Implode-Explode Heavy Industries news feed http://implode-explode.com/ Tracking the many faces of the global credit implosion. en-us iehi-feed-64048 Fri, 22 Jun 2018 17:19:11 GMT Fed Rate Cuts and QE Will Resume Soon http://implode-explode.com/viewnews/2018-06-22_FedRateCutsandQEWillResumeSoon.html Those who have openly subscribed in recent months to the robust-growth and higher-rates view include JPMorgan Chase CEO Jamie Dimon[marketwatch.com] and Morgan Stanley CEO James Gorman, and investors Paul Tudor Jones and Jeffrey Gundlach. There are many others.

In my view, this widely held wisdom is based on a profound misreading of economic and political reality and trends in the U.S. and around the world. I believe that a looming global recession and fear of deflation will lead the Fed to cut rates instead and reinstate quantitative easing, or QE, causing U.S. bond yields to fall.

First, it is important to understand that the 2008 financial crisis was never resolved. Aggressive fiscal- and monetary-policy tools--extremely low rates and multitrillion-dollar bond-buying programs--helped contain the crisis. But they didn't fix the problem. The global economy has been stabilized, but fundamental weaknesses remain.

An economic reckoning may surface as soon as the next few months.

In the U.S., second-quarter economic data look strong. But that is misleading. There are plenty of indications of weakness, including slowing sales of cars and houses, and a decline in mortgage refinancing. The cumulative effect of interest-rate hikes, frozen levels of real income, and rising oil prices will also weigh on the public's buying power.

In the corporate sphere, the boom in stock buybacks, which in May reached an astounding $174 billion, comes directly at the expense of capital investment that would boost economic growth. A potential global trade war is also detrimental; the U.S. dollar's weakness in 2017, combined with reinvigorated economies throughout the world, contributed immensely to U.S. exports...

June's interest-rate hike was most likely the last in the current cycle. The next major move by the Fed could be to lower rates, followed by more QE. The realization that this is happening will bring about a dramatic change in investors' views and will return U.S. bond yields to the 1.5%-2% level. The development, I believe, will be rapid and surprise a financial system dramatically underweight long-term bonds.

As we say, "happy times are here again" -- almost nonstop since 2009. So this editorial is bold call -- but it has really been a "bipolar" economy since the 2008 crisis; with every person able to see whatever they want to see in the mixed data... at some point, a clear trend will likely manifest...

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iehi-feed-64046 Fri, 22 Jun 2018 04:37:37 GMT Supreme Court decision to allow more online sales tax worries Main Street http://implode-explode.com/viewnews/2018-06-22_SupremeCourtdecisiontoallowmoreonlinesalestaxworriesMainStreet.html The Supreme Court ruled Thursday that states now have the power to force online retailers to collect sales tax in states where they do not have a physical presence, reversing a ruling from 1992 in a 5-4 decision. The move also revives a 2016 South Dakota law that required large, out-of-state e-commerce companies to collect sales tax, one that big e-commerce players fought. Some online retailers, such as Amazon.com, currently collect state sales tax on products they directly sell but do not collect taxes from many of the independent sellers on the site.

The decision removes the sales-tax savings that consumers could reap by making purchases online instead of buying from local brick-and-mortar shops. Although the move does help to level the playing field for physical small businesses, it also places new burdens on small online retailers.

Some small business groups argue the decision will be burdensome and add to an already confusing tax structure. The nonpartisan Small Business & Entrepreneurship Council said the ruling will add stress for small businesses, the marketplace and internet entrepreneurs.

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"The fact that small businesses must now act as tax collectors for thousands of separate state and local [jurisdictions] is outrageous."... "Unfortunately, this ruling makes sweeping changes to sales tax law, but provides nothing in the form of easing complexity and/or streamlining each states' processes."

The Supreme Court should have required some mitigating factor (such as the tax-collecting ability being based on having a certain amount of business in the state) to mitigate the Dormant Commerce Clause concerns. Now they've gone completely in the other direction purely out of apparent concerns for the big guys "getting away with it".

