Implode-Explode Heavy Industries news feed http://implode-explode.com/ Tracking the many faces of the global credit implosion. en-us iehi-feed-63157 Wed, 18 Oct 2017 16:43:15 GMT Ray Dalio's Shorting The Entire EU; Derivs-Clearing Could Be EU's Brexit Achilles Heel http://implode-explode.com/viewnews/2017-10-18_RayDaliosShortingTheEntireEUDerivsClearingCouldBeEUsBrexitAchill.html Great compilation today by Raul Illargi. On the derivatives-clearing issue:

Calling into question the continuity of tens of thousands of derivative contracts , [Carney] stated that it was "pretty clear they will no longer be valid", that this "could only be solved by both sides" and has been "underappreciated" by Europe . Carney had a snipe at Europe for its lack of preparation "We are prepared as we should be for the possibility of a hard exit without any transition...there has been much less of that done in the European Union."

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Shifting clearing of euro-denominated derivatives from London to the European continent would require banks to set aside far more cash to insure trades against defaults, a cost that would be passed on to companies, a global derivatives industry body says. [..]The London Stock Exchange's subsidiary LCH currently clears the bulk of euro-denominated swaps, a derivative contract that helps companies guard against unexpected moves in interest rates or currencies.

And on Dalio's bets against the Eurozone:

Dalio doesn't call the bluff of Italy, and this is not just like George Soros' shorting the British pound in 1992, he's calling out the entire EU and its financial system. He's saying I don't believe you can keep up the charade. He's making a mockery of Mario Draghi's "whatever it takes".

So what are Rome, Brussels and Frankfurt going to do? They can't ignore the no. 1 hedge fund forever. They will have to pump money into Italy, in large amounts. Merkel won't like that, neither will her new coalition partner FDP, and the Bundesbank may start legal action.

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Bridgewater didn't enter that theater for nothing. $1.85 billion is not chump change for them. Intesa Sanpaolo CEO Carlo Messina may have said that Dalio will lose his bets, but according to the IMF Italy's non-performing loans levels were €356 billion at the end of June 2016, which is 18% of total loans for Italian banks, 20% of Italy's GDP and one-third of total Eurozone NPLs. Intesa Sanpaolo holds a nice chunk of that.

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iehi-feed-63154 Wed, 18 Oct 2017 14:20:45 GMT Gloom Boom & Doom Editor Faber Goes "Boom" With Racist Outburst http://implode-explode.com/viewnews/2017-10-18_GloomBoomDoomEditorFaberGoesBoomWithRacistOutburst.html iehi-feed-63152 Tue, 17 Oct 2017 19:19:22 GMT Why Have Investigations of Wall Street Disappeared from Corporate Media? http://implode-explode.com/viewnews/2017-10-17_WhyHaveInvestigationsofWallStreetDisappearedfromCorporateMedia.html As recently as two months ago, the Wall Street Journal's editorial board was again attempting to write a revisionist history of the criminal conduct on Wall Street that led to the 2008 financial crisis -- the greatest economic bust in America since the Great Depression. Under the subhead "Bankers haven't gone to jail because they haven't committed crimes," the editorial board wrote....

Again, the Wall Street Journal is seriously out-of-touch with its beat. In order "to prove a crime," the U.S. Justice Department has to actually use one of the many weapons in its arsenal -- like subpoenas and wiretaps. That didn't happen because President Barack Obama put the wrong men in charge at the Justice Department. Again, that intrepid reporting didn't make its way into the public domain via the Wall Street Journal but via the PBS program, Frontline, and producer Martin Smith. The 2013 program indicated that there wasn't even a pretense of a real investigation by the Justice Department against the biggest Wall Street banks.

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The lurking danger for shareholders and investors and U.S. taxpayers is that systemic contagion is once again building up among the handful of mega banks on Wall Street that control an obscene share of the nation's deposits and assets. Ferreting out that information and bringing it to the front page may not be popular with Wall Street advertisers or their legions of lawyers. But it's essential to maintaining an engaged, free press.

