce in stocks...

John Williams: "It's The Long-Term Insolvency Of The US Government That Markets Don't Like"

Economist John Williams sat down with USA Watchdog‘s Greg Hunter to discuss the dire state of the dollar and United States economy. The monetary path the US is on is out of control, and the unwillingness of government officials to reduce the deficit and stop spending money will cause major problems in the very near future. Years of socialist policies and reckless spending will eventually end in a complete collapse. Williams is not the only economist to sound the alarm either. As the tax cuts are always positive (people keeping more of their money is always good for the economy) the unwillingness to decrease the size and scope of the government with an expanded deficit will be the downfall of a once great nation.
# The interview with Williams begins with him declaring the drop in the stock market to be the fault of the federal reserve. “Did the Fed trigger this most recent round of selling?” asks Hunter. “It looks like it. If you recall, the story was, bond yields are rising. Rising bond yields means someone’s selling bonds. The Fed wasn’t actually selling bonds, they just were not rolling over the bonds that they normally would. I think you’re gonna see the dollar selling off very rapidly and gold rallying as a flight to safe haven.”
# Then the discussion of the tax cuts comes up, as Hunter asks Williams to deliver his take on the lower taxes. “The tax cuts are generally positive. Anytime you cut taxes that is generally a plus for the economy. The problem is the average guy is still not making ends meet. Anything that increases the disposable income is a plus. This does not necessarily go to the guys at the lower end of the income scale, at the moment, but generally there should be a little economic pick up here from it. The problem is what happens to the budget deficit. We just went through a round of the government shutdown and a package that supposedly lays things out for the next two years, but it widens the deficit. The deficit is beyond control. We have $100 trillion in unfunded liabilities. That means you need $100 trillion in hand right now to cover the federal obligations going forward. Printing money to meet obligations is what happened in the Weimar Republic in Germany. This happened in Zimbabwe. This kind of thing eventually gives you a hyperinflation. Ongoing budget deficit and debasing of the dollar will give you global selling pressures in the currency markets. We haven’t seen much selling in the dollar, but that is going to change. You are going to see flight from the dollar and flight from the markets as well.”
# Hunter then said that the government must make massive and deep cuts to salvage the economy, but no one in Washington wants to make the difficult decision. “It’s the long-term insolvency of the US government that the markets don’t like.” Then Hunter asked if Williams thinks there’s a “pretty severe hit” to the economy coming because of the expanding deficit, which will expand the national debt by $10 trillion. Because there are no plans to cut the deficit, Williams simply responds, “right”....

Retail Apocalypse Accelerates: 200 Winn-Dixie Stores To Close As Parent Goes Bankrupt

After shutting down more than 5,000 stores in 2017, store-closings are accelerating in 2018 with news that Bi-Lo LLC, the supermarket company that owns the Winn-Dixie chain, is preparing for a potential bankruptcy filing as soon as next month, and is planning to shut almost 200 stores as part of the move, either before or after the filing. Winn-Dixie joins JCPenney, Bon-Ton, Toys R Us, Sam’s Club, Macy’s, Sears, Kmart and others in the growing list of 2018 shutterings as the 'great economy' that stocks foreshadow fails to show up in the retailer landscape. As Clark.com details, the new year is shaping up to be another difficult one for traditional retailers.
# J.C. Penney – 8 stores; After closing more than 140 stores in 2017, J.C. Penney is shutting down one of its distribution centers and eight more stores nationwide, The Dallas Morning News reports. Around 670 jobs will be cut with the closing of the distribution center in Wauwatosa, Wisconsin, this summer. Meanwhile, around 480 employees will be affected by the eight stores that are closing, which follows a post-holiday review. The locations will be shut down between now and May, according to CNBC.
# Bon-Ton – 42 stores; The Bon-Ton Stores Inc, a department store chain, is closing more than 40 underperforming locations this year, including stores under all of the company’s nameplates. Store closing sales are scheduled to begin on February 1 and run for approximately 10 to 12 weeks, the company said in a news release. Associates at the affected locations will be offered the opportunity to interview for available positions at other stores.
# Toys R Us – Up to 182 stores; Toys R Us, the iconic Wayne, New Jersey-based toy retailer, has announced that it will shut down up to 182 U.S. stores. Store closing sales are likely to begin in early February, with the bulk of the closures expected to take place by mid-April, according to a letter from the company’s CEO. However, some closures may be avoided if the store can negotiate more favorable lease terms.
# Sam’s Club – 63 stores; Bad news for Sam’s Club members! The Walmart-owned warehouse club has abruptly shut down multiple locations across the country, according to local media reports. The retailer has confirmed that 63 clubs are closing and up to 12 of them will be converted to e-commerce fulfillment centers. Walmart said the impacted clubs will close over the next few weeks, leaving 597 Sam’s Club locations.
# Macy’s – 11 stores; Nearly a dozen Macy’s department stores will soon be closing their doors forever. In a news release, the company announced the closure of 11 Macy’s stores. It’s part of the retailer’s plan to close approximately 100 stores, which was announced back in August 2016. Macy’s intends to close an additional 19 stores as leases or operating covenants expire or sale transactions are completed.
# Sears and Kmart – 103 stores; Just days after the holiday shopping season ended, Sears Holdings announced that it’s closing more than 100 stores.In a news release, the struggling retailer said it told associates at 64 Kmart and 39 Sears stores that the locations will be shut down between early March and early April 2018. Liquidation sales will begin as early as January 12 at the impacted department stores. Sears Holdings previously announced plans to shut down 63 Kmart and Sears stores this January. The company closed more than 350 locations last year.
# J. Crew – 50 stores; After reporting a 12% sales drop for its third quarter, J. Crew said it will close dozens of stores by the end of January 2018, CNN Money reported. In a news release, J.Crew said it expects to close 50 stores during fiscal 2017, which ends in January...

# And now Win Dixie plans to shutter 200 of its 500 stores  Winn-Dixie's parent, Bi-Lo LLC, which went bankrupt in previous incarnations in 2005 and 2009, may still find a way to restructure its debt out of court. However, as Bloomberg reports, with low margins and ample competition, the grocery business has always been challenging. But now the industry is contending with a more aggressive push by big-box retailers and Amazon.com Inc., which acquired Whole Foods last year to give it a larger brick-and-mortar presence. The moves threaten to force older chains to either consolidate or revamp their operations. Bi-Lo is laboring under more than $1 billion in debt following its 2005 buyout by Lone Star Funds...

