At an Iowa rally earlier today, Donald Trump made the arrogant claim "I could stand in the middle of 5th Avenue and shoot somebody and I wouldn't lose voters".
CNN reported Trump refused to clarify what he meant.
Donald Trump boasted Saturday that support for his presidential campaign would not decline even if he shot someone in the middle of a crowded street.
"I could stand in the middle of 5th Avenue and shoot somebody and I wouldn't lose voters," Trump said at a campaign rally here.
After the event, Trump declined to answer when asked by CNN to clarify his comments.
Teflon Trump
At what point does making arrogant, seemingly idiotic statements matter?
No doubt his campaign is working on damage control now.
Here's the likely explanation: "Trump was obviously referring to being attacked and responding in kind."
Reaction So Far - Positive
Then again, perhaps Trump can just brush it off. NPR has this Report on Trump.
NPR's Don Gonyea reports that so far, the reaction to Trump's remarks has followed a familiar pattern.
"His audiences love it. His opponents try to use it against him — but so far, to no avail," Gonyea reports. "I talked to some of his supporters and they say, 'Yeah, sometimes he makes me cringe, but I still like him and I still think he's the right thing for America.' "
One supporter, who spoke to ABC News, said he found Trump's point clear — but mentioned Trump could have articulated it differently.
"He probably could've worded it a little bit better," campaign volunteer Brandon Fokkema said.
Former New York Mayor, billionaire Michael Bloomberg, is fed up with Donald Trump, the republicans in general, Bernie Sanders, and Hillary Clinton's shift to the left to fight Sanders.
Mr. Bloomberg, 73 years old, has long contemplated a run at the White House. But the unlikely rise and continued strength of Donald Trump, along with polls suggesting Hillary Clinton's campaign may be flagging, have driven the billionaire businessman closer than ever before to entering the race, a close adviser said Saturday.
Eyeing a potential opening for the first time, Mr. Bloomberg has retained a consultant to help him run on the independent ballot in state primaries. He has commissioned polls to test his path to victory. And he has directed the close circle of advisers who worked for him as mayor and have remained by his side over the past two years since he left office to begin mapping out a blueprint for a run, one adviser said.
That adviser said the former mayor has been upset by what he sees as extremist rhetoric from Republicans in the race, as well as a leftward turn from Mrs. Clinton, who is fending off an unexpectedly strong challenge in the Democratic primary from the more liberal Vermont Sen. Bernie Sanders.
If he runs, Mr. Bloomberg is likely to face hurdles with voters, especially those outside the Northeast, where he is better known. A recent poll by Morning Consult showed Mr. Bloomberg receiving 13% support from voters, Democrat Hillary Clinton getting 36% and Republican Donald Trump 37%. The same poll found that 43% of voters either hadn't heard of Mr. Bloomberg or had no opinion. Morning Consult said the poll was conducted from Jan. 14 to Jan. 17 among a sample of 4,060 registered voters around the country.
Longest of Longshots
Should he choose to run, Bloomberg would be the longest of longshots. But, he has a lot of money to waste.
Should he choose to do so, would it help or hurt Trump?
This is a choice, a huge one in the life of the freelancer, the entrepreneur or anyone who seeks to engage with the marketplace.
The customer buys (or doesn't buy) what you make.
The client asks you to make something.
The customer has the power to choose, but the client has the power to define, insist and spec.
There is a large number of potential customers, and you make for them before you know precisely who they are.
There are just a relative handful of clients, though, and your work happens after you find them.
If a customer doesn't like what's on offer, she can come back tomorrow. If the client doesn't like what you deliver, she might leave forever.
You can do great work for either.
But don't confuse them.
Choose your customers. Choose your clients.
And most of all, choose which category you're serving.
[Worth noting: Software and the internet let us disrupt a market by transforming clients into customers and customers into clients. People who used to have to take what was an offer can now get a customized version almost as easily. And people who used to pay extra for the bespoke version can now have the convenience and economy of merely buying what's on offer.]
Providence, the capital of Rhode Island, is in such bad financial straits that Former Hasbro CEO Alan Hassenfeld has this scary message for state officials Providence Should Consider Bankruptcy.
In a candid interview with the Providence Business News, Hassenfeld said he fears Providence is in deeper trouble "than anyone comprehends" and that officials should consider bankruptcy in order to right the ship.
"I'm not sure, and this will shock you, I'm not sure if we shouldn't pull a Detroit or Central Falls and level the playing field and start all over," Hassenfeld told PBN.
Hassenfeld is among the most prominent Rhode Islanders to publicly suggest Providence should consider bankruptcy.