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iehi-feed-63147 Mon, 16 Oct 2017 21:10:11 GMT Goldman Sachs thinks we're heading into a bear market http://implode-explode.com/viewnews/2017-10-16_GoldmanSachsthinkswereheadingintoabearmarket.html iehi-feed-63134 Sat, 14 Oct 2017 16:24:13 GMT Trump Isn't Certifying the Iran Deal--What Happens Next? http://implode-explode.com/viewnews/2017-10-14_TrumpIsntCertifyingtheIranDealWhatHappensNext.html ... even if Trump's gambit to decertify and threaten the JCPOA did some harm to Iran, the international reaction would produce far less net economic and diplomatic pressure on Iran than existed before the JCPOA was finalized. And it is literally insane to believe that it is possible to produce 150 percent of the current deal with 50, 70, or even 99 percent of the leverage the United States possessed in 2015. It simply ignores the laws of diplomatic physics. ...

... Trump's move to decertify could end up the way his push for health-care reform did--with a whole lot of posturing and debate and false starts in Congress, and little to show for it. It could amount to Trump head-faking to a campaign promise and making a political statement about the folly of his predecessor without actually undoing that predecessor's policy.

... The gambit could also backfire in the opposite direction--by blowing up the Iran deal even if that's not what Trump wants. The elaborate decertification plan "suggests an elegance of plotting that the administration has given little evidence of possessing," Kori Schake writes in The Atlantic. "Congress is unlikely to trust the president enough to make a brave choice--which remaining in the agreement after the president decertifies it would be--they suspect he would then publicly castigate them for."

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iehi-feed-63133 Fri, 13 Oct 2017 21:41:39 GMT The Curious Case of "Missing the Market Boom" http://implode-explode.com/viewnews/2017-10-13_TheCuriousCaseofMissingtheMarketBoom.html "The Cost of Missing the Market Boom is Skyrocketing", says a Bloomberg headline today. That must be the scariest headline I've seen in quite a while. For starters, it's misleading, because people who ‘missed' the boom haven't lost anything other than virtual wealth, which is also the only thing those who haven't ‘missed' it, have acquired.

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[As the article says:] "Aided by an 8% drop in the U.S. currency, the dollar-denominated capitalization of worldwide shares appreciated in 2017 by an amount -- $20 trillion -- that is comparable to the total value of all equities nine years ago. And yet skeptics still abound, pointing to stretched valuations or policy uncertainty from Washington to Brussels. "

$20 trillion. That's a lot of dough. It's what all equities in the world combined were ‘worth' 9 years ago. It's also, oh irony, awfully close to the total increase in central bank balance sheets, through QE etc. Might the two be related in any way?''

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iehi-feed-63127 Thu, 12 Oct 2017 22:03:56 GMT Trump doesn't seem to understand the stock market. Or the national debt. http://implode-explode.com/viewnews/2017-10-12_TrumpdoesntseemtounderstandthestockmarketOrthenationaldebt.html What Trump is suggesting here is that because of the gains in the stock market -- which have absolutely happened -- the national debt is being reduced... The stock market and the national debt have, quite literally, no direct connection. The stock market, broadly speaking, measures wealth being created (or lost) by large corporations and investors in those companies.

The national debt, which sits at $20 trillion and counting, is the debt owed by the federal government. There are two ways to reduce the debt: Raise taxes or reduce government spending. A bull stock market is not one of those two options.

Trump seems not to know any of that.

Trump seems to be getting more senile by the hour...

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iehi-feed-63123 Thu, 12 Oct 2017 01:25:52 GMT The bubble economy is set to burst, and US political turmoil may well be the trigger http://implode-explode.com/viewnews/2017-10-11_ThebubbleeconomyissettoburstandUSpoliticalturmoilmaywellbethetri.html Central banks continue to focus on consumption inflation, not asset inflation, in their decisions. Their attitude has supported one bubble after another. These bubbles have led to rising ­inequality and made mass consumer inflation less likely.

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Despite low unemployment and widespread labour shortages, wage increases and inflation in Japan have been around zero for a quarter of a century. Western central bankers assumed that the same wouldn't happen to them without understanding the underlying reasons.

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The mistaken stimulus has the unintended consequences of dissipating real wealth and increasing inequality. American household net worth is at an all-time high of five times GDP, significantly higher than the bubble peaks of 4.1 times in 2000 and 4.7 in 2007, and far higher than the historical norm of three times GDP. On the ­other hand, US capital formation has stagnated for decades. The outlandish paper wealth is just the same asset at ever higher prices.

