You Can Have One or The Other – But Not Both (Video)

By EconMatters


We talk about the current shortsighted analysis going around Wall Street circles in this video. This is why most analysts and Market Strategists are idiots and miss almost every substantive directional shift in Financial Markets. They only focus on the benefits of policy initiatives, and fail to properly account for the associated costs. Stocks have done quite well in a cheap money, low growth environment; you really think you get to cherry pick and keep all the benefits of loose monetary policy spurred on by a low growth environment, and at the same time reap all the benefits of a high growth economy?

The last thing market bulls should want is a high growth economy right now, given the low unemployment rate, rising wages and inflation and the $20 Trillion in National Debt overhang. If Trump did in fact run a 6% GDP Growth Rate economy, where do you think interest rates would be going, and at what accelerated pace? Analysts and Market Strategists need to ask themselves this basic question, Do you want cheap money and low growth, or high growth and expensive money? However, you don`t get to have your cake, and eat it too!

That is not how economics work, there are tradeoffs and unintended consequences associated with running a high growth economy, and for stocks these are not good. Let`s see how well these same people love stocks with a 5% Fed Fund`s Rate, you know the “Old Normal” that was thought would never happen again in your lifetime. If higher interest rates and tighter monetary policy is a good thing for stocks why have financial markets sold off hard even at the hint of taking the cheap money punchbowl away?

 

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3M LIBOR Tops 1.00% For First Time Since 2009

While US equity prices push ebulliently towards their next level of Nirvana, financial conditions continue to tighten for American businesses.

 

For the first time since April 2009, 3-month LIBOR – one of the most important reference rates for business financing – topped 1.00% today.

 

We documented the real world implications of this in “Forget The Fed’s 0.25%, Short-Term Rates Have Already Risen By 1% For The Real World

While blowing out unsecured funding rates may no longer be a flashing red flag, a question has emerged as a lot of debt references Libor, debt ranging from household debt to non-financial business debt: some $28 trillion of it, to be specific, and just in the US. The question is just how concerned will the borrowers of said debt be once they get their next due balance. 

Here is Goldman with the calculation:

Complete data on loan terms for all borrowers are not available, but we can make some rough approximations of the share indexed to LIBOR by combining a few datasets. For households, fixed-rate home mortgages account for the bulk of outstanding debt. Adjustable rate mortgages (ARMs)—which typically reference LIBOR—account for 20% of the value of loans outstanding and 15% of the value of new issuance, according to our mortgage strategy team. Additionally, ARMs are skewed toward higher dollar value loans, usually made to better credit quality borrowers (e.g. ARMs account for only 12% of the number of mortgage loans outstanding). Home equity lines of credit (HELOCs)—which account for 5-6% of household mortgage debt—typically reference the prime rate.

 

The remainder of consumer debt references a mix of benchmark rates. Government-provided student loans reference the 10-year Treasury yield (with infrequent resets), while private student loans frequently reference LIBOR. Interest rates on virtually all credit card debt are based off the prime rate, and auto loans are usually structured as fixed-rate term loans (with an average maturity of just over five years). Combined, the share of household liabilities referencing LIBOR likely ranges from 15% to as much as 20%, depending on how we classify loans in the “other” categories (Exhibit 1, left panel). In many of the loan categories there will be exceptions to norms, so this estimate should be considered only a rough approximation.

 

We find slightly higher numbers for the nonfinancial business sector (Exhibit 1, right panel). As of Q1 of this year, capital market borrowing accounted for 44% of business sector liabilities, with loans the remaining 56% (we exclude trade payables, taxes payable, FDI, and “miscellaneous liabilities” from the Flow of Funds Accounts’ definition of total liabilities). Although the Flow of Funds Accounts do not provide a detailed breakdown of these liabilities, we can make some rough inferences using the Fed’s Survey of Terms of Business Lending (STBL). According to this report, only about 13% of bank loans are now based off the prime rate—a fraction which has declined significantly over the last 20 years. Based on academic research which uses more detailed loan-level data, we assume the remaining loans typically use LIBOR as a benchmark. Construction and land development loans—a subset of commercial mortgages—are usually floating rate, and may be tied to LIBOR as well. Altogether, we estimate that roughly 25-30% of business lending is LIBOR-based.

The breakdown of nonfinancial debt referencing Libor is as follows: it amounts to just over $28 trillion, with trillions more added if one adds the financial Libor-referenced debt.