In 2011, tiny Central Falls filed for Chapter 9 bankruptcy, slashing pensions and ordering 4% annual tax increases for five straight years in order to improve the city's finances. Under new Mayor James Diossa, the city has earned high praise for helping the city recover, but Central Falls had the state's fourth-highest residential property tax rate ($27.63 per $1,000 of assessed value) and second-highest commercial tax rate ($39.67 per $1,000) in 2015, according to the state Division of Municipal Finance.
Illinois Needs Bankruptcy Solution
A least Rhode Island offers cities and municipalities a choice.
Illinois has no provision for municipal bankruptcies. As a direct consequence, Illinois cities and school districts sink deeper and deeper in debt, even though taxes go higher and higher.
Illinois "Too Big a Risk"
Chicago was supposedly on the "short list" of cities GE was considering for its new headquarters. But GE instead selected Boston.
The "sheep" in question are Chicago taxpayers who will need to pony up a historic property tax hike of $589 million to fund the city's police and fire department pensions.
Deal or No Deal
25 cents out of every Illinois taxpayer dollar goes to Illinois pensions. Yet, Illinois has the worst funded state pensions in the entire nation.
To appease the unions and save his own job in the process, mayor Emanuel's spokeswoman, Kelley Quinn, responded "The mayor is 100 percent opposed to Gov. Rauner's 'plan' to drive CPS bankrupt," Emanuel's.
I commented "When a politician's job depends on not understanding a problem, there's no way in hell the problem will be understood."
Yesterday I read Illinois governor Bruce Rauner and the Democrats agreed on a pension deal. Just hours later the deal fell through.
The fundamental difference is over collective bargaining. Cullerton said he believes collective bargaining should continue to exist, but Rauner disagrees.
No Deal
Governor Rauner says "reforms first". Emanuel and the Democratic legislature say "money first".
Rauner would be a fool to accept that offer. So we sit.
Illinois still does not have a budget for 2015. A quick check of my calendar says it's already 2016.
I applaud Rauner's holdout.
Chicago should not get one dime until Illinois gets needed changes in bankruptcy law, and until cities can escape the enormous expense of prevailing wages laws and collective bargaining.
Existing home sales bounced back sharply in December, up an outsized 14.7 percent to a 5.46 million annualized rate that just tops Econoday's top-end forecast. Year-on-year, sales are up 7.7 percent in a major contrast with the minus 3.8 percent rate of November. But November was an unusual month skewed lower by new documentation rules that pushed sales into December. Averaging the two months together shows a 5.11 million rate that is well below the 5.43 average of the prior six months. Total sales for 2015 came in at 5.26 million, well up from 4.94 million in 2014.
Single-family homes led December's bounce, surging 16.1 percent to a 4.82 million rate and a 7.1 percent year-on-year gain. The trend for condos has been much stronger with the year-on-year gain at 12.3 percent and with monthly growth in December at 4.9 percent to a 0.640 million rate.
Low supply in the market has been a big negative for sales and is a major concern in this report. Total homes on the market fell to 1.79 million from November's 2.04 million with supply relative to sales falling to only 3.9 months, far below 5.1 months in November and sizably below 4.4 months in December 2014. Supply right now of existing homes is as low as it's been in nearly 11 years, a factor the report warns that may slow sales during the spring.
But low supply is a plus for prices where data in this report are firming. The median is up 1.9 percent in the month to $224,100 for a very respectable 7.6 percent year-on-year gain.
Regional data show wide sales gains led by the West at 23.2 percent on the month followed by the South at 14.6 percent. Year-on-year, the Northeast is out in the lead at plus 11.9 percent followed by the Midwest at 9.9 percent.
Housing is showing some life but gains, including those for new homes, are being held back by lack of supply. Still, price appreciation is a rising plus and is well above other price areas including wage growth.
Price Appreciation
Is price appreciation a plus or a minus?
Bloomberg says "price appreciation is a rising plus".
I suggest that with every increase in price, homes become less and less affordable.
Supply Drops to 11-Year Low
Bloomberg says "Total homes on the market fell to 1.79 million from November's 2.04 million with supply relative to sales falling to only 3.9 months, far below 5.1 months in November."
Why did supply relative to sales plunge?
Because November sales were skewed to the downside and December to the upside. Expect a rebound in supply numbers next month.
Existing Home Sales With Distortions Smoothed
If you smooth the distortions, today's reported bounce is no more than a mirage.
A new study on the "Future of Jobs" by the World Economic Forum at Davos claims a Fourth Industrial Revolution is Coming.
The Fourth Industrial Revolution includes developments artificial intelligence, robotics, nanotechnology, 3-D printing, genetics, and biotechnology.
Although no industrial revolution has ever destroyed jobs, the study concludes a net 5.1 million jobs will vanish in the world's 15 leading countries. Those countries account for roughly two-thirds of the global workforce.