The inflation of paper wealth has a serious impact on inequality. The top 1 per cent in the US owns one-third of the wealth and the top 10 per cent owns three-quarters . Half of the people don't even own stocks. Asset inflation will increase inequality by definition. Moreover, 90 per cent of the income growth since 2008 has gone to the top 1 per cent, partly due to their ability to cash out in the ­inflated asset market. An economy that depends on asset inflation always disproportionately benefits the asset-rich top 1 per cent.

There have been so many theories on why inequality has risen. The misguided monetary policy may be the culprit. Germany and Japan do not have significant asset bubbles. Their inequality is far less than in the Anglo-Saxon economies that have succumbed to the allure of financial speculation.

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How is this all going to end?... In 2007, structured mortgage products exposed cash-short borrowers. The defaults snowballed. But, in China, leverage is always rolled over. Default is usually considered a political act. And it never snowballs: the government makes sure of it. In the US, the leverage is mostly in the government. It won't default, because it can print money.

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The most likely cause for the bubble to burst would be the rising political tension in the West. The bubble economy keeps squeezing the middle class, with more debt and less wages. The festering political tension could boil over. Radical politicians aiming for class struggle may rise to the top. The US midterm elections in 2018 and presidential election in 2020 are the events that could upend the applecart.

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iehi-feed-63121 Wed, 11 Oct 2017 21:39:38 GMT Fed's Evans Says Weak Inflation May Not Be Temporary Phenomenon http://implode-explode.com/viewnews/2017-10-11_FedsEvansSaysWeakInflationMayNotBeTemporaryPhenomenon.html Gold Pops, Dollar Drops As Rate-Hike-Odds Slide After Fed Minutes.]]> iehi-feed-63116 Wed, 11 Oct 2017 13:42:05 GMT The Real Reason Donald Trump Is Targeting NFL Owners Rather Than Protesting Players http://implode-explode.com/viewnews/2017-10-11_TheRealReasonDonaldTrumpIsTargetingNFLOwnersRatherThanProtesting.html iehi-feed-63105 Mon, 09 Oct 2017 15:37:01 GMT Nader: How CEO Stock Buybacks Parasitize the Economy http://implode-explode.com/viewnews/2017-10-09_NaderHowCEOStockBuybacksParasitizetheEconomy.html The monster of economic waste--over $7 trillion of dictated stock buybacks since 2003 by the self-enriching CEOs of large corporations--started with a little noticed change in 1982 by the Securities and Exchange Commission (SEC) under President Ronald Reagan. That was when SEC Chairman John Shad, a former Wall Street CEO, redefined unlawful `stock manipulation' to exclude stock buybacks... What could competent management have done with this treasure trove of shareholder money which came originally from consumer purchases? They could have invested more in research and development, in productive plant and equipment, in raising worker pay (and thereby consumer demand), in shoring up shaky pension fund reserves, or increasing dividends to shareholders.

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To make matters worse, companies with excessive stock buybacks experience a declining market value. A study by Professor Robert Ayres and Executive Fellow Michael Olenick at INSEAD (September 2017) provided data about IBM, which since 2005 has spent $125 billion on buybacks while laying off large numbers of workers and investing only $69.9 billion in R&D. IBM is widely viewed as a declining company that has lost out to more nimble competitors in Silicon Valley.

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iehi-feed-63102 Sun, 08 Oct 2017 22:38:53 GMT Tesla's Pretense Of Model 3 Production Has Been Ripped Away http://implode-explode.com/viewnews/2017-10-08_TeslasPretenseOfModel3ProductionHasBeenRippedAway.html The WSJ report indicates that Tesla is still where I thought it was back in July. And the article points out that there is limited value in hand assembly of Model 3 at this point, since it doesn't serve to test out the final assembly process.

Hand assembly of the Model 3 now seems mainly designed to soothe investors by convincing them that Model 3 "production" has started. What I find so distressing about this is that increasingly, Tesla's actions seem to be governed not by technical necessity but by the need to keep investors sold on Tesla.

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I think it remains a foregone conclusion that Tesla will not achieve its goal of 5,000 Model 3/week production by the end of the year. But I consider it a distinct possibility that Tesla will not even meet my "Pessimistic Scenario" of 2,500/week by the end of the year.

This will impose even more financial strain on the company and probably necessitate yet another capital raise early next year.