The company and its creditors have held talks to discuss a possible debt-to-equity swap, as well as alternatives such as asset sales, Bloomberg reported last year. Lone Star piped in $150 million when the grocer exited Chapter 11 the first time, and invested $275 million to help fund the purchase of Winn-Dixie in 2012. But it probably will still come out ahead, having paid itself at least $800 million since 2012, along with management fees it’s collected, according to regulatory filings. Southeastern Grocers, based in Jacksonville, Florida, says it’s the fifth-largest supermarket chain, with more than 700 stores and 50,000 employees. It also operates the Harveys and Fresco y Mas chains....

David Stockman; Swan Song Of The Central Bankers Part 3, The Goldilocks Economy Delusion

That was fast. Two weeks ago the Goldilocks Economy was being feted (again) from one end of Wall Street to the other. Today, however, January's in-coming data brought a 6.7% annualized CPI rate and a negative 3.1% annualized retail sales print. Can you say stagflation! The robo machines certainly did when the Dow futures reversed by more than 400 points hard upon the 8:30 AM releases. Indeed, even if you don't cotton to the seasonally maladjusted monthly data prints, which we definitely do not, it's hard to see the case for goldilocks even on a year over year basis... To wit, nominal retail sales in January were up just 3.0% on a Y/Y basis, while the CPI gained 2.1%. So if consumers are the be-all and end-all of Keynesian prosperity, where's the beef? Certainly the measly 0.9% gain in real retail spending since January 2017 ain't it. Needless to say, the underlying trends do not remotely fit the goldilocks narrative anyway. As we mentioned a few days ago, hourly wage growth for the 80% of the work force considered to be "production and non-supervisory employees" was up just 2.4% in January while the CPI has now come in at 2.1%. So with the household savings rate having now plunged to just 2.4%, which is virtually an all-time low, how do you get a consumer spending boom out of 0.3% annual wage growth? Indeed, how do you possibly justify the new Fed Chair's claim that the Yellen Fed (and Bernanke too) did a splendid job of restoring full-employment prosperity, and that these policies need to be continued full speed ahead? As Powell said at his swearing-in ceremony:
* Since then, monetary policy has continued to support a full recovery in labor markets and a return to our inflation target; we have made great progress in moving much closer to those statutory objectives. Since then, monetary policy has continued to support a full recovery in labor markets and a return to our inflation target. While the challenges we face are always evolving, the Fed's approach will remain the same. Today, the global economy is recovering strongly for the first time in a decade. We are in the process of gradually normalizing both interest rate policy and our balance sheet with a view to extending the recovery and sustaining the pursuit of our objectives. 
The chart below obviously douses this entire self-serving narrative with a bath of cold water. During the last 17 years, real average weekly earnings of the core work force, men 25 years and over, have not increased by a single dime (they're actually down from $407 to $406 per week in constant 1982 dollars). Even as the Fed's balance sheet has soared by 10X and the value of household financial assets has nearly tripled since the year 1997, therefore, worker paychecks have been dead in the water. So we are not inclined to call the picture below a Goldilocks Economy or a measure of central bank success. Instead, it points to the rotting foundation of a once thriving capitalist economy that has been strip-mined by financialization and speculation, the only real product of Keynesian central banking. Nevertheless, Powell's Orwellian transformation of failure into a roaring success is not merely institutional bluster from the Eccles Building: The entirety of Wall Street believes it, and the Fed's egregious financial bubbles are predicated upon it...

When all is said and done, of course, both ends of the Acela Corridor are bubble-blind because they are in the business of cherry-picking the data-deltas, not analyzing underlying trends and absolute economic levels. For example, there have been numerous episodes of purported "wage growth acceleration" since the dotcom peak, but they have obviously all been transient noise, signifying nothing except $1 per week of lower real earnings. Not only that: Fundamental financial principles were tossed on the ash-heap of history long ago, in favor of applause for any policy foolishness out of Washington that might goose the "in-coming data" for a few months or quarters; and without any regard for the longer-term adverse consequences of rampant money printing and fiscal excess. After all, who in their right would think that the most asinine fiscal policy in modern history, a giant tax cut and spending surge which will take the FY 2019 deficit to nearly 6.0% of GDP in the 10th year of a flagging business expansion, is good for the economy and stock market? That's especially the case, given the manner in which that policy was put in place. It reflects the irrational legislative lunges of a bumbling gang of Congressional Republicans who have betrayed every semblance of fiscal rectitude that was left in the so-called conservative party in order to insulate themselves politically from the whirling dervish in the Oval Office.
And for good measure, they actually took the corporal's guard of fiscal hawks left in their ranks, Rand Paul and the House Freedom Caucus, out behind the Capitol and shot them dead (politically). Stated differently, Keynesian central banking has generated what amounts to fanatical worship of the stock market, and a resulting corrupt and addled financial culture of "whatever it takes" and "any good delta will do". Thus, during the last iteration of the Goldilocks Economy in 2007, the Fed heads and the Wall Street talking heads alike waxed ebulliently about the "strong" incoming data and the absence of economic imbalances that might interrupt the party. And if you think that context-free, short-term monthly and quarterly rates of change (deltas) are where it's at, everything was indeed coming up roses. As of mid-2007, real GDP was still rising at a 2.3% rate on a Y/Y basis and job growth had remained steady, posting 1.2% to 1.6% annual gains.
# Mid-2007 Goldilocks Economy...

Except it wasn't sustainable and the above picture didn't matter. In fact, the above chart reflects more or less the normal, natural (unaided) condition of a capitalist economy. They do grow steadily owing to population gains, productivity improvement and the wealth-seeking impulses embedded in the free market. But capitalist growth must inevitably be interrupted when state policy creates unsustainable financial bubbles, artificial economic eruptions and loss-making malinvestments. And, needless to say, that was exactly what was going on during Wall Street's mid-2007 goldilocks bacchanalia. The fact is, wages, household debt and housing prices were egregiously and unsustainably out of whack. As of June 2007, nominal hourly wages had risen by just 26% since January 2000. By contrast, the Case-Shiller housing price index was up by 81% and household debt had exploded by nearly 110% in barely seven years. In a word, the trends in the chart below were infinitely more important than the short-term deltas in the Goldilocks Economy chart above. You don't grow debt 4X faster than income for long...