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iehi-feed-64040 Tue, 19 Jun 2018 13:58:56 GMT Paul Tudor Jones warns the next recession will be 'really frightening' http://implode-explode.com/viewnews/2018-06-19_PaulTudorJoneswarnsthenextrecessionwillbereallyfrightening.html iehi-feed-64038 Mon, 18 Jun 2018 19:00:38 GMT Debt Clock Ticking | Mauldin http://implode-explode.com/viewnews/2018-06-18_DebtClockTickingMauldin.html Moody's has issued a statement that CMBS loans are now almost as risky as in 2007 because 75% of them are interest only, and the interest only period is now 6 years, up from 2.2 years just a few years ago. In addition, they are becoming much more covenant light, and are at higher leverage. All of this is a red flag since these things create much more risk of serious problems when the recession hits. There is also a bigger concentration of single tenant properties, which, as we have seen in retail, can be deadly in a recession. Asset and sponsor quality is also deteriorating. There is now so much competition to put out loans by so many non-bank sources, that borrowers can get lenders to compete, which always means lower quality underwriting. Far too much capital chasing too few good deals.

Underwriting is not nearly as bad as in 2006--2007 yet, but it appears the trend is what it always has been, when the economy is strong and there is too much capital, underwriting standards fall down, and then the stage is set for a bad outcome when the economy goes bad. It is typically 10--12 years between collapse of the last crash and then credit quality deterioration and the next credit collapse. We are at 10 years. Dodd Frank had rules to try to avoid a replay of 2008 in CMBS, but a lot of loans now are made by private equity funds that are not subject to these regulations.

One thing that is immutable is that as each generation comes into Wall Street, they think they know better how to do it, and they eventually do the same dumb loans in pursuit of profits and bonuses. It has never been different. We are not about to have a major crash again, but CMBS loan quality is deteriorating now, and one day in the next 2--3 years, it will be a bad problem. When they start doing a lot of CDOs and virtual CMBS pools with derivatives, then that is a sure sign the end is near.

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iehi-feed-64035 Sun, 17 Jun 2018 18:34:06 GMT Trade Acrimony With Canada -- Yes, It Can Flare Up Into Full-Scale Trade War http://implode-explode.com/viewnews/2018-06-17_TradeAcrimonyWithCanadaYesItCanFlareUpIntoFullScaleTradeWar.html iehi-feed-64034 Sun, 17 Jun 2018 18:30:57 GMT Venezuela Orders Government Services to Accept Any Cryptocurrency http://implode-explode.com/viewnews/2018-06-17_VenezuelaOrdersGovernmentServicestoAcceptAnyCryptocurrency.html iehi-feed-64031 Sat, 16 Jun 2018 14:51:46 GMT Here's how the ECB just breathed new life into the dollar rally, analysts say http://implode-explode.com/viewnews/2018-06-16_HereshowtheECBjustbreathednewlifeintothedollarrallyanalystssay.html By guaranteeing that it will sit on its hands for at least a year when it comes to raising interest rates, the European Central Bank sank the euro Thursday and potentially gave the dollar fuel for a long-running rally, analysts said.

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And this might just be the opening act for a theme that could endure for at least 12 months. While the Fed is expected to deliver up to two more rate increases in 2018 and further hikes next year, the ECB just ensured it won't move until the latter half of next year at the earliest.

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iehi-feed-64025 Fri, 15 Jun 2018 22:43:58 GMT Wall St ends high-volume session lower on trade jitters http://implode-explode.com/viewnews/2018-06-15_WallStendshighvolumesessionlowerontradejitters.html iehi-feed-64022 Fri, 15 Jun 2018 00:51:12 GMT Why the World's Most Expensive City Is Running to Bitcoin http://implode-explode.com/viewnews/2018-06-14_WhytheWorldsMostExpensiveCityIsRunningtoBitcoin.html On Monday, the National Assembly said that inflation in Venezuela is now running at nearly 24,600% per year... [and] bitcoin trading volume in Venezuela has exploded, up 211% this year alone.

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Venezuela could emerge as the first country where a cryptocurrency effectively replaces a government-controlled paper currency. And that would encourage other people around the world to also seek shelter in bitcoin.

... [but] Venezuela isn't the only country with major money problems.Just look at Argentina. Last year, its official inflation rate hit 25%. The year before, it was 37%. This means that everyday goods and services in the country are 71% more expensive than they were at the start of 2016.

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iehi-feed-64020 Fri, 15 Jun 2018 00:36:28 GMT Trump Foundation lawsuit: How Donald Trump took transactional philanthropy to its illegal extreme http://implode-explode.com/viewnews/2018-06-14_TrumpFoundationlawsuitHowDonaldTrumptooktransactionalphilanthrop.html Donald Trump ignored all [the relevant legal] distinctions, and Thursday's complaint has countless examples, from both business and politics. In January 2016, the Trump Foundation handed over some $2.82 million directly to Trump campaign staff, for them to disburse as they saw fit; those donations were specifically targeted to states with upcoming primaries where Trump was running as a candidate... the money had been donated by the public for veterans; it was not even Trump's personal money. People thought they were donating to veterans, but really that money went to Trump campaign stunts.