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iehi-feed-63094 Thu, 05 Oct 2017 14:46:14 GMT Trump Keeps Getting Rolled by His Own Cabinet (THIS TIME ON P.R. DEBT WRITE-OFF) http://implode-explode.com/viewnews/2017-10-05_TrumpKeepsGettingRolledbyHisOwnCabinetTHISTIMEONPRDEBTWRITEOFF.html "We have to look at their whole debt structure...we're going to have to wipe that out. You can say goodbye to that. I don't know if it's Goldman Sachs, but whoever it is, you can wave goodbye to that.'' [Said Trump in Puerto Rico] It only took hours for White House budget chief Mick Mulvaney to knock down the whole idea. "We are not going to bail them out," he said. "We are not going to pay off those debts. We are not going to bail out those bond holders." Odds are it's dead. 

This is not normal. Presidents simply don't make policy pronouncements only to have them overridden within their own administration. Especially not from within their own Presidential Branch -- the White House and other Executive Office of the Presidency agencies who work directly for the president. That's where presidential influence is normally the strongest, but Trump has become such a weak president that even his own budget director can treat public presidential words as basically irrelevant.

Now, granted, with Trump it's hard to tell whether this was a real presidential decision which was then rolled by his own staff -- or if he just blabbed away without really meaning to be making policy at all. Of course, that's the problem. When the president just says things because, say, he's echoing some cable news show he just watched, then everyone learns pretty quickly not to care about what he says, and he finds it hard to get taken seriously even when he really means it.

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It's just devastating for the president's words to be devalued so badly. And the results are clear: The OMB director rolling him on Puerto Rico debt; the secretary of defense openly breaking with him on the Iran deal; the secretary of state reportedly calling him a moron. And if that's what he gets from the executive branch and even from the presidential branch, just imagine how little sway his words have on Capitol Hill or with foreign leaders.

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iehi-feed-63088 Wed, 04 Oct 2017 22:29:47 GMT Why Venture Capitalists Aren't Funding The Businesses We Need http://implode-explode.com/viewnews/2017-10-04_WhyVentureCapitalistsArentFundingTheBusinessesWeNeed.html We like to think that entrepreneurship is a game that anyone with a good idea can win, like anyone, if they're good enough, can play in the NFL or the Major Leagues. But the reality, according to Ross Baird, an experienced VC himself, is very different. In the actual world, hundreds of millions of dollars go to $1,500 countertop ovens and $699 internet-connected juicers, while people building worthy and useful products get left by the wayside. VCs fund products that solve problems they understand, it's often said. And, being largely white, male, and elite-educated themselves, they fund people of the same backgrounds.

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Though the VC industry has many successes to its name, from Facebook to Amazon, its track record as a whole isn't that great. In 2012, the Kauffman Foundation, which focuses on entrepreneurship, analyzed nearly 100 VC funds it had invested in over a 20-year period. After accounting for fees and "carry" (the share of profits taken by investment managers), it found that only 20 produced returns higher than 3% annually. VCs are typically incentivized to raise bigger funds (because they make more money) and to invest in companies that they can quickly flip. That leads to short-termism of a kind that favors investment patterns (like the current craze for very expensive kitchen equipment) rather than longer-term projects that actually solve problems.

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iehi-feed-63083 Wed, 04 Oct 2017 02:48:47 GMT Sen. Warren tells Wells Fargo CEO Tim Sloan he should be fired for fake accounts scandal (+OTHERS LAMBASTE MIGHTILY!) http://implode-explode.com/viewnews/2017-10-03_SenWarrentellsWellsFargoCEOTimSloanheshouldbefiredforfakeaccount.html In one blistering exchange, Sen. Elizabeth Warren (D-Mass.), a longtime Wall Street critic, questioned whether Sloan's 30 years experience at the bank made him the right choice to reform its corporate culture. Warren brought out a large black binder filled with the transcripts of statements Sloan had made to investors over several years, noting how in several cases he appeared to be bragging about the company's sales culture. "No one bragged more," she said.

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The exchanges between Sloan and lawmakers was reminiscent of the beating Wells Fargo took on Capitol Hill last year when its former chief executive John Stumpf appeared before Congress. After a dismal performance, Stumpf stepped down.

Sloan acknowledged that precedence, saying he was determined to do better. "When my predecessor testified here last year, we had not fully grappled with the damage the sales practices scandal had done to our customers, our team members, and their trust in the bank," Sloan said. "But I heard you -- and I heard our customers and our team members -- loud and clear. You expect us to do better, and so do we."