Alas, the housing and debt bubbles reached their asymptote a few months later and the Fed's Keynesian house of cards came tumbling down. In short order, the mid-2007 Goldilocks Economy turned into the disastrous picture below. Yet neither the Fed nor Wall Street saw it coming. The Fed minutes just after the Lehman meltdown in September 2008, for example, reveal serious doubts about whether a recession had actually even commenced...

That get's us back to the fundamental flaw in Keynesian central banking: Now that households have reached Peak Debt and the C-suites of corporate American have been turned into financial engineering joints, its patented formula of falsifying the cost of money and debt no longer works any magic on main street; it only systematically inflates financial asset prices and fuels relentless speculation and the invention of financial time bombs, such as doubly short Vol ETFs for the homegamers and risk parity trades for the Ray Dalio's of the world. At length, of course, the bubbles burst and the financial time bombs, which have no economic value-added and would never emerge on the free market, blow sky high. That inexorable cycle, in turn, triggers panicked C-suite efforts to buck up share prices and rescue stock option values by means of sweeping "restructuring actions" (i.e. massive liquidation of jobs, inventories, fixed assets and inflated goodwill from failed M&A deals). In a word, under the current regime of Keynesian central banking, the financial tail wags the main street dog. The Goldilocks Economy on main street is not a sign of sustainable prosperity; it's the natural condition of the free market waiting to get bushwhacked by the next periodic collapse of Bubble Finance. Needless to say, that's exactly where we are now. Financialization of the US economy has continued to intensify and has now reached hideous proportions. Whereas, the total debt and equity value of the financial sector (banks, brokers, GSE's, insurance companies, mutual funds, REITs etc) had traditionally amounted to 1.5-2.0X GDP, and had reached 3.5X on the eve of the financial crisis, it now totals more than $100 trillion and exceeds 5X GDP. Accordingly, the financial sector amounts to a dangerous, bloated economic walrus waiting to rollover on the main street economy...

Financialization of US Economy Since Greenspan

# Financialization of US Economy Since Greenspan... So we aren't crediting the currently benign data-deltas during this particular reprise of the purported Goldilocks Economy, either. Like in 2007, what counts is the underlying fundamental trend, and as we showed yesterday, this time the US economy is fixing to be monkey-hammered by a doozy. To wit, there could be no more destructive lurch of policy than the perfect storm of:
(1) the eruption of giant fiscal deficits during the year 10 sell-by date of a tired business expansion;
(2) an epochal pivot toward massive QT (quantitative tightening) by a greenhorn team of Keynesian central bankers who are mesmerized by their own propaganda and the Goldilocks Economy delusion; and
(3) more than three decades of structural deterioration in the main street economy which has brought the net national savings rate nearly down to the zero-bound.
In a word, the wholesale abandonment of fiscal responsibility by Washington could not have come at a worse time. It has left the national savings rate so out of whack, that it is rapidly heading toward negative territory. And that's a condition which is off-the-charts historically and which is even less logically sustainable than the housing price and debt boom that preceded the Great Financial Crisis. Two decades ago (1997), the household savings rate was still respectable at 7.0% of disposable personal income, and amounted to $366 billion in nominal dollars. Likewise, net business savings totaled $279 billion, while government dis-saving (deficit) was just $105 billion or negative 1.0% of GDP. Accordingly, net national savings totaled $540 billion or 6.7 % of national income. By contrast, both household savings and business savings today have diminished sharply relative to national income, while government dis-saving totaled $806 billion or 4.2% of national income at an annual rate during Q3 2017. Moreover, when the Federal deficit soars to $1.2 trillion in the year ahead and you add the state and local deficit to the total, the resulting $1.5 trillion of government dissaving cannot possibly be offset by business and households. Even if household savings do not deteriorate further (which would keep a tight lid of consumption spending), combined household and business savings would amount to only $1.2 trillion (Q3 2017 annual rate). Needless to say, we think there is only one way to close the gap: Yields will soar in order to elicit higher savings and to discourage gross investment. That doesn't add up to a Goldilocks Economy in any way, shape or form...

To be sure, it is quite certain that the Donald's new Yellen in trousers and tie has no clue that the national savings rate is fixing to pierce the zero-bound from above. Mesmerized by goldilocks, he and his minions are hell-bent on replenishing their dry powder and shrinking the Fed's elephantine balance sheet. At length, QT will powerfully and positively strengthen the dollar (and notwithstanding its recent pure trading swoon) versus the other major currencies, whose central banks are adopting the Fed's shift to QT on a tentative and lagging basis. Stated differently, the other central banks and sovereign authorities are likely to be selling USTs, directly or indirectly, to prevent their currencies from plummeting. Consequently, as we will address in Part 4, the off-shore financing of the US economy will likely reach its sell-by date, as well. Just since the eve of the financial crisis, the US economy has effectively borrowed $6 trillion from abroad. And that's surely another unsustainability that's lurking below the placid surface of the Goldilocks Economy 2.0...