What is the real world implication of this? Simple: financial conditions are getting dramatically tighter, and just the recent spike in Libor rates across the curve, which amounts to roughly 50 bps for the 3M tenor, indicates that both households and businesses will have to pay up some $140 billion more, and substantially more if their contracts reference longer Libor maturities.

And while it means higher profits for the issuers of variable rate debt, it means less cash will be spent on discretionary purchases, something the Fed has been desperate to avoid by keeping rates near zero. In fact, the recent split between the Fed Funds rate and Libor suggests that the Fed’s policy is now only partially operational. But what it certainly suggests is that, as noted earlier this week, “the US consumer that is acknowledged to be the last string the expansionary economy hangs by, has been dealt a de facto 1% tightening.” That this is happening just as the consumer may be rolling over (according to BofA internal credit and debt card data), is a warning sign that the US economy, which in Q1 avoided a contraction only thanks to consumer spending, may be about to suffer an even greater slowdown once those who have Libor-tracking debt get their next payment invoice.

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Injuries Reported After Gunman Opens Fire In Istanbul Restaurant

According to CNN Turk, a shooting has been reported at a restaurant in the Fatih district of Istanbul, According to initial reports 3 persons have been injured in the shooting.

Images from shooting scene in Fateh, #Istanbul; 3 persons injured; reports claims shooting is personal conflict, not terrorism#Turkey pic.twitter.com/H7UhQAqYsV

— Mhamad Kleit (@kleitm) January 4, 2017

According to preliminary reports on social media, the shooting is the result of a dometic personal conflict and not due to terrorism.

#BREAKING: Turkish media: Shooting at the restaurant in Istanbul’s Fateh is an independent crime incident https://t.co/8JZdwTzWO5

— Al Arabiya English (@AlArabiya_Eng) January 4, 2017

#Istanbul the shooting in #Fatih restaurant is not terrorism but personal clash@jrossman12 @TheVeni1 @tlamb775 @CNNTURK_ENG @rcadyn pic.twitter.com/AtsWjfb7U1

— Rosanna (@RosannaMrtnz) January 4, 2017

#BREAKING #UPDATE | 3 injured possibly conflict and NOT #terrorism after #shooting at restaurant in Al-Fateh area in #Istanbul pic.twitter.com/TRfmpkZQK8

— BreakingNews (@BreakingNLive) January 4, 2017

#Turkey #Istanbul – Another #Shooting – this time in a restaurant. 3 persons injured. pic.twitter.com/Yk0UULZqL4

— AnonymousScandinavia (@AnonScan) January 4, 2017

Developing

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WikiLeaks To Sue CNN For Defamation

Moments ago, Wikileaks tweeted that as a result of a segment airing on CNN, the whiste-blowing organization announced it has “issued instructions to sue CNN for defamation.”

We have issued instructions to sue CNN for defamation:https://t.co/YLfyQ9ROCy

Unless within 48h they air a one hour expose of the plot.

— WikiLeaks (@wikileaks) January 4, 2017

Wikileaks was referring to a segment in which CNN had the ex-Deputy-Director of the CIA “falsely calling Assange a ‘pedophile.’

CNN airs ex-Deputy-Director of the CIA falsely calling Assange a ‘pedophile’ https://t.co/SurGxhiq9X

The plot: https://t.co/WeLULgMoC0

— WikiLeaks Task Force (@WLTaskForce) January 4, 2017

As indication of the “plot line”, Wikileaks provides a link to the following McClatchy article, which lays out “the strange tale of a dating site’s attacks on WikiLeaks founder Assange” which writes the following:

For an online dating site, toddandclare.com seems really good at cloak-and-dagger stuff. Disconnected phones. Mystery websites. Actions that ricochet around the globe.

 

But the attention grabber is the Houston-based company’s target: Julian Assange, the founder of WikiLeaks, whose steady dumps of leaked emails from Hillary Clinton’s presidential campaign have given supporters of Donald Trump the only cheering news of the last few weeks.

 

In some ways, toddandclare.com’s campaign against Assange is as revelatory as the leaked emails themselves, illustrating the powerful, sometimes unseen, forces that oppose WikiLeaks.

 

Whoever is behind the dating site has marshaled significant resources to target Assange, enough to gain entry into a United Nations body, operate in countries in Europe, North America and the Caribbean, conduct surveillance on Assange’s lawyer in London, obtain the fax number of Canada’s prime minister and seek to prod a police inquiry in the Bahamas.