The report is a 167 page PDF slog. Here are a couple of tables I created from the report data.
Job Family Losers
Job Family Losers
Job Losses in Thousands
Office and Administrative
4,759
Manufacturing and Production
1,609
Construction and Extraction
497
Arts, Design, Sports, Media
151
Legal
109
Installation and Maintenance
40
Total
7,165
Job Family Gainers
Job Family Gainers
Gains in Thousands
Business and Financial Operations
492
Management
416
Computer and Mathematical
405
Architecture and Engineering
339
Sales and Related
303
Education and Training
66
Total
2,021
I understand the losses, at least part of them. But gains in financial operations?
Everything Rosy but Healthcare
Curiously, the following chart from the report makes everything look rosy except healthcare.
I don't accept that chart, at least for the implied reasons. Yet, after boomers die off en masse, I foresee all kinds of health-related jobs will vanish until the next retirement boom hits.
Trucks and Taxis
What about truck and taxi drivers? I expect millions of truck hauling and taxi jobs will vanish soon, in the USA alone, by 2025.
I searched the report for the word "truck" and found this lone reference: "Advanced robots with enhanced senses, dexterity, and intelligence can be more practical than human labour in manufacturing, as well as in a growing number of service jobs, such as cleaning and maintenance. Moreover, it is now possible to create cars, trucks, aircraft, and boats that are completely or partly autonomous, which could revolutionize transportation, if regulations allow, as early as 2020."
That paragraph was under the category "Advanced Robotics and Autonomous Transport" given a disruptive weighting of 9%.
Let's dig deeper with a look at disruptive weightings.
Technological Drivers of Change
Driver of Change
Rated as Top Trend
Expected Timeframe
Condensed Notes
Mobile internet and cloud Technology
34%
2015-2017
Rapid spread of internet-based service models
Advances in Computing Power and Big Data
26%
2015-2017
Ability to handle the unprecedented flood of data
New Energy Supplies and Technology
22%
2015-2017
New technologies like fracking and new energy supplies will have profound geopolitical and environmental repercussions
Internet of Things
14%
2015-2017
Remote sensors
Crowdsourcing and Peer-to-Peer Platforms
12%
Impact Felt Already
With peer-to-peer platforms, companies and individuals can do things that previously required large-scale organizations.
Advanced robotics and Autonomous Transport
9%
2018-2020
Robots more practical than humans in manufacturing and service jobs. Autonomous vehicles could revolutionize transportation.
Artificial Intelligence and Machine Learning
7%
2018-2020
Voice recognition will make automation of tasks long regarded impossible for machines
Advanced Manufacturing and 3D printing
6%
2015-2017
On demand production has far-ranging implications
Advance Materials, Biotechnology, Genomics
6%
2018-2020
Life science breakthroughs will have profound impact on medicine and agriculture. Bio-engineering critical to pharmaceuticals, plastics and polymers, biofuels.
The last column is my set of abbreviated notes, condensed from descriptions in the report. The first three columns are as presented in the report.
Discussion of Disruptive Factors
I fail to see what big advances in computing power will do. Nor do I see crowdsourcing as a big factor.
I suspect crowdsourcing is one of those things with huge potential that never really flies because there is no money in it for anyone.
Remote sensors will eliminate the need for some humans, but hasn't that been underway for quite some time? If not, we can certainly get rid of all the meter maids.
On the energy side, fracking is an environmental disaster, and a bust for now, perhaps for a long time. And much of the clean energy systems only work with government subsidies. Battery technology will likely improve and replace or greatly reduce the need for gasoline. If so that will be very disruptive indeed.
But will batteries destroy jobs or just disrupt them?
Gas stations could become battery switching stations. That may require people to change the batteries, but it will also eliminate gas delivery and gas production jobs. Regardless, this type of change won't be in place by 2020.
I struggled mightily with the report's 34% rating for "Mobile Internet".
It's possible for huge numbers of teaching jobs to vanish with classes over the internet. And applications like Uber will also have an impact. Yet, this category is over-rated.
Biggest Disruptive Force
My number one job destructive force is advanced robotics and autonomous transport. Uber ties into this category as well.
Uber is adding jobs for now. In the not so distant future, long-haul trucking jobs, Uber driving jobs, and all taxi driving jobs will vanish.
Millions of driving jobs of all kinds will vanish in the US alone, by 2025 though, not 2020.
I was totally unimpressed after reading the article.
China will not do the one thing it has needed to do for decades: Let the Yuan float. China still insists on setting artificial pegs that the market openly mocks.
China Pledges to Sink the Yuan
DAVOS, Switzerland--A senior Chinese official Thursday affirmed China's intention to decouple its currency from the U.S. dollar, while the head of the International Monetary Fund urged Beijing to improve communication with markets about changes to its foreign-exchange regime.