New Data Shows Yellowstone Supervolcano "Strained"; Magma Chamber Under Immense Pressure

According to a group of seismologists who are monitoring the potentially catastrophic supervolcano, Yellowstone is “under strain.” This new report has reignited fears that the caldera could erupt at any moment. Experts were alerted to the volcano’s strain after noticing deformation. This process, where subsurface rocks subtly change shapes, is occurring beneath the surface of Yellowstone right now. Researchers state deformation occurs when there is a change in the amount of pressure in the magma chamber and experts are keeping an eye on the development. Seismologists from UNAVCO, a non-profit university-governed consortium, are using “Global Positioning System (GPS), borehole tiltmeters, and borehole strainmeters” to measure minute changes in deformation at Yellowstone. In an article for the Billings Gazette, David Mencin and Glen Mattioli, geodesists with UNAVCO, say “the strain signal is larger than would be expected if the crust under Yellowstone were completely solid.”
“What that means, at least in their eyes, is that there’s lava flowing that’s allowing pressure to build in the chamber,” says Joe Joseph of The Daily Sheeple. “I don’t know if this is good or bad!” These independent observations agree with other instruments at Yellowstone, like seismometers, that indicate a zone of semi-molten rock starting about 3 miles beneath the surface. The term “semi-molten” is used because the entire zone contains only between 5 and 15 percent liquid rock that occupies small pockets of space between the solid rock. But the scientists want to assure the public that these observations are no cause for alarm. “They’re always gonna say that,” says Joseph. “It’s about 700,000 years ago they say when it erupted and it’s long overdue.
# So here we are, Yellowstone, yet again, thrust into the news because of some of this new data coming out,” Joseph said. If the Yellowstone volcano nestled mostly in Wyoming were to erupt, an estimated 87,000 people would be killed immediately and two-thirds of the USA would instantly be made uninhabitable. The large spew of ash into the atmosphere would block out sunlight and directly affect life beneath it creating a “nuclear winter.” Is this a cause for alarm? Maybe, maybe not. But it’s interesting this new Yellowstone information is coinciding with news that a pole reversal is near, the Ring of Fire is waking up, and the sun is approaching its solar minimum which could cause a mini ice age....

Charles Hugh Smith Fears "Catastrophic Drop", Financial Markets "Definitely Destabilizing"

Financial writer and book author Charles Hugh Smith has been watching the extreme movements in financial markets closely.
# Is he nervous? Smith says, “Oh yeah, it’s definitely destabilizing. " "In other words, it’s becoming not just more volatile, the whole underlying structure of our economy is destabilizing. What I mean by that is it’s becoming more brittle or fragile. That is fundamentally why we are seeing these wild swings. People are swinging between, keeping the money machine like it is for another nine years, and the other side of the coin says wait a minute, we have already had a weak expansion for nine years. It’s almost the longest expansion in U.S. history. A normal business cycle doesn’t run in one direction forever...If you don’t allow your economy to have a business cycle recession, then you are simply making it more fragile by encouraging really marginal and risky investments, and that’s where we are now.”
# One very big problem is a dramatic loss in buying power of the U.S. dollar, but it’s not just the dollar. According to Smith, “All these currencies, there is nothing backing the currencies except the government’s force. That’s the yen, the euro, the dollar and the Chinese yuan. They are all going to have a catastrophic drop against real assets because they are all based on too much leverage, too much debt, too much money being pumped into the financial system that ends up in unproductive speculation. You can’t grow your debt at six times the rate of your economy. In other words, if you are creating $6, $8 or $10 of debt to eke out $1 of low productivity growth, you are dooming your currency, and all currencies are doing the same thing. All the currencies are going to take a big drop at some point...relative to real stuff. Real stuff is commodities we need: water, grains, food, oil, natural gas and, of course, precious metals. Everybody knows they have been money for 5,000 years, and I personally feel there is a role for crypto currencies”.... Youtube (25 min)

Kurdish Fighters Strike Deal With Syrian Army To Drive Turks Out

Confirming that the "enemy of my enemy is my friend", YPG Kurdish fighters in north-western Syria, who as a reminder are backed by the US, the country which for 7 years has waged a proxy war to overthrow president Bashar al Assad, have struck a deal with the Russia-backed Assad regime for Syrian forces to enter the Afrin region and repel a Turkish offensive which began last month. Badran Jia Kurd, an advisor to the Kurdish-led administration in northern Syria told Reuters that Syrian troops will deploy along several border positions and could enter the region within the next two days: "we can cooperate with any side that lends us a helping hand in light of the barbaric crimes and the international silence," Jia Kurd said. Meanwhile, a conflicting report from a senior Kurdish official comes from YPG representative Brusk Hasake in Afrin, who told Sputnik News "We have repeatedly said that Syrian Army has not entered [and] will not enter Afrin. If there is an agreement we will make a statement on it."
# As we reported at the time, Turkish ground forces crossed the Syrian border and pushed into northern Syria’s Afrin province on January 20, after Ankara launched artillery and air strikes on a U.S.-backed Kurdish militia it aims to sweep from its border as part of "Operation Olive Branch." Turkey considers the Kurdish fighters from the YPG - which receives funding from the United States to fight the Islamic State, to be terrorists. Senior Kurdish official Badran Jia Kurd told Reuters that Syrian government forces could enter the Afrin region within days to repel the Turks, while Syrian state TV reports that Regime forces will enter "within hours."
# Guy Elster @guyelster #BREAKING Regime forces will enter #Afrin area 'within hours': Syrian State TV
Assuming the deal has been reached between the YPG and Assad, Turkish forces will have quite the fight on their hands as they will now be fighting forces backed by both the US and Russia at the same time. Furthermore, the return of Syrian forces to the region would mark the first time Syrian President Bashar as-Assad's troops have set foot in Kurdish territory since a 2012 withdrawal. Shortly after the retreat, the Kurdish Democratic Union Party (PYD) quickly took charger, backed by its militia - the People's Protection Units (YPG) currently threatened by Turkey's Operation Olive Branch. The YPG is responsible for clearing ISIS fighters from large portions of Syria. Turkey claims that the YPG is an offshoot of the banned Kurdistan Workers' Party (PKK), which has battled the Turkish government for three decades over Kurdish autonomy in Turkey. The YPG denies any political or military links with the PKK...

The Syrian military and the YPG have largely avoided direct conflict in the Syrian war thus far but have had sporadic clashes. "We can co-operate with any side that lends us a helping hand in light of the barbaric crimes and the international silence," Mr Jia Kurd said. However, he added that the alleged agreement - which he said did not include any political arrangements, could fall through. "We don't know to what extent these understandings will last because there are sides that are not satisfied and want to make it fail," he said (BBC)...