That example isn't murky at all; it's illegal. Charitable foundations are not allowed to engage in political activities, period. But in Trump's mind, the Trump Foundation was never really a charitable foundation, created for acts of selfless generosity. Instead, it was little more than a money-laundering machine: Donors with their own ulterior motives could give tax-deductible donations to the foundation, and then in turn the foundation would be used whenever Trump wanted to funnel money to a nonprofit.

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The New York attorney general's 41-page complaint is detailed and compelling: The Trump Foundation was a Trump Organization slush fund; it wasn't a genuinely charitable endeavor. Most foundations are much more careful to have proper board oversight and to comply with all applicable nonprofit law. After all, if you're rich enough to set up a foundation, you're rich enough to set it up properly.

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iehi-feed-64015 Mon, 11 Jun 2018 19:27:19 GMT The real opportunities in cryptocurrency... aren't cryptocurrencies http://implode-explode.com/viewnews/2018-06-11_Therealopportunitiesincryptocurrencyarentcryptocurrencies.html ... in all likellihood, reports of cryptocurrencies' death have been greatly exaggerated. Governments almost always regulate technology-- automobiles, radio, television, the Internet. And while regulations often create unnecessary costs and inconveniences, they haven't stopped the overall rise of these important technologies.

Crypto will likely be the same. It's too mainstream to kill off, and the SEC needs to show the world that they embrace innovation. Plus, there are too many mega-corporations that have been investing heavily in their own blockchains and distributed ledger technology (DLT), and those companies have far too much political clout to be shut down by the SEC.

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If anything, that's the real threat to most of the tokens and cryptocurrencies that exist today-- the rapid advancement of the technology itself.

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iehi-feed-64012 Sun, 10 Jun 2018 17:32:59 GMT The "Trump Tax Cut" Numbers Are Starting to Trickle In -- and They're Not Good... http://implode-explode.com/viewnews/2018-06-10_TheTrumpTaxCutNumbersAreStartingtoTrickleInandTheyreNotGood.html While we cannot accurately adjust for the impact of the tax change in year to year comparisons, it is clear that, so far, the tax cuts apparently are not acting as stimulus. Year to year revenue growth is running well below pre-tax cut levels. The growth rate is fluctuating between -4% and +2%, whereas prior to the tax cut the growth rate was +2% to +10%.

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[While the drop in tax collections is also] economic stimulus and it means that the top line economic data numbers will continue to run hot... the drop in revenue also means that the deficit has increased. That translates to more government borrowing. More borrowing means more Treasury supply. That must come out of the accounts of dealers and investors. The Fed is no longer a buyer. It's pulling money out of the markets.

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While the effects haven't been clear yet in terms of lower stock prices, the time is coming. This is no time to be chasing stocks.

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iehi-feed-64011 Sun, 10 Jun 2018 17:30:34 GMT Trump Dynamites G7 Meeting in 11th Hour (SO MUCH FOR TARIFF-FREE G7!!) http://implode-explode.com/viewnews/2018-06-10_TrumpDynamitesG7Meetingin11thHourSOMUCHFORTARIFFFREEG7.html The president's outburst had been foreshadowed for days leading up to the Canada summit, with Mr. Trump and his counterparts trading sharp-edged barbs that included threats of punches and counterpunches on tariffs. President Emmanuel Macron of France accused Mr. Trump of being willing to remain isolated from the world.

That was followed by 48 hours of tense and often confrontational closed-door discussions between Mr. Trump and the leaders of America's closest allies -- France, Britain, Canada, Japan, Italy and Germany -- in the hopes of resolving a brewing trade war among friends.

Instead, the gathering apparently served to further inflame Mr. Trump's belief that the United States is being treated unfairly by countries with which prior presidents had long ago negotiated trade agreements for the flow of goods and services.

The result was a slow-rolling collapse of the fragile alliances that officials at the summit -- and even Mr. Tump's own White House advisers -- insisted throughout the day could be maintained in the face of fundamental disagreements.

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Earlier in the day, before Mr. Trump left the summit, he brought up the dramatic prospect of completely eliminating tariffs on goods and services, even as he threatened to end all trade with them if they didn't stop what he said were unfair trade practices.