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He repeatedly apologized for the bank's conduct and was stern when they pressed him on some issues, including when questioned about Wells Fargo's practice of requiring customers to agree to settle disputes with the bank through arbitration rather than by filing a class-action lawsuit.

"Will you commit to this committee that you will stop requiring forced arbitration?," Brown said.

"No, I won't senator," Sloan said.

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iehi-feed-63081 Tue, 03 Oct 2017 22:34:00 GMT Steve Mnuchin Shocked Anyone Believed Trump's Populist Nonsense http://implode-explode.com/viewnews/2017-10-03_SteveMnuchinShockedAnyoneBelievedTrumpsPopulistNonsense.html iehi-feed-63076 Mon, 02 Oct 2017 14:47:43 GMT Debt-Slave Industry Frets over Impact of Mass Credit Freezes http://implode-explode.com/viewnews/2017-10-02_DebtSlaveIndustryFretsoverImpactofMassCreditFreezes.html iehi-feed-63075 Mon, 02 Oct 2017 14:44:29 GMT The Financialization of America... and Its Discontents http://implode-explode.com/viewnews/2017-10-02_TheFinancializationofAmericaandItsDiscontents.html iehi-feed-63074 Mon, 02 Oct 2017 14:40:51 GMT David Stockman: Tax reform plan is pipe dream, stocks to plunge 40-70% http://implode-explode.com/viewnews/2017-10-02_DavidStockmanTaxreformplanispipedreamstockstoplunge4070.html Stockman argued that President Donald Trump's business-friendly tax reform bill, which was unveiled Wednesday, won't prevent a damaging sell-off. He previously said Wall Street is "delusional" for believing it will even be passed.

"This is a fiscal disaster that when they [Wall Street] begin to look at it, they'll see it's not even remotely paid for. This bill will go down for the count," said Stockman.

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iehi-feed-63070 Sun, 01 Oct 2017 03:22:41 GMT PCR: WSJ, Fed Can't Figure Out Employment "Puzzle" http://implode-explode.com/viewnews/2017-09-30_PCRWSJFedCantFigureOutEmploymentPuzzle.html The frontpage headline story for the Labor Day weekend was "Low Wage Growth Challenges Fed." Despite an alleged 4.4% unemployment rate, which is full employment, there is no real growth in wages. The front page story pointed out correctly that an economy alleged to be expanding at full employment, but absent any wage growth or inflation, is "a puzzle that complicates Federal Reserve policy decisions."

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The lead editorial declares: "The biggest labor story this Labor Day is the trouble that employers are having finding workers across the country." The Journal's editorial page editors believe the solution to the alleged labor shortage is Senator Ron Johnson's (R.Wis.) bill to permit the states to give 500,000 work visas to foreigners.

In my day as a Wall Street Journal editor and columnist, questions would have been asked that would have nixed the editorial.  For example, how is there a labor shortage when there is no upward pressure on wages?  In tight labor markets wages are bid up as employers compete for workers.''

There is more to it than the rearward-looking PCR has ever been able to figure out: the U.S. actually has a two-tier labor market now; a large segment of the market (call it the "upper") is experiencing shortages -- in highly-technical, professional, and otherwise specialized jobs. The "lower" tier consists of non-degreed service jobs and manufacturing. Obviously the imbalance is the opposite between the two tiers, and this situation has been going on so long that the denizens of the lower tier have pretty much given up looking for jobs. This is why the unemployment rate is low AND wages are stagnant AND the labor force could be even larger (or the participation rate higher) (i.e., bringing in more people or re-training lower-tier market folks for the upper tier, or increasing employment in the lower tier -- but that would require more jobs there).

There's virtually no "band-aid" style, short-term solution for any of this; not tariffs or "re-negotiating trade agreements to try to "bring back manufacturing jobs"; not government largesse to try to create them, not banning robots, not importing huge quantities of skilled workers. First, monetary policy needs to be fixed to rev up the central engine of capitalism; beyond that, it would probably be a good idea to fix the costs of the university education system and invest in skilled re-training; but perhaps most importantly would be to get a guaranteed job program in place (better than universal basic income) to relieve real, broad-based economic misery while the major reform efforts take effect. More ideas have been suggested on this site; we won't recap them all right now, but it suffices to say, real reform is needed, it is hard, not easy, and it will (generally) act in the long term, not quickly (though some, like monetary and financing reform, could act very quickly).

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