For years, China has hitched the yuan's value to U.S. dollar, but its central bank signaled in December that it would break the peg and instead manage the Chinese currency against a basket of 13 currencies.
"We're serious about the basket approach," said Fang Xinghai, a senior economic adviser to the Chinese leadership, at a panel organized by the World Economic Forum here Thursday. "It's a decided strategy."
With a crawling peg, the yuan has appreciated with the strengthening U.S. dollar, hurting Chinese manufacturers while the economy is weakening. Decoupling the yuan from the dollar could help Beijing's effort to rekindle growth.
"There's some catch-up to do" when it comes to adjusting the yuan's value against the dollar, said Mr. Fang, a director-general in the Office of the Central Leading Group on Economic and Financial Affairs, which functions like the White House's National Economic Council. "Once we're done with it, the yuan will be stable again," he said.
Stability Nonsense
The entire notion that a peg creates stability is complete nonsense. But don't listen to me. Instead, ask Switzerland.
China's last peg worked, until it didn't. That peg did help China's export model as long as the US dollar was sinking.
Now China pledges to peg to a basket. In other words, China wants to sink the yuan. Supposedly this will create stability.
To reach stability, China openly admits instability.
Reserve Currency Nonsense
People keep telling me the Yuan will soon be the world's reserve currency. I have openly mocked such pronouncements for a decade. I mock such pronouncements again today.
China's bond markets are neither big enough nor liquid enough to handle the task. And China still cannot get off currency pegs.
China Drops Currency Peg It Cannot Defend
China Dropped the dollar peg. To what? To a floating peg!
Why? Because China cannot defend the existing dollar peg. China disguised that fact with a "serious" announcement pretending to be something else.
Price of Stability
Expect huge volatility. It's coming.
Instability is the price we have to pay for stability.
"Across our 100 locations, sales on average are up 3% last month."
This tells you exactly nothing.
It turns out that ten of the outlets each saw their sales double, while most of the other ones are stagnating or even decreasing in sales. That's the insight.
Averages almost always hide insights instead of exposing them. If the problem is interesting enough to talk about, it's interesting enough to show the true groupings and differences that the average is hiding.
Here's what's worth discussing instead: What are the outliers? What do they have in common? Are there explainable trends, or is there merely noise?
The hard part about telling the truth with numbers often isn't finding the truth. It's having the guts to share the truth.
ECB President Mario Draghi attempted to talk the Euro lower and the market higher today in a lengthy one hour press conference following his decision to not change interest rates.
Markets are now closed, so let's put a spotlight on the results (or lack thereof) of Draghi's verbal intervention.
click on any chart for sharper image
Euro 15-Minute Chart
That is the key chart for someone who desperately desires the euro to sink vs. the US dollar. In 15 minutes, the Euro sank from 1.09 to 1.078. For the rest of the day, the Euro rallied right back where it started from.
Five Year German Government Bond
Congratulations are in order. Draghi managed to drive the yield on the German bond from -0.20% to -0.24%.
How that's supposed to cause inflation remains a mystery given that it's not done a damn thing yet.
US 10-Year Government Note
Yield on the US 10-year treasury note reversed its freefall to close back above 2%. Will it stay there? Why should it?
The New York Fed is now openly discussing negative interest rates in the US if there is another crisis.
S&P 500 15-Minute Chart
The S&P 500 did a number of gyrations, but the key Draghi-sponsored effect is the largest green candle. A decent rally ensued off the lows, but that rally faded into the close.
Brent Crude 15-Minute Chart
Brent crude did rally more than $2 off the lows. However, the rally stalled before hitting $30. Neither US West Texas Intermediate (WTI), nor Brent is above $30 as I type.
Jawboning oil is not likely to work, even in the intermediate-term.
Investors reacted positively to Mr. Draghi's comments Thursday, with eurozone equity markets moving higher in anticipation of further stimulus from the central bank. The euro fell against the U.S. dollar while government bond prices rose, another sign that investors expected Mr. Draghi to deliver fresh measures in March.
Speaking in a news conference, Mr. Draghi said the stimulus measures undertaken by the central bank since June 2014—and topped up most recently in December—had "strengthened the euro area's resilience to recent, global economic shocks."
But he added that fresh declines in oil prices suggest that the annual rate of inflation in 2016 is likely to be "significantly" below forecasts released last month.
Five Draghi Takeaways
Heading into the market close, there's not much left of today's rally. Crude has not even held the $30 level, but a half hour remains.
[Draghi warns] inflation is the currency area is likely to be "significantly weaker this year than had been expected, and that consumer prices may even fall again in coming months. That means further action may be required, and as early as the governing council's next gathering. "It will be necessary to review and therefore possibly reconsider our monetary policy stance at our next meeting in March," said Draghi.