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iehi-feed-64007 Fri, 08 Jun 2018 22:01:37 GMT Ben Bernanke Predicts Crash in 2020 http://implode-explode.com/viewnews/2018-06-08_BenBernankePredictsCrashin2020.html "What you are getting is a stimulus at the very wrong moment," Bernanke said at the American Enterprise Institute, a Washington think tank, Bloomberg reported Thursday. "The economy is already at full employment."

Stimulus packages are used when the economy is flagging. When the economy does slump in the future, there may be few reserves to spend to get it going again. Bernanke predicted a "Wile E. Coyote" moment when the fallout hits, referring to the endlessly failing character in the "Road Runner" cartoons.

The stimulus "is going to hit the economy in a big way this year and next year, and then in 2020, Wile E. Coyote is going to go off the cliff," Bernanke warned.

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iehi-feed-64005 Fri, 08 Jun 2018 21:57:52 GMT The Swiss are voting on the radical concept of "sovereign money" http://implode-explode.com/viewnews/2018-06-08_TheSwissarevotingontheradicalconceptofsovereignmoney.html Another response to crisis has been to give even more power and responsibility to a centralized authority. Switzerland's "sovereign money" referendum fits into this category. On Sunday (June 10), Swiss voters will decide whether to ditch the fractional-reserve banking system (pdf), in which banks create money as a byproduct of extending credit, lending out far more than they hold in deposits. The radical reform, called Vollgeld, would give the Swiss National Bank a monopoly over this power, and require commercial banks to lend only what they have on hand.

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It feels less revolutionary--maybe because I write so many bitcoin stories--but it's arguable that centralization has been a bigger force following the financial crash than a push towards the stateless, decentralized power promoted by the crypto crowd. There are fewer banks than before, and they're bigger and more profitable. Ordinary fiat bank deposits are growing. The US and Europe enacted sweeping regulatory overhauls that gave regulators more heft. The Swiss initiative, in fact, would give officials power that they don't even want.

The original title of this article calls the concept "the anti-bitcoin" -- but that's ridiculous, since any lending based on cryptocurrencies is also (by default) 100%-reserved.

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iehi-feed-64003 Fri, 08 Jun 2018 21:47:51 GMT As U.S. Flexes Its Muscles On Trade, Other Countries Are Beginning To Push Back http://implode-explode.com/viewnews/2018-06-08_AsUSFlexesItsMusclesOnTradeOtherCountriesAreBeginningToPushBack.html iehi-feed-63999 Thu, 07 Jun 2018 23:43:25 GMT Suicide rates rise sharply across the United States, new report shows http://implode-explode.com/viewnews/2018-06-07_SuicideratesrisesharplyacrosstheUnitedStatesnewreportshows.html Suicide rates rose in all but one state between 1999 and 2016, with increases seen across age, gender, race and ethnicity, according to a report released Thursday by the Centers for Disease Control and Prevention. In more than half of all deaths in 27 states, the people had no known mental health condition when they ended their lives.

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One factor in the rising rate, say mental health professionals as well as economists, sociologists and epidemiologists, is the Great Recession that hit 10 years ago. A 2017 study in the journal Social Science and Medicine showed evidence that a rise in the foreclosure rate during that concussive downturn was associated with an overall, though marginal, increase in suicide rates. The increase was higher for white males than any other race or gender group, however.

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The dramatic rise in opioid addiction also can't be overlooked, experts say, though untangling accidental from intentional deaths by overdose can be difficult. The CDC has calculated that suicides from opioid overdoses nearly doubled between 1999 and 2014, and data from a 2014 national survey showed that individuals addicted to prescription opioids had a 40 percent to 60 percent higher risk of suicidal ideation. Habitual users of opioids were twice as likely to attempt suicide as people who did not use them.

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iehi-feed-63994 Wed, 06 Jun 2018 21:42:13 GMT Is It Time To Start Worrying About China's Debt Default Avalanche? http://implode-explode.com/viewnews/2018-06-06_IsItTimeToStartWorryingAboutChinasDebtDefaultAvalanche.html ... China's four largest banks held about 4.1 trillion yuan in bonds issued by companies and other financial institutions at the end of 2017, nearly 20% below 5.1 trillion yuan a year earlier; all Chinese banks held about 12 trillion yuan of corporate bonds on or off their balances sheets, some 70% of outstanding issuance, according to Citic.

