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-64044 Wed, 20 Jun 2018 00:48:06 GMT Combined wealth of the world's millionaires tops $70 trillion http://implode-explode.com/viewnews/2018-06-19_Combinedwealthoftheworldsmillionairestops70trillion.html The world's millionaires saw their wealth grow 10.6 percent to a record $70.2 trillion, the global consulting firm Capgemini reports in its annual World Wealth Report 2018.

The number of high net worth individuals (HNWI) -- which Capgemini defines as those having investable assets of $1 million or more (excluding primary residence, collectibles, consumables and consumer durables) --  grew almost 10 percent, or 1.6 million, to 18.1 million in 2017.  

"High net worth individuals around the world enjoyed investment returns above 20 percent for the second year in a row," Anirban Bose, head of Capgemini's financial services global strategic business unit, said in a statement. The report's analysis confirms that "global HNWI wealth would exceed $100 trillion by 2025," Bose wrote

Sounds reaaaal sustainable...

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iehi-feed-64043 Wed, 20 Jun 2018 00:43:37 GMT Beijing has tactics besides just tariffs to hurt the U.S. in a trade war http://implode-explode.com/viewnews/2018-06-19_BeijinghastacticsbesidesjusttariffstohurttheUSinatradewar.html "It's true that the base on which they can put on additional tariffs is much narrow than the U.S.," said Ludovic Subran, global head of macroeconomic research at Allianz and chief economist at Euler Hermes.

But Subran and other international trade experts warn not to count China out too quickly.

"The first thing to observe here is that China is not a country of laws -- it's an authoritarian dictatorship... so from that opening point, China is potentially able to play much, much dirtier than the United States," said Jacob Kirkegaard, a senior fellow at the Peterson Institute for International Economics, who warned that American businesses could take the punishment for Trump's antagonism.

"He will essentially force the Chinese government to retaliate in other ways -- and those other ways can be much more costly to American firms," he said. "That belief is premised on a fundamentally erroneous assumption about how the modern economy works... and a lack of concern with how engaged American businesses are involved already in China."

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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-64039 Mon, 18 Jun 2018 23:16:55 GMT Senate rejects Trump's rescue of Chinese firm ZTE http://implode-explode.com/viewnews/2018-06-18_SenaterejectsTrumpsrescueofChinesefirmZTE.html The Senate voted Monday to reimpose the U.S. ban on Chinese telecom giant ZTE, in a rebuke to President Donald Trump and his efforts to keep the company in business.

The provision targeting ZTE was part of the National Defense Authorization Act, a must-pass defense spending bill that cleared the Senate by a vote of 85-10. It must now be reconciled with the House version of the measure, which takes a narrower approach to ZTE.

The vote raises the stakes in Congress' brewing confrontation with Trump over the Chinese company, which lawmakers of both parties consider a national security threat to U.S. networks.

In a sign of the broad backing for the effort, Republican Sens. Tom Cotton of Arkansas and Marco Rubio of Florida as well as Democrats like Minority Leader Chuck Schumer of New York and Elizabeth Warren of Massachusetts pushed for the ZTE ban to be included in the defense bill.

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The Senate's ZTE provision would force Trump to certify that Chinese telecoms have not violated U.S. law for a full year and are cooperating with U.S. investigators before any lifting of civil penalties. It would also prevent the U.S. government from purchasing or subsidizing equipment from ZTE and Huawei.

Despite Monday's overwhelming Senate passage, the ZTE ban could still be stripped from the defense bill or modified during the conference process between the Senate and House, which did not push back as aggressively in its own version of the legislation. House lawmakers did include a provision that would bar ZTE and Huawei from entering into U.S. government contracts.

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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-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-64030 Fri, 15 Jun 2018 23:18:43 GMT Why the Fed Tweaked an Obscure Interest Rate This Week http://implode-explode.com/viewnews/2018-06-15_WhytheFedTweakedanObscureInterestRateThisWeek.html The interest rate on excess reserves plays a supporting role to the fed funds rate in monetary policy. Previously, the Fed set the interest rate on excess reserves at the same level as the top of the- fed funds rate. But on Wednesday the Fed said the interest rate on excess reserves would now be set 0.05 percentage point below the top of the range. As a result, the interest rate on excess reserves is now 1.95 percent... recent developments in the fed funds market prompted the Fed to make its change.

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The government has recently been issuing a lot more debt to finance its deficit, much of it in the form of Treasury bills that are sold to investors. But to find sufficient buyers, the Treasury has had to pay higher rates on Treasury bills. This helped attract money out of the federal funds market into Treasury bills, and in turn that caused the fed funds rate to move higher and closer to the top of its range.

This caught the Fed's eye. The central bank, according to analysts, wants to avoid a situation in which the fed funds rate moves above the Fed's target range. "The Fed doesn't want anyone in the market to think it's not in control of overnight rates," Lou Crandall, chief economist at Wrightson ICAP, said. "It might worry some people if it went above the upper band''

Seems like the Fed doesn't have a clue how this post-2008 jalopy of a monetary system works...

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iehi-feed-64028 Fri, 15 Jun 2018 22:56:54 GMT Cryptocurrency Manipulation Study Is Underwhelming http://implode-explode.com/viewnews/2018-06-15_CryptocurrencyManipulationStudyIsUnderwhelming.html iehi-feed-64027 Fri, 15 Jun 2018 22:50:24 GMT Citibank fined $100 million for LIBOR manipulation http://implode-explode.com/viewnews/2018-06-15_Citibankfined100millionforLIBORmanipulation.html The bank settled with attorneys general in 42 states for $100 million. Following an investigation, the states said Citibank manipulated Libor, a benchmark interest rate that helps set lending rates across the world.

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This is the third bank that settled with state attorneys general for illegally influencing the Libor. Barclays, Deutsche Bank and now Citibank have been fined $420 million collectively.

Citibank agreed to comply with ongoing investigations into other banks' Libor cases.

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iehi-feed-64026 Fri, 15 Jun 2018 22:49:11 GMT Tesla short-sellers have been getting creamed; why they're still betting against Elon Musk anyway http://implode-explode.com/viewnews/2018-06-15_Teslashortsellershavebeengettingcreamedwhytheyrestillbettingagai.html Musk has maintained that Tesla does not need to raise equity or new lines of credit this year. But Goldman Sachs predicted Tesla will need to raise $10 billion by 2020 to keep going.

Darius Brawn, a hedge fund veteran who previously worked as a portfolio manager for SAC and Citadel, told CNBC he thinks $10 billion is a conservative estimate. He cites Tesla's plans to ramp up its Model 3 production, build new factories, make a new Roadster, Semi trucks and a Model Y vehicle, and to embark on large-scale production of its glass solar roof tiles.

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Brawn, who has shorted Tesla personally, points out that it's highly unusual for a growth company to cut its planned investment spending, as Tesla did last quarter from $3.4 billion to under $3 billion... Without raising additional capital, Brawn said, the electric vehicle maker has enough cash to last for only a few quarters.

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"I do not believe Wall Street investment banks are willing take the massive reputational, legal and financial risks associated with underwriting billions of dollars of new securities for [Tesla]" [Said Gabe Hoffman].

He and other bears also believe Tesla may not even be able to conduct an equity offering because of the existence of an undisclosed, and ongoing, enforcement action by the SEC. This action was discovered through FOIA research

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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-64021 Fri, 15 Jun 2018 00:44:25 GMT SEC Official Claims Ether Is Not a Security http://implode-explode.com/viewnews/2018-06-14_SECOfficialClaimsEtherIsNotaSecurity.html 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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