[In regards to the failure of the ECB to raise the inflation rate towards the central bank's target of just under 2% from the 0.2% rate recorded in December, Draghi proclaimed] "We are not surrendering in front of these global factors. We will confirm our determination to continue to comply with our mandate even in face of adverse developments."
His final comment of the hour-long conference? "We don't give up."
ECB Inflation Mandate
Please note whose inflation mandate Draghi is desperate to meet: "our mandate". It's a self-imposed mandate, and a ridiculous one at that.
Draghi's torturous Press comment lasted over an hour. The final 4 minutes are worth a look. I position the video at that spot.
Keynesian Inflation Nonsense
The Wall Street Journal points out "The annual inflation rate in the 19-country currency area has been far below the central bank's medium-term target of just below 2% since late 2013. Central banks usually try to avoid deflation, or steadily falling prices, as it can lead to consumers holding off purchases and ultimately lower the standard of living of the entire economy."
Consumer price inflation, called Harmonized Index of Consumer Prices (HICP) in Europe, is indeed lower than what the ECB wants. But the second half of the above paragraph which proclaims "falling prices cause consumers to hold of purchases thereby ultimately lowing standards of living is complete" Keynesian nonsense.
Falling prices are a good thing. Money goes further. If falling prices caused people to delay purchases not a single computer would have been purchased for decades.
Consider clothes. Someone who needs a coat will buy one even when prices fall. On the other hand, if prices were rising rapidly, consumers might have to choose between a coat or eating.
There is absolutely no economic benefit to rising prices.
ECB Oil "Rally" In Pictures
ECB Bond Purchases
Draghi Has No Clothes
If padding the central bank balance sheet causes inflation, then why the hell hasn't it?
The answer is: it did, just not in the CPI or the HICP. Instead, central banks sponsored yet another asset bubble. This bubble is even more widespread than the housing bubble that preceded it.
Another round of asset deflation is now baked in the cake.
History proves it is asset deflation, not consumer price deflation that is economically damaging.
Upon reading the article, I was both shocked and outraged to discover that neither I nor ZeroHedge are in serious consideration for the job.
Then again, the first thing I would do as head of that parasitic organization would be to fire everyone, then myself, effectively killing the parasite.
Further investigation shows Lagarde is a shoo-in for a second term. So, although bad things will eventually come to an end, we will just have to wait longer.
The CEO of Monte dei Paschi, Italy's third largest bank, and the oldest surviving bank in the world, admits Customers Pulling Deposits as share prices sink.
Some Monte dei Paschi customers have been pulling savings out of the Italian bank, its chief executive said on Wednesday, as it faces a crisis over a mountain of bad loans that has wiped nearly 60 percent off its market value this year.
CEO Fabrizio Viola did not say how much money savers had withdrawn, or when the outflow began, though he said the fall in deposits was "limited" and that the bank could cope with it as he sought to reassure customers and investors.
Italian bank shares have lost 24 percent since the beginning of 2016 as investors, already rattled about global economic growth, have sold out of a sector with low profitability and about 200 billion euros ($218 billion) of loans that are unlikely to be repaid.
Monte Paschi - Italy's third-biggest bank - has lost the most ground as it is perceived to be the most vulnerable; it has the highest level of bad loans as a proportion of assets and was the worst performer in a 2014 health check of euro zone lenders.
"Of course clients turning to our local branches are worried about what they read," Viola said in a statement.
"At present the size of the funding lost due to clients who decided to move part of their savings elsewhere is limited and anyway below levels seen during the previous crisis the bank faced in February 2013 which was overcome brilliantly."
Believability Standards
The problem with statements like "fall in deposits is limited" is that no one can possibly know if they are true. We can't expect Viola to admit the problem is serious.
European Commission President Jean-Claude Juncker set the believability standard in 2011.
It's Serious! Share prices of Monte dei Paschi are down over 50%, the worst of any major Italian bank. Deposits are leaving, and the only statement we have is that withdrawals are "limited".
Sergio Picinotti, a 63-year-old unemployed man, lost his entire €40,000 nest egg in Banca Etruria. A friend at the bank said "Trust me, it will take the third world war to shut down Banca Etuuria," said Picinotti.
With non-performing loans touching a record high of 201 billion euros ($219 billion) in November and delays in creating a bad bank even as the European Central Bank ups its scrutiny, lenders may be reluctant to make new loans.
So far, the ECB's bond purchase program, known as quantitative easing, has shielded government bonds from the country's banking woes, with the yield on 10-year debt stable at 1.56 percent compared with a euro-era high of 7.5 percent in November 2011. Italy pays just 101 basis points more than German bunds to borrow for a decade.
Italian bank stocks and bonds, however, have not been spared.