It is therefore hardly surprising to see that Chinese corporate bonds, especially riskier issues, have been getting slammed in recent weeks... the yield premium of three-year AA- rated bonds over similar-maturity AAA notes has blown out 72 bps since March to 225 basis points, the highest level since August 2016, an indication of the recent pressures on weaker firms. One can imagine what is going on with deep junk-rated corps.

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The recent blow out in Chinese corporate bond spooked none other than the PBOC, which last last Friday announced that it will accept lower-rated corporate bonds as collateral for a major liquidity management tool in a move that analysts see as designed in part to restore confidence in the country's corporate bond market.

Specifically, the central bank said that it had decided to expand the collateral pool for the medium-term lending facility (MLF) to include corporate bonds rated AA+ or AA by domestic rating agencies.  The central bank also added as collateral financial bonds rated AA and above with proceeds to support rural development, small enterprises and green projects, as well as high-quality loans supporting green projects and small enterprises, the PBoC said in a statement posted on its website.

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while the PBOC intervention may delay the moment of reckoning for the world's most indebted corporate sector, it will not eliminate it. One potential catalyst: Chinese companies have to repay a total of 2.7 trillion yuan of bonds in the onshore and offshore market in the second half of this year, and together with another 3.3 trillion yuan of trust products set to mature in the second half, the funding problems will get worse. As already more than eight high-yield trust products have delayed payments so far this year.

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iehi-feed-63993 Wed, 06 Jun 2018 21:29:15 GMT How Greece's Busiest Port Reveals the Perils of Privatization http://implode-explode.com/viewnews/2018-06-06_HowGreecesBusiestPortRevealsthePerilsofPrivatization.html In 2015, as a condition of the $100 billion European Union bailout that followed the 2008 financial crisis, the Greek government agreed to privatize a number of state-held assets including the Piraeus Port Authority, which manages the port's container and passenger terminals. The Greek state sold a majority stake for $330 million to COSCO. For the Chinese company, the purchase had a clear financial logic. About 80 percent of China's imports and exports to and from Europe are transported by sea, and by avoiding the need to sail to busy Northern European ports like Rotterdam or Hamburg, COSCO could offload containers in Piraeus, reducing the time it takes cargo to get to Europe by nearly a week. Plus, by owning the port authority, COSCO could help determine how much its own ships would have to pay itself in port fees.

As part of the deal, COSCO pledged to participate in financing $410 million worth of investment in the port, including a repair of port equipment and the dredging of Piraeus's central port. Supporters of privatization argue these improvements signal a coming maritime renaissance at Piraeus--already the busiest port in the eastern Mediterranean. Nektarios Demenopolous, the deputy manager for investor relations at Piraeus Port Authority, told me, "There are 300 million euros [$350 million] of investment to come in the next five years, followed by another 50 million. Privatization has made the port much more dynamic and will reboot activities at the port like ship repair that have been in recession. It will be remembered as a success story."

But a "success story" for whom? The dockworkers of Piraeus say they and their families have seen little of the alleged gains brought by COSCO. As Piraeus Port Authority boasts of widening profit margins and increasing maritime traffic, wages for dockworkers haven't budged since they were slashed from 1500 euros ($1,750) per month to 600 euros after the financial crisis. Beyond that, COSCO now hires few dockworkers as full-time employees, and tends to enlist unskilled laborers for complex container unloading. COSCO also primarily remunerates people on an ad hoc basis as subcontractors, leaving dockworkers and their families entirely dependent on the ebb and flow of traffic into Piraeus. It also means their traditional retirement benefits have disappeared.

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iehi-feed-63987 Sat, 02 Jun 2018 14:41:50 GMT The US economy suddenly looks like it's unstoppable (BUT TRADE IS THE SPECTRE THAT HAUNTS...) http://implode-explode.com/viewnews/2018-06-02_TheUSeconomysuddenlylookslikeitsunstoppableBUTTRADEISTHESPECTRET.html The White House's decision this week to forge ahead with steel and aluminum tariffs stoked fears that the administration could be its own worst enemy on the road to 3 percent-plus growth. While the tariffs themselves are expected to have minimal economic impact on their own, fears remain that they could spark retaliatory measures and, ultimately, an all-out trade war.

Exports make up just 12.4 percent of the U.S. economy, but S&P 500 companies generate about 43 percent of their sales internationally. That's why markets tend to recoil every time the administration saber rattles about tariffs.

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