# US has to go says Russia; Meanwhile, Russian Foreign Minister Sergey Lavrov told a Moscow audience at the Valdai Club conference on the Middle East that US troops must immediately cease operations in the Southern Syria area of Al-Tanf, and that the United States must "stop playing with fire." "I once again call on our American colleagues not to play with fire and measure their steps proceeding not from immediate needs of today’s political environment, but rather from long-term interests of the Syrian people and of all peoples of this region, including the Kurds, of course," the Russian top diplomat was quoted as saying by TASS News Agency. Syria's border with Jordan has been designated by the U.S. as a "de-confliction" zone under its protection hosts the Rukban refugee camp, said Lavrov. Russia believes the camp to be a recruiting ground for militant groups and blames the United States for restricting humanitarian access to the region. "This zone must be shut down immediately. And deliveries of humanitarian aid must be allowed into the camp,” said Lavrov, adding that efforts to reduce violence in Southwestern Syria, which has been designated a "de-escalation zone" near Israel's border, must now focus on forcing all non-Syrian troops from the area. “We negotiated the creation of this zone with Jordan and the US and it’s not a secret that our Israeli colleagues were informed about what we discussed,” said Lavrov.
Israel has accused Iran of operating in Syria through proxy forces to seize control of areas in southern Syria, and has threatened to use military force to drive them out. Speaking at the Munich Security Conference over the weekend while holding up a piece of an alleged downed Iranian drone, Israeli Prime Minister Benjamin Netanyahu said that Iran is the "greatest threat to the world," and that while Iran has supported proxies in Iraq, Yemen, Lebanon and Gaza, however "nowhere are its belligerent ambitions clearer than in Syria." The Israeli Prime Minister said Iran was trying to "colonize" Syria with the establishment of military bases and ambitions for a naval base in the Mediterranean. While Israel has "so far refrained from entering the Syrian conflict," said Netanyahu, "if Mr. Assad invites Iran in militarily, that changes our position." “We will act without hesitation to defend ourselves and we will act, if necessary, not just against Iran’s proxies that are attacking us, but also against Iran itself,” said Netanyahu....

Why Banks Hate Cryptocurrencies

Banks like to pretend that they're so much more established and secure than the world of cryptocurrencies, but as anybody who pays close attention to the headlines would know, that's just not the case. Setting aside all of their rhetoric about embracing the blockchain, banks have mostly avoided or opposed cryptos (Goldman Sachs, sensing the opportunity for profit, is one notable exception), often citing their volatility and the ease with which they can be used to launder money as qualities that disqualify them from being taken seriously (though, as we recently witnessed with the US dollar, perhaps banks need to rework this volatility argument a bit). Even yesterday's announcement of the first criminal charges against a cryptocurrency trader pales in comparison to the many, many crimes that banks (or even one bank) have settled allegations of. The real answer to why the banks’ dislike cryptocurrencies is probably because they feel threatened. The recent selloff notwithstanding, the rise of cryptocurrencies has continued unabated, despite the efforts of some of the most powerful governments on Earth, while the concept is still very young, it does have potential to shake up the aging fiat system.
In order to understand the race between the banks and cryptocurrencies, we developed a visual to see just how "David" is comparing to "Goliath." Using data from Yahoo Finance and CoinMarketCap.com, HowMuch.com's data team developed a visual that compares the market caps between some of the world’s largest banks and the largest cryptocurrencies. On the left blue column, there are four banks listed from largest to smallest market caps: JPMorgan Chase, Bank of China, Goldman Sachs, and Morgan Stanley. Conversely, the right red column features the total cryptocurrency market, Bitcoin, Ethereum, Litecoin, NEO, Ripple, Bitcoin Cash, Cardano, and Stellar. The larger the circle, the bigger the market cap...


Total Crypto Market Exceeds Size Of JPMorgan; Banks Fight Back In Attempt To Slow Growth.  After an extraordinarily volatile (even for bitcoin) start to the year, cryptocurrencies are rallying once again, with bitcoin breaking above $10,000. As of Feb. 16, 2018, the crypto market had a market cap of $470 billion - larger than the size of the United States’ largest bank, JPMorgan Chase. Bitcoin's market cap alone is comparable to Bank of China's. The second largest cryptocurrency by market cap, Ethereum, is comparable in size to Morgan Stanley. It is stats like these that have the global banking sector worried that cryptocurrencies are on track to make a serious impact on their operations. One of the most recent efforts to help slow the pace of crypto growth were announcements from several banks saying that customers could no longer purchase digital currency with their credit cards.
Berkshire Hathaway's Charlie Munger has called Bitcoin “totally asinine” and Warren Buffet has said he would "buy a five-year put on every cryptocurrency." Overall, cryptocurrencies are seeing their size and value top even some of the largest financial institutions in the world. This has caused banks to fight back and attempt to slow their growth. However, even banks clearly don’t know what they really want. After JPMorgan CEO Jamie Dimon famously declared Bitcoin a "fraud", it is interesting to now see a report published by the investment bank that calls Bitcoin-based ETFs the "holy grail for owners and investors." And should the bitcoin ETF become a reality, do you really think banks will turn down those lucrative fees?

Asia, S&P Futures Rally, Europe Falters With US, China On Holiday

With the US on holiday for President’s Day and many Asia markets still closed for Lunar New Year holidays, it has been a quiet start to the week, even as last week's dollar turbulence has resumed, while S&P futures are doing their best to levitate without anyone manning the controls...

World stocks were set for a sixth session of gains on Monday, extending a recovery from a selloff sparked by fears of creeping inflation and higher borrowing costs...

The MSCI world index rose 0.1% in Monday trading. The index has recovered nearly half of its losses from late January to last week’s low, posting a gain of 4.3% last week. That was its best weekly performance since December 2011. “Market confidence often attracts even more market confidence, and that is what we are seeing at the moment,” said CMC Markets' David Madden. “The cooling of the volatility index (VIX) has given some dealers the green light to buy back into the stock market, and while the fear factor keeps sliding, it is likely equity benchmarks will continue to push higher.” Asian stocks rose for the 6th consecutive day, with Japan and South Korea sharaes advancing in holiday-thinned trade as the MSCI Asia Pacific index rose as much as 0.8% before trimming gains to 0.35%. Japan's Topix rose as much as 2% after Japan’s exports beat estimate. European shares struggled to carry forward last week's momentum after rebounding from a selloff with their biggest weekly gain in 14 months. The Stoxx Europe 600 Index dipped -0.2% after erasing modest opening gains amid disappointing earnings reports, while a strong euro capped potential gains among European exporters...