To further grease the wheels of the economy by speeding up disposals of non-performing loans and free up more resources for credit to companies and households, Italian Prime Minister Matteo Renzi's government has been trying to win approval at the European level for the creation of a bad bank.
The plan has been delayed several times and investors fear recent quarrels between European Commission President Jean-Claude Juncker and Renzi over an alleged lack of budget flexibility won't make things easier.
"If there is a bail-in event this year, Italy is one of the countries where that is most likely to happen," said Alberto Gallo, head of macro-credit research at Royal Bank of Scotland Group Plc.
"Many banks, deprived of a cheap source of funding such as subordinated bonds and having to repay the loans they got from ECB, may find themselves with a reduced liquidity at disposal to boost lending," Gianluca Ziglio, executive director of fixed-income research at Sunrise Brokers LLP in London, said by phone.
"Gone are the days when concerns about NPLs [Non-Performing Loans]could be simply swept under the carpet," said Wolfango Piccoli, managing director of Teneo Intelligence in London.
Here's a table from that post, with Target2 Balances in billions of euros.
Country
Symbol
Target2 Balance
Comment
Spain
ES
-241.8
Worst Negative Since 2012
Italy
IT
-229.6
Worst Negative Ever
Greece
GR
-97.3
Least Negative Since 2015 Q1
ECB
ECB
-73.8
Worst Negative Ever
France
FR
-73.5
Worst Negative Since 2011
Germany
DE
592.5
Highest Since 2012
Luxembourg
LU
140.4
Highest Ever
Netherlands
NL
49.4
Highest Since September 2015
Finland
FI
31.8
Highest Since August 2015
Cyprus
CY
2.4
Second Highest Ever
Lack of Trust
Target2 is a measure of capital flight between eurozone countries. For example: A depositor in a Greek, Spanish, or Italian bank does not trust their bank so the depositor opens up a new account and transfers the balance to a bank in Germany, the Netherlands, or Luxembourg instead.
The recipient banks then park the money at the ECB at negative interest rates instead of buying Greek, Spanish, or Italian bonds.
Money parked at the ECB at a negative rate of 0.3% hit a new high at the beginning of 2016.
Brilliant Comeback Details
Viola claims there was a crisis in February of 2013 that was "overcome brilliantly".
How many times does one want to bet on that roll of the dice?
Let's explore Viola's brilliant comeback idea from the perspective of Target2 balances for Italy (in billions of euros).
Date
Italy Target2 Imbalance
2008
22.9
2009
54.8
2010
3.4
2011
-191.4
2012
-255.1
2013
-229.1
2014 Q2
-149.4
2014 Q3
-197.4
2014 Q4
-208.9
2015 Q1
-191.5
2015 June
-188.6
2015 July
-195.2
2015 Aug
-214.6
2015 Sep
-235.7
2015 Oct
-223.9
2015 Nov
-229.6
2015 Dec
?
Between 2008 and 2010, Italian banks had capital inflows.
Things went to hell in a hurry starting 2011. By the end of 2012, target2 liabilities of Italian banks hit €255.1 billion. By second quarter of 2014, those imbalances shrank to €149.4 billion.
"Brilliance" Explained
Did Viola do something to spur confidence in Italian banks?
Nope.
What caused the improvement?
On July 26, 2012, ECB president Mario Draghi made this Famous Statement: "Within our mandate, the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough."
Even if your money is not stolen, you may not have access to it for quite some time.
Why Take Chances?
Viola said the fall in deposits was "limited".
I ask "Why Take Chances?"
Renzi wants to create a "bad bank". Under new rules, effective 2016, bondholders and depositors are liable for any losses transferred to the "bad bank".
Why is the ECB reluctant to approve a bad bank for Italy? Could it be the losses will be massive?
Get Out Now!
Don't be seen Standing in Line hoping for your money when withdrawals are 'limited' via capital controls or outright confiscated by bail-ins.
At long last, Illinois has a sensible proposal to help Chicago schools: Bankruptcy.
The cause of Chicago's problem is untenable pension promises, ridiculous union contracts, and bloated administration payrolls.
As a direct result of those problems, the Chicago Board of Education, the nation's third-largest district, is under fiscal siege. The CBOE operating deficit is projected to reach $1 billion a year through 2020.
Yet, union arrogance abounds. The Chicago's teachers union is threatening to strike, demanding still more benefits.
Christine Radogno and Jim Durkin, the state's top Republicans in the legislature, outlined a proposal Wednesday that would allow the state to take control and even push the system, charged with educating almost 400,000 students, into Chapter 9.
"What we're proposing is a lifeline," state Senator Radogno told reporters in Chicago. "We didn't come to this lightly. The track record of Chicago and its public school system is abysmal."