 

And they’ve done it at a time when WikiLeaks has become a routine target of Democratic politicians who portray Assange as a stooge of Russian President Vladimir Putin and his reported efforts to disrupt the U.S. election.

 

One part of toddandclare’s two-pronged campaign put a megaphone to unproven charges that Assange made contact with a young Canadian girl in the Bahamas through the internet with the intention of molesting her. The second part sought to entangle him in a plan to receive $1 million from the Russian government.

 

WikiLeaks claims the dating site is “a highly suspicious and likely fabricated” company. In turn, the company lashed out at Assange on Thursday and “his despicable activities against American national security,” and warned journalists to “check with your libel lawyers first before printing anything that could impact or endanger innocent people’s lives.”

 

So why are the parties to the melee coming out with both barrels blazing? That remains a mystery of the kind that might take a WikiLeaks-style document dump to suss out.

 

What is beyond dispute, though, is that the attacks on WikiLeaks rose as the group released a first batch of leaked Democratic National Committee emails in July, days before the party’s national convention, and again this month, as WikiLeaks began releasing thousands of emails from the account of John Podesta, Clinton’s campaign chairman.

 

The online company paints itself as all-American. Online material says its founders, Todd and Clare Hammond, “are an average American couple from Michigan, who met in the eighth grade.” In 2011, the company says, the Christian couple started an email dating service, and “have married 3,000 couples to date.” Their online network began in 2015, and a statement it filed to a U.N. body says it has “100,000+ female singles” in six countries.

 

The company’s operating address is a warehouse loading dock in Houston. Its mail goes to a Houston drop box. Its phone numbers no longer work. WikiLeaks says Texas officials tell it the entity is not registered there either under toddandclare.com or a parent company, T&C Network Solutions.

 

The person who responds to email sent to the company declined to identify himself or herself or answer further questions.

 

“We are not required to confirm the information you are requesting to anyone other than our government and tax authorities. So many people (and companies) have now been unfairly libeled by the wikileaks troll machine, we are being advised not to comment,” an unsigned email from the company to a McClatchy reporter said Thursday morning.

 

The people behind toddandclare.com persuaded a U.N. body known as the Global Compact to give it status as a participant in May, and it submitted an eight-page report to the U.N. group Oct. 4 carefully laying out its allegations against Assange. The firm was delisted by the U.N. body eight days later amid controversy over its claims.

 

An Australian lawyer, Melinda Taylor, said the report’s precise language raised additional suspicions at WikiLeaks, where she assists Assange in human rights litigation.

 

“This is not a report that’s been drafted by a dating agency. It’s highly legalistic and very structured. It’s the language of someone who has drafted complex legal submissions,” she said.

 

Under Todd Hammond’s name, the report alleged that Assange’s Swedish lawyer had reached out in June to offer Assange’s services on a campaign against rape in exchange for an undisclosed amount of bitcoin. It said the two sides held two videoconferences.

 

Then came the bombshell: It said the company had ended ties with Assange following “pedophile crimes” he had committed in the Bahamas in late September. It charged that the victim was the 8-year-old daughter of a Canadian couple on a monthlong yachting vacation. The father went to police in Nassau on Sept. 28, the report claimed, charging that his family held video and chat logs showing Assange “internet grooming” the child and “propositioning the 8-year-old juvenile ‘to perform oral and anal sex acts.’ ”

It said Assange, who has been in refuge in Ecuador’s embassy in London since 2012, made a connection to the child’s 22-year-old sister, who was a client of the online dating site, gaining access

to the young girl.

 

An assistant commissioner for the Royal Bahamas Police Force, Stephen Dean, said “there is no investigation” into any such incident and that the police have received no evidence that such an incident occurred.

Continue reading on McClathy.

Well, if WikiLeaks wasn’t the most hated outlet by the mainstream media in general, and CNN in particular, it has just cemented this status should it indeed proceed with the lawsuit. It will be interesting tp see what internal CNN emails the discovery process reveals, should the lawsuit actually get to that stage.

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<b>Crude Oil</b> News

Crude Oil News … non-OPEC production cuts on the horizon (although not guaranteed), institutions exposed to oil have shifted their outlooks for price …The post <b>Crude Oil</b> News appeared first on crude-oil.top.