In company specific news, Reckitt Benckiser fell -5% after posting its first-ever year of stagnant sales. Daimler sank -2% after US investigators said they are looking into whether the company used illegal software to cheat emissions tests on diesel vehicles in the US. Reports suggest the existence of documents indicating that one software function on Daimler diesel vehicles turned off the car's emissions control system after driving just 26 km. Swiss Re rose on news Softbank was seeking to join the company's board to influence how the reinsurer manages its $160BN in investments. Discussion is centred on a deal where Softbank would become an anchor shareholder in the company with a 20% to 30% stake while gaining multiple seats on the board. European steel companies including ArcelorMittal, Outokumpu and Tenaris climbed after Friday's U.S. commerce department revealed recommendations to impose tariffs or quotas on imports of aluminum and steel, and China said it reserves the right to retaliate. The dollar swung around from losses to gains and back to losses; the yen retreat from a 15-month high even as data showed Japan’s exports and imports grew strongly in January from a year earlier in a sign the economy continues to expand. As a result, the USDJPY rebounded as intraday traders who sold earlier, bought back after the Nikkei 225 closed 2 percent higher, boosting risk sentiment. The Bloomberg Dollar Spot Index recouped early losses as the greenback’s gains vs yen helped offset its decline against the Aussie and kiwi which were buoyed by commodity prices...

The U.S. currency has been weighed down by a barrage of factors, including worries about widening U.S. trade and budget deficits and speculation Washington might pursue a weak dollar strategy. There is also talk that foreign central banks may be reallocating their reserves out of the dollar. Treasury futures were little changed while Australian sovereign bonds hold onto opening gains with 10-year yield four basis points lower. 10Y Treasuries yield closed at 2.87% on Friday, after rising to a four-year high of 2.944% last week. Treasuries are not trading Monday due to the holiday in the U.S. Following today's holiday respite, the U.S. Treasury will open the borrowing floodgates, and it’ll be up to bond traders to signal how much that extra supply will cost American taxpayers. The Treasury will pack in auctions totaling $258 billion this week, including record-sized sales of three- and six-month bills. With little in the way of significant economic data on the schedule, the sales will provide the clearest gauge yet of how steeply borrowing costs may rise. Greek government bond yields dipped after a ratings upgrade from Fitch that highlighted improving sentiment towards the indebted southern European state. That marked an outperformance of euro zone peers, with yields across the currency bloc creeping higher in the absence of any fresh drivers.
WTI crude climbs fourth day, topping $62.50; Brent crude rose 0.3 percent to $65.05 per barrel. Gold gained 0.1 percent to $1,348.05 an ounce. Bitcoin rose back over $11,000 on Monday morning, rebounding more than 50% from recent lows. Today sees the vote for the next Vice-President of the ECB (effectively Draghi’s deputy) as the highlight. It’s a two horse race between Spain’s Luis de Guindos (Spanish finance minister) and Ireland’s Philip Lane (governor of the Irish Central Bank) with the FT reporting that sources suggest the Spaniard is favourite. There is some controversy about his candidacy as he’s not an economist and there are fears that a transitioning political figure will weaken the image of the bank’s independence. The minutes of the Fed’s last policy meeting, held amid the equities tumble on Jan. 30-31, are due on Wednesday. Besides the outlook on rates, markets will be keen to see what, if anything, the Fed makes of the gyrations in markets.
# Top Overnight News;
- President Trump spent much of his weekend hammering the FBI, Democrats, Robert Mueller’s investigation and his own national security adviser over Russia’s efforts to sway the 2016 election. Excepted from the criticism, Russia
- Theresa May will temporarily set Brexit aside and try to repair her image with young voters with a speech on education, an issue where the opposition has the upper hand; As May retreats to the countryside with her Cabinet to thrash out differences on Brexit, it’s starting to become clearer what the prime minister wants the divorce to look like. Some in Brussels will call it cherry-
picking, but May wants to stay very close to the EU in some areas, while breaking free in others
- An historic expansion in U.S. borrowing during a period of economic growth, alongside rising bond yields, will cause a surge in the cost of servicing American debt, according to Goldman Sachs
- Rick Gates said to plead guilty, may testify against Manafort: LA Times
- Japan’s trade recovery powered into 2018, with exports and imports registering strong growth. The increase in imports resulted in the first monthly trade deficit since May 2017; Japan Jan trade balance -943.4 billion yen vs -1.0 trillion yen estimate
- Latvian central bank Governor Rimsevics, a member of the ECB’s governing council, was detained by the anti-graft bureau in a flurry of actions by officials
- Iraq’s political risk ranks among the highest in the world. A four-year war against the Islamic State left parts of entire cities in ruins. Corruption runs rampant. And its debt produces returns quadruple the average of peers
- Fed’s Powell has appointed monetary policy specialists Jon Faust and Antulio Bomfim as senior advisers, according to people familiar; Faust advised advised Yellen and Bernanke, Bomfim is a long-term economist at the Fed’s monetary affairs division
- Italy: Berlusconi (Forza Italia) and Salvini (Northern League) both failed to show up at an event in Rome Sunday at which they had been invited to sign a pledge to remain faithful to the center- right coalition
- China says proposed U.S. tariffs groundless; reserves right to retaliate
- Singapore to raise goods and services tax to 9% from 7% in 2021-2025
- U.K. Feb Rightmove house prices 0.8% vs 0.7% prev, y/y 1.5% vs 1.1% prev....