Illinois Governor Bruce Rauner, a Republican who has been at odds for months with the Democrat-controlled legislature over the state budget, has said he won't bail out Chicago's school system unless Mayor Rahm Emanuel supports limits on unions or other proposals he's seeking to enact.
School officials passed a budget for the year that started July 1 with a $480 million hole, asking the state for the money to fill the gap. Without it, the district faces drastic cuts and more borrowing, officials have said.
"The mayor is 100 percent opposed to Gov. Rauner's 'plan' to drive CPS bankrupt," Emanuel's spokeswoman, Kelley Quinn, said in a statement. "If the governor was serious about helping Chicago students, he should start by proposing -- and passing -- a budget that fully funds education and treats CPS students like every other child in the state."
Chicago's school district bonds have been cut to junk by all three major credit-rating companies. On Tuesday, Fitch Ratings lowered its grade on $6.1 billion of general-obligation debt by three steps to B+, four ranks below investment grade. Bonds due in 2039 traded on Jan. 15 for an average of 88 cents on the dollar to yield 6.5 percent.
Tax Hikes and More Tax Hikes
Mayor Rahm Emanuel's solution to this mess was to make the biggest tax hike in history.
The "sheep" in question are Chicago taxpayers who will need to pony up a historic property tax hike of $589 million to fund the city's police and fire department pensions.
Chicago Curbed notes "some aldermen and activists have warned that the historic tax hike will hit renters the hardest."
The report added "There have already been some neighborhood skirmishes in Logan Square, Humboldt Park and notably in Pilsen regarding runaway gentrification, and some activists say that the property tax increase will only exacerbate the effects."
Did Emanuel's Tax Hike Solve Anything?
Of course not. The school system is still broke. And instead of admitting the problem, mayor Emanuel wants the rest of Illinois taxpayers to "save the system".
The system is bankrupt. It cannot be saved. Any rational person would not want to save a corrupt, taxpayer-milking machine that does a horrendous job at its primary goal: teaching.
Does that make Emanuel an idiot?
Here's my polite answer: When a politician's job depends on not understanding a problem, there's no way in hell the problem will be understood.
Governor Rauner needs to stand his ground for as long as it takes, no matter what the interim consequences.
As its fortunes collapse due to falling oil prices, Royal Dutch Shell PLC will fire 10,000 people in an effort to bolster margins.
Operating costs have reduced by $4 billion, or around 10% in 2015, and the company expects Shell's costs to fall again in 2016 by a further $3 billion. Synergies from the BG combination will be in addition to that. Together, these actions will include a reduction of some 10,000 staff and direct contractor positions in 2015-16 across both companies, as streamlining and integration of the two companies continue.
Did Shell Overpay for BG?
The "BG combination" mention above but not explained (emphasis mine) refers to the Shell Takeover of BG announced in December.
Royal Dutch Shell is pressing ahead with its $60bn (£40bn) takeover of BG Group despite doubts among some shareholders about the deal's viability given the falling oil price.
Some Shell shareholders believe the company is paying over the odds for BG because the deal was agreed in April on the assumption that oil prices would recover to $90 a barrel by 2020. The price of oil has slumped from $115 a barrel in summer 2014 to less than $40. On Monday it dropped to an 11-year low of $36.17.
David Cumming, head of equities at Standard Life Investments, said last week the deal does not make sense with the oil price so low. He called on Shell's boss, Ben van Beurden, to pay a $750m break fee to scrap the deal or renegotiate the terms. The only other option is for shareholders to vote against the takeover, he said.
Merger Rule Number One
Management is never fired for questionable, even outright bad, corporate decisions. Employees, not management takes the hit. In this case, chalk up another 10,000 employee synergies.
"We're seeing declines in population across these towns in south Texas," says Ed Hirs, an energy economist at the University of Houston.
For nearly eight years, high-paying jobs grew at a blistering pace across the region, long one of the poorest in the state. Now companies are shutting down operations, and those jobs are vanishing. "And until the price returns to a level above $75, $85, $95 a barrel," Hirs says, "we won't see a complete reemployment of everybody who's left."
So people are leaving — not just south Texas, but the industry — in search of work. Some will come back when the price of oil recovers. But this is an industry where roughly 70 percent of the workforce is over age 50. That's the legacy of weak hiring during the oil bust of the 1980s and 1990s.
"I think this is going to be an acute problem in a couple of years' time. I think it's going to come bite us extremely hard," says Tobias Read, CEO of Swift Worldwide Resources, an energy recruiting firm based in Houston.
Two years ago, the energy sector's big concern was a shortage of skilled workers. Companies were scrambling to train up a new generation of engineers and geologists, pipefitters and project managers, to replace those they were about to lose.