“Blockchain” Stocks Completely Disintegrate

Black Friday for them. Meet the OTC’s “skull and crossbones.” I’ve never seen a sector skyrocket and totally collapse this fast, in four months, as these newfangled “blockchain stocks.” Now they’re surrounded by debris and revelations of scams. These fly-by-night or near-failure outfits used the hype of “blockchain” and the whole media razzmatazz about cryptocurrencies to manipulate up their stocks, sometimes by several thousand percent in a matter of days. I vivisected some of these outfits and their stock manipulation schemes on the way up. And on January 25, I documented Phase One of the collapse. This is now Phase Two of the collapse. And dip buyers are still not through getting crushed.
#UBI Blockchain International got totally mangled. When I last wrote about UBIA on January 25, it was down 93% from the peak six weeks earlier. Since then, all heck has broken loose. On Friday, OTC Market, where the shares had been demoted to, slapped a “skull-and-crossbones” icon next to the ticker and no longer displays a quote. It started out so promising: Over the course of a few days in mid-December, UBIA skyrocketed 1,500% to $115 a share intraday. December 28, I tarred and feathered the company, its executives, their shenanigans, and their Chinese connection.
*January 9, the SEC halted trading in UBIA, for two reasons: lacking “accuracy” in disclosures and funny trading activity. The trading halt froze the share price at $22.
*January 23, when trading resumed, shares plunged further.
*January 25, when I last wrote about it, they were at $8.25, down 93% from the peak.
*February 9, the company disclosed in its quarterly SEC filing that it had zero revenues and a quarterly loss of $1.24 million. It repeated that its ability to go on as a “going concern” depended on getting new financing and its “ability to achieve and maintain profitable operations.” Fat chance.
*February 15, shares closed at $6, down 95% from the peak.
Friday, February 16, OTC Markets Group stopped displaying quotes of UBIA, labeled the shares “Caveat Emptor (Buyer Beware),” and placed the skull-and-crossbones icon next to the stock symbol. It told investors to “exercise additional caution and perform thorough due diligence before making an investment decision in that security.” In other words, the normal ways of obtaining a quote, on otcmarkets.com, MarketWatch, Yahoo, Bloomberg, WSJ, etc, have disappeared. These shares are essentially goners.
# Riot Blockchain down 75% from the peak. The vultures are circling. This was a failing biotech outfit called Biotix with annual revenues of less than $200,000 over the past four years, generating a total of $34 million in losses. Shares were trading at around $4.50. But on October 4, it announced that it would change its name and start investing in cryptocurrency and blockchain startups. BAM went the shares, up nearly 1,000% to $46.20 by December 19. But by January 25, they’d plunged 61% to $17.92. On Friday, shares plunged 33.4% to $11.46 after CNBC published the results of its investigation into the shenanigans of the executives, a major investor, and the company. Later that day, I received an email from U.S. Market Advisors Law Group PLLC. The law firm “represents investors in antitrust, securities and shareholder litigation.” It announced “the completion of an initial investigation on behalf of investors” into “whether Riot Blockchain and certain of its officers and directors violated federal securities laws”: As a result of its findings, the firm has prepared, but not yet filed, a proposed class action complaint to recover losses suffered by Riot Blockchain investors. The law firm explained how the biotech company changed its name and used the hype around blockchain announcements to manipulate up its shares. Then, o December 29, 2017, after the market closed and heading into a three-day holiday weekend, John O’Rourke, the Company’s new Chief Executive Officer, made an SEC filing revealing he had sold over 30,000 Riot Blockchain shares.
On this news, Riot Blockchain’s stock price declined more than 14% over two trading days. On January 31, 2018, before the market opened, the Wall Street Journal published an article detailing investor Barry Honig’s involvement with Riot Blockchain and his trading of the company’s shares. On the same day, Riot Blockchain announced that its annual shareholder meeting would be postponed for a second time. On this news, Riot Blockchain’s stock price declined more than 14% over two trading days. On February 16, 2018, CNBC reported that Riot Blockchain’s operations raise a number of “red flags,” including: (i) insider selling; (ii) making no apparent effort to timely hold annual shareholder meetings; and (iii) diluting the common stock. On this news, Riot Blockchain’s stock price fell more than 30% during intraday trading. Not that dip buyers won’t plow in and drive up the shares for a little while. But RIOT is likely a goner too.
# Long Blockchain Corp down 66% from the peak. LBCC is a failing beverage-maker that was called Long Island Iced Tea until December 18. With the name-change announcement, it manipulated its shares up by 360% from $2.06 on December 18 to $9.49 a few days later. This scheme was hatched as the company had received a delisting notice from the Nasdaq, which it disclosed on October 13, 2017 in an SEC filing. The reason was that its market capitalization had dropped below the minimum of $35 million for 30 consecutive trading days. It averted a delisting with the scheme of changing its name to “Long Blockchain” and peppering the announcement with gobbledygook about its new “blockchain” business model. Its market cap surged along with the shares. But…
*January 5, when it announced that it would sell 1.6 million shares in a secondary offering, shares crashed 21%. *January 9, under intense scrutiny, it canceled the stock offering.
*January 25, when I last wrote about it, shares had plunged 61% from the peak to $3.72 and continued to drop until they hit $2.82 on January 30. Then dip buyers piled in and pushed shares back to $3.63.
On Friday, February 16, shares plunged 11% to $3.23. This leaves them down 66% from the peak. What caused the plunge? On Thursday, the company had disclosed in an SEC filing that it had received another delisting notice from the Nasdaq. The company can appeal the delisting. But even if it wins the appeal, it will have to keep its market cap above $35 million for a minimum of 10 trading days in a row by April 9. As of Friday’s close, its market cap was $33 million.
# Longfin down 76% from the peak. LFIN went public in November. On December 15, the company announced a mix of gobbledygook, hype, and silliness about having acquired a “Blockchain-empowered solutions provider,” namely some website that belonged to a Singapore corporation that is 95% owned by Longfin’s CEO. It didn’t pass the smell test. But shares skyrocketed 2,700% over the three-day period to an intraday high of $142.82 on December 18, pushing the company’s market cap to a fabulous $7 billion and making it the role model of every “blockchain” scammer out there. By January 25, LFIN had plunged 71% to $41.61. On Friday shares plunged 18%. At $34.40, shares are now down 76% from the peak.
# DPW Holdings down 70% from the peak. This was a penny stock before it came up with its blockchain scam. The company makes power supplies for computers. But when it announced that it would market its power supplies to cryptocurrency miners, shares skyrocketed 880% from $0.56 on November 21 to an intraday high of $5.95 on December 18. On Friday, the stock fell 6.4%. At $1.76, shares have plunged 70% from the peak.
# On-line Blockchain (OBC) down 44% from the peak. This is another name-change scam. The company was called On-line Plc, a thinly traded penny stock in London. After it changed its name, its shares spiked nearly 1,000%, from 14 pence to 152 pence by January 9. By January 25, shares had plunged 35% from the peak to 97 pence. On Friday, shares dropped 7% and closed at 84.55 pence, down 44% from the peak. 
# Eastman Kodak down 47% from the peak. Kodak’s blockchain-and-crypto manipulation scheme wasn’t a name change but an announcement on January 9 of a “blockchain initiative,” including its own cryptocurrency, KodakCoin. Shares soared 300% in two days, from $3.10 to $12.40. Interestingly, on January 8, the day before the announcement, seven independent directors awarded themselves big-fat stock grants. By January 25, shares had dropped 23% from the peak to $9.50. On Friday, shares dropped 7.8% to $6.55, and are down 47% from the peak.
# Seven Stars Cloud Group down 55% from the peak. The Chinese video-on-demand outfit, which is traded on the Nasdaq, manipulated its shares up by 200% from $2.33 on December 8 to $7.00 intraday on December 26, by claiming that it had taken a 27% stake in The Delaware Board of Trade Holdings, a private company. By January 25, shares had plunged 40% to $4.13. On Friday, they dropped 4.5% to $3.17 and are down 55% from the peak.
# Siebert Financial Corp down 63% from the peak. Its shares had jumped nearly 400%, from $4.40 to $21.64 by December 21 after the 50-year-old New York brokerage announced on December 14 that it would venture into cryptocurrency trading. By January 25, they’d plunged 54% from the peak to $9.65. On Friday, they dropped 4% to $8.10, down 63% from the peak.
*) This amazing spectacle, these scams that caused stocks to soar and plunge over a period of four month, was brought to you by the greatest central-bank-fueled market ebullience and speculative fever mankind may have ever seen. And it may be a sign that the fever has broken. Was the selloff in stocks just a brief correction, or a sign of greater significance?