"They've spent a lot of time retaining, recruiting, and training talent," says Chad Hesters, who runs the Houston office of recruiting firm Korn Ferry. "They don't want to see that talent leave. It's incredibly expensive to have people you've spent years training walk out the door."
The number of jobs gutted from oil and gas companies around the world has now passed the 250,000 mark, with still more to come, according to industry consultant Graves & Co.
"I was surprised it's gotten this far," John Graves, whose Houston firm assists in oil and gas deals with audits and due diligence, said Friday in a phone interview.
The industry has idled more than 1,000 rigs and slashed more than $100 billion in spending this year to cope with oil prices that have fallen by more than half since 2014. Oil services, drilling and supply companies are bearing the brunt of the downturn, having accounted for 79 percent of the layoffs, according to Graves.
The winner of the blue ribbon award for accurate prediction in the month of November goes to Graves for his understatement "It's going to get worse before it gets better."
The number of oil and gas job losses in Texas may be far worse than an industry group originally predicted, potentially reaching 56,000, according to the latest analysis by the Texas Alliance of Energy Producers.
When crude prices started collapsing late last year, Karr Ingham, a petroleum economist for the alliance, initially forecast that the state could lose 40,000 to 50,000 upstream oil and gas jobs during the downturn, but the fresh plunge in oil prices over the summer forced additional round of layoffs across Texas.
"We now appear to be well beyond that estimate and the end is not in sight," Ingham said in a statement Thursday.
That 56,000 estimate was from early November. What is it now?
Unambiguously Good
The price of US and Brent crude both broke $28 to the downside today but remain hovering near that level.
Don't fret. I have it on good authority this decline in oil prices is "Unambiguously Good" for the economy.
It was not just Kudlow making such statements. Various Fed officials believed the same thing.
"We Got This Wrong"
Let's now flash forward to a bit of reality.On January 9, 2016, San Francisco Fed president John Williams finally admitted "We Got This Wrong".
Williams still does not realize precisely what is wrong.
Oil prices in and of themselves are inherently neither good nor bad. It all depends on why. In this case, the Fed sent false economic signals with round after round of QE, and by once again keeping interest rates too low, too long.
Effects were not seen in consumer prices as the Fed wanted. Rather, asset price bubbles developed in stocks, bonds, and junk bond borrowings of hundreds of billions of dollars to drill wells smack into a slumping global economy.
The only "tools" the Fed knows are rates cuts and QE. But that's what created this mess. And here we sit with the Fed still insisting four more hikes are coming in 2016.
Housing starts and permits both fell back in December but follow large gains in November. Starts came in at an annualized 1.149 million rate in December for a 2.5 percent monthly dip while permits came in at 1.232 million for a 3.9 percent decline. Yet both of these readings for November surged more than 10 percent. Year-on-year, starts are up a healthy 6.4 percent with permits especially strong at 14.4 percent.
Starts for both single-family homes and multi-family homes fell in the month, down 3.3 percent to a 768,000 rate for the single-family category and down 1.0 percent to 381,000 for multi-family. Year-on-year, both are close at respective gains of 6.1 and 7.0 percent. The breakdown in permits shows a downdraft for multi-family homes, 11.4 percent lower to a 492,000 rate but which follows very strong gains in the prior two months. Permits for single-family homes rose 1.8 percent in the month to 740,000.
Housing completions jumped 5.6 percent in the month to edge over 1 million at 1.013 million, reflecting in part favorable weather. Homes under construction, also benefiting from the winter's mild weather, rose 1.7 percent with the year-on-year rate at plus 18.5 percent.
This report is below expectations and soft on a historical basis, but readings still point to respectable strength underway for new housing.
Respectable Strength Questioned
The above chart calls into question alleged strength from a historical basis. However, when calculating GDP, what matters is near-term comparisons (month-over-month and year-over-year).
Both of those can fluctuate strongly because of weather-related issues. Bloomberg smooths that out via a 5-month moving average.
Parade of Weakness
Have housing starts now stalled?
November might have one thinking "no", December might have one thinking "yes", and perhaps the 5-month average has one thinking "maybe".
Year-over-year comparisons in February and March will be very easy to beat. Starting in April, year-over-year comparisons will be difficult to beat for a long stretch. That's when apparent strength likely starts to look like apparent weakness.
Wasn't December supposed to be the warmest ever? Northern Illinois certainly was unusually mild. That should have added to December starts, but it didn't.
One typically only hears about the weather when it makes matters worse. In this case, warm weather should have added to starts, but didn't.
Regardless of weather-related effects, home prices are no longer affordable. Millennials are priced out.
Manufacturing is in recession. Retail sales have stalled despite low gasoline prices. Autos sales were a disappointment. Inventory-to-sales numbers signal trouble, everywhere.
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