Rising Interest Rates: New Era With Tough Outcomes

What will the bond market do? The conniptions in the Treasury market are causing pain in existing portfolios but offer opportunities down the road. What’s the impact of these rising interest rates on the housing bubbles in the US and Canada? Where is the pain threshold? How will it differ in the US and Canada? And what will higher interest rates do to new- and used-vehicle sales? We’re at the beginning of a new era with potentially tough outcomes. The Fed’s monetary policy shift is finally taking hold. It just took a while. The Louis Fed Financial Stress index spiked beautifully and suddenly, from historic lows back in November.... Youtube

Iran Gives Operational Control Of Its Chabahar Seaport To India

During a visit by Iran's president Hassan Rouhani to India on Saturday, Rouhani and India's prime minister witnessed the signing of nine agreements to expand bilateral economic ties, with focus on the development and utilization of Iran's strategic Chabahar Port. Iran would grant operational control of a portion of the port to India for 18 months. In return, India has agreed to invest an initial $87 million growing to a total of $2 billion in the Chabahar and in the Chabahar-Zahedan railroad linking the port to the Trans-Iranian railway and to other cities in Iran, connecting from there to Afghanistan, Central Asia, and Eastern Europe.
# Map displaying the trade routes related to the Chabahar and Gwadar ports. Purple lines show China's trade routes through Gwadar, while red lines show India's planned trade routes through Chabahar...

Map displaying the trade routes related to the Chabahar and Gwadar ports.  Purple lines show China's trade routes through Gwadar, while red lines show India's planned trade routes through Chabahar.  (Defence.pk)

The use of the Chabahar is considered to be a major "game-changer" for India's economy and defense. Any land route from India to Afghanistan and Central Asia is blocked by Pakistan and China. The route from India's Kandla seaport to Chabahar and then overland to Afghanistan and Central Asia would not be as good as a pure land route, but it's better than anything that's been available up till now. Chabahar is also a counter to China's development of the Gwadar port in Pakistan, shown by the large purple star in the map above. The China-Pakistan Economic Corridor (CPEC), coupled with China's One Belt-One Road (OBOR), is seen by Indian defense analysts as a major security threat. The purple lines in the map above show China's traditional trade routes across the sea, using China's "String of Pearls" port facilities (purple stars), while the red lines show the trade routes being planned using Iran's Chabahar port.... Mehr News (Iran) and Business Standard (India) and VOA and India Defense Review (20-Mar-2017)
# Comparing Iran's Chabahar seaport vs Pakistan's Gwadar seaport; A number of analysts have been comparing the two seaports. Although the Chabahar port is considered to be of great strategic importance to India, the general consensus seems to be that Pakistan's Gwadar port will serve China's needs far better than Iran's Chabahar port will serve India's needs. The two ports are about 90 km apart. However, unlike Chabahar, Gwadar is better strategically located in the Indian Ocean, so that India vessels would also be subject to the active monitoring by Pakistan's navy and probably China's navy. Gwadar seaport is much larger, thanks to Gwardar's natural layout and depth. The maximum planned capacity of Chabahar is 10-12 million tons per year, while that of Gwadar will be 300-400 million tons. Resource-rich Afghanistan is an important trading partner for both Iran and Pakistan. However, Pakistan is aligned with the Taliban, while Iran is aligned with the anti-Taliban Northern Alliance. This will raise security issues for Pakistan and Iran, and therefore for China and India. Security is a major issue for both ports. Chabahar is located in one of Iran’s most volatile regions, frequently attacked by the Taliban-linked Jundullah terror group. Gwadar is located in Pakistan's Balochistan province which has also been targeted by Taliban-linked terrorists, as well as by a Baloch insurgency. Asia Times and World News Report (India)
Iran has special issues related to the US and the Iran nuclear deal, which is opposed by the Donald Trump administration. The US has threatened additional sanctions on Iran, and those sanctions to conflict with India's investments in Chabahar. However, US Secretary of State Rex Tillerson, visiting New Delhi recently, assured India that even if America re-imposes sanctions on Iran in the coming days, it will exempt the Chabahar facility. As regular readers are aware, we predict that in the approaching Clash of Civilizations world war, the "axis" of China, Pakistan and the Sunni Muslim countries will be pitted against the "allies," the US, India, Russia and Iran. The Chabahar seaport deal moves these countries another step closer to that alignment.... Bloomberg Quint and Diplomat and Indian Express (25-Nov-2017)